Will an Alloy franchisee face competition from outlets Alloy owns?

[Item 12: TERRITORY]

Franchise Agreement

The Franchise Agreement grants you the right to operate your Franchised Business only at the location we approve ("Authorized Location"). You will not receive an exclusive territory. You may face competition from other franchisees, from outlets we own, or from other channels of distribution or competitive brands that we control. However, we will grant you a protected area, which will be described in an exhibit to your Franchise Agreement ("Designated Area"). If your Designated Area is located in a suburban area, your Designated Area will include a population of at least 30,000 people, which for most suburban areas will cover a radius of approximately 2 miles from the Authorized Location (taking into account any geographic factors like rivers or other similar natural boundaries). We reserve the right to create a more limited Designated Area for Facilities located in densely populated areas but your Designated Area will have a population of at least 30,000 people. Your Designated Area may be described in terms of street boundaries or may be drawn on a map to be attached to your Franchise Agreement. We (and any affiliates) will not establish, nor allow another franchise owner to establish, another Franchised Business located within your Designated Area, although in certain instances there may be overlap of Designated Area boundaries of two franchisees. We do not anticipate permitting franchisees to establish

Facilities at captive market locations, such as a shopping mall, office building, or similar location. There are no circumstances under which we can modify the boundaries of your Designated Area during the term of your Franchise Agreement.

Area Development Agreement

If you enter into an Area Development Agreement, you will receive a Development Territory within which you will have certain rights to develop multiple Alloy Facilities. Although you will receive a Development Territory with certain protected rights to develop multiple Alloy Facilities, you will not receive an exclusive territory. You may face competition from other franchisees, from outlets we own, or from other channels of distribution or competitive brands that we control. The size of the Development Territory will depend on the number of Facilities you commit to develop, and may be described in terms of contiguous zip codes, street or county boundaries, or other similar methods, and may be depicted on a map. If you meet the Minimum Performance Schedule, comply with all other provisions described in the Area Development Agreement and otherwise comply with the provisions of each related Franchise Agreement, we will not establish or license others to establish a Facility within the Development Territory assigned to you. You maintain your rights to your Development Territory even if the population increases.

During the term of the Franchise Agreement, we (and any affiliates that we periodically might have) have the right:

• (1) to establish and operate, and grant rights to other franchise owners to establish and operate, Facilities or similar businesses at any locations outside your Designated Territory and on any terms and conditions we deem appropriate;
• (2) merge with, acquire or become associated with ("Merger/Acquisition Activity") any businesses or facilities of any kind (including those in competition with ALLOY) under other systems and/or marks, which businesses and facilities may convert to or operate under the Marks and may offer or sell training services or related products that are the same as or similar to the services or products offered at or from the Franchised Business, and which may be located anywhere;
• (4) to develop or franchise Special Site locations, which by their nature are unique and separate in character from sites generally developed as ALLOY facilities ("Special Sites"), and include, but are not limited to the following locations regardless of their location and their proximity to your Facility: (i) military bases; (ii) public transportation facilities (including airports); (iii) business or industry locations (e.g. manufacturing site, office building), or sports facilities; (iv) student unions or other similar buildings on college or university campuses; (v) malls or enclosed shopping centers; and (vi) community and special events.

Source: Item 12 — TERRITORY (FDD pages 42–46)