<PAGE>

                                                        Amended and Restated
                                                           February 24, 1997



                                SCHLOTZSKY'S, INC.

                            THIRD AMENDED AND RESTATED
                              1993 STOCK OPTION PLAN


  The Schlotzsky's, Inc. 1993 Stock Option Plan (the "Plan") is hereby
amended and restated in its entirety to read as follows:

  1.   PURPOSE.  This 1993 Stock Option Plan (the "Plan") is intended to
provide incentives to the officers, other employees, directors and
consultants of Schlotzsky's, Inc., a Texas corporation (the "Company") and
any present or future subsidiaries by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder
("Options").  As used herein the term "subsidiary" has the meaning assigned
to it in Section 424 of the Internal Revenue Code of 1986, as amended (the
"Code"), "Incentive Stock Option" has the meaning assigned to it in Section
422 of the Code and "Non-Qualified Option" means an Option which is not
intended to qualify as an Incentive Stock Option.

  2.   APPROVAL OF GRANTS.  Each grant of Options ("Grant") must be approved
in one of the following ways:

               (a)  Board/Committee Approval.  The entire Board of Directors
     of the Company (the "Board") or the Committee (as defined below) may vote
     in advance to approve such Grant.

               (b)  Shareholder Approval/Ratification.  In compliance with
     Section 14 of the Securities Exchange Act of 1934, as amended ("1934
     Act"), a majority of the shareholders of the Company duly entitled to
     vote on such matters at meetings held in accordance with the laws of
     the State of Texas may, either in advance of the Grant or no later than
     the next annual meeting of shareholders, affirmatively vote to approve
     such Grant.

  3.   ADMINISTRATION OF THE PLAN.  The Plan shall be administered by the
Board, except to the extent the Board delegates its authority to a committee
of the Board (the "Committee") which, must consist solely of non-employee
directors, and with respect to grants to directors or officers, must consist
solely of two or more Non-Employee Directors, as defined in Rule 16b-3,
promulgated pursuant to Section 16 of the 1934 Act ("Rule 16b-3") and must
consist only of "Outside Directors" in compliance with Section 162(m)(4)(C)
of the Code for purposes of grants to the chief executive officer and other
executive officers whose compensation limit may otherwise exceed the
deduction limit of Section 162(m) of the Code.  The Compensation

<PAGE>

Committee may create a subcommittee for purposes of Grants to officers and
directors if the Committee would otherwise not qualify. References herein to
the "Committee" shall include any such subcommittee.  All references in this
Plan to the Administrator shall mean the Board, unless it has delegated its
authority to the Committee, in which event Administrator shall mean the
Committee.  With respect to the Grants of Options to directors, officers and
beneficial owners of more than 10% of a class of equity security registered
pursuant to the 1934 Act, the Plan shall be administered in such manner as
will enable compliance with Rule 16b-3.  Grants made to executive officers
subject to Section 162(m) of the Code shall be contingent on shareholder
approval of the material terms of the Plan to the extent required under
Section 162(m).

  Subject to the terms of the Plan, the Board, the Committee or the
shareholders, as the case may be, shall have concurrent authority to
determine the persons to whom Options shall be granted, the number of shares
covered by each Option, the price per share specified in each Option, the
time or times at which Options shall be granted and the terms and provisions
of the instruments by which Options shall be evidenced.  The Administrator is
authorized to interpret the provisions of the Plan or of any Option or Option
agreement and to make all rules and determinations which it deems necessary
or advisable for the administration of the Plan, provided, however, that all
such interpretations, rules and determinations shall be made and prescribed
in the context of preserving the tax status under Code Section 422 of those
Options which are designated as Incentive Stock Options.  Subject to the
foregoing, the interpretation and construction by the Administrator of any
provisions of the Plan or of any Option granted under it shall be final.  No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option
granted under it.

  4.   ELIGIBLE EMPLOYEES AND CONSULTANTS.  Subject to the limitations
contained in paragraphs 2 and 3, Non-Qualified Options may be granted to any
officer, other employee, director or consultant of the Company or any
subsidiary.  Incentive Stock Options may only be granted to employees.
Granting of any Option to an employee, director or consultant shall neither
entitle him to, nor disqualify him from, participation in any other grant of
options.

