AMENDMENT TO STOCK PURCHASE AND SALE AGREEMENT

Exhibit 10.18

AMENDMENT TO STOCK PURCHASE AND SALE AGREEMENT

This Amendment to Stock Purchase and Sale Agreement (the "Amendment") is
made and entered into as of March 3, 2006 by and among: Timberline Resources
Corporation, an Idaho corporation (“Timberline Resources”); the shareholders of Kettle
Drilling, Inc., an Idaho corporation (“Kettle Drilling”), listed on the signature page hereof
(collectively referred to as the “Selling Stockholders”); and the shareholders of Timberline
Resources listed on the signature page hereof (collectively referred to as the “Timberline
Inside Stockholders”).

RECITALS:

WHEREAS, Timberline Resources, Kettle Drilling, the Selling Stockholders and
the Timberline Inside Stockholders are parties to a Stock Purchase and Sale Agreement
dated February 23, 2006 (the “Purchase and Sale Agreement"); and

WHEREAS, Timberline Resources is unable to pay the Selling Stockholders the
full cash portion of the purchase price specified in the Purchase and Sale Agreement; and

WHEREAS, the Selling Stockholders are willing to accept promissory notes
issued by Timberline Resources in lieu of the cash they are otherwise entitled to receive.

AGREEMENT:

NOW, THEREFORE, the parties hereto agree as follows:

1. Certain Definitions. Unless otherwise defined in this Amendment,
capitalized terms shall have the same meanings that are ascribed to them in the Purchase
and Sale Agreement.

2. Amendments.

2.1 Purchase Price of the Kettle Drilling Shares. Section 1.2 of the Purchase
and Sale Agreement is hereby amended to read in its entirety as follows:

1.2 Purchase Price of the Kettle Drilling Shares. The aggregate
purchase price of the Purchased Kettle Drilling Shares (the “Purchase Price”)
shall be $4,800,000 plus interest earned with respect to the promissory notes
specified in subsection 1.2(b) below, which shall be payable to the Selling
Stockholders as follows:

(a) $2,400,000 of the Purchase Price shall be payable to the
Selling Stockholders at Closing, in cash in immediately available funds.
Such amount shall be allocated and paid to each Selling Stockholder
according to such Selling Stockholder’s ownership percentage of the
Kettle Drilling Shares set forth in Exhibit A to this Agreement.

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 1

(b) $400,000 of the Purchase Price shall be payable to the
Selling Stockholders at Closing by the execution and delivery to the
Selling Stockholders of the promissory notes of Timberline Resources in
the forms that are annexed hereto as Exhibit G (the “Promissory Notes”).

(c) $2,000,000 of the Purchase Price shall be payable either (i)
in cash, in immediately available funds, or (ii) if Timberline Resources so
elects, at or prior to Closing, by delivery of shares of Series A Preferred
Stock of Timberline Resources (the “Series A Stock”) having the rights,
preferences and limitations that are set forth in the Series A Preferred
Stock Resolution (the “Resolution”) that is annexed to and made a part of
this Agreement as Exhibit B. The Series A Stock to be delivered to a
Selling Stockholder, if he elects to receive such shares in payment of a
portion of the Purchase Price, shall be valued at $0.40 per share, and the
number of shares of such stock that shall be deliverable to a Selling
Stockholder who elects to receive such shares shall be determined by
multiplying 5,000,000 by such Selling Stockholder’s ownership
percentage of the Kettle Drilling Shares set forth in Exhibit A to this
Agreement.

2.2 Closing Deliveries. Subsection 1.4(a) of the Purchase and Sale Agreement
is hereby amended to read in its entirety as follows:

(a) At the Closing, Timberline Resources shall deliver each
Selling Stockholder (i) a cashiers check or a certified check equal to the
Selling Stockholder’s allocable share of that portion of the Purchase Price
that is payable in cash, (ii) the Promissory Notes, and (iii) if Timberline
Resources has elected to issue shares of Series A Stock in payment of a
portion of the Purchase Price, by delivery of a certificate or certificates for
such shares.

2.3 Exhibit F-1. The form of opinion of Timberline Resources counsel that is
annexed to the Purchase and Sale Agreement as Exhibit F-1 is hereby amended as
follows:

(a) Numbered paragraph 5 of the opinion is amended to read in its
entirety as follows:

5. The Purchase and Sale Agreement, the Registration Rights
Agreement, the Voting Trust Agreement and the Promissory Notes are each
the legal, valid and binding obligation of Timberline Resources, enforceable
against it in accordance with its terms.

(b) Numbered paragraph 6 of the opinion is amended to read in its
entirety as follows:

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 2

6. The execution, delivery and performance by Timberline
Resources of the Purchase and Sale Agreement, the Registration Rights
Agreement, the Voting Trust Agreement and the Promissory Notes do not
conflict with, or constitute a default, violation or breach of, any applicable
law or governmental rule or regulation, or, to our knowledge, any order,
injunction or decree of any court of governmental instrumentality applicable
to Timberline Resources, or any agreement or other instrument to which
Timberline Resources is a party or is subject.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 3

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 4

Schedule A to Stock Purchase and Sale Agreement
(Schedule of Exceptions)

This schedule of exceptions sets forth exceptions to the representations and
warranties made by Kettle Drilling and the Selling Stockholders in Section 2 of the
Agreement. Unless the context otherwise requires, all capitalized terms used herein shall
have the same meanings that are ascribed to them in the Agreement. The Section
numbers indicated refer to sections in the Agreement, however the exceptions set forth in
this schedule shall apply to any of the representations and warranties made by Kettle
Drilling and the Selling Stockholders where appropriate.

Section                                        Exception

2.4	Kettle Drilling and the Selling Stockholders (and Xxxxxx Xxxxxx) are parties to an Agreement to Redeem Stock and to Amend Option to Purchase Stock, dated June 22, 2004, pursuant to which Kettle Drilling is obligated to pay Xxxxxx Xxxxxx a specified additional sum as further consideration for the redemption of her shares of Kettle Drilling if, in addition to other events specified therein, either Xxxxxxx Xxxxxx or Xxxxx Xxxxx sold any of their respective shares of Kettle Drilling. Kettle Drilling, the Selling Stockholders and Xxxxxx Xxxxxx have since amended the agreement to terminate Kettle Drilling’s obligation to pay Xxxxxx Xxxxxx such additional sum.
	The Selling Stockholders are also parties to a Shareholders Agreement dated February 20, 2006 that restricts their ability to sell their shares of Kettle Drilling and grants each of them a right of first refusal to purchase the shares of the other in the event one of them seeks to sell their shares or receives a bona fide offer to buy such shares. The Selling Stockholders have waived such provisions in conjunction with the proposed purchase of their shares of Kettle Drilling by Timberline Resources pursuant to the Agreement.
2.5	Kettle Drilling has one subsidiary, World Wide Exploration, S.A. de C.V., which is organized and existing under the laws of Mexico.
2.6	Kettle Drilling has the following liabilities:
	(a) Liabilities totaling $1,140,270.43, payable in respect of the following items or accounts, and in the following amounts:

Item or Account		Xxxxxx
Xxxxx Xxxxx XX #0000	$	3,105.02
Xxxxx Fargo VISA #3541		4,039.28
Kubota Credit #7082		6,507.96
Diversified 00 Xxxxxxxx #0000		22,740.83
Atlas B20Y #5782		71,459.04

Item or Account	Amount
Atlas Copco B29 Power Pack	14,548.00
XXX Xxxxxxx-Xxx Xxxxxxx #0000	24,644.16
Atlas Copco B20APC #	131,697.97
Atlas Copco U8APC #8505-1	201,173.06
Kubota Tractor and RTV Loan #2034	11,092.36
Xxxxx Fargo Loan #0143272 T1000	140,000.00
Mountain West LOC #3529	64,452.59
Mountain West (Hagby) #47004231	26,804.01
Stock Redemption - Xxxxxx Xxxxxx	25,500.00
Xxxxxxx Xxxxxxx #0000	124,920.98
Automobile Loan – Xxxxx BMW	37,871.29
Automobile Loan – Jaguar	80,927.58
Xxxxx Fargo – Cherokee #9001	11,990.03
04 Ford E350 Van Vin #5690	20,028.90
Ford Credit – E350 Van Vin #2840	17,506.14
Ford Credit – 04 F150 #4518	30,407.13
05 Ford Mustand #1048	22,132.39
05 Ford F250 #2577	20,811.49
Ford Credit – 05 F250 #2344	25,910.22
Total	$1,140,270.43

	(b) Liabilities of $80,000 for management employee bonuses that were earned as of December 31, 2005 and are payable during the first quarter of 2006;
	(c) Liabilities for the repayment of advances made and to be made to the Company by Xxxx Xxxxxx and Xxxxx Xxxxx during the first quarter of 2006 (it being acknowledged that Xxxx Xxxxxx and Xxxxx Xxxxx advanced the Company $180,000 and $75,000, respectively, as of February 10, 2006); and
	(d) Liability for workmen’s compensation and other insurance premiums, which are reasonably expected to range in amount from $30,000 to $90,000, depending on the results of insurance company audits.
2.7	During the course of its various drilling operations, Kettle Drilling is sometimes informed that one or more permits or municipal licenses necessary to such operations was not been obtained. Kettle Drilling promptly obtains the necessary permits when so apprised. It does not believe that its failure to obtain all of the necessary permits at the outset of any particular drilling operation has had or will have a material adverse effect on its business, properties, prospects, or financial condition.
2.10	Please see Kettle Drilling’s and the Selling Stockholders response set forth in Section 2.6, above.

2.12(k)	Please see Kettle Drilling’s and the Selling Stockholders response set forth
	in Section 2.4, above.

2.13	Kettle Drilling does not own any patents, trademarks, service marks, trade names, copyrights or licenses. Kettle Drilling is not a party to any confidentiality agreement with its employees, consultants or agents to protect the unauthorized use or dissemination of its trade secret information.
2.19	Please see Kettle Drilling’s and the Selling Stockholders response set forth in Section 2.4, above.

Schedule B to Stock Purchase and Sale Agreement
(Schedule of Exceptions)

This schedule of exceptions sets forth exceptions to the representations and
warranties made by Timberline Resources and the Timberline Inside Stockholders in
Section 3 of the Agreement. Unless the context otherwise requires, all capitalized terms
used herein shall have the same meanings that are ascribed to them in the Agreement.
The Section numbers indicated refer to sections in the Agreement, however the
exceptions set forth in this schedule shall apply to any of the representations and
warranties made by Timberline Resources and the Timberline Inside Stockholders where
appropriate.

Section                            Exception

3.5	Capitalization. Timberline does have in effect a number of property agreements. A description of the properties and agreements will be provided. It does not appear that any of these contracts will result in the issuance of additional shares prior to the closing; however, our agreement with Western Goldfields could result in the issuance of 390,000 shares of common stock after closing, if Timberline chooses to exercise, on April 1, 2006, its option to continue with the venture, as follows:
	75,000 shares in 2006; 100,000 shares in 2007; and 215,000 shares in 2008.
	In addition, if Timberline does exercise said option, it is also required to issue to Western Goldfields, between 2006 and 2008, options to purchase 250,000 shares of Timberline’s common stock at $.65 per share.
	Presently, Timberline does not have an intention to exercise said option.
	Cougar Valley, LLC – controlled by Timberline’s CEO – has options for 500,000 shares @.40 expiring 6/7/06. Approximately 250,000 shares ($100,000) of this option will be exercised at or near the close of this transaction.
3.7.	Contracts or Other Commitments. As referenced in the Form 10SB filed with the SEC, there are two loans outstanding to Timberline from its CEO
	Xxxx Xxxxxxx. One loan is for $125,000 to be paid at 10% per annum convertible into shares at Timberline’s option. The second loan is $100,000 to be paid at 10% per annum.

	In addition, see the attached “Timberline Resources Property and Agreement Summary” (Attachment 1 To Timberline’s Schedule of Exceptions) for listing of the future payments that are due under the various property agreements.
3.11	Material Liabilities. See loans from Timberline’s CEO (3.7, above). Additionally, Timberline was predominantly an exploration based company and has a substantial tax loss carry-forward (in excess of $3 million) on its books. This is referenced in more detail in the Form 10SB.
3.13	(j) See loans from CEO referenced above in Item 3.07.
3.22	Broker’s or Finder’s Fees. Timberline is undertaking a private placement in connection with raising the funds to complete this transaction.
	Commissions and/or finder’s fee will be paid as described in the offering memorandum. A copy of the offering memorandum has been provided to Kettle management with a final copy of the memorandum to be provided following this agreement.
	In connection with this transaction, Xxxx Xxxxxxxx of Xxxxxxx was involved in a previous purchase arrangement for Kettle Drilling. The terms of that agreement were not met and subsequently Xx. Xxxxxxxx introduced Kettle Drilling to Timberline. Timberline had no previous arrangement or agreement in place with Xx. Xxxxxxxx or Kettle. A finder’s fee and/or share/option award may or may not be offered to Xx. Xxxxxxxx – to be agreed to by both Timberline and Kettle management.

Attachment 1 To Timberline’s Schedule of Exceptions

Timberline Resources Corporation – Property and Agreement Summary

Nevada Mineral Agreements:
Olympic Property:
Owner:	Sedi-Met, Inc.
Agreement Date:	April 15, 2004; amended April 15, 2005
Payments:	April 15, 2004	$15,000 + 10,000 shares of stock
	March 10, 2005	$20,000
	March 10, 2006	$25,000
	March 10, 2007	$30,000
	March 10, 2008	$35,000
	March 10, 2009
	and yearly thereafter	$40,000
Royalty:	3% NSR
Option to Purchase:	1% NSR prior to 10/09/07 for $500,000
Work Commitment:	$50,000 prior to 3/09/06, including 5 RC drill holes totaling
	a minimum of 2,500 feet
Property:	117 unpatented “OM” claims
Summary at 10/03/05:	Payments to owner: $35,000 + 10,000 shares of stock
	Maintenance Payments to BLM in 2004: $6,300
	Filing fees to expand claim group from 63 to 117: $6,750
	Maintenance payments to BLM in 2005: $14,625
	Total Property Expense: $62,675
	Maintenance Payment to BLM due 8/31/06: $14,625
Sun Property:
Owner:	Xxxxxx Xxxxx, Xxxxx Xxxxxx
Agreement Date:	April 28, 2004; amended April 14, 2005
Payments:	April 28, 2004	10,000 shares + $10,000
	March 30, 2005
	and yearly thereafter	$10,000
Royalty:	3% NSR
Option to Purchase:	$150,000 of work prior to 10/01/06 earns 1% NSR
	$150,000 cash payment purchases 1% NSR
Work Commitment:	$50,000 annually (may pay cash in lieu of work)
Property:	47 unpatented “Sun” claims
	Maintenance payment due BLM 8/31/06: $5,875

Downeyville Prospect:
Owner:	Xxxxxx Xxxxx and Xxxxx Xxxxxx
Agreement Date:	April 14, 2005
Payments:	April 14, 2005	$12,000 + 8,000 shares
	April 1, 2006 and
	yearly thereafter	$10,000
Royalty:	3% NSR
Option to Purchase:	$150,000 of work prior to 10/01/08 earns 1% NSR
	$150,000 cash payment purchases 1% NSR
Work Commitment:	April 15, 2005 – April 14, 2006		$20,000
	Annually thereafter		$50,000
	(Payment in lieu of work can be made)
Property:	22 DOW unpatented claims
	Maintenance payment due BLM 8/31/06:			$2,750
Cedar Mountain Properties (HD, ACE, PAC):
Owner:	Xxxxxx Xxxxx, Xxxxx Xxxxxx
Agreement Date:	April 28, 2004; amended April 14, 2005
Payments:	April 28, 2004	$12,000 + 10,000 shares
	April 14, 2005	$10,000 + 20,000 shares
	March 30, 2006	$15,000
	March 30, 2007	$20,000
	March 30, 2008
	and yearly thereafter	$25,000
Royalty:	3% NSR
Option to Purchase:	$250,000 in work prior to 10/01/07 earns 1% NSR
	$150,000 cash payment purchases 1% NSR
Work Commitment:	$30,000 annually (payment in lieu of work can be made)
Property:	25 PAC, 23 HD and 17 ACE unpatented claims (65 total)
	Claim groups can be dropped; payments are reduced
	$2,500 for each group dropped from the agreement
	Maintenance payment due BLM 8/31/06:			$8,125
Sanger Mine, Xxxxxxxxx County, Nevada:
Owner:	Renegade Exploration, Inc.
Agreement date:	Letter of Intent dated 8/12/05
Payments:	$1,000 on execution of the LOI
	On signing of Mineral Lease $5,000 and 10,000 shares
	1st anniversary of Mineral Lease			$ 5,000
	2nd anniversary of Mineral Lease			$10,000
	3rd anniversary and annually thereafter			$25,000
Royalty:	1% NSR
Option to Purchase:	1% NSR royalty can be purchased for $500,000
Property:	S-1-8 and S-11 unpatented claims
Maintenance fee due BLM	August 31, 2006	$1,125

