KSB BANCORP INC, DEF 14A, 1998-04-15

KSB BANCORP INC
DEF 14A, 1998-04-15
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED

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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

[ X ] Filed by the registrant

[ ] Filed by a party other than the registrant

Check the appropriate box:

[ ] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))

[ X ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

KSB BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
<PAGE>

KSB BANCORP, INC.
MAIN STREET

KINGFIELD, MAINE 04947

April 6, 1998

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders
of KSB Bancorp, Inc. (the "Company") to be held on Wednesday, May 13, 1998, at
the Inn on Winter's Hill, Kingfield, Maine, at 5:30 p.m.

As described in the enclosed Proxy Statement, matters scheduled to be
presented for stockholder action at the Annual Meeting include the election of
two directors, and the approval of the 1998 Long-Term Incentive Stock Benefit
Plan. During this meeting, we will also report on the operations of Kingfield
Bank (the "Bank"), the wholly-owned subsidiary of the Company. Detailed
information concerning the activities and operating performance of the Company
and the Bank during the year ended December 31, 1997 is contained in our Annual
Report, which is also enclosed. Directors and officers of the Company, as well
as representatives of our independent auditors, will be present to respond to
any questions which stockholders may have.

We hope you will be able to attend this meeting in person. Whether or
not you expect to attend, we urge you to sign, date and return the enclosed
proxy card so that your shares will be represented.

On behalf of the Board of Directors and all of the employees of the
Company and the Bank, I wish to thank you for your support and interest. I look
forward to seeing you at the Annual Meeting.

Sincerely,

s/sJohn C. Witherspoon
----------------------
John C. Witherspoon
President and Chief Executive Officer
<PAGE>
KSB BANCORP, INC.
MAIN STREET

KINGFIELD, MAINE 04947

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On May 13, 1998

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of KSB Bancorp, Inc. (the "Company") will be held at the Inn on
Winter's Hill, Kingfield, Maine on Wednesday, May 13, 1998 at 5:30 p.m., Maine
time, for the following purposes:

1. The election of two directors for a term of three years each;

2. The approval of the KSB Bancorp, Inc. 1998 Long-Term Incentive
Stock Benefit Plan; and

Such other matters as may properly come before the Annual Meeting or
any adjournments thereof.

Pursuant to the Bylaws of the Company, the Board of Directors has fixed
March 23, 1998 as the voting record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof. Only holders of the Common Stock of the Company as of the close of
business on that date will be entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof. A list of stockholders entitled to vote at
the Annual Meeting will be available at Kingfield Bank, Main Street, Kingfield,
Maine for a period of ten days prior to the Annual Meeting and will also be
available for inspection at the meeting itself.

By Order of the Board of Directors

Kingfield, Maine
April 6, 1998

EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE ANNUAL MEETING,
IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>

KSB BANCORP, INC.
MAIN STREET

KINGFIELD, MAINE 04947

-------------------------

PROXY STATEMENT

-------------------------

ANNUAL MEETING OF STOCKHOLDERS

May 13, 1998

-------------------------

Solicitation and Voting of Proxies

This Proxy Statement is being furnished to stockholders of KSB Bancorp,
Inc. (the "Company") in connection with the solicitation by the Board of
Directors of proxies to be used at the Annual Meeting of Stockholders ("Annual
Meeting") to be held on Wednesday, May 13, 1998 at 5:30 p.m., Maine time, at the
Inn on Winter's Hill, Kingfield, Maine and at any adjournments thereof. The 1997
Annual Report to Stockholders, including the consolidated financial statements
of the Company for the year ended December 31, 1997, accompanies this Proxy
Statement and Proxy Card, which are first being mailed to stockholders on or
about April 8, 1997.

Regardless of the number of shares of Common Stock owned, it is
important that stockholders be represented by proxy or be present in person at
the Annual Meeting. Stockholders are requested to vote by completing the
enclosed Proxy Card and returning it, signed and dated, in the enclosed
postage-paid envelope. Stockholders are urged to indicate the way they wish to
vote in the spaces provided on the proxy card. Proxies solicited by the Board of
Directors of the Company will be voted in accordance with the directions given
therein. Where no instructions are indicated, signed proxies will be voted FOR
the election of each of the nominees for director named in this Proxy Statement,
and FOR the approval of the KSB Bancorp, Inc. 1998 Long-Term Incentive Stock
Benefit Plan.

The Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxyholders discretionary authority to vote
the shares in accordance with their best judgement on such other business, if
any, that may properly come before the Annual Meeting or any adjournments
thereof.

A proxy may be revoked at any time prior to its exercise by the filing
of a written notice of revocation with the Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if you are a
stockholder whose shares are not registered in your own name, you will need
appropriate documentation from your record holder to vote personally at the
Annual Meeting.

<PAGE>
The cost of solicitation of proxies in the form enclosed herewith will
be borne by the Company. Proxies may also be solicited personally or by mail or
telephone by the Company's Directors, officers and regular employees, without
additional compensation therefor. The Company will also request persons, firms
and corporations holding shares in their names, or in the name of their
nominees, which are beneficially owned by others, to send proxy material to and
obtain proxies from such beneficial owners, and will reimburse such holders for
their reasonable expenses in doing so.

Voting Securities

The securities which may be voted at this Annual Meeting consist of
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"), with each share entitling its owner to one vote on all matters to be
voted on at the Annual Meeting, except as provided below. The close of business
on March 23, 1998 has been fixed by the Board of Directors as the record date
(the "Record Date") for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and any adjournments thereof. The total number
of shares of the Company's Common Stock outstanding on the Record Date was
1,258,954 shares.

The presence, in person or by proxy, of at least a majority of the
total number of shares of Common Stock outstanding and entitled to vote is
necessary to constitute a quorum at this Annual Meeting. In the event there are
not sufficient votes for a quorum, or to approve or ratify any matter being
presented, at the time of this Annual Meeting, the Annual Meeting may be
adjourned in order to permit the further solicitation of proxies.

In accordance with the provisions of the Company's Certificate of
Incorporation, record holders of Common Stock who beneficially own in excess of
10% of the outstanding shares of Common Stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. The Company's
Certificate of Incorporation authorizes the Board of Directors (i) to make all
determinations necessary to implement and apply the Limit, including determining
whether persons or entities are acting in concert, and (ii) to demand that any
person who is reasonably believed to beneficially own stock in excess of the
Limit supply information to the Company to enable the Board to implement and
apply the Limit.

Voting Procedures and Method of Counting Votes

As to the election of Directors, the proxy card being provided by the
Board of Directors enables a stockholder to vote FOR the election of the
nominees proposed by the Board, or to WITHHOLD AUTHORITY to vote for one or more
of the nominees being proposed. Under Delaware law and the Company's Certificate
of Incorporation and Bylaws, Directors are elected by a plurality of votes cast,
without regard to either broker non-votes, or proxies as to which authority to
vote for one or more of the nominees being proposed is withheld.

2
<PAGE>
As to the approval of the KSB Bancorp, Inc. 1998 Long-Term Incentive
Stock Benefit Plan, by checking the appropriate box, a stockholder may: (i) vote
FOR the item; (ii) vote AGAINST the item; or (iii) ABSTAIN from voting on such
item. Under the Company's Certificate of Incorporation and Bylaws, the approval
of the matter shall be determined by a majority of the votes cast, without
regard to broker non-votes, or proxies marked "ABSTAIN."

Proxies solicited hereby will be returned to the Company, and will be
tabulated by inspectors of election designated by the Board.

Security Ownership of Certain Beneficial Owners

Persons and groups owning in excess of 5% of the Company's Common Stock
are required to file certain reports regarding such ownership with the Company
and with the Securities and Exchange Commission ("SEC"), in accordance with the
Securities Exchange Act of 1934 (the "Exchange Act"). The following table sets
forth information regarding persons known to be beneficial owners of more than
5% of the Company's Common Stock outstanding as of March 23, 1998.

