AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: Minnesota Date: 5/18/2004
Industry: SandLs/Savings Banks Law Firm: Malizia Spidi & Fisch, PC; MidCountry Financial Corp. Sector: Financial

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

MIDCOUNTRY FINANCIAL CORP.,

MIDCOUNTRY INTERIM CORP. II

AND

FSF FINANCIAL CORP.

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TABLE OF CONTENTS

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Page

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<S> <C>

ARTICLE I DEFINITIONS.............................................................1

1.1 Definitions.....................................................1

1.2 Terms Defined Elsewhere.........................................6

ARTICLE II THE MERGER.............................................................6

2.1 Merger..........................................................6

2.2 Filing; Plan of Merger..........................................7

2.3 Effective Time..................................................7

2.4 Closing.........................................................7

2.5 Effect of Merger................................................7

2.6 Further Assurances..............................................8

2.7 Merger Consideration............................................8

2.8 Conversion of Shares............................................8

2.9 Stock Options, Warrants and Other Similar Rights................9

2.10 Procedure for Payment of Merger Consideration..................10

2.11 Dissenting Shareholders........................................10

2.12 Merger of Subsidiaries.........................................11

ARTICLE III REPRESENTATIONS AND WARRANTIES OF FSF................................11

3.1 Capital Structure..............................................11

3.2 Organization, Standing and Authority...........................11

3.3 Ownership of Subsidiaries......................................12

3.4 Organization, Standing and Authority of the Subsidiaries.......12

3.5 Authorized and Effective Agreement.............................12

3.6 Securities Filings; Financial Statements; Statements True......13

3.7 Minute Books...................................................14

3.8 Adverse Change.................................................14

3.9 Absence of Undisclosed Liabilities.............................14

3.10 Properties.....................................................14

3.11 Environmental Matters..........................................15

3.12 Loans; Allowance for Loan Losses...............................16

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3.13 Tax Matters....................................................16

3.14 Employees; Compensation; Benefit Plans.........................17

3.15 Certain Contracts..............................................21

3.16 Legal Proceedings; Regulatory Approvals........................22

3.17 Compliance with Laws; Filings..................................22

3.18 Brokers and Finders............................................22

3.19 Repurchase Agreements; Derivatives.............................23

3.20 Deposit Accounts...............................................23

3.21 Related Party Transactions.....................................23

3.22 Certain Information............................................23

3.23 Regulatory Matters.............................................24

3.24 State Takeover Laws............................................24

3.25 Labor Relations................................................24

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MIDCOUNTRY AND INTERIM..............24

4.1 Capital Structure of MidCountry................................25

4.2 Organization, Standing and Authority of MidCountry.............25

4.3 Authorized and Effective Agreement.............................25

4.4 Organization, Standing and Authority of MidCountry

Subsidiaries.................................................26

4.5 Certain Information............................................26

4.6 Regulatory Matters.............................................26

4.7 Financial Ability..............................................26

4.8 Minute Books...................................................27

4.9 Adverse Change.................................................27

4.10 Absence of Undisclosed Liabilities.............................27

4.11 Allowance for Loan Losses......................................27

4.12 Legal Proceedings; Regulatory Approvals........................28

4.13 Compliance with Laws; Filings..................................28

4.14 Deposit Accounts...............................................28

ARTICLE V COVENANTS..............................................................29

5.1 FSF Shareholder Meeting........................................29

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5.2 Proxy Statement................................................29

5.3 Plan of Merger.................................................29

5.4 Additional Acts................................................29

5.5 Best Efforts...................................................30

5.6 Certain Accounting Matters.....................................30

5.7 Access to Information..........................................30

5.8 Press Releases.................................................31

5.9 Forbearances of FSF............................................31

5.10 Employment and Consulting Agreements...........................33

5.11 Section 401(k) Plan; ESOP; Other Employee Benefits.............34

5.12 Directors and Officers Protection..............................36

5.13 Forbearances of MidCountry.....................................36

5.14 Reports........................................................37

5.15 Capital Raising................................................37

5.16 Advisory Board.................................................37

5.17 Support Agreements.............................................37

5.18 Pre-Closing Escrow Agreement...................................38

5.19 Superior Proposal..............................................38

ARTICLE VI CONDITIONS PRECEDENT..................................................38

6.1 Conditions Precedent - MidCountry and FSF......................38

6.2 Conditions Precedent - FSF.....................................39

6.3 Conditions Precedent - MidCountry..............................41

ARTICLE VII TERMINATION, DEFAULT, WAIVER AND AMENDMENT...........................42

7.1 Termination....................................................42

7.2 Effect of Termination..........................................43

7.3 Survival of Representations, Warranties and Covenants..........44

7.4 Waiver.........................................................44

7.5 Amendment or Supplement........................................44

ARTICLE VIII MISCELLANEOUS.......................................................44

8.1 Expenses.......................................................44

iii

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8.2 Entire Agreement...............................................45

8.3 No Assignment..................................................45

8.4 Notices........................................................46

8.5 Specific Performance...........................................47

8.6 Captions.......................................................47

8.7 Counterparts...................................................47

8.8 Governing Law..................................................47

ANNEXES

Annex A Articles of Merger and Plan of Merger between

FSF and Interim

Annex B Subsidiary Plan of Merger between Bayside Bank

and First Federal

Annexes C-1 through C-6 Employment and Consulting Agreements with

Officers

Annex D Form of Support Agreement

Annex E Form of Pre-Closing Escrow Agreement

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of May 14,

2004, is by and between MidCountry Financial Corp., a Georgia corporation

("MidCountry"), MidCountry Interim Corp. II, a Minnesota corporation

("Interim"), and FSF Financial Corp., a Minnesota corporation ("FSF").