Montana Cu-Ag Properties, Lincoln and Xxxxxxx County, Montana:

Owner:	Timberline Resources
Lessee:	Sterling Mining Company
Agreement Date:	November 26, 2004
Payments:	$65,500 (debt repayment) + $19,600 (cash for expenses)
	Paid on execution - 11/26/04
	June 1, 2007 $5,000 per claim group retained
Royalty:	1% NSR
Work Commitment:	None
Property:	4 groups of unpatented lode mining claims:
	Lucky Luke (LL); 20 claims – Xxxxxxx County
	Standard Creek (SC) 29 claims – Lincoln County
	Xxxxxx Pass (MCP) 20 claims – Xxxxxxx County
	East Bull (EB) 19 claims – Lincoln County
	Maintenance fees to BLM paid by Sterling Mining
Xxxxxxx Gold Prospect, Xxxxx County, Idaho:
Owner:	State of Idaho/Xxx Xxxxxx, lessee
Sublease Agreement Date:	February 17, 2004
Payments:	February 17, 2004	$2,830.30 +100,000shares to vendor
	March 1, 2005	$640.00 (to State of Idaho)
	and yearly thereafter	$640.00 (to State of Idaho)
Royalty:	5% of Gross Receipts (see State Lease for definition)
Work Commitment:	None; annual report required
Property:	640 acres – State of Idaho Mineral Lease 9347, dated
	1/01/04; anniversary date 3/01 annually
	Xxxxxxx 00, Xxxxxxxx 00 Xxxxx, Xxxxx 37 East, X.X.
	Xxxxx County, Idaho

Snowstorm Area Agreements, Shoshone County, Idaho:

Owner:	Timberline Resources Corporation
Property:	Approximately 50 unpatented lode mining claims
Royalty:	4% NSR to Hecla
Payments:	BLM maintenance payment due 8/31/06: $6,250
Work Commitment:	None

Snowshoe Mining Company Agreement:
Owner:	Snowshoe Mining Company, Inc.
Agreement date:	May	23, 2005
Payments:	May	23, 2005	$8,000
	May	1, 2006	$8,000
	May	1, 2007	$10,000
	May	1, 2008	$10,000
	May	1, 2009
	and yearly thereafter		$15,000
Royalty:	3% NSR to Snowshoe; 1% NSR to Hecla
Work commitment:	$10,000 annually (fulfilled for next 5 years)
	No maintenance payments due BLM
Western Goldfields Agreement:

This agreement covers 16 unpatented lode mining claims; BLM maintenance obligations
total $2,000 annually. The agreement provides for certain stock issuances beginning
April 1, 2006. Timberline intends to renegotiate this agreement or terminate it prior to
4/1/06.

Hecla Agreement:

The Hecla Agreement provides for a retained 4% NSR royalty on any production from
the Snowstorm area of interest. There are no payments or work commitments associated
with this agreement.

Exhibit A to Stock Purchase and Sale Agreement

SELLING STOCKHOLDER INFORMATION

Name and Address	Number of Shares Owned	Percentage of Class
Xxxxxxx Xxxxxx
5401 East Lancaster	76.5 shares	75 percent
Xxxxxx, Xxxxx 00000
Xxxxx Xxxxx
0000 Xxxx Xxxxxxxxx	25.5 shares	25 percent
Xxxxxx, Xxxxx 00000

Exhibit B to Stock Purchase and Exchange Agreement

SERIES A PREFERRED STOCK RESOLUTION
                                     OF
TIMBERLINE RESOURCES CORPORATION

The following resolutions (the "Resolution") were duly adopted by the Board of Directors of
Timberline Resources Corporation (the “Corporation”), an Idaho corporation, at a specially
convened meeting of the Board of Directors held on February 26, 2006 at 10 a.m..

RESOLVED, that it is desirable and in the best interests of the Corporation to create a series of
preferred stock, hereinafter called the Series A Preferred Stock (the "Series A Stock"), and to
authorize 5,000,000 shares of Series A Stock for issuance pursuant to the Articles of Incorporation
of the Corporation as heretofore restated and amended (the "Articles of Incorporation"); and be it
further

RESOLVED, that the relative rights, preferences, privileges and restrictions granted to or imposed
upon the Series A Stock and the holders thereof are as follows:

1. Dividends. The holders of record of Series A Stock (the "Series A Holders") shall be
entitled to receive dividends out of funds legally available therefor, when, as and if declared by the
Board of Directors of the Corporation (the "Board"), provided that:

(a) Preferential Dividends. The Series A Holders shall be entitled to receive preferential
dividends (adjusted appropriately for stock splits and the like), of $0.032 per share per year.

(b) Paid Ratably. Such preferential dividends shall be paid ratably in proportion to the
respective preference amounts of the Series A Holders and in preference and prior to any dividends
paid in respect the Common Stock.

(c) Noncumulative. Until December 31, 2006, such preferential dividends shall be
noncumulative and no right shall accrue to the Series A Holders by reason of the fact that such
dividends are not declared in any period. After December 31, 2006, such preferential dividends
shall be cumulative, and shall accrue ratably over each fiscal year.

(d) Additional Dividends. Any dividends paid in addition to the preferential dividends
of the Series A Holders shall be paid ratably to the holders of record of Common Stock (the
"Common Holders") and to the Series A Holders in proportion to the number of shares of Series A
Stock held by the Series A Holders on an as converted basis pursuant to the Corporation's Articles of
Incorporation and this Resolution.

2. Liquidation Preferences.

(a) Liquidation. In the event of any liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary:

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 1

(i) The Series A Holders shall be entitled to receive a liquidation preference of
$0.55 per share of Series A Stock (adjusted appropriately for stock splits and the like) plus
any accumulated and unpaid dividends thereon.

(ii) If the assets to be distributed to the shareholders (the "Assets") are
insufficient to permit the payment of such liquidation preference, then all of the Assets shall
be distributed ratably among the Series A Holders in proportion to the full liquidation
preferences the Series A Holders would otherwise be entitled to receive.

(iii) After payment of such full liquidation preferences, the Common Holders
shall be entitled to receive ratably the entire remaining Assets, if any.

(iv) Notwithstanding the foregoing, in the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or involuntary, any Series A
Holder may elect to receive, in lieu of such Series A Holder's liquidation preference, the
amount distributable to a Common Holder on an as converted basis.

(b) Merger or Sale of Assets. For purposes of this subsection 2, a "liquidation" shall
include (i) a merger or consolidation in which the Corporation's outstanding shares are exchanged
for other securities, property or cash, or any combination of securities, property or cash, and (ii) a
sale of all or substantially all of the assets of the Corporation. Notwithstanding the foregoing, any
Series A Holder may elect to receive, in lieu of the liquidation preference, the consideration received
by a Common Holder in any such merger, consolidation or sale of assets, on an as converted basis.

3. Conversion. The Series A Holders shall have conversion rights as follows (the "Conversion
Rights"):

(a) Right to Convert; Automatic Conversion.

(i) Subject to subsection 3(c), each share of Series A Stock shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of such share at the
offices of the Corporation or any transfer agent for such shares, into such number of fully
paid and nonassessable shares of Common Stock determined as set forth below. Each share
of Series A Stock shall be convertible into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $0.40 by the Series A Stock
conversion price (the "Series A Conversion Price"), determined as hereafter provided, in
effect at the time of conversion. The initial Series A Conversion Price shall be equal to
$0.40; provided, however, that the Series A Conversion Price shall be subject to adjustment
as set forth in subsection 3(c) below.
(ii) Each share of Series A Stock shall automatically be converted into shares of
Common Stock at the Series A Conversion Price immediately upon the earliest to occur of:

(A) The effective date of a registration statement under the Securities Act
of 1933, as amended, pursuant to an underwritten offering covering the offer and sale
of Common Stock for the account of the Corporation to the public at a price per
share (prior to underwriting commissions and expenses) of not less than $5.00 (as
appropriately adjusted for stock splits and the like) and with aggregate gross

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 2

proceeds not less than $10,000,000; or

(B) December 31, 2010.

(b) Mechanics of Conversion. Before any Series A Holder shall be entitled to convert
the same into shares of Common Stock, he or she shall surrender the certificate or certificates
therefor, duly endorsed, at the offices of the Corporation or of any transfer agent for such shares, and
shall give written notice by mail, postage prepaid, to the Corporation at its principal corporate
offices, of the election to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. (A Series A Holder may not
effect a transfer of shares pursuant to a conversion unless all applicable restrictions on transfer are
satisfied.) The Corporation shall, as soon as practicable thereafter, issue and deliver at such offices
to such Series A Holder, or to the nominee or nominees of such Series A Holder, a certificate or
certificates for the number of shares of Common Stock to which such Series A Holder shall be
entitled as provided above. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the certificate or certificates representing the
shares of Series A Stock to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock as of such date.

(c) Conversion Price Adjustments. The Series A Conversion Price shall be subject to
adjustment from time to time as follows:

(i) (A) If the Corporation shall issue any Additional Stock (as defined below) for
a consideration per share less than the Series A Conversion Price in effect immediately prior
to the issuance of such Additional Stock, then the Series A Conversion Price in effect
immediately prior to each such issuance shall (except as otherwise provided in this clause
(i)) be the price per share at which such Additional Stock was issued:

(B) No adjustment of the Conversion Price for the Series A Stock shall be
made in an amount less than one cent per share, provided that any adjustment that is
not required to be made by reason of this sentence shall be carried forward and taken
into account in any subsequent adjustment. Except to the limited extent provided for
in subsections 3(c)(i)(E)(3), 3(c)(i)(E)(4) and 3(c)(iv), no adjustment of the Series A
Conversion Price shall have the effect of increasing the Series A Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid or
incurred by the Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.

(D) In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be deemed to
be the fair value thereof as determined by the Board.

(E) In the case of the issuance of options to purchase or rights to

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 3

subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities (where the shares of Common Stock
issuable upon exercise of such options or rights or upon conversion or exchange of
such securities are not excluded from the definition of Additional Stock), the
following provisions shall apply:

(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe
for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subsections 3(c)(i)(C)
and 3(c)(i)(D)), if any, received by the Corporation upon the issuance of such
options or rights, plus the minimum purchase price provided in such options
or rights for the Common Stock covered thereby;

(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and the
subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
the Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to be
determined in the manner provided in subsections 3(c)(i)(C) and 3(c)(i)(D));

(3) In the event of any change in the number of shares of
Common Stock deliverable upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof, the Series A Conversion Price in effect at the time shall
forthwith be readjusted to such Conversion Price as would have obtained had
the adjustment that was made upon the issuance of such options, rights or
securities not converted prior to such change, or the options or rights related
to such securities not converted prior to such change been made upon the
basis of such change, but no further adjustment shall be made for the actual
issuance of Common Stock upon the exercise of any such options or rights or
the conversion or exchange of such securities;

(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Series A Conversion Price shall forthwith be readjusted to such Conversion

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 4

Price as would have obtained had the adjustment which was made upon the
issuance of such options, rights or securities, or options or rights related to
such securities, been made upon the basis of the issuance of only the number
of shares of Common Stock actually issued upon the exercise of such options
or rights, upon the conversion or exchange of such securities, or upon the
exercise of the options or rights related to such securities.

(ii) "Effective Date" with respect to the Series A Stock means the first date on
which any shares of Series A Stock were issued. “Additional Stock" shall mean any shares
of Common Stock issued (or deemed to have been issued pursuant to subsection 3(c)(i)(E))
by the Corporation after the Effective Date other than:

(A) Common Stock issued pursuant to a transaction described in
subsection 3(c)(iii); or

(B) Up to 297,500 shares of Common Stock issued or issuable to
employees, directors or consultants of the Corporation for the purpose of an incentive
or under any warrant, stock option, stock purchase or similar plan approved by the
Board; or

(C) Common Stock issued or issuable upon conversion of the shares of
Series A Stock.

(iii) In the event the Corporation should at any time or from time to time after the
Effective Date fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the holder thereof to receive,
directly or indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof), then, as
of such record date (or the date of such dividend distribution, split or subdivision if no record
date is fixed), the Series A Conversion Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of each such share shall be
increased in proportion to such increase of outstanding shares determined by taking
subsection 3(c)(i)(E) into account.

(iv) If the number of shares of Common Stock outstanding at any time after the
Effective Date is decreased by a combination of the outstanding shares of Common Stock,
then, as of the record date of such combination, the Series A Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each such share shall be decreased in proportion to such decrease in
outstanding shares.

(d) Other Distributions. In the event the Corporation shall declare a distribution payable
in securities of other persons, evidences of indebtedness issued by this Corporation or other persons,

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 5

assets (excluding cash dividends), or options or rights not referred to in subsection 3(c)(iii), then, in
each such case for the purpose of this subsection 3(d), the Series A Holders shall be entitled to a
proportionate share of any such distribution as though they were the holders of the number of shares
of Common Stock of the Corporation into which their shares of Series A Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.

(e) Recapitalizations. If at any time or from time to time there shall be a recapitalization
of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction
provided for elsewhere in this Resolution), provision shall be made (in form and substance
satisfactory to the holders of 80 percent or more of the Series A Stock then outstanding) so that the
Series A Holders shall thereafter be entitled to receive, upon conversion of the Series A Stock, such
shares or other securities or property of the Corporation or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the provisions of this Resolution
with respect to the rights of the Series A Holders after the recapitalization to the end that the
provisions of this Resolution (including adjustment of the Series A Conversion Price then in effect
and the number of shares that may be acquired upon conversion of shares of Series A Stock) shall be
applicable after that event as nearly equivalent as may be practicable.

(f) No Impairment. Except as provided in subsection 5(b), the Corporation will not, by
amendment of either this Resolution or its Articles of Incorporation, or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Resolution and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the Series A Holders against
impairment.

(g) No Fractional Shares and Certificate as to Adjustments.

(i) No fractional shares shall be issued upon conversion of shares of Series A
Stock. In lieu of fractional shares, the number of shares of Common Stock to be issued shall
be rounded to the nearest whole number; provided, however, that such determination shall be
made on the basis of the total number of shares of Series A Stock the Series A Holder is at
the time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.

(ii) Upon the occurrence of each adjustment of the Series A Conversion Price
pursuant to subsection 3(c) of this Resolution, the Corporation, at its expense, shall promptly
compute such adjustment in accordance with the terms hereof and prepare and furnish to
each Series A Holder a certificate setting forth such adjustment and showing in detail the
facts upon which such adjustment is based. The Corporation shall, upon the written request
at any time of any Series A Holder, furnish or cause to be furnished to such Series A Holder
a like certificate setting forth (A) such adjustment, (B) the Series A Conversion Price at the
time in effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of such holder's

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 6

shares of Series A Stock.

(h) Notices of Record Date. In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled to receive payment of
any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase
or otherwise acquire any shares of any class or any other securities or property, or to receive any
other right, the Corporation shall mail to each Series A Holder, at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such dividend, distribution or
right.

(i) Reservation of Common Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares of Series A Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding
shares of Series A Stock, the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.

(j) Notices. Any notice required by the provisions of this section to be given to the
Series A Holders shall be deemed to be delivered when deposited in the United States mail, postage
prepaid, registered or certified, and addressed to each Series A Holder of record at his address
appearing on the stock transfer books of the Corporation.

