STOCK PURCHASE AND SALE AGREEMENT

Exhibit 10.17

 

 

STOCK PURCHASE AND SALE AGREEMENT
by and among
TIMBERLINE RESOURCES CORPORATION
(an Idaho corporation),
THE SHAREHOLDERS OF KETTLE DRILLING, INC. LISTED ON THE
SIGNATURE PAGE HEREOF
and
THE SHAREHOLDERS OF TIMBERLINE RESOURCES CORPORATION LISTED ON THE 
SIGNATURE PAGE HEREOF
 
Dated as of February 23, 2006

 

 

 

 

 

 


Table Of Contents
        Page 
 
1.    STOCK PURCHASE AND SALE    1 
1.1                       Purchase and Sale of the Kettle Drilling Shares    1 
1.2                       Purchase Price of the Kettle Drilling Shares    1 
1.3                       The Closing    2 
1.4                       Closing Deliveries    2 
1.5                       Charter Documents, Boards of Directors and Officers of Kettle Drilling and     
                       Timberline Resources following Closing, and Voting Trust Agreement    3 
 
2.    REPRESENTATIONS AND WARRANTIES OF KETTLE DRILLING AND THE     
    SELLING STOCKHOLDERS    3 
2.1                       Organization, Good Standing and Qualification    3 
2.2                       Authorization    4 
2.3                       Governmental Consents    4 
2.4                       Capitalization    4 
2.5                       Subsidiaries    4 
2.6                       Contracts and Other Commitments    4 
2.7                       Permits    5 
2.8                       Compliance with Other Instruments    5 
2.9                       Title to Property and Assets; Leases    5 
2.10                       Material Liabilities    5 
2.11                       Litigation    5 
2.12                       Financial Statements and Changes    5 
2.13                       Intellectual Property    7 
2.14                       Employees; Employee Compensation    8 
2.15                       Employee Benefit Plans    8 
2.16                       Tax Returns, Payments and Elections    8 
2.17                       Insurance    8 
2.18                       Environmental and Safety Laws    8 
2.19                       Transactions with Affiliates    9 
2.20                       Corporate Records    9 
2.21                       No Broker's or Finder's Fees    9 
2.22                       Disclosure    9 
2.23                       Selling Stockholder Authorizations    9 
 
3.    REPRESENTATIONS AND WARRANTIES OF TIMBERLINE RESOURCES AND THE 
    TIMBERLINE INSIDE STOCKHOLDERS    9 
3.1                       Organization, Good Standing and Qualification    9 
3.2                       Authorization    10 
3.3                       Valid Issuance of Series A Stock and Common Stock    10 
 
(ii)

3.4                       Governmental Consents    10 
3.5                       Capitalization    10 
3.6                       Subsidiaries    11 
3.7                       Contracts and Other Commitments    11 
3.8                       Permits    11 
3.9                       Compliance with Other Instruments    11 
3.10                       Title to Property and Assets; Leases    12 
3.11                       Material Liabilities    12 
3.12                       Litigation    12 
3.13                       Financial Statements and Changes    12 
3.14                       Intellectual Property    14 
3.15                       Employees; Employee Compensation    14 
3.16                       Employee Benefit Plans    15 
3.17                       Tax Returns, Payments and Elections    15 
3.18                       Insurance    15 
3.19                       Environmental Laws    15 
3.20                       Transactions with Affiliates    18 
3.21                       Corporate Records    18 
3.22                       No Broker's or Finder's Fees    18 
3.23                       Disclosure    18 
3.24                       Receipt of Information    18 
3.25                       Investment Experience and Financial Capability    18 
3.26                       Purchase Entirely for Own Account    19 
3.27                       Securities Act Exemption    19 
3.28                       Timberline Inside Stockholder Authorizations    19 
 
4.    PRE-CLOSING COVENANTS    19 
4.1                       Investigations    19 
4.2                       Operation of Kettle Drilling and Timberline Resources    20 
4.3                       Press Releases and Other Communications    21 
4.4                       Exclusivity    22 
 
5.    CONDITIONS OF TIMBERLINE RESOURCES' OBLIGATIONS AT CLOSING    22 
5.1                       Representations and Warranties    22 
5.2                       Performance    22 
5.3                       Qualifications    22 
5.4                       Proceedings and Documents    23 
5.5                       No Adverse Proceeding    23 
5.6                       Board Approvals    23 
5.7                       No Material Adverse Change    23 
5.8                       Good Standing Certificate    23 
5.9                       Opinion of Kettle Drilling's and Selling Stockholders' Counsel    23 
 
(iii)

5.9                       Approval of Counsel    23 
 
6.    CONDITIONS OF KETTLE DRILLING'S AND THE SELLING STOCKHOLDERS'     
    OBLIGATIONS AT CLOSING    23 
6.1                       Representations and Warranties    24 
6.2                       Performance    24 
6.3                       Qualifications    24 
6.4                       Proceedings and Documents    24 
6.5                       Series A Stock Resolution    24 
6.6                       Payment of Purchase Price    24 
6.7                       Registration Rights Agreement    24 
6.8                       Employment Agreements    24 
6.9                       Voting Trust Agreement    24 
6.10                       Opinion of Timberline Resources' Counsel    24 
6.11                       No Adverse Proceeding    25 
6.12                       Board Approvals    25 
6.13                       No Material Adverse Change    25 
6.14                       Good Standing Certificate    25 
6.15                       Approval of Counsel    25 
 
7.    TERMINATION OF AGREEMENT AND ABANDONMENT OF TRANSACTION    25 
7.1                       Mutual Consent    25 
7.2                       Termination by Timberline Resources    25 
7.3                       Termination by Kettle Drilling or the Selling Stockholders    25 
7.4                       Expiration Date    26 
7.5                       Effect of Termination    26 
7.6                       Waiver of Conditions    26 
 
8.    TIMBERLINE RESOURCES' POST-CLOSING COVENANTS AND INDEMNITIES    26 
 
9.    MISCELLANEOUS PROVISIONS    27 
9.1                       Entire Agreement    27 
9.2                       Survival of Warranties    27 
9.3                       Successors and Assigns    27 
9.4                       Governing Law    27 
9.5                       Arbitration    27 
9.6                       Counterparts    28 
9.7                       Titles and Subtitles    28 
9.8                       Notices    28 
9.9                       Expenses    29 
9.10                       Severability    29 
 
 
(iv)

SIGNATURE PAGE                                                                                                                               30 
 
SCHEDULE A    Kettle Drilling Schedule of Exceptions 
SCHEDULE B    Timberline Resources Schedule of Exceptions 
 
EXHIBIT A    Selling Stockholder Information 
EXHIBIT B    Series A Preferred Stock Resolution 
EXHIBIT C    Registration Rights Agreement 
EXHIBIT D    Forms of Kettle Employment Agreement and Deeds Employment Agreement 
EXHIBIT E    Form of Voting Trust Agreement 
EXHIBIT F    Forms of Opinion of Kettle Drilling’s Counsel and Opinion of Timberline 
    Resources’ Counsel 

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

 

 

 

 

 

 

 

 

 

 

 

 


(v)

STOCK PURCHASE AND SALE AGREEMENT

THIS STOCK PURCHASE AND SALE AGREEMENT (the “Agreement”) is made as of
the 23rd day of February 2006, 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, the Selling Stockholders own all of the issued and outstanding shares of capital
stock of Kettle Drilling beneficially and of record; and

WHEREAS, the Timberline Inside Stockholders own approximately 52 percent of the issued
and outstanding shares of common stock of Timberline Resources; and

WHEREAS, the board of directors of Timberline Resources and the Timberline Inside
Stockholders deem it advisable and in Timberline Resources’ best interests that Timberline
Resources acquire all of the issued and outstanding capital stock of Kettle Drilling owned by the
Selling Stockholders; and

WHEREAS, the Selling Stockholders deem it advisable and in their best interests to sell all
of the issued and outstanding capital stock of Kettle Drilling to Timberline Resources.

AGREEMENT:

NOW, THEREFORE, in consideration of the premises and of the mutual agreements,
representations, warranties, provisions and covenants herein contained, the parties hereto hereby
agree as follows:

1. Stock Purchase and Sale.

1.1 Purchase and Sale of the Kettle Drilling Shares. Subject to the terms and
conditions of this Agreement, Timberline Resources agrees to purchase at the Closing (as
defined below) and the Selling Stockholders agree to sell to Timberline Resources at the Closing
102 shares of common stock of Kettle Drilling, par value $1.00 per share, comprising all of the
issued and outstanding capital stock of Kettle Drilling (the “Kettle Drilling Shares”). The
number of Kettle Drilling Shares owned by each Selling Stockholder is set forth in Exhibit A to
this Agreement.

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, which shall be
payable to the Selling Stockholders at Closing, as follows:

STOCK PURCHASE AND SALE AGREEMENT - 1

(a) $2,800,000 of the Purchase Price shall be payable to the Selling
Stockholders 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.

(b) $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.

1.3 The Closing. The purchase and sale of the Purchased Kettle Drilling Shares and
the execution and delivery of the Option Agreement shall take place at the offices of Xxxxxxx &
Danskin, P.S., Spokane, Washington, at 10 a.m. a.m., on March 1, 2006, or at such other time
(which shall in no event be later than March 6, 2006) as Timberline Resources, Kettle Drilling,
the Selling Stockholders and the Timberline Inside Stockholders may agree (which time and
place are designated as the "Closing").

1.4 Closing Deliveries.

(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, and (ii) if a
Selling Stockholder has elected to receive shares of Series A Stock in payment of a
portion of the Purchase Price, by delivery of a certificate or certificates for such shares.

(b) At the Closing, each Selling Stockholder shall deliver to Timberline
Resources a stock certificate or certificates, duly endorsed for transfer to Timberline
Resources, comprising all of such Selling Stockholder’s Kettle Drilling Shares.

(c) In addition, the parties thereto shall each execute and deliver the
Registration Rights Agreement in the form that is annexed to and made a part of this
Agreement as Exhibit C (the “Registration Rights Agreement”), an employment
agreement providing for the post-Closing employment of Xxxxxxx Xxxxxx in the form that
is annexed to and made a part of this Agreement as Exhibit D-1 (the “Kettle Employment
Agreement”), an employment agreement providing for the post-Closing employment of
Xxxxx Xxxxx in the form that is annexed to made a part of this Agreement as Exhibit D-2

STOCK PURCHASE AND SALE AGREEMENT - 2

(the “Deeds Employment Agreement”), and the voting trust agreement in the form that is
annexed to and made a part of this Agreement as Exhibit E (the “Voting Trust
Agreement”).

