EXHIBIT 10.4




                               EXECUTIVE RETENTION
                                       AND
                              EMPLOYMENT AGREEMENT


         This Executive Retention and Employment Agreement is entered into as of
the 19th day of January, 2001, by and between SOURCE CAPITAL CORPORATION, a
Washington corporation (the "Company" or "Employer") and D. MICHAEL JONES (the
"Executive").

         WHEREAS, Executive is the President and Chief Executive Officer of
Employer; and

         WHEREAS, the Employer desires to retain Executive as its President and
Chief Executive Officer and Executive desires to continue his employment with
and to serve the Employer in the capacities and for the term and compensation
and upon and subject to the terms and conditions hereinafter set forth,

         NOW, THEREFORE, in consideration of the promises and covenants herein,
Employer and Executive mutually undertake and agree as follows:

1. Employment; Employment Period. Employer hereby agrees to continue to employ
Executive and Executive hereby accepts continued employment from Employer, on
the terms and conditions herein specified. This Agreement will begin on the
Effective Date and, unless earlier terminated in accordance with this Agreement,
will expire on March 31, 2004 (the "Employment Period").

2.       Duties of Executive.
         -------------------

         2.1 Principal Duties. Employer hereby employs Executive as its
         President and Chief Executive Officer of Employer, to perform such
         duties for Employer as may reasonably be requested of Executive by the
         Board of Directors of Employer. Executive shall report directly to the
         Board of Directors of Employer.

                  2.1.1    The business of the Employer includes lending
                           activities, primarily making loans to individuals,
                           corporations, and other entities for commercial
                           business and mortgage lending.

                  2.1.2    The business of the Employer also includes
                           identifying other companies for acquisition by, or
                           merger with, Employer, as approved by Employer's
                           Board of Directors.

                  2.1.3    It is contemplated that the duties of Executive under
                           this Agreement will not require his full time and
                           attention and that it will be necessary for Executive
                           to only devote approximately one-half of his time to
                           the performance of his duties hereunder.

                           During periods of time when Executive's services are
                           not required by Employer hereunder, Executive will be
                           free to accept employment and perform services for
                           another Employer, including, but not limited to,
                           Alvin J. Wolff, Inc. or any of its affiliated
                           companies. If, in the reasonable judgment of
                           Executive and the existing members of the Employer's
                           Compensation Committee (Messrs. Barnes, Wolff,
                           Stocker and Nelson), the business activities of
                           Employer require that more time be devoted by

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                           Executive to the Employer's business, Executive
                           agrees to devote such additional time as may be
                           required; provided, however, if Executive is required
                           to devote more than one-half of his time to
                           Employer's business, the salary amount and
                           Performance Bonus percentage payable to Executive
                           under this Agreement shall be increased
                           proportionately.

3.       Compensation.
         ------------

         3.1      Salary. Employer shall pay Executive a yearly salary of Eighty
                  Four Thousand Dollars ($84,000.00). Executive may direct
                  Employer as to the method and manner of payment of
                  compensation so as to minimize taxation to Executive.

         3.2      Cost of Living Increase Adjustment.
                  ----------------------------------

                  (a)      The payment described in Section 3.1 of this
                           Agreement shall be adjusted to reflect cost-of-living
                           increases in order to ensure that the real value of
                           the payments provided under this Agreement are not
                           impaired by changing economic conditions.

                  (b)      On January 1, 2002, and each January 1st thereafter,
                           Employer shall compute a cost-of-living increase
                           adjustment factor by which payments during the
                           following year are to be multiplied. The payments to
                           be multiplied are those determined under Section 3.1
                           without regard to any prior cost-of-living increase
                           adjustment. The factor shall consist of a fraction,
                           the numerator of which shall be the most recently
                           determined cost-of-living index when the calculation
                           is made, and the denominator of which shall be the
                           most recently determined cost-of-living index
                           determined prior to January 1, 2001.

                  (c)      That all items, for the Standard Metropolitan
                           Statistical Area of Seattle, Washington
                           cost-of-living index required for this calculation
                           shall be obtained from the Consumer Price Index
                           published by the Bureau of Labor Statistics of the
                           United States Department of Labor. In any year in
                           which this index is not available Employer shall
                           ascertain and utilize some similar criterion and
                           establish retroactively an initial index figure for
                           the denominator of the fraction consistent with the
                           intent of this Agreement.

                  (d)      Nothing in this Agreement shall be construed to
                           diminish the fixed amount payable under this
                           Agreement as established above, or to diminish the
                           amount of any particular payment.

         3.3      Bonus. By January 15 of each year, beginning January 15, 2002,
                  Executive shall receive a cash bonus (the "Performance Bonus")
                  based upon Employer's net earnings for the prior year. Such
                  Performance Bonus shall be determined in the following manner:
                  Executive shall receive a bonus of five percent (5%) of
                  Employer's net earnings. For purposes of this Section, net
                  earnings shall be defined as before tax earnings computed by
                  the Employer's Certified Public Accountant using generally
                  accepted accounting principles consistently applied with the
                  following adjustments;

                           (i)      No deductions shall be taken for stock
                                    options given to or exercised by Executive,
                                    the Directors, or Key Employees or under any
                                    stock option plan.

                           (ii)     No deductions shall be taken for bonuses
                                    given to Executive.