4. Redemption of Series A Stock and Common Stock.

(a) Redemption Events. The Series A Stock of a holder thereof and any Common
Stock issued upon the conversion of the Series A Stock (the “Converted Common Stock”) of a
holder thereof (a “Converted Common Holder”) is subject to redemption at the written direction
of such holder, at a redemption price equal to (i) in the case of Series A Stock, the liquidation
preference set forth in subsection 2(a)(i) of this Resolution (which liquidation preference
includes any accrued and unpaid dividends on the Series A Stock) and (ii) in the case of
Converted Common Stock, at the average reported price of the Common Stock during the four
calendar weeks immediately preceding the date notice of redemption is given pursuant to
subsection 4(b) of this Resolution , if any one or more of the following events shall have
occurred:

(i) If the Corporation shall not have obtained approval for the Common Stock
to be listed and traded on an exchange that is registered as a “national securities exchange”
pursuant to Section 6 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), on or before December 31, 2008;

(ii) If, after having been approved for listing and trading on an exchange that
is registered as a “national securities exchange” pursuant to Section 6 of the Exchange

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 7

Act, the Common Stock is thereafter delisted from such exchange, or if trading in the
Common Stock on such exchange is otherwise terminated or suspended;

(iii) If, after having been approved for listing and trading on an exchange that
is registered as a “national securities exchange” pursuant to Section 6 of the Exchange
Act, the average weekly reported volume of trading in the Common Stock on such
exchange during the preceding four calendar weeks is less than 25 percent of the number
of shares of Common Stock into which the outstanding Series A Stock is then
convertible;

(iv) If, after having been approved for listing and trading on an exchange that
is registered as a “national securities exchange” pursuant to Section 6 of the Exchange
Act, the average reported price of the Common Stock on such exchange during the
preceding four calendar weeks is less than the liquidation preference of the Series A
Stock set forth in subsection 2(a)(i) of this Resolution (which liquidation preference
includes any accrued and unpaid dividends on the Series A Stock);

(v) If the Corporation shall become insolvent, make a transfer in fraud to or an
assignment for the benefit of its creditors, or admit in writing its inability to pay its debts as
they become due;

(vi) If a receiver, custodian, liquidator or trustee shall be applied for by the
Corporation or shall be appointed for all or substantially all of the assets of the
Corporation, or if any such receiver, custodian, liquidator or trustee shall be appointed in
any proceeding brought against the Corporation and such appointment is not contested or
is not dismissed or discharged within 60 days after such appointment, or if the
Corporation shall acquiesce in such appointment;

(vii) If the Corporation shall file a petition for relief under the federal
Bankruptcy Code, as amended, or under any similar law or statute of the United States or
any state thereof, or if the Corporation shall seek to take advantage of any insolvency
law;

(viii) If a petition against the Corporation shall be filed commencing an
involuntary case under any present or future federal or state bankruptcy or similar law, and
such petition shall not be dismissed or discharged within 60 days of filing; or

(ix) If the Corporation shall have failed to honor any of its covenants and
indemnity obligations set forth in section 9 of that certain stock purchase and sale
agreement, dated February 17, 2006, to which it is a party; or

(x) If the Corporation shall have failed to perform any of its obligations to the
other parties thereto under that certain registration rights agreement or that certain voting
trust agreement, each dated March __, 2006; or

(xi) If the Corporation shall at be the subject of a civil administrative or
criminal proceeding or investigation, or civil suit, predicated on allegations that the

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 8

Corporation or its controlling persons have violated the registration or antifraud
provisions of federal or state securities law, and such proceeding, investigation or suit is
not dismissed or terminated without material prejudice to the Corporation or its
shareholders within 180 days of filing.

(b) Notice of Redemption. Unless waived by the Corporation, notice of redemption
shall be given by the Series A Holders or Converted Common Holders requesting redemption
(the “Requesting Holders”) by mailing a copy of a redemption notice to the Corporation by first
class mail at least 30 days and not more than 60 days prior to the redemption date. The notices
of redemption shall be signed and dated by the Requesting Holders, and shall state: the names
and addresses of the Requesting Holders; the number of shares of Series A Stock and Converted
Common Stock held by each Requesting Holder; a concise statement of the event or events
specified in subsection 4(a) of this Resolution on which the redemption is predicated; and the
redemption price and a concise statement setting forth the basis on which the redemption price
was calculated.

(c) Payment of Redemption Price. Upon receipt of the notice of redemption, the
Corporation shall promptly (and, in any event, within five business days of its receipt of such
notice) notify the Requesting Holders of the time when certificates for the Series A Stock or
Converted Common Stock are to be surrendered at the principal offices of the Corporation
against payment of the redemption price. Unless waived in writing by the Requesting Holders,
the time of payment shall be no later than 30 days from the date the Corporation first received
the notice of redemption. Except as provided in subsection 4(d) of this Resolution, the
redemption price shall be in paid in lawful currency of the United States against delivery of
certificates for the redeemed shares of Series A Stock or Converted Common Stock, duly
endorsed by the Requesting Holders for transfer to the Corporation.

(d) Inability to Pay Redemption Price; Spin Off of Kettle Drilling. In the event the
Corporation fails or is unable for any reason to pay the Requesting Holders the full redemption price
of the Series A Stock or Converted Common Stock in cash, then the following provisions shall
apply:

(i) The Corporation’s failure or inability to pay the full redemption price of the
Series A Stock or Converted Common Stock in cash shall thereupon constitute an offer by
the Corporation to sell all of the issued and outstanding shares of capital stock of Kettle
Drilling, Inc., an Idaho corporation and a wholly-owned subsidiary of the Corporation
(“Kettle Drilling”) to the Requesting Holders.

(ii) The purchase price of all of the issued and outstanding shares of capital stock
of Kettle Drilling (the “Kettle Drilling Purchase Price”) shall be determined by multiplying
the average reported price of the Common Stock during the four calendar weeks
immediately preceding the date notice of redemption is given pursuant to subsection 4(b)
of this Resolution by 5,000,000 (being the number of shares of Common Stock into
which the Series A Stock is convertible as of the date of this Resolution).

(iii) The Requesting Holders shall thereafter have a period of 60 days within
which to evaluate the Corporation’s offer and notify the Corporation in writing whether they

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 9

accept it or reject it. Should they accept the Corporation’s offer, they shall pay the Kettle
Drilling Purchase Price as follows:

(A) The Requesting Holders shall surrender such number of shares of
Series A Stock and Converted Common Stock to the Corporation as are sufficient to
satisfy the Kettle Drilling Purchase Price. Such shares shall be valued at their
respective redemption prices set forth in subsection 4(a) of this Resolution.

(B) If the value of the shares of Series A Stock and Converted Common
Stock surrendered by the Requesting Holders is less than the Kettle Drilling Purchase
Price, then the Requesting Holders shall pay the Corporation an amount equal to the
difference between the Kettle Drilling Purchase Price and the value of such
surrendered shares. The terms of payment shall be such as may be agreed upon by
the Corporation and the Requesting Holders. In the event the Corporation and the
Requesting Holders cannot agree upon terms, then the Requesting Holders shall
pay the obligation to the Corporation as follows: not less than ten percent (10%)
of the purchase price shall be payable in cash upon the closing of the transaction;
and the balance of the purchase price shall be evidenced by a full recourse
promissory note of standard form having a maturity of not more than five years,
with the declining balance bearing interest at a rate equal to the prime rate as
published in The Wall Street Journal on or most recently prior to the closing date
of the transaction. The first monthly installment shall be due and payable on the
first of the month next following the date that is one month after the closing date
of the transaction. The note shall be subject to prepayment in whole or in part at
any time and without penalty. In the event of default in payment of any
installment of principal or interest when due and after the expiration of ten days
from the date the Corporation gave written notice to the Requesting Holders of
such default, the whole sum of principal and interest shall become immediately
due and payable at the option of the Corporation. The note shall provide for the
payment of attorney fees and costs of suit by the Requesting Holders should any
legal action for collection be commenced.

(iv) Should the Requesting Holders accept the Corporation’s offer, they and
the Corporation shall schedule a closing date for the transaction, which shall be no more
than 60 days from the date the Requesting Holders notify the Corporation of their
acceptance. In conjunction with such closing, the Requesting Holders and the
Corporation agree to use their best efforts to remove the Corporation from all contingent
liability in connection with Kettle Drilling, including, but not limited to, guarantees on
promissory notes, guarantees relating to bonding, and any other continuing guarantees
relating or pertaining to Kettle Drilling and its operations that are binding upon the
Corporation. In the event the Requesting Holders and the Corporation are unable to
remove the Corporation from all such contingent liability, then the Requesting Holders
shall jointly and severally indemnify and hold the Corporation harmless from any claim
or cause of action which may arise as a result of any such contingent liability.

5. Voting Rights and Protective Provisions.

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 10

(a) General. Except as provided below and except as provided by law, the Common
Holders and the Series A Holders shall at all times vote as a single class on an as-converted basis.
Each Series A Holder shall be entitled to vote the number of shares of Common Stock into which the
shares of Series A Stock may then be converted.

(b) Protective Provisions. So long as any shares of Series A Stock remain outstanding,
the Corporation shall not, without the approval of the holders of 80 percent or more of the
outstanding shares of the Series A Stock then outstanding:

(i) amend this Resolution, or amend the Articles of Incorporation or the bylaws
of the Corporation if such action would alter or change the rights, preferences or privileges
of the Series A Stock;

(ii) declare or pay any dividends on, or make any distribution of any kind in
regard to, the Common Stock;

(iii) create or authorize the creation or increase the authorized amount of any
additional class or series of shares of stock, unless the same ranks junior to the Series A
Stock as to dividends, redemption and the distribution of assets on the liquidation,
dissolution or winding up of this corporation; increase the authorized amount of any
additional class or series of shares of stock unless the same ranks junior to the Series A
Stock as to dividends, redemption and the distribution of assets on the liquidation,
dissolution or winding up of this corporation; or create or authorize any obligation or
security convertible into shares of Series A Stock, regardless of whether any such
creation, authorization or increase shall be by means of amendment to the Articles of
Incorporation or by merger, consolidation or otherwise;

(iv) alter or amend the rights, preferences or privileges of the Series A Stock
(whether by merger, consolidation, combination, reclassification or otherwise), increase
or decrease the authorized number of shares of Series A Stock or Common Stock, or
issue additional shares of Series A Stock;

(v) merge or consolidate with or into any other corporation or entity except in
connection solely with a change of domicile;

(vi) create, incur, assume or suffer to exist any mortgage, deed of trust, pledge,
lien, security interest, or other charge or encumbrance (including the lien or security title
of a conditional vendor) of any nature (other than in respect of ad valorem taxes) with a
value exceeding $100,000, upon or with respect to the Corporation’s or any of its
subsidiaries’ assets or properties, other than such mortgages, deeds of trust, pledges,
liens, security interests, charges and encumbrances in existence as of the date of this
Resolution;

(vii) enter into or renew any loan agreement or issue debt securities, in either case
where the principal amount of the Corporation’s financial obligations evidenced by such
agreement or securities exceeds ten percent of the Corporation’s prior book value as
reasonably determined by the Board.

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 11

(viii) increase the number of shares to be reserved for issuance under any
incentive, officer, consultant or employee option plan as same exists as of the date of this
Resolution;

(ix) redeem or purchase any security issued by the Corporation other than as
provided in section 4 of this Resolution.

(xi) merge Kettle Drilling with or into any corporation or entity (including the
Corporation) or consolidate Kettle Drilling and the Corporation with or into any corporation
or entity

(xi) sell all or substantially all of the assets of the Corporation or any subsidiary
of the Corporation; or

(xii) acquire any other corporation by merger, or purchase all or substantially all
of the assets of any other company, in either case where the consideration paid by the
Corporation exceeds ten percent of the Corporation's prior book value as reasonably
determined by the Board consistent with the terms of the acquisition transaction; or

6. Preemptive Right. In the event the Corporation shall offer for sale New Securities (as
defined below), each Series A Holder shall be entitled to purchase its pro rata share of the New
Securities, on the same terms and conditions and at the same price as that offered to third parties.
The pro rata share of a Series A Holder for purposes of this section 6 is the ratio of the number of
shares of Common Stock into which the shares of Series A Stock so held are then convertible to the
sum of the total number of shares of Common Stock into which all shares of Series A Stock then
outstanding are convertible plus the number of shares of Common Stock then outstanding. This
preemptive right shall be subject to the following provisions:

(a) "New Securities" shall mean any shares of the Corporation's Common Stock or
preferred stock (the “Preferred Stock”) and rights, options or warrants to purchase such shares of
Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become,
convertible into such shares of Common Stock or Preferred Stock; provided that New Securities
does not include:

(i) Common Stock issuable upon conversion of the Preferred Stock;

(ii) securities issued in an underwritten public offering, pursuant to an effective
registration statement under the Securities Act of 1933, as amended;

(iii) securities issued pursuant to the acquisition of another corporation by merger,
the purchase of all or substantially all of its assets, or other reorganization;

(iv) securities issued to employees, officers or directors of, or consultants to, the
Corporation, pursuant to an arrangement approved by the Board, which arrangement is

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 12

related directly to their services for the Corporation; or

(v) securities issued to effect any stock split or stock dividend by the
Corporation.

(b) Notice. In the event the Corporation proposes to undertake an issuance of New
Securities, it shall give each Series A Holder written notice of its intention, describing the type of
New Securities and the price and terms upon which the Corporation proposes to issue the same.
Each Series A Holder shall have 30 days from the date of receipt of any such notice to agree to
purchase up to its pro rata share of such New Securities for the price and upon the terms specified in
the notice by giving written notice to the Corporation and stating therein the quantity of New
Securities to be purchased. In the event any Series A Holder elects not to exercise its preemptive
right, it shall so notify the other Series A Holders in writing, and the remaining Series A Holders, or
any of them, shall thereafter have the right, exercisable within such 30-day period, to purchase the
unexercised portion of such Series A Holder's pro rata share of the New Securities, for the price and
upon the terms specified in the notice. The number of shares of the New Securities to be purchased
by the remaining Series A Holders under such circumstances shall be determined in accordance with
the pro rata share of such electing Series A Holder determined by the ratio of the number of shares
of Common Stock into which the shares of Series A Stock of the electing holders are then
convertible to the sum of the total number of shares of Common Stock into which all shares of
Series A Stock of the electing holders are then convertible.

(c) Sale. The Corporation shall have 120 days thereafter to sell the New Securities
respecting which the foregoing preemptive rights were not exercised or did not apply, at the price
and upon terms no more favorable to the purchasers of such securities than specified in the
Corporation's notice. In the event the Corporation has not sold the New Securities within such 120-
day period, the Corporation shall not thereafter issue or sell any New Securities without first offering
such securities to the Series A Holders in the manner provided above.

(d) Termination. All rights under this section 6 of this Resolution shall terminate when
the Corporation's Common Stock first becomes approved for listing and trading on an exchange that
is registered as a “national securities exchange” pursuant to Section 6 of the Exchange Act.

7. Filing with the Secretary of State. This Resolution, when executed on behalf of the
Corporation, shall constitute an amendment to the Corporation’s Articles of Incorporation. Once
executed, the Corporation shall promptly cause a copy of this Resolution to be filed with the
Secretary of State of the State of Idaho as an amendment to its Articles of Incorporation.

SERIES A PREFERRED STOCK RESOLUTIONS OF
TIMBERLINE RESOURCES CORPORATION - 13

Exhibit C to Stock Purchase and Sale Agreement

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the "Agreement") is made and entered into as of
March 3, 2006 by and among Timberline Resources Corporation (“Timberline Resources”), an
Idaho corporation, and Xxxxxxx Xxxxxx and Xxxxx Xxxxx (individually a “Selling Stockholder“
and collectively the “Selling Stockholders”).

RECITALS:

WHEREAS, Timberline Resources, Kettle Drilling, the Selling Stockholders and others
are parties to a Stock Purchase and Sale Agreement dated February 23, 2006 (the “Purchase and
Sale Agreement"); and

WHEREAS, certain of Timberline Resources’, Kettle Drillings’ and the Selling
Stockholders’ obligations under the Purchase and Sale Agreement are conditioned upon the
execution and delivery of this Agreement.

