SCHLOTZSKYS INC
LIMITED GUARANTY AGREEMENT DATED 4/10/2001
<DOCUMENT>
<TYPE>EX-10.35
<SEQUENCE>3
<FILENAME>dex1035.txt
<DESCRIPTION>LIMITED GUARANTY AGREEMENT DATED 4/10/2001
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.35

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                          LIMITED GUARANTY AGREEMENT
                          --------------------------

    THIS LIMITED GUARANTY AGREEMENT ("Guaranty") is made as of the 10th day of
                                      --------
April, 2001, by Guarantor (as hereinafter defined) for the benefit of Lender (as
hereinafter defined).

     1.   Definitions. As used in this Guaranty, the following terms shall have
          -----------
the meanings indicated below:

     (a)  The term "Lender" shall mean THE FROST NATIONAL BANK, a national
                    ------
banking association, whose address for notice purposes is the following:

                    P.O. Box 1600, San Antonio, Texas 78296
                           Attn:  Ms. Shannon Bettis

     (b)  The term "Borrower" (whether one or more) shall mean the following:
                    --------

              SCHLOTZSKY'S NATIONAL ADVERTISING ASSOCIATION, INC.
                        and SCHLOTZSKY'S N.A.M.F., INC.

     (c)  The term "Guarantor" shall mean SCHLOTZSKY'S, INC., a Texas
                    ---------
corporation, whose address for notice purposes is the following:

                              203 Colorado Street
                              Austin, Texas 78701
                            Attn:  Legal Department

     (d)  The term "Guaranteed Indebtedness" shall mean (i) all indebtedness,
                    -----------------------
obligations and liabilities of Borrower to Lender of any kind or character, now
existing or hereafter arising, whether direct, indirect, related, unrelated,
fixed, contingent, liquidated, unliquidated, joint, several or joint and
several, and regardless of whether such indebtedness, obligations and
liabilities may, prior to their acquisitions by Lender, be or have been payable
to or in favor of a third party and subsequently acquired by Lender (it being
contemplated that Lender may make such acquisitions from third parties),
including without limitation all principal indebtedness owing by Borrower to
Lender now existing or hereafter arising under or evidenced by (a) that one
certain Revolving Promissory Note (the "Revolving Note") of even date herewith
in the original principal amount of $500,000.00, executed by Borrower and
payable to the order of Lender and (b) that one certain Promissory Note (the
"Term Note") of even date herewith in the original principal amount of
$3,500,000.00, executed by Borrower and payable to the order of Lender, all
indebtedness, obligations and liabilities of Borrower to Lender now existing or
hereafter arising by note, draft, acceptance, guaranty, endorsement, letter of
credit, assignment, purchase, overdraft, discount, indemnity agreement or
otherwise, (ii) all accrued but unpaid interest on any of the indebtedness
described in (i) above, (iii) all obligations of Borrower to Lender under any
documents evidencing, securing, governing and/or pertaining to all or any part
of the indebtedness described in (i) and (ii) above (collectively, the "Loan
                                                                        ----
Documents"),
---------

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<PAGE>

(iv) all costs and expenses incurred by Lender in connection with the collection
and administration of all or any part of the indebtedness and obligations
described in (i), (ii) and (iii) above or the protection or preservation of, or
realization upon, the collateral securing all or any part of such indebtedness
and obligations, including without limitation all reasonable attorneys' fees,
and (v) all renewals, extensions, modifications and rearrangements of the
indebtedness and obligations described in (i), (ii), (iii) and (iv) above.

     2.   Obligations. As an inducement to Lender to extend or continue to
          -----------
extend credit and other financial accommodations to Borrower, Guarantor, for
value received, does hereby unconditionally and absolutely guarantee the prompt
and full payment and performance of the Guaranteed Indebtedness when due or
declared to be due and at all times thereafter; provided, however, Guarantor's
obligations hereunder for that portion of the Guaranteed Indebtedness that
represents principal shall be limited to the sum of (a) the cash received
contemporaneously herewith by Borrower in the amount of $3,500,000 from the
proceeds of the Term Note, which amounts paid down certain notes owed to
Guarantor by Borrower, and (b) any cash proceeds of the Revolving Note received
by Guarantor from time to time.

