EXHIBIT 4.5

                    PREFERRED SECURITIES GUARANTEE AGREEMENT

                                 by and between

                           FIRST MERCHANTS CORPORATION

                                       and

                  WACHOVIA TRUST COMPANY, NATIONAL ASSOCIATION
           (formerly First Union Trust Company, National Association)

                           Dated as of April 17, 2002

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                                TABLE OF CONTENTS

                                                                        Page No.
ARTICLE I DEFINITIONS AND INTERPRETATION.....................................3
      1.1     Definitions and Interpretation.................................3
ARTICLE II TRUST INDENTURE ACT...............................................7
      2.1     Trust Indenture Act; Application...............................7
      2.2     Lists of Holders of Securities.................................7
      2.3     Reports by the Guarantee Trustee...............................7
      2.4     Periodic Reports to Guarantee Trustee..........................7
      2.5     Evidence of Compliance with Conditions Precedent...............8
      2.6     Events of Default; Waiver......................................8
      2.7     Event of Default; Notice.......................................8
ARTICLE III POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE...................9
      3.1     Powers and Duties of the Guarantee Trustee.....................9
      3.2     Certain Rights of Guarantee Trustee...........................10
      3.3     Not Responsible for Recitals or Issuance of Guarantee.........12
ARTICLE IV GUARANTEE TRUSTEE................................................13
      4.1     Guarantee Trustee; Eligibility................................13
      4.2     Appointment, Removal and Resignation of Guarantee Trustee.....13
ARTICLE V GUARANTEE.........................................................14
      5.1     Guarantee.....................................................14
      5.2     Waiver of Notice and Demand...................................14
      5.3     Obligations not Affected......................................15
      5.4     Rights of Holders.............................................16
      5.5     Guarantee of Payment..........................................16
      5.6     Subrogation...................................................16
      5.7     Independent Obligations.......................................16
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION........................17
      6.1     Limitation of Transactions....................................17
      6.2     Ranking.......................................................17
ARTICLE VII TERMINATION.....................................................18
      7.1     Termination...................................................18
ARTICLE VIII INDEMNIFICATION................................................18
      8.1     Exculpation...................................................18
      8.2     Indemnification...............................................19
ARTICLE IX MISCELLANEOUS....................................................19
      9.1     Successors and Assigns........................................19
      9.2     Amendments....................................................19
      9.3     Notices.......................................................19
      9.4     Benefit.......................................................20
      9.5     Governing Law.................................................20


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                              CROSS REFERENCE TABLE


          Section of Trust                               Section of
          Indenture Act of                               Guarantee
          1939, as amended                               Agreement

          310(a)                                         4.1(a)
          310(b)                                         4.1(c), 2.8
          310(c)                                         Not Applicable
          311(a)                                         2.2(b)
          311(b)                                         2.2(b)
          311(c)                                         Not Applicable
          312(a)                                         2.2(a)
          312(b)                                         2.2(b)
          313                                            2.3
          314(a)                                         2.4
          314(b)                                         Not Applicable
          314(c)                                         2.5
          314(d)                                         Not Applicable
          314(e)                                         1.1, 2.5, 3.2
          314(f)                                         2.1, 3.2
          315(a)                                         3.1(d)
          315(b)                                         2.7
          315(c)                                         3.1
          315(d)                                         3.1(d)
          316(a)                                         1.1, 2.6, 5.4
          316(b)                                         5.3
          317(a)                                         3.1
          317(b)                                         Not Applicable
          318(a)                                         2.1(a)
          318(b)                                         2.1
          318(c)                                         2.1(b)

          Note:  This  Cross-Reference  Table does not  constitute  part of this
          Agreement and shall not affect the  interpretation of any of its terms
          or provisions.


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                    PREFERRED SECURITIES GUARANTEE AGREEMENT

     This PREFERRED SECURITIES  GUARANTEE AGREEMENT (this "Preferred  Securities
Guarantee"),  dated as of April 17,  2002,  is executed  and  delivered by FIRST
MERCHANTS  CORPORATION,  an Indiana corporation (the "Guarantor"),  and WACHOVIA
TRUST  COMPANY,  NATIONAL  ASSOCIATION  (formerly  First  Union  Trust  Company,
National Association) (the "Guarantee Trustee"),  for the benefit of the Holders
(as defined  herein) from time to time of the Preferred  Securities  (as defined
herein) of First Merchants Capital Trust I, a Delaware  statutory business trust
(the "Trust").

                                    RECITALS

     WHEREAS,  pursuant to an Amended and Restated  Trust  Agreement (the "Trust
Agreement"),  dated as of April 17, 2002,  among the trustees of the Trust named
therein,  the  Guarantor,  as  Depositor,  and the holders  from time to time of
undivided  beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof up to  2,127,500  preferred  securities,  having an aggregate
Liquidation  Amount of up to $53,187,500  designated the 8.75%  Cumulative Trust
Preferred Securities;

     WHEREAS, as incentive for the Holders to purchase the Preferred Securities,
the Guarantor desires  irrevocably and  unconditionally  to agree, to the extent
set forth in this Preferred Securities  Guarantee,  to pay to the Holders of the
Preferred  Securities  the  Guarantee  Payments (as defined  herein) and to make
certain other payments on the terms and conditions set forth herein.

     NOW,  THEREFORE,  in  consideration  of the  purchase  by  each  Holder  of
Preferred  Securities,  which purchase the Guarantor hereby agrees shall benefit
the Guarantor,  the Guarantor  executes and delivers this  Preferred  Securities
Guarantee for the benefit of the Holders.

