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                                                                EXHIBIT 10.48


                     FIRST MERCHANTS ACCEPTANCE CORPORATION

                                  $45,000,000

                       Subordinated Reset Notes Due 2006




                             UNDERWRITING AGREEMENT


                                                                October 29, 1996




J.C. BRADFORD & CO.
PIPER JAFFRAY INC.
KEEFE, BRUYETTE & WOODS, INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
As Representatives of the Several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201

Ladies and Gentlemen:

         First Merchants Acceptance Corporation, a Delaware corporation (the
"Company"), proposes to sell to the underwriters named in Schedule I hereto
(the "Underwriters") for whom you are acting as the representatives (the
"Representatives") an aggregate $45,000,000 principal amount of its
Subordinated Reset Notes Due 2006 (the "Firm Notes").  The Firm Notes are to be
sold to the Underwriters, acting severally and not jointly, in such amounts as
are set forth in Schedule I hereto opposite the name of such Underwriter.  The
Company also proposes to grant to the Underwriters an option to purchase up to
$6,750,000 in principal amount of Subordinated Reset Notes Due 2006 of the
Company as provided for in Section 2 of this Agreement (the "Option Notes").
The Firm Notes and the Option Notes purchased pursuant to this Agreement are
herein called the "Notes."   The Notes are to be issued pursuant to an
Indenture, to be dated as of October 15, 1996, between the Company and LaSalle
National Bank, Chicago, Illinois, as trustee (the "Trustee").  Such Indenture,
as amended and supplemented, is herein referred to as the "Indenture."

         1.      Representations and Warranties of the Company.  The Company
represents and warrants to, and agrees with, each of the Underwriters that:
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                 (a)      The Company meets the requirements for use of, and
         has filed with the Securities and Exchange Commission (the
         "Commission") under the Securities Act of 1933, as amended (the
         "Securities Act"), a registration statement on Form S-3 (Registration
         No. 333-14019), including the related preliminary prospectus and a
         Statement of Eligibility on Form T-1 with respect to the Trustee
         pursuant to the Trust Indenture Act of 1939, as amended (the "Trust
         Indenture Act"), has filed such amendments thereto, if any, and such
         amended preliminary prospectuses as may have been required to the date
         hereof, and will file such additional amendments thereto and such
         amended prospectuses as may hereafter be required, relating to the
         Notes.  Copies of such registration statement and any amendments,
         including any post-effective amendments, and all forms of the related
         prospectuses contained therein and any supplements thereto, have been
         delivered to you.  Such registration statement, including the
         prospectus, Part II, the information incorporated by reference, all
         financial schedules and exhibits thereto, and all information deemed
         to be a part of such registration statement pursuant to Rule 430A
         under the Securities Act, as amended at the time when it shall become
         effective, together with any registration statement filed by the
         Company pursuant to Rule 462(b) of the Securities Act, is herein
         referred to as the "Registration Statement," and the prospectus
         included as part of the Registration Statement on file with the
         Commission that discloses all the information that was omitted from
         the prospectus on the effective date pursuant to Rule 430A of the
         Rules and Regulations (as defined below) and in the form filed
         pursuant to Rule 424(b) under the Securities Act is herein referred to
         as the "Final Prospectus."  The prospectus included as part of the
         Registration Statement on the date when the Registration Statement
         becomes effective is referred to herein as the "Effective Prospectus."
         Any prospectus included in the Registration Statement and in any
         amendment thereto prior to the effective date of the Registration
         Statement is referred to herein as a "Preliminary Prospectus."  For
         purposes of this Agreement, "Rules and Regulations" mean the rules and
         regulations promulgated by the Commission under either the Securities
         Act, or the Securities Exchange Act of 1934, as amended (the "Exchange
         Act"), or the Trust Indenture Act, as applicable.

                 (b)      The Commission has not issued any order preventing or
         suspending the use of any Preliminary Prospectus, and each Preliminary
         Prospectus, at the time of filing thereof, complied with the
         requirements of the Securities Act and the Rules and Regulations, and
         did not include any untrue statement of a material fact or omit to
         state any material fact required to be stated therein or necessary to
         make the statements therein, in the light of the circumstances under
         which they were made, not misleading; except that the foregoing does
         not apply to statements or omissions made in reliance upon and in
         conformity with written information furnished to the Company by any
         Underwriter specifically for use therein (it being understood that the
         only information so provided is the information included in the last
         paragraph on the cover page and under the caption "Underwriting" in
         the Final Prospectus).  When the Registration Statement becomes
         effective and at all times subsequent thereto up to and including the
         First Closing Date (as hereinafter defined), (i) the Registration
         Statement, the Effective Prospectus and Final





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         Prospectus and any amendments or supplements thereto will contain all
         statements which are required to be stated therein in accordance with
         the Securities Act, the Exchange Act, the Trust Indenture Act and the
         Rules and Regulations and will comply with the requirements of the
         Securities Act, the Exchange Act, the Trust Indenture Act and the
         Rules and Regulations, and (ii) neither the Registration Statement,
         the Effective Prospectus nor the Final Prospectus nor any amendment or
         supplement thereto will include any untrue statement of a material
         fact or omit to state any material fact required to be stated therein
         or necessary to make the statements therein, in light of the
         circumstances in which they are made, not misleading; except that the
         foregoing does not apply to statements or omissions made in reliance
         upon and in conformity with written information furnished to the
         Company by any Underwriter specifically for use therein (it being
         understood that the only information so provided is the information
         included in the last paragraph on the cover page and in the first,
         third, fourth and sixth  paragraphs under the caption "Underwriting"
         in the Final Prospectus).

                 (c)      The documents which are incorporated by reference in
         any Preliminary, Effective and Final Prospectus or from which
         information is so incorporated by reference, were timely filed and
         (after giving effect to any amendments filed prior to the date hereof)
         complied in all material respects with the requirements of the
         Securities Act or the Exchange Act, as applicable, and the Rules and
         Regulations, and any documents so filed prior to the termination of
         this offering and incorporated by reference subsequent to the
         effective date of the Registration Statement shall, when they are
         filed with the Commission, conform in all material respects with the
         requirements of the Securities Act and the Exchange Act, as
         applicable, and the Rules and Regulations.

                 (d)      Except for First Merchants Auto Receivables
         Corporation, a Delaware corporation, and First Merchants Auto
         Receivables Corporation II, a Delaware corporation which are
         wholly-owned by the Company and were formed solely for the purpose of
         facilitating the securitization of the Company's finance receivables,
         the Company has no subsidiaries in any form, either directly or
         indirectly, wholly-owned or other than wholly-owned.  As used herein,
         the term "subsidiary" includes any corporation, joint venture or
         partnership in which the Company or any subsidiary of the Company has
         an ownership interest.

                 (e)      The Company and each subsidiary of the Company is
         duly organized and validly existing and in good standing under the
         laws of the respective jurisdictions of their organization or
         incorporation, as the case may be, with full power and authority
         (corporate, partnership and other, as the case may be) to own their
         properties and conduct their business as now conducted and are duly
         qualified or authorized to do business and are in good standing in all
         jurisdictions wherein the nature of their business or the character of
         property owned or leased may require them to be qualified or
         authorized to do business, except for jurisdictions in which the
         failure to so qualify would not have a material adverse effect on the
         Company and its subsidiaries taken as a whole.  The





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         Company and its subsidiaries hold all licenses, consents and
         approvals, and have satisfied all eligibility and other similar
         requirements imposed by federal and state regulatory bodies,
         administrative agencies or other governmental bodies, agencies or
         officials, in each jurisdiction in which the Company or one of its
         subsidiaries has an office and any other jurisdiction in which such
         license, permit, consent, appraisal or requirement is material to the
         conduct of the respective businesses in which they are engaged as
         described in the Effective Prospectus and the Final Prospectus.

                 (f)      The outstanding stock of each of the Company's
         corporate subsidiaries is duly authorized, validly issued, fully paid
         and nonassessable.  All of the outstanding stock of each of the
         Company's corporate subsidiaries is owned by the Company, and, except
         for security interests in the stock of  such subsidiaries securing the
         Company's obligations under the Company's Senior Revolving Credit
         Facility and Temporary Credit Facility (as those terms are defined in
         the Registration Statement), is owned  free and clear of any lien,
         encumbrance, pledge, equity or claim of any kind.  Neither the Company
         nor any of its subsidiaries is a partner or joint venturer in any
         partnership or joint venture.

