UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  SCHEDULE 14A

                PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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Check the appropriate box:

|_|  Preliminary Proxy Statement

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     Rule 14a-6(e)(2))

|X|  Definitive Proxy Statement

|_|  Definitive Additional Materials

|_|  Soliciting Material Pursuant to ss. 240.14a-12

                           FIRST MERCHANTS CORPORATION

--------------------------------------------------------------------------------
                (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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|X|  No fee required

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     1.   Title of each class of securities to which transaction applies:

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     2.   Aggregate number of securities to which transaction applies:

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     3.   Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
          filing fee is calculated and state how it was determined):

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<page>

                           FIRST MERCHANTS CORPORATION
                             200 EAST JACKSON STREET
                              MUNCIE, INDIANA 47305


                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD APRIL 29, 2008

The annual meeting of the  shareholders of First Merchants  Corporation  will be
held at the Horizon Convention Center,  401 South High Street,  Muncie,  Indiana
47305, on Tuesday,  April 29, 2008, at 3:30 p.m., Eastern Daylight Time, for the
following purposes:

(1)  To elect five  directors,  four to hold office for terms of three years and
     one to hold office for a term of one year; in each case, the directors will
     hold office until their successors are duly elected and qualified.

(2)  To act on a proposal  to approve  the First  Merchants  Corporation  Equity
     Compensation Plan for Non-Employee Directors.

(3)  To  ratify  the  appointment  of the  firm of BKD,  LLP as the  independent
     auditor for 2008.

(4)  To transact such other business as may properly come before the meeting.

Only those  shareholders of record at the close of business on February 15, 2008
shall be entitled to notice of and to vote at the meeting.


                                 By Order of the Board of Directors


                                 Cynthia G. Holaday
                                 Secretary

Muncie, Indiana
March 19, 2008









                             YOUR VOTE IS IMPORTANT!

        YOU ARE URGED TO SUBMIT YOUR PROXY VIA THE TELEPHONE OR INTERNET,
       OR TO SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED POSTAGE-PAID
        ENVELOPE, AS SOON AS POSSIBLE SO THAT YOUR SHARES CAN BE VOTED AT
                THE MEETING IN ACCORDANCE WITH YOUR INSTRUCTIONS.




<page>
                                                                   March 15,2008

                                  March 19, 2008

                           FIRST MERCHANTS CORPORATION

                               PROXY STATEMENT FOR
                         ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD APRIL 29, 2008



To the shareholders of First Merchants Corporation:

This proxy  statement has been made available to you on the Internet or has been
sent to you via mail or email in connection  with the  solicitation on behalf of
the Board of Directors  (the  "Board") of First  Merchants  Corporation  ("First
Merchants")  of proxies to be voted at the  annual  meeting of First  Merchants'
shareholders  to be  held  April  29,  2008,  for  the  purposes  stated  in the
accompanying  notice of the meeting. If you received a paper or electronic copy,
the proxy  materials also include a proxy card which can be used for voting your
shares.  The distribution of these proxy materials is expected to commence on or
about March 19, 2008.

This year we are pleased to take  advantage of the new  Securities  and Exchange
Commission  ("SEC") rule that allows  companies to furnish their proxy materials
over the Internet. As a result, we are mailing many of our shareholders a Notice
Regarding the  Availability  of Proxy  Materials  instead of a paper copy of the
proxy  materials.  The  Notice  contains  instructions  on how to  access  those
documents  over the  Internet.  The Notice  also  contains  instructions  on how
shareholders  may  receive a paper or  electronic  copy of the proxy  materials,
including a proxy  statement,  annual report and a proxy card. All  shareholders
who do not receive a Notice will receive a paper copy of the proxy  materials by
mail.  We believe this new rule will allow us to provide our  shareholders  with
the information they need, while lowering the costs of delivery and reducing the
environmental impact of our annual meeting.

                                     VOTING

Each share of First  Merchants  common  stock issued and  outstanding  as of the
close of business on February 15, 2008, the record date for the annual  meeting,
is entitled to be voted on all items being voted upon at the meeting.  As of the
close of business on February 15, 2008, there were 18,036,739 shares outstanding
and entitled to vote.

You may vote  shares  held  directly  in your name as  shareholder  of record in
person at the annual meeting.  Even if you plan to attend the annual meeting, we
recommend that you also vote by proxy as described  below so that your vote will
be counted if you later decide not to attend the meeting.

Whether  you hold  shares  directly  as the  shareholder  of record or through a
broker,  trustee or other nominee as the  beneficial  owner,  you may direct how
your shares are voted without attending the annual meeting. There are three ways
to vote by proxy:

o    By Internet - Shareholders who received a Notice Regarding the Availability
     of Proxy  Materials  may submit  proxies over the Internet by following the
     instructions on the Notice. Shareholders who received a paper or electronic
     copy of a proxy card may submit  proxies over the Internet by following the
     instructions on the proxy card.

o    By  Telephone -  Shareholders  who live in the United  States or Canada may
     submit  proxies by  telephone  by  calling  toll-free  1-800-690-6903  on a
     touch-tone  telephone  and  following the  instructions.  Shareholders  who
     received a Notice Regarding the Availability of Proxy Materials should have
     their Notice in hand when calling, and shareholders who received a paper or
     electronic  copy of a proxy  card  should  have the proxy card in hand when
     calling.

                                     Page 1
<page>
o    By Mail - Shareholders  who received a paper or electronic  copy of a proxy
     card may submit  proxies by mail by  completing,  signing and dating  their
     proxy card and mailing it in the postage-paid  envelope we have provided or
     return it to First Merchants Corporation,  c/o Broadridge, 51 Mercedes Way,
     Edgewood, NY 11717.

After  submitting a proxy, you have the right to revoke it any time before it is
exercised by giving written notice of revocation to the Secretary received prior
to the annual shareholders' meeting, by voting again via Internet,  telephone or
mail,  or by  voting  in person at the  meeting.  Your  shares  will be voted in
accordance with your specific  instructions  given when submitting your proxies.
In the absence of specific  instructions to the contrary,  proxies will be voted
"for" election to the Board of all nominees listed in Item 1 of the proxy, "for"
the proposal to approve the First Merchants Corporation Equity Compensation Plan
for  Non-Employee  Directors,  and "for"  ratification of the appointment of the
firm of BKD,  LLP as First  Merchants'  independent  auditor  for  2008.  If any
director-nominee  named in this proxy  statement  becomes  unable or declines to
serve (an event  which the Board  does not  anticipate),  the  persons  named as
proxies will have discretionary authority to vote for a substitute nominee named
by the Board, if the Board determines to fill such nominee's position.

Each share of First  Merchants  common stock is entitled to one vote.  Directors
are elected by a plurality  of the votes cast by the shares  entitled to vote in
the election at a meeting at which a quorum is present. Shareholders do not have
a right to  cumulate  their  votes  for  directors.  The  affirmative  vote of a
majority  of the shares  present and voting at the meeting in person or by proxy
is required for approval of all items  submitted to the  shareholders  for their
consideration other than the election of directors.  Abstentions will be counted
for the  purpose of  determining  whether a quorum is  present  but for no other
purpose.  Broker  non-votes  will not be counted.  The Secretary  will count the
votes and announce the preliminary  results of the voting at the annual meeting.
The final results will be published in First Merchants' quarterly report on Form
10-Q for the second quarter of 2008.

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

To the best of our  knowledge,  the  following  table shows the only  beneficial
owners of more than 5% of the outstanding  common stock of First Merchants as of
February 15, 2008.

<table>
<caption>
           Name and Address                    Amount and Nature                          Percent
         of Beneficial Owner                of Beneficial Ownership                      of Class
============================================================================================================
               <S>                                     <C>                                        <C>
         Dimensional Fund Advisors LP                1,568,780<F1>................................8.70%
         1299 Ocean Avenue
         Santa Monica, CA (90401)

         First Merchants Trust Company, N. A.        (941,100)<F2>................................5.22%
         200 East Jackson Street
         Muncie, IN 47305

<FN>
<F1> Based on a Schedule 13G filing with the SEC,  Dimensional  Fund Advisors LP
     (formerly,  Dimensional Fund Advisors Inc.) ("Dimensional"),  an investment
     advisor  registered  under  Section 203 of the  Investment  Advisors Act of
     1940,  furnishes  investment advice to four investment companies registered
     under the Investment  Advisors Act of 1940 and serves as investment manager
     to certain  other  commingled  group  trusts and separate  accounts.  These
     investment  companies,  trusts and accounts are the "Funds." In its role as
     investment  advisor or manager,  Dimensional  possesses  investment  and/or
     voting power over the shares of First  Merchants  common stock owned by the
     Funds and may be deemed to be the  beneficial  owner of these  shares under
     rules of the SEC. However,  all of these shares are owned by the Funds, and
     Dimensional  disclaims  beneficial  ownership  of such shares for any other
     purpose.

                                     Page 2
<page>
<F2> First Merchants Trust Company,  National Association  ("FMTC"), is a wholly
     owned  subsidiary of First  Merchants.  It holds shares of First  Merchants
     common stock in various fiduciary capacities, in regular, nominee or street
     name  accounts.  Beneficial  ownership of shares so held is  disclaimed  by
     First Merchants. It is FMTC's practice, when holding shares as sole trustee
     or sole  executor,  to vote  the  shares;  but,  when it  holds  shares  as
     co-trustee or  co-executor,  FMTC obtains  approval  from the  co-fiduciary
     prior to voting.

</FN>
</table>
Security Ownership of Directors and Executive Officers

The following table lists the amount and percent of First Merchants common stock
beneficially  owned on February 15, 2008 by directors  (including  directors who
are retiring as of the 2008 annual meeting of shareholders),  director-nominees,
the Chief Executive Officer,  the Chief Financial Officer,  the three other most
highly  compensated  executive  officers,  and by the directors and all of First
Merchants'  executive  officers  as a group.  Unless  otherwise  indicated,  the
beneficial owner has sole voting and investment power. The information  provided
in the table is based on First Merchants' records and information filed with the
SEC and provided to First Merchants.

The number of shares beneficially owned by each person is determined under rules
of the SEC, and the  information  is not  necessarily  indicative  of beneficial
ownership  for any  other  purpose.  Under  those  rules,  beneficial  ownership
includes shares which a person has the right to acquire beneficial  ownership of
on or before  April 15, 2008 (60 days after  February  15,  2008) by  exercising
stock options ("Vested  Options") awarded to participants under First Merchants'
Long-term  Equity  Incentive Plan. It also includes  shares of restricted  stock
("Restricted  Shares")  awarded to participants  under that Plan which are still
subject to the restrictions.


<table>
<caption>
                                                 Amount and Nature                          Percent
         Beneficial Owner                   of Beneficial Ownership                         of Class
========================================================================================================
                <S>                                        <C>                                   <C>
         Richard A. Boehning                             26,493<f1>..............................*
         Thomas B. Clark                                 16,753<f2>..............................*
         Michael L. Cox                                 176,025<f3>..............................*
         Roderick English                                 3,471<f4>..............................*
         Jo Ann M. Gora                                   3,471<f5>..............................*
         William L. Hoy                                  10,863<f6>..............................*
         Barry J. Hudson                                458,016<f7>...............................2.50%
         Michael C. Rechin                               29,257<f8>..............................*
         Charles E. Schalliol                             7,471<f9>..............................*
         Terry L. Walker                                 18,844<f10>.............................*
         Jean L. Wojtowicz                                4,628<f11>.............................*
         Jami L. Bradshaw                                 4,707<f12>.............................*
         Robert R. Connors                               31,917<f13>.............................*
         Mark K. Hardwick                                43,353<f14>.............................*
         David W. Spade                                   4,350<f15>.............................*

         Directors and Executive
         Officers as a Group (18 persons)              867,240<f16>............................4.74%

* Percentage beneficially owned is less than 1% of the outstanding shares.
<fn>
<f1> Includes  10,415  shares held  jointly with his spouse,  Phyllis  Boehning,
     5,586 shares held in trust for family  members for which Mr.  Boehning,  as
     trustee,  has voting and investment power, and 6,942 shares that he has the
     right to acquire by exercising Vested Options.

<f2> Includes  11,454  shares  that he has the right to  acquire  by  exercising
     Vested Options.

                                     Page 3
<page>
<f3> Includes  52,754  shares  held  jointly  with his spouse,  Sharon Cox,  and
     115,521  shares  that he has the  right to  acquire  by  exercising  Vested
     Options.

<f4> Includes 3,471 shares that he has the right to acquire by exercising Vested
     Options.

<f5> Includes  3,471  shares  that she has the right to  acquire  by  exercising
     Vested Options.

<f6> Includes 917 shares that he holds as custodian for his daughter.

<f7> Includes 327,756 shares owned by Mutual Security,  Inc., 10,024 shares held
     jointly  with his  spouse,  Elizabeth  Hudson,  43,521  shares  held by his
     spouse, 13,626 shares held by his spouse as custodian for his children, and
     15,321  shares  that he has the  right  to  acquire  by  exercising  Vested
     Options.

<f8> Includes 5,667 Restricted  Shares,  and 18,000 shares that he has the right
     to acquire by exercising Vested Options.

<f9> Includes 3,471 shares that he has the right to acquire by exercising Vested
     Options.

<f10> Includes  10,611  shares held jointly  with his spouse,  Cheryl L. Walker,
     1,076  shares  held by his  spouse,  1,157  shares that he has the right to
     acquire by exercising Vested Options.

<f11> Includes  4,628  shares  that she has the right to acquire  by  exercising
     Vested Options.

<f12> Includes 1,000 Restricted  Shares, and 2,220 shares that she has the right
     to acquire by exercising Vested Options.

<f13> Includes  722 shares held  jointly  with his spouse,  Ann  Connors,  3,000
     Restricted  Shares,  and 26,556  shares that he has the right to acquire by
     exercising Vested Options.

<f14> Includes  401  shares  held  by  his  spouse,  Catherine  Hardwick,  4,400
     Restricted  Shares,  and 34,973  shares that he has the right to acquire by
     exercising Vested Options.

<f15> Includes 193 shares held jointly with his spouse,  Sandra Spade, and 2,400
     Restricted Shares.

<f16> Includes  23,667  Restricted   Shares,   and  266,242  shares  that  First
     Merchants'  directors and  executive  officers have the right to acquire by
     exercising Vested Options.
</fn>
</table>

                         INFORMATION REGARDING DIRECTORS

VOTING ITEM 1 - ELECTION OF DIRECTORS

First  Merchants'  Bylaws  allow the Board to fix the  number  of  directors  by
resolution.  The number of directors is currently fixed at eleven.  The Board is
divided into three classes  serving  staggered  three-year  terms or until their
successors  are elected and  qualified.  Directors for each class are elected at
the annual meeting of shareholders  held in the year in which the term for their
class expires;  except that directors  filling  vacancies caused by resignation,
death or other  incapacity,  or an  increase  in the  number of  directors,  are
elected  by  majority  vote of the  Board  until  the  next  annual  meeting  of
shareholders.

Five directors will be elected at the annual meeting.  The five persons who have
been nominated for election to the Board are all currently members of the Board.
The four  Class II  directors  are  completing  three-year  terms  and have been
nominated to serve  three-year  terms  expiring as of the 2011 annual meeting of
shareholders.  William L. Hoy was  elected by the Board on October  23,  2007 to
fill a vacancy in Class III caused by an increase in the number of directors. He
has been  nominated  to serve a one-year  term  expiring  as of the 2009  annual
meeting  of  shareholders.   There  are  no  family  relationships  among  First
Merchants' executive officers and directors.

                                     Page 4
<page>
The following persons have been nominated for election to the Board:
<table>
<caption>
Name and Age                          Present Occupation                                             Director
                                                                                                       Since
<S>                                          <C>                                                        <C>
Class II (Terms expire 2011):

Thomas B. Clark                       Retired  Chairman of the Board of  Directors,  President and     1989
age 62                                Chief Executive Officer,  Jarden Corporation,  a provider of
                                      niche consumer products for the home.

Roderick English                      President  and Chief  Executive  Officer,  The James  Monroe     2005
age 56                                Group, LLC, a provider of business management and consulting
                                      services, since 2006.  Mr. English was Senior Vice President
                                      of Human  Resources and Remy  International, Inc. (formerly,
                                      Delco   Remy   International,   Inc.),   a  manufacturer  of
                                      electrical  and  powertrain  products  for autos, trucks and
                                      other vehicles from 1994 to 2006.

Jo Ann M. Gora                        President,  Ball State  University,  since  2004.  Dr.  Gora     2004
age 62                                served as Chancellor of the University of  Massachusetts  at
                                      Boston  from  2001  to  2004.   She  was  Provost  and  Vice
                                      President  for Academic  Affairs at Old Dominion  University
                                      from 1992 to 2001.

Jean L. Wojtowicz                     President and Chief  Executive  Officer,  Cambridge  Capital     2004
age 50                                Management  Corp., a manager  of  non-traditional sources of
                                      financing,  since 1983. Ms.  Wojtowicz is also a director of
                                      Vectren  Corporation  and  a  trustee  of  Windrose  Medical
                                      Properties  Trust,  which are both  listed on  the New  York
                                      Stock Exchange.


Class III (Term expires 2009):

William L. Hoy                        Chief  Executive  Officer of The Columbus  Sign  Company,  a     2007
age 59                                custom sign and  graphic  fabricator,  since 1990,  and Vice
                                      President   and   Treasurer   of   Innocom  Corporation,  an
                                      environmental  graphic design  and custom  display  company,
                                      since 1992.


</table>
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF EACH NOMINEE
FOR DIRECTOR NAMED ABOVE.

The First Merchants directors whose terms are not expiring as of the 2008 annual
meeting  of  shareholders  are  listed  below.  They will  continue  to serve as
directors for the remainder of their terms or until otherwise  provided in First
Merchants'  Bylaws.  Information  regarding each of the continuing  directors is
provided below.

