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. AND SUBSIDIARIES 2008 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS AND TRUSTEES
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	150,000(1)	$22.75(2)	$3,412,500(2)	$134.11

(1)	The securities registered hereunder include securities issued pursuant to the terms of the Merchants Bancshares, Inc. and subsidiaries 2008 Compensation Plan for Non-Employee Directors and Trustees 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 presumpt ion 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 t he 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. and Subsidiaries 2008 Compensation Plan for Non-Employee Directors and Trustees
5	Opinion of F. Sheldon Prentice, SVP and General Counsel for Merchants Bancshares, Inc. (including the consent of such firm) 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. AND SUBSIDIARIES

2008 COMPENSATION PLAN

FOR

NON-EMPLOYEE DIRECTORS AND TRUSTEES

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MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
2008 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS AND TRUSTEES

ARTICLE 1

Purpose

      Section 1.1. Purpose. The name of this Plan is the Merchants Bancshares, Inc. and Subsidiaries 2008 Compensation Plan for Non-Employee Directors and Trustees (the "Plan"). The purpose of the Plan is to provide a compensation program for non-employee directors and trustees (each, a "Participant") of Merchants Bancshares, Inc. and its subsidiaries that will attract and retain highly qualified individuals to serve as members of the Board of Directors or Board of Trustees, as applicable, of (a) Merchants Bancshares, Inc., (b) Merchants Bank, (c) Merchants Trust Company, or (d) any other subsidiary of Merchants Bancshares, Inc. as determined by the Board of Directors of Merchants Bancshares, Inc. (the "Company" and, together with the subsidiaries described in (b), (c) and (d), the "Companies"). The Participants are to receive their Compensation for service on a Board of Directors of the Companies in the form of cash, shares of Compan y common stock, par value $0.01 per share ("Common Stock"), or any combination of the foregoing, subject to the terms of the Plan. For purposes of the Plan, the term "Compensation" shall mean any and all fees earned by a Participant for service on a Board of Directors of a Company, including, without limitation, each regular or special meeting and for any committee meetings attended. This Plan is intended to satisfy the requirements of Internal Revenue Code Section 409A and Internal Revenue Service and U.S. Treasury Department guidance thereunder.

ARTICLE 2

Administration

      Section 2.1. Compensation. From time to time, the respective boards of directors of the Companies shall determine the amount, form and timing of Compensation payable to Participants, which determination shall be contained in a resolution(s) or consent(s) adopted by the applicable board of directors.

      Section 2.2. Management Committee. Subject to Sections 2.1, 6.6, and any other provision of the Plan which expressly states that the approval of the Board of Directors of the Company (the "Board") is required, the Plan shall be administered by a management committee (the "Committee") consisting of the Chief Executive Officer of the Company and such other senior officers as the Chief Executive Officer shall designate. Subject to the terms of the Plan, the Committee shall interpret the Plan, shall prescribe, amend and rescind rules relating to it from time to time as it deems proper and in the best interests of the Company, and shall take any other action necessary for the administration of the Plan. Any decision or interpretation adopted by the Committee shall be final and conclusive and shall be binding upon all Participants.

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ARTICLE 3
Participation
Section 3.1. Participants. Each person who is a non-employee Director or Trustee of a Company on the Effective Date (as defined in Section 6.8) shall become a Participant as of the Effective Date. Any other individual shall become a Participant immediately upon becoming a Director or Trustee of a Company.
ARTICLE 4
Shares
Section 4.1. Maximum Number of Shares. Subject to Section 4.2, the Board has reserved for issuance a maximum total of 150,000 shares of Common Stock under the Plan. Issuances of shares may be made from the Company's treasury or out of authorized but unissued shares of the Company, or partly out of each, as shall be determined by the Committee.
Section 4.2. Adjustment to Number of Shares. In the event of a recapitalization, stock split, stock dividend, exchange of shares, merger, reorganization, change in corporate structure or shares of the Company or similar event, the Board, upon recommendation of the Committee, may make appropriate adjustments to the number of shares of Common Stock (i) authorized for issuance under the Plan, and (ii) subject to an Election (as defined in Section 5.2). The Committee shall clearly outline the proposed mechanism for such adjustment, and such adjustment shall not result in an increase or diminution in value in a Participant's account.
ARTICLE 5
Payment of Compensation
Section 5.1. Amount of Compensation. Compensation shall be determined by the Board pursuant to Section 2.1 of the Plan, and shall be paid, unless deferred pursuant to Section 5.2, according to the ordinary practices of the Company.
Section 5.2. Election. Prior to January 1st of each year, and subject to such deadlines as may be established by the Committee from time to time, a Participant may elect to receive all or any portion of his or her Compensation for such year in the form of shares of Common Stock subject to Section 5.3 below ("Deferred Common Stock"). If no Election is received by the Company, a Participant shall receive his or her Compensation in cash pursuant to Section 5.1. An Election under this Section 5.2 shall be irrevocable and shall apply to all Compensation earned during such year for which the Election is effective.
Section 5.3. Deferred Common Stock.
	(a)	Calculation of Shares. For each Participant that has made the Election, on the day on which he or she would have otherwise been paid Compensation pursuant to Section 5.1 in the absence of such Election, the Committee shall calculate the number of shares of Common Stock to be delivered to such Participant by:

