ex10-17assembled.pdf -- Converted by SECPublisher 4.0, created by BCL Technologies Inc., for SEC Filing




	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 Randall & 

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 Douglas Kettle 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 

David Deeds 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 Douglas Kettle, David 

Deeds, 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) Douglas Kettle and David Deeds 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 wells; (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 David Deeds, the vice president and secretary of Kettle Drilling, and 

John Swallow, 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 Thomas E. Boccieri, 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 Randall & 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 

  36 West 16th Avenue 

 Spokane, Washington 99203 

  Attention: John Swallow 

  Telefacsmile: (509) 747-5250 



 with a copy to: 



  Thomas E. Boccieri 



STOCK PURCHASE AND SALE AGREEMENT - 28 
















	
  561 Schaefer Avenue 

  Oradell, New Jersey 07649-2517 

  Telefacsimle: (201) 265-6069 



 If to Kettle Drilling or the Selling Stockholders: 



  Kettle Drilling, Inc. 

  2775 North Howard Street, Suite 2 

  Coeur d’Alene, Idaho 83815 

  Attention: David Deeds 

  Telefacsimile: (208) 664-6311 



 with a copy to: 



  Randall & Danskin, P.S. 

  1500 Bank of America Financial Center 

  601 West Riverside Avenue, Suite 1500 

  Spokane, Washington 99201-0653 

  Attention: Douglas Siddoway 

  Telefacsimile: (509) 624-2258 



 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/John Swallow 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
Name: 
  	
   	
                    John Swallow 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
Title: 
  	
   	
                    CEP 
  
	
  	
  	
  	
  	


  
	
 
  
	
KETTLE DRILLING: 
  	
   	
Kettle Drilling, Inc., 
  
	
 
  	
   	
an Idaho corporation 
  
	
 
  
	
 
  	
   	
By: 
  	
   	
                    /s/ Douglas Kettle 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
Name: 
  	
   	
                    Douglas Kettle 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
Title: 
  	
   	
                    President 
  
	
  	
  	
  	
  	


  
	
 
  
	
SELLING STOCKHOLDERS: 
  	
   	
 
  	
   	
                    /s/ Douglas Kettle 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
 
  	
   	
Douglas Kettle, a married man dealing in his sole and 
  
	
 
  	
   	
 
  	
   	
separate property 
  
	
 
  
	
 
  	
   	
 
  	
   	
                    /s/ David L. Deeds 
  
	
  	
  	
  	
  	


  
	
 
  
	
 
  	
   	
 
  	
   	
                    /s/ Margaret E. Deeds 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
 
  	
   	
David L. Deeds and Margaret E. Deeds, husband and 
  
	
 
  	
   	
 
  	
   	
wife, dealing in their community property 
  
	
 
  
	
TIMBERLINE INSIDE STOCKHOLDERS: 
  	
   	
 
  	
   	
 
  
	
 
  
	
 
  	
   	
 
  	
   	
                    /s/ John Swallow 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
 
  	
   	
John Swallow 
  
	
 
  
	
 
  	
   	
 
  	
   	
                    /s/ Stephen Goss 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
 
  	
   	
Stephen Goss 
  
	
 
  
	
 
  	
   	
 
  	
   	
                    /s/ Tom Gurkowski 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
 
  	
   	
Tom Gurkowski 
  
	
 
  
	
 
  	
   	
 
  	
   	
                    /s/ Vance Thornsberry 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
 
  	
   	
Vance Thornsberry 
  
	
 
  
	
 
  	
   	
 
  	
   	
                    /s/ Eric Klepfer 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
 
  	
   	
Eric Klepfer 
  
	
 
  
	
 
  	
   	
 
  	
   	
                    /s/ Paul Dircksen 
  
	
  	
  	
  	
  	


  
	
 
  	
   	
 
  	
   	