AGREEMENT:

NOW, THEREFORE, the parties hereto agree as follows:

1. Certain Definitions.

Unless otherwise defined in this Agreement, capitalized terms shall have the meaning set forth in
the Purchase and Sale Agreement. As used in this Agreement, the following terms shall have the
meanings set forth below:

1.1 Commission shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.

1.2 Exchange Act shall mean the Securities Exchange Act of 1934, as amended, or
any similar successor federal statute and the rules and regulations thereunder, all as the same
shall be in effect from time to time.

1.3 Holder shall mean the Selling Stockholders, and any holder of Registrable
Securities to whom the registration rights conferred by this Agreement have been transferred in
compliance with the terms hereof.

1.4 Other Stockholders shall mean persons other than Holders who, by virtue of
agreements with Timberline Resources, are entitled to include their securities in certain
registrations hereunder.

REGISTRATION RIGHTS AGREEMENT - 1

1.5 Registrable Securities shall mean (i) the 100,000 shares of Common Stock issued
to Kettle Drilling pursuant to the terms of that certain letter of intent dated December 15, 2005
among Timberline Resources, Kettle Drilling and the Selling Stockholders, (ii) the shares of
Common Stock issuable upon conversion of the Series A Stock (assuming Series A Stock is
issued by Timberline Resources) and (iii) any shares of Common Stock issued as a dividend or
other distribution with respect to or in exchange for or in replacement of the shares referenced in
(i) or (ii) above, provided, however, that Registrable Securities shall not include (A) any shares
of Common Stock which have previously been registered or have been sold to the public either
pursuant to a registration statement or pursuant to Rule 144, or (B) any shares held by a Holder
of Registrable Securities which would be permitted to be sold by such Holder under Rule 144(k)
or within the volume limitations of Rule 144 during any 90-day period, as applicable, or (C) any
shares held by a Holder of Registrable Securities which have been sold in a private transaction in
which the transferor's rights under this Agreement are not assigned.

1.6 The terms register, registered and registration shall refer to a registration effected
by preparing and filing a registration statement in compliance with the Securities Act and
applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness
of such registration statement.

1.7 Registration Expenses shall mean all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation, all registration,
qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for Timberline Resources and one counsel for the Holders, blue sky fees and expenses, and
expenses of any special audits incident to or required by any such registration, but shall not
include Selling Expenses.

1.8 Restricted Securities shall mean any Registrable Securities required to bear the
legend set forth in subsection 1.2(b) hereof.

1.9 Rule 144 shall mean Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar successor rule
that may be promulgated by the Commission.

1.10 Rule 145 shall mean Rule 145 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any' similar successor rule
that may be promulgated by the Commission.

1.11 Securities Act shall mean the Securities Act of 1933, as amended, or any similar
successor federal statute and the rules and regulations thereunder, all as the same shall be in
effect from time to time.

1.12 Selling Expenses shall mean all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of
counsel for any Holder (other than the fees and disbursements of counsel included in
Registration Expenses).

REGISTRATION RIGHTS AGREEMENT - 2

2. Restrictions on Transfer.

2.1 Compliance with Securities Act Registration Requirements. Each Holder agrees

not to make any disposition of all or any portion of the Registrable Securities unless and until the
transferee has agreed in writing for the benefit of Timberline Resources to be bound by this
Section 2, provided and to the extent such Section is then applicable, and:

(a) There is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance with such
registration statement; or

(b) Such Holder shall have notified Timberline Resources of the proposed
disposition and shall have furnished Timberline Resources with a detailed statement of
the circumstances surrounding the proposed disposition, and if reasonably requested by
Timberline Resources, such Holder shall have furnished Timberline Resources with an
opinion of counsel, reasonably satisfactory to Timberline Resources, that such disposition
will not require registration of such shares under the Securities Act.

(c) Notwithstanding the provisions of subparagraphs 2.1(a) and 2.1(b) above
or any provision to the contrary in the Purchase and Sale Agreement, no such registration
statement or opinion of counsel or any consent shall be necessary for a transfer by a
Holder to the Holder's family member or trust for the benefit of an individual Holder
unless Timberline Resources’ transfer agent reasonably requests one, provided the
transferee will be subject to the terms of this Section 2 to the same extent as if such
transferee were an original Holder hereunder.

2.2 Restrictive Legend. Each certificate representing Registrable Securities shall
(unless otherwise permitted by the provisions of this Agreement) be stamped or otherwise
imprinted with the following legend:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES ACTS OF THOSE STATES IN WHICH OFFERS AND SALES OF THE
SECURITIES WERE MADE. THE SECURITIES WERE ACQUIRED FOR
INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SUCH ACTS OR
AN EXEMPTION THEREFROM.

2.3 Issuance of Unlegended Certificates. Timberline Resources shall be obligated to
reissue unlegended certificates promptly at the request of any Holder thereof if the Holder shall
have obtained an opinion of counsel at such Holder's expense (which counsel may be counsel to
Timberline Resources) reasonably acceptable to Timberline Resources to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.

REGISTRATION RIGHTS AGREEMENT - 3

2.4 Blue Sky Legends. Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such securities shall be
removed upon receipt by Timberline Resources of an order of the appropriate blue sky authority
authorizing such removal.

3. Piggy Back Registration Rights.

3.1 Notice of Proposed Registration; Best Efforts Inclusion. If Timberline Resources

shall determine to register any of its securities either for its own account or the account of a
security holder or holders exercising their respective demand registration rights (other than
pursuant to Section 4 hereof), other than a registration relating solely to employee benefit plans,
or a registration relating to a corporate reorganization or other transaction on Form S-4, or a
registration on any registration form that does not permit secondary sales, then Timberline
Resources will:

(a) promptly give to each Holder written notice thereof; and

(b) use its best efforts to include in such registration (and any related
qualification under blue sky laws or other compliance), except as set forth in subsection
3.2 below, and in any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made by any Holder and received by
Timberline Resources within fifteen days after the written notice from Timberline
Resources described in subsection 3.1(a) above is mailed or delivered by Timberline
Resources. Such written request may specify all or a part of a Holder's Registrable
Securities.

3.2 Underwriting. If the registration of which Timberline Resources gives notice is
for a registered public offering involving an underwriting, then Timberline Resources shall so
advise the Holders as a part of the written notice given pursuant to subsection 3.1(a) . In such
event, the right of any Holder to registration pursuant to this Section 3 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with Timberline Resources and the
Other Stockholders of securities of Timberline Resources with registration rights to participate
therein distributing their securities through such underwriting) enter into an underwriting
agreement in customary form with the representative of the underwriter or underwriters selected
by Timberline Resources.

3.3 Limitation on Underwritten Shares. Notwithstanding any other provision of this
Section 3, if the representative of the underwriters advises Timberline Resources in writing that
marketing factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all Registrable Securities
from, or limit the number of Registrable Securities to be included in, the registration and
underwriting. Timberline Resources shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to Timberline Resources for securities being

REGISTRATION RIGHTS AGREEMENT - 4

sold for its own account and thereafter as set forth in Section 13. If any person does not agree to
the terms of any such underwriting, he shall be excluded therefrom by written notice from
Timberline Resources or the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such registration. If
shares are so withdrawn from the registration and if the number of shares of Registrable
Securities to be included in such registration was previously reduced as a result of marketing
factors, then Timberline Resources shall then offer to all persons who have retained the right to
include securities in the registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares to be
allocated among the persons requesting additional inclusion in accordance with Section 13
hereof.

4. Demand Registration Rights. After Timberline Resources has qualified for the use of
Form S-3, in addition to the rights contained in Section 3, Holders holding in the aggregate not
less than 25 percent of the outstanding Registrable Securities shall have the right to request
registration on Form S-3 (such requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended methods of disposition of such shares
by such Holder or Holders), provided, however, that Timberline Resources shall not be obligated
to effect any such registration under the following circumstances: (a) if the Holders, together
with the holders of any other securities of Timberline Resources entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities (if any) on Form S-3
to the public with aggregate proceeds of less than $100,000 or more than $2,000,000; or (b) if the
Registrable Securities to be sold constitute less than an aggregate of 20 percent of all the
Holders’ Registrable Securities; or (c) if Timberline Resources has previously effected any such
registration.

5. Expenses of Registration. All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this Agreement shall be borne by Timberline
Resources. All Selling Expenses relating to securities registered under this Agreement shall be
borne by the Holders of such securities pro rata on the basis of the number of shares of securities
so registered on their behalf, as shall any other expenses in connection with the registration
required to be borne by the Holders of such securities.

6. Registration Procedures. In the case of each registration effected by Timberline
Resources pursuant to this Agreement, Timberline Resources will keep each Holder advised in
writing as to the initiation of each registration and as to the completion thereof. Timberline
Resources will use its best efforts to:

6.1 Duration of Effectiveness. Keep such registration effective for a period of 120
days or until the Holder or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs; provided, however, that (a) such 120-day
period shall be extended for a period of time equal to the period the Holder refrains from selling
any securities included in such registration at the request of an underwriter of Common Stock (or
other securities) of Timberline Resources; and (b) in the case of any registration of Registrable
Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, such

REGISTRATION RIGHTS AGREEMENT - 5

120-day period shall be extended, if necessary, to keep the registration statement effective until
all such Registrable Securities covered by such registration on Form S-3 are sold, but in no event
longer than nine months from the effective date of the registration statement.

6.2 Preparation and Filing of Amendments. Prepare and file with the Commission
such amendments and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities covered by such registration
statement;

6.3 Copies of Prospectus. Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as a Holder from
time to time may reasonably request;

6.4 Exchange Listing. Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities issued by
Timberline Resources are then listed;

6.5 Transfer Agent, Registrar and CUSIP Number. Provide a transfer agent and
registrar for all Registrable Securities registered pursuant to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than the effective date of
such registration;

7. Indemnification.

7.1 Indemnification by Timberline Resources. Timberline Resources will indemnify

each Holder, each of its officers, directors and partners, legal counsel, and accountants and each
person controlling such Holder within the meaning of Section 15 of the Securities Act, with
respect to which registration, qualification, or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages,
and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular, or other document (including any related registration statement,
notification, or the like) incident to any such registration, qualification, or compliance, or based
on any omission (or alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by Timberline
Resources of the Securities Act or any rule or regulation thereunder applicable to Timberline
Resources and relating to action or inaction required of Timberline Resources in connection with
any such registration, qualification, or compliance, and will reimburse each such Holder, each of
its officers, directors, partners, legal counsel, and accountants and each person controlling such
Holder, each such underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, or action, provided that Timberline Resources
will not be liable in any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based upon written

REGISTRATION RIGHTS AGREEMENT - 6

information furnished to Timberline Resources by such Holder or underwriter and stated to be
for use therein. It is agreed that the indemnity agreement contained in this Section 7(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the prior written consent of Timberline Resources (which consent
shall not be unreasonably withheld).

7.2 Indemnification by Holders. Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify Timberline Resources, each of its directors, officers,
partners, legal counsel, and accountants and each underwriter, if any, of Timberline Resources'
securities covered by such a registration statement, each person who controls Timberline
Resources or such underwriter within the meaning of Section 15 of the Securities Act, each other
such Holder and Other Stockholder, and each of their officers, directors, and partners, and each
person controlling such Holder or Other Stockholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse Timberline Resources and such Holders, Other Stockholders,
directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control
persons for any legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular, or other document
in reliance upon and in conformity with written information furnished to Timberline Resources
by such Holder and stated to be for use therein provided, however, that the obligations of such
Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such settlement is effected without the
prior written consent of such Holder (which consent shall not be unreasonably withheld).

7.3 Notice of Indemnified Claims. Each party entitled to indemnification under this
Section 7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation
resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such defense at the
Indemnified Party’s expense, and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its obligations under
Section 1, to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall furnish such

REGISTRATION RIGHTS AGREEMENT - 7

information regarding itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with defense of such claim
and litigation resulting therefrom.

7.4 Right of Contribution. If the indemnification provided for in this Section 7 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any
loss, liability, claim, damage, or expense referred to therein, then the Indemnifying Party, in lieu
of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in
such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified
Party shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such statement or
omission.

7.5 Underwriting Agreement Controlling. Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall control.

8. Information by Holder. Each Holder of Registrable Securities shall furnish to
Timberline Resources such information regarding such Holder and the distribution proposed by
such Holder as Timberline Resources may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification, or compliance referred to
in this Section 1.

9. Limitations on Subsequent Registration Rights. From and after the date of this
Agreement, Timberline Resources shall not, without the prior written consent of a majority in
interest of the Holders, enter into any agreement with any holder or prospective holder of any
securities of Timberline Resources giving such holder or prospective holder any registration
rights the terms of which are more favorable than the registration rights granted to the Holders
hereunder.

10. Rule 144 Reporting. With a view to making available the benefits of certain rules and
regulations of the Commission that may permit the sale of the Restricted Securities to the public
without registration, Timberline Resources agrees to use its best efforts to:

10.1 Current Public Information. Make and keep public information regarding
Timberline Resources available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the earlier of (a) the effective date of

REGISTRATION RIGHTS AGREEMENT - 8

Timberline Resources’ registration statement on Form 10-SB filed under the Exchange Act or (b)
the first registration under the Securities Act filed by Timberline Resources for an offering of its
securities to the general public;

10.2 Periodic Reports. File with the Commission in a timely manner all reports and
other documents required of Timberline Resources under the Securities Act and the Exchange
Act at any time after it has become subject to such reporting requirements;

10.3 Statements of Compliance. So long as a Holder owns any Restricted Securities,
furnish to the Holder forthwith upon written request (a) a written statement by Timberline
Resources as to its compliance with the reporting requirements of Rule 144 (at any time from
and after 90 days following the earlier of the effective date of Timberline Resources’ registration
statement on Form 10-SB filed under the Exchange Act or the first registration under the
Securities Act filed by Timberline Resources for an offering of its securities to the general
public), (b) a copy of the most recent annual or quarterly report of Timberline Resources, and (c)
such other reports and documents so filed as a Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Holder to sell any such securities without
registration.

11. Transfer or Assignment of Registration Rights. The rights to cause Timberline
Resources to register securities granted to a Holder by Timberline Resources under this
Agreement may be transferred or assigned by a Holder to any transferee or assignee of the
Registrable Securities held by such Holder only with the prior written consent of Timberline
Resources. The transferee or assignee of such rights shall assume in writing the obligations of
such Holder under this Agreement as a condition to any such transfer or assignment.

12. "Market Stand-Off" Agreement. If requested by Timberline Resources and an
underwriter of Common Stock (or other securities) of Timberline Resources, a Holder shall not
sell or otherwise transfer or dispose of any Common Stock (or other securities) of Timberline
Resources held by such Holder (other than those included in the registration) during the 180-day
period following the effective date of a registration statement of Timberline Resources filed
under the Securities Act, provided that such agreement shall only apply to the first such
registration statement of Timberline Resources that includes securities to be sold on its behalf to
the public in an underwritten offering. The obligations described in this Section 12 shall not
apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or
similar forms that may be promulgated in the future, or a registration relating solely to a
transaction on Form S-4 or similar forms that may be promulgated in the future. Timberline
Resources may impose stop-transfer instructions with respect to the shares of Common Stock (or
other securities) subject to the foregoing restriction until the end of such 180-day period.

