Texas investor wins over Steak n Shake shareholders, aims for chairmanship

Texas investor Sardar Biglari rode a wave of shareholder anger to a landslide victory in his quest for Steak n Shake Co.
board seats.

Now, the dissident 30-year-old investor who models his approach after Warren Buffett's is hoping to deliver on his promise
to turn around the Indianapolis-based chain, with or without the chairmanship he covets.

Biglari has been making the case that investors deserve better since late 2007, mostly in a barrage of letters, a billboard
or two and individual shareholder meetings. Steak n Shake has reported 10 consecutive quarters of declining same-store sales,
and its shares have gone nowhere for 10 years. Biglari blames a management team that's "in the business of excuses,
not restaurants."

The investor's track record shows big changes could be ahead for the chain, including another board shakeup, a shift
to more franchised locations and ownership stakes for store managers. He wants to see tighter cost controls, improved service
and more of an entrepreneurial mind-set. Biglari also has some more specific ideas: He wants the company's 500 restaurants
in 19 states to add background music and remove harsh fluorescent lighting that makes guests feel uncomfortable.

Biglari and his adviser, Philip Cooley, 64, won more than 70 percent of the vote for the two seats they sought on the nine-member
Steak n Shake board, ousting Chairman and acting CEO Alan Gilman and board member and former CEO James Williamson Jr.

The new board met for the first time March 12. After the meeting, the company appointed board member Wayne Kelley as interim
chairman and CEO, apparently snubbing Biglari.

Steak n Shake had hinted in a statement that the seven returning board members would resist Biglari's push to become
chairman. The specter of a divided board helped drive the company's share price even lower, to $7.91. The stock traded
as high as $17.92 last August.

"We are encouraged by the shareholders' strong support for the existing board members, and also appreciate their
desire to add additional perspective to the board as we move forward," Kelley said in a statement. The company declined
to comment beyond the statement.

Adding accountability

Biglari and Cooley–nicknamed "Big and Cool" by message board supporters and "Breaklari and Fooley" by
the opposition–did not win the most proxy votes, but the results nonetheless show a clear mandate. Each received more than
15 million votes, nearly triple the tally for Gilman and Williamson. In addition, shareholders withheld about 5 million votes
for each of the returning board members–a group the dissident investors had not sought to unseat.

The proxy endorsement of Biglari was no surprise to Michael Gallo, an analyst who follows Steak n Shake for New York-based
C.L. King & Associates Inc.

Gallo expects the new board will institute measures to contain costs, while continuing the search for a CEO to replace Peter
Dunn, who stepped down in August. Gallo said a quick sale of the company–the strategy Biglari endorsed after investing in
the Massachusetts-based ice cream chain Friendly's–is unlikely for Steak n Shake thanks to a small number of potential
buyers and a challenging financing environment.

"For starters, they will try to drive some accountability, which has been lacking for several years," Gallo said.
"Getting a new CEO in is really in our view the most critical thing at this juncture."

Restaurateur Steven Huse, a former president of Steak n Shake, said Biglari and Cooley are "aggressive and appear to
be on the right track."

But to accomplish their goals, they'll need to remake the board with people who actually have restaurant experience,
said Huse, who is no longer a shareholder.

"The average age of the board of directors is above the average age of their consumer, and they are financial- and education-oriented,"
Huse said. "They need to have representatives of casual upscale restaurant operators on their board."

Now they do. Biglari is chairman of the buffet chain Western Sizzlin, and Cooley is vice chairman. Biglari controls the San
Antonio-based Lion Fund and Virginia-based Western Sizzlin Corp., a holding company for his investments.

All told, Biglari's companies own 8.5 percent of Steak n Shake. He began buying shares in March 2007 and launched his
quest for board seats about five months later; most of his shares are worth about half what he paid. Biglari declined a request
for an interview.

Way with words

Biglari sported an approachable gray suit and a purple tie when he met with shareholders at the downtown Marriott in early
March.

It was the night before Steak n Shake's annual meeting, and he took questions for several hours, explaining how he planned
to make money with shareholders, not off of them, as the company had charged.

The slight man, who bears a resemblance to the actor Adrian Brody, explained his vision for a restaurant with the service
of Chili's and the price of McDonald's. He spoke calmly, with an occasionally cracking voice, and built to a plea
for action. Steak n Shake's service is bad, restaurants are dirty, and management is ineffective, he argued.

"If we don't do something, Steak n Shake will become a footnote in the history of iconic American brands,"
he said.

Biglari's way with words also comes through in numerous letters to shareholders. His annual missives to investors in
Western Sizzlin provide a peek inside his strategy and are modeled after his idol, the legendary investor Warren Buffett.

In the 2007 letter, he described how difficult it is to run a restaurant.

"The restaurant business is not an easy one to operate–actually it's brutal," he wrote. "It necessitates
superior entrepreneurial talent that must fight unremittingly day in and day out and sometimes all day long to attract customers."

Biglari made his fortune by selling an Internet service provider he founded at the peak of the dot-com boom. He graduated
from Trinity University, where he studied under Cooley.

He founded The Lion Fund in 2000, and has held himself to a high standard. In a 2003 letter to shareholders in the fund,
he described the fund's annual performance as "dismal." It had returned 22 percent.

Biglari calls his investing strategy GULP, or "Growth at an Unreasonably Low Price."

"This maneuver leads me to be risk-averse, concentrated, and conservative with our capital," he told investing
Web site The Motley Fool. "The right occasions for investment arise when there is general misunderstanding–and therefore
mispricing–of the worth of an asset."

He sees Steak n Shake as a textbook example.

After the annual meeting, Biglari headed to a private meeting with the board, feeling confident he could change the company's
course.

This time, he was dressed for the boardroom. Black suit, crisp white shirt, bright red tie.