     3.   Character of Obligations.
          ------------------------

     (a)  This is an absolute, continuing and unconditional guaranty of payment
and not of collection and if at any time or from time to time there is no
outstanding Guaranteed Indebtedness, the obligations of Guarantor with respect
to any and all Guaranteed Indebtedness incurred thereafter shall not be
affected. This Guaranty and the Guarantor's obligations hereunder are
irrevocable and, in the event of Guarantor's death, shall be binding upon
Guarantor's estate. All of the Guaranteed Indebtedness shall be conclusively
presumed to have been made or acquired in acceptance hereof. Guarantor shall be
liable, jointly and severally, with Borrower and any other guarantor of all or
any part of the Guaranteed Indebtedness.

     (b)  Lender may, at its sole discretion and without impairing its rights
hereunder, (i) apply any payments on the Guaranteed Indebtedness that Lender
receives from Borrower or any other source other than Guarantor to that portion
of the Guaranteed Indebtedness, if any, not guaranteed hereunder, and (ii) apply
any proceeds it receives as a result of the foreclosure or other realization on
any collateral for the Guaranteed Indebtedness to that portion, if any, of the
Guaranteed Indebtedness not guaranteed hereunder or to any other indebtedness
secured by such collateral.

     (c)  Guarantor agrees that its obligations hereunder shall not be released,
diminished, impaired, reduced or affected by the existence of any other guaranty
or the payment by any other guarantor of all or any part of the Guaranteed
Indebtedness and, in the event Paragraph 2 above partially limits Guarantor's
                               -----------
obligations under this Guaranty, Guarantor's obligations hereunder shall
continue until Lender has received payment in full of the Guaranteed
Indebtedness.

     (d)  Guarantor's obligations hereunder shall not be released, diminished,
impaired, reduced or affected by, nor shall any provision contained herein be
deemed to be a limitation upon, the amount of credit which Lender may extend to
Borrower, the number of transactions

                                       2
<PAGE>

between Lender and Borrower, payments by Borrower to Lender or Lender's
allocation of payments by Borrower.

     (e)  Without further authorization from or notice to Guarantor, Lender may
compromise, accelerate, or otherwise alter the time or manner for the payment of
the Guaranteed Indebtedness, increase or reduce the rate of interest thereon, or
release or add any one or more guarantors or endorsers, or allow substitution of
or withdrawal of collateral or other security and release collateral and other
security or subordinate the same.

     4.   Representations and Warranties. Guarantor hereby represents and
          ------------------------------
warrants the following to Lender:

     (a)  This Guaranty may reasonably be expected to benefit, directly or
indirectly, Guarantor, and (i) if Guarantor is a corporation, the Board of
Directors of Guarantor has determined that this Guaranty may reasonably be
expected to benefit, directly or indirectly, Guarantor, or (ii) if Guarantor is
a partnership, the requisite number of its partners have determined that this
Guaranty may reasonably be expected to benefit, directly or indirectly,
Guarantor; and

     (b)  Guarantor is familiar with, and has independently reviewed the books
and records regarding, the financial condition of Borrower and is familiar with
the value of any and all collateral intended to be security for the payment of
all or any part of the Guaranteed Indebtedness; provided, however, Guarantor is
not relying on such financial condition or collateral as an inducement to enter
into this Guaranty; and

     (c)  Guarantor has adequate means to obtain from Borrower on a continuing
basis information concerning the financial condition of Borrower and Guarantor
is not relying on Lender to provide such information to Guarantor either now or
in the future; and

     (d)  Guarantor has the power and authority to execute, deliver and perform
this Guaranty and any other agreements executed by Guarantor contemporaneously
herewith, and the execution, delivery and performance of this Guaranty and any
other agreements executed by Guarantor contemporaneously herewith do not and
will not violate (i) any agreement or instrument to which Guarantor is a party,
(ii) any law, rule, regulation or order of any governmental authority to which
Guarantor is subject, or (iii) its articles or certificate of incorporation or
bylaws, if Guarantor is a corporation, or its partnership agreement, if
Guarantor is a partnership; and

     (e)  Neither Lender nor any other party has made any representation,
warranty or statement to Guarantor in order to induce Guarantor to execute this
Guaranty; and

     (f)  The financial statements and other financial information regarding
Guarantor heretofore and hereafter delivered to Lender are and shall be true and
correct in all material respects and fairly present the financial position of
Guarantor as of the dates thereof, and no material adverse change has occurred
in the financial condition of Guarantor reflected in the financial statements
and other financial information regarding Guarantor heretofore delivered to
Lender since the date of the last statement thereof; and

                                       3
<PAGE>

     (g)  As of the date hereof, and after giving effect to this Guaranty and
the obligations evidenced hereby, (i) Guarantor is and will be solvent, (ii) the
fair saleable value of Guarantor's assets exceeds and will continue to exceed
its liabilities (both fixed and contingent), (iii) Guarantor is and will
continue to be able to pay its debts as they mature, and (iv) if Guarantor is
not an individual, Guarantor has and will continue to have sufficient capital to
carry on its business and all businesses in which it is about to engage.

