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.
	Long-Term Incentive Stock Option Plan
		(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    400,000         $26.50 *       $10,600,000      $3,212.12
$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 400,000 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 Long-Term Incentive/Stock Option Plan 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 number 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 Merchants Bancshares, Inc. 1996 Stock Option Plan.
10.2 Merchants Bancshares, Inc. Stock Option Agreement.
 

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.



			1


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.

Long-Term Incentive/Stock Option Plan


/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








				5



			 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 Merchants Bancshares, Inc.  1996 Stock Option Plan.
10.2 Merchants Bancshares, Inc. Stock Option Agreement

  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 
400,000 shares of common stock, $0.01 par value per share, of the 
Company (the "Shares"), which may be issued by the Company upon 
exercise of certain stock options, granted by the Company 
pursuant to the Company's 1996 Long Term Incentive Stock Option 
Plan (the "Plan").   

     We have reviewed the corporate proceedings taken by the 
Company with respect to the authorization of the grants 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 upon exercise of 
options granted or to be granted pursuant to the Plan will be 
issued in accordance with the terms of such options (where 
applicable) and 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 upon the 
exercise of stock options, duly granted pursuant to the Plan and 
paid for in accordance with the provisions of the Plan and the 
grant, 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 pertaining to Merchants Bancshares, Inc.'s Long-Term Incentive Stock
Option Plan 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 STOCK OPTION PLAN

1.      Purpose.
	The purpose of the Merchants Bancshares, Inc. 1996 Stock Option Plan 
(the "Plan") is to provide an incentive to certain employees of Merchants 
Bancshares, Inc. a Delaware corporation (the "Company"), or affiliates 
thereof,  by granting to such employees: (i) incentive stock options ("ISOs"),
within the meaning of Section 422 of the Internal Revenue Code of 1986, as 
amended (the "Code"), and (ii) options not constituting ISOs ("NQSOs"), in 
either case to acquire common stock, ($.01) par value of the Company ("Stock").
2.      Effective Date and Term of the Plan.
	The Plan is effective as of the date executed as indicated below (the 
"Effective Date").  Unless sooner terminated, the Plan shall continue in 
effect from the Effective Date until the day before the tenth anniversary of 
the Effective Date (the "Termination Date").  In no event shall an ISO or NQSO 
(collectively "Options") be granted after the Termination Date.  Options 
granted prior to the Termination Date shall remain in effect until their 
exercise, surrender, cancellation or expiration in accordance with their 
terms.
3.      Stock Subject to the Plan.
	(a)     Subject to adjustment as provided in Section 10 below, the 
aggregate number of shares of Stock ("Shares") to be delivered upon exercise 
of all Options granted under the Plan shall not exceed 400,000.
	(b)     If any Option granted under the Plan expires, terminates or is 
canceled without having been exercised in full, the number of Shares as to 
which the Option has not been exercised shall become available for further 
grants under the Plan, except that if any Option is canceled on account of the 
exercise of a related Option, the Shares represented by such canceled Option 
shall no longer be available for issuance under the Plan.
	(c)     Upon exercise of an Option the Company may issue authorized but 
unissued Shares, Shares held in its treasury, or both.
	(d)     Shares issued upon the exercise of an Option shall be fully paid 
and nonassessable.
	(e)    Unless otherwise determined by the Committee, no fractional share 
of Stock shall be issued or transferred upon exercise of an Option under the 
Plan.
4.      Administration of the Plan.

