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

                                  SCHEDULE 14A

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

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

                           FIRST MERCHANTS CORPORATION

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                           FIRST MERCHANTS CORPORATION
                             200 EAST JACKSON STREET
                              MUNCIE, INDIANA 47305


                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD APRIL 24, 2007



The annual  meeting of the  shareholders  of First  Merchants  Corporation  (the
"Corporation")  will be held at the Horizon  Convention  Center,  401 South High
Street,  Muncie, Indiana 47305, on Tuesday, April 24, 2007, at 3:30 p.m. for the
following purposes:

(1)   To elect  three  directors,  to hold  office for terms of three  years and
      until their successors are duly elected and qualified.

(2)   To  ratify  the  appointment  of the firm of BKD,  LLP as the  independent
      auditor for 2007.

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

Only those  shareholders of record at the close of business on February 16, 2007
shall be entitled to notice of and to vote at the meeting.


                                          By Order of the Board of Directors



                                          Cynthia G. Holaday
                                          Secretary

Muncie, Indiana
March 15, 2007




                             YOUR VOTE IS IMPORTANT!

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



                                                                  March 15, 2007

                           FIRST MERCHANTS CORPORATION

                               PROXY STATEMENT FOR
                         ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD APRIL 24, 2007


This proxy  statement is furnished in connection  with the  solicitation  of the
enclosed proxy by and on behalf of the Board of Directors (the "Board") of First
Merchants  Corporation  (the  "Corporation")  for use at the  annual  meeting of
shareholders of the  Corporation to be held April 24, 2007. The  distribution of
these proxy materials is expected to commence on March 15, 2007.

                                     VOTING

Please  sign,  date and  return  your  proxy  card or submit  your proxy via the
telephone or Internet as soon as  possible,  so that your shares can be voted at
the  meeting  in  accordance  with  your  instructions.  If you  plan to vote by
telephone or Internet,  you should have your control number,  which is imprinted
on your proxy card, available when you call or access the web page.

        o  To  vote  by   telephone,   please   call   toll-free   1-800-PROXIES
           (1-800-776-9437)   on  a   touch-tone   telephone   and   follow  the
           instructions.

        o  To vote by Internet,  please access the web page  "www.voteproxy.com"
           and follow the on-screen instructions.

Similar instructions are included on the enclosed proxy card.

Any shareholder  giving a proxy has the right to revoke it any time before it is
exercised by giving written notice of revocation to the Secretary received prior
to the  annual  shareholders'  meeting,  by voting  again in  writing or via the
telephone  or  Internet,  or by  voting in person  at the  meeting.  The  shares
represented by proxies will be voted in accordance with the  instructions on the
proxies. In the absence of specific  instructions to the contrary,  proxies will
be voted for election to the Board of all nominees listed in Item 1 of the proxy
and  for  ratification  of  the  appointment  of the  firm  of  BKD,  LLP as the
Corporation's  independent  auditor for 2007.  If any director  nominee named in
this proxy  statement  shall become  unable or declines to serve (an event which
the  Board  does not  anticipate),  the  persons  named  as  proxies  will  have
discretionary  authority to vote for a substitute nominee named by the Board, if
the Board determines to fill such nominee's position.

                 VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

Voting Securities

Only  shareholders  of record at the close of business on February 16, 2007 will
be entitled to notice of and to vote at the annual meeting. 18,497,790 shares of
common stock were outstanding and entitled to vote as of February 16, 2007.

Each share of the Corporation's  common stock is entitled to one vote. Directors
are elected by a plurality  of the votes cast by the shares  entitled to vote in
the election at a meeting at which a quorum is present. Shareholders do not have
a right to  cumulate  their  votes  for  directors.  The  affirmative  vote of a
majority  of the shares  present and voting at the meeting in person or by proxy
is required for approval of all items  submitted to the  shareholders  for their
consideration other than the election of directors. The Secretary will count the
votes and announce the results of the voting at the meeting.


                                       1


Abstentions  will be counted for the purpose of determining  whether a quorum is
present  but  for no  other  purpose.  Broker  non-votes  will  not be  counted.
Principal Holders of Securities

To the best of our  knowledge,  the  following  table shows the only  beneficial
owners  of more  than 5% of the  Corporation's  outstanding  common  stock as of
February 16, 2007.



      Name and Address                         Amount and Nature                   Percent
      of Beneficial Owner                   of Beneficial Ownership               of Class
      -------------------------------------------------------------------------------------
                                                                             
      Dimensional Fund Advisors LP                   1,543,846(1)...................8.35%
      1299 Ocean Avenue
      Santa Monica, CA 90401

      First Merchants Trust Company, N. A.           1,099,773(2)...................5.95%
      200 East Jackson Street
      Muncie, IN 47305


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

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

The  following  table lists the amount and percent of the  Corporation's  common
stock beneficially owned on February 16, 2007 by directors  (including directors
who are  retiring  as of the 2007  annual  meeting  of  shareholders),  director
nominees,  the Chief Executive Officer,  the Chief Financial Officer,  the three
other most highly compensated  executive officers,  and by the directors and all
of the Corporation's  executive officers as a group. Unless otherwise indicated,
the  beneficial  owner has sole voting and  investment  power.  The  information
provided  in the table is based on the  Corporation's  records  and  information
filed with the SEC and provided to the Corporation.

The number of shares beneficially owned by each person is determined under rules
of the SEC, and the  information  is not  necessarily  indicative  of beneficial
ownership  for any  other  purpose.  Under  those  rules,  beneficial  ownership
includes shares of which a person has the right to acquire beneficial  ownership
on or before  April 17, 2007 (60 days after  February  16,  2007) by  exercising
stock options ("Vested Options") awarded to participants under the Corporation's
Long-term  Equity  Incentive Plan. It also includes  shares of restricted  stock
("Restricted  Shares")  awarded to participants  under that Plan which are still
subject to the restrictions.


                                       2




                                                      Amount and Nature                                Percent
        Beneficial Owner                           of Beneficial Ownership                            of Class
        -------------------------------------------------------------------------------------------------------
                                                                                                 
        Richard A. Boehning                                  25,336(1).......................................*
        Thomas B. Clark                                      15,984(2).......................................*
        Michael L. Cox                                      163,862(3).......................................*
        Roderick English                                      2,314(4).......................................*
        Jo Ann M. Gora                                        2,314(5).......................................*
        Barry J. Hudson                                     456,859(6) ..................................2.45%
        Thomas D. McAuliffe                                  41,868(7).......................................*
        Michael C. Rechin                                     9,000(8).......................................*
        Charles E. Schalliol                                  4,314(9).......................................*
        Robert M. Smitson                                    24,725(10)......................................*
        Terry L. Walker                                      16,162(11)......................................*
        Jean L. Wojtowicz                                     3,471(12)......................................*
        Robert R. Connors                                    26,278(13)......................................*
        Mark K. Hardwick                                     33,786(14)......................................*
        David W. Spade                                        3,944(15) .....................................*

        Directors and Executive
        Officers as a Group (17 persons)                    856,413(16) ..................................4.57%


      *     Percentage  beneficially  owned is less  than 1% of the  outstanding
            shares.

      (1)   Includes  10,415  shares  held  jointly  with  his  spouse,  Phyllis
            Boehning,  5,586  shares held in trust for family  members for which
            Mr. Boehning, as trustee, has voting and investment power, and 5,785
            shares  that  he has the  right  to  acquire  by  exercising  Vested
            Options.

      (2)   Includes  11,338  shares  that  he  has  the  right  to  acquire  by
            exercising Vested Options.

      (3)   Includes  44,290  shares held jointly  with his spouse,  Sharon Cox,
            3,400 Restricted Shares, and 108,439 shares that he has the right to
            acquire by exercising Vested Options.

      (4)   Includes 2,314 shares that he has the right to acquire by exercising
            Vested Options.

      (5)   Includes  2,314  shares  that  she  has  the  right  to  acquire  by
            exercising Vested Options.

      (6)   Includes  327,756  shares  owned by Mutual  Security,  Inc.,  10,024
            shares held jointly with his spouse, Elizabeth Hudson, 43,521 shares
            held by his spouse,  13,626  shares held by his spouse as  custodian
            for his children, and 14,164 shares that he has the right to acquire
            by exercising Vested Options.

      (7)   Includes  14,870  shares  held  jointly  with  his  spouse,   Andrea
            McAuliffe,  8,398  shares  that he and  his  spouse  hold  as  joint
            custodians for his children,  1,900  Restricted  Shares,  and 16,700
            shares  that  he has the  right  to  acquire  by  exercising  Vested
            Options.

      (8)   Includes 6,334 Restricted Shares.

      (9)   Includes 2,314 shares that he has the right to acquire by exercising
            Vested Options.


                                       3


      (10)  Includes  5,859  shares held by his  spouse,  Marilyn  Smitson,  and
            11,338 shares that he has the right to acquire by exercising  Vested
            Options.

      (11)  Includes  10,611  shares held  jointly  with his  spouse,  Cheryl L.
            Walker, and 551 shares held by his spouse.

      (12)  Includes  3,471  shares  that  she  has  the  right  to  acquire  by
            exercising Vested Options.

      (13)  Includes 722 shares held jointly with his spouse, Ann Connors, 3,000
            Restricted  Shares,  and  22,556  shares  that he has the  right  to
            acquire by exercising Vested Options.

      (14)  Includes 4,400 Restricted  Shares, and 28,666 shares that he has the
            right to acquire by exercising Vested Options.

      (15)  Includes 2,400 Restricted Shares.

      (16)  Includes  26,300  Restricted  Shares,  and  250,456  shares that the
            Corporation's  directors  and  executive  officers have the right to
            acquire by exercising Vested Options.

                         INFORMATION REGARDING DIRECTORS

VOTING ITEM 1 - ELECTION OF DIRECTORS

Three directors will be elected at the annual meeting.

The persons  named below have been  nominated  for  election to the Board,  with
terms  expiring  as of the  2010  annual  meeting  of  shareholders.  All of the
nominees are currently members of the Board.



                                                                                                Director
Name and Age                   Present Occupation                                                 Since
------------                   ------------------                                                 -----
                                                                                            
Class I (Terms expire 2010):

Michael L. Cox(1)              President  of  the  Corporation   since  1998,  and  its  Chief    1984
age 62                         Executive  Officer  since  1999.  Mr.  Cox has also  served  as
                               Chairman of the Board of  Directors  of First  Merchants  Bank,
                               National   Association,   a  wholly  owned  subsidiary  of  the
                               Corporation, since 2005.

Charles E. Schalliol           Director, Indiana State Office of Management and Budget, since     2004
age 59                         2005.  Mr. Schalliol was President and Chief Executive Officer
                               of BioCrossroads, an economic development organization focused
                               on life sciences companies, from 2003 to 2005. He was
                               Executive Director, Corporate Finance, Eli Lilly and Company,
                               a pharmaceuticals company, from 1996 to 2003 and Founder and
                               Managing Director of Lilly Venture Funds from 1999 to 2003.

Terry L. Walker                Chairman of the Board of Directors, President and Chief            2006
age 60                         Executive Officer, Muncie Power Products, Inc., a manufacturer
                               and distributor of power take-offs and hydraulic components
                               for the truck equipment industry, since 2005.  Mr. Walker was
                               Muncie Power's President and Chief Operating Officer from 2000
                               to 2005.


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

                                       4



Continuing Directors

The following persons will continue to serve as directors:



Name and Age                     Present Occupation                                             Director
------------                     ------------------                                               Since
                                                                                                  -----
                                                                                             
Class II (Terms expire 2008):

Thomas B. Clark                  Retired  Chairman of the Board of  Directors,  President  and     1989
age 61                           Chief Executive Officer,  Jarden  Corporation,  a provider of
                                 niche consumer products for the home.

Roderick English                 President and Chief Executive Officer, The James Monroe           2005
age 55                           Group, LLC, a provider of business management
                                 and consulting services, since 2006.  Mr. English was Senior
                                 Vice President of Human Resources and Communications, Remy
                                 International, Inc. (formerly, Delco Remy International,
                                 Inc.), a manufacturer of electrical and powertrain products
                                 for autos, trucks and other vehicles, from 1994 to 2006.

Jo Ann M. Gora                   President, Ball State University, since 2004.  Dr. Gora           2004
age 61                           served as Chancellor of the University of Massachusetts at
                                 Boston from 2001 to 2004.  She was Provost and Vice
                                 President for Academic Affairs at Old Dominion University
                                 from 1992 to 2001.

Jean L. Wojtowicz                President  and Chief  Executive  Officer,  Cambridge  Capital     2004
age 49                           Management  Corp.,  a manager of  non-traditional  sources of
                                 financing,  since  1983.  Ms.  Wojtowicz  is  a  director  of
                                 Vectren  Corporation  and, until December 2006, was a trustee
                                 of Windrose Medical  Properties Trust; both are listed on the
                                 New York Stock Exchange.

Class III (Terms expire 2009):

Richard A. Boehning              Of counsel, Bennett, Boehning & Clary, since 2001.  Prior to      2002
age 69                           2001, Mr. Boehning was a partner in that law firm.

Barry J. Hudson                  Chairman of the Board of Directors of First  National Bank of     1999
age 67                           Portland,  a  wholly  owned  subsidiary  of the  Corporation,
                                 since 1982. Mr. Hudson was Chief  Executive  Officer of First
                                 National  from 1982 to 2000,  and he was its  President  from
                                 1982 to 1998.