R E C I T A L S:

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

The Boards of Directors of MidCountry, Interim and FSF are of the

opinion that the transactions described herein are in the best interests of the

parties and their respective shareholders. This Agreement provides for the

merger of Interim with and into FSF (the "Merger"), with FSF being the surviving

corporation of the merger pursuant to a plan of merger (the "Plan of Merger")

substantially in the form attached as Annex A hereto. At the effective time of

such Merger, the outstanding shares of capital stock of FSF will be converted

into the right to receive the Merger Consideration set forth in Article II of

this Agreement. As a result of the Merger, FSF will become a wholly-owned

subsidiary of MidCountry and the wholly-owned subsidiaries of FSF will continue

to conduct their business and operations. The transactions described in this

Agreement are subject to the approvals of the shareholders of FSF, the Office of

Thrift Supervision, and the satisfaction of certain other conditions described

in this Agreement.

NOW, THEREFORE, in consideration of the premises and of the mutual

representations, warranties, covenants and agreements herein contained, and

intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions

-----------

When used herein, the capitalized terms set forth below shall have the

following meanings:

"Affiliate" means, with respect to any Person, any Person, who directly

or indirectly, through one or more intermediaries, controls or is controlled by,

or is under common control with such Person and, without limiting the generality

of the foregoing, includes any executive officer or director of such Person.

"Articles of Merger" shall mean the Articles of Merger required to be

filed with the office of the Secretary of State of Minnesota, as provided in

Section 302A.615 of the MBCA.

"Business Day" shall mean all days other than Saturdays, Sundays and

Federal Reserve holidays.

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"CERCLA" shall mean the Comprehensive Environmental Response

Compensation and Liability Act, as amended (42 U.S.C. 9601 et seq.).

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Commission" shall mean the Securities and Exchange Commission.

"CRA" shall mean the Community Reinvestment Act of 1977, as amended.

"Disclosed" shall mean disclosed in the FSF Disclosure Memorandum,

referencing the Section number herein pursuant to which such disclosure is being

made.

"Environmental Claim" means any notice from any governmental authority

or third party alleging potential liability (including, without limitation,

potential liability for investigatory costs, cleanup or remediation costs,

governmental response costs, natural resources damages, property damages,

personal injuries or penalties) arising out of, based upon, or resulting from a

violation of the Environmental Laws or the presence or release into the

environment of any Hazardous Substances.

"Environmental Laws" means all applicable federal, state and local laws

and regulations relating to pollution or protection of human health or the

environment (including ambient air, surface water, ground water, land surface,

or subsurface strata) and which are administered, interpreted, or enforced by

the United States Environmental Protection Agency and state and local agencies

with jurisdiction over pollution or protection of the environment, including

without limitation CERCLA, the Resource Conservation and Recovery Act, as

amended, 42 U.S.C. 6901 et seq., and other laws and regulations relating to

emissions, discharges, releases, or threatened releases of any Hazardous

Substances, or otherwise relating to the manufacture, processing, distribution,

use, treatment, storage, disposal, transport, or handling of any Hazardous

Substances.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974,

as amended.

"Escrow Agent" shall mean the third party, FDIC-insured bank with at

least $50 million in capital selected by MidCountry, with the consent of FSF,

which consent shall not be unreasonably withheld, to perform the duties provided

in Section 2.10 of this Agreement.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as

amended.

"FDIC" shall mean the Federal Deposit Insurance Corporation.

"Federal Reserve Board" shall mean the Board of Governors of the

Federal Reserve System.

<PAGE>

"Financial Advisor" shall mean Keefe, Bruyette & Woods, Inc.

"Financial Statements" shall mean (a) with respect to MidCountry, (i)

the consolidated balance sheet (including related notes and schedules, if any)

of MidCountry as of September 30, 2003 and 2002, and the related consolidated

statements of income, shareholders' equity and cash flows (including related

notes and schedules, if any) for each of the two years ended September 30, 2003

and 2002 and (ii) the consolidated balance sheets of MidCountry (including

related notes and schedules, if any) and the related consolidated statements of

income, shareholders' equity and cash flows (including related notes and

schedules, if any) prepared by MidCountry with respect to periods ended

subsequent to September 30, 2003, and (b) with respect to FSF, (i) the

consolidated statements of financial condition (including related notes and

schedules, if any) of FSF as of September 30, 2003, September 30, 2002 and

September 30, 2001, and the related consolidated statements of income and

retained earnings, and cash flows (including related notes and schedules, if

any) for each of the three years ended September 30, 2003, September 30, 2002

and September 30, 2001 as filed by FSF in Securities Documents and (ii) the

consolidated statements of financial condition of FSF (including related notes

and schedules, if any) and the related consolidated statements of income and

retained earnings, and cash flows (including related notes and schedules, if

any) included in Securities Documents filed by FSF with respect to periods ended

subsequent to September 30, 2003.

"FSF Common Stock" shall mean the shares of voting common stock, par

value $.10 per share, of FSF.

"FSF Disclosure Memorandum" shall mean the written information in one

or more documents, each of which is entitled "FSF Disclosure Memorandum" and

delivered on or before the date of this Agreement by FSF to MidCountry, and

describing in reasonable detail the matters contained therein. Each disclosure

made therein shall be in existence on the date of this Agreement and shall

specifically reference each Section of this Agreement under which such

disclosure is made. Information disclosed with respect to one Section shall not

be deemed to be disclosed for purposes of any other Section not specifically

referenced. Inclusion of a given item in the FSF Disclosure Memorandum shall not

be deemed to be a conclusion or admission that such item (or any other item) is

material or has a Material Adverse Effect.

"FSF ESOP" shall mean the First Federal fsb Employee Stock Ownership

Plan.