  5.   STOCK.  The stock subject to the Options shall be authorized but
unissued shares of Common Stock of the Company, no par value (the "Common
Stock"), or shares of Common Stock reacquired by the Company, including
shares purchased in the open market.  The aggregate number of shares which
may be issued pursuant to the Plan is 800,000, subject to adjustment as
provided in paragraph 15; provided however, that the number of shares with
respect to which Options may be granted to any single executive officer of
the Company during any fiscal year shall not exceed 250,000 shares of Common
Stock.  In the event any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject thereto, shall again be available for Grants of Options under the
Plan, provided that an Option that expires or terminates for any reason or
ceases to be exerciseable in the fiscal year in which it is granted will
continue to be counted against the individual limit on Options granted to a
single executive officer in any fiscal year.  The shares issued upon exercise
of Options granted under the Plan may be authorized and unissued shares or
shares held by the Company in its treasury, or both.

                                      2
<PAGE>

  6.   GRANTING OF OPTIONS.  Options may be granted under the Plan at any
time within ten years from the date of approval of the Plan by the Board, the
Committee or the shareholders, as the case may be.  The Administrator shall
specify at the time of each Grant of an Option under the Plan whether such
Option is an Incentive Stock Option.  The date of Grant of an Option under
the Plan will be the date specified by the Administrator at the time it
awards the Option, provided, however, that such date shall not be prior to
the date of award.  Notwithstanding any other provisions of this Plan, the
Administrator may authorize the Grant of an Option to a person not then an
employee or consultant of the Company or of a subsidiary.  The actual Grant
of such Option, however, shall be conditioned upon such person becoming an
employee or consultant, as the case may be, at or prior to the time of the
execution of the Option agreement evidencing such Option.

  7.   MINIMUM OPTION PRICE.  The price per share specified in each Option
granted under the Plan shall be as follows:

            (a)  The price per share specified in each Non-Qualified Stock
  Option granted under the Plan shall in no event be less than 50% of the
  fair market value per share of Common Stock on the date of such Grant;
  provided that, as to Options awarded to executive officers, the price
  per share shall be not less than the fair market value per share of the
  Common Stock on the date of such Grant.

            (b)  The price per share specified in each Incentive Stock
  Option granted under the Plan shall not be less than the fair market
  value per share of the Common Stock on the date of such Grant.  In the
  case of an Incentive Stock Option to be granted to an employee owning,
  directly or by reason of the applicable attribution rules in Section
  424(d) of the Code, more than 10% of the total combined voting power of
  all classes of share capital of the Company or a subsidiary, the Option
  price per share of the shares covered by each Option shall be not less
  than 110% of the said fair market value on the date of Grant.

            (c)  In no event shall the aggregate fair market value
  (determined as of the time of Grant) of the Common Stock with respect to
  which Incentive Stock Options are exercisable (under all plans of the
  Company and any subsidiaries) for the first time by an employee in any
  calendar year exceed $100,000, provided that this subparagraph (c) shall
  have no force or effect if its inclusion in the Plan is not necessary
  for Options issued as Incentive Stock Options to qualify as Incentive
  Stock Options pursuant to Section 422 of the Code.

  For purposes of this Plan, "fair market value" with respect to a share of
Common Stock, shall mean the average of the daily market prices for the
period of 10 consecutive trading days ending immediately prior to the
applicable date.  The market price for each such trading day shall be the
last sale price on such day on the New York Stock Exchange, or, if the Common
Stock is not then listed or admitted to trading on the New York Stock
Exchange, on such other principal stock exchange on which such stock is then
listed or admitted to trading, or, if no sale takes place

                                         3
<PAGE>

on such day on any such exchange, the average of the closing bid and asked
prices on such day as officially quoted on any such exchange, or, if the
Common Stock is not then listed or admitted to trading on any stock exchange,
the market price for each such trading day shall be the last sale reported on
the NASDAQ National Market System as published in The Wall Street Journal or,
if no such sale is so reported, the average of the reported closing bid and
asked prices on such day in the over-the-counter market, as furnished by the
National Association of Securities Dealers Automated Quotation system, or, if
such price at the time is not available from such system, as furnished by any
similar system then engaged in the business of reporting such prices and
selected by the Administrator or, if there is no such system, as furnished by
any member of the National Association of Securities Dealers, selected by the
Administrator.  If the Company's stock is not then publicly traded, the fair
market value shall be deemed to be the fair value of the Common Stock as
determined by the Administrator after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions negotiated at arm's
length.

  8.   OPTION DURATION.  Subject to earlier termination as provided in
paragraphs 10, 11, 12, 13 and 19, each Option shall expire on the date
specified by the Administrator, consistent with the terms of the specific
Grant, but not more than ten years from the date of grant, provided, however,
that for optionees who own more than 10% of the total combined voting power
of all classes of share capital of the Company or a subsidiary, each Option
shall terminate not more than five years from the date of the Grant.  Subject
to paragraph 18, the Administrator may extend the term of any previously
granted Option provided that such Option, as extended, expires within ten
years of its original date of grant.