Amount and Nature
Name and Address of Beneficial Percent
of Beneficial Owner Ownership of Class
- ------------------- --------- --------

Kingfield Bank 122,103 9.7%
Employee Stock Ownership Plan
c/o Kingfield Bank
Main Street
Kingfield, Maine 04947

Athena Capital Management, Inc. (1) 102,030 8.2%
621 E. Germantown Pike, Suite 105
Plymouth Valley, Pennsylvania 19401

- -----------------------------
(1) Athena Capital Management is an investment company. The information
contained herein is based upon an Amended Schedule 13G beneficial ownership
report, dated January 26, 1998, filed by Athena Capital Management with the
SEC. Such Schedule 13G indicates that Athena Capital Management has shared
voting and investment power over these shares of Common Stock.

PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING

PROPOSAL 1 - ELECTION OF DIRECTORS

Each of the members of the Board of Directors of the Company also
serves on the Board of Directors of Kingfield Bank (the "Bank"), the Company's
wholly-owned subsidiary. Directors are elected for staggered terms of three
years each, with the term of office of only one class of Directors expiring in
each year. Directors serve until their successors are elected and qualified. No
person

3
<PAGE>
being nominated as a Director is being proposed for election pursuant to any
agreement or understanding between any person and the Company.

The nominees proposed by the Board for election at this Annual Meeting
are William P. Dubord and Theodore C. Johanson. Each of these nominees is
presently a Director of the Company. Set forth below is certain information
concerning the nominees and the other members of the Board as of March 23, 1998.
The Board believes that such nominees will stand for election and will serve if
elected as Director. However, if any of the nominees proposed by the Board of
Directors fails to stand for election or is unable to accept election, the
proxies will be voted for the election of such other person or persons as the
Board of Directors may recommend.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF
THE NOMINEES WHOSE NAMES APPEAR BELOW.
<TABLE>
<CAPTION>

NOMINEES

Stevens.

Theodore C. Johanson, Age 60............ 2001 86,231 (2) 0.5
Mr. Johanson was appointed a Director of
the Bank and the Company in October,
1996. Mr. Johanson is the President of
Falcon Shoe Company in Lewiston, Maine.
<CAPTION>

CONTINUING DIRECTORS

Amount and Nature of
Name, Age, Principal Occupation and Beneficial Ownership Percent
Business Experience for Past Five Years Expiration of Term of Stock (1) of Class
- --------------------------------------- ------------------ ---------------------------- ---------
<S> <C> <C> <C>
G. Norton Luce, Age 64.................. 2000 21,318 (2) 1.7%
Mr. Luce has served as a Director of the
Company since its formation in 1993. He
has served as a Director of the Bank since
1978. Mr. Luce was president of
Mountain Fuel Company/Valley Gas
Company, a heating oil and gas delivery
business, as well as heating systems
installations, from 1975 until his retirement
in October 1988.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Winfield F. Robinson, Age 60............ 2000 40,173 (3) 3.2%
Mr. Robinson has served as Chairman of
the Board of the Company since its
formation in 1993. He has served as a
Director of the Bank since 1976 and was
elected Chairman of the Board in 1986.
Mr. Robinson is a director of Somerset
Corp. and serves as a vice president of
United Timber Corporation, a Maine-based
forest products firm.

Roger G. Spear, Age 54.................. 1999 6,028 (2) 0.5
Mr. Spear was elected as Director of the
Bank and the Company in March 1993.
Mr. Spear is Vice President of
Administration-Chief Financial Officer of
the University of Maine at Farmington.

John C. Witherspoon, Age 41............. 1999 78,986 (4) 6.2
Mr. Witherspoon has served as Chief
Executive Officer and Director of the
Company since its formation in 1993. He
joined the Bank in 1979 as an
administrative assistant and served as Vice
President from June 1981 until January
1984. In January 1984, Mr. Witherspoon
began to serve as President and Chief
Executive Officer of the Bank and was
elected to serve on the Board of Directors
of the Bank in 1987.

All Directors and executive officers as a
group (ten persons)..................... -- 239,011 (5)(6) 18.1%
</TABLE>
- --------------------
(1) Unless otherwise indicated, each person effectively exercises sole (or
shared with spouse) voting and dispositive power as to the shares reported.
(2) Includes 4,950 shares that may be acquired pursuant to the exercise of
stock options granted under the Directors' Stock Option Plan.
(3) Includes 9,900 shares that may be acquired pursuant to the exercise of
stock options granted under the Directors' Stock Option Plan.
(4) Includes 2,960 shares subject to future vesting under awards granted
pursuant to the Bank's Recognition and Retention Plans and Trusts ("BRPs")
and as to which voting may currently be directed. Includes 7,822 shares
subject to options granted pursuant to the Company's Incentive Stock Option
Plan that may be exercised within 60 days of the Record Date. Includes
10,447 shares allocated to Mr. Witherspoon's account under the Bank's
Employee Stock Ownership Plan (the "ESOP").
(5) Includes 9,546 shares subject to future vesting under awards granted
pursuant to the BRPs and as to which voting may currently be directed.
Includes 58,192 shares that may be acquired pursuant to the exercise of
stock options.
<PAGE>
(6) Includes 25,266 shares allocated to the accounts of executive officers
under the ESOP. Excludes the remaining 96,837 shares of Common Stock, or
8.3% of the shares of Common Stock outstanding, owned by the ESOP for the
benefit of the employees of the Company and the Bank who are not executive
officers. The ESOP Administrative Committee administers the ESOP. Under the
terms of the ESOP, shares of Common Stock allocated to the account of
employees are voted in accordance with the instructions of the respective
employees. Unallocated shares are voted by the ESOP Trustee as directed by
the Administrative Committee. The Administrative Committee shall vote the
unallocated shares in a manner that reflects the directions received from
employees as to allocated shares, unless their fiduciary duties require
otherwise. As of the Record Date, 86,282 shares of Common Stock held by the
ESOP had been allocated to the accounts of employees, including the shares
allocated to the account of executive officers.

Meetings of the Board of Directors and Committees of the Board

During the year ended December 31, 1997, the Board of Directors of the
Company held seven (7) meetings, and the Board of Directors of the Bank held
twelve (12) meetings. Each Director of the Company is a Director of the Bank. No
Director of the Company attended fewer than 75% of the total meetings of the
Board of Directors and committees on which such Board member served during this
period, with respect to each the Company and the Bank.

The Board of Directors of the Company serves as the nominating
committee for directors. While the Board will consider nominees recommended by
the stockholders, it has not actively solicited recommendations from
stockholders. Nominations by stockholders must comply with certain procedural
and informational requirements set forth in the Company's Bylaws. See "Advance
Notice of Business to be Conducted at an Annual Meeting."

5
<PAGE>
The Bank's compensation committee consists of Messrs. Dubord (Chairman)
and Robinson. The compensation committee reviews compensation, officer
promotions, benefits and other matters of personnel policy and practice. The
compensation committee met two (2) times in 1997.

The Bank's audit committee, consisting of Directors Dubord, Luce and
Spear, is responsible for reviewing audit performance and evaluating policies
and procedures relating to auditing functions and controls.

Directors' Compensation

Fees. Outside Directors of the Bank are paid an annual retainer of
$6,500 ($8,000 for the Chairman of the Board). In addition, Outside Directors
receive a fee of $100 for each Board meeting and Committee meeting attended.