Michael C. Rechin(2)             Executive Vice President and Chief  Operating  Officer of the     2005
age 48                           Corporation   since  2005.  Mr.  Rechin  was  Executive  Vice
                                 President of National  City Bank of Indiana from 1995 to 2005
                                 and was responsible for its commercial  banking operations in
                                 Indiana.


      (1)   Mr. Cox will retire as the President and Chief Executive  Officer of
            the  Corporation  on April  24,  2007,  the date of the 2007  annual
            meeting of shareholders.  Under an Agreement between Mr. Cox and the
            Board,   which  is  described  on  page  23  under  "Termination  of
            Employment  and  Change  of  Control   Arrangements,"  he  has  been
            nominated for election to an additional term as a director.


                                       5


      (2)   Mr. Rechin will become the President and Chief Executive  Officer of
            the  Corporation  on April  24,  2007,  the date of the 2007  annual
            meeting of shareholders.

Retiring Directors

Robert M.  Smitson  and Thomas D.  McAuliffe  will  retire as  directors  of the
Corporation  on  April  24,  2007,  the  date  of the  2007  annual  meeting  of
shareholders.

Meetings of the Board

The Board held 6 meetings  during 2006.  All of the directors  attended at least
75% of the total  number of  meetings of the Board and the  committees  on which
they served.

Directors' Attendance at Annual Meeting of Shareholders

The  Corporation's  directors  are  encouraged  to attend the annual  meeting of
shareholders. At the 2006 annual meeting, all 13 directors were in attendance.

Board Independence

The  Board  has  determined  that  each  of  the  Corporation's   directors  and
director-nominees  is an  "independent  director,"  as  defined  in the  listing
standards  of  the  Nasdaq  Stock  Market,  Inc.  ("NASDAQ"),   except  for  the
Corporation's  President and CEO,  Michael L. Cox, the  Corporation's  Executive
Vice  President  and COO,  Michael C.  Rechin,  and the Chairman of the Board of
Directors of First National Bank of Portland, Barry J. Hudson.

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

Communications with the Board

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

                             COMMITTEES OF THE BOARD

Standing Committees/Committee Charters

The Board's  standing  committees  are the Audit  Committee,  the Nominating and
Governance Committee,  and the Compensation and Human Resources Committee.  Each
has a  charter,  which is  included  among the  documents  under the  "Corporate
Governance     Disclosures"     link    on    the     Corporation's     website,
www.firstmerchants.com.  The  following  information  is provided  regarding the
composition, functions and number of meetings held by these committees in 2006:

Audit Committee

The Audit  Committee  is composed of  directors  Jean L.  Wojtowicz  (Chairman),
Thomas B. Clark,  Jo Ann M. Gora,  Robert M.  Smitson and Terry L.  Walker.  The
Committee met 5 times during 2006. Its  responsibilities  include overseeing the
Corporation's accounting and financial reporting principles and policies and its
internal  accounting  and  disclosure  controls and  procedures,  overseeing and
evaluating the  effectiveness  of the  Corporation's  internal  audit  function,
reviewing  the  Corporation's  procedures  to ensure that  quarterly  and annual
financial statements are accurate and complete, including reviewing


                                       6


the  certifications  of these financial  statements by the  Corporation's  Chief
Executive Officer and its Chief Financial Officer,  recommending the appointment
of the  external  auditor  for  approval  by the Board and  ratification  by the
shareholders,  approving the external auditor's  compensation and evaluating its
independence, reviewing and approving the annual audit plans of the internal and
external  auditors,  reviewing and discussing  with  management and the external
auditor  the  Corporation's  audited  financial  statements  and,  based on this
review,  making a  recommendation  to the Board on inclusion of these  financial
statements in the  Corporation's  annual report on Form 10-K. In accordance with
Section 407 of the  Sarbanes-Oxley  Act,  the  Corporation  has  identified  Ms.
Wojtowicz and Mr. Clark as "Audit  Committee  financial  experts." They are both
"independent," as that term is used in the NASDAQ listing standards.

Audit Committee Report Concerning Audited Financial Statements

The Audit Committee has reviewed and discussed the audited financial  statements
of the  Corporation  for 2006  with  the  Corporation's  management,  and it has
discussed  with BKD, LLP, the  Corporation's  independent  auditor for 2006, the
matters  required to be discussed by the Statement on Auditing  Standards No.61,
as amended (AICPA, Professional Standards, Vol. 1.AU Section 380), as adopted by
the Public  Company  Accounting  Oversight  Board  ("PCAOB") in Rule 3200T.  The
Committee has also received the written disclosures and the letter from BKD, LLP
required by Independence Standards Board Standard No. 1 (Independent Discussions
with Audit Committees), as adopted by the PCAOB in Rule 3600T, and has discussed
with BKD, LLP its  independence.  Based on these  reviews and  discussions,  the
Audit Committee  recommended to the Board that the audited financial  statements
of the Corporation be included in the  Corporation's  Annual Report on Form 10-K
for the 2006 fiscal year for filing with the SEC.

The above report is submitted by:

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

Nominating and Governance Committee

The Nominating and Governance Committee is composed of directors Thomas B. Clark
(Chairman),  Richard A. Boehning,  Robert M. Smitson and Jean L. Wojtowicz.  The
Committee  met 2 times during 2006.  It is charged with  ensuring the  continued
effectiveness  and  independence of the Board.  The Committee is responsible for
reviewing  the  credentials  of  persons  suggested  as  prospective  directors,
nominating persons to serve as directors and as officers of the Board, including
the  slate of  directors  to be  elected  each  year at the  annual  meeting  of
shareholders,  making recommendations concerning the size and composition of the
Board,  as  well  as  criteria  for  Board  membership,  making  recommendations
concerning the Board's committee structure and makeup,  providing for continuing
education of the directors and self-assessment of the Board's effectiveness, and
overseeing the Corporation's Code of Business Conduct and its Code of Ethics for
Senior Financial  Officers of the Corporation.  The Code of Business Conduct and
the Code of  Ethics  for  Senior  Financial  Officers  are  included  among  the
documents under the "Corporate Governance Disclosures" link on the Corporation's
website, www.firstmerchants.com.

In  nominating  persons to serve as directors,  the  Nominating  and  Governance
Committee  considers  the  person's  ethical  character,   reputation,  relevant
expertise  and  experience,  accomplishments,  leadership  skills,  demonstrated
business judgment,  contribution to Board diversity,  "independence" (as defined
in the NASDAQ listing  standards) if a non-employee  director,  residency in the
Corporation's  market  area, ability and  willingness  to devote sufficient time


                                       7


to director responsibilities, and willingness to maintain a meaningful ownership
interest  in the  Corporation  and  assist the  Corporation  in  developing  new
business.  For incumbent directors whose terms are expiring,  the Committee also
considers the quality of their prior service to the  Corporation,  including the
nature and extent of their  participation  in the  Corporation's  governance and
their  contributions of management and financial expertise and experience to the
Board and the  Corporation.  For new director  candidates,  the  Committee  also
considers  whether  their skills are  complementary  to those of existing  Board
members  and  whether  they will  fulfill  the  Board's  needs  for  management,
financial,  technological  or other  expertise.  The  Nominating  and Governance
Committee  considers  candidates  coming to its attention  through current Board
members, search firms, shareholders and other persons.

Article IV,  Section 9, of the  Corporation's  Bylaws,  describes the process by
which a shareholder may suggest a candidate for  consideration  by the Committee
as a director  nominee.  Under this process,  a suggestion by a shareholder of a
director  nominee  must  include:  (a)  the  name,  address  and  number  of the
Corporation's  shares owned by the shareholder;  (b) the name, address,  age and
principal  occupation of the suggested  nominee;  and (c) such other information
concerning the suggested  nominee as the  shareholder  may wish to submit or the
Committee may reasonably  request. A suggestion for a director nominee submitted
by a shareholder  must be in writing and  delivered or mailed to the  Secretary,
First Merchants  Corporation,  200 East Jackson Street,  Muncie,  Indiana 47305.
Suggestions for nominees from  shareholders  are evaluated in the same manner as
other  nominees.  There are no  nominees  for  election to the Board at the 2007
annual meeting of shareholders other than directors standing for re-election.

Compensation and Human Resources Committee

The Compensation and Human Resources  Committee is composed of directors Charles
E.  Schalliol  (Chairman),  Thomas B.  Clark,  Roderick  English  and  Robert M.
Smitson. The Committee met 2 times during 2006. The Committee is responsible for
establishing the Corporation's general compensation  philosophy,  overseeing the
development  and  implementation  of  policies  and  programs  to carry out this
compensation philosophy,  and evaluating the effectiveness of these policies and
programs,   in  consultation  with  senior   management.   The  Committee  makes
recommendations  to the  Board  concerning  the  compensation  to be paid to the
Corporation's  non-employee  directors;  and it  administers  the  Corporation's
non-equity  incentive  compensation  program  (the First  Merchants  Corporation
Senior Management Incentive  Compensation  Program),  the nonqualified  deferred
compensation  plans  (the First  Merchants  Corporation  Supplemental  Executive
Retirement  Plan  and  the  First  Merchants  Corporation  Defined  Contribution
Supplemental Executive Retirement Plan), and the equity-based  compensation plan
(the First Merchants Corporation Long-term Equity Incentive Plan). The Long-term
Equity  Incentive  Plan  was  submitted  to and  approved  by the  Corporation's
shareholders in 1999.

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

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


                                       8


In 2005,  the Committee  engaged Watson Wyatt & Company to conduct a competitive
market  assessment of the compensation of the Corporation's  executive  officers
and to review the Corporation's  Long-term Equity Incentive Plan to identify the
need for design  changes,  if any.  At the  Committee's  request,  Watson  Wyatt
provided  information,  which  included  contemporary  data on the  extent  peer
companies have utilized  long-term  equity  incentive  programs and their mix of
restricted stock and stock options, as well as information on accounting and tax
considerations.  Following  completion  of the  study,  based in part on  Watson
Wyatt's  recommendation,  the Committee changed the  Corporation's  equity-based
compensation  program,  beginning in 2006, from one utilizing only stock options
to one utilizing a mix of stock options and  restricted  stock awards for senior
managers and only restricted stock awards for other participating employees. The
Committee's  actions were all  consistent  with the  provisions of the Long-term
Equity Incentive Plan.

In 2006,  the  Committee  engaged  Mercer Human  Resource  Consulting to provide
prevalence  information  for executive  retirement  benefits among  companies in
general  industry and the banking  industry,  to analyze the benefit  levels and
adequacy of financing of the existing Supplemental  Executive Retirement Plan, a
defined benefit nonqualified  deferred  compensation plan presently covering Mr.
Cox and  paying  retirement  benefits  to two other  retired  executives  of the
Corporation,  and  to  make  plan  design  recommendations  for  a  new  defined
contribution   supplemental   executive   retirement  plan.  Based  on  Mercer's
recommendations,  the Committee  made  additional  provisions  for financing the
existing  Supplemental  Executive  Retirement Plan and adopted amendments to the
plan necessary for compliance  with Internal  Revenue Code Section 409A; and the
Committee  established  a  new  Defined  Contribution   Supplemental   Executive
Retirement Plan,  initially covering only the Executive Vice President and Chief
Operating Officer, Michael C. Rechin.

Compensation and Human Resources Committee Interlocks and Insider Participation

No member  of the  Compensation  and  Human  Resources  Committee  - Charles  E.
Schalliol,  Thomas B.  Clark,  Roderick  English  or Robert M.  Smitson - was an
officer or employee of the Corporation or any of its  subsidiaries  during 2006.
None of these members has ever been an officer or employee of the Corporation or
any of its  subsidiaries.  No member  of the  Compensation  and Human  Resources
Committee or executive officer of the Corporation had a relationship during 2006
requiring disclosure in this proxy statement under SEC regulations.

Compensation and Human Resources Committee Report

The Compensation  and Human Resources  Committee has reviewed and discussed with
management  the  Compensation  Discussion  and  Analysis  set forth  immediately
following this report, under "Compensation of Executive Officers." Based on this
review  and  discussion,  the  Committee  recommended  to  the  Board  that  the
Compensation  Discussion  and Analysis be included in the  Corporation's  annual
report on Form 10-K for the fiscal  year  ended  December  31,  2006 and in this
proxy statement.

The above report is submitted by:

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


                                       9


                       COMPENSATION OF EXECUTIVE OFFICERS

Compensation Discussion and Analysis

The Corporation's  compensation  programs are intended to provide  incentives to
employees, and to senior management in particular,  to achieve the Corporation's
current  and  long-term   strategic  goals.   The  ultimate   objective  of  the
Corporation's  strategic goals, and thus of these compensation  programs,  is to
obtain  a  superior  return  on  shareholders'  investment.   The  Corporation's
compensation programs and policies are determined,  implemented and evaluated by
the  Compensation  and Human Resources  Committee,  in consultation  with senior
management and with the assistance of outside consultants as the Committee deems
necessary.