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

     1.1 Definitions and Interpretation.

     In this  Preferred  Securities  Guarantee,  unless  the  context  otherwise
requires:

          (a)  capitalized terms used in this Preferred Securities Guarantee but
               not defined in the preamble  above have the  respective  meanings
               assigned to them in this Section 1.1;

          (b)  terms defined in the Trust  Agreement as at the date of execution
               of this Preferred Securities Guarantee have the same meaning when
               used in this Preferred  Securities  Guarantee,  unless  otherwise
               defined in this Preferred Securities Guarantee;
<PAGE>

          (c)  a term defined  anywhere in this Preferred  Securities  Guarantee
               has the same meaning throughout;

          (d)  all references to "the Preferred  Securities  Guarantee" or "this
               Preferred Securities  Guarantee" are to this Preferred Securities
               Guarantee as modified, supplemented or amended from time to time;

          (e)  all references in this Preferred Securities Guarantee to Articles
               and  Sections  are to Articles  and  Sections  of this  Preferred
               Securities Guarantee, unless otherwise specified;

          (f)  a term  defined in the Trust  Indenture  Act has the same meaning
               when  used  in  this  Preferred  Securities   Guarantee,   unless
               otherwise  defined  in this  Preferred  Securities  Guarantee  or
               unless the context otherwise requires; and

          (g)  a reference to the singular includes the plural and vice versa.

     "Affiliate"  has the same  meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.

     "Business Day" means any day other than a Saturday,  Sunday, a day on which
federal or state banking  institutions  in New York,  New York are authorized or
required by law,  executive  order or  regulation to close or a day on which the
Corporate Trust Office of the Guarantee Trustee is closed for business.

     "Corporate Trust Office" means the office of the Guarantee Trustee at which
the corporate  trust business of the Guarantee  Trustee shall, at any particular
time, be principally administered, which office at the date of execution of this
Agreement  is  located  at One  Rodney  Square,  920  King  Street,  Suite  102,
Wilmington, Delaware 19801, Attention: Corporate Trust Trustee Administration..

     "Covered  Person"  means  any  Holder  or  beneficial  owner  of  Preferred
Securities.

     "Debentures"  means the 8.75% Junior  Subordinated  Debentures due June 30,
2032, the Debenture Issuer held by the Property Trustee of the Trust.

     "Debenture  Issuer"  means  First  Merchants  Corporation,  issuer  of  the
Debentures under the Indenture.

     "Event of Default"  means a default by the Guarantor on any of its payments
or other obligations under this Preferred Securities Guarantee.

     "Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Preferred Securities, to the extent not paid or
made by the Trust: (i) any accrued and unpaid Distributions that are required to
be paid on such Preferred  Securities,  to the extent the Trust shall have funds
available therefor,  (ii) the redemption price, including all accrued and unpaid


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Distributions to the date of redemption (the "Redemption  Price"), to the extent
the Trust has funds available therefor, with respect to any Preferred Securities
called for  redemption by the Trust,  and (iii) upon a voluntary or  involuntary
dissolution,  winding-up or  termination  of the Trust (other than in connection
with the  distribution  of  Debentures  to the Holders in exchange for Preferred
Securities as provided in the Trust Agreement),  the lesser of (a) the aggregate
of the  Liquidation  Amount  and all  accrued  and unpaid  Distributions  on the
Preferred  Securities to the date of payment, to the extent the Trust shall have
funds available therefor (the "Liquidation Distribution"), and (b) the amount of
assets  of  the  Trust  remaining  available  for  distribution  to  Holders  in
liquidation of the Trust.

     "Guarantee  Trustee" means Wachovia  Trust Company,  National  Association,
until a Successor  Guarantee  Trustee has been  appointed  and has accepted such
appointment  pursuant to the terms of this  Preferred  Securities  Guarantee and
thereafter means each such Successor Guarantee Trustee.

     "Guarantor" means First Merchants Corporation, an Indiana corporation.

     "Holder"  shall mean any holder,  as registered on the books and records of
the Trust, of any Preferred Securities;  provided, however, that, in determining
whether the holders of the  requisite  percentage of Preferred  Securities  have
given any  request,  notice,  consent or waiver  hereunder,  "Holder"  shall not
include  the  Guarantor,  the  Guarantee  Trustee  or  any of  their  respective
Affiliates.

     "Indemnified  Person"  means the  Guarantee  Trustee,  any Affiliate of the
Guarantee Trustee, or any officers, directors, shareholders,  members, partners,
employees,  representatives,  nominees,  custodians  or agents of the  Guarantee
Trustee.

     "Indenture"  means  the  Indenture  dated as of April 17,  2002,  among the
Debenture Issuer and Wachovia Trust Company,  National Association,  as trustee,
and any indenture  supplemental  thereto pursuant to which the Debentures are to
be issued to the Property Trustee of the Trust,  including,  without limitation,
that certain First Supplemental Indenture dated as of April 17, 2002.

     "Liquidation Amount" means the stated value of $25 per Preferred Security.

     "Liquidation  Distribution"  has  the  meaning  provided  therefor  in  the
definition of Guarantee Payments.

     "Majority in  Liquidation  Amount of the  Preferred  Securities"  means the
holders  of more  than 50% of the  Liquidation  Amount  of all of the  Preferred
Securities.

     "Officers'  Certificate"  means,  with respect to any Person, a certificate
signed by two authorized  officers of such Person, at least one of whom shall be
the  principal  executive  officer,   principal  financial  officer,   principal
accounting  officer,  treasurer  or any  vice  president  of  such  Person.  Any
Officers'  Certificate  delivered with respect to compliance with a condition or
covenant provided for in this Preferred Securities Guarantee shall include:

          (a)  a statement that each officer  signing the Officers'  Certificate
               has read the covenant or condition  and the  definition  relating
               thereto;


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<PAGE>

          (b)  a brief  statement of the nature and scope of the  examination or
               investigation   undertaken  by  each  officer  in  rendering  the
               Officers' Certificate;

          (c)  a statement  that each such officer has made such  examination or
               investigation  as, in such  officer's  opinion,  is  necessary to
               enable such officer to express an informed  opinion as to whether
               or not such covenant or condition has been complied with; and

          (d)  a statement as to whether,  in the opinion of each such  officer,
               such condition or covenant has been complied with.

