How does the Alloy protected area described in Item 12 relate to the potential for competition from other channels of distribution or competitive brands?

ng, reproducing, duplicating or reverse engineering the Alloy App in any manner.

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.

You must achieve a minimum level of Gross Sales annually to retain your territorial rights, as follows (there is no Minimum Annual Gross Sales for the period of time between signing your Franchise Agreement and the date you open):

| | Year of Operation (beginning when you | Minimum Annual Gross Sales | |---|---|---| | | open for business | | | Year 1 | | $240,000 | | Year 2 and each subsequent year of operation | | $300,000 | | through the initial term of your Franchise | | | | Agreement | | | We reserve the right, based on an individual franchisee's circumstances, to reduce or modify the minimum annual Gross Sales that a franchisee must achieve, although we will not increase the minimum annual Gross Sales without your consent. If we do this, we are not required to grant you a similar modification.

If you fail to achieve the minimum annual Gross Sales a first time, you must receive additional on-site training and assistance from one of our representatives, at your expense (including payment of our then-current per diem fee plus reimbursement of our representative's expenses). If you fail to achieve the minimum annual Gross Sales a second time, we may again require you to receive additional on-site training and assistance. If you fail to achieve the minimum annual Gross Sales a third time, we may terminate your Franchise Agreement without giving you the opportunity to cure the default. You must pay any shortfall of royalty fees for each failure to achieve the minimum annual Gross Sales.

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;
• (3) to engage in any other business activities not expressly prohibited by the Franchise Agreement, both within and outside your Designated Territory, and

(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.

You may relocate your Franchised Business within your Designated Territory only with our prior written approval and payment of our relocation fee. Our approval will be based upon many factors, including the viability of the then-current location and demographics. Our approval will not be unreasonably withheld. This approval should not be interpreted as an assurance or guaranty that the new site will be successful.

We do not restrict the customers you may serve, as you may sell products and services to customers who live anywhere but who choose to use your Facility.