Terms of Agreement

TABLE OF CONTENTS

Recitals

Terms of Agreement

SECTION 1. GRANT OF FRANCHISE

1.01. Exclusive Grant

1.02. Additional Restaurants

1.03. Franchisee Obligations

1.04. Operating Manager's Duties

1.05. Company Services

SECTION 2. TERM AND RENEWAL

2.01. Term

2.02. Renewal

SECTION 3. RESTAURANT PROPERTY AND EQUIPMENT

3.01. Transfer of Real and Personal Property Interest

3.02. Construction of Restaurant

3.03. Installation of Equipment and Furnishings

3.04. Maintenance and Renovation of the Restaurant

Property, Equipment and Furnishings

3.05. Purchase of Non Approved Equipment and Furnishings

3.06. Eminent Domain

SECTION 4. SUPPLIES, FOOD PRODUCTS, RECIPE ITEMS

AND UNIFORMS

4.01. Use of Food Supplies and Other Items

4.02. Samples

4.03. Suppliers of Food Supplies and Other Items

4.04. Uniforms

SECTION 5. OPERATING STANDARDS

5.01. Operational Standards

5.02. Operating Hours

5.03. Training

5.04. Continuing Services

SECTION 6. FEES AND ADVERTISING EXPENDITURES

6.01. Initial Franchise and Royalty Fee

6.02. Advertising and Marketing Expenditures

6.03. Definition of Gross Receipts

6.04. Interest on Late Payments

6.05. Credit Cards and Other

Methods of Payment

6.06. Vending Machines

6.07. Fees Non-Refundable

6.08. Payment By Electronic Transfer

SECTION 7. ADVERTISING

7.01. Origination and Approval of Advertising

7.02. Advertising Agency

SECTION 8. BOOKS, RECORDS AND CONTROL PROCEDURES

8.01. Bookkeeping System

8.02. Reports

8.03. Marketing Information

8.04. Records of Franchisee

8.05. Inspection of Franchisee's Records

8.06. Company Provided Accounting Services

SECTION 9. INSURANCE AND INDEMNITY

9.01. Indemnity

9.02. Franchisee's Insurance

9.03. Evidence of Insurance

9.04. Notice

9.05. Additional Insured

SECTION 10. LIMITATION AND USE OF PROPRIETARY MARKS

AND TRADE SECRETS

10.01. Proprietary Marks And Trade Secrets

10.02. Limitation on Franchisee's Use of Marks

10.03. Notification of Infringements and Claims

10.04. Indemnification of Franchisee/Discontinuance of Use of Marks

10.05. Non-Disclosure of Trade Secrets and Confidential Information

10.06. Survival

SECTION 11. TERMINATION

11.01. Termination of the Franchise Agreement

11.02. Effect of Any Termination, Cancellation or

Expiration of this Agreement

11.03. [INTENTIONALLY DELETED]

SECTION 12. COVENANT NOT TO COMPETE

SECTION 13. ASSIGNMENTS

13.01. Assignment by the Company

13.02. Assignment by Franchisee

13.03. The Company’s Right of First Refusal

SECTION 14. GENERAL PROVISIONS

14.01. Improvements to System

14.02. Severability

14.03. Franchisee Independent Contractor /Disclosure Thereof

14.04. Section and Subsection Titles

14.05. Entire Agreement

14.06. Number and Gender

14.07. Obligations of Interested Parties

14.08. Written Approval, Waiver and Non-Waiver

14.09. Notices

14.10. Designated Agent of Franchisee

14.11. Specific Performance

14.12. Venue/Dispute Resolution

14.13. Costs and Attorneys' Fees

14.14. Interference with Employment Relations

14.15. Acknowledgment of Differing Terms

14.16. Acknowledgment of No Promises

14.17. Governing Law

14.18. Agreement Location

SIGNATURE PAGE

SCHEDULE 1

UNIT FRANCHISE AGREEMENT

THIS AGREEMENT is made and entered into this 16th day of December, 2005, ("Effective Date") by and between STEAK N SHAKE OPERATIONS, INC., an Indiana corporation, with its principal office at 500 Century Building, 36 South Pennsylvania Street, Indianapolis, Indiana 46204 (the "Company") and Kelley Operations, Inc. a North Carolina Corporation with its principal offices at 4020 Waterford Drive, Charlotte, North Carolina 28226. ("Franchisee").

The Company has created and developed a unique restaurant concept, including buildings with a distinctive architectural design, decorative color scheme and trade dress, and has standardized methods of preparing and serving certain food products and beverages for on-premises and off-premises consumption in manuals and other materials of the Company (the "Operating Standards Manual") as issued and revised from time to time (hereinafter collectively referred to as the "System"). Such restaurants are operated with uniform formats, systems, methods, procedures and designs and are known as "STEAK N SHAKE" Restaurants. The Company believes that the reputation and goodwill of STEAK N SHAKE Restaurants are based upon, and can be maintained only by, the sale of distinctive, high quality products and services.