1.5 Charter Documents, Boards of Directors and Officers of Kettle Drilling and
Timberline Resources following Closing, and Voting Trust Agreement. At Closing:

(a) the certificate and articles of incorporation of Kettle Drilling and
Timberline Resources as in effect immediately prior to the Closing shall remain in effect
until thereafter duly amended;

(b) the bylaws of Kettle Drilling and Timberline Resources as in effect
immediately prior to the Closing shall remain in effect until thereafter duly amended;

(c) the directors of Kettle Drilling shall consist of Xxxxxxx Xxxxxx, Xxxxx
Xxxxx, and two persons designated by Timberline Resources (who shall also be directors of
Timberline Resources), who shall serve until their successors are elected and qualified. The
officers of Kettle Drilling immediately prior to the Closing shall serve in the same capacities
until their successors are elected and qualified;

(d) Xxxxxxx Xxxxxx and Xxxxx Xxxxx shall be appointed advisory directors
of Timberline Resources, to serve in such unofficial capacities until the later of: (i) such
time as the Selling Stockholders (or their heirs or successors) cease to own any shares of
Series A Stock; or (ii) if the Series A Stock has theretofore been converted into shares of
Timberline Resources common stock as provided in the Resolution, such time as the Selling
Stockholders (or their heirs or 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 could
have been converted as of the Closing.

2. Representations and Warranties of Kettle Drilling and the Selling Stockholders.

Kettle Drilling and the Selling Stockholders hereby jointly and severally represent and
warrant to Timberline Resources that, as of the date of this Agreement and except as set forth on
the Schedule of Exceptions annexed hereto as Schedule A:

2.1 Organization, Good Standing and Qualification. Kettle Drilling is a corporation
duly organized, validly existing, and in good standing under the laws of the State of Idaho.
Kettle Drilling has all requisite corporate power and authority to own and operate its properties
and assets, and to carry on its business as now conducted and as presently proposed to be
conducted, to execute and deliver this Agreement and any other agreement to which Kettle
Drilling is a party, the execution and delivery of which is contemplated hereby (each a "Kettle
Drilling Ancillary Agreement"), and to carry out the provisions of this Agreement and any Kettle

STOCK PURCHASE AND SALE AGREEMENT - 3

Drilling Ancillary Agreement. Kettle Drilling is qualified to do business as a foreign corporation
in every jurisdiction in which the failure to so qualify would have a material adverse effect on
Kettle Drilling.

2.2 Authorization. All corporate action on the part of Kettle Drilling, its officers,
directors and stockholders necessary for the authorization, execution and delivery of this
Agreement and any Kettle Drilling Ancillary Agreement, and the performance of all obligations
of Kettle Drilling hereunder and thereunder at the Closing, has been taken or will be taken prior
to the Closing, and this Agreement and any Kettle Drilling Ancillary Agreement, when executed
and delivered, will constitute valid and legally binding obligations of Kettle Drilling, enforceable
in accordance with their respective terms.

2.3 Governmental Consents. No consent, approval, qualification, order or
authorization of, or filing with, any local, state, or federal governmental authority is required on
the part of Kettle Drilling in connection with Kettle Drilling’s valid execution, delivery and
performance of this Agreement.

2.4 Capitalization. The authorized capital of Kettle Drilling consists, or will consist
immediately prior to the Closing, of 20,000 shares of common stock, par value $1.00 per share,
of which 102 shares are or will be issued and outstanding. The outstanding shares of Kettle
Drilling common stock are owned by the individuals and in the amounts set forth in Exhibit A.
The outstanding shares of Kettle Drilling common stock have been duly authorized and validly
issued, are fully paid and nonassessable, and were issued in accordance with the registration or
qualification provisions of federal and state securities laws, or pursuant to valid exemptions
therefrom. There are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements or agreements of
any kind for the purchase of Kettle Drilling common stock.

2.5 Subsidiaries. Kettle Drilling does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company, association, or other
business entity. Kettle Drilling is not a participant in any joint venture, partnership, or similar
arrangement.

2.6 Contracts and Other Commitments. Kettle Drilling does not have and is not
bound by any contract, agreement, lease, commitment, or proposed transaction, judgment, order,
writ or decree, written or oral, absolute or contingent, other than (a) contracts that were entered
into in the ordinary course of business and that do not involve more than $50,000, and do not
extend for more than one year beyond the date of this Agreement, and (b) contracts terminable at
will by Kettle Drilling on no more than 30 days' notice without cost or liability to Kettle Drilling
and that do not involve any employment or consulting arrangement and are not material to the
conduct of Kettle Drilling’s business.

STOCK PURCHASE AND SALE AGREEMENT - 4

2.7 Permits. To the best of Kettle Drilling’s and the Selling Stockholders’
knowledge, Kettle Drilling has all franchises, permits, licenses, and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects, or financial condition of
Kettle Drilling. Kettle Drilling believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as presently planned to be conducted. Kettle
Drilling is not in default in any material respect under any of such franchises, permits, licenses or
other similar authority.

2.8 Compliance with Other Instruments. Kettle Drilling is not in violation or default
in any material respect of any provision of its articles of incorporation or bylaws, or in any
respect of any provision of any mortgage, indenture, agreement, instrument or contract to which
it is a party or by which it is bound or, to its knowledge, of any federal or state judgment, order,
writ, decree, statute, rule, regulation or restriction applicable to Kettle Drilling. The execution,
delivery, and performance by Kettle Drilling of this Agreement and any Kettle Drilling Ancillary
Agreement, and the consummation of the transactions contemplated hereby and thereby, will not
result in any such violation or be in material conflict with or constitute, with or without the
passage of time or giving of notice, either a material default under any such provision or an event
that results in the creation of any material lien, charge, or encumbrance upon any assets of Kettle
Drilling or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization, or approval applicable to Kettle Drilling, its business or
operations, or any of its assets or properties.

2.9 Title to Property and Assets; Leases. Kettle Drilling has good and marketable
title to its property and assets (including Kettle Drilling’s intellectual property), free and clear of
all mortgages, liens, claims and encumbrances. With respect to the property and assets it leases,
Kettle Drilling is in compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims, or encumbrances.

2.10 Material Liabilities. Kettle Drilling does not have any material liabilities. As
used herein, the term “material liabilities” shall mean liabilities, absolute, accrued, contingent or
otherwise, which are, individually or in the aggregate, in excess of ten percent of the value of
Kettle Drilling’s assets as of December 31, 2005.

2.11 Litigation. There is no action, suit, proceeding, or investigation pending or, to
Kettle Drilling's knowledge, currently threatened against Kettle Drilling.

2.12 Financial Statements and Changes. Kettle Drilling has delivered (or prior to
Closing will deliver) its unaudited financial statements for the fiscal year ended December 31,
2005 (the “Kettle Drilling Financial Statements”) to Timberline Resources. Timberline
Resources and the Timberline Inside Stockholders each understand and hereby acknowledge that
Kettle Drilling has prepared the Kettle Drilling Financial Statements for internal purposes only,
that such financial statements have not been prepared in accordance with generally accepted

STOCK PURCHASE AND SALE AGREEMENT - 5

accounting principles (“GAAP”), and that such financial statements cannot be consolidated with
the financial statements of Timberline Resources following Closing in the absence of an audit
conducted in accordance with GAAP. To the best of Kettle Drilling’s knowledge, since
December 31, 2005, there has not been:

(a) any change in the assets, liabilities, financial condition, or operating
results of Kettle Drilling, except changes in the ordinary course of business that have not
been and are not expected to be, individually or in the aggregate, materially adverse;

(b) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the business, properties, prospects, or financial
condition of Kettle Drilling (as such business is presently conducted and as it is presently
proposed to be conducted);

(c) any waiver or compromise by Kettle Drilling of a valuable right or of a
material debt owed to it;

(d) any satisfaction or discharge of any lien, claim, or encumbrance or
payment of any obligation by Kettle Drilling, except in the ordinary course of business
and that is not material to the business, properties, prospects, or financial condition of
Kettle Drilling as such business is presently conducted and as it is presently proposed to
be conducted;

(e) any material change to a material contract or arrangement by which Kettle
Drilling or any of its assets is bound or subject;

(f) any material change in any compensation arrangement or agreement with
any employee, officer, director or stockholder;

(g) any sale, assignment, or transfer of any patents, trademarks, copyrights,
trade secrets, or other intangible assets;

(h) any resignation or termination of employment of any key officer of Kettle
Drilling; and Kettle Drilling, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;

(i) any mortgage, pledge, transfer of a security interest in, or lien, created by
Kettle Drilling with respect to any of its material properties or assets, except liens for
taxes not yet due or payable or contested by Kettle Drilling in good faith;

STOCK PURCHASE AND SALE AGREEMENT - 6

(j) any loans or guarantees made by Kettle Drilling to or for the benefit of its
employees, stockholders, officers, or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary course of its
business;

(k) any declaration, setting aside, or payment of any dividend or other
distribution of Kettle Drilling’s assets in respect of any of Kettle Drilling’s capital stock,
or any direct or indirect redemption, purchase, or other acquisition of any of such stock
by Kettle Drilling;

(l) to the best of Kettle Drilling’s knowledge, any other event or condition of
any character that might materially and adversely affect the business, properties,
prospects or financial condition of Kettle Drilling (as such business is presently
conducted and as it is presently proposed to be conducted); or

(m) any agreement or commitment by Kettle Drilling to do any of the things
described in this subsection 2.12.

2.13 Intellectual Property. Kettle Drilling owns or possesses sufficient legal rights to
all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, and proprietary rights and processes, if any, necessary for its business as now
conducted and as proposed to be conducted, without any conflict with, or infringement of the
rights of, others. There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is Kettle Drilling bound by or a party to any options, licenses, or
agreements of any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, and proprietary rights and processes of any other
person or entity. Kettle Drilling has not received any communications alleging that it has
violated or, by conducting its business as proposed, would violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of
any other person or entity. To Kettle Drilling’s knowledge, none of its employees is obligated
under any contract (including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree, or order of any court or administrative agency,
that would interfere with the use of such employee's best efforts to promote the interests of
Kettle Drilling or that would conflict with Kettle Drilling's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor the carrying on of Kettle Drilling’s
business as presently conducted and as presently proposed to be conducted will, to Kettle
Drilling’s knowledge, conflict with or result in a breach of the terms, conditions, or provisions
of, or constitute a default under, any contract, covenant, or instrument under which any of such
employees is now obligated. Kettle Drilling does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire) made prior to their
employment by Kettle Drilling. All right, title and interest to any inventions by any of Kettle
Drilling’s employees that are used in Kettle Drilling’s operations have been assigned to Kettle
Drilling without reservation.