  9.   EXERCISE OF OPTION.  Subject to the provisions of paragraphs 10, 11,
12, 13, 14, 15 and 19, each Option granted under the Plan shall be
exercisable ("vest") as follow:

            (a)  The Option shall either be fully exercisable upon grant
  or shall become exercisable thereafter in such installments as the
  Administrator may specify.

            (b)  Once an installment becomes exercisable it shall remain
  exercisable until expiration or termination of the Option, unless
  otherwise specified by the Administrator, consistent with the terms of
  the specific Grant.

            (c)  Each Option may be exercised from time to time, in whole
  or in part, for up to the total number of shares with respect to which
  it is then exercisable.

            (d)  Consistent with the terms of the specific Grant, the
  Administrator shall have the right to accelerate the date of exercise of
  any installment, provided that the Administrator shall not accelerate
  the exercise date of any installment of any Option granted to an
  optionee as an Incentive Stock Option (and not previously converted into
  a Non-Qualified Option pursuant to paragraph 24) if such acceleration
  would violate the annual vesting limitation contained in Section 422(d)
  of the Code, as described in paragraph 6(c).

                                         4
<PAGE>

  10.   VOLUNTARY TERMINATION OF EMPLOYMENT OR CONSULTING.  Except as
the Administrator may otherwise determine, if an optionee ceases to be
employed or retained by the Company or any subsidiary other than by
reason of death or Disability (as defined in paragraph 12 below) or a
termination "for cause," no further installments of his Options shall
become exercisable, and his Options shall terminate upon the expiration
of three (3) months following the date of termination of his employment,
but in no event later than on their specified expiration dates.  In no
event may an Option agreement provide, if the Option is intended to be
an Incentive Stock Option, that the time for exercise be later than
three (3) months after the optionee's termination of employment except
as otherwise provided in this paragraph 10 and in paragraphs 11 and 12.
Whether leave of absence by approval of the Company or by reason of
military or governmental service constitutes employment for purposes of
the Plan shall be conclusively determined by the Administrator.

  The provisions of this paragraph 10, and not the provisions of
paragraph 11 or 12, shall apply to an optionee who subsequently becomes
disabled or dies after the termination of employment or consultancy,
provided, however, in the case of an optionee's death within 45 days
after the termination of employment or consulting, the Optionee's
Survivors (as defined below) may exercise the Option within one year
after the date of the optionee's death, but in no event after the date
of expiration of the term of the Option.

  Notwithstanding anything herein to the contrary, if subsequent to an
optionee's termination of employment or consultancy, but prior to the
exercise of an Option, the Administrator determines that, either prior
or subsequent to the optionee's termination, the optionee engaged in
conduct which would constitute "cause," then such optionee shall
immediately cease to have any right to exercise any Option.

  Options granted under the Plan shall not be affected by any change of
employment or other service within or among the Company and any
subsidiaries, so long as the optionee continues to be an employee or
consultant of the Company or any subsidiary, provided, however, if an
optionee's employment by either the Company or a subsidiary should cease
(other than to become an employee of a subsidiary or the Company), such
termination shall affect the optionee's rights under any Option granted
to such optionee in accordance with the terms of the Plan and the
pertinent Option agreement.

  11.  DEATH.  Except as otherwise provided in the applicable Option
agreement, in the event of the death of an optionee to whom an Option
has been granted hereunder, while the optionee is an employee or
consultant of the Company or of a subsidiary, such Option may be
exercised by any person or persons who acquired the optionee's rights to
the Option by will or by the laws of descent and distribution (the
"Optionee's Survivors") to the extent exercisable but not exercised on
the date of death.

  If the Optionee's Survivors wish to exercise the Option, they must
take all necessary steps to exercise the Option within two years after
the date of death of such Optionee, notwithstanding that the decedent
might have been able to exercise the Option as to some or all of the
shares on a

                                        5
<PAGE>

later date if he had not died and had continued to be an employee or
consultant or, if earlier, within the originally prescribed term of the
Option.

  12.  DISABILITY.  Except as otherwise provided in the applicable
Option agreement, an optionee who ceases to be an employee of or
consultant to the Company or of a subsidiary by reason of Disability may
exercise any Option granted to such optionee to the extent exercisable
but not exercised on the date of his Disability.

  "Disability" or "Disabled" means permanent and total disability as
defined in Section 22(e)(3) of the Code.

  A Disabled optionee or his or her representative (except in the case
of Incentive Stock Options, only as permitted by Section 422(b)(5) of
the Code) may exercise such rights only within a period of not more than
one year after the date that the optionee became Disabled or, if
earlier, within the originally prescribed term of the Option.

