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                              EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT ("AGREEMENT") is made and entered into in Travis
County, Texas, subject to the terms and conditions hereof, as of the ____ day
of _____________ (the "EFFECTIVE DATE"), by and between SCHLOTZSKY'S, INC., a
Texas corporation (together with its successors and assigns) (collectively
"COMPANY"), and___________ ( "EMPLOYEE"), whose address is {STREET ADDRESS} ,
{CITY} , {STATE} , {ZIP CODE} .

Employee is currently employed as___________ for Company, and Company and
Employee desire to continue such employment pursuant to the terms and
conditions set forth in this Agreement. Both Company and Employee have read
and understood the terms and provisions set forth in this Agreement and have
been afforded a reasonable opportunity to review this Agreement with their
respective legal counsel.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
in this Agreement, Employee and Company agree as follows:

1.       COMPENSATION AND BENEFITS. During the Term of this Agreement as defined
in Section 2 below, Employee shall be entitled to receive the following:

         (a)      SALARY. Employee shall be paid a salary at the rate of
$___________ per semi-monthly pay period, less applicable taxes, social
security and withholding of other amounts in accordance with Company's
regular payroll practices, subject to raises which may be awarded in the
discretion of Company in the normal course of business.

         (b)      BUSINESS EXPENSES. Employee shall be reimbursed for all
reasonable pre-approved expenses that Employee incurs in the performance of
Employee's duties and obligations under this Agreement, provided that Employee
shall be required to submit receipts or other acceptable documentation to
Company to verify such expenses in accordance with Company's ordinary business
practices.

         (c)      VACATION. Company agrees to provide Employee
with___________ weeks of paid vacation per year and accruing at___________
hours of vacation time per full month of employment during the Term of this
Agreement in accordance with Company's established vacation accrual policy
set forth in Company's Employee Handbook.

         (d)      BENEFITS. Company and Employee acknowledge and agree that
certain other employee benefits will be provided to Employee incident to
Employee's employment with Company. Except as specifically modified by this
Agreement, these employee benefits shall be governed by Company's respective
benefit plan documents and Company's Employee Handbook.

2.       TERM. This Agreement shall continue in full force and effect for ONE
(1) YEAR, commencing on the Effective Date and expiring on (the "EXPIRATION
DATE").

3.       TERMINATION OF EMPLOYMENT.

         (a)      AT-WILL EMPLOYMENT. Employee's employment with Company shall
continue to be terminable at will, with or without notice. Company and Employee
shall each have the right to terminate the employment relationship for any or no
reason, with or without notice.

         (b)      TERMINATION BY EMPLOYEE. Subject to the provisions of Section
3(e), if Employee resigns or otherwise terminates Employee's employment with
Company during the term of this Agreement, then Employee shall not be entitled
to any severance pay; provided, however, that Employee shall receive any accrued
salary and other benefits attributable to Employee's employment prior to such
termination.


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         (c)      TERMINATION BY COMPANY WITH CAUSE. Subject to the provisions
of Section 3(e), if Company terminates the employment of Employee for Cause (as
defined below) at any time during the term of this Agreement, then Employee
shall not be entitled to any severance pay [except as specifically provided in
Section 3(c)(1) below]; provided, however, that Employee shall receive any
accrued salary and other benefits attributable to Employee's employment prior to
such termination.

                  "CAUSE" shall mean any one or more of the following:

                  (1) DEATH. If Employee dies; provided, however, that
Employee's estate shall be paid any salary and other benefits that Employee
earned until the date of Employee's death plus one additional calendar month of
salary in the time and manner in which Employee would have been regularly been
paid such salary;

                  (2) LONG-TERM DISABILITY PREVENTING PERFORMANCE OF ESSENTIAL
JOB FUNCTIONS FOR 84 CONSECUTIVE CALENDAR DAYS. If Employee becomes physically
or mentally disabled as that term is defined in Company's Long Term Disability
Plan such that Employee can no longer perform the essential functions of
Employee's position, with or without reasonable accommodation, for a period of
eighty-four (84) consecutive calendar days;

                  (3) GROSS MISCONDUCT. If Employee engages in gross misconduct
during the course and scope of Employee's employment with Company, including,
but not limited to: illegal use of drugs on Company premises; insubordination;
dishonesty; acts or omissions unauthorized by Company which cause Company
damage; material misrepresentations concerning Company or its officers,
directors, or employees; unlawful harassment; insider trading; or any violations
of Company's Employee Handbook which would subject Employee to immediate
dismissal;

                  (4) FRAUD OR CERTAIN CRIMINAL ACTS. If Employee commits any
act or omission constituting fraud, or embezzles Company property or funds, or
is convicted of, or pleads nolo contendere to a felony or to any crime involving
moral turpitude; or

                  (5) VIOLATION OF OR NON-COMPLIANCE WITH AGREEMENT. If Employee
materially breaches, violates or fails to comply with any one or more of the
provisions of this Agreement (including, but not limited to, those provisions of
Section 4 herein).