     "Person"  means a legal  person,  including  any  individual,  corporation,
estate, partnership,  joint venture,  association,  joint stock company, limited
liability  company,  trust,  unincorporated  association,  or  government or any
agency or political subdivision thereof, or any other entity of whatever nature.

     "Preferred   Securities"   means  the  8.75%   Cumulative  Trust  Preferred
Securities  representing  undivided  beneficial  interests  in the assets of the
Trust  which  rank pari  passu  with  Common  Securities  issued  by the  Trust;
provided,  however,  that upon the occurrence of an Event of Default, the rights
of holders of Common  Securities  to  payment  in respect of  distributions  and
payments upon  liquidation,  redemption  and otherwise are  subordinated  to the
rights of holders of Preferred Securities.

     "Redemption  Price" has the meaning provided  therefor in the definition of
Guarantee Payments.

     "Responsible  Officer" means,  with respect to the Guarantee  Trustee,  any
officer within the Corporate  Trust Office of the Guarantee  Trustee with direct
responsibility  for the administration of this Preferred  Securities  Guarantee,
including  any  vice-president,  any  assistant  vice-president,  any  assistant
secretary  or other  officer  or  assistant  officer  of the  Guarantee  Trustee
customarily  performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter,  any other  officer  to whom such  matter is  referred  because  of that
officer's knowledge of and familiarity with the particular subject.

     "Successor   Guarantee   Trustee"  means  a  successor   Guarantee  Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.

     "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.


                                      -6-
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                                   ARTICLE II

                               TRUST INDENTURE ACT

     2.1 Trust Indenture Act; Application.

          (a) This Preferred  Securities  Guarantee is subject to the provisions
     of the Trust  Indenture Act that are required to be part of this  Preferred
     Securities  Guarantee and shall, to the extent  applicable,  be governed by
     such provisions.

          (b)  If and to  the  extent  that  any  provision  of  this  Preferred
     Securities Guarantee limits, qualifies or conflicts with the duties imposed
     by Section 310 to 317, inclusive,  of the Trust Indenture Act, such imposed
     duties shall control.

     2.2 Lists of Holders of Securities.

          (a) In the  event  the  Guarantee  Trustee  is not also  acting in the
     capacity of the Property Trustee under the Trust  Agreement,  the Guarantor
     shall cause to be provided to the Guarantee Trustee a list, in such form as
     the Guarantee Trustee may reasonably require, of the names and addresses of
     the Holders of the Preferred  Securities ("List of Holders") as of the date
     (i) within one  Business  Day after  March 15,  June 15,  September  15 and
     December  15, and (ii) at any other  time  within 30 days of receipt by the
     Guarantor  of a written  request for a List of Holders as of a date no more
     than 15 days before such List of Holders is given to the Guarantee Trustee;
     provided, that the Guarantor shall not be obligated to provide such List of
     Holders  at any time  the List of  Holders  does not  differ  from the most
     recent List of Holders  caused to have been given to the Guarantee  Trustee
     by the  Guarantor.  The  Guarantee  Trustee may destroy any List of Holders
     previously given to it on receipt of a new List of Holders.

          (b) The  Guarantee  Trustee  shall comply with its  obligations  under
     Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.

     2.3 Reports by the Guarantee Trustee.

     On or before July 31 of each year,  commencing  July 31, 2002 the Guarantee
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust  Indenture Act, if any, in the form and
in the manner  provided by Section 313 of the Trust Indenture Act. The Guarantee
Trustee shall also comply with the  requirements  of Section 313(d) of the Trust
Indenture Act.

     2.4 Periodic Reports to Guarantee Trustee.

     The  Guarantor  shall  provide to the  Guarantee  Trustee  such  documents,
reports and  information  as required by Section 314 (if any) and the compliance
certificate  required by Section 314 of the Trust  Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.


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<PAGE>

     2.5 Evidence of Compliance with Conditions Precedent.

     The  Guarantor  shall  provide to the  Guarantee  Trustee such  evidence of
compliance with any conditions precedent, if any, provided for in this Preferred
Securities  Guarantee  that  relate to any of the  matters  set forth in Section
314(c) of the Trust  Indenture Act. Any  certificate  or opinion  required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.

     2.6 Events of Default; Waiver.

     The Holders of a Majority in  liquidation  amount of  Preferred  Securities
may, by vote, on behalf of the Holders of all of the Preferred Securities, waive
any past Event of Default and its consequences. Upon such waiver, any such Event
of Default  shall  cease to exist,  and any Event of Default  arising  therefrom
shall be  deemed  to have  been  cured,  for  every  purpose  of this  Preferred
Securities Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.

     2.7 Event of Default; Notice.

          (a) The Guarantee  Trustee shall,  within 90 days after the occurrence
     of an Event of Default,  transmit by mail, first class postage prepaid,  to
     the Holders of the Preferred  Securities,  notices of all Events of Default
     actually known to a Responsible  Officer of the Guarantee  Trustee,  unless
     such defaults  have been cured before the giving of such notice;  provided,
     that,  except in the case of a default by  Guarantor  on any of its payment
     obligations,  the Guarantee  Trustee shall be protected in withholding such
     notice if and so long as a Responsible  Officer of the Guarantee Trustee in
     good  faith  determines  that  the  withholding  of such  notice  is in the
     interests of the Holders of the Preferred Securities.

          (b) The Guarantee Trustee shall not be deemed to have knowledge of any
     Event of Default unless the Guarantee  Trustee shall have received  written
     notice, or of which a Responsible  Officer of the Guarantee Trustee charged
     with the  administration  of the Trust Agreement shall have obtained actual
     knowledge.

     2.8 Conflicting Interests.

     The Trust Agreement  shall be deemed to be  specifically  described in this
Preferred  Securities  Guarantee  for the  purposes  of clause  (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.


