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Exhibit 10.18

	 	
AMENDMENT TO STOCK PURCHASE AND SALE AGREEMENT

	 	
 This Amendment to Stock Purchase and Sale Agreement (the "Amendment") is 

made and entered into as of March 3, 2006 by and among: Timberline Resources 

Corporation, an Idaho corporation (“Timberline Resources”); the shareholders of Kettle 

Drilling, Inc., an Idaho corporation (“Kettle Drilling”), listed on the signature page hereof 

(collectively referred to as the “Selling Stockholders”); and the shareholders of Timberline

Resources listed on the signature page hereof (collectively referred to as the “Timberline 

Inside Stockholders”). 

	 	
RECITALS:

	 	
 WHEREAS, Timberline Resources, Kettle Drilling, the Selling Stockholders and 

the Timberline Inside Stockholders are parties to a Stock Purchase and Sale Agreement 

dated February 23, 2006 (the “Purchase and Sale Agreement"); and

WHEREAS, Timberline Resources is unable to pay the Selling Stockholders the 

full cash portion of the purchase price specified in the Purchase and Sale Agreement; and

 WHEREAS, the Selling Stockholders are willing to accept promissory notes 

issued by Timberline Resources in lieu of the cash they are otherwise entitled to receive. 

	 	
AGREEMENT:

	 	
NOW, THEREFORE, the parties hereto agree as follows:

	 	
1. Certain Definitions. Unless otherwise defined in this Amendment, 

capitalized terms shall have the same meanings that are ascribed to them in the Purchase

and Sale Agreement. 

	 	
2. Amendments. 

2.1 Purchase Price of the Kettle Drilling Shares. Section 1.2 of the Purchase 

and Sale Agreement is hereby amended to read in its entirety as follows: 

	 	
1.2 Purchase Price of the Kettle Drilling Shares. The aggregate 

purchase price of the Purchased Kettle Drilling Shares (the “Purchase Price”)

shall be $4,800,000 plus interest earned with respect to the promissory notes 

specified in subsection 1.2(b) below, which shall be payable to the Selling 

Stockholders as follows: 

	 	
(a) $2,400,000 of the Purchase Price shall be payable to the 

Selling Stockholders at Closing, in cash in immediately available funds.

Such amount shall be allocated and paid to each Selling Stockholder 

according to such Selling Stockholder’s ownership percentage of the 

Kettle Drilling Shares set forth in Exhibit A to this Agreement. 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 1 

	 	
(b) $400,000 of the Purchase Price shall be payable to the 

Selling Stockholders at Closing by the execution and delivery to the 

Selling Stockholders of the promissory notes of Timberline Resources in 

the forms that are annexed hereto as Exhibit G (the “Promissory Notes”). 

(c) $2,000,000 of the Purchase Price shall be payable either (i)

in cash, in immediately available funds, or (ii) if Timberline Resources so 

elects, at or prior to Closing, by delivery of shares of Series A Preferred 

Stock of Timberline Resources (the “Series A Stock”) having the rights, 

preferences and limitations that are set forth in the Series A Preferred 

Stock Resolution (the “Resolution”) that is annexed to and made a part of 

this Agreement as Exhibit B. The Series A Stock to be delivered to a 

Selling Stockholder, if he elects to receive such shares in payment of a 

portion of the Purchase Price, shall be valued at $0.40 per share, and the 

number of shares of such stock that shall be deliverable to a Selling 

Stockholder who elects to receive such shares shall be determined by 

multiplying 5,000,000 by such Selling Stockholder’s ownership 

percentage of the Kettle Drilling Shares set forth in Exhibit A to this 

Agreement. 

	
2.2 Closing Deliveries. Subsection 1.4(a) of the Purchase and Sale Agreement

is hereby amended to read in its entirety as follows: 

	 	
(a) At the Closing, Timberline Resources shall deliver each 

Selling Stockholder (i) a cashiers check or a certified check equal to the 

Selling Stockholder’s allocable share of that portion of the Purchase Price 

that is payable in cash, (ii) the Promissory Notes, and (iii) if Timberline 

Resources has elected to issue shares of Series A Stock in payment of a 

portion of the Purchase Price, by delivery of a certificate or certificates for

such shares. 

	
 2.3 Exhibit F-1. The form of opinion of Timberline Resources counsel that is

annexed to the Purchase and Sale Agreement as Exhibit F-1 is hereby amended as 

follows: 

  (a) Numbered paragraph 5 of the opinion is amended to read in its 

entirety as follows: 

	 	
5. The Purchase and Sale Agreement, the Registration Rights 

Agreement, the Voting Trust Agreement and the Promissory Notes are each

the legal, valid and binding obligation of Timberline Resources, enforceable

against it in accordance with its terms. 

	
  (b) Numbered paragraph 6 of the opinion is amended to read in its

entirety as follows: 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 2 

	 	
 6. The execution, delivery and performance by Timberline 

Resources of the Purchase and Sale Agreement, the Registration Rights 

Agreement, the Voting Trust Agreement and the Promissory Notes do not 

conflict with, or constitute a default, violation or breach of, any applicable 

law or governmental rule or regulation, or, to our knowledge, any order, 

injunction or decree of any court of governmental instrumentality applicable

to Timberline Resources, or any agreement or other instrument to which 

Timberline Resources is a party or is subject. 

	
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day

and year first above written. 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 3 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 4 

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

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

	Section                                       
      Exception 

	2.4     	Kettle Drilling and the Selling
      Stockholders (and 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.	
	 

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

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

	Section                           
      Exception 

	3.5     	Capitalization. Timberline does have in effect a number of property
      agreements. A description of the properties and agreements will be
      provided. It does not appear that any of these contracts will result in
      the issuance of additional shares prior to the closing; however, our
      agreement with Western Goldfields could result in the issuance of 390,000
      shares of common stock after closing, if Timberline chooses to exercise,
      on April 1, 2006, its option to continue with the venture, as
      follows:
	 
	 	75,000 shares in 2006; 100,000 shares in
      2007; and 215,000 shares in 2008.
	 
	 	In addition, if Timberline does exercise
      said option, it is also required to issue to Western Goldfields, between
      2006 and 2008, options to purchase 250,000 shares of Timberline’s common
      stock at $.65 per share.
	 
	 	Presently, Timberline does not have an
      intention to exercise said option.
	 
	 	Cougar Valley, LLC – controlled by
      Timberline’s CEO – has options for 500,000 shares @.40 expiring 6/7/06.
      Approximately 250,000 shares ($100,000) of this option will be exercised
      at or near the close of this transaction.
	 
	3.7.     	Contracts or Other
      Commitments. As referenced in the Form 10SB
      filed with the SEC, there are two loans outstanding to Timberline from its
      CEO
	 
	 	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 
		
 
	
	
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 
		
 
	
	
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 and 10,000 shares 
	
	
 
		
1st anniversary of Mineral Lease 
		
 
		
$ 5,000 
	
	
 
		
2nd anniversary of Mineral Lease 
		
 
		
$10,000 
	
	
 
		
3rd anniversary and annually thereafter 
		
$25,000 
	
	
Royalty: 
		
1% NSR 
		
 
		
 
		
 
	
	
Option to Purchase: 
		
1% NSR royalty can be purchased for $500,000 
	
	
Property: 
		
S-1-8 and S-11 unpatented claims 
		
 
		
 
	
	
Maintenance fee due BLM 
		
August 31, 2006 
		
$1,125 
		
 
		
 
	

	
Montana Cu-Ag Properties, Lincoln and 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 
	
	
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 
	
	
 
	
	
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 26, 2006 at 10 a.m..
      

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

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

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

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

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

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

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

	2. Liquidation
      Preferences. 

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

	SERIES A PREFERRED STOCK RESOLUTIONS OF
      
TIMBERLINE RESOURCES CORPORATION - 1
      

	 	
 (i) The Series A Holders shall be entitled to receive a liquidation preference of 

$0.55 per share of Series A Stock (adjusted appropriately for stock splits and the like) plus 

any accumulated and unpaid dividends thereon. 

 (ii) If the assets to be distributed to the shareholders (the "Assets") are 

insufficient to permit the payment of such liquidation preference, then all of the Assets shall 

be distributed ratably among the Series A Holders in proportion to the full liquidation 

preferences the Series A Holders would otherwise be entitled to receive. 

 (iii) After payment of such full liquidation preferences, the Common Holders 

shall be entitled to receive ratably the entire remaining Assets, if any. 

 (iv) Notwithstanding the foregoing, in the event of any liquidation, dissolution or

winding up of the affairs of the Corporation, whether voluntary or involuntary, any Series A

Holder may elect to receive, in lieu of such Series A Holder's liquidation preference, the 

amount distributable to a Common Holder on an as converted basis. 

	
 (b) Merger or Sale of Assets. For purposes of this subsection 2, a "liquidation" shall 

include (i) a merger or consolidation in which the Corporation's outstanding shares are exchanged 

for other securities, property or cash, or any combination of securities, property or cash, and (ii) a 

sale of all or substantially all of the assets of the Corporation. Notwithstanding the foregoing, any 

Series A Holder may elect to receive, in lieu of the liquidation preference, the consideration received 

by a Common Holder in any such merger, consolidation or sale of assets, on an as converted basis. 

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

Rights"): 

	 	
(a) Right to Convert; Automatic Conversion. 

	 	
 (i) Subject to subsection 3(c), each share of Series A Stock shall be convertible, 

at the option of the holder thereof, at any time after the date of issuance of such share at the 

offices of the Corporation or any transfer agent for such shares, into such number of fully 

paid and nonassessable shares of Common Stock determined as set forth below. Each share 

of Series A Stock shall be convertible into such number of fully paid and nonassessable 

shares of Common Stock as is determined by dividing $0.40 by the Series A Stock 

conversion price (the "Series A Conversion Price"), determined as hereafter provided, in 

effect at the time of conversion. The initial Series A Conversion Price shall be equal to 

$0.40; provided, however, that the Series A Conversion Price shall be subject to adjustment 

as set forth in subsection 3(c) below. 

 (ii) Each share of Series A Stock shall automatically be converted into shares of 

Common Stock at the Series A Conversion Price immediately upon the earliest to occur of: 

	 	
 (A) The effective date of a registration statement under the Securities Act 

of 1933, as amended, pursuant to an underwritten offering covering the offer and sale 

of Common Stock for the account of the Corporation to the public at a price per 

share (prior to underwriting commissions and expenses) of not less than $5.00 (as 

appropriately adjusted for stock splits and the like) and with aggregate gross 

	
SERIES A PREFERRED STOCK RESOLUTIONS OF 

TIMBERLINE RESOURCES CORPORATION - 2 

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

	 	
(B) December 31, 2010.

	 	
 (b) Mechanics of Conversion. Before any Series A Holder shall be entitled to convert 

the same into shares of Common Stock, he or she shall surrender the certificate or certificates 

therefor, duly endorsed, at the offices of the Corporation or of any transfer agent for such shares, and

shall give written notice by mail, postage prepaid, to the Corporation at its principal corporate 

offices, of the election to convert the same and shall state therein the name or names in which the 

certificate or certificates for shares of Common Stock are to be issued. (A Series A Holder may not 

effect a transfer of shares pursuant to a conversion unless all applicable restrictions on transfer are 

satisfied.) The Corporation shall, as soon as practicable thereafter, issue and deliver at such offices 

to such Series A Holder, or to the nominee or nominees of such Series A Holder, a certificate or 

certificates for the number of shares of Common Stock to which such Series A Holder shall be 

entitled as provided above. Such conversion shall be deemed to have been made immediately prior 

to the close of business on the date of such surrender of the certificate or certificates representing the

shares of Series A Stock to be converted, and the person or persons entitled to receive the shares of 

Common Stock issuable upon such conversion shall be treated for all purposes as the record holder 

or holders of such shares of Common Stock as of such date. 

 (c) Conversion Price Adjustments. The Series A Conversion Price shall be subject to 

adjustment from time to time as follows: 

	 	
 (i) (A) If the Corporation shall issue any Additional Stock (as defined below) for

a consideration per share less than the Series A Conversion Price in effect immediately prior 

to the issuance of such Additional Stock, then the Series A Conversion Price in effect 

immediately prior to each such issuance shall (except as otherwise provided in this clause 

(i)) be the price per share at which such Additional Stock was issued: 

	 	
 (B) No adjustment of the Conversion Price for the Series A Stock shall be

made in an amount less than one cent per share, provided that any adjustment that is 

not required to be made by reason of this sentence shall be carried forward and taken 

into account in any subsequent adjustment. Except to the limited extent provided for 

in subsections 3(c)(i)(E)(3), 3(c)(i)(E)(4) and 3(c)(iv), no adjustment of the Series A 

Conversion Price shall have the effect of increasing the Series A Conversion Price 

above the Conversion Price in effect immediately prior to such adjustment. 

 (C) In the case of the issuance of Common Stock for cash, the 

consideration shall be deemed to be the amount of cash paid therefor before 

deducting any reasonable discounts, commissions or other expenses allowed, paid or 

incurred by the Corporation for any underwriting or otherwise in connection with the 

issuance and sale thereof. 