13. Allocation of Registration Opportunities. In any circumstance in which all of the
Registrable Securities and other shares of Common Stock of Timberline Resources with
registration rights (the "Other Shares") requested to be included in a registration on behalf of the
Holders or other selling stockholders cannot be so included as a result of limitations of the
aggregate number of shares of Registrable Securities and Other Shares that may be so included,
the number of shares of Registrable Securities and Other Shares that may be so included shall be

REGISTRATION RIGHTS AGREEMENT - 9

allocated among the Holders and other selling stockholders requesting inclusion of shares pro
rata on the basis of the number of shares of Registrable Securities and Other Shares that would
be held by such Holders and other selling stockholders, assuming conversion; provided,
however, that such allocation shall not operate to reduce the aggregate number of Registrable
Securities and Other Shares to be included in such registration, if any Holder or other selling
stockholder does not request inclusion of the maximum number of shares of Registrable
Securities and Other Shares allocated to him pursuant to the above-described procedure, in which
case the remaining portion of his allocation shall be reallocated among those requesting Holders
and other selling stockholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Securities and Other Shares which would be held by
such Holders and other selling stockholders, assuming conversion, and this procedure shall be
repeated until all of the shares of Registrable Securities and Other Shares which may be included
in the registration on behalf of the Holders and other selling stockholders have been so allocated.
Timberline Resources shall not limit the number of Registrable Securities to be included in a
registration pursuant to this Agreement in order (a) to include shares held by stockholders with
no registration rights, (b) to include shares of stock issued to employees, officers, directors, or
consultants of Timberline Resources, or (c) in the case of registrations under Section 4 hereof, to
include in such registration securities registered for Timberline Resources's own account;
provided further that in the case of a registration under Section 2, the number of shares of
Registrable Securities to be included in such registration pursuant to this Agreement shall not be
limited without concurrent limitation of the number of Other Shares with similar registration
rights to be included in such registration and instead the number of shares and Other Shares to be
included in such registration shall be determined based upon the allocation provisions set forth
above in this Section 13.

14. Miscellaneous Provisions.

14.1 Entire Agreement. This Agreement and the documents referred to herein

constitute the entire agreement among the parties and no party shall be liable or bound to any
other party in any manner by any warranties, representations, or covenants except as specifically
set forth herein or therein.

14.2 Successors and Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

14.3 Governing Law. This Agreement shall be governed by and construed under the
laws of the State of Idaho as applied to agreements among Idaho residents and corporations
organized or domiciled in such state that are entered into and are to be performed entirely within
Idaho.

REGISTRATION RIGHTS AGREEMENT - 10

14.4 Arbitration. Any dispute regarding the interpretation of this Agreement or the
performance by any party hereto of their respective obligations shall be submitted to and determined
by the decision of a board of arbitration consisting of three members (“Board of Arbitration”)
selected as hereinafter provided. Timberline Resources shall select an arbitrator and Kettle Drilling
and the Selling Stockholders shall select an arbitrator, each of whom shall be a member of the
Board of Arbitration who is independent of the parties. A third Board of Arbitration member,
independent of the parties, shall be selected by mutual agreement of the other two Board of
Arbitration members. If the other two Board of Arbitration members fail to reach agreement on
such third member within 20 days after their selection, such third member shall thereafter be
selected by the American Arbitration Association upon application made to it for such purpose by
any party to the arbitration. The Board of Arbitration shall meet in Spokane, Washington, and shall
reach and render a decision in writing (which shall state the reasons for its decisions in writing and
shall make such decisions entirely on the basis of the substantive law governing the Agreement and
which shall be concurred in by a majority of the members of the Board of Arbitration) with respect
to the items in dispute. In connection with rendering its decisions, the Board of Arbitration shall
adopt and follow the Commercial Rules of Arbitration of the American Arbitration Association. To
the extent practical, decisions of the Board of Arbitration shall be rendered no more than 30
calendar days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to Timberline Resources, Kettle Drilling
and the Selling Stockholders. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such 30 calendar day period) shall be final, binding and conclusive on the
parties to this Agreement and each party to the arbitration shall be entitled to enforce such decision
to the fullest extent permitted by law and entered in any court of competent jurisdiction. The fees
and expenses of the Board of Arbitration and the reasonable fees and expenses of legal counsel and
consultants of the parties shall be allocated among the parties in the same proportion that the
aggregate amount of the disputed items so submitted to the Board of Arbitration that is
unsuccessfully submitted by each of them (as finally determined by the Board of Arbitration) bears
to the total amount of items so submitted.

14.5 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument.

14.6 Titles and Subtitles. The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this Agreement.

14.7 Notices. Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by registered or certified mail, postage prepaid, by hand or by a
reputable nationwide overnight express service, addressed, as follows:

REGISTRATION RIGHTS AGREEMENT - 11

If to Timberline Resources:

Timberline Resources Corporation
00 Xxxx 00^xx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxx
Telefacsmile: (000) 000-0000

with a copy to:

Xxxxxx X. Xxxxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxxxx 00000-0000
Telefacsimle: (000) 000-0000

If to the Selling Stockholders:

Xxxxxxx Xxxxxx and Xxxxx Xxxxx
Kettle Drilling, Inc.
0000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0
Coeur d’Xxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxx
Telefacsimile: (000) 000-0000

with a copy to:

Xxxxxxx & Danskin, P.S.
1500 Bank of America Financial Center
000 Xxxx Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx Xxxxxxxx
Telefacsimile: (000) 000-0000

14.8 Expenses. Each party hereto shall pay its costs and expenses that it incurs with
respect to the negotiation, execution, delivery, and performance of this Agreement.

14.9 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this Agreement and
the balance of the Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.

14.10 Delays or Omissions. No delay or omission to exercise any applicable right,
power or remedy accruing to any Holder shall impair any such right, power or remedy of such
Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default therefore or thereafter

REGISTRATION RIGHTS AGREEMENT - 12

occurring. Any waiver, permit, consent or approval of any kind or character on the part of any
Holder of any breach or default under this Agreement or any waiver on the part of any Holder of
any applicable provisions or conditions of this Agreement must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All applicable remedies either
under this Agreement or by law or otherwise afforded to any Holder shall be cumulative and not
alternative.

14.11 Rights; Sevarability. Unless otherwise expressly provided herein, a Holder's
rights hereunder are several rights, not rights jointly held with any of the other respective
Holders. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights
Agreement effective as of the day and year first above written.

REGISTRATION RIGHTS AGREEMENT - 13

Exhibit D-1 to Stock Purchase and Sale Agreement

EMPLOYMENT AGREEMENT

The PARTIES to this Employment Agreement are:

1.	KETTLE DRILLING, INC., an Idaho corporation, whose address is 0000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0, Xxxxx x’Xxxxx, Xxxxx 00000 (the "Company"); and
2.	XXXXXXX XXXXXX, whose address is 0000 Xxxx Xxxxxxxxx, Xxxxxx, Xxxxx 00000 ("Employee").

The TERMS of this Employment Agreement are as follows:

1.	Definitions.
	1.1	Cause shall mean any one or more of the following:
		(a)	Disobedience of orders or directives of the board of directors of the
		Company or interference with the performance by other employees of their duties, if such disobedience or interference is either (i) of such a nature that no reasonable doubt can exist as to its material adverse effect on the Company, or (ii) continues after specific instructions relating thereto have been given by the board of directors of the Company; or
		(b)	Material acts of dishonesty, disloyalty or competition related to the
		business of the Company or its relationships with employees, suppliers, customers or those with whom the Company does business; or
		(c)	Refusal or failure to furnish significant information concerning the
		Company's affairs as reasonably requested by the board of directors of the Company, or material falsification of such information; or
		(d)	Any other action or course of conduct (specifically including, by way of
		illustration and not limitation, the breach of any material term of this Employment Agreement) which has or reasonably may be expected to have a material adverse effect on the Company or its business or financial position, if such action or course of conduct is either (i) of such a nature that no reasonable doubt can exist as to its material adverse effect on the Company, or (ii) continues after specific instructions relating thereto have been given by or under the authority of the board of directors of the Company; or
		(e)	Conviction of a crime involving acts of Employee constituting fraud,
		moral turpitude, intentional dishonesty, or similar conduct.
	1.2	Company means Kettle Drilling, Inc., an Idaho corporation, and its successors.

EMPLOYMENT AGREEMENT - 1

1.3 Disability means that Employee is unable to actively perform his duties under this
Employment Agreement by reason of a medically determinable physical or mental
impairment. In the event that there is a dispute as to whether or not Employee is
disabled, such dispute shall be submitted to arbitration. The Company and the Employee
shall each promptly appoint an arbitrator in writing, and the two arbitrators so appointed
shall appoint a third arbitrator. The good faith decision of a majority of the arbitrators
shall be binding upon the parties. If, for any reason, after demand, no arbitrator is
appointed, the arbitrator or arbitrators shall be appointed by a judge of the District Court
of Kootenai County, Idaho upon proper application made by an interested party. The
determination by the arbitrators shall be in writing. The arbitrator or arbitrators chosen to
resolve a dispute under this section shall all be physicians licensed in the State of Idaho
as medical doctors.

1.4 Effective Date means March 1, 2006.

1.5 Notice shall mean a communication in writing. Any notice shall be deemed to

have been given and served as of the date of the personal delivery thereof or, in the event
that such notice is mailed, as of the date of receipt thereof.

1.6 Retirement shall mean that Employee has reached retirement age and has retired
from the employment of the Company, whether such retirement is voluntary or
mandatory. The retirement age shall be the age of sixty-five (65) years, or such lesser or
greater age as the board of directors of the Company may from time-to-time or at any
time establish.

1.7 Voluntary Resignation shall mean termination by Employee of his employment
with the Company that is effected voluntarily for any reason other than disability or
retirement.

2. Prior Agreements.

All agreements previously entered into by and between Employee and the Company
relating to the employment of Employee are hereby revoked and shall be of no further force or
effect, and the provisions of this Employment Agreement alone shall govern the Employee's
employment.

3. Employment.

The Company hereby employs Employee to perform the duties generally described in this
Employment Agreement, and Employee hereby accepts and agrees to such employment on the
terms and conditions hereinafter set forth.

3.1 Term. Employee's employment shall be deemed to have commenced on the
Effective Date and shall continue thereafter for a period of three years unless earlier
terminated as herein provided.

EMPLOYMENT AGREEMENT - 2

3.2 Duties. Employee shall have the title of president, shall be a member of the board
of directors of the Company, and shall be primarily responsible for all aspects of the
Company’s business. Despite such titles and responsibility, Employee shall not be
obligated to devote more than three to four hours of working time per day to the business
of the Company. Further, Employee may engage in other substantial business activities
during the term of this Employment Agreement provided such activities do not materially
interfere or conflict with the performance of his duties hereunder and do not violate the
covenant not to compete set forth in Section 7 hereof.

4. Compensation.

As compensation for all services rendered to the Company during the term of this
Employment Agreement, in whatever capacity rendered, Employee shall have and receive the
following compensation:

4.1 Salary. The Company shall pay Employee an annual salary of $162,000 during
each full year of his employment pursuant to this Employment Agreement, which salary
shall be payable in equal monthly payments of $13,500 on or after the fifth day of each
month but before the twentieth day of each month.

4.2 Fringe Benefits. The Company shall pay for (or reimburse Employee for the cost
of) medical and dental insurance for Employee and Employee’s spouse for so long as
Employee is employed by the Company. In addition, the Company shall pay for medical
and dental insurance for Employee and Employee’s spouse following the termination of
Employee’s employment by the Company (irrespective of whether Employee is then
living), unless such termination is for Cause, as provided in Section 8.5 of this
Employment Agreement, subject, however, to the following limitations and conditions:
(a) the Company shall not be obligated to pay more than $12,000 per year for such
insurance; and (b) the Company’s obligation to pay for such insurance shall commence as
of the expiration of Employee’s employment and shall continue for a period of time equal
to five years plus one additional year for each full year that Employee is employed by the
Company. The Company shall also pay Employee a non-accountable expense allowance
of $1,500 per month, which Employee shall expend to further the Company’s business
and its business relationships.

4.3 Performance Bonuses and Incentive Compensation. In addition to salary and
fringe benefits, Employee shall be entitled to receive performance bonuses and other
incentive compensation on the terms and subject to the conditions set forth in Exhibit A
to this Employment Agreement.

4.4 Automobiles. In addition to salary and fringe benefits, the Company shall provide
Employee a Company truck for Employee’s use in furtherance of the Company’s business.
The Company shall also pay (or reimburse Employee for) all reasonable gasoline,
maintenance and insurance charges and expenses relating to such vehicle.

EMPLOYMENT AGREEMENT - 3

4.5 Ratification of Prior Bonus and Transfer of Title to Other Vehicle. The Company
hereby ratifies its 2004 bonus to Employee to repay the existing indebtedness relating to the
following described vehicle, and to transfer title to such vehicle to Employee during
calendar year 2006.

Make: Jaguar
Model: XKR
Year: 2006
VIN: SADJA42B263A540B

4.6 Payment of Tax Liability for Deemed Distributions. The Company agrees that it
will pay or reimburse Employee for any federal or state income taxes that are paid or payable by
Employee with respect to any pass-through income that Employee is deemed to have been
received (but does not actually receive) during (a) the tax year ended December 31, 2005 and (b)
the period commencing January 1, 2006 and ending the effective date of the Company’s election
not to be taxed as an S corporation for federal income tax purposes.

5. Vacations.

Employee shall be entitled to six weeks of paid vacation each calendar year during the term
of this Employment Agreement. Should Employee have any earned but unused vacation time at
the expiration of the calendar year in which it was earned, he shall be entitled to carry a
maximum of six weeks (or such lesser amount as was earned and is unused) into the next
calendar year.

6. Continuation of Salary during Disability.

In the event becomes disabled and his employment is terminated because of disability, his
base monthly compensation shall be continued for a period of time equal to the lesser of (a) the
period of disability or (b) six months from the date Employee becomes disabled or his
employment was terminated because of disability. The amount of any salary payments shall be
reduced by the amount of any disability insurance benefits from policies paid for by the
Company or Social Security benefits receivable by Employee that are attributable to his
disability. Nothing in this section shall be deemed to compel the Company to acquire insurance
to fund its obligations hereunder, but it may, in its discretion, do so.

7. Covenant Not to Compete.

Employee, while an employee and following termination, agrees to abide by the following
covenant not to compete:

7.l Employee recognizes that while an employee he may develop or be exposed to
unique, valuable and special confidential information, know-how, customer lists and
trade secrets that are the property of the Company or its customers. Employee agrees that
so long as such confidential information, know-how, customer lists, and trade secrets
remain protectable, he will not use or divulge them except as required to meet his

EMPLOYMENT AGREEMENT - 4

obligations to the Company and will not undertake any employment or other position
competitive with the Company wherein the complete fulfillment of the duties of such
competitive position would inherently call upon him to reveal, base judgments upon, or
otherwise use any such confidential information, know-how, customer lists, or trade
secrets.

7.2 Employee agrees that reports, customer lists, customer prospect files, rate and
billing information, technical information, and other materials integral to the Company's
business used or produced by him or coming into his possession by or through his status
as an employee of the Company are the property of the Company and shall be
surrendered upon withdrawal without retaining any copies, extracts or notes thereof.

7.3 Employee agrees that while an employee, and for a period of three years
following termination of employment, he will not directly or indirectly solicit or attempt
to solicit business or sell, write or do business with any customer with whom the
Company was doing business as of the date of Employee's termination.

7.4 Employee agrees that while an employee, and for a period of three years
following termination of his employment, he will not directly or indirectly engage in a
business competitive with that of the Company. Employee further agrees that for a
period of three years following termination, he will not induce or attempt to induce any
person to leave employment with the Company, or hire or employ any person employed
by the Company as of the date of Employee's termination.

7.5 The Company shall have the right to seek and secure an injunction to enforce the
provisions of the covenant, but that remedy shall not be exclusive.

8. Termination.

This Employment Agreement and Employee's employment hereunder shall continue as
provided in Section 3.1 until terminated as hereinafter provided. Notwithstanding the
termination of this Employment Agreement, the parties shall be required to carry out any
provisions hereof which contemplate performance by them subsequent to such termination, and
such termination shall not affect any liability or other obligation which shall have accrued prior
to such termination, including, but not limited to, any liability for loss or damage on account of
default or any obligation arising under the covenant not to compete. This Employment
Agreement shall terminate upon the occurrence of any of the following events:

8.1 Death of Employee. This Employment Agreement shall automatically terminate
without notice upon the death of Employee. The Company shall pay the monthly base
salary of Employee to the estate of Employee for the full month in which such death
occurs and for an additional two months thereafter.

8.2 Retirement and Retirement Benefit. Employee may retire at any time after
Employee has reached retirement age, as herein defined, by giving the Company not less
than sixty days written notice of his intent to retire, specifying the date of retirement.