                           (iii)    No federal, state, and local income taxes
                                    shall be deductible.

                  Any Performance Bonuses earned herein will be advanced on the
                  following dates: April 15 based on a computation for the first
                  quarter of Employer's operations; July 15 based on a
                  computation for the second quarter of Employer's operations;
                  October 15 based on a computation for the third quarter of
                  Employer's operations; and on January 31 based on a
                  computation for the fourth quarter of Employer's operations.
                  Notwithstanding the above, if net earnings for the complete
                  year at

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                  December 31 indicate Executive has been bonused in excess of
                  five percent (5%) of net earnings for Employer's fiscal year,
                  Executive agrees to reimburse Employer such excess amount by
                  February 15 of the year following. Each complete year shall be
                  considered separately and not cumulatively for purposes of
                  this calculation.

         3.4      Disability Pay. In the event Executive becomes unable to
                  perform his duties hereunder by reason of illness or accident,
                  he shall receive full salary during the first six (6) months
                  of such incapacity in any elapsed period of twelve (12) months
                  ("Disability Pay"). Disability Pay under this provision shall
                  be noncumulative. Employer may, in its sole discretion,
                  maintain a disability insurance policy for the purpose of
                  funding benefits for Executive while so incapacitated.

         3.5      Expenses. Executive shall be entitled to receive reimbursement
                  for all reasonable expenses incurred by him in connection with
                  the performance of his duties, provided he submits an itemized
                  statement for such expenses to Employer and, if required by
                  Employer, actual receipts of the expenses so incurred.

         3.6      Reimbursement of Disallowed Expenses. If any expense allowance
                  or reimbursement is disallowed in whole or in part as a
                  deductible expense of Employer for federal income tax
                  purposes, shall reimburse the Employer, upon notice and
                  demand, to the full extent of the disallowance. This legally
                  enforceable obligation is in accordance with the provisions of
                  Revenue Ruling 69-115 and it is for the purpose of entitling
                  Executive to a business expense deduction for the taxable year
                  in which the repayment is made to the Employer. In this manner
                  the Employer will be protected from having to bear the entire
                  burden of a disallowed items.

         3.7      Fringe Benefits.  While he is in the employ of the Employer,
                  Executive shall be entitled to the following benefits:

                  (a)      Automobile Use. Executive shall receive Five Hundred
                           dollars ($500.00) per month automobile reimbursement
                           expense. Executive shall arrange for an "umbrella"
                           policy in the name of Employer or naming Employer as
                           an additional insured in the minimum amount of Three
                           Million Dollars ($3,000,000).

                  (b)      Incentive, Savings and Retirement Plans. During the
                           Employment Period, Executive will be entitled to
                           participate in all executive incentive compensation
                           and bonus programs (including stock option,
                           performance share and restricted stock grants), and
                           savings and retirement plans, policies and programs,
                           applicable generally to officers or executives of
                           Employer.

                  (c)      Welfare Benefit Plans. During the Employment Period,
                           Executive will be eligible for participation in and
                           will receive all benefits under welfare benefit
                           plans, policies and programs provided by Employer
                           (including, without limitation, medical,
                           prescription, dental, disability, employee life,
                           group life, accidental death and travel accident
                           insurance plans and programs) to the extent available
                           generally to other officers or executives of Employer
                           who are employed on a full-time basis and their
                           families.

                  (d)      Vacation. Beginning January 19, 2001, Executive shall
                           be entitled each year to a vacation of eight (8)
                           weeks during which time his compensation shall be
                           paid in full; provided however, Executive shall not
                           take more than two (2) consecutive weeks of vacation,
                           without prior approval of the Chairman of the Board.

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                  (e)      Other Benefits. Executive shall be entitled to
                           participate in any pension plans, or anyother health
                           insurance plans, or other fringe benefit plan which
                           the Employer may adopt from time to time for the
                           benefit of its officers or executive employees
                           employed on a full-time basis.

                  (f)      Retention Bonus. Conditioned upon Executive
                           remaining continuously in the employment of Employer
                           or its affiliated entities on March 31, 2004, or
                           such earlier date as the Board of Directors of
                           Employer reasonably determine that the liquidation
                           of the lease portfolio of Source Leasing has been
                           completed and that there is no further need for
                           Executive's services with Employer, Employer shall
                           pay to Executive a retention bonus (the "Retention
                           Bonus") equal in amount to the lump sum severance
                           benefit that would be payable to Executive under
                           Section 5(a) of this Agreement upon a termination of
                           Executive's employment by Employer without cause;
                           provided, however, Executive shall not be entitled
                           to, and shall not, receive any Retention Bonus
                           payment under this Section 3.7(f) if Executive is
                           entitled to receive or has received the Lump Sum
                           Severance Payment or the "Change of Control"
                           Severance Payment provided for under Sections
                           5(a)(i) or 6(a)(i) of this Agreement; and provided
                           further, that upon the payment of the Retention
                           Bonus to Executive, this Agreement shall be deemed
                           to be terminated; and provided further that the
                           payment of the Retention bonus shall be in lieu of
                           all further compensation under this Agreement,
                           including, but not limited to, the Lump Sum
                           Severance Payment provided for by Section 5(a)(i) of
                           this Agreement and the Change of Control Severance
                           Payment provided for by Section 6(a)(i) of this
                           Agreement. The Retention bonus shall be payable to
                           Executive within ten (10) business days from the
                           date of the event giving rise to its payment.