 (D) In the case of the issuance of Common Stock for a consideration in 

whole or in part other than cash, the consideration other than cash shall be deemed to 

be the fair value thereof as determined by the Board. 

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

	
SERIES A PREFERRED STOCK RESOLUTIONS OF 

TIMBERLINE RESOURCES CORPORATION - 3 

	 	
subscribe for Common Stock, securities by their terms convertible into or 

exchangeable for Common Stock, or options to purchase or rights to subscribe for 

such convertible or exchangeable securities (where the shares of Common Stock 

issuable upon exercise of such options or rights or upon conversion or exchange of

such securities are not excluded from the definition of Additional Stock), the 

following provisions shall apply: 

	 	
 (1) the aggregate maximum number of shares of Common Stock 

deliverable upon exercise of such options to purchase or rights to subscribe 

for Common Stock shall be deemed to have been issued at the time such 

options or rights were issued and for a consideration equal to the 

consideration (determined in the manner provided in subsections 3(c)(i)(C) 

and 3(c)(i)(D)), if any, received by the Corporation upon the issuance of such

options or rights, plus the minimum purchase price provided in such options 

or rights for the Common Stock covered thereby; 

 (2) the aggregate maximum number of shares of Common Stock 

deliverable upon conversion of or in exchange for any such convertible or 

exchangeable securities or upon the exercise of options to purchase or rights 

to subscribe for such convertible or exchangeable securities and the 

subsequent conversion or exchange thereof shall be deemed to have been 

issued at the time such securities were issued or such options or rights were 

issued and for a consideration equal to the consideration, if any, received by 

the Corporation for any such securities and related options or rights 

(excluding any cash received on account of accrued interest or accrued 

dividends), plus the additional consideration, if any, to be received by the 

Corporation upon the conversion or exchange of such securities or the 

exercise of any related options or rights (the consideration in each case to be 

determined in the manner provided in subsections 3(c)(i)(C) and 3(c)(i)(D)); 

 (3) In the event of any change in the number of shares of 

Common Stock deliverable upon exercise of such options or rights or upon 

conversion of or in exchange for such convertible or exchangeable securities,

including, but not limited to, a change resulting from the antidilution 

provisions thereof, the Series A Conversion Price in effect at the time shall 

forthwith be readjusted to such Conversion Price as would have obtained had

the adjustment that was made upon the issuance of such options, rights or 

securities not converted prior to such change, or the options or rights related 

to such securities not converted prior to such change been made upon the 

basis of such change, but no further adjustment shall be made for the actual 

issuance of Common Stock upon the exercise of any such options or rights or

the conversion or exchange of such securities; 

 (4) Upon the expiration of any such options or rights, the 

termination of any such rights to convert or exchange or the expiration of any

options or rights related to such convertible or exchangeable securities, the 

Series A Conversion Price shall forthwith be readjusted to such Conversion 

	
SERIES A PREFERRED STOCK RESOLUTIONS OF

TIMBERLINE RESOURCES CORPORATION - 4 

	 	
Price as would have obtained had the adjustment which was made upon the 

issuance of such options, rights or securities, or options or rights related to 

such securities, been made upon the basis of the issuance of only the number 

of shares of Common Stock actually issued upon the exercise of such options

or rights, upon the conversion or exchange of such securities, or upon the 

exercise of the options or rights related to such securities. 

	 	
 (ii) "Effective Date" with respect to the Series A Stock means the first date on 

which any shares of Series A Stock were issued. “Additional Stock" shall mean any shares

of Common Stock issued (or deemed to have been issued pursuant to subsection 3(c)(i)(E))

by the Corporation after the Effective Date other than: 

	 	
 (A) Common Stock issued pursuant to a transaction described in 

subsection 3(c)(iii); or 

 (B) Up to 297,500 shares of Common Stock issued or issuable to 

employees, directors or consultants of the Corporation for the purpose of an incentive

or under any warrant, stock option, stock purchase or similar plan approved by the 

Board; or 

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

Series A Stock. 

	 	
 (iii) In the event the Corporation should at any time or from time to time after the 

Effective Date fix a record date for the effectuation of a split or subdivision of the 

outstanding shares of Common Stock or the determination of holders of Common Stock 

entitled to receive a dividend or other distribution payable in additional shares of Common 

Stock or other securities or rights convertible into, or entitling the holder thereof to receive, 

directly or indirectly, additional shares of Common Stock (hereinafter referred to as 

"Common Stock Equivalents") without payment of any consideration by such holder for the 

additional shares of Common Stock or the Common Stock Equivalents (including the 

additional shares of Common Stock issuable upon conversion or exercise thereof), then, as 

of such record date (or the date of such dividend distribution, split or subdivision if no record

date is fixed), the Series A Conversion Price shall be appropriately decreased so that the 

number of shares of Common Stock issuable on conversion of each such share shall be 

increased in proportion to such increase of outstanding shares determined by taking 

subsection 3(c)(i)(E) into account. 

 (iv) If the number of shares of Common Stock outstanding at any time after the 

Effective Date is decreased by a combination of the outstanding shares of Common Stock, 

then, as of the record date of such combination, the Series A Conversion Price shall be 

appropriately increased so that the number of shares of Common Stock issuable on 

conversion of each such share shall be decreased in proportion to such decrease in 

outstanding shares. 

	
 (d) Other Distributions. In the event the Corporation shall declare a distribution payable

in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, 

SERIES A PREFERRED STOCK RESOLUTIONS OF 

TIMBERLINE RESOURCES CORPORATION - 5 

	
assets (excluding cash dividends), or options or rights not referred to in subsection 3(c)(iii), then, in 

each such case for the purpose of this subsection 3(d), the Series A Holders shall be entitled to a 

proportionate share of any such distribution as though they were the holders of the number of shares 

of Common Stock of the Corporation into which their shares of Series A Stock are convertible as of 

the record date fixed for the determination of the holders of Common Stock of the Corporation 

entitled to receive such distribution. 

 (e) Recapitalizations. If at any time or from time to time there shall be a recapitalization 

of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction 

provided for elsewhere in this Resolution), provision shall be made (in form and substance 

satisfactory to the holders of 80 percent or more of the Series A Stock then outstanding) so that the 

Series A Holders shall thereafter be entitled to receive, upon conversion of the Series A Stock, such 

shares or other securities or property of the Corporation or otherwise, to which a holder of Common 

Stock deliverable upon conversion would have been entitled on such recapitalization. In any such 

case, appropriate adjustment shall be made in the application of the provisions of this Resolution 

with respect to the rights of the Series A Holders after the recapitalization to the end that the 

provisions of this Resolution (including adjustment of the Series A Conversion Price then in effect 

and the number of shares that may be acquired upon conversion of shares of Series A Stock) shall be 

applicable after that event as nearly equivalent as may be practicable. 

 (f) No Impairment. Except as provided in subsection 5(b), the Corporation will not, by 

amendment of either this Resolution or its Articles of Incorporation, or through any reorganization, 

recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or 

any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms 

to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in 

the carrying out of all the provisions of this Resolution and in the taking of all such action as may be 

necessary or appropriate in order to protect the conversion rights of the Series A Holders against 

impairment. 

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

	 	
 (i) No fractional shares shall be issued upon conversion of shares of Series A 

Stock. In lieu of fractional shares, the number of shares of Common Stock to be issued shall 

be rounded to the nearest whole number; provided, however, that such determination shall be 

made on the basis of the total number of shares of Series A Stock the Series A Holder is at 

the time converting into Common Stock and the number of shares of Common Stock 

issuable upon such aggregate conversion. 

 (ii) Upon the occurrence of each adjustment of the Series A Conversion Price 

pursuant to subsection 3(c) of this Resolution, the Corporation, at its expense, shall promptly 

compute such adjustment in accordance with the terms hereof and prepare and furnish to 

each Series A Holder a certificate setting forth such adjustment and showing in detail the 

facts upon which such adjustment is based. The Corporation shall, upon the written request 

at any time of any Series A Holder, furnish or cause to be furnished to such Series A Holder 

a like certificate setting forth (A) such adjustment, (B) the Series A Conversion Price at the 

time in effect, and (C) the number of shares of Common Stock and the amount, if any, of 

other property which at the time would be received upon the conversion of such holder's 

	
SERIES A PREFERRED STOCK RESOLUTIONS OF 

TIMBERLINE RESOURCES CORPORATION - 6 

	 	
shares of Series A Stock.

	 	
 (h) Notices of Record Date. In the event of any taking by the Corporation of a record of 

its shareholders for the purpose of determining shareholders who are entitled to receive payment of 

any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase 

or otherwise acquire any shares of any class or any other securities or property, or to receive any 

other right, the Corporation shall mail to each Series A Holder, at least 20 days prior to the date 

specified therein, a notice specifying the date on which any such record is to be taken for the purpose

of such dividend, distribution or right, and the amount and character of such dividend, distribution or

right. 

 (i) Reservation of Common Stock Issuable Upon Conversion. The Corporation shall at 

all times reserve and keep available out of its authorized but unissued shares of Common Stock, 

solely for the purpose of effecting the conversion of the shares of Series A Stock, such number of its 

shares of Common Stock as shall from time to time be sufficient to effect the conversion of all 

outstanding shares of Series A Stock; and if at any time the number of authorized but unissued 

shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding 

shares of Series A Stock, the Corporation will take such corporate action as may, in the opinion of its

counsel, be necessary to increase its authorized but unissued shares of Common Stock to such 

number of shares as shall be sufficient for such purposes. 

 (j) Notices. Any notice required by the provisions of this section to be given to the 

Series A Holders shall be deemed to be delivered when deposited in the United States mail, postage 

prepaid, registered or certified, and addressed to each Series A Holder of record at his address 

appearing on the stock transfer books of the Corporation. 

	
4. Redemption of Series A Stock and Common Stock. 

	
 (a) Redemption Events. The Series A Stock of a holder thereof and any Common 

Stock issued upon the conversion of the Series A Stock (the “Converted Common Stock”) of a 

holder thereof (a “Converted Common Holder”) is subject to redemption at the written direction 

of such holder, at a redemption price equal to (i) in the case of Series A Stock, the liquidation 

preference set forth in subsection 2(a)(i) of this Resolution (which liquidation preference 

includes any accrued and unpaid dividends on the Series A Stock) and (ii) in the case of 

Converted Common Stock, at the average reported price of the Common Stock during the four 

calendar weeks immediately preceding the date notice of redemption is given pursuant to 

subsection 4(b) of this Resolution , if any one or more of the following events shall have 

occurred: 

	 	
 (i) If the Corporation shall not have obtained approval for the Common Stock 

to be listed and traded on an exchange that is registered as a “national securities exchange” 

pursuant to Section 6 of the Securities Exchange Act of 1934, as amended (the “Exchange 

Act”), on or before December 31, 2008; 

 (ii) If, after having been approved for listing and trading on an exchange that 

is registered as a “national securities exchange” pursuant to Section 6 of the Exchange 

	
SERIES A PREFERRED STOCK RESOLUTIONS OF 

TIMBERLINE RESOURCES CORPORATION - 7 

	 	
Act, the Common Stock is thereafter delisted from such exchange, or if trading in the 

Common Stock on such exchange is otherwise terminated or suspended; 

 (iii) If, after having been approved for listing and trading on an exchange that 

is registered as a “national securities exchange” pursuant to Section 6 of the Exchange 

Act, the average weekly reported volume of trading in the Common Stock on such 

exchange during the preceding four calendar weeks is less than 25 percent of the number 

of shares of Common Stock into which the outstanding Series A Stock is then 

convertible; 

 (iv) If, after having been approved for listing and trading on an exchange that 

is registered as a “national securities exchange” pursuant to Section 6 of the Exchange 

Act, the average reported price of the Common Stock on such exchange during the 

preceding four calendar weeks is less than the liquidation preference of the Series A 

Stock set forth in subsection 2(a)(i) of this Resolution (which liquidation preference 

includes any accrued and unpaid dividends on the Series A Stock); 

 (v) If the Corporation shall become insolvent, make a transfer in fraud to or an 

assignment for the benefit of its creditors, or admit in writing its inability to pay its debts as 

they become due; 

(vi) If a receiver, custodian, liquidator or trustee shall be applied for by the 

Corporation or shall be appointed for all or substantially all of the assets of the 

Corporation, or if any such receiver, custodian, liquidator or trustee shall be appointed in

any proceeding brought against the Corporation and such appointment is not contested or

is not dismissed or discharged within 60 days after such appointment, or if the 

Corporation shall acquiesce in such appointment; 

 (vii) If the Corporation shall file a petition for relief under the federal 

Bankruptcy Code, as amended, or under any similar law or statute of the United States or

any state thereof, or if the Corporation shall seek to take advantage of any insolvency 

law; 

 (viii) If a petition against the Corporation shall be filed commencing an 

involuntary case under any present or future federal or state bankruptcy or similar law, and 

such petition shall not be dismissed or discharged within 60 days of filing; or 

 (ix) If the Corporation shall have failed to honor any of its covenants and 

indemnity obligations set forth in section 9 of that certain stock purchase and sale 

agreement, dated February 17, 2006, to which it is a party; or

 (x) If the Corporation shall have failed to perform any of its obligations to the

other parties thereto under that certain registration rights agreement or that certain voting

trust agreement, each dated March __, 2006; or 

 (xi) If the Corporation shall at be the subject of a civil administrative or 

criminal proceeding or investigation, or civil suit, predicated on allegations that the 

	
SERIES A PREFERRED STOCK RESOLUTIONS OF

TIMBERLINE RESOURCES CORPORATION - 8 

	 	
Corporation or its controlling persons have violated the registration or antifraud 

provisions of federal or state securities law, and such proceeding, investigation or suit is

not dismissed or terminated without material prejudice to the Corporation or its 

shareholders within 180 days of filing. 

