NOTE L – 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 either cliff vest after a one year period or vest in equal amounts after one, two, and three years provided the director continually serves on the Board of Directors. 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 of Directors, administers the Directors' Plan. At September 4, 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 of Directors, 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. A majority of the currently unvested restricted shares granted in fiscal year 2013 are performance-based and a majority of the unvested restricted shares granted in fiscal year 2012 are service-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, awards of stock options or other derivative securities related to the value of the common stock, and certain cash awards to eligible persons. 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 September 4, 2012, we had reserved a total of 4,772,000 and 941,000 shares of common stock for the 2003 SIP and 1996 SIP, respectively. Of the reserved shares at September 4, 2012, 1,645,000 and 941,000 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 September 4, 2012 under the 2003 SIP and 1996 SIP were 3,127,000 and negligible, respectively.

Stock Options

The following table summarizes the activity in options for the 13 weeks ended September 4, 2012 under these stock option plans (in thousands, except per-share data):

	Options			Weighted- Average Exercise Price

Balance at June 5, 2012		2,716		$	8.79
Granted		–			–
Exercised		(13	)		7.00
Forfeited		(70	)		8.99
Balance at September 4, 2012		2,633		$	8.80

Exercisable at September 4, 2012		2,200		$	8.79

Included in the outstanding balance shown above are approximately 2.0 million of out-of-the-money options. Of this amount, we expect that 0.2 million of these options will expire out-of-the-money during the remainder of the current fiscal year.

At September 4, 2012, there was approximately $0.2 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 0.7 years.

Restricted Stock

The following table summarizes our restricted stock activity for the 13 weeks ended September 4, 2012 (in thousands, except per-share data):

				Weighted-Average
	Restricted			Grant-Date
Performance-based vesting:	Stock			Fair Value
Non-vested at June 5, 2012		423		$	7.75
Granted		242			6.64
Vested		(85	)		7.29
Forfeited		(314	)		7.87
Non-vested at September 4, 2012		266		$	6.74

				Weighted-Average
	Restricted			Grant-Date
Service-based vesting:	Stock			Fair Value
Non-vested at June 5, 2012		797		$	8.37
Granted		213			6.64
Vested		(171	)		6.65
Forfeited		–			–
Non-vested at September 4, 2012		839		$	8.22

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 September 4, 2012, unrecognized compensation expense related to restricted stock grants expected to vest totaled approximately $5.2 million and will be recognized over a weighted average vesting period of approximately 2.7 years.

During the first quarter of fiscal 2013, we granted approximately 213,000 service-based restricted shares and 242,000 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 2.5 years following the grant date. Vesting of the performance-based restricted shares is also contingent upon the Company's achievement of certain performance conditions related to fiscal 2013 performance, which will be measured in the first quarter of fiscal 2014. 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.

Also during the first quarter of fiscal 2013, the Executive Compensation and Human Resources Committee of the Board of Directors determined that the performance condition was not achieved for 314,000 performance-based restricted shares awarded in August 2011 to vest. As a result, the restricted shares were cancelled and returned to the pool of shares available for grant under the 2003 SIP and 1996 SIP.