Directors Deferred Fee Plan. The Bank maintains a deferred fee plan for
members of the Board of Directors. Participation in the Deferred Fee Plan is
voluntary. Under the Deferred Fee Plan, a Director who wishes to participate in
the Plan executes an agreement whereby the Director agrees to defer receipt of a
certain amount of fees otherwise payable to him. The Director's account is
credited with interest based on the prime rate quoted in the Wall Street Journal
on December 31 of each year. Benefits (deferrals plus credited interest) are
payable to the Director for ten years beginning on the later of the first day of
the calendar month following the end of the Director's term of office due to
resignation, removal, failure to be re-elected, or the Director's seventieth
(70th) birthday. In the event of the Director's death, the Bank will make
specified monthly payments to the Director's beneficiary or beneficiaries within
30 days after the Director's death. The Bank's obligation under the Deferred Fee
Plan is an unfunded and unsecured promise to pay. However, at its sole and
exclusive option, the Bank may elect to fund the Deferred Fee Plan. Currently,
Messrs.

Robinson, Dubord and Spear participate in the Deferred Plan.

Directors Option Plan. In 1993, the Company adopted a stock option plan
for Directors who are not employees of the Company or its subsidiary. The
Directors Option Plan authorized the granting of non-statutory stock options for
an aggregate of 39,600 shares of Common Stock (as adjusted to reflect stock
dividends and stock splits paid by the Company on August 12, 1996 and July 10,
1997 (the "Stock Dividends")) to members of the Board of Directors who were not
employees of the Bank or the Company. The six members of the Board of Directors
at the time of the conversion of the Bank from the mutual to stock form and the
related initial public offering of the Common Stock, who were not officers or
employees of the Company or the Bank, received an option to purchase 4,950
shares of Common Stock, except that the Chairman of the Board received an option
to purchase 9,900 shares. Both of these figures have been adjusted to reflect
the Stock Dividends. Options as to a total of 39,600 shares of Common Stock have
been granted to Directors under this plan. The exercise price of any option
granted under the Directors Option Plan may be paid in cash or common stock.

6
<PAGE>
Executive Compensation

Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank, for services rendered during the years ended
December 31, 1997, 1996 and 1995, to the Chief Executive Officer of the Bank and
the Company (the "Named Executive Officer").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- -------------------------------------
Other
Year Annual Awards Payouts All Other
Name and Ended Salary Bonus Compensation Compensation
Principal Position December 31, (1) (2) (3)
- -------------------- --------------- ---------- ---------- --------------- ------------------------------------- -------------
Restricted Options/
Stock SARS LTIP
Awards (#) Payouts
------------ -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Witherspoon 1997 $115,000 $17,537 -- -- -- -- $53,564
President and Chief 1996 100,800 12,000 -- -- -- -- 35,140
Executive Officer 1995 96,000 10,746 -- -- -- -- 19,980
</TABLE>
- ------------------------------------
(1) Salary amount includes $7,635, $7,004 and $6,375, respectively, deferred by
Mr. Witherspoon pursuant to the Bank's 401(k) Retirement and Savings Plan
for the years ended December 31, 1997, 1996 and 1995.
(2) Perquisites for the years ended December 31, 1997, 1996 and 1995 did not
exceed the lesser of $50,000 or 10% of the total of the salary and bonus as
reported for the Named Executive Officer.
(3) Includes $5,453, $4,760 and $4,572, respectively, of matching contributions
made by the Bank on Mr. Witherspoon's behalf pursuant to the Bank's 401(k)
Retirement and Savings Plan for the years ended December 31, 1997, 1996 and
1995. Also includes $48,111, $30,380 and $15,408, respectively,
representing the market value of shares of Common Stock allocated to Mr.
Witherspoon under the Bank's ESOP for the years ended December 31, 1997,
1996 and 1995.

Employment Agreements. The Bank and the Company have entered into an
employment agreement with John C. Witherspoon, which provides for a three-year
term. On each anniversary date of the agreement, the term of the agreement may
be extended for an additional year such that the remaining term is three years.
If notice of renewal is not provided, the agreement will expire two years
thereafter. In addition to a current base salary of $115,000, the agreement
provides for, among other things, disability pay, participation in stock benefit
plans and other fringe benefits applicable to executive personnel. The agreement
provides for termination by the Bank or the Company for cause at any time,
without further obligation. If termination of employment for cause is disputed
by Mr. Witherspoon, the Company will continue making payments and providing
benefits to Mr. Witherspoon until the dispute is settled by arbitration. If it
is determined in arbitration that cause for termination existed, payments made
must be returned. In the event the Bank or the Company choose to terminate the
executive's employment for reasons other than cause, or the executive resigns
due to demotion or loss of responsibility, relocation, reduction in benefits and

<PAGE>

perquisites or liquidation of the Bank or the Company, the executive may be
entitled to his base salary for the remaining term of the agreement. Life,
health and disability coverage would be provided for the remaining term of the
agreement. If termination, voluntary or involuntary, follows a change in control
of the Bank or the Company, the executive or, in the event of death, his
beneficiary would be entitled to (i) a severance payment equal to the greater of
the payments due for the remaining term of the agreement or three times the
average of the three preceding years base salary; and (ii) life, medical and
disability coverage for thirty-six (36) months.

7
<PAGE>
A "change in control" is generally defined to mean, during the term of
the agreement, the acquisition of Company or Bank stock that would require
Federal Reserve Board approval under the Bank Holding Company Act or under the
Change in Bank Control Act or the acquisition by a person, or group of persons,
of beneficial ownership of 20% or more of the Company's Common Stock, or a
tender offer, exchange offer, merger or other form of business combination, sale
of assets, or contested election of trustees which results in a change of a
majority of the Board of Directors. Payments to the executive under the
agreement will be made by the Company in the event that payments or benefits are
not paid by the Bank.

Incentive Stock Option Plan. The Board of Directors of the Company
adopted the 1993 Incentive Stock Option Plan (the "Option Plan"), which provides
for discretionary awards to officers and key employees. The grant of awards
under the Option Plan is determined by a committee of the Board of Directors
consisting of directors (the "Option Plan Committee"), none of whom is eligible
to receive options under the Plan. The Option Plan authorizes the granting of
incentive and non-statutory stock options for up to 83,870 shares of Common
Stock (as adjusted to reflect the Stock Dividends), to such officers and
full-time employees of the Company and its affiliates as the Option Plan
Committee may determine.

Set forth below is certain information concerning options outstanding
to the Named Executive Officer at December 31, 1997, and the options exercised
by the Named Executive Officer during 1997. No options were granted to the Named
Executive Officer in 1997.
<TABLE>
<CAPTION>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

Number of Unexercised Value of Unexercised In-
Options at The-Money Options at
Year-End Year-End (1)
Shares Acquired Value Exercisable/Unexercisable Exercisable/Unexercisable
Name Upon Exercise Realized (#) ($)
---- ------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John C. Witherspoon........ 821 $9,900 23,879 /6,188 $519,368 / $134,589
</TABLE>

(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of Common Stock that
would be received upon exercise, assuming such exercise occurred on
December 31, 1997, at which date the average of the bid and ask price of
the Common Stock as quoted on the Nasdaq Small-Cap Market was $21.75.

Transactions With Certain Related Persons

There are loans outstanding from the Bank to certain of its Directors
and executive officers, and their related interests. All loans or extensions of
credit to executive officers and Directors, and their related interest, are made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with the general public
and do not involve more than the normal risk of repayment or present other
unfavorable features.

8
<PAGE>
PROPOSAL 2 - APPROVAL OF THE KSB BANCORP, INC. 1998 LONG-TERM
INCENTIVE STOCK BENEFIT PLAN

The Board of Directors of the Company has adopted the 1998 Long-Term
Incentive Stock Benefit Plan (the "1998 Stock Benefit Plan"). The Board of
Directors adopted this plan in order to provide the Company the flexibility and
advantages needed to attract, retain and motivate key employees and directors.
The purpose of the 1998 Stock Benefit Plan is to advance the interests of the
Company and to increase stockholder value by providing officers, employees and
directors of the Company with a proprietary interest in the growth and
performance of the Company and with incentives for continued service to the
Company. The following is a summary of the material features of the 1998 Stock
Benefit Plan, which is qualified in its entirety by reference to the provisions
of the Plan attached hereto as Exhibit A.