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                                   ARTICLE III

                 POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE

     3.1 Powers and Duties of the Guarantee Trustee.

          (a) This Preferred Securities Guarantee shall be held by the Guarantee
     Trustee for the benefit of the Holders of the Preferred Securities, and the
     Guarantee Trustee shall not transfer this Preferred Securities Guarantee to
     any Person except a Holder of Preferred  Securities  exercising  his or her
     rights  pursuant to Section 5.4(b) or to a Successor  Guarantee  Trustee on
     acceptance by such Successor Guarantee Trustee of its appointment to act as
     Successor Guarantee Trustee. The right, title and interest of the Guarantee
     Trustee shall  automatically vest in any Successor  Guarantee Trustee,  and
     such  vesting  and  cessation  of title shall be  effective  whether or not
     conveyancing  documents  have been executed and  delivered  pursuant to the
     appointment of such Successor Guarantee Trustee.

          (b) If an Event of Default actually known to a Responsible  Officer of
     the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee
     shall enforce this  Preferred  Securities  Guarantee for the benefit of the
     Holders of the Preferred Securities.

          (c) The  Guarantee  Trustee,  before  the  occurrence  of any Event of
     Default  and  after  the  curing of all  Events  of  Default  that may have
     occurred,  shall undertake to perform only such duties as are  specifically
     set forth in this Preferred Securities Guarantee,  and no implied covenants
     shall  be  read  into  this  Preferred  Securities  Guarantee  against  the
     Guarantee  Trustee.  In case an Event of Default has occurred (that has not
     been cured or waived  pursuant to Section  2.6) and is actually  known to a
     Responsible  Officer of the Guarantee Trustee,  the Guarantee Trustee shall
     exercise  such of the  rights  and  powers  vested in it by this  Preferred
     Securities  Guarantee,  and use the same  degree  of care and  skill in its
     exercise  thereof,  as a prudent  person  would  exercise  or use under the
     circumstances in the conduct of his or her own affairs.

          (d) No  provision  of this  Preferred  Securities  Guarantee  shall be
     construed  to relieve the  Guarantee  Trustee  from  liability  for its own
     negligent  action,  its own  negligent  failure to act,  or its own willful
     misconduct, except that:

               (i) prior to the occurrence of any Event of Default and after the
          curing  or  waiving  of all  such  Events  of  Default  that  may have
          occurred:

                    (A)  the duties and  obligations  of the  Guarantee  Trustee
                         shall be determined solely by the express provisions of
                         this Preferred Securities Guarantee,  and the Guarantee
                         Trustee shall not be liable except for the  performance
                         of such duties and obligations as are  specifically set
                         forth in this Preferred  Securities  Guarantee,  and no
                         implied  covenants  or


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<PAGE>

                         obligations   shall  be  read   into   this   Preferred
                         Securities Guarantee against the Guarantee Trustee; and

                    (B)  in  the  absence  of  bad  faith  on  the  part  of the
                         Guarantee   Trustee,    the   Guarantee   Trustee   may
                         conclusively  rely,  as to the truth of the  statements
                         and the correctness of the opinions  expressed therein,
                         upon any  certificates  or  opinions  furnished  to the
                         Guarantee Trustee and conforming to the requirements of
                         this Preferred Securities Guarantee; but in the case of
                         any such certificates or opinions that by any provision
                         hereof are specifically required to be furnished to the
                         Guarantee Trustee, the Guarantee Trustee shall be under
                         a duty to examine the same to determine  whether or not
                         they  conform  to the  requirements  of this  Preferred
                         Securities Guarantee;

               (ii) the  Guarantee  Trustee shall not be liable for any error of
          judgment made in good faith by a Responsible  Officer of the Guarantee
          Trustee,  unless it shall be proved  that the  Guarantee  Trustee  was
          negligent in ascertaining the pertinent facts upon which such judgment
          was made;

               (iii) the  Guarantee  Trustee shall not be liable with respect to
          any  action  taken  or  omitted  to be  taken  by it in good  faith in
          accordance  with the  direction  of the  Holders  of not  less  than a
          Majority in Liquidation Amount of the Preferred Securities relating to
          the time, method and place of conducting any proceeding for any remedy
          available to the Guarantee  Trustee,  or exercising any trust or power
          conferred upon the Guarantee  Trustee under this Preferred  Securities
          Guarantee; and

               (iv) no provision of this Preferred  Securities  Guarantee  shall
          require  the  Guarantee  Trustee  to  expend  or risk its own funds or
          otherwise incur personal financial liability in the performance of any
          of its duties or in the  exercise  of any of its rights or powers,  if
          the Guarantee Trustee shall have reasonable grounds for believing that
          the repayment of such funds or liability is not reasonably  assured to
          it  under  the  terms  of  this  Preferred   Securities  Guarantee  or
          indemnity,  reasonably satisfactory to the Guarantee Trustee,  against
          such risk or liability is not reasonably assured to it.

