SECURITIES AND EXCHANGE COMMISSION
	WASHINGTON, D.C. 20549

	FORM S-8

	 REGISTRATION STATEMENT UNDER THE
	SECURITIES ACT OF 1933

	MERCHANTS BANCSHARES, INC.
	(A DELAWARE CORPORATION)
	EMPLOYER IDENTIFICATION NO. 03-0287342

	164 College Street,  Burlington,  VT  05401
	Telephone:  (802) 658-3400

	Merchants Bancshares, Inc.
	1996 Compensation Plan for Non-Employee Directors
	(Full title of the plan)
	 
	Jennifer L. Varin
	Merchants Bancshares, Inc.
	275 Kennedy Drive
	South Burlington VT  05403
	(Name and address of agent for service)

	(802) 658-3400

	(Telephone number of agent for service)


CALCULATION OF REGISTRATION FEE:
------------------------------------------------------------------------------
              		Proposed   Proposed
Title of        Maximum    Maximum
Securities      Amount     Offering        Aggregate       Amount of
To be           To Be      Price           Offering        Registration
Registered      Registered Per Share       Price           Fee                 

Common Stock    100,000    $26.50 *        $2,650,000      $803.03
$ 0.01 par value
per share

--
---------------------
  * This estimate is made pursuant to Rule 457(h) solely for the purpose of 
determining the registration fee.  The above calculation is based on the 
offering of 100,000 shares at a purchase price of $26.50 per share, which 
purchase price is the average of the high ($27.00) and low ($26.00) prices of 
the Registrant's Common Stock as reported on the Nasdaq National Market on 
September 2, 1997.  In addition, pursuant to Rule 416(c), this registration 
statement also covers an indeterminable amount of interests to be offered or 
sold pursuant to the 1996 Compensation Plan for Non-Employee Directors 
described herein. 

















MERCHANTS BANCSHARES, INC.

INDEX TO FORM S-8

ITEM    PAGE
PART I

Item 1 -  Plan Information.
	Not required to be filed with the Commission 
	pursuant to Rule 424 (Sec. 230.424).

Item 2 - Registrant Information and Employee Plan
	Annual Information.                                  
	Not required to be filed with the Commission
	pursuant to Rule 424 (Sec. 230.424).

PART II

Item 3 - Incorporation of Documents by Reference        1

Item 4 - Description of Securities      1

Item 5 - Interests of Experts and Named Counsel 1

Item 6 - Indemnification of Directors and Officers      1-2

Item 7 - Exemption from Registration Claimed    2

Item 8 - Exhibits       2-3

Item 9 - Undertakings   3

Signatures      4-5
  





ITEM 3:  Incorporation of Documents by Reference:
 
    The following documents filed by Merchants Bancshares, Inc. 
(the "Registrant") are hereby incorporated by reference in this 
Registration Statement:  (1) the Registrant's prospectus, dated  
April 27, 1987, as filed with the SEC on April 27, 1987, pursuant 
to Rule 424(b) of the Securities Act of 1933, as amended; (2) all 
reports previously filed by the Registrant pursuant to Section 
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended 
(the "Exchange Act"), since December 31, 1996; and (3) the 
description of the Common Stock contained in the Registrant's 
Registration Statement on Form S-4 (Registration No. 33-16039), 
filed with the SEC on September 14, 1983, and under Section 12(g) 
of the Exchange Act, including any amendment or report filed for 
the purpose of updating such description.

     In addition, all documents subsequently filed by the 
Registrant pursuant to Sections 13(a), 13(c), 14 and 15(d) of the 
Exchange Act prior to the filing of a post-effective amendment 
which indicates that all securities offered hereby have been sold 
or which deregisters all of such securities then remaining 
unsold, shall be deemed to be incorporated by reference into this 
Registration Statement and to be a part hereof from the date of 
filing of such documents.


ITEM 4:  Description of Securities:  
     A description of the Registrant's Common Stock to be offered 
pursuant to this registration statement is not provided herein 
because the Registrant's Common Stock is registered under Section 
12 of the Exchange Act. 


ITEM 5:  Interests of Named Experts and Counsel:
     Neither the Registrant's independent auditors, Arthur 
Andersen LLP nor any individual employed by or associated with 
such firm in a professional capacity, was employed by the 
Registrant in connection with matters described in this 
registration statement on a contingent basis or has, or is to 
receive in connection with this offering, a substantial interest, 
direct or indirect, in the Registrant or was connected with the 
Registrant as a promoter, managing underwriter (or any principal 
underwriter, if there are no managing underwriters), voting 
trustee, director, officer or employee.


ITEM 6:  Indemnification of Directors and Officers.

     Section 145 of the Delaware General Corporation Law empowers 
a Delaware corporation to indemnify its officers and directors 
and certain other persons to the extent and under the 
circumstances set forth therein.

     The Restated Certificate of Incorporation of the Registrant 
and the Amended By-laws of the Registrant provide for 
indemnification of officers and directors of the Registrant and 
certain other persons against liabilities and expenses incurred 
by any of them in certain stated proceedings and under certain 
stated conditions. 

     The Registrant intends to maintain insurance for the benefit 
of its directors and officers insuring such persons against 
certain liabilities, including liabilities under the securities 
law.

ITEM 7: Exemption from Registration:  Not applicable.

ITEM 8:  Exhibits
     The following exhibits are part of this Registration 
Statement:
     
     4.1  Restated Certificate of Incorporation of the Registrant 
(Incorporated by reference to Exhibit B to Pre-Effective 
Amendment No. 1  to the Registrant's Definitive Proxy 
Statement for the Annual meeting of the Stockholders of the 
Registrant), filed on April 25, 1987.

    4.2   Amended By-Laws of the Registrant, filed on April 25, 
1987 as Exhibit C to the Registrant's Proxy Statement. 

     5    Opinion and Consent of Bingham, Dana & Gould LLP as to 
the legality of the securities registered.

   23.1   Consent of Bingham, Dana and Gould LLP included in 
Exhibit 5.

   23.2   Consent of Arthur Andersen LLP.

   10.1  1996 Compensation Plan for Non-Employee Directors.
 
   

ITEM 9:  Undertakings:
     The undersigned Registrant hereby undertakes:

1) To file, during any period in which offers or sales are 
being made, a post-effective amendment to this 
Registration Statement to include any material 
information with respect to the plan of distribution not 
previously disclosed in this Registration Statement or 
any material change to such information in this 
Registration Statement;

2) That, for the purpose of determining any liability under 
the Securities Act of 1933, each such post-effective 
amendment shall be deemed to be a new registration 
statement relating to the securities offered therein, and 
the offering of such securities at that time shall be 
deemed to be the initial bona fide offering thereof;

3) To remove from registration by means of a post-effective 
amendment any of the securities being registered that 
remain unsold at the termination of the offering;

4) That, for purposes of determining any liability under the 
Securities Act of 1933, each filing of the Registrant's 
annual report pursuant to Section 13(a) or 15(d) of the 
Securities Exchange Act of 1934 that is incorporated by 
reference in this Registration Statement shall be deemed 
to be a new registration statement relating to the 
securities offered therein, and the offering of such 
securities at that time shall be deemed to be the initial 
bona fide offering thereof; and 

5) Insofar as indemnification for liabilities arising under 
the Securities Act of 1933 may be permitted to directors, 
officers and controlling persons of the registrant 
pursuant to the foregoing provisions, or otherwise, the 
Registrant has been advised that in the opinion of the 
Securities and Exchange Commission such indemnification 
is against public policy as expressed in the Securities 
Act of 1933 and is, therefore, unenforceable.  In the 
event that a claim for indemnification against such 
liabilities (other than the payment by the Registrant of 
expenses incurred or paid by a director, officer or 
controlling person of the Registrant in the successful 
defense of any action, suit or proceeding) is asserted by 
such director, officer or controlling person in 
connection with the securities being registered, the 
Registrant will, unless in the opinion of its counsel the 
matter has been settled by controlling precedent, submit 
to a court of appropriate jurisdiction the questions 
whether such indemnification by it is against public 
policy as expressed in the Securities Act of 1933 and 
will be governed by the final adjudication of such issue.