     5.   Covenants.  Guarantor hereby covenants and agrees with Lender as
          ---------
follows:

     (a)  Guarantor shall not, so long as its obligations under this Guaranty
continue, transfer or pledge any material portion of its assets for less than
full and adequate consideration; and

     (b)  Guarantor shall promptly furnish to Lender at any time and from time
to time such financial statements and other financial information of Guarantor
as the Lender may require, in form and substance satisfactory to Lender; and

     (c)  Guarantor shall comply with all terms and provisions of the Loan
Documents that apply to Guarantor; and

     (d)  Guarantor shall promptly inform Lender of (i) any litigation or
governmental investigation against Guarantor or affecting any security for all
or any part of the Guaranteed Indebtedness or this Guaranty which, if determined
adversely, could reasonably be expected to have a material adverse effect upon
the financial condition of Guarantor or upon such security or might cause a
default under any of the Loan Documents, and (ii) any material adverse change in
the financial condition of Guarantor.

     6.   Schlotzsky's Inc. Term Note. Each of the following shall constitute an
          ---------------------------
Event of Default under the Loan Documents:

     (a)  The occurrence of a payment or financial covenant default under that
     certain Credit Agreement dated as of December 7, 1999 by and between
     Guarantor and Wells Fargo Bank Texas, National Association ("Wells Fargo"),
     as agent for itself and the other lenders party thereto (as it may be
     amended and modified from time to time, the "Schlotzsky's Inc. Term Note");
                                                  ---------------------------
     provided, with respect to a financial covenant default, such default shall
     --------
     only be an Event of Default under the Loan Documents if such financial
     covenant is the consolidated working capital, consolidated net worth,
     leverage or fixed charge coverage covenants or ratios and only upon the
     failure of Guarantor to cure or obtain a waiver of such default within
     sixty (60) days of the date of such default.

     (b)  Except as specifically provided in Section 6(a), the occurrence of any
     event (and the expiration of any applicable cure period) which permits the
     acceleration of the maturity of any indebtedness in an amount of
     $250,000.00 or more owing by Guarantor to any third party under any
     agreement or understanding including, without limitation, the Schlotzsky's
     Inc. Term Note.

                                       4
<PAGE>

     7.   Consent and Waiver.
          ------------------

     (a)  Guarantor waives (i) promptness, diligence and notice of acceptance of
this Guaranty and notice of the incurring of any obligation, indebtedness or
liability to which this Guaranty applies or may apply and waives presentment for
payment, notice of nonpayment, protest, demand, notice of protest, notice of
intent to accelerate, notice of acceleration, notice of dishonor, diligence in
enforcement and indulgences of every kind, and (ii) the taking of any other
action by Lender, including without limitation giving any notice of default or
any other notice to, or making any demand on, Borrower, any other guarantor of
all or any part of the Guaranteed Indebtedness or any other party.

     (b)  Guarantor waives any rights Guarantor has under, or any requirements
imposed by, Chapter 34 of the Texas Business and Commerce Code, as in effect on
the date of this Guaranty or as it may be amended from time to time.

     (c)  Lender may at any time, without the consent of or notice to Guarantor,
without incurring responsibility to Guarantor and without impairing, releasing,
reducing or affecting the obligations of Guarantor hereunder: (i) change the
manner, place or terms of payment of all or any part of the Guaranteed
Indebtedness, or renew, extend, modify, rearrange or alter all or any part of
the Guaranteed Indebtedness; (ii) change the interest rate accruing on any of
the Guaranteed Indebtedness (including, without limitation, any periodic change
in such interest rate that occurs because such Guaranteed Indebtedness accrues
interest at a variable rate which may fluctuate from time to time); (iii) sell,
exchange, release, surrender, subordinate, realize upon or otherwise deal with
in any manner and in any order any collateral for all or any part of the
Guaranteed Indebtedness or this Guaranty or setoff against all or any part of
the Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to take
or prosecute any action for the collection of all or any part of the Guaranteed
Indebtedness or this Guaranty or to take or prosecute any action in connection
with any of the Loan Documents; (v) exercise or refrain from exercising any
rights against Borrower or others, or otherwise act or refrain from acting; (vi)
settle or compromise all or any part of the Guaranteed Indebtedness and
subordinate the payment of all or any part of the Guaranteed Indebtedness to the
payment of any obligations, indebtedness or liabilities which may be due or
become due to Lender or others; (vii) apply any deposit balance, fund, payment,
collections through process of law or otherwise or other collateral of Borrower
to the satisfaction and liquidation of the indebtedness or obligations of
Borrower to Lender not guaranteed under this Guaranty; and (viii) apply any sums
paid to Lender by Guarantor, Borrower or others to the Guaranteed Indebtedness
in such order and manner as Lender, in its sole discretion, may determine.