General

The 1998 Stock Benefit Plan became effective on December 30, 1997, and will
remain in effect for a period of ten years. The 1998 Stock Benefit Plan
authorizes the issuance of up to 70,000 shares of Common Stock of the Company
pursuant to the grants of stock options, stock appreciation rights, or stock
awards.

The 1998 Stock Benefit Plan will be administered by a committee (the
"Committee") appointed by the Board of Directors, or by the Board of Directors
itself (references to the Committee shall include the Board to the extent it
administers the Plan). The Committee will be comprised of two or more
"Non-employee Directors" of the Board of Directors, as such term is defined in
Rule 16b-3 of the Exchange Act. The Committee has full and exclusive power
within the limitations set forth in the 1998 Stock Benefit Plan to make all
decisions and determinations regarding the selection of participants and the
granting of awards; establishing the terms and conditions relating to each
award; adopting rules, regulations and guidelines for carrying out the Plan's
purposes; and interpreting and otherwise construing the 1998 Stock Benefit Plan.
The 1998 Stock Benefit Plan may be amended by the Board or the Committee,
without the approval of stockholders, but no such amendments may adversely
affect any outstanding awards under the 1998 Stock Benefit Plan without the
consent of the holders thereof.

Eligibility

Any employee or director of the Company or of any of its subsidiaries shall
be eligible to receive an award under the 1998 Stock Benefit Plan.

Types of Awards

The Committee shall determine the type or types of awards to be made to
each participant under the Plan and shall approve the terms and conditions
governing these awards. Awards may be granted singly, in combination or in
tandem so that the settlement or payment of one automatically reduces or cancels
the other. The 1998 Stock Benefit Plan provides flexibility in structuring
long-term

9
<PAGE>
incentive agreements for various groups and levels of executives, directors and
other participants. The flexibility will permit the Company to grant one form of
award or combination of awards to certain participants while using another award
type or mix for others. Awards may include, but are not limited to, the
following:

Stock Options. Stock options will constitute rights entitling their holders
to purchase shares of the Company's Common Stock during a specified period. The
purchase price of each option may not be less than 100% of fair market value on
the date of grant. Fair market value for purposes of the 1998 Stock Benefit Plan
means the reported closing price of the Common Stock on the day of grant or if
the Common Stock is not traded on such date, on the next preceding day on which
the Common Stock was traded.

Any stock option granted in the form of any incentive stock option will be
intended to comply with the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended. Only options granted to employees qualify for
incentive stock option treatment. A stock option may be exercised in whole or in
installments, which may be cumulative. Shares of Common Stock purchased upon the
exercise of a stock option must be paid for in full at the time of the exercise
in cash or such other method as provided by the Committee. Such payment may
include tendering shares of Common Stock or surrendering of a stock award, or a
combination of methods. Accelerated ownership stock option rights may be granted
simultaneously with, or subsequent to, the grant of any option. If an option
grant contains an accelerated ownership stock option right, and if a participant
pays all or part of the exercise price of the option with previously owned
shares of Common Stock, then upon exercise of the option the participant will be
granted an accelerated ownership stock option to purchase at the fair market
value as of the date of grant of the accelerated ownership stock option, a
number of shares of Common Stock equal to the number of whole shares used by the
participant to pay for the exercise of the initial option and the number of
whole shares, if any, withheld by the Company in payment for withholding tax in
connection with the exercise of the initial option. Accordingly, the accelerated
ownership stock option rights do not increase the total number of shares owned
by a participant, or the aggregate shares outstanding, but permit the
participant to use previously owned shares of Common Stock to exercise stock
options without decreasing his or her proprietary interest in the Company. An
accelerated ownership option may not be exercised prior to the expiration of six
months from the date of the grant of the accelerated ownership option.

Stock Appreciation Rights. Stock appreciation rights ("SARs") entitle their
recipients to receive payments in cash, shares of Common Stock, or a combination
thereof, as determined by the Committee. Any such payments shall represent the
appreciation in market value of a specified number of shares from the date of
grant until the date of exercise. Such appreciation will be measured by the
excess of the fair market value on the date of exercise over the fair market
value of the Company's Common Stock on the date of grant of the SAR or the grant
of an award which the SAR replaced.

Stock Awards. Stock awards may constitute actual shares of Common Stock or
may be denominated in stock units which entitle the recipient to receive future
payments in either shares, cash, or a combination thereof. Stock awards may be
subject to conditions established by the

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<PAGE>
Committee and set forth in the award agreement, and which may include, but are
not limited to, continuous service with the Company, achievement of specific
business objectives, and other measurements of performance. Stock awards may be
subject to restrictions and contingencies regarding vesting and eventual payment
as the Committee may determine.

Any awards made under the 1998 Stock Benefit Plan may be subject to vesting
and other contingencies as determined by the Committee. Awards will be evidenced
by agreements approved by the Committee which set forth the terms and conditions
of each award.

The Committee may provide that awards under the 1998 Stock Benefit Plan
earn dividend equivalents, to be paid currently or at a later date or dates,
subject to such conditions as the Committee may establish. Award payments may
also be deferred as determined by the Committee. Such deferral settlements may
include the crediting of dividend equivalents if denominated in stock awards, or
interest if denominated in cash. Shares of Common Stock underlying stock awards
may be voted by the participant prior to vesting.

Generally, all awards, except nonincentive stock options, granted under the
1998 Stock Benefit Plan shall be nontransferable except by will or in accordance
with the laws of descent and distribution or pursuant to a domestic relations
order. During the life of the participant, awards can be exercised only by him
or her. The Committee may permit a participant to designate a beneficiary to
exercise or receive any rights that may exist under the 1998 Stock Benefit Plan
upon the participant's death.

Change in Control

Upon the occurrence of an event constituting a change in control of the
Company, all awards outstanding will become immediately vested, and stock awards
will be distributed.

A change in control is defined, generally, to mean (i) a change in control
of the nature that would be required to be reported in response to Item 1(a) of
the Current Report on Form 8-K, or as defined under the Change in Bank Control
Act and the Rules and Regulations thereunder ; (ii) the acquisition of 25% or
more of the Common Stock; (iii) a tender offer, a merger, sale of assets, or
change of a majority of the current Board of Directors (generally disregarding
any change approved by such Board); or (iv) a solicitation of proxies by someone
other than the management of the Company, seeking stockholder approval of a
business combination.

Tax Consequences

The following are the federal tax consequences generally arising with
respect to awards granted under the 1998 Stock Benefit Plan. The grant of an
option or SAR will create no tax consequences for an optionee or the Company.
The optionee will have no taxable income upon exercising an incentive stock
option (except that the alternative minimum tax may apply), and the Company will
receive no deduction when an incentive stock option is exercised. Upon
exercising an option other than an incentive stock option, the optionee must
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the stock on the date of exercise; the

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<PAGE>
Company will be entitled to a deduction for the same amount. The tax treatment
for an optionee on a disposition of shares acquired through the exercise of an
option depends on how long the shares have been held and whether such shares
were acquired by exercising an incentive stock option or by exercising an option
other than an incentive stock option. Generally, there will be no tax
consequences to the Company in connection with the disposition of shares
acquired under an option except that the Company may be entitled to a deduction
in the case of a disposition of shares acquired under the incentive stock option
before the applicable incentive stock option holding periods have been
satisfied.