                                     Page 5
<PAGE>
Continuing Directors

The following persons will continue to serve as directors:
<table>
<caption>
                                                                                                    Director
Name and Age                          Present Occupation                                               Since
<S>                                         <C>                                                         <C>
Class I (Terms expire 2010):

Michael L. Cox<f1>                    Retired  President  and  Chief  Executive  Officer  of First     1984
age 63                                Merchants.  Mr.  Cox is a  nonemployee  consultant  to First
                                      Merchants,  under the agreement described on page 24 of this
                                      proxy statement, under "Termination of Employment and Change
                                      of Control Arrangements."

Charles E. Schalliol                  Of counsel,  Baker & Daniels LLP law firm,  since 2007.  Mr.     2004
age 60                                Schalliol was  Director,  Indiana State Office of Management
                                      and Budget, from 2005 to 2007, President and Chief Executive
                                      Officer   of   BioCrossroads,    an   economic   development
                                      organization  focused on life sciences companies,  from 2003
                                      to 2005,  Executive  Director,  Corporate Finance, Eli Lilly
                                      and Company, a pharmaceuticals  company,  from 1996 to 2003,
                                      and  Founder and  Managing  Director of  Lilly Venture Funds
                                      from 1999 to 2003.

Terry L. Walker                       Chairman  of the  Board of  Directors,  President  and Chief     2006
age 61                                Executive   Officer,   Muncie   Power   Products,   Inc.,  a
                                      manufacturer  and   distributor  of  power  take-offs   and
                                      hydraulic components for the truck equipment industry, since
                                      2005. Mr. Walker  was  Muncie  Power's  President and  Chief
                                      Operating Officer from 2000 to 2005.


Class III (Terms expire 2009):

Barry J. Hudson                       Retired  Chairman of the Board of  Directors,  President and     1999
age 68                                Chief Executive  Officer of First National Bank of Portland,
                                      a  wholly  owned  subsidiary  of  First  Merchants  that was
                                      merged with  First  Merchants  Bank,  National  Association,
                                      another wholly owned subsidiary of First Merchants, in 2007.

Michael C. Rechin                     President  and Chief  Executive  Officer of First  Merchants     2005
age 49                                since  2007,   and  Executive   Vice   President  and  Chief
                                      Operating Officer of First Merchants from 2005 to 2007.  Mr.
                                      Rechin was Executive Vice President of National City Bank of
                                      Indiana from 1995 to 2005.

<FN>
<f1> Under an  Agreement  between Mr. Cox and the Board,  which is  described on
     page 24 of this proxy statement under "Termination of Employment and Change
     of  Control  Arrangements,"  Mr. Cox will  continue  to serve as a director
     until the 2009 annual meeting of shareholders.
</fn>
</table>

                                     Page 6
<page>
Retiring Director

Richard A.  Boehning  will retire as a director of First  Merchants on April 29,
2008, the date of the 2008 annual meeting of shareholders.

Meetings of the Board

The Board held 5 meetings  during 2007.  All of the directors  attended at least
75% of the total  number of  meetings of the Board and the  committees  on which
they served.

Directors' Attendance at Annual Meeting of Shareholders

First  Merchants'  directors  are  encouraged  to attend the  annual  meeting of
shareholders. At the 2007 annual meeting, all 12 directors were in attendance.

Board Independence

The  Board  has  determined  that  each  of  First   Merchants'   directors  and
director-nominees  is an  "independent  director,"  as  defined  in the  listing
standards of the Nasdaq Stock  Market,  Inc.  ("NASDAQ"),  except for Michael L.
Cox,  First  Merchants'  former  President  and CEO,  Michael C.  Rechin,  First
Merchants'  current President and CEO, and Barry J. Hudson,  the former Chairman
of the Board of Directors, President and CEO of First National Bank of Portland,
a  wholly  owned  subsidiary  of First  Merchants  that was  merged  with  First
Merchants Bank, National  Association,  another wholly owned subsidiary of First
Merchants, in 2007.

All of the members of the Nominating and Governance Committee,  the Compensation
and  Human  Resources  Committee,  and  the  Audit  Committee  are  "independent
directors," as defined in the NASDAQ listing standards.

Communications with the Board

Shareholders may communicate with the Board by e-mail at bod@firstmerchants.com.
All  such  e-mails  will  be  automatically  forwarded  to the  Chairman  of the
Nominating and Governance Committee,  Thomas B. Clark, who will arrange for such
communications to be relayed to the other directors.

                             COMMITTEES OF THE BOARD

Standing Committees/Committee Charters

The Board's  standing  committees  are the Audit  Committee,  the Nominating and
Governance Committee,  and the Compensation and Human Resources Committee.  Each
has a  charter,  which is  included  among the  documents  under the  "Corporate
Governance     Disclosures"     link    on     First     Merchants'     website,
www.firstmerchants.com.  The  following  information  is provided  regarding the
composition, functions and number of meetings held by these committees in 2007:

Audit Committee

The Audit  Committee  is composed of  directors  Jean L.  Wojtowicz  (Chairman),
Thomas B. Clark,  Jo Ann M. Gora and Terry L. Walker.  The Committee met 9 times
during 2007. Its responsibilities include overseeing First Merchants' accounting
and financial reporting  principles and policies and its internal accounting and
disclosure controls and procedures,  overseeing and evaluating the effectiveness
of  First  Merchants'  internal  audit  function,   reviewing  First  Merchants'
procedures to ensure that quarterly and annual financial statements are accurate
and  complete,   including  reviewing  the  certifications  of  these  financial
statements by First Merchants'  Chief Executive  Officer and its Chief Financial
Officer,  recommending  the appointment of the external  auditor for approval by
the Board and ratification by the shareholders, approving the external auditor's
compensation and evaluating its independence, reviewing and approving the annual
audit plans of the internal and external auditors, reviewing and discussing with

                                     Page 7
  <page>
management  and  the  external  auditor  First  Merchants'   audited   financial
statements and, based on this review,  making a  recommendation  to the Board on
inclusion of these  financial  statements in First  Merchants'  annual report on
Form 10-K.  In  accordance  with Section 407 of the  Sarbanes-Oxley  Act,  First
Merchants  has  identified  Ms.  Wojtowicz  and Mr.  Clark as  "Audit  Committee
financial  experts."  They are both  "independent,"  as that term is used in the
NASDAQ listing standards.

Audit Committee Report Concerning Audited Financial Statements

The Audit Committee has reviewed and discussed the audited financial  statements
of First  Merchants  for  2007  with  First  Merchants'  management,  and it has
discussed  with BKD, LLP,  First  Merchants'  independent  auditor for 2007, the
matters required to be discussed by the Statement on Auditing  Standards No. 61,
as amended (AICPA,  Professional Standards,  Vol. 1. AU Section 380), as adopted
by the Public Company  Accounting  Oversight Board ("PCAOB") in Rule 3200T.  The
Committee has also received the written disclosures and the letter from BKD, LLP
required by Independence Standards Board Standard No. 1 (Independent Discussions
with Audit Committees), as adopted by the PCAOB in Rule 3600T, and has discussed
with BKD, LLP its  independence.  Based on these  reviews and  discussions,  the
Audit Committee  recommended to the Board that the audited financial  statements
of First  Merchants be included in First  Merchants'  Annual Report on Form 10-K
for the 2007 fiscal year for filing with the SEC.

The above report is submitted by:

FIRST MERCHANTS CORPORATION AUDIT COMMITTEE
Jean L. Wojtowicz, Chairman
Thomas B. Clark
Jo Ann M. Gora
Terry L. Walker

Nominating and Governance Committee

The Nominating and Governance Committee is composed of directors Thomas B. Clark
(Chairman), Richard A. Boehning, Charles E. Schalliol and Jean L. Wojtowicz. The
Committee  met 5 times during 2007.  It is charged with  ensuring the  continued
effectiveness  and  independence of the Board.  The Committee is responsible for
reviewing  the  credentials  of  persons  suggested  as  prospective  directors,
nominating persons to serve as directors and as officers of the Board, including
the  slate of  directors  to be  elected  each  year at the  annual  meeting  of
shareholders,  making recommendations concerning the size and composition of the
Board,  as  well  as  criteria  for  Board  membership,  making  recommendations
concerning the Board's committee structure and makeup,  providing for continuing
education of the directors and self-assessment of the Board's effectiveness, and
overseeing  First Merchants' Code of Business Conduct and its Code of Ethics for
Senior Financial  Officers of First Merchants.  The Code of Business Conduct and
the Code of  Ethics  for  Senior  Financial  Officers  are  included  among  the
documents under the "Corporate Governance  Disclosures" link on First Merchants'
website, www.firstmerchants.com.

In  nominating  persons to serve as directors,  the  Nominating  and  Governance
Committee  considers  the  person's  ethical  character,   reputation,  relevant
expertise  and  experience,  accomplishments,  leadership  skills,  demonstrated
business judgment,  contribution to Board diversity,  "independence" (as defined
in the NASDAQ listing standards) if a non-employee director,  residency in First
Merchants'  market area,  ability and  willingness to devote  sufficient time to
director  responsibilities,  and willingness to maintain a meaningful  ownership
interest  in First  Merchants  and assist  First  Merchants  in  developing  new
business.  For incumbent directors whose terms are expiring,  the Committee also
considers the quality of their prior service to First  Merchants,  including the
nature and extent of their  participation  in First  Merchants'  governance  and
their  contributions of management and financial expertise and experience to the
Board and First  Merchants.  For new director  candidates,  the  Committee  also
considers  whether  their skills are  complementary  to those of existing  Board
members  and  whether  they will  fulfill  the  Board's  needs  for  management,

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financial,  technological  or other  expertise.  The  Nominating  and Governance
Committee  considers  candidates  coming to its attention  through current Board
members, search firms, shareholders and other persons.

Article IV,  Section 9, of First  Merchants'  Bylaws,  describes  the process by
which a shareholder may suggest a candidate for  consideration  by the Committee
as a director  nominee.  Under this process,  a suggestion by a shareholder of a
director  nominee  must  include:  (a) the  name,  address  and  number of First
Merchants  shares  owned by the  shareholder;  (b) the  name,  address,  age and
principal  occupation of the suggested  nominee;  and (c) such other information
concerning the suggested  nominee as the  shareholder  may wish to submit or the
Committee may reasonably  request. A suggestion for a director nominee submitted
by a shareholder  must be in writing and  delivered or mailed to the  Secretary,
First Merchants  Corporation,  200 East Jackson Street,  Muncie,  Indiana 47305.
Suggestions for nominees from  shareholders  are evaluated in the same manner as
other  nominees.  There are no  nominees  for  election to the Board at the 2008
annual meeting of shareholders other than directors standing for re-election.

Compensation and Human Resources Committee

The Compensation and Human Resources  Committee is composed of directors Charles
E. Schalliol (Chairman), Thomas B. Clark and Roderick English. The Committee met
2 times during  2007.  The  Committee  is  responsible  for  establishing  First
Merchants'  general  compensation  philosophy,  overseeing the  development  and
implementation   of  policies  and  programs  to  carry  out  this  compensation
philosophy,  and evaluating the effectiveness of these policies and programs, in
consultation with senior management.  The Committee makes recommendations to the
Board concerning the  compensation to be paid to First  Merchants'  non-employee
directors; and it administers First Merchants' non-equity incentive compensation
program  (the  First   Merchants   Corporation   Senior   Management   Incentive
Compensation  Program), the non-qualified deferred compensation plans (the First
Merchants  Corporation   Supplemental   Executive  Retirement  Plan,  the  First
Merchants  Corporation Defined  Contribution  Supplemental  Executive Retirement
Plan,  and the First  Merchants  Corporation  Directors'  Deferred  Compensation
Plan), and the equity-based  compensation plan (the First Merchants  Corporation
Long-term  Equity  Incentive  Plan).  The Long-term  Equity  Incentive  Plan was
submitted to and approved by First Merchants' shareholders in 1999.

The Committee  reviews the  performance  of, and approves the  compensation  and
benefits to be paid to, the executive  officers and senior management  employees
of First Merchants and the chief executive  officers and regional  presidents of
its subsidiaries.  The Committee's charter permits the Committee to delegate its
authority  to review  the  performance  of, and  approve  the  compensation  and
benefits to be paid to, other employees of First Merchants and its  subsidiaries
to  First  Merchants'  President  and  Chief  Executive  Officer  and the  chief
executive  officers of First Merchants'  subsidiaries,  as appropriate,  and the
Committee  has  done  so.  The  Committee  has  also  delegated  the  day-to-day
responsibilities  for  administering  First  Merchants'   non-equity  incentive,
deferred  compensation,  and  equity-based  programs to the  President  and CEO,
Michael  C.  Rechin,  and the  Senior  Vice  President  and  Director  of  Human
Resources, Kimberly J. Ellington. The Committee is authorized to directly engage
counsel and consultants,  including  compensation  consultants,  to assist it in
carrying out its responsibilities.

Mr.  Rechin and Ms.  Ellington  provide  information  to the  Committee and make
recommendations  from time to time,  as requested by the  Committee,  concerning
existing and proposed  compensation  policies  and programs for  executives  and
other  employees of First Merchants and its  subsidiaries.  As the President and
CEO, Mr.  Rechin also makes  recommendations  to the  Committee  concerning  the
performance,  compensation and benefits of First Merchants'  executive  officers
(other than himself) and its senior management  employees,  as well as the chief
executive officers and regional presidents of First Merchants' subsidiaries.

In 2005,  the Committee  engaged Watson Wyatt & Company to conduct a competitive
market assessment of the compensation of First Merchants' executive officers and
to review First Merchants'  Long-term Equity Incentive Plan to identify the need
for design changes,  if any. At the Committee's  request,  Watson Wyatt provided
information,  which included contemporary data on the extent peer companies have
utilized  long-term equity incentive  programs and their mix of restricted stock
and stock options,  as well as information on accounting and tax considerations.
Following   completion   of  the  study,   based  in  part  on  Watson   Wyatt's

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recommendation, the Committee changed First Merchants' equity-based compensation
program,  beginning  in 2006,  from one  utilizing  only  stock  options  to one
utilizing a mix of stock options and restricted stock awards for senior managers
and  only  restricted  stock  awards  for  other  participating  employees.  The
Committee's  actions were all  consistent  with the  provisions of the Long-term
Equity Incentive Plan.

In 2006,  the  Committee  engaged  Mercer Human  Resource  Consulting to provide
information  regarding the  prevalence of executive  retirement  benefits  among
companies in general industry and the banking  industry,  to analyze the benefit
levels and adequacy of financing of the Supplemental  Executive Retirement Plan,
a defined benefit non-qualified  deferred compensation plan that pays retirement
benefits to three retired executives of First Merchants, and to make plan design
recommendations for a new defined contribution supplemental executive retirement
plan.  Based  on  Mercer's   recommendations,   the  Committee  made  additional
provisions for financing the Supplemental  Executive Retirement Plan and adopted
amendments to the plan  necessary  for  compliance  with  Internal  Revenue Code
Section  409A;  and  the  Committee   established  a  new  Defined  Contribution
Supplemental Executive Retirement Plan, initially covering only Mr. Rechin.

Compensation and Human Resources Committee Interlocks and Insider Participation

No member  of the  Compensation  and  Human  Resources  Committee  - Charles  E.
Schalliol,  Thomas B. Clark or Roderick  English - was an officer or employee of
First  Merchants or any of its  subsidiaries  during 2007. None of these members
has  ever  been  an  officer  or  employee  of  First  Merchants  or  any of its
subsidiaries.  No member of the  Compensation  and Human Resources  Committee or
executive  officer of First  Merchants had a relationship  during 2007 requiring
disclosure in this proxy statement under SEC regulations.

Compensation and Human Resources Committee Report

The Compensation  and Human Resources  Committee has reviewed and discussed with
management  the  Compensation  Discussion  and  Analysis  set forth  immediately
following this report, under "Compensation of Executive Officers." Based on this
review  and  discussion,  the  Committee  recommended  to  the  Board  that  the
Compensation  Discussion  and  Analysis be included in First  Merchants'  annual
report on Form 10-K for the fiscal  year  ended  December  31,  2007 and in this
proxy statement.

The above report is submitted by:

FIRST MERCHANTS CORPORATION COMPENSATION AND HUMAN RESOURCES COMMITTEE
Charles E. Schalliol (Chairman)
Thomas B. Clark
Roderick English

                       COMPENSATION OF EXECUTIVE OFFICERS

Compensation Discussion and Analysis

The  Compensation  and Human Resources  Committee is responsible for the design,
implementation  and  evaluation of First  Merchants'  compensation  programs and
policies,  aided by the company's  executive  officers and senior management and
with the support of outside  consultants  as the  Committee  deems  necessary or
helpful.  These  programs  and  policies  are  intended  to give all  employees,
including executive officers and other senior management  employees,  incentives
to achieve First Merchants' current and long-term strategic goals - the ultimate
objective being to obtain a superior return on shareholders' investment.

The compensation programs consist of four principal components:  (1) salary, (2)
non-equity  incentive  pay,  (3)  equity-based   compensation,   including  both
restricted  stock awards and stock  options,  and (4) retirement  benefits.  The
salary and non-equity  incentive pay components,  comprised  entirely of current
cash  compensation,  provide  an  immediate  or  near-term  reward to  executive
officers and senior  managers for  exceptional  performance - thereby  advancing
shorter-term  goals.  The  equity-based  compensation  and  retirement  benefits
components  provide  incentives for achieving  longer-term goals. The restricted

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stock awards and stock  options both align the  executive  officers'  and senior
managers'  financial  interests  directly  with  those  of the  shareholders  by
correlating the amount of compensation  received with the price (and increase in
price) of First Merchants stock.  The  equity-based  compensation and retirement
plans  include  vesting  provisions,  which  also  promote  retention  of senior
management employees.

