<PAGE>

                              EMPLOYMENT AGREEMENT

         AGREEMENT dated to be effective as of AUGUST 15, 2000 ("Effective
Date"), made and entered into by and between Schlotzsky's, Inc., a Texas
corporation (the "Company"), and RICHARD H. VALADE ("Valade").

         The Board of Directors of the Company has determined that it is in
the best interest of the Company to set forth the terms of employment of
Valade as Executive Vice President and Chief Financial Officer of the Company
and Valade has agreed to such terms. The Company and Valade wish to promote
their mutual best interest by setting forth the terms and conditions in
writing.

         NOW, THEREFORE, in consideration of the covenants and agreements set
forth in this Agreement, the parties agree as follows:

         1. EMPLOYMENT. The Company employs Valade and Valade agrees to the
terms and conditions set forth in this Agreement. Valade agrees to serve as
Executive Vice President and Chief Financial Officer of the Company to be
responsible for general management of the financial affairs of the Company,
reporting directly to the President and Chief Executive Officer of the
Company ("President"), and to devote good faith efforts on behalf of the
Company.

         2. TERM OF EMPLOYMENT. Valade's employment with the Company shall
continue for two (2) years from the Effective Date, provided that such term
shall be automatically extended for one year on each anniversary date of this
Agreement thereafter, unless terminated by Valade or the Company in
accordance herewith.

         3. BASE SALARY, BONUSES, STOCK OPTIONS, AND OTHER COMPENSATION.

            (a) BASE SALARY. The Company shall pay to Valade a base salary at
the annual rate of Two Hundred Twenty-Five Thousand and No/100 Dollars
($225,000.00), less applicable taxes, social security and withholding of
other amounts in accordance with Company's regular payroll practices.
Valade's base salary shall be payable on the same schedule that salary is
paid to other employees.

            (b) BONUSES. Valade shall be entitled to a pro-rated cash bonus
for the calendar year 2000 based on the Effective Date of the Agreement, up
to a maximum of 100% of Valade's base salary actually earned in 2000 (that
is, from August 15, 2000, through December 31, 2000). Such bonus will be
calculated based on parameters to be agreed upon by the parties as soon as
reasonably possible, but not before the Company's second quarter results are
reported. Thereafter, bonuses will be determined on a calendar year basis
(conforming to the Company's yearend) up to a maximum of 100% of Valade's
then current, annual base salary based on parameters to be determined
annually between the parties. In the event that the parties do not agree on
the parameters for the bonus calculation for the calendar year 2000 by
December 31, 2000, or for subsequent calendar years prior to the subject
year, then such lack of agreement shall have no effect on the Agreement by
way of breach, damages, or otherwise.

            (c) STOCK OPTIONS. In addition to the other compensation set
forth in this Agreement, after recommendation by the President and upon
approval by the Compensation



<PAGE>

Committee of the Board of Directors of the Company ("Compensation
Committee"), the Company agrees to grant Valade, under the Company's 1993
Stock Option Plan, as amended ("1993 Plan"), an option to purchase the
Company's common stock (the "Option") under the following terms:

                  (1) GRANT OF OPTIONS. Subject to the terms and provisions
of this Agreement and the applicable Incentive Stock Option Agreement ("Stock
Option Agreement") to be executed by Valade and Company, after recommendation
by the President and upon approval by the Compensation Committee, the Company
agrees to grant Valade an Incentive Stock Option to purchase one hundred
thousand (100,000) shares of the Company's Common Stock (the "Option Stock")
at their "fair market value", as defined in the 1993 Plan, on the Effective
Date of this Agreement (the "Option Price"). Valade and Company shall execute
a Stock Option Agreement in the form attached hereto as EXHIBIT A.