With respect to other awards granted under the 1998 Stock Benefit Plan that
are settled either in cash or in stock or other property that is either
transferable or not subject to substantial risk of forfeiture, the participant
must recognize ordinary income equal to the cash or the fair market value of
shares or other property received; the Company will be entitled to a deduction
for the same amount. With respect to awards that are settled in stock or other
property that is restricted as to transferability or subject to substantial risk
of forfeiture, the participant must recognize ordinary income equal to the fair
market value of the shares or other property received at the time the shares or
other property became transferable or not subject to substantial risk of
forfeiture, whichever occurs earlier; the Company will be entitled to a
deduction for the same amount.

Additional Information

Options have been granted under the 1998 Stock Benefit Plan to the
following employees and outside directors in the amounts set forth in the table
below. As of April 3, 1998, the last sale price of the Common Stock, as reported
on the Nasdaq National Market, was $18.88. All options have been granted at an
exercise price of $18.50 per share, which was the fair market value of a share
of Common Stock on the date of grant (January 20, 1998).

Number of Shares
Name and to be Received upon
Principal Position Exercise of Options (1)
------------------ -----------------------

John C. Witherspoon 17,000
President and Chief Executive
Officer and Director

All executive officers as a 37,500
group (five persons)

All nonemployee directors 12,000
as a group (five persons) (2)

All employees, excluding 10,500
executive officers, as a group

- -----------------------------
(1) The value of the stock options is not determinable because the exercise
price was equal to the fair market value of the Company's Common Stock at
the time of the award.

(2) All options granted to nonemployee directors will be nonstatutory stock
options.

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<PAGE>
The affirmative vote of the holders of a majority of the votes cast at
the Annual Meeting is required for approval of the 1998 Stock Benefit Plan. The
purpose of obtaining stockholder approval of the 1998 Stock Benefit Plan is to
qualify the Plan for the granting of incentive stock options and to satisfy the
requirement for the listing of the Company's Common Stock on the NASDAQ National
Market.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE KSB BANCORP,
INC. 1998 LONG-TERM INCENTIVE STOCK BENEFIT PLAN.

INDEPENDENT AUDITORS

The Board of Directors of the Company has not yet selected independent
auditors for the year ending December 31, 1998. The selection will be based in
general upon the accounting firm's overall fee structure for auditing services,
tax consulting, tax return review or preparation, and general consultations. The
Company's independent auditors for the year ended December 31, 1997 were Berry,
Dunn, McNeil & Parker. A representative of Berry, Dunn, McNeil & Parker is
expected to attend the Annual Meeting. The representative will be given the
opportunity to make a statement if so desired and will be available to respond
to appropriate questions from stockholders present at the Annual Meeting.

STOCKHOLDER PROPOSALS

To be considered for inclusion in the Company's proxy statement in
connection with the annual meeting of stockholders to be held following the year
ending December 31, 1998, a stockholder proposal must be received by the
Secretary of the Company, at the address set forth on the first page of this
Proxy Statement, no later than December 7, 1998. Any stockholder proposal
submitted to the Company will be subject to SEC Rule 14a-8 under the Securities
Exchange Act of 1934.

ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED
AT AN ANNUAL MEETING

The Bylaws of the Company provide an advance notice procedure for
certain business, or nominations to the Board of Directors, to be brought before
an annual meeting. In order for a stockholder to properly bring business before
an annual meeting, or to propose a nominee to the Board, the stockholder must
give written notice to the Secretary of the Company not less than ninety (90)
days before the date fixed for such meeting. The notice must include the
stockholder's name, record address, and number of shares owned by the
stockholder, and describe briefly the proposed business, the reasons for
bringing the business before the annual meeting, and any material interest of
the stockholder in the proposed business. In the case of nominations to the
Board, certain information regarding the nominee must be provided. The date on
which next year's Annual Meeting of Stockholders is expected to held is May 12,
1999. Accordingly, advance notice for

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<PAGE>
certain business, or nominations to the Board of Directors, to be brought before
the 1999 Annual Meeting must be given to the Company by February 11, 1999.

By Order of the Board of Directors

Kingfield, Maine
April 6, 1998

YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO SIGN AND PROMPTLY
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
EXHIBIT A

KSB BANCORP, INC.
1998 LONG-TERM INCENTIVE STOCK BENEFIT PLAN

1. PURPOSE. The purpose of the KSB Bancorp, Inc. 1998 Long-Term
Incentive Stock Benefit Plan (the "Plan") is to advance the interest of KSB
Bancorp, Inc. (the "Company") and to increase shareholder value by providing
outside directors and key employees of the Company and its affiliates, including
Kingfield Bank (the "Bank"), upon whose judgment, initiative and efforts the
successful conduct of the business of the Company and its affiliates largely
depends, with additional incentive in the form of a proprietary interest in the
growth and performance of the Company and to encourage their continued service
with the Company and its affiliates. A purpose of the Plan is also to attract
people of experience and ability to the Company and its affiliates.

2. TERM. The Plan shall be effective as of December 30, 1997 (the date
of board of directors approval) (the "Effective Date") and shall remain in
effect until December 30, 2007 (ten years from such date) unless sooner
terminated by the Company's Board of Directors (the "Board"). The effectiveness
of the Plan is contingent upon stockholder approval, and any awards granted
prior to such stockholder approval shall be null and void if such approval is
not obtained, and any such award may not be exercised or vested prior to the
receipt of stockholder approval. After termination of the Plan, no future awards
may be granted but previously made awards shall remain outstanding in accordance
with their applicable terms and conditions and the terms and conditions of the
Plan.

3. PLAN ADMINISTRATION. A committee (the "Committee") appointed by the
Board shall be responsible for administering the Plan. The Committee shall be
comprised of either (i) at least two "Non-Employee Directors" of the Company, or
(ii) the entire Board of the Company. A "Non-Employee Director" means, for
purposes of the Plan, a director who (a) is not employed by the Company or an
affiliate; (b) does not receive compensation directly or indirectly as a
consultant (or in any other capacity than as a director) greater than $60,000;
(c) does not have an interest in a transaction requiring disclosure under Item
404(a) of Regulation S-K; or (d) is not engaged in a business relationship for
which disclosure would be required pursuant to Item 404(b) of Regulation S-K.
Actions and decisions of the Committee shall be approved by a majority of the
members of the Committee. The Committee shall have full and exclusive power to
interpret, construe and implement the Plan and any rules, regulations,
guidelines or agreements adopted hereunder and to adopt such rules, regulations
and guidelines for carrying out the Plan as it may deem necessary or proper.
These powers shall include, but not be limited to, (i) determination of the type
or types of awards to be granted under the Plan; (ii) determination of the terms
and conditions of any awards under the Plan; (iii) determination of whether, to
what extent and under what circumstances awards may be settled, paid or
exercised in cash, shares, other securities, or other awards, or other property,
or accelerated, canceled, extended, forfeited or suspended; (iv) adoption of
modifications, amendments, procedures, subplans and the like as are necessary;
(v) subject to the rights of participants, modification, change, amendment or
cancellation of any award to correct an administrative error; and (vi) taking
any other action the Committee deems necessary or desirable for the
administration of the Plan. All determinations, interpretations, and other
decisions under or with respect to the Plan or any award by the Committee shall
be final, conclusive and binding upon the Company, any participant, any holder
or beneficiary of any award under the Plan and any employee of the Company.
<PAGE>
4. ELIGIBILITY. Any employee of the Company shall be eligible to
receive Incentive Stock Options, Non-Statutory Stock Options, Stock Appreciation
Rights, Stock Awards, Dividends, and Dividend Equivalents under the Plan.
Outside directors shall be eligible to receive Non-Statutory Stock Options,
Stock Awards, Dividends, and Dividend Equivalents under the Plan, provided that
the term "Company" includes any entity that is directly or indirectly controlled
by the Company or any entity in which the Company has a significant equity
interest, as determined by the Committee. An "outside director" means a director
of the Company or an Affiliate who is not an employee of the Company or an
Affiliate.