"FSF Subsidiaries" shall mean First Federal fsb, and Insurance Planners

of Hutchinson, Inc., their respective subsidiaries, and all other Subsidiaries

of FSF as of the date hereof and any corporation, bank, savings association, or

other organization acquired as a Subsidiary of FSF after the date hereof and

held as a Subsidiary by FSF at the Effective Time.

"GAAP" shall mean generally accepted accounting principles applicable

to financial institutions and their holding companies, as in effect at the

relevant date.

<PAGE>

"Hazardous Substances" means any substance or material (i) identified

in CERCLA; (ii) determined to be toxic, a pollutant or a contaminant under any

applicable federal, state or local statute, law, ordinance, rule or regulation,

including but not limited to petroleum products; (iii) asbestos; (iv) radon; (v)

poly-chlorinated biphiphenyls and (vi) such other materials, substances or waste

which are otherwise dangerous, hazardous, harmful to human health or the

environment.

"HOLA" shall mean the Federal Home Owners' Loan Act, as amended.

"IRS" shall mean the Internal Revenue Service.

"Material Adverse Effect" on MidCountry or FSF shall mean an event,

fact, change, or occurrence which, individually or together with any other

event, fact, change or occurrence, (i) has a material adverse effect on the

financial condition, results of operations or business of MidCountry and the

MidCountry Subsidiaries taken as a whole, or FSF and the FSF Subsidiaries taken

as a whole, or (ii) materially impairs the ability of MidCountry or FSF to

perform its obligations under this Agreement or to consummate the Merger and the

other transactions contemplated by this Agreement; provided that "Material

Adverse Effect" shall not be deemed to include the impact of (a) any event,

change, occurrence or state of facts relating to or arising from the

announcement of this Agreement or the actions and omissions of MidCountry or FSF

taken with the prior written consent of the other in contemplation of the

transactions contemplated hereby, (b) the direct effects of compliance with this

Agreement on the operating performance of the parties, including expenses

incurred by the parties in consummating the transactions contemplated by this

Agreement or relating to any litigation arising as a result of the Merger, (c)

changes in laws and regulations or interpretations thereof by governmental

authorities generally applicable to depository institutions and their holding

companies (including, without limitation, changes in state and federal tax law

and changes in deposit insurance assessment rates and special assessments with

respect thereto), (d) changes in GAAP or regulatory accounting principles

generally applicable to financial institutions and their holding companies, (e)

changes in interest rates and (f) any event, change, fact or occurrence relating

to or arising from the United States or local economy or financial or securities

markets in general.

"MBCA" shall mean the Minnesota Business Corporation Act, as amended.

"MidCountry Common Stock" shall mean the shares of voting common stock,

no par value, of MidCountry.

"MidCountry Disclosure Memorandum" shall mean the written information

in one or more documents, each of which is entitled "MidCountry Disclosure

Memorandum" and delivered on or before the date of this Agreement by MidCountry

to FSF, and describing in reasonable detail the matters contained therein. Each

disclosure made therein shall be in existence on the date of this Agreement and

shall specifically reference each Section of this Agreement under which such

disclosure is made. Information disclosed with respect to one Section shall not

be deemed to be disclosed for purposes of any other Section not specifically

referenced. Inclusion of a given item

<PAGE>

in the MidCountry Disclosure memorandum shall not be deemed to be a conclusion

or admission that such item (or any other item) is material or has a Material

Adverse Effect.

"MidCountry Subsidiaries" shall mean Bayside Bank, Heights Finance

Corporation, and their respective subsidiaries as of the date hereof and any

corporation, bank, savings associations or other organization acquired as a

Subsidiary of MidCountry after the date hereof and held as a Subsidiary by

MidCountry at the Effective Time.

"OTS" shall mean the Office of Thrift Supervision.

"Proxy Statement" shall mean the proxy statement, together with any

supplements thereto, to be sent to shareholders of FSF to solicit their votes in

connection with a proposal to approve this Agreement and the Plan of Merger.

"Securities Act" shall mean the Securities Act of 1933, as amended.

"Securities Documents" shall mean all reports, proxy statements,

registration statements and all similar documents filed, or required to be

filed, pursuant to the Securities Laws, including but not limited to periodic

and other reports filed pursuant to Section 13 of the Exchange Act.

"Securities Laws" shall mean the Securities Act; the Exchange Act; the

Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,

as amended; the Trust Indenture Act of 1939, as amended; and the rules and

regulations of the Commission promulgated thereunder.

"Stock Option" shall mean, collectively, any option granted under the

Stock Option Plans, outstanding and unexercised on the date hereof to acquire

shares of FSF Common Stock, aggregating 250,751 shares.

"Stock Option Plans" shall mean the First Federal fsb Management Stock

Plan, the FSF Financial Corp. 1994 Stock Option Plan, the FSF Financial Corp.

1998 Stock Compensation Plan, and the FSF Financial Corp. 2003 Stock

Compensation Plan.

"Subsidiaries" shall mean all those corporations, associations, or

other business entities of which the entity in question either owns or controls

50% or more of the outstanding equity securities either directly or through an

unbroken chain of entities as to each of which 50% or more of the outstanding

equity securities is owned directly or indirectly by its parent (in determining

whether one entity owns or controls 50% or more of the outstanding equity

securities of another, equity securities owned or controlled in a fiduciary

capacity shall be deemed owned and controlled by the beneficial owner).

