Document:

exhibit4_02.htm

    EXHIBIT
      4.02

     

    EXECUTION
      VERSION

    EIGHTH
      AMENDMENT TO CREDIT
      AGREEMENT

    

    

    THE
      STEAK N SHAKE COMPANY, an
      Indiana corporation (the “Company”) and FIFTH THIRD BANK, a Michigan
      banking corporation, formerly known as Fifth Third Bank (Central Indiana),
      and
      Fifth Third Bank, Indiana (Central) (the “Bank”), being parties to that certain
      Credit Agreement dated as of November 16, 2001, as previously amended
      (collectively, the “Agreement”), agree to further amend the Agreement by this
      Eighth Amendment to Credit Agreement (this “Amendment”) as follows.

    

    

    1.           
      DEFINITIONS.  All
      defined terms used herein not otherwise defined in this Amendment shall have
      their respective meanings set forth in the Agreement.

    

    
      	
               

            	
              (a)

            	
              Amended
                Definitions.  The following definitions appearing under
                Section 1 of the Agreement are hereby amended and restated in their
                respective entireties as follows: 

            

    

    

    
      	
               

            	
              c.

            	
              "Applicable
                Spread" means that number of Basis Points to be taken into account
                in determining the LIBOR-based Rate determined by reference to the
                Company’s ratio of Funded Debt to EBITDA as follows:
                

            

    

    

    
      	
              Ratio
                of Funded  Debt
                to EBITDA

            	
              Applicable
                Spread

            
	
              >
                4.00

            	
              250
                b.p.

            
	
              >
                3.00 but < 4.00

            	
              200
                b.p.

            
	
              >
                2.00 but < 3.00

            	
              150
                b.p.

            
	
              <
                2.00

            	
              100
                b.p.

            

    

    

    
      	
               

            	
              Effective
                as of the date of the Eighth Amendment, the Applicable Spread shall
                be the
                highest tier. Thereafter, the Applicable Spread shall be determined
                as of
                the end of each fiscal quarter upon receipt of the
                Company’s quarterly financial statements delivered in accordance with
                Section 5(b)(ii) herein. 

            

    

    

    
      	
               

            	
              x.

            	
              “Loan
                Document”
                means any of this Agreement, the Revolving Note, the Guaranties,
                all
                Reimbursement Agreements, the Security Agreement, the Intercreditor
                Agreement, and any other instrument or document which evidences or
                secures
                the Loan or Letters of Credit, or which expresses an agreement as
                to terms
                applicable to the Loan or Letters of Credit, and in the plural means
                any
                two or more of the Loan Documents, as the context requires.
                

            

    

    

    
      	
               

            	
              jj.

            	
              “Prudential
                Note
                Purchase Agreement” means that certain Amended and Restated Note
                Purchase and Private Shelf Agreement dated as of September 20, 2002,
                entered into by and among the Company, Prudential, Prudential Investment
                Management, Inc., and each Prudential Affiliate party thereto, as
                amended,
                and as it may hereafter be amended, modified, or restated from time
                to
                time. 

            

    

    

    
      	
               

            	
              (b)

            	
              New
                Definitions.  The following new definitions are hereby
                added to Section 1 of the Agreement as follows:

            

    

    

    
      	
               

            	
              vv.

            	
              “Collateral”
is
                used as defined in Section 4(a) herein.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              ww.

            	
              “Eighth
                Amendment” means that certain agreement entitled “Eighth Amendment
                to Credit Agreement” entered into by and between the Company and the Bank
                dated as of May 16, 2008, for the purpose of amending this Agreement.
                

            

    

    

    
      	
               

            	
              xx.

            	
              “Intercreditor
                Agreement” is used as defined in Section 4(b) herein.
                

            

    

    

    
      	
               

            	
              yy.

            	
              “Noteholders”
                means Prudential Investment Management, Inc., The Prudential Insurance
                Company of America, Pruco Life Insurance Company, and United of Omaha
                Life
                Insurance Company, and their respective successors and assigns.
                

            

    

    

    
      	
               

            	
              zz.

            	
              “Security
                Agreement” is used as defined in Section 4(a) herein.
                

            

    

    

    

    2.           
      THE
      REVOLVING LOAN.  Sections 2(a)(i) and 2(a)(iv) and the first
      sentence of Section 2(a)(ii) of the Agreement are hereby amended and restated
      in
      their respective entireties, and a new Section 2(a)(vi) is hereby added to
      the
      Agreement, all as follows:

    

    
      	
               

            	
              (i)

            	
              The
                Commitment -- Use
                of Proceeds.  From the date of the Eighth Amendment and
                until the Revolving Loan Maturity Date, the Bank agrees to make Advances
                (collectively, the “Revolving Loan”) to the Company from time to time
                under a revolving line of credit of amounts not exceeding in the
                aggregate
                principal amount at any time outstanding the amounts shown for the
                corresponding periods (such amount for each period hereinafter called
                the
                “Commitment”) in the following chart:

            

    

    

    
      	
              Period

            	
              Commitment

            
	
              Commencing
                on the date of the Eighth Amendment and until and on
                7/31/08

            	
              
              

              $45,000,000

            
	
              On
                8/1/08, and at all times thereafter until the Revolving Loan Maturity
                Date

            	
              $40,000,000

            

    

     

    Proceeds
      of the Revolving Loan may be used by the Company only to fund general corporate
      purposes.

    

    
      	
               

            	
              (ii)

            	
              Method
                of
                Borrowing.  The obligation of the Company to repay the
                Revolving Loan shall be evidenced by a Promissory Note of the Company
                in
                the form of Exhibit
“A”
                attached to the Eighth Amendment (the “Revolving Note”).
                

            

    

    

    
      	
               

            	
              (iv)

            	
              Unused
                Fee.  The Company  shall pay to the Bank a
                facility  or unused fee for each partial or full calendar
                quarter during which the Commitment is outstanding equal to, as of
                the
                date of the Eighth Amendment, thirty (30) Basis Points per annum
                of the
                average daily excess of the Commitment over the aggregate outstanding
                principal balance of the Revolving Loan.  For purposes of
                calculating the unused fee, the aggregate amount available to be
                drawn
                under all outstanding Letters of Credit shall be added to the aggregate
                outstanding principal balance of the Revolving Loan for the same
                period.  Unused fees for each calendar quarter shall be due and
                payable within ten (10) calendar days following the Bank's submission
                of a
                statement of the amount due, and if not paid by such date, then such
                fees
                may be debited by the Bank to any demand deposit account of the Company
                carried with the Bank without further authority.  Such fees
                shall be calculated on the basis of a year of 360 days and actual
                days
                elapsed. 

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (vi)

            	
              Excess
                Utilization
                Fee.
                In
                  addition to the payment of accrued interest and the unused fee
                  provided in
                  Section 2(a)(iv) herein, commencing on the date of the Eighth Amendment,
                  the Company shall also pay to the Bank an excess utilization fee
                  equal to
                  fifty (50) Basis Points per annum on the daily amount by which
                  the
                  aggregate outstanding principal amount of the Revolving Loan on
                  and after
                  May 1, 2008, and until and on July 31, 2008, is in excess of $40,000,000.
                  The excess utilization fee shall be due and payable monthly within
                  ten
                  (10) calendar days following the Bank's submission of a statement
                  of the
                  amount due, and if not paid by such date, then such fees may be
                  debited by
                  the Bank to any demand deposit account of the Company carried with
                  the
                  Bank without further authority. Such fees shall be calculated on
                  the basis
                  of a year of 360 days and actual days elapsed. 

              

            	
               

            

    

    

    

    3.           
      FINANCIAL
      COVENANTS.  Sections 5(g)(i) and 5(g)(ii) of the Agreement are
      hereby amended and restated in their respective entireties as
      follows:

    

    
      	
               

            	
              (i)

            	
              Maximum
                Ratio of
                Funded Debt to EBITDA. As of the end of each period of four (4)
                consecutive fiscal quarters ending as of the last day of each fiscal
                quarter commencing with the period of four (4) consecutive fiscal
                quarters
                ending on April 9, 2008, the Company shall maintain a ratio of Funded
                Debt
                to EBITDA of not more than 4.75 to 1.00.

            

    

    

    
      	 	
              (ii)  

            	
               Debt
                Service
                Coverage Ratio.  As of the end of each period of four (4)
                consecutive fiscal quarters ending as of the last day of each fiscal
                quarter commencing with the period of four (4) consecutive fiscal
                quarters
                ending on Aril 9, 2008, the Company shall maintain a debt service
                coverage
                ratio of not less than .70 to 1.00.  For purposes of this
                covenant, the phrase "debt service coverage ratio" means the ratio
                of: (A)
                the sum of net income, interest expense, plus rent expense, to (B)
                the sum
                of interest expense, rent expense, the Current
                Portion of all lease obligations, plus the Current Portion of all
                long
                term debt. The term “Current Portion” means all payments scheduled to be
                paid over the twelve (12) month period immediately following the
                date of
                determination.