	(a)     Committee.  The Plan shall be administered by a Committee of the 
Board of Directors (the "Committee").  The Committee shall initially consist 
of the entire Board.  However, the Board may elect at any time to provide that 
the Committee shall consist of not less than two members, each of whom shall 
be a Director who is a "Non-Employee Director" within the meaning of 17 Code 
of Federal Regulations Section 240.16b-3(b)(3)(i) .  The Committee shall be 
appointed by, and serve at the pleasure of, the Board of Directors.
	(b)     Authority.  Subject to the specific limitations and restrictions 
set forth in the Plan, the Committee shall have the authority: (i) to grant 
ISOs to employees whom the Committee determines are key to the success of the 
Company ("Key Employees"); (ii) to grant NQSOs to such employees as the 
Committee shall select (the grantee of an ISO or NQSO being hereinafter 
referred to as an "Optionee"); (iii) to make all determinations necessary or 
desirable for the administration of the Plan including, within any applicable 
limits specifically set out in the Plan, the number of Shares that may be 
purchased under an Option, the price at which an Option may be exercisable, 
and the period during which an Optionee must remain in the employ of the 
Company or a subsidiary of the Company prior to the exercise of an Option; 
(iv) to construe the respective Option agreements and the Plan; (v) to 
prescribe, amend and rescind rules and regulations relating to the Plan; (vi) 
to determine the terms and provisions of the respective Option agreements, 
which need not be identical, (vii) to correct any defect, supply any omission 
or reconcile any inconsistency in the Plan or in any Option granted under the 
Plan, in a manner that the Committee deems necessary or desirable; (viii) to 
amend any Option granted under the Plan, subject to the provisions of the 
Plan; (ix) to grant to Optionees in exchange for their surrender of Options, 
new Options containing such other terms and conditions as the Committee shall 
determine; and (x) to make other determinations that, in the judgment of the 
Committee, are necessary or desirable for the administration of the Plan.  Any 
interpretation or decision of the Committee shall be final and conclusive.  
Nothing in this Section 4(b) shall give the Committee the right to increase 
the total number of Shares that may be purchased on exercise of Options 
(except as provided in Section 10 below), to extend the term of the Plan, or 
to extend the period during which an ISO is exercisable beyond ten years from 
the date of grant thereof.
	(c)   Liability/Protection.  No member of the Committee shall be liable, 
in the absence of bad faith, for any act or omission with respect to serving 
as a member of the Committee.  Service as a member of the Committee shall 
constitute service as a member of the Board of Directors, so that members of 
the Committee shall be entitled to indemnification for their service on the 
Committee to the full extent provided for service as members of the Board of 
Directors.
5.      Option Grants.
	(a)     Option Agreement.  The Committee shall have sole authority to 
grant Options under this Plan.  Each Option granted under the Plan shall be 
evidenced by a stock option agreement (the "Option Agreement").  The Option 
Agreement shall be subject to the terms and conditions of the Plan and may 
contain additional terms and conditions (which may vary from Optionee to 
Optionee) not inconsistent with the Plan, as the Committee may deem necessary 
or desirable.  Appropriate officers of the Company are hereby authorized to 
execute and deliver Option Agreements, and amendments thereto, in the name of 
the Company.
	(b)   Option Price. The Option Price of each share of Stock purchasable 
under an Option granted under the Plan shall be determined by the Committee at 
the time the Option is granted, and shall be specified in the Option 
Agreement.  The Option Price shall not be less than (i) in the case of a grant 
of an ISO to a Key Employee who, at the time of the grant, is not a Ten 
Percent Shareholder, as defined below, one hundred percent (100%) of the fair 
market value of a Share as determined on the date the Option is granted; (ii) 
in the case of a grant of an ISO to a Key Employee who, at the time of grant, 
owns stock representing more than ten percent (10%) of the total combined 
voting power of all classes of stock of the Company or of any subsidiary (a 
"Ten Percent Shareholder"), one hundred ten percent (110%) of the fair market 
value of a Share, as determined on the date the Option is granted; or (iii) in 
the case of a NQSO, the price determined by the Committee.  The fair market 
value of a Share of Stock for purposes of determining the Option Price shall 
be determined by the Committee in accordance with any reasonable method of 
valuation consistent with applicable requirements of Federal tax law, 
including, as applicable, the provisions of Section 422(c)(8) of the Internal 
Revenue Code of 1986, as amended.  The Option Price shall be subject to 
adjustment in accordance with Section 10 hereof.
	(c)     Number of Shares of Stock.  Each Option Agreement shall specify 
the number of Shares which the Optionee may purchase.  The Committee shall 
have the authority to allow a form of payment other than cash to the extent 
consistent with applicable requirements of Federal tax law.
	(d)     Option Term.  The Committee shall determine the length of the 
Option term, except that no Option term shall extend for a period greater than 
ten (10) years from the date of grant.
6.      Exercise of Options.
	  Subject to applicable law and the terms and conditions of the Plan, 
an Option granted under the Plan shall be exercisable at such time, or times, 
upon the occurrence of such event or events, for such period or periods, in 
such amount or amounts, and upon the satisfaction of such terms and conditions 
including, without limitation, terms and conditions relating to notice of 
exercise, date the Option is deemed exercised, delivery and transferability of 
Shares and withholding of taxes, as the Committee shall determine and specify 
in the Option Agreement.  The aggregate fair market value (determined at the 
time the Option is granted), of the Shares of Stock with respect to which an 
ISO or ISOs granted to any Key Employee are to become exercisable for the 
first time during any calendar year (under the Plan and any other plan of the 
Company and its subsidiary corporations) shall not exceed One Hundred Thousand 
Dollars ($100,000).  The application of the limitation set forth in the 
preceding sentence to any individual Option shall be determined by the 
Committee subject to applicable rules and regulations under Section 422 of the 
Code. 
7.      Expiration of Options.
	The unexercised portion of any Option granted under the Plan shall 
automatically and without notice expire at the time of the earlier to occur of 
the following:
	(a)     the expiration of ten (10) years from the date on which the Option 
is granted, or such shorter term as may be specified in the Option Agreement; 
or
	(b)     the expiration of the period specified in the Option Agreement 
following the termination of the Optionee's employment with the Company.  
Anything to the contrary notwithstanding, in the case of an ISO, such Option 
shall by its terms not be exercisable after the expiration of ten (10) years 
(or, in the case of an Option granted to a Ten Percent Stockholder, five (5) 
years) from the date such Option is granted.
8.      Non-Transferability of Options. 
	(a)     No Option granted under the Plan shall be transferable by an 
Optionee other than by will or the laws of descent or distribution.  During 
the lifetime of an Optionee, an Option shall be exercisable only by the 
Optionee.  Except as otherwise determined by the Committee, any attempt to 
transfer, assign, pledge, hypothecate, or otherwise dispose of, or to subject 
to execution, attachment or similar process, any Option other than as 
permitted above shall be null and void and of no effect, and shall result in 
the forfeiture of all rights as to such Option.
	(b)     The Company may require any person to whom an Option is granted, 
as a condition of exercising such Option, to give written assurances in 
substance and form satisfactory to the Company to the effect that such person 
is acquiring the Common Stock subject to the Option for his or her own account 
for investment and not with any present intention of selling or otherwise 
distributing the same, and to such other effects as the Company deems 
necessary or appropriate in order to comply with applicable Federal and state 
securities laws.
	(c)     Notwithstanding any provision of the Plan or the terms of any 
Option granted pursuant to the Plan, the Company shall not be required to 
issue any Shares if such issue or transfer would, in the judgment of the 
Committee, constitute a violation of any state or Federal law or the rules or 
regulations of any governmental regulatory body or any securities exchange.  
Each Option may be subject to the requirement that if, at any time, counsel to 
the Company shall determine that the listing, registration, or qualification 
of the Shares subject to such Option upon any securities exchange or under any 
state or Federal law, or the consent, or approval of any governmental or 
regulatory body, is necessary as a condition of, or in connection with, the 
issuance or purchase of Shares thereunder, such Option may not be exercised, 
in whole or in part, unless such listing, registration, qualification, consent 
or approval shall have been effected or obtained on conditions acceptable to 
the Board.  Nothing herein shall be deemed to require the Company to apply for 
or to obtain such listing, registration, or qualification.
9.      No Special Rights.
	Until an Optionee has made payment of the Option Price, has paid or has 
had satisfied any applicable withholding taxes, and has had issued to him a 
certificate or certificates for the Shares so acquired, the Optionee shall 
have no rights as a stockholder of the Company with respect to the Stock.  No 
Option granted under the Plan shall confer upon an Optionee any right to 
continued employment with the Company or its subsidiaries, nor shall it 
interfere in any way with the right of the Company or its subsidiaries to 
terminate an Optionee's employment at any time.
10.     Adjustments for Change in Capital Structure and Special Transactions.
	(a)     Recapitalization, etc.  In the event of a stock dividend, stock 
split, or recapitalization, or a corporate reorganization in which the Company 
is a surviving corporation, including without limitation a merger, 
consolidation, split-up or spin-off, or a liquidation, or distribution of 
securities or assets other than cash dividends (a "Restructuring Event"), the 
number or kinds of Shares subject to the Plan or to any Option previously 
granted, and the Option Price, shall be adjusted by the Committee as it 
determines in its sole discretion to reflect such Restructuring Event.
	(b)    Special Transactions. In the event of a merger, consolidation, or
other form of reorganization of the Company with or into another corporation 
(other than a merger, consolidation, or other form of reorganization in which 
the Company is the surviving corporation), a sale or transfer of all or 
substantially all of the assets of the Company or a tender or exchange offer 
made by any corporation, person or entity (other than an offer made by the 
Company), the Committee, either before or after the merger, consolidation or 
other form of reorganization, may take such action as it determines in its 
sole discretion with respect to the number or kinds of Shares subject to the 
Plan or any Option under the Plan.  Such action by the Committee may include 
(but shall not be limited to) the following:
   (i)  accelerating the full exercisability of an Option during 
such period as the Committee shall prescribe following the public 
announcement of such merger, consolidation, other form of 
reorganization, sale or transfer of assets, or tender or exchange offer;
   (ii)  permitting an Optionee at any time during such period as the 
Committee shall prescribe in connection with such merger, consolidation, 
other form of reorganization, sale or transfer of assets, or tender or 
exchange offer, to surrender his Option (or any portion thereof), to the 
Company in exchange for a cash payment in an amount and in a manner 
determined by the Committee; or
   (iii)   requiring an Optionee, at any time in connection with 
such merger, consolidation, other form of reorganization, sale or 
transfer of assets, or tender or exchange offer, to surrender his Option 
(or any portion thereof) to the Company (A) in exchange for a cash 
payment as described in clause (ii) above, or (B) in exchange for, and 
subject to shareholder approval of, a substitute Option or other award 
issued by the corporation surviving such merger, consolidation or other 
form of reorganization (or an affiliate of such corporation), or the 
corporation acquiring such assets (or an affiliate of such corporation), 
which the Committee, in its sole discretion, determines to have a value 
substantially equivalent to the value of the Option surrendered.
11.     Amendment, Suspension, or Termination of the Plan.
	The Committee may at any time amend, suspend, or terminate any and all 
parts of the Plan, any Option granted under the Plan, or both in such 
respects as the Committee shall deem necessary or desirable, except that no 
such action may be taken which would impair the rights of any Optionee with 
respect to any Option previously granted under the Plan without the Optionee's 
consent.
12.     Governing Law.
	The Plan shall be governed by the laws of the State of Vermont without 
regard to the principles of conflict of laws.  In case any one or more of the 
provisions contained herein are for any reason deemed to be invalid, illegal 
or unenforceable in any respect by a judicial body, such illegality, 
invalidity or unenforceability shall not effect any other provision of this 
Plan, and this Plan shall be construed as if such invalid, unenforceable or 
illegal provision had never been contained herein.
13.     References.
	In the event of an Optionee's death or a judicial determination of his 
physical or mental incompetence, reference in the Plan to the Optionee shall 
be deemed, where appropriate, to refer to his beneficiary or his legal 
representative.
					
