Document:

REGISTRATION RIGHTS AGREEMENT 

     This Registration Rights Agreement (this “Agreement”) is made and entered into as of June 21, 2007, by and among Nitches, Inc., a California corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”). 

     This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof between the Company and the Purchasers (the “Purchase Agreement”). 

     The Company and the Purchasers hereby agree as follows: 

     1. Definitions 

     Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: 

     “Advice” shall have the meaning set forth in Section 6(d). 

     “Effectiveness Date” means the 120th calendar day following the Filing Date; provided, however, in the event the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comment, the Effectiveness Date shall be as soon as practicable but not later than the tenth Trading Day following the date on which the Company is so notified, if such date precedes the end of such 120-day period. 

     “Effectiveness Period” shall have the meaning set forth in Section 2(a). 

     “Event” shall have the meaning set forth in Section 2(b). 

     “Event Date” shall have the meaning set forth in Section 2(b). 

     “Filing Date” means August 21, 2007. 

     “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities. 

     “Indemnified Party” shall have the meaning set forth in Section 5(c). 

     “Indemnifying Party” shall have the meaning set forth in Section 5(c). 

     “Losses” shall have the meaning set forth in Section 5(a). 

     “Plan of Distribution” shall have the meaning set forth in Section 2(a).

     “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. 

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     “Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of the Registrable Securities, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 

     “Registrable Securities” means (i) all of the shares of Common Stock issuable upon conversion in full of the Debenture, (ii) all of the shares of Common Stock issuable upon exercise in full of the Warrant, (iii) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing, (iv) any additional shares issuable in connection with any anti-dilution provisions in the Debenture or the Warrant (in each case, without giving effect to any limitations on conversion set forth in the Debenture or limitations on exercise set forth in the Warrant), and (v) shares of Common Stock issued upon conversion of the Debenture and exercise of the Warrant. 

     “Registration Statement” means the registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 

     “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. 

     “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. 

     “Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a). 

2. Shelf Registration 

          (a) On or prior to the Filing Date, the Company shall prepare and file with the Commission a “Shelf” Registration Statement covering the resale of 100% of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith) and shall contain (unless otherwise directed by the Holders) substantially the “Plan of Distribution” attached hereto as Annex A. Subject to 

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the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the Effectiveness Date, and shall use its commercially reasonable efforts to keep the Registration Statement continuously effective under the Securities Act for a period not exceeding the earlier of (i) the date on which all Registrable Securities have been sold or cease to be outstanding, and (ii) the date on which all Registrable Securities may be sold in any 90 day period under Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect and based on such representations as may be reasonably requested from the Holders and any broker utilized by the Holders, addressed and acceptable to the Company’s transfer agent (the “Effectiveness Period”). The Company shall telephonically request effectiveness of the Registration Statement as of 5:00 pm Eastern Time on a Trading Day. The Company shall promptly notify the Holders of the effectiveness of the Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission.

          (b) If, unless due to the fault of the Holder: (i) the Registration Statement is not filed on or prior to the Filing Date (if the Company files the Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a), the Company shall not be deemed to have satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within ten (10) Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that the Registration Statement will not be “reviewed,” or not subject to further review, or (iii) prior to the Effectiveness Date, the Company fails to file a pre-effective amendment and otherwise respond in writing to
comments made by the Commission in respect of the Registration Statement within 30 calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for the Registration Statement to be declared effective, or (iv) the Registration Statement filed or required to be filed hereunder is not declared effective by the Commission by the Effectiveness Date, or (v) after the Effectiveness Date, the Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be effective, or the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities for 15 consecutive Trading Days but no more than an aggregate of 30 Trading Days during any 12-month period (which need not be consecutive Trading Days) (any such failure or breach being referred to as an “Event”, and for purposes of
clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on which such ten Trading Day period is exceeded, or for purposes of clause (iii) the date which such 30 calendar day period is exceeded, or for purposes of clause (v) the date on which such 15 or 30 Trading Day period, as applicable, is exceeded being referred to as “Event Date”), then in addition to any other rights the Holders may have hereunder or under applicable law, for all or part of each 30 calendar day period in which such applicable Event remains uncured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1.0% of the principal amount outstanding for any Debentures then held by such Holder, and such damages shall accrue until the earlier of June 21, 2008 or the Effectiveness Date. Effective June 21, 2008 until the earlier of June 21, 2009 or the
Effectiveness Date, for all or part of each 30 calendar day period in which such applicable Event remains uncured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 0.5% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any 

