EXHIBIT 10.4

                            EMPLOYMENT AGREEMENT
                            --------------------

      THIS AGREEMENT is made effective as of the 1st day of January, 1999, by
and between MERCHANTS BANK, a state chartered bank, with principal offices at
275 Kennedy Drive, South Burlington, Vermont, (hereinafter collectively
referred to as "CORPORATION") and ____________, 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, 1999, and terminating on December 31, 2001.

      On or before December 31, 2000, the CORPORATION shall notify EMPLOYEE if
CORPORATION do not intend to renew the Agreement for a one-year term following
its original term.  In the event that the CORPORATION do not notify EMPLOYEE,
the Agreement shall renew for a one-year term following its original term.
Similarly, on each anniversary date thereafter the CORPORATION shall notify
EMPLOYEE if they do not intend to renew the Agreement, and upon a failure to
do so 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 agree to
      pay in one lump sum 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' officers or directors 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
      duties of employment, provided that, if such conviction is subsequently
      reversed, rescinded or expunged, it shall not constitute just cause for
      termination.

           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 greater of: (a) the salary and other normal
      benefits plus incentive payments which the EMPLOYEE would have received
      had he 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 employment with the CORPORATION provided he gives at least 60
days advance written notice to the CORPORATION.  The EMPLOYEE shall not be
deemed to have resigned and, instead, shall have been deemed 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 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/or
elected, and shall serve, as the _______________________of the CORPORATION for
the term of his employment hereunder. Should the CORPORATION decide to alter
the titles and/or positions, 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 his full-time efforts and
energies to the business and affairs of the CORPORATION and shall use his best
efforts, skill and abilities to promote the CORPORATION'S interests.

      7.   Evaluation:  The EMPLOYEE shall be evaluated annually by
____________________________ and shall receive a written copy of said
evaluation.  Nothing herein shall allow the CORPORATION to reduce the salary,
incentive payments and other benefits provided for herein, nor shall this
provision be deemed to allow for the alteration of EMPLOYEE's duties and
authority otherwise set forth in this Agreement.

      8.   Salary and Increases:  The CORPORATION shall pay the EMPLOYEE for
all services rendered an initial salary of __________ per annum, commencing
January 1, 1999, and payable on a bi-weekly basis.  The annual salary will be
reviewed annually by the Board and may be increased but not decreased at the
discretion of the Board.  The CORPORATION may also grant the EMPLOYEE such
other compensation, bonuses, benefits, etc., as they may deem proper from time
to time.

      9.   Annual Bonus:  An annual bonus will be paid to the EMPLOYEE
provided the CORPORATION maintains a "CAMELS" rating of 2 or better, and the
CORPORATION achieves certain objectives.

      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, but
shall provide EMPLOYEE with five (5) weeks per year of vacation.

      11.  Long Term Incentive/Stock Option Plan:  Each year, the EMPLOYEE
will receive stock options with a "value" equal to 50% of his 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.  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 his
disability, or in the event that any transaction occurs which results in a
change of control of the CORPORATION from that existing on the date of this
Agreement, the EMPLOYEE may exercise these options 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 the stock of Merchants
Bancshares, Inc., 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 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 Merchants Bancshares, Inc. immediately
after giving effect to completion of the public offering as the original
number of shares purchasable under these option does to the fully-diluted
capitalization of Merchants Bancshares, Inc. 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 deliver the shares upon which the
EMPLOYEE seeks to exercise his 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 his stock options, as provided above, then
his 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
his 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 and Delaware General
Corporation Law, as applicable, they shall hold the EMPLOYEE harmless for any
actions taken by the EMPLOYEE in what he reasonably believes to be in the
CORPORATION'S interests or for his omission to so act or for his 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 Section 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 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 he is legally entitled
to receive it.

      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 legal representatives, heirs, and
distributee(s), and upon the CORPORATION, their successors and assigns, and
also any subsidiary or affiliated 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 address as shown above (or at any new address as he shall
advise the CORPORATION of 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 their Boards of Directors.

      17.  Controlling Law and Attorneys' Fees:  Notwithstanding the actual
place of execution, or the states 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.  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.

      19.  Prior Agreement Superseded:  This Employment Agreement replaces
and supersedes an Amended Employment Agreement between the CORPORATION and
the EMPLOYEE dated effective as of _______.

      IN WITNESS WHEREOF, the CORPORATION have caused this Agreement to be
executed by directors or officers thereunto duly authorized, and the EMPLOYEE
has hereunto set his hand and seal, all effective as of the day and year first
above written.

IN PRESENCE OF:                        CORPORATION


                                       MERCHANTS BANK



                                       BY:
-----------------------------              ---------------------------------


                                       MERCHANTS BANCSHARES, INC.



                                       BY:
-----------------------------              ---------------------------------


                                       EMPLOYEE


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