         3.8      Term.  The term of this Agreement shall be the period
                  beginning on January 19, 2001 (the "Commencement Date") and
                  terminate on March 31, 2004 (the "Termination Date"),

                  (a)      unless Executive shall sooner die or become disabled,
                           whereupon this Agreement shall terminate as herein
                           provided, or

                  (b)      unless this Agreement shall be sooner terminated by
                           Executive as herein provided for, or

                  (c)      unless this Agreement shall be sooner terminated by
                           Employer as provided for in Section 4.

4.       Termination of Employment.
         -------------------------

                  (a)      Death or Disability. Executive's employment will
                           terminate automatically upon Executive's death
                           during the Employment Period. If Employer determines
                           in good faith that the Disability of Executive has
                           occurred during the Employment Period (pursuant to
                           the definition of Disability set forth below), it
                           may (subject to the Disability Pay provisions of
                           Section 3.4) give to Executive written notice in
                           accordance with Section 13 of this Agreement of its
                           intention to terminate Executive's employment. In
                           such event, Executive's employment will terminate
                           effective on the 30th day after receipt by Executive
                           of such written notice (the "Disability Effective
                           Date"), provided that, within the 30 days after such
                           receipt, Executive shall not have returned to
                           full-time performance of Executive's duties; and
                           provided further, that Executive will
                           notwithstanding the termination of this Agreement be
                           entitled to receive the Disability Pay provided for
                           under

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                           Section 3.4 of this Agreement. For purposes of this
                           Agreement, "Disability" means the existence of any
                           physical or mental condition of Executive that
                           results in his receipt of long-term disability
                           benefits under Source Capital's long term disability
                           plan.

                  (b)      Termination for Cause.  Employer may terminate
                           Executive's employment during the Employment Period
                           for Cause.  For purposes of this Agreement, "Cause"
                           means:

                           (i)      the willful and continued failure of
                                    Executive to substantially perform
                                    Executive's duties with Employer (other than
                                    any such failure resulting from incapacity
                                    due to physical or mental illness), after a
                                    written demand for substantial performance
                                    is delivered to Executive by the Board of
                                    Directors (the "Board") of Employer that
                                    specifically identifies the manner in which
                                    the Board of Employer believes that
                                    Executive has not substantially performed
                                    Executive's duties;

                           (ii)     the willful engaging by Executive in illegal
                                    conduct or gross misconduct that is
                                    materially and demonstrably injurious to
                                    Employer;

                           (iii)    personal dishonesty or breach of fiduciary
                                    duty to Employer that results or was
                                    intended to result in personal profit to
                                    Executive at the expense of Employer or any
                                    of its affiliated companies.

                           (iv)     willful violation of any law, rule or
                                    regulation which results in a felony
                                    conviction of Executive, which violation is
                                    materially and demonstrably injurious to
                                    Employer.

                  For purposes of the preceding clauses, no act or failure to
                  act, on the part of Executive, shall be considered "willful"
                  unless it is done, or omitted to be done, by Executive in bad
                  faith and without reasonable belief that Executive's action or
                  omission was in the best interests of Employer. Any act, or
                  failure to act, based upon prior approval given by the Board
                  of Directors of Employer or upon the instructions or with the
                  approval of Executive's superior or based upon the advice of
                  counsel for Employer, shall be conclusively presumed to be
                  done, or omitted to be done, by Executive in good faith and in
                  the best interests of Employer. The cessation of employment of
                  Executive shall not be deemed to be for Cause unless and until
                  there shall have been delivered to Executive, as part of the
                  Notice of Termination, a copy of a resolution duly adopted by
                  the affirmative vote of not less than two-thirds of the entire
                  membership of Employer's Board at a meeting of Employer's
                  Board called and held for the purpose of considering such
                  termination (after reasonable notice is provided to Executive
                  and Executive is given an opportunity, together with counsel,
                  to be heard before Employer's Board) finding that, in the good
                  faith opinion of Employer's Board, Executive is guilty of the
                  conduct described in clause (i), (ii), (iii), or (iv) above,
                  and specifying the particulars there of in detail.

                  (c)      Termination for Good Reason. Subsequent to and
                           conditioned upon a "Change of Control" of Employer as
                           defined in Section 6(a)(i) hereof, Executive's
                           employment may be terminated by Executive for Good
                           Reason. For purposes of this Agreement, "Good Reason"
                           means the occurrence during the Employment Period
                           subsequent to a Change of Control of any of the
                           following events:

                           (i)      Inferior Duties. The assignment of duties to
                                    Executive by Employer which

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                                    (i) are largely inferior to Executive's
                                    duties immediately prior to a Change of
                                    Control; or (ii) result in Executive having
                                    inconsequential authority or responsibility
                                    compared to the authority or responsibility
                                    he had on the date of a Change of Control,
                                    without his express written consent.

                           (ii)     Salary Reduction. A reduction by Employer of
                                    Executive's rate of Base Salary or
                                    Performance Bonus as in effect on the date
                                    of a Change of Control.