                 (g)      The capitalization of the Company as of June 30, 1996
         is as set forth under the caption "Capitalization" in the Effective
         Prospectus and the Final Prospectus, and the Company's capital stock
         conforms to the description thereof contained or incorporated by
         reference in the Effective Prospectus and the Final Prospectus.  All
         the issued shares of capital stock of the Company have been duly
         authorized and validly issued, are fully paid and nonassessable.  None
         of the issued shares of capital stock of the Company have been issued
         in violation of any preemptive or similar rights.  The Notes have been
         duly and validly authorized and, when executed, authenticated and
         delivered in accordance with the Indenture and paid for by the
         Underwriters pursuant to this Agreement and the Indenture, will
         constitute legal and binding obligations of the Company entitled to
         the benefits of the Indenture and will conform in all material
         respects to the description thereof contained in the Effective
         Prospectus and the Final Prospectus.  Upon the effective date of the
         offering of the Notes, there will be no preemptive rights or other
         rights to subscribe for or to purchase, or any restriction upon the
         transfer of, any shares of capital stock of the Company pursuant to
         the Company's certificate of incorporation, by-laws or other governing
         documents or any agreement or other instrument to which the Company is
         a party or by which it may be bound, except as described in the
         Effective Prospectus and the Final Prospectus and except for
         restrictions imposed under applicable securities laws.  Neither the
         filing of the Registration Statement nor the offer or sale of the
         Notes as contemplated by this Agreement gives rise to any rights,
         other than those which have been waived or satisfied, for or relating
         to the registration of any shares of capital stock of the Company or
         any other securities of the Company.  The Underwriters will receive
         good and marketable title to the Notes to be issued and delivered
         hereunder, free and clear of all liens, encumbrances, claims, security
         interests, restrictions, shareholders' agreements and voting trusts
         whatsoever.





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                 (h)      All offers and sales of the Company's securities
         prior to the date hereof were at all relevant times duly registered or
         the subject of an available exemption from the registration
         requirements of the Securities Act, and were duly registered or the
         subject of an available exemption from the registration requirements
         of the applicable state securities or Blue Sky laws.

                 (i)      The Company has full legal right, power and authority
         to enter into this Agreement and the Indenture and to sell and deliver
         the Notes to the Underwriters as provided herein, and this Agreement
         and the Indenture have been duly authorized, executed and delivered by
         the Company and constitute valid and binding agreements of the Company
         enforceable against the Company in accordance with their terms,
         subject to applicable bankruptcy, insolvency, reorganization,
         moratorium, fraudulent transfer, fraudulent conveyance and similar
         laws affecting creditors' rights and subject, as to enforceability, to
         general principles of equity (regardless of whether enforcement is
         sought in a proceeding in equity or at law) and to the application of
         principles of public policy.  No consent, approval, authorization or
         order of any court or governmental agency or body or third party is
         required for the performance of this Agreement or the Indenture by the
         Company or the consummation by the Company of the transactions
         contemplated hereby or thereby, except such as have been obtained and
         such as may be required by the National Association of Securities
         Dealers, Inc. ("NASD") or under the Securities Act, the Trust
         Indenture Act or state securities or Blue Sky laws in connection with
         the purchase and distribution of the Notes by the Underwriters.  The
         issue and sale of the Notes by the Company, the Company's performance
         of this Agreement and the Indenture and the consummation of the
         transactions contemplated hereby and thereby will not result in a
         breach or violation of, or conflict with, any of the terms and
         provisions of, or constitute a default by the Company under, any
         indenture, mortgage, deed of trust, loan agreement, lease or other
         agreement or instrument to which the Company is a party or to which
         the Company or any of its properties is subject, the certificate of
         incorporation, by-laws or other governing instruments of the Company
         or any statute or any judgment, decree, order, rule or regulation of
         any court or governmental agency or body applicable to the Company or
         any of its properties.  The Company is not in violation of its
         certificate of incorporation, by-laws or other governing instruments
         or any law, administrative rule or regulation or arbitrators' or
         administrative or court decree, judgment or order or in violation or
         default (there being no existing state of facts which with notice or
         lapse of time or both would constitute a default) in the performance
         or observance of any obligation, agreement, covenant or condition
         contained in any contract, indenture, deed of trust, mortgage, loan
         agreement, note, lease, agreement or other instrument or permit to
         which it is a party or by which it or any of its properties is or may
         be bound.

                 (j)      The financial statements and the related notes of the
         Company included or incorporated by reference in the Registration
         Statement, the Effective Prospectus and the Final Prospectus present
         fairly the financial position, results of operations and changes in
         financial position and cash flow of the Company at the dates and for
         the periods to which





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         they relate, and have been prepared in accordance with generally
         accepted accounting principles applied on a consistent basis
         throughout the periods indicated.  The other financial statements and
         schedules included or incorporated by reference in or attached as
         schedules to the Registration Statement and the Prospectus conform to
         the requirements of the Securities Act, the Exchange Act, the Trust
         Indenture Act and the Rules and Regulations and present fairly the
         information presented therein for the periods shown.  The financial
         and statistical data set forth in the Effective Prospectus and the
         Final Prospectus under the captions "Prospectus Summary," "Use of
         Proceeds," "Capitalization," "Selected Financial Data," "Management's
         Discussion and Analysis of Financial Condition and Results of
         Operations" and "Business" fairly presents the information set forth
         therein on the basis stated in the Effective Prospectus and the Final
         Prospectus.  Deloitte & Touche LLP, whose report appears in the
         Effective Prospectus and the Final Prospectus, are independent
         accountants as required by the Securities Act and the Rules and
         Regulations.

                 (k)      Subsequent to December 31, 1995, neither the Company
         nor any subsidiary has sustained any material loss or interference
         with its business or properties from fire, flood, hurricane,
         earthquake, accident or other calamity, whether or not covered by
         insurance, or from any labor dispute or court or governmental action,
         order or decree, which is not disclosed in the Effective Prospectus
         and the Final Prospectus and which is material to the Company and its
         subsidiaries taken as a whole; and subsequent to the respective dates
         as of which information is given in the Registration Statement, the
         Effective Prospectus and the Final Prospectus, (i) neither the Company
         nor any of its subsidiaries has incurred any material liabilities or
         obligations, direct or contingent, or entered into any material
         transactions not in the ordinary course of business, and (ii) there
         has not been any change in the capital stock, long-term debt,
         obligations under capital leases or short-term borrowings of the
         Company or its subsidiaries or any issuance of options, warrants or
         rights to purchase the capital stock of the Company or any of its
         subsidiaries, or any material adverse change, or any development
         involving a prospective material adverse change, in the general
         affairs, management, business, prospects, financial position, net
         worth or results of operations of the Company and its subsidiaries
         taken as a whole, except in each case as described in or contemplated
         by the Effective Prospectus and the Final Prospectus.

                 (l)      Except as described in the Effective Prospectus and
         the Final Prospectus, there is not pending, or to the knowledge of the
         Company threatened, any legal or governmental action, suit, claim,
         proceeding, inquiry or investigation, to which the Company, any of its
         subsidiaries or any of their respective officers or directors is a
         party, or to which the property of the Company or any subsidiary is
         subject, before or brought by any court or governmental agency or
         body, wherein an unfavorable decision, ruling or finding could prevent
         or materially hinder the consummation of this Agreement or result in a
         material adverse change in the business condition (financial or
         other), prospects,





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         financial position, net worth or results of operations of the Company
         and its subsidiaries taken as a whole.

                 (m)      There are no contracts or other documents required by
         the Securities Act or by the Rules and Regulations to be described in
         the Registration Statement, the Effective Prospectus or the Final
         Prospectus or to be filed or incorporated by reference as exhibits to
         the Registration Statement which have not been described, filed or
         incorporated by reference as required.  All such contracts to which
         the Company or any of its subsidiaries is a party have been duly
         authorized, executed and delivered by the Company or any of its
         subsidiaries, as the case may be, constitute valid and binding
         agreements of the Company or its subsidiary and are enforceable
         against the Company or its subsidiary in accordance with the terms
         thereof.  Each of the Company and its subsidiaries has performed all
         its obligations required to be performed by it, and is neither in
         default nor has it received notice of default, under any such contract
         or other material instrument to which it is a party or by which its
         property is bound or affected.  To the best knowledge of the Company,
         no other party under any such contract or other material instrument to
         which it or any of its subsidiaries is a party is in default in any
         material respect thereunder.

                 (n)      Except as described in the Effective Prospectus and
         the Final Prospectus, the Company and each of its subsidiaries have
         good and marketable title to all real and material personal property
         owned by them, free and clear of all liens, charges, encumbrances or
         defects, except those reflected in the financial statements
         hereinabove described.  The real and personal property and buildings
         referred to in the Effective Prospectus and the Final Prospectus which
         are leased from others by the Company or any of its subsidiaries are
         held under valid, subsisting and enforceable leases.  The Company and
         its subsidiaries own or lease all such properties as are necessary to
         their respective operations as now conducted.

