EMPLOYMENT AGREEMENT

      THIS AGREEMENT is made effective as of the 1st day of January, 1998, 
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 JANET P. SPITLER, residing at 24 Juniper 
Ridge, Shelburne, Vermont 05482 (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, 1998, 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 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            such conviction is subsequently reversed, rescinded or expunged, 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 greater of:  (a) 
            the salary and other normal benefits plus Accrued 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 her employment with the CORPORATION provided 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 her 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 Chief Financial Officer and Treasurer of the 
      CORPORATION.  Should the CORPORATION decide to alter 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 her full-time efforts 
      and energies to the business and affairs of the CORPORATION and shall 
      use her 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 $85,000.00 per annum, commencing January 1, 1998, 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.  Annual Bonus:  An annual bonus will be paid to the EMPLOYEE 
      provided the CORPORATION maintains a "CAMELS" rating of 2 or above, 
      and Merchants Bancshares, Inc. achieves a target ROE, set annually by 
      the CORPORATION's Board of Directors' Compensation Committee, equal to 
      or greater than the median ROE of 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 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 35% 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 set at the ____ percentile of the PEER GROUP.  The maximum 
      bonus threshold will be the ____ percentile of the PEER GROUP.  Bonus 
      awards between ____ and ____ will be interpolated (using linear 
      progression).

            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.  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 her 
      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 her 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 her stock options, as 
      provided above, then her 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 her 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, she reasonably believes to be 
      in the CORPORATION's interests, or for 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 EMPLOYEE shall have the sole right 
      to defend herself against any and all such demands, claims or actions, 
      using counsel of her 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 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 (i.e. [Section Sign] 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 she 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, 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 her 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.

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

IN PRESENCE OF:                        CORPORATION:


                                       MERCHANTS BANK


/s/ Thomas L. Leavitt                  BY:    /s/ Joseph L. Boutin 
/s/ Jennifer L. Varin                  NAME:  Joseph L. Boutin
                                       TITLE: President


                                       EMPLOYEE:


/s/ Thomas S. Leavitt                  /s/ Janet P. Spitler
/s/ Jennifer L. Varin                  JANET P. SPITLER