For 2007, First Merchants' "Named Executive  Officers" ("NEOs") and their titles
were:

o    Michael  L. Cox,  the  President  and  Chief  Executive  Officer  until his
     retirement on April 24, 2007;
o    Michael C. Rechin,  the President and Chief  Executive  Officer since April
     24, 2007;  prior to that, the Executive Vice President and Chief  Operating
     Officer;
o    Mark K. Hardwick, the Executive Vice President and Chief Financial Officer;
o    Robert R. Connors, the Senior Vice President and Chief Information Officer;
o    David W. Spade, the Senior Vice President and Chief Credit Officer; and
o    Jami L. Bradshaw, the Senior Vice President and Chief Accounting Officer.

The four principal components of First Merchants' compensation programs, and how
the NEOs are compensated under them, are described below:

Salaries.  The NEOs' salaries are determined  annually by the  Compensation  and
Human Resources Committee. The Committee determines these salaries subjectively,
based on the  executive's  responsibilities  and the  Committee's  review of the
executive's   individual  performance  and  contributions  to  First  Merchants'
performance,  especially  its long-term and  short-term  financial  performance.
Other  factors that the  Committee  takes into account  include the  executive's
experience, the salaries paid to executives holding similar positions with First
Merchants'  competitors in the financial services industry,  inflation rates and
budgetary considerations. The Committee relies heavily on the recommendations of
the CEO in setting the  salaries of the NEOs other than the CEO.  The  Committee
has the sole responsibility for establishing the CEO's salary.

Annual  salary  adjustments  are usually  determined  in  February,  after First
Merchants' audited financial  statements for the preceding fiscal year have been
issued,  and the  resulting  salary  adjustments  are  effective as of the first
payroll in March.  The Committee  believes  that, by waiting until the financial
statements are issued,  salary  adjustments for the NEOs and other employees can
be more  accurately and effectively  tied to their success in meeting  financial
targets and other  strategic  goals for the full year just ended. It also allows
First Merchants to communicate  decisions  concerning salary  adjustments to the
NEOs and other senior management employees at the same time they are informed of
incentive  plan  payments and  equity-based  awards,  thus  ensuring a clear and
consistent  message  regarding  performance  and  underlining  First  Merchants'
emphasis on growing a performance-based culture.

Mr. Cox's 2007  salary,  payable  until his  retirement  on April 24, 2007,  was
$111,962 - based on an annual  salary of $355,000.  Mr.  Rechin's 2007 salary of
$309,423 was based on an annual salary of $275,000 until April 24, 2007, when he
was  promoted  from  Executive  Vice  President  and COO to  President  and CEO.
Thereafter,  it was based on an annual salary of $325,000, in recognition of his
additional  responsibilities.  In 2008,  Mr.  Rechin's  salary was  increased to
$350,000, a 7.7% increase from $325,000, in recognition of his performance since
becoming CEO. Mr. Hardwick's salary for 2007 was $209,000;  and it was increased
to $250,000 in 2008, a 19.6% increase.  Mr. Hardwick's larger increase was based
in part on his exceptional  performance and worth to First Merchants and in part
on surveys of salaries paid to executives with similar responsibilities at other
companies.  Mr.  Connors'  salary for 2007 was  $192,200;  it was  increased  to
$199,900 in 2008, a 4.0%  increase.  Mr. Spade's salary was $175,000 in 2007; it
was increased to $180,700 in 2008, a 3.3% increase. Mr. Connors' and Mr. Spade's
increases  were in line  with the merit  increases  given to most  other  senior
management employees.  Ms. Bradshaw's 2007 salary was increased from $110,201 to
$125,000 on July 24, 2007,  when she was promoted to Senior Vice  President  and
Chief Accounting  Officer. In 2008, she received a further increase in salary to
$145,000,  a  16.0%  increase,   based  on  the  CEO's  recommendation  and  the
Committee's  consideration  of her performance  and surveys of the  compensation
paid to executives with similar responsibilities at other companies that compete
with  First   Merchants.

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Non-equity incentive pay. Non-equity incentive  compensation is available to the
NEOs  and  other  senior  managers  through  the  Senior  Management   Incentive
Compensation Program. Under the program, the NEOs and other participating senior
management  employees  are  eligible to receive  additional  cash  compensation,
determined  as a  percentage  of their  salaries,  as  incentive  pay by meeting
individual goals that are closely related to First Merchants' financial success.
Under the program,  at the beginning of the year,  participants are given goals,
consisting of a target or targets, and in some cases, personal objectives, which
upon being met,  entitles the executive to receive a payout following the end of
the year of 100% of a pre-determined  percentage of the executive's  salary. The
schedules  containing the targets also include  thresholds below which no payout
is made, as well as maximum  payouts that may be higher than the target bonuses.
For 2007, upon meeting a threshold,  participants  became entitled to 30% of the
pre-determined  percentage of their salary, and the maximum payout, depending on
the executive's  pre-established goals, was 170% - 200% of this percentage.  The
amounts  earned under the program for a fiscal year are  determined and paid out
after First Merchants' audited financial statements for the applicable year have
been issued,  usually in February,  contemporaneously  with the determination of
salaries and equity compensation for the following year.

The target bonuses  payable to Messrs.  Cox,  Rechin and Hardwick for 2007 under
the Senior  Management  Incentive  Compensation  Program  were 45%, 45% and 40%,
respectively,  of their salaries, in each case based entirely on growth from the
previous year in First Merchants' GAAP earnings per share. Earnings per share in
2007 grew more  than the  threshold  percentage  that  made  them  eligible  for
bonuses, but not as much as the target percentage.  As a result,  Messrs. Cox's,
Rechin's and  Hardwick's  incentive pay for 2007 was  determined on the basis of
22.5%,  22.5%,  and 20%,  respectively,  of their salaries.  Mr. Cox's bonus was
pro-rated to 31.2% of his full-year amount,  since he retired on April 24, 2007.
For 2007, Messrs. Connors and Spade were each eligible to receive target bonuses
of 30% of their  salaries  under the Senior  Management  Incentive  Compensation
Program,  while Ms. Bradshaw's target bonus was based on 25% of her salary until
she was promoted to Senior Vice President and Chief  Accounting  Officer on July
24,  2007,  when the target bonus was  increased  to 30% of her salary.  For all
three,  70% of  their  incentive  pay  depended  on  the  improvement  in  First
Merchants' operating earnings per share above a pre-established  percentage, and
30% was based on achieving  pre-established  personal objectives  established by
the CEO.  Operating  earnings  per  share  did  grow  more  than  the  threshold
percentage,  thus making them eligible for bonuses; however earnings didn't grow
as much as the target  percentage.  Mr. Connors and Ms. Bradshaw achieved all of
their  personal  objectives,  and  Mr.  Spade  achieved  part  of  his  personal
objectives.  Based  on these  results,  Messrs.  Connors'  and  Spade's  and Ms.
Bradshaw's incentive pay for 2007 was 19.5%, 17.3% and 16.6%,  respectively,  of
their salaries.

Until 2006, the Senior Management  Incentive  Compensation  Program provided for
payment of 2/3 of the  incentive  pay earned each year in cash and the other 1/3
in deferred stock units two years later,  based on the price of First Merchants'
stock on the December 31 preceding  the payment  date,  plus accrued  dividends.
Under this  provision,  four of the NEOs - Messrs.  Cox,  Hardwick,  Connors and
Spade - received  payments  in early 2008,  in the amounts of $20,149,  $10,892,
$11,049  and $937,  respectively,  that were based on  deferred  stock units and
dividends  they earned for the 2005 fiscal year that became vested at the end of
2007. Mr. Rechin and Ms. Bradshaw were not participants in the Senior Management
Incentive  Compensation  Program in 2005 and thus did not receive payments based
on deferred stock units earned for the 2005 fiscal year.

Equity-based  compensation.  Equity-based  compensation is made available to the
NEOs and other plan participants  under the Long-term Equity Incentive Plan. The
Compensation and Human Resources  Committee approves stock option and restricted
stock  awards  under the plan at a  meeting  that is  usually  held each year in
February,  at the same time salary adjustments and non-equity incentive payments
are approved.  In making stock option and restricted stock awards, the Committee
relies  heavily on the  recommendations  of the CEO except for the awards to the
CEO.

Until 2006, stock option grants were the only equity-based  compensation awarded
under the Long-term  Equity  Incentive Plan. In 2005, the Compensation and Human
Resources  Committee engaged Watson Wyatt & Company to undertake a comprehensive
study  of the  plan  and to  make  recommendations  concerning  its  design  and
administration.  At the Committee's request,  Watson Wyatt provided information,
which  included  contemporary  data on the extent peer  companies  have utilized
long-term equity incentive  programs and their mix of restricted stock and stock

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options, as well as information on accounting and tax considerations.  Following
completion of the study,  based in part on Watson  Wyatt's  recommendation,  the
Committee changed First Merchants' equity-based compensation program,  beginning
in 2006,  from one utilizing only stock options to one utilizing only restricted
stock  awards  for  most  plan  participants  and a mix  of  stock  options  and
restricted  stock  awards for senior  managers.  This  change in the program was
within the Committee's  discretion under the provisions of the plan. The CEO and
the Committee  concluded  that,  for the NEOs and other senior  managers,  stock
option grants should continue to be a significant  component of First Merchants'
equity-based  compensation  program.  This conclusion was based on the rationale
that the  financial  incentive  provided by stock  options  depends  entirely on
increasing the price of First  Merchants  shares,  thus furthering the program's
purpose of aligning senior management's  financial interests with those of First
Merchants' shareholders.

The stock  options  granted  to the NEOs and  other  senior  managers  under the
Long-term  Equity Incentive Plan are incentive stock options up to the statutory
limit, and the rest are nonqualified options. The restricted stock awarded under
the plan vests - giving the awardee  complete  ownership rights - if the awardee
is still  employed  by First  Merchants  three  years  after  the award is made;
however, the awardee's rights in the stock vest immediately and the restrictions
are removed if the awardee's  employment  terminates in less than three years on
account of retirement, death or disability. The restricted stock partially vests
if the awardee's  employment is involuntarily  terminated without "cause." Under
this circumstance,  the vested portion is based on a fraction,  the numerator of
which is the  number of full  years that have  elapsed  between  the date of the
award  and the date of  termination  and the  denominator  of  which  is  three.
Notwithstanding  the  restrictions on the stock, the awardee is entitled to vote
the shares and to receive the dividends thereon.

Mr. Cox did not receive an award under the Long-term  Equity  Incentive  Plan in
either 2007 or 2008 year because he retired on April 24,  2007.  The awards made
to the other NEOs under the plan on  February  8, 2007 and  February  27,  2008,
respectively,  were as  follows:  Mr.  Rechin - 12,000  stock  options and 3,000
shares of restricted stock in 2007, and 15,000 stock options and 4,000 shares of
restricted stock in 2008; Mr. Hardwick - 8,000 stock options and 2,400 shares of
restricted stock in 2007, and 8,000 stock options and 2,700 shares of restricted
stock in 2008;  Mr. Connors - 4,500 stock options and 1,600 shares of restricted
stock in 2007,  and 3,000 stock options and 2,000 shares of restricted  stock in
2008;  Mr. Spade - 4,000 stock options and 1,000 shares of  restricted  stock in
2007, and 4,000 stock options and 1,000 shares of restricted  stock in 2008; Ms.
Bradshaw - 2,000 options and 600 shares of restricted  stock in 2007,  and 1,500
stock options and 1,500 shares of restricted  stock in 2008.  The exercise price
for the stock options was the closing price on the date the options were granted
by the Compensation and Human Resources Committee;  that is, $26.31 per share on
February 8, 2007 and $28.25 per share on February 27, 2008.

Although not required to be shown in the Summary  Compensation  Table, the First
Merchants  Corporation  Employee Stock  Purchase Plan is a form of  equity-based
compensation  that is equally  available to all employees of First Merchants and
its participating  subsidiaries who have been employed six months or more. Under
this  plan,  employees  (including  the NEOs) may elect,  prior to the  offering
period (July 1 to June 30), to purchase  shares of First  Merchants'  stock at a
price  equal  to 85% of the  lesser  of the  market  price  of the  stock at the
beginning of the offering  period and the market price at the end of the period.
The plan provides an attractive vehicle for employees to acquire First Merchants
stock,  which  further  aligns  their  financial  interests  with those of other
shareholders.  For the offering  period ending June 30, 2007, the following NEOs
participated in this plan: Mr. Rechin,  who purchased 322 shares,  Mr. Spade who
purchased 193 shares,  and Ms. Bradshaw,  who purchased 258 shares. The purchase
price for shares under the plan was $20.43 per share.

Retirement  benefits.  First  Merchants  maintains a qualified  defined  benefit
pension plan, the First Merchants Corporation  Retirement Pension Plan, which it
"froze" as of March 1, 2005,  meaning that, with some  exceptions,  employees no
longer accrued benefits under the plan. However,  participants who were at least
age 55 with 10 or more years of credited service on the date the plan was frozen
were  "grandfathered;" that is, they continued to accrue benefits under the plan
after that date.  Employees who were not  participating  in the plan on March 1,
2005 were not eligible to  participate.  The plan pays benefits at retirement to
participating  employees of First Merchants and its participating  subsidiaries.
The  benefits  payable  under this plan,  computed  as a  straight-life  annuity
although other forms of actuarially-equivalent  benefits are available under the
plan, are based on the following formula: 1.6% of average final compensation (in
general, the participant's highest 60 consecutive months' W-2 compensation, less

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incentive  pay)  plus .5% of  average  final  compensation  in  excess of Social
Security  covered  compensation,  both times years of service to a maximum of 25
years.  Although  benefits are  integrated  with Social  Security,  they are not
subject to any  deduction  for Social  Security  or other  offset  amounts.  The
benefits  payable under the plan at age 65 to the  participants  whose  benefits
were frozen are determined  under the formula  described  above,  based on their
average final compensation as of March 1, 2005, times a fraction,  the numerator
of which is the participant's years of credited service as of March 1, 2005, and
the  denominator  of  which  is the  participant's  years  of  credited  service
projected to age 65.

Of the  NEOs,  Mr.  Cox was the only one who was  "grandfathered"  due to having
attained age 55 and 10 or more years of credited service as of March 1, 2005, so
he continued to accrue benefits under the plan until his retirement on April 24,
2007.  Upon retiring,  Mr. Cox began  receiving an annual benefit under the plan
that is the equivalent of a straight-life  annuity of $47,234.  Since he elected
payment in the form of a joint and 100%  survivor  annuity,  his annual  benefit
under the plan is actually $40,149. Messrs. Rechin and Spade did not participate
in the  First  Merchants  Corporation  Retirement  Pension  Plan.  The  benefits
accruing to Messrs.  Hardwick  and Connors  and Ms.  Bradshaw  were frozen as of
March 1, 2005,  because  they had not  attained  age 55 with 10 or more years of
credited service as of that date. Assuming their employment continues to age 65,
Messrs.  Hardwick's and Connor's and Ms.  Bradshaw's  annual  benefits under the
plan, payable as a straight-life annuity, would be approximately $8,594, $7,895,
and $2,712, respectively.

Mr. Cox is also the only NEO who participates in the First Merchants Corporation
Supplemental Executive Retirement Plan, a defined benefit, non-qualified "excess
benefit"  plan  that  provides  additional  retirement  benefits  to  designated
executives  whose  benefits  under the First  Merchants  Corporation  Retirement
Pension Plan are restricted due to the limit under Internal Revenue Code Section
401(a)(17) on the amount of compensation  that can be considered for purposes of
calculating pension benefits under a qualified plan (for 2007, the last year Mr.
Cox accrued  benefits under this plan,  this amount was $225,000).  The plan was
closed to new  participants  when the  First  Merchants  Corporation  Retirement
Pension  Plan  was  frozen.  Mr.  Cox and two  other  previously  retired  First
Merchants  executives  presently receive benefits under the plan. The benefit is
calculated using the First Merchants Corporation Retirement Pension Plan formula
described two paragraphs  above,  without applying the Section  401(a)(17) limit
but   including   non-equity   incentive  pay  in   determining   average  final
compensation, and subtracting the benefit that is payable to the executive under
the  Retirement  Pension  Plan.  Mr. Cox began  receiving  an annual  benefit of
$52,431 under the First Merchants Corporation  Supplemental Executive Retirement
Plan in January 2008, payable in the form of a fifteen-year certain annuity. Mr.
Cox also  received a lump sum payment of $34,954 in January  2008,  representing
benefits  payable under the plan for the period following his retirement in 2007
that were deferred to 2008.