                           (iii)    Fringe Benefit Reduction. The failure by
                                    Employer to continue in effect any Plan (as
                                    hereinafter defined) in which Executive is
                                    participating at the time of the change in
                                    control of Employer(or Plans providing
                                    Executive with at least substantially
                                    similar benefits) other than as a result of
                                    the normal expiration of any such Plan in
                                    accordance with its terms as in effect at
                                    the time of the Change in Control, or the
                                    taking of any action, or the failure to act,
                                    by Employer which would adversely affect
                                    Executive's continued participation in any
                                    of such Plans on at least as favorable a
                                    basis to Executive as was the case on the
                                    date of the Change in Control or which would
                                    materially reduce Executive's benefits in
                                    the future under any of such Plans or
                                    deprive Executive of any material benefit
                                    enjoyed by Executive at the time of the
                                    Change in Control.

                           (iv)     Vacation Reduction. The failure by Employer
                                    to provide and credit Executive with the
                                    number of paid vacation days to which
                                    Executive is then entitled in accordance
                                    with this Agreement.

                           (v)      Relocation. Employer requiring Executive to
                                    be based anywhere other than a place within
                                    25 miles of where Executive's office is
                                    located immediately prior to the Change in
                                    Control except for required travel on
                                    business to an extent substantially
                                    consistent with the business travel
                                    obligations which you undertook on behalf of
                                    Employer prior to the Change in Control.

                           (vi)     Failure of Assumption. The failure by
                                    Employer to obtain from any successor the
                                    assent to this Agreement contemplated by
                                    Section 10(c).

                           (vii)    Defective Termination. Any purported
                                    termination by Employer of Executive's
                                    employment which is not effected pursuant to
                                    a Notice of Termination satisfying the
                                    requirements of this Agreement; and for
                                    purposes of this Agreement, no such
                                    purported termination shall be effective.

                           (viii)   Breach. A material breach by Employer of any
                                    provision of this Agreement.


                  For purposes of this subsection, "Plan" shall mean any
                  compensation plan such as an incentive or stock option plan or
                  any employee benefit plan such as a thrift, pension, profit
                  sharing, medical, disability, accident, life insurance plan,
                  or a relocation plan or policy or any other plan, program, or
                  policy of Employer.

                  (d)      Resignation. In the event Executive resigns as an
                           employee without good reason, prior to a Change of
                           Control or after a Change of Control, Executive shall
                           be entitled to his salary under Section 3.1 for a
                           period of three (3) months, and his Performance Bonus
                           prorated for such year of termination computed as
                           described herein. Said sums shall be paid to

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                           Executive in a manner that minimizes tax liability
                           for Executive, all at the request of Executive.
                           Executive also shall retain the right to payment of
                           all compensation earned to the date of termination
                           [specifically all compensation, benefits or
                           securities earned under Sections 3.2, 3.4, 3.5 and
                           3.7 (a,b,c,d,e and f)]; provided, however, in the
                           event Executive still has options upon the date of
                           termination, such Options must be exercised within
                           three (3) months of termination. If such termination
                           occurs other than on December 31, the bonus provided
                           for under Section 3.3 in the year of termination
                           shall be paid on and prorated to the nearest
                           following dates, and computed based upon the
                           Company's performance as follows: payable on April 15
                           based on a computation for the first quarter of
                           Employer's operations; payable on July 15 based on a
                           computation for the first and second quarter of
                           Employer's operations; payable on October 15 based on
                           a computation for the first, second and third quarter
                           of Employer's operations; and payable on February 15
                           based on a computation for the first, second, third
                           and fourth quarter of Employer's operations;
                           provided, however, nothing herein shall be construed
                           to entitle Executive to a Performance Bonus
                           attributable to a period of time after termination.

                  (e)       Notice of Termination. Any termination of
                           Executive's employment for Cause, or by Executive
                           for Good Reason, shall be communicated by Notice of
                           Termination to the other party hereto given in
                           accordance with Section 14 of this Agreement. For
                           purposes of this Agreement, a "Notice of
                           Termination" means a written notice that (i)
                           indicates the specific termination provision in this
                           Agreement relied upon, (ii) to the extent
                           applicable, sets forth in reasonable detail the
                           facts and circumstances claimed to provide a basis
                           for termination of Executive's employment under the
                           provision so indicated, and (iii) specifies the
                           termination date (which date shall be not less than
                           60 days after the giving of such notice). If a
                           dispute exists concerning the provisions of this
                           Agreement that apply to Executive's termination of
                           employment, the parties shall pursue the resolution
                           of such dispute with reasonable diligence. Within
                           five (5) days of such a resolution, any party owing
                           any payments pursuant to the provisions of this
                           Agreement shall make all such payments together with
                           interest accrued thereon at the rate provided in
                           Section 1274(b)(2)(B) of the Internal Revenue Code
                           of 1986, as amended (the "Code"). Termination of
                           Executive's employment shall occur on the specified
                           Date of Termination even if there is a dispute
                           between the parties relating to the provisions of
                           this Agreement that apply to such termination. The
                           failure by Executive or Employer to set forth in the
                           Notice of Termination any fact or circumstance that
                           contributes to a showing of Good Reason or Cause
                           will not waive any right of Executive or Employer,
                           respectively, hereunder or preclude Executive or
                           Employer, respectively, from asserting such fact or
                           circumstance in enforcing Executive's or Employer's
                           rights hereunder.