The compensation  programs for the Corporation's "Named Executive Officers" (the
President  and Chief  Executive  Officer,  Michael L. Cox,  the  Executive  Vice
President and Chief  Financial  Officer,  Mark K.  Hardwick,  the Executive Vice
President  and Chief  Operating  Officer,  Michael C.  Rechin,  the Senior  Vice
President and Chief Information Officer,  Robert R. Connors, and the Senior Vice
President and Chief Credit  Officer,  David W. Spade) and other senior  managers
contain four principal components: (1) salary, (2) non-equity incentive pay, (3)
equity-based  compensation,  consisting  of  restricted  stock  awards and stock
options, and (4) retirement benefits.  The compensation programs incentivize the
Named Executive  Officers and other senior managers to achieve the Corporation's
current and shorter-term goals by paying them current cash compensation  (salary
and non-equity incentive pay) that provides an immediate or near-term reward for
exceptional  performance;  whereas  longer-term  performance is rewarded through
equity-based compensation and retirement benefits. The equity-based compensation
directly  aligns  the  Named  Executive  Officers'  and other  senior  managers'
financial  interests with those of the shareholders by correlating the amount of
the  compensation  received  with the  price  of the  Corporation's  stock.  The
equity-based compensation and retirement programs are also designed to encourage
retention of senior management employees.

Each of the four principal components of the Corporation's compensation programs
is described below:

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

For 2006 and prior years,  employee salary determinations were made in December,
and they  took  effect at the  beginning  of the  following  year.  However,  as
recommended by senior  management  and approved by the Committee,  commencing in
2007 these determinations are delayed until the Corporation's  audited financial
statements for the preceding  fiscal year are issued  (generally in late January
or early February), and the resulting salary adjustments are not effective until
the first payroll in March.  The Committee  believes  that, by waiting until the
financial  statements are issued,  salary  adjustments  for the Named  Executive
Officers and other  employees can be more  accurately  and  effectively  tied to
their  success in meeting  financial  targets and other  goals for the  previous
year. It also allows the Corporation to communicate  decisions concerning salary
adjustments to the Named  Executive  Officers and other  employees  close to the
time they are informed of incentive plan payments and equity-based  awards, thus
ensuring a clear and consistent  message  regarding  performance and underlining
the Corporation's emphasis on growing a performance-based culture.

Mr.  Cox's base  salary for 2006 was  $355,000,  a 3.4%  increase  over his 2005
salary. Since he will be retiring on April 24, 2007, his salary was not adjusted
in 2007.  Mr.  Rechin  didn't  assume his position  with the  Corporation  until
late-November  2005;  therefore,  his beginning  base salary of $275,000 was not


                                       10


adjusted for 2006. He will become the President and Chief  Executive  Officer on
April 24,  2007,  at which time his base salary will  increase to  $325,000,  in
recognition of his additional  responsibilities.  Mr. Hardwick's base salary for
2006 was $190,000,  an 11.8% increase over his 2005 salary;  his base salary was
increased by an  additional  10% in 2007,  to $209,000.  Mr.  Hardwick's  larger
increases  were based in part on his  exceptional  performance  and worth to the
Corporation and were in part  market-based,  resulting from a review of salaries
paid to executives holding similar positions with the Corporation's  competitors
in the financial  industry.  Mr.  Connors' base salary for 2006 was $182,200,  a
3.4%  increase  over his  2005  salary;  his base  salary  was  increased  by an
additional  5.5% in  2007,  to  $192,200.  His  larger  increase  in 2007 was in
recognition  of his  excellent  performance  during  2006.  Mr.  Spade  was  the
Executive  Vice  President and Chief Lending  Officer of First  Merchants  Bank,
National  Association ("First Merchants Bank"), a wholly owned subsidiary of the
Corporation, with a base salary of $160,000, during the first 11 months of 2006.
He was  promoted  to Senior  Vice  President  and Chief  Credit  Officer  of the
Corporation  as of  December  1,  2006,  and his base  salary was  increased  to
$175,000 on account of this promotion but was not further adjusted for 2007.

Non-equity incentive pay. Non-equity incentive  compensation is available to the
Named Executive Officers and other senior managers through the Senior Management
Incentive  Compensation Program. Under the program, the Named Executive Officers
and other  participating  senior  management  employees  are eligible to receive
additional cash compensation, determined as a percentage of their base salaries,
as incentive pay by meeting  individual goals that are generally closely related
to the Corporation's  financial success.  Under the program, at the beginning of
the year,  each  participant is given goals,  consisting of a target or targets,
and in some  cases,  personal  objectives,  which upon being met,  entitles  the
executive  to  receive  a  payout  following  the  end of the  year of 100% of a
pre-determined   percentage  of  the  executive's  base  salary.  The  schedules
containing the targets also include thresholds below which no payout is made, as
well as maximum  payouts.  For 2006,  upon  meeting a threshold,  the  executive
became entitled to 30% of the pre-determined  percentage of base salary, and the
maximum payout was 200% of this percentage. The amounts earned under the program
for a fiscal year are  determined and paid out after the  Corporation's  audited
financial statements for the applicable year have been issued (generally in late
January or early February).

Two changes were made to the Senior Management Incentive Compensation Program in
2006,  both  applicable to the incentive  payments made to participants in early
2007  for the 2006  fiscal  year.  One  eliminated  the  former  provision  that
mitigated the impact of wide swings in incentive  plan payouts from year to year
by basing 60% of each year's payment on the participant's  performance under the
program  for the  current  year  and  40% of the  payment  on the  participant's
performance  under the program for the previous year.  The other  eliminated the
former  provision that was intended to encourage  executive  retention by paying
2/3 of the  incentive pay earned each year in cash and the other 1/3 in deferred
stock units two years later,  based on the price of the  Corporation's  stock on
the payment date plus accrued dividends. The first change is intended to tie the
incentive pay more directly and more immediately to performance in both good and
bad years. The second change is related to the  Corporation's  implementation in
2006 of its new practice of awarding  restricted  stock to  participants  in the
program that will be forfeited if the employee  leaves within three years of the
award.  It is  anticipated  that these awards will be superior to deferred stock
units as a retention tool for senior  managers.  The effect of these two changes
will be to combine  all  incentive  compensation  earned  into a  one-year  cash
payout,  which will allow for a greater focus on growth goals,  better  motivate
high performers,  and further  strengthen the Corporation's  pay-for-performance
culture.

For  2006,  Messrs.  Cox and  Rechin  were  eligible  to  receive  45% and  40%,
respectively,  of  their  base  salaries  as  incentive  pay  by  meeting  their
individual  goals. For both of them, 40% of their incentive pay was dependent on
improving the Corporation's operating earnings per share above a pre-established
percentage, 30% was dependent on improving diluted GAAP earnings per share above
a  pre-established  percentage,  and 30% was  dependent on obtaining a return on
equity above a pre-established percentage. The improvements in the Corporation's
operating earnings per share and diluted GAAP earnings per share for 2006 failed
to exceed  the  thresholds.  The  Corporation's  return on equity did


                                       11


exceed the threshold but was less than the target.  As a result,  Messrs.  Cox's
and Rechin's incentive pay for 2006 was 1.35% and 1.20%, respectively,  of their
base salaries.  For 2006, Messrs.  Hardwick and Connors were eligible to receive
35% and 30%,  respectively,  of their base  salaries as incentive pay by meeting
their  individual  goals.  For both of  them,  70% of  their  incentive  pay was
dependent on improving the  Corporation's  operating  earnings per share above a
pre-established  percentage,  and 30% was dependent on achieving pre-established
personal  objectives that were  established by the Chief Executive  Officer.  As
noted above, the improvement in the Corporation's  operating  earnings per share
for 2006 failed to exceed the threshold;  however,  Messrs. Hardwick and Connors
achieved all of their personal objectives.  As a result, Messrs.  Hardwick's and
Connors'  incentive  pay for 2006 was 10.50% and 9.00%,  respectively,  of their
base  salaries.  For 2006,  Mr.  Spade was  eligible  to receive 20% of his base
salary as incentive pay by meeting his  individual  goals.  60% of his incentive
pay was dependent on improving the operating  earnings of First  Merchants  Bank
for 2006 above a pre-established  percentage, and 40% was dependent on achieving
pre-established  personal  objectives that were  established by the Bank's Chief
Executive Officer. First Merchants Bank's operating earnings did not improve for
2006; however, Mr. Spade achieved all of his personal  objectives.  As a result,
Mr. Spade's incentive pay for 2006 was 8.00% of his base salary.

As noted above, until 2006, the Senior Management Incentive Compensation Program
provided  for payment of 2/3 of the  incentive  pay earned each year in cash and
the other 1/3 in deferred stock units two years later, based on the price of the
Corporation's  stock on the  payment  date plus  accrued  dividends.  Under this
provision,  three of the Named Executive  Officers - Messrs.  Cox,  Hardwick and
Connors - received  payments in early 2007,  in the amounts of $16,741,  $9,122,
and $9,145, respectively, based on deferred stock units they earned for the 2004
fiscal year under the program prior to its amendment.  Messrs.  Rechin and Spade
weren't employees of the Corporation in 2004 and were thus not eligible for such
payments.  Additional  payments  will be made in early  2008 to Named  Executive
Officers  based on  deferred  stock  units they  earned for the 2005 fiscal year
under the program prior to its amendment.

The Senior  Management  Incentive  Compensation  Program was amended for 2007 to
provide  that the  incentive  pay which the  Corporation's  President  and Chief
Executive  Officer and its Executive Vice  Presidents can earn under the program
will be entirely  dependent on improving diluted GAAP earnings per share above a
pre-established  percentage.  If diluted GAAP earnings per share increase by the
pre-established  target  percentage,  the President and Chief Executive  Officer
will earn an additional 45% of base salary,  and Executive Vice  Presidents will
earn an  additional  40% of base  salary.  The other Named  Executive  Officers'
incentive  pay for 2007 will be based 70% on  improving  operating  earnings per
share above a  pre-established  percentage and 30% on achieving  pre-established
personal   objectives.   If  operating   earnings  per  share  increase  by  the
pre-established  target  percentage  and  they  achieve  all of  their  personal
objectives,  these Named Executive  Officers will earn an additional 30% of base
salary.

Equity-based  compensation.  Equity-based  compensation is made available to the
Named Executive  Officers and other plan participants under the Long-term Equity
Incentive Plan. The  Compensation and Human Resources  Committee  approves stock
awards  under  the plan at a  meeting  that is  usually  held each year in early
February.   In  making  these  awards,  the  Committee  relies  heavily  on  the
recommendations  of the Chief  Executive  Officer  except  for the awards to the
Chief Executive Officer.

Until 2006, stock option grants were the only equity-based  compensation awarded
under the Long-term  Equity  Incentive Plan. In 2005, the Compensation and Human
Resources  Committee engaged Watson Wyatt & Company to undertake a comprehensive
study  of the  plan  and to  make  recommendations  concerning  its  design  and
administration.  At the Committee's request,  Watson Wyatt provided information,
which  included  contemporary  data on the extent peer  companies  have utilized
long-term equity incentive  programs and their mix of restricted stock and stock
options, as well as information on accounting and tax considerations.  Following
completion of the study,  based in part on Watson  Wyatt's  recommendation,  the
Committee changed the Corporation's equity-based compensation program, beginning
in 2006,  from one utilizing  only stock options to one utilizing a mix of stock
options and


                                       12


restricted stock awards for senior managers and only restricted stock awards for
other participating employees. This change was within the Committee's discretion
under the provisions of the plan.

After  consulting  with  Watson  Wyatt  and the  Chief  Executive  Officer,  the
Committee  concluded that the interests of the Corporation and its  shareholders
will be best  served  if,  for the Named  Executive  Officers  and other  senior
managers,  stock option  grants  continue to be a  significant  component of the
Corporation's  equity-based  compensation  program. That conclusion was based on
the rationale  that the financial  incentive  provided by stock options  depends
entirely on increasing the price of the  Corporation's  shares,  thus furthering
the program's purpose of aligning senior  management's  financial interests with
those of the Corporation's shareholders.


                                       13


The stock  options  granted to the Named  Executive  Officers  and other  senior
managers under the Long-term  Equity  Incentive Plan are incentive stock options
up to the statutory limit; the rest are nonqualified  options. The stock options
vest and are exercisable 2 years after the date they are granted or, if earlier,
on the date the grantee's employment terminates on account of retirement,  death
or disability.  The restricted  stock awarded under this plan vests,  giving the
awardee  complete  ownership  rights,  if the  awardee is still  employed by the
Corporation 3 years after the award, or if the awardee's  employment  terminates
in less  than 3 years  on  account  of  retirement,  death  or  disability.  The
restricted  stock partially vests if the awardee's  employment is  involuntarily
terminated without "cause," determined by a fraction,  the numerator of which is
the number of full years that have elapsed between the date of the award and the
date of  termination  and the  denominator  of which is 3.  Notwithstanding  the
restrictions  on the stock,  the  awardee is  entitled to vote the shares and to
receive the dividends thereon.