First  Merchants also maintains the First Merchants  Corporation  Retirement and
Income Savings Plan, an Internal Revenue Code Section 401(k)  qualified  defined
contribution plan under which participating employees of First Merchants and its
subsidiaries can make pre-tax  contributions to the plan, up to statutory limits
and  limits  set  forth  in  the  plan,  that  are  currently   matched  by  the
participant's  employer  at  the  rate  of  50%  of  the  participant's  pre-tax
contributions  to the plan, to a maximum of 6% of  compensation  (defined as W-2
compensation plus certain voluntary  pre-tax  contributions,  up to the Internal
Revenue  Code  Section  401(a)(17)  maximum,  which was  $225,000 in 2007 and is
$230,000 in 2008).  Thus, the maximum matching employer  contribution  under the
plan is  generally  3% of pay (less if the  participant's  compensation  exceeds
$230,000).  First Merchants made matching  contributions for 2007 under the plan
for NEOs Rechin, Hardwick, Connors, Spade and Bradshaw in the amounts of $6,750,
$6,750, $6,615, $5,700 and $3,827,  respectively.  For the participants who were
"grandfathered" when the First Merchants Corporation Retirement Pension Plan was
frozen,  including Mr. Cox, the matching employer  contribution  under the First
Merchants  Corporation  Retirement  and  Income  Savings  Plan  is  less.  First
Merchants matches only 25% of their pre-tax  contributions  under the plan, to a
maximum  of 5% of  compensation.  For  2007,  First  Merchants  made a  matching
contribution under the plan for Mr. Cox in the amount of $1,913. First Merchants
also makes  contributions  on behalf of  participants in the plan based on their
years  of  service,  currently  from  2%  to  7% of  compensation  in  five-year
increments (i.e., 2% for 0-4 years of service,  3% for 5-9 years of service,  4%
for 10-14 years of service, 5% for 15-19 years of service, 6% for 20-24 years of
service,  and  7%  for  25  or  more  years  of  service).  The  "grandfathered"
participants,  including  Mr. Cox, are not  eligible for these  service-weighted
contributions.  For 2007, the other NEOs received service-weighted contributions
as follows:  Mr. Rechin,  2% of compensation,  or $4,500;  Mr.  Hardwick,  4% of

                                    Page 14
<page>
compensation,  or $9,000; Mr. Connors, 3% of compensation, or $6,615; Mr. Spade,
2% of compensation,  or $3,800; and Ms. Bradshaw, 3% of compensation, or $3,827.
Finally,  First Merchants is making  "transition  contributions"  under the plan
equal to 3% of  compensation  for the years 2005 through 2009, for employees who
were  participants in the First Merchants  Corporation  Retirement  Pension Plan
when it was frozen and who had attained age 45 with 10 or more years of credited
service as of March 1, 2005 (other than the "grandfathered" participants).  None
of the NEOs is eligible for a transition  contribution under the plan.  Employee
pre-tax  contributions  under the plan are always fully vested,  while matching,
service-weighted  and  transition  contributions  vest 20%  after  each  year of
service.

In 2006, the  Compensation  and Human Resources  Committee  engaged Mercer Human
Resource  Consulting  to make  plan  design  recommendations  for a new  defined
contribution  supplemental  employee  executive  retirement plan, in view of the
fact that the primary  retirement  plan for all of the executive  officers other
than Mr. Cox is now a Section  401(k)  defined  contribution  plan rather than a
defined  benefit  plan.  Based  on  Mercer's   recommendations,   the  Committee
established the First Merchants  Corporation Defined  Contribution  Supplemental
Executive  Retirement  Plan,  effective as of January 1, 2006. Like the existing
defined  benefit  Supplemental  Executive  Retirement Plan covering Mr. Cox, the
Defined  Contribution  Supplemental  Executive  Retirement  Plan is  intended to
provide additional  retirement benefits to designated  executives whose benefits
under  First  Merchants'  qualified  retirement  plan - in this  case the  First
Merchants Corporation Retirement and Income Savings Plan - are restricted due to
the limit  under  Internal  Revenue  Code  Section  401(a)(17)  on the amount of
compensation that can be considered for purposes of calculating pension benefits
under a qualified plan ($225,000 in 2007 and is $230,000 in 2008). The Committee
has  designated  Mr.  Rechin  as the sole  initial  participant  in the  Defined
Contribution  Supplemental Executive Retirement Plan, effective as of January 1,
2006. Based on Mercer's  recommendation,  the Committee established the employer
contribution  for Mr.  Rechin under the plan at 12% of his annual  compensation,
including his base salary and his non-equity  incentive pay.  Mercer  calculated
that, if Mr. Rechin continues to be employed by First Merchants until his normal
retirement age, this  contribution  will provide an income  replacement ratio of
approximately  35%,  based on a 7%  return  on the  plan's  investments.  Mercer
determined,  based on its  review  of  retirement  benefits  paid to  executives
holding similar positions at peer companies in the banking  industry,  that this
income  replacement  ratio would be competitive with the industry.  Mr. Rechin's
benefit under the plan is subject to a 5 year "cliff" vesting  provision.  He is
not permitted to make employee  contributions  under the plan.  First Merchants'
contribution for 2007 to this plan on behalf of Mr. Rechin was $50,856.

Termination  of  Employment  and Change of Control  Arrangements.  Although,  in
general,  First  Merchants does not have  employment  agreements  with the Named
Executive  Officers or any of its other employees,  who are all deemed to be "at
will" employees, it does have "double trigger" change of control agreements with
certain  of its key  executives,  including  each of the NEOs.  First  Merchants
believes that change of control  agreements  are in the best  interests of First
Merchants and its shareholders,  because they encourage key executives to remain
with First Merchants and continue to act in First  Merchants' and  shareholders'
interests  in the event of a  proposed  acquisition  or other  change of control
situation in which they might  otherwise be influenced by the  uncertainties  of
their own  circumstances.  A "double trigger" change of control agreement is one
under which  severance  benefits  are  payable  only if: (1) a change of control
occurs;  and (2) the  executive's  employment is  terminated  or  constructively
terminated  following the change of control (under First Merchants'  agreements,
this termination must occur within 24 months following the change of control for
the  agreement to apply).  No benefits are payable  under the  agreements in the
event of the executive's  voluntary retirement,  death or disability,  or if the
executive's  employment is terminated for cause.  The  definitions of "change of
control"  and  "constructive  termination"  as  used  in  these  agreements  are
contained on page 23 of this proxy statement,  under  "Termination of Employment
and  Change of  Control  Arrangements."  Payments  under the  change of  control
agreements  are based on a multiple  of the sum of the  executive's  annual base
salary  at the time of  receiving  notice  of  termination  and the  executive's
largest  annual  non-equity   incentive  payment  under  the  Senior  Management
Incentive  Compensation  Program  during  the two  years  preceding  the date of
termination. This multiple is 2.99 for Messrs. Rechin and Hardwick, and 1.50 for
Messrs.  Connors  and  Spade and Ms.  Bradshaw.  The  aggregate  of the lump sum
severance  benefit amounts that would have been payable to key executives  under
all of First Merchants'  existing change of control  agreements,  if both of the
triggering  events had  occurred  on  December  31,  2007,  totals less than two
percent  of First  Merchants'  market  capitalization.  The  change  of  control

                                    Page 15
<page>
agreements were not entered into in response to any effort to acquire control of
First  Merchants,  and the Board is not aware of any such  effort.  Because they
represent such a small percentage of First Merchants' market capitalization, the
Board does not believe that the existence of these  agreements  would discourage
any such effort.

The only other existing  agreement or  arrangement  providing for payment(s) at,
following,  or in  connection  with the  termination  of a NEO's or other senior
manager's  employment  is the agreement  that the Board  approved on January 23,
2007,  concerning  Mr.  Cox's  retirement  as the  President  and  CEO of  First
Merchants on April 24, 2007. The details of that agreement are set forth in more
detail on page 24 of this proxy statement,  under "Termination of Employment and
Change of Control Arrangements."

Summary Compensation Table

The following table provides information concerning all of the plan and non-plan
compensation paid to the NEOs for 2006 and 2007.

<table>
<caption>
                           Summary Compensation Table
---------------------------- ----- ---------- ---------- ---------- ---------- --------------- ------------ ------------ ----------
                                                                                                Change in
                                                                                                 pension
                                                                                                value and
                                                                                               non-qualified
                                                                                 Non-equity     deferred
                                                         Stock      Option       incentive     compensation   All other
Name and Principal position  Year  Salary<f1> Bonus<f2>  awards<f3> awards<f3>      plan       earnings<f5> compensation<f6>Total
                                                                               compensation<f4>
---------------------------- ----- ---------- ---------- ---------- ---------- --------------- ------------ ------------ ----------
<S>                           <C>     <C>       <C>        <C>        <C>           <C>          <C>           <C>         <C>
Michael L. Cox
 President and Chief         2006  $361,887  $      0    $25,268    $32,766        $4,793      $205,052      $27,918     $657,684
 Executive Officer           2007   111,962         0     60,208     40,621        24,947       210,608       12,740      461,086

Michael C. Rechin
  Executive Vice President   2006   280,288   100,100     14,864     21,844         3,300             0       51,788      472,184
  and Chief Operating        2007   309,423         0     57,833     83,434        69,620             0       69,270      589,580
  Officer

Mark K. Hardwick
  Executive Vice President   2006   193,699         0     14,864     19,113        19,950         2,495       15,434      265,555
  and Chief Financial        2007   206,077         0     35,527     44,558        41,800         1,555       20,182      349,699
  Officer

Robert R. Connors
  Senior Vice President and  2006   185,704         0     10,405     10,922        16,398         4,695       12,310      240,434
  Chief Information Officer  2007   190,662         0     24,243     25,256        37,479         3,689       16,374      297,703

David W. Spade
  Senior Vice President and  2006   164,327         0     10,405          0        12,800             0       10,568      198,100
  Chief Credit Officer       2007   175,000         0     19,547     11,513        30,188             0       12,392      248,640

Jami L. Bradshaw
  Senior Vice President and  2006   100,385         0      2,973          0         6,765         1,026        5,675      116,824
  Chief Accounting Officer   2007   119,878         0      8,044      5,757        20,760           684        8,958      164,081
---------------------------- ----- ---------- ---------- ---------- ---------- --------------- ------------ ------------ ----------
<fn>
<f1> The amounts  shown in the Salary  column for 2006 are the  aggregate of the
     executive's  base salary,  service award and Christmas  gift.  For Mr. Cox,
     these were $355,000,  $60 and $6,827,  respectively;  for Mr. Rechin, these
     were $275,000, $0 and $5,288,  respectively;  for Mr. Hardwick,  these were
     $190,000,  $45 and  $3,654,  respectively;  for  Mr.  Connors,  these  were
     $182,200, $0 and $3,504, respectively;  for Mr. Spade, these were $161,250,
     $0 and $3,077,  respectively;  and for Ms. Bradshaw, these were $98,458, $0
     and $1,927,  respectively.  The  service  awards and  Christmas  gifts were
     discontinued for 2007.

<f2> First  Merchants  paid Mr.  Rechin a signing  bonus of $100,000 when he was
     hired in November  2005, to offset a bonus that he would have received from
     his previous  employer had he not left its  employment.  This signing bonus
     was paid to Mr. Rechin in early 2006. The other $100 was paid to Mr. Rechin
     under a customer referral program. No bonuses were paid to any of the other
     NEOs during 2006 or 2007 except as part of a non-equity incentive plan.

                                    Page 16
<page>
<f3> A  discussion  of the  assumptions  used in  calculating  these  values  is
     contained in Note 60 to the 2007 audited financial  statements,  on page 60
     of First Merchants' Annual Report.

<f4> The amounts shown in the Non-equity  Incentive Plan Compensation column are
     payments under the First Merchants  Corporation Senior Management Incentive
     Compensation  Program  for 2006  and 2007  performance  that  were  paid in
     February 2007 and February 2008, respectively.

<f5> The amounts shown in the Change in Pension Value and Nonqualified  Deferred
     Compensation  Earnings  column for  Messrs.  Hardwick  and  Connors and Ms.
     Bradshaw  are the changes in the  actuarial  present  value of their frozen
     benefits under the First Merchants Corporation  Retirement Pension Plan for
     2006 and 2007.  For Mr.  Cox,  the amount  shown for 2006 is the sum of the
     increase in the  actuarial  present  value of his benefits  under the First
     Merchants Corporation Retirement Pension Plan ($78,517) and the increase in
     the  actuarial  present  value of his  benefits  under the First  Merchants
     Corporation  Supplemental Executive Retirement Plan ($126,535).  The amount
     shown for 2007 is the sum of the increase in the actuarial present value of
     Mr. Cox's benefits under the First Merchants Corporation Retirement Pension
     Plan  ($91,162)  and the  increase in the  actuarial  present  value of his
     benefits  under  the First  Merchants  Corporation  Supplemental  Executive
     Retirement Plan ($119,446).  Mr. Cox began receiving monthly benefits under
     the First  Merchants  Corporation  Retirement  Pension Plan in May 2007 and
     under the First Merchants  Corporation  Supplemental  Executive  Retirement
     Plan in January 2008. Messrs. Rechin and Spade have not participated in any
     defined  benefit plan or other  actuarial  pension plan maintained by First
     Merchants.  No  NEO  received  above-market  or  preferential  earnings  on
     deferred compensation during 2006 or 2007.

<f6> First  Merchants  made  matching   contributions  to  the  First  Merchants
     Corporation  Retirement and Income Savings Plan for the benefit of the NEOs
     in the following amounts for 2006 and 2007, respectively:  Mr. Cox - $2,750
     and  $1,913;  Mr.  Rechin - $6,600 and  $6,750;  Mr.  Hardwick - $6,600 and
     $6,750; Mr. Connors - $6,433 and $6,615; Mr. Spade - $5,028 and $5,700; and
     Ms.  Bradshaw - $2,954 and $3,827.  First  Merchants made  service-weighted
     employer  contributions to the First Merchants  Corporation  Retirement and
     Income  Savings Plan for the benefit of the NEOs in the  following  amounts
     for 2006 and 2007,  respectively:  Mr. Cox - $0 and $0; Mr. Rechin - $4,400
     and  $4,500;  Mr.  Hardwick - $6,694 and $9,000;  Mr.  Connors - $4,289 and
     $6,615;  Mr.  Spade - $3,352  and  $3,800;  and Ms.  Bradshaw  - $1,969 and
     $3,827.  First  Merchants also made  contributions  to the First  Merchants
     Corporation Defined Contribution  Supplemental Executive Retirement Plan in
     2006 and 2007 for the  benefit of Mr.  Rechin in the amounts of $33,396 and
     $50,896,  respectively.  During  2006,  Mr.  Cox was  the  only  NEO  whose
     compensation  included  perquisites  in the aggregate  amount of $10,000 or
     more. The aggregate  amount of his perquisites and other personal  benefits
     for 2006 totaled $21,740,  including  personal use of a company-owned  car,
     payment of country club dues, automobile insurance premiums and medical and
     travel expenses.  During 2007, none of the NEOs received perquisites in the
     aggregate  amount of $10,000 or more.  Mr. Cox received a  retirement  gift
     from First  Merchants upon his retirement in April 2007,  which had a value
     of $9,797.  The other  amounts shown in the All Other  Compensation  column
     include  the dollar  value of life  insurance  premiums  and  dividends  on
     restricted  stock  awards  paid to or for the  benefit  of each of the NEOs
     during 2006 and 2007.
</fn>
</table>
First Merchants does not have employment agreements with any of the NEOs.

Grants of Plan-based Awards Table

The  following  table  provides  information  concerning  all of the  grants  of
plan-based awards made to the NEOs for 2007, which included non-equity incentive
pay and awards of restricted stock and stock options.

                                    Page 17
<page>

<table>
<caption>
                               Grants of Plan-Based Awards for 2007 Fiscal Year
---------------------------------------------------------------------------------------------------------------
                                                                  All other     All other
                                                                  option        option          Exercise
                                                                  awards;       awards;         or base         Grant date
                                                                  Number        Number of       price of        fair value
                                  Estimated future payouts        of shares     securities      option          of stock
      Name         Grant          under Non-equity incentive      of stock      underlying      awards          and option
                   Date              plan awards<f1>              or units      options         (per share)     awards
-------------------------- ------------------------------         ----------    ----------      ----------      ------------
                            Threshold   Target   Maximum
------------------- ------- -------- ---------- ----------        ----------    ----------      ----------      ------------
<S>                  <C>       <C>       <C>       <C>             <C>        <C>        <C>         <C>
Michael L. Cox
                      --      $0      $52,083   $104,166


                      --       0      146,250    292,500
Michael C. Rechin   2/8/07                                        3,000                           $26.31           $78,930
                    2/8/07                                                        12,000                            64,541

                      --       0       83,600    167,200
Mark K. Hardwick    2/8/07                                        2,400                            26.31            63,144
                    2/8/07                                                         8,000                            51,633

                      --       0       57,660     98,022
Robert R. Connors   2/8/07                                        1,600                            26.31            42,096
                    2/8/07                                                         4,500                            29,043

                      --       0       52,500     89,250
David W. Spade      2/8/07                                        1,000                            26.31            26,310
                    2/8/07                                                         4,000                            25,816

                      --       0       37,500     63,750
Jami L. Bradshaw    2/8/07                                          600                            26.31            15,786
                    2/8/07                                                         2,000                            15,256
------------------- ------- -------- ---------- ----------        ----------    ----------      ----------      ------------
<FN>
<f1> The  amounts  shown  in  the  Estimated  Future  Payouts  under  Non-equity
     Incentive  Plan  Awards  column  are the  range  of  payouts  for  targeted
     performance  under  the  First  Merchants   Corporation  Senior  Management
     Incentive  Compensation  Program  for 2007,  as  described  in the  Section
     entitled  "Non-equity  Incentive  Pay" in the  Compensation  Discussion and
     Analysis. The payments made in February 2008 for 2007 performance under the
     Program are shown in the Non-equity  Incentive Plan Compensation  column of
     the Summary Compensation Table on page 16 of this proxy statement.
</FN>
</table>

The  compensation  programs  under  which  the  grants  in the  above  Grants of
Plan-Based  Awards Table were made are generally  described in the  Compensation
Discussion and Analysis, on pages 12-13 of this proxy statement, and include the
Senior Management Incentive  Compensation  Program, a non-equity incentive plan,
and the Long-term  Equity Incentive Plan, which provides for stock option grants
and restricted stock awards. The following is a summary of material factors that
will assist in an  understanding  of the information  disclosed in the Grants of
Plan-Based Awards Table.

Under the Senior Management Incentive Compensation Program, each of the NEOs was
given goals at the beginning of 2007,  consisting of a target or targets, and in
some cases, personal objectives, which upon being met, entitled the executive to
receive  a  payout  following  the end of the  year of 100% of a  pre-determined
percentage of the executive's base salary. The schedules  containing the targets
also included  thresholds,  at which the executive became entitled to 30% of the
pre-determined  percentage  and below which no payout would be made,  as well as
maximum  payouts  equal  to 200% of the  pre-determined  percentage,  or in some
cases,  170%.  The  amounts  earned  under the program for 2007 were paid out in
February 2008.