                  (f)      Date of Termination. "Date of Termination" means (i)
                           if Executive's employment is terminated by Employer
                           other than by reason of death or Disability, the date
                           specified in the Notice of Termination, or (ii) if
                           Executive's employment is terminated by reason of
                           death or Disability, the Date of Termination will be
                           the date of death or the Disability Effective Date,
                           as the case may be.


5.       Obligations of Employer.
         -----------------------

                  (a)      Termination Without Cause Prior to Completion of
                           Employment Period. If, prior to the completion of the
                           Employment Period, Executive's employment is
                           terminated by

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                           Employer without Cause (other than by reason of
                           Executive's death or Disability), then in
                           consideration of Executive's services rendered prior
                           to such termination, Executive shall be entitled to
                           receive:

                           (i)      Lump-Sum Severance Payment. In lieu of any
                                    further salary payments to Executive for
                                    periods subsequent to the Date of
                                    Termination, Employer shall pay to Executive
                                    a lump sum severance payment, in cash,
                                    without discount, equal to the sum of (A)
                                    two (2) times the sum of the W-2
                                    compensation paid to Executive during the
                                    previous calendar year by Employer, plus (B)
                                    $56,800; provided, however, that Executive
                                    shall not be entitled to, and shall not,
                                    receive any payment under this Section
                                    5(a)(i) if Executive is entitled to receive
                                    or has received, the "Change of Control
                                    Severance Payment" provided for by Section
                                    6(a) of this Agreement; and provided
                                    further, that the amount of the lump sum
                                    severance benefit shall be reduced by the
                                    amount of any payment to Executive during
                                    the Employment Period from or as a result of
                                    cash lease recoveries on leases to Silver
                                    Valley Hospital District and/or Dr. Ronald
                                    Slaughter that were written off in the year
                                    2000 by Employer.

                           (ii)     Vesting of Options. Any and all options
                                    granted by Employer to purchase common stock
                                    of Source Capital then held by Executive
                                    will, to the extent not already vested,
                                    become vested and exercisable in full as of
                                    the Date of Termination, and any provision
                                    contained in the agreement(s) under which
                                    such options were granted that is
                                    inconsistent with such acceleration is
                                    hereby modified to the extent necessary to
                                    provide for such acceleration of vesting.

                           (iii)    Medical Benefits. Any health, medical or
                                    dental insurance benefits provided to
                                    Executive immediately prior to the Date of
                                    Termination shall be continued through March
                                    31, 2004.

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                           (iv)     Other Benefits. To the extent not
                                    theretofore paid or provided, Employer shall
                                    timely pay or provide to Executive any other
                                    amounts or benefits required to be paid or
                                    provided or that Executive is eligible to
                                    receive under any plan, program, or policy
                                    of Employer and its affiliated companies
                                    (such other amounts and benefits will be
                                    hereinafter referred to as the "Other
                                    Benefits").

                  (b)       Death. If Executive's employment is terminated by
                            reason of Executive's death during the Employment
                            Period, this Agreement will terminate without
                            further obligations to Executive's legal
                            representatives under this Agreement, other than for
                            payment of the sum of Accrued Compensation (as
                            defined below), the vesting of stock options, and
                            the timely payment or provision of Other Benefits,
                            including without limitation any death benefits to
                            which Executive is then entitled. For purposes of
                            the Agreement, "Accrued Compensation" means all
                            amounts of compensation for services rendered by
                            Executive to Employer or any affiliate that have
                            been earned or accrued through the Date of
                            Termination but that have not been paid as of the
                            Date of Termination, including (i) Base Salary, (ii)
                            reimbursement (in accordance with Employer's expense
                            reimbursement policy) for reasonable and necessary
                            business expenses incurred by Executive on behalf of
                            Employer during the period ending on the Date of
                            Termination, (iii) vacation pay, and (iv) bonuses
                            and incentive compensation. Accrued Compensation
                            shall be paid to Executive in a lump sum in cash
                            within 30 days of the Date of Termination or in
                            accordance with any deferral election theretofore
                            elected by Executive.

                  (c)       Disability. If Executive's employment is terminated
                            by reason of Executive's Disability during the
                            Employment Period, this Agreement will terminate
                            without further obligations to Executive, other than
                            for payment of Accrued Compensation, the vesting of
                            stock options and restricted stock, and the timely
                            payment or provision of Other Benefits, including
                            without limitation any disability benefits to which
                            Executive is then entitled. Accrued Compensation
                            shall be paid to Executive in a lump sum in cash
                            within 30 days of the Date of Termination or in
                            accordance with any deferral election theretofore
                            elected by Executive.

                  (d)      Cause. If Executive's employment is terminated for
                           Cause during the Employment Period, this Agreement
                           will terminate without further obligations to
                           Executive, other than for payment of Accrued
                           Compensation and the timely payment or provision of
                           Other Benefits. In such case, all Accrued
                           Compensation shall be paid to Executive in a lump sum
                           in cash within 30 days of the Date of Termination or
                           in accordance with any deferral election theretofore
                           elected by Executive.

                  (e)      Resignation. If Executive's employment is terminated
                           by his resignation prior to a Change of Control or
                           following a Change of Control without Good Reason,
                           this Agreement shall terminate without further
                           obligations to Executive, other than for payment of
                           the amounts payable to Executive under Section 4(d),
                           and for payment of Accrued Compensation and the
                           timely payment of Other Benefits.