The awards  made to the Named  Executive  Officers  under the  Long-term  Equity
Incentive Plan on February 10, 2006 and February 8, 2007, respectively,  were as
follows:  the 2006 award to Mr. Cox was 12,000 stock options and 3,400 shares of
restricted  stock;  however,  since he will retire on April 24, 2007, he did not
receive a 2007 award;  the 2006 award to Mr.  Rechin was 8,000 stock options and
2,000 shares of restricted stock and the 2007 award was 12,000 stock options and
3,000 shares of restricted  stock,  the substantial  increase in 2007 due to his
becoming President and Chief Executive Officer on April 24, 2007; the 2006 award
to Mr. Hardwick was 7,000 stock options and 2,000 shares of restricted stock and
the 2007 award was 8,000 stock options and 2,400 shares of restricted stock; the
2006 award to Mr. Connors was 4,000 stock options and 1,400 shares of restricted
stock and the 2007 award was 4,500 stock  options and 1,600 shares of restricted
stock;  and the 2006 award to Mr. Spade was 1,400 shares of restricted stock and
the 2007 award was 4,000 stock options and 1,000 shares of restricted stock. The
exercise  price  for the stock  options  was the  closing  price on the date the
options were granted by the  Compensation  and Human Resources  Committee.  This
price was $25.14 per share on February 10, 2006 and $26.31 per share on February
8, 2007.

Although not required to be shown in the Summary  Compensation  Table, the First
Merchants  Corporation  Employee Stock  Purchase Plan is a form of  equity-based
compensation  that is equally  available to all employees of the Corporation and
its participating  subsidiaries who have been employed six months or more. Under
this plan,  employees  (including the Named Executive Officers) may elect, prior
to  the  offering  period  (July  1 to  June  30),  to  purchase  shares  of the
Corporation's stock at a price equal to 85% of the lesser of the market price of
the stock at the  beginning of the  offering  period and the market price at the
end of the period.  The plan  provides an  attractive  vehicle for  employees to
acquire the Corporation's  stock, which further aligns their financial interests
with those of other shareholders.  For the offering period ending June 30, 2006,
the following Named Executive  Officers  participated in this plan: Mr. Cox, who
purchased 1,059 shares, and Mr. Connors,  who purchased 264 shares. The purchase
price for shares under the plan was $20.66 per share.

Retirement  benefits.  The Corporation  has long maintained a qualified  defined
benefit pension plan, the First Merchants  Corporation  Retirement Pension Plan,
which pays benefits at retirement to participating  employees of the Corporation
and its  participating  subsidiaries.  The benefits  payable  under this plan at
normal  retirement age (age 65),  computed as a straight-life  annuity  although
other forms of actuarially-equivalent benefits are available under the plan, are
based on the following formula:  1.6% of average final compensation (in general,
the  participant's  highest  60  consecutive  months'  W-2  compensation,   less
incentive  pay)  plus .5% of  average  final  compensation  in  excess of Social
Security  covered  compensation,  both times years of service to a maximum of 25
years.  Although  benefits are  integrated  with Social  Security,  they are not
subject to any  deduction  for Social  Security  or other  offset  amounts.  The
Corporation  "froze" this plan,  effective March 1, 2005, for participants other
than those who were at least age 55 with 10 or more years of  credited  service,
meaning that these  participants no longer accrued benefits under the plan after
that date and employees who were not  participating  in the plan as of that date
were not eligible to participate.  The benefits payable under the plan at age 65
to the participants  whose benefits were frozen are determined under the formula


                                       14


described above,  based on their average final compensation as of March 1, 2005,
times a fraction,  the numerator of which is the participant's years of credited
service as of March 1, 2005, and the  denominator of which is the  participant's
years of credited  service  projected  to age 65. The  participants  who were at
least age 55 with 10 or more years of credited  service at the time the plan was
frozen were  "grandfathered;"  that is, their benefits  continue to accrue under
the plan until their retirement.

Of  the  Named  Executive  Officers,   Messrs.   Rechin  and  Spade  were  never
participants in the First Merchants Corporation Retirement Pension Plan, because
they first became  employees  of the  Corporation  after March 1, 2005.  Messrs.
Hardwick and Connors were among the  participants  whose  benefits  were frozen,
because they had not  attained age 55 with 10 or more years of credited  service
as of  March  1,  2005.  Assuming  their  employment  continues  to age 65,  Mr.
Hardwick's annual benefit under the plan would be approximately  $8,594, and Mr.
Connor's   annual   benefit  would  be   approximately   $7,895.   Mr.  Cox  was
"grandfathered;"  because  he had  attained  age 55  with 10 or  more  years  of
credited  service as of March 1, 2005,  so he has  continued to accrue  benefits
under the plan.  He has elected to retire  early,  at age 62, on April 24, 2007.
His  early  retirement  benefit  under the plan  will be an  annual  benefit  of
approximately $47,158, payable in substantially equal monthly amounts.

The First  Merchants  Corporation  Supplemental  Executive  Retirement  Plan,  a
defined  benefit,   nonqualified  "excess  benefit"  plan,  provides  additional
retirement  benefits to designated  executives  whose  benefits  under the First
Merchants  Corporation  Retirement  Pension Plan are restricted due to the limit
under  Internal  Revenue Code Section  401(a)(17) on the amount of  compensation
that can be considered  for purposes of  calculating  pension  benefits  under a
qualified  plan. This amount was $220,000 for 2006, and it is $225,000 for 2007.
The benefit  payable  under this plan is  calculated  using the First  Merchants
Corporation  Retirement  Pension Plan formula described above,  without applying
the  Section  401(a)(17)  limit  and  including   non-equity  incentive  pay  in
determining average final  compensation,  and then subtracting the benefit which
is payable to the executive  under the  Retirement  Pension Plan. Mr. Cox is the
only Named  Executive  Officer who has been  designated as a participant in this
plan. Following his retirement on April 24, 2007, he will be eligible to receive
an annual early  retirement  benefit of  approximately  $56,734  under the plan,
which the  Corporation  expects to begin paying in  substantially  equal monthly
amounts in January 2008, with the first payment to include a retroactive  amount
for the last 8 months of 2007. Since the First Merchants Corporation  Retirement
Pension  Plan has  been  frozen,  no  other  executives  will be  designated  as
participants under this plan.

The Corporation  also maintains the First Merchants  Corporation  Retirement and
Income Savings Plan, an Internal Revenue Code Section 401(k)  qualified  defined
contribution plan under which participating employees of the Corporation and its
subsidiaries can make pre-tax  contributions to the plan, up to statutory limits
and  limits  set  forth  in  the  plan,  that  are  currently   matched  by  the
participant's  employer  at  the  rate  of  50%  of  the  participant's  pre-tax
contributions under the plan, to a maximum of 6% of compensation (defined as W-2
compensation plus certain voluntary  pre-tax  contributions,  up to the Internal
Revenue Code Section 401(a)(17) maximum noted above). Thus, the maximum matching
employer  contribution  under  the  plan is  generally  3% of pay  (less  if the
participant's  compensation  exceeds  $225,000).  The Corporation  made matching
contributions for 2006 under the plan for Messrs. Rechin, Hardwick,  Connors and
Spade in the amounts of $6,600,  $6,600, $6,433, and $5,028,  respectively.  For
the participants who were "grandfathered"  when the First Merchants  Corporation
Retirement  Pension Plan was frozen,  including  Mr. Cox, the matching  employer
contribution  is only 25% of their  pre-tax  contributions  under the plan, to a
maximum of 5% of compensation.  The Corporation made a matching contribution for
2006 under the plan for Mr. Cox in the amount of $2,750. The employer also makes
contributions  under the plan on behalf of participants  based on their years of
service,  currently from 2% to 7% of compensation  (2% for 0-4 years of service,
3% for 5-9 years of service,  4% for 10-14 years of service,  5% for 15-19 years
of  service,  6% for  20-24  years of  service,  and 7% for 25 or more  years of
service). The "grandfathered" participants,  including Mr. Cox, are not eligible
for  these  service-weighted  contributions.   For  2006,  the  service-weighted
contribution  for  Mr.  Hardwick  was 3% of  compensation,  or  $6,694;  and the
service-weighted  contributions for Messrs. Rechin, Connors and Spade were 2% of
compensation, or $7,672, $4,289, and $3,352, respectively.


                                       15


Finally, the employer is making "transition  contributions" under the plan equal
to 3% of  compensation  for the years 2005 through 2009,  for employees who were
participants in the First Merchants Corporation  Retirement Pension Plan when it
was frozen and who had attained age 45 with 10 or more years of credited service
as of March 1, 2005 (other than the "grandfathered"  participants).  None of the
Named  Executive  Officers is eligible for a transition  contribution  under the
plan.  Employee  pre-tax  contributions  under the plan are always fully vested,
while matching,  service-weighted  and transition  contributions  vest 20% after
each year of service

In 2006, the  Compensation  and Human Resources  Committee  engaged Mercer Human
Resource  Consulting  to make  plan  design  recommendations  for a new  defined
contribution  supplemental  executive  retirement plan, in view of the fact that
the primary retirement plan for all of the executive officers other than Mr. Cox
is now a Section 401(k) defined  contribution plan rather than a defined benefit
plan.  Based on Mercer's  recommendations,  the Committee  established the First
Merchants  Corporation Defined  Contribution  Supplemental  Executive Retirement
Plan,  effective  as of January  1,  2006.  Like the  existing  defined  benefit
Supplemental   Executive   Retirement   Plan   covering  Mr.  Cox,  the  Defined
Contribution  Supplemental Executive Retirement Plan is a nonqualified plan that
is intended to provide additional  retirement benefits to designated  executives
whose benefits under the Corporation's  qualified retirement plan - in this case
the  First  Merchants  Corporation  Retirement  and  Income  Savings  Plan - are
restricted  due to the limit under Internal  Revenue Code Section  401(a)(17) on
the amount of  compensation  that can be considered  for purposes of calculating
pension benefits under a qualified plan. The Committee has designated Mr. Rechin
as the  sole  initial  participant  in  the  Defined  Contribution  Supplemental
Executive  Retirement  Plan,  effective as of January 1, 2006. Based on Mercer's
recommendation,  the Committee  established  the employer  contribution  for Mr.
Rechin  under the plan at 12% of his  annual  compensation,  including  his base
salary and his non-equity  incentive pay. Mercer  calculated that, if Mr. Rechin
continues to be employed by the  Corporation  until his normal  retirement  age,
this contribution will provide an income replacement ratio of approximately 35%,
based on a 7% return on the plan's investments.  Mercer determined, based on its
review of retirement  benefits paid to executives  holding similar  positions at
peer companies in the banking industry, that this income replacement ratio would
be competitive with the industry. Mr. Rechin's benefit under the plan is subject
to a 5 year "cliff"  vesting  provision.  He is not  permitted to make  employee
contributions  under the plan. The Corporation's  2006 contribution to this plan
for Mr. Rechin was $33,396.

Termination of Employment and Change of Control  Arrangements.  In general,  the
Corporation  does not  have  employment  agreements  with  the  Named  Executive
Officers  or any of its  other  employees,  who are all  deemed  to be "at will"
employees. However, on January 23, 2007, the Board approved an agreement between
the Corporation and Mr. Cox concerning his retirement as the President and Chief
Executive  Officer of the  Corporation  on April 24, 2007,  the date of the 2007
annual meeting of shareholders,  and his provision of consulting services to the
Corporation  for a period  of 2 years  thereafter.  The  material  terms of this
agreement are described on page 23 of this proxy statement,  under  "Termination
of Employment and Change of Control Arrangements."

The  Corporation  has  change of  control  agreements  with  certain  of its key
executives,  including all of the Named Executive Officers except Mr. Spade. The
Board  believes that change of control  agreements  are in the best interests of
the Corporation and its  shareholders,  because they encourage key executives to
remain  with  the  Corporation  and  continue  to act in the  Corporation's  and
shareholders'  interests in the event of a proposed  acquisition or other change
of  control  situation  in which  they  might  otherwise  be  influenced  by the
uncertainties of their own  circumstances.  The Board also believes that "double
trigger"  agreements  are in the  Corporation's  best  interests,  so  each  one
provides  that  severance  benefits  will be  payable  only if both a change  of
control occurs and the  executive's  employment is terminated or  constructively
terminated  within 24 months  after the change of control.  No benefits  will be
payable  in  the  event  of  the  executive's  voluntary  retirement,  death  or
disability,  or if the  executive's  employment  is terminated  for cause.  More
information  regarding the definitions of "change of control" and  "constructive
termination," as used in these  agreements,  can be found on pages 23-24 of this
proxy  statement,  under  "Termination  of  Employment  and  Change  of  Control
Arrangements."  The lump sum


                                       16


severance benefit payments under the change of control agreements are based on a
multiple  of the  sum of the  executive's  annual  base  salary  at the  time of
receiving  notice of termination and the executive's  largest annual  non-equity
incentive payment under the Senior  Management  Incentive  Compensation  Program
during the two years  preceding the date of  termination.  This multiple is 2.99
for Messrs. Cox, Rechin and Hardwick,  and 2.00 for Mr. Connors.  The agreements
also  provide  that the  Corporation  will:  pay any excise  tax  imposed on the
executive  under  Section  4999  of the  Internal  Revenue  Code  on an  "excess
parachute payment;" provide outplacement  services and pay reasonable legal fees
and expenses incurred by the executive as a result of the termination;  continue
life, disability,  accident and health insurance coverage until the earlier of 2
years  following the date of termination or the executive's  65th birthday;  and
cancel the executive's  outstanding stock options and, in lieu thereof,  pay the
executive a lump sum amount equal to the bargain element value of these options,
if any.  The  aggregate  of the  benefits  that would  have been  payable to key
executives under all of the Corporation's existing change of control agreements,
if both of the  triggering  events had occurred on December 31, 2006,  is only a
little more than 1% of the Corporation's market  capitalization - not enough, in
the Board's  opinion,  to  discourage  any offer to purchase  the  Corporation's
shares.  This percentage  will be even less after Mr. Cox's  retirement on April
24, 2007,  since he will no longer be covered by a change of control  agreement.
The change of control agreements were not entered into in response to any effort
to acquire  control of the  Corporation,  and the Board is not aware of any such
effort.

