NOTE 10 – SHARE-BASED EMPLOYEE COMPENSATION

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

The Ruby Tuesday, Inc. 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. Stock Incentive Plan (“SIP”) and the Ruby Tuesday, Inc. 1996 Stock Incentive Plan (“1996 SIP”), and has full authority in its discretion to determine the key employees, officers, and non-employee directors to whom share-based incentives are granted and the terms and provisions of share-based incentives. Option grants under the SIP and 1996 SIP can have varying vesting provisions and exercise periods as determined by such committee. A majority of currently outstanding options granted under the SIP and 1996 SIP vest within three years following the date of grant and expire seven years after the date of grant. The 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 SIP and 1996 SIP have been awarded with an exercise price equal to the fair market value at the time of grant.

At March 1, 2016, we had reserved a total of 6,882,000 shares of common stock for the SIP and 1996 SIP. Of the reserved shares at March 1, 2016, 1,632,000 were subject to options outstanding. Stock option exercises are settled with the issuance of new shares. Net shares of common stock available for issuance at March 1, 2016 were 5,250,000.

Stock Options

The following table summarizes our stock option activity under these plans for the 39 weeks ended March 1, 2016 (in thousands, except per-share data):

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Service-based vesting:
Balance at June 2, 2015		2,441		$	7.78
Cancellations and forfeitures		(210	)		6.60
Expired		(96	)		9.06
Balance at March 1, 2016		2,135		$	7.84		3.46	$	–
Exercisable		1,676		$	8.20		2.96	$	–

Market-based vesting:
Balance at June 2, 2015		515		$	8.60
Cancellations and forfeitures		(515	)		8.60
Balance at March 1, 2016		–		$	–

At March 1, 2016, there was approximately $0.4 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.

The market-based stock options in the table above would have vested if a share of our common stock appreciated to $14 per share or more for a period of 20 consecutive trading days on or before December 3, 2015. During the 13 weeks ended March 1, 2016, all remaining market-based stock options were cancelled due to the market condition not being satisfied.

Restricted Stock and Restricted Stock Units (“RSU”)

The following table summarizes our restricted stock and RSU activity for the 39 weeks ended March 1, 2016 (in thousands, except per-share data):

				Weighted-Average
	Number of			Grant-Date
	Shares			Fair Value
Service-based vesting:
Unvested at June 2, 2015		803		$	6.98
Granted		344			6.45
Vested		(319	)		7.54
Cancellations and forfeitures		(156	)		7.59
Unvested at March 1, 2016		672		$	6.30

				Weighted-Average
	Number of			Grant-Date
	Shares			Fair Value
Market-based vesting:
Unvested at June 2, 2015		–		$	–
Granted		262			6.51
Cancellations and forfeitures		(4	)		6.51
Unvested at March 1, 2016		258		$	6.51

The fair values of the restricted stock and RSU awards reflected above were based on the fair market value of our common stock at the time of grant. At March 1, 2016, unrecognized compensation expense related to restricted stock and RSU grants totaled approximately $3.1 million and will be recognized over a weighted average vesting period of approximately 1.6 years.

During the second quarter of fiscal year 2016, we granted approximately 100,000 restricted shares to non-employee directors under the terms of the SIP. These shares cliff vest over a one year period following grant of the award.

During the first quarter of fiscal year 2016, we granted 244,000 service-based and 262,000 market-based RSUs to certain employees under the terms of the SIP and 1996 SIP. The service-based RSUs will vest in three equal installments over a three-year period following the date of grant. The market-based RSUs will cliff vest at the end of a three-year period following the date of grant. Vesting of the market-based RSUs is further contingent upon the Company’s achievement of a total shareholder return market condition over a three year period, which will be measured in the first quarter of fiscal 2019.

On July 25, 2015, our then President Ruby Tuesday Concept and Chief Operations Officer left the Company. Accordingly, included within our share-based compensation expense for the 39 weeks ended March 1, 2016 is a forfeiture credit of $1.3 million in connection with the forfeiture of 333,000 unvested stock options and 137,000 unvested shares of restricted stock.

Included within Selling, general, and administrative, net in our Condensed Consolidated Statements of Operations and Comprehensive Loss is share-based compensation expense of $0.9 million and $1.7 million for the 13 and 39 weeks ended March 1, 2016, respectively, and $1.7 million and $5.4 million for the 13 and 39 weeks ended March 3, 2015, respectively.