	MERCHANTS BANCSHARES, INC.


by:     ________________________


Date:   _________________________






 
 
		 

EXHIBIT 10.2

STOCK OPTION AGREEMENT
MERCHANTS BANCSHARES, INC.
1996 STOCK OPTION PLAN

	1.      Grant of Option.   Merchants Bancshares, Inc., a 
Vermont banking corporation (the "Company"), grants to 
________________________ (the "Optionee"), effective 
__________________________  (the "Grant Date"), an option (the 
"Option"), to purchase an aggregate of _____________________ 
shares of the Company's Common Stock, $0.01 par value ("Shares" 
of "Stock"), at a price of ____________________ [ ] per share. 
The Option is granted pursuant to the Company's 1996 Stock Option 
Plan (the "Plan"), and is subject to the terms and conditions of 
this Agreement and of the Plan.   The Shares subject to the 
Option shall collectively be referred to as the "Option 
Shares."

	2.      Basic Terms of Option.
(a)     Term.   This Option shall extend from the Grant 
Date until the date immediately preceding the tenth anniversary 
of the Grant Date (the "Expiration Date"), provided that the 
Option shall only be exercisable as permitted in Section 2(b) 
below.
(b)     Schedule of Excersisability  The Option Shares 
shall be subject to this Section 2(b) and, except as otherwise 
specifically provided in this Agreement, the Option Shares shall 
become exercisable in full on the second anniversary of the 
Grant Date, if the Optionee is then employed by the Company, and 
shall thereafter remain exercisable until the Expiration Date, 
subject to Section 2(c) below.  This Option shall expire on the 
Expiration Date and may not be exercised at any time thereafter.
(c)     Exercise Following Termination of Employment.
(i)     General.  If the Optionee ceases to be 
employed by the Company for any reason,  the portion of the 
Option which has not  then become exercisable (the 
"Nonexerciseable Portion") shall automatically expire, except 
as otherwise provided in clause (iv) below.  That portion of the 
Option which has become exercisable and has not yet been 
exercised (the "Exercisable Portion")  shall continue to be 
exercisable for the period set forth in clause (ii), (iii) or 
(iv), as appropriate. 

(ii)    Death or Disability.  If the Optionee's 
employment is terminated on account of death or disability, the 
Exercisable Portion shall continue to be exercisable until the 
earlier of one year from the date of termination of employment or 
the Expiration Date, and shall thereafter automatically expire to 
the extent not then exercised.  For purposes of this Agreement, 
disability shall be determined under the Company's long term 
disability plan as in effect from time to time.
(iii)   Cause or Voluntary.  If the Optionee's 
employment is terminated for Cause (including any termination of 
employment if it is later determined that at the time of 
termination the Company could have terminated the Optionee's 
employment for Cause), or is terminated voluntarily by the 
Optionee, the Exercisable Portion shall expire immediately.  For 
this purpose, "Cause" shall mean:
		(A)     indictment for, or plea of nolo 
contendere to, a felony or other crime involving intentional 
enrichment of the Optionee at the expense of the Company;
		(B)     willful gross misconduct in the 
performance of duties, or, following written notice from the 
Board of Directors, repeated neglect of duties. 
(iv)    Termination without Cause.  If the Optionee's 
employment is terminated by the Company other than for death, 
disability, or Cause, then the Exercisable Portion shall continue 
to be exercisable until the earlier of the first anniversary of 
termination of employment or the Expiration Date, and shall 
thereafter automatically expire to the extent not then exercised.