                  (2) VESTING AND EXERCISE OF OPTIONS. Subject to the
provisions of the Stock Option Agreement, such Option to purchase Fifty
Thousand (50,000) shares of the Option Stock at the Option Price shall vest
on the first anniversary date of the Stock Option Agreement and the remaining
Fifty Thousand (50,000) shares of the Option Stock at the Option Price shall
vest on the second anniversary date of the Stock Option Agreement. Valade
shall have the right to exercise his Option to purchase all or part of the
Option Stock after such Option has vested in accordance with the vesting
provisions set forth in this subsection. Any exercise by Valade of his Option
to purchase all or part of the Option Stock shall be in accordance with the
terms of the Stock Option Agreement to be executed by Company and Valade.

            (d) OTHER COMPENSATION. Valade shall also be entitled to such
other bonuses, stock options, and compensation increases which may be awarded
in the discretion of the President and the Compensation Committee in the
normal course of business.

         4. BENEFITS. Valade shall receive, in addition to the base salary,
bonuses, stock options, and other compensation set forth in Section 3 hereof,
certain other employee benefits incident to Valade's employment with Company.
Except as specifically modified by this Section of this Agreement as follows,
these employee benefits shall be governed by Company's respective benefit
plan documents and Company's Employee Handbook. Company agrees to provide
Valade, on Valade's behalf, with the following benefits:

            (a) MEDICAL AND DENTAL INSURANCE. Full payment of the Company's
group medical and dental insurance premiums for Valade, his spouse and
eligible children;

            (b) TERM LIFE INSURANCE. Full payment of the premiums for
$125,000 term life insurance policy for Valade under the Company's term life
insurance program;

            (c) SUPPLEMENTAL LONG-TERM DISABILITY INSURANCE. Full payment of
the premiums for supplemental long-term disability insurance coverage for an
amount to be determined and approved by an insurer approved, or to be
approved, by Company in its sole discretion;

            (d) VACATION. Four (4) weeks of paid vacation per year, accruing
at 13.33 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; and



<PAGE>

            (e) REIMBURSEMENT OF BUSINESS EXPENSES. Valade shall be
reimbursed for all expenses within budget ranges or approved to be outside of
budget ranges that Valade incurs in the performance of Valade's duties and
obligations under this Agreement, provided that Valade shall be required to
submit receipts or other acceptable documentation to Company to verify such
expenses in accordance with Company's ordinary business practices.

         5.       RELOCATION.

                  (a) PAYMENT FOR MOVING COMPANY EXPENSES. Company shall pay
for the movement of Valade's household goods from his residence in Detroit,
Michigan, to his new residence in Austin, Texas, provided that such move is
performed by Mayflower/American Relocation & Storage Systems or other moving
company pre-approved by Company ("Mayflower"). Upon receipt of a written
estimate from Mayflower for the charges associated with the move from Detroit
to Austin, the Company will authorize Mayflower to bill the Company directly
for such charges.

                  (b) RELOCATION EXPENSES. Company will reimburse or pay
Valade for relocation expenses from Detroit, Michigan, to Austin, Texas, for
a house-hunting trip, closing costs on sale and purchase of residences, and
temporary living expenses (collectively "Relocation Expenses") as described
below. The maximum amount that the Company will reimburse Valade for such
Relocation Expenses is Fifty Thousand and No/100 Dollars ($50,000.00) and the
latest date any such Relocation Expenses may be submitted for reimbursement
is nine (9) months after the Effective Date of this Agreement (that is, by
May 15, 2001), with the exception of those closing costs related to the sale
of Valade's residence in the Detroit, Michigan area and the purchase of
Valade's residence in the Austin, Texas area. Such closing costs may be
submitted for reimbursement up to one (1) year from the Effective Date of
this Agreement (that is, through August 14, 2001) unless otherwise extended
by agreement of Valade and the Compensation Committee.

                  For purposes of reimbursement under this Section, Valade
agrees to submit documentation acceptable to Company for any reimbursable
Relocation Expenses to Company's Director of Human Resources. Company agrees
to reimburse Valade for such reimbursable Relocation Expenses within the
guidelines of the Company's Expense Reimbursement Policy. Company shall
reimburse Valade only for the actual expenses incurred with regard to the
Relocation Expenses.