The Company is duly licensed to use and promote certain proprietary trademarks, service marks, trade dress and other commercial symbols, including "STEAK N SHAKE", the "WINGED LOGO", "TAKHOMASAK", "IN SIGHT IT MUST BE RIGHT", "FAMOUS FOR STEAKBURGERS", and related logos (the "Marks"). The Company has experience and Know-How (as defined herein) in the operation of STEAK N SHAKE Restaurants and can provide assistance and guidance in connection therewith.

The Company grants franchises to own and operate STEAK N SHAKE Restaurants to persons who meet the Company's qualifications and are willing to undertake the investment and effort to establish and develop a STEAK N SHAKE Restaurant in accordance with the System.

Franchisee acknowledges that he has conducted an independent investigation of the business contemplated by this Agreement and recognizes that it involves business risks which make the success of the venture largely dependent upon the business abilities of Franchisee.

Franchisee has applied for a franchise to own and assume operations at an existing STEAK N SHAKE Restaurant at the location identified or to be identified in Section 1.01 hereof and such application has been approved by the Company in reliance upon all of the representations made by the Franchisee.

Terms of Agreement

Company and Franchisee hereby agree as follows:

SECTION 1. GRANT OF FRANCHISE

1.01. Exclusive Grant. This franchise (hereinafter sometimes referred to as the "Franchise") is being granted based on the application, financial statements and other documents submitted by Franchisee to the Company prior to the execution hereof, and Franchisee represents and warrants:

Subject to the conditions of this Agreement and the continuing faithful performance by Franchisee hereunder, the Company grants to Franchisee, for and during the term hereof, the right, license and privilege: (1) to operate the following STEAK N SHAKE Restaurant: 499 Congaree Road, Greenville, S.C. (the "Restaurant"); (2) to use the Marks licensed to the Company as are now or may hereafter be specifically designated by the Company in writing for use only with the System; (3) to offer for sale all of the (and only the) food and beverage products designated by the Company and sold therein (as they may be changed, improved, and further developed from time to time); and (4) to indicate to the public that Franchisee's Restaurant is operated as a part of the System. During the term of this Agreement, the Company shall not own or operate a STEAK N SHAKE Restaurant, and shall not grant to any third party a franchise to operate a Steak n Shake restaurant at any location within the geographical area described or to be determined and described in Schedule 1 (the "Exclusive Territory"). Nothing contained herein shall limit the right of the Company to sell directly or through third parties any products, provided that the items sold by the Company are either packaged or bottled and sold for preparation and/or consumption off the selling premises.

1.02. Additional Restaurants. Franchisee understands that the Company and its affiliated corporations currently operate and/or franchise, and may in the future operate and/or franchise, restaurants and food establishments other than STEAK N SHAKE Restaurants, and Franchisee agrees that the Company and/or any related entity may do so within the Exclusive Territory, provided that such restaurants and food establishments do not feature ground beef sandwiches as a primary product and do not utilize the following or similar names or trade names: "STEAK N SHAKE", "TAKHOMASAK, "IN SIGHT IT MUST BE RIGHT", and "FAMOUS FOR STEAKBURGERS". Franchisee further agrees that this franchise relates solely to and is limited to the single Restaurant location described herein, and affords Franchisee no right, title or interest in additional franchises to be operated at any other location (subject to relocation of the Restaurant as permitted under Section 3.01).

Neither this Agreement nor the franchise issued hereunder obligates the Company in any way to seek, issue, or allow the purchase of any additional franchises by Franchisee or others.

1.03. Franchisee Obligations. Franchisee agrees to diligently use its best efforts to develop and operate the business franchised herein and to promote the interest of the System for the term of this Agreement and any renewal thereof. Franchisee accepts the grant of this franchise and agrees to maintain and operate the Restaurant only at the location in Schedule 1 hereof in accordance with the Company's plans, specifications and procedures as set forth in the Operating Standards Manual and other applicable publications of the Company, as revised from time to time, and the terms of this Agreement. Franchisee agrees to use the franchised facility only for the purpose designated in this Franchise Agreement.

Franchisee acknowledges that maintaining uniformity in every component of the operation of the System is essential to the success of the entire chain of STEAK N SHAKE Restaurants, including a designated menu; uniformity of food and beverage specifications, preparation methods, quality and appearance; and uniformity of facilities and service. Franchisee agrees to comply with the entire System, as revised from time to time by the Company.