MERCHANTS BANCSHARES, INC.

	FORM S-8

	AUGUST 28, 1997

	SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant 
certifies that it has reasonable grounds to believe that it meets all of the 
requirements for filing on Form S-8 and has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of 
South Burlington, State of Vermont, on August 28, 1997



Merchants Bancshares, Inc.
/s/ Joseph L. Boutin
Joseph L. Boutin, President




























    Pursuant to the requirements of the Securities Act of 1933, the directors
have duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of South Burlington,
State of Vermont, on August 28, 1997.

1996 Compensation Plan for Non-Employee Directors


/s/ Raymond C. Pecor, Jr.                       /s/Joseph L. Boutin
Raymond C. Pecor, Jr.                           Joseph L. Boutin
Chairman of the Board                           President and CEO   


/s/ Peter A. Bouyea                             __________________
Peter A. Bouyea                                 Charles A. Davis
Director                                        Director
   

/s/ Jeffrey L. Davis                            /s/ Michael G. Furlong
Jeffrey L. Davis                                Michael G. Furlong
Director                                        Director


/s/ Leo O'Brien, Jr.                             /s/ Patrick S. Robins
Leo O'Brien, Jr                                 Patrick S. Robins
Director                                        Director


/s/ Benjamin F. Schweyer                        /s/ Robert A. Skiff
Benjamin F. Schweyer                            Robert A. Skiff
Director                                        Director


/s/ Janet P. Spitler
Janet P. Spitler
Vice President and Treasurer












			 EXHIBIT INDEX 

EXHIBIT NO.        DESCRIPTION OF DOCUMENTS

	4.1     Restated Certificate of Incorporation of the Registrant 
(Incorporated by reference to Exhibit B to Pre-Effective Amendment 
No. 1 to the Registrant's Definitive Proxy Statement for the Annual 
Meeting of the Stockholders of the Registrant, filed on April 25, 1987).

	4.2     Amended By-Laws of the Registrant, (Incorporated by 
reference to Exhibit C to the Registrant's Definitive Proxy 
Statement for the Annual Meeting of the Stockholders of the 
Registrant, filed on April 25, 1987.

	5       Opinion and Consent of Bingham, Dana & Gould LLP as to the 
legality of the securities being registered.
	      
	10.1    1996 Compensation Plan for Non-Employee Directors. 

  23.1  Consent of Bingham, Dana & Gould, LLP included in 
Exhibit 5.
	    
  23.2  Consent of Arthur Andersen LLP.

  


 
EXHIBIT 5
September 2, 1997

Merchants Bancshares, Inc.
275 Kennedy Drive
Burlington VT  05403

      Re:  Registration Statement on Form S-8
	   Under the Securities Act of 1933, as Amended
	   --------------------------------------------

Ladies and Gentlemen:
     
     We have acted as counsel for Merchants Bancshares, Inc., a 
Delaware corporation (the "Company"), in connection with the 
Company's Registration Statement on Form S-8 proposed to be filed 
with the Securities and Exchange Commission on or about September 
3, 1997 (the "Registration Statement").  

     The Registration Statement covers the registration of 
100,000 shares of common stock, $0.01 par value per share, of the 
Company (the "Shares"), which may be issued by the Company 
pursuant to the Company's 1996 Compensation Plan for Non-Employee
Directors (the "Plan"). 

     We have reviewed the corporate proceedings taken by the 
Company with respect to the authorization of the Plan and the 
issuance of the Shares thereunder.  We have also examined and 
relied upon originals or copies of such agreements, instruments, 
corporate records, certificates, and other documents as we have 
deemed necessary or appropriate to enable us to express the 
opinions rendered hereby.  In our examination, we have assumed 
the genuineness of all signatures, the conformity to the 
originals of all documents reviewed by us as copies, the 
authenticity and completeness of all original documents reviewed 
by us in original or copy form, and the legal competence of each 
individual executing any document.

     We further assume that all Shares issued under the Plan will 
be issued in accordance with the terms of the Plan.

     Subject to the limitations set forth below, we have made 
such examination of law as we have deemed necessary for the 
purposes of this opinion.  This opinion is limited solely to the 
Delaware General Corporation Law as applied by courts located in 
Delaware, to the extent that it may apply to or govern the 
transactions that are the subject of this opinion.

     Based upon and subject to the foregoing, we are of the 
opinion that the Shares, when issued and delivered pursuant to 
the Plan will be validly issued, fully paid, and non-assessable.


     We hereby consent to the filing of this opinion with the 
Securities and Exchange Commission as an exhibit to the 
Registration Statement.

			       Very truly yours,



			       /s/ BINGHAM, DANA & GOULD LLP




EXHIBIT 23.2
	    
	CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

     As independent public accountants, we hereby consent to the 
incorporation by reference in this Form S-8 Registration 
Statement pursuant to Merchants Bancshares, Inc. 1996 Compensation Plan for
Non-Employee Directors  of our report dated January 16, 1997 incorporated by 
reference in the Form 10-K of Merchants Bancshares, Inc. for the 
year ended December 31, 1996 and to all references to our Firm 
included in this Registration Statement.



				/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
August 27, 1997



EXHIBIT 10.1


MERCHANTS BANCSHARES, INC.
1996 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS




TABLE OF CONTENTS

	SECTION 1        PURPOSE
	1.1     Purpose

	SECTION 2       ADMINISTRATION
	2.1     Management Committee 
	
	SECTION 3       PARTICIPATION
	3.1     Participating Directors

	SECTION 4       DEFERRED COMPENSATION   
	4.1     Maximum Number of Shares
	4.2     Adjustment to Number of Shares

	SECTION 5       COMPENSATION    
	5.1     Amount of Compensation
	5.2     Compensation Election
	5.3     Plan Year

	SECTION 6       DEFERRED COMPENSATION   
	6.1     Deferred Common Stock

	SECTION 7       GENERAL PROVISIONS
	7.1     Issuance of Common Stock
	7.2     Unfunded Obligation
	7.3     Beneficiary; Family Transfer
	7.4     Permanent Disability
	7.5     Nonassignment
	7.6     Termination and Amendment
	7.7     Applicable Law
	7.8     Effective Date and Term of the Plan
	7.9     Compliance With Rule 16b-3 of the Exchange Act





MERCHANTS BANCSHARES, INC.
1996 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

