UNITED STATES

OMB APPROVAL

SECURITIES AND EXCHANGE COMMISSION

OMB Number:

3235-0101

Washington, D.C. 20549

Expires:

December 31, 2006

Estimated average burden

FORM 144

hours per response . . . . .

4.47

NOTICE OF PROPOSED SALE OF SECURITIES

SEC USE ONLY

PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933

DOCUMENT SEQUENCE NO.

ATTENTION:

Transmit for filing 3 copies of this form concurrently with either placing an order with a broker to execute sale or executing a sale directly with a market maker.

CUSIP NUMBER

1 (a) NAME OF ISSUER (Please type or print)

(b) IRS IDENT. NO.

(c) S.E.C. FILE NO.

WORK LOCATION

Merchants Bancshares, Inc.

03-0287342

1 (d) ADDRESS OF ISSUER

STREET

CITY

STATE

ZIP CODE

(e) TELEPHONE NO.

AREA CODE

NUMBER

275 Kennedy Drive

South Burlington

VT

05403

(802)

865-1838

2 (a) NAME OF PERSON FOR WHOSE ACCOUNT         THE SECURITIES ARE TO BE SOLD	(b) IRS IDENT. NO.	(c) RELATIONSHIP TO       ISSUER	(d) ADDRESS	STREET		CITY	STATE	ZIP CODE
Zoe P. Erdman		Senior VP	c/o Merchants Bank		275 Kennedy Drive
			South Burlington,		VT 05403
INSTRUCTION: The person filing this notice should contact the issuer to obtain the I.R.S. Identification Number and the S.E.C. File Number.

3 (a)	(b)	SEC USE ONLY	(c)	(d)	(e)	(f)	(g)
Title of the Class of Securities To Be Sold	Name and Address of Each Broker Through Whom the Securities are to be Offered or Each Market Maker who is Acquiring the Securities	Broker-Dealer File Number	Number of Shares or Other Units To Be Sold (See instr. 3(c))	Aggregate Market Value (See instr. 3(d))	Number of Shares or Other Units Outstanding (See instr. 3(e))	Approximate Date of Sale (See instr. 3(f)) (MO. DAY YR.)	Name of Each Securities Exchange (See instr. 3(g))
Common Stock	Smith Barney 69 Swift Street So. Burlington, VT 05403		3,862	$91,143	6,264,986	9/26/06	NASDAQ

INSTRUCTIONS:
1.	(a)	Name of issuer	3.	(a)	Title of the class of securities to be sold
	(b)	Issuer's I.R.S. Identification Number		(b)	Name and address of each broker through whom the securities are intended
	(c)	Issuer's S.E.C. file number, if any			to be sold
	(d)	Issuer's address, including zip code		(c)	Number of shares or other units to be sold (if debt securities, give the aggregate
	(e)	Issuer's telephone number, including area code			face amount)
				(d)	Aggregate market value of the securities to be sold as of a specified date within 10
2.	(a)	Name of person for whose account the securities are to be sold			days prior to the filing of this notice
	(b)	Such person's I.R.S. identification number, if such person is an		(e)	Number of shares or other units of the class outstanding, or if debt securities the face
		entity			amount thereof outstanding, as shown by the most recent report or statement
	(c)	Such person's relationship to the issuer (e.g., officer, director,			published by the issuer
		10% stockholder, or member of immediate family of any of the		(f)	Approximate date on which the securities are to be sold
		foregoing)		(g)	Name of each securities exchange, if any, on which the securities are intended to be sold
	(d)	Such person's address, including zip code

Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
	SEC 1147 (01-04)

TABLE I -- SECURITIES TO BE SOLD

Furnish the following information with respect to the acquisition of the securities to be sold
and with respect to the payment of all or any part of the purchase price or other consideration therefor:

Title of the Class	Date you Acquired	Nature of Acquisition Transaction	Name of Person from Whom Acquired (If gift, also give date donor acquired)	Amount of Securities Acquired	Date of Payment	Nature of Payment
Common Stock	9/25/06	Stock Option Exercise	Merchants Bancshares, Inc.	3,862	9/25/06	Cash

INSTRUCTIONS:	If the securities were purchased and full payment therefore was not made in cash at the time of purchase, explain in the table or in a note thereto the nature of the consideration given. If the consideration consisted of any note or other obligation, or if payment was made in installments describe the arrangement and state when the note or other obligation was discharged in full or the last installment paid.
TABLE II -- SECURITIES SOLD DURING THE PAST 3 MONTHS
Furnish the following information as to all securities of the issuer sold during the past 3 months by the person for whose account the securities are to be sold.

Name and Address of Seller	Title of Securities Sold	Date of Sale	Amount of Securities Sold	Gross Proceeds
N/A	N/A	N/A	N/A	N/A

REMARKS:
(1)	These shares were acquired between 1980 and 2005 through the Company's 401(K) plan (including the Company's former ESOP plan, which merged with and into the Company's 401(K) plan).
INSTRUCTIONS:		ATTENTION:
See the definition of "person" in paragraph (a) of Rule 144. Information is to be given not only as to the person for whose account the securities are to be sold but also as to all other persons included in that definition. In addition, information shall be given as to sales by all personswhose sales are required by paragraph (e) of Rule 144 to be aggregated with sales for the account of the person filing this notice.		The person for whose account the securities to which this notice relates are to be sold hereby represents by signing this notice that he does not know any material adverse information in regard to the current and prospective operations of the Issuer of the securities to be sold which has not been publicly disclosed.
09/26/2006		/s/ Lisa A. Razo POA for Zoe P. Erdman
DATE OF NOTICE		(SIGNATURE)
The notice shall be signed by the person for whose account the securities are to be sold. At least one copy of the notice shall be manually signed. Any copies not manually signed shall bear typed or printed signatures.

ATTENTION: Intentional misstatements or omission of facts constitute Federal Criminal Violations (See 18 U.S.C. 1001)

SEC 1147 (01-04)