Paul Dircksen 
  




	
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 Brenda Kettle) 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 Brenda Kettle 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 Douglas Kettle or
      David Deeds sold any of their 
	 	respective shares of Kettle Drilling. Kettle
      Drilling, the Selling Stockholders 
	 	and Brenda Kettle have since amended the
      agreement to terminate Kettle 
		Drilling’s obligation to pay Brenda Kettle 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         
       	        Amount      
  
	 	 
	Wells Fargo MC #8103 	$  3,105.02 
	Wells Fargo VISA #3541	  4,039.28 

	Kubota Credit #7082 	  6,507.96 
	Diversified 98 Skytrack #2028 	  22,740.83 
	Atlas B20Y #5782 	  71,459.04 






	             
          Item or
      Account               
       	  	      Amount       
        
			
	Atlas Copco B29 Power Pack  	  	14,548.00  
	CNH Capital-New Holland #7761  	  	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  
	Wells Fargo Loan #0143272 T1000 
    	  	140,000.00  
	Mountain West LOC #3529  	  	64,452.59  
	Mountain West (Hagby) #47004231 
    	  	26,804.01  
	Stock Redemption - Brenda Kettle 
    	  	25,500.00  
	Borrego Springs #4010  	  	124,920.98  
	Automobile Loan – Wells BMW  	  	37,871.29  
	Automobile Loan – Jaguar  	  	80,927.58  
	Wells 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 Doug
      Kettle and David Deeds during the first quarter of  
	  	  	2006 (it being
      acknowledged that Doug Kettle and David Deeds 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 
	 	 	John Swallow. 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, Mark Hartmann of Wallace was 

involved in a previous purchase arrangement for Kettle Drilling. The 

terms of that agreement were not met and subsequently Mr. Hartmann 

introduced Kettle Drilling to Timberline. Timberline had no previous 

arrangement or agreement in place with Mr. Hartmann or Kettle. A 

finder’s fee and/or share/option award may or may not be offered to Mr. 

Hartmann – 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: 
  	
   	
Howard Adams, David Miller 
  
	
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: 
  	
   	
Howard Adams and David Miller 
  	
   	
 
  
	
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: 
  	
   	
Howard Adams, David Miller 
  	
   	
 
  	
   	
 
  












	
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, Esmeralda 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 Sanders 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 – Sanders County 
  
	
 
  	
   	
Standard Creek (SC) 29 claims – Lincoln County 
  
	
 
  	
   	
Minton Pass (MCP) 20 claims – Sanders County 
  
	
 
  	
   	
East Bull (EB) 19 claims – Lincoln County 
  
	
 
  	
   	
Maintenance fees to BLM paid by Sterling Mining 
  
	
 
  
	
 
  
	
Spencer Gold Prospect, Clark County, Idaho 
  	
   	
 
  
	
Owner: 
  	
   	
State of Idaho/Jim Ebisch, 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 
  
	
 
  	
   	
Section 16, Township 12 North, Range 37 East, B.M. 
  
	
 
  	
   	
Clark 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 
  
	
 
  
	
Douglas Kettle 
  	
   	
 
  	
   	
 
  
	
5401 East Lancaster 
  	
   	
76.5 shares 
  	
   	
75 percent 
  
	
Hayden, Idaho 83835 
  	
   	
 
  	
   	
 
  
	
 
  
	
David Deeds 
  	
   	
 
  	
   	
 
  
	
5609 East Lancaster 
  	
   	
25.5 shares 
  	
   	
25 percent 
  
	
Hayden, Idaho 83835 
  	
   	
 
  	
   	
 
  








	 
                         
                         
                       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
      Douglas Kettle and David Deeds (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 
    
	 
                         
                       36 West 16th Avenue  
	 
                         
                       Spokane, Washington 99203  
	 
                         
                       Attention: John Swallow  
	 
                         
                       Telefacsmile: (509) 747-5250 
  
	  
	 
                       with a copy to:  
	  
	 
                         
                       Thomas E. Boccieri  
	 
                         
                       561 Schaefer Avenue  
	 
                         
                       Oradell, New Jersey 07649-2517 
  
	 
                         
                       Telefacsimle: (201) 265-6069 
  
	  
	 
                       If to the Selling Stockholders: 
    
	  
	 
                         
                       Douglas Kettle and David Deeds 
  
	 
                         
                       Kettle Drilling, Inc.  
	 