                  If any conflict should exist between the provisions of this
Agreement and the provisions of the Company's Expense Reimbursement Policy,
the provisions of this Agreement are paramount and shall control, and this
Agreement shall be construed accordingly.

                           (1) HOUSE-HUNTING TRIP. Company will reimburse
Valade for one house-hunting trip to Austin, Texas, which includes round-trip
airfare for Valade and his spouse, and hotel expenses, meals, and car rental
for up to seven (7) days.

                           (2) CLOSING COSTS. Company will reimburse Valade
for closing costs related to the sale of Valade's residence in the Detroit,
Michigan area and the purchase of Valade's residence in the Austin, Texas
area.

                           (3) TEMPORARY LIVING. Company will provide Valade
with temporary



<PAGE>

living accommodations in Austin, Texas, for up to six (6) months following
the Effective Date of this Agreement to include a two-bedroom apartment, car
rental, and round-trip airfare from Austin, Texas, to Detroit, Michigan, once
every three weeks.

                           (4) RELOCATION EXPENSES SUBJECT TO TAXES. Company
shall report to the appropriate taxing authorities those certain reimbursed
relocation expenses which are required by law to be reported as taxable
income to Valade. Valade shall remain fully and ultimately responsible for
all payment of federal, state, and local taxes associated with such
reimbursements.

         6. VALADE COVENANTS.

            (a) CONFIDENTIAL INFORMATION. Valade acknowledges that the
information, observations and data obtained by him while employed by the
Company concerning the business or affairs of the Company ("Confidential
Information") are the property of the Company. For purposes of this
Agreement, Confidential Information shall include without limitation: (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 Valade or by other employees of Company; (iv) existing, pending or
anticipated contractual arrangements; and (v) the salaries and capabilities
of Company's employees. Valade agrees that he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without the express written consent of Company (except as such disclosure may
be necessary to accomplish Valade's duties set forth in this Agreement),
unless and to the extent that the aforementioned matters become generally
known to and available for use by the public other than as a result of
Valade's act or omissions to act. Valade shall deliver to the Company at the
termination of employment, or at any other time the Company may request, all
memoranda, notes, plans, records, reports and other documents (and copies
thereof) relating to the Confidential Information or the business of the
Company which he may then possess or have under his control.

            (b) INVENTIONS AND PATENTS.

                (i) Valade agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports,
and all similar or related information which relates to the Company's actual
or anticipated business, research and development or existing or future
products or services and which are conceived, developed or made by Valade
while employed by the Company ("Work Product") belong to the Company. Valade
will promptly disclose such Work Product to the Company and perform all
actions reasonably requested by the President or the Board of Directors to
establish and confirm such ownership.

                (ii) Valade is hereby advised that Section 6(b)(i) of this
Agreement regarding the Company's ownership of intellectual property does not
apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company was used and which was developed entirely
on Valade's own time, unless (i) the invention relates to the business of the
Company or to the Company's actual or demonstrably anticipated research or



<PAGE>

developments, or (ii) the invention results from any work performed by Valade
for the Company.

            (c) NON-COMPETE, NON-SOLICITATION.

                (i) Valade acknowledges that in the course of his employment
with the Company he will become familiar with the Company's trade secrets and
with other confidential information concerning the Company and that his
services will be of special, unique and extraordinary value to the Company.
Therefore, Valade agrees that, during employment and thereafter for a period
of double the number of months of employment [but in no case shall the total
subsequent period be less than six (6) months or more than twelve (12) months],
he shall not directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the business of the Company. For purposes of this Agreement, a
business shall be deemed competitive if it is a quick service sandwich shop
or food service operation offering principal menu entrees which are the same
or confusingly similar to those then offered by the Schlotzsky's restaurant
system (for example, including, but not limited to, Quizno's, Subway,
Blimpies, Jason's Deli, Wall Street Deli, Panera Bread, Au Bon Pain, Briazz,
Cosi, and Sandela's Cafe). Nothing herein shall prohibit Valade from being a
passive owner of not more than 5% of the outstanding stock of any class of a
corporation that is publicly traded, so long as Valade has no active
participation in the business of such corporation.