     3.2 Certain Rights of Guarantee Trustee.

          (a)  Subject to the provisions of Section 3.1:

               (i) the Guarantee  Trustee may  conclusively  rely,  and shall be
          fully  protected  in  acting  or  refraining  from  acting  upon,  any
          resolution,   certificate,  statement,  instrument,  opinion,  report,
          notice, request,  direction,  consent,  order, bond, debenture,  note,
          other evidence of indebtedness or other paper or document


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<PAGE>

          believed  by it to be  genuine  and  to  have  been  signed,  sent  or
          presented by the proper party or parties;

               (ii) Any direction or act of the Guarantor  contemplated  by this
          Preferred Securities  Guarantee shall be sufficiently  evidenced by an
          Officers' Certificate;

               (iii)  whenever,   in  the   administration   of  this  Preferred
          Securities  Guarantee,  the Guarantee  Trustee shall deem it desirable
          that a matter be proved or  established  before  taking,  suffering or
          omitting any action  hereunder,  the Guarantee  Trustee  (unless other
          evidence is herein specifically prescribed) may, in the absence of bad
          faith on its part,  request and  conclusively  rely upon an  Officers'
          Certificate  which,  upon receipt of such  request,  shall be promptly
          delivered by the Guarantor;

               (iv)  the  Guarantee  Trustee  shall  have  no duty to see to any
          recording,   filing  or   registration   of  any  instrument  (or  any
          rerecording, refiling or registration thereof);

               (v) the  Guarantee  Trustee may  consult  with  counsel,  and the
          written  advice or  opinion  of such  counsel  with  respect  to legal
          matters  shall be full and complete  authorization  and  protection in
          respect of any action  taken,  suffered or omitted by it  hereunder in
          good faith and in accordance with such advice or opinion. Such counsel
          may be  counsel  to the  Guarantor  or any of its  Affiliates  and may
          include any of its  employees.  The  Guarantee  Trustee shall have the
          right at any time to seek instructions  concerning the  administration
          of this  Preferred  Securities  Guarantee  from any court of competent
          jurisdiction;

               (vi) the  Guarantee  Trustee  shall be  under  no  obligation  to
          exercise  any of the rights or powers  vested in it by this  Preferred
          Securities Guarantee at the request or direction of any Holder, unless
          such Holder shall have provided to the Guarantee Trustee such security
          and  indemnity,  reasonably  satisfactory  to the  Guarantee  Trustee,
          against the costs,  expenses  (including  attorneys' fees and expenses
          and the  expenses  of the  Guarantee  Trustee's  agents,  nominees  or
          custodians) and liabilities  that might be incurred by it in complying
          with such request or direction,  including such reasonable advances as
          may be requested by the  Guarantee  Trustee;  provided  that,  nothing
          contained  in this  Section  3.2(a)(vi)  shall be taken to relieve the
          Guarantee Trustee,  upon the occurrence of an Event of Default, of its
          obligation  to  exercise  the rights  and powers  vested in it by this
          Preferred Securities Guarantee;

               (vii)  the  Guarantee  Trustee  shall  not be  bound  to make any
          investigation  into the facts or  matters  stated  in any  resolution,
          certificate,  statement, instrument, opinion, report, notice, request,
          direction,  consent,  order, bond, debenture,  note, other evidence of
          indebtedness or other paper or document, but the Guarantee


                                      -11-
<PAGE>

          Trustee,  in  its  discretion,   may  make  such  further  inquiry  or
          investigation into such facts or matters as it may see fit;

               (viii) the  Guarantee  Trustee  may  execute any of the trusts or
          powers hereunder or perform any duties hereunder either directly or by
          or  through  agents,  nominees,   custodians  or  attorneys,  and  the
          Guarantee  Trustee  shall not be  responsible  for any  misconduct  or
          negligence  on the part of any agent or  attorney  appointed  with due
          care by it hereunder;

               (ix) no  third  party  shall be  required  to  inquire  as to the
          authority of the Guarantee  Trustee to so act or as to its  compliance
          with any of the  terms and  provisions  of this  Preferred  Securities
          Guarantee,  both of  which  shall  be  conclusively  evidenced  by the
          Guarantee Trustee's or its agent's taking such action; and

               (x) whenever in the  administration of this Preferred  Securities
          Guarantee  the  Guarantee  Trustee  shall deem it desirable to receive
          instructions  with respect to enforcing  any remedy or right or taking
          any other  action  hereunder,  the  Guarantee  Trustee (i) may request
          instructions  from the Holders of a Majority in Liquidation  Amount of
          the Preferred Securities,  (ii) may refrain from enforcing such remedy
          or right or taking  such  other  action  until such  instructions  are
          received,  and (iii) shall be protected in conclusively  relying on or
          acting in accordance with such instructions.

          (b) No  provision  of this  Preferred  Securities  Guarantee  shall be
     deemed to impose any duty or obligation on the Guarantee Trustee to perform
     any act or acts or exercise any right, power, duty or obligation  conferred
     or imposed on it in any  jurisdiction  in which it shall be illegal,  or in
     which  the  Guarantee  Trustee  shall  be  unqualified  or  incompetent  in
     accordance  with  applicable  law,  to  perform  any such act or acts or to
     exercise any such right, power, duty or obligation.  No permissive power or
     authority  available to the  Guarantee  Trustee  shall be construed to be a
     duty.

     3.3 Not Responsible for Recitals or Issuance of Guarantee.

     The Recitals  contained in this Guarantee  shall be taken as the statements
of the Guarantor,  and the Guarantee Trustee does not assume any  responsibility
for their  correctness.  The Guarantee Trustee makes no representation as to the
validity or sufficiency of this Preferred Securities Guarantee.


                                      -12-
<PAGE>

                                   ARTICLE IV

                                GUARANTEE TRUSTEE

     4.1 Guarantee Trustee; Eligibility.

          (a)  There shall at all times be a Guarantee Trustee which shall:

               (i) not be an Affiliate of the Guarantor; and

               (ii) be a corporation organized and doing business under the laws
          of the United  States of America or any state or territory  thereof or
          of the District of Columbia,  or a corporation or Person  permitted by
          the  Securities  and Exchange  Commission  to act as an  institutional
          trustee under the Trust Indenture Act,  authorized  under such laws to
          exercise corporate trust powers, having a combined capital and surplus
          of at least $50,000,000,  and subject to supervision or examination by
          federal, state, territorial or District of Columbia authority. If such
          corporation publishes reports of condition at least annually, pursuant
          to  law  or to  the  requirements  of  the  supervising  or  examining
          authority  referred to above,  then,  for the purposes of this Section
          4.1(a)(ii), the combined capital and surplus of such corporation shall
          be deemed to be its  combined  capital and surplus as set forth in its
          most recent report of condition so published.