STOCK PURCHASE AND SALE AGREEMENT - 7

2.14 Employees; Employee Compensation. None of Kettle Drilling's employees
belongs to any union or collective bargaining unit. Kettle Drilling has complied in all material
respects with all applicable state and federal equal opportunity and other laws related to
employment. To Kettle Drilling’s knowledge, no employee of Kettle Drilling is or will be in
violation of any judgment, decree, or order, or any term of any employment contract, patent
disclosure agreement, or other contract or agreement relating to the relationship of any such
employee with Kettle Drilling, or any other party because of the nature of the business conducted
or presently proposed to be conducted by Kettle Drilling. Kettle Drilling is not a party to or
bound by any employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation agreement.
Kettle Drilling is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with Kettle Drilling, nor does Kettle Drilling
have a present intention to terminate the employment of any of the foregoing.

2.15 Employee Benefit Plans. Kettle Drilling maintains customary employee benefit
plans for an entity of its size, type and stage, and has provided Timberline Resources with any
information it has reasonably requested regarding such employee benefit plans.

2.16 Tax Returns, Payments, and Elections. Kettle Drilling has elected pursuant to the
Internal Revenue Code of 1986, as amended ("Code"), to be treated as an S corporation, and has
timely filed all federal, state and local tax returns and reports as required by law. Each such
filing and report is true and correct in all material respects. Kettle Drilling has made no other
elections pursuant to the Code (other than elections that relate solely to methods of accounting,
depreciation, or amortization) that would have a material effect on the business, properties,
prospects or financial condition of Kettle Drilling. Since inception, Kettle Drilling has made
adequate provisions on its books of account for all taxes, assessments, and governmental charges
with respect to its business, properties, and operations for such period. Kettle Drilling has
withheld or collected from each payment made to each of its employees, the amount of all taxes,
including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and
Federal Unemployment Tax Act taxes required to be withheld or collected therefrom, and has
paid the same to the proper tax receiving officers or authorized depositories.

2.17 Insurance. Kettle Drilling has in full force and effect fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to
allow it to replace any of its assets and properties that might be damaged or destroyed.

2.18 Environmental and Safety Laws. Kettle Drilling has received no communications
alleging that it is in violation of, and, to the best of its knowledge, Kettle Drilling is not in
violation of any applicable statute, law, or regulation relating to the environment or occupational
health and safety, and to the best of its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law, or regulation.

STOCK PURCHASE AND SALE AGREEMENT - 8

2.19 Transactions with Affiliates. There is no transaction, and no transaction now
proposed, to which Kettle Drilling was or is to be a party and in which any director or officer of
Kettle Drilling, any Selling Stockholder or any family member of associate of a Selling Stockholder
had or has a direct or indirect material pecuniary interest.

2.20 Corporate Records. The minute and stock record books of Kettle Drilling that
have been made available to Timberline Resources for its inspection contain accurate, complete and
correct copies of all charter documents and the records of all meetings and consents in lieu of
meeting of Kettle Drilling’s board of directors (and any committee thereof) and stockholders since
the date of incorporation.

2.21 No Broker’s or Finder’s Fees. No agent, broker, investment banker, person or
firm acting on behalf of Kettle Drilling is or will be entitled to any broker’s or finder’s fee or any
other commission or similar fee directly or indirectly in connection with any of the transactions
contemplated by this Agreement.

2.22 Disclosure. Kettle Drilling has provided Timberline Resources with all the
information that Timberline Resources has requested for deciding whether to enter into this
Agreement. To the best of Kettle Drilling’s knowledge, there is no fact that Kettle Drilling has
not disclosed to Timberline Resources that materially and adversely affects the business,
properties, prospects or financial condition of Kettle Drilling. To the best of Kettle Drilling’s
knowledge, neither this Agreement nor any other agreements, written statements or certificates
made or delivered in connection herewith contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements herein or therein not misleading.

2.23 Selling Stockholder Authorizations. Each Selling Stockholder has full power and
authority to enter into this Agreement, and this Agreement, when executed and delivered, will
constitute a valid and legally binding obligation of each Selling Stockholder.

3. Representations and Warranties of Timberline Resources and the Timberline Inside
Stockholders.

Timberline Resources and the Timberline Inside Stockholders hereby jointly and
severally represent and warrant to Kettle Drilling and the Selling Stockholders that, as of the
date of this Agreement and except as set forth on the Schedule of Exceptions annexed hereto as
Schedule B:

3.1 Organization, Good Standing and Qualification. Timberline Resources is a
corporation duly organized, validly existing, and in good standing under the laws of the State of
Idaho. Timberline Resources has all requisite corporate power and authority to own and operate
its properties and assets, and to carry on its business as now conducted and as presently proposed
to be conducted, to execute and deliver this Agreement and any other agreement to which
Timberline Resources is a party, the execution and delivery of which is contemplated hereby

STOCK PURCHASE AND SALE AGREEMENT - 9

(each a "Timberline Resources Ancillary Agreement"), and to carry out the provisions of this
Agreement and any Timberline Resources Ancillary Agreement. Timberline Resources is
qualified to do business as a foreign corporation in every jurisdiction in which the failure to so
qualify would have a material adverse effect on Timberline Resources.

3.2 Authorization. All corporate action on the part of Timberline Resources, its
officers, directors and stockholders necessary for the authorization, execution and delivery of
this Agreement and any Timberline Resources Ancillary Agreement, and the performance of all
obligations of Timberline Resources hereunder and thereunder at the Closing, has been taken or
will be taken prior to the Closing, and this Agreement and any Timberline Resources Ancillary
Agreement, when executed and delivered, will constitute valid and legally binding obligations of
Timberline Resources, enforceable in accordance with their respective terms.

3.3 Valid Issuance of Series A Stock and Common Stock. The shares of Series A
Stock issuable to the Selling Stockholders at Closing (if a Selling Stockholder elects to receive
such shares in payment of a portion of the purchase price) have been duly and validly authorized,
and when issued, sold and delivered to the Selling Stockholders in accordance with this
Agreement, will be fully paid and nonassessable, and will be free of restrictions on transfer other
than restrictions on transfer under this Agreement and the Registration Rights Agreement, and
restrictions on transfer arising under applicable federal and state securities laws. The Timberline
Resources common stock issuable upon conversion of the Series A Stock as provided in the
Resolution, when issued, sold and delivered to the Selling Stockholders, will be fully paid and
nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under
this Agreement and the Registration Rights Agreement, and restrictions on transfer arising under
applicable federal and state securities laws.

3.4 Governmental Consents. No consent, approval, qualification, order or
authorization of, or filing with, any local, state, or federal governmental authority is required on
the part of Timberline Resources in connection with Timberline Resources’ valid execution,
delivery and performance of this Agreement.

3.5 Capitalization. The authorized capital of Timberline Resources consists, or will
consist immediately prior to the Closing, of 100,000,000 shares of common stock, par value
$0.001 per share, of which at least 7,375,875 shares and no more than 15,375,875 shares
(depending upon the results of a pending exempt offer of units consisting of Timberline
Resources common stock and warrants to purchase common stock) are or will be issued and
outstanding, and 10,000,000 shares of preferred stock, par value $0.01 per share, of which no
shares are or will be issued and outstanding. The outstanding shares of Timberline Resources
common stock have been duly authorized and validly issued, are fully paid and nonassessable,
and were issued in accordance with the registration or qualification provisions of federal and
state securities laws, or pursuant to valid exemptions therefrom. Except for the conversion
privileges of the Series A Stock set forth in the Resolution, the rights provided to Kettle Drilling
and the Selling Stockholders in the Registration Rights Agreement and warrants for the purchase

STOCK PURCHASE AND SALE AGREEMENT - 10

of a maximum of 4,000,000 shares of Timberline Resources common stock (which warrants
comprise a portion of the units that are being offered and sold in the aforementioned exempt
offering), there are no outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), stockholder agreements or agreements of any kind for the
purchase of Timberline Resources common stock or rights to acquire equity securities of
Timberline Resources. Except for the protective provisions of the Series A Stock set forth in the
Resolution and the rights provided to Kettle Drilling and the Selling Stockholders in the Voting
Trust Agreement, Timberline Resources is not a party to any agreement or understanding, and, to
the best of Timberline Resources’ and the Timberline Inside Stockholders’ knowledge, there is
no agreement or understanding between any persons that affects or relates to the voting or giving
of written consents with respect to any equity security of Timberline Resources or the voting by
any director of Timberline Resources.

3.6 Subsidiaries. Timberline Resources does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited liability company,
association, or other business entity. Timberline Resources is not a participant in any joint
venture, partnership, or similar arrangement.

3.7 Contracts and Other Commitments. Timberline Resources does not have and is
not bound by any contract, agreement, lease, commitment, or proposed transaction, judgment,
order, writ or decree, written or oral, absolute or contingent, other than (a) contracts that were
entered into in the ordinary course of business and that do not involve more than $50,000, and do
not extend for more than one year beyond the date of this Agreement, and (b) contracts
terminable at will by Timberline Resources on no more than 30 days' notice without cost or
liability to Timberline Resources and that do not involve any employment or consulting
arrangement and are not material to the conduct of Timberline Resources’ business.

3.8 Permits. Timberline Resources has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties, prospects, or financial
condition of Timberline Resources. Timberline Resources believes it can obtain, without undue
burden or expense, any similar authority for the conduct of its business as presently planned to
be conducted. Timberline Resources is not in default in any material respect under any of such
franchises, permits, licenses or other similar authority.

3.9 Compliance with Other Instruments. Timberline Resources is not in violation or
default in any material respect of any provision of its articles of incorporation or bylaws, or in
any respect of any provision of any mortgage, indenture, agreement, instrument or contract to
which it is a party or by which it is bound or, to its knowledge, of any federal or state judgment,
order, writ, decree, statute, rule, regulation or restriction applicable to Timberline Resources.
The execution, delivery, and performance by Timberline Resources of this Agreement and any
Timberline Resources Ancillary Agreement, and the consummation of the transactions
contemplated hereby and thereby, will not result in any such violation or be in material conflict

STOCK PURCHASE AND SALE AGREEMENT - 11

with or constitute, with or without the passage of time or giving of notice, either a material
default under any such provision or an event that results in the creation of any material lien,
charge, or encumbrance upon any assets of Timberline Resources or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval
applicable to Timberline Resources, its business or operations, or any of its assets or properties.

3.10 Title to Property and Assets; Leases. Timberline Resources has good and
marketable title to its property and assets (including Timberline Resources’ intellectual
property), free and clear of all mortgages, liens, claims and encumbrances. With respect to the
property and assets it leases, Timberline Resources is in compliance with such leases and, to the
best of its knowledge, holds a valid leasehold interest free of any liens, claims, or encumbrances.

3.11 Material Liabilities. Timberline Resources does not have any material liabilities.
As used herein, the term “material liabilities” shall mean liabilities, absolute, accrued, contingent
or otherwise, which are, individually or in the aggregate, in excess of ten percent of the value of
Timberline Resources’ assets as of December 31, 2005.

3.12 Litigation. There is no action, suit, proceeding, or investigation pending or, to
Timberline Resources’ knowledge, currently threatened against Timberline Resources.