	3.      Exercise of Option.   The Optionee shall deliver 
written notice of his intention to exercise the Option; such 
notice shall describe the number of Shares to be acquired. The 
Optionee may purchase less than the number of Shares exercisable 
at that time, provided that no partial exercise of this Option 
may be for any fractional share unless the Committee determines 
otherwise.  The Company shall then schedule a closing date as 
soon as practicable, but no later than three (3) business days 
following receipt of such notice.  Payment of the purchase price 
for Shares purchased upon exercise of the Option (the "Purchase 
Price") shall be made by delivery to the Company of cash or a 
certified or bank check to the order of the Company or other such 
form of payment as allowed by the Committee to the extent 
consistent with applicable requirements of Federal tax law.  The 
Company shall, upon payment of the Purchase Price make prompt 
delivery of the purchased Shares to the Optionee, provided that 
if any law or regulation requires the Company to take any action 
with respect to such Shares before issuing them, then the date of 
delivery of such Shares shall be extended for the period 
necessary to complete such action. No Shares shall be issued and 
delivered upon exercise of any Option unless and until, in the 
opinion of counsel for the Company, the Company has complied with 
any applicable registration requirements of the Securities Act of 
1933, any applicable listing requirements of any national 
securities exchange on which stock of the same class is then 
listed, and any other requirements of law or of any regulatory 
bodies having jurisdiction over such issuance and delivery.

4.      Nontransferability of Option.   This Option is personal 
and no rights granted hereunder may be transferred, assigned, 
pledged or hypothecated in any way (whether by operation of law 
or otherwise) except by the laws of descent and distribution, nor 
shall any such rights be subject to execution, attachment or 
similar process. Upon any attempt to transfer, assign, pledge, 
hypothecate or otherwise dispose of this Option or of such rights 
contrary to the provisions of this Agreement, or upon the 
placement or levy of any attachment or similar process upon this 
Option or such rights, this Option and such rights shall, unless 
otherwise determined by the Committee, expire and become null and 
void.  Such determination of the Committee shall be made with all 
of the power and authority described in Section 4(b) of the Plan.

5.      No Special Rights.  The Optionee shall have no rights 
as a shareholder with respect to any Shares unless and until a 
certificate representing such Shares is duly issued and delivered 
to the Optionee. No adjustment shall be made for dividends or 
other rights for which the record date is prior to the date such 
stock certificate is issued. Nothing contained in the Plan or 
this Option Agreement shall be construed or deemed by any person 
under any circumstances to bind the Company, its parent 
corporation, or any of its subsidiaries (if applicable), to 
continue the employment of the Optionee for the period within 
which this Option may be exercised.

6.      Adjustment Transactions.   All rights and obligations 
of this Option are subject to Section 10 of the Plan, the terms 
of which are incorporated herein by reference.

7.      Withholding Taxes.   The Company's obligation to 
deliver Shares upon the exercise of this Option shall be subject 
to the Optionee's satisfaction of all applicable federal, state 
and local income and employment tax withholding requirements.

8.       Investment Representations; Legend. 
(a)     Representations.        The Optionee represents, 
warrants and covenants that:
(i)     any Shares purchased upon exercise of this 
Option shall be acquired for the Optionee's account for 
investment only and not with a view to, or for sale in 
connection with, any distribution of the Shares in violation 
of the Securities Act of 1933 (the "Securities Act") or any 
rule or regulation under the Securities Act;
(ii)    the Optionee has had such opportunity as he 
or she has deemed adequate to obtain from representatives of 
the Company such information as is necessary to permit the 
Optionee to evaluate the merits and risks of his or her 
investment in the Company;
(iii)   the Optionee can bear the economic risk of 
holding shares acquired pursuant to the exercise of the 
Option for an indefinite period; and
(iv)    the Optionee understands that (A) the Shares 
acquired pursuant to the exercise of the Option will not be 
registered under the Securities Act and are "restricted 
securities" within the meaning of Rule 144 under the 
Securities Act; (B) such shares cannot be sold, transferred 
or otherwise disposed of unless they are subsequently 
registered under the Securities Act or an exemption from 
registration is then available; (C) in any event, the 
exemption from registration under Rule 144 will not be 
available for at least two years, and even then will not be 
available unless a public market then exists for the Stock, 
adequate information concerning the Company is then 
available to the public and other terms and conditions of 
Rule 144 are complied with; and (D) there is now no 
registration statement on file with the Securities and 
Exchange Commission with respect to any Stock of the Company 
and the Company has no obligation or current intention to 
register any shares acquired pursuant to the exercise of 
this Option under the Securities Act. 
	By making payment upon exercise of this Option, the 
Optionee shall be deemed to have reaffirmed, as of the date 
of such payment, the representations made in this Section 
8.
		(b)     Legend on Stock Certificates. All stock 
certificates representing shares of Common Stock issued to the 
Optionee upon exercise of this Option shall have affixed thereto 
a legend substantially in the following form, in addition to any 
other legends required by applicable state law: 

The shares of stock represented by this 
certificate have not been registered under the 
Securities Act of 1933 and may not be transferred, 
sold or otherwise disposed of in the absence of an 
effective registration statement with respect to 
the shares evidenced by this certificate, filed 
and made effective under the Securities Act of 
1933, or an opinion of counsel satisfactory to the 
Company to the effect that registration under such 
Act is not required.
	9.      Miscellaneous.
(a)     Except as provided herein, this Option may not be 
amended or otherwise modified unless evidenced in writing and 
signed by the Company and the Optionee.
(b)     All notices under this Option shall be mailed or 
delivered by hand to the parties at their respective addresses 
set forth beneath their names below, or at such other address as 
may be designated in writing by either of the parties to one 
another:

If to the Company:                                      
Merchants Bancshares, Inc.
275 Kennedy Drive
South Burlington, VT  05403
Attention:  Michael Furlong

If to the Optionee:                               
At the address shown in the Company's most current 
payroll records.

(c)     All rights and obligations of the Company and the 
Optionee are subject to the terms and conditions of the Plan.  
In the event of any conflict between the terms of the Plan and 
the terms of this Agreement, the terms of the Plan shall govern. 
All capitalized terms not separately defined herein shall be 
defined as provided in the Plan.
(d)     The provisions of Section 4(b) of the Plan are 
specifically incorporated herein.  Any interpretation of the 
Committee of the provisions of the Plan or this Agreement shall 
be final and binding on all parties.
(e)     This Option shall be governed by and construed in 
accordance with the laws of the State of Vermont.
(f)     Optionee shall keep the terms of this Agreement 
strictly confidential, other than as may be necessary to enforce 
his or her rights hereunder or as otherwise required by law and 
except for estate planning or personal financial reasons.

MERCHANTS BANCSHARES, INC.



