EXHIBIT 10.13

                            EMPLOYMENT AGREEMENT
                            --------------------
 
      THIS AGREEMENT is made effective as of the 1st day of January, 1997, 
by and among MERCHANTS BANK, a state chartered Bank with its principal 
office at 275 Kennedy Drive, South Burlington, Vermont, MERCHANTS TRUST 
COMPANY, a corporation organized and existing under the laws of the State of 
Vermont with its principal office at 164 College Street (hereinafter 
collectively referred to as "CORPORATION"), and WILLIAM R. HEASLIP, residing 
at 80 Dunder Road, Burlington, Vermont 05401 (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 an initial term 
beginning on January 1, 1997 and terminating on December 31, 1999. 
 
      On December 31, 1998, the CORPORATION shall notify the EMPLOYEE in 
writing if the CORPORATION does not intend to renew the Agreement for a one-
year term following the Initial Term.  In the event that the CORPORATION 
does not so notify the EMPLOYEE, the Agreement shall renew for a one-year 
term following the Initial Term.  Similarly, on each successive December 31 
of a then applicable Term, 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 
      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 greater of:  (a) the salary and other 
      normal benefits plus Accrued 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 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 
recommendation, to terminate the offending party(s) or to cease and desist 
such offending activity); (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 President and Chief Executive Officer of THE MERCHANTS TRUST 
COMPANY.  Should the CORPORATION decide to alter his 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 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 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 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 $95,000.00 per 
annum, commencing January 1, 1997 and payable on a bi-weekly basis.  The 
salary will be reviewed annually by the President and CEO of the Bank and 
may be increased but not decreased at the discretion of the President and 
CEO of the Bank.  The CORPORATION may also grant the EMPLOYEE such other 
compensation, bonuses, benefits, etc., as it may deem proper from time to 
time. 
 
      9.  Annual Bonus:  An annual bonus will be paid to the EMPLOYEE 
provided: (a) Merchants Trust Company maintains a regulatory rating, for the 
first year of this Agreement, of 3 or above, and for subsequent years of 
this Agreement, of 2 or above; and (b) EMPLOYEE achieves certain objectives.  
The amount of the bonus and the objectives will be determined by the 
President and CEO of The Merchants Bank and communicated to the EMPLOYEE 
prior to the end of each year.  For the first year of this Agreement the 
annual bonus will be 10% of the amount by which Merchants Trust Company's 
net profit after tax, adjusted to exclude (a) legal and professional 
expenses and (b) income related to the Piper Jaffray matter, exceeds 
$175,000, with a maximum payout of $25,000. 
 
      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 his salary.  The 
stock value is determined by calculating the "Black-Scholes" value.  The 
exercise price will be determined annually by the CORPORATION's Board of 
Director's Compensation Committee.  It is intended that the Committee will 
set the exercise price slightly above the fair market value. 
 
      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 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 
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 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.'s 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, it shall hold the 
EMPLOYEE harmless for any actions taken by the EMPLOYEE or omissions to act, 
which, in either case, he reasonably believes to be in the CORPORATION's 
interests, 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 EMPLOYEE 
shall have the sole right to defend himself against any and all such 
demands, claims or actions, using counsel of his choosing.  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 (i.e. [SECTION] 941 
Withholding taxes, interest and penalties, assessed against the EMPLOYEE 
through a 100% assessment by the IRS); (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, 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 address shown above (or at any new address of which he 
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 December 29, 1995, with the following 
exception:  The EMPLOYEE shall maintain all rights to incentive payments 
under paragraph 9 of such Employment Agreement through June 30, 1997. 
 
      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 hand and seal, all as of the day and year first above 
written. 
 
IN PRESENCE OF:                        CORPORATION: 
 
                                       MERCHANTS BANK
 
 
/s/ JANET P. SPITLER                   BY: /s/ JOSEPH L. BOUTIN
------------------------------         -------------------------------
                                       NAME: Joseph L. Boutin 
                                       TITLE: President 
 
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                                       MERCHANTS TRUST COMPANY
 
 
/s/ JANET P. SPITLER                   BY: /s/ JOSEPH L. BOUTIN
------------------------------         -------------------------------
                                       NAME: Joseph L. Boutin 
                                       TITLE: Chairman 
 
 
                                       EMPLOYEE: 
 
 
/s/ JANET P. SPITLER                   /s/ WILLIAM R. HEASLIP
------------------------------         -------------------------------
                                       WILLIAM R. HEASLIP

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