          (b) If at any time the Guarantee Trustee shall cease to be eligible to
     so act under Section 4.1(a), the Guarantee Trustee shall immediately resign
     in the manner and with the effect set out in Section 4.2(c).

          (c) If the  Guarantee  Trustee has or shall  acquire any  "conflicting
     interest"  within the meaning of Section 310(b) of the Trust Indenture Act,
     the Guarantee  Trustee and Guarantor  shall in all respects comply with the
     provisions of Section 310(b) of the Trust Indenture Act.

     4.2 Appointment, Removal and Resignation of Guarantee Trustee.

          (a) Subject to Section 4.2(b),  the Guarantee Trustee may be appointed
     or removed without cause at any time by the Guarantor.

          (b) The  Guarantee  Trustee  shall not be removed in  accordance  with
     Section 4.2(a) until a Successor  Guarantee  Trustee has been appointed and
     has  accepted  such  appointment  by written  instrument  executed  by such
     Successor Guarantee Trustee and delivered to the Guarantor.

          (c) The Guarantee  Trustee appointed to office shall hold office until
     a  Successor  Guarantee  Trustee  shall  have been  appointed  or until its
     removal or  resignation.  The  Guarantee  Trustee  may resign  from  office
     (without  need for prior or  subsequent  accounting)  by an  instrument  in
     writing  executed by the Guarantee  Trustee and delivered to the Guarantor,
     which resignation shall not take effect until a Successor


                                      -13-
<PAGE>

     Guarantee  Trustee has been appointed and has accepted such  appointment by
     instrument  in writing  executed by such  Successor  Guarantee  Trustee and
     delivered to the Guarantor and the resigning Guarantee Trustee.

          (d) If no Successor  Guarantee  Trustee shall have been  appointed and
     accepted  appointment  as provided in this Section 4.2 within 60 days after
     delivery to the Guarantor of an instrument  of  resignation,  the resigning
     Guarantee  Trustee may  petition any court of  competent  jurisdiction  for
     appointment  of a Successor  Guarantee  Trustee.  Such court may thereupon,
     after  prescribing  such notice,  if any, as it may deem proper,  appoint a
     Successor Guarantee Trustee.

          (e) No Guarantee  Trustee shall be liable for the acts or omissions to
     act of any Successor Guarantee Trustee.

          (f) Upon termination of this Preferred Securities Guarantee or removal
     or resignation of the Guarantee  Trustee  pursuant to this Section 4.2, the
     Guarantor shall pay to the Guarantee  Trustee all fees and expenses accrued
     to the date of such termination, removal or resignation.

                                    ARTICLE V

                                    GUARANTEE

     5.1 Guarantee.

     The Guarantor irrevocably and unconditionally  agrees to pay in full to the
Holders the Guarantee Payments (without  duplication of amounts theretofore paid
by the Trust), as and when due,  regardless of any defense,  right of set-off or
counterclaim  that the Trust may have or assert.  The Guarantor's  obligation to
make a Guarantee  Payment may be  satisfied  by direct  payment of the  required
amounts by the  Guarantor  to the  Holders  or by causing  the Trust to pay such
amounts to the Holders.

     5.2 Waiver of Notice and Demand.

     The  Guarantor  hereby  waives  notice  of  acceptance  of  this  Preferred
Securities  Guarantee  and of any  liability  to which it  applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor,  protest,
notice of  nonpayment,  notice of dishonor,  notice of redemption  and all other
notices and demands.

     5.3 Obligations not Affected.

     The  obligations,  covenants,  agreements and duties of the Guarantor under
this Preferred  Securities  Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:


                                      -14-
<PAGE>

          (a) the release or waiver,  by operation of law or  otherwise,  of the
     performance or observance by the Trust of any express or implied agreement,
     covenant,  term or condition  relating to the  Preferred  Securities  to be
     performed or observed by the Trust;

          (b) the  extension  of time for the payment by the Trust of all or any
     portion of the Distributions, Redemption Price, Liquidation Distribution or
     any other sums payable under the terms of the  Preferred  Securities or the
     extension  of time  for the  performance  of any  other  obligation  under,
     arising out of, or in connection with, the Preferred Securities (other than
     an  extension  of time for  payment  of  Distributions,  Redemption  Price,
     Liquidation  Distribution  or  other  sum  payable  that  results  from the
     extension of any interest payment period on the Debentures or any extension
     of the maturity date of the Debentures permitted by the Indenture);

          (c) any failure,  omission,  delay or lack of diligence on the part of
     the Holders to enforce, assert or exercise any right,  privilege,  power or
     remedy  conferred  on the Holders  pursuant  to the terms of the  Preferred
     Securities,  or any action on the part of the Trust granting  indulgence or
     extension of any kind;

          (d) the voluntary or involuntary liquidation, dissolution, sale of any
     collateral,  receivership,   insolvency,  bankruptcy,  assignment  for  the
     benefit  of  creditors,   reorganization,   arrangement,   composition   or
     readjustment of debt of, or other similar proceedings affecting,  the Trust
     or any of the assets of the Trust;

          (e) any  invalidity  of, or defect or  deficiency  in,  the  Preferred
     Securities;

          (f) any  failure or omission  to receive  any  regulatory  approval or
     consent required in connection with the Preferred Securities (or the common
     equity  securities  issued by the Trust),  including the failure to receive
     any  approval  of the Board of  Governors  of the  Federal  Reserve  System
     required for the redemption of the Preferred Securities;

          (g) the settlement or compromise of any obligation  guaranteed  hereby
     or hereby incurred; or

          (h) any other circumstance  whatsoever that might otherwise constitute
     a legal or  equitable  discharge  or defense of a  guarantor,  it being the
     intent of this Section 5.3 that the obligations of the Guarantor  hereunder
     shall be absolute and unconditional under any and all circumstances.

