Shareholder Letter to the Steak ‘n Shake Board of Directors

As a concerned shareholder, the following letter was sent to the Board of Directors of Steak ‘n Shake (SNS) in early February.

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The Steak ‘n Shake Company

Board of Directors

500 Century Building

36 South Pennsylvania Street

Indianapolis, Indiana 46204

February 7, 2008

c/o Alan B. Gilman c/o Geoffrey Ballotti c/o Wayne L. Kelley c/o Charles E. Lanham c/o Ruth J. Person c/o J. Fred Risk

c/o Dr. John W. Ryan c/o Steven M. Schmidt c/o Edward W. Wilhelm c/o James Williamson, Jr . cc: David C. Milne cc: Jeffrey A. Blade

To the Board of Directors:

I have reviewed the 8-Ks filed on January 31 and February 5, 2008 by the SNS board.

I understand it is a very difficult task to shepherd a large business such as Steak n Shake. For this, the board’s efforts are appreciated. As a concerned shareholder, this letter is an effort to convey a number of apprehensions that are felt by many shareholders in light of recent material developments.

First, the board letter on February 5th states:

At the same time, the Board believes it needs the institutional memory and experience of its other members who have built the Steak n Shake brand through decades of effort.

Let me present the following counterbalancing data [click both tables to enlarge]:

This is a return of negative 28% during the past decade, not including the loss from inflation.

The letter further states:

As you know, the Company is facing several significant challenges. Some of these are being faced by the casual dining segment and the entire restaurant industry.

During the past decade, McDonald’s (MCD), Wendy’s (WEN), Jack in the Box (JBX), and Yum! Brands (YUM) have increased shareholder value by between +126% to +377%, or an average of +241%. These figures do not include the dividends that were paid to shareholders.

Stock Performance: Restaurant Industry

In contrast, SNS has returned negative 28% during the past decade. The board is looking to place blame on external factors but may be better served looking for answers internally. An honest assessment of the data above suggests the board carefully weigh internal causes of this difference.

While a long-term focused shareholder understands that time is required for board led initiatives to take place, it is apparent that ten years is sufficient a time period to determine a board’s efficacy. Since the board has yet to prove itself as value positive over an entire decade, even a long-term focused shareholder base might presume, either correctly or incorrectly, there is little reason to believe that additional time would be to the benefit of the company.

Second, that the board has detrimentally altered shareholder’s ability to voice its opinions and call a special meeting from a 25% to an 80% hurdle seems an ill-conceived corporate governance action on the board’s part. Although it makes any shareholder uncomfortable to have to remind the board, the board’s fiduciary duty is to the shareholders and not to the board itself. The board’s amendment to the By-Laws calls into question the legitimacy of those duties.

To be straightforward, your definition of a "clear consensus" is one which perhaps no one except the current SNS board itself accepts as valid. The reasoning is very simple. Consensus is defined as a majority of opinion. Majority is defined as constituting more than half of the total number. Half is defined as 1/2, or 50%. Nowhere is consensus or majority defined as 80%. A half-gallon of milk does not mean 8/10th gallon of milk. A half-time show does not start during the fourth quarter. To state that shareholders require 80% of shares to call a special meeting is fairly outrageous, runs counter to the board’s fiduciary responsibility, and is an affront to shareholders that want nothing more than to see Steak n Shake succeed.

Moreover, Indiana state law assumes a standard 25% threshold precisely to allow such a substantial, as you state, “vocal minority” the right to call a meeting. If the board truly believed the current shareholder discontent were limited to “just a vocal minority with its own agenda,” you would likely never have amended the By-Laws. To assist in restoring the board’s reputation to its rightful place, I implore the board to promptly return the By-Laws to the previous 25% mark. As you stated in your letter, “we must act in the best interest of all shareholders,” rather than the interests of the minority that is the board.

In addition, many shareholders also view the board’s explanation for the By-Law change as circumspect. The cause of the decline in the share price or recent operational problems is not due to the involvement of an activist investor, on whom the board attempts to lay blame. Rather, the problems the company is facing today are the symptoms of, as well as the end result of, the very board and management decisions that are themselves years in the making. The problems the company is facing are solely the cause of the board and the management and no one else. An honest assessment would focus accountability at the forefront of the board’s thinking, not insulation from accountability. You should understand that were it not for the involvement of an activist shareholder, Steak n Shake’s share price would have likely fallen by much more than the current price, hurting shareholders to an even greater degree than they have been already.

Third, in the fiscal first quarter conference call, management stated that “many of the steps [Biglari] favor[s] are already being implemented.” This is clearly not the case. Rather, this statement is a noteworthy and disheartening indicator to shareholders that the board and management seem woefully disconnected from the reality of the situation. The board’s decision to alter the By-Laws to the detriment of shareholders seems only further evidence of this.

The board is charged with the duty and is employed by the company’s owners, the shareholders, to shepherd the company and increase shareholder value. The results are evident in that the share price has declined by 28% in the past decade (negative 41% assuming modest inflation), while comparable restaurant chains have increased shareholder value by 241% during the same time. The gap over the past ten years, which is notable in its sheer magnitude, cannot be attributed to recent external factors and it behooves the board to look internally for the causes. To date, board actions are perhaps having the unintended consequences of increasing shareholder discontent and decreasing support for board initiatives.

I implore the board to take an honest assessment of the information presented in this letter.

As one of many extremely concerned shareholders, I look forward to hearing from you regarding these recent board-driven developments. If it is the board’s position the contents of the 8-Ks and past decade of declining share price are actually shareholder-friendly, I, along with every shareholder, would greatly appreciate hearing a straightforward and honest explanation.

Regards,

H. Kevin Byun

Managing Partner

Comments

[jsr:]

Your letter basically sums up the current situation at SNS. The BOD is so out of touch with reality that it is no longer funny. SNS needs to streamline its menu, do away with 24 hour service, push a franchising system and monetize its real estate. This stock should be trading around $15 with $20-30 very viable.

2008 Feb 28 09:22 AM

[wgh:]

I love SNS as a new customer. The stores do need work but their burgers are the best. Good luck SNS, H. Kevin Byun, and all employees and investors. You have something good to build on here!

2008 Feb 28 12:13 PM