Under  the  Long-term  Equity  Incentive  Plan,  awards  of  stock  options  and
restricted stock were granted to each of the NEOs in February 2007,  except that
no awards  were made to Mr. Cox  because he retired in April  2007.  This was in
accordance with the terms of the retirement  agreement between the Board and Mr.
Cox, which is described in more detail on page 24 of this proxy statement, under
"Termination of Employment and Change of Control  Arrangements."  In most cases,
the number of stock  options  awarded to each  executive was  approximately  3-4

                                    Page 18
<page>
times the number of shares of  restricted  stock awarded to the  executive.  The
aggregate  number of equity awards to each  executive  was roughly  commensurate
with the executive's position and level of responsibilities.  The exercise price
for the  stock  options  was the  closing  price on the date  the  options  were
granted,  February 8, 2007.  The stock options will vest and become  exercisable
two  years  after the date they were  granted  or, if  earlier,  on the date the
executive's employment terminates on account of retirement, death or disability.
The restricted stock will vest, giving the executive  complete ownership rights,
if the executive is still employed by First Merchants three years after the date
of the award of the executive's  employment  terminates in less than three years
on  account  of  retirement,  death or  disability.  The  restricted  stock will
partially vest if the executive's employment is involuntarily terminated without
"cause," the number that will vest being a fraction of the shares  awarded,  the
numerator  of which is the number of full years that have  elapsed  between  the
date of the award and the date of  termination  and the  denominator of which is
three.  Notwithstanding the restrictions on the stock, the executive is entitled
to vote the shares and to receive the  dividends  thereon.  The normal  dividend
rate applies to the restricted shares; the rate is not preferential.

Outstanding Equity Awards at Fiscal Year-end Table

The following table provides information  concerning  unexercised stock options,
restricted  stock awards that have not vested,  and equity incentive plan awards
for each of the NEOs  outstanding as of the end of First  Merchants' 2007 fiscal
year.
<table>
<caption>
                Outstanding Equity Awards at Fiscal Year-End 2007
     ------------------ ---------------------------------------------------- -------------------------
            Name                           Option Awards                           Stock Awards
     ------------------ ------------- -------------- ------------ ---------- ------------ ------------
        <S>                <C>          <C>              <C>         <C>         <C>          <C>
                         Number of      Number of       Option      Option    Number of     Market
                         securities    securities      exercise   expiration  shares or     value of
                         underlying    underlying        price       date     units of      shares or
                        unexercised    unexercised                            stock that    units of
                          options      options<f1>                            have not      stock that
                                                                              vested<f2>    have not
                        (Exercisable) (Unexercisable)                                       vested
     ------------------ ------------- -------------- ------------ ---------- ------------ ------------

       Michael L. Cox       5,729                      $24.80      07/31/08
                           11,575                       19.65      07/29/09
                           11,573                       18.28      07/01/10
                           11,576                       19.73      07/01/11
                           13,781                       26.93      07/01/12
                           13,127                       23.46      07/01/13
                           15,000                       25.60      07/01/14
                           20,000                       26.70      09/01/15
                           12,000                       25.14      02/10/16
                            1,157                       24.03      07/01/17

      Michael C. Rechin                                                         5,667      $123,767
                           10,000                       25.90      11/21/15
                                          8,000         25.14      02/10/16
                                         12,000         26.31      02/08/17

      Mark K. Hardwick                                                          4,400        96,096
                             694                        19.65      07/29/09
                             578                        18.28      07/01/10
                           1,736                        19.73      07/01/11
                           4,409                        26.93      07/01/12
                           5,249                        23.46      07/01/13
                           6,000                        25.60      07/01/14
                          10,000                        26.70      09/01/15
                                          7,000         25.14      02/10/16
                                          8,000         26.31      02/08/17

      Robert R. Connors                                                         3,000        65,520
                           3,307                        25.33      08/26/12
                           5,249                        23.46      07/01/13
                           6,000                        25.60      07/01/14
                           8,000                        26.70      09/01/15
                                          4,000         25.14      02/10/16
                                          4,500         26.31      02/08/17

      David W. Spade                                                            2,400       $52,416
                                          4,000        $26.31      02/08/17

      Jami L. Bradshaw                                                          1,000        21,840
                            420                         23.46      07/01/13
                            800                         25.60      07/01/14
                          1,000                         26.70      09/01/15
                                          2,000         26.31      02/08/17
     ------------------ ------------- -------------- ------------ ---------- ------------ ------------

                                    Page 19
<page>
<fn>
<f1> Options were granted to Messrs.  Rechin,  Hardwick,  Connors, Spade and Ms.
     Bradshaw  to  purchase  12,000,  8,000,  4,500,  4,000  and  2,000  shares,
     respectively,  of First Merchants  common stock under the Long-term  Equity
     Incentive  Plan on February  8, 2007,  which will vest on February 8, 2009.
     All of these options will also vest on the date the executive's  employment
     terminates on account of retirement,  death or disability,  if earlier than
     the normal vesting dates.  As a non-employee  director,  Cox was granted an
     option to purchase 1,157 shares of First  Merchants  common stock under the
     Long-term Equity Incentive Plan on July 1, 2007, which vested on January 1,
     2008.

<f2> Messrs. Rechin,  Hardwick,  Connors and Spade and Ms. Bradshaw were awarded
     2,000, 2,000, 1,400, 1,400 and 400 restricted shares,  respectively,  under
     First  Merchants'  Long-term  Equity  Incentive  Plan on February 10, 2006.
     These  shares will vest on February  10, 2009.  Messrs.  Rechin,  Hardwick,
     Connors and Spade and Ms. Bradshaw were also awarded 3,000,  2,400,  1,600,
     1,000 and 600 restricted shares,  respectively,  under the Long-term Equity
     Incentive  Plan on February 8, 2007.  These shares will vest on February 8,
     2010. In addition, Mr. Rechin was awarded 2,000 restricted shares under the
     Long-term  Equity  Incentive Plan on December 22, 2005, of which 666 shares
     vested on December 22, 2006,  667 shares  vested on December 22, 2007,  and
     667 shares will vest on December 22, 2008.
</fn>
</table>

Option Exercises and Stock Vested Table

The  following  table  provides  information  concerning  each exercise of stock
options and each vesting of stock,  including  restricted  stock and  restricted
stock units, during First Merchants' 2007 fiscal year for each of the NEOs.
<table>
<caption>

                                            Option Exercises and Stock Vested During Fiscal Year 2007
                      ----------------------- ---------------------------- ---------------------------
                                                        Option awards             Stock awards
                               Name


                                              ---------------------------- ---------------------------

                                                Number of        Value       Number of       Value
                                                  shares       realized       shares       realized
                                               acquired on    on exercise   acquired on       on
                                                 exercise                   vesting<f1>   vesting<f1>
                      ----------------------- --------------- ------------ -------------- ------------
                        <S>                       <C>             <C>          <C>             <C>
                      Michael L. Cox              6,078         $18,903        4,251       $101,749
                      Michael C. Rechin               0               0          667         15,294
                      Mark K. Hardwick                0               0          460         10,892
                      Robert R. Connors               0               0          467         11,049
                      David W. Spade                  0               0           40            937
                      Jami L. Bradshaw                0               0            0              0
                      ----------------------- --------------- ------------ -------------- ------------

                                    Page 20
<page>
<FN>
<f1> All of the  amounts  shown in the  Number of Shares  or Units  Acquired  on
     Vesting  column for Messrs.  Hardwick,  Connors  and Spade,  and 851 of the
     shares shown for Mr. Cox,  are  deferred  stock units they earned under the
     Senior Management  Incentive  Compensation Program for the 2005 fiscal year
     which vested at the end of the 2007 fiscal year.  The amounts  shown in the
     Value  Realized on Vesting  column,  with respect to these  deferred  stock
     units,  were  paid  in  cash to  these  executives  in  February  2008,  in
     accordance with the program's  provisions.  These payments to Messrs.  Cox,
     Hardwick, Connors and Spade included dividends that would have been payable
     on an equivalent  number of shares of First Merchants stock during 2006 and
     2007,  in the  amounts of $1,566,  $846,  $859 and $73,  respectively.  The
     amount  shown in the Number of Shares or Units  Acquired on Vesting  column
     for Mr. Rechin is the portion of the restricted  stock award made to him on
     December 22, 2005 under the First  Merchants'  Long-term  Equity  Incentive
     Plan which vested on December 22, 2007. This award is further  described in
     footnote 2 to the  Outstanding  Equity Awards at Fiscal Year-End 2007 Table
     on page 20 of this proxy statement.  The amount shown in the Value Realized
     on Vesting column for Mr. Rechin was  determined by multiplying  the number
     of shares that vested  (667)  times the  closing  price of First  Merchants
     stock on December 22, 2007 ($22.93).
</fn>
</table>
Pension Benefits Table

The First Merchants Corporation  Retirement Pension Plan (the "Pension Plan") is
a qualified defined benefit pension plan that pays monthly  retirement  benefits
to  eligible  employees.  The  benefits,  computed  as a  straight-life  annuity
although other forms of actuarially-equivalent  benefits are available under the
plan, are based on the following formula: 1.6% of average final compensation (in
general, the participant's highest 60 consecutive months' W-2 compensation, less
incentive  pay)  plus .5% of  average  final  compensation  in  excess of Social
Security  covered  compensation,  both times years of service to a maximum of 25
years.  The plan was frozen,  effective March 1, 2005, for  participants who had
not yet attained age 55 and been credited with 10 or more years of service as of
that date,  meaning that their  accrued  benefits were vested and they no longer
accrued benefits under the plan, and employees who were not participating in the
plan as of that date were not  eligible to  participate.  The  benefits  payable
under the plan at age 65 to the  participants  whose  benefits  were  frozen are
determined under the above formula, based on their average final compensation as
of March 1, 2005, times a fraction,  the numerator of which is the participant's
years of  service  as of  March 1,  2005,  and the  denominator  of which is the
participant's years of service projected to age 65. The participants who were at
least age 55 with 10 or more  years of  service  at the time the plan was frozen
continued to accrue benefits under the plan until their retirement.

The First  Merchants  Corporation  Supplemental  Executive  Retirement Plan (the
"SERP"),  a  defined  benefit,  nonqualified  "excess  benefit"  plan,  provides
additional retirement benefits to designated executives whose benefits under the
Pension Plan are restricted due to the limit under Internal Revenue Code Section
401(a)(17) on the amount of compensation  that can be considered for purposes of
calculating  pension  benefits under a qualified  plan. This amount was $220,000
for 2006 and $225,000 for 2007 (there are no executives  accruing benefits under
this plan after 2007).  The benefit payable under this plan is calculated  using
the Pension Plan formula described in the preceding paragraph,  without applying
the  Section  401(a)(17)  limit  and  including   non-equity  incentive  pay  in
determining average final  compensation,  and then subtracting the benefit which
is payable to the  executive  under the Pension  Plan.  The SERP is unfunded and
subject  to  forfeiture  in  the  event  of  bankruptcy.   The  Corporation  has
established a "rabbi" trust,  with the First Merchants  Trust Company,  National
Association,  a wholly-owned subsidiary of the Corporation,  as the trustee. The
Corporation   makes  annual   contributions   to  the  trust  to  help  pay  the
Corporation's  liabilities  under the SERP, with which the trustee pays premiums
on   corporate-owned   life  insurance  that  is  intended  to  help  pay  these
liabilities.

The  following  table shows  benefits  accrued to the NEOs under the  Retirement
Pension Plan and the Supplemental  Executive  Retirement Plan as of December 31,
2007.  The  assumptions  used  in  calculating  the  present  value  of a  NEO's
accumulated  benefit are the same as those used for financial reporting purposes
with respect to the Corporation's  2007 audited financial  statements,  assuming
that the executive  retires at age 65, the normal retirement age under the plan.
A discussion  of these  assumptions  is contained in Note 17 to the 2007 audited
financial statements, on page 63 of the Corporation's Annual Report.

                                    Page 21
<page>
<table>
<caption>
                                      Accrued Pension Benefits at Fiscal Year-End 2007
              ------------------------- ------------ -------------- ----------------- ----------------
                     <S>                  <C>              <C>         <C>                  <C>
                        Name             Plan name     Number of     Present value       Payments
                                                         years       of accumulated    during fiscal
                                                       credited      benefit as of       year 2007
                                                      service as        12/31/07
                                                          of
                                                      12/31/07<f4>
              ------------------------- ------------ -------------- ----------------- ----------------
              Michael L. Cox<f1>                         11.90          $593,851          $26,766
                                          Pension
                                           Plan
                                           SERP          11.90           714,427                0

              Michael C. Rechin<f2>         N/A            N/A               N/A              N/A

              Mark K. Hardwick<f3>        Pension         7.32            26,226                0
                                           Plan

              Robert R. Connors<f3>       Pension         2.50            67,117                0
                                           Plan

              David W. Spade<f2>            N/A            N/A               N/A              N/A

              Jami L. Bradshaw<f3>        Pension         1.17            12,032                0
                                           Plan
              ------------------------- ------------ -------------- ----------------- ----------------

<fn>
<f1> Mr. Cox is the only NEO who had attained age 55 and been credited with more
     than 10 years of service  when the Pension  Plan was  frozen,  so he is the
     only NEO who  continued to accrue  benefits  under the plan after that date
     until his  retirement  on April 24,  2007.  He is also the only NEO who was
     designated as a  participant  in the defined  benefit SERP.  Payment of Mr.
     Cox's  benefit  under the Pension Plan  commenced in May 2007, in an annual
     amount  equal to a straight  life  annuity of  $47,234;  however,  since he
     elected  payment  in the form of a joint  and 100%  survivor  annuity,  his
     actual  annual  benefit is $40,149.  Payment of Mr. Cox's benefit under the
     SERP commenced in January 2008,  payable as a 15-year  certain life annuity
     in the annual amount of $52,431.

<f2> Messrs. Rechin and Spade were not participants in the Pension Plan.

<f3> Messrs.  Hardwick  and Connors and Ms.  Bradshaw had not attained age 55 or
     been  credited with more than 10 years of service when the Pension Plan was
     frozen, so their benefits under the plan were frozen.

<f4> The NEOs' years of  credited  service  under the Pension  Plan and the SERP
     were one  fewer  than  their  number of actual  years of  service  with the
     Corporation.
</fn>
</table>
Nonqualified Deferred Compensation Table

In 2006,  First Merchants  established the First Merchants  Corporation  Defined
Contribution  Supplemental  Executive Retirement Plan (the "Defined Contribution
SERP"), a nonqualified  plan that is intended to provide  additional  retirement
benefits  to  designated  executives  whose  benefits  under  the  Corporation's
qualified  Internal Revenue Code Section 401(k) defined  contribution plan - the
First  Merchants  Corporation  Retirement  and Income Savings Plan (the "Section
401(k)  Plan") - are  restricted  due to the limit under  Internal  Revenue Code
Section  401(a)(17) on the amount of  compensation  that can be  considered  for
purposes of calculating pension benefits under a qualified plan. The Corporation
annually  credits a percentage of the  participant's  compensation  (base salary
plus  non-equity  incentive  pay)  for  the  plan  year,  as  determined  by the
Compensation  and Human  Resources  Committee,  to a  deferred  benefit  account
established  for the  participant  under the plan.  No amount is credited to the
participant's account under the Defined Contribution SERP unless the participant
has made  sufficient  contributions  to the Section  401(k) Plan for the year to
entitle the participant to the maximum matching employer contributions under the
Section 401(k) Plan.  Participants  are not permitted to make  contributions  to
their accounts under the Defined Contribution SERP. Participants' interests vest
under the plan upon the earliest of death,  disability,  involuntary termination
except  for  cause,  a  change  of  control  of the  Corporation,  or 5 years of
participation in the plan. Their account balances, including amounts credited to
the accounts,  adjusted for  investment  gain or loss, are payable in 36 monthly
installments following death, disability or separation from service (the initial
payments  are  delayed 6 months  and made  retroactively  if made on  account of
separation from service).  The SERP is unfunded and subject to forfeiture in the

                                    Page 22
<page>
event of bankruptcy.  The Corporation has established a "rabbi" trust,  with the
First Merchants Trust Company,  National Association,  a wholly-owned subsidiary
of the Corporation,  as the trustee.  The Corporation makes annual contributions
to the  trust  to help  pay the  Corporation's  liabilities  under  the  Defined
Contribution  SERP. While  participants may request that these  contributions be
invested  in  accordance   with   investment   options  made  available  by  the
Corporation,  the  Corporation  is under  no  obligation  to  comply  with  such
requests. The accounts' actual investment returns may differ from the returns on
the investments requested by the participants.  Participants may request changes
in the investment  options daily, by submitting  written  investment  allocation
requests to the trustee.