3.13 Financial Statements and Changes. Timberline Resources has delivered (or prior
to Closing will deliver) its audited financial statements for the fiscal year ended December 31,
2005 (the “Timberline Resources Financial Statements”) to Kettle Drilling and the Selling
Stockholders. The Timberline Resources Financial Statements are or will be complete and
correct in all material respects and have been or will be prepared in accordance with generally
accepted accounting principles applied on a consistent basis. To the best of Timberline
Resources’ and the Timberline Inside Stockholders’ knowledge, since December 31, 2005, there
has not been:

(a) any change in the assets, liabilities, financial condition, or operating
results of Timberline Resources, except changes in the ordinary course of business that
have not been and are not expected to be, individually or in the aggregate, materially
adverse;

(b) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the business, properties, prospects, or financial
condition of Timberline Resources (as such business is presently conducted and as it is
presently proposed to be conducted);

(c) any waiver or compromise by Timberline Resources of a valuable right or
of a material debt owed to it;

STOCK PURCHASE AND SALE AGREEMENT - 12

(d) any satisfaction or discharge of any lien, claim, or encumbrance or
payment of any obligation by Timberline Resources, except in the ordinary course of
business and that is not material to the business, properties, prospects, or financial
condition of Timberline Resources as such business is presently conducted and as it is
presently proposed to be conducted;

(e) any material change to a material contract or arrangement by which
Timberline Resources or any of its assets is bound or subject;

(f) any material change in any compensation arrangement or agreement with
any employee, officer, director or stockholder;

(g) any sale, assignment, or transfer of any patents, trademarks, copyrights,
trade secrets, or other intangible assets;

(h) any resignation or termination of employment of any key officer of
Timberline Resources; and Timberline Resources, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such officer;

(i) any mortgage, pledge, transfer of a security interest in, or lien, created by
Timberline Resources with respect to any of its material properties or assets, except liens
for taxes not yet due or payable or contested by Timberline Resources in good faith;

(j) any loans or guarantees made by Timberline Resources to or for the
benefit of its employees, stockholders, officers, or directors, or any members of their
immediate families, other than travel advances and other advances made in the ordinary
course of its business;

(k) any declaration, setting aside, or payment of any dividend or other
distribution of Timberline Resources’ assets in respect of any of Timberline Resources’
capital stock, or any direct or indirect redemption, purchase, or other acquisition of any
of such stock by Timberline Resources;

(l) to the best of Timberline Resources’ and the Timberline Inside
Stockholders’ knowledge, any other event or condition of any character that might
materially and adversely affect the business, properties, prospects or financial condition
of Timberline Resources (as such business is presently conducted and as it is presently
proposed to be conducted); or

(m) any agreement or commitment by Timberline Resources to do any of the
things described in this subsection 3.13.

STOCK PURCHASE AND SALE AGREEMENT - 13

3.14 Intellectual Property. Timberline Resources owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, and proprietary rights and processes, if any, necessary for its business as now
conducted and as proposed to be conducted without any conflict with, or infringement of the
rights of, others. There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is Timberline Resources bound by or a party to any options, licenses, or
agreements of any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, and proprietary rights and processes of any other
person or entity. Timberline Resources has not received any communications alleging that it has
violated or, by conducting its business as proposed, would violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of
any other person or entity. To Timberline Resources’ knowledge, none of its employees is
obligated under any contract (including licenses, covenants, or commitments of any nature) or
other agreement, or subject to any judgment, decree, or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to promote the interests
of Timberline Resources or that would conflict with Kettle Drilling's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of
Timberline Resources’ business as presently conducted and as presently proposed to be
conducted will, to Timberline Resources’ or the Timberline Inside Stockholders’ knowledge,
conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a
default under, any contract, covenant, or instrument under which any of such employees is now
obligated. Timberline Resources does not believe it is or will be necessary to use any inventions
of any of its employees (or persons it currently intends to hire) made prior to their employment
by Timberline Resources. All right, title and interest to any inventions by any of Timberline
Resources’ employees that are used in Timberline Resources’ operations have been assigned to
Timberline Resources without reservation.

3.15 Employees; Employee Compensation. None of Timberline Resources’ employees
belongs to any union or collective bargaining unit. Timberline Resources has complied in all
material respects with all applicable state and federal equal opportunity and other laws related to
employment. To Timberline Resources’ knowledge, no employee of Timberline Resources is or
will be in violation of any judgment, decree, or order, or any term of any employment contract,
patent disclosure agreement, or other contract or agreement relating to the relationship of any
such employee with Timberline Resources, or any other party because of the nature of the
business conducted or presently proposed to be conducted by Timberline Resources. Timberline
Resources is not a party to or bound by any employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other
employee compensation agreement. Timberline Resources is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their employment with
Timberline Resources, nor does Timberline Resources have a present intention to terminate the
employment of any of the foregoing.

STOCK PURCHASE AND SALE AGREEMENT - 14

3.16 Employee Benefit Plans. Timberline Resources maintains customary employee
benefit plans for an entity of its size, type and stage, and has provided Kettle Drilling with any
information it has reasonably requested regarding such employee benefit plans.

3.17 Tax Returns, Payments, and Elections. Timberline Resources has timely filed all
federal, state and local tax returns and reports as required by law. Each such filing and report is
true and correct in all material respects. Timberline Resources has not elected pursuant to the
Internal Revenue Code of 1986, as amended ("Code"), to be treated as an S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it
made any other elections pursuant to the Code (other than elections that relate solely to methods
of accounting, depreciation, or amortization) that would have a material effect on the business,
properties, prospects or financial condition of Timberline Resources. Since inception,
Timberline Resources has made adequate provisions on its books of account for all taxes,
assessments, and governmental charges with respect to its business, properties, and operations
for such period. Timberline Resources has withheld or collected from each payment made to
each of its employees, the amount of all taxes, including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes required to
be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or
authorized depositories.

3.18 Insurance. Timberline Resources has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its assets and properties that might be damaged or
destroyed.

3.19 Environmental Laws.

(a) Neither Timberline Resources nor the Timberline Inside Stockholders has
received any communication alleging that Timberline Resources is in violation of, and, to
the best of its and their knowledge, neither it nor they have received (i) any notice of any
currently outstanding or currently threatened civil, criminal or administrative action, suit,
demand, claim, lien, hearing, notice of violation, proceeding, or investigation relating to
Timberline Resources or its present or former interests in real property alleging any material
violation of the Environmental Laws (as defined in this subsection) or (ii) any written
request for information from any governmental agency pursuant to the Environmental Laws,
and, to Timberline Resources’ and the Timberline Inside Stockholders’ knowledge,
Timberline Resources and its real property or interests therein are in material compliance
with all applicable Environmental Laws binding upon Timberline Resources as of the
Closing.

(b) Except as authorized by any Environmental Permit (as defined in this
subsection):

STOCK PURCHASE AND SALE AGREEMENT - 15

(i) There are no Hazardous Substances Released (as defined in this
subsection) by Timberline Resources or any predecessor thereof on or beneath their
current or former properties in quantities or concentrations that could give rise to
material obligations, responsibilities, liabilities or debts under the Environmental
Laws.

(ii) Timberline Resources has obtained all governmental licenses,
permits, waivers, variances and other authorizations (the “Environmental Permits”)
that are required to be obtained by Timberline Resources under all Environmental
Laws for the ownership, use and operation of its properties or the conduct of its
business as currently conducted. Any such Environmental Permits are in effect, no
appeal nor any other action is outstanding or threatened to revoke any such
Environmental Permit and Timberline Resources is in compliance with all terms and
conditions of all such Environmental Permits.

(c) Neither Timberline Resources nor the Timberline Inside Stockholders have
received notice of any currently outstanding or currently threatened claim alleging that any
employee of Timberline Resources in the course of his or her employment has been exposed
to any Hazardous Substances (as defined in this subsection) generated, produced or used by
Timberline Resources in concentrations exceeding those permitted under applicable laws,
including any provision of the Environmental Laws relating to worker health and safety.

(d) Neither Timberline Resources nor the Timberline Inside Stockholders have
received any notice or order from any governmental agency or private or public entity in
connection with its business advising it that it is responsible for or potentially responsible for
Cleanup (as defined in this subsection) or paying for the cost of Cleanup of any Hazardous
Substances, and Timberline Resources has not entered into any agreements concerning such
Cleanup.

(e) None of the real property currently or previously owned, leased or operated
by Timberline Resources contains any: (A) underground storage tanks, (B) underground
injection xxxxx; (C) septic tanks in which process wastewater or any Hazardous Substances
have been disposed; or (D) any asbestos or equipment using polychlorinated biphenyls
(PCBs).

(f) Neither Timberline Resources nor the Timberline Inside Stockholders have
entered into any agreement in connection with Timberline Resources’ business that may
now, or in the future, require Timberline Resources to pay to, reimburse, guarantee, pledge,
defend, indemnify or hold harmless any person for or against Environmental Liabilities and
Costs (as defined in this subsection).

(g) The following terms shall be defined as follows:

STOCK PURCHASE AND SALE AGREEMENT - 16

“Cleanup” means all actions required to: (A) cleanup, remove, treat or remediate
Hazardous Substances in the indoor or outdoor environment; (B) prevent the Release of
Hazardous Substances so that they do not migrate, endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; (C) perform pre-remedial studies
and investigations and post-remedial monitoring and care; or (D) respond to any
government requests for information or documents in any way relating to cleanup, removal,
treatment or remediation or potential cleanup, removal, treatment or remediation of
Hazardous Substances in the indoor or outdoor environment.

“Environmental Laws” means any applicable federal, state or local law, rule, order,
regulation, statute, decree or requirement of any executive, legislative, regulatory,
administrative, judicial or other governmental authority regulating, relating to or imposing
liability or standards of conduct concerning the protection of human health or the
environment which is in effect and binding upon Timberline Resources as of the Closing.
For the sake of clarity, “Environmental Laws” include the recordkeeping, disclosure,
notification and reporting requirements contained in such Environmental Laws respecting
Hazardous Substances, but do not include land use or zoning laws.

“Environmental Liabilities and Costs” means all claims, losses, assessments,
judgments, costs, expenses (including reasonable fees and expenses of attorneys and experts
including but not limited to, those incurred in connection with the defense or prosecution of
any indemnifiable claim and those incurred in connection with the enforcement of this
provision), obligations, responsibilities, liabilities, debts and damages sustained by Kettle
Drilling prior to any reimbursement therefor.

“Hazardous Substances” means (A) any “hazardous substance” “pollutant” or
“contaminant” as defined in Section 101(14) and (33) of the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §9601(14) and (33) or 40
C.F.R. Part 302; (B) any pollutant, hazardous waste or hazardous substance as those terms
are defined in any applicable state or local law; and (C) oil as defined under the Clean Water
Act § 311(a)(1).