                 (o)      The Company's system of internal accounting controls
         taken as a whole is sufficient to meet the broad objectives of
         internal accounting control insofar as those objectives pertain to the
         prevention or detection of errors or irregularities in amounts that
         would be material in relation to the Company's financial statements.
         Neither the Company nor any of its subsidiaries nor any director,
         officer, agent, employee or other person acting on behalf of the
         Company or any of its subsidiaries has, directly or indirectly used,
         or authorized the use of, any corporate or other funds for unlawful
         contributions, gifts, entertainment or other unlawful expenses
         relating to political activity; made any unlawful payment to foreign
         or domestic government officials or employees or to foreign or
         domestic political parties or campaigns from corporate funds; violated
         any provision of the Foreign Corrupt Practices Act of 1977, as
         amended; made any bribe, rebate, payoff, influence payment kickback or
         other unlawful payment; or received or retained any funds in violation
         of any law, rule or regulation.





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                 (p)      The Company and its subsidiaries have filed all
         foreign, federal, state and all material local income, excise and
         franchise tax returns required to be filed through the date hereof and
         have paid all taxes shown as due therefrom to the extent such taxes
         have become due and are not being contested in good faith; and there
         is no tax deficiency that has been, nor does the Company or any of its
         subsidiaries have knowledge of any tax deficiency which is likely to
         be, asserted against the Company or any of its subsidiaries, which if
         determined adversely could materially and adversely affect the
         earnings, assets, affairs, business prospects or condition (financial
         or other) of the Company or its subsidiaries taken as a whole.

                 (q)      The Company and its subsidiaries operate their
         business in conformity in all material respects with all applicable
         statutes, common laws, ordinances, decrees, orders, rules and
         regulations of governmental bodies.  The Company and its subsidiaries
         have all licenses, permits, approvals or consents to operate its
         business in all locations in which such business is currently being
         operated, and the Company and its subsidiaries are not aware of any
         existing or imminent statutory, regulatory or administrative matter
         which may adversely impact its operations or business prospects other
         than as specifically disclosed in the Effective Prospectus and the
         Final Prospectus.  Neither the Company nor any of its subsidiaries has
         engaged in any activity, whether alone or in concert with one of its
         customers, creating the potential for exposure to material civil or
         criminal monetary liability or other material sanctions under federal
         or state laws regulating consumer credit transactions or debt
         collection practices.

                 (r)      Neither the Company nor any of its subsidiaries has
         failed to file with the applicable regulatory authorities any
         statement, report, information or form required by any applicable law,
         regulation or order where the failure to file the same would have a
         material adverse effect on the Company and its subsidiaries taken as a
         whole or on its ability to conduct business in any state; all such
         filings or submissions were in material compliance with applicable
         laws when filed, and no deficiencies have been asserted by any
         regulatory commission, agency or authority with respect to such
         filings or submissions.  Neither the Company nor any of its
         subsidiaries failed to maintain in full force and effect any license,
         certification, registration or permit necessary or proper for the
         conduct of their business, or received any notification that any
         revocation or limitation thereof is threatened or pending, and, except
         as disclosed in the Effective Prospectus and the Final Prospectus,
         there is not pending any change under any law, regulation, license or
         permit which could materially adversely affect its business,
         operations, property or business prospects.  Neither the Company nor
         any of its subsidiaries has received any notice of violation of or
         been threatened with a charge of violating and is not, to the best of
         its knowledge, under investigation with respect to a possible
         violation of any provision of any law, regulation or order.

                 (s)      No labor dispute exists or is imminent with the
         Company's employees or with employees of its subsidiaries which could
         materially adversely affect the Company





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         or any of its subsidiaries.  The Company is not aware of any existing
         or imminent labor disturbance by its employees or by any employees of
         its subsidiaries which could be expected to materially adversely
         effect the condition (financial or otherwise), results of operations,
         properties, affairs, management, business affairs or business
         prospects of the Company or any of its subsidiaries.

                 (t)      Except as disclosed in the Effective Prospectus and
         the Final Prospectus, each of the Company and its subsidiaries owns or
         possesses, or can acquire on reasonable terms, the patents, licenses,
         copyrights, trademarks, service marks and trade names presently
         employed by it in connection with the businesses now operated by it,
         and neither the Company nor any of its subsidiaries has received any
         notice of infringement of or conflict with asserted rights of others
         with respect to any of the foregoing which, alone or in the aggregate,
         if the subject of an unfavorable decision, ruling or finding, would
         result in any material adverse change in the condition, financial or
         otherwise, or in the earnings, business affairs or business prospects
         of the Company or its subsidiaries.

                 (u)      Neither the Company nor any of its subsidiaries nor
         any of the directors, officers, employees or agents of the Company and
         its subsidiaries has taken and will not take, directly or indirectly,
         any action designed to cause or result in, or which has constituted or
         which might be expected to constitute, stabilization or manipulation
         of the price of the capital stock of the Company.

                 (v)      Each of the Company and its subsidiaries is insured
         by insurers of recognized financial responsibility against such losses
         and risks and in such amounts as are prudent and customary in the
         businesses in which it is engaged; and neither the Company nor any of
         its subsidiaries has reason to believe that it will not be able to
         renew its existing insurance coverage as and when such coverage
         expires or to obtain similar coverage from similar insurers as may be
         necessary to continue its business at a comparable cost.

                 (w)      Neither the Company nor any of its subsidiaries is,
         will not become as a result of the transactions contemplated hereby,
         and does not intend to conduct its business in a manner that would
         cause it to become, an "investment company" or a company "controlled"
         by an "investment company" within the meaning of the Investment
         Company Act of 1940.

                 (x)  The Company has filed with the Commission and the NASD
         all reports, documents and statements required to be filed by the
         Company pursuant to the Securities Act, the Exchange Act, the Rules
         and Regulations and all the rules and regulations of the NASD relating
         to the Company's capital stock, and each of such reports, documents
         and statements, at the time that they were filed, complied in all
         material respects with the requirements of the Securities Act, the
         Exchange Act and the Rules and Regulations.





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         2.      Purchase, Sale and Delivery of the Notes.

                 (a)      On the basis of the representations, warranties,
         agreements and covenants herein contained and subject to the terms and
         conditions herein set forth, the Company agrees to sell to each of the
         Underwriters, and each of the Underwriters, severally and not jointly,
         agrees to purchase at a purchase price of $960 per $1,000 principal
         amount, the number of Firm Notes set forth opposite such Underwriter's
         name in Schedule I hereto.

                 (b)      The Company also grants to the Underwriters an option
         to purchase, solely for the purpose of covering over-allotments in the
         sale of Firm Notes, all or any portion of the Option Notes at the
         purchase price set forth above plus accrued interest.  The option
         granted hereby may be exercised as to all or any part of the Option
         Notes at any time (but only once) within 30 days after the date of the
         Final Prospectus.  The Underwriters shall not be under any obligation
         to purchase any Option Notes prior to the exercise of such option.
         The option granted hereby may be exercised by the Underwriters by the
         Representatives giving written notice to the Company setting forth the
         amount of Option Notes to be purchased and the date and time for
         delivery of and payment for such Option Notes and stating that the
         Option Notes referred to therein are to be used for the purpose of
         covering over-allotments in connection with the distribution and sale
         of the Firm Notes.  If such notice is given prior to the First Closing
         Date (as defined herein), the date set forth therein for such delivery
         and payment shall not be earlier than two full business days
         thereafter or the First Closing Date, whichever occurs later.  If such
         notice is given on or after the First Closing Date, the date set forth
         therein for such delivery and payment shall not be earlier than three
         full business days thereafter.  In either event, the date so set forth
         shall not be more than 15 full business days after the date of such
         notice.  The date and time set forth in such notice is herein called
         the "Option Closing Date."  Upon exercise of the option, the Company
         shall become obligated to sell to the Underwriters, and, subject to
         the terms and conditions herein set forth, the Underwriters shall
         become obligated to purchase, for the account of each Underwriter,
         from the Company, severally and not jointly, the amount of Option
         Notes specified in such notice.  Option Notes shall be purchased for
         the accounts of the Underwriters in proportion to the amount of Firm
         Notes set forth opposite such Underwriter's name in Schedule I hereto,
         except that the respective purchase obligations of each Underwriter
         shall be adjusted so that no Underwriter shall be obligated to
         purchase fractional Option Notes.

                 (c)      Certificates in definitive form for the Firm Notes
         which each Underwriter has agreed to purchase hereunder shall be
         delivered by or on behalf of the Company to the Underwriters for the
         account of such Underwriter against payment by such Underwriter or on
         its behalf of the purchase price therefor by certified or official
         bank check payable in next day funds to the order of the Company at
         the offices of Sonnenschein Nath & Rosenthal, 8000 Sears Tower,
         Chicago, Illinois 60606, or at such other place as may be agreed upon
         by J.C. Bradford & Co. ("Bradford") and the Company, at 10:00 A.M.,





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         Chicago time, on the third full business day after this Agreement
         becomes effective, or at the election of the Representatives, on the
         fourth full business day after this Agreement becomes effective, if it
         becomes effective after 4:30 P.M. eastern time, or at such other time
         not later than the seventh full business day thereafter as the
         Representatives and the Company may determine, such time of delivery
         against payment being herein referred to as the "First Closing Date."
         The First Closing Date and the Option Closing Date are herein
         individually referred to as the "Closing Date" and collectively
         referred to as the "Closing Dates."  Certificates in definitive form
         for the Option Notes which each Underwriter shall have agreed to
         purchase hereunder shall be similarly delivered by or on behalf of the
         Company on the Option Closing Date.  The certificates in definitive
         form for the Notes to be delivered will be in good delivery form and
         in such denominations and registered in such names as Bradford may
         request not less than 48 hours prior to the First Closing Date or the
         Option Closing Date, as the case may be.  Such certificates will be
         made available for checking and packaging at a location in New York,
         New York as may be designated by you, at least 24 hours prior to the
         First Closing Date or the Option Closing Date, as the case may be.  It
         is understood that you may (but shall not be obligated to) make
         payment on behalf of any Underwriter or Underwriters for the Notes to
         be purchased by such Underwriter or Underwriters.  No such payment
         shall relieve such Underwriter or Underwriters from any of its or
         their obligations hereunder.