         (d)      TERMINATION BY COMPANY WITHOUT CAUSE. Subject to the
provisions of Section 3(e), if Company terminates the employment of Employee
without Cause (as defined in the preceding paragraph) at any time during the
term of this Agreement, then Employee shall receive a severance benefit equal to
six (6) months of Employee's then current salary in exchange for a full and
final release by Employee of all claims which might be asserted by or on behalf
of Employee against Company, its affiliated companies, and each of their
officers, directors, agents, and employees (collectively "Parties To Be
Released") related to Employee's employment, separation from employment, and
relationship with Parties To Be Released through date of Employee's termination.
Such release shall not include those claims which cannot be waived by law.
Severance pay required pursuant to this Section shall be payable in the manner
and time in which Employee would have been regularly paid such salary. Company
shall pay such severance less usual withholding for taxes, FICA, and other
standard deductions. Employee shall remain fully responsible for all payments of
federal and state taxes resulting from the receipt of such severance.

         (e)      TERMINATION BY COMPANY OR EMPLOYEE AFTER CHANGE OF CONTROL
DATE. Subject to the provisions of Section 3(f), if a Change of Control Date (as
defined below) occurs at any time during the term of this Agreement, and either
Company terminates employment of Employee with or without cause within six (6)
months after the Change in Control Date or Employee terminates employment of
Employee due to a Change in Circumstances (as defined below) within six (6)
months after the Change in Control Date, then Employee shall receive a severance
benefit equal to twelve (12) months of Employee's then current salary in
exchange for a full and final release by Employee of all claims which might be
asserted by or on behalf of Employee against Company, its affiliated companies,
and each of their officers, directors, agents, and employees (collectively
"Parties To Be Released") related to Employee's employment, separation from
employment, and relationship with Parties To Be Released through date of
Employee's termination. Such release shall not include those claims which cannot
be waived by law. Severance pay required pursuant to this Section shall be


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payable in the manner and time in which Employee would have been regularly paid
such salary. Company shall pay such severance less usual withholding for taxes,
FICA, and other standard deductions. Employee shall remain fully responsible for
all payments of federal and state taxes resulting from the receipt of such
severance. This Section 4(e) shall apply regardless whether the date of such
termination falls outside the Term of this Agreement.

         A "CHANGE OF CONTROL DATE" shall be deemed to have occurred on the date
on which one or more of the following events occurs:

                  (1)      A tender offer or exchange offer for at least 20% of
the outstanding Common Stock of Company is consummated;

                  (2)      The shareholders of Company approve an agreement to
merge or consolidate Company into another corporation or entity or to sell all
of substantially all of the assets or adopt a plan of liquidation;

                  (3)      Any person, group or entity becomes the beneficial
owner of at least 20% of the outstanding Common Stock of Company in a
transaction which has not been approved in advance by the Board of Directors of
Company;

                  (4)      The directors on the Board of Directors of Company at
the beginning of any two year period cease to constitute a majority at any time
during such two year period, other than by reason of death or retirement.

However, in no event shall a Change of Control Date be deemed to have occurred
if the Board of Directors of Company as constituted prior to the event(s)
constituting a Change of Control Date, by written action taken prior to, and
with respect to, an event otherwise constituting a Change of Control Date,
determines that such even shall not constitute a Change of Control Date for
purposes of this Agreement.

         A "CHANGE IN CIRCUMSTANCES" shall be deemed to be one or more of the
following:

                  (1)      A change in the nature or scope of the authority,
powers, functions or duties related to Employee's most recent position prior to
the Change of Control Date (as defined above), a change in the location of
Employee's principal office which is not acceptable to Employee, a twenty
percent (20%) or greater change in the amount of Employee's travel for Company
prior to the Change of Control Date, or any reduction in Employee's compensation
after the Change of Control Date; in each event which is not remedied within
thirty (30) days after written notice thereof from Employee to Company;

                  (2)      Breach by Company of any of its obligations to
Employee under this Agreement which is not remedied within 30 days after written
notice thereof from Employee to Company; or

                  (3)      After the Change of Control Date (as defined above),
Employee has made a good faith determination that Employee's position has been
significantly affected by the underlying event(s) giving rise to the Change of
Control Date, that Employee is unable to carry out Employee's authority, powers,
and duties of Employee's most recent position prior to the Change of Control
Date, and that Company has not remedied the situation within thirty (30) days of
written notice of such determination from Employee to Company.