EMPLOYMENT AGREEMENT - 5

The Company shall not be obligated to pay Employee a monthly retirement benefit
following his retirement, but shall endeavor in good faith from and after the Effective
Date of this Employment Agreement to devise and implement a retirement plan for
Employee and other employees of the Company. Employee acknowledges and
understands that the Company is under no obligation to devise or implement such a plan.
Employee further acknowledges and understands that, if the Company does devise and
implement a retirement plan, it may make only partial contributions to the plan and may
condition such contributions on the Company’s earnings or other benchmarks of financial
performance.

8.3 Disability. This Employment Agreement may be terminated unilaterally by the
board of directors of the Company in the event of disability of Employee, as herein
defined, which shall have continued for a period of more than three months.

8.4 Voluntary Resignation. Employee may voluntarily resign at any time during the
term of his employment by the Company, provided that he gives the Company not less
than six months written notice of his intention to resign, specifying the effective date of
such resignation.

8.5 Termination of Employment for Cause. The Company may terminate the
employment of Employee for Cause, as herein defined, without notice.

8.6 Termination of Employment other than for Cause. The Company may terminate
the employment of Employee without Cause upon three months’ written notice. If the
Company shall terminate the employment of Employee other than for Cause, then it shall
(a) pay Employee (or Employee’s spouse, should Employee die), a severance benefit
equal to three years’ salary based on Employee’s base monthly salary immediately
preceding his termination and (b) pay for (or reimburse Employee for the cost of) such
medical and dental insurance as Company is then obligated to pay Employee pursuant to
Section 4.3 of this Employment Agreement.

8.7 Termination of Employment for Breach. The employment of Employee may be
terminated by Employee upon breach of a material term of this Employment Agreement
by the Company, provided that Employee shall give the Company not less than sixty days
written notice of the intent to terminate for breach, specifying the nature of the breach. In
the event that the Company cures such breach prior to the passage of such sixty-day
period, Employee's right to terminate for such breach shall cease.

8.8 Termination upon Cessation of Business. In the event the Company shall cease
the active conduct of its business, the employment of Employee shall be deemed
terminated.

9. Insurance.

The Company reserves the right to acquire insurance on the life or health of Employee,
naming itself as the beneficiary thereof. The Company shall be the sole owner of all such
policies taken out by it and may exercise all rights under such policies.

EMPLOYMENT AGREEMENT - 6

10. Notices.

Any notice transmitted by either party to this Employment Agreement to any other party
hereto may be served personally upon such other party or mailed to such other party, in the case
of the Company, to its registered office; and in the case of Employee, to the address of Employee
appearing on the books of the Company or such other address as may be designated in writing by
Employee.

11. Termination of Corporate Office.

In the event that the employment of Employee hereunder is terminated for any reason and
Employee shall hold office as an officer of the Company, such office shall terminate and
Employee shall be deemed to have resigned the same automatically and without notice as of the
effective date of termination of employment.

12. General Provisions.

12.1 Venue and Governing Law. This Employment Agreement is made in accordance
with and shall be interpreted and governed by the laws of the State of Idaho. If any
action or other proceeding shall be brought on or in connection with this Employment
Agreement, the venue of such action shall be in Kootenai County, Idaho.

12.2 Attorney's Fees. In the event that it shall become necessary for either of the
parties to obtain the services of an attorney in order to enforce the provisions hereof,
then, in that event, the defaulting party shall pay the prevailing party all reasonable
attorney's fees and all costs incurred in connection therewith, including the costs of any
appeal.

12.3 Assignments. This Employment Agreement is personal to each of the parties
hereto, and neither party may assign or delegate any of the rights or obligations
hereunder without first obtaining the written consent of the other party. No assignment
or assumption of any obligation hereunder shall relieve either party hereto from liability
for any obligation hereunder.

12.4 Amendment. No amendment, waiver or modification of this Employment
Agreement or of any term or condition hereof shall be valid or effective unless in writing
and approved by the Company and Employee.

12.5 Arbitration. All disputes arising under this Employment Agreement shall be
resolved through arbitration. The arbitration of any dispute hereunder shall be conducted
in accordance with the Idaho Uniform Arbitration Act. Except as provided at paragraph
12.2, the cost of any such arbitration shall be borne equally by Employee and the
Company.

12.6 Merger Clause. This Employment Agreement expresses the full and final
purpose and agreement of the parties relating to employment of Employee.

EMPLOYMENT AGREEMENT - 7

12.7 Severability. Each provision of this Employment Agreement shall be considered
severable and if, for any reason, any provision hereof or remedy herein provided is
determined to be invalid, such invalidity shall not impair the operation or effect of the
remaining provisions hereof which are valid.

12.8 Successors. Except as expressly provided otherwise herein, all of the rights of the
parties hereunder shall inure to the benefit of and all obligations of the parties hereunder
shall bind the parties' heirs, personal representatives, successors and assigns.

12.9 Execution of Documents. Each of the parties agrees to execute all documents
necessary to implement the provisions of this Employment Agreement.

12.10 No Trust Relationship. Nothing contained in this Employment Agreement and no
action taken pursuant to the provisions of this Employment Agreement shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the Company
and Employee. Any amounts or assets referred to under the provisions of this
Employment Agreement shall continue for all purposes to be a part of the general funds
of the Company, and no person other than the Company shall by virtue of the provisions
of this Employment Agreement have any interest in such funds. To the extent that any
person acquires a right to receive payments from the Company under this Employment
Agreement, such rights shall be no greater than the right of any unsecured creditor of the
Company.

12.11 Descriptive Headings. Titles to the paragraphs hereof are for information
purposes only.

EXECUTED this 3^rd day of March 2006, but effective as of the Effective Date.

EMPLOYMENT AGREEMENT - 8

Schedule A to Employment Agreement

Bonus and Incentive Compensation

In addition to salary and fringe benefits, the Company agrees to pay Employee the following
bonus and incentive compensation:

A. Revenue-Based Cash Bonus. The Company shall pay Employee a bonus for the fiscal
year ending December 31, 2006 if the Company’s gross revenue for such fiscal year is greater
than $4,800,000. For each year thereafter during the term of this Agreement, the Company shall
pay Employee a bonus if the Company’s gross revenue for such fiscal year increased over the
Company’s gross revenue for the prior fiscal year. The amount of such bonus shall be equal to
two percent of any such increase in gross revenue, and shall be paid to Employee within 45 days
of the end of the fiscal year in which it was earned.

B. Net Revenue-Based Cash Bonus. In addition to the bonus specified in paragraph A,
above, the Company shall pay Employee a bonus for the fiscal year ending December 31, 2006 if
the Company’s net revenue for such fiscal year before deduction of taxes, depreciation and
amortization (hereinafter referred to as “Company Net Revenue”) is greater than $760,000. For
each year thereafter during the term of this Agreement, the Company shall pay Employee a
bonus if Company Net Revenue for such fiscal year increased over Company Net Revenue for
the prior fiscal year. The amount of such bonus shall be equal to five percent of any such
increase in Company Net Revenue, and shall be paid to Employee within 45 days of the end of
the fiscal year in which it was earned.

C. Acquisition-Based Stock Options Bonus. In addition to the cash bonuses specified in
paragraphs A and B, above, the Company shall pay Employee a bonus in the event the Company
acquires another hard rock drilling business by merger (provided the Company is the surviving
corporation), consolidation, or the purchase of all or substantially all of the assets of such
business. The amount of such bonus shall be equal to the greater of (i) five percent of the total
assets of the acquired business or (ii) five percent of the gross revenue of the acquired business
for the fiscal year immediately preceding the date of acquisition.

The bonus shall be paid to Employee within 45 days of the closing date of the acquisition
transaction either by (a) the issuance and delivery to Employee of shares of common stock of the
Company or (b) by the issuance and delivery to Employee of ten-year options to purchase
common stock of the Company, whichever Employee shall elect to receive.

Should Employee elect to receive shares of common stock of the Company in payment of the
bonus, the number of shares issuable and deliverable to him shall be determined by dividing the
amount of the bonus (namely, the greater of five percent of the total assets of the acquired
business or five percent of the gross revenue of the acquired business for the fiscal year
immediately preceding the date of acquisition) by the market value of the Company’s common
stock as of the end of the fiscal quarter immediately preceding the date the Company publicly

EMPLOYMENT AGREEMENT - 9

announces the acquisition upon which the bonus is predicated.

Should employee elect to receive stock options in payment of the bonus, such options shall be
exercisable at any time during such ten-year period at a price per share equal to the market price
of the Company’s common stock as of the end of the fiscal quarter immediately preceding the
date the Company publicly announces the acquisition upon which the bonus is predicated. The
number of stock options to be granted to Employee shall be determined by dividing the amount
of the bonus (namely, the greater of five percent of the total assets of the acquired business or
five percent of the gross revenue of the acquired business for the fiscal year immediately
preceding the date of acquisition) by the value of each option as of as of the date of grant. The
value of such option shall be the same value that the Company ascribes to such option as
compensation expense, determined in accordance with Financial Accounting Standard 123(R),
Accounting for Stock-Based Compensation.

EMPLOYMENT AGREEMENT - 10

Exhibit D-2 to Stock Purchase and Sale Agreement

EMPLOYMENT AGREEMENT

The PARTIES to this Employment Agreement are:

1.	KETTLE DRILLING, INC., an Idaho corporation, whose address is 0000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0, Xxxxx x’Xxxxx, Xxxxx 00000 (the "Company"); and
2.	XXXXX XXXXX, whose address is 0000 Xxxx Xxxxxxxxx, Xxxxxx, Xxxxx 00000 ("Employee").

The TERMS of this Employment Agreement are as follows:

1.	Definitions.
	1.1	Cause shall mean any one or more of the following:
		(a)	Disobedience of orders or directives of the board of directors of the
		Company or interference with the performance by other employees of their duties, if such disobedience or interference is either (i) of such a nature that no reasonable doubt can exist as to its material adverse effect on the Company, or (ii) continues after specific instructions relating thereto have been given by the board of directors of the Company; or
		(b)	Material acts of dishonesty, disloyalty or competition related to the
		business of the Company or its relationships with employees, suppliers, customers or those with whom the Company does business; or
		(c)	Refusal or failure to furnish significant information concerning the
		Company's affairs as reasonably requested by the board of directors of the Company, or material falsification of such information; or
		(d)	Any other action or course of conduct (specifically including, by way of
		illustration and not limitation, the breach of any material term of this Employment Agreement) which has or reasonably may be expected to have a material adverse effect on the Company or its business or financial position, if such action or course of conduct is either (i) of such a nature that no reasonable doubt can exist as to its material adverse effect on the Company, or (ii) continues after specific instructions relating thereto have been given by or under the authority of the board of directors of the Company; or
		(e)	Conviction of a crime involving acts of Employee constituting fraud,
		moral turpitude, intentional dishonesty, or similar conduct.
	1.2	Company means Kettle Drilling, Inc., an Idaho corporation, and its successors.

EMPLOYMENT AGREEMENT - 1

1.3 Disability means that Employee is unable to actively perform his duties under this
Employment Agreement by reason of a medically determinable physical or mental
impairment. In the event that there is a dispute as to whether or not Employee is
disabled, such dispute shall be submitted to arbitration. The Company and the Employee
shall each promptly appoint an arbitrator in writing, and the two arbitrators so appointed
shall appoint a third arbitrator. The good faith decision of a majority of the arbitrators
shall be binding upon the parties. If, for any reason, after demand, no arbitrator is
appointed, the arbitrator or arbitrators shall be appointed by a judge of the District Court
of Kootenai County, Idaho upon proper application made by an interested party. The
determination by the arbitrators shall be in writing. The arbitrator or arbitrators chosen to
resolve a dispute under this section shall all be physicians licensed in the State of Idaho
as medical doctors.

1.4 Effective Date means March 1, 2006.

1.5 Notice shall mean a communication in writing. Any notice shall be deemed to

have been given and served as of the date of the personal delivery thereof or, in the event
that such notice is mailed, as of the date of receipt thereof.

1.6 Retirement shall mean that Employee has reached retirement age and has retired
from the employment of the Company, whether such retirement is voluntary or
mandatory. The retirement age shall be the age of sixty-five (65) years, or such lesser or
greater age as the board of directors of the Company may from time-to-time or at any
time establish.

1.7 Voluntary Resignation shall mean termination by Employee of his employment
with the Company that is effected voluntarily for any reason other than disability or
retirement.

2. Prior Agreements.

All agreements previously entered into by and between Employee and the Company
relating to the employment of Employee are hereby revoked and shall be of no further force or
effect, and the provisions of this Employment Agreement alone shall govern the Employee's
employment.

3. Employment.

The Company hereby employs Employee to perform the duties generally described in this
Employment Agreement, and Employee hereby accepts and agrees to such employment on the
terms and conditions hereinafter set forth.

3.1 Term. Employee's employment shall be deemed to have commenced on the
Effective Date and shall continue thereafter for a period of three years unless earlier
terminated as herein provided.

EMPLOYMENT AGREEMENT - 2

3.2 Duties. Employee shall have the title of vice president, shall be a member of the
board of directors of the Company, and shall be primarily responsible for all aspects of
the Company’s business. Despite such titles and responsibility, Employee shall not be
obligated to devote more than three to four hours of working time per day to the business
of the Company. Further, Employee may engage in other substantial business activities
during the term of this Employment Agreement provided such activities do not materially
interfere or conflict with the performance of his duties hereunder and do not violate the
covenant not to compete set forth in Section 7 hereof.

4. Compensation.

As compensation for all services rendered to the Company during the term of this
Employment Agreement, in whatever capacity rendered, Employee shall have and receive the
following compensation:

4.1 Salary. The Company shall pay Employee an annual salary of $162,000 during
each full year of his employment pursuant to this Employment Agreement, which salary
shall be payable in equal monthly payments of $13,500 on or after the fifth day of each
month but before the twentieth day of each month.

4.2 Fringe Benefits. The Company shall pay for (or reimburse Employee for the cost
of) medical and dental insurance for Employee and Employee’s spouse for so long as
Employee is employed by the Company. In addition, the Company shall pay for medical
and dental insurance for Employee and Employee’s spouse following the termination of
Employee’s employment by the Company (irrespective of whether Employee is then
living), unless such termination is for Cause, as provided in Section 8.5 of this
Employment Agreement, subject, however, to the following limitations and conditions:
(a) the Company shall not be obligated to pay more than $12,000 per year for such
insurance; and (b) the Company’s obligation to pay for such insurance shall commence as
of the expiration of Employee’s employment and shall continue for a period of time equal
to five years plus one additional year for each full year that Employee is employed by the
Company. The Company shall also pay Employee a non-accountable expense allowance
of $1,500 per month, which Employee shall expend to further the Company’s business
and its business relationships.

4.3 Performance Bonuses and Incentive Compensation. In addition to salary and
fringe benefits, Employee shall be entitled to receive performance bonuses and other
incentive compensation on the terms and subject to the conditions set forth in Exhibit A
to this Employment Agreement.

4.4 Automobiles. In addition to salary and fringe benefits, the Company shall provide
Employee a Company truck for Employee’s use in furtherance of the Company’s business.
The Company shall also pay (or reimburse Employee for) all reasonable gasoline,
maintenance and insurance charges and expenses relating to such vehicle.

EMPLOYMENT AGREEMENT - 3

4.5 Ratification of Prior Bonus and Transfer of Title to Other Vehicle. The Company
hereby ratifies its 2004 bonus to Employee to repay the existing indebtedness relating to the
following described vehicle, and to transfer title to such vehicle to Employee during
calendar year 2006.

Make: BMW
Model: M3
Year: 2004
VIN: XXXXX00000XX00000

4.6 Tax Liability for Deemed Distributions. The Company agrees that it will pay or
reimburse Employee for any federal or state income taxes that are paid or payable by Employee
with respect to any pass-through income that Employee is deemed to have been received (but
does not actually receive) during (a) the tax year ended December 31, 2005 and (b) the period
commencing January 1, 2006 and ending the effective date of the Company’s election not to be
taxed as an S corporation for federal income tax purposes.

