S-8

As filed with the Securities and Exchange Commission on June 4, 2008
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MERCHANTS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware		03-0287342
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
275 Kennedy Drive South Burlington, Vermont 05403 (802) 658-3400 (Address, including zip code, and telephone number, including area code, of principal executive offices)
MERCHANTS BANCSHARES, INC. 2008 STOCK OPTION PLAN
Janet P. Spitler Chief Financial Officer Merchants Bancshares, Inc. 275 Kennedy Drive So. Burlington, Vermont 05403 (802) 658-3400 (Name, address, including zip code, and telephone number, including area code, of agent for service)
With a copy to:
Sheldon Prentice, Esq. General Counsel Merchants Bancshares, Inc. 275 Kennedy Drive So. Burlington, Vermont 05403 (802) 658-3400
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  [  ]	Accelerated filer  [X]		Non-accelerated file  [  ]
Smaller reporting company  [  ]
CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be Registered	Proposed Maximum Offering Price Per Unit	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, $0.01 par value per share	600,000(1)	$22.75(2)	$13,650,000(2)	$536.45

(1)	The securities registered hereunder include securities issued pursuant to the terms of the Merchants Bancshares, Inc. 2008 Stock Option Plan that provide for adjustments in the amount of securities being issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.
(2)	Pursuant to Rule 457(c), represents the average of the high and low reported prices for the Registrant's common stock as quoted on the Nasdaq Capital Stock Market on June 2, 2008, such date being a date within five business days prior to the date of filing of this Registration Statement.

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PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. Incorporation of Documents by Reference.

      The Registrant is subject to the informational and reporting requirements of Sections 13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The following documents, which are on file with the Commission, are incorporated in this Registration Statement by reference:

      (a) The Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

      (b) The Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008.

      (c) The Registrant's Current Reports on Form 8-K filed on February 27, 2008, March 21, 2008 and April 7, 2008.

      (d) The description of the Registrant's Common Stock contained in 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.

      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 securities then remaining unsold, shall be deemed to be incorporated by reference in this Registration Statement and to be part hereof from the date of the filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purposes of this Registration Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registratio n Statement.

Item 4. Description of Securities.

      Not applicable.

Item 5. Interests of Named Experts and Counsel.

      Not applicable.

Item 6. Indemnification of Directors and Officers.

      The Delaware General Corporation law provides:

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      (a)    A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of another corporation, partnership, joint venture, trust of other enterprise, against expenses (including attorney's fees), judgments, fines and or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a pleas of nolo contendere or its equivalent, shall not, of itself, create a pres umption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

      (b)    A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any a ction, suit or proceeding by judgment, order, settlement, conviction, or upon a pleas of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

      (c)    To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 8 Del.C. Sec. 145 Delaware's Corporation law also provides that a corporation's certificate of incorporation may contain:

            (7) A provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under section 174 of this title; or (iv) for any transaction from which the director for any act or omission occurring prior to the date when such provision becomes effective. All references in this paragraph to a director shall also be deemed to refer to a member of the governing body of a corporation which is not authorized to issue capital stock. 8 Del.C. Sec.102(7)

      The Certificate of Incorporation of Merchants Bancshares, Inc., provides as follows:

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      Eleventh: The Corporation shall indemnify each director and officer of the Corporation, his heirs, executors and administrators, and may indemnify each employee and agent of the Corporation, his heirs, executors, administrators and all other persons whom the Corporation is authorized to indemnify under the provisions of the General Corporation Law of the State of Delaware, to the extent permitted by law (a) against all expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, or in connection with any appeal therein, or otherwise, and (b) against all expenses (including attorney's fees) actually and reasonably incurred by him in connection with any appeal therein, or otherwise; and no provision to this Article Eleventh is intended to be construed as limiting, prohibiting, denying or abrogating an y of the general or specific powers or rights conferred by the General Corporation law of the State of Delaware upon the corporation to furnish, or upon any court to award, such indemnification, or indemnification as otherwise authorized pursuant to the General Corporation law of the State of Delaware or any other law not or hereafter in effect.

      The Board of Directors of the Corporation may, in its discretion, authorize the Corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the foregoing paragraph of this Article Eleventh.

      Twelfth: No director of the Corporation shall be personally liable to the Corporation or to any of its stockholders for monetary damages for breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability; provided, however, that to the extent required from time to time by applicable law, this provision shall not eliminate the liability of a director, to the extent such liability is provided by applicable law, (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware code, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Twelfth shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to the effective date of this amendment or repeal.

      The Corporation has purchased and has had in effect directors' and officers' liability insurance to insure the Corporation against any loss occurring by reason of the foregoing provisions.

      Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or controlling persons, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a registrant of expenses incurred or paid by a director, officer or controlling person of the registrant) is asserted by such directors, officers 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 or appropriate jurisdiction the question whether such indemnification

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by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

Item 7. Exemption from Registration Claimed.