SECTION 1  PURPOSE
1.1 Purpose
	The name of the Plan shall be the Merchants Bancshares, Inc. 
l996 Compensation Plan for Non-Employee Directors (the "Plan"). 
The purpose of the Plan is to provide a compensation program for 
non-employee directors ("Participating Directors") of Merchants 
Bancshares, Inc. (the "Company") that will attract and retain 
highly qualified individuals to serve as members of the Company's 
board of directors (the "Board"). The Plan Participating 
Directors are to receive their Compensation for service on the 
Board in the form of cash, shares of Company common stock, par 
value $0.01 per share, subject to restrictions as described 
below, ("Common Stock") or any combination of the foregoing. For 
purposes of the Plan, the term "Compensation" shall mean any and 
all fees earned by a Participating Director for each regular or 
special meeting and for any committee meetings attended.
SECTION 2 ADMINISTRATION
2.1 Management Committee
	Subject to Section 7.7, the Plan shall be administered by a 
management committee (the "Committee") consisting of the Chief 
Executive Officer of the Company and such other senior officers 
as the Chief Executive Officer shall designate. The Committee 
shall interpret the Plan, shall prescribe, amend and rescind 
rules relating to it from time to time as it deems proper and in 
the best interests of the Company, and shall take any other 
action necessary for the administration of the Plan. Any decision 
or interpretation adopted by the Committee shall be final and 
conclusive and shall be binding upon all Directors.
SECTION 3  PARTICIPATION
3.1 Participants
	Each person who is a non-employee Director of the Company, 
or of its subsidiary The Merchants Bank (the "Bank"), on the 
Effective Date (as defined below) of the Plan shall become a 
Participating Director on the Effective Date. Any other 
individual shall become a Participating Director immediately upon 
becoming a Director of the Company or the Bank. 
SECTION 4  DEFERRED COMPENSATION
4.1 Maximum Number of Shares
	Subject to Section 4.2, the maximum number of shares of 
Common Stock which may at any time be awarded under the Plan is 
100,000 shares of Common Stock. Awards may be made from shares 
held in the Company's treasury or out of authorized but unissued 
shares of the Company, or partly out of each, as shall be 
determined by the Committee.
4.2 Adjustment to Number of Shares
	In the event of a recapitalization, stock split, 
stock dividend, exchange of shares, merger, reorganization, 
change in corporate structure or shares of the Company or similar 
event, the Board, upon recommendation of the Committee, may make 
appropriate adjustments to the number of shares (i) authorized 
for the Plan, and (ii) allocated under the Stock Election (as 
defined in Section 6).
SECTION 5  COMPENSATION
5.1 Amount of Compensation
	Each Director's compensation ("Compensation") shall be 
determined in accordance with the Company's by-laws and shall be 
paid, unless deferred pursuant to Section 6, according to the 
ordinary practices of the Company (the "Payment Date"), unless 
otherwise determined by the Committee.
5.2 Compensation Election
	Prior to each Plan Year (as defined below) and subject to 
such deadlines as may be established by the Committee from time 
to time, each Participating Director may elect to receive all or 
any portion of his or her compensation for such Year in the form 
of shares of common stock subject to the restrictions described 
in Section 6 below (a "Stock Election"), provided that a Stock 
Election may not be made so as to apply to any fractional share. 
If no election is received by the Company, the Participating 
Director shall be deemed to have made an election to receive his 
or her Compensation in undeferred cash. An election under this 
Section 5.2 shall be irrevocable and shall apply to the 
Compensation earned during the Plan Year (as defined below) for 
which the election is effective.
5.3 Plan Year
	The term "Plan Year" shall mean the calendar year, except 
that the first Plan year shall begin on July 1, 1997 and shall 
end on December 31, 1997.
SECTION 6  STOCK ELECTION
6.1 Deferred Common Stock
	(a) If a Participating Director makes a Stock Election, then 
the day on which he or she would have received cash in the 
absence of such election shall be a "Measurement Date."  On 
each Measurement Date, the Committee or its delegate shall 
calculate the number of shares of Common Stock ("Shares") by: 
		(i) dividing the cash the Participating Director would 
have received on such date by the "Per Share Price", as defined 
below (the number of Shares so determined being the "Basic 
Shares"), and 
		(ii) multiplying the number of Basic Shares by the 
"Risk Premium", as defined below, rounding any fractional Share 
thus determined up to the nearest whole number (the number of 
Shares so determined being the "Pay-Out Shares").
	On the Measurement Date, the Pay-out Shares shall be issued 
or otherwise transferred to the Participating Director or to a 
trustee, via ledger transfer or such other method as is 
determined by the Committee, or may be set aside as an unfunded 
obligation to deliver shares in the future, subject to the 
restriction that the Participating Director may not sell, 
transfer or otherwise dispose of the Shares, except as provided 
in Section 7.3 below, prior to the fifth anniversary of the 
applicable Measurement Date.  Shares subject to such an election 
shall, until such fifth anniversary, be hereinafter referred to 
as "Restricted Shares."
	For example, if a Participating Director who is otherwise 
entitled to cash fees of $900 on September 1, 1997 has made a 
Stock Election with respect to the entire amount of the fee, and 
if the Per Share Price is then $18, and the Committee has 
declared a Risk Premium of 1.2 for that Plan Year, then the 
Director shall receive 60 Restricted Shares (($900/18) x 1.2), 
which cannot be sold or otherwise transferred by the 
Participating Director until September 1, 2002.
	(b) For purposes of this Section 6, 
		(i) the "Per Share Price" on any Measurement Date 
shall mean the price at the close of trading on that day, and
		(ii) the "Risk Premium" applicable during any Plan 
Year, shall be a number, no less than 1.0 and no greater than 
1.25, determined prior to the applicable Plan Year by the 
Committee both to reflect the investment and other risks assumed 
by the Participating Director in making the Stock Election and to 
provide a reasonable inducement to the Director for making such 
election.
	To the extent the number of Shares issued or otherwise 
transferred to a Participating Director on any Measurement Date 
exceeds the number of Basic Shares, because of the application of 
a Risk Premium greater than 1.0, such excess Shares shall be 
referred to as "Risk Premium Shares".
	(c) Notwithstanding the transfer restrictions provided 
above, a Participating Director shall at all times enjoy full 
voting and dividend rights in respect of Shares which have been 
issued or otherwise transferred to the Participating Director as 
a result of a Stock Election, provided that any Share or other 
security of the Company or the Bank which is issued or otherwise 
transferred to the Participating Director as a dividend on or 
other distribution in regard to a Restricted Share (a 
"Distributed Security") shall be subject to the same 
restriction on transfer that is applicable to such Restricted 
Share.
	(d) If a Participating Director: 
		(i) resigns his position voluntarily without the 
consent of a majority of the remaining members of the Board, or 
		(ii) is forced to resign from the Board for "Cause" 
as provided in the Company's By-Laws, 
then, the Director shall forfeit all his or her Restricted Shares 
which are Risk Premium Shares, as well as any Distributed 
Securities which derived from Risk Premium Shares.
	(e) If any Restricted Shares or Distributed Securities are 
actually delivered to the possession of the Participating 
Director, they shall bear an appropriate legend.
	(f) The Committee, in its discretion, may accelerate the 
distribution of the Participating Director's Restricted Shares in 
the event of the Participating Director's death or Permanent 
Disability, or upon its determination that the Participating 
Director (or his or her Beneficiary in the case of his or her 
death) has incurred a severe financial hardship. The Committee in 
making its determination may consider such factors and require 
such information as it deems appropriate.