1.04. Operating Manager's Duties. At all times during this Agreement, Franchisee's manager in charge of operations for the Restaurant will have attended and successfully completed the prescribed manager training program of Company and all subsequent manager training, refresher and retraining programs offered from time to time by Company pursuant to Section 5.03 of this Agreement. The manager will be a full-time manager on the premises or with reasonable availability to the premises at all times to carry out the manager's day-to-day responsibilities. The manager will refrain from operational or management commitments in other businesses (except other STEAK N SHAKE Restaurants operated under franchises granted by the Company) which would in any way affect the management duties required hereunder.

1.05. Company Services. The Company agrees to provide to Franchisee the following materials, benefits and services, all as hereinafter more fully set forth:

SECTION 2. TERM AND RENEWAL

2.01. Term. Unless sooner terminated as hereinafter provided, this Franchise Agreement shall extend for a term commencing one hundred (100) days from the date of this Agreement, ("Franchise Date") and ending on the twentieth (20th) anniversary of such date. If the premises of the Restaurant are leased by Franchisee, the term of the agreement shall be co-extensive with the shorter of (i) the initial term of the lease or (ii) the term as hereinabove set forth.

2.02. Renewal. If all of the following criteria are satisfied, Franchisee may renew this Franchise to use the System and Marks at the Restaurant for one additional term equal to the term in the Company's standard form of Unit Franchise Agreement as it exists on the renewal date:

SECTION 3. RESTAURANT PROPERTY AND EQUIPMENT

3.01. Transfer of Personal and Real Property Interests. Franchisee desires to assume operation of the Restaurant and the Company agrees to transfer its interest in the Restaurants on the Franchise Date as follows:

(b). All of the Company’s right, title and interest in and to the good will, inventory, equipment, furniture and fixture located at the Restaurants as of the date hereof shall be conveyed pursuant to that Personal Property Sales Agreement of even date herewith and attached hereto as Exhibit B. It being acknowledged and agreed that if the Personal Property Sales Agreement is terminated for any reason, this Agreement shall terminate immediately and the parties shall have no further obligation to each other hereunder.

3.02. Casualty.

In the event the Restaurant is damaged or rendered totally or partially untenantable by fire or other casualty, Franchisee shall, within thirty (30) days, initiate repairs to the Restaurant property and diligently pursue the completion of such repairs in order to restore the Restaurant property to its former condition prior to the casualty within a reasonable time, not to exceed six (6) months after the date of the fire or casualty, which time period may be extended for delays resulting from acts of God, force majeure and other causes beyond the reasonable control of Franchisee, provided Franchisee continues to diligently pursue the completion of such repairs. If, in the Company's reasonable judgment, the damage or destruction is so extensive that substantial cost and effort will be expended in restoring the Restaurant property, the Company may require Franchisee, by giving written notice thereof, to restore the Restaurant property in conformance with the then standard STEAK N SHAKE Restaurant decor specifications. Notwithstanding anything herein to the contrary, Franchisee shall not be required to repair or restore the Restaurant property if such damage occurs during the final year of the Franchise unless the Company agrees to extend the Franchise pursuant to Section 2.02. Franchisee shall be solely responsible for the cost associated with restoring the Restaurant property.

3.03. Use of Equipment and Furnishings. Franchisee shall:

3.04. Maintenance and Renovation of the Restaurant Property, Equipment and Furnishings.

3.05. Purchase of Non Approved Equipment and Furnishings. If Franchisee desires to purchase or install any item that has not been specifically approved by the Company, or to purchase an item of equipment manufactured to the Company’s specifications from a supplier that has not been pre-approved by the Company, Franchisee shall submit to the Company a written request for approval of such item or supplier. The Company shall have the right to require, among other things, that a sample of the item to be delivered or manufactured be made available in a manner acceptable to the Company or to an independent certified laboratory designated by the Company for testing prior to acting on the request for approval. All costs and expenses related to such testing and evaluation shall be paid to the Company by Franchisee. The Company shall not be liable for any damage to sample items which may result from the testing process. The Company reserves the right to retest any items previously approved by it and may revoke any prior approval if the item fails to continue to meet the Company's standards and specifications. If the Company revokes the approval of any item or any supplier in writing or in the New Store Construction Manual, Franchisee shall not thereafter purchase such item from the supplier or use such item in connection with the operation of the Restaurant.

3.06. Eminent Domain. If during the term of this Agreement, the Restaurant property shall be taken for any public use by an exercise of eminent domain, condemnation or by purchase under the threat of such power (hereinafter referred to the "Proceeding"), either party to this Agreement may elect to continue the Franchise under the terms of this Agreement at a new Restaurant location. However, such new Restaurant location must be approved by the Company within six (6) months of the "completion of" the Proceeding, and the location set out in a new Schedule 1, to be attached hereto and made a part hereof. Approval of the location for the new Restaurant is within the sole discretion of the Company, which shall not be unreasonably withheld.