6.       Termination Following Change of Control.
         ---------------------------------------

                  (a)      In the event of a termination of Executive's
                           employment by Employer without Cause or termination
                           of Executive's employment for Good Reason upon or
                           following a "Change of Control" of Employer (as
                           defined below) during the Employment Period,
                           Employer shall pay to Executive, in addition to
                           Accrued Compensation and those payments due him
                           under Section 5(a)(ii), (iii) and (iv), a "Change of
                           Control Severance Payment" equal to (A) two (2)
                           times Executive's Base Salary and bonus
                           compensation, as reported on Executive's annual Form
                           W-2 for the year preceding the year in which the
                           Change of Control occurs, plus (B) $56,800; provided
                           however, that such Change of Control severance
                           payment shall be reduced by the amount of any
                           Retention Bonus or lump sum Severance Payment paid
                           or due to Executive under Sections 3.7(f) or 4(a)(i)
                           of this Agreement; provided further that the amount
                           of the lump sum severance benefit shall be

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<PAGE>

                           reduced by the amount of any payment to Executive
                           during the Employment Period from or as a result of
                           cash lease recoveries on leases to Silver Valley
                           Hospital District and/or Dr. Ronald Slaughter that
                           were written off in the year 2000 by Employer. A
                           "Change of Control" of Employer shall mean:

                           (i)      A change in control of a nature that would
                                    be required to be reported in response to
                                    Item 6(e) of Schedule 14A of Regulation 14A
                                    as in effect on the date hereof pursuant to
                                    the Exchange Act of 1934; provided that,
                                    without limitation, such a change in control
                                    shall be deemed to have occurred at such
                                    time as any person hereafter becomes the
                                    "beneficial owner" (as defined in Rule 13d-3
                                    under the Exchange Act), directly or
                                    indirectly, of 25 percent or more of the
                                    combined voting power of the voting
                                    securities of Employer, except that a change
                                    in control shall not be deemed to have
                                    occurred in the event a person who presently
                                    owns 10 percent or more of Employer's voting
                                    securities outstanding as of the date of
                                    this Agreement, directly or indirectly,
                                    becomes the owner of 25 percent or more of
                                    the combined voting power of the voting
                                    securities of Employer; or

                           (ii)     During any period of two consecutive years,
                                    individuals who at the beginning of such
                                    period constitute the Board of Employer
                                    cease for any reason to constitute at least
                                    a majority thereof unless the election, or
                                    the nomination for election by Employer's
                                    shareholders, of each new director was
                                    approved by a vote of at least two-thirds of
                                    the directors then still in office who were
                                    directors at the beginning of the period; or

                           (iii)    There shall be consummated (x) any
                                    consolidation or merger of Employer in which
                                    Employer is not the continuing or surviving
                                    corporation or pursuant to which voting
                                    securities of Employer would be converted
                                    into cash, securities, or other property,
                                    other than a merger of Employer in which the
                                    holders of their voting securities
                                    immediately prior to the merger have the
                                    same proportionate ownership of common stock
                                    of the surviving corporation immediately
                                    after the merger, or (y) any sale, lease,
                                    exchange, or other transfer (in one
                                    transaction or a series of related
                                    transactions) of all, or substantially all
                                    of the assets of Employer.

                           (iv)     A Change of Control shall be deemed to have
                                    occurred on the date the events resulting in
                                    the Change of Control are completed and
                                    closed.

                  (b)      Limitations on Payments. Notwithstanding any other
                           provision of this Agreement, in the event that any
                           payment or benefit received or to be received by the
                           Executive in connection with the termination of the
                           Executive's employment (whether pursuant to the
                           terms of this Agreement or any other plan,
                           arrangement or agreement (all such payments and
                           benefits, including the payments and benefits
                           provided for hereunder, being hereinafter called
                           "Total Payments") would not be deductible (in whole
                           or part), by Source Capital, an affiliate or other
                           person or entity making such payment or providing
                           such benefit as a result of section 280G of the
                           Code, as amended, then, to the extent necessary to
                           make such portion of the Total Payments deductible,
                           (A) the cash payments provided for by Section
                           5(a)(i) hereof or Section 6(a)(i) hereof shall first
                           be reduced (if necessary, to zero), and (B) the
                           benefits provided for by Sections 5(a)(ii),
                           5(a)(iii) and 5(a)(iv) hereof shall next be reduced
                           (if necessary). For purposes of this limitation, no

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<PAGE>

                           portion of the Total Payments the receipt or
                           enjoyment of which the Executive shall have waived
                           by written notice to Source Capital prior to the
                           date of payment of the Severance Benefits shall be
                           taken into account. All determinations required to
                           be made under the provisions of this Section 6(b)
                           shall be made by tax counsel selected by Employer's
                           independent auditors and acceptable to the
                           Executive.

7.       Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program or
policy provided by Employer or any of its affiliated companies and for which
Executive may qualify. Amounts that are vested benefits or that Executive is
otherwise entitled to receive under any plan, policy, or program of Employer or
any of its affiliated companies at or subsequent to the Date of Termination will
be payable in accordance with such plan, policy, or program, except as
explicitly modified by this Agreement.