SECTION 7  GENERAL PROVISIONS
7.1 Issuance of Common Stock
	The Company shall not be required to issue any certificate 
for shares of Common Stock prior to:
	(a) obtaining any approval or ruling from the Securities and 
Exchange Commission, the Internal Revenue Service or any other 
governmental agency which the Company, in its sole discretion, 
deems necessary or advisable;
	(b) listing the shares on any stock exchange on which the 
Common Stock may then be listed; or
	(c) completing any registration or other qualification of 
such shares under any federal or state laws, rulings or 
regulations of any governmental body which the Company, in its 
sole discretion, determines to be necessary or advisable.
	All certificates for shares of Common Stock delivered under 
the Plan also shall be subject to such stop transfer orders and 
other restrictions as the Committee may deem advisable under the 
rules, regulations and other requirements of the Securities and 
Exchange Commission, any stock exchange upon which Common Stock 
is then listed and any applicable federal or state securities 
laws, and the Committee may cause a legend or legends to be 
placed on any such certificates to make appropriate reference to 
such restrictions. The foregoing provisions of this paragraph 
shall not be effective if and to the extent that the shares of 
Common Stock delivered under the Plan are covered by an effective 
and current registration statement under the Securities Act of 
1933, as amended, or if and so long as the Committee determines 
that application of such provisions is no longer required or 
desirable. In making such determination, the Committee may rely 
upon an opinion of counsel for the Company.
7.2 Unfunded Obligation
	Any deferred amount to be paid to Participating Directors 
pursuant to the Plan is an unfunded obligation of the Company. 
The Company is not required to segregate any monies from its 
general funds, to create any trusts, or to make any special 
deposits with respect to this obligation. Beneficial ownership of 
any investments, including trust investments that the Company may 
make to fulfill this obligation shall at all times remain in the 
Company. Any investments and the creation or maintenance of any 
trust or memorandum accounts shall not create or constitute a 
trust or a fiduciary relationship between the Committee or the 
Company and a Participating Director, or otherwise create any 
vested or beneficial interest in any Participating Director or 
the Participating Director's Beneficiary or the Participating 
Director's creditors in any assets of the Company whatsoever. The 
Participating Directors shall have no claim against the Company 
for any changes in the value of any assets that may be invested 
or reinvested by the Company with respect to the Plan.
7.3 Beneficiary; Family Transfer
	(a)  Beneficiary.  The term "Beneficiary" shall mean the 
person or persons to whom payments are to be paid pursuant to the 
terms of the Plan in the event of the Participating Director's 
death. The designation shall be on a form provided by the 
Committee, executed by the Participating Director, and delivered 
to the Committee. 
	(b)  Family Transfer.  A Participating Director shall be 
entitled to convey his or her Restricted Shares to a spouse, 
parent, child, grandchild, other family member or dependent 
reasonably acceptable to the Company or to a Trust for the 
benefit of any such individual (in each case, a "Family 
Transferee"), provided that:
		(i)  the Family Transferee shall have delivered to the 
Company a voting trust document or other document satisfactory to 
the Company conveying to the Participating Director or the 
Company (or, if the Company is restricted from exercising a vote, 
to a trustee selected by the Company) all rights with respect to 
the voting of such Restricted Shares;
		(ii)  such Family Transferee shall be subject to all 
the terms and conditions of any agreement as to the Restricted 
Shares as would have been applicable to the Participating 
Director from time to time;
		(iii)  such Family Transferee has duly executed a copy 
of any agreement as to the Restricted Shares that has been 
executed by such Participating Director; and
		(iv)  all references in this Plan and any agreement to 
the Participating Director shall apply to the Family Transferee 
with respect to the Restricted Shares so transferred.
	In connection with a divorce, decree of separate maintenance 
or other arrangement involving an adjustment of marital rights, 
if a Participating Director is required to transfer all or a 
portion of his Restricted Shares to his spouse, the Company shall 
have the right to purchase from the Participating Director all 
such Restricted Shares, unless the Participating Director files 
with the Company a copy, executed by his or her spouse, of any 
Agreement as to the Restricted Shares executed by the 
Participating Director, and an irrevocable proxy of unlimited 
duration, signed by his or her spouse, giving the Participating 
Director exclusive power to act on all matters concerning the 
Restricted Shares and this Plan.
7.4 Permanent Disability
	A Participating Director shall be deemed to have become 
disabled for purposes of the Plan if the Committee finds, upon 
the basis of medical evidence satisfactory to it, that the 
Participating Director is totally disabled, whether due to 
physical or mental condition, so as to be prevented from engaging 
in further service to the Company or any of its subsidiaries and 
that such disability will be permanent and continuous during the 
remainder of the Participating Director's life.
7.5 Nonassignment
	The right of a Participating Director or Beneficiary to the 
payment of any amounts under the Plan may not be assigned, 
transferred, pledged or encumbered, nor shall such right or other 
interests be subject to attachment, garnishment, execution or 
other legal process.
7.6 Termination and Amendment
	The Board may from time to time amend, suspend or terminate 
the Plan, in whole or in part, and if the Plan is suspended or 
terminated, the Board may reinstate any or all of its provisions. 
No amendment, suspension or termination may impair the right of a 
Participating Director or the Participating Director's designated 
Beneficiary to receive benefits accrued prior to the effective 
date of such amendment, suspension or termination. The Committee 
may amend the Plan, without Board approval, to ensure that the 
Company may obtain any regulatory approval or to accomplish any 
other reasonable purpose, provided that the Committee may not 
effect a change that would materially increase the cost of the 
Plan to the Company. Notwithstanding the foregoing, the Board and 
the Committee may not amend the Plan without the approval of the 
stockholders of the Company to: (i) materially increase the 
number of shares of Common Stock that may be issued under the 
Plan, (ii) materially modify the eligibility for participation in 
the Plan, or (iii) otherwise materially increase the benefits 
accruing to the Participating Directors under the Plan.
	The Plan shall not be amended more than once every six 
months, other than to comport with changes in the Internal 
Revenue Code, the Employee Retirement Income Security Act, or the 
rules thereunder.
7.7 Applicable Law
	The Plan shall be construed and governed in accordance with 
the laws of the State of Vermont.
7.8 Effective Date and Term of the Plan
	The Plan shall be effective as of May 22, 1997 (the 
"Effective Date"), provided that the Plan is approved by the 
Company's stockholders within the earlier of the date the 
Company's next annual meeting of stockholders or twelve (12) 
months after the date the Plan is adopted by the Board. To the 
extent required for compliance with Section 16(b) of the Exchange 
Act and rules promulgated thereunder, shares of Common Stock 
distributed to Participating Directors may not be sold until a 
date at least six (6) months after the date such stockholder 
approval is obtained, or if earlier, such other date allowed by 
Section 16(b) of the Exchange Act or rules promulgated 
thereunder. The Plan shall terminate ten (10) years after the 
approval of the Plan by the stockholders of the Company.
7.9 Compliance With Rule 16b-3 of the Exchange Act
	The Company's intention is that, so long as any of the 
Company's equity securities are registered pursuant to Section 
12(b) or 12(g) of the Exchange Act, with respect to awards of 
Common Stock, the Plan shall comply in all respects with Rule 
16b-3 promulgated under Section 16(b) of the Exchange Act. If any 
Plan provision is later found not to be in compliance with Rule 
16b-3 of the Exchange Act, that provision shall be deemed 
modified as necessary to meet the requirements of Rule 16b-3.
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SECURITIES AND EXCHANGE COMMISSION
	WASHINGTON, D.C. 20549