	
 (b) Notice of Redemption. Unless waived by the Corporation, notice of redemption 

shall be given by the Series A Holders or Converted Common Holders requesting redemption 

(the “Requesting Holders”) by mailing a copy of a redemption notice to the Corporation by first 

class mail at least 30 days and not more than 60 days prior to the redemption date. The notices 

of redemption shall be signed and dated by the Requesting Holders, and shall state: the names 

and addresses of the Requesting Holders; the number of shares of Series A Stock and Converted 

Common Stock held by each Requesting Holder; a concise statement of the event or events 

specified in subsection 4(a) of this Resolution on which the redemption is predicated; and the 

redemption price and a concise statement setting forth the basis on which the redemption price 

was calculated. 

 (c) Payment of Redemption Price. Upon receipt of the notice of redemption, the 

Corporation shall promptly (and, in any event, within five business days of its receipt of such 

notice) notify the Requesting Holders of the time when certificates for the Series A Stock or 

Converted Common Stock are to be surrendered at the principal offices of the Corporation 

against payment of the redemption price. Unless waived in writing by the Requesting Holders, 

the time of payment shall be no later than 30 days from the date the Corporation first received 

the notice of redemption. Except as provided in subsection 4(d) of this Resolution, the 

redemption price shall be in paid in lawful currency of the United States against delivery of 

certificates for the redeemed shares of Series A Stock or Converted Common Stock, duly 

endorsed by the Requesting Holders for transfer to the Corporation. 

 (d) Inability to Pay Redemption Price; Spin Off of Kettle Drilling. In the event the 

Corporation fails or is unable for any reason to pay the Requesting Holders the full redemption price

of the Series A Stock or Converted Common Stock in cash, then the following provisions shall 

apply: 

	 	
 (i) The Corporation’s failure or inability to pay the full redemption price of the 

Series A Stock or Converted Common Stock in cash shall thereupon constitute an offer by 

the Corporation to sell all of the issued and outstanding shares of capital stock of Kettle 

Drilling, Inc., an Idaho corporation and a wholly-owned subsidiary of the Corporation 

(“Kettle Drilling”) to the Requesting Holders. 

 (ii) The purchase price of all of the issued and outstanding shares of capital stock

of Kettle Drilling (the “Kettle Drilling Purchase Price”) shall be determined by multiplying 

the average reported price of the Common Stock during the four calendar weeks 

immediately preceding the date notice of redemption is given pursuant to subsection 4(b)

of this Resolution by 5,000,000 (being the number of shares of Common Stock into 

which the Series A Stock is convertible as of the date of this Resolution). 

 (iii) The Requesting Holders shall thereafter have a period of 60 days within 

which to evaluate the Corporation’s offer and notify the Corporation in writing whether they

	
SERIES A PREFERRED STOCK RESOLUTIONS OF

TIMBERLINE RESOURCES CORPORATION - 9 

	 	
accept it or reject it. Should they accept the Corporation’s offer, they shall pay the Kettle

Drilling Purchase Price as follows: 

	 	
 (A) The Requesting Holders shall surrender such number of shares of 

Series A Stock and Converted Common Stock to the Corporation as are sufficient to 

satisfy the Kettle Drilling Purchase Price. Such shares shall be valued at their 

respective redemption prices set forth in subsection 4(a) of this Resolution. 

 (B) If the value of the shares of Series A Stock and Converted Common 

Stock surrendered by the Requesting Holders is less than the Kettle Drilling Purchase

Price, then the Requesting Holders shall pay the Corporation an amount equal to the 

difference between the Kettle Drilling Purchase Price and the value of such 

surrendered shares. The terms of payment shall be such as may be agreed upon by 

the Corporation and the Requesting Holders. In the event the Corporation and the 

Requesting Holders cannot agree upon terms, then the Requesting Holders shall 

pay the obligation to the Corporation as follows: not less than ten percent (10%) 

of the purchase price shall be payable in cash upon the closing of the transaction; 

and the balance of the purchase price shall be evidenced by a full recourse 

promissory note of standard form having a maturity of not more than five years, 

with the declining balance bearing interest at a rate equal to the prime rate as 

published in The Wall Street Journal on or most recently prior to the closing date 

of the transaction. The first monthly installment shall be due and payable on the 

first of the month next following the date that is one month after the closing date 

of the transaction. The note shall be subject to prepayment in whole or in part at 

any time and without penalty. In the event of default in payment of any 

installment of principal or interest when due and after the expiration of ten days 

from the date the Corporation gave written notice to the Requesting Holders of 

such default, the whole sum of principal and interest shall become immediately 

due and payable at the option of the Corporation. The note shall provide for the 

payment of attorney fees and costs of suit by the Requesting Holders should any 

legal action for collection be commenced. 

	 	
 (iv) Should the Requesting Holders accept the Corporation’s offer, they and 

the Corporation shall schedule a closing date for the transaction, which shall be no more

than 60 days from the date the Requesting Holders notify the Corporation of their 

acceptance. In conjunction with such closing, the Requesting Holders and the 

Corporation agree to use their best efforts to remove the Corporation from all contingent

liability in connection with Kettle Drilling, including, but not limited to, guarantees on 

promissory notes, guarantees relating to bonding, and any other continuing guarantees 

relating or pertaining to Kettle Drilling and its operations that are binding upon the 

Corporation. In the event the Requesting Holders and the Corporation are unable to 

remove the Corporation from all such contingent liability, then the Requesting Holders 

shall jointly and severally indemnify and hold the Corporation harmless from any claim 

or cause of action which may arise as a result of any such contingent liability. 

	
5. Voting Rights and Protective Provisions.

	
SERIES A PREFERRED STOCK RESOLUTIONS OF

TIMBERLINE RESOURCES CORPORATION - 10 

	
 (a) General. Except as provided below and except as provided by law, the Common 

Holders and the Series A Holders shall at all times vote as a single class on an as-converted basis.

Each Series A Holder shall be entitled to vote the number of shares of Common Stock into which the

shares of Series A Stock may then be converted. 

 (b) Protective Provisions. So long as any shares of Series A Stock remain outstanding, 

the Corporation shall not, without the approval of the holders of 80 percent or more of the 

outstanding shares of the Series A Stock then outstanding: 

	 	
 (i) amend this Resolution, or amend the Articles of Incorporation or the bylaws 

of the Corporation if such action would alter or change the rights, preferences or privileges 

of the Series A Stock; 

(ii) declare or pay any dividends on, or make any distribution of any kind in 

regard to, the Common Stock; 

 (iii) create or authorize the creation or increase the authorized amount of any 

additional class or series of shares of stock, unless the same ranks junior to the Series A 

Stock as to dividends, redemption and the distribution of assets on the liquidation, 

dissolution or winding up of this corporation; increase the authorized amount of any 

additional class or series of shares of stock unless the same ranks junior to the Series A 

Stock as to dividends, redemption and the distribution of assets on the liquidation, 

dissolution or winding up of this corporation; or create or authorize any obligation or 

security convertible into shares of Series A Stock, regardless of whether any such 

creation, authorization or increase shall be by means of amendment to the Articles of 

Incorporation or by merger, consolidation or otherwise; 

(iv) alter or amend the rights, preferences or privileges of the Series A Stock 

(whether by merger, consolidation, combination, reclassification or otherwise), increase 

or decrease the authorized number of shares of Series A Stock or Common Stock, or 

issue additional shares of Series A Stock; 

 (v) merge or consolidate with or into any other corporation or entity except in 

connection solely with a change of domicile;

(vi) create, incur, assume or suffer to exist any mortgage, deed of trust, pledge,

lien, security interest, or other charge or encumbrance (including the lien or security title 

of a conditional vendor) of any nature (other than in respect of ad valorem taxes) with a 

value exceeding $100,000, upon or with respect to the Corporation’s or any of its 

subsidiaries’ assets or properties, other than such mortgages, deeds of trust, pledges, 

liens, security interests, charges and encumbrances in existence as of the date of this 

Resolution;

 (vii) enter into or renew any loan agreement or issue debt securities, in either case 

where the principal amount of the Corporation’s financial obligations evidenced by such 

agreement or securities exceeds ten percent of the Corporation’s prior book value as 

reasonably determined by the Board. 

	
SERIES A PREFERRED STOCK RESOLUTIONS OF

TIMBERLINE RESOURCES CORPORATION - 11 

	 	
(viii) increase the number of shares to be reserved for issuance under any 

incentive, officer, consultant or employee option plan as same exists as of the date of this

Resolution;

(ix) redeem or purchase any security issued by the Corporation other than as 

provided in section 4 of this Resolution. 

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

Corporation) or consolidate Kettle Drilling and the Corporation with or into any corporation 

or entity 

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

of the Corporation; or 

	 	
 (xii) acquire any other corporation by merger, or purchase all or substantially all

of the assets of any other company, in either case where the consideration paid by the 

Corporation exceeds ten percent of the Corporation's prior book value as reasonably 

determined by the Board consistent with the terms of the acquisition transaction; or 

	 	
6. Preemptive Right. In the event the Corporation shall offer for sale New Securities (as 

defined below), each Series A Holder shall be entitled to purchase its pro rata share of the New 

Securities, on the same terms and conditions and at the same price as that offered to third parties.

The pro rata share of a Series A Holder for purposes of this section 6 is the ratio of the number of 

shares of Common Stock into which the shares of Series A Stock so held are then convertible to the 

sum of the total number of shares of Common Stock into which all shares of Series A Stock then 

outstanding are convertible plus the number of shares of Common Stock then outstanding. This 

preemptive right shall be subject to the following provisions: 

 (a) "New Securities" shall mean any shares of the Corporation's Common Stock or 

preferred stock (the “Preferred Stock”) and rights, options or warrants to purchase such shares of 

Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, 

convertible into such shares of Common Stock or Preferred Stock; provided that New Securities 

does not include: 

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

 (ii) securities issued in an underwritten public offering, pursuant to an effective 

registration statement under the Securities Act of 1933, as amended; 

 (iii) securities issued pursuant to the acquisition of another corporation by merger, 

the purchase of all or substantially all of its assets, or other reorganization; 

 (iv) securities issued to employees, officers or directors of, or consultants to, the 

Corporation, pursuant to an arrangement approved by the Board, which arrangement is 

	
SERIES A PREFERRED STOCK RESOLUTIONS OF 

TIMBERLINE RESOURCES CORPORATION - 12 

	 	
related directly to their services for the Corporation; or 

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

Corporation. 

	
 (b) Notice. In the event the Corporation proposes to undertake an issuance of New 

Securities, it shall give each Series A Holder written notice of its intention, describing the type of 

New Securities and the price and terms upon which the Corporation proposes to issue the same. 

Each Series A Holder shall have 30 days from the date of receipt of any such notice to agree to 

purchase up to its pro rata share of such New Securities for the price and upon the terms specified in 

the notice by giving written notice to the Corporation and stating therein the quantity of New 

Securities to be purchased. In the event any Series A Holder elects not to exercise its preemptive 

right, it shall so notify the other Series A Holders in writing, and the remaining Series A Holders, or 

any of them, shall thereafter have the right, exercisable within such 30-day period, to purchase the 

unexercised portion of such Series A Holder's pro rata share of the New Securities, for the price and 

upon the terms specified in the notice. The number of shares of the New Securities to be purchased 

by the remaining Series A Holders under such circumstances shall be determined in accordance with

the pro rata share of such electing Series A Holder determined by the ratio of the number of shares 

of Common Stock into which the shares of Series A Stock of the electing holders are then 

convertible to the sum of the total number of shares of Common Stock into which all shares of 

Series A Stock of the electing holders are then convertible. 

 (c) Sale. The Corporation shall have 120 days thereafter to sell the New Securities 

respecting which the foregoing preemptive rights were not exercised or did not apply, at the price 

and upon terms no more favorable to the purchasers of such securities than specified in the 

Corporation's notice. In the event the Corporation has not sold the New Securities within such 120-

day period, the Corporation shall not thereafter issue or sell any New Securities without first offering

such securities to the Series A Holders in the manner provided above. 

 (d) Termination. All rights under this section 6 of this Resolution shall terminate when 

the Corporation's Common Stock first becomes approved for listing and trading on an exchange that 

is registered as a “national securities exchange” pursuant to Section 6 of the Exchange Act. 

7. Filing with the Secretary of State. This Resolution, when executed on behalf of the 

Corporation, shall constitute an amendment to the Corporation’s Articles of Incorporation. Once 

executed, the Corporation shall promptly cause a copy of this Resolution to be filed with the 

Secretary of State of the State of Idaho as an amendment to its Articles of Incorporation. 