The right to elect to continue the Franchise at a new Restaurant location may be exercised by either party only if there is a total taking of the Restaurant property or a Material Partial Taking of the Restaurant property. For purposes of this Agreement, "Material Partial Taking" is the taking of any portion of the restaurant building, the loss of twenty percent (20%) or more of the parking area or number of parking spaces on the Restaurant property or the loss of drive-thru facilities on the Restaurant property. Regardless of the provisions set forth above, if any Proceeding occurs after the tenth (10th) anniversary of this Agreement, then both parties must agree in writing to continue the Franchise and the terms of this Agreement. In the event the Proceeding results in less than a total or Material Partial Taking, Franchisee agrees to repair or restore any damage to the Restaurant property in the manner set forth for fire and casualty losses in Section 3.02 herein.

SECTION 4. SUPPLIES, FOOD PRODUCTS, RECIPE ITEMS AND UNIFORMS

4.01. Use of Food Supplies and Other Items. Franchisee agrees:

4.02. Samples. Franchisee further agrees to permit the Company or its agents, at any reasonable time, to remove from the Restaurant certain samples of any inventory items, without payment therefor, in amounts reasonably necessary for testing by the Company or an independent certified laboratory to determine whether the samples meet the Company's then-current standards and specifications.

4.03. Suppliers of Food Supplies and Other Items. Franchisee will purchase approved food products and other items only from sources approved by the Company (which may include the Company and/or its affiliates). The Company may from time to time modify the list of approved items, brands and suppliers, and Franchisee shall not, after receipt in writing of such modification, reorder any item or brand or reorder from any supplier which is no longer approved. If Franchisee proposes to use or serve any food or beverage item or other ingredient or proposes to use any item, brand or supplier which is not approved at that time, it shall first notify the Company and submit sufficient information, specifications and samples concerning such item, brand or supplier for a determination by the Company whether such item or brand complies with the Company's specifications and standards and whether such supplier meets the Company's approved supplier criteria. The Company shall, within a reasonable time, notify Franchisee whether or not such proposed item, brand or supplier is approved. The Company shall approve such proposed item, brand or supplier, if in the Company's sole judgment and discretion, it is satisfied that the proposed item, brand or supplier meets the Company's specifications, standards and requirements. The Franchisee will reimburse the Company for the costs and expenses relating to the testing, research and investigation of proposed items, brands or suppliers. Notwithstanding the above, the Company shall not be obligated to approve more than a reasonable number of suppliers or products used or served by the Restaurant.

4.04. Uniforms. Franchisee shall purchase and use uniforms and costumes for its employees which conform strictly to the specifications, design and style of the Company existing from time to time, as required in the Operating Standards Manual or other-wise in writing.

SECTION 5. OPERATING STANDARDS.

5.01. Operational Standards.

5.02. Operating Hours. During the term of this Agreement, Franchisee shall be open and in normal operation for twenty-four hours per day, seven days per week, or such other minimum hours and days as the Company may from time to time reasonably prescribe in writing.

5.03. Training.

5.04. Continuing Services. The Company will:

SECTION 6. FEES AND ADVERTISING EXPENDITURES.

6.01. Franchise and Royalty Fees.

6.02. Advertising and Marketing Expenditures. Franchisee understands and hereby acknowledges that advertising, marketing and promotional activities are essential to the furtherance of the goodwill and public image of the Company and the success of the business franchised hereunder, and agrees as follows:

6.03. Definition of Gross Receipts. "Gross Receipts" for purposes herein shall mean and include the total actual gross charges for all food, beverages, services (including service charges in lieu of gratuities) and other products and services sold to customers of the Restaurant, for cash or credit, regardless of whether or not such sales are made from the premises of the Restaurant or any other location. Excluded from Gross Receipts are sales, use, service or excise taxes collected from customers and paid to the appropriate taxing authority, customer refunds, discounts and adjustments, employee discounts and proceeds from vending machine sales for newspapers and pay telephones.

6.04. Interest on Late Payments. All royalty fees, service fees, advertising contributions, amounts due for purchases from the Company or its affiliates and other amounts which Franchisee owes to the Company or its affiliates shall bear interest after the due date at the lesser of the highest legal rate permissible or 18 percent (18%) per annum. Franchisee acknowledges that this Section 6.04 shall not constitute the Company's agreement to accept such payments after same are due or a commitment by the Company to extend credit to, or otherwise finance, Franchisee's operation of the Restaurant. Further, Franchisee acknowledges that its failure to pay al