5. Vacations.

Employee shall be entitled to six weeks of paid vacation each calendar year during the term
of this Employment Agreement. Should Employee have any earned but unused vacation time at
the expiration of the calendar year in which it was earned, he shall be entitled to carry a
maximum of six weeks (or such lesser amount as was earned and is unused) into the next
calendar year.

6. Continuation of Salary during Disability.

In the event becomes disabled and his employment is terminated because of disability, his
base monthly compensation shall be continued for a period of time equal to the lesser of (a) the
period of disability or (b) six months from the date Employee becomes disabled or his
employment was terminated because of disability. The amount of any salary payments shall be
reduced by the amount of any disability insurance benefits from policies paid for by the
Company or Social Security benefits receivable by Employee that are attributable to his
disability. Nothing in this section shall be deemed to compel the Company to acquire insurance
to fund its obligations hereunder, but it may, in its discretion, do so.

7. Covenant Not to Compete.

Employee, while an employee and following termination, agrees to abide by the following
covenant not to compete:

7.l Employee recognizes that while an employee he may develop or be exposed to
unique, valuable and special confidential information, know-how, customer lists and
trade secrets that are the property of the Company or its customers. Employee agrees that
so long as such confidential information, know-how, customer lists, and trade secrets
remain protectable, he will not use or divulge them except as required to meet his

EMPLOYMENT AGREEMENT - 4

obligations to the Company and will not undertake any employment or other position
competitive with the Company wherein the complete fulfillment of the duties of such
competitive position would inherently call upon him to reveal, base judgments upon, or
otherwise use any such confidential information, know-how, customer lists, or trade
secrets.

7.2 Employee agrees that reports, customer lists, customer prospect files, rate and
billing information, technical information, and other materials integral to the Company's
business used or produced by him or coming into his possession by or through his status
as an employee of the Company are the property of the Company and shall be
surrendered upon withdrawal without retaining any copies, extracts or notes thereof.

7.3 Employee agrees that while an employee, and for a period of three years
following termination of employment, he will not directly or indirectly solicit or attempt
to solicit business or sell, write or do business with any customer with whom the
Company was doing business as of the date of Employee's termination.

7.4 Employee agrees that while an employee, and for a period of three years
following termination of his employment, he will not directly or indirectly engage in a
business competitive with that of the Company. Employee further agrees that for a
period of three years following termination, he will not induce or attempt to induce any
person to leave employment with the Company, or hire or employ any person employed
by the Company as of the date of Employee's termination.

7.5 The Company shall have the right to seek and secure an injunction to enforce the
provisions of the covenant, but that remedy shall not be exclusive.

8. Termination.

This Employment Agreement and Employee's employment hereunder shall continue as
provided in Section 3.1 until terminated as hereinafter provided. Notwithstanding the
termination of this Employment Agreement, the parties shall be required to carry out any
provisions hereof which contemplate performance by them subsequent to such termination, and
such termination shall not affect any liability or other obligation which shall have accrued prior
to such termination, including, but not limited to, any liability for loss or damage on account of
default or any obligation arising under the covenant not to compete. This Employment
Agreement shall terminate upon the occurrence of any of the following events:

8.1 Death of Employee. This Employment Agreement shall automatically terminate
without notice upon the death of Employee. The Company shall pay the monthly base
salary of Employee to the estate of Employee for the full month in which such death
occurs and for an additional two months thereafter.

8.2 Retirement and Retirement Benefit. Employee may retire at any time after
Employee has reached retirement age, as herein defined, by giving the Company not less
than sixty days written notice of his intent to retire, specifying the date of retirement.

EMPLOYMENT AGREEMENT - 5

The Company shall not be obligated to pay Employee a monthly retirement benefit
following his retirement, but shall endeavor in good faith from and after the Effective
Date of this Employment Agreement to devise and implement a retirement plan for
Employee and other employees of the Company. Employee acknowledges and
understands that the Company is under no obligation to devise or implement such a plan.
Employee further acknowledges and understands that, if the Company does devise and
implement a retirement plan, it may make only partial contributions to the plan and may
condition such contributions on the Company’s earnings or other benchmarks of financial
performance.

8.3 Disability. This Employment Agreement may be terminated unilaterally by the
board of directors of the Company in the event of disability of Employee, as herein
defined, which shall have continued for a period of more than three months.

8.4 Voluntary Resignation. Employee may voluntarily resign at any time during the
term of his employment by the Company, provided that he gives the Company not less
than six months written notice of his intention to resign, specifying the effective date of
such resignation.

8.5 Termination of Employment for Cause. The Company may terminate the
employment of Employee for Cause, as herein defined, without notice.

8.6 Termination of Employment other than for Cause. The Company may terminate
the employment of Employee without Cause upon three months’ written notice. If the
Company shall terminate the employment of Employee other than for Cause, then it shall
(a) pay Employee (or Employee’s spouse, should Employee die), a severance benefit
equal to three years’ salary based on Employee’s base monthly salary immediately
preceding his termination and (b) pay for (or reimburse Employee for the cost of) such
medical and dental insurance as Company is then obligated to pay Employee pursuant to
Section 4.3 of this Employment Agreement.

8.7 Termination of Employment for Breach. The employment of Employee may be
terminated by Employee upon breach of a material term of this Employment Agreement
by the Company, provided that Employee shall give the Company not less than sixty days
written notice of the intent to terminate for breach, specifying the nature of the breach. In
the event that the Company cures such breach prior to the passage of such sixty-day
period, Employee's right to terminate for such breach shall cease.

8.8 Termination upon Cessation of Business. In the event the Company shall cease
the active conduct of its business, the employment of Employee shall be deemed
terminated.

9. Insurance.

The Company reserves the right to acquire insurance on the life or health of Employee,
naming itself as the beneficiary thereof. The Company shall be the sole owner of all such

EMPLOYMENT AGREEMENT - 6

policies taken out by it and may exercise all rights under such policies.

10. Notices.

Any notice transmitted by either party to this Employment Agreement to any other party
hereto may be served personally upon such other party or mailed to such other party, in the case
of the Company, to its registered office; and in the case of Employee, to the address of Employee
appearing on the books of the Company or such other address as may be designated in writing by
Employee.

11. Termination of Corporate Office.

In the event that the employment of Employee hereunder is terminated for any reason and
Employee shall hold office as an officer of the Company, such office shall terminate and
Employee shall be deemed to have resigned the same automatically and without notice as of the
effective date of termination of employment.

12. General Provisions.

12.1 Venue and Governing Law. This Employment Agreement is made in accordance
with and shall be interpreted and governed by the laws of the State of Idaho. If any
action or other proceeding shall be brought on or in connection with this Employment
Agreement, the venue of such action shall be in Kootenai County, Idaho.

12.2 Attorney's Fees. In the event that it shall become necessary for either of the
parties to obtain the services of an attorney in order to enforce the provisions hereof,
then, in that event, the defaulting party shall pay the prevailing party all reasonable
attorney's fees and all costs incurred in connection therewith, including the costs of any
appeal.

12.3 Assignments. This Employment Agreement is personal to each of the parties
hereto, and neither party may assign or delegate any of the rights or obligations
hereunder without first obtaining the written consent of the other party. No assignment
or assumption of any obligation hereunder shall relieve either party hereto from liability
for any obligation hereunder.

12.4 Amendment. No amendment, waiver or modification of this Employment
Agreement or of any term or condition hereof shall be valid or effective unless in writing
and approved by the Company and Employee.

12.5 Arbitration. All disputes arising under this Employment Agreement shall be
resolved through arbitration. The arbitration of any dispute hereunder shall be conducted
in accordance with the Idaho Uniform Arbitration Act. Except as provided at paragraph
12.2, the cost of any such arbitration shall be borne equally by Employee and the
Company.

EMPLOYMENT AGREEMENT - 7

12.6 Merger Clause. This Employment Agreement expresses the full and final
purpose and agreement of the parties relating to employment of Employee.

12.7 Severability. Each provision of this Employment Agreement shall be considered
severable and if, for any reason, any provision hereof or remedy herein provided is
determined to be invalid, such invalidity shall not impair the operation or effect of the
remaining provisions hereof which are valid.

12.8 Successors. Except as expressly provided otherwise herein, all of the rights of the
parties hereunder shall inure to the benefit of and all obligations of the parties hereunder
shall bind the parties' heirs, personal representatives, successors and assigns.

12.9 Execution of Documents. Each of the parties agrees to execute all documents
necessary to implement the provisions of this Employment Agreement.

12.10 No Trust Relationship. Nothing contained in this Employment Agreement and no
action taken pursuant to the provisions of this Employment Agreement shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the Company
and Employee. Any amounts or assets referred to under the provisions of this
Employment Agreement shall continue for all purposes to be a part of the general funds
of the Company, and no person other than the Company shall by virtue of the provisions
of this Employment Agreement have any interest in such funds. To the extent that any
person acquires a right to receive payments from the Company under this Employment
Agreement, such rights shall be no greater than the right of any unsecured creditor of the
Company.

12.11 Descriptive Headings. Titles to the paragraphs hereof are for information
purposes only.

EXECUTED this 3^rd day of March 2006, but effective as of the Effective Date.

Schedule A to Employment Agreement

Bonus and Incentive Compensation

In addition to salary and fringe benefits, the Company agrees to pay Employee the following
bonus and incentive compensation:

A. Revenue-Based Cash Bonus. The Company shall pay Employee a bonus for the fiscal
year ending December 31, 2006 if the Company’s gross revenue for such fiscal year is greater
than $4,800,000. For each year thereafter during the term of this Agreement, the Company shall
pay Employee a bonus if the Company’s gross revenue for such fiscal year increased over the
Company’s gross revenue for the prior fiscal year. The amount of such bonus shall be equal to
two percent of any such increase in gross revenue, and shall be paid to Employee within 45 days
of the end of the fiscal year in which it was earned.

B. Net Revenue-Based Cash Bonus. In addition to the bonus specified in paragraph A,
above, the Company shall pay Employee a bonus for the fiscal year ending December 31, 2006 if
the Company’s net revenue for such fiscal year before deduction of taxes, depreciation and
amortization (hereinafter referred to as “Company Net Revenue”) is greater than $760,000. For
each year thereafter during the term of this Agreement, the Company shall pay Employee a
bonus if Company Net Revenue for such fiscal year increased over Company Net Revenue for
the prior fiscal year. The amount of such bonus shall be equal to five percent of any such
increase in Company Net Revenue, and shall be paid to Employee within 45 days of the end of
the fiscal year in which it was earned.

C. Acquisition-Based Stock Options Bonus. In addition to the cash bonuses specified in
paragraphs A and B, above, the Company shall pay Employee a bonus in the event the Company
acquires another hard rock drilling business by merger (provided the Company is the surviving
corporation), consolidation, or the purchase of all or substantially all of the assets of such
business. The amount of such bonus shall be equal to the greater of (i) five percent of the total
assets of the acquired business or (ii) five percent of the gross revenue of the acquired business
for the fiscal year immediately preceding the date of acquisition.

The bonus shall be paid to Employee within 45 days of the closing date of the acquisition
transaction either by (a) the issuance and delivery to Employee of shares of common stock of the
Company or (b) by the issuance and delivery to Employee of ten-year options to purchase
common stock of the Company, whichever Employee shall elect to receive.

Should Employee elect to receive shares of common stock of the Company in payment of the
bonus, the number of shares issuable and deliverable to him shall be determined by dividing the
amount of the bonus (namely, the greater of five percent of the total assets of the acquired
business or five percent of the gross revenue of the acquired business for the fiscal year
immediately preceding the date of acquisition) by the market value of the Company’s common
stock as of the end of the fiscal quarter immediately preceding the date the Company publicly

EMPLOYMENT AGREEMENT - 9

announces the acquisition upon which the bonus is predicated.

Should employee elect to receive stock options in payment of the bonus, such options shall be
exercisable at any time during such ten-year period at a price per share equal to the market price
of the Company’s common stock as of the end of the fiscal quarter immediately preceding the
date the Company publicly announces the acquisition upon which the bonus is predicated. The
number of stock options to be granted to Employee shall be determined by dividing the amount
of the bonus (namely, the greater of five percent of the total assets of the acquired business or
five percent of the gross revenue of the acquired business for the fiscal year immediately
preceding the date of acquisition) by the value of each option as of the date of grant. The value
of such option shall be the same value that the Company ascribes to such option as compensation
expense, determined in accordance with Financial Accounting Standard 123(R), Accounting for
Stock-Based Compensation.

EMPLOYMENT AGREEMENT - 10

Exhibit E to Stock Purchase and Sale Agreement

VOTING TRUST AGREEMENT

This Voting Trust Agreement (the "Agreement") is made and entered into as of
March 3, 2006 by and among Xxxxxxx Xxxxxx and Xxxxx Xxxxx (individually a “Selling
Stockholder“ and collectively the “Selling Stockholders”); Timberline Resources
Corporation (“Timberline Resources”), an Idaho corporation; and Xxxx Xxxxxxx, Xxxxxxx
Xxxx, Xxx Xxxxxxxxx, Xxxxx Xxxxxxxxxxx, Xxxx Xxxxxxx and Xxxx Xxxxxxxx (individually a
“Timberline Inside Stockholder” and collectively the “Timberline Inside Stockholders”).

RECITALS:

WHEREAS, Timberline Resources, Kettle Drilling, the Selling Stockholders and
the Timberline Inside Stockholders are parties to a Stock Purchase and Sale Agreement
dated February 23, 2006 (the “Purchase and Sale Agreement"); and

WHEREAS, certain of Timberline Resources’, Kettle Drillings’ and the Selling
Stockholders’ obligations under the Purchase and Sale Agreement are conditioned upon
the execution and delivery of this Agreement.

AGREEMENT:

NOW, THEREFORE, the parties hereto agree as follows:

1. Appointment of Voting Trustee for Timberline Inside Stockholders. The
Timberline Inside Stockholders each hereby irrevocably appoint Xxxx Xxxxxxx (the
“Timberline Inside Stockholders Voting Trustee”) as attorney and voting trustee of the
Timberline Inside Stockholders, and each of them, solely for the purposes of: (a)
attending any and all meetings of stockholders of Timberline Resources and (b) solely
with respect to the election of directors of Timberline Resources at any such meeting, to
vote all of the shares of common stock of the Timberline Inside Stockholders, and each of
them, for the election of the Selling Stockholders (or his or their respective designees, if
the Selling Stockholders or either of them are unable or unwilling to serve) as advisory
directors of Timberline Resources, in the same manner and with the same effect as if the
Timberline Inside Stockholders were personally present. It is specifically understood and
agreed that, with respect to any other matter submitted to the stockholders of Timberline
Resources for approval or consent, including the election of persons to serve as directors
of Timberline Resources, the Timberline Inside Stockholders Voting Trustee shall vote
all of the shares of common stock of the Timberline Inside Stockholders strictly in
accordance with the express written or oral instructions of such holders.

2. Appointment of Voting Trustee for Timberline Resources. Timberline
Resources hereby irrevocably appoints Xxxxx Xxxxx, with full power of substitution (the
“Timberline Resources Voting Trustee”) as attorney and voting trustee of Timberline

VOTING TRUST AGREEMENT - 1

Resources solely for the purposes of: (a) attending any and all meetings of stockholders
of Kettle Drilling; (b) with respect to the election of directors of Kettle Drilling at such
meeting, to vote all of the shares of common stock of Timberline Resources for the
election of the Selling Stockholders (or his or their respective designees, if the Selling
Stockholders or either of them are unable or unwilling to serve) as a directors Kettle
Drilling, in the same manner and with the same effect as if the Timberline Resources
were personally present; and (c) with respect to any other matter submitted to the
stockholders of Kettle Drilling for approval or consent, including the election of other
persons, if any, to Kettle Drilling’s board of directors, the Timberline Resources Voting
Trustee shall either (i) vote all of the shares of common stock of Timberline Resources
strictly in accordance with the express written or oral instructions of the Selling
Stockholders (or any surviving Selling Stockholder, if less than all of the Selling
Stockholders are then living) or (ii) with the prior written approval of the Selling
Stockholders (or any surviving Selling Stockholder, if less than all of the Selling
Stockholders are then living), cede the right to vote all of the shares of common stock of
Timberline Resources to Timberline Resources for such purpose or purposes.