            

    

    

    

    4.           
      SECURITY
      AGREEMENT.  New Section 4(a) is hereby added to the Agreement
      as follows:

    

    
      	
               

            	
              a.

            	
              Security
                Agreement.  The Obligations shall be secured by a
                security interest in all of the Company's equipment, inventory, accounts
                receivable, chattel paper, software, general intangibles and all
                deposit
                accounts maintained by the Company individually or jointly with the
                Bank
                or any of the Bank's affiliates, all whether now owned  or
                hereafter acquired, and in all proceeds thereof (all such business
                assets
                on which a lien is granted to the Bank hereinafter collectively referred
                to as the “Collateral”), which security interest will be created by a
                Security Agreement  in the form attached to the Eighth Amendment
                as Exhibit
                "E" (the "Security Agreement").  The Security Agreement
                shall provide a security interest in the Collateral described therein
                subject only to liens and security interests described in the exceptions
                enumerated in Section 6(b) herein. 

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              b.

            	
              Intercreditor
                Agreement. The liens on the Collateral granted to the Bank and also
                granted to the Noteholders will be given equal priority and treated
                as
                pari
                passu pursuant to the terms of the Intercreditor and Collateral
                Agency Agreement entered into by the Noteholders and the Bank, both
                in its
                individual capacity and in the role of collateral agent for itself
                and the
                Noteholders, contemporaneously with execution of the Eighth Amendment
                in
                the form of Exhibit
“F”
                attached to thereto (the “Intercreditor Agreement”).
                

            

    

    
       

       

    

    5.           
      NEW
      STORES.  New Section 6(k) is hereby added to the Agreement as
      follows:

    

    
      	
               

            	
              k.

            	
              Additional
                Stores.  The Company shall not open more than nine (9)
                new stores during its 2008 fiscal year.

            

    

    

    

    6.           
      EVENTS
      OF
      DEFAULT.  New Section 8(h) is hereby added to the Agreement as
      follows:

    

    
      	
               

            	
              h.

            	
              Default
                under
                Prudential Note Purchase Agreement.  Default shall occur
                under the Prudential Note Purchase Agreement, or there shall occur
                an
                event under the Prudential Note Purchase Agreement, if the effect
                of such
                default or occurrence is to accelerate the maturity of the indebtedness
                provided thereunder or to permit the holders of such indebtedness
                to cause
                such indebtedness to become due and payable prior to its scheduled
                maturity. 

            

    

    

    

    7.           
      REPRESENTATIONS
      AND WARRANTIES.  In order to induce the Bank to enter into this
      Amendment, the Company affirms that the representations and warranties contained
      in the Agreement are correct as of the date of this Amendment, except that
      (i)
      they shall be deemed to also refer to this Amendment as well as all documents
      named herein and, (ii)  Section 3(d)  of  the
      Agreement  shall be deemed also to refer to the most recent audited
      and unaudited financial statements of the Company delivered to the
      Bank.

    

    

    8.           
      EVENTS
      OF
      DEFAULT.  The Company certifies to the Bank that no Event of
      Default or Unmatured Event of Default under the Agreement, as amended by this
      Amendment, has occurred and is continuing as of the date of this
      Amendment.

    

    

    9.           
      CONDITIONS
      PRECEDENT.  As conditions precedent to the effectiveness of
      this Amendment, the Bank shall have received the following contemporaneously
      with execution and delivery of this Amendment, each duly executed, dated and
      in
      form and substance satisfactory to the Bank:

    

    
      	
               

            	
              (i)

            	
              This
                Amendment duly executed by the Company.

            

    

    

    
      	
               

            	
              (ii)

            	
              The
                Revolving Note in the form of Exhibit
                "A"
                attached hereto duly executed by the Company.

            

    

    

    
      	 	
              (iii)

            	
              The
                Reaffirmation of Guaranty Agreement in the form attached hereto as
Exhibit
                "B"
                duly executed by Steak n Shake Operations, Inc.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (iv)

            	
              The
                Reaffirmation of Guaranty Agreement in the form attached hereto as
Exhibit
                "C"
                duly executed by Steak n Shake Enterprises, Inc.
                

            

    

    

    
      	 	
              (v)  

            	
              The
                Reaffirmation of Guaranty Agreement in the form attached hereto as
Exhibit
                "D"
                duly executed by SnS Investment
                Company.

            

    

    

    
      	 	
              (vi)

            	
              A
                Security Agreement in the form attached hereto as Exhibit
                "E"
                duly executed by the Company. 

            

    

    

    
      	 	
              (vii)

            	
              The
                Intercreditor Agreement executed by Prudential and the Prudential
                Affiliates, and acknowledged by the Company, in the form attached
                hereto
                as Exhibit
                “F.”

            

    

    
       

    

    
      	 	
              (viii)

            	
              Resolutions
                of the Board of Directors of the Company authorizing the execution,
                delivery and performance, respectively, of this Amendment, the Revolving
                Note, Security Agreement, and all other Loan Documents provided for
                in
                this Amendment to which the Company is a party certified by the Secretary
                of the Board of Directors of the Company as being in full force and
                effect
                and duly adopted as of the date hereof.

            

    

    

    
      	 	
              (ix)

            	
              The
                Certificate of the Secretary of the Board of Directors of the Company
                certifying the names of the officer or officers authorized to execute
                this
                Amendment, the Revolving Note, Security Agreement, and all other
                Loan
                Documents provided for in this Amendment to which the Company is
                a party,
                together with a sample of the true signature of each such officer,
                dated
                as of the date of this Amendment. 

            

    

    

    
      	
               

            	
              (x)

            	
              Resolutions
                of the Board of Directors of Steak n Shake Operations, Inc., an Indiana
                corporation, authorizing the execution, delivery and performance,
                respectively, of its Reaffirmation of Guaranty Agreement and all
                other
                Loan Documents provided for in this Amendment to which Steak n Shake
                Operations, Inc. is a party certified by the Secretary of the Board
                of
                Directors of Steak n Shake Operations, Inc. as being in full force
                and
                effect and duly adopted as of the date hereof.

            

    

    

    
      	 	
              (xi)

            	
              The
                Certificate of the Secretary of the Board of Directors of Steak n
                Shake
                Operations, Inc. certifying the names of the officer or officers
                authorized to execute its Reaffirmation of Guaranty Agreement and
                all
                other Loan Documents provided for in this Amendment to which Steak
                n Shake
                Operations, Inc. is a party, together with a sample of the true signature
                of each such officer, dated as of the date of this Amendment.
                

            

    

    

    
      	 	
              (xii)

            	
              Resolutions
                of the Board of Directors of Steak n Shake Enterprises, Inc., an
                Indiana
                corporation, authorizing the execution, delivery and performance,
                respectively, of its Reaffirmation of Guaranty Agreement and all
                other
                Loan Documents provided for in this Amendment to which Steak n Shake
                Enterprises, Inc. is a party certified by the Secretary of the Board
                of
                Directors of Steak n Shake Enterprises, Inc. as being in full force
                and
                effect and duly adopted as of the date hereof.

            

    

    

    
      	 	
              (xiii)

            	
              The
                Certificate of the Secretary of the Board of Directors of Steak n
                Shake
                Enterprises, Inc. certifying the names of the officer or officers
                authorized to execute its Reaffirmation of Guaranty Agreement and
                all
                other Loan Documents provided for in this Amendment to which Steak
                n Shake
                Enterprises, Inc. is a party, together with a sample of the true
                signature
                of each such officer, dated as of the date of this Amendment.
                

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (xiv)

            	
              Resolutions
                of the Board of Directors of SnS Investment Company, an Indiana
                corporation, authorizing the execution, delivery and performance,
                respectively, of its Reaffirmation of Guaranty Agreement and all
                other
                Loan Documents provided for in this Amendment to which SnS Investment
                Company is a party certified by the Secretary of the Board of Directors
                of
                SnS Investment Company as being in full force and effect and duly
                adopted
                as of the date hereof. 

            

    

    

    
      	 	
              (xv)

            	
              The
                Certificate of the Secretary of the Board of Directors of SnS Investment
                Company certifying the names of the officer or officers authorized
                to
                execute its Reaffirmation of Guaranty Agreement and all other Loan
                Documents provided for in this Amendment to which SnS Investment
                Company
                is a party, together with a sample of the true signature of each
                such
                officer, dated as of the date of this Amendment.
                