“Release” means when used as a noun, any releases, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration
into the environment (including, without limitation, ambient air, surface water, groundwater,
and surface or subsurface strata) or into or out of any property, including the movement of
Hazardous Substances through or in the air, soil, surface water, groundwater or property, and
when used as a verb, the occurrence of any Release.

STOCK PURCHASE AND SALE AGREEMENT - 17

3.20 Transactions with Affiliates. Except as set forth in the Schedule of Exceptions,
there is no transaction, and no transaction now proposed, to which Timberline Resources was or is to
be a party and in which any director or officer of Kettle Drilling or any person owning of record or
beneficially more than five percent of the outstanding capital stock of any class of Timberline
Resources or any associate of any such person had or has a direct or indirect material interest.

3.21 Corporate Records. The minute and stock record books of Timberline Resources
that have been made available to Kettle Drilling and the Selling Stockholders for their inspection,
contain accurate, complete and correct copies of all charter documents and the records of all
meetings and consents in lieu of meeting of Timberline Resources’ board of directors (and any
committee thereof) and voting stockholders since the date of incorporation.

3.22 No Broker’s or Finder’s Fees. No agent, broker, investment banker, person or
firm acting on behalf of Timberline Resources is or will be entitled to any broker’s or finder’s fee or
any other commission or similar fee directly or indirectly in connection with any of the transactions
contemplated by this Agreement.

3.23 Disclosure. Timberline Resources has provided the Selling Stockholders with all
the information the Selling Stockholders have requested for deciding whether to enter into this
Agreement. To the best of Timberline Resources’ and the Timberline Inside Stockholders’
knowledge, there is no fact that Timberline Resources has not disclosed to the Selling
Stockholders that materially and adversely affects the business, properties, prospects or financial
condition of Timberline Resources. To the best of Timberline Resources’ and the Timberline
Inside Stockholders’ knowledge, neither this Agreement nor any other agreements, written
statements or certificates made or delivered in connection with this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading.

3.24 Receipt of Information. Assuming the accuracy of the representations and
warranties set forth in subsection 3.23 of this Agreement, Timberline Resources has received all
the information they considers necessary or appropriate for deciding whether to purchase the
Kettle Drilling Shares. Timberline Resources further represents that it has had an opportunity to
ask questions and receive answers from Kettle Drilling regarding the business, properties,
prospects and financial condition of Kettle Drilling and to obtain additional information (to the
extent that Kettle Drilling possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished to Timberline
Resources or to which Timberline Resources had access. The foregoing, however, does not limit
or modify the representations and warranties of Kettle Drilling and the Selling Stockholders in
Section 2 of this Agreement or the right of Timberline Resources to rely thereon.

3.25 Investment Experience and Financial Capability. Timberline Resources and the
Timberline Inside Stockholders represent that Timberline Resources’ directors and executive
officers are experienced in evaluating Kettle Drilling, and have such knowledge and experience

STOCK PURCHASE AND SALE AGREEMENT - 18

in financial and business matters that they are capable of evaluating the merits and risks of
Timberline Resources’ purchase of the Kettle Drilling Shares pursuant to this Agreement.
Timberline Resources and the Timberline Inside Stockholders further represent that Timberline
Resources has the financial capability to consummate the purchase of the Kettle Drilling Shares
and to perform its other obligations specified in this Agreement.

3.26 Purchase Entirely for Own Account. This Agreement is made with Timberline
Resources in reliance upon Timberline Resources’ representation to Kettle Drilling (which
Timberline Resources hereby confirms by executing this Agreement), that Timberline Resources
is purchasing the Kettle Drilling Shares for investment for its' own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof, and that Timberline
Resources has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Timberline Resources further represents
that it does not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person, with respect to any of
such securities.

3.27 Securities Act Exemption. Timberline Resources understands that the offer and
sale of the Kettle Drilling Shares has not and will not been registered under the Securities Act of
1933, as amended (the “Securities Act”), on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration under the
Securities Act pursuant to Section 4(1) thereof, and that the Selling Stockholders’ reliance on
such exemption is predicated on Timberline Resources’ investment intent and other
representations set forth herein.

3.28 Timberline Inside Stockholder Authorizations. Each Timberline Inside
Stockholder has full power and authority to enter into this Agreement, and that this Agreement,
when executed and delivered, will constitute a valid and legally binding obligation of each
Timberline Inside Stockholder.

4. Pre-Closing Covenants.

4.1 Investigations.

(a) Kettle Drilling will give Timberline Resources full access to all the premises,
books, records and employees of Kettle Drilling, and will cause Kettle Drilling's officers to
furnish Timberline Resources with such financial and operating data and other information
with respect to its business and properties as Timberline Resources may from time to time
reasonably request; provided, however, that any such investigation: (a) shall be conducted in
such a manner as not to interfere unreasonably with the operation of the business of Kettle
Drilling and (b) shall not affect any of the representations and warranties hereunder. In the
event of termination of this Agreement, Timberline Resources will return or cause to be
returned all documents and other material obtained from Kettle Drilling in connection with

STOCK PURCHASE AND SALE AGREEMENT - 19

the transactions contemplated hereby and will use all best efforts to keep any such
information confidential unless such information is ascertainable from public or published
information.

(b) Timberline Resources will give Kettle Drilling and the Selling Stockholders
full access to all the premises, books, records and employees of Timberline Resources, and
will cause Timberline Resources’ officers to furnish Kettle Drilling and the Selling
Stockholders with such financial and operating data and other information with respect to its
business and properties as Kettle Drilling and the Selling Stockholders may from time to
time reasonably request; provided, however, that any such investigation: (a) shall be
conducted in such a manner as not to interfere unreasonably with the operation of the
business of Timberline Resources and (b) shall not affect any of the representations and
warranties hereunder. In the event of termination of this Agreement, Kettle Drilling and the
Selling Stockholders will return or cause to be returned all documents and other material
obtained from Timberline Resources in connection with the transactions contemplated
hereby and will use all best efforts to keep any such information confidential unless such
information is ascertainable from public or published information.

4.2 Operation of Kettle Drilling and Timberline Resources. The Selling Stockholders
and the Timberline Inside Stockholders shall cause Kettle Drilling and Timberline Resources to
conduct their respective businesses solely in the ordinary course and consistent with past practices.
From and after the date of this Agreement to and including the Closing:

(a) Kettle Drilling and Timberline Resources (i) will carry on their respective
businesses solely in the usual and ordinary course and as diligently as heretofore and will not
change the character of such businesses; (ii) will use their reasonable efforts to preserve and
maintain their business organizations intact, to preserve their goodwill, to retain their
employees and to maintain their relationships with their licensors, suppliers, dealers,
customers and others so that such relationships will be preserved on and after the Closing;
(iii) will maintain in full force and effect all contracts of insurance; (iv) will repair and
maintain all of their tangible properties and assets in accordance with its usual and ordinary
repair and maintenance standards; (v) will not amend their respective charter documents or
bylaws (except, with respect to Timberline Resources, to adopt and file the Resolution); (vi)
will not dispose, mortgage, pledge or otherwise encumber any of their assets except the sale
of inventory in the ordinary course of business; and (vii) will not amend, terminate or change
in any material respect any lease, contract, undertaking or other commitment and will not
knowingly do any act or omit to do any act, or permit an act or omission to act, which will
cause a material breach of any such lease, contract, undertaking or other commitment.

(b) Kettle Drilling and Timberline Resources will not (i) split up, combine or
reclassify any of their outstanding stock; (ii) grant or commit to grant any options, warrants
or other rights to subscribe for or purchase any shares of their capital stock or issue or
commit to issue any security convertible into or exchangeable for, or which in any manner

STOCK PURCHASE AND SALE AGREEMENT - 20

confers upon the holder thereof the right to acquire, any shares of any class of their capital
stock, or grant any stock appreciation rights with respect to any shares of their capital stock
of any class; (iii) purchase, redeem or otherwise acquire for consideration any shares of their
capital stock of any class; (iv) declare or pay any dividend on, or make any other distribution
or payment with respect to any share or shares of their capital stock of any class; or (v) make
any prepayment of any obligation not required by the terms thereof or (vi) enter into any
agreement to take any of the foregoing actions.

(c) Kettle Drilling will not issue or commit to issue any shares of its capital stock
of any class, and Timberline Resources will not issue or commit to issue any shares of its
capital stock of any class other than a maximum of 8,000,000 units (each of which comprises
one share of Timberline Resources common stock and one warrant to purchase one-half
share of Timberline Resources common stock), the proceeds of which shall be applied to
fund Timberline Resources’ obligations under this Agreement;

(d) Except for the increases specified in the Kettle Employment Agreement and
the Deeds Employment Agreement, and increases that are consistent with prior practices,
neither Kettle Drilling nor Timberline Resources will (i) grant any general increase in the
rates of pay of any of their hourly-paid employees; (ii) grant any increase in the salaries or
other compensation of any of their officers or other salaried employees; (iii) grant any
increase in the pension, retirement or other employment benefits of any character of, or grant
any new benefits to, any of their present or former officers or employees and benefits to new
employees no greater than those provided to existing employees; or (iv) employ any new
members of their senior staff or promote any existing employees to a senior staff position.

(e) Kettle Drilling and Timberline Resources will promptly notify the other in
writing of the commencement or written threat of any claim, litigation, or proceeding against
it, whether covered by insurance or not, (i) when the amount claimed (taken alone or when
added to other claims of which such notice has not therefor been given) or the amount
payable under any contract subject thereto exceeds $25,000; (ii) when such claim, litigation,
proceeding or written threat thereof relates in any way to this Agreement or any of the
transactions contemplated hereby; or (iii) when such claim, litigation, proceeding or written
threat thereof relates in any way to any violation of federal or state securities laws.

(f) Kettle Drilling and Timberline Resources will promptly notify the other in
writing of any material adverse change in its business or financial condition, whether arising
from matters occurring in the ordinary course of business or otherwise.

4.3 Press Releases and Other Communications. Except for periodic reports that
Timberline Resources is obligated to prepare and file under the Securities Exchange Act of 1934, as
amended (and any press release included in such reports as an exhibit), none of Kettle Drilling, the
Selling Stockholders, Timberline Resources or the Timberline Inside Stockholders shall give notice
to third parties or otherwise make any press release or other public statement concerning this

STOCK PURCHASE AND SALE AGREEMENT - 21

Agreement or the transactions contemplated hereby. None of Kettle Drilling, the Selling
Stockholders, Timberline Resources of the Timberline Inside Stockholders shall grant any interview,
publish any article, report or statement (other than the aforementioned Exchange Act periodic
reports and exhibits), or respond to any press inquiry or other inquiry of any third party relating to
this Agreement, the business of Kettle Drilling, the business of Timberline Resources, or any other
matter connected with any of the foregoing without the express prior written approval of Kettle
Drilling and Timberline Resources. All inquiries and questions with respect to any of the foregoing
shall be coordinated through Xxxxx Xxxxx, the vice president and secretary of Kettle Drilling, and
Xxxx Xxxxxxx, the chairman of Timberline Resources.