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         (f)      EXCISE TAX ON TOTAL PAYMENTS.

                  (i)      REDUCTION OF TOTAL PAYMENTS. At Employee's election
by written notice to Company, if any payment received or to be received by
Employee whether payable pursuant to the terms of this Agreement or any other
plan, arrangement, or agreement with Company (including, but not limited to,
stock option agreements), any person whose actions result in a Change of Control
Date or other change of control of Company, or any person affiliated with
Company or such person (the "Total Payments"), would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code, as amended ("IRC
Section 4999"), the Total Payments, beginning with any payment due under this
Agreement, will be reduced until no portion of the Total Payments is subject to
the excise tax imposed by IRC Section 4999. Company shall make the initial
determination as to whether any of the Total Payments would be subject to the
excise tax under IRC Section 4999 utilizing any professionals selected by
Company and agreeable to Employee. Employee shall notify Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
Employee to pay any excise tax under IRC Section 4999, and if Employee has
elected to reduce Total Payments as described under this Section 3(f), Employee
shall promptly refund any of the Total Payments Employee received that would
cause the imposition of such tax.

                  (ii)     EMPLOYEE RESPONSIBLE FOR ANY TAXES. Employee shall
remain fully responsible for all excise taxes imposed by IRC Section 4999 and
all other payments of federal and states taxes resulting from the receipt of the
Total Payments.

4.       EMPLOYEE COVENANTS.

         (a)      NON-DISCLOSURE OF CONFIDENTIAL, PROPRIETARY INFORMATION.
Employee acknowledges and agrees that Employee has acquired and, during the Term
of this Agreement, will acquire the use of Company's confidential, Proprietary
Information as defined herein. Employee acknowledges that Company's Proprietary
Information is a unique and valuable asset of Company and that any disclosure of
the Proprietary Information by Employee at any time after the Effective Date,
including after the Term of this Agreement and/or after the term of Employee's
employment, could gravely affect Company's ability to successfully conduct its
business and cause Company to suffer irreparable injury. Therefore, after the
Effective Date, during the Term of this Agreement and/or after the expiration or
termination date of this Agreement, Employee hereby agrees to preserve and hold
in confidence the Proprietary Information, not to use the Proprietary
Information in any way, directly or indirectly, and to avoid disclosure of the
Proprietary Information to any person or entity of any kind without the express
written consent of Company, except as such disclosure may be necessary to
accomplish Employee's duties set forth in this Agreement.

         For purposes of this Agreement, "PROPRIETARY INFORMATION" shall mean
(i) the names of any of Company's suppliers or customers and any information
related thereto; (ii) any information considered confidential by Company and any
information concerning Company's business including, but not limited to,
information about Company's operations, plans, processes, management, etc.;
(iii) Company's trade secrets, including any information or material, not
generally known in the industry in which Company is engaged whether developed by
Employee or by other employees of Company; (iv) existing, pending or anticipated
contractual arrangements; and (v) the salaries and capabilities of Company's
employees; provided, however, that Proprietary Information shall not include
information which is in the public domain by action of Company or any other
person entitled to release such information.

         (c)      DELIVERY OF RECORDS AND PROPERTY. Upon termination of
Employee's employment with Company, Employee shall promptly return all records,
files, documents, materials and copies relating to Company or its business and
any other property (including computer equipment) belonging to Company.

         (d)      NON-SOLICITATION AND NON-INTERFERENCE. During the period
Employee receives any severance benefits under this Agreement, Employee agrees
not to: (i) induce or attempt to induce any employee of Company to leave the
employ of Company; (ii) hire directly or through another entity any person who
was an employee of Company; (iii) in any way interfere with the relationship
between Company and any employee thereof; or (iv) induce or attempt to induce
any customer, supplier, franchisee, licensee or other business relation of
Company to cease doing business with


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Company or in any way interfere with the relationship between any such customer,
supplier, franchisee, licensee or business relation and Company.

         (e)      NON-DISPARAGEMENT AND NON-DEFAMATION; NO UNAUTHORIZED
STATEMENTS TO THIRD PARTIES. Employee shall not make any oral or written
statements disparaging or defaming Company, its policies or programs, or its
past or present officers, directors or employees. In addition, Employee shall
not make any oral or written statements to third parties (including, but not
limited to, the general public via postings on the internet, the press,
financial analysts, auditors, institutional investors, franchisees, vendors or
suppliers) which are: (i) not authorized by Company regarding Company, its
policies or programs, its past or present officers, directors, or employees, or
Company's Proprietary Information [as defined in Section 4(a) of this
Agreement], and (ii) not required by operation of law.