"Superior Proposal" means a bona fide written acquisition proposal or

offer to acquire or purchase all or substantially all of the assets or equity

interest in FSF which the FSF Board of

<PAGE>

Directors concludes in good faith to be more favorable from a financial point of

view to its shareholders than the Merger and the other transactions contemplated

hereby, (1) after receiving the advice of the Financial Advisor, (2) after

taking into account the likelihood of consummation of such transaction on the

terms set forth therein (as compared to, and with due regard for, the terms

herein) and (3) after taking into account all legal (with the advice of outside

counsel), financial (including the financing terms of any such proposal),

regulatory and other aspects of such proposal and any other relevant factors

permitted under applicable law.

"TILA" shall mean the Truth in Lending Act, as amended.

1.2 Terms Defined Elsewhere

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

The capitalized terms set forth below are defined in the following

sections:

Agreement Introduction

Closing Section 2.4

Closing Date Section 2.4

Constituent Corporations Section 2.1

Dissenting Shareholders Section 2.11

Effective Time Section 2.3

Employer Entity Section 5.11

Financing Section 4.7

FSF Introduction

Interim Introduction

Merger Recitals

Merger Consideration Section 2.7

MidCountry Introduction

PBGC Section 3.14(b)(iv)

Plan Section 3.14(b)(i)

Plan of Merger Recitals

Pre-Closing Escrow Agreement Section 5.18

Rights Section 2.9

Subsidiary Plan of Merger Section 2.12

Surviving Corporation Section 2.1(a)

ARTICLE II

THE MERGER

2.1 Merger

------

FSF and Interim are constituent corporations (the "Constituent

Corporations") to the Merger as contemplated by the MBCA. Upon the terms and

subject to the conditions set forth in this Agreement and in accordance with the

MBCA, at the Effective Time:

<PAGE>

(a) Interim shall be merged with and into FSF in accordance with the

applicable provisions of the MBCA, with FSF being the surviving corporate entity

(hereinafter sometimes referred to as the "Surviving Corporation") and a wholly

owned subsidiary of MidCountry.

(b) The separate existence of Interim shall cease and the Merger shall

in all respects have the effect provided in Section 2.5.

become the Articles of Incorporation of the Surviving Corporation.

(d) The Bylaws of FSF at the Effective Time shall become the Bylaws of

the Surviving Corporation.

2.2 Filing; Plan of Merger

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

The Merger shall not become effective unless this Agreement and the

Plan of Merger are duly approved by shareholders holding at least a majority of

the shares of FSF Common Stock. As promptly as practicable following the

satisfaction or, if permissible, waiver of the conditions specified in Article

VI and provided that this Agreement has not been terminated pursuant to Article

VII, the Constituent Corporations will cause the Articles of Merger to be

executed and filed with the Secretary of State of Minnesota, as provided in

Section 302A.615 of the MBCA. The Plan of Merger is incorporated herein by

reference, and adoption of this Agreement by the Boards of Directors of the

Constituent Corporations and approval by the shareholders of FSF shall

constitute adoption and approval of the Plan of Merger.

2.3 Effective Time

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

The Merger shall be effective on the day and at the time specified in

the Articles of Merger as filed as provided in Section 2.2 (herein sometimes

referred to as the "Effective Time").

2.4 Closing

-------

The closing of the transactions contemplated by this Agreement (the

"Closing") shall take place at the offices of FSF in Hutchinson, Minnesota, at

10:00 a.m. local time on a date designated by MidCountry that is within five

Business Days following the satisfaction of the conditions to Closing set forth

in Article VI (other than the delivery of certificates, opinions and other

instruments and documents to be delivered at the Closing), or such later date,

time or place as the parties may otherwise agree (the "Closing Date").

2.5 Effect of Merger

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

From and after the Effective Time, the separate existence of Interim

shall cease, and the Surviving Corporation shall thereupon and thereafter, to

the extent consistent with its Articles of

<PAGE>

Incorporation, possess all of the rights, privileges, immunities and franchises,

of a public as well as a private nature, of each of the Constituent

Corporations; and all property, real, personal and mixed, and all debts due on

whatever account, and all other choses in action, and each and every other

interest of or belonging to or due to each of the Constituent Corporations shall

be taken and deemed to be transferred to and vested in the Surviving Corporation

without further act or deed; and the title to any real estate or any interest

therein vested in either of the Constituent Corporations shall not revert or be

in any way impaired by reason of the Merger. The Surviving Corporation shall

thenceforth be responsible for all the liabilities, obligations and penalties of

each of the Constituent Corporations; and any claim, existing action or

proceeding, civil or criminal, pending by or against either of the Constituent

Corporations may be prosecuted as if the Merger had not taken place, or the

Surviving Corporation may be substituted in its place; and any judgment rendered

against either of the Constituent Corporations may be enforced against the

Surviving Corporation. Neither the rights of creditors nor any liens upon the

property of either of the Constituent Corporations shall be impaired by reason

of the Merger.

2.6 Further Assurances

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

If, at any time after the Effective Time, the Surviving Corporation

shall consider or be advised that any further deeds, assignments or assurances

in law or any other actions are necessary, desirable or proper to vest, perfect

or confirm of record or otherwise, in the Surviving Corporation, the title to

any property or rights of the Constituent Corporations acquired or to be

acquired by reason of, or as a result of, the Merger, the Constituent

Corporations agree that such Constituent Corporations and their proper officers

and directors shall and will execute and deliver all such proper deeds,

assignments and assurances in law and do all things necessary, desirable or

proper to vest, perfect or confirm title to such property or rights in the

Surviving Corporation and otherwise to carry out the purpose of this Agreement,

and that the proper officers and directors of the Surviving Corporation are

fully authorized and directed in the name of the Constituent Corporations or

otherwise to take any and all such actions.

2.7 Merger Consideration

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

As used herein, the term "Merger Consideration" shall mean $35.00 in

cash for each share of FSF Common Stock issued and outstanding as of the

Effective Time.

