Exhibit 10.4

                            EMPLOYMENT AGREEMENT

      THIS AGREEMENT is made effective as of the 1st day of January, 2001, by
and between MERCHANTS BANK, a state chartered bank, and MERCHANTS BANCSHARES,
INC., a Delaware corporation, both with principal offices at 275 Kennedy
Drive, South Burlington, Vermont, (hereinafter collectively referred to as
"CORPORATIONS") 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 CORPORATIONS hereby employ 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, 2001, and terminating on December 31, 2003.

      On or before December 31, 2002, the CORPORATIONS shall notify EMPLOYEE
if CORPORATIONS do not intend to renew the Agreement for a one-year term
following its original term.  In the event that the CORPORATIONS do not notify
EMPLOYEE, the Agreement shall renew for a one-year term following its original
term.  Similarly, on each anniversary date thereafter the CORPORATIONS 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 CORPORATIONS have 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
      CORPORATIONS 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
      CORPORATIONS covering all of the CORPORATIONS' 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      subsequently reversed, rescinded or expunged, it shall not constitute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
      CORPORATIONS (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
      CORPORATIONS, 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 CORPORATIONS provided he gives at least
60 days advance written notice to the CORPORATIONS.  The EMPLOYEE shall not be
deemed to have resigned and, instead, shall have been deemed discharged by the
CORPORATIONS, 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 CORPORATIONS (and the CORPORATIONS'
Boards 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 CORPORATIONS 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 CORPORATIONS. Should the CORPORATIONS decide to alter the titles
and/or positions, they 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 CORPORATIONS and shall use his
best efforts, skill and abilities to promote the CORPORATIONS' interests.

      7.    Evaluation:  The EMPLOYEE shall be evaluated annually by the
Boards of the CORPORATIONS and shall receive a written copy of said
evaluation.  Nothing herein shall allow the CORPORATIONS 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 CORPORATIONS shall pay the EMPLOYEE for
all services rendered an initial salary of $                    per annum,
commencing January 1, 2001, 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 CORPORATIONS 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 CORPORATIONS maintain a "CAMELS" rating of 2 or better, and the
CORPORATIONS achieve a target ROE, set annually by the CORPORATIONS Boards of
Directors' Compensation Committee, equal to or greater than specified
percentiles of the ROE achieved by institutions within a defined group of bank
holding companies and banks ("PEER GROUP").  The PEER GROUP will be comprised
of bank holding companies and independent commercial banks located in the
Northeast (New England, New York, Pennsylvania and New Jersey), which have
assets equal to at least 50% but not more than 200% of the assets of Merchants
Bancshares, Inc.  If the targets are met, the EMPLOYEE will receive a minimum
bonus equal to 25% of base salary for the performance year.  The maximum bonus
will not exceed 75% of base salary.

      For the first year of this Agreement the minimum bonus threshold shall
be the 75th percentile of the PEER GROUP.  The maximum bonus threshold will be
the 95th percentile of the PEER GROUP.  Bonus awards between 25% and 75% will
be interpolated (using linear progression).

      10.   Benefits:  The CORPORATIONS 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 CORPORATIONS 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 CORPORATIONS' 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
CORPORATIONS, 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 either of the CORPORATIONS 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 CORPORATIONS are unable to deliver the shares upon which the
EMPLOYEE seeks to exercise his options, for any reason, then the CORPORATIONS
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 CORPORATIONS agree 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
CORPORATIONS' 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 CORPORATIONS 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 CORPORATIONS; (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 CORPORATIONS' 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
CORPORATIONS.

      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 CORPORATIONS, 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 CORPORATIONS of in writing) and mailed by certified return receipt
with postage fully paid.  All notices to the CORPORATIONS 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 CORPORATIONS, 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 Employment Agreement between the CORPORATIONS and the
EMPLOYEE dated effective as of January 1, 1999.

      IN WITNESS WHEREOF, the CORPORATIONS 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:                        CORPORATIONS:

                                       MERCHANTS BANK

                                       By:  __________________________

                                       MERCHANTS BANCSHARES, INC.

                                       By:  __________________________

                                       EMPLOYEE:

                                       _______________________________