                (ii) During employment (except in the course of properly
dispensing his duties) and during the period Valade receives any severance
benefits under this Agreement, Valade shall not: (i) induce or attempt to
induce any employee of the Company to leave the employ of the Company or in
any way interfere with the relationship between the Company and any employee
thereof, (ii) hire directly or through another entity any person who was an
employee of the Company at any time during Valade's employment or (iii)
induce or attempt to induce any customer, supplier, licensee or other
business relation of the Company to cease doing business with the Company or
in any way interfere with the relationship between any such customer,
supplier, licensee or business relation and the Company.

            (d) FULL-TIME. Valade agrees to devote his best efforts to the
business and affairs of the Company. Valade shall seek written consent from
the President to provide service to a third party for compensation. Consent
to such activities may be withheld in the sole judgment of the President.

            (e) ENFORCEMENT. If, at the time of enforcement of paragraphs
6(a), (b),(c) or (d) of this Agreement, a court holds that the restrictions
stated herein are unreasonable under circumstances then existing, the parties
hereto agree that the maximum period, scope or geographical area reasonable
under such circumstances shall be substituted for the stated period, scope or
area. Because Valade's services are unique and because Valade has access to
Confidential Information and Work Product, in the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies at law or in equity [including,
but not limited to, the recovery of attorneys' fees and costs] existing in
their favor, apply to any court of competent jurisdiction for specific
performance or injunction or other relief at law or in equity in order to
enforce, or prevent any violations of, the provisions hereof.

         7. TERMINATION.



<PAGE>

            (a) NOTICE; FOR CAUSE. Valade or the Company may terminate the
employment of Valade for cause or without cause by giving written notice at
least sixty (60) days in advance of the effective date of termination. For
purposes of this Agreement "for cause" means termination by the Company of
the employment of Valade upon any of the following grounds and no others: (i)
any act of dishonesty or violation of law on the part of Valade resulting or
intended to result directly or indirectly in personal gain or benefit at the
expense of the Company, fraud, misappropriation, embezzlement or willful and
material damage of or to property of the Company; (ii) any act or omission
which leads to Valade's conviction or plea of nolo contendere to a felony or
any crime involving moral turpitude; (iii) any intentional act on the part of
Valade preventing him from discharging his duties for a material length of
time; (iv) any gross misconduct committed during the course and scope of
Valade's employment with Company, including, but not limited to: illegal use
of drugs on Company premises; insubordination; 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 Valade to immediate dismissal; or (v) a material breach
of this Agreement, including willful and habitual neglect of duties, which is
not cured within ten days following receipt of written notice.

            (b) FOR ANY REASON. Upon termination of Valade's employment for
any reason, he shall be entitled to receive the base salary, benefits and any
bonuses earned through the date of termination.

            (c) WITHOUT CAUSE. Upon termination of Valade's employment
without cause, he shall be entitled to receive the base salary, benefits and
any bonuses earned through the date of termination, plus the base salary and
benefits through the end of the term then in effect, or for one year,
whichever is longer. Valade may elect to treat a substantial reduction in
responsibilities and duties as termination without cause. In the event of any
dispute between the Company and Valade concerning the status of a reduction
in responsibilities and duties as "substantial," the dispute shall be
submitted to an independent third party arbitrator acceptable to the Company
and Valade for a determination, which shall be binding on both parties.