A change of control  would  also  result in vesting  of:  the  non-vested  stock
options and restricted  stock awards under the  Corporation's  Long-term  Equity
Incentive  Plan;  the non-vested  deferred  stock units under the  Corporation's
Senior Management  Incentive  Compensation  Program;  the non-vested  retirement
benefits under the Corporation's  nonqualified Defined Contribution Supplemental
Executive Retirement Plan.  Additional  information  concerning the affect these
provisions  for  accelerated  vesting in the event of a change of control  would
have on the Named  Executive  Officers can be found on pages 24-25 of this proxy
statement, under "Termination of Employment and Change of Control Arrangements."

Summary Compensation Table

The following table provides information concerning all of the plan and non-plan
compensation paid to the Named Executive Officers for 2006.



                                           Summary Compensation Table
----------------------------------------------------------------------------------------------------------------------
                                                                                                           Change in
                                                                                                         pension value
                                                                                                             and
                                                                                                         nonqualified
                                                                                         Non-equity        deferred
                                                                 Stock      Option     incentive plan    compensation
Name and Principal Position     Year   Salary(1)    Bonus(2)   Awards(3)   awards(3)   compensation(4)    earnings(5)
----------------------------------------------------------------------------------------------------------------------
                                                                                     
Michael L. Cox                  2006   $ 361,887   $      0   $  25,268   $  32,766       $  4,793        $ 205,052
  President and Chief
  Executive Officer
----------------------------------------------------------------------------------------------------------------------

Mark K. Hardwick                2006     193,699          0      14,864      19,113         19,950            2,495
  Executive Vice President
  and Chief Financial Officer
----------------------------------------------------------------------------------------------------------------------

Michael C. Rechin               2006     280,288    100,100      14,864      21,844          3,300                0
  Executive Vice President
  and Chief Operating
  Officer
----------------------------------------------------------------------------------------------------------------------

Robert R. Connors               2006     185,704          0      10,405      10,922         16,398            4,695
  Senior Vice President and
  Chief Information Officer
----------------------------------------------------------------------------------------------------------------------



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





                                   All other
Name and Principal Position     compensation(6)     Total
-----------------------------------------------------------
                                            
Michael L. Cox                      $ 27,918      $ 657,684
  President and Chief
  Executive Officer
-----------------------------------------------------------

Mark K. Hardwick                      15,434        265,555
  Executive Vice President
  and Chief Financial Officer
-----------------------------------------------------------

Michael C. Rechin                     51,788        472,184
  Executive Vice President
  and Chief Operating
  Officer
-----------------------------------------------------------

Robert R. Connors                     12,310        240,434
  Senior Vice President and
  Chief Information Officer
-----------------------------------------------------------


                                       17




----------------------------------------------------------------------------------------------------------------------
                                                                                                          Change in
                                                                                                        pension value
                                                                                                             and
                                                                                                        nonqualified
                                                                                        Non-equity        deferred
                                                                Stock      Option     incentive plan    compensation
Name and Principal Position     Year   Salary(1)   Bonus(2)   Awards(3)   awards(3)   compensation(4)    earnings(5)
----------------------------------------------------------------------------------------------------------------------
                                                                                        

David W. Spade                  2006    164,327          0      10,405           0        12,800              0
  Senior Vice President
  and Chief Credit Officer
----------------------------------------------------------------------------------------------------------------------



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





                                   All other
Name and Principal Position     compensation(6)     Total
-----------------------------------------------------------
                                             
David W. Spade                       10,568        198,100
  Senior Vice President
  and Chief Credit Officer
-----------------------------------------------------------



      (1)   The  amounts  shown in the Salary  column are the  aggregate  of the
            executive's  base salary,  service award and Christmas gift. For Mr.
            Cox,  these were  $355,000,  $60 and $6,827,  respectively;  for Mr.
            Hardwick, these were $190,000, $45 and 3,654, respectively;  for Mr.
            Rechin, these were $275,000,  $0 and $5,288,  respectively;  for Mr.
            Connors,  these were $182,200, $0 and 3,504,  respectively;  and for
            Mr. Spade, these were $$161,250, $0 and $3,077, respectively.

      (2)   The Corporation agreed to pay Mr. Rechin a signing bonus of $100,000
            when he was employed as the  Corporation's  Executive Vice President
            and Chief Operating Officer in November 2005, to offset a bonus that
            would have been payable to Mr.  Rechin by his previous  employer had
            he not taken this new  position.  This signing bonus was paid to Mr.
            Rechin early in 2006.  The other $100 was paid to Mr. Rechin under a
            customer  referral  program.  No bonus was paid to any  other  Named
            Executive  Officer  during  2006  except  as  part  of a  non-equity
            incentive plan.

      (3)   A discussion of the assumptions used in calculating  these values is
            contained in Note 16 to the 2006 audited  financial  statements,  on
            page 42 of the Corporation's Annual Report.

      (4)   The amounts  shown in the  Non-equity  Incentive  Plan  Compensation
            column are payments for 2006  performance  under the First Merchants
            Corporation Senior Management  Incentive  Compensation  Program that
            were made in February 2007.

      (5)   The amounts  shown in the Change in Pension  Value and  Nonqualified
            Deferred  Compensation  Earnings  column for  Messrs.  Hardwick  and
            Connors  are the  changes in the  actuarial  present  value of their
            frozen  benefits under the First  Merchants  Corporation  Retirement
            Pension Plan,  and for Mr. Cox, the change in the actuarial  present
            value  of  his  benefits  under  the  First  Merchants   Corporation
            Retirement   Pension  Plan   ($78,517)   and  the  First   Merchants
            Corporation Supplemental Executive Retirement Plan ($126,535) during
            2006. Messrs.  Rechin and Spade were never participants in a defined
            benefit  or  other   actuarial   pension  plan   maintained  by  the
            Corporation.  No Named Executive  Officer  received  above-market or
            preferential earnings on deferred compensation.

      (6)   The  Corporation   made  matching  and   service-weighted   employer
            contributions  to the First  Merchants  Corporation  Retirement  and
            Income Savings Plan for the benefit of the Named Executive  Officers
            in the  following  aggregate  amounts  for  2006:  Mr.  Cox - $2,750
            ($2,750 and $0); Mr.  Hardwick - $13,294  ($6,600 and  $6,694);  Mr.
            Rechin - $14,272 ($6,600 and $7,672);  Mr. Connors - $10,722 ($6,433
            and  $4,289);  and Mr.  Spade -  $8,380  ($5,028  and  $3,352).  The
            Corporation   also  made  a  contribution  to  the  First  Merchants
            Corporation Defined Contribution  Supplemental  Executive Retirement
            Plan in the amount of $33,396 for the benefit of Mr. Rechin. Mr. Cox
            was the only Named  Executive  Officer whose  compensation  included
            perquisites  in  the  aggregate  amount  of  $10,000  or  more.  The
            aggregate  amount of his  perquisites  and other personal  benefits,
            which included personal use of a Corporate-owned automobile, payment
            of country club dues,  automobile  insurance  premiums,  medical and
            travel expenses, totaled $21,740. The other amounts shown in the All
            Other Compensation column include the dollar value of life insurance
            premiums and dividends on restricted stock awards paid to or for the
            benefit of each of the Named Executive Officers during 2006.

The  Corporation  does  not have  employment  agreements  with any of the  Named
Executive Officers.

Grants of Plan-based Awards Table

The  following  table  provides  information  concerning  all of the  grants  of
plan-based awards made to the Named Executive  Officers for 2006, which included
non-equity incentive pay and awards of restricted stock and stock options.


                                       18




                                          Grants of Plan-Based Awards for 2006 Fiscal Year
-----------------------------------------------------------------------------------------------------------------------------------
                                     Estimated future payouts under
                                   Non-equity incentive plan awards(1)
                                  ------------------------------------
                                                                                         All other
                                                                          All other       option
                                                                            stock         awards;
                                                                           awards;       Number of     Exercise or    Grant date
                                                                          Number of     securities    base price of  fair value of
                        Grant                                            shares of      underlying    option awards    stock and
     Name                Date     Threshold     Target      Maximum    stock or units     options      (per share)   option awards
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                              
Michael L. Cox              --      $ 0      $ 159,750    $ 319,500
                       2/10/06                                              3,400                                      $ 25,268
                       2/10/06                                                            12,000         $ 25.14         32,766
------------------------------------------------------------------------------------------------------------------------------------

Mark K. Hardwick            --        0         66,500      113,050
                       2/10/06                                              2,000                                        14,864
                       2/10/06                                                             7,000           25.14         19,113
------------------------------------------------------------------------------------------------------------------------------------

Michael C. Rechin           --        0        110,000      220,000
                       2/10/06                                              2,000                                        14,864
                       2/10/06                                                             8,000           25.14         21,844
------------------------------------------------------------------------------------------------------------------------------------

Robert R. Connors           --        0         54,660       92,922
                       2/10/06                                              1,400                                        10,405
                       2/10/06                                                             4,000           25.14         10,922
------------------------------------------------------------------------------------------------------------------------------------

David W. Spade              --        0         32,000       51,200
                       2/10/06                                              1,400                                        10,405
------------------------------------------------------------------------------------------------------------------------------------


            (1)   The  amounts  shown  in the  Estimated  Future  Payouts  under
                  Non-equity  Incentive  Plan  Awards  column  are the  range of
                  payouts for  targeted  performance  under the First  Merchants
                  Corporation Senior Management  Incentive  Compensation Program
                  for 2006,  as  described in the Section  entitled  "Non-equity
                  Incentive  Pay" in the  Compensation  Discussion and Analysis.
                  The payments made in February 2007 for 2006 performance  under
                  the  Program  are  shown  in  the  Non-equity  Incentive  Plan
                  Compensation column of the Summary  Compensation Table on page
                  16 of this proxy statement.

The  compensation  programs  under  which  the  grants  in the  above  Grants of
Plan-based  Awards Table were made are generally  described in the  Compensation
Discussion  and  Analysis,  on pages  11-13,  and include the Senior  Management
Incentive  Compensation  Program, a non-equity incentive plan, and the Long-term
Equity  Incentive  Plan,  which  provides for stock option grants and restricted
stock awards. The following is a summary of material factors that will assist in
an understanding of the information disclosed in the Grants of Plan-based Awards
Table.

Under the Senior Management Incentive  Compensation  Program,  each of the Named
Executive  Officers was given goals at the  beginning of 2006,  consisting  of a
target or targets, and in some cases, personal objectives, which upon being met,
entitled the executive to receive a payout following the end of the year of 100%
of a  pre-determined  percentage of the executive's  base salary.  The schedules
containing the targets also included  thresholds,  at which the executive became
entitled to 30% of the pre-determined percentage and below which no payout would
be  made,  as well  as  maximum  payouts  equal  to  200% of the  pre-determined
percentage.  The  amounts  earned  under the  program  for 2006 were paid out in
February 2007.

Under  the  Long-term  Equity  Incentive  Plan,  awards  of  stock  options  and
restricted  stock  were  granted  to each of the  Named  Executive  Officers  in
February 2006 except Mr. Spade, who was not awarded stock options because he was
not a senior manager of the  Corporation at the time. In general,  the number of
stock options  awarded to each executive was 3 - 4 times the number of shares of
restricted stock awarded to the executive. The aggregate number of equity awards
to each executive was roughly  commensurate  with the  executive's  position and
level of  responsibilities.  The  exercise  price for the stock  options was the
closing price on the date the options were granted, February 10, 2006. The stock
options  will  vest and  become  exercisable  2 years  after  the date they were
granted or, if earlier,  on the date the


                                       19


executive's employment terminates on account of retirement, death or disability.
The restricted stock will vest, giving the executive  complete ownership rights,
if the executive is still employed by the  Corporation 3 years after the date of
the  award or the  executive's  employment  terminates  in less  than 3 years on
account of retirement,  death or disability. The restricted stock will partially
vest if the executive's employment is involuntarily  terminated without "cause,"
the number that vest to be a fraction of the shares  awarded,  the  numerator of
which is the  number of full  years that have  elapsed  between  the date of the
award  and  the  date  of  termination  and  the  denominator  of  which  is  3.
Notwithstanding the restrictions on the stock, the executive will be entitled to
vote the shares and to receive the dividends  thereon.  The normal dividend rate
applies to the restricted shares; the rate is not preferential.

Outstanding Equity Awards at Fiscal Year-end Table

The following table provides information  concerning  unexercised stock options,
restricted  stock awards that have not vested,  and equity incentive plan awards
for  each  of the  Named  Executive  Officers  outstanding  as of the end of the
Corporation's 2006 fiscal year.



