8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of Earliest Event Reported)
December 18, 2008
Merchants Bancshares, Inc.
(Exact Name of Registrant As Specified In Its Charter)
Delaware		0-11595	03-0287342
(State Or Other Jurisdiction		(Commission File No.)	(IRS Employer
Of Incorporation)			Identification No.)
275 Kennedy Drive			05403
So. Burlington, Vermont			(Zip Code)
(Address Of Principal Executive Offices)
(802) 658-3400
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[  ]	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
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 I tem 5.02.
Item 8.01. Other Events
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.
Item 9.01. Financial Statements and Exhibits
(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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
				MERCHANTS BANCSHARES, INC.
Date:		December 24, 2008		/s/ Janet P. Spitler
				Janet P. Spitler
				Treasurer & CFO

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EX-10

Exhibit 10.1
December 18, 2008
Michael R. Tuttle 32 Andrews Avenue South Burlington, Vermont 05403
Re:	Employment Agreement
Dear Mike:
We, as the Chairs of the Boards of Directors of Merchants Bank, a Vermont chartered bank, and Merchants Bancshares, Inc., a Delaware corporation (collectively "the Corporations"), are pleased to provide you with the following letter agreement to confirm the terms of your employment with the Corporations. We have been authorized by the Corporations' Boards of Directors to negotiate and execute this letter agreement.
1. Employment.
(a) Term and Renewal. The term of this letter agreement shall be January 1, 2009 until December 31, 2011 (the "Original Term"), unless your employment is terminated sooner in accordance with Section 4 below. On or before December 31, 2011, the Corporations shall notify you in writing if the Corporations do not intend to renew this letter agreement for a one-year term following the Original Term. If the Corporations do not provide such notice, then this letter agreement shall renew for a one-year term (January 1, 2012 until December 31, 2012) following the Original Term. Similarly, on or before December 31, 2012, and on or before each December 31st thereafter, the Corporations shall notify you in writing if the Corporations do not intend to renew this letter agreement for an additional one-year term. If the Corporations do not provide such notice, then this letter agreement shall automatically renew for an additional one-year term following the term the n applicable.
(b) Appointment and Duties. You shall be appointed and/or elected, and shall serve, as the President and Chief Executive Officer of the Corporations and as a Director of Merchants Bank for the term of your employment hereunder. At the commencement of the term of your employment hereunder, the Board of Directors of Merchants Bancshares, Inc. shall appoint you as a Director of Merchants Bancshares, Inc., and thereafter during the term of this letter agreement shall use reasonable efforts to ensure that you are nominated to be re-elected as a Director of Merchants Bancshares, Inc. at subsequent annual meetings of its shareholders, and that you are listed as such in the proxy materials relating to such meetings. You shall devote your full-time efforts and energies to the business and affairs of the Corporations, you shall use your best efforts, skill and abilities to promote the Corporations' interests, and you shall perform those duties customarily associated with t he position of bank president and chief executive officer.

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      2. Compensation.

      (a) Salary. You will receive an annual salary of $220,000.00, payable in equal installments on the Corporations' regularly scheduled paydays. This salary may be reviewed annually and adjusted at the discretion of the Corporations' Boards of Directors.

      (b) Incentive Payments. You will be eligible to receive an annual bonus in an amount and manner to be determined solely at the discretion of the Corporations' Boards of Directors. Such bonus, if any, shall relate to the Corporations' performance over a calendar year (a "Bonus Year") and if awarded shall be paid in the calendar year following the Bonus Year to which it relates.

      (c) Expenses. You will be promptly reimbursed for all reasonable travel and other business expenses that you may incur in connection with your responsibilities hereunder, upon submission of appropriate supporting documentation and in accordance with current corporate policy.

      3. Benefit Plans. You will receive all such other benefits as the Corporations generally provide to their senior executive employees, including without limitation, life, health and disability insurance, vacation and sick pay, and retirement benefits, except that you will receive five (5) weeks of paid vacation time per year.

      4. Termination of Employment.

      (a) Events Causing Termination. Your employment hereunder shall continue until the end of the Original Term, as such term may be extended herein, unless terminated earlier as follows: (i) by your death; (ii) by the Corporations, at their option, upon written notice to you, upon your physical or mental incapacity or inability to perform services as contemplated hereby (as reasonably determined by the Corporations' Boards of Directors) for a period of at least 180 days; (iii) by the Corporations, at their option, upon written notice to you, for Cause (as defined in Section 4(b) below); (iv) by the Corporations, at their option, without Cause, upon thirty (30) days prior written notice to you; (v) by you, at your option, for Good Reason (as defined in Section 4(b) below), upon written notice to the Chairs of the Corporations' Boards of Directors; or (vi) by you, without Good Reason, upon thirty (30) days prior written notice to the Chairs of the Corp orations' Boards of Directors.

      (b) Cause and Good Reason Defined. For purposes of this letter agreement, the terms "Cause" and "Good Reason" have the following meanings:

            (i) "Cause" means (a) fraud, embezzlement or other misappropriation by you of funds, property or rights of the Corporations; (b) your conviction, by plea or otherwise, of any felony, or of any misdemeanor, if such misdemeanor involves a crime of theft, trust, or dishonesty; (c) any gross misconduct by you that is injurious in any material respect to the Corporations; (d) your failure to perform in any material respect any of your material obligations under this letter agreement; or (e) a breach of your fiduciary duties as an employee of the Corporations; but, "Cause" shall not be deemed to exist under clauses (c), (d) or (e) unless the

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Corporations shall have given notice to you specifying in reasonable detail your acts or omissions that the Corporations allege would constitute Cause and you fail to rescind any such act or cure any such omission within fifteen (15) days after delivery of the notice.

            (ii) "Good Reason" means (a) a material diminution of your authority, duties or responsibilities as stated in this agreement; (b) a material diminution of your base salary for any reason other than in connection with the termination of your employment hereunder; (c) the Corporations' requiring you to be based in any specific location more than 50 miles from 275 Kennedy Drive, South Burlington, Vermont; or (d) the Corporations otherwise materially breach, or are unable to perform, their obligations under this letter agreement. "Good Reason" shall not be deemed to exist unless you shall have given notice to the Chairs of the Corporations' Boards of Directors specifying in reasonable detail the act or omission that you allege would constitute Good Reason within sixty (60) days of the first occurrence of such act or omission and the Corporations shall have failed to rescind any such act or cure any such omission within thi rty (30) days after delivery of such notice, and you resign within sixty (60) days thereafter.

      (c) Adjustments Upon Early Termination.

            (i) If your employment is terminated by the Corporations for Cause, or because of death, disability or incapacity, or because you quit without Good Reason, then all further compensation and benefits provided to you under this letter agreement will cease as of the date of such termination, and the Corporations will pay you (or your beneficiary) the portion of your salary that is accrued but unpaid, any vacation that is accrued but is unused, and any business expenses that are unreimbursed, in each case determined as of the date of termination and payable as soon as administratively possible.

            (ii) If your employment is terminated by the Corporations without Cause, or if you quit for Good Reason before the expiration of the term of this letter agreement, then all further compensation and benefits provided to you under this agreement will cease as of the date of such termination, and the Corporations will pay you, on the first business day occurring on or after the 60^th day following the date on which your employment terminates, a single lump sum amount equal to one year of your then current salary, with the dollar amount "grossed-up" so that you will effectively receive such amount without the effect of local, state or federal income taxation. Prior to payment of this lump sum amount, you will execute and deliver to the Corporations a release in form and substance reasonably satisfactory to the Corporations under which you release the Corporations, any of their affiliated entities, and their direc tors, officers, employees and agents for any claims or causes of action relating to or arising from your employment with the Corporations or your termination of employment with the Corporations, excluding any claims related to the Corporations' obligations to make payments pursuant to the express terms of this letter agreement (the "Release"). You must execute and deliver the Release to the Corporations within forty-five (45) days after the date your employment terminates and the seven-day revocation period applicable thereto must expire in order for the Corporations to make the Severance Payment to you.

      (d) No Duty to Mitigate. You will not be required to mitigate the amount of any compensation provided for in Section 4(c), by seeking other employment or otherwise.

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      5. Confidentiality.

      (a) As used in this letter agreement, the term "Confidential Information" means all confidential and proprietary information of the Corporations disclosed to you by the Corporations in the course of your employment, except information that: (i) was previously known to you prior to such disclosure; (ii) was public knowledge at the time of such disclosure; or thereafter becomes public knowledge other than through your fault; or (iii) is lawfully disclosed or made available to you by a third-party having no obligation to the Corporations to maintain the confidentiality of such information.

      (b) You will maintain the confidentiality of all Confidential Information, which will remain the exclusive property of the Corporations and will be used by you exclusively for purposes of performing your responsibilities hereunder. Unless previously authorized by the Corporations in writing, you will not disclose or use Confidential Information for any other purpose.

      (c) You will promptly deliver to the Corporations, upon termination of your employment, or at the Corporations' earlier request, (i) all documents and other tangible media in your possession or control that contain or reflect Confidential Information, and (ii) all other documents or items belonging to the Corporations.

      6. Non-Solicitation. During the term of this letter agreement and for a period of twelve (12) months after your employment is terminated for any reason, whether by you or by the Corporations, you will not, directly or indirectly, solicit any employee to leave his or her employment with the Corporations.