2.8 Conversion of Shares

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

At the Effective Time, by virtue of the Merger and without any action

on the part of MidCountry, Interim or FSF or the shareholders of any of the

foregoing, the shares of the parties to this Agreement shall be converted as

follows:

(a) Each share of FSF Common Stock issued and outstanding immediately

prior to the Effective Time (other than shares the holders of which have

perfected dissenters' rights of appraisal in accordance with Section 302A.471 of

the MBCA) shall be converted into and shall

<PAGE>

represent the right to receive, upon surrender of the certificate representing

such share of FSF Common Stock (as provided in Section 2.10 below), the Merger

Consideration.

(b) Each share of MidCountry Common Stock issued and outstanding

immediately prior to the Effective Time shall continue to be issued and

outstanding.

immediately prior to the Effective Time shall be converted into one fully paid

and non-assessable share of the common stock of Surviving Corporation.

(d) Until surrendered, each outstanding certificate which prior to the

Effective Time represented one or more shares of FSF Common Stock (subject to

dissenters' rights under the MBCA) shall be deemed upon the Effective Time for

all purposes to represent only the right to receive the Merger Consideration. No

interest will be paid or accrued on the Merger Consideration upon the surrender

of the certificate or certificates representing shares of FSF Common Stock. With

respect to any certificate for FSF Common Stock that has been lost or destroyed,

MidCountry shall pay the Merger Consideration attributable to such certificate

upon receipt of a surety bond or other adequate indemnity as required in

accordance with MidCountry's standard policy, and evidence reasonably

satisfactory to MidCountry of ownership of the shares represented thereby. After

the Effective Time, no transfer of the shares of FSF Common Stock outstanding

immediately prior to the Effective Time shall be made on the stock transfer

books of the Surviving Corporation.

2.9 Stock Options, Warrants and Other Similar Rights

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

Immediately prior to the Effective Time, FSF shall pay in exchange for

each outstanding stock option, pursuant to which a person is or may be entitled

to be issued any shares of FSF Common Stock, an amount in cash equal to the

difference between the exercise price of such option and $35.00, such that from

and after the Effective Time, there shall be no outstanding stock options,

warrants, conversion rights or other rights of any nature pursuant to which a

person is or may be entitled to be issued any shares of stock of FSF or to be

paid any sum of money or other valuable consideration in exchange therefore (a

"Right"). Any unvested shares of restricted FSF Common Stock at or immediately

prior to the Effective Time shall become earned and nonforfeitable and

distributed in the form of FSF Common Stock without restrictions immediately

prior to the Effective Time. Each such share shall be converted into the Merger

Consideration at the Effective Time. In effecting the termination and

cancellation of such rights, FSF shall use its best efforts to obtain from any

person or persons such consents, waivers, approvals and authorizations as it

deems necessary or advisable.

<PAGE>

2.10 Procedure for Payment of Merger Consideration

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

(a) Immediately prior to the Effective Time, MidCountry will deposit

with the Escrow Agent cash in the amount of the Merger Consideration for each

share of FSF Common Stock issued and outstanding at the Effective Time.

(b) Within five days after the Effective Time, MidCountry shall cause

the Escrow Agent to mail a letter of transmittal, with instructions for its use,

to shareholders of FSF Common Stock, immediately prior to the Effective Time, to

use in surrendering the certificates which represent such shares to the Escrow

Agent in exchange for the Merger Consideration to which such shareholder is

entitled according to Section 2.8 of this Agreement. Upon proper surrender of

such certificates or other evidence of ownership, together with such letter of

transmittal duly executed and completed in accordance with the instructions

thereto, MidCountry shall cause, within three Business Days, the transfer to the

person entitled thereto the Merger Consideration for each share of FSF Common

Stock owned. The Escrow Agent shall not be obligated to deliver the

consideration to which any former holder of FSF Common Stock is entitled as a

result of the Merger until such holder surrenders his or her certificate or

certificates representing the shares of FSF Common Stock for exchange as

provided in this Section 2.10 or, if a certificate issued to any such holder has

been lost, destroyed, or stolen, or otherwise is missing, upon such holder,

posting, if required by the Surviving Corporation, a lost instruments indemnity

bond in form, substance and amount reasonably satisfactory to the Escrow Agent

and MidCountry, and such other documentation as the Escrow Agent and MidCountry

reasonably shall require.

the certificates formerly representing shares of FSF Common Stock have not been

surrendered for a period of six months after the Effective Time after which

MidCountry may request the Escrow Agent to deliver to it any remaining funds,

and thereafter, such holders will be entitled to look only to MidCountry for

payment thereof.

2.11 Dissenting Shareholders

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

Any holder of shares of FSF Common Stock who perfects such holder's

dissenters' rights of appraisal in accordance with and as contemplated by

section 302A.471 of the MBCA (collectively, the "Dissenting Shareholders") shall

be entitled to receive the value of such shares in cash as determined pursuant

to such provision of the MBCA; provided, that no such payment shall be made to

any Dissenting Shareholder unless and until such Dissenting Shareholder has

complied with the applicable provisions of the MBCA and has surrendered to

MidCountry the certificate or certificates representing shares of FSF Common

Stock for which payment is being made. In the event that after the Effective

Time a Dissenting Shareholder of FSF fails to perfect, or effectively withdraws

or loses, such holder's right to appraisal and of payment for such holder's

shares, MidCountry shall issue and deliver the consideration to which such

holder of shares of FSF Common Stock is entitled under Section 2.8 (without

interest) upon surrender by such holder of the certificate or certificates

representing shares of FSF Common Stock held by such holder.