	
SERIES A PREFERRED STOCK RESOLUTIONS OF

TIMBERLINE RESOURCES CORPORATION - 13 

	 	
Exhibit C to Stock Purchase and Sale Agreement

	 	
REGISTRATION RIGHTS AGREEMENT

	
 This Registration Rights Agreement (the "Agreement") is made and entered into as of 

March 3, 2006 by and among Timberline Resources Corporation (“Timberline Resources”), an

Idaho corporation, and 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. 

	
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.	
	 
	 	
1.2      		
Company means Kettle Drilling, Inc., an Idaho corporation, and its successors.	
	 

	
EMPLOYMENT AGREEMENT - 1

	 	
1.3 Disability means that Employee is unable to actively perform his duties under this

Employment Agreement by reason of a medically determinable physical or mental 

impairment. In the event that there is a dispute as to whether or not Employee is 

disabled, such dispute shall be submitted to arbitration. The Company and the Employee 

shall each promptly appoint an arbitrator in writing, and the two arbitrators so appointed 

shall appoint a third arbitrator. The good faith decision of a majority of the arbitrators 

shall be binding upon the parties. If, for any reason, after demand, no arbitrator is 

appointed, the arbitrator or arbitrators shall be appointed by a judge of the District Court 

of Kootenai County, Idaho upon proper application made by an interested party. The 

determination by the arbitrators shall be in writing. The arbitrator or arbitrators chosen to 

resolve a dispute under this section shall all be physicians licensed in the State of Idaho 

as medical doctors. 

	 	
1.4 Effective Date means March 1, 2006. 

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

	 	
have been given and served as of the date of the personal delivery thereof or, in the event

that such notice is mailed, as of the date of receipt thereof. 

1.6 Retirement shall mean that Employee has reached retirement age and has retired 

from the employment of the Company, whether such retirement is voluntary or 

mandatory. The retirement age shall be the age of sixty-five (65) years, or such lesser or 

greater age as the board of directors of the Company may from time-to-time or at any 

time establish. 

1.7 Voluntary Resignation shall mean termination by Employee of his employment 

with the Company that is effected voluntarily for any reason other than disability or 

retirement. 

	
2. Prior Agreements.

	
All agreements previously entered into by and between Employee and the Company 

relating to the employment of Employee are hereby revoked and shall be of no further force or

effect, and the provisions of this Employment Agreement alone shall govern the Employee's 

employment. 

	
3. Employment.

	
The Company hereby employs Employee to perform the duties generally described in this

Employment Agreement, and Employee hereby accepts and agrees to such employment on the 

terms and conditions hereinafter set forth. 

	 	
3.1 Term. Employee's employment shall be deemed to have commenced on the 

Effective Date and shall continue thereafter for a period of three years unless earlier

terminated as herein provided. 

	
EMPLOYMENT AGREEMENT - 2

	 	
3.2 Duties. Employee shall have the title of president, shall be a member of the board

of directors of the Company, and shall be primarily responsible for all aspects of the 

Company’s business. Despite such titles and responsibility, Employee shall not be 

obligated to devote more than three to four hours of working time per day to the business 

of the Company. Further, Employee may engage in other substantial business activities 

during the term of this Employment Agreement provided such activities do not materially

interfere or conflict with the performance of his duties hereunder and do not violate the 

covenant not to compete set forth in Section 7 hereof. 

	
4. Compensation.

	
As compensation for all services rendered to the Company during the term of this 

Employment Agreement, in whatever capacity rendered, Employee shall have and receive the

following compensation:

	 	
4.1 Salary. The Company shall pay Employee an annual salary of $162,000 during 

each full year of his employment pursuant to this Employment Agreement, which salary 

shall be payable in equal monthly payments of $13,500 on or after the fifth day of each 

month but before the twentieth day of each month. 

4.2 Fringe Benefits. The Company shall pay for (or reimburse Employee for the cost 

of) medical and dental insurance for Employee and Employee’s spouse for so long as 

Employee is employed by the Company. In addition, the Company shall pay for medical 

and dental insurance for Employee and Employee’s spouse following the termination of 

Employee’s employment by the Company (irrespective of whether Employee is then 

living), unless such termination is for Cause, as provided in Section 8.5 of this 

Employment Agreement, subject, however, to the following limitations and conditions:

(a) the Company shall not be obligated to pay more than $12,000 per year for such 

insurance; and (b) the Company’s obligation to pay for such insurance shall commence as

of the expiration of Employee’s employment and shall continue for a period of time equal

to five years plus one additional year for each full year that Employee is employed by the 

Company. The Company shall also pay Employee a non-accountable expense allowance 

of $1,500 per month, which Employee shall expend to further the Company’s business 

and its business relationships. 

4.3 Performance Bonuses and Incentive Compensation. In addition to salary and 

fringe benefits, Employee shall be entitled to receive performance bonuses and other 

incentive compensation on the terms and subject to the conditions set forth in Exhibit A 

to this Employment Agreement. 

4.4 Automobiles. In addition to salary and fringe benefits, the Company shall provide 

Employee a Company truck for Employee’s use in furtherance of the Company’s business.

The Company shall also pay (or reimburse Employee for) all reasonable gasoline, 

maintenance and insurance charges and expenses relating to such vehicle. 

	
EMPLOYMENT AGREEMENT - 3

	 	
4.5 Ratification of Prior Bonus and Transfer of Title to Other Vehicle. The Company 

hereby ratifies its 2004 bonus to Employee to repay the existing indebtedness relating to the

following described vehicle, and to transfer title to such vehicle to Employee during 

calendar year 2006. 

	 	
Make:  Jaguar 

Model: XKR 

Year:  2006 

VIN:  SADJA42B263A540B

	
 4.6 Payment of Tax Liability for Deemed Distributions. The Company agrees that it 

will pay or reimburse Employee for any federal or state income taxes that are paid or payable by 

Employee with respect to any pass-through income that Employee is deemed to have been 

received (but does not actually receive) during (a) the tax year ended December 31, 2005 and (b)

the period commencing January 1, 2006 and ending the effective date of the Company’s election

not to be taxed as an S corporation for federal income tax purposes. 

	
5. Vacations.

	
Employee shall be entitled to six weeks of paid vacation each calendar year during the term

of this Employment Agreement. Should Employee have any earned but unused vacation time at 

the expiration of the calendar year in which it was earned, he shall be entitled to carry a 

maximum of six weeks (or such lesser amount as was earned and is unused) into the next 

calendar year. 

6. Continuation of Salary during Disability. 

In the event becomes disabled and his employment is terminated because of disability, his 

base monthly compensation shall be continued for a period of time equal to the lesser of (a) the 

period of disability or (b) six months from the date Employee becomes disabled or his 

employment was terminated because of disability. The amount of any salary payments shall be 

reduced by the amount of any disability insurance benefits from policies paid for by the 

Company or Social Security benefits receivable by Employee that are attributable to his 

disability. Nothing in this section shall be deemed to compel the Company to acquire insurance 

to fund its obligations hereunder, but it may, in its discretion, do so. 

	
7. Covenant Not to Compete.

	
Employee, while an employee and following termination, agrees to abide by the following

covenant not to compete: 

	 	
7.l Employee recognizes that while an employee he may develop or be exposed to 

unique, valuable and special confidential information, know-how, customer lists and 

trade secrets that are the property of the Company or its customers. Employee agrees that

so long as such confidential information, know-how, customer lists, and trade secrets 

remain protectable, he will not use or divulge them except as required to meet his 

	
EMPLOYMENT AGREEMENT - 4

	 	
obligations to the Company and will not undertake any employment or other position 

competitive with the Company wherein the complete fulfillment of the duties of such 

competitive position would inherently call upon him to reveal, base judgments upon, or 

otherwise use any such confidential information, know-how, customer lists, or trade 

secrets. 

7.2 Employee agrees that reports, customer lists, customer prospect files, rate and 

billing information, technical information, and other materials integral to the Company's 

business used or produced by him or coming into his possession by or through his status 

as an employee of the Company are the property of the Company and shall be 

surrendered upon withdrawal without retaining any copies, extracts or notes thereof. 

7.3 Employee agrees that while an employee, and for a period of three years 

following termination of employment, he will not directly or indirectly solicit or attempt 

to solicit business or sell, write or do business with any customer with whom the 

Company was doing business as of the date of Employee's termination. 

7.4 Employee agrees that while an employee, and for a period of three years 

following termination of his employment, he will not directly or indirectly engage in a 

business competitive with that of the Company. Employee further agrees that for a 

period of three years following termination, he will not induce or attempt to induce any 

person to leave employment with the Company, or hire or employ any person employed 

by the Company as of the date of Employee's termination. 

7.5 The Company shall have the right to seek and secure an injunction to enforce the 

provisions of the covenant, but that remedy shall not be exclusive. 

	
8. Termination. 

This Employment Agreement and Employee's employment hereunder shall continue as 

provided in Section 3.1 until terminated as hereinafter provided. Notwithstanding the 

termination of this Employment Agreement, the parties shall be required to carry out any 

provisions hereof which contemplate performance by them subsequent to such termination, and 

such termination shall not affect any liability or other obligation which shall have accrued prior 

to such termination, including, but not limited to, any liability for loss or damage on account of 

default or any obligation arising under the covenant not to compete. This Employment 

Agreement shall terminate upon the occurrence of any of the following events:

	 	
8.1 Death of Employee. This Employment Agreement shall automatically terminate 

without notice upon the death of Employee. The Company shall pay the monthly base 

salary of Employee to the estate of Employee for the full month in which such death 

occurs and for an additional two months thereafter. 

8.2 Retirement and Retirement Benefit. Employee may retire at any time after 

Employee has reached retirement age, as herein defined, by giving the Company not less

than sixty days written notice of his intent to retire, specifying the date of retirement.

	
EMPLOYMENT AGREEMENT - 5

	 	
The Company shall not be obligated to pay Employee a monthly retirement benefit 

following his retirement, but shall endeavor in good faith from and after the Effective 

Date of this Employment Agreement to devise and implement a retirement plan for 

Employee and other employees of the Company. Employee acknowledges and 

understands that the Company is under no obligation to devise or implement such a plan. 

 Employee further acknowledges and understands that, if the Company does devise and 

implement a retirement plan, it may make only partial contributions to the plan and may 

condition such contributions on the Company’s earnings or other benchmarks of financial

performance. 

8.3 Disability. This Employment Agreement may be terminated unilaterally by the 

board of directors of the Company in the event of disability of Employee, as herein 

defined, which shall have continued for a period of more than three months. 

8.4 Voluntary Resignation. Employee may voluntarily resign at any time during the 

term of his employment by the Company, provided that he gives the Company not less 

than six months written notice of his intention to resign, specifying the effective date of 

such resignation.

8.5 Termination of Employment for Cause. The Company may terminate the 

employment of Employee for Cause, as herein defined, without notice. 

8.6 Termination of Employment other than for Cause. The Company may terminate 

the employment of Employee without Cause upon three months’ written notice. If the 

Company shall terminate the employment of Employee other than for Cause, then it shall 

(a) pay Employee (or Employee’s spouse, should Employee die), a severance benefit 

equal to three years’ salary based on Employee’s base monthly salary immediately 

preceding his termination and (b) pay for (or reimburse Employee for the cost of) such 

medical and dental insurance as Company is then obligated to pay Employee pursuant to 

Section 4.3 of this Employment Agreement. 

8.7 Termination of Employment for Breach. The employment of Employee may be 

terminated by Employee upon breach of a material term of this Employment Agreement 

by the Company, provided that Employee shall give the Company not less than sixty days

written notice of the intent to terminate for breach, specifying the nature of the breach. In

the event that the Company cures such breach prior to the passage of such sixty-day 

period, Employee's right to terminate for such breach shall cease. 

8.8 Termination upon Cessation of Business. In the event the Company shall cease 

the active conduct of its business, the employment of Employee shall be deemed 

terminated. 

	
9. Insurance.

	
The Company reserves the right to acquire insurance on the life or health of Employee,

naming itself as the beneficiary thereof. The Company shall be the sole owner of all such 

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

	
EMPLOYMENT AGREEMENT - 6

	 	
10. Notices.

	 	
Any notice transmitted by either party to this Employment Agreement to any other party 

hereto may be served personally upon such other party or mailed to such other party, in the case 

of the Company, to its registered office; and in the case of Employee, to the address of Employee

appearing on the books of the Company or such other address as may be designated in writing by

Employee. 

	 	
11. Termination of Corporate Office.

	 	
In the event that the employment of Employee hereunder is terminated for any reason and

Employee shall hold office as an officer of the Company, such office shall terminate and 

Employee shall be deemed to have resigned the same automatically and without notice as of the 

effective date of termination of employment. 

	
12. General Provisions. 

	 	
12.1 Venue and Governing Law. This Employment Agreement is made in accordance 

with and shall be interpreted and governed by the laws of the State of Idaho. If any 

action or other proceeding shall be brought on or in connection with this Employment 

Agreement, the venue of such action shall be in Kootenai County, Idaho. 