3. Duration. The rights granted to the Timberline Inside Stockholders Voting
Trustee and the Timberline Resources Voting Trustee hereunder are irrevocable and shall
continue in full force and effect until the later of: (a) such time as the Selling Stockholders
(or their heirs and successors) cease to own any shares of Series A Preferred Stock of
Timberline Resources; or (ii) if the Series A Preferred Stock has theretofore been converted
into shares of Timberline Resources common stock, such time as the Selling Stockholders
(or their heirs and successors) cease to own less than ten percent of the number of such
shares of Timberline Resources common stock into which the Series A Stock was initially
converted; provided, however, that in no event shall the rights granted to the Timberline
Inside Stockholders Voting Trustee and the Timberline Resources Voting Trustee
hereunder continue in effect beyond March __, 2016, being ten years from the date of this
Agreement.

[The balance of this page has been left blank intentionally.]

VOTING TRUST AGREEMENT - 2

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.

VOTING TRUST AGREEMENT - 3

Exhibit G-1 to Amendment

PROMISSORY NOTE

$300,000 March 3, 2006 Spokane, Washington

Timberline Resources Corporation, an Idaho corporation having its principal
offices at 00 Xxxx 00^xx Xxxxxx, Xxxxxxx, Xxxxxxxxxx 00000 (hereinafter referred to as
“Maker”) promises to pay to Xxxxxxx Xxxxxx, whose address is 0000 Xxxx Xxxxxxxxx,
Xxxxxx, Xxxxx 00000, or his assigns (hereinafter referred to as “Holder”) the principal
sum of $300,000 upon the terms and subject to the conditions of this promissory note
("Note"):

1. Interest. All sums owing on this Note shall bear interest from the date set
forth above until paid, at a rate of interest equal to the prime rate of interest from time-to-
time published in the Wall Street Journal plus three percent, such rate to be adjusted as of
the date any change in such prime rate is announced. As of the date of this Note, such rate
of interest, as hereinabove determined, is ten and one-half percent. Upon the occurrence of
an Event of Default and expiration of the applicable Cure Period, all sums owing on this
Note shall bear interest at the rate of interest otherwise payable on this Note plus four
percent (the "Default Rate") for so long as the Event of Default continues. All computations
of interest shall be based on a 360-day year for the actual number of days elapsed.

2. Payment. Maker shall pay Holder the principal of, and interest on, this
Note in one single installment on or before September 1, 2006.

3. Acceleration in the Event of Sale of Business. The provisions of Section
2 notwithstanding, all amounts payable under this Note shall become immediately due
and payable, at Holder’s election, in the event all or substantially all of the assets of
Maker are sold other than in the ordinary course of business, or in the event Maker
merges or consolidates with or into another business entity in which Maker is not the
surviving entity.

4. Notice of Event of Default; Cure. Upon the occurrence of an Event of
Default, Holder shall give Notice of the Event of Default to Maker, and Maker shall have
the right to cure such Event of Default within the applicable Cure Period. If Maker fails
to cure the Event of Default within the applicable Cure Period, or is prohibited from
doing so, then Holder may accelerate all amounts owing on this Note. Such accelerated
amounts shall become immediately due and payable. If Holder accelerates the amounts
due under this Note, Holder shall have the right to pursue any or all of the remedies
available to it, including, but not limited to, the right to bring suit on this Note.

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 1

As used herein, the term “Event of Default” means:

(a) if any payment due under the Note is not paid within five (5) days of
the date upon which such payment was due.

(b) if any of the following shall occur:

(i) Maker becomes insolvent, makes a transfer in fraud to or an
assignment for the benefit of creditors, or admits in writing his inability to
pay their debts as they become due;

(ii) A receiver, custodian, liquidator or trustee is applied for by
Maker, or is appointed for all or substantially all of the assets of Maker, or
any such receiver, custodian, liquidator or trustee is appointed in any
proceeding brought against Maker, and such appointment is not contested
or is not dismissed or discharged within 60 days after such appointment,
or Maker acquiesces in such appointment;

(iii) Maker files a petition for relief under the federal
Bankruptcy Code, as amended, or under any similar law or statute of the
United States or any state thereof, or Maker seeks to take advantage of any
insolvency law;

(iv) A petition against Maker is filed commencing an involuntary
case under any present or future federal or state bankruptcy or similar law,
and such petition is not dismissed or discharged within 60 days of filing; or

(v) Substantially all of the assets of Maker are sold or otherwise
transferred.

As used herein, the term “Cure Period” means the period of time Maker shall have to cure
an Event of Default. If the Event of Default is a monetary default, the Cure Period shall be
five (5) days from the date Maker first receives notice of such Event of Default. If the Event
of Default is other than a monetary default, the Cure Period shall be ten (10) days from the
date Borrower first receives such notice. As used herein, a "monetary default" means a
failure by Borrower to make any payment required of it by the Note. If a default other than
a monetary default is capable of being cured and the cure cannot reasonably be completed
within the ten (10) day Cure Period, the Cure Period shall be extended to up to fifteen (15)
days so long as Maker has commenced action to cure within such initial ten (10) day period
and, in Holder's judgment, Maker is proceeding to cure the default with due diligence. The
foregoing shall not be construed to obligate Lender to forebear in any other manner from
exercising its remedies.

5. Remedies. Upon the occurrence of an Event of Default and expiration of
the applicable Cure Period, Holder shall have all rights available to it at law or in equity,
including all rights available to it under the Idaho Uniform Commercial Code. Any

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 2

unpaid balance outstanding at such time, and any costs or other expenses incurred by
Holder in realizing on this Note, shall bear interest at the Default Rate for so long as the
Event of Default has not been cured and is continuing. All rights and remedies granted
under this Note shall be deemed cumulative and not exclusive of any other right or
remedy available to Holder.

6. Attorneys' Fees, Costs, and Other Expenses. Maker agrees to pay all
costs and expenses which Holder may incur by reason of any Event of Default, including,
but not limited to, reasonable attorneys' fees, expenses, and costs incurred in any action
undertaken with respect to this Note, or the appeal of any such action. Any judgment
recovered by Holder shall bear interest at the statutory rate of interest then in effect.

7. Transfer; Obligations Binding on Successors. Maker may not transfer
any of its rights, duties or obligations under this Note without the prior written consent of
Holder. This Note, and the duties set forth in the Note, shall bind Maker and his heirs
and successors. All rights and powers established in this Note shall benefit Holder and
his heirs and successors.

8. Notices. Any notice, consent or other communication required or
permitted under this Note shall be in writing and shall be deemed to have been duly given
or made either (a) when delivered personally to the party to whom it is directed (or any
officer or agent of such party) or (b) three days after being deposited in the United States'
certified or registered mail, postage prepaid, return receipt requested, and properly
addressed to Maker or to Holder, at their respective addresses set forth above or at such
other address as Maker or Holder shall have provided to the other.

9. Governing Law. This Note will be construed and the rights, duties, and
obligations of the parties will be determined in accordance with the laws of the state of
Idaho and the federal laws of the United States of America.

10. Headings. Headings used in this Note have been included for
convenience and ease of reference only, and will not in any manner influence the
construction or interpretation of any provision of this Note.

11. Waiver. No right or obligation under this Note will be deemed to have
been waived unless evidenced by a writing signed by the party against whom the waiver
is asserted, or by its duly authorized representative. Any waiver will be effective only
with respect to the specific instance involved, and will not impair or limit the right of the
waiving party to insist upon strict performance of the right or obligation on any other
instance, in any other respect, or at any other time. No failure on the part of Holder to
exercise, and no delay in exercising, any right or obligation under this Note shall operate
as a waiver thereof.

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 3

12. Severability. The parties intend that this Note be enforced to the greatest
extent permitted by applicable law. If any provision of this Note, on its face or as applied
to any person or circumstances, is or becomes unenforceable to any extent, the remainder
of this Note and the application of that provision to other persons, circumstances or
extent, will not be impaired.

13. References. Except as otherwise specifically indicated, all references in
this Note to numbered or lettered sections or subsections refer to sections or subsections
of this Note. All references to this Note include any subsequent amendments to the Note.

14. Venue. Maker agrees that any action on this Note action may, in the
discretion of Holder, be brought in Kootenai County, Idaho. Maker hereby consents to the
exclusive personal jurisdiction of the District Court of Kootenai County and the United
States District Court for the District of Idaho.

17. Maximum Interest. Notwithstanding any other provisions of this Note,
any interest, fees, or charges payable by reason of the indebtedness evidenced by this
Note shall not exceed the maximum permitted by law.

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 4

Exhibit G-2 to Amendment

PROMISSORY NOTE

$100,000 March 3, 2006 Spokane, Washington

Timberline Resources Corporation, an Idaho corporation having its principal
offices at 00 Xxxx 00^xx Xxxxxx, Xxxxxxx, Xxxxxxxxxx 00000 (hereinafter referred to as
“Maker”) promises to pay to Xxxxx Xxxxx and Xxxxxxxx Xxxxx, husband and wife, whose
address is 0000 Xxxx Xxxxxxxxx, Xxxxxx, Xxxxx 00000, or their assigns (hereinafter
referred to as “Holder”) the principal sum of $100,000 upon the terms and subject to the
conditions of this promissory note ("Note"):

1. Interest. All sums owing on this Note shall bear interest from the date set
forth above until paid, at a rate of interest equal to the prime rate of interest from time-to-
time published in the Wall Street Journal plus three percent, such rate to be adjusted as of
the date any change in such prime rate is announced. As of the date of this Note, such rate
of interest, as hereinabove determined, is ten and one-half percent. Upon the occurrence of
an Event of Default and expiration of the applicable Cure Period, all sums owing on this
Note shall bear interest at the rate of interest otherwise payable on this Note plus four
percent (the "Default Rate") for so long as the Event of Default continues. All computations
of interest shall be based on a 360-day year for the actual number of days elapsed.

2. Payment. Maker shall pay Holder the principal of, and interest on, this
Note in one single installment on or before September 1, 2006.

3. Acceleration in the Event of Sale of Business. The provisions of Section
2 notwithstanding, all amounts payable under this Note shall become immediately due
and payable, at Holder’s election, in the event all or substantially all of the assets of
Maker are sold other than in the ordinary course of business, or in the event Maker
merges or consolidates with or into another business entity in which Maker is not the
surviving entity.

4. Notice of Event of Default; Cure. Upon the occurrence of an Event of
Default, Holder shall give Notice of the Event of Default to Maker, and Maker shall have
the right to cure such Event of Default within the applicable Cure Period. If Maker fails
to cure the Event of Default within the applicable Cure Period, or is prohibited from
doing so, then Holder may accelerate all amounts owing on this Note. Such accelerated
amounts shall become immediately due and payable. If Holder accelerates the amounts
due under this Note, Holder shall have the right to pursue any or all of the remedies
available to it, including, but not limited to, the right to bring suit on this Note.

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 1

As used herein, the term “Event of Default” means:

(a) if any payment due under the Note is not paid within five (5) days of
the date upon which such payment was due.

(b) if any of the following shall occur:

(i) Maker becomes insolvent, makes a transfer in fraud to or an
assignment for the benefit of creditors, or admits in writing his inability to
pay their debts as they become due;

(ii) A receiver, custodian, liquidator or trustee is applied for by
Maker, or is appointed for all or substantially all of the assets of Maker, or
any such receiver, custodian, liquidator or trustee is appointed in any
proceeding brought against Maker, and such appointment is not contested
or is not dismissed or discharged within 60 days after such appointment,
or Maker acquiesces in such appointment;

(iii) Maker files a petition for relief under the federal
Bankruptcy Code, as amended, or under any similar law or statute of the
United States or any state thereof, or Maker seeks to take advantage of any
insolvency law;

(iv) A petition against Maker is filed commencing an involuntary
case under any present or future federal or state bankruptcy or similar law,
and such petition is not dismissed or discharged within 60 days of filing; or

(v) Substantially all of the assets of Maker are sold or otherwise
transferred.

As used herein, the term “Cure Period” means the period of time Maker shall have to cure
an Event of Default. If the Event of Default is a monetary default, the Cure Period shall be
five (5) days from the date Maker first receives notice of such Event of Default. If the Event
of Default is other than a monetary default, the Cure Period shall be ten (10) days from the
date Borrower first receives such notice. As used herein, a "monetary default" means a
failure by Borrower to make any payment required of it by the Note. If a default other than
a monetary default is capable of being cured and the cure cannot reasonably be completed
within the ten (10) day Cure Period, the Cure Period shall be extended to up to fifteen (15)
days so long as Maker has commenced action to cure within such initial ten (10) day period
and, in Holder's judgment, Maker is proceeding to cure the default with due diligence. The
foregoing shall not be construed to obligate Lender to forebear in any other manner from
exercising its remedies.

5. Remedies. Upon the occurrence of an Event of Default and expiration of
the applicable Cure Period, Holder shall have all rights available to it at law or in equity,
including all rights available to it under the Idaho Uniform Commercial Code. Any

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 2

unpaid balance outstanding at such time, and any costs or other expenses incurred by
Holder in realizing on this Note, shall bear interest at the Default Rate for so long as the
Event of Default has not been cured and is continuing. All rights and remedies granted
under this Note shall be deemed cumulative and not exclusive of any other right or
remedy available to Holder.

6. Attorneys' Fees, Costs, and Other Expenses. Maker agrees to pay all
costs and expenses which Holder may incur by reason of any Event of Default, including,
but not limited to, reasonable attorneys' fees, expenses, and costs incurred in any action
undertaken with respect to this Note, or the appeal of any such action. Any judgment
recovered by Holder shall bear interest at the statutory rate of interest then in effect.

7. Transfer; Obligations Binding on Successors. Maker may not transfer
any of its rights, duties or obligations under this Note without the prior written consent of
Holder. This Note, and the duties set forth in the Note, shall bind Maker and his heirs
and successors. All rights and powers established in this Note shall benefit Holder and
his heirs and successors.

8. Notices. Any notice, consent or other communication required or
permitted under this Note shall be in writing and shall be deemed to have been duly given
or made either (a) when delivered personally to the party to whom it is directed (or any
officer or agent of such party) or (b) three days after being deposited in the United States'
certified or registered mail, postage prepaid, return receipt requested, and properly
addressed to Maker or to Holder, at their respective addresses set forth above or at such
other address as Maker or Holder shall have provided to the other.

9. Governing Law. This Note will be construed and the rights, duties, and
obligations of the parties will be determined in accordance with the laws of the state of
Idaho and the federal laws of the United States of America.

10. Headings. Headings used in this Note have been included for
convenience and ease of reference only, and will not in any manner influence the
construction or interpretation of any provision of this Note.

11. Waiver. No right or obligation under this Note will be deemed to have
been waived unless evidenced by a writing signed by the party against whom the waiver
is asserted, or by its duly authorized representative. Any waiver will be effective only
with respect to the specific instance involved, and will not impair or limit the right of the
waiving party to insist upon strict performance of the right or obligation on any other
instance, in any other respect, or at any other time. No failure on the part of Holder to
exercise, and no delay in exercising, any right or obligation under this Note shall operate
as a waiver thereof.

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 3

12. Severability. The parties intend that this Note be enforced to the greatest
extent permitted by applicable law. If any provision of this Note, on its face or as applied
to any person or circumstances, is or becomes unenforceable to any extent, the remainder
of this Note and the application of that provision to other persons, circumstances or
extent, will not be impaired.

13. References. Except as otherwise specifically indicated, all references in
this Note to numbered or lettered sections or subsections refer to sections or subsections
of this Note. All references to this Note include any subsequent amendments to the Note.

14. Venue. Maker agrees that any action on this Note action may, in the
discretion of Holder, be brought in Kootenai County, Idaho. Maker hereby consents to the
exclusive personal jurisdiction of the District Court of Kootenai County and the United
States District Court for the District of Idaho.

17. Maximum Interest. Notwithstanding any other provisions of this Note,
any interest, fees, or charges payable by reason of the indebtedness evidenced by this
Note shall not exceed the maximum permitted by law.

AMENDMENT TO STOCK PURCHASE
AND SALE AGREEMENT - 4