On December 18, 2008, the Board of Directors of Merchants Bancshares, Inc. (the "Company") approved an amended form of employment agreement with the Company's executive officers. The new form of employment agreement generally includes the same terms as the existing employment agreements, except for (1) changes to reflect the tax laws governing certain deferred compensation arrangements under Internal Revenue Code
Section 409A, and (2) the extension of the term of such agreements from December 31, 2009 to December 31, 2011, with successive one-year terms unless the Company notifies the executive officer of its election not to renew the agreement. The new form of employment agreement replaces the executive officers' existing employment agreements. The foregoing summary description of the form of employment agreement is qualified in its entirety by reference to the agreement filed as Exhibit 10.1 to this Current Report on Form 8-K, which is incorporated by reference into this Item 5.02.

Merchants Bancshares, Inc. and its wholly-owned subsidiary bank, Merchants Bank (collectively, "Merchants"), have determined not to participate in the Capital Purchase Program (the "CPP") of the U.S. Treasury's Troubled Asset Relief Program (TARP). Under the CPP, the U.S. Treasury will make $250 billion of capital available to U.S. financial institutions through the purchase of preferred stock in such institutions. Although Merchants applied for, and subsequently received preliminary approval of its application, Merchants has decided not to participate in the program given the strength of its capital position.

(c). The following exhibits are included with this Report:

     Exhibit No.                     Description
     -----------------------         -----------
     10.1                            Form of Employment Agreement by and between the
                                     Company and its executive officers
     99.1                            Press Release dated December 24, 2008