     (d)  Should Lender seek to enforce the obligations of Guarantor hereunder
by action in any court or otherwise, Guarantor waives any requirement,
substantive or procedural, that (i) Lender first enforce any rights or remedies
against Borrower or any other person or entity liable to Lender for all or any
part of the Guaranteed Indebtedness, including without limitation that a
judgment first be rendered against Borrower or any other person or entity, or
that Borrower or any other person or entity should be joined in such cause, or
(ii) Lender first enforce rights against any collateral which shall ever have
been given to secure all or any part of the Guaranteed Indebtedness or this
Guaranty. Such waiver shall be without prejudice to Lender's

                                       5
<PAGE>

right, at its option, to proceed against Borrower or any other person or entity,
whether by separate action or by joinder.

     (e)  In addition to any other waivers, agreements and covenants of
Guarantor set forth herein, Guarantor hereby further waives and releases all
claims, causes of action, defenses and offsets for any act or omission of
Lender, its directors, officers, employees, representatives or agents in
connection with Lender's administration of the Guaranteed Indebtedness, except
for Lender's willful misconduct and gross negligence.

     8.   Obligations Not Impaired.
          ------------------------

     (a)  Guarantor agrees that its obligations hereunder shall not be released,
diminished, impaired, reduced or affected by the occurrence of any one or more
of the following events: (i) the death, disability or lack of corporate power of
Borrower, Guarantor (except as provided in Paragraph 10 herein) or any other
                                           ------------
guarantor of all or any part of the Guaranteed Indebtedness, (ii) any
receivership, insolvency, bankruptcy or other proceedings affecting Borrower,
Guarantor or any other guarantor of all or any part of the Guaranteed
Indebtedness, or any of their respective property; (iii) the partial or total
release or discharge of Borrower or any other guarantor of all or any part of
the Guaranteed Indebtedness, or any other person or entity from the performance
of any obligation contained in any instrument or agreement evidencing, governing
or securing all or any part of the Guaranteed Indebtedness, whether occurring by
reason of law or otherwise; (iv) the taking or accepting of any collateral for
all or any part of the Guaranteed Indebtedness or this Guaranty; (v) the taking
or accepting of any other guaranty for all or any part of the Guaranteed
Indebtedness; (vi) any failure by Lender to acquire, perfect or continue any
lien or security interest on collateral securing all or any part of the
Guaranteed Indebtedness or this Guaranty; (vii) the impairment of any collateral
securing all or any part of the Guaranteed Indebtedness or this Guaranty; (viii)
any failure by Lender to sell any collateral securing all or any part of the
Guaranteed Indebtedness or this Guaranty in a commercially reasonable manner or
as otherwise required by law; (ix) any invalidity or unenforceability of or
defect or deficiency in any of the Loan Documents; or (x) any other circumstance
which might otherwise constitute a defense available to, or discharge of,
Borrower or any other guarantor of all or any part of the Guaranteed
Indebtedness.

     (b)  This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of all or any part of the Guaranteed
Indebtedness is rescinded or must otherwise be returned by Lender upon the
insolvency, bankruptcy or reorganization of Borrower, Guarantor, any other
guarantor of all or any part of the Guaranteed Indebtedness, or otherwise, all
as though such payment had not been made.

     (c)  In the event Borrower is a corporation, joint stock association or
partnership, or is hereafter incorporated, none of the following shall affect
Guarantor's liability hereunder: (i) the unenforceability of all or any part of
the Guaranteed Indebtedness against Borrower by reason of the fact that the
Guaranteed Indebtedness exceeds the amount permitted by law; (ii) the act of
creating all or any part of the Guaranteed Indebtedness is ultra vires; or (iii)
the officers or partners creating all or any part of the Guaranteed Indebtedness
acted in excess of their authority. Guarantor hereby acknowledges that
withdrawal from, or termination of, any

                                       6
<PAGE>

ownership interest in Borrower now or hereafter owned or held by Guarantor shall
not alter, affect or in any way limit the obligations of Guarantor hereunder.