                               Outstanding Equity Awards at Fiscal Year-End 2006
------------------------------------------------------------------------------------------------------------------
                                              Option Awards                                  Stock Awards
                     ---------------------------------------------------------------------------------------------

                        Number of      Number of
                        securities     securities
                        underlying     underlying                                     Number of       Market value
                       unexercised     unexercised                                 shares or units    of shares or
                         options       options(1)       Option                      of stock that    units of stock
                                                       exercise        Option          have not      that have not
      Name            (Exercisable)  (Unexercisable)     price     expiration date     vested(2)        vested
-------------------------------------------------------------------------------------------------------------------
                                                                                     
Michael L. Cox                                                                          3,400          $ 92,446
                                                                                          851            23,136
                          6,078                        $ 18.07        7/31/07
                          5,729                          24.80        7/31/08
                         11,575                          19.65        7/29/09
                         11,573                          18.28         7/1/10
                         11,576                          19.73         7/1/11
                         13,781                          26.93         7/1/12
                         13,127                          23.46         7/1/13
                         15,000                          25.60         7/1/14
                         20,000                          26.70         9/1/15
                                         12,000          25.14        2/10/16
------------------------------------------------------------------------------------------------------------------

Mark K. Hardwick                                                                        2,000           54,380
                                                                                          460           12,506
                            694                          19.65         7/29/09
                            578                          18.28          7/1/10
                          1,736                          19.73          7/1/11
                          4,409                          26.93          7/1/12
                          5,249                          23.46          7/1/13
                          6,000                          25.60          7/1/14
                         10,000                          26.70          9/1/15
                                          7,000          25.14         2/10/16
------------------------------------------------------------------------------------------------------------------

Michael C. Rechin                                                                       3,334           90,651

                                         10,000          25.90        11/21/15
                                          8,000          25.14         2/10/16
------------------------------------------------------------------------------------------------------------------

Robert R. Connors                                                                       1,400           38,066
                                                                                          467           12,687
                          3,307                          25.33         8/26/12
                          5,249                          23.46          7/1/13
                          6,000                          25.60          7/1/14
                          8,000                          26.70          9/1/15
                                          4,000          25.14         2/10/16
------------------------------------------------------------------------------------------------------------------

David W. Spade                                                                          1,400           38,066
------------------------------------------------------------------------------------------------------------------



                                       20


      (1)   Options were granted to Messrs. Cox, Hardwick, Rechin and Connors to
            purchase 12,000, 7,000, 8,000 and 4,000 shares, respectively, of the
            Corporation's  stock under the Long-term  Equity  Incentive  Plan on
            February  10,  2006,  which  will  vest on  February  10,  2008.  In
            addition, Mr. Rechin was granted an option to purchase 10,000 shares
            of the Corporation's stock under the Long-term Equity Incentive Plan
            on November 21, 2005,  which will vest on November 21, 2007.  All of
            these options will also vest on the date the executive's  employment
            terminates on account of retirement, death or disability, if earlier
            than the normal vesting dates.

      (2)   Messrs. Cox, Hardwick, Rechin, Connors and Spade were awarded 3,400,
            2,000,  2,000, 1,400 and 1,400 restricted shares,  respectively,  of
            the Corporation's stock under the Long-term Equity Incentive Plan on
            February  10,  2006,  which  will  vest on  February  10,  2009.  In
            addition,  Mr.  Rechin was awarded  2,000  restricted  shares of the
            Corporation's  stock under the plan on December 22,  2005,  of which
            666 shares  vested on  December  22,  2006,  667 shares will vest on
            December  22,  2007,  and 667 shares will vest on December 22, 2008.
            Messrs.  Cox,  Hardwick and Connors earned 851, 460 and 467 deferred
            stock units, respectively, under the Corporation's Senior Management
            Incentive Compensation Program for the 2005 fiscal year. These units
            will  vest at the end of the 2007  fiscal  year and will  result  in
            payments of cash, not shares of stock, to these  executive  officers
            early in 2008 in amounts  equal to the December 31, 2007 fair market
            value of an equivalent number of shares of the Corporation's  stock,
            plus  dividends  that would have accrued on an equivalent  number of
            shares during 2006 and 2007.  All of these  restricted  stock awards
            and deferred stock units will also vest on the date the  executive's
            employment terminates on account of retirement, death or disability,
            if earlier than the normal vesting dates.

Option Exercises and Stock Vested Table

The  following  table  provides  information  concerning  each exercise of stock
options and each vesting of stock,  including  restricted  stock and  restricted
stock  units,  during the  Corporation's  2006 fiscal year for each of the Named
Executive Officers.



                        Option Exercises and Stock Vested During Fiscal Year 2006
-----------------------------------------------------------------------------------------------------------
                                        Option awards                             Stock awards
                          ---------------------------------------------------------------------------------

                            Number of shares     Value realized on   Number of shares or     Value realized
         Name             acquired on exercise        exercise        units acquired on       on vesting(1)
                                                                          vesting(1)
-----------------------------------------------------------------------------------------------------------
                                                                                    
Michael L. Cox                   5,209               $ 50,163                577                $ 16,741
-----------------------------------------------------------------------------------------------------------
Mark K. Hardwick                     0                      0                314                   9,122
-----------------------------------------------------------------------------------------------------------
Michael C. Rechin                    0                      0                666                  17,915
-----------------------------------------------------------------------------------------------------------
Robert R. Connors                    0                      0                315                   9,145
-----------------------------------------------------------------------------------------------------------
David W. Spade                       0                      0                  0                       0
-----------------------------------------------------------------------------------------------------------


      (1)   The  amounts  shown in the  Number of Shares  or Units  Acquired  on
            Vesting  column for Messrs.  Cox,  Hardwick and Connors are deferred
            stock  units  they  earned  under the  Senior  Management  Incentive
            Compensation  Program for the 2004  fiscal year which  vested at the
            end of the 2006 fiscal year. The amounts shown in the Value Realized
            on Vesting column were paid in cash to these  executives in February
            2007, in accordance with the program's provisions. These payments to
            Messrs. Cox, Hardwick and Connors included dividends that would have
            been payable on an equivalent  number of shares of the Corporation's
            stock during 2005 and 2006, in the amounts of $1,061, $578 and $580,
            respectively.  The  amount  shown in the  Number  of Shares or Units
            Acquired  on  Vesting  column for Mr.  Rechin is the  portion of the
            restricted  stock award made to him on  December  22, 2005 under the
            Long-term  Equity  Incentive Plan which vested on December 22, 2006.
            This award is further  described  in  footnote 2 to the  Outstanding
            Equity Awards at Fiscal Year-End 2006 Table on page 20 of this proxy
            statement.  The amount shown in the Value Realized on Vesting column
            for Mr. Rechin was  determined by  multiplying  the number of shares
            that vested (666) times the closing price of the Corporation's stock
            on December 22, 2006 ($26.90).


                                       21


Pension Benefits Table

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

The First  Merchants  Corporation  Supplemental  Executive  Retirement Plan (the
"SERP"),  a  defined  benefit,  nonqualified  "excess  benefit"  plan,  provides
additional retirement benefits to designated executives whose benefits under the
Pension Plan are restricted due to the limit under Internal Revenue Code Section
401(a)(17) on the amount of compensation  that can be considered for purposes of
calculating  pension  benefits under a qualified  plan. This amount was $220,000
for 2006,  and it is $225,000 for 2007.  The benefit  payable under this plan is
calculated using the Pension Plan formula described in the preceding  paragraph,
without applying the Section 401(a)(17) limit and including non-equity incentive
pay in determining average final compensation,  and then subtracting the benefit
which is payable to the executive  under the Pension Plan.  The SERP is unfunded
and  subject to  forfeiture  in the event of  bankruptcy.  The  Corporation  has
established a "rabbi" trust,  with the First Merchants  Trust Company,  National
Association,  a wholly-owned subsidiary of the Corporation,  as the trustee. The
Corporation   makes  annual   contributions   to  the  trust  to  help  pay  the
Corporation's  liabilities  under the SERP, with which the trustee pays premiums
on   corporate-owned   life  insurance  that  is  intended  to  help  pay  these
liabilities.

The following table shows benefits accrued to the Named Executive Officers under
the Retirement Pension Plan and the Supplemental Executive Retirement Plan as of
December 31, 2006. The  assumptions  used in calculating  the present value of a
Named  Executive  Officer's  accumulated  benefit are the same as those used for
financial  reporting  purposes  with respect to the  Corporation's  2006 audited
financial statements,  assuming that the executive retires at age 65, the normal
retirement age under the plan. A discussion of these assumptions is contained in
Note  17  to  the  2006  audited  financial  statements,   on  page  46  of  the
Corporation's Annual Report.



                                 Accrued Pension Benefits at Fiscal Year-End 2006
-----------------------------------------------------------------------------------------------------------------

                                               Number of years         Present value of
                                           credited service as of   accumulated benefit as     Payments during
         Name                Plan name           12/31/06(4)             of 12/31/06          fiscal year 2006
-----------------------------------------------------------------------------------------------------------------
                                                                                       
Michael L. Cox(1)          Pension Plan             11.50                 $ 502,689                $  0
                               SERP                 11.50                   594,981                   0
-----------------------------------------------------------------------------------------------------------------

Mark K. Hardwick(2)        Pension Plan              8.32                    24,671                   0
-----------------------------------------------------------------------------------------------------------------

Michael C. Rechin(3)            N/A                   N/A                       N/A                 N/A
-----------------------------------------------------------------------------------------------------------------

Robert R. Connors(2)       Pension Plan              3.50                    63,427                   0
-----------------------------------------------------------------------------------------------------------------

David W. Spade(3)               N/A                   N/A                       N/A                 N/A
-----------------------------------------------------------------------------------------------------------------



                                       22


      (1)   Mr. Cox is the only Named Executive  Officer who had attained age 55
            and been  credited  with  more  than 10 years  of  service  when the
            Pension  Plan  was  frozen,  so he is the  only  one of them who has
            continued to accrue  benefits  under the plan after that date. He is
            also the only Named  Executive  Officer who has been designated as a
            participant   in  the  SERP.   Mr.  Cox  has  met  the   eligibility
            requirements  for early  retirement - attainment of age 55 and 10 or
            more years of service - and he has elected early retirement on April
            24, 2007.  His monthly  benefits will commence in May 2007 under the
            Pension  Plan  and in  January  2008  under  the  SERP.  His  normal
            retirement  benefits  accrued under both plans will be reduced 5/24%
            for each  month by which  his early  retirement  date  precedes  his
            normal retirement date.

      (2)   Neither Mr.  Hardwick  nor Mr.  Connors had  attained age 55 or been
            credited  with more than 10 years of service  when the Pension  Plan
            was frozen, so their benefits under the plan were frozen.

      (3)   Messrs.  Rechin  and Spade were never  participants  in the  Pension
            Plan.

      (4)   The Named Executive  Officers'  years of credited  service under the
            Pension Plan and the SERP were one fewer than their number of actual
            years of service with the Corporation.

Nonqualified Deferred Compensation Table

In 2006, the Corporation  established the First  Merchants  Corporation  Defined
Contribution  Supplemental  Executive Retirement Plan (the "Defined Contribution
SERP"), a nonqualified  plan that is intended to provide  additional  retirement
benefits  to  designated  executives  whose  benefits  under  the  Corporation's
qualified  Internal Revenue Code Section 401(k) defined  contribution plan - the
First  Merchants  Corporation  Retirement  and Income Savings Plan (the "Section
401(k)  Plan") - are  restricted  due to the limit under  Internal  Revenue Code
Section  401(a)(17) on the amount of  compensation  that can be  considered  for
purposes of calculating pension benefits under a qualified plan. The Corporation
annually  credits a percentage of the  participant's  compensation  (base salary
plus  non-equity  incentive  pay)  for  the  plan  year,  as  determined  by the
Compensation  and Human  Resources  Committee,  to a  deferred  benefit  account
established  for the  participant  under the plan.  No amount is credited to the
participant's account under the Defined Contribution SERP unless the participant
has made  sufficient  contributions  to the Section  401(k) Plan for the year to
entitle the participant to the maximum matching employer contributions under the
Section 401(k) Plan.  Participants  are not permitted to make  contributions  to
their accounts under the Defined Contribution SERP. Participants' interests vest
under the plan upon the earliest of death,  disability,  involuntary termination
except  for  cause,  a  change  of  control  of the  Corporation,  or 5 years of
participation in the plan. Their account balances, including amounts credited to
the accounts,  adjusted for  investment  gain or loss, are payable in 36 monthly
installments following death, disability or separation from service (the initial
payments  are  delayed 6 months  and made  retroactively  if made on  account of
separation from service).  The SERP is unfunded and subject to forfeiture in the
event of bankruptcy.  The Corporation has established a "rabbi" trust,  with the
First Merchants Trust Company,  National Association,  a wholly-owned subsidiary
of the Corporation,  as the trustee.  The Corporation makes annual contributions
to the  trust  to help  pay the  Corporation's  liabilities  under  the  Defined
Contribution  SERP. While  participants may request that these  contributions be
invested  in  accordance   with   investment   options  made  available  by  the
Corporation,  the  Corporation  is under  no  obligation  to  comply  with  such
requests. The accounts' actual investment returns may differ from the returns on
the investments requested by the participants.  Participants may request changes
in the investment  options daily, by submitting  written  investment  allocation
requests to the trustee.

The  following  table  shows the  dollar  amounts  of  contributions,  earnings,
withdrawals,  distributions  and the aggregate  balances of the Named  Executive
Officers'  deferred benefit accounts under the Defined  Contribution  SERP as of
December 31, 2006.