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Debentures then held by such Holder. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of 30 calendar day prior to the cure of an Event.

     3. Registration Procedures. 

     In connection with the Company’s registration obligations hereunder, the Company shall: 

          (a) Not less than five Trading Days prior to the filing of the Registration Statement or any related Prospectus or one Trading Day prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), (i) furnish to the Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of the Holder, and (ii) use commercially reasonable efforts to cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the
Registration Statement or any Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing. The Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “Selling Shareholder Questionnaire”) not less than seven Trading Days prior to the Filing Date or by the end of the fourth Trading Day following the date on which such Holder receives draft materials in accordance with this Section.

          (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in the Prospectus as so supplemented. 

          (c) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible 

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and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of the Registration Statement and whenever the Commission comments in writing on the Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental
authority of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in the Registration Statement ineligible for inclusion therein or any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any
untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of the Registration Statement or Prospectus; provided that any and all of such information shall remain confidential to each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided, further, notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such
information is material, non-public information. 

          (d) Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. 

          (e) Furnish to each Holder, without charge, at least one conformed copy of the Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. 

          (f) Promptly deliver to each Holder, without charge, an electronic copy of any Prospectus or Prospectuses (including the form of prospectus) and each amendment or supplement thereto. Subject to the terms of this Agreement, the Company hereby consents to the 

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use of the Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by the Prospectus and any amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(c). 

          (g) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of the Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction. 

          (h) If requested by the Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable the Registrable Securities to be in such denominations and registered in such names as any such Holders may request. 

          (i) Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor the Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were
made, not misleading. If the Company notifies the Holders in accordance with clauses (ii) through (vi) of Section 3(c) above to suspend the use of any Prospectus until the requisite changes to the Prospectus have been made, then the Holders shall suspend use of the Prospectus. The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.

          (j) Comply with all applicable rules and regulations of the Commission. 

          (k) The Company may require each Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the person thereof that has voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder 

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fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company. 

     4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities
and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders), (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event
shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders. 

     5. Indemnification 

          (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, shareholders, partners, agents and employees (and any other Persons with a functionally
equivalent role of a Person holding such titles, notwithstanding a lack of such title or any title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to (1) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case 

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of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information regarding such Holder furnished to the Company by such Holder for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and approved by such Holder expressly for use in the Registration Statement, the Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this
purpose), (ii) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d) or (iii) the willful misconduct on the part of the Holder. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. 

          (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or relating to: (x) such Holder’s breach of Sections 6(c) or 6(d) hereof or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished by the Holder to the Company specifically for inclusion in the Registration Statement or the Prospectus, (ii) to the extent that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished to the Company by such Holder for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and approved by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), the Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an
event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d) or (iii) willful misconduct on the part of the Holder. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. 

          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), 

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such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party. 

     An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate counsel shall be at the expense of the Indemnifying Party); provided, however, that no Indemnifying Party shall be responsible for the fees and expenses of more than one separate counsel for all Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. 

     Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties. 

          (d) Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The 

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relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in
accordance with its terms. 

     The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder. 

     The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 

     6. Miscellaneous 

          (a) Remedies. Neither the Company nor any Holder (nor any of the Persons covered in Section 5) shall be liable for any consequential, punitive or special damages, including lost profits, arising out of, or based upon, any breach of this Agreement.

          (b) No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities. The Company shall not file any other registration statements (other than on Form S-4 or Form S-8) until the initial Registration Statement required hereunder is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements already filed. 