12.2 Attorney's Fees. In the event that it shall become necessary for either of the 

parties to obtain the services of an attorney in order to enforce the provisions hereof, 

then, in that event, the defaulting party shall pay the prevailing party all reasonable 

attorney's fees and all costs incurred in connection therewith, including the costs of any 

appeal.

12.3 Assignments. This Employment Agreement is personal to each of the parties 

hereto, and neither party may assign or delegate any of the rights or obligations 

hereunder without first obtaining the written consent of the other party. No assignment 

or assumption of any obligation hereunder shall relieve either party hereto from liability 

for any obligation hereunder.

12.4 Amendment. No amendment, waiver or modification of this Employment 

Agreement or of any term or condition hereof shall be valid or effective unless in writing 

and approved by the Company and Employee. 

12.5 Arbitration. All disputes arising under this Employment Agreement shall be 

resolved through arbitration. The arbitration of any dispute hereunder shall be conducted 

in accordance with the Idaho Uniform Arbitration Act. Except as provided at paragraph 

12.2, the cost of any such arbitration shall be borne equally by Employee and the 

Company. 

12.6 Merger Clause. This Employment Agreement expresses the full and final 

purpose and agreement of the parties relating to employment of Employee. 

	
EMPLOYMENT AGREEMENT - 7 

	 	
12.7 Severability. Each provision of this Employment Agreement shall be considered 

severable and if, for any reason, any provision hereof or remedy herein provided is 

determined to be invalid, such invalidity shall not impair the operation or effect of the 

remaining provisions hereof which are valid. 

12.8 Successors. Except as expressly provided otherwise herein, all of the rights of the 

parties hereunder shall inure to the benefit of and all obligations of the parties hereunder 

shall bind the parties' heirs, personal representatives, successors and assigns. 

12.9 Execution of Documents. Each of the parties agrees to execute all documents 

necessary to implement the provisions of this Employment Agreement. 

12.10 No Trust Relationship. Nothing contained in this Employment Agreement and no 

action taken pursuant to the provisions of this Employment Agreement shall create or be 

construed to create a trust of any kind, or a fiduciary relationship between the Company 

and Employee. Any amounts or assets referred to under the provisions of this 

Employment Agreement shall continue for all purposes to be a part of the general funds 

of the Company, and no person other than the Company shall by virtue of the provisions 

of this Employment Agreement have any interest in such funds. To the extent that any 

person acquires a right to receive payments from the Company under this Employment 

Agreement, such rights shall be no greater than the right of any unsecured creditor of the 

Company. 

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

purposes only. 

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

	
EMPLOYMENT AGREEMENT - 8 

	 	
Schedule A to Employment Agreement

	 	
Bonus and Incentive Compensation

	
In addition to salary and fringe benefits, the Company agrees to pay Employee the following 

bonus and incentive compensation: 

A. Revenue-Based Cash Bonus. The Company shall pay Employee a bonus for the fiscal 

year ending December 31, 2006 if the Company’s gross revenue for such fiscal year is greater 

than $4,800,000. For each year thereafter during the term of this Agreement, the Company shall 

pay Employee a bonus if the Company’s gross revenue for such fiscal year increased over the 

Company’s gross revenue for the prior fiscal year. The amount of such bonus shall be equal to 

two percent of any such increase in gross revenue, and shall be paid to Employee within 45 days 

of the end of the fiscal year in which it was earned. 

B. Net Revenue-Based Cash Bonus. In addition to the bonus specified in paragraph A, 

above, the Company shall pay Employee a bonus for the fiscal year ending December 31, 2006 if

the Company’s net revenue for such fiscal year before deduction of taxes, depreciation and 

amortization (hereinafter referred to as “Company Net Revenue”) is greater than $760,000. For 

each year thereafter during the term of this Agreement, the Company shall pay Employee a 

bonus if Company Net Revenue for such fiscal year increased over Company Net Revenue for 

the prior fiscal year. The amount of such bonus shall be equal to five percent of any such 

increase in Company Net Revenue, and shall be paid to Employee within 45 days of the end of 

the fiscal year in which it was earned. 

C. Acquisition-Based Stock Options Bonus. In addition to the cash bonuses specified in 

paragraphs A and B, above, the Company shall pay Employee a bonus in the event the Company 

acquires another hard rock drilling business by merger (provided the Company is the surviving 

corporation), consolidation, or the purchase of all or substantially all of the assets of such 

business. The amount of such bonus shall be equal to the greater of (i) five percent of the total 

assets of the acquired business or (ii) five percent of the gross revenue of the acquired business 

for the fiscal year immediately preceding the date of acquisition. 

The bonus shall be paid to Employee within 45 days of the closing date of the acquisition 

transaction either by (a) the issuance and delivery to Employee of shares of common stock of the 

Company or (b) by the issuance and delivery to Employee of ten-year options to purchase 

common stock of the Company, whichever Employee shall elect to receive. 

Should Employee elect to receive shares of common stock of the Company in payment of the 

bonus, the number of shares issuable and deliverable to him shall be determined by dividing the 

amount of the bonus (namely, the greater of five percent of the total assets of the acquired 

business or five percent of the gross revenue of the acquired business for the fiscal year 

immediately preceding the date of acquisition) by the market value of the Company’s common 

stock as of the end of the fiscal quarter immediately preceding the date the Company publicly 

	
EMPLOYMENT AGREEMENT - 9

	
announces the acquisition upon which the bonus is predicated. 

Should employee elect to receive stock options in payment of the bonus, such options shall be 

exercisable at any time during such ten-year period at a price per share equal to the market price

of the Company’s common stock as of the end of the fiscal quarter immediately preceding the 

date the Company publicly announces the acquisition upon which the bonus is predicated. The 

number of stock options to be granted to Employee shall be determined by dividing the amount 

of the bonus (namely, the greater of five percent of the total assets of the acquired business or 

five percent of the gross revenue of the acquired business for the fiscal year immediately 

preceding the date of acquisition) by the value of each option as of as of the date of grant. The 

value of such option shall be the same value that the Company ascribes to such option as 

compensation expense, determined in accordance with Financial Accounting Standard 123(R), 

Accounting for Stock-Based Compensation. 

	
EMPLOYMENT AGREEMENT - 10

	
Exhibit D-2 to Stock Purchase and Sale Agreement

EMPLOYMENT AGREEMENT 

The PARTIES to this Employment Agreement are:

	
1.      		
KETTLE DRILLING, INC., an Idaho corporation, whose address is 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.	
	 
	 	
1.2      		
Company means Kettle Drilling, Inc., an Idaho corporation, and its successors.	
	 

	
EMPLOYMENT AGREEMENT - 1

	 	
1.3 Disability means that Employee is unable to actively perform his duties under this

Employment Agreement by reason of a medically determinable physical or mental 

impairment. In the event that there is a dispute as to whether or not Employee is 

disabled, such dispute shall be submitted to arbitration. The Company and the Employee 

shall each promptly appoint an arbitrator in writing, and the two arbitrators so appointed 

shall appoint a third arbitrator. The good faith decision of a majority of the arbitrators 

shall be binding upon the parties. If, for any reason, after demand, no arbitrator is 

appointed, the arbitrator or arbitrators shall be appointed by a judge of the District Court 

of Kootenai County, Idaho upon proper application made by an interested party. The 

determination by the arbitrators shall be in writing. The arbitrator or arbitrators chosen to 

resolve a dispute under this section shall all be physicians licensed in the State of Idaho 

as medical doctors. 

	 	
1.4 Effective Date means March 1, 2006. 

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

	 	
have been given and served as of the date of the personal delivery thereof or, in the event

that such notice is mailed, as of the date of receipt thereof. 

1.6 Retirement shall mean that Employee has reached retirement age and has retired 

from the employment of the Company, whether such retirement is voluntary or 

mandatory. The retirement age shall be the age of sixty-five (65) years, or such lesser or 

greater age as the board of directors of the Company may from time-to-time or at any 

time establish. 

1.7 Voluntary Resignation shall mean termination by Employee of his employment 

with the Company that is effected voluntarily for any reason other than disability or 

retirement. 

	
2. Prior Agreements.

	
All agreements previously entered into by and between Employee and the Company 

relating to the employment of Employee are hereby revoked and shall be of no further force or

effect, and the provisions of this Employment Agreement alone shall govern the Employee's 

employment. 

	
3. Employment.

	
The Company hereby employs Employee to perform the duties generally described in this

Employment Agreement, and Employee hereby accepts and agrees to such employment on the 

terms and conditions hereinafter set forth. 

	 	
3.1 Term. Employee's employment shall be deemed to have commenced on the 

Effective Date and shall continue thereafter for a period of three years unless earlier

terminated as herein provided. 

	
EMPLOYMENT AGREEMENT - 2

	 	
3.2 Duties. Employee shall have the title of vice president, shall be a member of the 

board of directors of the Company, and shall be primarily responsible for all aspects of 

the Company’s business. Despite such titles and responsibility, Employee shall not be 

obligated to devote more than three to four hours of working time per day to the business 

of the Company. Further, Employee may engage in other substantial business activities 

during the term of this Employment Agreement provided such activities do not materially

interfere or conflict with the performance of his duties hereunder and do not violate the 

covenant not to compete set forth in Section 7 hereof. 

	
4. Compensation.

	
As compensation for all services rendered to the Company during the term of this 

Employment Agreement, in whatever capacity rendered, Employee shall have and receive the

following compensation:

	 	
4.1 Salary. The Company shall pay Employee an annual salary of $162,000 during 

each full year of his employment pursuant to this Employment Agreement, which salary 

shall be payable in equal monthly payments of $13,500 on or after the fifth day of each 

month but before the twentieth day of each month. 

4.2 Fringe Benefits. The Company shall pay for (or reimburse Employee for the cost 

of) medical and dental insurance for Employee and Employee’s spouse for so long as 

Employee is employed by the Company. In addition, the Company shall pay for medical 

and dental insurance for Employee and Employee’s spouse following the termination of 

Employee’s employment by the Company (irrespective of whether Employee is then 

living), unless such termination is for Cause, as provided in Section 8.5 of this 

Employment Agreement, subject, however, to the following limitations and conditions:

(a) the Company shall not be obligated to pay more than $12,000 per year for such 

insurance; and (b) the Company’s obligation to pay for such insurance shall commence as

of the expiration of Employee’s employment and shall continue for a period of time equal

to five years plus one additional year for each full year that Employee is employed by the 

Company. The Company shall also pay Employee a non-accountable expense allowance 

of $1,500 per month, which Employee shall expend to further the Company’s business 

and its business relationships. 

4.3 Performance Bonuses and Incentive Compensation. In addition to salary and 

fringe benefits, Employee shall be entitled to receive performance bonuses and other 

incentive compensation on the terms and subject to the conditions set forth in Exhibit A 

to this Employment Agreement. 

4.4 Automobiles. In addition to salary and fringe benefits, the Company shall provide 

Employee a Company truck for Employee’s use in furtherance of the Company’s business.

The Company shall also pay (or reimburse Employee for) all reasonable gasoline, 

maintenance and insurance charges and expenses relating to such vehicle. 

	
EMPLOYMENT AGREEMENT - 3

	 	
4.5 Ratification of Prior Bonus and Transfer of Title to Other Vehicle. The Company 

hereby ratifies its 2004 bonus to Employee to repay the existing indebtedness relating to the

following described vehicle, and to transfer title to such vehicle to Employee during 

calendar year 2006. 

	 	
Make:  BMW 

Model: M3 

Year:  2004 

VIN:  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. 

	
7. Covenant Not to Compete.

	
Employee, while an employee and following termination, agrees to abide by the following

covenant not to compete: 

	 	
7.l Employee recognizes that while an employee he may develop or be exposed to 

unique, valuable and special confidential information, know-how, customer lists and 

trade secrets that are the property of the Company or its customers. Employee agrees that

so long as such confidential information, know-how, customer lists, and trade secrets 

remain protectable, he will not use or divulge them except as required to meet his 

	
EMPLOYMENT AGREEMENT - 4

	 	
obligations to the Company and will not undertake any employment or other position 

competitive with the Company wherein the complete fulfillment of the duties of such 

competitive position would inherently call upon him to reveal, base judgments upon, or 

otherwise use any such confidential information, know-how, customer lists, or trade 

secrets. 

7.2 Employee agrees that reports, customer lists, customer prospect files, rate and 

billing information, technical information, and other materials integral to the Company's 

business used or produced by him or coming into his possession by or through his status 

as an employee of the Company are the property of the Company and shall be 

surrendered upon withdrawal without retaining any copies, extracts or notes thereof. 

7.3 Employee agrees that while an employee, and for a period of three years 

following termination of employment, he will not directly or indirectly solicit or attempt 

to solicit business or sell, write or do business with any customer with whom the 

Company was doing business as of the date of Employee's termination. 

7.4 Employee agrees that while an employee, and for a period of three years 

following termination of his employment, he will not directly or indirectly engage in a 

business competitive with that of the Company. Employee further agrees that for a 

period of three years following termination, he will not induce or attempt to induce any 

person to leave employment with the Company, or hire or employ any person employed 

by the Company as of the date of Employee's termination. 

7.5 The Company shall have the right to seek and secure an injunction to enforce the 

provisions of the covenant, but that remedy shall not be exclusive. 