The  following  table  shows the  dollar  amounts  of  contributions,  earnings,
withdrawals,  distributions  and the  aggregate  balances of the NEOs'  deferred
benefit accounts under the Defined Contribution SERP as of December 31, 2007.
<table>
<caption>
                   Nonqualified Deferred Compensation in 2007
     ----------------------- ---------------- --------------- ------------ -------------- -------------------

              Name              Executive     Corporation's    Aggregate     Aggregate    Aggregate balance at
                              contributions   contributions    earnings    withdrawals/    fiscal year-end
                             in fiscal year     in fiscal      in fiscal   distributions         2007
                                  2007          year 2007      year 2007

     ----------------------- ---------------- --------------- ------------ -------------- -------------------
     ----------------------- ---------------- --------------- ------------ -------------- -------------------
        <S>                       <C>              <C>          <C>              <C>             <C>
     Michael L. Cox                $0          $     0        $    0            $0           $     0
     Michael C. Rechin<f1>          0           50,856         1,699             0            35,095
     Mark K. Hardwick               0               0              0             0                 0
     Robert R. Connors              0               0              0             0                 0
     David W. Spade                 0               0              0             0                 0
     Jami L. Bradshaw               0               0              0             0                 0
     ----------------------- ---------------- --------------- ------------ -------------- -------------------
<fn>
<f1> Mr. Rechin is the only NEO who has been  designated as a participant in the
     Defined  Contribution  SERP. The Corporation  credited 12 % of Mr. Rechin's
     compensation (base salary plus non-equity incentive pay) to his account for
     2007.  This amount is also  reported as  compensation  to Mr. Rechin in the
     Summary  Compensation  Table  on page 16 of this  proxy  statement,  in the
     column headed "All Other Compensation."
</fn>
</table>
Termination of Employment and Change of Control Arrangements

First Merchants has change of control  agreements with each of the NEOs,  except
for Mr. Cox,  whose change of control  agreement  terminated  when he retired on
April 24, 2007. These are "double trigger" change of control agreements, in that
they provide for the payment of severance benefits to the executives only in the
event of both a change  of  control  of First  Merchants  and a  termination  or
constructive  termination  of the  employment of the executive  within 24 months
after the change of control (but no payment will be made if the  termination was
for cause, because of the executive's death, disability or voluntary retirement,
or by the  executive  other  than on account of  constructive  termination).  In
general, a "change of control" means an acquisition by any person of 25% or more
of First  Merchants'  voting shares, a change in the makeup of a majority of the
Board  over a  24-month  period,  a merger  of  First  Merchants  in  which  the
shareholders before the merger own 50% or less of First Merchants' voting shares
after the  merger,  or approval by First  Merchants'  shareholders  of a plan of
complete  liquidation  of First  Merchants or an agreement to sell or dispose of
substantially  all of First  Merchants'  assets.  A  "constructive  termination"
means, generally, a significant reduction in duties, compensation or benefits or
a relocation  of the  executive's  office  outside of the area  described in the
agreement, unless agreed to by the executive.

Upon the occurrence of the two triggering  events, a covered  executive would be
entitled, in addition to base salary and incentive  compensation accrued through
the date of termination,  to payment from First  Merchants,  or its successor in
the  event of a  purchase,  merger  or  consolidation,  of a lump sum  severance
benefit in an amount  determined by multiplying  the sum of (1) the  executive's
annual base  salary as in effect on the date the  executive  receives  notice of
termination, and (2) the executive's largest bonus under First Merchants' Senior

                                    Page 23
<page>
Management Incentive  Compensation Program during the 2 years preceding the date
of termination, by 299% in the cases of Messrs. Rechin and Hardwick, and 150% in
the cases of Messrs.  Connors and Spade and Ms. Bradshaw.  First Merchants would
also pay any  excise tax  imposed on the  executive  under  Section  4999 of the
Internal  Revenue  Code on an  "excess  parachute  payment."  In  addition,  the
executive's outstanding stock options would be cancelled;  and, in lieu thereof,
the executive would receive a lump sum amount equal to the bargain element value
of these options,  if any. The executive  would also be entitled to outplacement
services,  reasonable  legal  fees and  expenses  incurred  as a  result  of the
termination, and life, disability,  accident and health insurance coverage until
the earlier of two years  following the date of termination  or the  executive's
65th birthday. The insurance coverage would be similar to what the executive was
receiving  immediately  prior to the notice of termination,  and First Merchants
would pay the same  percentage  of the cost of such coverage as it was paying on
the executive's behalf on the date of such notice.

The following table shows the lump sum severance benefit amounts that would have
been  payable to the NEOs if both of the  triggering  events under the change of
control  agreements  had occurred on December  31, 2007,  as well as the bargain
element  values of their  outstanding  stock options on that date, the estimated
values of their life,  disability,  accident and health insurance  coverages for
two years following that date, and the estimated  amounts of the excise tax that
would have been imposed under  Section 4999 of the Internal  Revenue Code on the
lump sum severance payments.
<table>
<caption>
                          Change of Control Agreements
   -------------------- ---------- ----------------- --------------------- --------------------- ----------------
           Name         Multiplier    Severance        Bargain Element     Estimated Values of      Estimated
                                    Benefit Amount        Values of        Insurance Coverages     Excise Tax
                                                      Outstanding Stock        for 2 years       Under IRC ss.4999
                                                           Options
   -------------------- ---------- ----------------- --------------------- --------------------- ----------------
          <S>              <C>             <C>                <C>               <C>                  <C>
   Michael C. Rechin      299%        $1,179,980          $    0                $20,012            $175,912
   Mark K. Hardwick       299%           749,892           7,241                 18,669             115,529
   Robert R. Connors      150%           344,519               0                 18,562                   0
   David W. Spade         150%           307,781               0                 14,328                   0
   Jami L. Bradshaw       150%           218,641               0                 13,408                   0
   -------------------- ---------- ----------------- --------------------- --------------------- ----------------
</table>
The change of control agreements were not entered into in response to any effort
to acquire  control of First  Merchants,  and the Board is not aware of any such
effort.

The only other  contract,  agreement,  plan or  arrangement,  whether written or
unwritten, that provides for payment(s) to a NEO at, following, or in connection
with any termination,  including,  without limitation,  resignation,  severance,
retirement  or a  constructive  termination  of a NEO, or a change in control of
First  Merchants  or a  change  in a  NEO's  responsibilities,  is an  agreement
concerning  Mr. Cox's  retirement as the  President  and CEO of First  Merchants
which the Board approved on January 23, 2007.

Under the terms of the  agreement,  Mr. Cox retired as the  President and CEO of
First  Merchants on April 24, 2007. He has provided  services to First Merchants
as a nonemployee consultant since his retirement,  and he will continue to do so
until the earlier of April 24,  2009 or the date of the 2009  annual  meeting of
shareholders. In his capacity as a consultant, he reports directly to Mr. Rechin
and performs  services as  requested by Mr.  Rechin.  These  services  generally
include,  among other things,  advice and  assistance  with matters  relating to
mergers, acquisitions and other business expansion initiatives. Mr. Cox has also
continued to represent  First  Merchants as the  Immediate  Past Chairman of the
Board of Directors of the Indiana Bankers Association,  and as a director of the
Indiana State Chamber of Commerce.  These services  generally do not occupy more
than 50% of Mr.  Cox's  time.  He is being paid  $175,000  in the first year and
$100,000 in the second year for these services,  in substantially  equal monthly
installments. Under the agreement, Mr. Cox was nominated and elected to serve as
a director of First Merchants for one additional  three-year term, commencing as
of the 2007 annual meeting of shareholders.  The agreement provides that he will
submit his written resignation as director in January 2009,  effective as of the

                                    Page 24
<page>
2009 annual meeting of shareholders.  Under the agreement, Mr. Cox also resigned
as a director of all of First Merchants' subsidiaries and affiliates on which he
was then serving, effective as of the date of his retirement.

                            COMPENSATION OF DIRECTORS

The directors of First  Merchants who are employees of First Merchants or one of
its  subsidiaries  do not receive  separate  compensation  for their services as
directors. This included Michael C. Rechin and Thomas D. McAuliffe during all of
2007 and Michael L. Cox until his retirement on April 24, 2007. Mr. Cox was also
not  separately  compensated  for  his  services  as a  director  following  his
retirement;  however,  First  Merchants did pay him for his consulting  services
during that  portion of 2007 under the  Agreement  between Mr. Cox and the Board
described  on page 24 under  "Termination  of  Employment  and Change of Control
Agreements."

In general,  for their services in 2007,  the  non-employee  directors  received
annual  retainers  of $15,000,  plus $3,000 for each Board  committee on which a
director  served and $2,000 for  chairing a committee  ($5,000 for  chairing the
Audit  Committee).  The  exceptions  were the Chairman and Vice  Chairman of the
Board, who received annual retainers of $50,000 and $35,000,  respectively,  but
no compensation for committee service.  Robert M. Smitson served as the Chairman
of the  Board  until his  retirement  on April 24,  2007,  after  which the Vice
Chairman, Charles E. Schalliol,  became Chairman and the office of Vice Chairman
was left vacant.  Mr.  Smitson's and Mr.  Schalliol's  retainers  were pro-rated
based on the  portions  of 2007  each held  those  offices.  William  L. Hoy was
elected by the Board as a director on October 23, 2007 to fill a vacancy  caused
by an increase in the number of directors.  His retainer was pro-rated  based on
his service for the remainder of 2007.

Effective  August 1,  2007,  First  Merchants  established  the 2007  Directors'
Deferred Compensation Plan, an unfunded deferred compensation  arrangement under
which  the  non-employee  directors  of  First  Merchants  and the  non-employee
directors of certain  affiliates  of First  Merchants may elect to defer until a
future date all or a portion of the fees  payable to them for their  services as
directors.  An account is maintained for each  participant in the Plan, to which
deferred fees and interest are credited quarterly,  at an interest rate equal to
the greater of the Fed Funds Rate or the five-year  Treasury Interest Rate as of
the first business day of the quarter,  but not to exceed 120% of the Applicable
Long Term Federal Rate for monthly compounding.  First Merchants has established
a "rabbi  trust," to which it  contributes  to provide  itself  with a source of
funds to assist in  meeting  its  liabilities  under  the Plan;  however,  First
Merchants'  obligations under the Plan remain an unsecured,  unfunded promise to
pay benefits to the participants in accordance with the Plan's provisions.

In accordance  with the  Long-term  Equity  Incentive  Plan,  each  non-employee
director who was serving in that  capacity on July 1, 2007 was granted an option
on that date to purchase  1,157  shares of First  Merchants  common  stock at an
option price of $24.03 per share, the market price on that date.

The following table contains  information  concerning the  compensation  paid to
First Merchants' directors,  other than Messrs. Rechin and McAuliffe,  for their
services  as  directors  for 2007.  Messrs.  Smitson and Hoy were not serving as
directors on July 1, 2007 and thus were not eligible for stock options under the
Long-term Equity Incentive Plan.

                                    Page 25
<page>
<table>
<caption>
                                               Director Compensation for 2007 Fiscal Year
              ----------------------------- --------------- -------------- ------------------- ------------------
                                             Fees earned       Option          All Other             Total
                          Name                or paid in    awards<f1><f2>    Compensation
                                                 cash
              ----------------------------- --------------- -------------- ------------------- ------------------
              <S>                                <C>             <C>             <C>                  <C>
              Richard A. Boehning<f3>          $23,000         $2,347                0              $25,347
              Thomas B. Clark<f4>               26,000          2,347                0               28,347
              Michael L. Cox<f6>                     0          2,347          116,668              119,015
              Roderick English                  18,000          2,347                0               20,347
              Jo Ann M. Gora                    18,000          2,347                0               20,347
              William L. Hoy<f3>                 2,836              0                0                2,836
              Barry J. Hudson<f3><f5>           51,000          2,347                0               53,347
              Charles E. Schalliol             $46,250         $2,347                0              $48,597
              Robert M. Smitson                 15,833              0                0               15,833
              Terry L. Walker<f4>               18,000          2,347                0               20,347
              Jean L. Wojtowicz                 26,000          2,347                0               28,347
              ----------------------------- --------------- -------------- ------------------- ------------------

<fn>
<f1> The dollar amounts shown for option awards  represent the dollar amounts of
     those awards recognized for financial statement reporting purposes for 2007
     in  accordance  with FAS 123R.  A  discussion  of the  assumptions  used in
     calculating  these  values  is  contained  in Note 16 to the  2007  audited
     financial statements, on page 60 of First Merchants' Annual Report.

<f2> As of the end of 2007  fiscal  year,  the  non-employee  directors  had the
     following  aggregate  number of option awards  outstanding:  Mr. Boehning -
     6,942; Mr. Clark - 11,454; Mr. Cox - 103,521; Mr. English - 3,471; Dr. Gora
     - 3,471;  Mr. Hoy - 0; Mr.  Hudson - 15,321;  Mr.  Schalliol  - 3,471;  Mr.
     Smitson - 10,297; Mr. Walker - 1,157; and Ms. Wojtowicz - 4,628.

<f3> Mr.  Boehning also received an $11,550  retainer  (which was fully deferred
     under an unfunded deferred  compensation  plan) and life insurance coverage
     in the amount of $6,000 for his  services as a director of  Lafayette  Bank
     and Trust Company, National Association, a wholly owned subsidiary of First
     Merchants,  in 2007. This retainer was pro-rated due to his retirement as a
     Lafayette  Bank director on July 31, 2007.  Mr. Hoy was paid $4,100 for his
     services as a director of Commerce National Bank, a wholly owned subsidiary
     of First  Merchants,  in 2007. Mr. Hudson was paid $3,000 in 2007 (of which
     he deferred $1,089 under an  insurance-funded  deferred  compensation plan)
     for his services as Chairman of the Board of  Directors  of First  National
     Bank of Portland, a wholly owned subsidiary of First Merchants, until First
     National  was  merged  into First  Merchants  Bank,  National  Association,
     another wholly owned subsidiary of First Merchants, on April 1, 2007.

<f4> Mr.  Clark  and  Mr.  Walker  deferred   payment  of  $19,500  and  $9,000,
     respectively,  of their fees earned in 2007,  under the  provisions  of the
     2007  Directors'  Deferred  Compensation  Plan described on page 25 of this
     proxy statement.

<f5> In addition to fees earned in 2007  totaling  $18,000,  Mr. Hudson was paid
     $33,000 in 2007 for his  services  as a  non-employee  director in 2005 and
     2006, for which he had not previously received payment due to an oversight.

<f6> Mr. Cox was paid  $116,668 in 2007 for his services as a  consultant  under
     the  Agreement  between Mr. Cox and the Board  described on page 24 of this
     proxy  statement,  under  "Termination  of Employment and Change of Control
     Agreements."
</fn>
</table>
VOTING  ITEM 2 - PROPOSAL  TO APPROVE  THE FIRST  MERCHANTS  CORPORATION  EQUITY
COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

First  Merchants'   shareholders  are  asked  to  approve  the  First  Merchants
Corporation Equity Compensation Plan for Non-Employee Directors (the "Plan"). If
approved,  the Plan will  provide  that at least  one-half  of the  compensation
payable  to  non-employee  directors  must  be in  restricted  shares  of  First
Merchants common stock instead of cash. The following background information and
summary of the major features of the Plan are subject to the specific provisions
contained in the full text of the Plan set forth in Appendix A.


                                    Page 26
<PAGE>
Background Information

In 2007, the  Compensation and Human Resources  Committee  undertook a review of
First Merchants non-employee director  compensation,  studying current trends in
director  compensation  including  information regarding other public companies'
fee arrangements compiled by consulting firms and/or disclosed in recently filed
proxy statements.  The data showed that non-employee  director  compensation has
increased  significantly  within  the  past  few  years  in  recognition  of the
substantial  increases in time and effort and levels of personal  responsibility
and  financial  risk  demanded  of public  company  directors,  underlining  the
importance  of  attracting  the  most  qualified  candidates.   Further,   under
prevailing   corporate   governance   best  practices,   non-employee   director
compensation  now generally  includes an element of equity-based as well as cash
compensation,  in  order to  further  align  director  pay  with  company  stock
performance.  Based on its  review,  the  Committee  recommended  and the  Board
approved, a restructured  non-employee  director compensation program. The first
element of the  program  became  effective  January 1,  2008.  The  non-employee
directors'  annual retainers were increased to $40,000 ($75,000 for the Chairman
of the  Board) - a level  comparable  to peer  public  companies  including,  in
particular,   other  financial  holding  companies.   In  recognition  of  their
additional responsibilities, the Audit Committee Chairman receives an additional
$10,000  and other  Committee  Chairmen  an  additional  $5,000  (except for the
Chairman  of the Board,  who  doesn't  receive  additional  pay for serving as a
Committee Chairman).  Directors do not receive additional amounts for serving on
Board Committees or for attending meetings.

The second element of the program,  if approved by the  shareholders at the 2008
annual  meeting,  will provide for payment of at least one-half of  non-employee
director  compensation  in  restricted  shares of First  Merchants  common stock
instead of cash. Under NASDAQ  Marketplace  Rules, this provision for payment of
part of the directors'  compensation in the form of First Merchants common stock
must be  approved  by the  shareholders  before  it can be  implemented.  If the
shareholders do not approve the First Merchants  Corporation Equity Compensation
Plan for Non-Employee  Directors,  the  non-employee  directors will continue to
receive all of their  compensation,  as described in the  immediately  preceding
paragraph, in the form of cash.

Purpose of First Merchants Corporation Equity Compensation Plan for Non-Employee
Directors

The Plan is intended to be beneficial to First  Merchants and its  shareholders,
in that non-employee  directors will have a greater personal  financial stake in
First  Merchants  through  the  payment  of  a  significant   portion  of  their
compensation  in  First  Merchants  common  stock.   This  will  underscore  the
non-employee  directors'  common  interest with  shareholders  in increasing the
long-term value of First Merchants common stock.
<table>
<caption>
<S>                           <C>
Key Terms

Effective Date             April 29, 2008

Participant                Any member of the First Merchants Board who is not
                           an  employee  of  First  Merchants or  any of  its
                           subsidiaries.

Compensation               Any retainer, fee or other payment  of any kind to
                           which a Participant is entitled for  services as a
                           non-employee  director  of  First  Merchants,  but
                           excluding any stock  option  granted  under  First
                           Merchants' Long-term Equity Incentive Plan.

Restricted Share           A share of First Merchants  common  stock  that is
                           nontransferable  and subject to a substantial risk
                           of forfeiture.

Shares Authorized          500,000 shares (approximately 2.8% of  outstanding
                           shares)  over  10   years,  subject  to  automatic
                           adjustment  in the event of a  stock  split, stock
                           dividend, recapitalization or similar event.

