Amended and Restated 1996 STOCK OPTION PLAN

Exhibit 10.17

MERCHANTS BANCSHARES, INC.

Amended and Restated 1996 STOCK OPTION PLAN

1.    Purpose .

      The purpose of the Merchants Bancshares, Inc. 1996 Stock Option Plan (the "Plan") is to provide an incentive to certain employees of Merchants Bancshares, Inc. a Delaware corporation (the "Company"), or affiliates thereof, 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 Board and as reflected in the terms of the written option agreements.

2.     Effective Date and Term of the Plan .

      The Plan is effective as of the date executed as indicated below (the "Effective Date"). 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. 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 in Section 10 below, the aggregate number of shares of Stock ("Shares") to be delivered upon exercise of all Options granted under the Plan shall not exceed 400,000.

      (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 further grants under the Plan, except that if any Option is canceled on account of the exercise of a related Option, the Shares represented by such canceled Option shall no longer be available for issuance 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 of Stock 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 of Directors (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 a "Non-Employee Director" within the meaning of 17 Code of Federal Regulations Section 240.16b-3(b)(3)(i). The Committee shall be appointed by, and serve at the pleasure of, the Board of Directors. !

      (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 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 granted 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.

      (c)     Liability/Protection . 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)     Option Price . The Option Price of each share of Stock purchasable under 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 Option 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 Committee. The fair market value of a Share of Stock for purposes of determining the Option 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 Section 422(c)(8) of the Internal Revenue Code of 1986, as amended. The Option Price shall be subject to adjustment in accordance with Section 10 hereof.

      (c)     Number of Shares of Stock . Each Option Agreement shall specify the number of Shares which the Optionee may purchase. The Committee shall have the authority to allow a form of payment other than cash (such as Share