	
8. Termination. 

This Employment Agreement and Employee's employment hereunder shall continue as 

provided in Section 3.1 until terminated as hereinafter provided. Notwithstanding the 

termination of this Employment Agreement, the parties shall be required to carry out any 

provisions hereof which contemplate performance by them subsequent to such termination, and 

such termination shall not affect any liability or other obligation which shall have accrued prior 

to such termination, including, but not limited to, any liability for loss or damage on account of 

default or any obligation arising under the covenant not to compete. This Employment 

Agreement shall terminate upon the occurrence of any of the following events:

	 	
8.1 Death of Employee. This Employment Agreement shall automatically terminate 

without notice upon the death of Employee. The Company shall pay the monthly base 

salary of Employee to the estate of Employee for the full month in which such death 

occurs and for an additional two months thereafter. 

8.2 Retirement and Retirement Benefit. Employee may retire at any time after 

Employee has reached retirement age, as herein defined, by giving the Company not less 

than sixty days written notice of his intent to retire, specifying the date of retirement.

	
EMPLOYMENT AGREEMENT - 5 

	 	
The Company shall not be obligated to pay Employee a monthly retirement benefit 

following his retirement, but shall endeavor in good faith from and after the Effective 

Date of this Employment Agreement to devise and implement a retirement plan for 

Employee and other employees of the Company. Employee acknowledges and 

understands that the Company is under no obligation to devise or implement such a plan. 

 Employee further acknowledges and understands that, if the Company does devise and 

implement a retirement plan, it may make only partial contributions to the plan and may 

condition such contributions on the Company’s earnings or other benchmarks of financial

performance. 

8.3 Disability. This Employment Agreement may be terminated unilaterally by the 

board of directors of the Company in the event of disability of Employee, as herein 

defined, which shall have continued for a period of more than three months. 

8.4 Voluntary Resignation. Employee may voluntarily resign at any time during the 

term of his employment by the Company, provided that he gives the Company not less 

than six months written notice of his intention to resign, specifying the effective date of 

such resignation.

8.5 Termination of Employment for Cause. The Company may terminate the 

employment of Employee for Cause, as herein defined, without notice. 

8.6 Termination of Employment other than for Cause. The Company may terminate 

the employment of Employee without Cause upon three months’ written notice. If the 

Company shall terminate the employment of Employee other than for Cause, then it shall 

(a) pay Employee (or Employee’s spouse, should Employee die), a severance benefit 

equal to three years’ salary based on Employee’s base monthly salary immediately 

preceding his termination and (b) pay for (or reimburse Employee for the cost of) such 

medical and dental insurance as Company is then obligated to pay Employee pursuant to 

Section 4.3 of this Employment Agreement. 

8.7 Termination of Employment for Breach. The employment of Employee may be 

terminated by Employee upon breach of a material term of this Employment Agreement 

by the Company, provided that Employee shall give the Company not less than sixty days

written notice of the intent to terminate for breach, specifying the nature of the breach. In

the event that the Company cures such breach prior to the passage of such sixty-day 

period, Employee's right to terminate for such breach shall cease. 

8.8 Termination upon Cessation of Business. In the event the Company shall cease 

the active conduct of its business, the employment of Employee shall be deemed 

terminated. 

	
9. Insurance.

	
The Company reserves the right to acquire insurance on the life or health of Employee,

naming itself as the beneficiary thereof. The Company shall be the sole owner of all such 

	
EMPLOYMENT AGREEMENT - 6

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

	
10. Notices.

	
Any notice transmitted by either party to this Employment Agreement to any other party 

hereto may be served personally upon such other party or mailed to such other party, in the case 

of the Company, to its registered office; and in the case of Employee, to the address of Employee

appearing on the books of the Company or such other address as may be designated in writing by

Employee. 

	
11. Termination of Corporate Office.

	
In the event that the employment of Employee hereunder is terminated for any reason and

Employee shall hold office as an officer of the Company, such office shall terminate and 

Employee shall be deemed to have resigned the same automatically and without notice as of the 

effective date of termination of employment. 

	
12. General Provisions. 

	 	
12.1 Venue and Governing Law. This Employment Agreement is made in accordance 

with and shall be interpreted and governed by the laws of the State of Idaho. If any 

action or other proceeding shall be brought on or in connection with this Employment 

Agreement, the venue of such action shall be in Kootenai County, Idaho. 

12.2 Attorney's Fees. In the event that it shall become necessary for either of the 

parties to obtain the services of an attorney in order to enforce the provisions hereof, 

then, in that event, the defaulting party shall pay the prevailing party all reasonable 

attorney's fees and all costs incurred in connection therewith, including the costs of any 

appeal.

12.3 Assignments. This Employment Agreement is personal to each of the parties 

hereto, and neither party may assign or delegate any of the rights or obligations 

hereunder without first obtaining the written consent of the other party. No assignment 

or assumption of any obligation hereunder shall relieve either party hereto from liability 

for any obligation hereunder.

12.4 Amendment. No amendment, waiver or modification of this Employment 

Agreement or of any term or condition hereof shall be valid or effective unless in writing 

and approved by the Company and Employee. 

12.5 Arbitration. All disputes arising under this Employment Agreement shall be 

resolved through arbitration. The arbitration of any dispute hereunder shall be conducted 

in accordance with the Idaho Uniform Arbitration Act. Except as provided at paragraph 

12.2, the cost of any such arbitration shall be borne equally by Employee and the 

Company. 

	
EMPLOYMENT AGREEMENT - 7 

	 	
12.6 Merger Clause. This Employment Agreement expresses the full and final 

purpose and agreement of the parties relating to employment of Employee. 

12.7 Severability. Each provision of this Employment Agreement shall be considered 

severable and if, for any reason, any provision hereof or remedy herein provided is 

determined to be invalid, such invalidity shall not impair the operation or effect of the 

remaining provisions hereof which are valid. 

12.8 Successors. Except as expressly provided otherwise herein, all of the rights of the

parties hereunder shall inure to the benefit of and all obligations of the parties hereunder 

shall bind the parties' heirs, personal representatives, successors and assigns. 

12.9 Execution of Documents. Each of the parties agrees to execute all documents 

necessary to implement the provisions of this Employment Agreement. 

12.10 No Trust Relationship. Nothing contained in this Employment Agreement and no

action taken pursuant to the provisions of this Employment Agreement shall create or be 

construed to create a trust of any kind, or a fiduciary relationship between the Company 

and Employee. Any amounts or assets referred to under the provisions of this 

Employment Agreement shall continue for all purposes to be a part of the general funds 

of the Company, and no person other than the Company shall by virtue of the provisions 

of this Employment Agreement have any interest in such funds. To the extent that any 

person acquires a right to receive payments from the Company under this Employment 

Agreement, such rights shall be no greater than the right of any unsecured creditor of the 

Company. 

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

purposes only. 

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

	 	
Schedule A to Employment Agreement

	 	
Bonus and Incentive Compensation

	
In addition to salary and fringe benefits, the Company agrees to pay Employee the following 

bonus and incentive compensation: 

A. Revenue-Based Cash Bonus. The Company shall pay Employee a bonus for the fiscal 

year ending December 31, 2006 if the Company’s gross revenue for such fiscal year is greater 

than $4,800,000. For each year thereafter during the term of this Agreement, the Company shall 

pay Employee a bonus if the Company’s gross revenue for such fiscal year increased over the 

Company’s gross revenue for the prior fiscal year. The amount of such bonus shall be equal to 

two percent of any such increase in gross revenue, and shall be paid to Employee within 45 days 

of the end of the fiscal year in which it was earned. 

B. Net Revenue-Based Cash Bonus. In addition to the bonus specified in paragraph A, 

above, the Company shall pay Employee a bonus for the fiscal year ending December 31, 2006 if

the Company’s net revenue for such fiscal year before deduction of taxes, depreciation and 

amortization (hereinafter referred to as “Company Net Revenue”) is greater than $760,000. For 

each year thereafter during the term of this Agreement, the Company shall pay Employee a 

bonus if Company Net Revenue for such fiscal year increased over Company Net Revenue for 

the prior fiscal year. The amount of such bonus shall be equal to five percent of any such 

increase in Company Net Revenue, and shall be paid to Employee within 45 days of the end of 

the fiscal year in which it was earned. 

C. Acquisition-Based Stock Options Bonus. In addition to the cash bonuses specified in 

paragraphs A and B, above, the Company shall pay Employee a bonus in the event the Company 

acquires another hard rock drilling business by merger (provided the Company is the surviving 

corporation), consolidation, or the purchase of all or substantially all of the assets of such 

business. The amount of such bonus shall be equal to the greater of (i) five percent of the total 

assets of the acquired business or (ii) five percent of the gross revenue of the acquired business 

for the fiscal year immediately preceding the date of acquisition. 

The bonus shall be paid to Employee within 45 days of the closing date of the acquisition 

transaction either by (a) the issuance and delivery to Employee of shares of common stock of the 

Company or (b) by the issuance and delivery to Employee of ten-year options to purchase 

common stock of the Company, whichever Employee shall elect to receive. 

Should Employee elect to receive shares of common stock of the Company in payment of the 

bonus, the number of shares issuable and deliverable to him shall be determined by dividing the 

amount of the bonus (namely, the greater of five percent of the total assets of the acquired 

business or five percent of the gross revenue of the acquired business for the fiscal year 

immediately preceding the date of acquisition) by the market value of the Company’s common 

stock as of the end of the fiscal quarter immediately preceding the date the Company publicly 

	
EMPLOYMENT AGREEMENT - 9

	
announces the acquisition upon which the bonus is predicated. 

Should employee elect to receive stock options in payment of the bonus, such options shall be 

exercisable at any time during such ten-year period at a price per share equal to the market price 

of the Company’s common stock as of the end of the fiscal quarter immediately preceding the 

date the Company publicly announces the acquisition upon which the bonus is predicated. The 

number of stock options to be granted to Employee shall be determined by dividing the amount 

of the bonus (namely, the greater of five percent of the total assets of the acquired business or 

five percent of the gross revenue of the acquired business for the fiscal year immediately 

preceding the date of acquisition) by the value of each option as of the date of grant. The value 

of such option shall be the same value that the Company ascribes to such option as compensation

expense, determined in accordance with Financial Accounting Standard 123(R), Accounting for 

Stock-Based Compensation. 

	
EMPLOYMENT AGREEMENT - 10

	 	
Exhibit E to Stock Purchase and Sale Agreement

	 	
VOTING TRUST AGREEMENT

	
 This Voting Trust Agreement (the "Agreement") is made and entered into as of 

March 3, 2006 by and among 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. 

	
VOTING TRUST AGREEMENT - 3

Exhibit G-1 to Amendment 

PROMISSORY NOTE 

$300,000 March 3, 2006  Spokane, Washington

	
 Timberline Resources Corporation, an Idaho corporation having its principal 

offices at 36 West 16th Avenue, Spokane, Washington 99203 (hereinafter referred to as 

“Maker”) promises to pay to Douglas Kettle, whose address is 5401 East Lancaster, 

Hayden, Idaho 83835, or his assigns (hereinafter referred to as “Holder”) the principal 

sum of $300,000 upon the terms and subject to the conditions of this promissory note 

("Note"): 

 1. Interest. All sums owing on this Note shall bear interest from the date set 

forth above until paid, at a rate of interest equal to the prime rate of interest from time-to-

time published in the Wall Street Journal plus three percent, such rate to be adjusted as of 

the date any change in such prime rate is announced. As of the date of this Note, such rate 

of interest, as hereinabove determined, is ten and one-half percent. Upon the occurrence of 

an Event of Default and expiration of the applicable Cure Period, all sums owing on this 

Note shall bear interest at the rate of interest otherwise payable on this Note plus four 

percent (the "Default Rate") for so long as the Event of Default continues. All computations

of interest shall be based on a 360-day year for the actual number of days elapsed. 

2. Payment. Maker shall pay Holder the principal of, and interest on, this 

Note in one single installment on or before September 1, 2006. 

3. Acceleration in the Event of Sale of Business. The provisions of Section

2 notwithstanding, all amounts payable under this Note shall become immediately due 

and payable, at Holder’s election, in the event all or substantially all of the assets of 

Maker are sold other than in the ordinary course of business, or in the event Maker 

merges or consolidates with or into another business entity in which Maker is not the 

surviving entity. 

 4. Notice of Event of Default; Cure. Upon the occurrence of an Event of 

Default, Holder shall give Notice of the Event of Default to Maker, and Maker shall have 

the right to cure such Event of Default within the applicable Cure Period. If Maker fails 

to cure the Event of Default within the applicable Cure Period, or is prohibited from 

doing so, then Holder may accelerate all amounts owing on this Note. Such accelerated 

amounts shall become immediately due and payable. If Holder accelerates the amounts 

due under this Note, Holder shall have the right to pursue any or all of the remedies 

available to it, including, but not limited to, the right to bring suit on this Note. 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 1 

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

 (a) if any payment due under the Note is not paid within five (5) days of

the date upon which such payment was due. 