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	(i)	dividing the amount of Compensation to which that Participant is entitled on such date by the market price of a share of Common Stock on that day (such number being the "Basic Shares"), and
	(ii)	multiplying the number of Basic Shares by the "Risk Premium" (as defined below), rounding any fractional share up to the nearest whole number (such number in excess of the Basic Shares as determined pursuant to this clause (ii) being the "Risk Premium Shares").
	For purposes of the Plan, the "Risk Premium" applicable during any year of the Plan shall be a number, no less than 1.0 and no greater than 1.25, determined prior to such year by the Board, which number shall reflect the investment and other risks assumed by a Participant in making the Election and to provide a reasonable inducement to a Participant for making such Election.
	The Basic Shares and the Risk Premium Shares are referred to together in this Plan as the "Shares".
(b)	Deferral Generally. Shares will not be delivered to a Participant until the applicable Delivery Date determined in accordance with Section 5.3(d). No Participant may sell, transfer or otherwise dispose of any Shares or any portion thereof or interest therein prior to the Delivery Date for such Shares.
(c)	Forfeiture of Risk Premium Shares. Any Participant that, prior to the Delivery Date applicable to that Participant:
	(i)	resigns from a Board of Directors of a Company voluntarily without the consent of a majority of the remaining members of that Board of Directors, or
	(ii)	is forced to resign from a Board of Directors of a Company for "Cause" as provided in that entity's by-laws,
	shall forfeit any and all Risk Premium Shares to which such Participant shall otherwise be entitled.
(d)	Delivery Dates.
	(i)	Shares shall be delivered to a Participant in seven annual installments commencing in January of the first calendar year after a Participant's sixty-fifth (65th) birthday (the "Initial Delivery Date"), with additional installments being delivered thereafter on the subsequent anniversary dates of the Initial Delivery Date (each such date, together with the Initial Delivery Date, a "Delivery Date"). Installments shall be in as equal amounts as possible, as determined by the Committee in its discretion.
	(ii)	If a Participant desires to postpone the Initial Delivery Date, he or she may do so only once and such change must comply with the restrictions of Internal Revenue Code Section 409A, including that:

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		(A)	the election to change cannot take effect until at least twelve (12) months after the date on which the election is made.
		(B)	the first payment as to which the new election is made must be deferred to a date that is at least five (5) years from the date the payment would otherwise have been made.
		(C)	the election must be made not less than twelve (12) months prior to the Initial Delivery Date.
	(iii)	Any Participant who is receiving payments hereunder shall no longer be eligible to defer Compensation under this Plan.
(e)	Illustration of Measurement and Vesting. For example, if a 64-year old Participant who is otherwise entitled to cash fees of $900 on September 1, 2008 has made the Election with respect to the entire amount of the fee, and if the market price of the Common Stock is $18 on September 1, 2008, and the Board has determined that the Risk Premium for 2008 is 1.2, that Participant would receive 60 Shares (($900/18) x 1.2). 50 of the Shares would be Basic Shares and 10 of the Shares would be Risk Premium Shares. Beginning in January 2010 (the applicable Initial Delivery Date), the first installment of 8 Shares would be delivered to that Participant. If that Participant resigns from the Board without the consent of the Board prior to the Initial Delivery Date, the 10 Risk Premium Shares would be forfeited.
(f)	Dividends. To the extent that dividends or other distributions are made with respect to the Common Stock (but not with respect to any dividend or distribution on the capital stock of any other Company), a Participant shall be credited with the amount of such dividends or other distributions payable with respect to any Shares then credited to such Participant under the Plan (calculated as if such Shares had been delivered to that Participant); provided, however, that any shares of Common Stock or other security of the Company which is issued as a dividend on or other distribution with respect to a Share shall itself be subject to the same deferred delivery conditions and transfer restrictions that are applicable to the Shares hereunder.
(g)	Discretion to Accelerate. The Board, in its discretion, may accelerate the delivery of any Shares upon a Participant's death or permanent disability.
(h)	Issuance of Shares. Prior to the applicable Delivery Date, Shares may be issued and delivered by the Company to a trustee, via ledger transfer or such other method as is determined by the Committee, or may otherwise be set aside for deferred delivery to a Participant as described herein.