            

    

    

    
      	 	
              (xvi)

            	
              An
                amendment fee in the amount of $100,000 payable to the Bank by the
                Company
                contemporaneously with the execution of this Amendment.
                

            

    

    
       

       

    

    10.           
      WAIVERS.  The
      Bank hereby consents to, and waives the prohibition provided in Section 6(b)
      of
      the Agreement against, the Company granting to the noteholders under the
      Prudential Note Purchase Agreement a security interest in the Collateral on
      the
      condition that the priority of such lien is equal to and pari passu with the
      lien granted by the Company to the Bank in the Collateral, pursuant to the
      terms
      of the Intercreditor Agreement in form and content satisfactory to the
      Bank.    The Bank also  waives the prohibition
      provided in Section 6(c) of the Agreement against the Company or any Subsidiary
      guaranteeing the obligations of any other person, in order to allow Steak n
      Shake Operations, Inc., an Indiana corporation, Steak n Shake Enterprises,
      Inc.,
      an Indiana corporation, and SnS Investment Company, an Indiana corporation,
      to
      guarantee the Company’s obligations to the Noteholders under the Prudential Note
      Purchase Agreement. Nothing contained herein shall be deemed to be a waiver
      of
      the violation of any other term or provision of the Agreement, whether now
      or in
      the future, nor shall the Bank be deemed to have waived the same or similar
      provisions in the future, unless specifically stated by the Bank in
      writing.

    

    11.           
      PRIOR
      AGREEMENTS.  The Agreement,
      as
      amended by this Amendment, supersedes all previous agreements and commitments
      made or issued by the Bank with respect to the Loans and all other subjects
      of
      this Amendment, including, without limitation, any oral or written proposals
      which may have been made or issued by the Bank.

    

    

    12.           
      EFFECT
      OF
      AMENDMENT.  The provisions
      contained herein shall serve to supplement and amend the provisions of the
      Agreement.  To the extent that the terms of this Amendment conflict
      with the terms of the Agreement, the provisions of this Amendment shall control
      in all respects.

    

    13.           
      REAFFIRMATION.  Except
      as expressly amended by this Amendment, all of the terms and conditions of
      the
      Agreement shall remain in full force and effect as originally written and as
      previously amended.

    

    14.           
      COUNTERPARTS.  
      This Amendment
      may be executed in any number of counterparts, each of which shall be an
      original and all of which when taken together shall be one and the same
      agreement.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      Company and the Bank have executed and delivered in Indiana this Eighth
      Amendment Credit Agreement by their respective duly authorized officers as
      of  May 16, 2008.

    

    

    
      	
               

            	
              THE
                STEAK N SHAKE
                COMPANY, an Indiana corporation

            

    

    
 

    
      	
               

            	
              By:

            	
              /s/
                David C. Milne  

            	
            

    

    
      	
               

            	
              Vice
                President, General Counsel and Corporate
                Secretary

            

    

    

    
      

      
        	
                 

              	
                FIFTH
                  THIRD BANK, a Michigan banking corporation,
                  formerly known
                  as Fifth Third Bank (Central Indiana), and Fifth Third Bank, Indiana
                  (Central)

              

      

    

     

    

    
      	
               

            	
              By:

            	
              /s/
                William J. Krummen      
                

            

    

    
      	
               

            	
              William
                J. Krummen, Vice President 

            

    

    

    
      
        
        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      OF
      EXHIBITS

    

    

    

    
      	
              Exhibit
                "A"

            	
              -

            	
              Promissory
                Note (Revolving Loan) ($45,000,000.00) (The Steak n Shake Company)
                

            

    

    

    
      	
              Exhibit
                "B"

            	
              -

            	
              Reaffirmation
                of Guaranty Agreement (Steak n Shake Operations, Inc.)
                

            

    

    

    
      	
              Exhibit
                "C"

            	
              -

            	
              Reaffirmation
                of Guaranty Agreement (Steak n Shake Enterprises, Inc.)
                

            

    

    

    
      	
              Exhibit
                "D"

            	
              -

            	
              Reaffirmation
                of Guaranty Agreement (SnS Investment Company)

            

    

    

    
      	
              Exhibit
                “E”

            	
              -

            	
              Security
                Agreement (The Steak n Shake Company)

            

    

    

    
      	
              Exhibit
                “F”

            	
              -

            	
              Intercreditor
                and Collateral Agency Agreement (Prudential Investment Management,
                Inc.,
                The Prudential Insurance Company of America, Pruco Life Insurance
                Company,
                United of Omaha Life Insurance Company, and Fifth Third Bank, individually
                and as Collateral Agent) 

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      "A"

    
 

    PROMISSORY
      NOTE

    (Revolving
      Loan)

    $45,000,000.00  

    Indianapolis,
      Indiana

                                                                                                  
      Dated: May 16, 2008

    Final
      Maturity: January 30,
      2009

    

    On
      or before January 30, 2009 (“Final
      Maturity”), THE STEAK N SHAKE
      COMPANY, an Indiana corporation (the “Maker”) promises to pay to the
      order of FIFTH THIRD BANK,
a Michigan banking
      corporation, formerly known as Fifth Third Bank
      (Central Indiana), and Fifth Third Bank, Indiana (Central) (the “Bank”) at the
      principal office of the Bank at Indianapolis, Indiana, the principal sum of
      Forty-Five Million and 00/100 Dollars ($45,000,000.00), or so much of the
      principal amount of the Loan represented by this Note as may be disbursed by
      the
      Bank pursuant to the terms of the Credit Agreement described below, and to
      pay
      interest on the unpaid principal balance outstanding from time to time as
      provided in this Note.

    

    This
      Note evidences indebtedness (the
“Loan”) incurred or to be incurred by the Maker under a revolving line of credit
      extended to the Maker by the Bank under a Credit Agreement dated as of November
      16, 2001, as amended (the “Credit Agreement”).  All references in this
      Note to the Credit Agreement shall be construed as references to that Agreement
      as it may be amended from time to time.  The Loan is referred to in
      the Credit Agreement as the “Revolving Loan.”  Subject to the terms
      and conditions of the Credit Agreement, the proceeds of the Loan may be advanced
      and repaid and re-advanced until Final Maturity.  The principal amount
      of the Loan outstanding from time to time shall be determined by reference
      to
      the books and records of the Bank on which all Advances under the Loan and
      all
      payments by the Maker on account of the Loan shall be recorded.  Such
      books and records shall be deemed primafacie
      to be correct
      as to such matters. The terms “Advance” and “Banking Day” are used in this Note
      as defined in the Credit Agreement.

    

    Interest
      on the unpaid principal
      balance of the Loan outstanding from time to time prior to and after maturity
      will accrue at the rate or rates provided in the Credit
      Agreement.  Prior to maturity, accrued interest shall be due and
      payable on the last Banking Day of each month commencing on the last Banking
      Day
      of April, 2008.  After maturity, interest shall be due and payable as
      accrued and without demand.  Interest will be calculated by applying
      the ratio of the annual interest rate over a year of 360 days, multiplied by
      the
      outstanding principal balance, multiplied by the actual number of days the
      principal balance is outstanding.

    

    The
      entire outstanding principal
      balance of this Note shall be due and payable, together with accrued interest,
      at Final Maturity.  Principal may be prepaid, but only as provided in
      the Credit Agreement.

     

    If
      any installment of interest due
      under the terms of this Note is not paid when due, then the Bank or any
      subsequent holder of this Note may, subject to the terms of the Credit
      Agreement, at its option and without notice, declare the entire principal amount
      of the Note and all accrued interest immediately due and
      payable.  Reference is made to the Credit Agreement which provides for
      acceleration of the maturity of this Note upon the happening of other “Events of
      Default” as defined therein.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    If
      any installment of interest due
      under the terms of this Note prior to maturity is not paid in full within ten
      (10) days when due, then the Bank at its option and without prior notice to
      the
      Maker, may assess a late payment fee in an amount equal to the greater of $20.00
      or five percent (5%) of the amount past due.  Each late payment fee
      assessed shall be due and payable on the earlier of the next regularly scheduled
      interest payment date or the maturity of this Note.  Waiver by the
      Bank of any late payment fee assessed, or the failure of the Bank in any
      instance to assess a late payment fee shall not be construed as a waiver by
      the
      Bank of its right to assess late payment fees thereafter.

    

    All
      payments on account of this Note
      shall be applied first to expenses of collection, next to any late payment
      fees
      which are due and payable, next to interest which is due and payable, and only
      after satisfaction of all such expenses, fees and interest, to
      principal.

    

    The
      Maker and any endorsers severally
      waive demand, presentment for payment and notice of nonpayment of this Note,
      and
      each of them consents to any renewals or extensions of the time of payment
      of
      this Note without notice. All amounts payable under the terms of this Note
      shall
      be payable with expenses of collection, including attorneys' fees, and without
      relief from valuation and appraisement laws.