         3.      Offering by the Underwriters.  After the Registration
Statement becomes effective, the several Underwriters propose to offer for sale
to the public the Firm Notes and any Option Notes which may be sold at the
price and upon the terms set forth in the Final Prospectus.

         4.      Covenants of the Company.  The Company covenants and agrees
with each of the Underwriters that:

                 (a)      The Company shall comply with the provisions of and
         make all requisite filings with the Commission pursuant to Rules 424
         and 430A of the Rules and Regulations and shall notify you promptly
         (in writing, if requested) of all such filings.  The Company shall
         notify you promptly of any request by the Commission for any amendment
         of or supplement to the Registration Statement, the Effective
         Prospectus or the Final Prospectus or for additional information; the
         Company shall prepare and file with the Commission, promptly upon your
         request, any amendments of or supplements to the Registration
         Statement, the Effective Prospectus or the Final Prospectus which, in
         your opinion, may be necessary or advisable in connection with the
         distribution of the Notes; and the Company shall not file any
         amendment of or supplement to the Registration Statement, the
         Effective Prospectus or the Final Prospectus which is not approved by
         you after reasonable notice thereof.  The Company shall advise you
         promptly of the issuance by the Commission or any jurisdiction or
         other regulatory body of any stop order or other order suspending the
         effectiveness of the Registration Statement, suspending or preventing
         the use of any Preliminary Prospectus, the Effective Prospectus or the
         Final Prospectus or suspending the qualification of the Notes for
         offering or sale in any jurisdiction, or of the





                                       11
<PAGE>   12

         institution of any proceedings for any such purpose; and the Company
         shall use its best efforts to prevent the issuance of any stop order
         or other such order and, should a stop order or other such order be
         issued, to obtain as soon as possible the lifting thereof.

                 (b)      The Company will take or cause to be taken all
         necessary action and furnish to whomever you direct such information
         as may be reasonably required in qualifying the Notes for offer and
         sale under the securities or Blue Sky laws of such jurisdictions as
         the Underwriters may designate and will continue such qualifications
         in effect for as long as may be reasonably necessary to complete the
         distribution of the Notes.

                 (c)      Within the time during which a Final Prospectus
         relating to the Notes is required to be delivered under the Securities
         Act, the Company shall comply with all requirements imposed upon it by
         the Securities Act, as now and hereafter amended, and by the Rules and
         Regulations, as from time to time in force, so far as is necessary to
         permit the continuance of sales of or dealings in the Notes as
         contemplated by the provisions hereof and the Final Prospectus.  If
         during such period any event occurs as a result of which the Final
         Prospectus as then amended or supplemented would include an untrue
         statement of a material fact or omit to state a material fact
         necessary to make the statements therein, in the light of the
         circumstances then existing, not misleading, or if during such period
         it is necessary to amend the Registration Statement or supplement the
         Final Prospectus to comply with the Securities Act, the Company shall
         promptly notify you and shall amend the Registration Statement or
         supplement the Final Prospectus (at the expense of the Company) so as
         to correct such statement or omission or effect such compliance.

                 (d)      The Company will furnish without charge to the
         Representatives and make available to the Underwriters copies of the
         Registration Statement (four of which shall be signed and shall be
         accompanied by all exhibits, including any which are incorporated by
         reference, which have not previously been furnished), each Preliminary
         Prospectus, the Effective Prospectus and the Final Prospectus, and all
         amendments and supplements thereto, including any prospectus or
         supplement prepared after the effective date of the Registration
         Statement, in each case as soon as available and in such quantities as
         the Underwriters may reasonably request.

                 (e)  The Company will (i) deliver to you at such office or
         offices as you may designate as many copies of the Preliminary
         Prospectus and Final Prospectus as you may reasonably request, and
         (ii) for a period of not more than nine months after the Registration
         Statement becomes effective, send to the Underwriters as many
         additional copies of the Final Prospectus and any supplement thereto
         as you may reasonably request.

                 (f)      The Company shall make generally available to its
         security holders, in the manner contemplated by Rule 158(b) under the
         Securities Act as promptly as practicable and in any event no later
         than 45 days after the end of its fiscal quarter in which the first





                                       12
<PAGE>   13

         anniversary of the effective date of the Registration Statement
         occurs, an earning statement satisfying the provisions of Section
         11(a) of the Securities Act covering a period of at least 12
         consecutive months beginning after the effective date of the
         Registration Statement.

                 (g)      The Company will apply the net proceeds from the sale
         of the Notes as set forth under the caption "Use of Proceeds" in the
         Final Prospectus.

                 (h)      During a period of five years from the effective date
         of the Registration Statement  the Company will furnish to the
         Representatives copies of all reports and other communications
         (financial or other) furnished by the Company to its stockholders and,
         as soon as available, copies of any reports or financial statements
         furnished or filed by the Company to or with the Commission or any
         national securities exchange on which any class of securities of the
         Company may be listed.

                 (i)      The Company will, from time to time, after the
         effective date of the Registration Statement file with the Commission
         such reports as are required by the Securities Act, the Exchange Act
         and the Rules and Regulations, and shall also file with foreign, state
         and other governmental securities commissions in jurisdictions where
         the Notes have been sold by you (as you shall have advised us in
         writing) such reports as are required to be filed by the securities
         acts and the regulations of those foreign jurisdictions or states.

                 (j)  If at any time during the 25 day period after the
         Registration Statement is declared effective, any rumor, publication
         or event relating to or affecting the Company shall occur as a result
         of which, in your opinion, the market price for the Notes has been or
         is likely to be materially affected (regardless of whether such rumor,
         publication or event necessitates a supplement to or amendment of the
         Final Prospectus), the Company will, after written notice from you
         advising it as to the effect set forth above, prepare, consult with
         you concerning the substance of and disseminate a press release or
         other public statement, reasonably satisfactory to you, responding to
         or commenting on such rumor, publication or event.

                 (k)  The Company will not take, directly or indirectly, any
         action designed to cause or result in, or which might constitute or be
         expected to constitute, stabilization or manipulation of the price of
         the Notes and the Company will use its best efforts to assure that its
         officers, directors and affiliates take no such action.

                 (l)      Within the time during which a Final Prospectus
         relating to the Notes is required to be delivered under the Securities
         Act in connection with the sale of the Notes, the Company will conduct
         its business and operations as described in the Final Prospectus or,
         if the Company or any of its subsidiaries makes any material change to
         its business or operations as so conducted, promptly disclose such
         change generally to the Representatives and, if appropriate or
         necessary, to the Company's security holders.





                                       13
<PAGE>   14


         5.      Expenses.  The Company agrees with the Underwriters that (a)
whether or not the transactions contemplated by this Agreement are consummated
or this Agreement becomes effective or is terminated, the Company will pay all
fees and expenses incident to the performance of the obligations of the Company
hereunder, including, but not limited to, (i) the Commission's registration
fee, (ii) the expenses of printing (or reproduction) and distributing the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus, the Effective
Prospectus, the Final Prospectus, any amendments or supplements thereto, any
audio or visual materials supplied by the Company expressly for use in
connection with the marketing of the Notes, including without limitation,
slides, videos, films and tape recordings, the Indenture and this Agreement and
other underwriting documents, including Underwriter's Questionnaires,
Underwriter's Powers of Attorney, Blue Sky Memoranda, Selected Dealer
Agreements and Agreements Among Underwriters, (iii) fees and expenses of
accountants and counsel for the Company, (iv) expenses of registration or
qualification of the Notes under state Blue Sky and securities laws, including
the fees and disbursements of counsel to the Underwriters in connection
therewith, (v) filing fees paid or incurred by the Underwriters and related
fees and expenses of counsel to the Underwriters in connection with filings
with the NASD, (vi) all travel, lodging and reasonable living expenses incurred
by the Company in connection with marketing, dealer and other meetings attended
by the Company and the Underwriters in marketing the Notes, (vii) the costs and
charges of the Company's transfer agent and registrar and the cost of preparing
the certificates for the Notes, (viii) the fees and expenses of the Trustee in
connection with the Indenture and the Notes and (ix) all other costs and
expenses incident to the performance of the Company's obligations hereunder not
otherwise provided for in this Section; and (b) all out-of- pocket expenses,
including counsel fees, disbursements and expenses, incurred by the
Underwriters in connection with investigating, preparing to market and
marketing the Notes and proposing to purchase and purchasing the Notes under
this Agreement, will be borne and paid by the Company if the sale of the Notes
provided for herein is not consummated by reason of (i) the termination of this
Agreement by the Company pursuant to Section 12(a)(i), (ii) by reason of
termination of this Agreement by the Underwriters pursuant to Sections
12(b)(iii), 12(b)(iv) or 12(b)(v), or (iii) because of any failure or refusal
on the part of the Company to comply with the terms or fulfill any of the
conditions of this Agreement.

