EXHIBIT 4.7



                    PREFERRED SECURITIES GUARANTEE AGREEMENT

                                 by and between

                           FIRST MERCHANTS CORPORATION

                                       and

                 FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION

                          Dated as of [______________]










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                                TABLE OF CONTENTS

                                                                        Page No.
Article I DEFINITIONS AND INTERPRETATION.......................................1
         1.1        Definitions and Interpretation.............................1
Article II TRUST INDENTURE ACT.................................................5
         2.1        Trust Indenture Act; Application...........................5
         2.2        Lists of Holders of Securities.............................5
         2.3        Reports by the Guarantee Trustee...........................5
         2.4        Periodic Reports to Guarantee Trustee......................6
         2.5        Evidence of Compliance with Conditions Precedent...........6
         2.6        Events of Default; Waiver..................................6
         2.7        Event of Default; Notice...................................6
Article III POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE.....................7
         3.1        Powers and Duties of the Guarantee Trustee.................7
         3.2        Certain Rights of Guarantee Trustee........................9
         3.3        Not Responsible for Recitals or Issuance of Guarantee.....11
Article IV GUARANTEE TRUSTEE..................................................11
         4.1        Guarantee Trustee; Eligibility............................11
         4.2        Appointment, Removal and Resignation of Guarantee Trustee.12
Article V GUARANTEE ..........................................................13
         5.1        Guarantee.................................................13
         5.2        Waiver of Notice and Demand...............................13
         5.3        Obligations not Affected..................................13
         5.4        Rights of Holders.........................................14
         5.5        Guarantee of Payment......................................15
         5.6        Subrogation...............................................15
         5.7        Independent Obligations...................................15
Article VI LIMITATION OF TRANSACTIONS; SUBORDINATION..........................15
         6.1        Limitation of Transactions................................15
         6.2        Ranking...................................................16
Article VII TERMINATION.......................................................16
         7.1        Termination...............................................16
Article VIII INDEMNIFICATION..................................................16
         8.1        Exculpation...............................................16
         8.2        Indemnification...........................................17
Article IX MISCELLANEOUS......................................................17
         9.1        Successors and Assigns....................................17
         9.2        Amendments................................................17
         9.3        Notices...................................................18
         9.4        Benefit...................................................18
         9.5        Governing Law.............................................19


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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 [________________], is executed and delivered by FIRST
MERCHANTS CORPORATION, an Indiana corporation (the "Guarantor"), and 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/II/III], a Delaware
statutory business trust (the "Trust").

                                    RECITALS

     WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of [___________________], 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 [______________] preferred securities, having an
aggregate Liquidation Amount of up to $[_____________] designated the [____]%
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;



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          (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 [___]% Junior Subordinated Debentures due
[_________________], 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


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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 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 First Union 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 [___________________], among
the Debenture Issuer and First Union 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
[_________________].

     "Liquidation Amount" means the stated value of $[__] 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


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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;

          (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 [___]% 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.

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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 [_________________] 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.



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     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.

     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.



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     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.

                                  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.



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          (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 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


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               (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 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


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                    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 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


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                    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.

                                   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


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                    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 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.



                                      -12-
<PAGE>

          (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:

          (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


                                      -13-
<PAGE>

               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 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


                                      -14-
<PAGE>

               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 the Guarantor shall not (i) declare
or pay any dividend on, make any distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than as a result of a reclassification of its capital stock
for another class of its capital stock), (ii) make any payment of interest or
principal on or repay, repurchase or redeem any debt securities issued by the
Guarantor which rank pari passu with or junior to the Debentures (iii) make any
guarantee payments with respect to any of the foregoing (other than (a)
dividends or distributions in shares of, or options, warrants, rights to
subscribe for or purchase shares of, common stock of the Guarantor, (b) any
declaration of a non-cash dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or


                                      -15-
<PAGE>

repurchase of any such rights pursuant thereto, (c) payments under this
Preferred Securities Guarantee, (d) the purchase of fractional shares resulting
from a reclassification of the Guarantor's capital stock, (e) the purchase of
fractional interests in shares of the Guarantor's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged and (f) purchases of common stock related to the issuance
of common stock or rights under any of the Guarantor's benefit plans for its
directors, officers or employees or any of the Guarantor's dividend reinvestment
plans).

     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.

                                  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


                                      -16-
<PAGE>

               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. 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.



                                      -17-
<PAGE>

     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):

               First Union 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):

               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.



                                      -18-
<PAGE>

     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.]



                                      -19-
<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:
     -----------------------------------------------------
     Name:
          ------------------------------------------------
     Title:
           -----------------------------------------------


FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
as Guarantee Trustee

By:
     -----------------------------------------------------
     Name:
          ------------------------------------------------
     Title:
           -----------------------------------------------



                                      -20-