8.       Full Settlement; Certain Legal Expenses.
         ---------------------------------------

                  (a)      Employer's obligation to make the payments provided
                           for in this Agreement and otherwise to perform its
                           obligations hereunder shall not be affected by any
                           set-off, counterclaim, recoupment, defense or other
                           claim, right or action that Employer or any of its
                           affiliated companies may have against Executive or
                           others. In no event shall Executive be obligated to
                           seek other employment or take any other action by
                           way of mitigation of the amounts payable to
                           Executive under any of the provisions of this
                           Agreement and such amounts shall not be reduced
                           whether or not Executive obtains other employment.

                  (b)      Employer shall pay to Executive all reasonable legal
                           fees and expenses incurred by Executive as a result
                           of a termination that entitles Executive to any
                           payments under this Agreement including all such
                           fees and expenses, if any, incurred in contesting or
                           disputing any Notice of Termination given hereunder
                           or in seeking to obtain or enforce any right or
                           benefit provided by this Agreement or in connection
                           with any tax audit or proceeding to the extent
                           attributable to the application of Section 4999 of
                           the Code to any payment or benefit provided
                           hereunder. Such payments shall be made within ten
                           (10) business days after delivery of Executive's
                           respective written requests for payment accompanied
                           with such evidence of fees and expenses incurred as
                           Employer reasonably may require.

9.       Assignment and Successors.
         -------------------------

                  (a)      Executive. This Agreement is personal to Executive
                           and without the prior written consent of Employer
                           shall not be assignable by Executive otherwise than
                           by will or the laws of descent and distribution. This
                           Agreement shall inure to the benefit of and be
                           enforceable by Executive's legal representatives.

                  (b)      Source Capital. This Agreement shall inure to the
                           benefit of and be binding upon Employer and its
                           successors and assigns.

                  (c)      Assumption by Successors. Employer will require any
                           successor (whether direct or indirect, by purchase,
                           merger, consolidation or otherwise) to all or
                           substantially all of the business and/or assets of
                           Employer to assume expressly and agree to perform
                           this Agreement in the same manner and to the same
                           extent that Employer would be required to perform it
                           if no such succession had taken place. As used in
                           this Agreement, "Employer"

                                       11
<PAGE>

                           means Source Capital Corporation and any successor
                           to its business and/or assets as aforesaid which
                           assumes and agrees to perform this Agreement by
                           operation of law or otherwise.

                  (d)      No Waiver.  The failure by Employer to exercise its
                           right to terminate Executive's employment under this
                           Agreement with respect to any one or more of the
                           matters referred to in Section 5 above, or with
                           respect to any incapacity of Executive which would
                           give rise to the Employer having a right to
                           terminate this Agreement, as provided for above,
                           shall not be taken or held to be a waiver by the
                           Employer of its right of termination of this
                           Agreement in respect of that breach or incapacity
                           (provided it shall be continuing) or of any
                           subsequent breach or incapacity. Section 5 shall not
                           limit the Employer's rights or remedies, other than
                           in regard to termination, for a breach of this
                           Agreement by Executive.

                  (e)      Rights Preserved. In the event that at any time
                           during the term of this Agreement, the Employer
                           shall be liquidated or dissolved or merged into or
                           consolidated with another corporation, all rights of
                           Executive under this Agreement shall be preserved
                           unimpaired, and all liabilities and obligations of
                           Employer hereunder shall thenceforth flow to the
                           entity receiving the properties and assets of
                           Employer in such liquidation and dissolution, or the
                           surviving corporation in such merger or
                           consolidation, and may be enforced against
                           corporation in such merger or consolidation, and may
                           be enforced against it to the same extent as if this
                           Agreement had been entered into by it; provided,
                           however, that in the event Employer is merged into
                           another corporation and is not the surviving entity,
                           Executive shall exercise his Options prior to the
                           effective date of such merger and, if such Options
                           are not so exercised, then they shall automatically
                           expire and terminate.

10.     Disclosure of Information. Executive will not, during or any time after
termination of employment hereunder, without written authorization of Employer,
disclose to, or make use of, for himself or for any person or corporation or
other entity, any files or trade secrets or other confidential or proprietary
information concerning the business, clients, methods, operations, financing, or
services of Employer. Trade secrets and confidential information shall mean the
information disclosed to Executive or known by him as a consequence of his
employment by Employer, whether or not pursuant to this Agreement and not
generally known in the industry.

11.     Surrender of Books and Records. Executive acknowledges that all files,
lists, books, records, products, and other materials owned by Employer or used
by it in connection with the conduct of its business shall at all times remain
the property of Employer and that upon termination of employment hereunder,
irrespective of the time, manner, or cause of such termination, Executive will
surrender to the Employer all such files, lists, books, records, products, and
other materials.

12.     Severability. If any provisions of this Agreement shall be held invalid
or unenforceable, the remainder of this Agreement shall, nevertheless, remain in
full force and effect. If any provisions are held invalid or unenforceable with
respect to particular circumstances, it shall nevertheless, remain in full force
and effect in all other circumstances.