         6.      Conditions of the Underwriters' Obligations.  The respective
obligations of the Underwriters to purchase and pay for the Firm Notes shall be
subject, in their discretion, to the accuracy of the representations and
warranties of the Company herein as of the date hereof and as of the Closing
Date as if made on and as of the Closing Date, to the accuracy of the
statements of the Company's officers made pursuant to the provisions hereof, to
the performance by the Company of all of its covenants and agreements hereunder
and to the following additional conditions:

                 (a)      The Registration Statement and all post-effective
         amendments thereto shall have become effective not later than 5:30
         P.M., Washington, D.C. time, on the day following the date of this
         Agreement, or such later time and date as shall have been consented to
         by the Representatives and all filings required by Rule 424 and Rule
         430A





                                       14
<PAGE>   15

         of the Rules and Regulations shall have been made; no stop order
         suspending the effectiveness of the Registration Statement shall have
         been issued and no proceedings for that purpose shall have been
         instituted or threatened or, to the knowledge of the Company or the
         Underwriters, shall be contemplated by the Commission; any request of
         the Commission for additional information (to be included in the
         Registration Statement or the Final Prospectus or otherwise) shall
         have been complied with to your satisfaction; and the NASD, upon
         review of the terms of the public offering of the Notes, shall not
         have objected to such offering, such terms or the Underwriters'
         participation in the same.

                 (b)      No Underwriter shall have advised the Company that
         the Registration Statement, Preliminary Prospectus, the Effective
         Prospectus or Final Prospectus, or any amendment or any supplement
         thereto, contains an untrue statement of fact which, in your judgment,
         is material, or omits to state a fact which, in your judgment, is
         material and is required to be stated therein or necessary to make the
         statements therein not misleading and the Company shall not have cured
         such untrue statement of fact or stated a statement of fact required
         to be stated therein.

                 (c)      The Representatives shall have received an opinion,
         dated the Closing Date, from Sonnenschein Nath & Rosenthal, counsel
         for the Company, to the effect that:

                          (i)     The Company has been duly organized and is
                 validly existing in good standing as a corporation under the
                 laws of the State of Delaware, with corporate power and
                 authority to own its properties and conduct its business as
                 now conducted, and is duly qualified to do business as a
                 foreign corporation in good standing in all other
                 jurisdictions where the failure to so qualify would have a
                 material adverse effect upon the Company.  To such counsel's
                 knowledge, the Company holds all licenses, certificates,
                 permits, franchises and authorizations from governmental
                 authorities which are material to the conduct of its business
                 in all locations known to such counsel after reasonable
                 investigation in which such business is currently being
                 conducted.

                          (ii)    As of the dates specified therein, the
                 Company had authorized and issued capital stock as set forth
                 under the caption "Capitalization" in the Final Prospectus.
                 All of the outstanding shares of the capital stock of the
                 Company have been duly authorized and are validly issued,
                 fully paid and nonassessable, and none of the issued shares
                 have been issued in violation of or subject to any preemptive
                 rights provided for by law or by the Company's certificate of
                 incorporation.  The Notes have been duly and validly
                 authorized and, when executed, authenticated and delivered in
                 accordance with the Indenture, will constitute legal and
                 binding obligations of the Company entitled to the benefits of
                 the Indenture.  There are no preemptive rights or other rights
                 to subscribe for or to purchase, or any restriction upon the
                 transfer of, the Notes that have not been waived pursuant to
                 the Company's certificate of incorporation, by-laws or other
                 governing documents or





                                       15
<PAGE>   16

                 any agreement or other instrument to which the Company is a
                 party or by which it may be bound, except as described in the
                 Effective Prospectus and Final Prospectus and except for
                 restrictions on transfer imposed under applicable securities
                 laws.  Neither the filing of the Registration Statement nor the
                 offer or sale of the Notes as contemplated by this Agreement
                 and the Indenture gives rise to any rights, other than those
                 which have been waived or satisfied, for or relating to the
                 registration of any shares of capital stock of the Company or
                 any other securities of the Company.  Upon issuance and
                 delivery thereof and payment therefor as provided in the
                 Underwriting Agreement, the Underwriters will receive good and
                 marketable title to the Notes to be issued and delivered
                 pursuant to this Agreement, free and clear of all liens,
                 encumbrances, claims, security interests, restrictions,
                 shareholders agreements and voting trusts whatsoever. The Notes
                 conform to the description thereof contained in the Final
                 Prospectus.  All offers and sales of the Company's securities
                 prior to the date hereof were at all relevant times duly
                 registered or exempt from the registration requirements of the
                 Securities Act and were duly registered or the subject of an
                 exemption from the registration requirements of applicable
                 state securities or Blue Sky laws.

                          (iii)   The Company has full legal right, power and
                 authority to enter into this Agreement and the Indenture and
                 to issue, sell and deliver the Notes to be sold by it to the
                 Underwriters as provided herein, and this Agreement and the
                 Indenture have been duly authorized, executed and delivered by
                 the Company and each constitutes the valid and legally binding
                 obligation of the Company enforceable against the Company in
                 accordance with its terms, except as enforceability may be
                 limited by general equitable principles, bankruptcy,
                 insolvency, reorganization, moratorium, fraudulent transfer,
                 fraudulent conveyance or other laws affecting creditors'
                 rights generally and public policy restrictions on the
                 enforceability of indemnification provisions.  The Indenture
                 has been qualified under the Trust Indenture Act.

                          (iv)    To such counsel's knowledge, no consent,
                 approval, authorization or order of any court or governmental
                 or regulatory agency or body or third party is required for
                 the performance of this Agreement and the Indenture by the
                 Company or the consummation by the Company of the transactions
                 contemplated hereby and thereby, except such as have been
                 obtained under the Securities Act and such as may be required
                 by the NASD and under state securities or Blue Sky laws in
                 connection with the purchase and distribution of the Notes by
                 the several Underwriters, as to which such counsel expresses
                 no opinion.  The performance of this Agreement and the
                 Indenture by the Company and the consummation by the Company
                 of the transactions contemplated hereby and thereby will not
                 conflict with or result in a breach or violation by the
                 Company of any of the terms or provisions of, or constitute a
                 default by the Company under, any indenture, mortgage, deed of
                 trust, loan agreement, lease or other agreement or instrument,





                                       16
<PAGE>   17

         known to such counsel, to which the Company is a party or to which the
         Company or its properties is subject, the certificate of incorporation
         or by-laws of the Company, any statute, or any judgment, decree,
         order, rule or regulation of any court or governmental agency or body
         (other than state securities or blue sky laws, as to which such
         counsel expresses no opinion) known to such counsel to be applicable
         to the Company or its properties.

         In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that the Registration Statement, the
Effective Prospectus and the Final Prospectus or any amendment or supplement
thereto contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (except that such counsel need express no view as to
financial statements, schedules and other financial or statistical information
included or incorporated by reference therein).

         The opinions to be rendered pursuant to paragraph (c) may be limited
to federal law, and as to state law matters, to the laws of the states in which
such counsel is admitted to practice. Such counsel may also rely on opinion of
other counsel as to matters of local law provided that such counsel shall state
that they believe both they and you are justified in relying on such opinion.