4.4 Exclusivity. Until March 1, 2006, Timberline Resources shall have the exclusive
right to conduct a due diligence investigation of Kettle Drilling in conjunction with the transaction
specified in this Agreement. The parties hereto acknowledge and agree that such right is limited to
Timberline Resources’ due diligence investigation, and that it shall not be interpreted or construed to
prevent Kettle Drilling or the Selling Stockholders during such period from directly or indirectly
initiating, soliciting or seeking any inquiry, proposal or offer (including, without limitation, any
proposal or offer to the Selling Stockholders or any of them) with respect to a merger, acquisition,
consolidation, recapitalization, liquidation, dissolution or similar transaction involving, or any
purchase of all or any portion of the assets or any equity securities of, Kettle Drilling.

5. Conditions of Timberline Resources’ Obligations at Closing.

The obligations of Timberline Resources under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions, the waiver of which
shall not be effective against Timberline Resources unless it consents in writing thereto:

5.1 Representations and Warranties. The representations and warranties of Kettle
Drilling and the Selling Stockholders contained in Section 2 of this Agreement shall be true on
and as of the Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.

5.2 Performance. Kettle Drilling shall have performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing.

5.3 Qualifications. All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any state that are required
in connection with the consummation of the transaction specified in this Agreement shall have
been duly obtained and shall be effective as of the Closing.

5.4 Proceedings and Documents. All corporate and other proceedings in connection
with the transactions contemplated at the Closing and all documents incident thereto shall be

STOCK PURCHASE AND SALE AGREEMENT - 22

reasonably satisfactory in form and substance to Timberline Resources’ counsel, which shall
have received all such counterpart original and certified or other copies of such documents as it
may reasonably request.

5.5 No Adverse Proceeding. No action or proceeding by or before any court or other
governmental body shall have been instituted or threatened by any governmental body or other
person or entity which seeks to restrain, prohibit or invalidate the transactions specified in this
Agreement.

5.6 Board Approvals. The boards of directors of Timberline Resources and Kettle
Drilling shall have voted to approve this Agreement and the transactions specified herein, and such
boards shall have respectively approved the Kettle Drilling Ancillary Agreements and the
Timberline Resources Ancillary Agreement to which Kettle Drilling and Timberline Resources are
parties.

5.7 No Material Adverse Change. No material adverse change in the business,
operations, assets, properties, prospects or condition (financial or otherwise) of Kettle Drilling shall
have occurred.

5.8 Good Standing Certificate. Kettle Drilling shall have delivered a certificate of
good standing to Timberline Resources, dated as of a date no earlier than ten days prior to the
Closing, duly issued by the Secretary of State of the State of Idaho, showing that Kettle Drilling is in
good standing and authorized to do business in such state.

5.9 Opinion of Kettle Drilling’s and Selling Stockholders’ Counsel. Timberline
Resources shall have received an opinion, dated as of the Closing, from counsel for Kettle
Drilling and the Selling Stockholders in the form that is annexed hereto as Exhibit F-1.

5.10 Approval of Counsel. All actions, proceedings, resolutions, instruments and
documents required to carry out this Agreement or incidental hereto and all other related legal
matters shall have been approved on the Closing by Xxxxxx X. Xxxxxxxx, counsel for Timberline
Resources and the Timberline Inside Stockholders, in the exercise of their reasonable judgment.

6. Conditions of Kettle Drilling’s and the Selling Stockholders’ Obligations at Closing.

The obligations of Kettle Drilling and the Selling Stockholders under Section 1 of this
Agreement are subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against Kettle Drilling or the Selling
Stockholders unless they consents in writing thereto:

6.1 Representations and Warranties. The representations and warranties of
Timberline Resources and the Timberline Inside Stockholders contained in Section 3 of this

STOCK PURCHASE AND SALE AGREEMENT - 23

Agreement shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the Closing.

6.2 Performance. Timberline Resources shall have performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing.

6.3 Qualifications. All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any state that are required
in connection with the consummation of the transaction specified in this Agreement shall have
been duly obtained and shall be effective as of the Closing.

6.4 Proceedings and Documents. All corporate and other proceedings in connection
with the transactions contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to Kettle Drilling’s and the Selling Stockholders’
counsel, which shall have received all such counterpart original and certified or other copies of
such documents as it may reasonably request.

6.5 Series A Stock Resolution. The board of directors of Timberline Resources shall
have adopted the Resolution in the form that is annexed hereto as Exhibit B, and Timberline
Resources shall have filed the same with the Secretary of State of the State of Idaho.

6.6 Payment of Purchase Price. Timberline Resources shall have paid the Selling
Stockholders the Purchase Price for the Kettle Drilling Shares.

6.7 Registration Rights Agreement. Timberline Resources, Kettle Drilling and the
Selling Stockholders shall have entered into the Registration Rights Agreement in the form that
is annexed hereto as Exhibit C.

6.8 Employment Agreements. Kettle Drilling (with the approval of Timberline
Resources) shall have entered into the Kettle Employment Agreement and the Deeds
Employment Agreement in the forms that are annexed hereto as Exhibit D-1 and D-2,
respectively.

6.9 Voting Trust Agreement. The Selling Stockholders, Timberline Resources and the
Timberline Inside Stockholders shall have entered into the Voting Trust Agreement in the form
that is annexed hereto as Exhibit E.

6.10 Opinion of Timberline Resources’ Counsel. Kettle Drilling and the Selling
Stockholders shall have received an opinion, dated as of the Closing, from counsel for
Timberline Resources in the form that is annexed hereto as Exhibit F-2.
6.11 No Adverse Proceeding. No action or proceeding by or before any court or other
governmental body shall have been instituted or threatened by any governmental body or other

STOCK PURCHASE AND SALE AGREEMENT - 24

person or entity which seeks to restrain, prohibit or invalidate the transactions specified in this
Agreement.

6.12 Board Approvals. The boards of directors of Timberline Resources and Kettle
Drilling shall have voted to approve this Agreement and the transactions specified herein, and such
boards shall have respectively approved the Kettle Drilling Ancillary Agreements and the
Timberline Resources Ancillary Agreement to which Kettle Drilling and Timberline Resources are
parties.

6.13 No Material Adverse Change. No material adverse change in the business,
operations, assets, properties, prospects or condition (financial or otherwise) of Timberline
Resources shall have occurred.

6.14 Good Standing Certificate. Timberline Resources shall have delivered a certificate
of good standing to Kettle Drilling and the Selling Stockholders, dated as of a date no earlier than
ten days prior to the Closing, duly issued by the Secretary of State of the State of Idaho, showing
that Timberline Resources is in good standing and authorized to do business in such state.

6.15 Approval of Counsel. All actions, proceedings, resolutions, instruments and
documents required to carry out this Agreement or incidental hereto and all other related legal
matters shall have been approved on the Closing by Xxxxxxx & Danskin, P.S., counsel for Kettle
Drilling and the Selling Stockholders, in the exercise of their reasonable judgment.

7. Termination of Agreement and Abandonment of Transaction. Anything herein
to the contrary notwithstanding, this Agreement and transactions contemplated hereby may be
terminated at any time before the Closing, as follows, and in no other manner:

7.1 Mutual Consent. By mutual consent in writing of Timberline Resources, Kettle
Drilling and the Selling Stockholders.

7.2 Termination by Timberline Resources. Timberline Resources may terminate this
Agreement without liability to Kettle Drilling or the Selling Stockholders, by notice to Kettle
Drilling and the Selling Stockholders at any time prior to the Closing if default shall be made by
Kettle Drilling or the Selling Stockholders in the observance or in the due and timely performance of
any of the material terms hereof to be performed by Kettle Drilling or the Selling Stockholders that
cannot be cured at or prior to the Closing.

7.3 Termination by Kettle Drilling or the Selling Stockholders. Kettle Drilling or the
Selling Stockholders may terminate this Agreement without liability to Timberline Resources or the
Timberline Inside Stockholders, by notice to Timberline Resources at any time prior to the Closing
if default shall be made by Timberline Resources in the observance or in the due and timely
performance of any of the material terms hereof to be performed by Timberline Resources that
cannot be cured at or prior to the Closing.

STOCK PURCHASE AND SALE AGREEMENT - 25

7.4 Expiration Date. Either Timberline Resources, Kettle Drilling or the Selling
Stockholders may terminate this Agreement without liability to any party hereto if the transactions
specified in Section 1 of this Agreement shall not have closed by March 1, 2006 (which date may be
extended by mutual agreement of Timberline Resources, Kettle Drilling and the Selling
Stockholders to a date not later than March 6, 2006) unless such failure is due to the failure of the
party seeking to terminate this Agreement to perform or observe the covenants, agreements and
conditions hereof to be performed or observed by such party at or before the Closing.

7.5 Effect of Termination. In the event that this Agreement shall be terminated pursuant
to subsections 7.1, 7.2, 7.3 or 7.4 hereof, all further obligations of the parties hereto under this
Agreement shall terminate without further liability of any party to the other, and each party hereto
will pay all costs and expenses incident to its negotiation and preparation of this Agreement,
including the fees, expenses and disbursements of its counsel: provided, however, that nothing
herein shall relieve a breaching or defaulting party for liability or damages arising from any breach
or default by it hereunder.

7.6 Waiver of Conditions. If any of the conditions specified in Sections 5 of this
Agreement have not been satisfied, Timberline Resources may nevertheless at its election proceed
with the transactions contemplated hereby. If any of the conditions specified in Sections 6 of this
Agreement have not been satisfied, Kettle Drilling and the Selling Stockholders may nevertheless at
their election proceed with the transactions contemplated hereby.

8. Timberline Resources’ Post-Closing Covenants and Indemnities. Timberline
Resources hereby covenants to and for the benefit of Kettle Drilling and the Selling Stockholders
as follows: (a) that it will use all reasonable effort promptly following Closing to cause any
personal guaranties of the Selling Stockholders given or made in respect of any loan to Kettle
Drilling to be removed, and in the event that Timberline Resources cannot remove any such
personal guaranty, that it will indemnify the Selling Stockholders and hold them harmless from
any personal liability in respect of such guaranties; and (b) until the later of such time as the
Selling Stockholders (or their heirs or successors) cease to own any shares of Series A Stock or, if
the Series A Stock has theretofore been converted into shares of Timberline Resources common
stock as provided in the Resolution, such time as the Selling Stockholders (or their heirs or
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 could have been converted as of the Closing, that
without the prior written consent of the Selling Stockholders (or their heirs or successors),
Timberline Resources will not directly or indirectly:

(a) amend or seek to amend the articles of incorporation or the bylaws of Kettle
Drilling;
(b) issue any additional shares of common stock of Kettle Drilling;

(c) increase the number of directors of Kettle Drilling beyond four;

STOCK PURCHASE AND SALE AGREEMENT - 26

(d) merge Kettle Drilling with or into any corporation or entity (including
Timberline Resources) or consolidate Kettle Drilling and Timberline Resources with or into
any corporation or entity;

(e) sell all or substantially all of the assets of Kettle Drilling; or

(f) seek to avoid its obligations under the Registration Rights Agreement or the
obligations of the Timberline Inside Stockholders under the Voting Trust Agreement.