     There  shall be no  obligation  of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.

     5.4 Rights of Holders.

          (a)  Subject  to  Section  5.4(b),   the  Holders  of  a  Majority  in
               liquidation amount of the Preferred  Securities have the right to
               direct the time, method and


                                      -15-
<PAGE>

               place of conducting of any proceeding for any remedy available to
               the  Guarantee  Trustee in respect of this  Preferred  Securities
               Guarantee or  exercising  any trust or power  conferred  upon the
               Guarantee Trustee under this Preferred Securities Guarantee.

          (b)  Any Holder of Preferred  Securities may institute and prosecute a
               legal  proceeding  directly  against the Guarantor to enforce its
               rights under this Preferred Securities  Guarantee,  without first
               instituting a legal  proceeding  against the Trust, the Guarantee
               Trustee or any other Person.

     5.5 Guarantee of Payment.

     This Preferred  Securities Guarantee creates a guarantee of payment and not
of collection.

     5.6 Subrogation.

     The Guarantor  shall be subrogated to all (if any) rights of the Holders of
Preferred  Securities  against the Trust in respect of any amounts  paid to such
Holders by the Guarantor under this Preferred  Securities  Guarantee;  provided,
however,  that the  Guarantor  shall  not  (except  to the  extent  required  by
mandatory  provisions  of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any  indemnity,  reimbursement  or other
agreement,  in all cases as a result of payment under this Preferred  Securities
Guarantee,  if, at the time of any such payment,  any amounts are due and unpaid
under this Preferred  Securities  Guarantee.  If any amount shall be paid to the
Guarantor in violation of the preceding  sentence,  the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the Holders.

     5.7 Independent Obligations.

     The Guarantor  acknowledges that its obligations  hereunder are independent
of the  obligations of the Trust with respect to the Preferred  Securities,  and
that the Guarantor shall be liable as principal and as debtor  hereunder to make
Guarantee Payments pursuant to the terms of this Preferred  Securities Guarantee
notwithstanding  the  occurrence  of any event  referred to in  subsections  (a)
through (h), inclusive, of Section 5.3 hereof.

                                   ARTICLE VI

                    LIMITATION OF TRANSACTIONS; SUBORDINATION

     6.1 Limitation of Transactions.

     So long as any Preferred Securities remain outstanding, if there shall have
occurred an Event of Default under this Preferred Securities Guarantee, an event
of default  under the Trust  Agreement  or during an Extended  Interest  Payment
Period (as defined in the  Indenture),  then (a) the Guarantor shall not declare
or pay,  and shall not allow any of its  Subsidiaries  to  declare  or pay,  any
dividend  on,  make any  distributions  with  respect  to, or redeem,  purchase,
acquire or make a liquidation


                                      -16-
<PAGE>

payment with respect to, any of its capital  stock (other than (A)  dividends or
distributions  in  common  stock  of  the  Guarantor  or any  Subsidiary  of the
Guarantor,  or any  declaration  of a non-cash  dividend in connection  with the
implementation of a shareholder  rights plan, or the issuance of stock under any
such plan in the future,  or the  redemption  or  repurchase  of any such rights
pursuant thereto,  (B) purchases of common stock of the Guarantor related to the
rights under any benefit plans for its directors,  officers or employees, (C) as
a result of a  reclassification  of its capital  stock into another class of its
capital stock, or (D) payments of dividends or  distributions to the Guarantor);
(b) the Guarantor shall not make, and shall not allow any of its Subsidiaries to
make,  any  payment  of  interest,  principal  or  premium,  if any,  or  repay,
repurchase or redeem any debt securities issued by the Guarantor which rank pari
passu  with or junior to the  Debentures  of such  series or make any  guarantee
payments with respect to any  guarantee by the Guarantor of the debt  securities
of any  subsidiary of the Guarantor if such  guarantee  ranks pari passu with or
junior in interest to the  Debentures of such series;  provided,  however,  that
notwithstanding  the foregoing  the Guarantor may make payments  pursuant to its
obligations  under  this  Guarantee;  and (c) the  Guarantor  shall not  redeem,
purchase or acquire less than all of the  outstanding  Debentures of such series
or any of the Preferred Securities relating to such Trust.

     For  purposes of this  Section,  "Subsidiary"  means,  with  respect to any
Person,  (i) any  corporation  at least a majority of whose  outstanding  Voting
Stock shall at the time be owned,  directly or indirectly,  by such Person or by
one or  more  of its  Subsidiaries  or by  such  Person  and  one or more of its
Subsidiaries;  (ii) any general  partnership,  limited liability company,  joint
venture,  trust or  similar  entity,  at least a majority  of whose  outstanding
partnership or similar  interests shall at the time be owned by such Person,  or
by one or more of its  Subsidiaries,  or by such  Person  and one or more of its
Subsidiaries;  and (iii) any limited  partnership of which such Person or any of
its  Subsidiaries is a general  partner.  For purposes of this Section,  "Voting
Stock,"  as  applied  to  stock  of  any  Person,   means   shares,   interests,
participations or other equivalents in the equity interest (however  designated)
in such Person  having  ordinary  voting power for the election of a majority of
the directors (or the equivalent) of such Person, other than shares,  interests,
participations  or other  equivalents  having  such  power only by reason of the
occurrence of a contingency.

     6.2 Ranking.

     This Preferred Securities Guarantee will constitute an unsecured obligation
of the Guarantor and will rank subordinate and junior in right of payment to all
Senior  Debt,  Subordinated  Debt  and  Additional  Senior  Obligations,  of the
Guarantor  (as  defined in the  Indenture),  to the extent and in the manner set
forth in the  Indenture,  and the  applicable  provisions of the Indenture  will
apply, in all relevant respects, to the obligations of the Guarantor hereunder.