<PAGE>

2.12 Merger of Subsidiaries

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

In the event that MidCountry shall request, FSF shall take such

actions, and shall cause the FSF Subsidiaries to take such actions, as may be

required in order to effect, at the Effective Time, the merger of one or more of

the FSF Subsidiaries with, in each case, one of the MidCountry Subsidiaries,

including, without limitation, the execution and delivery of a subsidiary plan

of merger (the "Subsidiary Plan of Merger"), substantially in the form attached

hereto as Annex B.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF FSF

Except as Disclosed, FSF represents and warrants to MidCountry as

follows (the representations and warranties herein of FSF are made subject to

the applicable standard set forth in Section 6.3(a), and no such representation

or warranty shall be deemed to be inaccurate unless the inaccuracy would permit

MidCountry to refuse to consummate the Merger under such applicable standard):

3.1 Capital Structure

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

The authorized capital stock of FSF consists of 10,000,000 shares of

FSF Common Stock, par value $0.10 per share, and 5,000,000 shares of FSF

preferred stock, no par value. As of the date hereof, 2,345,234 shares of FSF

Common Stock are issued and outstanding and no more than 2,595,985 shares of FSF

Common Stock will be issued and outstanding immediately prior to the Effective

Time (as a result of the exercise of outstanding options), and no shares of FSF

preferred stock are outstanding. No other classes of capital stock of FSF,

common or preferred, are authorized, issued or outstanding. All outstanding

shares of FSF Common Stock have been duly authorized and are validly issued,

fully paid and nonassessable. No shares of capital stock have been reserved for

any purpose, except for shares of FSF Common Stock reserved in connection with

the Stock Option Plans. FSF has granted options to acquire 250,751 shares of FSF

Common Stock under the Stock Option Plans, which options remain outstanding as

of the date hereof. Except as set forth in this Section 3.1, there are no Rights

authorized, issued or outstanding with respect to, nor are there any agreements,

understandings or commitments relating to the right of any FSF shareholder to

own, to vote or to dispose of, the capital stock of FSF. Holders of FSF Common

Stock do not have preemptive rights.

3.2 Organization, Standing and Authority

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

FSF is a corporation organized, validly existing and in good standing

under the laws of the State of Minnesota, with full corporate power and

authority to carry on its business as now conducted and to own, lease and

operate its properties and assets. FSF is not required to be qualified to do

business in any other state of the United States or foreign jurisdiction.

<PAGE>

3.3 Ownership of Subsidiaries

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

Section 3.3 of the FSF Disclosure Memorandum lists all of the FSF

Subsidiaries and, with respect to each, its jurisdiction of organization,

jurisdictions in which it is qualified or otherwise licensed to conduct

business, the number of shares or ownership interests owned by FSF (directly or

indirectly), the percentage ownership interest so owned by FSF and its business

activities. The outstanding shares of capital stock or other equity interests of

the FSF Subsidiaries are validly issued and outstanding, fully paid and

nonassessable, and all such shares are directly or indirectly owned by FSF free

and clear of all liens, claims and encumbrances or preemptive rights of any

person. No rights are authorized, issued or outstanding with respect to the

capital stock or other equity interests of the FSF Subsidiaries, and there are

no agreements, understandings or commitments relating to the right of FSF to

own, to vote or to dispose of said interests. None of the shares of capital

stock or other equity interests of the FSF Subsidiaries have been issued in

violation of the preemptive rights of any person. Section 3.3 of the FSF

Disclosure Memorandum also lists all shares of capital stock or other securities

or ownership interests of any corporation, partnership, joint venture, or other

organization (other than the FSF Subsidiaries) owned directly or indirectly by

FSF.

3.4 Organization, Standing and Authority of the Subsidiaries

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

Each FSF Subsidiary which is a depository institution is a federally

chartered savings bank with its deposits insured to applicable limits by the

FDIC. Each of the FSF Subsidiaries is validly existing and in good standing

under the laws of its jurisdiction of organization. Each of the FSF Subsidiaries

has full power and authority to carry on its business as now conducted, and, to

the knowledge of FSF, is duly qualified to do business in each jurisdiction

Disclosed with respect to it. To the knowledge of FSF, no FSF Subsidiary is

required to be qualified to do business in any other state of the United States

or foreign jurisdiction, or is engaged in any type of activities that have not

been Disclosed.

3.5 Authorized and Effective Agreement

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

(a) FSF has all requisite corporate power and authority to enter into

and (subject to receipt of all necessary governmental approvals and the receipt

of approval of the FSF shareholders of this Agreement and the Plan of Merger) to

perform all of its obligations under this Agreement and the Plan of Merger. The

execution and delivery of this Agreement and the Plan of Merger, and

consummation of the transactions contemplated hereby and thereby, have been duly

and validly authorized by all necessary corporate action, except, in the case of

this Agreement and the Plan of Merger, the approval of the FSF shareholders

pursuant to and to the extent required by applicable law. This Agreement and the

Plan of Merger constitute legal, valid and binding obligations of FSF, and each

is enforceable against FSF in accordance with its terms, in each such case

subject to (i) bankruptcy, fraudulent transfer, insolvency, moratorium,

reorganization, conservatorship, receivership, or other similar laws from time

to time in effect relating to or affecting the enforcement of the rights of

creditors of FDIC-insured institutions or the

<PAGE>

enforcement of creditors' rights generally; and (ii) general principles of

equity (whether applied in a court of law or in equity).

(b) Neither the execution and delivery of this Agreement or the Plan of

Merger, nor consummation of the transactions contemplated hereby or thereby, nor

compliance by FSF with any of the provisions hereof or thereof, shall (i)

conflict with or result in a breach of any provision of the Articles of

Incorporation or Bylaws of FSF or any FSF Subsidiary, (ii) to the knowledge of

FSF, constitute or result in a breach of any term, condition or provision of, or

constitute a default under, or give rise to any right of termination,

cancellation or acceleration with respect to, or result in the creation of any

lien, charge or encumbrance upon any property or asset of FSF or any FSF

Subsidiary pursuant to, any note, bond, mortgage, indenture, license, permit,

contract, agreement or other instrument or obligation, or (iii) subject to

receipt of all required governmental approvals, violate any order, writ,

injunction, decree, statute, rule or regulation applicable to FSF or any FSF

Subsidiary.

regulatory authorities as provided in Section 5.4(b), no notice to, filing with,

or consent of, any public body or authority is necessary for the consummation by

FSF of the Merger and the other transactions contemplated in this Agreement.

3.6 Securities Filings; Financial Statements; Statements True

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

(a) FSF has timely filed all Securities Documents required by the

Securities Laws to be filed since September 30, 2000. FSF has Disclosed or made

available to MidCountry a true and complete copy of each Securities Document

filed by FSF with the Commission after September 30, 2000 and prior to the date

hereof, which are all of the Securities Documents that FSF was required to file

during such period. As of their respective dates of filing (or if amended or

superseded by a filing prior to the date hereof, on the date of such filing),

such Securities Documents complied with the Securities Laws as then in effect,

and did not contain any untrue statement of a material fact or omit to state a

material fact required to be stated therein or necessary to make the statements

therein, in light of the circumstances under which they were made, not

misleading.

(b) The Financial Statements of FSF fairly present or will fairly

present, as the case may be, the consolidated financial position of FSF and the

FSF Subsidiaries as of the dates indicated and the consolidated statements of

income and retained earnings, changes in shareholders' equity and statements of

cash flows for the periods then ended (subject, in the case of unaudited interim

statements, to the absence of notes and to normal year-end adjustments that are

not material in amount or effect) in conformity with GAAP applied on a

consistent basis.

to be furnished hereunder by FSF or any FSF Subsidiary to MidCountry contains or

will contain any untrue

<PAGE>

statement of a material fact or will omit to state a material fact necessary to

make the statements therein, in light of the circumstances under which they were

made, not misleading.

3.7 Minute Books

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

The minute books of FSF and each of the FSF Subsidiaries contain or

will contain at Closing accurate records of all meetings and other corporate

actions of their respective shareholders and Boards of Directors (including

committees of the Board of Directors), and the signatures contained therein are

the true signatures of the persons whose signatures they purport to be.

3.8 Adverse Change

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

Since September 30, 2003, FSF and the FSF Subsidiaries have not

incurred any liability, whether accrued, absolute or contingent, except as

disclosed in the most recent FSF Financial Statements, or except as disclosed in

Securities Documents filed prior to the date hereof, or entered into any

transactions with Affiliates, in each case other than in the ordinary course of

business consistent with past practices, nor has there been any change or any

fact or event involving a prospective change in the business, financial

condition, results of operations or business prospects of FSF or any of the FSF

Subsidiaries that has had or is reasonably likely to have a Material Adverse

Effect on FSF taken as a whole.

3.9 Absence of Undisclosed Liabilities

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

All liabilities (including contingent liabilities) of FSF and the FSF

Subsidiaries are disclosed in the most recent Financial Statements of FSF or are

normally recurring business obligations incurred in the ordinary course of its

business since the date of FSF's most recent Financial Statements.

3.10 Properties

----------

(a) FSF and the FSF Subsidiaries have good and marketable title, free

and clear of all liens, encumbrances, charges, defaults or equitable interests,

to all of the properties and assets, real and personal, tangible and intangible,

reflected on the consolidated balance sheet included in the Financial Statements

of FSF as of September 30, 2003 or acquired after such date, except for (i)

liens for current taxes not yet due and payable, (ii) pledges to secure deposits

and other liens incurred in the ordinary course of banking business, (iii) such

imperfections of title, easements and encumbrances, if any, as are not material

in character, amount or extent, (iv) dispositions and encumbrances for adequate

consideration in the ordinary course of business, or (v) matters otherwise

reflected in the consolidated financial statements of FSF.

(b) All leases and licenses pursuant to which FSF or any FSF

Subsidiary, as lessee or licensee, leases or licenses rights to real or personal

property are valid and enforceable against

<PAGE>

FSF or the FSF Subsidiary in accordance with their respective terms, except as

enforceability may be limited by applicable bankruptcy, insolvency,

reorganization, receivership, conservatorship, moratorium or other laws

affecting the enforceability of creditors' rights generally and except for

general principles of equity (whether applied in a court of law or in equity).

3.11 Environmental Matters

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

(a) FSF and the FSF Subsidiaries are and at all times have been in

compliance with all Environmental Laws. Neither FSF nor any FSF Subsidiary has

received any communication alleging that FSF or an FSF Subsidiary is not in such

compliance, and there are no present circumstances that would prevent or

interfere with the continuation of such compliance.

(b) There are no pending Environmental Claims, neither FSF nor any FSF

Subsidiary has received notice of any pending Environmental Claims, and, to the

knowledge of FSF, there are no conditions or facts existing which might

reasonably be expected to result in legal, administrative, arbitral or other

proceedings asserting Environmental Claims or other claims, causes of action or

governmental investigations of any nature seeking to impose, or that could

result in the imposition of, any liability arising under any Environmental Laws

upon (i) FSF or any FSF Subsidiary, (ii) any person or entity whose liability

for any Environmental Claim FSF or any FSF Subsidiary has or may have retained

or assumed, either contractually or by operation of law, (iii) any real or

personal property owned or leased by FSF or any FSF Subsidiary, or any real or

personal property which FSF or any FSF Subsidiary has or is judged to have

managed or supervised or participated in the management of, or (iv) any real or

personal property in which FSF or any FSF Subsidiary holds a security interest

securing a loan recorded on the books of FSF or any FSF Subsidiary. Neither FSF

nor any FSF Subsidiary is subject to any agreement, order, judgment, decree or

memorandum by or with any court, governmental authority, regulatory agency or

third party imposing any liability under any Environmental Laws.

compliance with all recommendations contained in any environmental audits,

analyses and surveys received by FSF relating to all real and personal property

owned or leased by FSF or any FSF Subsidiary and all real and personal property

of which FSF or any FSF Subsidiary has or is judged to have managed or

supervised or participated in the management of.