9. Miscellaneous Provisions.

9.1 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.

9.2 Survival of Warranties. The representations and warranties of Kettle Drilling, the
Selling Stockholders, Timberline Resources and the Timberline Inside Stockholders contained in
or made pursuant to this Agreement shall survive the execution and delivery of this Agreement
and the Closing.

9.3 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.

9.4 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.

9.5 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 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

STOCK PURCHASE AND SALE AGREEMENT - 27

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, the Timberline Inside Stockholders, 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.

9.6 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.

9.7 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.

9.8 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:

If to Timberline Resources or the Timberline Inside Stockholders:

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

with a copy to:

Xxxxxx X. Xxxxxxxx

STOCK PURCHASE AND SALE AGREEMENT - 28

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

If to Kettle Drilling or the Selling Stockholders:

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

9.9 Expenses. Irrespective of whether the Closing is affected, each party hereto shall
pay its costs and expenses that it incurs with respect to the negotiation, execution, delivery, and
performance of this Agreement.

9.10 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.

STOCK PURCHASE AND SALE AGREEMENT - 29

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

TIMBERLINE RESOURCES:    Timberline Resources Corporation, 
    an Idaho corporation 
 
    By:                       /s/Xxxx Xxxxxxx 
    Name:                       Xxxx Xxxxxxx 
    Title:                       CEP 
 
KETTLE DRILLING:    Kettle Drilling, Inc., 
    an Idaho corporation 
 
    By:                       /s/ Xxxxxxx Xxxxxx 
    Name:                       Xxxxxxx Xxxxxx 
    Title:                       President 
 
SELLING STOCKHOLDERS:                           /s/ Xxxxxxx Xxxxxx 
        Xxxxxxx Xxxxxx, a married man dealing in his sole and 
        separate property 
 
                           /s/ Xxxxx X. Xxxxx 
 
                           /s/ Xxxxxxxx X. Xxxxx 
        Xxxxx X. Xxxxx and Xxxxxxxx X. Xxxxx, husband and 
        wife, dealing in their community property 
 
TIMBERLINE INSIDE STOCKHOLDERS:         
 
                           /s/ Xxxx Xxxxxxx 
        Xxxx Xxxxxxx 
 
                           /s/ Xxxxxxx Xxxx 
        Xxxxxxx Xxxx 
 
                           /s/ Xxx Xxxxxxxxx 
        Xxx Xxxxxxxxx 
 
                           /s/ Xxxxx Xxxxxxxxxxx 
        Xxxxx Xxxxxxxxxxx 
 
                           /s/ Xxxx Xxxxxxx 
        Xxxx Xxxxxxx 
 
                           /s/ Xxxx Xxxxxxxx 
        Xxxx Xxxxxxxx 

STOCK PURCHASE AND SALE AGREEMENT - 30

                                                                         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. 

 

 

 

 

 

 

 

 


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         
 
Timberline Agreement Summary         
Page 2             
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 
 
Timberline Agreement Summary         
Page 3             
 
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 + 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 8/31/06: $1,125 
Timberline Agreement Summary     
Page 4         
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 
 
Timberline Property Agreements     
Page 5         
 
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 

Timberline Agreement Summary
Page 6

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 __, 2006 at  ____   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.     
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF     
TIMBERLINE RESOURCES CORPORATION - 1     

    (a)    Liquidation. In the event of any liquidation, dissolution or winding up of the affairs 
of the Corporation, whether voluntary or involuntary: 
 
        (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: 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 2 

        (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 
    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 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 3 

                                       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 
                                       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 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 4 

    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 
    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 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 5 

                   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, 
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 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 6 

    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 
    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. 
 
 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 7 

                   (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 
                   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; 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 8 

    (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 
                   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 
 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 9 

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 
                   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 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 10 

        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. 
 
    (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 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 11 

                   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. 
 
                                       (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 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 12 

    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 
    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 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 13 

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. 
 
DATED: March __, 2006 
        _______________________
                                , Secretary 
 
 
 
 
 
 
 
SERIES A PREFERRED STOCK RESOLUTIONS OF 
TIMBERLINE RESOURCES CORPORATION - 14 

                                                                      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 __, 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 00xx 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. 
 
TIMBERLINE RESOURCES:    Timberline Resources Corporation, 
    an Idaho corporation 
 
    By: 
    Name: 
    Title: 
 
 
SELLING STOCKHOLDERS:     
                       Xxxxxxx Xxxxxx 
 
 
                       Xxxxx Xxxxx 
 
 
 
 
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. 
 
EMPLOYMENT AGREEMENT - 1 

         1.2    Company means Kettle Drilling, Inc., an Idaho corporation, and its successors. 
 
         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. 
 
 
EMPLOYMENT AGREEMENT - 2 

         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. 
 
         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. 
 
EMPLOYMENT AGREEMENT - 3 

         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. 
 
         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. 
 
 
 
 
EMPLOYMENT AGREEMENT - 4 

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 
         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 
 
EMPLOYMENT AGREEMENT - 5 

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. 
                   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. 
 
 
EMPLOYMENT AGREEMENT - 6 

         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. 
 
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 
 
EMPLOYMENT AGREEMENT - 7 

                   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. 
 
                   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. 
 
 
EMPLOYMENT AGREEMENT - 8 

12.11 Descriptive Headings. Titles to the paragraphs hereof are for information purposes only.
      
EXECUTED this  ___   day of February 2006, but effective as of the Effective Date. 
 
COMPANY:    Kettle Drilling, Inc., 
    an Idaho corporation 
 
 
     By: 
    ____________________
                                , its authorized signatory 
 
 
EMPLOYEE:     
Xxxxxxx Xxxxxx
 
 
 
 
EMPLOYMENT AGREEMENT - 9 

    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 
 
EMPLOYMENT AGREEMENT - 10 

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 
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 - 11 

            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. 
 
EMPLOYMENT AGREEMENT - 1 

         1.2    Company means Kettle Drilling, Inc., an Idaho corporation, and its successors. 
 
         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. 
 
 
EMPLOYMENT AGREEMENT - 2 

         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. 
 
         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. 
 
EMPLOYMENT AGREEMENT - 3 

         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. 
 
         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. 
 
 
 
 
EMPLOYMENT AGREEMENT - 4 

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 
         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 
 
EMPLOYMENT AGREEMENT - 5 

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. 
                   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. 
 
 
EMPLOYMENT AGREEMENT - 6 

         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. 
 
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 
 
EMPLOYMENT AGREEMENT - 7 

                   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. 
 
                   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. 
 
 
EMPLOYMENT AGREEMENT - 8 

12.11 Descriptive Headings. Titles to the paragraphs hereof are for information purposes only.
                        
EXECUTED this  ___   day of February 2006, but effective as of the Effective Date. 
 
COMPANY:    Kettle Drilling, Inc., 
    an Idaho corporation 
 
 
    By: 
    ____________________
                                   , its authorized signatory 
 
 
EMPLOYEE:     
Xxxxx Xxxxx
 
 
 
 
EMPLOYMENT AGREEMENT - 9 

    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 
 
EMPLOYMENT AGREEMENT - 10 

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 
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 - 11 

    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 __, 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.     
TIMBERLINE RESOURCES:    Timberline Resources Corporation, 
    an Idaho corporation 
    By: 
                                                      Name: 
                                                      Title: 
SELLING STOCKHOLDERS:     
Xxxxxxx Xxxxxx 
Xxxxx Xxxxx
TIMBERLINE INSIDE STOCKHOLDERS: 
Xxxx Xxxxxxx
Xxxxxxx Xxxx
Xxx Xxxxxxxxx 
Xxxxx Xxxxxxxxxxx 
Xxxx Xxxxxxx
Xxxx Xxxxxxxx
 
 
 
 
VOTING TRUST AGREEMENT - 3 

                                                                     Exhibit F-1 to Stock Purchase and Sale Agreement 
 
 
FORM OF OPINION OF KETTLE DRILLING’S AND THE SELLING 
STOCKHOLDERS’ COUNSEL
 
 
March __, 2006 
 
 
Timberline Resources Corporation 
00 Xxxx 00xx Xxxxxx 
Xxxxxxx, Xxxxxxxxxx 00000 
 
Dear Sirs:     
 
Reference is made to the Stock Purchase and Sale Agreement dated February 21, 2006 
(the “Purchase and Sale Agreement”) among Timberline Resources Corporation 
(“Timberline Resources”), an Idaho corporation, Kettle Drilling, Inc. (“Kettle Drilling”), 
an Idaho corporation, Xxxxxxx Xxxxxx and Xxxxx Xxxxx (individually a “Selling 
Stockholder” and collectively the “Selling Stockholders”), and the affiliate stockholders 
of Timberline Resources named therein (the “Timberline Inside Stockholders”), which 
Purchase and Sale Agreement provides for the sale by the Selling Stockholders of all of 
the issued and outstanding capital stock of Kettle Drilling (defined therein as the “Kettle 
Drilling Shares” to Timberline Resources upon the terms and subject to the conditions 
stated therein.  This opinion is rendered to you pursuant to Section 5.9 of the Purchase 
and Sale Agreement. All of the capitalized terms used herein shall have the meanings set 
forth in the Purchase and Sale Agreement unless otherwise defined herein. 
 
We have acted as counsel to Kettle Drilling and the Selling Stockholders in 
connection with the transaction specified in the Purchase and Sale Agreement. In 
connection with this opinion, we have examined the following documents: 
 
                   1.    The certificate and articles of incorporation of Kettle Drilling as amended 
or restated to the date of this opinion; 
 
                   2.    The bylaws of Kettle Drilling as amended or restated to the date of this 
opinion;     
 
                   3.    The Purchase and Sale Agreement; 
 
                   4.    The Registration Rights Agreement that is annexed to the Purchase and 
Sale Agreement as Exhibit C; 
 
                   5.    The Voting Trust Agreement that is annexed to the Purchase and Sale 
Agreement as Exhibit E; and 

Timberline Resources Corporation 
March __, 2006 
Page 2     
 
 
                   6.    Resolutions of the board of directors of Kettle Drilling dated February __, 
2006.     
 
The opinions hereinafter expressed are subject to the following qualifications: 
 
                   (a)    No opinion is given as to the laws of any jurisdiction other than the State 
of Idaho and the United States of America that may be applicable to the transaction 
specified in the Purchase and Sale Agreement. 
 