By:

Title:  


OPTIONEE'S ACCEPTANCE

The undersigned hereby accepts the foregoing Option and 
agrees to its terms and conditions.  The undersigned hereby 
acknowledges receipt of a copy of the Company's 1996 Stock Option 
Plan
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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.
	Long-Term Incentive Stock Option Plan
		(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    400,000         $26.50 *       $10,600,000      $3,212.12
$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 400,000 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 Long-Term Incentive/Stock Option Plan 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 number 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 Merchants Bancshares, Inc. 1996 Stock Option Plan.
10.2 Merchants Bancshares, Inc. Stock Option Agreement.
 

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.

			1

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.

Long-Term Incentive/Stock Option Plan

/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

				5

			 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 Merchants Bancshares, Inc.  1996 Stock Option Plan.
10.2 Merchants Bancshares, Inc. Stock Option Agreement

  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 
400,000 shares of common stock, $0.01 par value per share, of the 
Company (the "Shares"), which may be issued by the Company upon 
exercise of certain stock options, granted by the Company 
pursuant to the Company's 1996 Long Term Incentive Stock Option 
Plan (the "Plan").   

     We have reviewed the corporate proceedings taken by the 
Company with respect to the authorization of the grants 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 upon exercise of 
options granted or to be granted pursuant to the Plan will be 
issued in accordance with the terms of such options (where 
applicable) and 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 upon the 
exercise of stock options, duly granted pursuant to the Plan and 
paid for in accordance with the provisions of the Plan and the 
grant, 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 pertaining to Merchants Bancshares, Inc.'s Long-Term Incentive Stock
Option Plan 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 STOCK OPTION PLAN

1.      Purpose.
	The purpose of the Merchants Bancshares, Inc. 1996 Stock Option Plan 
(the "Plan") is to provide an incentive to certain employees of Merchants 
Bancshares, Inc. a Delaware corporation (the "Company"), or affiliates 
thereof,  by granting to such employees: (i) incentive stock options ("ISOs"),
within the meaning of Section 422 of the Internal Revenue Code of 1986, as 
amended (the "Code"), and (ii) options not constituting ISOs ("NQSOs"), in 
either case to acquire common stock, ($.01) par value of the Company ("Stock").
2.      Effective Date and Term of the Plan.
	The Plan is effective as of the date executed as indicated below (the 
"Effective Date").  Unless sooner terminated, the Plan shall continue in 
effect from the Effective Date until the day before the tenth anniversary of 
the Effective Date (the "Termination Date").  In no event shall an ISO or NQSO 
(collectively "Options") be granted after the Termination Date.  Options 
granted prior to the Termination Date shall remain in effect until their 
exercise, surrender, cancellation or expiration in accordance with their 
terms.
3.      Stock Subject to the Plan.
	(a)     Subject to adjustment as provided in Section 10 below, the 
aggregate number of shares of Stock ("Shares") to be delivered upon exercise 
of all Options granted under the Plan shall not exceed 400,000.
	(b)     If any Option granted under the Plan expires, terminates or is 
canceled without having been exercised in full, the number of Shares as to 
which the Option has not been exercised shall become available for further 
grants under the Plan, except that if any Option is canceled on account of the 
exercise of a related Option, the Shares represented by such canceled Option 
shall no longer be available for issuance under the Plan.
	(c)     Upon exercise of an Option the Company may issue authorized but 
unissued Shares, Shares held in its treasury, or both.
	(d)     Shares issued upon the exercise of an Option shall be fully paid 
and nonassessable.
	(e)    Unless otherwise determined by the Committee, no fractional share 
of Stock shall be issued or transferred upon exercise of an Option under the 
Plan.
4.      Administration of the Plan.