    

    This
      Note supersedes and replaces that
      certain Promissory Note (Revolving Loan) made by the Maker payable to the order
      of the Bank dated December 7, 2007, in the principal amount of $50,000,000.00
      and maturing on January 30, 2009.

    

    This
      Note is made under and will be
      governed in all cases by the substantive laws of the State of Indiana,
      notwithstanding the fact that Indiana conflicts of law rules might otherwise
      require the substantive rules of law of another jurisdiction to
      apply.

    

    
      	
               

            	
              THE
                STEAK N SHAKE
                COMPANY, an Indiana corporation

            

    

     

                  By:  
/s/
      David C.
      Milne  

                David
      C. Milne

                Vice
      President, General Counsel and Corporate Secretary

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    Exhibit
      "B"

     

    REAFFIRMATION
      OF GUARANTY
      AGREEMENT

    (Steak
      n
      Shake Operations, Inc.)

    

    The
      undersigned (the “Guarantor”), being the Guarantor under that certain Guaranty
      Agreement dated as of November 16, 2001 (the “Guaranty”), pursuant to which the
      undersigned guaranteed the obligations of THE STEAK N SHAKE COMPANY, an
      Indiana corporation (the “Company”) to FIFTH THIRD BANK, a Michigan
      banking corporation, formerly known as Fifth Third Bank (Central
      Indiana),and  Fifth Third Bank, Indiana (Central) (the “Bank”) under
      the terms  of that certain Credit Agreement (the “Agreement”) dated as
      of November 16, 2001, entered into by and between the Company and the Bank,
      as
      previously amended, hereby consents to the execution of that certain Eighth
      Amendment to Credit Agreement to be entered into by and between the Company
      and
      the Bank dated as of even date herewith (the “Amendment”), hereby agrees that
      the Obligations (as defined in the Guaranty) shall include the obligations
      of
      the Company to the Bank under the Agreement as amended by the Amendment, which
      Amendment, among other things, revises the amount of the Revolving Loan,
      modifies certain financial covenants, and grants liens on the Company’s business
      assets, and the undersigned reaffirms its Obligations under, and agrees to
      be
      bound by, the terms of the Guaranty.

    

    Further,
      the Guarantor acknowledges that while it may be the present practice of the
      Bank
      to obtain the undersigned’s consent to the execution and delivery of the
      Amendment, the Bank may discontinue any such practice in the future and such
      discontinuance shall not be construed as a waiver of the Bank’s right, in its
      discretion, to enter into any further amendments to or grant any further waivers
      of any of the terms and conditions of the Agreement without the consent of
      the
      undersigned, and the Bank’s failure to request or obtain the consent of the
      undersigned to any such amendment or waiver shall not affect the liability
      of
      the undersigned to the Bank under the Guaranty.

    

    

    IN
      WITNESS WHEREOF, the
      undersigned has executed this Reaffirmation of Guaranty Agreement by its duly
      authorized officer as of May 16, 2008.

    

     

     STEAK
      N SHAKE OPERATIONS,
      INC., an Indiana corporation

     

    By:  
      /s/ David C.
      Milne  

    David
      C. Milne

    Vice
      President, General Counsel and Corporate Secretary

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    
      	
              STATE
                OF INDIANA

            	
              )
                

            

    

              
)
      SS:

    
      	
              COUNTY
                OF  Marion     
                

            	
              )
                

            

    

     

     

    Before
      me, a Notary Public in and for said County and State, personally appeared David C. Milne, the Vice
      President, General Counsel and Corporate
      Secretary of STEAK N
      SHAKE OPERATIONS, INC., an Indiana corporation, who as such authorized
      officer acknowledged execution of the foregoing Reaffirmation of Guaranty
      Agreement on behalf of said corporation this 16th day of May,
      2008.

    

    

    Signature:                  /s/
      Lisa
      Blythe                  
 

    Printed:                      Lisa
      Blythe, Notary Public

    My
      Commission Expires:  3/3/2015    
   

    

    My
      County
      of Residence: Johnson      
  

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      "C"

     

    REAFFIRMATION
      OF GUARANTY
      AGREEMENT

    (Steak
      n
      Shake Enterprises, Inc.)

    

    The
      undersigned (the “Guarantor”), being the Guarantor under that certain Guaranty
      Agreement dated as of August 21, 2006 (the “Guaranty”), pursuant to which the
      undersigned guaranteed the obligations of THE STEAK N SHAKE COMPANY, an
      Indiana corporation (the “Company”) to FIFTH THIRD BANK, a Michigan
      banking corporation, formerly known as Fifth Third Bank (Central Indiana),
      and
      Fifth Third Bank, Indiana (Central) (the “Bank”) under the terms  of
      that certain Credit Agreement (the “Agreement”) dated as of November 16, 2001,
      entered into by and between the Company and the Bank, as previously amended,
      hereby consents to the execution of that certain Eighth Amendment to Credit
      Agreement to be entered into by and between the Company and the Bank dated
      as of
      even date herewith (the “Amendment”), and hereby agrees that the Obligations (as
      defined in the Guaranty) shall include the obligations of the Company to the
      Bank under the Agreement as amended by the Amendment, which Amendment, among
      other things, revises the amount of the Revolving Loan, modifies certain
      financial covenants, and grants liens on the Company’s business assets, and the
      undersigned reaffirms its Obligations under, and agrees to be bound by, the
      terms of the Guaranty.

    

    Further,
      the Guarantor acknowledges that while it may be the present practice of the
      Bank
      to obtain the undersigned’s consent to the execution and delivery of the
      Amendment, the Bank may discontinue any such practice in the future and such
      discontinuance shall not be construed as a waiver of the Bank’s right, in its
      discretion, to enter into any further amendments to or grant any further waivers
      of any of the terms and conditions of the Agreement without the consent of
      the
      undersigned, and the Bank’s failure to request or obtain the consent of the
      undersigned to any such amendment or waiver shall not affect the liability
      of
      the undersigned to the Bank under the Guaranty.

    

    

    IN
      WITNESS WHEREOF, the
      undersigned has executed this Reaffirmation of Guaranty Agreement by its duly
      authorized officer as of  May 16, 2008.

    

     

    STEAK
      N SHAKE ENTERPRISES,
      INC., an Indiana corporation

    

    
      By:  
        /s/ David C.
        Milne  

      David
        C. Milne

      Vice
        President, General Counsel and Corporate Secretary

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      

      
        	
                STATE
                  OF INDIANA

              	
                )
                  

              

      

                
)
        SS:

      
        	
                COUNTY
                  OF  Marion     
                  

              	
                )
                  

              

      

      

    

    Before
      me, a Notary Public in and for said County and State, personally appeared David C. Milne, the
Vice
      President, General Counsel and
      Corporate Secretary of STEAK N SHAKE ENTERPRISES,
      INC., an Indiana corporation, who as such authorized officer acknowledged
      execution of the foregoing Reaffirmation of Guaranty Agreement on behalf of
      said
      corporation this 16th day
      of May, 2008.

    

    
      
        

        Signature:                  /s/
          Lisa
          Blythe                  
 

        Printed:                      Lisa
          Blythe, Notary Public

        My
          Commission Expires:  3/3/2015    
   

        

        My
          County
          of Residence: Johnson      
  

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        
Exhibit
        "D"

    

    REAFFIRMATION
      OF GUARANTY
      AGREEMENT

    (SnS
      Investment Company)

    

    The
      undersigned (the “Guarantor”), being the Guarantor under that certain Guaranty
      Agreement dated as of November 16, 2001 (the “Guaranty”), pursuant to which the
      undersigned guaranteed the obligations of THE STEAK N SHAKE COMPANY, an
      Indiana corporation (the “Company”) to FIFTH THIRD BANK, a Michigan
      banking corporation, formerly known as Fifth Third Bank (Central Indiana),
      a
      Michigan banking corporation and formerly known as Fifth Third Bank, Indiana
      (Central) (the “Bank”) under the terms  of that certain Credit
      Agreement (the “Agreement”) dated November 16, 2001, entered into by and between
      the Company and the Bank, as previously amended, hereby consents to the
      execution of that certain Eighth Amendment to Credit Agreement to be entered
      into by and between the Company and the Bank dated as of even date herewith
      (the
“Amendment”), and hereby agrees that the Obligations (as defined in the
      Guaranty) shall include the obligations of the Company to the Bank under the
      Agreement as amended by the Amendment, which Amendment, among other things,
      revises the amount of the Revolving Loan, modifies certain financial covenants,
      and grants liens on the Company’s business assets, and the undersigned reaffirms
      its Obligations under, and agrees to be bound by, the terms of the
      Guaranty.