                 (d)      The Representatives shall have received an opinion,
         dated the Closing Date, from Richard P. Vogelman, Vice President,
         Secretary and General Counsel of the Company, to the effect that:

                          (i)     Except for First Merchants Auto Receivables
                 Corporation, a Delaware corporation and First Merchants Auto
                 Receivables Corporation II, a Delaware corporation, which were
                 formed solely for the purpose of facilitating the
                 securitization of the Company's finance receivables, the
                 Company has no subsidiaries in any form, whether directly or
                 indirectly, wholly-owned or other than wholly-owned.  Each of
                 the Company's subsidiaries is validly existing and in good
                 standing under the laws of the state of its incorporation or
                 organization, as the case may be, with power and authority to
                 own its properties and conduct its business as now conducted,
                 and is duly qualified or authorized to do business and is in
                 good standing in all other jurisdictions where the failure to
                 so qualify would have a material adverse effect upon the
                 business of the Company and its subsidiaries taken as a whole.
                 The outstanding stock of each of the Company's subsidiaries is
                 duly authorized, validly issued, fully paid and nonassessable.
                 All of the outstanding stock of each of the corporate
                 subsidiaries is owned beneficially and of record by the
                 Company, and, except for security interests in the stock of
                 such subsidiaries securing the Company's obligations under
                 the Company's Senior Revolving Credit Facility and Temporary
                 Credit Facility (as those terms are defined in the
                 Registration Statement), is owned free and clear of all liens,





                                       17
<PAGE>   18

                 encumbrances, equities and claims.  No options or warrants or
                 other rights to purchase, agreements or other obligations to
                 issue or other rights to convert any obligations into any
                 shares of capital stock or of ownership interests in any of the
                 Company's subsidiaries are outstanding.  Each of the Company's
                 subsidiaries holds all licenses, certificates, permits,
                 franchises and authorizations from governmental authorities
                 which are material to the conduct of its business in all
                 locations in which such business is currently being conducted.

                          (ii)    Except as described in the Final Prospectus,
                 there is not pending, or, to such counsel's knowledge,
                 threatened, any action, suit, proceeding, inquiry or
                 investigation, to which the Company is a party, or to which
                 the property of the Company is subject, before or brought by
                 any court or governmental agency or body, which, if determined
                 adversely to the Company, could result in any material adverse
                 change in the business, financial position, net worth or
                 results of operations, or could materially adversely affect
                 the properties or assets, of the Company.

                          (iii)   To such counsel's knowledge, no default
                 exists, and no event has occurred which with notice or after
                 the lapse of time to cure or both, would constitute a default,
                 in the due performance and observance of any term, covenant or
                 condition of any indenture, mortgage, deed of trust, loan
                 agreement, lease or other agreement or instrument to which the
                 Company is a party or to which it or its properties is
                 subject, or of the certificate of incorporation or by-laws of
                 the Company which could result in any material adverse change
                 in the business, financial condition, net worth or results of
                 operations, or could materially adversely affect the
                 properties or assets of the Company.

                          (iv)    Neither the Company nor any of its
                 subsidiaries is in violation of any law, ordinance,
                 administrative or governmental rule or regulation applicable
                 to the Company or any of its subsidiaries and material to the
                 Company and its subsidiaries taken as a whole or any decree of
                 any court or governmental agency or body having jurisdiction
                 over the Company or any of its subsidiaries (other than
                 violations of state securities or blue sky laws, as to which
                 such counsel expresses no opinion).

                          (v)     The Registration Statement and all
                 post-effective amendments thereto have become effective under
                 the Securities Act, and, to the knowledge of such counsel, no
                 stop order suspending the effectiveness of the Registration
                 Statement has been issued and no proceedings for that purpose
                 have been instituted or are threatened, pending or
                 contemplated by the Commission.  All filings required by Rule
                 424 and Rule 430A of the Rules and Regulations have been made;
                 the Registration Statement, the Effective Prospectus and Final
                 Prospectus,





                                       18
<PAGE>   19

                 and any amendments or supplements thereto (except for the
                 financial statements and schedules included or incorporated by
                 reference therein as to which such counsel need express no
                 opinion), as of their respective effective or issue dates,
                 complied as to form in all material respects with the
                 requirements of the Securities Act and the Rules and
                 Regulations; the descriptions in the Registration Statement,
                 the Effective Prospectus and the Final Prospectus of statutes,
                 regulations, legal and governmental proceedings, and contracts
                 and other documents are accurate in all material respects and
                 present fairly the information required to be stated; and such
                 counsel does not know of any pending or threatened legal or
                 governmental proceedings, statutes or regulations required to
                 be described in the Final Prospectus which are not described as
                 required nor of any contracts or documents of a character
                 required to be described in the Registration Statement or the
                 Final Prospectus or to be filed as exhibits to the Registration
                 Statement which are not described and filed as required.

                          (vi)    The Company is not, and will not be as a
                 result of the consummation of the transactions contemplated by
                 this Agreement, an "investment company" within the meaning of
                 the Investment Company Act of 1940, as amended.

         In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that the Registration Statement, the
Effective Prospectus and the Final Prospectus or any amendment or supplement
thereto contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (except that such counsel need express no view as to
financial statements, schedules and other financial or statistical information
included or incorporated by reference therein).

         The opinions to be rendered pursuant to paragraph (d) may be limited
to federal law, and as to state law matters, to the laws of the states in which
such counsel is admitted to practice. Such counsel may also rely on opinion of
other counsel as to matters of local law provided that such counsel shall state
that he believes both he and you are justified in relying on such opinion.

                 (e)      The Underwriters shall have received an opinion or
         opinions, dated the Closing Date, of Bass, Berry & Sims PLC, counsel
         for the Underwriters, with respect to the Registration Statement and
         the Final Prospectus, and such other related matters as the
         Underwriters may require, and the Company shall have furnished to such
         counsel such documents as they may reasonably request for the purpose
         of enabling them to pass upon such matters.





                                       19
<PAGE>   20

                 (f)      The Representatives shall have received from Deloitte
         & Touche LLP, a letter dated the date hereof and, at the Closing Date,
         a second letter dated the Closing Date, in form and substance
         satisfactory to the Representatives, stating that they are independent
         public accountants with respect to the Company within the meaning of
         the Securities Act and the applicable Rules and Regulations, and to
         the effect that:

                          (i)     In their opinion, the audited financial
                 statements and schedules examined by them and included or
                 incorporated by reference in the Registration Statement comply
                 as to form in all material respects with the applicable
                 accounting requirements of the Securities Act and the
                 published Rules and Regulations and are presented in
                 accordance with generally accepted accounting principles
                 consistently applied; and the selected financial data, and/or
                 condensed financial statements are derived from audited
                 financial statements of the Company;

                          (ii)    The unaudited selected financial information
                 included in the Preliminary Prospectus and the Final
                 Prospectus under the captions "SUMMARY FINANCIAL DATA,"
                 "SELECTED FINANCIAL AND OPERATING DATA" and "SUPPLEMENTAL
                 FINANCIAL DATA" for each of the fiscal years ended December
                 31, 1993, 1994 and 1995, agrees with the corresponding amounts
                 in the audited financial statements included or incorporated
                 by reference in the Final Prospectus or previously reported on
                 by them;

                          (iii)   On the basis of a reading of the latest
                 available interim financial statements (unaudited) of the
                 Company and its subsidiaries, if any, a reading of the minute
                 books of the Company and its subsidiaries, inquiries of
                 officials of the Company responsible for financial and
                 accounting matters and other specified procedures, all of
                 which have been agreed to by the Representatives, nothing came
                 to their attention that caused them to believe that:

                                  (A)      Any unaudited interim financial
                          statements included in the Final Prospectus do not
                          comply as to form in all material respects with the
                          applicable accounting requirements of the federal
                          securities laws and the published rules and
                          regulations thereunder or are not in conformity with
                          generally accepted accounting principles applied on a
                          basis substantially consistent with the basis for the
                          audited financial statements contained or
                          incorporated by reference in the Registration
                          Statement;

                                  (B)      at a specified date not more than
                          five days prior to the date of delivery of such
                          respective letter, there was any change in the
                          capital stock, decline in stockholders' equity or
                          increase in long-term debt of the Company or any of
                          its subsidiaries, or other items specified by the
                          Underwriters in each case as compared with amounts
                          shown in the latest





                                       20
<PAGE>   21

                          balance sheets included in the Final Prospectus,
                          except in each case for changes, decreases or
                          increases which the Final Prospectus discloses have
                          occurred or may occur or which are described in such
                          letters; and

                                  (C)      for the period from the closing date
                          of the latest statements of income included in the
                          Effective Prospectus and the Final Prospectus to a
                          specified date not more than five days prior to the
                          date of delivery of such respective letter, there
                          were any decreases in total revenues or net income of
                          the Company, or other items specified by the
                          Underwriters, or any increases in any items specified
                          by the Underwriters, in each case as compared with
                          the corresponding period of the preceding year,
                          except in each case for decreases which the Final
                          Prospectus discloses have occurred or may occur or
                          which are described in such letter.

                          (iv)    They have carried out certain specified
                 procedures, not constituting an audit, with respect to certain
                 amounts, percentages and financial information specified by
                 you which are derived from the general accounting records of
                 the Company, which appear in the Effective Prospectus and the
                 Final Prospectus and have compared and agreed such amounts,
                 percentages and financial information with the accounting
                 records of the Company and its subsidiaries or to analyses and
                 schedules prepared by the Company and its subsidiaries from
                 its detailed accounting records.

         In the event that the letters to be delivered referred to above set
         forth any such changes, decreases or increases, it shall be a further
         condition to the obligations of the Underwriters that the Underwriters
         shall have determined, after discussions with officers of the Company
         responsible for financial and accounting matters that such changes,
         decreases or increases as are set forth in such letters do not reflect
         a material adverse change in the stockholders' equity or long-term
         debt of the Company as compared with the amounts shown in the latest
         balance sheets of the Company included in the Final Prospectus, or a
         material adverse change in total net revenues or net income of the
         Company, in each case as compared with the corresponding period of the
         prior year.