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<PAGE>
5. SHARES OF STOCK SUBJECT TO THE PLAN. There shall be 70,000 shares of
Common Stock in the aggregate reserved for issuance under the Plan, which shares
shall be available for issuance (subject to adjustment as provided in Section 6)
pursuant to the exercise of stock options and stock awards, granted under
Sections 7(a) and (c) of the Plan. The maximum number of shares that may be
subject to all awards granted to any one employee of the Company is 40,000.

In instances where a stock appreciation right ("SAR") or other award is
settled in cash or any form other than shares, then the shares covered by these
settlements shall not be deemed issued and shall remain available for issuance
under the Plan. Further, the payment in shares of dividends and dividend
equivalents in conjunction with outstanding awards shall not be counted against
the shares available for issuance. Any shares that are issued by the Company,
and any awards that are granted by, or become obligations of, the Company, and
any awards that are granted by, or become obligations of, the Company, through
the assumption by the Company or an affiliate of, or in substitution for,
outstanding awards previously granted by an acquired company shall not be
counted against the shares available for issuance under the Plan. In addition,
any shares that are used for the full or partial payment of the exercise price
of any option in connection with an Accelerated Ownership Option Right will be
available for future grants under the Plan.

Any shares issued under the Plan may consist in whole or in part, of
authorized and unissued shares or of treasury shares, and no fractional shares
shall be issued under the Plan. Cash may be paid in lieu of any fractional
shares in settlements of awards under the Plan.

6. ADJUSTMENTS AND REORGANIZATIONS.

(a) Changes in Stock. If the number of outstanding shares of
Common Stock is increased or decreased or the shares of Common
Stock are changed into or exchanged for a different number of
kind of shares or other securities of the Company on account
of any recapitalization, reclassification, stock split,
reverse split, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock,
or other increase or decrease in such shares effected without
receipt of consideration by the Company occurring after the
Effective Date, the number and kinds of shares for which
grants of Stock Options and Stock Awards may be made under the
Plan shall be adjusted proportionately and accordingly by the
Company. In addition, the number and kind of shares for which
grants are outstanding shall be adjusted proportionately and
accordingly so that the proportionate interest of the grantee
immediately following such event shall, to the extent
practicable, be the same as immediately before such event. Any
such adjustment in outstanding Stock Options shall not change
the aggregate Stock Option purchase price payable with respect
to shares that are subject to the unexercised portion of the
Stock Option outstanding but shall include a corresponding
proportionate adjustment in the Stock Option purchase price
per share.
<PAGE>

(b) Reorganization in Which the Company Is the Surviving Entity
and in Which No Change of Control Occurs. Subject to Section
23 hereof, if the Company shall be the surviving entity in any
reorganization, merger, or consolidation of the Company with
one ore more other entities, any Stock Option theretofore
granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of stock
subject to such Stock Option would have been entitled
immediately following such reorganization, merger or
consolidation, with a corresponding proportionate adjustment
of the Stock Option purchase price per share so that the
aggregate Stock Option purchase price thereafter shall be the
same as the aggregate Stock Option purchase price of the
shares remaining subject to the Stock Option immediately prior
to such reorganization, merger, or consolidation. Subject to
any contrary language in an Award Agreement evidencing a Stock
Award Grant, any restrictions applicable to such Stock Award
shall apply as well to any replacement shares received by the
Grantee as a result of the reorganization, merger or
consolidation.

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<PAGE>
Adjustments under this Section 6 related to shares of Stock or securities of the
Company shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share. The granting of awards pursuant to the Plan shall
not affect or limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations, or changes of its capital or
business structure or to merge, consolidate, dissolve, or liquidate, or to sell
or transfer all or any part of its business or assets.

7. AWARDS. The Committee shall determine the type or types of award(s)
to be made to each participant under the Plan and shall approve the terms and
conditions governing these awards in accordance with Section 12. Awards may be
granted singly, in combination or in tandem so that the settlement or payment of
one automatically reduces or cancels the other. Awards may also be made in
combination or in tandem with, in replacement of, as alternatives to, or as the
payment form for, grants or rights under any other employee or compensation plan
of the Company, including the plan of any acquired entity.

(a) Stock Option - is a grant of a right to purchase a specified
number of shares of Common Stock during a specified period.
The purchase price of each option shall be the Fair Market
Value of a share on the date such other award was granted.
However, if a key employee owns stock possessing more than 10%
of the total combined voting power of all classes of stock of
the Company or its affiliates (or under Section 424(d) of the
Internal Revenue Code of 1986, as amended (the "Code") is
deemed to own stock representing more than 10% of the total
combined voting power of all classes of stock of the Company
or its affiliates by reason of the ownership of such classes
of stock, directly or indirectly, by or for any brother,
sister, spouse, ancestor or lineal descendent of such key
employee, or by or for any corporation, partnership, estate or
trust of which such key employee is a shareholder, partner or
beneficiary), the purchase price per share of Common Stock
deliverable upon the exercise of each Incentive Stock Option
shall not be less than 110% of the Fair Market Value of the
Company's Common Stock on the date the Incentive Stock Option
is granted. A stock option may be exercised in whole or in
installments, which may be cumulative. A stock option may be
in the form of an Incentive Stock Option which complies with
Section 422 of the Code, as amended, and the regulations
thereunder at the time of grant, or a Non-Statutory Stock
Option. A Non-Statutory Stock Option means an option granted
by the Committee to (i) an outside director or (ii) to any
other participant, and such option is either (A) not
designated by the Committee as an Incentive Stock Option, or
(B) fails to satisfy the requirements of an Incentive Stock
Option as set forth in Section 422 of the Code and the
regulations thereunder. The price at which shares of Common
Stock may be purchased under a stock option shall be paid in
full at the time of the exercise, in either cash or such other
methods as provided by the Committee at the time of grant or
as provided in the form of agreement approved in accordance
herewith, including tendering (either actually or by
attestation) Common Stock at Fair Market Value, surrendering a
stock award valued at Fair Market Value on the date of
surrender, or any combination thereof.
<PAGE>

(b) Stock Appreciation Right - is a right to receive a payment, in
cash and/or Common Stock, as determined by the Committee,
equal to the excess of the Fair Market Value of a specified
number of shares of Common Stock on the date the SAR is
exercised over the Fair Market Value on the date of grant of
the SAR as set forth in the applicable award agreement, except
that, in the case of an SAR granted retroactively in tandem
with or as a substitution for another award, the exercise or
designated price may be no lower than the Fair Market Value of
a share on the date such other award was granted.

(c) Stock Award - is an award made in stock or denominated in
units of stock. All or part of any stock award may be subject
to conditions established by the Committee, and set forth in
the award agreement, which may include, but are not limited
to, continuous service with the Company,

A-3

<PAGE>
achievement of specific business objectives, and other
measurements of individual, business unit or Company
performance.

(d) Accelerated Ownership Option Rights - An Award as defined in
Section 13.

8. DIVIDENDS AND DIVIDEND EQUIVALENTS. The Committee may provide that
stock awards earn dividends or dividend equivalents. Such dividend equivalents
may be paid currently or may be credited to an account established by the
Committee under the plan in the name of the participant. In addition, dividends
or dividend equivalents paid on outstanding awards or issued shares may be
credited in such account rather than paid currently. Any crediting of dividends
or dividend equivalents may be subject to such restrictions and conditions as
the Committee may establish, including reinvestment in additional shares or
share equivalents.