    

    Further,
      the Guarantor acknowledges that while it may be the present practice of the
      Bank
      to obtain the undersigned’s consent to the execution and delivery of the
      Amendment, the Bank may discontinue any such practice in the future and such
      discontinuance shall not be construed as a waiver of the Bank’s right, in its
      discretion, to enter into any further amendments to or grant any further waivers
      of any of the terms and conditions of the Agreement without the consent of
      the
      undersigned, and the Bank’s failure to request or obtain the consent of the
      undersigned to any such amendment or waiver shall not affect the liability
      of
      the undersigned to the Bank under the Guaranty.

    

    IN
      WITNESS WHEREOF, the
      undersigned has executed this Reaffirmation of Guaranty Agreement by its duly
      authorized officer as of  May 16, 2008.

     

    
 

    SnS
      INVESTMENT COMPANY, an
      Indiana corporation

     

    
      By:  
        /s/ David C.
        Milne  

      David
        C. Milne

      Vice
        President, General Counsel and Corporate
        Secretary 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      

      
        	
                STATE
                  OF INDIANA

              	
                )
                  

              

      

                
)
        SS:

      
        	
                COUNTY
                  OF  Marion     
                  

              	
                )
                  

              

      

      

    

    Before
      me, a Notary Public in and for said County and State, personally appeared David C. Milne, the
Vice
      President, General Counsel and
      Corporate Secretary of SnS INVESTMENT COMPANY, an
      Indiana corporation, who as such authorized officer acknowledged execution
      of
      the foregoing Reaffirmation of Guaranty Agreement on behalf of said corporation
      this 16th day of May,
      2008.

    

    
      
        
          

          Signature:                  /s/
            Lisa
            Blythe                  
 

          Printed:                      Lisa
            Blythe, Notary Public

          My
            Commission Expires:  3/3/2015    
   

          

          My
            County
            of Residence: Johnson      
  
 

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

        
          Exhibit
            "E"

           

          SECURITY
            AGREEMENT

          

          

          THE
            STEAK N SHAKE COMPANY, an
            Indiana corporation (the “Company”), hereby grants to FIFTH THIRD BANK, a Michigan
            banking corporation, formerly known as Fifth Third Bank (Central Indiana),
            and
            Fifth Third Bank, Indiana (Central), in its capacity as Collateral Agent
            for
            itself as the Bank under the Credit Agreement and for the benefit of
            the
            Noteholders described herein (the “Collateral Agent”), a security interest
            in  all of the Company’s Equipment, Inventory, Accounts Receivable,
            General Intangibles, Chattel Paper, Deposit Accounts, and Software, whether
            now
            owned or hereafter acquired, and in the proceeds thereof, to secure the
            payment
            and performance of all of the Obligations.  Such security interest is
            granted on the terms stated in this Security Agreement (this “Security
            Agreement”).

          

          l.           
            DEFINITIONS.  As
            used in this Security Agreement, the following terms have the meanings
            indicated
            when used with the initial letter capitalized:

          

          (a)           
            “Account Debtor” means a party who is obligated to the Company with respect to
            any Account Receivable, or General Intangible.

          

          (b)           
            “Accounts Receivable” or “Account” is used as defined in the Uniform Commercial
            Code.

          

          (c)           
            “Bank” means Fifth Third Bank in its individual capacity.

          

          (d)           
            “Chattel Paper” is used as defined in the Uniform Commercial Code.

          

          (e)           
            “Collateral” means all property or rights in which a security interest is
            granted under this Security Agreement.

          

          (f)           
            “Collateral Account” is used as defined in Paragraph 10(a).

          

          (g)           
            “Collateral Agent Expenses” shall mean, without limitation, all costs and
            expenses incurred by the Collateral Agent in connection with the performance
            of
            its duties under this Security Agreement or the Intercreditor Agreement,
            including the realization upon or protection of the Collateral or enforcing
            or
            defending any lien upon or security interest in the Collateral or any
            other
            action taken in accordance with the provisions of this Agreement, expenses
            incurred for legal counsel in connection with the foregoing, and any
            other
            costs, expenses or liabilities incurred by the Collateral Agent for which
            the
            Collateral Agent is entitled to be reimbursed or indemnified by the Company
            pursuant to this Agreement or by the Senior Lenders pursuant to this
            Security
            Agreement or the Intercreditor Agreement.

           

          (h)           
            “Collateral Agent Obligations” shall mean all obligations of the Company to pay,
            reimburse or indemnify the Collateral Agent for any Collateral Agent
            Expenses.

          

          (i)           
            “Credit Agreement” means that certain Credit Agreement entered into by and
            between the Company and the Bank dated as of November 16, 2001, as amended
            from
            time to time.

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          (j)           
            "Credit Facilities" means all loans, letters of credit, and any and all
            other
            credit facilities extended to or on behalf of the Company pursuant to
            the Credit
            Agreement or the Prudential Note Purchase Agreement.

          

          (k)           
            “Default” means an “Event of Default” as defined in the Credit Agreement or in
            the Prudential Note Purchase Agreement, as applicable.

          

          (l)           
            “Deposit Accounts” means all demand, time, savings, passbook, and similar
            accounts of the Company maintained with the Collateral Agent or any other
            bank.

          

          (m)           “Equipment”
            means all of the furniture, fixtures, machinery, equipment, and other
            Goods of
            the Company, other than Inventory, farm products, or consumer goods,
            together
            with all tools, accessories, parts and accessions now in, attached to
            or
            hereafter placed in or added to such property, and any replacements of
            any such
            property.

          

          (n)           
            “General Intangibles” is used as defined in the Uniform Commercial
            Code.

          

          (o)           
            “Goods” is used as defined in the Uniform Commercial Code.

          

          (p)           
            “Intercreditor Agreement”  means that certain Intercreditor and
            Collateral Agency Agreement entered into by and among the Noteholders
            and the
            Bank, in its individual capacity and as Collateral Agent for itself and
            the
            Noteholders, dated as of even date herewith.

          

          (q)           
            “Inventory” means all Goods which are held for sale or lease to customers or
            which are furnished, have been furnished or are to be furnished under
            contracts
            of service, or which are raw materials, work in process or materials
            used or
            consumed in the Company’s business.

          

          (r)           
            “Letters of Credit” shall mean the letters of credit issued under Section 2(b)
            of the Credit Agreement.

           

          (s)           
            “Letter of Credit Collateral Obligations” shall mean all of the obligations of
            the Company under Section 9 of the Credit Agreement to deposit cash with
            the
            Collateral Agent with respect to Outstanding Letter of Credit
            Exposure.

           

          (t)           
            “Loan and Reimbursement Obligations”  shall mean principal amount of
            the Revolving Loan and the reimbursement obligations due the Bank with
            respect
            to Letters of Credit.

           

          (u)           
            “Noteholders” means Prudential Investment Management, Inc., The Prudential
            Insurance Company of America, Pruco Life Insurance Company, and United
            of Omaha
            Life Insurance Company, and their respective successors and assigns,
            and any
            other party who becomes a noteholder pursuant to the Prudential Note
            Purchase
            Agreement.

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          (v)           
            “Obligations” means the Collateral Agent Obligations, the Loan and Reimbursement
            Obligations, the Letter of Credit Collateral Obligations, the principal
            amount
            of the Senior Secured Notes, and all of the other present or future
            indebtedness, liabilities and obligations of the Company now or hereafter
            owed
            to any or all of the Collateral Agent, the Bank or the Noteholders, evidenced
            by
            or arising under, by virtue of or pursuant to this Security Agreement,
            the
            Credit Agreement, the Prudential Note Purchase Agreement,  the
            Revolving Note or the Senior Secured Notes, whether such indebtedness,
            liabilities and obligations are direct or indirect, joint, several or
            joint and
            several, or now exist or hereafter arise, and all renewals and extensions
            thereof, including, without limitation, all interest on the Revolving
            Loan and
            the Senior Secured Notes and any Yield Maintenance Amounts.  The term
“Obligations” shall include all of the foregoing indebtedness, liabilities and
            obligations, whether or not allowed as a claim in any bankruptcy, insolvency,
            receivership or similar proceeding.

          

          (w)           
            “Outstanding Letter of Credit Exposure” at any time shall mean the undrawn face
            amount of all outstanding Letters of Credit at such time.

           

          (x)           
            “Prudential Note Purchase Agreement” means that certain Amended and Restated
            Note Purchase and Private Shelf Agreement dated as of September 20, 2002,
            entered into by and among the Company, The Prudential Insurance Company
            of
            America, Prudential Investment Management, Inc., and each Prudential
            Affiliate
            party thereto, as amended, and as it may hereafter be amended, modified,
            or
            restated from time to time.