                   (b)    No opinion is given as to the effect of any of the following: applicable 
laws relating to bankruptcy, insolvency, reorganization or moratorium, by other similar 
laws affecting creditors’ rights generally; the exercise of judicial discretion in accordance 
with principles of equity; and the fraudulent conveyance and transfer provisions of 
applicable state and federal laws. 
 
                   (c)    No opinion is given with respect to whether Kettle Drilling has made any 
untrue statements of material fact or omitted to state any material fact necessary in order 
to make the statements made, in light of the circumstances under which they were made, 
not misleading. To the best of our knowledge, we are not aware that Kettle Drilling has 
made any such untrue statements of material fact or omitted to state any material fact 
necessary in order to make the statements made, in light of the circumstances under 
which they were made, not misleading. (As used herein the phrase "to our knowledge" or 
similar language means that, during the course of our representation of Kettle Drilling in 
connection with the transaction specified in the Purchase and Sale Agreement, no 
information has come to our attention that has given us actual knowledge that any such 
opinions or matters are not accurate or that any of the documents, certificates, records and 
information on which we have relied is not accurate and complete. Except as otherwise 
stated herein, we have undertaken no independent investigation or verification of such 
matters, and any limited inquiry undertaken by us during the preparation of this opinion 
should not be regarded as such an investigation. No inference as to our knowledge of the 
existence or absence of such facts should be drawn from the fact of our representation of 
Kettle Drilling.) 
 
                   (d)    The opinions are rendered as of the date hereof, and we assume no obligation 
to update you with respect to any matters that may hereafter be brought to our attention. 
 
Based upon and subject to the foregoing and to the comments and qualifications set forth 
below, and having considered such questions of law as we deemed necessary as a basis for 
the opinions expressed below, we are of the opinion that: 

Timberline Resources Corporation 
March __, 2006 
Page 3     
 
 
                   1.    Kettle Drilling is a corporation duly organized, validly existing and in good 
standing under the laws of the State of Idaho. Kettle Drilling has all requisite power to own 
and operate its properties and assets, and to carry on its business as presently conducted and 
as proposed to be conducted. Kettle Drilling is qualified to do business as a foreign 
corporation in every jurisdiction where the failure to so qualify would have a material 
adverse effect on its business or it financial condition 
 
                   2.    Kettle Drilling and the Selling Stockholders each have full power and 
authority to execute and deliver the Purchase and Sale Agreement and the Voting Trust 
Agreement, and to carry out and perform their respective obligations under the Purchase and 
Sale Agreement and the Voting Trust Agreement. 
 
                   3.    The Selling Stockholders each have full power and authority to execute and 
deliver the Registration Rights Agreement and to carry out and perform their obligations 
under the Registration Rights Agreement. 
 
                   4.    The Purchase and Sale Agreement, the Registration Rights Agreement and 
the Voting Trust Agreement are a legal, valid and binding obligation of Kettle Drilling and 
the Selling Stockholders (to the extent they are parties thereto), enforceable against them in 
accordance with its terms. 
 
                   5.    The execution, delivery and performance by Kettle Drilling and the Selling 
Stockholders of the Purchase and Sale Agreement, the Registration Rights Agreement and 
the Voting Trust Agreement 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 Kettle 
Drilling or the Selling Stockholders, or any agreement or other instrument to which Kettle 
Drilling or the Selling Stockholders is a party or is subject. 
 
                   This opinion is being provided to Timberline Resources at the request of Kettle 
Drilling and the Selling Stockholders, solely in connection with the Purchase and Sale 
Agreement and the consummation of the transaction specified therein and in the exhibits 
thereto. This opinion is solely for Timberline Resources’ benefit and may not be relied upon 
by any other person or entity in any manner or for any purpose whatsoever, or used or 
referred to by any other person, without our prior written consent. 
 
Very truly yours, 
 
XXXXXXX & DANSKIN, P.S. 

    Exhibit F-2 to Stock Purchase and Sale Agreement 
 
 
                     FORM OF OPINION OF TIMBERLINE RESOURCES’ COUNSEL 
 
 
March __, 0000 
 
 
Xxxxxx Xxxxxxxx, Inc. 
0000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0 
Xxxxx x’Xxxxx, Xxxxx 00000 
 
Xxxxxxx Xxxxxx 
0000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0 
Coeur d’Xxxxx, Xxxxx 00000 
 
Xxxxx Xxxxx 
0000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0 
Coeur d’Xxxxx, Xxxxx 00000 
 
Dear Sirs:     
 
Reference is made to the Stock Purchase and Sale Agreement dated February 21, 2006 
(the “Purchase and Sale Agreement”) among Timberline Resources Corporation 
(“Timberline Resources”), an Idaho corporation, Kettle Drilling, Inc. (“Kettle Drilling”), 
an Idaho corporation, Xxxxxxx Xxxxxx and Xxxxx Xxxxx (individually a “Selling 
Stockholder” and collectively the “Selling Stockholders”), and the affiliate stockholders 
of Timberline Resources named therein (the “Timberline Inside Stockholders”), which 
Purchase and Sale Agreement provides for the sale by the Selling Stockholders of all of 
the issued and outstanding capital stock of Kettle Drilling (defined therein as the “Kettle 
Drilling Shares” to Timberline Resources upon the terms and subject to the conditions 
stated therein. This opinion is rendered to you pursuant to Section 6.10 of the Purchase 
and Sale Agreement. All of the capitalized terms used herein shall have the meanings set 
forth in the Purchase and Sale Agreement unless otherwise defined herein. 
 
We have acted as counsel to Timberline Resources in connection with the 
transaction specified in the Purchase and Sale Agreement. In connection with this 
opinion, we have examined the following documents: 
 
                   1.    The certificate and articles of incorporation of Timberline Resources as 
amended or restated to the date of this opinion; 
 
                   2.    The bylaws of Timberline Resources as amended or restated to the date of 
this opinion; 

Kettle Drilling and Messrs. Kettle and Deeds 
March __, 2006 
Page 2     
 
 
                   3.    The Purchase and Sale Agreement; 
 
                   4.    The Series A Preferred Stock Resolution that is annexed to the Purchase 
and Sale Agreement as Exhibit B (the “Resolution”); 
 
                   5.    The Registration Rights Agreement that is annexed to the Purchase and 
Sale Agreement as Exhibit C; 
 
                   6.    The Voting Trust Agreement that is annexed to the Purchase and Sale 
Agreement as Exhibit E; and 
 
                   7.    Resolutions of the board of directors of Timberline Resources dated 
February __, 2006. 
 
                   The opinions hereinafter expressed are subject to the following qualifications: 
 
                   (a)    No opinion is given as to the laws of any jurisdiction other than the State 
of Idaho and the United States of America that may be applicable to the transaction 
specified in the Purchase and Sale Agreement. 
 
                   (b)    No opinion is given as to the effect of any of the following: applicable 
laws relating to bankruptcy, insolvency, reorganization or moratorium, by other similar 
laws affecting creditors’ rights generally; the exercise of judicial discretion in accordance 
with principles of equity; and the fraudulent conveyance and transfer provisions of 
applicable state and federal laws. 
 
                   (c)    No opinion is given with respect to whether Timberline Resources has 
made any untrue statements of material fact or omitted to state any material fact 
necessary in order to make the statements made, in light of the circumstances under 
which they were made, not misleading. To the best of our knowledge, we are not aware 
that Timberline Resources has made any such untrue statements of material fact or 
omitted to state any material fact necessary in order to make the statements made, in light 
of the circumstances under which they were made, not misleading. (As used herein the 
phrase "to our knowledge" or similar language means that, during the course of our 
representation of Timberline Resources in connection with the transaction specified in the 
Purchase and Sale Agreement, no information has come to our attention that has given us 
actual knowledge that any such opinions or matters are not accurate or that any of the 
documents, certificates, records and information on which we have relied is not accurate 
and complete. Except as otherwise stated herein, we have undertaken no independent 
investigation or verification of such matters, and any limited inquiry undertaken by us 

Kettle Drilling and Messrs. Kettle and Deeds 
March __, 2006 
Page 3     
 
 
during the preparation of this opinion should not be regarded as such an investigation. 
No inference as to our knowledge of the existence or absence of such facts should be 
drawn from the fact of our representation of Timberline Resources.) 
 
                   (d)    The opinions are rendered as of the date hereof, and we assume no obligation 
to update you with respect to any matters that may hereafter be brought to our attention. 
 
Based upon and subject to the foregoing and to the comments and qualifications set forth 
below, and having considered such questions of law as we deemed necessary as a basis for 
the opinions expressed below, we are of the opinion that: 
 
                   1.    Timberline Resources is a corporation duly organized, validly existing and in 
good standing under the laws of the State of Idaho. Timberline Resources has all requisite 
power to own and operate its properties and assets, and to carry on its business as presently 
conducted and as proposed to be conducted. Timberline Resources is not qualified to do 
business as a foreign corporation in any jurisdiction. 
 
                   2.    Timberline Resources has full power and authority to execute and deliver the 
Purchase and Sale Agreement, the Registration Rights Agreement and the Voting Trust 
Agreement, to purchase the Kettle Drilling Shares, and to carry out and perform its 
obligations under the Purchase and Sale Agreement, the Registration Rights Agreement and 
the Voting Trust Agreement. 
 
                   3.    Timberline Resources has full power and authority to adopt the Resolution 
by action of its board of directors, without stockholder approval, and the Resolution has 
been so adopted. The Resolution constitutes an amendment to Timberline Resources’ 
articles of incorporation, and Timberline Resources has full power and authority to issue the 
Series A Stock and to issue shares of its common stock upon conversion of the Series A 
Stock as provided in the Resolution. 
 
                   4.    The Resolution does 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. 
 
                   5.    The Purchase and Sale Agreement, the Registration Rights Agreement and 
the Voting Trust Agreement are each the legal, valid and binding obligation of Timberline 
Resources, enforceable against it in accordance with its terms. 

Kettle Drilling and Messrs. Kettle and Deeds 
March __, 2006 
Page 4     
 
 
6.    The execution, delivery and performance by Timberline Resources of the 
Purchase and Sale Agreement, the Registration Rights Agreement and the Voting Trust 
Agreement 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. 
 
This opinion is being provided to Kettle Drilling and the Selling Stockholders at the 
request of Timberline Resources, solely in connection with the Purchase and Sale 
Agreement and the consummation of the transaction specified therein and in the exhibits 
thereto. This opinion is solely for Kettle Drilling’s and the Selling Stockholders’ benefit and 
may not be relied upon by any other person or entity, other than an assignee of a Selling 
Stockholder’s entire, right and interest in the Purchase and Sale Agreement, in any manner 
or for any purpose whatsoever, or used or referred to by any other person, without our prior 
written consent. 
 
Very truly yours, 

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Filed: March 1st, 2006
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