                 (g)      There shall have been furnished to the
         Representatives a certificate, dated the Closing Date and addressed to
         you, signed by the Chief Executive Officer and by the Chief Financial
         Officer of the Company to the effect that:

                          (i)     the representations and warranties of the
                 Company in Section 1 of this Agreement are true and correct,
                 as if made at and as of the Closing Date, and the Company has
                 complied with all the agreements and satisfied all the
                 conditions on its part to be performed or satisfied at or
                 prior to the Closing Date;





                                       21
<PAGE>   22

                          (ii)    no stop order suspending the effectiveness of
                 the Registration Statement has been issued, and no proceedings
                 for that purpose have been initiated or are pending, or to
                 their knowledge, threatened under the Securities Act;

                          (iii)   all filings required by Rule 424 and Rule 430A
                 of the Rules and Regulations have been made;

                          (iv)    they have carefully examined the Registration
                 Statement, the Effective Prospectus and the Final Prospectus,
                 and any amendments or supplements thereto, and such documents
                 do not include any untrue statement of a material fact or omit
                 to state any material fact required to be stated therein or
                 necessary to make the statements therein not misleading; and

                          (v)     since the effective date of the Registration
                 Statement, there has occurred no event required to be set
                 forth in an amendment or supplement to the Registration
                 Statement, the Effective Prospectus or the Final Prospectus
                 which has not been so set forth.

                 (h)      Subsequent to the respective dates as of which
         information is given in the Registration Statement and the Final
         Prospectus, and except as stated therein, neither the Company nor any
         of its subsidiaries has sustained any material loss or interference
         with its business or properties from fire, flood, hurricane,
         earthquake, accident or other calamity, whether or not covered by
         insurance, or from any labor dispute or any court or governmental
         action, order or decree, or become a party to or the subject of any
         litigation which is material to the Company or its subsidiaries taken
         as a whole, nor shall there have been any material adverse change, or
         any development involving a prospective material adverse change, in
         the business, properties, key personnel, capitalization,  net worth,
         results of operations or condition (financial or other) of the Company
         and its subsidiaries taken as a whole,  which loss, interference,
         litigation or change, in your judgment shall render it unadvisable to
         commence or continue the offering of the Notes at the offering price
         to the public set forth on the cover page of the Prospectus or to
         proceed with the delivery of the Notes.

         All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel.  The
Company shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives shall reasonably request.

         The respective obligations of the Underwriters to purchase and pay for
the Option Notes shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm





                                       22
<PAGE>   23

Notes, except that all references to the "Closing Date" shall be deemed to
refer to the Option Closing Date, if it shall be a date other than the Closing
Date.

         7.      Condition of the Company's Obligations.  The obligations
hereunder of the Company are subject to the condition set forth in Section 6(a)
hereof.

         8.      Indemnification and Contribution.

                 (a)      The Company agrees to indemnify and hold harmless
         each Underwriter, and each person, if any, who controls any
         Underwriter within the meaning of the Securities Act, against any
         losses, claims, damages or liabilities, joint or several, to which
         such Underwriter or controlling person may become subject under the
         Securities Act or otherwise, insofar as such losses, claims, damages
         or liabilities (or actions in respect thereof) arise out of or are
         based in whole or in part upon: (i) any inaccuracy in the
         representations and warranties of the Company contained herein; (ii)
         any failure of the Company to perform its obligations hereunder or
         under law; (iii) any untrue statement or alleged untrue statement of
         any material fact contained in (A) the Registration Statement, any
         Preliminary Prospectus, the Effective Prospectus or Final Prospectus,
         or any amendment or supplement thereto or (B) in any Blue Sky
         application or other written information furnished by the Company
         filed in any state or other jurisdiction in order to qualify any or
         all of the Notes under the securities laws thereof (a "Blue Sky
         Application"); or (iv) the omission or alleged omission to state in
         the Registration Statement, any Preliminary Prospectus, the Effective
         Prospectus or Final Prospectus or any amendment or supplement thereto,
         or any Blue Sky Application a material fact required to be stated
         therein or necessary to make the statements therein not misleading,
         and will reimburse each Underwriter and each such controlling person
         for any legal or other expenses reasonably incurred by such
         Underwriter or such controlling person in connection with
         investigating or defending any such loss, claim, damage, liability or
         action as such expenses are incurred; provided, however, that the
         Company will not be liable in any such case to the extent that any
         such loss, claim, damage, or liability arises out of or is based upon
         any untrue statement or alleged untrue statement or omission or
         alleged omission made in the Registration Statement, the Preliminary
         Prospectus, the Effective Prospectus or Final Prospectus or such
         amendment or such supplement thereto, or any Blue Sky Application in
         reliance upon and in conformity with written information furnished to
         the Company by any Underwriter specifically for use therein (it being
         understood that the only information so provided by the Underwriters
         is the information included in the last paragraph on the cover page
         and under the caption "Underwriting" in any Preliminary Prospectus and
         the Final Prospectus and the Effective Prospectus).

                 (b)      Each Underwriter will indemnify and hold harmless the
         Company, each of its directors, each of its officers who signed the
         Registration Statement and each person, if any, who controls the
         Company within the meaning of the Securities Act against any





                                       23
<PAGE>   24

         losses, claims, damages or liabilities to which the Company or any
         such director, officer or controlling person may become subject, under
         the Securities Act or otherwise, insofar as such losses, claims,
         damages or liabilities (or actions in respect thereof) arise out of or
         are based upon any untrue statement or alleged untrue statement of any
         material fact contained in the Registration Statement, any Preliminary
         Prospectus, the Effective Prospectus or Final Prospectus, or any
         amendment or supplement thereto, or any Blue Sky Application, or arise
         out of or are based upon the omission or the alleged omission to state
         in the Registration Statement, any Preliminary Prospectus, the
         Effective Prospectus or Final Prospectus or any amendment or
         supplement thereto or any Blue Sky Application a material fact
         required to be stated therein or necessary to make the statements
         therein not misleading, in each case to the extent, but only to the
         extent, that such untrue statement or alleged untrue statement or
         omission or alleged omission was made in reliance upon and in
         conformity with written information furnished to the Company by any
         Underwriter specifically for use therein (it being understood that the
         only information so provided is the information included in the last
         paragraph on the cover page and under the caption "Underwriting" in
         any Preliminary Prospectus and in the Effective Prospectus and the
         Final Prospectus);

                 (c)      Promptly after receipt by an indemnified party under
         this Section 8 of notice of the commencement of any action, including
         governmental proceedings, such indemnified party will, if a claim in
         respect thereof is to be made against the indemnifying party under
         this Section 8 notify the indemnifying party of the commencement
         thereof; but the omission so to notify the indemnifying party will not
         relieve it from any liability which it may have to any indemnified
         party otherwise than under this Section 8.  In case any such action is
         brought against any indemnified party, and it notifies the
         indemnifying party of the commencement thereof, the indemnifying party
         will be entitled to participate therein, and to the extent that it may
         wish, jointly with any other indemnifying party similarly notified, to
         assume the defense thereof, with counsel satisfactory to such
         indemnified party; and after notice from the indemnifying party to
         such indemnified party of its election to so assume the defense
         thereof, the indemnifying party will not be liable to such indemnified
         party under this Section 8 for any legal or other expenses
         subsequently incurred by such indemnified party in connection with the
         defense thereof other than reasonable costs of investigation except
         that the indemnified party shall have the right to employ separate
         counsel if, in the indemnified party's reasonable judgment, it is
         advisable for the indemnified party and any other Underwriter to be
         represented by separate counsel, and in that event the fees and
         expenses of separate counsel shall be paid by the indemnifying party.

                 The Company will not, without prior written consent of each
         Representative, settle or compromise or consent to the entry of any
         judgment in any pending or threatened claim, action, suit or
         proceeding (or related cause of action or portion thereof) in respect
         of which indemnification may be sought hereunder (whether or not such
         Underwriter is





                                       24
<PAGE>   25

         a party to such claim, action, suit or proceeding), unless such
         settlement, compromise or consent includes an unconditional release of
         such Underwriter from all liability arising out of such claim, action,
         suit or proceeding (or related cause of action or portion thereof).