 (b) if any of the following shall occur: 

	 	
 (i) Maker becomes insolvent, makes a transfer in fraud to or an 

assignment for the benefit of creditors, or admits in writing his inability to 

pay their debts as they become due; 

(ii) A receiver, custodian, liquidator or trustee is applied for by 

Maker, or is appointed for all or substantially all of the assets of Maker, or 

any such receiver, custodian, liquidator or trustee is appointed in any 

proceeding brought against Maker, and such appointment is not contested 

or is not dismissed or discharged within 60 days after such appointment, 

or Maker acquiesces in such appointment; 

 (iii) Maker files a petition for relief under the federal 

Bankruptcy Code, as amended, or under any similar law or statute of the 

United States or any state thereof, or Maker seeks to take advantage of any

insolvency law; 

 (iv) A petition against Maker is filed commencing an involuntary 

case under any present or future federal or state bankruptcy or similar law, 

and such petition is not dismissed or discharged within 60 days of filing; or 

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

transferred. 

	
As used herein, the term “Cure Period” means the period of time Maker shall have to cure 

an Event of Default. If the Event of Default is a monetary default, the Cure Period shall be 

five (5) days from the date Maker first receives notice of such Event of Default. If the Event

of Default is other than a monetary default, the Cure Period shall be ten (10) days from the 

date Borrower first receives such notice. As used herein, a "monetary default" means a 

failure by Borrower to make any payment required of it by the Note. If a default other than 

a monetary default is capable of being cured and the cure cannot reasonably be completed 

within the ten (10) day Cure Period, the Cure Period shall be extended to up to fifteen (15) 

days so long as Maker has commenced action to cure within such initial ten (10) day period 

and, in Holder's judgment, Maker is proceeding to cure the default with due diligence. The 

foregoing shall not be construed to obligate Lender to forebear in any other manner from 

exercising its remedies. 

 5. Remedies. Upon the occurrence of an Event of Default and expiration of 

the applicable Cure Period, Holder shall have all rights available to it at law or in equity, 

including all rights available to it under the Idaho Uniform Commercial Code. Any 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 2 

	
unpaid balance outstanding at such time, and any costs or other expenses incurred by 

Holder in realizing on this Note, shall bear interest at the Default Rate for so long as the 

Event of Default has not been cured and is continuing. All rights and remedies granted 

under this Note shall be deemed cumulative and not exclusive of any other right or 

remedy available to Holder. 

 6. Attorneys' Fees, Costs, and Other Expenses. Maker agrees to pay all 

costs and expenses which Holder may incur by reason of any Event of Default, including,

but not limited to, reasonable attorneys' fees, expenses, and costs incurred in any action 

undertaken with respect to this Note, or the appeal of any such action. Any judgment 

recovered by Holder shall bear interest at the statutory rate of interest then in effect. 

 7. Transfer; Obligations Binding on Successors. Maker may not transfer 

any of its rights, duties or obligations under this Note without the prior written consent of 

Holder. This Note, and the duties set forth in the Note, shall bind Maker and his heirs 

and successors. All rights and powers established in this Note shall benefit Holder and 

his heirs and successors. 

 8. Notices. Any notice, consent or other communication required or 

permitted under this Note shall be in writing and shall be deemed to have been duly given

or made either (a) when delivered personally to the party to whom it is directed (or any 

officer or agent of such party) or (b) three days after being deposited in the United States' 

certified or registered mail, postage prepaid, return receipt requested, and properly 

addressed to Maker or to Holder, at their respective addresses set forth above or at such 

other address as Maker or Holder shall have provided to the other. 

 9. Governing Law. This Note will be construed and the rights, duties, and 

obligations of the parties will be determined in accordance with the laws of the state of 

Idaho and the federal laws of the United States of America. 

 10. Headings. Headings used in this Note have been included for 

convenience and ease of reference only, and will not in any manner influence the 

construction or interpretation of any provision of this Note. 

 11. Waiver. No right or obligation under this Note will be deemed to have 

been waived unless evidenced by a writing signed by the party against whom the waiver 

is asserted, or by its duly authorized representative. Any waiver will be effective only 

with respect to the specific instance involved, and will not impair or limit the right of the 

waiving party to insist upon strict performance of the right or obligation on any other 

instance, in any other respect, or at any other time. No failure on the part of Holder to 

exercise, and no delay in exercising, any right or obligation under this Note shall operate 

as a waiver thereof. 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 3 

	
 12. Severability. The parties intend that this Note be enforced to the greatest 

extent permitted by applicable law. If any provision of this Note, on its face or as applied

to any person or circumstances, is or becomes unenforceable to any extent, the remainder 

of this Note and the application of that provision to other persons, circumstances or 

extent, will not be impaired. 

 13. References. Except as otherwise specifically indicated, all references in 

this Note to numbered or lettered sections or subsections refer to sections or subsections 

of this Note. All references to this Note include any subsequent amendments to the Note.

 14. Venue. Maker agrees that any action on this Note action may, in the 

discretion of Holder, be brought in Kootenai County, Idaho. Maker hereby consents to the 

exclusive personal jurisdiction of the District Court of Kootenai County and the United 

States District Court for the District of Idaho. 

 17. Maximum Interest. Notwithstanding any other provisions of this Note, 

any interest, fees, or charges payable by reason of the indebtedness evidenced by this 

Note shall not exceed the maximum permitted by law. 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 4 

Exhibit G-2 to Amendment 

PROMISSORY NOTE 

$100,000 March 3, 2006  Spokane, Washington

	
 Timberline Resources Corporation, an Idaho corporation having its principal 

offices at 36 West 16th Avenue, Spokane, Washington 99203 (hereinafter referred to as 

“Maker”) promises to pay to David Deeds and Margaret Deeds, husband and wife, whose

address is 5609 East Lancaster, Hayden, Idaho 83835, or their assigns (hereinafter 

referred to as “Holder”) the principal sum of $100,000 upon the terms and subject to the 

conditions of this promissory note ("Note"): 

 1. Interest. All sums owing on this Note shall bear interest from the date set 

forth above until paid, at a rate of interest equal to the prime rate of interest from time-to-

time published in the Wall Street Journal plus three percent, such rate to be adjusted as of 

the date any change in such prime rate is announced. As of the date of this Note, such rate 

of interest, as hereinabove determined, is ten and one-half percent. Upon the occurrence of 

an Event of Default and expiration of the applicable Cure Period, all sums owing on this 

Note shall bear interest at the rate of interest otherwise payable on this Note plus four 

percent (the "Default Rate") for so long as the Event of Default continues. All computations

of interest shall be based on a 360-day year for the actual number of days elapsed. 

2. Payment. Maker shall pay Holder the principal of, and interest on, this 

Note in one single installment on or before September 1, 2006. 

3. Acceleration in the Event of Sale of Business. The provisions of Section

2 notwithstanding, all amounts payable under this Note shall become immediately due 

and payable, at Holder’s election, in the event all or substantially all of the assets of 

Maker are sold other than in the ordinary course of business, or in the event Maker 

merges or consolidates with or into another business entity in which Maker is not the 

surviving entity. 

 4. Notice of Event of Default; Cure. Upon the occurrence of an Event of 

Default, Holder shall give Notice of the Event of Default to Maker, and Maker shall have 

the right to cure such Event of Default within the applicable Cure Period. If Maker fails 

to cure the Event of Default within the applicable Cure Period, or is prohibited from 

doing so, then Holder may accelerate all amounts owing on this Note. Such accelerated 

amounts shall become immediately due and payable. If Holder accelerates the amounts 

due under this Note, Holder shall have the right to pursue any or all of the remedies 

available to it, including, but not limited to, the right to bring suit on this Note. 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 1 

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

 (a) if any payment due under the Note is not paid within five (5) days of

the date upon which such payment was due. 

 (b) if any of the following shall occur: 

	 	
 (i) Maker becomes insolvent, makes a transfer in fraud to or an 

assignment for the benefit of creditors, or admits in writing his inability to 

pay their debts as they become due; 

(ii) A receiver, custodian, liquidator or trustee is applied for by 

Maker, or is appointed for all or substantially all of the assets of Maker, or 

any such receiver, custodian, liquidator or trustee is appointed in any 

proceeding brought against Maker, and such appointment is not contested 

or is not dismissed or discharged within 60 days after such appointment, 

or Maker acquiesces in such appointment; 

 (iii) Maker files a petition for relief under the federal 

Bankruptcy Code, as amended, or under any similar law or statute of the 

United States or any state thereof, or Maker seeks to take advantage of any

insolvency law; 

 (iv) A petition against Maker is filed commencing an involuntary 

case under any present or future federal or state bankruptcy or similar law, 

and such petition is not dismissed or discharged within 60 days of filing; or 

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

transferred. 

	
As used herein, the term “Cure Period” means the period of time Maker shall have to cure 

an Event of Default. If the Event of Default is a monetary default, the Cure Period shall be 

five (5) days from the date Maker first receives notice of such Event of Default. If the Event

of Default is other than a monetary default, the Cure Period shall be ten (10) days from the 

date Borrower first receives such notice. As used herein, a "monetary default" means a 

failure by Borrower to make any payment required of it by the Note. If a default other than 

a monetary default is capable of being cured and the cure cannot reasonably be completed 

within the ten (10) day Cure Period, the Cure Period shall be extended to up to fifteen (15) 

days so long as Maker has commenced action to cure within such initial ten (10) day period 

and, in Holder's judgment, Maker is proceeding to cure the default with due diligence. The 

foregoing shall not be construed to obligate Lender to forebear in any other manner from 

exercising its remedies. 

 5. Remedies. Upon the occurrence of an Event of Default and expiration of 

the applicable Cure Period, Holder shall have all rights available to it at law or in equity, 

including all rights available to it under the Idaho Uniform Commercial Code. Any 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 2 

	
unpaid balance outstanding at such time, and any costs or other expenses incurred by 

Holder in realizing on this Note, shall bear interest at the Default Rate for so long as the 

Event of Default has not been cured and is continuing. All rights and remedies granted 

under this Note shall be deemed cumulative and not exclusive of any other right or 

remedy available to Holder. 

 6. Attorneys' Fees, Costs, and Other Expenses. Maker agrees to pay all 

costs and expenses which Holder may incur by reason of any Event of Default, including,

but not limited to, reasonable attorneys' fees, expenses, and costs incurred in any action 

undertaken with respect to this Note, or the appeal of any such action. Any judgment 

recovered by Holder shall bear interest at the statutory rate of interest then in effect. 

 7. Transfer; Obligations Binding on Successors. Maker may not transfer 

any of its rights, duties or obligations under this Note without the prior written consent of 

Holder. This Note, and the duties set forth in the Note, shall bind Maker and his heirs 

and successors. All rights and powers established in this Note shall benefit Holder and 

his heirs and successors. 

 8. Notices. Any notice, consent or other communication required or 

permitted under this Note shall be in writing and shall be deemed to have been duly given

or made either (a) when delivered personally to the party to whom it is directed (or any 

officer or agent of such party) or (b) three days after being deposited in the United States' 

certified or registered mail, postage prepaid, return receipt requested, and properly 

addressed to Maker or to Holder, at their respective addresses set forth above or at such 

other address as Maker or Holder shall have provided to the other. 

 9. Governing Law. This Note will be construed and the rights, duties, and 

obligations of the parties will be determined in accordance with the laws of the state of 

Idaho and the federal laws of the United States of America. 

 10. Headings. Headings used in this Note have been included for 

convenience and ease of reference only, and will not in any manner influence the 

construction or interpretation of any provision of this Note. 

 11. Waiver. No right or obligation under this Note will be deemed to have 

been waived unless evidenced by a writing signed by the party against whom the waiver 

is asserted, or by its duly authorized representative. Any waiver will be effective only 

with respect to the specific instance involved, and will not impair or limit the right of the 

waiving party to insist upon strict performance of the right or obligation on any other 

instance, in any other respect, or at any other time. No failure on the part of Holder to 

exercise, and no delay in exercising, any right or obligation under this Note shall operate 

as a waiver thereof. 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 3 

	
 12. Severability. The parties intend that this Note be enforced to the greatest 

extent permitted by applicable law. If any provision of this Note, on its face or as applied

to any person or circumstances, is or becomes unenforceable to any extent, the remainder 

of this Note and the application of that provision to other persons, circumstances or 

extent, will not be impaired. 

 13. References. Except as otherwise specifically indicated, all references in 

this Note to numbered or lettered sections or subsections refer to sections or subsections 

of this Note. All references to this Note include any subsequent amendments to the Note.

 14. Venue. Maker agrees that any action on this Note action may, in the 

discretion of Holder, be brought in Kootenai County, Idaho. Maker hereby consents to the 

exclusive personal jurisdiction of the District Court of Kootenai County and the United 

States District Court for the District of Idaho. 

 17. Maximum Interest. Notwithstanding any other provisions of this Note, 

any interest, fees, or charges payable by reason of the indebtedness evidenced by this 

Note shall not exceed the maximum permitted by law. 

	
AMENDMENT TO STOCK PURCHASE

AND SALE AGREEMENT - 4Filed by Automated Filing Services Inc. (604) 609-0244 -  Safer Residence Corporation - Exhibit 1

MANAGEMENT AGREEMENT

THIS AGREEMENT effective as of the 1st day of March,
2006. 