         (f)      REMEDIES. If Employee violates any of the provisions set forth
in Section 4 of this Agreement, Employee acknowledges and agrees that Company
will suffer immediate and irreparable harm. Consequently, Employee acknowledges
and agrees that Company shall be entitled to immediate injunctive relief, either
by temporary or permanent injunction, to prevent such a violation, and entitled
to any other available remedies both at law and in equity, including, but not
limited to, the recovery of damages and to the recovery of reasonable attorneys'
fees and costs related Company's enforcement and prosecution of its rights and
remedies as to Employee's violation(s).

5.       MISCELLANEOUS.

         (a)      SEVERABILITY. The provisions of this Agreement are severable,
and if any provision of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal or unenforceable, that finding shall in no
way affect the validity or enforceability of any other provision of this
Agreement. Any such invalid, illegal or unenforceable provision shall be deemed
to be automatically modified, and, as so modified, to be included in this
Agreement, such modification being made to the minimum extent necessary to
render the provision valid, legal and enforceable.

         (b)      WRITTEN AGREEMENT. All previous oral agreements regarding the
subject matter of this Agreement are expressly superseded by this Agreement.
This Agreement may not be amended, modified or rescinded except by a written
agreement executed by Company and Employee.

         (c)      GOVERNING LAW. THIS AGREEMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY, INTERPRETED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS. THE PARTIES HEREBY AGREE TO SUBMIT TO THE JURISDICTION OF THE COURTS
OF THE STATE OF TEXAS.

         (d)      SUBMISSION TO JURISDICTION. Each of the parties submits to the
jurisdiction of any state or federal court or administrative agency in Travis
County, Texas, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court or agency. Each party also agrees not
to bring any action or proceeding arising out of or relating to this Agreement
in any other county. Each of the parties waives any defense of inconvenient
forum to the maintenance of any action or proceeding so brought and waives any
bond, surety, or other security that might be required of any other party with
respect thereto. Each party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or equity.

         (e)      LEGAL CONSULTATION. The parties acknowledge and agree that
both parties have been accorded a reasonable opportunity to review this
Agreement with legal counsel prior to executing the agreement and that every
covenant, term, and provision of this Agreement shall be construed simply
according to its fair meaning and not strictly for or against any party.

         (f)      NOTICES. All notices required to be delivered under the terms
of this Agreement shall be forwarded by personal delivery, expedited delivery
service (e.g., Federal Express) or United States certified mail, return receipt
requested. Notices shall be deemed to be communicated and effective on the
earlier of the day of receipt or three days after mailing. Such notices shall be
addressed to Employee at the address noted in the first paragraph of this


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Agreement and to Company at: Schlotzsky's, Inc., 203 Colorado Street, Austin,
Texas 78701, Attention: Legal Department. Any change of address notice shall be
given in the manner prescribed herein.

         (g)      ATTORNEYS' FEES. Notwithstanding any provision in this
Agreement to the contrary, if any action at law or in equity, including an
action for declaratory relief, is brought to enforce or interpret the provisions
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and costs from the other party; provided, however that no party
shall be a prevailing party unless such party has recovered more as a result of
a final order resulting from judicial proceedings than the amount, if any,
offered by an opposing party to settle the dispute.

         (h)      SURVIVAL. Employee acknowledges that Employee will receive
Proprietary Information and special training from Company; and that the
provisions concerning Employee Covenants contained herein are valuable to
Company and their protection, maintenance and enforcement constitute a
legitimate interest to be protected by Company. Employee acknowledges that
Employee has carefully considered these matters before entering into this
Agreement. The provisions of Section 4 shall survive the termination of this
Agreement. Employee acknowledges that Company will suffer irreparable injury if
such provisions are violated and Company shall be entitled to injunctive relief,
to all other available legal remedies both at law and in equity (including, but
not limited, the recovery of damages), and to reasonable attorneys' fees and
costs to enforce those provisions, and to such further relief to which it may
demonstrate it is entitled.

TO BE EFFECTIVE as of the Effective Date as defined above.

COMPANY:

SCHLOTZSKY'S, INC.


By: ______________________________________       Date: _________________________
         John C. Wooley
Title:   President

EMPLOYEE:


__________________________________________       Date: _________________________

{EMPLOYEE NAME}


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