            (d) BY COMPANY OR VALADE AFTER CHANGE OF CONTROL DATE. Subject to
the provisions of Section 7(e), 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 Valade with or without cause within six (6)
months after the Change in Control Date or Valade terminates employment of
Valade due to a Change in Circumstances (as defined below) within six (6)
months after the Change in Control Date, then Valade shall receive a
severance benefit equal to twelve (12) months of Valade's then current salary
in exchange for a full and final release by Valade of all claims which might
be asserted by or on behalf of Valade against Company, its affiliated
companies, and each of their officers, directors, agents, and employees
(collectively "Parties To Be Released") related to Valade's employment,
separation from employment, and relationship with Parties To Be Released
through date of Valade's termination. Such release shall not include those
claims which cannot be waived by law; and the post-termination provisions of
the Indemnity Agreement between Valade and the Company executed
contemporaneously herewith and the Stock Option Agreement shall survive such
release. Severance pay required pursuant to this Section shall be payable in
the manner and time in which Valade would have been regularly paid such
salary. Company shall pay such severance less usual withholding for taxes,
FICA, and other standard deductions. Valade shall remain fully



<PAGE>

responsible for all payments of federal and state taxes resulting from the
receipt of such severance. This Section 7(d) 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 or
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 event shall not constitute a Change of Control
Date for purposes of this Agreement; but this Change of Control Date
exception shall not apply during the initial two-year term of this Agreement
(that is, from August 15, 2000, through August 14, 2002).

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

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

                (3) After the Change of Control Date (as defined above),
Valade has made a good faith determination that Valade's position has been
significantly affected by the underlying event(s) giving rise to the Change
of Control Date, that Valade is unable to carry out Valade's authority,
powers, and duties of Valade's most recent position prior to the Change of



<PAGE>

Control Date, and that Company has not remedied the situation within thirty
(30) days of written notice of such determination from Valade to Company.

            (e) EXCISE TAX ON TOTAL PAYMENTS.

                (i) REDUCTION OF TOTAL PAYMENTS. At Valade's election by
written notice to Company, if any payment received or to be received by
Valade 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 Valade. Valade shall notify Company in
writing of any claim by the Internal Revenue Service that, if successful,
would require Valade to pay any excise tax under IRC Section 4999, and if
Valade has elected to reduce Total Payments as described under this Section
7(e), Valade shall promptly refund any of the Total Payments Valade received
that would cause the imposition of such tax.

                (ii) VALADE RESPONSIBLE FOR ANY TAXES. Valade 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.

         8. DISABILITY OR DEATH.

            (a) If as a result of illness, injury or other disability, Valade
is unable to perform his duties hereunder on a substantially full time basis
for any period of twelve months or more, the Company may at its option
terminate Valade's employment hereunder and shall pay to Valade the base
salary, benefits and any bonuses through the date of termination, plus the
base salary and benefits (to the extent allowed by applicable law and the
Company's applicable benefits plans) through the end of the term then in
effect, or for one year, whichever is longer.

            (b) If Valade shall die during the term of his employment by the
Company, the Company shall pay to Valade's estate the base salary and any
bonuses through the date of his death, plus the base salary through the end
of the term then in effect, or for one year, whichever is longer, and
maintain employee benefits for his spouse and dependants for the same period
to the extent allowed by applicable law and the Company's applicable benefits
plans.

         9. 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,



<PAGE>

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 Valade.

            (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, AND SHALL BE PERFORMABLE IN TRAVIS COUNTY, 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 Valade at the address noted the signature block
below in this Agreement and to Company at: Schlotzsky's, Inc., 203 Colorado
Street, Austin, Texas 78701, Attention: President. 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. Valade acknowledges that Valade will receive
proprietary information and special training from Company; and that the
provisions concerning Valade



<PAGE>

Covenants contained herein are valuable to Company and their protection,
maintenance and enforcement constitute a legitimate interest to be protected
by Company. Valade acknowledges that Valade has carefully considered these
matters before entering into this Agreement. The provisions of Section 6
("Valade Covenants") shall survive the termination of this Agreement for the
period set forth in Section 6. Valade 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:                          VALADE:

SCHLOTZSKY'S, INC.


By:
Name:                             Richard H. Valade
Title:

203 Colorado Street
Austin, Texas  78701

Date:                             Date: