Exhibit 10.4

 

EMPLOYMENT AGREEMENT

 

      THIS AGREEMENT is made effective as of the 1st day of January, 2003, by
and between MERCHANTS BANK, a state chartered bank with its principal office at
275 Kennedy Drive, South Burlington, Vermont, (hereinafter referred to as
"CORPORATION") and EMPLOYEE, residing at _________________ (hereinafter referred
to as "EMPLOYEE").

 

WITNESSETH

 

      In consideration of the mutual covenants herein contained, the parties
agree as follows:

 

      1.  Employment:  The CORPORATION hereby employs the EMPLOYEE, and the
EMPLOYEE hereby accepts employment.

 

      2.  Terms and Renewal:  This Agreement shall be for a three-year term
beginning on January 1, 2003, and terminating on December 31, 2005.

 

      On or before December 31, 2004, the CORPORATION shall notify the EMPLOYEE
in writing if the CORPORATION does not intend to renew the Agreement for a
one-year term following its original term. In the event that the CORPORATION
does not so notify the EMPLOYEE, the Agreement shall renew for a one-year term
following its original term. Similarly, on each anniversary date thereafter, the
CORPORATION shall notify the EMPLOYEE in writing if the CORPORATION does not
intend to renew the Agreement. In the event that the CORPORATION does not so
notify the EMPLOYEE, the Agreement shall automatically renew for an additional
one-year term following the then applicable term.

 

      3.  Termination:

 

      3.1  Discharge:  The CORPORATION has the right to discharge the EMPLOYEE
at any time with or without just cause, as herein defined. If the EMPLOYEE is
discharged without just cause, the CORPORATION agrees to pay in one lump sum
upon discharge the EMPLOYEE's salary for one year.

      "Just cause" shall mean (a) misconduct connected with EMPLOYEE's work, if
and as defined in any written policy of the CORPORATION covering all of the
CORPORATION's officers which is now, or subsequently, in effect; or (b) the
conviction of a felony which precludes EMPLOYEE from performing all or an
essential part of his/her duties of employment, provided that, if such
conviction is subsequently reversed, rescinded or expunged, EMPLOYEE's
termination will be treated as if made without just cause.

      3.2  Disability:  In cases of disability, either party may elect to
terminate the employment, subject to the following conditions: (i) the EMPLOYEE
shall receive the

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greater of: (a) the salary and other normal benefits plus incentive payments
which the EMPLOYEE would have received had she been terminated without just
cause; or (b) the benefits payable to, and actually paid to, the EMPLOYEE
arising out of any disability insurance policy covering the EMPLOYEE, and paid
for by the CORPORATION (if said policy benefits are paid other than in a lump
sum payment, the value of the benefits, for purposes of this Agreement, shall be
calculated by using a present value of all payments to be made); and (ii)
EMPLOYEE has suffered a disability as defined below.

      "Disability" shall mean mental or physical incapacity which shall continue
for six (6) months or longer after exhaustion of all sick leave benefits, or a
permanent mental or physical incapacity, either of which makes the performance
of substantially all of the EMPLOYEE's duties impossible, as certified in
writing by the EMPLOYEE's physician. The CORPORATION, in the event of
disagreement, may seek the opinion of a qualified physician to determine if such
disability exists; provided, however, that such physician is Board Certified in
the area of specialty pertinent to the nature and extent of such disability. In
the event of further disagreement, the two physicians shall choose a third
physician, qualified as above, who shall make the determination, which shall be
binding upon the parties.