  The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence (unless a
procedure for such determination is set forth in another agreement
between the Company and such optionee, in which case such procedure
shall be used for such determination).  If requested, the optionee shall
be examined by a physician selected or approved by the Administrator,
the cost of which examination shall be paid for by the Company.

  13.  TERMINATION FOR CAUSE.  Except as otherwise provided in the
applicable Option agreement, the following rules apply if the optionee's
service (whether as an employee or consultant) is terminated "for cause"
prior to the time that all of his outstanding Options have been
exercised:

            (a)  All outstanding and unexercised Options as of the date
  the optionee is notified his service is terminated "for cause" will
  immediately be forfeited.

            (b)  For purposes of this Plan, "cause" shall include (but is
  not limited to) dishonesty with respect to the employer or entity
  retaining the employee or consultant, insubordination, substantial
  malfeasance or nonfeasance of duty, unauthorized disclosure of
  confidential information, and conduct substantially prejudicial to the
  business of the Company or any subsidiary.  The determination of the
  Administrator as to the existence of cause will be conclusive on the
  optionee and the Company.

            (c)  "Cause" is not limited to events which have occurred
  prior to a optionee's termination of service, nor is it necessary that
  the Administrator's finding of "cause" occur prior to termination.  If
  the Administrator determines, subsequent to an optionee's termination of
  service but prior to the exercise of an Option, that either prior or
  subsequent to the optionee's termination the optionee engaged in conduct
  which would constitute "cause," then the right to exercise any Option is
  forfeited.

                                           6
<PAGE>

  14.  ASSIGNABILITY.  No Option shall be assignable or transferable by
the optionee except by will or by the laws of descent and distribution
or if such Option is not an Incentive Stock Option, pursuant to a
qualified domestic relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder,
and during the lifetime of the optionee each Option shall be exercisable
only by him or his legal representative, except in the case of Incentive
Stock Options, only as permitted by Section 422(b)(5) of the Code.  Such
Option shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise, except as provided above) and
shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other
disposition of any Option or of any rights granted thereunder contrary
to the provisions of this Plan, or the levy of any attachment or similar
process upon an Option, shall be null and void.

  15.  TERMS AND CONDITIONS OF OPTIONS.  Options shall be evidenced by
agreements (which need not be identical) in such forms as the
Administrator may from time to time approve.  Such agreements shall
conform to the terms and conditions set forth in paragraphs 7 through 14
hereof and may contain such other provisions, as the Administrator deems
advisable, which are not inconsistent with the Plan, including
restrictions applicable to shares of Common Stock issuable upon exercise
of Options.

  16.  ADJUSTMENTS.  Upon the happening of any of the following
described events, an optionee's rights with respect to Options granted
hereunder shall be adjusted as hereinafter provided:

            (a)  In the event shares of Common Stock shall be subdivided
  or combined into a greater or smaller number of shares or if, upon a
  merger, consolidation, reorganization, split-up, liquidation,
  combination, recapitalization or the like of the Company the shares of
  Common Stock shall be exchanged for other securities of the Company or
  of another corporation, each optionee shall be entitled, subject to the
  conditions herein stated, to purchase such number of shares of common
  stock or amount of other securities of the Company or such other
  corporation as were exchangeable for the number of shares of Common
  Stock which such optionee would have been entitled to purchase except
  for such action, and appropriate adjustments shall be made in the
  purchase price per share to reflect such subdivision, combination, or
  exchange; and

            (b)  In the event the Company shall issue any of its shares as
  a stock dividend upon or with respect to the shares of stock of the
  class which shall at the time be subject to option hereunder, each
  optionee upon exercising an Option shall be entitled to receive (for the
  purchase price paid upon such exercise) the shares as to which he is
  exercising his Option and, in addition thereto (at no additional cost),
  such number of shares of the class or classes in which such stock
  dividend or dividends were declared or paid, as he would have received
  if he had been the holder of the shares as to which he is exercising his
  Option at all times between the date of grant of such Option and the
  date of its exercise and cash in lieu of fractional shares.

                                         7
<PAGE>

  Upon the happening of any of the foregoing events, the class and
aggregate number of shares set forth in paragraph 5 hereof which are
subject to Options which have heretofore been or may hereafter be
granted under the Plan shall also be appropriately adjusted to reflect
the events specified in subparagraphs (a) and (b) above.  Consistent
with the terms of the specific Grant, the Administrator shall determine
the adjustments to be made under this paragraph 16, and its
determination shall be conclusive.

