EXHIBIT 10.14.2 MERCHANTS BANCSHARES, INC. AMENDED AND RESTATED 1996 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

Exhibit 10.14.2

MERCHANTS BANCSHARES, INC.

AMENDED AND RESTATED

1996 COMPENSATION PLAN

FOR

NON-EMPLOYEE DIRECTORS

TABLE OF CONTENTS

ARTICLE 1 - Purpose

1

Section 1.1.   Purpose

1

ARTICLE 2 - Administration

1

Section 2.1.   Management Committee

1

ARTICLE 3 - Participation

1

Section 3.1.   Participants

1

ARTICLE 4 - Deferred Compensation

2

Section 4.1.   Maximum Number of Shares    

2

Section 4.2.   Adjustment to Number of Shares

2

ARTICLE 5 - Compensation

2

Section 5.1.   Amount of Compensation

2

Section 5.2.   Compensation Election

2

Section 5.3.   Plan Year

2

ARTICLE 6 - Stock Election

2

Section 6.1.   Deferred Common Stock

2

ARTICLE 7 - General Provisions

5

Section 7.1.   Issuance of Common Stock

5

Section 7.2.   Unfunded Obligation

5

Section 7.3.   Beneficiary; Family Transfer

6

Section 7.4.   Permanent Disability

6

Section 7.5.   Nonassignment

7

Section 7.6.   Termination and Amendment

7

Section 7.7.   Applicable Law

7

Section 7.8.   Effective Date and Term of the Plan

7

Section 7.9.   Compliance With Rule 16b-3 of the Exchange Act

7

MERCHANTS BANCSHARES, INC.
AMENDED AND RESTATED
1996 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

ARTICLE 1

Purpose

      Section 1.1.   Purpose.   The name of this Plan is the Merchants Bancshares, Inc. Amended and Restated 1996 Compensation Plan for Non-Employee Directors (the "Plan"). The purpose of the Plan is to provide a compensation program for non-employee directors ("Participating Directors") of Merchants Bancshares, Inc. (the "Company") that will attract and retain highly qualified individuals to serve as members of the Company's board of directors (the "Board"). The Plan Participating Directors are to receive their Compensation for service on the Board in the form of cash, shares of Company common stock, par value $0.01 per share, subject to restrictions as described below, ("Common Stock") or any combination of the foregoing. For purposes of the Plan, the term "Compensation" shall mean any and all fees earned by a Participating Director for each regular or special meeting and for any committee meetings attended. This Plan is hereby amended and restated as of January 1, 2005 to satisfy the requirements of Code Section 409A and Internal Revenue Service and U.S. Treasury Department guidance thereunder.

ARTICLE 2

Administration

      Section 2.1.   Management Committee.   Subject to Section 7.7, 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. 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 Directors.

ARTICLE 3

Participation

      Section 3.1.   Participants.   Each person who is a non-employee Director of the Company, or of its subsidiary The Merchants Bank (the "Bank"), on the Effective Date (as defined below) of the Plan shall become a Participating Director on the Effective Date. Any other individual shall become a Participating Director immediately upon becoming a Director of the Company or the Bank.

ARTICLE 4

Deferred Compensation

      Section 4.1.   Maximum Number of Shares.   Subject to Section 4.2, the maximum number of shares of Common Stock which may at any time be awarded under the Plan is 100,000 shares of Common Stock. Awards may be made from shares held in 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 (i) authorized for the Plan, and (ii) allocated under the Stock Election (as defined in Section 6). 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 the Participant's account.

ARTICLE 5

Compensation

      Section 5.1.   Amount of Compensation.   Each Director's compensation ("Compensation") shall be determined in accordance with the Company's bylaws and shall be paid, unless deferred pursuant to Section 6, according to the ordinary practices of the Company (the "Payment Date"), unless otherwise determined by the Committee.

      Section 5.2.   Compensation Election.   Prior to each Plan Year (as defined below) and subject to such deadlines as may be established by the Committee from time to time, each Participating Director 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 the restrictions described in Section 6 below (a "Stock Election"), provided that a Stock Election may not be made so as to apply to any fractional share. If no election is received by the Company, the Participating Director shall be deemed to have made an election to receive his or her Compensation in immediate cash. An election under this Section 5.2 shall be irrevocable and shall apply to the Compensation earned during the Plan Year (as defined below) for which the election is effective.

      Section 5.3.   Plan Year.   The term "Plan Year" shall mean the calendar year.

ARTICLE 6

Stock Election

      Section 6.1.   Deferred Common Stock.

(a)

Calculation of Pay-Out Shares. If a Participating Director makes a Stock Election, then the day on which he or she would have received cash in the absence of such election shall be a "Measurement Date." On each Measurement Date, the Committee or its delegate shall calculate the number of shares of Common Stock ("Shares") to be delivered with respect to such Stock Election ("Pay-Out Shares") by:

(i)

dividing the amount of cash the Participating Director would have received on such date by the "Per Share Price", as defined below (the number of Pay-Out Shares so determined being the "Basic Shares"), and

(ii)

multiplying the number of Basic Shares by the "Risk Premium", as defined below, rounding any fractional Share thus determined up to the nearest whole number (the number of Pay-Out Shares in excess of the Basic Shares as determined pursuant to this clause (ii) being the "Risk Premium Shares"). For purposes of this Section 6, the term "Per Share Price" on any Measurement Date shall mean the market price per Share at the close of trading on that day, and (ii) the "Risk Premium" applicable during any Plan Year shall be a number, no less than 1.0 and no greater than 1.25, determined prior to the applicable Plan Year by the Committee both to reflect the investment and other risks assumed by the Participating Director in making the Stock Election and to provide a reasonable inducement to the Participating Director for making such election.

(b)

Deferral Generally. Pay-Out Shares shall not be delivered to the Participating Director until the applicable Delivery Date (defined below); however, at any time on or after the Measurement Date and prior to the Delivery Date, the Pay-Out Shares may be delivered or otherwise transferred 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 the Participating Director as described herein. In any event, the Company's obligation to deliver Pay-Out Shares to Participating Directors hereunder shall, until delivery of the same on the Delivery Date, be an unfunded obligation of the Company. Without limiting the foregoing, no Participating Director may sell, transfer or otherwise dispose of any interest in any Pay-Out Shares, prior to the "Delivery Date" for such Pay-Out Shares. Pay-Out Shares for which the Delivery Date has not yet arrived are sometimes referred to herein as "Restricted Shares" or "Units."

(c)

Vesting of Restricted Shares; Forfeiture of Risk Premium Shares. A Participating Directors right to Pay-Out Shares shall "vest" on the fifth anniversary of the applicable Measurement Date. Except as otherwise provided in this Section 6, in no event shall any Pay-Out Shares be delivered to a Participating Director prior to the