                                       23




                                         Nonqualified Deferred Compensation in 2006
------------------------------------------------------------------------------------------------------------------------

                             Executive        Corporation's        Aggregate         Aggregate
                         contributions in   contributions in      earnings in       withdrawals/   Aggregate balance at
          Name           fiscal year 2006   fiscal year 2006   fiscal year 2006    distributions   fiscal year-end 2006
------------------------------------------------------------------------------------------------------------------------
                                                                                            
Michael L. Cox                  $ 0             $     0                $ 0               $ 0               $     0
------------------------------------------------------------------------------------------------------------------------
Mark K. Hardwick                  0                   0                  0                 0                     0
------------------------------------------------------------------------------------------------------------------------
Michael C. Rechin(1)              0              33,396                  0                 0                33,396
------------------------------------------------------------------------------------------------------------------------
Robert R. Connors                 0                   0                  0                 0                     0
------------------------------------------------------------------------------------------------------------------------
David W. Spade                    0                   0                  0                 0                     0
------------------------------------------------------------------------------------------------------------------------


      (1)   Mr.  Rechin  is the  only  Named  Executive  Officer  who  has  been
            designated as a participant in the Defined  Contribution SERP. Since
            the  Corporation's  contribution  to the plan was made at the end of
            the plan year, his deferred  benefit  account did not experience any
            gain or loss  during  2006.  The  Corporation  credited  12 % of Mr.
            Rechin's compensation (base salary plus non-equity incentive pay) to
            his account for 2006.  This amount is also reported as  compensation
            to Mr. Rechin in the Summary  Compensation  Table on page 16 of this
            proxy statement, in the column headed "All Other Compensation."

Termination of Employment and Change of Control Arrangements

Other than the change of control agreements  described below, the only contract,
agreement, plan or arrangement that provides for payment(s) to a Named Executive
Officer at,  following,  or in connection with any termination,  is an agreement
concerning Mr. Cox's retirement as the President and Chief Executive  Officer of
the Corporation which the Board approved on January 23, 2007. Under the terms of
this agreement, Mr. Cox will retire as the President and Chief Executive Officer
of  the  Corporation  on  April  24,  2007.  He  will  provide  services  to the
Corporation as a nonemployee  consultant  for a period of two years  thereafter,
until the earlier of April 24,  2009 or the date of the 2009  annual  meeting of
shareholders.  Mr. Cox will  report  directly  to Mr.  Rechin  and will  perform
services as requested  by Mr.  Rechin.  These  services are expected to include,
among other  things,  advice and  assistance  with matters  relating to mergers,
acquisitions  and  other  business  expansion  initiatives.  Mr.  Cox will  also
continue to represent the  Corporation as an officer and director of the Indiana
Bankers  Association,  which he  currently  serves as  Chairman  of the Board of
Directors,  and as a director of the Indiana  State  Chamber of Commerce.  These
services are not expected to occupy more than 50% of Mr. Cox's time.  He will be
paid  $175,000  in the first  year and  $100,000  in the  second  year for these
services,  in  substantially  equal monthly  installments.  The  agreement  also
provides that the Nominating  and Governance  Committee will nominate Mr. Cox to
serve as a director  of the  Corporation  for one  additional  three-year  term,
subject  to the  vote of the  shareholders,  commencing  as of the  2007  annual
meeting of  shareholders  and that he will  submit his  written  resignation  as
director  in  January  2009,   effective  as  of  the  2009  annual  meeting  of
shareholders.  The  agreement  also  provides  that Mr. Cox will resign from the
boards of directors of all of the  Corporation's  subsidiaries and affiliates on
which he is currently serving, effective as of the date of his retirement.

The  Corporation  has change of control  agreements  with Messrs.  Cox,  Rechin,
Hardwick  and  Connors,  but not with Mr.  Spade.  These  are  "double  trigger"
agreements,  in that they provide for the payment of  severance  benefits to the
executives  only in the event of both a change of control of the Corporation and
a termination or constructive  termination of the executive's  employment within
24 months after the change of control.  However,  no payment will be made if the
termination  was for cause,  because of the  executive's  death,  disability  or
voluntary retirement,  or by the executive other than on account of constructive
termination.  In general,  a "change of  control"  means an  acquisition  by any
person of 25% or more of the Corporation's voting shares, a change in the makeup
of a majority of the Board over a 24-month  period,  a merger of the Corporation
in which the shareholders before the merger own 50% or less of the Corporation's
voting shares after the merger, or approval by the Corporation's shareholders of
a plan of complete  liquidation  of the  Corporation  or an agreement to sell or
dispose  of  substantially


                                       24


all of the Corporation's assets. A "constructive  termination" means, generally,
a significant  reduction in duties,  compensation or benefits or a relocation of
the  executive's  office outside of the area described in the agreement,  unless
agreed to by the executive.  The change of control  agreements  were not entered
into in response to any effort to acquire  control of the  Corporation,  and the
Board is not aware of any such effort.

Upon the occurrence of the two triggering  events,  a covered  executive will be
entitled, in addition to base salary and incentive  compensation accrued through
the date of termination,  to payment from the  Corporation,  or its successor in
the  event of a  purchase,  merger  or  consolidation,  of a lump sum  severance
benefit in an amount  determined by multiplying  the sum of (1) the  executive's
annual base  salary as in effect on the date the  executive  receives  notice of
termination,  and (2) the  executive's  largest  bonus  under the  Corporation's
Senior Management  Incentive  Compensation  Program during the 2 years preceding
the date of  termination,  by 299% in the cases of  Michael  L. Cox,  Michael C.
Rechin  and Mark K.  Hardwick,  and 200% in the case of Robert R.  Connors.  The
Corporation  will also pay any excise tax imposed on the executive under Section
4999 of the Internal Revenue Code on an "excess parachute payment." In addition,
the  executive's  outstanding  stock  options  will be  cancelled;  and, in lieu
thereof,  the  executive  will  receive a lump sum amount  equal to the  bargain
element value of these  options,  if any. The executive will also be entitled to
outplacement  services,  reasonable legal fees and expenses incurred as a result
of the termination, and life, disability, accident and health insurance coverage
until  the  earlier  of 2  years  following  the  date  of  termination  or  the
executive's  65th birthday.  The insurance  coverage will be similar to what the
executive was receiving immediately prior to the notice of termination,  and the
Corporation  will pay the same percentage of the cost of such coverage as it was
paying on the executive's behalf on the date of such notice.

The following table shows the lump sum severance benefit amounts that would have
been payable to the Named  Executive  Officers if both of the triggering  events
under the change of control  agreements  had occurred on December  31, 2006,  as
well as the bargain  element values of their  outstanding  stock options on that
date,  the  estimated  values of their  life,  disability,  accident  and health
insurance  coverages for 2 years following that date, and the estimated  amounts
of the  excise  tax that  would  have been  imposed  under  Section  4999 of the
Internal Revenue Code on the lump sum severance payments.



                                                  Change of Control Agreements
------------------------------------------------------------------------------------------------------------------------------

                                                                                    Estimated Values of
                                                               Bargain Element           Insurance          Estimated Excise
                                            Severance       Values of Outstanding     Coverages for 2           Tax Under
      Name                 Multiplier     Benefit Amount        Stock Options              years               IRC ss.4999
------------------------------------------------------------------------------------------------------------------------------
                                                                                                 
Michael L. Cox                 299%        $ 1,259,899            $ 456,668               $ 28,988              $ 262,023
------------------------------------------------------------------------------------------------------------------------------
Mark K. Hardwick               299%            675,372               72,849                 36,031                113,694
------------------------------------------------------------------------------------------------------------------------------
Michael C. Rechin              299%            832,117               29,300                 38,319                      0
------------------------------------------------------------------------------------------------------------------------------
Robert R. Connors              200%            437,192               47,390                 35,931                      0
------------------------------------------------------------------------------------------------------------------------------
David W. Spade                 N/A                 N/A                  N/A                    N/A                    N/A
------------------------------------------------------------------------------------------------------------------------------


In the event of a change of control (as defined  above),  all  non-vested  stock
options and restricted  stock awards under the  Corporation's  Long-term  Equity
Incentive Plan will vest. The Named Executive Officers' non-vested stock options
and  restricted  stock  awards  as  of  December  31,  2006  are  shown  in  the
"Outstanding  Equity  Awards at Fiscal  Year-End  2006" table on page 19 of this
proxy  statement.  They  include the  options  granted to Messrs.  Cox,  Rechin,
Hardwick  and Connors on February  10, 2006 for 12,000,  8,000,  7,000 and 4,000
shares, respectively; the options granted to Mr. Rechin on November 21, 2005 for
10,000 shares;  the restricted stock awarded to Messrs.  Cox, Rechin,  Hardwick,
Connors and Spade on February 10, 2006 for 3,400,  2,000, 2,000, 1,400 and 1,400
shares,  respectively;  and, of the 2,000 shares of restricted  stock awarded to
Mr. Rechin on December 22, 2005, the 1,334 shares that still have restrictions.


                                       25


In the event of a change of control,  the  non-vested  deferred stock units that
Messrs.  Cox,  Hardwick  and  Connors  earned for the 2005 fiscal year under the
Corporation's Senior Management Incentive Compensation Program (851, 460 and 467
units, respectively,  shown as stock awards in the "Outstanding Equity Awards at
Fiscal  Year-End 2006" table on page 19 of this proxy  statement) will vest upon
the involuntary termination of their employment, except for cause.

Finally,  in the event of a change of control,  Mr. Rechin's  non-vested benefit
under the Corporation's nonqualified Defined Contribution Supplemental Executive
Retirement Plan (described in the narrative preceding the "Nonqualified Deferred
Compensation"  table  on  page  22 of  this  proxy  statement)  will  vest.  The
Corporation's  nonqualified  defined benefit  Supplemental  Executive Retirement
Plan (described in the narrative  preceding the "Pension Benefits" table on page
21 of this proxy  statement),  which covers Mr. Cox,  does not contain a similar
provision  accelerating  the  vesting of his benefit in the event of a change of
control.

Compensation of Directors

The directors of the  Corporation who are employees of the Corporation or one of
its  subsidiaries  do not receive  separate  compensation  for their services as
directors.  During  2006,  these  employee-directors  included  two of the Named
Executive Officers, Mr. Cox and Mr. Rechin, and Thomas D. McAuliffe.

The non-employee directors received annual retainers of $15,000, plus $3,000 for
each Board  committee on which the director  served and an additional  $2,000 if
the director chaired the committee (an additional $5,000 for the Audit Committee
Chair, Jean L. Wojtowicz); except that: (a) the Chairman of the Board, Robert M.
Smitson,  received an annual  retainer of $50,000 with no retainer for committee
service;  and (b) the annual retainer of the Vice Chairman of the Board, Charles
E.  Schalliol,  was increased to $35,000 in October  2006,  with no retainer for
Committee  service.  Under the provisions of the Corporation's  Long-term Equity
Incentive Plan,  options were granted to each of the  non-employee  directors on
July 1, 2006 to purchase shares of the  Corporation's  common stock. Each option
was for 1,157 shares at an option price of $24.31 per share, the market price on
the date of the grants.

The following table contains information concerning the compensation paid to the
Corporation's  directors,  other  than  the  Named  Executive  Officers  and Mr.
McAuliffe, for their services as directors for 2006. James F. Ault and Robert T.
Jeffares  retired as directors  on April 13,  2006,  the date of the 2006 annual
meeting of shareholders; and Terry L. Walker became a director on July 25, 2006.
Therefore,  their retainers for 2006 were prorated.  Messrs.  Ault, Jeffares and
Walker  were not  eligible  for  grants of  options  to  purchase  shares of the
Corporation's  common stock under the Long-term  Equity  Incentive  Plan in 2006
because they were not serving as directors of the Corporation on July 1, 2006.



                      Director Compensation for 2006 Fiscal Year
------------------------------------------------------------------------------------
                                Fees earned or      Option
       Name                      paid in cash      awards(1)           Total
------------------------------------------------------------------------------------
                                                            
James F. Ault                      $ 8,286          $    0           $ 8,286
------------------------------------------------------------------------------------
Richard A. Boehning(2)              23,000           7,700            30,700
------------------------------------------------------------------------------------
Thomas B. Clark                     26,000           7,700            33,700
------------------------------------------------------------------------------------
Roderick English                    18,000           7,700            25,700
------------------------------------------------------------------------------------
Jo Ann M. Gora                      18,000           7,700            25,700
------------------------------------------------------------------------------------
Barry J. Hudson(2)                  18,000           7,700            25,700
------------------------------------------------------------------------------------
Robert T. Jeffares                   5,143               0              5143
------------------------------------------------------------------------------------
Charles E. Schalliol                25,500           7,700            33,200
------------------------------------------------------------------------------------
Robert M. Smitson                   50,000           7,700            57,700
------------------------------------------------------------------------------------
Terry L. Walker                      8,250               0             8,250
------------------------------------------------------------------------------------
Jean L. Wojtowicz                   24,750           7,700            32,450
------------------------------------------------------------------------------------



                                       26


      (1)   As of the end of 2006  fiscal  year,  the  above  directors  had the
            following aggregate number of option awards outstanding:  Mr. Ault -
            4,628;  Mr.  Boehning - 5,785;  Mr.  Clark - 11,338;  Mr.  English -
            2,314; Dr. Gora - 2,314; Mr. Hudson - 14,164;  Mr. Jeffares - 4,628;
            Mr. Schalliol - 2,314; Mr. Smitson - 11,338; Mr. Walker - 0; and Ms.
            Wojtowicz - 3,471.