  17.  MERGERS AND CONSOLIDATIONS.  Unless otherwise specifically
provided in the written agreement between the optionee and the Company
relating to such Option, if the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the
Administrator or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall, as
to outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for
the shares then subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition; or (ii) upon written notice to the optionees, provide that
all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which
period the Options shall terminate; or (iii) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value
of the shares subject to such Options (to the extent then exercisable)
over the exercise price thereof.

  18.  MODIFICATION OF INCENTIVE STOCK OPTIONS.  Notwithstanding any
other provision of this Plan, any adjustments or changes made with
respect to Incentive Stock Options shall be made only after the
Administrator, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such
Incentive Stock Options (as that term is defined in Section 424(h) of
the Code) or would cause any adverse tax consequences for the holders of
such Incentive Stock Options.  If the Administrator determines that such
adjustments made with respect to Incentive Stock Options would
constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments notwithstanding any other provision
of this Plan, unless the holder of an Incentive Stock Option
specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences
of such "modification" on his income tax treatment with respect to the
Incentive Stock Option.  No "modification" may be made without the
affirmative votes of the holders of a majority of shares of Common Stock
then issued and outstanding.

  19.  DISSOLUTION OR LIQUIDATION OF THE COMPANY.  Upon the dissolution
or liquidation of the Company, all Options granted under this Plan which
as of such date shall not have been exercised will terminate and become
null and void; provided, however, that if the rights of an optionee or
an Optionee's Survivors have not otherwise terminated and expired, the
optionee or the Optionee's Survivors will have the right immediately
prior to such dissolution or liquidation to exercise any Option to the
extent that the right to purchase shares has accrued under the Plan as
of the date immediately prior to such dissolution or liquidation.

  20.  EXERCISE OF OPTIONS.  An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at
its principal office address, together with

                                        8
<PAGE>

the tender of the full purchase price for the shares as to which such
Option is being exercised, and upon compliance with any other condition
set forth in the Option agreement.  Such written notice shall be signed
by the person exercising the Option, shall state the number of shares
with respect to which the Option is being exercised and shall contain
any representation required by the Plan or the Option agreement.  Full
payment of the purchase price for the shares as to which such Option is
being exercised shall be made (a) in United States dollars in cash or by
check, or (b) at the discretion of the Administrator, through delivery
of shares of Common Stock having a fair market value equal as of the
date of the exercise to the cash exercise price of the Option,
determined in good faith by the Board, or (c) at the discretion of the
Administrator, in such other manner as constitutes valid consideration
in accordance with applicable law, or (d) at the discretion of the
Administrator, by any combination of (a), (b) and (c) above.
Notwithstanding the foregoing, the Administrator shall accept only such
payment on exercise of an Incentive Stock Option as is permitted by
Section 422 of the Code.

  The Company shall then deliver the shares as to which such Option was
exercised to the optionee (or to the Optionee's Survivors, as the case
may be) reasonably promptly.  In determining what constitutes
"reasonably promptly," it is expressly understood that the delivery of
the shares may be delayed by the Company in order to comply with any law
or regulation which requires the Company to take any action with respect
to the shares prior to their issuance.  The shares shall, upon delivery,
be evidenced by an appropriate certificate or certificates for
fully-paid non-assessable shares.

  The holder of an Option shall not have the rights of a shareholder
with respect to the shares covered by his Option until the date of
issuance of a stock certificate to him for such shares.  No adjustment
shall be made for dividends or similar rights for which the record date
is after the exercise of the Option but before the date such stock
certificate is issued.  In no event shall a fraction of a share be
purchased or issued under the Plan.

  21.  PURCHASE FOR INVESTMENT.  Unless the offering and sale of the
shares to be issued upon the particular exercise of an Option shall have
been effectively registered under the Securities Act of 1933, as now in
force or hereafter amended (the "Act"), the Company shall be under no
obligation to issue the shares covered by such exercise unless and until
the following conditions have been fulfilled:

             (a)  The person(s) who exercise such Option shall warrant to
  the Company, at the time of such exercise or receipt, as the case may
  be, that such person(s) are acquiring such shares for their own
  respective accounts, for investment, and not with a view to, or for sale
  in connection with, the distribution of any such shares, in which event
  the person(s) acquiring such shares shall be bound by the provisions of
  the following legend which shall be endorsed upon the certificate(s)
  evidencing their shares issued pursuant to such exercise or such Grant:

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
    HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
    REGISTERED UNDER THE FEDERAL

                                     9
<PAGE>

    SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
    LAWS OF ANY STATE.  WITHOUT SUCH REGISTRATION, SUCH
    SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
    OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE
    COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE
    COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH
    TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER
    EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY TO THE
    EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION
    OF THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
    STATE SECURITIES LAWS OR ANY RULE OR REGULATION
    PROMULGATED THEREUNDER."