	FORM S-8

	 REGISTRATION STATEMENT UNDER THE
	SECURITIES ACT OF 1933

	MERCHANTS BANCSHARES, INC.
	(A DELAWARE CORPORATION)
	EMPLOYER IDENTIFICATION NO. 03-0287342

	164 College Street,  Burlington,  VT  05401
	Telephone:  (802) 658-3400

	Merchants Bancshares, Inc.
	1996 Compensation Plan for Non-Employee Directors
	(Full title of the plan)
	 
	Jennifer L. Varin
	Merchants Bancshares, Inc.
	275 Kennedy Drive
	South Burlington VT  05403
	(Name and address of agent for service)

	(802) 658-3400

	(Telephone number of agent for service)

CALCULATION OF REGISTRATION FEE:
------------------------------------------------------------------------------
              		Proposed   Proposed
Title of        Maximum    Maximum
Securities      Amount     Offering        Aggregate       Amount of
To be           To Be      Price           Offering        Registration
Registered      Registered Per Share       Price           Fee                 

Common Stock    100,000    $26.50 *        $2,650,000      $803.03
$ 0.01 par value
per share

--
---------------------
  * This estimate is made pursuant to Rule 457(h) solely for the purpose of 
determining the registration fee.  The above calculation is based on the 
offering of 100,000 shares at a purchase price of $26.50 per share, which 
purchase price is the average of the high ($27.00) and low ($26.00) prices of 
the Registrant's Common Stock as reported on the Nasdaq National Market on 
September 2, 1997.  In addition, pursuant to Rule 416(c), this registration 
statement also covers an indeterminable amount of interests to be offered or 
sold pursuant to the 1996 Compensation Plan for Non-Employee Directors 
described herein. 

MERCHANTS BANCSHARES, INC.

INDEX TO FORM S-8

ITEM    PAGE
PART I

Item 1 -  Plan Information.
	Not required to be filed with the Commission 
	pursuant to Rule 424 (Sec. 230.424).

Item 2 - Registrant Information and Employee Plan
	Annual Information.                                  
	Not required to be filed with the Commission
	pursuant to Rule 424 (Sec. 230.424).

PART II

Item 3 - Incorporation of Documents by Reference        1

Item 4 - Description of Securities      1

Item 5 - Interests of Experts and Named Counsel 1

Item 6 - Indemnification of Directors and Officers      1-2

Item 7 - Exemption from Registration Claimed    2

Item 8 - Exhibits       2-3

Item 9 - Undertakings   3

Signatures      4-5
  

ITEM 3:  Incorporation of Documents by Reference:
 
    The following documents filed by Merchants Bancshares, Inc. 
(the "Registrant") are hereby incorporated by reference in this 
Registration Statement:  (1) the Registrant's prospectus, dated  
April 27, 1987, as filed with the SEC on April 27, 1987, pursuant 
to Rule 424(b) of the Securities Act of 1933, as amended; (2) all 
reports previously filed by the Registrant pursuant to Section 
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended 
(the "Exchange Act"), since December 31, 1996; and (3) the 
description of the Common Stock contained in the Registrant's 
Registration Statement on Form S-4 (Registration No. 33-16039), 
filed with the SEC on September 14, 1983, and under Section 12(g) 
of the Exchange Act, including any amendment or report filed for 
the purpose of updating such description.

     In addition, all documents subsequently filed by the 
Registrant pursuant to Sections 13(a), 13(c), 14 and 15(d) of the 
Exchange Act prior to the filing of a post-effective amendment 
which indicates that all securities offered hereby have been sold 
or which deregisters all of such securities then remaining 
unsold, shall be deemed to be incorporated by reference into this 
Registration Statement and to be a part hereof from the date of 
filing of such documents.

ITEM 4:  Description of Securities:  
     A description of the Registrant's Common Stock to be offered 
pursuant to this registration statement is not provided herein 
because the Registrant's Common Stock is registered under Section 
12 of the Exchange Act. 

ITEM 5:  Interests of Named Experts and Counsel:
     Neither the Registrant's independent auditors, Arthur 
Andersen LLP nor any individual employed by or associated with 
such firm in a professional capacity, was employed by the 
Registrant in connection with matters described in this 
registration statement on a contingent basis or has, or is to 
receive in connection with this offering, a substantial interest, 
direct or indirect, in the Registrant or was connected with the 
Registrant as a promoter, managing underwriter (or any principal 
underwriter, if there are no managing underwriters), voting 
trustee, director, officer or employee.

ITEM 6:  Indemnification of Directors and Officers.

     Section 145 of the Delaware General Corporation Law empowers 
a Delaware corporation to indemnify its officers and directors 
and certain other persons to the extent and under the 
circumstances set forth therein.

     The Restated Certificate of Incorporation of the Registrant 
and the Amended By-laws of the Registrant provide for 
indemnification of officers and directors of the Registrant and 
certain other persons against liabilities and expenses incurred 
by any of them in certain stated proceedings and under certain 
stated conditions. 

     The Registrant intends to maintain insurance for the benefit 
of its directors and officers insuring such persons against 
certain liabilities, including liabilities under the securities 
law.

ITEM 7: Exemption from Registration:  Not applicable.

ITEM 8:  Exhibits
     The following exhibits are part of this Registration 
Statement:
     
     4.1  Restated Certificate of Incorporation of the Registrant 
(Incorporated by reference to Exhibit B to Pre-Effective 
Amendment No. 1  to the Registrant's Definitive Proxy 
Statement for the Annual meeting of the Stockholders of the 
Registrant), filed on April 25, 1987.

    4.2   Amended By-Laws of the Registrant, filed on April 25, 
1987 as Exhibit C to the Registrant's Proxy Statement. 

     5    Opinion and Consent of Bingham, Dana & Gould LLP as to 
the legality of the securities registered.

   23.1   Consent of Bingham, Dana and Gould LLP included in 
Exhibit 5.

   23.2   Consent of Arthur Andersen LLP.

   10.1  1996 Compensation Plan for Non-Employee Directors.
 
   

ITEM 9:  Undertakings:
     The undersigned Registrant hereby undertakes:

1) To file, during any period in which offers or sales are 
being made, a post-effective amendment to this 
Registration Statement to include any material 
information with respect to the plan of distribution not 
previously disclosed in this Registration Statement or 
any material change to such information in this 
Registration Statement;

2) That, for the purpose of determining any liability under 
the Securities Act of 1933, each such post-effective 
amendment shall be deemed to be a new registration 
statement relating to the securities offered therein, and 
the offering of such securities at that time shall be 
deemed to be the initial bona fide offering thereof;

3) To remove from registration by means of a post-effective 
amendment any of the securities being registered that 
remain unsold at the termination of the offering;

4) That, for purposes of determining any liability under the 
Securities Act of 1933, each filing of the Registrant's 
annual report pursuant to Section 13(a) or 15(d) of the 
Securities Exchange Act of 1934 that is incorporated by 
reference in this Registration Statement shall be deemed 
to be a new registration statement relating to the 
securities offered therein, and the offering of such 
securities at that time shall be deemed to be the initial 
bona fide offering thereof; and 

5) Insofar as indemnification for liabilities arising under 
the Securities Act of 1933 may be permitted to directors, 
officers and controlling persons of the registrant 
pursuant to the foregoing provisions, or otherwise, the 
Registrant has been advised that in the opinion of the 
Securities and Exchange Commission such indemnification 
is against public policy as expressed in the Securities 
Act of 1933 and is, therefore, unenforceable.  In the 
event that a claim for indemnification against such 
liabilities (other than the payment by the Registrant of 
expenses incurred or paid by a director, officer or 
controlling person of the Registrant in the successful 
defense of any action, suit or proceeding) is asserted by 
such director, officer or controlling person in 
connection with the securities being registered, the 
Registrant will, unless in the opinion of its counsel the 
matter has been settled by controlling precedent, submit 
to a court of appropriate jurisdiction the questions 
whether such indemnification by it is against public 
policy as expressed in the Securities Act of 1933 and 
will be governed by the final adjudication of such issue.