      (2)   Mr. Boehning is also a director of Lafayette Bank and Trust Company,
            National Association,  a wholly-owned subsidiary of the Corporation,
            for  which  he  received  a  retainer  of  $19,800  in 2006 and life
            insurance  coverage in the amount of $6,000.  He  deferred  the full
            amount of the retainer under an unfunded deferred  compensation plan
            maintained  by  Lafayette  Bank and  Trust.  Mr.  Hudson is also the
            Chairman  of the  Board  of  Directors  of  First  National  Bank of
            Portland, a wholly-owned subsidiary of the Corporation, and was paid
            $12,000  in 2006  for his  services  in this  capacity,  of which he
            deferred $4,356 under an insurance-funded deferred compensation plan
            maintained by First National.

                        TRANSACTIONS WITH RELATED PERSONS

Certain directors and executive officers of the Corporation and its subsidiaries
and their  associates  are customers  of, and have had  transactions  with,  the
Corporation's  subsidiary  banks  from  time to time in the  ordinary  course of
business.  Additional transactions may be expected to take place in the ordinary
course of  business in the future.  All loans and  commitments  included in such
transactions were made on substantially the same terms, including interest rates
and  collateral,  as those  prevailing  at the time for  comparable  loans  with
persons not related to the lender and did not involve  more than the normal risk
of collectibility or present other unfavorable features.

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

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities  Exchange Act of 1934, as amended,  requires the
Corporation's  directors and executive officers to file reports of ownership and
changes in  ownership  of the  Corporation's  stock  with the SEC.  Based on its
records and the written representations of its directors and executive officers,
the  Corporation  believes  that during  2006 these  persons  complied  with all
Section  16(a) filing  requirements;  except that:  (1) a late Form 4 report was
filed on March 2, 2006 by director  Thomas D. McAuliffe to report sales of 4,000
shares  and  4,485   shares  on  February   18,  2006  and  February  24,  2006,
respectively;  (2) a late Form 4 report  was filed on March 9, 2006 by  director
Thomas B. Clark to report  the  exercise  on March 3, 2006 of an option  granted
under the 1999 Long-term Equity Incentive Plan to purchase 1,042 shares; and (3)
late  Form 4 reports  were  filed on July 31,  2006 by  director  and  executive
officer Michael L. Cox and executive  officers Robert R. Connors and Kimberly J.
Ellington  to report the purchase on June 30, 2006 of 1,059  shares,  264 shares
and 185 shares,  respectively,  under the First Merchants  Corporation  Employee
Stock Purchase Plan.


                                       27


                               INDEPENDENT AUDITOR

Fees for Professional Services Rendered by BKD, LLP

The following  table shows the  aggregate  fees billed by BKD, LLP for audit and
other services rendered to the Corporation for 2005 and 2006.

                                            2005         2006
                                            ----         ----

          Audit Fees                     $ 383,400     $ 397,500
          Audit-Related Fees                76,292        83,911
          Tax Fees                          93,320        77,072
          All Other Fees                    14,230             0
                                         ---------     ---------
             Total Fees                  $ 567,242     $ 558,483
                                         =========     =========

The "Audit Fees" were for professional  services  rendered for the audits of the
Corporation's  consolidated  financial  statements  and  internal  control  over
financial  reporting,  reviews of condensed  consolidated  financial  statements
included  in the  Corporation's  Forms  10-Q,  and  assistance  with  regulatory
filings.

The "Audit-Related  Fees" were for professional  services rendered for audits of
the Corporation's benefit plans.

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

The fees for 2005  under "All Other  Fees" were for  professional  investigatory
services rendered by BKD, LLP at the request of the Audit Committee.

All of the  "Audit-Related  Fees,"  "Tax Fees" and "All Other Fees" for 2005 and
2006 were pre-approved by the Audit Committee in accordance with the Committee's
pre-approval policy described below.

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

Pre-approval Policies and Procedures

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

VOTING ITEM 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR FOR 2007

The Board,  subject to ratification by the shareholders,  has appointed BKD, LLP
as the  Corporation's  independent  auditor for 2007. If the shareholders do not
ratify the appointment of BKD, the Audit Committee and the Board will reconsider
this appointment.  Representatives of the firm are expected to


                                       28


be present at the annual shareholders' meeting. They will have an opportunity to
make a  statement,  if they desire to do so, and are expected to be available to
respond to appropriate questions.

THE BOARD  RECOMMENDS  THAT  SHAREHOLDERS  VOTE  "FOR" THE  RATIFICATION  OF THE
APPOINTMENT OF THE FIRM OF BKD, LLP AS THE CORPORATION'S INDEPENDENT AUDITOR FOR
2007.

                              SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the 2008 annual meeting of
the  shareholders  must be received by the Secretary of the  Corporation  at the
Corporation's  principal  office by November  16,  2007,  for  inclusion  in the
Corporation's 2008 proxy statement and form of proxy relating to that meeting.

Shareholder  proposals,  if any,  intended  to be  presented  at the 2007 annual
meeting that were not submitted for  inclusion in this proxy  statement  will be
considered   untimely  unless  they  were  received  by  the  Secretary  of  the
Corporation at the Corporation's principal office by January 16, 2007.

                                  OTHER MATTERS

The  Corporation is delivering only one set of proxy  materials,  including this
proxy  statement and the annual report,  to shareholders  who,  according to the
Corporation's  records, share an address and whom it believes are members of the
same family.  A separate proxy card is included for each of these  shareholders.
Any shareholder who received only one set of proxy materials,  and who wishes to
receive a separate set now or in the future, may write or call the Corporation's
Shareholder Services Department to request a separate copy of these materials at
First  Merchants  Corporation,  P. O.  Box  792,  Muncie  IN  47308-9915;  (800)
262-4261, extension 27278. Similarly,  shareholders who share an address and are
members of the same family,  and who have received  multiple copies of the proxy
materials,  may write or call the Corporation's  Shareholder Services Department
at the same address and telephone number to request delivery of a single copy of
these materials in the future.

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

The Board and  management  are not aware of any matters to be  presented  at the
annual meeting of the shareholders  other than the election of the directors and
the  ratification  of the  appointment of the  independent  public  accountants.
However,  if  any  other  matters  properly  come  before  such  meeting  or any
adjournment  thereof,  the holders of the proxies are authorized to vote thereon
at their  discretion,  provided the  Corporation did not have notice of any such
matter on or before January 16, 2007.

                                            By Order of the Board of Directors

Muncie, Indiana                             Cynthia G. Holaday
March 15, 2007                              Secretary


                                       29


                       ANNUAL MEETING OF SHAREHOLDERS OF

                          FIRST MERCHANTS CORPORATION

                                 April 24, 2007

                           Please date, sign and mail
                             your proxy card in the
                            envelope provided as soon
                                  as possible.

   |                                                                        |
   v Please detach along perforated line and mail in the envelope provided. v

--------------------------------------------------------------------------------
      THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
                  RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
                  VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
--------------------------------------------------------------------------------

1.    Election of Directors:

                                            NOMINEES:
|_| FOR ALL NOMINEES                        ( ) Michael L. Cox
                                            ( ) Charles E. Schalliol
|_| WITHHOLD AUTHORITY                      ( ) Terry L. Walker
    FOR ALL NOMINEES

|_| FOR ALL EXCEPT
    (See instructions below)

INSTRUCTION: To withhold authority to vote for any individual  nominee(s),  mark
             "FOR ALL EXCEPT"  and fill in the circle  next to each  nominee you
             wish to withhold, as shown here: (X)

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



--------------------------------------------------------------------------------
To change the address on your  account,  please check the box at right
and indicate your new address in the address space above.  Please note       |_|
that  changes  to the  registered  name(s) on the  account  may not be
submitted via this method.
--------------------------------------------------------------------------------

                                                          FOR   AGAINST  ABSTAIN

2.    Proposal to ratify the  appointment of the firm of  |_|     |_|      |_|
      BKD, LLP as the independent auditor for 2007.

3.    In their  discretion,  the  proxies are  authorized  to vote on such other
      matters as may properly come before the meeting,  provided the Corporation
      did not have notice of any such matter on or before January 16, 2007.

This proxy will be voted as directed,  but if not otherwise  directed this proxy
will be voted "FOR" items 1 and 2.

TO  VOTE  IN  ACCORDANCE   WITH  THE  BOARD  OF  DIRECTORS'   AND   MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.

MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING.  |_|

                         _________________________________       _______________

Signature of Shareholder _________________________________ Date: _______________

                         _________________________________       _______________

Signature of Shareholder _________________________________ Date: _______________

   Note: Please sign  exactly as your name or names  appear on this Proxy.  When
         shares are held  jointly,  each holder  should  sign.  When  signing as
         executor,  administrator,  attorney,  trustee or guardian,  please give
         full title as such.  If the signer is a  corporation,  please sign full
         corporate name by duly authorized  officer,  giving full title as such.
         If  signer  is a  partnership,  please  sign  in  partnership  name  by
         authorized person.



                                      PROXY
                           FIRST MERCHANTS CORPORATION
                          PROXY SOLICITED ON BEHALF OF
             THE BOARD OF DIRECTORS OF FIRST MERCHANTS CORPORATION
                         ANNUAL MEETING OF SHAREHOLDERS

                                 APRIL 24, 2007

      The  undersigned  hereby  appoints  Charles  E.  Schalliol  and  Robert M.
Smitson,  and each of them, as proxies with power of substitution,  to represent
and to vote all shares of common stock of First Merchants  Corporation which the
undersigned  would be entitled to vote at the Annual Meeting of  Shareholders of
First Merchants  Corporation to be held at the Horizon  Convention  Center,  401
South High Street,  Muncie, Indiana 47305, at 3:30 PM EST on April 24, 2007, and
at any adjournment thereof, with all of the powers the undersigned would possess
if  personally  present.  If any of the  nominees  for  election as Directors is
unable or declines to serve for any reason,  the persons  listed  above have the
authority to vote for any substitute  nominee named by the Board of Directors of
First Merchants Corporation.

       (Continued, and to be marked, dated and signed on the reverse side)



                       ANNUAL MEETING OF SHAREHOLDERS OF

                          FIRST MERCHANTS CORPORATION

                                 April 24, 2007

                           -------------------------
                           PROXY VOTING INSTRUCTIONS
                           -------------------------

MAIL - Date,  sign and mail your proxy card in the
envelope provided as soon as possible.

                      - OR -

TELEPHONE - Call toll-free 1-800-PROXIES             ---------------------------
(1-800-776-9437) from any touch-tone telephone and   COMPANY NUMBER
follow  the  instructions.  Have your  proxy  card   ---------------------------
available when you call.                             ACCOUNT NUMBER

                      - OR -                         ---------------------------

INTERNET - Access  "www.voteproxy.com"  and follow   ---------------------------
the on-screen  instructions.  Have your proxy card
available when you access the web page.

--------------------------------------------------------------------------------
You may enter your voting  instructions  at  1-800-PROXIES  (1-800-776-9437)  or
www.voteproxy.com  up until 11:59 PM Eastern  Time the day before the cut-off or
meeting date.
--------------------------------------------------------------------------------

|                                                                              |
v   Please detach along perforated line and mail in the envelope provided IF   v
                you are not voting via telephone or the Internet.

--------------------------------------------------------------------------------
      THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
                  RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
                  VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
--------------------------------------------------------------------------------

1.    Election of Directors:

                                            NOMINEES:
|_| FOR ALL NOMINEES                        ( ) Michael L. Cox
                                            ( ) Charles E. Schalliol
|_| WITHHOLD AUTHORITY                      ( ) Terry L. Walker
    FOR ALL NOMINEES

|_| FOR ALL EXCEPT
    (See instructions below)

INSTRUCTION: To withhold authority to vote for any individual  nominee(s),  mark
             "FOR ALL EXCEPT"  and fill in the circle  next to each  nominee you
             wish to withhold, as shown here: (X)
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
To  change  the  address  on your  account,  please  check  the box at right and
indicate your new address in the address  space above.  Please note that changes
to the registered name(s) on the account may not be submitted via this method.
--------------------------------------------------------------------------------

                                                          FOR   AGAINST  ABSTAIN

2.    Proposal to ratify the appointment of the firm of   |_|     |_|      |_|
      BKD, LLP as the independent auditor for 2007.

3.    In their  discretion,  the proxies are authorized
      to vote on such  other  matters  as may  properly
      come before the meeting, provided the Corporation
      did not  have  notice  of any such  matter  on or
      before January 16, 2007.

This proxy will be voted as directed,  but if not otherwise  directed this proxy
will be voted "FOR" items 1 and 2.

TO  VOTE  IN  ACCORDANCE   WITH  THE  BOARD  OF  DIRECTORS'   AND   MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.

                MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING. |_|

                         _________________________________       _______________

Signature of Shareholder _________________________________ Date: _______________

                         _________________________________       _______________

Signature of Shareholder _________________________________ Date: _______________

   Note: Please sign  exactly as your name or names  appear on this Proxy.  When
         shares are held  jointly,  each holder  should  sign.  When  signing as
         executor,  administrator,  attorney,  trustee or guardian,  please give
         full title as such.  If the signer is a  corporation,  please sign full
         corporate name by duly authorized  officer,  giving full title as such.
         If  signer  is a  partnership,  please  sign  in  partnership  name  by
         authorized person.