          (b)  The Company shall have received an opinion of its counsel
  that the shares may be issued upon such particular exercise in compliance
  with the Act without registration thereunder.

  The Company may delay issuance of the shares until completion of any action
or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).

  22.  ISSUANCE OF SECURITIES.  Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options.  Except as expressly provided herein, no
adjustments shall be made for dividends paid in cash or in property
(including, without limitation, securities) of the Company.

  23.  FRACTIONAL SHARES.  No fractional share shall be issued under the Plan
and the person exercising such right shall receive from the Company cash in
lieu of such fractional share equal to the fair market value thereof
determined in good faith by the Board.

  24.  CONVERSION OF INCENTIVE STOCK OPTIONS INTO NON-QUALIFIED OPTIONS:
TERMINATION OF INCENTIVE STOCK OPTIONS.  The Administrator, at the written
request of any optionee, may in its discretion take such actions as may be
necessary to convert such optionee's Incentive Stock Options (or any
installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time
prior to the expiration of such Incentive Stock Options, regardless of
whether the optionee is an employee of the Company or a subsidiary at the
time of such conversion.  Such actions may include, but not be limited to,
extending the exercise period or reducing the exercise price of the
appropriate installments of such Options.  At the time of such conversion,
the Administrator (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any optionee the right to have such optionee's Incentive Stock
Options converted into Non-Qualified Options, and no such

                                       10
<PAGE>

conversion shall occur until and unless the Administrator takes appropriate
action.  The Administrator, with the consent of the optionee, may also
terminate any portion of any Incentive Stock Option that has not been
exercised at the time of such termination.

  25.  TERM AND AMENDMENT OF PLAN.  The Plan was initially adopted by the
Board on December ____, 1993, subject to its becoming effective upon approval
by the holders of a majority of the outstanding shares of Common Stock of the
Company.  The Plan shall expire on December ____, 2003 (except as to Options
outstanding on that date).  The Plan may be amended by the Administrator or
the shareholders in accordance with paragraph 3 hereof, including, without
limitation, to the extent necessary to qualify any or all outstanding options
granted under the Plan or options to be granted under the Plan for favorable
federal income tax treatment (including deferral of taxation upon exercise)
as may be afforded incentive stock options under Section 422 of the Code, to
the extent necessary to ensure the qualification of the Plan under Rule
16b-3, and to the extent necessary to qualify the shares issuable upon
exercise of any outstanding options granted, or options to be granted, under
the Plan for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers.  Any amendment
approved by the Administrator which is of a scope that requires shareholder
approval in order to ensure favorable federal income tax treatment for any
Incentive Stock Options or requires shareholder approval in order to ensure
the qualification of the Plan under Rule 16b-3 shall be subject to obtaining
such shareholder approval.  Any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his rights under an option
previously granted to him. With the consent of the optionee affected, the
Board, the Committee or the shareholders may amend outstanding Option
agreements in a manner not inconsistent with the Plan.

  26.  APPLICATION OF FUNDS.  The proceeds received by the Company from the
sale of shares pursuant to Options granted under the Plan shall be used for
general corporate purposes.

  27.  GOVERNMENTAL REGULATION.  The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization,
issuance or sale of such shares.

  28.  WITHHOLDING.  Upon the exercise of a Non-Qualified Option for less
than its fair market value, the making of a Disqualifying Disposition (as
defined in paragraph 29) or the vesting of restricted Common Stock acquired
on the exercise of an Option hereunder, the Company may withhold from the
optionee's wages, or other remuneration, if any, or may require the optionee
to pay additional federal, state, and local income tax withholding and
employee contributions to employment taxes in respect of the amount that is
considered compensation includable in such person's gross income.  The
Administrator in its discretion may condition the exercise of an Option for
less than its fair market value or the vesting of restricted Common Stock
acquired by exercising an Option on the grantee's payment of such additional
income tax withholding and employee contributions to employment taxes.

  29.  NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.  Each employee who
receives an Incentive Stock Option must agree to notify the Company in
writing immediately after the

                                        11
<PAGE>

employee makes a Disqualifying Disposition of any shares acquired pursuant to
the exercise of an Incentive Stock Option.  A Disqualifying Disposition is
defined in Section 424(c) of the Code and includes any disposition (including
any sale) of such shares before the later of (a) two years after the date the
employee was granted the Incentive Stock Option, or (b) one year after the
date the employee acquired shares by exercising the Incentive Stock Option,
except as otherwise provided in Section 424(c) of the Code.  If the employee
has died before such stock is sold, these holding period requirements do not
apply and no Disqualifying Disposition can occur thereafter.