      4.  Resignation by the EMPLOYEE:  The EMPLOYEE shall have the option of
terminating his/her employment with the CORPORATION provided he/she gives at
least 60 days advance written notice to the CORPORATION. The EMPLOYEE shall not
be deemed to have resigned and, instead, shall be deemed to have been discharged
by the CORPORATION, without just cause, if the EMPLOYEE resigns as a result of:
(i) immoral, unethical or illegal acts or omissions committed by, or which
reasonably appear will be committed by, any director, officer, employee, agent,
or independent contractors of the CORPORATION (and the CORPORATION's Board of
Directors shall not act, after his/her recommendation, to terminate the
offending party(s) or to cease and desist such offending activity); or (ii) acts
or omissions of any director, officer, employee, agent, or independent
contractors of the CORPORATION which could reasonably subject the EMPLOYEE to
personal liability from any Federal, State or local government or agency, or any
banking authority, including, but not limited to, the Federal Deposit Insurance
Corporation, the Internal Revenue Service, or the Securities and Exchange
Commission.

      5.  Offices and Duties:  The EMPLOYEE shall be appointed, and shall serve,
as the _______________________ of the CORPORATION. Should the CORPORATION decide
to alter his/her title and/or position, it must provide the EMPLOYEE with an
essentially equivalent or better position, with equivalent or better salary and
benefits.

      6.  Efforts:  The EMPLOYEE shall devote full-time efforts and energies to
the business and affairs of the CORPORATION and shall use best efforts, skill
and abilities to promote the CORPORATION's interests.

      7.  Evaluation:  The EMPLOYEE shall be evaluated in writing annually by
the President of the CORPORATION and shall receive a copy of said evaluation.
Nothing herein shall allow the CORPORATION to reduce the salary, incentive
payments and other benefits provided for

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herein, nor shall this provision be deemed to allow for the alteration of
EMPLOYEE's duties and authority otherwise set forth in this Agreement; provided,
however, that the performance of a condition within any regulatory order,
memorandum of understanding or requirement shall not be affected by this
provision.

      8.  Salary and Increases:  The CORPORATION shall pay the EMPLOYEE for all
services rendered to the CORPORATION an initial salary of _____________ per
annum, commencing January 1, 2003, and payable on a bi-weekly basis. The salary
will be reviewed annually by the President and may be increased but not
decreased at the discretion of the President. The CORPORATION may also grant the
EMPLOYEE such other compensation, bonuses, benefits, etc., as it may deem proper
from time to time.

      9.  Incentive Payments: An annual bonus will be paid to the Employee
provided that:  (a) Merchants Bank maintains a "CAMELS" rating of 2 or better;
and (b) certain performance targets are met. The method of calculating the
amount of the bonus and the parameters of the performance targets shall be
established annually by the CORPORATION's Board of Directors' Compensation
Committee. For the first year of this Agreement, 2003, the performance targets
and the calculation of the annual bonus will be as follows:

A.  Definitions.

(i)

"Core Net Income" shall mean after-tax net income calculated in accordance with
generally accepted accounting practices consistently applied, adjusted to
exclude extraordinary financial events.

(ii)

"EMPLOYEE's Weekly Pay" shall mean _____________________.

B.  Calculation of Annual Bonus.

The annual bonus shall be determined based upon the amount of Core Net Income of
Merchants Bank for 2003, as follows:

(i)

Core Net Income less than ________________ - no payment;

(ii)

Core Net Income greater than ____________ - payment equal to:

- EMPLOYEE's Weekly Pay; multiplied by

- the number of weeks of pay awarded to employees under the current incentive
plan for Service Center employees of Merchants Bank; multiplied by

- two and one-half (2 1/2).

(iii)

Core Net Income greater than _______________ - payment equal to:

- EMPLOYEE's Weekly Pay; multiplied by

- the number of weeks of pay awarded to employees under the current incentive
plan for Service Center employees of Merchants Bank; multiplied by

- five (5).

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Notwithstanding any other provision herein to the contrary, (a) the foregoing
amounts of Core Net Income shall be limited to operations at the CORPORATION's
offices in operation at the commencement of 2003 and de novo offices opened in
2003, but shall not include Core Net Income resulting from possible mergers or
acquisitions by the CORPORATION, and (b) the total of bonus or incentive
payments to EMPLOYEE for 2003 under this Section 9 shall not exceed the sum of
__________ (50% of EMPLOYEE's annual salary).