      Not applicable.

Item 8. Exhibits.

      The Exhibit Index immediately preceding the exhibits is incorporated herein by reference.

Item 9. Undertakings.

      1.  Item 512(a) of Regulation S-K. 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:

      (i) To include any prospectus required by Section 10(a)(3) of the Securities Act;

      (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and

      (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement;

provided, however, that paragraphs (i) and (ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement.

      (2) That, for the purpose of determining any liability under the Securities Act, 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 which remain unsold at the termination of the offering.

      2.  Item 512(b) of Regulation S-K. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the 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.

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      3.  Item 512(h) of Regulation S-K. Insofar as indemnification for liabilities arising under the Securities Act 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 Commission such indemnification is against public policy as expressed in the Securities Act 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 question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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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 of filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in South Burlington, Vermont, on June 4, 2008.
	MERCHANTS BANCSHARES, INC.
	Registrant
	By:	/s/ Michael R. Tuttle
		Michael R. Tuttle Chief Executive Officer

POWER OF ATTORNEY

      KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael R. Tuttle and Janet P. Spitler his/her true and lawful attorney-in-fact and agent with full power of substitution and re-substitution, for him/her and in his/her name, place and stead, in any and all capacities to sign any or all amendments (including, without limitation, post-effective amendments) to this Registration Statement, any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act of 1933 and any or all pre- or post-effective amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that said attorney-in-fact and agent, or any substitute or substitutes for him, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.

Signature	Title	Date
/s/ Michael R. Tuttle	President, Chief Executive	June 4, 2008
	Officer and Director
Michael R. Tuttle	(Principal Executive Officer)
/s/ Janet P. Spitler	Chief Financial Officer	June 4, 2008
	(Principal Financial and
Janet P. Spitler	Accounting Officer)
/s/ Scott F. Boardman	Director	June 4, 2008
Scott F. Boardman

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Signature	Title	Date
/s/ Peter A. Bouyea	Director	June 4, 2008
Peter A. Bouyea
/s/ Jeffrey L. Davis	Director	June 4, 2008
Jeffrey L. Davis
/s/ Michael G. Furlong	Director	June 4, 2008
Michael G. Furlong
	Director	June _, 2008
John A. Kane
/s/ Lorilee A. Lawton	Director	June 4, 2008
Lorilee A. Lawton
/s/ Bruce M. Lisman	Director	June 4, 2008
Bruce M. Lisman
/s/ Raymond C. Pecor, Jr.	Director	June 4, 2008
Raymond C. Pecor, Jr.
/s/ Patrick S. Robins	Director	June 4, 2008
Patrick S. Robins
/s/ Robert A. Skiff	Director	June 4, 2008
Robert A. Skiff

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EXHIBIT INDEX
Exhibit Number	Description of Document
4.1	Merchants Bancshares, Inc. 2008 Stock Option Plan
4.2	Form of Stock Option Agreement
5	Opinion of F. Sheldon Prentice, SVP and General Counsel for Merchants Bancshares, Inc. (including the consent of such counsel) regarding the legality of the securities being offered
23.1	Consent of F. Sheldon Prentice, SVP and General Counsel for Merchants Bancshares, Inc. (included as part of Exhibit 5 hereto)
23.2	Consent of KPMG LLP, an independent registered public accounting firm
24	Power of Attorney (included on signature page)

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EX-4

EXHIBIT 4.1

MERCHANTS BANCSHARES, INC.

2008 STOCK OPTION PLAN

1.   Purpose.

      The purpose of the Merchants Bancshares, Inc. 2008 Stock Option Plan (the "Plan") is to provide an incentive to certain employees of Merchants Bancshares, Inc. a Delaware corporation (the "Company"), and its subsidiaries, 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"). Options granted under this Plan may be either ISO's or NQSO's, as determined at the discretion of the Committee (as defined below) and as reflected in the terms of the written option agreements.

2.   Effective Date and Term of the Plan.

      (a)   The Plan is effective as of February 21, 2008 (the "Effective Date"), subject to subsequent approval, within 12 months of its adoption by the Board of Directors of the Company (the "Board"), by shareholders of the Company eligible to vote in the election of directors, by a vote sufficient to meet the requirements of Code Sections 162(m) (if applicable) and 422, Rule 16b-3 under the Exchange Act (if applicable), applicable requirements under the rules of any stock exchange or automated quotation system on which the Stock may be listed or quoted, and other laws, regulations, and obligations of the Company applicable to the Plan. Options may be granted subject to shareholder approval, but may not be exercised in the event the shareholder approval is not obtained.

      (b)   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.

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Options granted prior to the Termination Date shall remain in effect until their exercise, surrender, cancellation or expiration in accordance with the terms of the written option agreement.

3.   Stock Subject to the Plan.

      (a)   Subject to adjustment as provided for in Section 10 below, the aggregate number of shares of Stock ("Shares") reserved and available to delivery under the Plan shall be 600,000.

      (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 future grants 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 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 (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 (i) a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act, and (ii) "Independent" within the meaning of the rules of the Nasdaq Stock Market or any other national securities exchange on which the Stock is listed for trading. The Committee shall be appointed by, and serve at the pleasure of, the Board.

      (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

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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 gran ted 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. The Committee may delegate to officers of the Company and its subsidiaries, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including administrative functions as the Committee may de termine to the extent that such delegation will not result in the loss of an exemption under Rule 16b-3(d)(1) for Options granted to Optionees subject to Section 16 of the Exchange Act in respect of the Company and will not cause Options intended to qualify as "performance-based compensation" under Code Section 162(m) to fail to so qualify. The Committee may appoint agents to assist it in administering the Plan.

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      (c)   Liability/Protection. The Committee, and each member thereof, shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or employee, the Company's independent auditors or any other consultants or agents assisting in the administration of the Plan. 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, but only to the extent consistent with this Plan.

      (b)   Exercise Price. The Exercise Price of each Share subject to 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 Exercise 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 Commit tee. The fair market value of the Stock for purposes of determining the Exercise 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 Code Section 422(c)(8). The Exercise Price shall be subject to adjustment in accordance with Section 10 hereof.

      (c)   Number of Shares. Each Option Agreement shall specify the number of Shares which the Optionee may purchase. The aggregate fair market value (determined at the time the Option is granted), of Shares with respect to which an 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 subsidiaries) 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 Code Section 422.

      (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

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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 Committee shall have the authority to allow a form of payment other than cash (such as Stock or the withholding of Shares otherwise deliverable pursuant to an Option) to the extent consistent with applicable requirements of Federal tax law.

7.   Expiration of Options.

      The unexercised portion of any Option granted under the Plan shall automatically and without notice expire at 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 Stock subject to the Option for his or

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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 c onditions 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 Exercise 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

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(and the shareholders of the Company prior to such transaction continue to own at least 50% of the capital stock of the Company after such transaction), 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 Exercise Price, shall be adjusted proportionately by the Committee to reflect such Restructuring Event. For example, in the case of a two for one stock split, the number of Shares issuable upon exercise of an option would be doubled and the exercise price of such option would be decreased by one half.
(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 and the shareholders of the Company prior to such transaction continue to own at least 50% of the capital stock of the Company after such transaction), 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), all Options held by any Optionee shall be fully vested and exercisable by the Optionee. Furthermore, 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)   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
	(ii)   requiring an Optionee, at any time in connection with such merger,

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	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 (i) 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.

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14.   Exemptions from Section 16(b) Liability.

      It is the intent of the Company that the grant of Options to an Optionee who is subject to Section 16 of the Exchange Act shall be exempt from Section 16 pursuant to an applicable exemption (except for transactions acknowledged in writing to be non-exempt by such Optionee). Accordingly, if any provision of this Plan or any Option Agreement does not comply with the requirements of Rule 16b-3 then applicable to any such transaction, such provision shall be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 so that such Optionee shall avoid liability under Section 16(b).

15.   Code Section 409A

      If and to the extent that the Committee believes that any Option grants may constitute a "nonqualified deferred compensation plan" under Code Section 409A, the terms and conditions set forth in the Option Agreement for that Option shall be drafted in a manner that is intended to comply with, and those provisions (and /or the provisions of the Plan applicable thereto) shall be interpreted in a manner consistent with, the applicable requirements of Code Section 409A, and the Committee, in its sole discretion and without the consent of any Optionee, may amend any Option Agreement (and the provisions of the Plan applicable thereto) if and to the extent that the Committee determines necessary or appropriate to comply with the applicable requirements of Section 409A of the Code.

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EX-4

EXHIBIT 4.2

STOCK OPTION AGREEMENT

MERCHANTS BANCSHARES, INC.

2008 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 2008 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." This Option is intended to be an Incentive Stock Option under the Internal Revenue Code with respect to _________ of the Option Shares and a nonqualified stock option with respect to the remaining 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 Exercisability Except as otherwise specifically provided in this Agreement, the Option shall not be exercisable for any of the Option Shares until the third anniversary of the Grant Date, at which time, if the Optionee is then employed by the Company, the Option shall be exercisable in full 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.

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      (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. 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), (iv) or (v), 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. 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 or from the CEO of the Company and a thirty (30) day opportunity to cure, neglect of duties.

      (iv)   Termination without Cause. If the Optionee's employment is terminated by the Company other than for death, disability, or Cause, 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.