	(a)     Committee.  The Plan shall be administered by a Committee of the 
Board of Directors (the "Committee").  The Committee shall initially consist 
of the entire Board.  However, the Board may elect at any time to provide that 
the Committee shall consist of not less than two members, each of whom shall 
be a Director who is a "Non-Employee Director" within the meaning of 17 Code 
of Federal Regulations Section 240.16b-3(b)(3)(i) .  The Committee shall be 
appointed by, and serve at the pleasure of, the Board of Directors.
	(b)     Authority.  Subject to the specific limitations and restrictions 
set forth in the Plan, the Committee shall have the authority: (i) to grant 
ISOs to employees whom the Committee determines are key to the success of the 
Company ("Key Employees"); (ii) to grant NQSOs to such employees as the 
Committee shall select (the grantee of an ISO or NQSO being hereinafter 
referred to as an "Optionee"); (iii) to make all determinations necessary or 
desirable for the administration of the Plan including, within any applicable 
limits specifically set out in the Plan, the number of Shares that may be 
purchased under an Option, the price at which an Option may be exercisable, 
and the period during which an Optionee must remain in the employ of the 
Company or a subsidiary of the Company prior to the exercise of an Option; 
(iv) to construe the respective Option agreements and the Plan; (v) to 
prescribe, amend and rescind rules and regulations relating to the Plan; (vi) 
to determine the terms and provisions of the respective Option agreements, 
which need not be identical, (vii) to correct any defect, supply any omission 
or reconcile any inconsistency in the Plan or in any Option granted under the 
Plan, in a manner that the Committee deems necessary or desirable; (viii) to 
amend any Option granted under the Plan, subject to the provisions of the 
Plan; (ix) to grant to Optionees in exchange for their surrender of Options, 
new Options containing such other terms and conditions as the Committee shall 
determine; and (x) to make other determinations that, in the judgment of the 
Committee, are necessary or desirable for the administration of the Plan.  Any 
interpretation or decision of the Committee shall be final and conclusive.  
Nothing in this Section 4(b) shall give the Committee the right to increase 
the total number of Shares that may be purchased on exercise of Options 
(except as provided in Section 10 below), to extend the term of the Plan, or 
to extend the period during which an ISO is exercisable beyond ten years from 
the date of grant thereof.
	(c)   Liability/Protection.  No member of the Committee shall be liable, 
in the absence of bad faith, for any act or omission with respect to serving 
as a member of the Committee.  Service as a member of the Committee shall 
constitute service as a member of the Board of Directors, so that members of 
the Committee shall be entitled to indemnification for their service on the 
Committee to the full extent provided for service as members of the Board of 
Directors.
5.      Option Grants.
	(a)     Option Agreement.  The Committee shall have sole authority to 
grant Options under this Plan.  Each Option granted under the Plan shall be 
evidenced by a stock option agreement (the "Option Agreement").  The Option 
Agreement shall be subject to the terms and conditions of the Plan and may 
contain additional terms and conditions (which may vary from Optionee to 
Optionee) not inconsistent with the Plan, as the Committee may deem necessary 
or desirable.  Appropriate officers of the Company are hereby authorized to 
execute and deliver Option Agreements, and amendments thereto, in the name of 
the Company.
	(b)   Option Price. The Option Price of each share of Stock purchasable 
under an Option granted under the Plan shall be determined by the Committee at 
the time the Option is granted, and shall be specified in the Option 
Agreement.  The Option Price shall not be less than (i) in the case of a grant 
of an ISO to a Key Employee who, at the time of the grant, is not a Ten 
Percent Shareholder, as defined below, one hundred percent (100%) of the fair 
market value of a Share as determined on the date the Option is granted; (ii) 
in the case of a grant of an ISO to a Key Employee who, at the time of grant, 
owns stock representing more than ten percent (10%) of the total combined 
voting power of all classes of stock of the Company or of any subsidiary (a 
"Ten Percent Shareholder"), one hundred ten percent (110%) of the fair market 
value of a Share, as determined on the date the Option is granted; or (iii) in 
the case of a NQSO, the price determined by the Committee.  The fair market 
value of a Share of Stock for purposes of determining the Option Price shall 
be determined by the Committee in accordance with any reasonable method of 
valuation consistent with applicable requirements of Federal tax law, 
including, as applicable, the provisions of Section 422(c)(8) of the Internal 
Revenue Code of 1986, as amended.  The Option Price shall be subject to 
adjustment in accordance with Section 10 hereof.
	(c)     Number of Shares of Stock.  Each Option Agreement shall specify 
the number of Shares which the Optionee may purchase.  The Committee shall 
have the authority to allow a form of payment other than cash to the extent 
consistent with applicable requirements of Federal tax law.
	(d)     Option Term.  The Committee shall determine the length of the 
Option term, except that no Option term shall extend for a period greater than 
ten (10) years from the date of grant.
6.      Exercise of Options.
	  Subject to applicable law and the terms and conditions of the Plan, 
an Option granted under the Plan shall be exercisable at such time, or times, 
upon the occurrence of such event or events, for such period or periods, in 
such amount or amounts, and upon the satisfaction of such terms and conditions 
including, without limitation, terms and conditions relating to notice of 
exercise, date the Option is deemed exercised, delivery and transferability of 
Shares and withholding of taxes, as the Committee shall determine and specify 
in the Option Agreement.  The aggregate fair market value (determined at the 
time the Option is granted), of the Shares of Stock with respect to which an 
ISO or ISOs granted to any Key Employee are to become exercisable for the 
first time during any calendar year (under the Plan and any other plan of the 
Company and its subsidiary corporations) shall not exceed One Hundred Thousand 
Dollars ($100,000).  The application of the limitation set forth in the 
preceding sentence to any individual Option shall be determined by the 
Committee subject to applicable rules and regulations under Section 422 of the 
Code. 
7.      Expiration of Options.
	The unexercised portion of any Option granted under the Plan shall 
automatically and without notice expire at the time of the earlier to occur of 
the following:
	(a)     the expiration of ten (10) years from the date on which the Option 
is granted, or such shorter term as may be specified in the Option Agreement; 
or
	(b)     the expiration of the period specified in the Option Agreement 
following the termination of the Optionee's employment with the Company.  
Anything to the contrary notwithstanding, in the case of an ISO, such Option 
shall by its terms not be exercisable after the expiration of ten (10) years 
(or, in the case of an Option granted to a Ten Percent Stockholder, five (5) 
years) from the date such Option is granted.
8.      Non-Transferability of Options. 
	(a)     No Option granted under the Plan shall be transferable by an 
Optionee other than by will or the laws of descent or distribution.  During 
the lifetime of an Optionee, an Option shall be exercisable only by the 
Optionee.  Except as otherwise determined by the Committee, any attempt to 
transfer, assign, pledge, hypothecate, or otherwise dispose of, or to subject 
to execution, attachment or similar process, any Option other than as 
permitted above shall be null and void and of no effect, and shall result in 
the forfeiture of all rights as to such Option.
	(b)     The Company may require any person to whom an Option is granted, 
as a condition of exercising such Option, to give written assurances in 
substance and form satisfactory to the Company to the effect that such person 
is acquiring the Common Stock subject to the Option for his or her own account 
for investment and not with any present intention of selling or otherwise 
distributing the same, and to such other effects as the Company deems 
necessary or appropriate in order to comply with applicable Federal and state 
securities laws.
	(c)     Notwithstanding any provision of the Plan or the terms of any 
Option granted pursuant to the Plan, the Company shall not be required to 
issue any Shares if such issue or transfer would, in the judgment of the 
Committee, constitute a violation of any state or Federal law or the rules or 
regulations of any governmental regulatory body or any securities exchange.  
Each Option may be subject to the requirement that if, at any time, counsel to 
the Company shall determine that the listing, registration, or qualification 
of the Shares subject to such Option upon any securities exchange or under any 
state or Federal law, or the consent, or approval of any governmental or 
regulatory body, is necessary as a condition of, or in connection with, the 
issuance or purchase of Shares thereunder, such Option may not be exercised, 
in whole or in part, unless such listing, registration, qualification, consent 
or approval shall have been effected or obtained on conditions acceptable to 
the Board.  Nothing herein shall be deemed to require the Company to apply for 
or to obtain such listing, registration, or qualification.
9.      No Special Rights.
	Until an Optionee has made payment of the Option Price, has paid or has 
had satisfied any applicable withholding taxes, and has had issued to him a 
certificate or certificates for the Shares so acquired, the Optionee shall 
have no rights as a stockholder of the Company with respect to the Stock.  No 
Option granted under the Plan shall confer upon an Optionee any right to 
continued employment with the Company or its subsidiaries, nor shall it 
interfere in any way with the right of the Company or its subsidiaries to 
terminate an Optionee's employment at any time.
10.     Adjustments for Change in Capital Structure and Special Transactions.
	(a)     Recapitalization, etc.  In the event of a stock dividend, stock 
split, or recapitalization, or a corporate reorganization in which the Company 
is a surviving corporation, including without limitation a merger, 
consolidation, split-up or spin-off, or a liquidation, or distribution of 
securities or assets other than cash dividends (a "Restructuring Event"), the 
number or kinds of Shares subject to the Plan or to any Option previously 
granted, and the Option Price, shall be adjusted by the Committee as it 
determines in its sole discretion to reflect such Restructuring Event.
	(b)    Special Transactions. In the event of a merger, consolidation, or
other form of reorganization of the Company with or into another corporation 
(other than a merger, consolidation, or other form of reorganization in which 
the Company is the surviving corporation), a sale or transfer of all or 
substantially all of the assets of the Company or a tender or exchange offer 
made by any corporation, person or entity (other than an offer made by the 
Company), the Committee, either before or after the merger, consolidation or 
other form of reorganization, may take such action as it determines in its 
sole discretion with respect to the number or kinds of Shares subject to the 
Plan or any Option under the Plan.  Such action by the Committee may include 
(but shall not be limited to) the following:
   (i)  accelerating the full exercisability of an Option during 
such period as the Committee shall prescribe following the public 
announcement of such merger, consolidation, other form of 
reorganization, sale or transfer of assets, or tender or exchange offer;
   (ii)  permitting an Optionee at any time during such period as the 
Committee shall prescribe in connection with such merger, consolidation, 
other form of reorganization, sale or transfer of assets, or tender or 
exchange offer, to surrender his Option (or any portion thereof), to the 
Company in exchange for a cash payment in an amount and in a manner 
determined by the Committee; or
   (iii)   requiring an Optionee, at any time in connection with 
such merger, consolidation, other form of reorganization, sale or 
transfer of assets, or tender or exchange offer, to surrender his Option 
(or any portion thereof) to the Company (A) in exchange for a cash 
payment as described in clause (ii) above, or (B) in exchange for, and 
subject to shareholder approval of, a substitute Option or other award 
issued by the corporation surviving such merger, consolidation or other 
form of reorganization (or an affiliate of such corporation), or the 
corporation acquiring such assets (or an affiliate of such corporation), 
which the Committee, in its sole discretion, determines to have a value 
substantially equivalent to the value of the Option surrendered.
11.     Amendment, Suspension, or Termination of the Plan.
	The Committee may at any time amend, suspend, or terminate any and all 
parts of the Plan, any Option granted under the Plan, or both in such 
respects as the Committee shall deem necessary or desirable, except that no 
such action may be taken which would impair the rights of any Optionee with 
respect to any Option previously granted under the Plan without the Optionee's 
consent.
12.     Governing Law.
	The Plan shall be governed by the laws of the State of Vermont without 
regard to the principles of conflict of laws.  In case any one or more of the 
provisions contained herein are for any reason deemed to be invalid, illegal 
or unenforceable in any respect by a judicial body, such illegality, 
invalidity or unenforceability shall not effect any other provision of this 
Plan, and this Plan shall be construed as if such invalid, unenforceable or 
illegal provision had never been contained herein.
13.     References.
	In the event of an Optionee's death or a judicial determination of his 
physical or mental incompetence, reference in the Plan to the Optionee shall 
be deemed, where appropriate, to refer to his beneficiary or his legal 
representative.
					