          

          (y)           
            “Revolving Loan” is used as defined in the Credit Agreement.

          

          (z)           
            “Revolving Note” is used as defined in the Credit Agreement.

          

          (aa)          “Senior
            Lenders” means the Bank and the Noteholders, collectively.

           

          (bb)         
            “Senior Secured Notes” means the Company’s 8.29% Series G Senior Notes due
            August 23, 2010, the Company’s 5.66% Series I Senior Notes due 2011, and any and
            all other shelf notes issued from time to time pursuant to the Prudential
            Note
            Purchase Agreement.

           

          

          (cc)          “Software”
            is used as defined in the Uniform Commercial Code.

          

          (dd)          “Subsidiary”
            and “Subsidiaries” are used as defined in the Credit Agreement.

          

          (ee)          “Uniform
            Commercial Code” means the Uniform Commercial Code as in effect from time to
            time in the State of Indiana, or in the state where the relevant collateral
            is
            located.

          

          2.           
            FINANCING
            STATEMENTS.  The Company authorizes the Collateral Agent at the
            expense of the Company to file a financing statement or statements in
            those
            public offices deemed necessary by the Collateral Agent to perfect the
            security
            interest granted to it herein.  The Company shall execute and deliver
            any document that the Collateral Agent may request to perfect or to further
            evidence or perfect the security interest created by this Security Agreement
            including, without limitation, any certificate or certificates of title
            to the
            Collateral with the security interest of the Collateral Agent noted thereon
            or
            executed applications for such certificates of title.

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          3.           
            LOCATION, INSPECTION
            AND
            PROTECTION OF COLLATERAL.  Unless the Company gives the
            Collateral Agent not less than ten (10) days prior written notice of
            additional
            locations at which Inventory and Equipment shall be kept, all Inventory
            and
            Equipment is kept and shall be kept at the following addresses:

           

          See
            Schedule I attached hereto

          

          Unless
            the Company gives the Collateral Agent written notice of the location
            of
            additional offices where records of the Company relative to Accounts
            Receivable,
            Chattel Paper, and General Intangibles are kept, all such records of
            the Company
            shall be kept at the following address:

          

          36
            South
            Pennsylvania Street, Suite 500

          Indianapolis,
            Indiana  46204

          

          which,
            the Company represents, is also the address of its principal
            office.  The Company shall not change the location of its principal
            office or state of organization or its legal name under which it is organized
            as
            of the date hereof unless the Company gives the Collateral Agent not
            less than
            30 days’ prior written notice of such event.  The Company shall, at
            all reasonable times and in a reasonable manner, allow the officers,
            attorneys
            and accountants of the Collateral Agent to examine, inspect, photocopy
            and make
            abstracts from the Company’s books and records and to verify Equipment and
            Inventory, the latter both as to quantity and quality, and to arrange
            for
            verification of Accounts Receivable, under reasonable procedures, directly
            with
            the Account Debtors or by other methods.  The Company shall also
            deliver to the Collateral Agent upon request any promissory notes or
            other
            papers evidencing any Account and any guaranty or collateral and all
            Chattel
            Paper together with appropriate endorsements and assignments and any
            information
            relating thereto and shall do anything else the Collateral Agent may
            reasonably
            require to further protect the Collateral Agent’s interest in the
            Collateral.  If any of the Collateral consists of Equipment normally
            used in more than one state and the Company intends to use any of such
            Collateral in any jurisdiction other than a state in which the Company
            shall
            have previously advised the Collateral Agent such Collateral is to be
            used, the
            Company shall not commence use in such other jurisdiction except upon
            ten (10)
            days prior written notice to the Collateral Agent.

          

          

          4.           
            FIXTURES.  None of
            the Collateral is attached to real estate so as to constitute a
            fixture.  If any Collateral is hereafter so attached to any real
            estate, notice of the common address, legal description, and name of
            the owner
            of record of such real estate shall be furnished to the Collateral Agent
            at
            least ten (10) days prior to such attachment.  If any Collateral is
            hereafter attached to real estate prior to the perfection of the security
            interest created by this Security Agreement in such Collateral, the Company
            shall, on demand, furnish the Collateral Agent with a disclaimer of interest
            in
            the Collateral executed by each person having an interest in such real
            estate.

           

           

          5.           
            THE COMPANY’S
            TITLE.  The Company has full and clear title to all of the
            Collateral presently owned and shall have such title to all Collateral
            hereafter
            acquired except for the security interest granted by this Security Agreement
            and
            any other lien or security interest permitted under the terms of the
            Credit
            Agreement, and the Company shall keep the Collateral free at all times
            from any
            lien or encumbrance except those permitted by the Credit
            Agreement.  No financing statements covering all or any portion of the
            Collateral is on file at any public office except as may be required
            or
            permitted by this Security Agreement and the Credit Agreement.

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          6.           
            THE COMPANY’S DUTY TO MAINTAIN
            THE COLLATERAL.  The Company shall keep all tangible Collateral
            in good order and repair and shall not waste or destroy any of the
            Collateral.  The Company shall not use the Collateral in violation of
            any statute or ordinance or contrary to the provisions of any policy
            of
            insurance thereon.

          

          

          7.           
            INSURANCE.  In
            addition to maintaining such insurance on the Collateral as is required
            by the
            Credit Agreement, the Company shall, upon the reasonable request of the
            Collateral Agent, keep the Collateral insured against such additional
            risks, in
            such amounts and under such policies as the Collateral Agent may reasonably
            require and with such companies as shall be reasonably acceptable to
            the
            Collateral Agent.  All policies providing insurance on the Collateral
            shall provide that any loss thereunder shall be payable to the Collateral
            Agent
            under a standard form of secured lender’s loss payable
            endorsement.  The Company authorizes the Collateral Agent to endorse
            on the Company’s behalf and to negotiate drafts reflecting proceeds of insurance
            on the Collateral, provided that the Collateral Agent shall remit to
            the Company
            such surplus, if any, as remains after the proceeds have been applied
            at the
            Collateral Agent’s option, (a) to the satisfaction of all of the Obligations or
            to the establishment of a cash collateral account for the Obligations,
            or (b) to
            the replacement or repair of the Collateral; provided, however, that
            so long as
            no Default exists, and provided further that the Company can demonstrate
            to the
            Collateral Agent’s satisfaction that any proposed replacement or repair of
            collateral is economically and physically feasible, such proceeds shall
            be
            applied, at the Company’s option and to the extent necessary, as provided in the
            foregoing clause (b).  Certificates evidencing the existence of all of
            the insurance required under the Credit Agreement, the Prudential Note
            Purchase
            Agreement,  or this Security Agreement shall be furnished to the
            Collateral Agent by the Company and the original policies providing such
            insurance shall be delivered to the Collateral Agent at its
            request.

          

          

          8.           
            ADVANCES TO PROTECT
            COLLATERAL.  Upon failure of the Company to procure any
            required insurance or to remove any prohibited encumbrance upon the Collateral
            or if any policy providing any required insurance is canceled, the Collateral
            Agent may procure such insurance or remove any encumbrance on the Collateral
            and
            any amounts expended by the Collateral Agent for such purposes shall
            be
            immediately due and payable by the Company to the Collateral Agent and
            shall be
            added to and become a part of the Obligations secured hereby and shall
            bear
            interest at the Bank’s Prime Rate, as defined in the Credit Agreement, plus
            three percent (3%) per annum.

          

          

          9.           
            DEALING WITH COLLATERAL
            PRIOR
            TO DEFAULT.  Prior to Default and thereafter until the
            Collateral Agent shall notify the Company of the revocation of such
            authority:

          

          (a)  the
            Company may, in the ordinary course of business, at its own expense,
            sell, lease
            or furnish under contracts of service, any of the Inventory normally
            held by the
            Company for such purposes, provided that a sale in the ordinary course
            of
            business shall not include a transfer in total or partial satisfaction
            of a
            debt, and the Company may use and consume, in the ordinary course of
            its
            business, any raw materials, work in process or materials normally held
            by it
            for such purposes;

          

          (b)  the
            Company shall, at its own expense, endeavor to collect, when due, all
            amounts
            due with respect to any Accounts or General Intangibles, and shall take
            such
            action with respect to collection as the Collateral Agent may reasonably
            request
            or, in the absence of such request, as the Company may deem advisable
            in
            accordance with sound business practice, and

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          (c)  the
            Company may grant, in the ordinary course of business, to any Account
            Debtor,
            any rebate, refund or adjustment to which such Account Debtor may be
            entitled,
            and may accept, in connection therewith, the return of the goods, the
            sale or
            lease of which shall have given rise to the obligation of the Account
            Debtor.