      10.  Benefits:  The CORPORATION shall provide the EMPLOYEE with all fringe
benefits (including but not limited to health, life, disability, workers
compensation insurance; vacation and sick pay; pension benefits) offered to
other employees of the CORPORATION in subordinate positions.

      11.  Long Term Incentive/Stock Option Plan:  Each year, the EMPLOYEE will
receive stock options with a "value" equal to 50% of her salary; provided,
however, that no stock options will be awarded to the EMPLOYEE which would
result in the EMPLOYEE holding unexercised stock options which exceed       % of
the issued and outstanding shares of Merchants Bancshares, Inc.

      Notwithstanding the foregoing restriction, if EMPLOYEE holds unexercised
stock options which equal or exceed       % of the issued and outstanding shares
of Merchants Bancshares, Inc. at the time that stock options are to be awarded
during any year, but EMPLOYEE subsequently exercises stock options during such
year, the CORPORATION's Board of Directors' Compensation Committee, with the
approval of the CORPORATION's Board of Directors, may thereafter during such
year award stock options to EMPLOYEE subject to such value and percentage
limitations.

      The stock value is determined by calculating the "Black-Scholes" value.
The exercise price will be determined annually by the CORPORATION's Board of
Directors' Compensation Committee. It is intended that the Committee will set
the exercise price slightly above the then current market price for the stock of
Merchants Bancshares, Inc.

      Options are exercisable at any time after two (2) years from their
original issue date. The term of the options will expire on the earlier of (a)
ten years from the issue date while EMPLOYEE remains employed by the
CORPORATION, or (b) if EMPLOYEE's employment is terminated, then twelve months
after termination of employment.

      If the EMPLOYEE is terminated without just cause or due to disability, or
in the event that any transaction occurs which results in a change of control of
either the CORPORATION or Merchants Bancshares, Inc. from that existing on the
date of this Agreement, the EMPLOYEE may exercise this option immediately upon
the occurrence of any such event or at any other time permitted in the preceding
sub-paragraph. In the event that there is a split of Merchants Bancshares, Inc.
stock, EMPLOYEE's stock options and option price shall be adjusted accordingly,
so as to leave EMPLOYEE in the same relative position as at the time of
commencement of this Agreement with regard to the issued and outstanding shares
of Merchants

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Bancshares, Inc. on the date such action is taken. In the event there is a
public offering of the stock of Merchants Bancshares, Inc. other than pursuant
to a stock option or an employee stock ownership plan, at any time before the
options granted hereby have been fully exercised, then the number of shares
subject to the options granted herein shall be increased so that the total
number of shares purchased and purchasable under these options as increased will
bear the same relationship to the fully-diluted capitalization of the
Corporation immediately after giving effect to completion of the public offering
as the original number of shares purchasable under these options does to the
fully-diluted capitalization of the Corporation at the effective date hereof.
The purchase price for additional shares covered by these options as provided in
the preceding sentence shall be the greater of the purchase price provided for
herein or the purchase price paid by third parties purchasing stock in the
public offering.

      If the CORPORATION is unable to cause to be delivered the shares upon
which the EMPLOYEE seeks to exercise options, for any reason, then the
CORPORATION shall pay to the EMPLOYEE, on the date of exercise, the difference
between the exercise price and the trading price of Merchants Bancshares, Inc.
shares on that day, as traded on the exchange on which said shares are listed.

      In the event that the EMPLOYEE shall become deceased during the period in
which the EMPLOYEE may exercise stock options, as provided above, then the
Estate may exercise said options in the manner provided above; provided,
however, that said options are exercised within six (6) months after EMPLOYEE'S
demise.

      12.  Expenses:  The EMPLOYEE shall be reimbursed for documented business
expense incurred or paid by the EMPLOYEE in connection with the performance of
duties, in the manner currently required by corporate policy.

