NOTE M – SHARE-BASED EMPLOYEE COMPENSATION

We compensate our employees and Directors using share-based compensation through the following plans:

The Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors

Under the Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors (the “Directors' Plan”), non-employee directors are eligible for awards of share-based incentives. Restricted shares granted under the Directors' Plan vest in equal amounts after one, two, and three years provided the Director continually serves on the Board. Options issued under the Directors' Plan become vested after 30 months and are exercisable until five years after the grant date. Stock option exercises are settled with the issuance of new shares of common stock.

All options awarded under the Directors' Plan have been at the fair market value at the time of grant. A Committee, appointed by the Board, administers the Directors' Plan. At February 28, 2012, we had reserved 111,000 shares of common stock under the Directors' Plan, 47,000 of which were subject to options outstanding, for a net of 64,000 shares of common stock currently available for issuance under the Directors' Plan.

The Ruby Tuesday, Inc. 2003 Stock Incentive Plan and the Ruby Tuesday, Inc. 1996 Stock Incentive Plan

A Committee, appointed by the Board, administers the Ruby Tuesday, Inc. 2003 Stock Incentive Plan (“2003 SIP”) and the Ruby Tuesday, Inc. 1996 Stock Incentive Plan (“1996 SIP”), and has full authority in its discretion to determine the key employees and officers to whom share-based incentives are granted and the terms and provisions of share-based incentives. Option grants under the 2003 SIP and 1996 SIP can have varying vesting provisions and exercise periods as determined by such Committee. Options granted under the 2003 SIP and 1996 SIP vest in periods ranging from immediate to fiscal 2014, with the majority vesting within three years following the date of grant, and the majority expiring five or seven (but some up to 10) years after grant. The majority of currently unvested restricted shares granted in fiscal 2012 and 2010 are performance-based. All of the currently unvested restricted shares granted during fiscal 2011 are service-based. The 2003 SIP and 1996 SIP permit the Committee to make awards of shares of common stock and awards of stock options or other derivative securities related to the value of the common stock. These discretionary awards may be made on an individual basis or for the benefit of a group of eligible persons. All options awarded under the 2003 SIP and 1996 SIP have been awarded with an exercise price equal to the fair market value at the time of grant.

At February 28, 2012, we had reserved a total of 5,090,000 and 1,024,000 shares of common stock for the 2003 SIP and 1996 SIP, respectively. Of the reserved shares at February 28, 2012, 2,357,000 and 982,000 were subject to options outstanding for the 2003 SIP and 1996 SIP, respectively. Stock option exercises are settled with the issuance of new shares. Net shares of common stock available for issuance at February 28, 2012 under the 2003 SIP and 1996 SIP were 2,733,000 and 42,000, respectively.

Stock Options

The following table summarizes the activity in options for the 39 weeks ended February 28, 2012 under these stock option plans (in thousands except per-share data):

				Weighted
				Average
	Options			Exercise Price
Balance at May 31, 2011		3,239		$	13.10
Granted		253			7.87
Exercised		(35	)		5.26
Forfeited		(71	)		28.70
Balance at February 28, 2012		3,386		$	12.46

Exercisable at February 28, 2012		2,309		$	14.31

Included in the outstanding balance shown above are approximately 1,772,000 of out-of-the-money options. Of this amount, we expect that approximately 845,000 of these options will expire out-of-the-money in the next year.

At February 28, 2012, there was approximately $0.6 million of unrecognized pre-tax compensation expense related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 1.0 years.

During the first quarter of fiscal 2012, we granted approximately 253,000 stock options to our CEO under the terms of the 2003 SIP. These stock options vest in equal annual installments over a three-year period following grant of the award, and have a maximum life of seven years. These stock options provide for immediate vesting if the optionee retires during the option period as well as if certain other events occur. As our CEO was retirement-eligible at the time of grant, the accelerated vesting provision rendered the requisite service condition non-substantive under GAAP, and we therefore fully expensed the $1.2 million fair value of stock options awarded to our CEO on the date of grant.

Restricted Stock

The following table summarizes our restricted stock activity for the 39 weeks ended February 28, 2012 (in thousands except per-share data):

				Weighted Average
	Restricted			Grant-Date
Performance-based vesting:	Stock			Fair Value
Non-vested at May 31, 2011		299		$	7.24
Granted		384			7.87
Vested		(242	)		7.39
Forfeited		–			–
Non-vested at February 28, 2012		441		$	7.70
				Weighted Average
	Restricted			Grant-Date
Service-based vesting:	Stock			Fair Value
Non-vested at May 31, 2011		551		$	8.22
Granted		274			7.68
Vested		(122	)		8.02
Forfeited		(1	)		9.39
Non-vested at February 28, 2012		702		$	8.04

The fair values of the restricted share awards reflected above were based on the fair market value of our common stock at the time of grant. At February 28, 2012, unrecognized compensation expense related to restricted stock grants expected to vest totaled approximately $2.9 million and will be recognized over a weighted average vesting period of approximately 1.4 years.

During the second quarter of fiscal 2012, RTI granted approximately 88,000 restricted shares to non-employee directors under the terms of the Directors' Plan. These shares vest in equal annual installments over a three year period following grant of the award.

During the first quarter of fiscal 2012, we granted approximately 186,000 service-based restricted shares and 384,000 performance-based restricted shares of our common stock to certain employees under the terms of the 2003 SIP and 1996 SIP. The service-based restricted shares cliff vest on December 1, 2013. Vesting of the performance-based restricted shares, including 203,000 shares that were awarded to our CEO, is also contingent upon the Company's achievement of certain performance conditions related to fiscal 2012 performance, which will be measured in the first quarter of fiscal 2013. In addition to satisfaction of the performance conditions for the performance-based restricted shares, recipients must satisfy the same service condition as described above for the service-based restricted shares.

For the same reason as mentioned above in regards to our stock options, we recorded during the first quarter of fiscal 2012 an expense of $0.7 million related to the performance-based restricted shares awarded on August 23, 2011 to our CEO. Should our CEO retire prior to the end of the performance period, the number of restricted shares he would receive would not be determinable until the completion of the performance period. The expense we recorded for this award was determined using a model that estimated the projected achievement of the performance conditions.