     9.   Actions Against Guarantor. In the event of a default in the payment or
          -------------------------
performance of all or any part of the Guaranteed Indebtedness when such
Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or
otherwise, Guarantor shall, without notice or demand, promptly pay the amount
due thereon to Lender, in lawful money of the United States, at Lender's address
set forth in Subparagraph 1(a) above. One or more successive or concurrent
             -----------------
actions may be brought against Guarantor, either in the same action in which
Borrower is sued or in separate actions, as often as Lender deems advisable. The
exercise by Lender of any right or remedy under this Guaranty or under any other
agreement or instrument, at law, in equity or otherwise, shall not preclude
concurrent or subsequent exercise of any other right or remedy. The books and
records of Lender shall be admissible as evidence in any action or proceeding
involving this Guaranty and shall be prima facie evidence of the payments made
                                     ----- -----
on, and the outstanding balance of, the Guaranteed Indebtedness.

     10.  Payment by Guarantor. Whenever Guarantor pays any sum which is or may
          --------------------
become due under this Guaranty, written notice must be delivered to Lender
contemporaneously with such payment. Such notice shall be effective for purposes
of this paragraph when contemporaneously with such payment Lender receives such
notice either by: (a) personal delivery to the address and designated department
of Lender identified in Subparagraph 1(a) above, or (b) United States mail,
                        -----------------
certified or registered, return receipt requested, postage prepaid, addressed to
Lender at the address shown in Subparagraph 1(a) above. In the absence of such
                               -----------------
notice to Lender by Guarantor in compliance with the provisions hereof, any sum
received by Lender on account of the Guaranteed Indebtedness shall be
conclusively deemed paid by Borrower.

     11.  Death of Guarantor. In the event of the death of Guarantor, the
          ------------------
obligations of the deceased Guarantor under this Guaranty shall continue as an
obligation against his estate as to (a) all of the Guaranteed Indebtedness that
is outstanding on the date of Guarantor's death, and any renewals or extensions
thereof, and (b) all loans, advances and other extensions of credit made to or
for the account of Borrower on or after the date of Guarantor's death pursuant
to an obligation of Lender under a commitment or agreement described in
Subparagraph 1(d) above and made to or with Borrower prior to the date of
-----------------
Guarantor's death. The terms and conditions of this Guaranty, including without
limitation the consents and waivers set forth in Paragraph 7 hereof, shall
                                                 -----------
remain in effect with respect to the Guaranteed Indebtedness described in the
preceding sentence in the same manner as if Guarantor had not died.

     12.  Notice of Sale. In the event that Guarantor is entitled to receive any
          --------------
notice under the Uniform Commercial Code, as it exists in the state governing
any such notice, of the sale or other disposition of any collateral securing all
or any part of the Guaranteed Indebtedness or this Guaranty, reasonable notice
shall be deemed given when such notice is deposited in the United States mail,
postage prepaid, at the address for Guarantor set forth in Subparagraph 1(c)
                                                           -----------------
above, ten (10) days prior to the date any public sale, or after which any
private sale, of any such collateral is to be held; provided, however, that
                                                    --------  -------
notice given in any other reasonable manner or at any other reasonable time
shall be sufficient.

                                       7
<PAGE>

     13.  Waiver by Lender. No delay on the part of Lender in exercising any
          ----------------
right hereunder or failure to exercise the same shall operate as a waiver of
such right. In no event shall any waiver of the provisions of this Guaranty be
effective unless the same be in writing and signed by an officer of Lender, and
then only in the specific instance and for the purpose given.

     14.  Successors and Assigns. This Guaranty is for the benefit of Lender,
          ----------------------
its successors and assigns. This Guaranty is binding upon Guarantor and
Guarantor's heirs, executors, administrators, personal representatives and
successors, including without limitation any person or entity obligated by
operation of law upon the reorganization, merger, consolidation or other change
in the organizational structure of Guarantor.

     15.  Costs and Expenses. Guarantor shall pay on demand by Lender all costs
          ------------------
and expenses, including without limitation all reasonable attorneys' fees,
incurred by Lender in connection with the preparation, administration,
enforcement and/or collection of this Guaranty. This covenant shall survive the
payment of the Guaranteed Indebtedness.