  30.  GOVERNING LAW.  The validity and construction of the Plan and the
instruments evidencing Options shall be governed by the law of the State of
Texas.

  31.  GENDER.  Wherever reference is made herein to the male, female or
neuter genders, such reference shall be deemed to include any of the other
genders as the context may require.

  32.  EMPLOYMENT AT WILL.  Nothing in the Plan shall be deemed to give any
optionee the right to be retained in employment by or as a consultant or
director to the Company or its subsidiaries for any period of time.

  IN WITNESS WHEREOF, the Board of Directors of Schlotzsky's, Inc. approved
the 1993 Stock Option Plan as of the 23 day of December, 1993, the
Shareholders approved the Plan as of December 31, 1993 and approved
amendments to the Plan as of November 30, 1995.  The Compensation Committee
has approved the Second Amended and Restated 1993 Stock Option Plan as of the
28th day of October, 1996 and the Third Amended and Restated Stock Option
Plan, as of the 24 day of February, 1997.  The Shareholders approved the
Third Amended and Restated Stock Option Plan as of the __ day of
____________, 1997.


                                /s/ Jeffrey J. Wooley
                                ----------------------------------
                                Jeffrey J. Wooley, Secretary

                                         12
<PAGE>

                             SCHLOTZSKY'S INC.

                     Incentive Stock Option Agreement
                       [without Employee Covenants]


  This Agreement ("Agreement") is entered into as of ______________, 19__,
between SCHLOTZSKY'S, INC., a Texas corporation (the "Company"), and
_______________________ an employee of the Company (the "Employee").

                             R E C I T A L S:

  The Company desires to grant to the Employee an Option to purchase shares
of its Common Stock, no par value (the "Shares") pursuant to the Company's
1993 Stock Option Plan (the "Plan"). The Company and the Employee understand
and agree that any terms used herein have the same meanings as in the Plan.

  The parties agree as follows:

  1.   GRANT OF OPTION.  The Company hereby irrevocably grants to the
Employee the right and option to purchase all or any part of an aggregate of
________ Shares on the terms and conditions and subject to all the
limitations set forth herein and in the Plan, which is incorporated herein by
reference.  The Employee acknowledges receipt of a copy of the Plan.

  The Option granted hereunder is an Incentive Stock Option, as defined under
the Plan and Section 422 of the Code.

  2.   PURCHASE PRICE.  The purchase price of the Shares covered by the
Option shall be $       per share.

  3.   EXERCISE OF OPTION.  Subject to the other terms and conditions of this
Agreement, the Option granted hereby shall vest and become exercisable only
on and after the dates set forth below as to the number of shares set forth
opposite such dates below:

         Vesting Dates                       Number of Shares Vested
         -------------                       -----------------------

         ________ 1997                       _______________________

         ________ 1998                       _______________________

         ________ 1999                       _______________________

         ________ 2000                       _______________________

         ________ 2001                       _______________________

<PAGE>

  4.   TERM OF OPTION.  The Option shall terminate ten years from the date of
this Agreement, but shall be subject to earlier termination as provided
herein or in the Plan.

  (a)  VOLUNTARY TERMINATION OR TERMINATION WITHOUT CAUSE.

  If the Employee ceases to be an employee of the Company or of an Affiliate
(for any reason other than death or Disability or termination by the Employee
for cause), the Option may be exercised within three (3) months after the
date the Employee ceases to be an employee or, if earlier, the date upon
which the Option terminates, as originally prescribed by this Agreement.  In
such event, the Option shall be exercisable only to the extent that the right
to purchase shares under the Plan has vested and accrued and is in effect at
the date of such cessation of employment.

  (b)  TERMINATION FOR CAUSE.

  In the event the Employee's employment is terminated by the Company (or an
Affiliate) for "cause" (as defined in the Plan), the Employee's right to
exercise any unexercised portion of this Option shall cease immediately, and
this Option shall thereupon terminate.

  (c)  DISABILITY.

  In the event of the Disability of the Employee (as determined by the
Administrator, as defined in the Plan), the Option shall be exercisable
within one year after the date of such Disability or the date upon which the
Option terminates as originally prescribed by this Agreement, whichever is
earlier.  In such event, the Option shall be exercisable to the extent that
the right to purchase the Shares hereunder has accrued on the date the
Employee becomes Disabled and is in effect as of such determination date.

  (d)  DEATH.