      13.  Indemnification:  The CORPORATION agrees that, within the limits set
forth in the Vermont Business Corporations Law, it shall hold the EMPLOYEE
harmless for any actions taken by the EMPLOYEE or omissions to act, which, in
either case, he/she reasonably believes to be in the CORPORATION's interests, or
for his/her negligence in connection with such employment. This indemnity shall
include the EMPLOYEE's reasonable attorneys' fees and costs incurred in
defending any such demands, claims, or actions. The indemnity herein provided
shall also include, but in no way be limited to, claims of liability arising for
or on account of those acts or omissions of others described in Paragraph 4 of
this Agreement.

      Notwithstanding the foregoing and except to the extent insurance provides
such indemnity, the CORPORATION shall have no obligation to hold the EMPLOYEE
harmless from (i) any liability he/she may have to any governmental entity with
respect to personal taxes, interest or penalties, unless that liability resulted
from a liability of the CORPORATION; (ii) any claims arising out of, based upon
or attributable to the gaining in fact of any personal profit or advantage to
which the EMPLOYEE is not legally entitled; or (iii) any claim arising out of,
based upon or attributable to the committing of any criminal or deliberately
fraudulent act. Prior to receiving any purported personal profit or advantage,
EMPLOYEE is entitled to receive, at the CORPORATION's expense, an opinion of
counsel that she is legally entitled to receive it.

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      This Paragraph 13 shall not limit any immunity or indemnity provided
EMPLOYEE by law or by the Articles of Association or Bylaws of the CORPORATION.

      14.  Binding Effect:  This Agreement shall inure to the benefit of and be
binding upon the EMPLOYEE, his/her legal representatives, heirs, and
distributee(s), and upon the CORPORATION, its successors and assigns, and also
any subsidiary or affiliate corporation.

      15.  No Waiver:  The waiver of any term or condition of this Agreement
shall not be deemed to constitute the waiver of any other term or condition.

      16.  Notices:  All notices, elections hereunder and similar
communication(s) shall be in writing and shall be sufficient if addressed to the
EMPLOYEE at his/her address shown above (or at any new address of which he/she
shall advise the CORPORATION in writing) and mailed by certified return receipt
with postage fully paid. All notices to the CORPORATION shall be given to the
presiding officer of the Board of Directors.

      17.  Controlling Law and Attorneys' Fees:  Notwithstanding the actual
place of execution, or the state of incorporation of the CORPORATION, this
Agreement shall be governed by the laws of the State of Vermont and the parties
hereto consent to the jurisdiction of the Courts of the State of Vermont.

      In the event of a breach of this Agreement, the non-breaching party shall
be entitled to recover its costs and attorneys' fees from the breaching party.

      18.  Corporate Authority:  The Board of Directors of the CORPORATION has
authorized the President of the CORPORATION to negotiate and execute this
Agreement on behalf of the CORPORATION, and upon request of the EMPLOYEE the
CORPORATION shall furnish its certificate of the Resolution granting such
authority.

      19.  Compliance with Law:  Any and all provisions of this Agreement shall
be consistent and comply with applicable laws or regulations enacted or
promulgated both before and after the execution date of this Agreement, and to
the extent that any provision is inconsistent or does not comply with applicable
laws or regulations, that part which is inconsistent or does not comply shall be
modified to comply with the applicable law or regulation.

      20.  Prior Agreement Superseded:  This Employment Agreement replaces and
supersedes an Employment Agreement between the CORPORATION and the EMPLOYEE
dated effective as of January 1, 2001, as amended by a First Amendment to the
2001 Employment Agreement dated effective as of January 1, 2002.

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      IN WITNESS WHEREOF

, the CORPORATION has caused this Agreement to be executed by its officer
thereunto duly authorized, and the EMPLOYEE has hereunto set his/her hand and
seal, all as of the day and year first above written.

IN PRESENCE OF:

CORPORATION

:

MERCHANTS BANK

_________________________

By:

______________________________

Title:

Name:

EMPLOYEE:

_________________________

__________________________________

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