13.     Notice.  All notices required to be given under the terms of this
Agreement shall be in writing, shall be effective, upon receipt, and shall be
delivered to the addressee in person or mailed by certified mail, return receipt
requested:

                                       12

<PAGE>

                  If to Employer:   Source Capital Corporation
                                    c/o Chairman of the Board
                                    1825 N. Hutchinson Road
                                    Spokane, WA  99212


                  If to Executive:  D. Michael Jones
                                    PMB 212
                                    2804 E. 30th Avenue
                                    Spokane, WA 99223

14.     Benefit. This Agreement shall inure to and shall be binding upon the
parties hereto, the successors and assigns of Employer and the heirs and
personal representatives of Executive. This Agreement cannot be assigned by
Executive because of the personal services required of Executive.

15.     Waiver. The waiver by either party of any breach or violation of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation hereof.

16.     Governing Law. This Agreement has been negotiated and executed in the
State of Washington, and the law of that state shall govern its construction and
validity.

17.     Arbitration. Any controversy arising out of, connected to, or relating
to any matters herein of the transactions between Executive and Employer
(including for purposes of arbitration, officers, directors, employees,
controlling persons, affiliates, professional advisors, accountants, attorneys,
agents, or promoters of the Employer), on behalf of the undersigned, or this
Agreement, or the breach thereof, including, but not limited to any claims of
violations of Federal and/or State Securities Acts, Banking Statutes, Consumer
Protection Statutes, Federal and/or State anti-Racketeering (e.g. RICO) claims
as well as any common law claims and any State Law claims of breach of contract,
fraud, negligence, negligent misrepresentations, unlawful discharge, and/or
conversion shall be settled by arbitration; and in accordance with this Section,
and judgment on the arbitrator's award may be entered in any court having
jurisdiction thereof in accordance with the provisions of RCW 7.04. In the event
of such a dispute, each party to the conflict shall select an arbitrator, both
of whom shall select a third arbitrator, which shall constitute the three person
arbitration board. The decision of a majority of the board of arbitrators, who
shall render their decision within thirty (30) days of appointment of the final
arbitrator, shall be binding upon the parties. Venue for arbitration and any
action herein shall lie in Spokane County, State of Washington. The laws of the
State of Washington shall apply herein.

18.     Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the employment of Executive by Employer. No
change, addition, or amendment shall be made except by written agreement signed
by the parties hereto.

19.     Representations and Warranties of Executive. Executive hereby represents
and warrants to the Employer:

         (a)      Executive understands that this Agreement and the Common Stock
                  to be issued herein, HAS NOT BEEN APPROVED OR DISAPPROVED BY
                  THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, THE
                  STATE OF WASHINGTON, OR ANY OTHER STATE SECURITIES AGENCIES.

         (b)      Executive is not an underwriter and would be acquiring this
                  Agreement and the Common Stock to be issued, solely for
                  investment for his own account and not with a view to,

                                       13
<PAGE>

                  or, resale in connection with any distribution of stock within
                  the meaning of the Federal Securities Acts, the Washington
                  State Securities Act, or any other applicable State Securities
                  Acts.

         (c)      Executive understands the speculative nature and risks of
                  investments associated with the Employer, and confirms that
                  this Agreement and the Common Stock to be issued would be
                  suitable and consistent with his investment program and that
                  his financial position enables it bear the risks of this
                  investment; and that there may not be any public market for
                  this Agreement and the Common Stock to be issued herein.

         (d)      This Agreement and the Common Stock to be issued herein may
                  not be transferred, encumbered, sold, hypothecated, or
                  otherwise disposed of to any person, without the express prior
                  written consent of the Employer, and the prior opinion of
                  counsel for the Employer, that such disposition will not
                  violate Federal and/or State Securities Acts. Disposition
                  shall include, but is not limited to acts of selling,
                  assigning, transferring, pledging, encumbering, hypothecating,
                  giving, and any form of conveying, whether voluntary or not.

         (e)      To the extent that any Federal and/or State Securities law
                  shall require, Executive hereby agrees that: (1) any shares
                  acquired pursuant to this Agreement shall be without
                  preference as to dividends, assets, or voting rights and shall
                  have no greater or lesser rights per share than the securities
                  issued for cash or its equivalent; (2) any shares acquired
                  pursuant to this Agreement shall be subordinated in favor of
                  the securities to be sold to the public with respect to
                  dividend rights or preferences and liquidation or other
                  distribution rights or preferences in the event of a
                  dissolution, liquidation, bankruptcy, receivership, or sale of
                  all or substantially all of such issuer's assets until such
                  time as the purchasers of the public stock offering shall have
                  received back their initial investment at which time all
                  Executive' shall share pro rata in any further distribution.

          (f)     Executive has fully reviewed or had the opportunity to review
                  the economic consequences of this Agreement and the Common
                  Stock to be issued, with his attorney and/or other financial
                  advisor, has been afforded access to the books and records of
                  the Corporation (including tax returns) and is or has had the
                  opportunity to become fully familiar with the financial
                  affairs of the Corporation.





                                       14


<PAGE>


IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
set forth above.

                                    EMPLOYER:

                                    SOURCE CAPITAL CORPORATION

                                    By /s/ ALVIN J. WOLFF, JR.
                                       -------------------------------
                                    Title: Chairman of the Board



                                    EXECUTIVE:

                                       /s/ D. MICHAEL JONES
                                       -------------------------------
                                       D. MICHAEL JONES

















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