  In the event of the death of the Employee while an employee of the Company
or of an Affiliate, the Option, to the extent exercisable but not exercised
as of the date of death, may be exercised by the Employee's legal
representatives or any person who acquired the Employee's rights to the
Option by will or by the laws of descent and distribution.  In such event,
the Option must be exercised, if at all, within two years after the date of
death of the Employee or, if earlier, the date upon which the Option
terminates, as originally prescribed by this Agreement.

  5.   NON-ASSIGNABILITY.  The Option shall not be transferable by the
Employee otherwise than by will or by the laws of descent and distribution
and shall be exercisable, during the Employee's lifetime, only by the
Employee or his or her guardian or legal representative.  The Option shall
not be assigned, pledged or hypothecated in any way (whether by operation of
law of otherwise) and shall not be subject to execution, attachment or
similar process.  Any attempted transfer, assignment, pledge, hypothecation
or other disposition of the Option or of any rights

                                     2
<PAGE>

granted hereunder contrary to the provisions of this paragraph 5, or the levy
of any attachment or similar process upon the Option or such rights, shall be
null and void.

  6.   EXERCISE OF OPTION AND ISSUE OF SHARES.  The Option may be exercised
in whole or in part (to the extent that it is exercisable in accordance with
its terms) by giving written notice to the Company, together with the tender
of the Option price.  Such written notice shall be signed by the person
exercising the Option, shall state the number of Shares with respect to which
the Option is being exercised, shall contain any representation required by
paragraph 7 below and shall otherwise comply with the terms and conditions of
this Agreement and the Plan.  The Company shall pay all transfer or original
issue taxes with respect to the issue of the Shares pursuant hereto and all
other fees and expenses necessarily incurred by the Company in connection
herewith.  Except as specifically set forth herein, the holder acknowledges
that any income or other taxes due form him or her with respect to this
Option or the shares issuable pursuant to this Option shall be the
responsibility of the holder and that the Company may, in accordance with the
Internal Revenue Code, require the holder to pay additional withholding taxes
in respect of the amount that is considered compensation includable in such
holders' gross income.  The holder of this Option shall have rights as a
shareholder only with respect to any Shares covered by the Option after due
exercise of the Option and tender of the full exercise price for the shares
being purchased pursuant to such exercise.  Further, Employee agrees to
execute and become bound by the Shareholders Agreement attached hereto as
Exhibit A upon the first exercise of all or part of the Option.

  7.   PURCHASE FOR INVESTMENT.  Unless the offering and sale of the Shares
to be issued upon the particular exercise of the Option shall have been
effectively registered under the Securities Act of 1933, as amended, or any
successor legislation (the "Act"), the Company shall be under no obligation
to issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled.

  The person(s) who exercise the Option shall represent to the Company, at
the time of such exercise, that such person(s) are acquiring such Shares for
his or her own account, for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s) evidencing
their option Shares issued pursuant to such exercise;

            "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
       HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
       REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS
       AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  WITHOUT
       SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD,
       PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT
       UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
       SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
       REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE
       COMPANY

                                     3
<PAGE>

       OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE
       COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE
       IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED,
       OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR
       REGULATION PROMULGATED THEREUNDER."

  Without limiting the generality of the foregoing, the Company may delay
issuance of the Shares until completion of any action or obtaining of any
consent, which the Company deems necessary under any applicable law
(including without limitation state securities or "blue sky" laws).

  8.   NOTICES.  Any notices required or permitted by the terms of this
Agreement or the Plan shall be given by personal delivery or registered or
certified mail, return receipt requested, addressed as follows:

       To the Company:          SCHLOTZSKY'S, INC.
                                200 West 4th Street
                                Austin, Texas  78701
                                Attn:  President

       To the Employee, to the
       address shown below,

or to such other address or addresses of which notice in the same manner has
previously been given.  Any such notice shall be deemed to have been given
when given in accordance with these provisions.

  9.   GOVERNING LAW.  This Agreement shall be construed and enforced in
accordance with the internal laws, and not the laws of conflict, of the State
of Texas.

  10.  BENEFIT OF AGREEMENT; EMPLOYMENT AT WILL.  This Agreement shall be for
the benefit of and shall be binding upon the heirs, executors, administrators
and successors of the parties hereto. Notwithstanding anything else contained
herein or in the Plan, the Employee shall remain employed at will, with no
contractual right to be retained in employment by or as a consultant to the
Company or its subsidiaries for any period of time.

  EXECUTED on ____, 199_.

                               SCHLOTZSKY'S, INC.

                               By:
                                   ----------------------------------
                                   John C. Wooley, President

                                4
<PAGE>


                                ---------------------------------------
                                [EMPLOYEE]

                                Address:

                                ---------------------------------------

                                ---------------------------------------

                                     5