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ARTICLE 6
General Provisions
Section 6.1. Issuance of Common Stock. The Company shall not be required to issue any Shares prior to:
	(a)	obtaining any approval or ruling from the Securities and Exchange Commission, the Internal Revenue Service or any other governmental agency which the Company, in its sole discretion, deems necessary or advisable;
	(b)	listing the Shares on any stock exchange on which the Common Stock may then be listed; or
	(c)	completing any registration or other qualification of the Shares under any federal or state laws, rulings or regulations of any governmental body which the Company, in its sole discretion, determines to be necessary or advisable.
All Shares delivered under the Plan shall also be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which Common Stock is then listed and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. In making any such determinations, the Committee may rely upon an opinion of counsel for the Company.
Section 6.2. Unfunded Obligation. The obligation of the Company to deliver Shares to Participants pursuant to the Plan is an unfunded obligation of the Company. The Company is not required to segregate any monies from its general funds, to create any trusts, or to make any special deposits with respect to this obligation. Beneficial ownership of any investments, including trust investments that the Company may make to fulfill this obligation shall at all times remain in the Company. Any investments and the creation or maintenance of any trust or memorandum accounts shall not create or constitute a trust or a fiduciary relationship between the Committee or the Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant's Beneficiary or the Participant's creditors in any assets of the Company whatsoever. The Participants shall have no claim against the Company for any changes in the value of any asse ts that may be invested or reinvested by the Company with respect to the Plan.
Section 6.3. Beneficiary; Matters Relating to Marital Rights.
	(a)	The term "Beneficiary" shall mean the person or persons to whom payments are to be paid pursuant to the terms of the Plan in the event of the Participant's death. The designation shall be on a form provided by the Committee, executed by the Participant and delivered to the Committee.
	(b)	In connection with a divorce, decree of separate maintenance or other arrangement involving an adjustment of marital rights, if a Participant is required to transfer all or a portion of his or her Shares to his or her spouse, the Company shall have the right to purchase from the Participant all such Shares, unless the Participant files with the Company a copy, executed by his or her spouse, of any agreement as to the Shares

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	executed by the Participant, and an irrevocable proxy of unlimited duration, signed by his or her spouse, giving the Participant exclusive power to act on all matters concerning the Shares and this Plan.
Section 6.4. Permanent Disability. A Participant shall be deemed to suffer a permanent disability for purposes of this Plan if he or she: (A) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company. This definition of "Disability" shall be interpreted consistently with the rules under Internal Revenue Code Section 409A and any regulations or other guidance thereunder.
Section 6.5. Nonassignment. The right of a Participant or Beneficiary to the payment of any amounts under the Plan may not be assigned, transferred, pledged or encumbered, nor shall such right or other interests be subject to attachment, garnishment, execution or other legal process.
Section 6.6. Termination and Amendment. The Board may from time to time amend, suspend or terminate the Plan, in whole or in part, and if the Plan is suspended or terminated, the Board may reinstate any or all of its provisions. No amendment, suspension or termination may impair or accelerate the right of a Participant or a Participant's Beneficiary to receive benefits accrued prior to the effective date of such amendment, suspension or termination. Notwithstanding the foregoing, the Board may not amend the Plan without the approval of the stockholders of the Company to: (i) increase the number of shares of Common Stock that may be issued under the Plan, (ii) materially modify the eligibility for participation in the Plan, or (iii) otherwise materially increase the benefits accruing to the Participants under the Plan.
The Plan shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder.
Section 6.7. Applicable Law. The Plan shall be construed and governed in accordance with the laws of the State of Vermont.
Section 6.8. Effective Date and Term of the Plan. The Plan shall be submitted by the Board to the stockholders of the Company for their approval at the 2008 Annual Meeting of Stockholders of the Company, including any adjournments or postponements of that meeting, or any subsequent meeting of the stockholders of the Company. Subject to the approval of the Plan by the Company's stockholders, the Plan shall be effective on the date of such stockholders meeting (the "Effective Date"). To the extent required for compliance with Section 16(b) of the Exchange Act and rules promulgated thereunder, Shares distributed to Participants may not be sold until a date at least six (6) months after the date such stockholder approval is obtained, or if earlier, such other date allowed by Section 16(b) of the Exchange Act or rules promulgated thereunder. Unless extended by the Board, which extension may occur after the termination date of the Plan pursuant to Section 6.6 hereof, the Plan shall terminate ten (10) years after the Effective Date.
Section 6.9. Compliance With Rule 16b-3 of the Exchange Act. The Company's intention is that, so long as any of the Company's equity securities are registered pursuant to Section 12(b) or

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12(g) of the Exchange Act, with respect to Shares issued under the Plan, the Plan shall comply in all respects with Rule 16b-3 promulgated under Section 16(b) of the Exchange Act. If any Plan provision is later found not to be in compliance with Rule 16b-3 of the Exchange Act, that provision shall be deemed modified as necessary to meet the requirements of Rule 16b-3.

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EX-5

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 150,000 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 Compensation Plan for Non-Employee Directors and Trustees (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 me 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 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

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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. and subsidiaries 2008 Compensation Plan For Non-Employee Directors and Trustees. 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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