                                    Page 27
<page>
Payment Date               Quarterly in arrears, as  of the last business day
                           of the calendar quarter.
</table>
Plan Termination April 29, 2018, unless terminated earlier by the Board.

Compensation Payable in Restricted Shares

All Participants  will receive a fraction of their  Compensation - not less than
one-half - in Restricted Shares, effective for Compensation payable for calendar
quarters  ending after the  Effective  Date;  i.e.,  commencing as of the second
quarter of 2008. The Board will determine this fraction from  time-to-time  and,
in the absence of such  determination,  the fraction will be one-half.  Thus, if
the  fraction is one-half,  a  Participant  who is entitled to a $40,000  annual
retainer  will receive  $20,000 in cash and $20,000 in  Restricted  Shares.  The
number of Restricted  Shares to be issued each quarter will be determined on the
basis of their  fair  market  value as of the  Payment  Date;  that is, the last
reported sale price of a share of First  Merchants  stock on that date, or if no
sale took place,  the last reported sale price of a share on the most recent day
on which a sale of a share of  stock  took  place as  reported  by  NASDAQ  or a
national  securities  exchange on which First  Merchants stock is listed on such
date.

Restrictions on Shares

Restricted  Shares  issued  under  the  Plan  will  be  nontransferable  by  the
Participant and subject to a substantial  risk of forfeiture  until the earliest
of the following  dates:  (i) the third  anniversary of the date the shares were
issued if, as of the date the  restrictions  are to lapse,  the  Participant has
continued  to serve as a  non-employee  director  from the date as of which  the
shares  were  issued  to the date of lapse;  (ii) the date of the  Participant's
retirement  as a member of the Board after he or she has  attained age 55; (iii)
the date of the Participant's death; (iv) the date the Participant is determined
to be totally and  permanently  disabled,  as defined in Internal  Revenue  Code
Section  22(e)(3);  or (v) the date of a Change of  Control,  as  defined in the
Long-term  Equity  Incentive  Plan.  In the event a  Participant's  service as a
non-employee  director  terminates prior to the date the restrictions lapse, the
shares still subject to the restrictions will be forfeited. The Participant will
be deemed to be the beneficial  owner of the Restricted  Shares issued under the
Plan  unless  and  until  they  are  forfeited.  As the  beneficial  owner,  the
Participant  will  have  all  rights  of  beneficial  ownership  in such  shares
including  the right to vote the  shares and  receive  all  dividends  and other
distributions paid or made with respect thereto.

Deferral of Compensation Payable in Restricted Shares

A  Participant  may  elect  to  defer  payment  of  all  or  part  of his or her
Compensation  that is payable  in  Restricted  Shares,  in  accordance  with the
provisions of the 2007 Directors'  Deferred  Compensation Plan described on page
25 of this proxy statement. An account will be established for a Participant who
makes this  election,  which  account:  (a) will be credited with deferred stock
units in lieu of the Restricted  Shares  otherwise  issuable to the Participant;
(b) will be credited with earnings  each  quarter,  based on the deferred  stock
unit balance in the account,  equal to the dividends that would be payable on an
equivalent  number of shares of First  Merchants  common stock;  (c) will not be
deemed to be  beneficially  owned by the Participant or convey any voting rights
to the Participant until distributed to the Participant; (d) will be distributed
to the  Participant on the payment date elected by the Participant in a lump sum
in shares of First Merchants stock.

Amendment and Termination of Plan

The Plan may be amended at any time by resolution of the Board, but no amendment
will be effective without shareholder  approval if such shareholder  approval is
required by law or by the rules of NASDAQ or any national securities exchange on
which  First  Merchants  stock is listed.  Any such  amendment  must comply with
applicable  laws and  regulations.  The Plan will  terminate  on April 29, 2018,
which is 10 years  from the date of the 2008  annual  meeting  of  shareholders,
unless earlier terminated by resolution of the Board.

                                    Page 28
<page>
Benefits Payable to Non-Employee Directors under Plan

The following table indicates the total compensation that is expected to be paid
to First  Merchants'  non-employee  directors in 2008,  including the portion of
this  compensation  that would have been  payable  under the Plan in  Restricted
Shares  instead  of cash had the Plan been in effect  for all of 2008.  However,
because shareholder approval is required, the Plan cannot become effective until
the second quarter of 2008. Each director's  total  compensation is based on the
director's status as a First Merchants  director and as a Committee  Chairman as
of the date of this proxy  statement.  Because the number of shares to be issued
under the Plan depends on the fair market value of First Merchants  common stock
on the date the shares are earned,  the number of shares payable to non-employee
directors is not  determinable at this time. For purposes of  illustration,  the
number of  shares  set forth in the  table  below  was  determined  by using the
closing price of First  Merchants  common stock on December 31, 2007,  which was
$21.84.

<table>
<caption>
                                New Plan Benefits
               Equity Compensation Plan for Non-Employee Directors
         ---------------------------- ---------------- ------------------- ---------------- -----------------
                                       Dollar Value        Shares of        Fees Paid in         Total
                    Name               of Restricted    Restricted Stock        Cash          Compensation
                                          Shares
         ---------------------------- ---------------- ------------------- ---------------- -----------------
            <S>                            <C>                <C>                <C>                <C>
         Richard A. Boehning<f1>         $ 7,316               335             $ 7,315           $14,631
         Thomas B. Clark                  22,500             1,030              22,500            45,000
         Roderick English                 20,000               916              20,000            40,000
         Jo Ann M. Gora                   20,000               916              20,000            40,000
         William L. Hoy                   20,000               916              20,000            40,000
         Barry J. Hudson                  20,000               916              20,000            40,000
         Charles E. Schalliol             37,500             1,719              37,500            75,000
         Terry L. Walker<f1>              21,687               993              21,687            43,374
         Jean L. Wojtowicz                25,000             1,145              25,000            50,000
         Executive Officers as a               0                 0                   0                 0
         Group

         Non-Employee Directors as       194,003             8,886             194,002           388,005
         a Group

         Non-Executive Officer
         Employees as a Group                  0                 0                   0                 0
         ---------------------------- ---------------- ------------------- ---------------- -----------------
<fn>
<f1> Mr.  Boehning  will  retire as a director of First  Merchants  on April 29,
     2008,  the date of the 2008 annual  meeting of  shareholders.  He presently
     serves as Chairman of the Executive Committee of the Board. Mr. Walker will
     become Chairman of the Executive Committee upon Mr. Boehning's retirement.
</FN>
</table>

Shareholder  Vote  Required to Approve the First  Merchants  Corporation  Equity
Compensation Plan for Non-Employee Directors

The Plan will be approved if it receives the favorable vote of a majority of the
shares present and voting at the annual meeting of shareholders. Abstentions and
broker non-votes will be considered neither a vote "for" nor "against."

Equity Compensation Plan Information

The following table provides information about First Merchants common stock that
may be issued under equity compensation plans, other than the Plan, to employees
or  non-employees  (such as  non-employee  directors)  of First  Merchants as of
December 31, 2007.

                                    Page 29
<page>
<table>
<caption>
                      Equity Compensation Plan Information
------------------------------------ --------------------- --------------------- ----------------------------------
         Plan Category               Number of
                                     securities to be                            Number of securities remaining
                                     issued upon           Weighted average      available for future issuance
                                     exercise of           exercise price of     under
                                     outstanding           outstanding           equity compensation plans
                                     options, warrants     options, warrants     (excluding securities reflected
                                     and rights            and rights            in first column)
------------------------------------ --------------------- --------------------- ----------------------------------
<S>                                           <C>                  <C>                           <C>
                                          1,018.076               $24.37                     400,000<f1>
Equity compensation plans approved
     by shareholders

Equity compensation plans not
    approved by shareholders<f2>             36,354                22.33
                                           --------              -------
    Total                                 1,054,430               $24.30                     400,000<f1>
------------------------------------ --------------------- --------------------- ----------------------------------
<FN>
<f1> This number does not include shares remaining available for future issuance
     under the 1999 Long-term Equity Incentive Plan, which was approved by First
     Merchants' shareholders at the 1999 annual meeting. The aggregate number of
     shares that are  available  for grants under that Plan in any calendar year
     is equal to the sum of:  (a) 1% of the  number  of First  Merchants  common
     shares  outstanding as of the last day of the preceding calendar year; plus
     (b) the number of shares that were  available for grants,  but not granted,
     under the Plan in any  previous  year;  but in no event  will the number of
     shares  available  for  grants in any  calendar  year  exceed 1 1/2% of the
     number of First Merchants  common shares  outstanding as of the last day of
     the preceding  calendar year. The 1999 Long-term Equity Incentive Plan will
     expire in 2009.

<f2> The only plan  reflected  above that was not  approved by First  Merchants'
     shareholders  relates to certain First Merchants  Corporation  Stock Option
     Agreements  ("Agreements").  These  Agreements  provided for  non-qualified
     stock options of First  Merchants  common stock to be awarded  between 1995
     and 2002 to each director of First  Merchants  Bank,  National  Association
     (the "Bank"), who, on the date of the grants: (a) was serving as a director
     of the Bank; (b) was not an employee of First  Merchants,  the Bank, or any
     of First Merchants'  other  affiliated banks or the non-bank  subsidiaries;
     and (c) was not  serving as a director  of First  Merchants.  The  exercise
     price of the shares was equal to the fair  market  value of the shares upon
     the grant of the option.  Options  became 100% vested when  granted and are
     fully  exercisable six months after the date of the grant,  for a period of
     ten years.
</fn>
</table>
THE BOARD  RECOMMENDS THAT  SHAREHOLDERS  VOTE "FOR" THE PROPOSAL TO APPROVE THE
FIRST MERCHANTS CORPORATION EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS.
IF THE  SHAREHOLDERS  DO NOT  APPROVE  THE  PLAN,  NON-EMPLOYEE  DIRECTORS  WILL
CONTINUE TO RECEIVE THE FULL AMOUNT OF THEIR COMPENSATION IN CASH.

Non-Employee Director Stock Ownership Guideline

Although not part of the First Merchants  Corporation  Equity  Compensation Plan
for  Non-Employee  Directors  that is being  submitted to the  shareholders  for
approval at the 2008 annual  meeting,  the  restructured  non-employee  director
compensation  program  adopted  by the  Board  effective  January  1,  2008 also
includes a guideline  providing  that all directors  will be expected to acquire
and hold First  Merchants  stock  equal in value to at least  three  times their
total annual director compensation while serving on the Board. Directors will be
expected to meet this  guideline  as soon as  reasonably  possible,  taking into
account the director's  relevant  financial and other  circumstances,  but in no
event more than six years after the director is first elected to the Board.

                        TRANSACTIONS WITH RELATED PERSONS

Certain directors and executive officers of First Merchants and its subsidiaries
and their  associates are customers of, and have had  transactions  with,  First
Merchants'  subsidiary  banks  from  time  to  time in the  ordinary  course  of
business.  Additional transactions may be expected to take place in the ordinary
course of  business in the future.  All loans and  commitments  included in such
transactions were made on substantially the same terms, including interest rates

                                    Page 30
<page>
and  collateral,  as those  prevailing  at the time for  comparable  loans  with
persons not related to the lender and did not involve  more than the normal risk
of collectibility or present other unfavorable features.

Richard A. Boehning,  a director of First Merchants and Lafayette Bank and Trust
Company, National Association,  a wholly owned subsidiary of First Merchants, is
of counsel to the law firm of Bennett, Boehning & Clary LLP, Lafayette, Indiana,
which  Lafayette  Bank and Trust has retained as legal  counsel  during 2007 and
will  continue  to retain as legal  counsel  in 2008.  Charles E.  Schalliol,  a
director  of First  Merchants,  is of counsel to the law firm of Baker & Daniels
LLP, Indianapolis,  Indiana, which First Merchants Bank, National Association, a
wholly owned subsidiary of First Merchants, has retained as legal counsel during
2007 and will  continue  to  retain  as legal  counsel  in 2008.  The  Board has
determined that these relationships do not prevent Mr. Boehning or Mr. Schalliol
from being "independent directors," as defined in the NASDAQ listing standards.

In accordance with First Merchants' Code of Business  Conduct,  all transactions
in which First  Merchants is or is to be a participant  and the amount  involved
exceeds  $120,000,  and in  which a  director  or  executive  officer  of  First
Merchants,  or any  member of his or her  immediate  family,  had or will have a
direct or indirect material interest, will be reviewed for potential conflict of
interest and must be approved by the Audit  Committee.  Under the  standards set
forth in the Code of  Business  Conduct,  the  Audit  Committee  will  determine
whether the  transaction  might pose an actual or apparent  conflict of interest
and, if so,  whether  such  conflict  would  prevent the  director or  executive
officer  from  complying  with his or her  obligation  never  to allow  personal
interests to interfere with objectivity in performing  responsibilities to First
Merchants and never to use or attempt to use a position with First  Merchants to
obtain any  improper  personal  financial  or other  benefit for the director or
executive officer, his or her family members, or any other person.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires First
Merchants'  directors  and  executive  officers to file reports of ownership and
changes in ownership of First Merchants stock with the SEC. Based on its records
and the written  representations of its directors and executive officers,  First
Merchants  believes  that during 2007 these  persons  complied  with all Section
16(a) filing  requirements;  except that:  (1) a late Form 4 report was filed on
May 17, 2007 by director and retired  executive officer Michael L. Cox to report
the sale of 1,014 shares on April 24,  2007;  (2) a late Form 4 report was filed
on June 22, 2007 by executive  officer Shawn R.  Blackburn to report the sale of
633 shares on June 8, 2007; (3) a late Form 3 report was filed by director Terry
L.  Walker on July 27, 2007 to correct a Form 3 report  filed on July 26,  2006,
which had  omitted  525 shares  owned by Mr.  Walker's  spouse in an  investment
management  account;  and (4) two late Form 4 reports were filed on December 31,
2007 by director Richard A. Boehning,  the first to report the purchase of 1,400
shares on August 6, 2007 and the  second to report  the sale of 1,400  shares on
December 17, 2007.

                               INDEPENDENT AUDITOR

Fees for Professional Services Rendered by BKD, LLP

The following  table shows the  aggregate  fees billed by BKD, LLP for audit and
other services rendered to First Merchants for 2006 and 2007.
<table>
                  <S>                                    <C>                                    <C>
                                                            2006                               2007
                                                            ----                               ----
                Audit Fees                                $397,500                           $382,500
                Audit-Related Fees                          83,911                             66,923
                Tax Fees                                    77,072                            100,801
                All Other Fees                                   0                                  0
                                                       ---------------                    ---------------
                Total Fees                                $558,483                           $550,224
                                                       ===============                    ===============
</table>

                                    Page 31
<page>
The "Audit Fees" were for professional services rendered for the audits of First
Merchants' consolidated financial statements and internal control over financial
reporting,  reviews of condensed  consolidated  financial statements included in
First  Merchants'  Forms 10-Q,  and  assistance  with  regulatory  filings.  The
"Audit-Related Fees" were for professional services rendered for audits of First
Merchants' benefit plans.

The "Tax Fees" were for  professional  services  rendered for preparation of tax
returns and consultation on various tax matters.

All of the  services  related to the  "Audit-Related  Fees," "Tax Fees" and "All
Other  Fees"  for 2006 and 2007 were  pre-approved  by the  Audit  Committee  in
accordance with the Committee's pre-approval policy described below.

The Audit  Committee  has  considered  whether the  provision by BKD, LLP of the
services  covered  by the fees  other  than the audit  fees is  compatible  with
maintaining BKD, LLP's independence and believes that it is compatible.

Pre-approval Policies and Procedures

The Audit  Committee has  established  a  pre-approval  policy,  under which the
Committee is required to pre-approve all audit and non-audit  services performed
by First Merchants'  independent  auditor, in order to assure that the provision
of such services does not impair the auditor's independence.  These services may
include audit services, audit-related services, tax services and other services.
Under this  policy,  pre-approval  is  provided  for 12 months  from the date of
pre-approval unless the Committee  specifically provides for a different period.
The policy is detailed as to the particular services or category of services and
fee  levels  that are  pre-approved.  Unless a service  or type of service to be
provided by the independent auditor has received general  pre-approval,  it will
require specific  pre-approval by the Audit  Committee.  The Committee must also
approve any  proposed  services  exceeding  the  pre-approved  fee  levels.  The
independent  auditor is required to provide detailed back-up  documentation with
respect to each proposed pre-approved service at the time of approval. The Audit
Committee may delegate pre-approval authority to one or more of its members. The
member or members to whom such  authority  has been  delegated  must  report any
pre-approval decisions to the Audit Committee at its next scheduled meeting. The
Audit Committee does not delegate its  responsibilities to pre-approve  services
performed by the independent auditor to management.

VOTING ITEM 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR FOR 2008

The Board,  subject to ratification by the shareholders,  has appointed BKD, LLP
as First  Merchants'  independent  auditor for 2008. If the  shareholders do not
ratify the appointment of BKD, the Audit Committee and the Board will reconsider
this appointment.  Representatives of the firm are expected to be present at the
annual shareholders' meeting. They will have an opportunity to make a statement,
if they  desire  to do so,  and are  expected  to be  available  to  respond  to
appropriate questions.

THE BOARD  RECOMMENDS  THAT  SHAREHOLDERS  VOTE  "FOR" THE  RATIFICATION  OF THE
APPOINTMENT OF THE FIRM OF BKD, LLP AS FIRST MERCHANTS'  INDEPENDENT AUDITOR FOR
2008.

                              SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the 2009 annual meeting of
the  shareholders  must be received by the Secretary of First Merchants at First
Merchants'  principal  office by  November  20,  2008,  for  inclusion  in First
Merchants' 2009 proxy statement and form of proxy relating to that meeting.

Shareholder  proposals,  if any,  intended  to be  presented  at the 2008 annual
meeting that were not submitted for  inclusion in this proxy  statement  will be
considered  untimely  unless  they  were  received  by the  Secretary  of  First
Merchants  at First  Merchants'  principal  office  by  January  29,  2008.  The
Secretary did not receive any such shareholder proposals by that date.