(d) To the knowledge of FSF, there are no past or present actions,

activities, circumstances, conditions, events or incidents that could reasonably

form the basis of any Environmental Claim, or other claim or action or

governmental investigation that could result in the imposition of any liability

arising under any Environmental Laws, against FSF or any FSF Subsidiary or

against any person or entity whose liability for any Environmental Claim FSF or

any FSF Subsidiary has or may have retained or assumed, either contractually or

by operation of law.

<PAGE>

3.12 Loans; Allowance for Loan Losses

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

(a) All of the loans on the books of FSF and the FSF Subsidiaries are

valid and properly documented and were made in the ordinary course of business,

and the security therefor, if any, is properly perfected. Neither the terms of

such loans, nor any of the loan documentation, nor the manner in which such

loans have been administered and serviced, nor FSF's procedures and practices of

approving or rejecting loan applications, violates any federal, state or local

law, rule, regulation or ordinance applicable thereto, including, without

limitation, the TILA, Regulations O and Z of the Federal Reserve Board, the CRA,

the Equal Credit Opportunity Act, as amended, and state laws, rules and

regulations relating to consumer protection, installment sales and usury.

(b) The allowances for loan losses reflected on the consolidated

balance sheets included in the Financial Statements of FSF are, in the

reasonable good faith judgment of management of FSF, adequate as of their

respective dates under the requirements of GAAP and applicable regulatory

requirements and guidelines.

3.13 Tax Matters

-----------

(a) FSF and the FSF Subsidiaries and each of their predecessors have

timely filed (or requests for extensions have been timely filed and any such

extensions either are pending or have been granted and have not expired) all

federal, state and local (and, if applicable, foreign) tax returns required by

applicable law to be filed by them (including, without limitation, estimated tax

returns, income tax returns, information returns, and withholding and employment

tax returns) and have paid, or where payment is not required to have been made,

have set up an adequate reserve or accrual for the payment of, all taxes

required to be paid in respect of the periods covered by such returns and, as of

the Effective Time, will have paid, or where payment is not required to have

been made, will have set up an adequate reserve or accrual for the payment of,

all taxes for any subsequent periods ending on or prior to the Effective Time.

FSF and the FSF Subsidiaries have paid, or where payment is not required to have

been made have set up an adequate reserve or accrual for payment of, all taxes

required to be paid or accrued for the preceding or current fiscal year for

which a return is not yet due.

(b) All federal, state and local (and, if applicable, foreign) tax

returns filed by FSF and the FSF Subsidiaries are complete and accurate. Neither

FSF nor any FSF Subsidiary is delinquent in the payment of any tax, assessment

or governmental charge. No deficiencies for any tax, assessment or governmental

charge have been proposed, asserted or assessed (tentatively or otherwise)

against FSF or any FSF Subsidiary which have not been settled and paid. There

are currently no agreements in effect with respect to FSF or any FSF Subsidiary

to extend the period of limitations for the assessment or collection of any tax.

No audit examination or deficiency or refund litigation with respect to such

returns is pending.

<PAGE>

consistently applied.

(d) Neither FSF nor any of the FSF Subsidiaries is a party to any tax

allocation or sharing agreement or has been a member of an affiliated group

filing a consolidated federal income tax return (other than a group the common

parent of which was FSF or a FSF subsidiary) or has any liability for taxes of

any person (other than FSF and the FSF Subsidiaries) under Treasury Regulation

Section 1.1502-6 (or any similar provision of state, local or foreign law) as a

transferee or successor or by contract or otherwise.

(e) Each of FSF and the FSF Subsidiaries is in compliance with, and its

records contain all information and documents (including properly completed IRS

Forms W-9) necessary to comply with, all applicable information reporting and

tax withholding requirements under federal, state, and local tax laws, and such

records identify with specificity all accounts subject to backup withholding

under Section 3406 of the Code.

(f) Neither FSF nor any of the FSF Subsidiaries has made any payments,

is obligated to make any payments, or is a party to any contract that could

obligate it to make any payments that would be disallowed as a deduction under

Section 280G or 162(m) of the Code.

3.14 Employees; Compensation; Benefit Plans

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

(a) Compensation. FSF has Disclosed a complete and correct list of the

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

name, age, position, rate of compensation and any incentive compensation

arrangements, bonuses or commissions or fringe or other benefits, whether

payable in cash or in kind, of each director, shareholder, independent

contractor, consultant and agent of FSF and of each FSF Subsidiary and each

other person (in each case other than as an employee) to whom FSF or any FSF

Subsidiary pays or provides, or has an obligation, agreement (written or

unwritten), policy or practice of paying or providing, retirement, health,

welfare or other benefits of any kind or description whatsoever.

(b) Employee Benefit Plans.

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

(i) FSF has Disclosed an accurate and complete list of all

Plans, as defined below, contributed to, maintained or sponsored by

FSF or any FSF Subsidiary, to which FSF or any FSF Subsidiary is

obligated to contribute or has any liability or potential liability,

whether direct or indirect, including all Plans contributed to,

maintained or sponsored by each member of the controlled group of

corporations, within the mea

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