                         
                       2775 North Howard Street, Suite 2 
    
	 
                         
                       Coeur d’Alene, Idaho 83815  
	 
                         
                       Attention: David Deeds  
	 
                         
                       Telefacsimile: (208) 664-6311 
  
	  
	 
                       with a copy to:  
	  
	                                       Randall & Danskin, P.S. 

	                                       1500 Bank of America Financial
      Center  
	                                       601 West Riverside Avenue, Suite
      1500  
	                                       Spokane, Washington 99201-0653 
  
	                                       Attention: Douglas Siddoway 

	                                       Telefacsimile: (509) 624-2258 
  
	  
	 
                       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:  	  	  
			
      

    
	  	  	 
                       Douglas Kettle  
			
      

    
	  
	  
	  	  	 
                       David Deeds  
	  
	  
	  
	  
	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 2775 South  
	  	  	Howard Street, Suite 2,
      Coeur d’Alene, Idaho 83815 (the "Company"); and  
	  
	2.  	  	DOUGLAS
      KETTLE, whose address is 5401
      East Lancaster, Hayden, Idaho 83835  
	  	  	("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:  	  	  
			
      

    
	Douglas
      Kettle 
	  
	  
	  
	  
	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 2775 South  
	  	  	Howard Street, Suite 2,
      Coeur d’Alene, Idaho 83815 (the "Company"); and  
	  
	2.  	  	DAVID
      DEEDS, whose address is 5609
      East Lancaster, Hayden, Idaho 83835  
	  	  	("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:  	  	UBSBL93434PN59163  
	  
	  	  	 
         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:  	  	  
			
      

    
	David
      Deeds 
	  
	  
	  
	  
	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 Douglas Kettle and David Deeds (individually a “Selling 
    
	Stockholder“ and
      collectively the “Selling Stockholders”); Timberline
      Resources  
	Corporation (“Timberline
      Resources”), an Idaho corporation; and John Swallow, Stephen 
    
	Goss, Tom Gurkowski,
      Vance Thornsberry, Eric Klepfer and Paul Dircksen (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 John Swallow
      (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 David Deeds, 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:  	  	  
	
      

    
	Douglas Kettle  
	
      

    
	David Deeds 
	TIMBERLINE INSIDE
      STOCKHOLDERS:  
	
      

    
	John Swallow 
	
      

    
	Stephen Goss 
	
      

    
	Tom Gurkowski  
	
      

    
	Vance Thornsberry  
	
      

    
	Eric Klepfer 
	
      

    
	Paul Dircksen 
	  
	  
	  
	  
	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  
	36 West
      16th Avenue  
	Spokane, Washington
      99203  
	  
	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,
      Douglas Kettle and David Deeds (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, 
  
	
 
  
	
RANDALL & DANSKIN, P.S. 
  








	  	  	Exhibit F-2 to Stock Purchase and Sale
      Agreement  
	  
	  
	               
           FORM
      OF OPINION OF TIMBERLINE RESOURCES’ COUNSEL  
	  
	  
	March __,
      2006  
	  
	  
	Kettle Drilling,
      Inc.  
	2775 North Howard Street,
      Suite 2  
	Coeur d’Alene, Idaho
      83815  
	  
	Douglas
      Kettle  
	2775 North Howard Street,
      Suite 2  
	Coeur d’Alene, Idaho
      83815  
	  
	David Deeds 
    
	2775 North Howard Street,
      Suite 2  
	Coeur d’Alene, Idaho
      83815  
	  
	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,
      Douglas Kettle and David Deeds (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,