           

           

          10.           
            DEALING WITH COLLATERAL
            AFTER
            DEFAULT.  After Default and upon the request of the Collateral
            Agent:

          

          (a)  the
            Company, upon receipt of any checks, drafts, cash or other remittances
            in
            payment of Inventory sold or in payment of Accounts Receivable of the
            Company,
            shall deposit the same in a special collateral account (the “Collateral
            Account”) maintained with the Collateral Agent; such proceeds shall be deposited
            in the form received except for the indorsement of the Company when required,
            which indorsement the Collateral Agent is authorized to make on the Company’s
            behalf, and shall be held by the Collateral Agent as security for all
            Obligations;

          

          (b)  the
            Company shall deliver to the Collateral Agent all other instruments and
            Chattel
            Paper which constitute proceeds from the sale of Collateral, whether
            then held
            or thereafter acquired; and

          

          (c)  the
            Company shall keep segregated any such checks, drafts, cash, other instruments,
            Chattel Paper or other remittances from any of the Company’s other funds or
            property and shall hold such items in trust for the benefit of the Collateral
            Agent until delivery to the Collateral Agent or deposit in the Collateral
            Account and the Collateral Agent may apply all or any portion of the
            funds on
            deposit in the Collateral Account against any Obligations in the order
            of
            application provided for in the Credit Agreement or, absent such provision,
            at
            the discretion of the Collateral Agent.

          

          After
            Default, the Collateral Agent may notify any Account Debtor to make payment
            directly to the Collateral Agent of any amounts due or to become due
            under any
            Account Receivable, General Intangible instrument or Chattel Paper and
            the
            Collateral Agent may enforce the collection of any Account Receivable,
            General
            Intangible, instrument or Chattel Paper in its name or in the name of
            the
            Company, by suit or otherwise, and may surrender, release or exchange
            all or any
            part thereof or compromise or extend or renew for any period, whether
            or not
            longer than the original period, any indebtedness thereunder or evidenced
            thereby, and any Account Debtor will be fully protected in relying upon
            the
            representation of the Collateral Agent that it has authority under the
            terms of
            this Security Agreement to deal with any Account Receivable, General
            Intangible,
            instrument or Chattel Paper and need not look beyond this Security Agreement
            and
            such representation of the Collateral Agent to establish the Collateral
            Agent’s
            authority in that regard.

          

          

          11.           
            SUBSTITUTION AND SALE
            OF
            EQUIPMENT.  The Company may from time to time so long as no
            Default has occurred and is continuing, substitute items of Equipment
            so long as
            any new Equipment becomes subject to the security interest created by
            this
            Security Agreement and is subject to no prior liens or security interest
            other
            than those permitted by the Credit Agreement.  So long as no Default
            has occurred and is continuing or would result therefrom, the Company
            may, in
            the ordinary course of its business, sell or otherwise dispose of any
            items of
            Equipment for which substitutes have been obtained or which are no longer
            useful
            to the Company in its operations, provided that at least 10 days prior
            written
            notice of any proposed disposition of any material amount of Equipment
            in a
            single or a planned series of transactions is given to the Collateral
            Agent.  Upon the request of the Company, the Collateral Agent will
            deliver an appropriate release of its security interest in any item of
            Equipment
            disposed of by the Company pursuant to the provisions of this
            paragraph.

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          12.           
            REMEDIES UPON
            DEFAULT.  Upon the occurrence of any Default the Collateral
            Agent shall have with respect to the Collateral, in addition to all rights
            and
            remedies specified in the Credit Agreement, this Security Agreement or
            any other
            agreement between the Company and the Collateral Agent, the remedies
            of a
            secured party under the Uniform Commercial Code, regardless of whether
            the Code
            in such form has been enacted in the jurisdiction in which any such right
            or
            remedy is asserted.  Any notice required by law, including but not
            limited to notice of the intended disposition of all or any portion of
            the
            Collateral, shall be deemed reasonably and properly given if given at
            least 10
            days prior to such disposition in the manner prescribed for the giving
            of
            notices in the Credit Agreement.  Any proceeds of the disposition of
            any of the Collateral shall be applied first to the payment of the expenses
            of
            the retaking, holding, repairing, preparing for sale and sale of the
            Collateral,
            including reasonable attorneys’ fees and legal expenses in connection therewith
            and any balance of such proceeds shall be applied by the Collateral Agent
            to the
            Obligations in such order as the Collateral Agent shall determine.

          

          

          13.           
            RELATION TO CREDIT
            AGREEMENT
            AND PRUDENTIAL NOTE PURCHASE AGREEMENT.  This Security
            Agreement is given pursuant to the terms of the Credit Agreement and
            the
            Prudential Note Purchase Agreement, and shall be deemed a part thereof
            and
            subject to the terms and conditions thereof.

          

          

          14.           
            AUTHORITY.  In
            order to induce the Collateral Agent to accept this Security Agreement
            and to
            make the Credit Facilities available to the Company, the Company represents
            and
            warrants to the Collateral Agent that: (i) the Company is a corporation
            organized, existing and in good standing under the laws of the State
            of Indiana;
            (ii) the execution and delivery of this Security Agreement are within
            the
            Company’s corporate powers, have been duly authorized by all necessary corporate
            action and do not contravene or conflict with any provision of law or
            of the
            Articles of Incorporation or ByLaws of the Company or of any agreement
            binding
            upon the Company or its properties; (iii) the principal office of the
            Company is
            located at 36 South Pennsylvania Street, Suite 500, Indianapolis,
            Indiana  46204; (iv) this Security Agreement is the legal, valid and
            binding obligation of the Company, enforceable against the Company in
            accordance
            with its terms; and (v) the exact legal name of the Company is as it
            appears on
            the signature line hereof.

          

          

          15.           
            NOTICES.  Any
            notice required or otherwise given concerning this Security Agreement
            by either
            party to the other shall be given as notices are required to be given
            under the
            terms of the Credit Agreement.

          

          16.           
            RELATION TO INTERCREDITOR
            AGREEMENT.  Notwithstanding anything to the contrary which may
            be contained herein, the terms of the Intercreditor Agreement are incorporated
            herein and made a part hereof, and in the event of a conflict between
            the terms
            of this Security Agreement and the Intercreditor Agreement, the terms
            of the
            Intercreditor Agreement shall control.

          

          Dated
            as
            of  May 16, 2008.

          

          
            	
                     

                  	
                    THE
                      STEAK N SHAKE
                      COMPANY, an Indiana corporation

                  

          

          
                       
 By:  
              /s/ David C. Milne  

                        David
              C. Milne

                        Vice
              President, General Counsel and Corporate Secretary

            
              
                
                  
                  

                

                
                  
                  

                  
                    

                  

                

                
                  
                  

                

              

            

          

           

          

          
            	
                    STATE
                      OF INDIANA

                  	
                    )
                      

                  

          

                    
)
            SS:

          
            	
                    COUNTY
                      OF  Marion     
                      

                  	
                    )
                      

                  

          

           

           

          Before
            me, a Notary Public in and for said County and State, personally appeared
David C. Milne, the
            Vice President, General Counsel
            and
            Corporate Secretary of THE STEAK N
            SHAKE COMPANY, an
            Indiana corporation, who as such authorized officer acknowledged execution
            of
            the foregoing Reaffirmation of Guaranty Agreement on behalf of said corporation
            this 16th day of May,
            2008.

          

          
            

            Signature:                  /s/
              Lisa
              Blythe                  
 

            Printed:                      Lisa
              Blythe, Notary Public

            My
              Commission Expires:  3/3/2015    
   

            

            My
              County
              of Residence: Johnsonexhibit10_01.htm

    EXHIBIT
      10.01

     

    THE
      STEAK N SHAKE COMPANY

    EMPLOYEE
      STOCK OPTION
      AGREEMENT

    

    THIS
      AGREEMENT, made this 12th
      day of
      April, 2008 by and between THE STEAK N SHAKE COMPANY, an Indiana corporation
      with its principal office at 36 South Pennsylvania Street, Indianapolis, Indiana
      (the "Company") and                            
 ("Grantee") pursuant to the
      terms, conditions and limitations
      contained in the Company's 2008 Equity Incentive Plan (the "Plan").

    

    WHEREAS,
      in the interests of affording an incentive to the Grantee to give his/her best
      efforts to the Company as a key employee, the Company wishes to provide that
      the
      Grantee shall have an option to buy shares of the common stock ("Common Stock")
      of the Company:

    

    NOW,
      THEREFORE, it is hereby mutually agreed as follows:

    

    
      	
              1.