MERCHANTS BANCSHARES, INC.

	FORM S-8

	AUGUST 28, 1997

	SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant 
certifies that it has reasonable grounds to believe that it meets all of the 
requirements for filing on Form S-8 and has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of 
South Burlington, State of Vermont, on August 28, 1997

Merchants Bancshares, Inc.
/s/ Joseph L. Boutin
Joseph L. Boutin, President

    Pursuant to the requirements of the Securities Act of 1933, the directors
have duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of South Burlington,
State of Vermont, on August 28, 1997.

1996 Compensation Plan for Non-Employee Directors

/s/ Raymond C. Pecor, Jr.                       /s/Joseph L. Boutin
Raymond C. Pecor, Jr.                           Joseph L. Boutin
Chairman of the Board                           President and CEO   

/s/ Peter A. Bouyea                             __________________
Peter A. Bouyea                                 Charles A. Davis
Director                                        Director
   

/s/ Jeffrey L. Davis                            /s/ Michael G. Furlong
Jeffrey L. Davis                                Michael G. Furlong
Director                                        Director

/s/ Leo O'Brien, Jr.                             /s/ Patrick S. Robins
Leo O'Brien, Jr                                 Patrick S. Robins
Director                                        Director

/s/ Benjamin F. Schweyer                        /s/ Robert A. Skiff
Benjamin F. Schweyer                            Robert A. Skiff
Director                                        Director

/s/ Janet P. Spitler
Janet P. Spitler
Vice President and Treasurer

			 EXHIBIT INDEX 

EXHIBIT NO.        DESCRIPTION OF DOCUMENTS

	4.1     Restated Certificate of Incorporation of the Registrant 
(Incorporated by reference to Exhibit B to Pre-Effective Amendment 
No. 1 to the Registrant's Definitive Proxy Statement for the Annual 
Meeting of the Stockholders of the Registrant, filed on April 25, 1987).

	4.2     Amended By-Laws of the Registrant, (Incorporated by 
reference to Exhibit C to the Registrant's Definitive Proxy 
Statement for the Annual Meeting of the Stockholders of the 
Registrant, filed on April 25, 1987.

	5       Opinion and Consent of Bingham, Dana & Gould LLP as to the 
legality of the securities being registered.
	      
	10.1    1996 Compensation Plan for Non-Employee Directors. 

  23.1  Consent of Bingham, Dana & Gould, LLP included in 
Exhibit 5.
	    
  23.2  Consent of Arthur Andersen LLP.

  

 
EXHIBIT 5
September 2, 1997

Merchants Bancshares, Inc.
275 Kennedy Drive
Burlington VT  05403

      Re:  Registration Statement on Form S-8
	   Under the Securities Act of 1933, as Amended
	   --------------------------------------------

Ladies and Gentlemen:
     
     We have acted as counsel for Merchants Bancshares, Inc., a 
Delaware corporation (the "Company"), in connection with the 
Company's Registration Statement on Form S-8 proposed to be filed 
with the Securities and Exchange Commission on or about September 
3, 1997 (the "Registration Statement").  

     The Registration Statement covers the registration of 
100,000 shares of common stock, $0.01 par value per share, of the 
Company (the "Shares"), which may be issued by the Company 
pursuant to the Company's 1996 Compensation Plan for Non-Employee
Directors (the "Plan"). 

     We have reviewed the corporate proceedings taken by the 
Company with respect to the authorization of the Plan and the 
issuance of the Shares thereunder.  We have also examined and 
relied upon originals or copies of such agreements, instruments, 
corporate records, certificates, and other documents as we have 
deemed necessary or appropriate to enable us to express the 
opinions rendered hereby.  In our examination, we have assumed 
the genuineness of all signatures, the conformity to the 
originals of all documents reviewed by us as copies, the 
authenticity and completeness of all original documents reviewed 
by us in original or copy form, and the legal competence of each 
individual executing any document.

     We further assume that all Shares issued under the Plan will 
be issued in accordance with the terms of the Plan.

     Subject to the limitations set forth below, we have made 
such examination of law as we have deemed necessary for the 
purposes of this opinion.  This opinion is limited solely to the 
Delaware General Corporation Law as applied by courts located in 
Delaware, to the extent that it may apply to or govern the 
transactions that are the subject of this opinion.

     Based upon and subject to the foregoing, we are of the 
opinion that the Shares, when issued and delivered pursuant to 
the Plan will be validly issued, fully paid, and non-assessable.

     We hereby consent to the filing of this opinion with the 
Securities and Exchange Commission as an exhibit to the 
Registration Statement.

			       Very truly yours,

			       /s/ BINGHAM, DANA & GOULD LLP

EXHIBIT 23.2
	    
	CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

     As independent public accountants, we hereby consent to the 
incorporation by reference in this Form S-8 Registration 
Statement pursuant to Merchants Bancshares, Inc. 1996 Compensation Plan for
Non-Employee Directors  of our report dated January 16, 1997 incorporated by 
reference in the Form 10-K of Merchants Bancshares, Inc. for the 
year ended December 31, 1996 and to all references to our Firm 
included in this Registration Statement.

				/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
August 27, 1997

EXHIBIT 10.1

MERCHANTS BANCSHARES, INC.
1996 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

TABLE OF CONTENTS

	SECTION 1        PURPOSE
	1.1     Purpose

	SECTION 2       ADMINISTRATION
	2.1     Management Committee 
	
	SECTION 3       PARTICIPATION
	3.1     Participating Directors

	SECTION 4       DEFERRED COMPENSATION   
	4.1     Maximum Number of Shares
	4.2     Adjustment to Number of Shares

	SECTION 5       COMPENSATION    
	5.1     Amount of Compensation
	5.2     Compensation Election
	5.3     Plan Year

	SECTION 6       DEFERRED COMPENSATION   
	6.1     Deferred Common Stock

	SECTION 7       GENERAL PROVISIONS
	7.1     Issuance of Common Stock
	7.2     Unfunded Obligation
	7.3     Beneficiary; Family Transfer
	7.4     Permanent Disability
	7.5     Nonassignment
	7.6     Termination and Amendment
	7.7     Applicable Law
	7.8     Effective Date and Term of the Plan
	7.9     Compliance With Rule 16b-3 of the Exchange Act

MERCHANTS BANCSHARES, INC.
1996 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