                 (d)      In order to provide for just and equitable
         contribution in circumstances in which the indemnity agreement
         provided for in the preceding part of this Section 8 is for any reason
         held to be unavailable to the Underwriters, or the Company or is
         insufficient to hold harmless an indemnified party, then the Company
         shall contribute to the damages paid by the Underwriters, and the
         Underwriters shall contribute to the damages paid by the Company
         provided, however, that no person guilty of fraudulent
         misrepresentation (within the meaning of Section 11(f) of the
         Securities Act) shall be entitled to contribution from any person who
         was not guilty of such fraudulent misrepresentation.  In determining
         the amount of contribution to which the respective parties are
         entitled, there shall be considered the relative benefits received by
         each party from the offering of the Notes (taking into account the
         portion of the proceeds of the offering realized by each), the
         parties' relative knowledge and access to information concerning the
         matter with respect to which the claim was asserted, the opportunity
         to correct and prevent any statement or omission, and any other
         equitable considerations appropriate under the circumstances.  The
         Company and the Underwriters agree that it would not be equitable if
         the amount of such contribution were determined by pro rata or per
         capita allocation (even if the Underwriters were treated as one entity
         for such purpose).  No Underwriter or person controlling such
         Underwriter shall be obligated to make contribution hereunder which in
         the aggregate exceeds the underwriting discount applicable to the
         Notes purchased by such Underwriter under this Agreement, less the
         aggregate amount of any damages which such Underwriter and its
         controlling persons have otherwise been required to pay in respect of
         the same or any similar claim.  The Underwriters' obligations to
         contribute hereunder are several in proportion to their respective
         underwriting obligations and not joint.  For purposes of this Section,
         each person, if any, who controls an Underwriter within the meaning of
         Section 15 of the Securities Act shall have the same rights to
         contribution as such Underwriter, and each director of the Company,
         each officer of the Company who signed the Registration Statement, and
         each person, if any, who controls the Company within the meaning of
         Section 15 of the Securities Act, shall have the same rights to
         contribution as the Company.

                 (e)      The obligations of the Company under this Section 8
         shall be in addition to any liability which the Company may otherwise
         have and shall extend, upon the same terms and conditions, to each
         person, if any, who controls any Underwriter within the meaning of the
         Securities Act; and the obligations of the Underwriters under this
         Section 8 shall be in addition to any liability which the respective
         Underwriters may otherwise have and shall extend, upon the same terms
         and conditions, to each officer and director of the Company and to
         each person, if any, who controls the Company within the meaning of
         the Securities Act.





                                       25
<PAGE>   26


         9.      Default of Underwriters.  If any Underwriter defaults in its
obligation to purchase Notes hereunder and if the total amount of Notes which
such defaulting Underwriter agreed but failed to purchase is ten percent or
less of the total amount of Notes to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the amount of Notes set forth opposite the name of each
non-defaulting Underwriter in Schedule I hereto bears to the total amount of
Notes set forth opposite the names of all the non-defaulting Underwriters), the
Notes which such defaulting Underwriter or Underwriters agreed but failed to
purchase.  If any Underwriter so defaults and the total number of Notes with
respect to which such default or defaults occur is more than ten percent of the
total amount of Notes to be sold hereunder, and arrangements satisfactory to
the other Underwriters and the Company for the purchase of such Notes by other
persons (who may include the non-defaulting Underwriters) are not made within
36 hours after such default, this Agreement, insofar as it relates to the sale
of the Notes, will terminate without liability on the part of the
non-defaulting Underwriters or the Company except for (i) the provisions of
Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the Company
pursuant to Section 5.  As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 9.
Nothing herein shall relieve a defaulting Underwriter from liability for its
default.

         10.     Survival Clause.  The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Underwriters set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, any Underwriter or any
controlling person, (ii) any termination of this Agreement and (iii) delivery
of and payment for the Notes.

         11.     Effective Date.  This Agreement shall become effective at
whichever of the following times shall first occur:  (i) at 11:30 A.M., eastern
time, on the next full business day following the date on which the
Registration Statement becomes effective or (ii) at such time after the
Registration Statement has become effective as the Representatives shall
release the Firm Notes for sale to the public; provided, however, that the
provisions of Sections 5, 8, 10, and 11 hereof shall at all times be effective.
For purposes of this Section 11, the Firm Notes shall be deemed to have been so
released upon the release by the Representatives for publication, at any time
after the Registration Statement has become effective, of any newspaper
advertisement relating to the Firm Notes or upon the release by the
Representatives of telegrams offering the Firm Notes for sale to securities
dealers, whichever may occur first.





                                       26
<PAGE>   27

         12.     Termination.

                 (a)      The Company's obligations under this Agreement may be
         terminated by the Company by notice to the Representatives (i) at any
         time before it becomes effective in accordance with Section 11 hereof,
         or (ii) in the event that the condition set forth in Section 7 shall
         not have been satisfied at or prior to the First Closing Date.

                 (b)      This Agreement may be terminated by the
         Representatives by notice to the Company (i) at any time before it
         becomes effective in accordance with Section 11 hereof; (ii) in the
         event that at or prior to the First Closing Date the Company shall
         have failed, refused or been unable to perform any agreement on the
         part of the Company to be performed hereunder or any other condition
         to the obligations of the Underwriters hereunder is not fulfilled;
         (iii) if at or prior to the Closing Date trading in securities on the
         New York Stock Exchange, the American Stock Exchange or the
         over-the-counter market shall have been suspended or materially
         limited or minimum or maximum prices shall have been established on
         either of such exchanges or such market, or a banking moratorium shall
         have been declared by Federal or state authorities; (iv) if at or
         prior to the Closing Date trading in securities of the Company shall
         have been suspended; or (v) if there shall have been such a material
         change in general economic, political or financial conditions or if
         the effect of international conditions on the financial markets in the
         United States shall be such as, in your reasonable judgment, makes it
         inadvisable to commence or continue the offering of the Notes at the
         offering price to the public set forth on the cover page of the
         Prospectus or to proceed with the delivery of the Notes.

                 (c)      Termination of this Agreement pursuant to this
         Section 12 shall be without liability of any party to any other party
         other than as provided in Sections 5 and 8 hereof.

         13.     Notices.  All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be mailed or delivered or
telegraphed and confirmed in writing to the Representatives in care of J.C.
Bradford & Co., J.C. Bradford Financial Center, 330 Commerce Street, Nashville,
Tennessee 37201, Attention:  Michael C. Nunan, or if sent to the Company shall
be mailed, delivered or telegraphed and confirmed in writing to the Company at
570 Lake Cook Road, Suite 126, Deerfield, IL 60015, Attention:  Mitchell C.
Kahn.

         14.     Miscellaneous.  This Agreement shall inure to the benefit of
and be binding upon the several Underwriters and, the Company and their
respective successors and legal representatives.  Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of
this Agreement.  This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Company and the
several Underwriters and for the benefit of no other person except that (i) the
representations and warranties of the Company contained in this Agreement shall
also be for the benefit of any person or persons who control any





                                       27
<PAGE>   28

         Underwriter within the meaning of Section 15 of the Securities Act,
         and (ii) the indemnities by the Underwriters shall also be for the
         benefit of the directors of the Company, officers of the Company who
         have signed the Registration Statement, any person or persons who
         control the Company within the meaning of Section 15 of the Securities
         Act.  No purchaser of Notes from any Underwriter will be deemed a
         successor because of such purchase.  The validity and interpretation
         of this Agreement shall be governed by the laws of the State of
         Tennessee.  This Agreement may be executed in two or more
         counterparts, each of which shall be deemed an original, but all of
         which together shall constitute one and the same instrument. You
         hereby represent and warrant to the Company that you have authority to
         act hereunder on behalf of the several Underwriters, and any action
         hereunder taken by you will be binding upon all the Underwriters.





                       [SIGNATURES ON THE FOLLOWING PAGE]





                                       28
<PAGE>   29


                 If the foregoing is in accordance with your understanding of
our agreement, please indicate your acceptance thereof in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between the Company and each of the several Underwriters.

                                        Very truly yours,

                                        FIRST MERCHANTS ACCEPTANCE CORPORATION

                                        By:_________________________________
                                        Title: _____________________________

Confirmed and accepted as of the
date first above written.

J.C. BRADFORD & CO.
PIPER JAFFRAY INC.
KEEFE, BRUYETTE & WOODS, INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
  For themselves and as Representatives
  of the several Underwriters

J.C. BRADFORD & CO.

By:________________________________
  Title:_____________________________


PIPER JAFFRAY INC.

By:________________________________
 Title:______________________________


KEEFE, BRUYETTE & WOODS, INC.

By:__________________________________
 Title:________________________________


STIFEL, NICOLAUS & COMPANY, INCORPORATED

By:________________________________
  Title:_____________________________





                                       29
<PAGE>   30

                                   SCHEDULE I

                                  UNDERWRITERS



                                                       Principal Amount of Firm
       Underwriter                                      Notes to Be Purchased


J.C. Bradford & Co. . . . . . . . . . . . . . . . . . . . . . $11,250,000

Piper Jaffray Inc.  . . . . . . . . . . . . . . . . . . . . . $11,250,000

Stifel, Nicolaus & Company, Incorporated  . . . . . . . . . . $11,250,000

Keefe, Bruyette & Woods, Inc. . . . . . . . . . . . . . . . . $11,250,000
                                                              -----------
TOTAL                                                         $45,000,000
                                                              ===========