      7. Equitable Relief. You acknowledge that any breach by you of your obligations under Sections 5 and 6 of this letter agreement would cause substantial and irreparable damage to the Corporations, and that money damages would be an inadequate remedy thereafter. Accordingly, you acknowledge and agree that the Corporations will be entitled to an injunction, specific performance, and/or other equitable relief to prevent the violation of such obligations, without any bond or other security being required and without the necessity of showing actual damages. If either party commences suit against the other, the unsuccessful party shall be liable to pay the costs of such action, including reasonable attorney's fees and costs. If any of the restrictive covenants set forth in this letter agreement are found by a court to be unreasonable because overly broad as to scope of restriction for industry description, time period, geographic area or otherwise, then and in that case such restrictions shall nevertheless remain effective but shall be considered amended in such manner so as to make the restriction reasonable as determined by such court and as so amended shall be enforced.

      8. Indemnification. In accordance with the limits set forth in the Vermont Business Corporations Law and Delaware General Corporations Law, as applicable, the Corporations shall indemnify you as provided by the Articles of Association and Bylaws.

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      9. Entire Agreement. This letter agreement shall embody the entire agreement and understanding between the parties, and supercedes any prior agreements, including without limitation that certain Employment Agreement dated December 21, 2006, entered into by the parties. This letter agreement may not be amended, waived or discharged except by an instrument in writing executed by the party against whom such amendment, waiver or discharge is to be enforced.

      10. Section 409A.

      (a)    Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A, you shall not be considered to have terminated employment with the Corporations for purposes of this letter agreement and no payments shall be due to you under this letter agreement which are payable upon your termination of employment until you would be considered to have incurred a "separation from service" from the Company within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the 'Code').

      (b)    Anything in this Agreement to the contrary notwithstanding, if at the time of your separation from service within the meaning of Section 409A, the Corporations determine that you are a "specified employee" within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that you become entitled to under this Agreement on account of your separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after your separation from service, or (B) your death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amount s that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule.

      (c)    You and the Corporations intend that this letter agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this letter agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. You and the Corporations agree that this letter agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party. Solely for purposes of Section 409A of the Code, any installment payable hereunder shall be considered a separate payment.

      (d)    All in-kind benefits provided and expenses eligible for reimbursement under this letter agreement shall be provided by the Corporations or incurred by you during the time periods set forth in this letter agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect

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the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
(e)    The Corporations make no representation or warranty and shall have no liability to you or any other person if any provisions of this letter agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.
If this letter agreement accurately sets forth our agreement with respect to the terms of your employment, please confirm your agreement by countersigning the enclosed duplicate original of this letter agreement and returning it to the attention of the undersigned. This letter agreement will then constitute an agreement under seal, governed by the internal laws of the State of Vermont.
We all look forward to a mutually rewarding relationship.
	Very truly yours,
	Merchants Bank
	By:
	Chair, Board of Directors Merchants Bank
	Merchants Bancshares, Inc.
	By:
	Chair, Board of Directors Merchants Bancshares, Inc.
	Accepted and Agreed
	This __ day of ________________:
	Michael R. Tuttle

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EX-99

Exhibit 99.1

For Release: December 24, 2008

Contact: Lisa Razo, Merchants Bank, at (802) 865-1838

Merchants Bancshares, Inc. Declines Offer to Participate in Capital Purchase Program Under the Troubled Asset Relief Program

SOUTH BURLINGTON, VT-- 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.

The continuing mission of Merchants Bank is to provide Vermonters with a statewide community bank that blends a strong technology platform with a genuine appreciation for local markets. Merchants Bank fulfills this commitment through a branch-based system that includes 36 community bank offices and 44 ATMs throughout Vermont, Personal Bankers dedicated to top-quality customer service and streamlined solutions, including: Personal Checking and Savings with Free Checking for Life^®, Cash Rewards Checking, a low-cost Money Market Account, Free Online Banking and Bill Pay, Overdraft Coverage, Direct Deposit, Free Debit Card, and Free Automated Phone Banking; Business Banking with Rewards Checking for Business, Business Online Banking and Bill Pay, Business Lines of Credit and Merchant Card Processing; Small Business Loans; Health Savings Accounts; Credit Cards; Flexible Certificates of Deposit; Vehicle Loans; Home Equity Credit; and Home Mortgages. Visit mbvt.com for more information. Merchants' stock is traded on the NASDAQ National Market system under the symbol MBVT. Member FDIC. Equal Housing Lender.

Some of the statements contained in this press release constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements reflect Merchants' current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause Merchants' actual results to differ significantly from those expressed in any forward-looking statement. Forward-looking statements should not be relied on since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond Merchants' control and which could materially affect actual results. The factors that could cause actual results to differ materially from current expectations include changes in general economic conditions in Vermont, changes in interest rates, c hanges in competitive product and pricing pressures among financial institutions within Merchants' markets, and changes in the financial condition of Merchants' borrowers. The forward-looking statements contained herein represent Merchants' judgment as of the date of this report, and Merchants cautions readers not to place undue reliance on such statements. For further information, please refer to Merchants' reports filed with the Securities and Exchange Commission.

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