SECTION 1  PURPOSE
1.1 Purpose
	The name of the Plan shall be the Merchants Bancshares, Inc. 
l996 Compensation Plan for Non-Employee Directors (the "Plan"). 
The purpose of the Plan is to provide a compensation program for 
non-employee directors ("Participating Directors") of Merchants 
Bancshares, Inc. (the "Company") that will attract and retain 
highly qualified individuals to serve as members of the Company's 
board of directors (the "Board"). The Plan Participating 
Directors are to receive their Compensation for service on the 
Board in the form of cash, shares of Company common stock, par 
value $0.01 per share, subject to restrictions as described 
below, ("Common Stock") or any combination of the foregoing. For 
purposes of the Plan, the term "Compensation" shall mean any and 
all fees earned by a Participating Director for each regular or 
special meeting and for any committee meetings attended.
SECTION 2 ADMINISTRATION
2.1 Management Committee
	Subject to Section 7.7, the Plan shall be administered by a 
management committee (the "Committee") consisting of the Chief 
Executive Officer of the Company and such other senior officers 
as the Chief Executive Officer shall designate. The Committee 
shall interpret the Plan, shall prescribe, amend and rescind 
rules relating to it from time to time as it deems proper and in 
the best interests of the Company, and shall take any other 
action necessary for the administration of the Plan. Any decision 
or interpretation adopted by the Committee shall be final and 
conclusive and shall be binding upon all Directors.
SECTION 3  PARTICIPATION
3.1 Participants
	Each person who is a non-employee Director of the Company, 
or of its subsidiary The Merchants Bank (the "Bank"), on the 
Effective Date (as defined below) of the Plan shall become a 
Participating Director on the Effective Date. Any other 
individual shall become a Participating Director immediately upon 
becoming a Director of the Company or the Bank. 
SECTION 4  DEFERRED COMPENSATION
4.1 Maximum Number of Shares
	Subject to Section 4.2, the maximum number of shares of 
Common Stock which may at any time be awarded under the Plan is 
100,000 shares of Common Stock. Awards may be made from shares 
held in the Company's treasury or out of authorized but unissued 
shares of the Company, or partly out of each, as shall be 
determined by the Committee.
4.2 Adjustment to Number of Shares
	In the event of a recapitalization, stock split, 
stock dividend, exchange of shares, merger, reorganization, 
change in corporate structure or shares of the Company or similar 
event, the Board, upon recommendation of the Committee, may make 
appropriate adjustments to the number of shares (i) authorized 
for the Plan, and (ii) allocated under the Stock Election (as 
defined in Section 6).
SECTION 5  COMPENSATION
5.1 Amount of Compensation
	Each Director's compensation ("Compensation") shall be 
determined in accordance with the Company's by-laws and shall be 
paid, unless deferred pursuant to Section 6, according to the 
ordinary practices of the Company (the "Payment Date"), unless 
otherwise determined by the Committee.
5.2 Compensation Election
	Prior to each Plan Year (as defined below) and subject to 
such deadlines as may be established by the Committee from time 
to time, each Participating Director may elect to receive all or 
any portion of his or her compensation for such Year in the form 
of shares of common stock subject to the restrictions described 
in Section 6 below (a "Stock Election"), provided that a Stock 
Election may not be made so as to apply to any fractional share. 
If no election is received by the Company, the Participating 
Director shall be deemed to have made an election to receive his 
or her Compensation in undeferred cash. An election under this 
Section 5.2 shall be irrevocable and shall apply to the 
Compensation earned during the Plan Year (as defined below) for 
which the election is effective.
5.3 Plan Year
	The term "Plan Year" shall mean the calendar year, except 
that the first Plan year shall begin on July 1, 1997 and shall 
end on December 31, 1997.
SECTION 6  STOCK ELECTION
6.1 Deferred Common Stock
	(a) If a Participating Director makes a Stock Election, then 
the day on which he or she would have received cash in the 
absence of such election shall be a "Measurement Date."  On 
each Measurement Date, the Committee or its delegate shall 
calculate the number of shares of Common Stock ("Shares") by: 
		(i) dividing the cash the Participating Director would 
have received on such date by the "Per Share Price", as defined 
below (the number of Shares so determined being the "Basic 
Shares"), and 
		(ii) multiplying the number of Basic Shares by the 
"Risk Premium", as defined below, rounding any fractional Share 
thus determined up to the nearest whole number (the number of 
Shares so determined being the "Pay-Out Shares").
	On the Measurement Date, the Pay-out Shares shall be issued 
or otherwise transferred to the Participating Director or to a 
trustee, via ledger transfer or such other method as is 
determined by the Committee, or may be set aside as an unfunded 
obligation to deliver shares in the future, subject to the 
restriction that the Participating Director may not sell, 
transfer or otherwise dispose of the Shares, except as provided 
in Section 7.3 below, prior to the fifth anniversary of the 
applicable Measurement Date.  Shares subject to such an election 
shall, until such fifth anniversary, be hereinafter referred to 
as "Restricted Shares."
	For example, if a Participating Director who is otherwise 
entitled to cash fees of $900 on September 1, 1997 has made a 
Stock Election with respect to the entire amount of the fee, and 
if the Per Share Price is then $18, and the Committee has 
declared a Risk Premium of 1.2 for that Plan Year, then the 
Director shall receive 60 Restricted Shares (($900/18) x 1.2), 
which cannot be sold or otherwise transferred by the 
Participating Director until September 1, 2002.
	(b) For purposes of this Section 6, 
		(i) the "Per Share Price" on any Measurement Date 
shall mean the price at the close of trading on that day, and
		(ii) the "Risk Premium" applicable during any Plan 
Year, shall be a number, no less than 1.0 and no greater than 
1.25, determined prior to the applicable Plan Year by the 
Committee both to reflect the investment and other risks assumed 
by the Participating Director in making the Stock Election and to 
provide a reasonable inducement to the Director for making such 
election.
	To the extent the number of Shares issued or otherwise 
transferred to a Participating Director on any Measurement Date 
exceeds the number of Basic Shares, because of the application of 
a Risk Premium greater than 1.0, such excess Shares shall be 
referred to as "Risk Premium Shares".
	(c) Notwithstanding the transfer restrictions provided 
above, a Participating Director shall at all times enjoy full 
voting and dividend rights in respect of Shares which have been 
issued or otherwise transferred to the Participating Director as 
a result of a Stock Election, provided that any Share or other 
security of the Company or the Bank which is issued or otherwise 
transferred to the Participating Director as a dividend on or 
other distribution in regard to a Restricted Share (a 
"Distributed Security") shall be subject to the same 
restriction on transfer that is applicable to such Restricted 
Share.
	(d) If a Participating Director: 
		(i) resigns his position voluntarily without the 
consent of a majority of the remaining members of the Board, or 
		(ii) is forced to resign from the Board for "Cause" 
as provided in the Company's By-Laws, 
then, the Director shall forfeit all his or her Restricted Shares 
which are Risk Premium Shares, as well as any Distributed 
Securities which derived from Risk Premium Shares.
	(e) If any Restricted Shares or Distributed Securities are 
actually delivered to the possession of the Participating 
Director, they shall bear an appropriate legend.
	(f) The Committee, in its discretion, may accelerate the 
distribution of the Participating Director's Restricted Shares in 
the event of the Participating Director's death or Permanent 
Disability, or upon its determination that the Participating 
Director (or his or her Beneficiary in the case of his or her 
death) has incurred a severe financial hardship. The Committee in 
making its determination may consider such factors and require 
such information as it deems appropriate.