9. DEFERRALS AND SETTLEMENTS. Payment of awards may be in the form of
cash, stock, other awards, or in combinations thereof as the Committee shall
determine at the time of grant, and with such restrictions as it may impose. The
Committee may also require or permit participants to elect or defer the issuance
of shares or the settlement of awards in cash under such rules and procedures as
it may establish under the Plan. It may also provide that deferred settlements
include the payment or crediting of interest on the deferral amounts or the
payment or crediting of dividend equivalents on deferred settlements denominated
in shares.

10. FAIR MARKET VALUE. Fair Market Value for all purposes under the
Plan shall mean the reported closing price of Common Stock as reported by the
National Association of Securities Dealers Automatic Quotation System ("NASDAQ")
(as published in The Wall Street Journal) on such date or if the Common Stock
was not traded on such date, on the next preceding day on which Common Stock was
traded thereon. Under no circumstances shall Fair Market Value be less than the
par value of the Common Stock.

11. TRANSFERABILITY AND EXERCISABILITY. All awards other than
Non-Statutory Stock

Options under the Plan will be nontransferable and shall not be assignable,
alienable, saleable or otherwise transferable by the participant other than by
will or the laws of descent and distribution, except pursuant to a domestic
relations order entered by a court of competent jurisdiction or as otherwise
determined by the Committee. In the event that a participant terminates
employment with Company to assume a position with a governmental, charitable,
educational or similar non-profit institution, the Committee may authorize a
third party, including but not limited to a "blind" trust, to act on behalf of
and for the benefit of the representative participant with respect to any
outstanding awards.

If so permitted by the Committee, a participant may designate a
beneficiary or beneficiaries to exercise the rights of the participant and
receive any distributions under the Plan upon the death of the Participant.
However, in the case of participants covered by Section 16 of the 1934 Act, any
contrary requirements of Rule 16b-3 under the 1934 Act, or any successor rule,
shall prevail over the provisions of this Section.
<PAGE>

Awards granted pursuant to the Plan may be exercisable pursuant to a
vesting schedule as determined by the Committee. The Committee may, in its sole
discretion, accelerate or extend the time at which any Stock Option may be
exercised in whole or in part, or the vesting of any Stock Award, provided,
however, that with respect to an Incentive Stock Option, it must be consistent
with the terms of Section 422 of the Code in order to continue to qualify as an
Incentive Stock Option. The Committee may also, in its sole discretion, extend
the time period within which a stock option must be exercised before it expires.
Notwithstanding the above, in the event of Retirement (as herein defined), death
or Disability, all awards shall immediately vest. "Retirement" means retirement
as the normal retirement date as set forth in the Bank's pension plan or as
determined by the Board of Directors in the event there is no such plan.
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him, or of a director to serve as such. Additionally, in the case of
an employee, a medical doctor selected or approved by the Board must advise the
Committee that it is either not possible to determine when such Disability will
terminate or that it appears probable that such Disability will be permanent
during the remainder of paid employee's lifetime.

A-4

<PAGE>
12. AWARD AGREEMENTS. Awards under the Plan shall be evidenced by an
agreement as shall be approved by the Committee that sets forth the terms,
conditions and limitations to an award and the provisions applicable in the
event the participant's employment terminates, provided however, in no event
shall the term of any Incentive Stock Option exceed a period of ten years from
the date of its grant. However, if any key employee, at the time an Incentive
Stock Option is granted to him, owns stock representing more than 10% of the
total combined voting power of all classes of stock of the Company or its
affiliate (or, under Section 424(d) of the Code, is deemed to own stock
representing more than 10% of the total combined voting power of all classes of
stock, by reason of the ownership of such classes of stock, directly or
indirectly, by or for any brother, sister, spouse, ancestor or lineal descendent
of such key employee, or by or for any corporation, partnership, estate or trust
of which such key employee is a shareholder, partner or beneficiary), the
Incentive Stock Option granted to him shall not be exercisable after the
expiration of five years from the date of grant.

In addition, to the extent required by Section 422 of the Code, the
aggregate Fair Market Value (determined at the time the option is granted) of
the Common Stock for which Incentive Stock Options are exercisable for the first
time by a Participant during any calendar year (under all plans of the Company
and its affiliates) shall not exceed $100,000. In the event the amount
exercisable shall exceed $100,000, the first $100,000 of Incentive Stock Options
(determined as of the date of grant) shall be exercisable as Incentive Stock
Options and any excess shall be exercisable as Non-Statutory Stock Options.

13. ACCELERATED OWNERSHIP STOCK OPTION RIGHTS. The Committee may grant
the right to receive an Accelerated Ownership Option simultaneously with, or
subsequent to, the grant of any stock option, with respect to all or some of the
shares covered by such stock option. In the event an Accelerated Ownership
Option Right has been granted, upon the exercise of the related Stock Option,
the participant will be granted an Accelerated Ownership Stock Option (which may
be an Incentive or Non-Incentive Stock Option) to purchase a number of shares of
Common Stock equal to the sum of the number of whole shares of Common Stock used
by the participant in payment of the purchase price of the Stock Option. The
exercise price of the Accelerated Ownership Option shall be the Fair Market
Value of the Common Stock on the date of grant of the Accelerated Ownership
Option. The term during which the Accelerated Ownership Option may be exercised
(and the other terms and conditions) shall be determined by the Committee, but
in no event shall an Accelerated Ownership Option be exercisable in whole or in
part before the expiration of six months from the date of the grant of the
Accelerated Ownership Option.

14. PLAN AMENDMENT. The Board or the Committee may modify or amend the
Plan as it deems necessary or appropriate or modify or amend an award received
by key employees and/or outside directors. No such amendment shall adversely
affect any outstanding awards under the Plan without the consent of the holders
thereof.

15. TAX WITHHOLDING. The Company may deduct from any settlement of an
award made under the Plan, including the delivery or vesting of shares, an
amount sufficient to cover withholding required by law for any federal, state or
local taxes or to take such other action as may be necessary to satisfy any such
withholding obligations. The Committee may permit shares to be used to satisfy
required tax withholding and such shares shall be valued at the Fair Market
Value as of the settlement date of the applicable award.
<PAGE>

16. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Unless otherwise
determined by the Committee, settlements of awards received by participants
under the Plan shall not be deemed a part of a participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit plan, severance program or severance pay law of any country.

17. UNFUNDED PLAN. Unless otherwise determined by the Committee, the
Plan shall be unfunded and shall not create (or be construed to create) a trust
or a separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any participant or other person. To the
extent any person holds any rights by virtue of a grant awarded under the Plan,
such right (unless otherwise determined by the Committee) shall be no greater
than the right of an unsecured general creditor of the Company.

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<PAGE>
18. FUTURE RIGHTS. No person shall have any claim or rights to be
granted an award under the Plan, and no participant shall have any rights by
reason of the grant of any award under the Plan to continued employment by the
Company or any subsidiary of the Company.

19. GENERAL RESTRICTION. Each award shall be subject to the requirement
that, if at any time the Committee shall determine, in its sole discretion, that
the listing, registration or qualification of any award under the Plan upon any
securities exchange or under any sate or federal law, or the consent or approval
of any government regulatory body, is necessary or desirable as a condition of,
or in connection with, the granting of such award or the grant or settlement
thereof, such award may not be exercised or settled in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.

20. GOVERNING LAW. The validity, construction and effect of the Plan
and any actions taken or relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable Federal law.

21. SUCCESSORS AND ASSIGNS. The Plan shall be binding on all successors
and permitted assigns of a participant, including, without limitation, the
guardian or estate of such participant and the executor, administrator or
trustee of such estate, or any receiver or trustee in bankruptcy or
representative of the participant's creditors.

22. RIGHTS AS A SHAREHOLDER. A participant shall have no rights as a
shareholder with respect to awards under the Plan until he or she becomes the
holder of record of shares granted under the Plan.

23. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the
Plan, the following shall apply to all outstanding awards granted under the
Plan:

(a) Definitions. The following definitions shall apply to this Section:

"Change in Control" of the Bank or the Company means a Change in
Control of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect
on the date hereof pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change
in Control of the Bank or the Company within the meaning of the Change
in Bank Control Act, as administered by the Federal Reserve Board, as
in effect on the effective date of this Plan. In addition to the above,
a Change in Control shall be deemed to have occurred at such time and
payments and benefits under this Section shall be made as (iii) any
"person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company representing 25% or more of the Bank's or the
Company's outstanding securities ordinarily having the right to vote at
the election of directors except for any securities of the Bank
purchased by the Company in connection with the conversion of the Bank
to the stock form and any securities purchased by the Bank's employee
stock ownership plan and trust; or (iv) individuals who constituted the
Board on the Effective Date (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any

<PAGE>

person becoming a director subsequent to the Effective Date whose
election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for
election by the Company's shareholders was approved by the same
nominating board serving under an Incumbent Board, shall be, for
purposes of this clause (iv), considered as though he were a member of
the Incumbent Board; or (v) a merger, consolidation or sale of all or
substantially all the assets of the Bank or the Company in which the
Bank or Company is not the surviving institution occurs; or (vi) a
proxy statement, whether or not supported by management or the Board of
Directors, soliciting proxies from stockholders of the Company, by
someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or
consolidation of the Company or Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or reorganization are
exchanged for or converted into cash or property or securities not

A-6

<PAGE>
issued by the Bank or the Company shall be distributed; or (vii) a
tender offer is made for 25% or more of the voting securities of the
Bank or the Company. Notwithstanding the above, the Board of Directors
shall have the right to determine that a Change in Control has
occurred.

(b) Acceleration of Vesting and Payment of SARs, Stock Awards, and
Dividends and Dividend Equivalents.

(1) Upon the occurrence of an event constituting a Change
in Control, all SARs, stock awards, stock options,
dividends and dividend equivalents or any other award
granted pursuant to this Plan outstanding on such
date shall become 100% vested. All awards other than
options shall be distributed as soon as may be
practicable. Upon such distribution, such awards
shall be canceled.

(2) Upon the occurrence of an event constituting a Change
in Control involving an exchange of stock, all stock
options shall become options to purchase the
exchanged stock at the applicable exchange ratio
(with no change in the aggregate exercise price).

24. COMPLIANCE WITH SECTION 16. With respect to persons subject to
Section 16 of the 1934 Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successors under the 1934
Act. To the extent any provisions of the Plan or actions of the Committee fail
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee administrators.

25. TERMINATION OF EMPLOYMENT. Upon the termination of an employee's
service for any reason other than Disability, Retirement, Change in Control,
death or Termination for Cause, the employee's Stock Options shall be
exercisable, and awards shall vest, only as to those shares that were
immediately purchasable by, or vested in, such employee at the date of
termination, and options may be exercised only for a period of three months
following termination. In the event of termination of employment for cause (as
defined herein) all rights and awards granted to an employee under the Plan not
exercised or vested shall expire upon termination of employee.

"Termination for Cause" means the termination upon an intentional
failure to perform stated duties, or a breach of a fiduciary duty involving
personal dishonesty, or a willful violation of any law, rule, regulation (other
than traffic violations or similar offenses) or a final cease-and-desist order
- -- any of which results in material loss to the Company or one of its
affiliates.

No option shall be eligible for treatment as an Incentive Stock Option
in the event such option is exercised more than three months following the date
of his Retirement or termination of employment following a Change in Control;
and provided further, that no option shall be eligible for treatment as an
Incentive Stock Option in the event such option is exercised more than one year
following termination of employment due to death or Disability and provided
further, in order to obtain Incentive Stock Option treatment for options
exercised by heirs or devisees of an optionee, the optionee's death must have
<PAGE>

occurred while employed or within three (3) months of termination of employment.
Upon the termination of an employee's service for reason of Disability,
Retirement, Change in Control or death, the employee's Stock Options shall be
exercisable, and Stock Awards shall vest, as to all shares subject to an
outstanding award, whether or not otherwise immediately purchasable by, or
vested in, such employee at the date of termination and options may be exercised
for a period of one year following termination. In no event shall the exercise
period extend beyond the expiration of the Stock Option term.

Upon the termination of a director's service for any reason other than
Disability, Retirement, Change in Control, death or Termination for Cause, the
director's Stock Options shall be exercisable, and Stock Awards shall vest, only
as to those shares that were immediately purchasable by, or vested in, such
director at the date of termination, and options may be exercised for a period
of one year following termination of service. In the event of termination of
service for cause (as defined above) all rights and awards granted to the
director under the Plan not exercised by or

A-7

<PAGE>
vested in such director shall expire upon termination of service. Upon the
termination of a director's service for reason of Disability, Retirement, Change
in Control or death, Stock Options shall be exercisable, and Stock Awards shall
vest, as to all shares subject to an outstanding award, whether or not otherwise
immediately purchasable by, or vested in, such director at the date of
termination and options may be exercised for a period of one year following
termination.

A-8

<PAGE>

SECRETARY CERTIFICATE

Adopted by the Board of Directors of KSB Bancorp, Inc. on December 30,
1997 at a duly called and held meeting of the Board of Directors.

Attest:

---------------------------
Secretary

Approved by the shareholders on __________________________, 1998 at a
duly called and held meeting of shareholders of the Company.

Attest:

---------------------------
Secretary

A-9

<PAGE>

REVOCABLE PROXY

KSB BANCORP, INC.

[ X ] PLEASE MARK VOTES AS IN THIS EXAMPLE

ANNUAL MEETING OF STOCKHOLDERS

May 13, 1998

The undersigned hereby appoints the official proxy committee of the Board of
Directors, with full powers of substitution, to act as attorneys and proxies for
the undersigned to vote all shares of Common Stock of KSB Bancorp, Inc. (the
"Company") which the undersigned is entitled to vote, at the Annual Meeting of
Stockholders ("Meeting") to be held at the Inn on Winter's Hill, Kingfield,
Maine at 5:30 p.m. (local time) on May 13, 1998. The official proxy committee is
authorized to cast all votes to which the undersigned is entitled as follows:

1. The election as directors of all nominees listed below (except as marked to
the contrary below):

William P. Dubord Theodore C. Johanson

[ ] FOR [ ] WITHHOLD [ ] EXCEPT

INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"Except" and write that nominee's name in the space provided below.

- --------------------------------------------------------------------------------

2. The approval of the KSB Bancorp, Inc. 1998 Long-Term Incentive Stock Benefit
Plan.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

CHECK BOX IF YOU PLAN TO ATTEND ANNUAL MEETING. [ ]

The Board of Directors recommends a vote "FOR" each of the listed proposals.

THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE
ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
<PAGE>

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.

Please be sure to sign and date this Proxy in the box below.

_________________________________________
Date

_________________________________________
Stockholder sign above

_________________________________________
Co-holder (if any) sign above

Detach above card, sign, date and mail in postage paid envelope provided.

KSB BANCORP, INC.

Should the above signed be present and elect to vote at the Meeting or at any
adjournment thereof and after notification to the Secretary of the Company at
the Meeting of the stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect. This proxy may also be revoked by sending written notice to
the Secretary of the Company at the address set forth on the Notice of Annual
Meeting of Stockholders, or by the filing of a later dated proxy prior to a vote
being taken on a particular proposal at the Meeting.

The above signed acknowledges receipt from the Company prior to the execution
of this proxy of a notice of Meeting, a proxy statement dated April 6, 1998, and
a 1997 Annual Report to Stockholders.

Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign but only one
signature is required.

PLEASE ACT PROMPTLY

SIGN, DATE & MAIL YOUR PROXY CARD TODAY