          (c) Compliance. Each Holder covenants and agrees that (i) it will not sell, offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right with respect to any of the Registrable Securities except as contemplated in the Registration Statement or otherwise in accordance with the Securities Act and the Exchange Act, and (ii) it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. 

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          (d) Discontinued Disposition. Each Holder agrees by its acquisition of Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement, or until it is advised in writing (the “Advice”) by the Company that the use of the Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in the Prospectus or Registration
Statement. The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b). 

          (e) Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen days
after the date of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of the Registrable Securities such holder requests to be registered; provided, that, the Company shall not be required to register the Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144(k) promulgated under the Securities Act or that are the subject of a then effective Registration Statement. 

          (f) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of a majority of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding
sentence.

          (g) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement. 

          (h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without 

11

the prior written consent of the Holders of a majority of the then-outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement. 

          (i) No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 6(i), neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full. 

          (j) Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. 

          (k) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined with the provisions of the Purchase Agreement. 

          (l) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 

          (m) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable. 

          (n) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 

          (o) Force Majeure. In no event shall a Holder have any claim or right against the Company for any failure of performance in accordance with this Agreement due to causes beyond its reasonable control, including, but not limited to: such delays arising directly out of an act of God, fire, flood or other natural catastrophe; laws, orders, rules, regulations, directions or 

12

action of governmental authorities having jurisdiction or any civil military authority; or national emergency, riot, act of terrorism or war or labor dispute. 

          (p) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 

          (q) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. 

******************** 

13 

     IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. 

 

	NITCHES, INC.  
	  
	  
	By:	/s/ Steven P. Wyandt
	       Name:  	Steven P. Wyandt  
	       Title:  	Chief Executive Officer  
	  
	  
	  
	BIRCHTEN INVESTMENTS, LTD.  
	  
	  
	By:	/s/ Deidre M. McCoy
	       Name:  	Deidre M. McCoy
	       Title:  	Director
	  
	GRANITE FINANCIAL GROUP  
	  
	  
	By:	/s/ Daniel J. Schreiber
	       Name:  	Daniel J. Schreiber
	       Title:  	Chief Executive Officer  

Annex A 

Plan of Distribution 

     Each selling stockholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of our common stock being offered for resale hereunder on the NASDAQ Capital Market or any other stock exchange, market or trading facility on which our shares of common stock are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares: 

	ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers;

	block trades in which the broker dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

	purchases by a broker dealer as principal and resale by the broker dealer for its account;

	an exchange distribution in accordance with the rules of the applicable exchange;

	privately negotiated transactions;

	settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

	broker dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

	through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

	a combination of any such methods of sale; or

	any other method permitted pursuant to applicable law. 

     The selling stockholders may also sell the shares of our common stock being offered for resale hereunder under Rule 144 under the Securities Act, if available, rather than under this prospectus. 

     Broker dealers engaged by the selling stockholders may arrange for other brokers dealers to participate in sales. Broker dealers may receive commissions or discounts from the selling stockholders (or, if any broker dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440. 

     In connection with the sale of shares of our common stock being offered for resale hereunder or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of our common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock being offered for resale hereunder short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution 

of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). 

     The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock registered for re-sale hereunder. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%). 

     Because the selling stockholders may be deemed to be "underwriters" within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. Each selling stockholder has advised us that they have not entered into any written or oral agreements, understandings or arrangements with any underwriter or broker-dealer regarding the resale of the shares of common stock being offered for resale hereunder. There is no underwriter or coordinating broker acting in connection with the proposed resale of the shares of common stock being offered for resale hereunder by the selling stockholders.

     We are required to pay certain fees and expenses we incur incident to the registration of the shares offered for re-sale hereby. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. 

     We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares being offered for resale hereunder may be resold by the selling stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares being offered for resale hereunder have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The shares of our common stock being offered for resale hereunder will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the shares of our common stock being offered for resale hereunder may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with. 

     Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the shares of our common stock being offered for resale hereunder may not simultaneously engage in market making activities with respect to our common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the selling stockholders 

or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act). 

Annex B 

NITCHES, INC. 

Selling Securityholder Notice and Questionnaire 

     The undersigned beneficial owner of common stock, no par value per share (the “Common Stock”), of Nitches, Inc., a California corporation (the “Company”), (the “Registrable Securities”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form) (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement, dated as of June 21, 2007 (the “Registration Rights Agreement”),
between the Company and the Purchasers named therein. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

     Certain legal consequences arise from being named as a selling securityholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration Statement and the related prospectus. 

NOTICE 

     The undersigned beneficial owner (the “Selling Securityholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) in the Registration Statement. 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate: 

QUESTIONNAIRE 

	1. Name. 
			 
	                             	(a) 	      	Full Legal Name of Selling Securityholder
			 
			  
	    
	  
	(b) 	 	
Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are held:

		   	 
		 	 
	   
	   
	(c) 	  	
Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by the questionnaire):

		   	 
		   	 

	2. Address for Notices to Selling Securityholder:
	 
	 
	  
	  
	  Telephone:	  	      	   
	  Fax:	  	  	   	   
	  Contact Person:	 	 
	   
	3. Beneficial Ownership of Registrable Securities:
			 
	                             (a)	  	Type and Principal Amount of Registrable Securities beneficially owned:
			 
			 
			 
			 

	4. Broker-Dealer Status:	  
			 	 	
	                             	(a)	Are you a broker-dealer?	  
				 	
		  	  	                                   Yes	          No
				 	
		  	(b)	
If “yes” to Section 4(a), did you receive your Registrable Securities as compensation for investment banking services to the Company.

		  	  	 
		  	  	                                   Yes	          No
				 	
		  	Note:  	
If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

		  	  	
		  	(c)	
Are you an affiliate of a broker-dealer?

				 	
		  	  	                                   Yes	          No
				 	
		  	(d)	
If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

		  	  	 
		  	  	                                   Yes 	          No
				 	
		  	Note:  	
If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

		  	  	
	5. Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.
		  		  
		  	
Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3.

		  	
		  	(a)	
Type and Amount of Other Securities beneficially owned by the Selling Securityholder:

		  	  	     
				   

	6. Relationships with other Investors:
		  	  	  
	                       	
Except as set forth below, (i) in its purchase of the Registrable Securities, Selling Securityholder has acted, and in connection with its sale of the Registrable Securities under the Registration Statement, Selling Securityholder will act, only for its own account; and (ii) Selling Securityholder does not have any relationship, agreement, understanding or arrangement with any other Person in connection with the sale of the Registrable Securities and is not acting in concert with any other Person or as part of a group with respect to the resale of the Registrable Securities under the Registration Statement.

				   
				State any exceptions here:
				  
		  	  	      
				    
				 
				 
	7. Relationships with the Company:
		  	   	  
		       		
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

				   
				State any exceptions here:
				  
		  	  	      
				    
				 
				 
	8. Short Position in the Common Stock:
		  	  	  
		 	 	
Except as set forth below, the undersigned does not currently hold any short position in the Common Stock. If the undersigned does currently have such an existing short position, please provide the date on which the undersigned entered into such short position.

				   
				State any exceptions here:
				  
		  	  	     
				   
				 
				 
	9. Plan of Distribution:
		  	  	  
		  	      	
Except as set forth below, the Plan of Distribution set forth as Annex A to the Registration Rights Agreement accurately describes the Selling Securityholder's plan of distribution for the Registrable Securities.

				   
				State any exceptions here:
				  
		  	  	     
				    
				 
				 

     The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

     By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 9 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

     IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

	Dated: Beneficial Owner: 	  	  
	 
	 	By: 	  
	 	 	Name: 
	 	 	Title: 

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

Nitches, Inc. 
10280 Camino Sate Fe 
San Diego, CA, 92121 
Attn: President 
Facsimile: (858) 625-0746ex10_5.htm

    Exhibit
      10.5

     

    Contractual
      Operation Agreement

     

    Party
      A:
      Shaanxi Epang Palace Tourism Development Co., Ltd.