SECTION 7  GENERAL PROVISIONS
7.1 Issuance of Common Stock
	The Company shall not be required to issue any certificate 
for shares of Common Stock prior to:
	(a) obtaining any approval or ruling from the Securities and 
Exchange Commission, the Internal Revenue Service or any other 
governmental agency which the Company, in its sole discretion, 
deems necessary or advisable;
	(b) listing the shares on any stock exchange on which the 
Common Stock may then be listed; or
	(c) completing any registration or other qualification of 
such shares under any federal or state laws, rulings or 
regulations of any governmental body which the Company, in its 
sole discretion, determines to be necessary or advisable.
	All certificates for shares of Common Stock delivered under 
the Plan also shall be subject to such stop transfer orders and 
other restrictions as the Committee may deem advisable under the 
rules, regulations and other requirements of the Securities and 
Exchange Commission, any stock exchange upon which Common Stock 
is then listed and any applicable federal or state securities 
laws, and the Committee may cause a legend or legends to be 
placed on any such certificates to make appropriate reference to 
such restrictions. The foregoing provisions of this paragraph 
shall not be effective if and to the extent that the shares of 
Common Stock delivered under the Plan are covered by an effective 
and current registration statement under the Securities Act of 
1933, as amended, or if and so long as the Committee determines 
that application of such provisions is no longer required or 
desirable. In making such determination, the Committee may rely 
upon an opinion of counsel for the Company.
7.2 Unfunded Obligation
	Any deferred amount to be paid to Participating Directors 
pursuant to the Plan is an unfunded obligation of the Company. 
The Company is not required to segregate any monies from its 
general funds, to create any trusts, or to make any special 
deposits with respect to this obligation. Beneficial ownership of 
any investments, including trust investments that the Company may 
make to fulfill this obligation shall at all times remain in the 
Company. Any investments and the creation or maintenance of any 
trust or memorandum accounts shall not create or constitute a 
trust or a fiduciary relationship between the Committee or the 
Company and a Participating Director, or otherwise create any 
vested or beneficial interest in any Participating Director or 
the Participating Director's Beneficiary or the Participating 
Director's creditors in any assets of the Company whatsoever. The 
Participating Directors shall have no claim against the Company 
for any changes in the value of any assets that may be invested 
or reinvested by the Company with respect to the Plan.
7.3 Beneficiary; Family Transfer
	(a)  Beneficiary.  The term "Beneficiary" shall mean the 
person or persons to whom payments are to be paid pursuant to the 
terms of the Plan in the event of the Participating Director's 
death. The designation shall be on a form provided by the 
Committee, executed by the Participating Director, and delivered 
to the Committee. 
	(b)  Family Transfer.  A Participating Director shall be 
entitled to convey his or her Restricted Shares to a spouse, 
parent, child, grandchild, other family member or dependent 
reasonably acceptable to the Company or to a Trust for the 
benefit of any such individual (in each case, a "Family 
Transferee"), provided that:
		(i)  the Family Transferee shall have delivered to the 
Company a voting trust document or other document satisfactory to 
the Company conveying to the Participating Director or the 
Company (or, if the Company is restricted from exercising a vote, 
to a trustee selected by the Company) all rights with respect to 
the voting of such Restricted Shares;
		(ii)  such Family Transferee shall be subject to all 
the terms and conditions of any agreement as to the Restricted 
Shares as would have been applicable to the Participating 
Director from time to time;
		(iii)  such Family Transferee has duly executed a copy 
of any agreement as to the Restricted Shares that has been 
executed by such Participating Director; and
		(iv)  all references in this Plan and any agreement to 
the Participating Director shall apply to the Family Transferee 
with respect to the Restricted Shares so transferred.
	In connection with a divorce, decree of separate maintenance 
or other arrangement involving an adjustment of marital rights, 
if a Participating Director is required to transfer all or a 
portion of his Restricted Shares to his spouse, the Company shall 
have the right to purchase from the Participating Director all 
such Restricted Shares, unless the Participating Director files 
with the Company a copy, executed by his or her spouse, of any 
Agreement as to the Restricted Shares executed by the 
Participating Director, and an irrevocable proxy of unlimited 
duration, signed by his or her spouse, giving the Participating 
Director exclusive power to act on all matters concerning the 
Restricted Shares and this Plan.
7.4 Permanent Disability
	A Participating Director shall be deemed to have become 
disabled for purposes of the Plan if the Committee finds, upon 
the basis of medical evidence satisfactory to it, that the 
Participating Director is totally disabled, whether due to 
physical or mental condition, so as to be prevented from engaging 
in further service to the Company or any of its subsidiaries and 
that such disability will be permanent and continuous during the 
remainder of the Participating Director's life.
7.5 Nonassignment
	The right of a Participating Director or Beneficiary to the 
payment of any amounts under the Plan may not be assigned, 
transferred, pledged or encumbered, nor shall such right or other 
interests be subject to attachment, garnishment, execution or 
other legal process.
7.6 Termination and Amendment
	The Board may from time to time amend, suspend or terminate 
the Plan, in whole or in part, and if the Plan is suspended or 
terminated, the Board may reinstate any or all of its provisions. 
No amendment, suspension or termination may impair the right of a 
Participating Director or the Participating Director's designated 
Beneficiary to receive benefits accrued prior to the effective 
date of such amendment, suspension or termination. The Committee 
may amend the Plan, without Board approval, to ensure that the 
Company may obtain any regulatory approval or to accomplish any 
other reasonable purpose, provided that the Committee may not 
effect a change that would materially increase the cost of the 
Plan to the Company. Notwithstanding the foregoing, the Board and 
the Committee may not amend the Plan without the approval of the 
stockholders of the Company to: (i) materially increase the 
number of shares of Common Stock that may be issued under the 
Plan, (ii) materially modify the eligibility for participation in 
the Plan, or (iii) otherwise materially increase the benefits 
accruing to the Participating Directors under the Plan.
	The Plan shall not be amended more than once every six 
months, other than to comport with changes in the Internal 
Revenue Code, the Employee Retirement Income Security Act, or the 
rules thereunder.
7.7 Applicable Law
	The Plan shall be construed and governed in accordance with 
the laws of the State of Vermont.
7.8 Effective Date and Term of the Plan
	The Plan shall be effective as of May 22, 1997 (the 
"Effective Date"), provided that the Plan is approved by the 
Company's stockholders within the earlier of the date the 
Company's next annual meeting of stockholders or twelve (12) 
months after the date the Plan is adopted by the Board. To the 
extent required for compliance with Section 16(b) of the Exchange 
Act and rules promulgated thereunder, shares of Common Stock 
distributed to Participating Directors may not be sold until a 
date at least six (6) months after the date such stockholder 
approval is obtained, or if earlier, such other date allowed by 
Section 16(b) of the Exchange Act or rules promulgated 
thereunder. The Plan shall terminate ten (10) years after the 
approval of the Plan by the stockholders of the Company.
7.9 Compliance With Rule 16b-3 of the Exchange Act
	The Company's intention is that, so long as any of the 
Company's equity securities are registered pursuant to Section 
12(b) or 12(g) of the Exchange Act, with respect to awards of 
Common Stock, the Plan shall comply in all respects with Rule 
16b-3 promulgated under Section 16(b) of the Exchange Act. If any 
Plan provision is later found not to be in compliance with Rule 
16b-3 of the Exchange Act, that provision shall be deemed 
modified as necessary to meet the requirements of Rule 16b-3.