Item 1.01 Entry into a Material Definitive Agreement.

On October 5, 2009, Timberline Resources Corporation (the "Company") entered into a Settlement Agreement with John Swallow, a former director and former executive of the Company in connection with a claim arising under Section 16(b) of the Securities Exchange Act of 1934. Based on its review of certain transactions of the Company's common stock while Mr. Swallow was a director and executive of the Company, the Company informed Mr. Swallow of its belief that he may have realized recoverable profits in connection with the transactions which are recoverable by the Company under Section 16(b) of the Securities and Exchange Act of 1934, as amended. In accordance with the terms of the Settlement Agreement, Mr. Swallow has made payment to the Company for the full amount of recoverable profits.