    Party
      B:
      Shanxi Kai Da Lv You Gu Wen You Xian Gong Si

    

    In
      Witness whereof, Party A and Party B shall, with reference to Party B’s
      contractual operation, hereby voluntarily signed and concluded this Agreement
      in
      accordance with the following terms and conditions:

    

    
      	
              1.  

            	
              Purpose
                of the Contractual Operation:

            

    

    In
      order
      to conquer influence of impersonal factors from the market to enhance deep
      development of the enterprise, as well as fully explore potential of Qin Epang
      Palace Human Tourism Resource and Qin Six-country Palace Hot Spring Holiday
      Village Resource which all invested by Party A, based on examination and
      evaluation of Party B’s talent advantage, abundant experience and operation
      ability of tourism project, Party A shall agree to Party B’s contractual
      operation via Party A’s agreement of board of director.

     

    
      	
              2.  

            	
              Content
                of Contractual Operation:

            

    

    
      	
              I.  

            	
              Party
                A totally transfers business management right of Qin Epang Palace
                and
                Six-country Holiday Village and Qin Epang Palace Theme Park (collectively
                the “Managed Assets”) to Party B, by way of contractual
                operation.

            

    

    
      	
              II.  

            	
              Party
                B shall be responsible for establishing and improving business plan
                concerning current business situations of Party A, as well as for
                implementing the management plan for the Managed
                Assets.

            

    

    
      	
              III.  

            	
              Party
                B shall be responsible for developing a brand strategy of Chinese
                ancient
                civilization tourism for the Managed Assets, and based on that plan
                to
                invest.

            

    

    
      	
              3.  

            	
              Period
                of Contractual Operation:
                from 01/08/2005 (D/M/Y) to 31/07/2015 (D/M/Y), 10 years
                totally.

            

    

    
      	
              4.  

            	
              Rights,
                responsibilities and obligations of Party
                B.

            

    

    
      	
              I.  

            	
              During
                the period of contractual operation, Party B shall totally have business
                management right as well as right of assets utilization of Party
                A’s
                Managed Assets, and Party B shall make its own management decisions
                and
                take full responsibility for corresponding profits and
                losses.

            

    

    
      	
              II.  

            	
              During
                the period of contractual operation, Party B shall be irresponsible
                for
                bearing previous credits and debts as well as losses of Party
                A.

            

    

    
      	
              III.  

            	
              During
                the period of contractual operation, Party B shall be irresponsible
                for
                bearing previous legal dispute and lawsuit matters of Party
                A.

            

    

    
      	
              IV.  

            	
              During
                the period of contractual operation, Party B shall not share Party
                A’s
                shareholders’ equities, nor disposal right of Managed Assets of Party A;
                and Party B shall not dispose of Party A’s Managed Assets without
                permission of Party A.

            

    

    
      	
              V.  

            	
              During
                the period of contractual operation, Party B shall undertake credit
                and
                debts relating to its own contractual
                operation.

            

    

    
      	
              VI.  

            	
              Party
                B shall totally take charge of accepting current officers and employees
                of
                Party A; and signing engagement contract separately, and Party B
                shall
                have right to deal with possible labor trouble and dispute as of
                the sign
                of this Agreement and employee new
                staff.

            

    

    
      	
              VII.  

            	
              During
                the period of contractual operation, Party B shall have distribution
                right
                of 100% of earnings and 85% of
                profits.

            

    

    
      	
              VIII.  

            	
              During
                the period of contractual operation, Party B shall bear and pay all
                operating costs and expenditures (excluding depreciation charge and
                interest of loan).

            

    

    
      	
              IX.  