                                      -17-
<PAGE>

                                   ARTICLE VII

                                   TERMINATION

     7.1 Termination.

     This Preferred  Securities  Guarantee shall terminate upon (i) full payment
of the Redemption Price of all Preferred  Securities,  (ii) upon full payment of
the amounts payable in accordance  with the Trust Agreement upon  liquidation of
the Trust,  or (iii) upon  distribution  of the Debentures to the Holders of the
Preferred Securities.  Notwithstanding the foregoing,  this Preferred Securities
Guarantee shall continue to be effective or shall be reinstated, as the case may
be, if at any time any Holder of Preferred  Securities  must restore  payment of
any sums paid under the Preferred  Securities or under this Preferred Securities
Guarantee.

                                  ARTICLE VIII

                                 INDEMNIFICATION

     8.1 Exculpation.

          (a) No Indemnified Person shall be liable,  responsible or accountable
     in damages or  otherwise  to the  Guarantor  or any Covered  Person for any
     loss,  damage or claim incurred by reason of any act or omission  performed
     or omitted by such Indemnified Person in good faith in accordance with this
     Preferred Securities Guarantee and in a manner that such Indemnified Person
     reasonably  believed to be within the scope of the  authority  conferred on
     such Indemnified Person by this Preferred  Securities  Guarantee or by law,
     except that an Indemnified Person shall be liable for any such loss, damage
     or claim incurred by reason of such Indemnified  Person's  negligence,  bad
     faith or willful misconduct with respect to such acts or omissions.

          (b) An Indemnified  Person shall be fully protected in relying in good
     faith  upon  the  records  of the  Guarantor  and  upon  such  information,
     opinions, reports or statements presented to the Guarantor by any Person as
     to matters the Indemnified Person reasonably believes are within such other
     Person's  professional or expert  competence and who has been selected with
     reasonable  care by or on behalf of the Guarantor,  including  information,
     opinions,  reports or  statements as to the value and amount of the assets,
     liabilities, profits, losses, or any other facts pertinent to the existence
     and amount of assets  from  which  Distributions  to  Holders of  Preferred
     Securities might properly be paid.

     8.2 Indemnification.

     The Guarantor agrees to indemnify each Indemnified  Person for, and to hold
each  Indemnified  Person  harmless  against,  any loss,  liability  or  expense
incurred  without  negligence,  bad  faith or  willful  misconduct  on its part,
arising out of or in connection  with the  acceptance or  administration  of the
trust  or  trusts  hereunder,   including  the  costs  and  expenses  (including
reasonable   legal  fees  and  expenses)  of  defending   itself   against,   or
investigating,  any  claim or  liability  in  connection  with the  exercise  or
performance  of any  of its  powers  or  duties  hereunder.


                                      -18-
<PAGE>

The  obligation  to indemnify as set forth in this Section 8.2 shall survive the
termination of this Preferred Securities Guarantee.

                                   ARTICLE IX

                                  MISCELLANEOUS

     9.1 Successors and Assigns.

     All  guarantees  and  agreements  contained  in this  Preferred  Securities
Guarantee  shall  bind  the  successors,   assigns,   receivers,   trustees  and
representatives  of the  Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.

     9.2 Amendments.

     Except with respect to any changes that do not materially  adversely affect
the rights of Holders  (in which case no consent of Holders  will be  required),
this Preferred  Securities Guarantee may only be amended with the prior approval
of the Holders of at least a Majority  in  Liquidation  Amount of the  Preferred
Securities.  The provisions of Article VI of the Trust Agreement with respect to
meetings  of Holders  of the  Preferred  Securities  apply to the giving of such
approval.

     9.3 Notices.

     All notices provided for in this Preferred Securities Guarantee shall be in
writing,  duly signed by the party giving such notice,  and shall be  delivered,
telecopied or mailed by registered or certified mail, as follows:

          (a) If given to the  Guarantee  Trustee,  at the  Guarantee  Trustee's
     mailing  address  set forth below (or such other  address as the  Guarantee
     Trustee may give notice of to the Holders of the Preferred Securities):

                Wachovia Trust Company, National Association
                One Rodney Square
                920 King Street, Suite 102
                Wilmington, DE 19801
                Fax: (302) 888-7544
                Attention: Corporate Trust Trustee Administration

          (b) If given to the Guarantor,  at the Guarantor's mailing address set
     forth below (or such other  address as the  Guarantor may give notice of to
     the Holders of the Preferred Securities):


                                      -19-
<PAGE>

                First Merchants Corporation
                200 East Jackson Street
                Post Office Box 792
                Muncie, Indiana 47308
                Fax: (765) 741-7283
                Attention: Larry R. Helms, Esq.,
                           Senior Vice President & General Counsel

          (c) If given to any Holder of Preferred Securities, at the address set
     forth on the books and records of the Trust.

     All such  notices  shall be deemed  to have been  given  when  received  in
person,  telecopied  with  receipt  confirmed,  or mailed by first  class  mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered  because of a changed  address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.

     9.4 Benefit.

     This  Preferred  Securities  Guarantee  is solely  for the  benefit  of the
Holders of the  Preferred  Securities  and,  subject to Section  3.1(a),  is not
separately transferable from the Preferred Securities.

     9.5 Governing Law.

     THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF INDIANA.

                           [Signatures on next page.]


                                      -20-
<PAGE>

     IN WITNESS WHEREOF,  this Preferred  Securities Guarantee is executed as of
the day and year first above written.

FIRST MERCHANTS CORPORATION,
as Guarantor

By:  /s/  Larry R. Helms
     ------------------------------------------------
     Name:  Larry R. Helms, Esq.
     Title: Senior Vice President and General Counsel

WACHOVIA TRUST COMPANY, NATIONAL ASSOCIATION,
as Guarantee Trustee

By:  /s/  Edward L. Truitt, Jr.
     ------------------------------------------------
     Name:   Edward L. Truitt, Jr.
     Title:   Vice President


                                      -21-