            	
              Grant
                of
                Options.  The Company hereby grants to the Grantee the
                right and option to purchase, on the terms and conditions hereinafter
                set
                forth, all or any part of an aggregate of              
                 shares (hereinafter called "Subject Shares") of the presently
                authorized, but unissued, or treasury Common Stock of the Company
                at a
                purchase price of  $7.48 per share, exercisable in whole or in
                part from time to time subject to the limitation that no option may
                be
                exercised with respect to fewer than one hundred (100) shares unless
                there
                are fewer than one hundred (100) shares then subject to purchase
                hereunder, in which event any exercise must be as to all such shares
                and
                subject to the further limitation that the options represented by
                this
                Agreement shall be exercisable only at such times and in such amounts
                as
                are set forth on Schedule I, attached hereto and made a part
                hereof.  The option shall expire as to all Subject Shares on the
                tenth anniversary date of this Agreement if not exercised on or before
                such date. 

            

    

    

    
      	
              2.

            	
              Regulatory
                Compliance.  This option may not be exercised until all
                applicable federal and state securities requirements pertaining to
                the
                offer and sale of the securities issued pursuant to the Plan have
                been met
                and the Company has been advised by counsel that all applicable
                requirements have been met. 

            

    

    

    
      	
              3.

            	
              Exercise
                of
                Options.  Subject to the limitation specified in Section
                2 and Schedule I hereof, the Grantee may from time to time exercise
                this
                option by delivering a written notice of exercise and subscription
                agreement to the Secretary of the Company specifying the number of
                whole
                shares to be purchased, accompanied by payment in cash, by certified
                check, or bank cashier's check, of the aggregate option price of
                such
                number of shares; provided, however, that the Grantee may make payment
                in
                the form of delivery to the Company of Common Stock of the Company
                owned
                by the Grantee, the fair market value of which equals the aggregate
                option
                price, or by payment partially in cash and partially in Common Stock
                of
                the aggregate option price.  For this purpose, any shares so
                tendered by the Grantee shall be deemed to have a fair market value
                equal
                to the closing sales price for the shares on the New York Stock Exchange
                on the last trading day prior to the exercise.  Only the Grantee
                may exercise the option during the lifetime of the Grantee.  No
                fractional shares may be purchased at any time hereunder.
                

            

    

     

    
      	
              4.

            	
              Termination
                of
                Employment.  If the Grantee ceases to be an employee of
                the Company or any of its subsidiaries for any reason other than
                retirement, disability, or death, this option shall forthwith terminate.
                

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
              a.

            	
              If
                the Grantee's employment by the Company or any of its subsidiaries
                is
                terminated by reason of retirement (which means such termination
                of
                employment as shall entitle the Grantee to benefits under the Company's
                401k Plan or any successor plan of the Company), the Grantee may
                exercise
                any option granted hereunder (whether vested or not under the terms
                hereof) in whole or in part at any time within three months after
                such
                retirement, but not later than the date upon which this option would
                otherwise expire. 

            

    

    

    
      	
              b.

            	
              If
                the Grantee ceases to be an employee of the Company or any of its
                subsidiaries because of death or disability, the Grantee (or his/her
                estate) may exercise any option granted hereunder (whether vested
                or not
                under the terms hereof) in whole or in part at any time within one
                year
                after such termination of employment by reason of such disability,
                but not
                later than the date upon which this option would otherwise expire.
                

            

    

    

    
      	
              c.

            	
              If
                Grantee is terminated without cause (as that term is defined in the
                Plan)
                within on e year of a Change in Control (as that term is defined
                in the
                Plan) then the Grantee may exercise any options granted hereunder
                which
                were vested at the date of termination within one year of the termination,
                although in no event after the options would otherwise expire.
                

            

    

    

    
      	
              5.

            	
              Incentive
                Stock
                Options.  This Stock Option Agreement is intended to
                grant an option which meets the requirements of stock options as
                defined
                in Section 422A of the Internal Revenue Code.  Subject to and
                upon the terms, conditions and provisions of the Plan, each and every
                provision of this Stock Option Agreement shall be administered, construed
                and interpreted so that the option granted herein shall qualify as
                an
                incentive stock option. 

            

    

    

    
      	
              6.

            	
              Effect
                of Change of
                Control.  If a tender offer or exchange offer for Shares
                (other than such an offer by the Company) is commenced, or if a Change
                in
                Control (as defined in the Plan) occurs, awards hereunder that are
                not
                fully exercisable will become exercisable in full upon the happening
                of
                such event and will remain exercisable in accordance with their terms;
                provided, however, that no Options which have previously been exercised
                or
                otherwise terminated will become exercisable.

            

    

     

    
      	
              7.

            	
              Delivery
                of
                Certificates.  Upon the effective exercise of the option,
                or any part thereof, certificates representing the shares so purchased,
                marked fully paid and non-assessable shall be delivered to the person
                who
                exercised the option as soon as the Company is reasonably able to
                do so.
                Until certificates representing such shares shall have been issued
                and
                delivered, the Grantee shall not have any of the rights or privileges
                of a
                shareholder of the Company in respect of any of such shares.
                

            

    

    

    
      	
              8.

            	
              Stock
                Splits or
                Dividends.  In the event that prior to the delivery by
                the Company of all the Subject Shares, there shall be an increase
                or
                reduction in the number of shares of Common Stock of the Company
                issued
                and outstanding by reason of any subdivision or consolidation of
                the
                Common Stock or any other capital adjustment, the number of shares
                then
                subject to this option shall be increased or decreased as provided
                in the
                Plan. 

            

    

    

    
      	
              9.

            	
              No
                Assignment.  The option and the rights and privileges
                conferred by this Option Agreement shall not be assigned or transferred
                by
                the Grantee in any manner except by will or under the laws of descent
                and
                distribution.  In the event of any attempted assignment or
                transfer in violation of this paragraph, the option, rights and privileges
                conferred by this Stock Option Agreement shall become null and void.
                

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
              10.

            	
              Employment
                at
                Will.  Nothing herein contained shall be deemed to create
                any limitation or restriction upon such
                rights as the Company would otherwise have to terminate a person
                as an
                employee of the Company

            

    

    

    
      	
              11.

            	
              Notices.  Any
                notices to be given or served under the terms of this Option Agreement
                shall be addressed to the Secretary of the Company at 36 South
                Pennsylvania Street, Indianapolis, Indiana, 46204, and to the Grantee
                at
                the address on file with the Company from time to time, or such other
                address or addresses as either party may hereafter designate in writing
                to
                the other.  Any such notice shall be deemed to have been duly
                given or served, if and when enclosed in a properly sealed envelope
                addressed as aforesaid, postage prepaid, and deposited in the United
                States mail or set via reputable overnight carrier.
                

            

    

    

    
      	
              12.

            	
              Interpretation
                of
                Agreement and Plan.  The interpretation by the Board of
                Directors’ Compensation Committee of any provisions of the Plan or of this
                Stock Option Agreement shall be final and binding on the Grantee
                unless
                otherwise determined by the Company's Board of Directors.
                

            

    

    

    
      	
              13.

            	
              Controlling
                Document.  This option is subject to all the terms,
                provisions and conditions of the Plan, which is incorporated herein
                by
                reference and to such regulations as may from time to time be adopted
                by
                the Committee. A copy of the Plan is available for free on the Company’s
                web site, www.steaknshake.com
                in the Company’s 2008 Proxy Statement.  In the event of any
                conflict between the provisions of the Plan and the provisions of
                this
                Stock Option Agreement, the terms, conditions and provisions of the
                Plan
                shall control, and this Stock Option Agreement shall be deemed to
                be
                modified accordingly. 

            

    

    

    
      	
              14.

            	
              Governing
                Law.  This Stock Option Agreement shall be governed by
                the laws of the State of Indiana.  Any suit filed regarding this
                Agreement shall be venued only in the Federal District Court for
                the
                Southern District of Indiana, Indianapolis, Indiana.
                

            

    

    

    

    IN
      WITNESS WHEREOF, the Company and the Grantee have signed this Stock Option
      Agreement as of the day and year first above written.

    

    "COMPANY"

    

    By:
      ___________________________________

    ATTEST:                                                                                                
      Wayne L. Kelley, Interim Chairman and CEO

    

    _________________________________                               “GRANTEE”

    David
      C.
      Milne, Corporate Secretary

    ___________________________________

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        
                         
SCHEDULE
        I

    

     

     

    STOCK
      OPTION AGREEMENT OF   _____________________
("Grantee")

     

     

                                    Number
      of
      Shares         ­­­­­­­­                        

     

    Exercisable
      After                                              Installment                                    
      Cumulative
      Available

     

    4/12/09                                                     _______                                            
_______

    
4/12/10                                                    
      _______                                            
_______ 

     

    4/12/11                                                    
      _______                                            
_______ 

     

    4/12/12                                                    
      _______                                            
      _______

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