	MERCHANTS BANCSHARES, INC.

by:     ________________________

Date:   _________________________

 
 
		 

EXHIBIT 10.2

STOCK OPTION AGREEMENT
MERCHANTS BANCSHARES, INC.
1996 STOCK OPTION PLAN

	1.      Grant of Option.   Merchants Bancshares, Inc., a 
Vermont banking corporation (the "Company"), grants to 
________________________ (the "Optionee"), effective 
__________________________  (the "Grant Date"), an option (the 
"Option"), to purchase an aggregate of _____________________ 
shares of the Company's Common Stock, $0.01 par value ("Shares" 
of "Stock"), at a price of ____________________ [ ] per share. 
The Option is granted pursuant to the Company's 1996 Stock Option 
Plan (the "Plan"), and is subject to the terms and conditions of 
this Agreement and of the Plan.   The Shares subject to the 
Option shall collectively be referred to as the "Option 
Shares."

	2.      Basic Terms of Option.
(a)     Term.   This Option shall extend from the Grant 
Date until the date immediately preceding the tenth anniversary 
of the Grant Date (the "Expiration Date"), provided that the 
Option shall only be exercisable as permitted in Section 2(b) 
below.
(b)     Schedule of Excersisability  The Option Shares 
shall be subject to this Section 2(b) and, except as otherwise 
specifically provided in this Agreement, the Option Shares shall 
become exercisable in full on the second anniversary of the 
Grant Date, if the Optionee is then employed by the Company, and 
shall thereafter remain exercisable until the Expiration Date, 
subject to Section 2(c) below.  This Option shall expire on the 
Expiration Date and may not be exercised at any time thereafter.
(c)     Exercise Following Termination of Employment.
(i)     General.  If the Optionee ceases to be 
employed by the Company for any reason,  the portion of the 
Option which has not  then become exercisable (the 
"Nonexerciseable Portion") shall automatically expire, except 
as otherwise provided in clause (iv) below.  That portion of the 
Option which has become exercisable and has not yet been 
exercised (the "Exercisable Portion")  shall continue to be 
exercisable for the period set forth in clause (ii), (iii) or 
(iv), as appropriate. 

(ii)    Death or Disability.  If the Optionee's 
employment is terminated on account of death or disability, the 
Exercisable Portion shall continue to be exercisable until the 
earlier of one year from the date of termination of employment or 
the Expiration Date, and shall thereafter automatically expire to 
the extent not then exercised.  For purposes of this Agreement, 
disability shall be determined under the Company's long term 
disability plan as in effect from time to time.
(iii)   Cause or Voluntary.  If the Optionee's 
employment is terminated for Cause (including any termination of 
employment if it is later determined that at the time of 
termination the Company could have terminated the Optionee's 
employment for Cause), or is terminated voluntarily by the 
Optionee, the Exercisable Portion shall expire immediately.  For 
this purpose, "Cause" shall mean:
		(A)     indictment for, or plea of nolo 
contendere to, a felony or other crime involving intentional 
enrichment of the Optionee at the expense of the Company;
		(B)     willful gross misconduct in the 
performance of duties, or, following written notice from the 
Board of Directors, repeated neglect of duties. 
(iv)    Termination without Cause.  If the Optionee's 
employment is terminated by the Company other than for death, 
disability, or Cause, then the Exercisable Portion shall continue 
to be exercisable until the earlier of the first anniversary of 
termination of employment or the Expiration Date, and shall 
thereafter automatically expire to the extent not then exercised.