	BETWEEN: 	SAFER RESIDENCE CORP., a company
      incorporated under the 
	  	laws of the State of Nevada and having an
      address at Unit #64044 
	  	– 528B Clarke Road, Coquitlam, British
      Columbia, Canada V3J 
	  	7V6 
	  	  
	  	(the “Company”) 
	  	  
	AND: 	LEO YOUNG, businessman, having a
      residential address at 814 
	  	Lakeshore Drive Redwood City, California 
	  	  
	  	(the “President” or the “Manager”)
  

	A. 	
      The Company is a company incorporated under the laws of
      the State of Nevada;

	 	 
	B. 	
      The Company is in the business of providing safe
      residence products and wishes to expand its product line to commercial and
      residential solar products and solar products in a variety of
      applications;

	 	 
	C. 	
      The Company requires a person to act as its President and
      to perform tasks relating to this position.

	 	 
	D. 	
      The Company wishes to retain the services of the
      President on the terms and conditions of this
Agreement;

THIS AGREEMENT WITNESSES that in consideration of
the mutual covenants and agreements hereinafter contained, the parties agree as
follows:

ARTICLE 1
APPOINTMENT AND AUTHORITY OF
MANAGER

1.01 APPOINTMENT OF MANAGER

The Company hereby appoints Leo Young as its Manager to perform
certain services for the benefit of the Company as herein set forth, and the
Company hereby accepts such appointment and authority on the terms and
conditions herein set forth. The Manager further confirms his appointment to the
position of President (effected on March 1, 2006) and will hold said appointment
at the discretion of the Board of Directors of the Company.

2

1.02 AUTHORITY OF MANAGER

The Manager shall have no right or authority, express or
implied, to commit or otherwise obligate the Company in any material manner
whatsoever except to the extent specifically provided herein or specifically
authorized in writing by the Company or its Board of Directors.

1.03 MANAGER’S WARRANTIES

The Manager represents and warrants that he will provide
competent management; that he has the qualifications, experience and
capabilities necessary to carry out the services to be performed hereunder; and
that the services will be performed in a competent and efficient manner.

ARTICLE 2
MANAGER’S AGREEMENTS

2.01 The Manager will undertake all activities which will
further and enhance the business and affairs of the Company as he is directed by
the Board of Directors. For purposes of this Agreement, “Company” means the
Company and all of its subsidiaries and affiliates. The Manager acknowledges
that the Company initially has limited personnel and resources, and that the
Manager will be requested to undertake activities which will be outside the
general nature of work ordinarily performed by the Manager of a corporation.

The Manager, at the expense of and on behalf of the Company,
shall:

	 	(a) 	
      make and implement or cause to be implemented all lawful
      decisions of the Board of Directors of the Company (the “Board”) in
      accordance with and as limited by this Agreement; and

	 	 	 
	 	(b) 	
      at all times be subject to the direction of the Board and
      keep the Board informed as to all material matters concerning the
      Manager’s activities.

2.02 MANAGEMENT ACTIVITIES

In carrying out its obligations under this Agreement, the
Manager shall undertake all activities necessary to develop the business of the
Company.

The Manager acknowledges that the Company is a reporting issuer
under the laws of the United States of America and that any funds received as
subscriptions or sales revenues of the Company’s products must be fully
accounted for in a manner in accordance with US GAAP. The Manager agrees that he
will make all reasonably necessary efforts to ensure that the management of the
Company, and the accounting for it, is in accordance with US GAAP
principles.

2.03 AUTHORITY OF MANAGER

3

The Company hereby authorizes the Manager, subject to the other
provisions of this Agreement, to do all acts and things as the Manager may in
its discretion deem necessary or desirable to enable the Manager to carry out
its duties hereunder, and hereby grants the Manger the inherent authority to
undertake all such activities as a Manager acting as President normally has.

2.04 LIMITATION OF MANAGER’S OBLIGATIONS

Notwithstanding anything in this Agreement, the Manager shall
not be required to expend his own money or to incur any liabilities,
obligations, costs, dues or debts and all money required by the Manger to carry
out his duties under this Agreement shall be provided by the Company to the
Manager forthwith upon the Manager’s request.

The Manager will be at liberty to engage, for his own account
and without duty to account to the Company or the Board, in providing financial,
administrative, management and other consulting services to other companies.

2.05 RELATIONSHIP

The parties confirm the Manger will not be an “employee” of the
Company, but an independent contractor who will be working for the Company and
its subsidiaries and affiliates, subject to the control and direction of the
Company and its board of directors; and that no income tax deductions will be
made by the Company.

ARTICLE 3
COMPANY’S AGREEMENTS

3.01 COMPENSATION OF MANAGER

As compensation for the services rendered by the Manager
pursuant to this Agreement, the Company agrees to pay the Manager monthly, on or
before the first day of each month, or if a Saturday, Sunday or holiday, the
next following business day, a management fee equal to $3,000.00 (being
$36,000.00 annually) or such other amount as is approved by the Board of
Directors.

3.02 REIMBURSEMENT OF EXPENSES

The Company shall only be obligated to pay or reimburse the
Manager for the normal and usual expenses of managing the Company as provided
herein, including, without any limitation, any other expenses as set out herein.
In the event of a dispute between the Manager and the Company regarding the
amount set out in the statement of expenses the Company will nevertheless be
obligated to pay the amount set out herein to the Manager, and the Company may
then refer the matter to arbitration as provided for in Section 6.09.

3.03 ACCESS TO COMPANY INFORMATION

4

The Company shall make available to the Manager such
information and data and shall permit the Manager, his agents and employees to
have access to such documents or premises as are reasonably necessary to enable
him to perform the services provided for under this Agreement.

3.04 INDEMNITY BY COMPANY

The Company agrees to indemnify, defend and hold harmless the
Manager, from and against any and all claims, demands, losses, actions, lawsuits
and other proceedings, judgements and awards, and costs and expenses (including
reasonable legal fees), arising directly, in whole or in part, out of any matter
related to any action taken by the Manager within the scope of his duties or
authority hereunder, excluding only such of the foregoing as arise from the
fraudulent, negligent, or wilful act or omission of the Manager, his agents and
employees, and the provisions hereof shall survive termination of this
Agreement. The Company further agrees that, where permitted by law, it will
provide directors’ and officers’ liability insurance to the Manager. Nothing in
this paragraph may be construed to commit the Company to indemnify the Manager
or provide insurance where such an act is prohibited by statutory, legal or
regulatory requirements.

ARTICLE 4
DURATION, TERMINATION AND DEFAULT

4.01 EFFECTIVE DATE

This Agreement shall become effective as of the day and year
first above written and shall remain in force, subject to the earlier
termination as provided herein, for a period of two years. Thereafter this
Agreement will continue on a monthly basis until terminated in accordance with
paragraph 4.02. This Agreement replaces and supersedes any oral agreement
regarding the Manager’s compensation .

4.02 TERMINATION

This Agreement may be terminated by either party at any time
without cause by giving the other party written notice of such termination at
least thirty (30) days prior to the termination date set forth in such written
notice.

4.03 DUTIES UPON TERMINATION

Upon termination of this Agreement for any reason, the Manager
shall promptly deliver the following in accordance with the directions of the
Company:

	 	(a) 	
      a final accounting, reflecting the balance of expenses
      incurred on behalf of the Company as of the date of
  termination;

5

	 	(b) 	
      all documents pertaining to the Company or this
      Agreement, including but not limited to all books of account, financial
      records, correspondence and contracts provided that the Manager shall be
      entitled thereafter to inspect, examine and copy all of the documents
      which it delivers in accordance with this provision at all reasonable
      times upon three days notice to the Company; and

	 	 	 
	 	(c) 	
      all property of the Company, including product inventory,
      which is in his possession or the possession of his associates and
      affiliates.

Upon termination, the Company will pay to the Manager any
amounts outstanding to him under this Agreement.

Upon termination, the Company shall have a security interest and
  ownership in any unsold product, inventory or asset of the Company which is
  in the possession of the Manager at the time of the termination and the Manager
  shall be personally liable for the return of such unsold product, inventory
  or asset to the care and control of the Company or for its return to the Company.

  ARTICLE 5

  CONFIDENTIALITY

5.01 OWNERSHIP OF WORK PRODUCT

Subject to Sections 2.04 and 5.02, all reports, documents,
concepts, products and processes together with any marketing schemes, business
or sales contracts, or any business opportunities prepared, produced, developed,
or acquired, by or at the discretion of the Manager, directly or indirectly, in
connection with or otherwise developed or first reduced to practice by the
Manager performing the services (collectively, the “Work Product”) shall belong
exclusively to the Company which shall be entitled to all right, interest,
profits or benefits in respect thereof.

5.02 CONFIDENTIALITY

The Manager shall not disclose any information, documents, or
Work Product concerning the existing company interests to which the Manager may
have access by virtue of its performance of the services to any person not
expressly authorized by the Company for that purpose.

5.03 RESTRICTIVE COVENANTS

Subject to Section 2.04, Manager shall, during the term of this
Agreement, devote all reasonable time, attention, and abilities to the business
of the Company and, where directed by the Board, to the business of companies
associated with the Company as is reasonably necessary for the proper exercise
of his duties.

ARTICLE 6 
MISCELLANEOUS

6

6.01 WAIVER; CONSENTS

No consent, approval or waiver, express or implied, by either
party to or of any breach or default by the other party in the performance by
the other party of its obligations hereunder shall be deemed or construed to be
a consent or waiver to or of any other breach or default in the performance by
such other party of the same or any other obligations of such other party or to
declare the other party in default, irrespective of how long such failure
continues, shall not constitute a general waiver by such party of its rights
under this Agreement, and the granting of any consent or approval in any one
instance by or on behalf of the Company shall not be construed to waiver or
limit the need for such consent in any other or subsequent instance.

6.02 GOVERNING LAW

This Agreement shall be governed by the laws of the State of
Nevada and, subject to Section 6.08, any dispute under the terms of this
Agreement shall enure to the courts thereof.

6.03 NO ASSIGNMENT PERMITTED

All of the rights, benefits, duties, liabilities and
obligations of the parties hereto shall enure to the benefit of and be binding
upon the respective successors of the parties provided that in no circumstances
is this Agreement assignable by either party save and except that, where
approved in writing by both parties, the Manager may be assigned to complete
tasks and provide services to a parent of the Company or its parent.

6.04 MODIFICATION OF AGREEMENT

Save and except any non-disclosure agreement which may be
executed between the Manager and the Company, this Agreement constitutes the
entire agreement between the Manager and the Company and to be effective any
modification of this Agreement must be in writing and signed by the party to be
charged thereby.

6.05 NOTICES

All notices, requests and communications required or permitted
hereunder shall be in writing and shall be sufficiently given and deemed to have
been received upon personal delivery or, if mailed, upon the first to occur of
actual receipt of forty-eight (48) hours after being placed in the mail in
Canada, postage prepaid, registered or certified mail, return receipt requested,
respectively addressed to the Company or the Manager as first noted above, or to
such other address as may be specified in writing to the other party, but notice
of a change of address shall be effective only upon the actual receipt; and
provided that in the event of an interruption in the ordinary postal service,
all notices, requests and communications shall be delivered and not mailed.

6.06 FURTHER ASSURANCES

7

The parties will execute and deliver all such further documents
and instruments and do all such further acts and things as may be required to
carry out the full intent and meaning of this Agreement and to effect the
transactions contemplated hereby.

6.07 COUNTERPARTS

This Agreement may be executed in several counterparts, each of
which will be deemed to be an original and all of which will together constitute
one and the same instrument. A faxed signature shall be accepted as an
original.

6.08 ARBITRATION

In the event that the parties hereto dispute any matter
concerning the terms and conditions of this Agreement, the matter will be
determined by a single arbitrator appointed by the parties hereto or, in the
event that the parties are not able to agree on the appointment of a single
arbitrator, either party may request the courts to appoint a single arbitrator
in accordance with the Commercial Arbitration Act of the Province of British
Columbia. The arbitrator shall fix a time and place in Vancouver, British
Columbia for the purpose of hearing the evidence and representations of the
parties. After hearing any evidence and representations that the parties may
submit, the arbitrator shall make an award and reduce the same to writing and
deliver one copy thereof to each of the parties. The award shall be kept
confidential by the parties hereto except as disclosure is required by
applicable securities laws and regulatory bodies. The decision of the arbitrator
shall be made within 45 days after his or her appointment subject to any
reasonable delay due to unforeseen circumstances. The parties agree that the
award of the single arbitrator shall be final and binding upon each of them and
shall not be subject to appeal.

6.09 INDEPENDENT LEGAL ADVICE

The Manager hereby acknowledges that he has acted for himself
in the preparation and negotiation of this Agreement and acknowledges that he
has been advised to seek independent legal counsel and review of this Agreement
prior to its execution. CD Farber Law Corporation has acted for the Company only
in the preparation of this Agreement. The Company is aware that CD Farber Law
Corporation has acted for the Manager or companies associated with him in other
transactions.

IN WITNESS WHEREOF the parties have executed this
Agreement effective March 1, 2006.

SAFER RESIDENCE CORP. 

  by its authorized signatory:

 /s/ “Leo Young”

  LEO YOUNG

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