                                    Page 32

<page>
                                  OTHER MATTERS

Shareholders who,  according to First Merchants'  records,  share an address may
receive only one Notice  Regarding the  Availability  of Proxy  Materials on the
Internet  or only one set of  proxy  materials,  unless  the  shareholders  have
provided  contrary  instructions.  Any  shareholder who received only one Notice
Regarding the Availability of Proxy Materials or one set of proxy materials, and
who wishes to receive a separate Notice or a separate set of proxy materials now
or in the  future,  may  write or call  First  Merchants'  Shareholder  Services
Department to request a separate  Notice or a separate set of proxy materials at
First  Merchants  Corporation,  P. O.  Box  792,  Muncie  IN  47308-0792;  (800)
262-4261, extension 21522. Similarly,  shareholders who share an address and who
have received  multiple Notices Regarding the Availability of Proxy Materials or
multiple  copies  of  proxy  materials  may  write  or  call  First   Merchants'
Shareholder  Services  Department  at the same address and  telephone  number to
request  delivery of a single Notice or a single copy of these  materials in the
future.

The cost of soliciting proxies will be borne by First Merchants.  In addition to
solicitations  by mail,  proxies may be solicited  personally or by telephone or
other electronic  means, but no solicitation  will be made by specially  engaged
employees or paid solicitors.

The Board and  management  are not aware of any matters to be  presented  at the
annual  meeting of the  shareholders  other than the election of directors,  the
proposal to approve the First Merchants Corporation Equity Compensation Plan for
Non-Employee  Directors,   and  the  ratification  of  the  appointment  of  the
independent  auditor.  However,  if any other  matters  properly come before the
annual  meeting or any  adjournment  thereof,  the  holders of the  proxies  are
authorized to vote thereon at their discretion, provided First Merchants did not
have notice of any such matter on or before January 29, 2008.

                       By Order of the Board of Directors

Muncie, Indiana                                      Cynthia G. Holaday
March 19, 2008                                       Secretary

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                                       A-5
                                   APPENDIX A

                           FIRST MERCHANTS CORPORATION
               EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS


                                    ARTICLE I

                            ESTABLISHMENT AND PURPOSE

     Section  1.01.  Establishment  of Plan.  First  Merchants  Corporation,  an
Indiana  corporation  (the  "Company"),  hereby  establishes the First Merchants
Corporation  Equity  Compensation Plan for Non-Employee  Directors (the "Plan"),
effective as of April 29, 2008 (the "Effective  Date"),  subject to the approval
of the Plan at the Company's 2008 annual meeting of  shareholders by the holders
of a majority of the shares of the Company's  common stock present and voting at
that meeting in person or by proxy.

     Section 1.02. Purpose.  The purpose of the Plan is to promote the interests
of the Company and its  shareholders  by more closely  aligning the interests of
the Company and its Non-Employee  Directors by requiring the payment of at least
one-half (1/2) of the Compensation  payable to Non-Employee  Directors for their
service in that capacity in Restricted  Shares of the Company's  common stock. A
"Non-Employee  Director"  means  any  member of the  board of  directors  of the
Company  (the  "Board")  who is not an  employee  of the  Company  or any of its
Subsidiaries.  A  "Subsidiary"  means a  corporation  or other form of  business
association of which shares (or other ownership  interests) having fifty percent
(50%)  or more of the  voting  power  are,  or in the  future  become,  owned or
controlled, directly or indirectly, by the Company.

                                   ARTICLE II

                                 ADMINISTRATION

     The Plan shall be  administered  by the  Compensation  and Human  Resources
Committee of the Board (the  "Committee"),  which shall serve at the pleasure of
the Board.  The  Committee  shall have full  authority to  administer  the Plan,
including  authority to interpret  and construe any provision of the Plan and to
adopt  such  rules and  regulations  for  administering  the Plan as it may deem
necessary to comply with the requirements of the Plan or any applicable law. All
actions taken and interpretations made in good faith by the Committee,  or taken
or made by any other  person or  persons  to whom the  Committee  has  delegated
authority, in the administration of the Plan shall be final and binding upon all
interested  persons.  All  decisions  by the  Committee  shall be made  with the
approval of not less than a majority of its members.  No member of the Committee
shall be liable for anything  done or omitted to be done by him or her or by any
other member of the Committee or the Board in connection  with the Plan,  except
for his or her own willful misconduct or as expressly provided by statute.


                                   ARTICLE III

                PARTICIPATION; NON-EMPLOYEE DIRECTOR COMPENSATION

     Section 3.01. Participation. All Non-Employee Directors shall automatically
become participants in the Plan with respect to all Compensation payable to them
for  calendar  quarters  ending  after  the  Effective  Date,  until the Plan is
terminated in  accordance  with the  provisions  of Article VII.  "Compensation"
means any  retainer,  fee or other  payment of any kind to which a  Non-Employee
Director is entitled for services performed in that capacity, including, without
limitation,  any  additional  amount  payable  to a  Non-Employee  Director  for

                                    Page A-1
<page>
chairing a Board  committee,  but excluding any "Director  Option" granted under
the Company's 1999 Long-Term  Equity  Incentive Plan (the "1999 Equity Incentive
Plan").

     Section 3.02. Non-Employee Director Compensation. The Board shall annually,
or at other times as the Board shall deem  appropriate,  determine the amount of
Compensation to be payable for services performed by Non-Employee  Directors, in
accordance with applicable laws and regulations. Such Compensation shall be paid
quarterly, as of the last business day of each calendar quarter.

     Section  3.03.  Fraction  Payable in Restricted  Shares.  A fraction of all
Compensation  payable to  Non-Employee  Directors for calendar  quarters  ending
after the Effective  Date,  as determined by the Board from time to time,  which
fraction  shall not be less than  one-half  (1/2),  shall be paid in  Restricted
Shares, as defined in Section 3.04. In the absence of such  determination,  this
fraction shall be one-half (1/2).  The number of Restricted  Shares to be issued
to each  Non-Employee  Director  shall be  determined  on the  basis of the Fair
Market Value of such Shares as of the date (i.e.,  the last  business day of the
calendar quarter) for which the Compensation is payable. The "Fair Market Value"
of a  Restricted  Share  means the last  reported  sale  price of a share of the
Company's  common stock on the relevant date, or if no sale took place, the last
reported sale price of a share on the most recent day on which a sale of a share
of stock took place as reported by NASDAQ or a national  securities  exchange on
which the Company's  stock is listed on such date. The shares shall be issued as
of the last business day of the relevant  calendar quarter and shall be credited
to the  Non-Employee  Director's  stock  account  as  soon  as  administratively
feasible  thereafter,  but in no event shall any such payment be made later than
the March 15 of the calendar year next following the calendar year in which such
shares were earned. To the extent Compensation payable in Restricted Shares to a
Non-Employee Director under this Section 3.03 would result in a fractional share
of common stock being issuable to such Non-Employee Director, cash shall be paid
to the Non-Employee Director in lieu of such fractional share.

     Section 3.04. Restrictions on Shares. A "Restricted Share" means a share of
the Company's common stock that is nontransferable  and subject to a substantial
risk of  forfeiture,  to the extent  provided in this Section  3.04.  The shares
issued  to a  Non-Employee  Director  in  accordance  with  Section  3.03 may be
registered  in the  name  of a  nominee  or held in  such  other  manner  as the
Committee  determines  to be  appropriate.  A book entry stock  account  will be
established in the Non-Employee  Director's name. The Non-Employee Director will
be the  beneficial  owner of the shares  issued and credited to his or her stock
account and,  subject to the  restrictions set forth in this Section 3.04, he or
she will have all rights of  beneficial  ownership in such shares  including the
right to vote the shares and receive all dividends and other  distributions paid
or made with respect thereto.  The Company or its nominee will retain custody of
the shares issued under this Plan until (i) all of the restrictions  have lapsed
in accordance with Subsection 3.04(a), and (ii) the Non-Employee  Director makes
a  specific  request  in  writing  to the  Company  for such  shares to be sold,
transferred or delivered;  provided, however, at any time following the lapse of
such restrictions, a Non-Employee Director may request that a stock certificate,
representing  all or part of the shares  credited to his or her stock account on
which the restrictions  have lapsed, be issued and delivered to the Non-Employee
Director.  None of the shares  issued under this Plan may be sold,  transferred,
assigned, pledged, encumbered or otherwise alienated or hypothecated, unless and
until,  and then only to the extent  that,  these  restrictions  have  lapsed in
accordance with Subsection 3.04(a).

(a)  Lapse of Restrictions. The restrictions set forth in the first paragraph of
     Section 3.04 shall lapse on the earliest of the  following  dates:  (i) the
     third anniversary of the date as of which the Restricted Shares were issued
     if, as of the date the restrictions are to lapse, the Non-Employee Director
     has  continued  to serve  in that  capacity  from the date as of which  the
     Restricted  Shares were  issued to the date of lapse;  (ii) the date of the
     Non-Employee Director's retirement as a member of the Board after he or she
     has  attained  age  fifty-five  (55);  (iii)  the date of the  Non-Employee
     Director's death; (iv) the date the Non-Employee  Director is determined to
     be totally and permanently  disabled, as defined in Section 22(e)(3) of the
     Internal Revenue Code of 1986, as amended (the "Code"),  or (v) the date of
     a "Change of Control," as defined in the 1999 Equity Incentive Plan.

(b)  Forfeiture of Restricted  Shares.  In the event a  Non-Employee  Director's
     service  as a  member  of  the  Board  terminates  prior  to the  date  the
     restrictions on all or part of the Restricted Shares issued pursuant to the

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<page>
     Plan have lapsed in accordance  with Subsection  3.04(a),  all shares still
     subject to the restrictions shall be returned to or canceled by the Company
     and shall be deemed to have been forfeited by the Non-Employee Director.

     Section  3.05.  Deferral  of  Compensation  Paid in  Restricted  Shares.  A
Non-Employee  Director  may elect to defer  payment of all or part of his or her
Compensation  that  is  payable  in the  form of  Restricted  Shares  under  the
provisions  of  this  Article  III,  in  accordance  with  the  First  Merchants
Corporation 2007 Directors' Deferred Compensation Plan (the "Directors' Deferred
Compensation  Plan"),  modified as provided in the  following  sentences of this
Section  3.05.  A  Non-Employee  Director  who makes such an  election  shall be
credited with Deferred Stock Units (which may include  fractional  shares) equal
to the  number  of  Restricted  Shares  that  the  Non-Employee  Director  would
otherwise receive in accordance with Section 3.03 of this Plan. The Non-Employee
Director  shall not be deemed to be the  beneficial  owner of any  shares of the
Company's  stock that the  Non-Employee  Director  would have  received  had the
election not been made,  and he or she shall not have the right to vote any such
shares or to receive  any  dividends  or other  distributions  paid or made with
respect thereto.  However,  in lieu of the provision for crediting interest to a
Non-Employee  Director's  Account under Section 3.4 of the  Directors'  Deferred
Compensation Plan, the portion of the Non-Employee  Director's Account under the
Directors' Deferred Compensation Plan that is credited with Deferred Stock Units
shall be credited with  earnings each quarter equal to the dividends  that would
be payable on an  equivalent  number of shares of the  Company's  common  stock.
Notwithstanding  Section 4.2 of the Directors'  Deferred  Compensation Plan, the
only  permissible  form  of  payment  of  the  portion  of  the  balance  in the
Non-Employee  Director's Account under the Directors' Deferred Compensation Plan
credited with Deferred Stock Units shall be a distribution  of shares of Company
common stock in a single lump sum payment;  provided,  however, the Non-Employee
Director  shall receive cash in lieu of a fractional  share.  The  provisions of
Section 3.04 of this Plan shall supersede the vesting  provisions of Section 4.4
of the Directors' Deferred Compensation Plan to the extent they may conflict.

                                   ARTICLE IV

                           SHARES ISSUABLE UNDER PLAN


     Section 4.01. Number of Shares. The shares issuable under the Plan shall be
the Company's  authorized but unissued,  or reacquired,  common stock, or shares
purchased in the open market.  The maximum number of shares of common stock that
may be issued under the Plan shall be 500,000,  as adjusted  pursuant to Section
4.02.

     Section  4.02.  Adjustment.  If the Company  shall at any time  increase or
decrease the number of its  outstanding  shares of common stock or change in any
way the rights and  privileges  of such  shares by means of a payment of a stock
dividend or any other  distribution upon such shares payable in common stock, or
through  a  stock  split,  reverse  stock  split,  subdivision,   consolidation,
combination,  reclassification, or recapitalization involving common stock, then
the numbers,  rights and  privileges of the shares  issuable  under Section 4.01
shall be increased, decreased or changed in like manner.

                                    ARTICLE V

                            MISCELLANEOUS PROVISIONS

     Section 5.01. No Right to be Elected. Neither the Plan nor any action taken
hereunder shall be construed as giving any Non-Employee Director any right to be
elected or re-elected as a director of the Company.

     Section 5.02. Non-Assignment. A participant's rights and interest under the
Plan may not be assigned or transferred, hypothecated or encumbered, in whole or
in part,  either  directly or by operation of law or otherwise  (except,  in the
event  of  a   participant's   death,  by  will  or  the  laws  of  descent  and
distribution),  including,  without limitation,  execution,  levy,  garnishment,

                                    Page A-3
<page>
attachment,  pledge,  bankruptcy,  or in any other manner;  and no such right or
interest of any  participant  in the Plan shall be subject to any  obligation or
liability of such participant.

     Section 5.03.  Compliance with Applicable  Laws. No shares of the Company's
common stock shall be issued  hereunder  unless counsel for the Company shall be
satisfied  that such  issuance will be in compliance  with  applicable  federal,
state, local and foreign securities,  securities exchange,  and other applicable
laws and regulations.

     Section 5.04. Withholding. It shall be a condition to the obligation of the
Company to issue shares of common stock  hereunder that the  participant  pay to
the Company,  to the extent required by law and upon its demand,  such amount as
may be requested by the Company for the purpose of  satisfying  any liability to
withhold federal,  state,  local or foreign income or other taxes. A participant
in the Plan may  satisfy the  withholding  obligation,  in whole or in part,  by
electing to have the Company withhold shares of common stock, otherwise issuable
under the Plan,  having a Fair Market  Value equal to the amount  required to be
withheld.  If the  amount  requested  is not paid,  the  Company  shall  have no
obligation to issue, and the participant shall have no right to receive,  shares
of common stock.

     Section 5.05. Unfunded Plan. The Plan shall be unfunded.  The Company shall
not be required to establish  any special or separate  fund or to make any other
segregation of assets to assure the issuance of shares hereunder.

     Section 5.06.  Ratification  of Actions Taken.  By accepting any payment of
Non-Employee  Director  Compensation  hereunder or other benefit under the Plan,
each participant, and each person claiming under or through him or her, shall be
conclusively deemed to have indicated his or her acceptance and ratification of,
and consent to, any action  taken under the Plan by the Company,  the Board,  or
the Committee.

     Section 5.07.  Registration.  The appropriate officers of the Company shall
cause to be filed any registration  statement  required by the Securities Act of
1933, as amended,  and any reports,  returns or other information  regarding any
shares of common stock issued pursuant to the Plan as may be required by Section
13 or 15(d) of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act"), or any other applicable statute, rule or regulation.

     Section 5.08.  Governing Law. The interpretation,  validity and enforcement
of this Plan  shall,  to the extent not  otherwise  governed  by the Code or the
securities  laws of the United  States,  be governed by the laws of the State of
Indiana.

     Section  5.09.  Headings.  Headings  are given to the sections of this Plan
solely as a convenience to facilitate  reference.  Such headings,  numbering and
paragraphing  shall not in any case be deemed in any way material or relevant to
the construction of this Plan or any provisions  hereof. The use of the singular
shall also include within its meaning the plural,  where  appropriate,  and vice
versa.

                                   ARTICLE VI

                                    AMENDMENT

     The Board may amend the Plan at any time and from time to time, as it deems
advisable;  provided,  however, that no amendment shall become effective without
shareholder  approval if such shareholder approval is required by any applicable
federal  or state  law,  rule or  regulation,  or by the  rules of NASDAQ or any
national  exchange on which the Company's common stock is listed;  and provided,
further, that any such amendment shall comply with applicable provisions of Rule
16b-3 under Section 16 of the Exchange Act, as in effect from time to time,  the
Code and the rules thereunder as in effect from time to time, and, to the extent
applicable, the Employee Retirement Income Security Act of 1974, as amended, and
the rules  thereunder  as in effect from time to time.  No amendment of the Plan
shall  materially and adversely affect any right of any participant with respect
to any shares of common  stock of the Company  theretofore  issued  without such
participant's written consent.

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<page>
                                   ARTICLE VII

                                   TERMINATION

     This Plan shall terminate upon the earlier of (a) the Board's adoption of a
resolution  terminating the Plan, or (b) April 29, 2018, which is ten (10) years
from the date the Plan was initially approved and adopted by the shareholders of
the Company in accordance  with Article VIII. No  termination  of the Plan shall
materially  and adversely  affect any of the rights or obligations of any person
without his or her written consent with respect to any shares of common stock of
the Company theretofore earned and issuable under the Plan.

                                  ARTICLE VIII

                              SHAREHOLDER APPROVAL

     The Plan shall be  effective  as of the  Effective  Date,  contingent  upon
shareholder approval and adoption at the 2008 annual meeting of the shareholders
of the Company.  The  shareholders  shall be deemed to have approved and adopted
the Plan only if it is  approved  and  adopted at a meeting of the  shareholders
duly held by vote taken in the manner  required  by the  securities  laws of the
United States, the Code, and the laws of the State of Indiana, as applicable.

                                    Page A-5