	3.      Exercise of Option.   The Optionee shall deliver 
written notice of his intention to exercise the Option; such 
notice shall describe the number of Shares to be acquired. The 
Optionee may purchase less than the number of Shares exercisable 
at that time, provided that no partial exercise of this Option 
may be for any fractional share unless the Committee determines 
otherwise.  The Company shall then schedule a closing date as 
soon as practicable, but no later than three (3) business days 
following receipt of such notice.  Payment of the purchase price 
for Shares purchased upon exercise of the Option (the "Purchase 
Price") shall be made by delivery to the Company of cash or a 
certified or bank check to the order of the Company or other such 
form of payment as allowed by the Committee to the extent 
consistent with applicable requirements of Federal tax law.  The 
Company shall, upon payment of the Purchase Price make prompt 
delivery of the purchased Shares to the Optionee, provided that 
if any law or regulation requires the Company to take any action 
with respect to such Shares before issuing them, then the date of 
delivery of such Shares shall be extended for the period 
necessary to complete such action. No Shares shall be issued and 
delivered upon exercise of any Option unless and until, in the 
opinion of counsel for the Company, the Company has complied with 
any applicable registration requirements of the Securities Act of 
1933, any applicable listing requirements of any national 
securities exchange on which stock of the same class is then 
listed, and any other requirements of law or of any regulatory 
bodies having jurisdiction over such issuance and delivery.

4.      Nontransferability of Option.   This Option is personal 
and no rights granted hereunder may be transferred, assigned, 
pledged or hypothecated in any way (whether by operation of law 
or otherwise) except by the laws of descent and distribution, nor 
shall any such rights be subject to execution, attachment or 
similar process. Upon any attempt to transfer, assign, pledge, 
hypothecate or otherwise dispose of this Option or of such rights 
contrary to the provisions of this Agreement, or upon the 
placement or levy of any attachment or similar process upon this 
Option or such rights, this Option and such rights shall, unless 
otherwise determined by the Committee, expire and become null and 
void.  Such determination of the Committee shall be made with all 
of the power and authority described in Section 4(b) of the Plan.

5.      No Special Rights.  The Optionee shall have no rights 
as a shareholder with respect to any Shares unless and until a 
certificate representing such Shares is duly issued and delivered 
to the Optionee. No adjustment shall be made for dividends or 
other rights for which the record date is prior to the date such 
stock certificate is issued. Nothing contained in the Plan or 
this Option Agreement shall be construed or deemed by any person 
under any circumstances to bind the Company, its parent 
corporation, or any of its subsidiaries (if applicable), to 
continue the employment of the Optionee for the period within 
which this Option may be exercised.

6.      Adjustment Transactions.   All rights and obligations 
of this Option are subject to Section 10 of the Plan, the terms 
of which are incorporated herein by reference.

7.      Withholding Taxes.   The Company's obligation to 
deliver Shares upon the exercise of this Option shall be subject 
to the Optionee's satisfaction of all applicable federal, state 
and local income and employment tax withholding requirements.

8.       Investment Representations; Legend. 
(a)     Representations.        The Optionee represents, 
warrants and covenants that:
(i)     any Shares purchased upon exercise of this 
Option shall be acquired for the Optionee's account for 
investment only and not with a view to, or for sale in 
connection with, any distribution of the Shares in violation 
of the Securities Act of 1933 (the "Securities Act") or any 
rule or regulation under the Securities Act;
(ii)    the Optionee has had such opportunity as he 
or she has deemed adequate to obtain from representatives of 
the Company such information as is necessary to permit the 
Optionee to evaluate the merits and risks of his or her 
investment in the Company;
(iii)   the Optionee can bear the economic risk of 
holding shares acquired pursuant to the exercise of the 
Option for an indefinite period; and
(iv)    the Optionee understands that (A) the Shares 
acquired pursuant to the exercise of the Option will not be 
registered under the Securities Act and are "restricted 
securities" within the meaning of Rule 144 under the 
Securities Act; (B) such shares cannot be sold, transferred 
or otherwise disposed of unless they are subsequently 
registered under the Securities Act or an exemption from 
registration is then available; (C) in any event, the 
exemption from registration under Rule 144 will not be 
available for at least two years, and even then will not be 
available unless a public market then exists for the Stock, 
adequate information concerning the Company is then 
available to the public and other terms and conditions of 
Rule 144 are complied with; and (D) there is now no 
registration statement on file with the Securities and 
Exchange Commission with respect to any Stock of the Company 
and the Company has no obligation or current intention to 
register any shares acquired pursuant to the exercise of 
this Option under the Securities Act. 
	By making payment upon exercise of this Option, the 
Optionee shall be deemed to have reaffirmed, as of the date 
of such payment, the representations made in this Section 
8.
		(b)     Legend on Stock Certificates. All stock 
certificates representing shares of Common Stock issued to the 
Optionee upon exercise of this Option shall have affixed thereto 
a legend substantially in the following form, in addition to any 
other legends required by applicable state law: 

The shares of stock represented by this 
certificate have not been registered under the 
Securities Act of 1933 and may not be transferred, 
sold or otherwise disposed of in the absence of an 
effective registration statement with respect to 
the shares evidenced by this certificate, filed 
and made effective under the Securities Act of 
1933, or an opinion of counsel satisfactory to the 
Company to the effect that registration under such 
Act is not required.
	9.      Miscellaneous.
(a)     Except as provided herein, this Option may not be 
amended or otherwise modified unless evidenced in writing and 
signed by the Company and the Optionee.
(b)     All notices under this Option shall be mailed or 
delivered by hand to the parties at their respective addresses 
set forth beneath their names below, or at such other address as 
may be designated in writing by either of the parties to one 
another:

If to the Company:                                      
Merchants Bancshares, Inc.
275 Kennedy Drive
South Burlington, VT  05403
Attention:  Michael Furlong

If to the Optionee:                               
At the address shown in the Company's most current 
payroll records.

(c)     All rights and obligations of the Company and the 
Optionee are subject to the terms and conditions of the Plan.  
In the event of any conflict between the terms of the Plan and 
the terms of this Agreement, the terms of the Plan shall govern. 
All capitalized terms not separately defined herein shall be 
defined as provided in the Plan.
(d)     The provisions of Section 4(b) of the Plan are 
specifically incorporated herein.  Any interpretation of the 
Committee of the provisions of the Plan or this Agreement shall 
be final and binding on all parties.
(e)     This Option shall be governed by and construed in 
accordance with the laws of the State of Vermont.
(f)     Optionee shall keep the terms of this Agreement 
strictly confidential, other than as may be necessary to enforce 
his or her rights hereunder or as otherwise required by law and 
except for estate planning or personal financial reasons.

MERCHANTS BANCSHARES, INC.

By:

Title:  

OPTIONEE'S ACCEPTANCE

The undersigned hereby accepts the foregoing Option and 
agrees to its terms and conditions.  The undersigned hereby 
acknowledges receipt of a copy of the Company's 1996 Stock Option 
Plan