     16.  Severability. If any provision of this Guaranty is held by a court of
          ------------
competent jurisdiction to be illegal, invalid or unenforceable under present or
future laws, such provision shall be fully severable, shall not impair or
invalidate the remainder of this Guaranty and the effect thereof shall be
confined to the provision held to be illegal, invalid or unenforceable.

     17.  No Obligation. Nothing contained herein shall be construed as an
          -------------
obligation on the part of Lender to extend or continue to extend credit to
Borrower.

     18.  Amendment. No modification or amendment of any provision of this
          ---------
Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by an officer of
Lender, and then shall be effective only in the specific instance and for the
purpose for which given.

     19.  Cumulative Rights. All rights and remedies of Lender hereunder are
          -----------------
cumulative of each other and of every other right or remedy which Lender may
otherwise have at law or in equity or under any instrument or agreement, and the
exercise of one or more of such rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of any other rights or remedies. This
Guaranty, whether general, specific and/or limited, shall be in addition to and
cumulative of, and not in substitution, novation or discharge of, any and all
prior or contemporaneous guaranty agreements by Guarantor in favor of Lender or
assigned to Lender by others.

     20.  Governing Law, Venue. This Guaranty is intended to be performed in the
          --------------------
State of Texas. Except to the extent that the laws of the United States may
apply to the terms hereof, the substantive laws of the State of Texas shall
govern the validity, construction, enforcement and interpretation of this
Guaranty. In the event of a dispute involving this Guaranty or any other
instruments executed in connection herewith, the undersigned irrevocably agrees
that venue for such dispute shall lie in any court of competent jurisdiction in
Bexar County, Texas.

                                       8
<PAGE>

     21.  Compliance with Applicable Usury Laws.  Notwithstanding any other
          -------------------------------------
provision of this Guaranty or of any instrument or agreement evidencing,
governing or securing all or any part of the Guaranteed Indebtedness, Guarantor
and Lender by its acceptance hereof agree that Guarantor shall never be required
or obligated to pay interest in excess of the maximum non-usurious interest rate
as may be authorized by applicable law for the written contracts which
constitute the Guaranteed Indebtedness.  It is the intention of Guarantor and
Lender to conform strictly to the applicable laws which limit interest rates,
and any of the aforesaid contracts for interest, if and to the extent payable by
Guarantor, shall be held to be subject to reduction to the maximum non-usurious
interest rate allowed under said law.

     22.  Gender.  Within this Guaranty, words of any gender shall be held and
          ------
construed to include the other gender.

     23.  Captions.  The headings in this Guaranty are for convenience only and
          --------
shall not define or limit the provisions hereof.

     24.  Right of Revocation. Guarantor understands and agrees that Guarantor
          -------------------
may revoke its future obligations under this Guaranty at any time by giving
Lender written notice that Guarantor will not be liable hereunder for any
indebtedness or obligations of Borrower incurred on or after the effective date
of such revocation. Such revocation shall be deemed to be effective on the day
following the day Lender receives such notice delivered either by: (a) personal
delivery to the address and designated department of Lender identified in
Subparagraph 1(a) above, or (b) United States mail, registered or certified,
-----------------
return receipt requested, postage prepaid, addressed to Lender at the address
shown in Subparagraph 1(a) above. Notwithstanding such revocation, Guarantor
         -----------------
shall remain liable on its obligations hereunder until payment in full to Lender
of (a) all of the Guaranteed Indebtedness that is outstanding on the effective
date of such revocation, and any renewals and extensions thereof, and (b) all
loans, advances and other extensions of credit made to or for the account of
Borrower on or after the effective date of such revocation pursuant to the
obligation of Lender under a commitment or agreement made to or with Borrower
prior to the effective date of such revocation. The terms and conditions of this
Guaranty, including without limitation the consents and waivers set forth in
Paragraph 7 hereof, shall remain in effect with respect to the Guaranteed
-----------
Indebtedness described in the preceding sentence in the same manner as if such
revocation had not been made by Guarantor.

     EXECUTED as of the date first above written.

                              GUARANTOR:
                              ----------

                              SCHLOTZSKY'S, INC.,
                              a Texas corporation

                              By:
                                   -----------------------------------
                              Name:
                                   -----------------------------------
                              Title:
                                   -----------------------------------

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