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      3.   Exercise of Option. The Optionee shall deliver written notice of his intention to exercise the Option, and 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. 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. Notwithstanding the foregoing, the Option

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holder may, by delivering written notice to the Company, substantially in the form attached as Exhibit "A" hereto, designate a person who, in the event of the Option holder's death, shall thereafter be entitled to exercise the Option.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 or any of its subsidiaries (if applicable), to continue the employment of the Optionee for the period within which this Option may be exercised. This Option does not in any way represent a guarantee of employment for any period of time.

      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. Optionee hereby authorizes Company to make any applicable tax withholdings upon the Optionee's exercise from Optionee's regular salary or from any other other source available to the Company.

      7.   Miscellaneous.

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(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: _________________
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: __________________________
	Date: __________________________

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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 2008 Stock Option Plan.
	_____________________________ [Print Name:___________________] DATE: _______________________

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Exhibit "A"
MERCHANTS BANK 2008 STOCK OPTION PLAN BENEFICIARY DESIGNATION FORM
Please print in ink:
PARTICIPANT INFORMATION
Name:________________________________ Social Security Number:__________________ Address:_______________________________          _______________________________ Telephone Number:______________________
I.   Designation of Person to Receive and Exercise Options:
Pursuant to my option agreement under the Merchants Bank 2008 Stock Option Plan (the "Plan"), I hereby revoke any prior designations of the person or persons to receive and to have the right to exercise my stock options under the Plan, and I hereby designate the following person or persons to receive and have the right to exercise my stock options on account of my death subject to my right to change this designation and subject to the terms of the Plan:
A.	Primary Designee(s):
	Name, Address:__________________________ _______________________________________ _______________________________________ Telephone Number:_______________________ Relationship to Participant:_________________ % of Options:____________________________ Date of Birth:____________________________
	Name, Address:__________________________ _______________________________________ _______________________________________ Telephone Number:_______________________ Relationship to Participant:_________________ % of Options:____________________________ Date of Birth:____________________________

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B:	Contingent Designee(s) (will receive indicated portions of Options if no Primary Designee survives the Participant):
	Contingent Designee(s):
	Name, Address:__________________________ _______________________________________ _______________________________________ Telephone Number:_______________________ Relationship to Participant:_________________ % of Options:____________________________ Date of Birth:____________________________
	Name, Address:__________________________ _______________________________________ _______________________________________ Telephone Number:_______________________ Relationship to Participant:_________________ % of Options:____________________________ Date of Birth:____________________________

____________
Date ____________________________
Participant's Signature

EX-5

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EXHIBIT 5
June 4, 2008
Merchants Bancshares, Inc. 275 Kennedy Drive South Burlington, VT 05403
Re:	Registration Statement on Form S-8 Under the Securities Act of 1933, as Amended
Ladies and Gentlemen:
I 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 June 4, 2008 (the "Registration Statement").
The Registration Statement covers the registration of 600,000 shares (the "Shares") of common stock, $0.01 par value per share of the Company ("Common Stock"), that may be sold pursuant to the Company's 2008 Stock Option Plan (the "Plan").
I have reviewed the corporate proceedings taken by the Company with respect to the authorization of the Plan and the Registration Statement. I have also examined and relied upon originals or copies of such agreements, instruments, corporate records, certificates, and other documents as I have deemed necessary or appropriate to enable me to express the opinions rendered hereby. In my examination, I have assumed the genuineness of all signatures, the conformity to the originals of all documents reviewed by me as copies, the authenticity and completeness of all original documents reviewed by us in original form, and the legal competence of each individual executing any document.
I have assumed that, upon issuance of the Shares in accordance with the Plan, the total number of shares of Common Stock issued and outstanding will not exceed the total number of shares of Common Stock that the Company is then authorized to issue under its Certificate of Incorporation.
Subject to the limitations set forth herein, I have made such examination of law as I 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, I am of the opinion that:
1.	The issuance and sale of the Shares as contemplated in the Registration Statement have been duly authorized by the Company.

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2.	The Shares, when issued and sold in accordance with the provisions of the Plan, will be validly issued, fully paid, and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving such consent, I do not thereby admit that I am in the category of persons whose consent is required under Section 7 of the Securities Act or the General Rules and Regulations of the Commission thereunder.
		Very truly yours, /s/ F. Sheldon Prentice F. Sheldon Prentice Senior Vice President and General Counsel

EX-23

EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Merchants Bancshares, Inc.:

We consent to the use of our reports dated March 12, 2008, with respect to the consolidated balance sheets of Merchants Bancshares, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in shareholders' equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2007, and the effectiveness of internal control over financial reporting as of December 31, 2007, incorporated by reference in this Registration Statement on Form S-8 of Merchants Bancshares, Inc. related to the registration of shares for the Merchants Bancshares, Inc. 2008 Stock Option Plan. Our report refers to a change in the method of quantifying errors in 2006.

/s/ KPMG LLP
KPMG LLP

Albany, New York
May 30, 2008

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