            	
              During
                the period of contractual operation, Party B shall carry out the
                following
                responsibilities and obligations:

            

    

    
      	
              a)  

            	
              Training
                Party A’s officers and employees to improve their all-round
                quality.

            

    

    
      	
              b)  

            	
              Quarterly
                delivering materials and business situation report to Party A, such
                as
                financial statements etc.

            

    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    5.   Tangible
      assets, intangible assets and staffs invested and trained by Party B during
      the
      period of contractual operation shall be transferred to Party A after the
      contractual operation: at that time, the both parties shall separately sign
      Equity Transformation Agreement, and Party A shall assume above-mentioned assets
      and staffs by way of equity transformation, while Party B shall transfer
      above-mentioned assets and staffs to Party A by way of consideration of equity
      transformation.

     

    
      	
              6.  

            	
               Rights,
                responsibilities and obligations of Party
                A.

            

    

    
      	
              I.  

            	
              Party
                A shall have the ownership of its current assets as well as disposal
                right, whereas, during the period of contractual operation, Party
                A shall
                not dispose of its current assets.

            

    

    
      	
              II.  

            	
              Party
                A shall totally undertake all matters involving credit, debts, law
                and
                personnel, labor trouble, welfare etc. prior to the sign of the
                Agreement.

            

    

    
      	
              III.  

            	
              Party
                A shall bear and pay all operating costs and expenditures (including
                salaries, welfares and other expenditures concerning payment) prior
                to
                August 1st,
                2005.

            

    

    
      	
              IV.  

            	
              Within
                10 working days as of the sign date of the Agreement, Party A shall
                transfer procedures relating files and materials of license for operation,
                stamp, asset, finance, document
                etc.

            

    

    
      	
              V.  

            	
              During
                the period of contractual operation, Party A shall have supervision
                right
                of Party B’s operation and management; Party A shall have right to retain
                audit institution to audit situation of contractual operation by
                Party B,
                exclusive of interfering with the independent operation right of
                Party B
                and utilization right of Party A’s Managed
                Assets.

            

    

    
      	
              VI.  

            	
              During
                the period of contractual operation, Party A shall share distribution
                right of 15% of profit produced by Party B concerning the contractual
                operation.

            

    

    
      	
              VII.  

            	
              During
                the period of contractual operation, Party A shall be responsible
                in
                coordination with Bureau of Commerce and Industry, Tax Bureau etc.
                and
                exterior affairs; Party A shall be responsible and active in support
                and
                cooperation with Party B’s contractual
                operation.

            

    

     

    7.  With
      regard to unrelated matters in this Agreement and dissidences in the course
      of
      implementation, the both parties shall negotiate to deal with them, or make
      supplement agreement or sign negotiation memorandum composing of Supplement
      of
      this Agreement, which are equal in legal effect with this
      Agreement.

     

    8.  In
      the course of implementation of this Agreement, if any party goes against any
      terms of the Agreement, then the party shall be considered as delinquent party
      and shall undertake corresponding responsibilities, meanwhile, the other party
      shall put forward punishment, and sign Memorandum Of Breach Understanding after
      both parties’ negotiation, otherwise, both parties shall submit to Xi’an
      Arbitration Commission, and any party shall have right to lodge a legal
      proceeding against the delinquent party if the arbitration failed.

     

    9.  This
      Agreement shall be in sextuple, one for each Party; and other four for superior
      of Party A, Bureau of Commerce and Industry, Tax Bureau and certificate lawyers’
office respectively for records; The six files are all equal in legal effect;
      and the Agreement shall come into effect as of the day and year when it is
      signed, stamped, and concluded by representatives of both parties.

    
 

    

    Party
      A:
      Party A: Shaanxi Epang Palace Tourism Development Co., Ltd.

    Legal
      representative:

    Date:
      July 5th,
      2005

    

    

    Party
      B:
      Shaanxi Kaida Tourism Consultant Co., Ltd.

    Legal
      representative:

    Date:
      July 5th,
      2005

     

     

    
      
        
        

      

      
        2

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