Share-Based Employee

Compensation

Preferred Stock

RTI is authorized, under its Certificate of Incorporation, to issue up to 250,000 shares of preferred stock with a par value of $0.01. These shares may be issued from time to time in one or more series. Each series will have dividend rates, rights of conversion and redemption, liquidation prices, and other terms or conditions as determined by the Board of Directors. No preferred shares have been issued as of

May 31, 2016 and June 2, 2015.

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.

Stock 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 stock 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 stock 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 Ma

y 31, 2016, we had reserved a total of 6,997,000 shares of common stock for the SIP and 1996 SIP. Of the reserved shares at May 31, 2016, 1,563,000 were subject to stock options outstanding. Stock option exercises are settled with the issuance of new shares. Net shares of common stock available for issuance at May 31, 2016 were 5,434,000.

Stock Options

The following table summarizes

our stock option activity under these stock option plans for the fiscal year ended May 31, 2016 (Stock Options and Aggregate Intrinsic Value are in thousands):

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Service-based vesting:
Outstanding at beginning of year		2,441		$	7.78
Cancellations and forfeitures		(270	)		6.51
Expired		(105	)		8.83
Outstanding at end of year		2,066		$	7.89		3.04	$	–
Exercisable at end of year		1,671		$	8.20		2.60	$	–

Market -based vesting:
Outstanding at beginning of year		515		$	8.60
Cancellations and forfeitures		(515	)		8.60
Outstanding at end of year		–		$	–

The aggregate intrinsic value represents the closing stock price as of

May 31, 2016 less the strike price, multiplied by the number of stock options that have a strike price that is less than that closing stock price. There were no stock options exercised during fiscal year 2016. The total intrinsic value of stock options exercised during fiscal years 2015 and 2014 was $0.1 million and $0.7 million, respectively.

May 31, 2016, 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 0.9 years. The total fair value at grant date of awards vested during fiscal years 2016, 2015, and 2014 totaled $1.7 million, $1.9 million, and $1.0 million, respectively.

The market-based stock options

reflected 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 year ended May 31, 2016, all remaining market-based stock options were cancelled due to the market condition not being satisfied.

The weighted average

Black-Scholes grant date fair value for stock options awarded during fiscal years 2015 and 2014 was $2.27 and $4.43 per share, respectively. The grant date fair values of unvested stock options are amortized over the respective vesting period of the awards unless a recipient becomes retirement eligible during the vesting period. For retirement eligible individuals, the grant date fair value of the award is amortized from the period of the date of grant through the date upon which the individual becomes retirement eligible. The weighted average assumptions used in our Black-Scholes option-pricing model are as follows:

	2015			2014
Risk-free interest rate		1.48	%		1.17	%
Expected dividend yield		0	%		0	%
Expected stock price volatility		44.27	%		58.03	%
Expected life (in years)		4.50			4.50

e awarded market-based stock options to certain employees during fiscal 2014. We estimated the grant date fair value of these awards at $2.42, using the Monte-Carlo simulation model. The primary assumptions used in our Monte-Carlo simulation model are as follows:

	2014
Risk-free interest rate		0.45	%
Expected dividend yield		0	%
Expected stock price volatility		42.86	%
Expected life (in years)		2.40

Restricted Stock

and Restricted Stock Units

(“RSU”)

The following table summarizes our restricted stock

and RSU activity for the fiscal year ended May 31, 2016 (in thousands, except per-share data):

	2016
	Shares			Weighted Average Fair Value
Service-Based Vesting:
Unvested at beginning of year		803		$	6.98
Granted		344			6.45
Vested		(346	)		7.44
Cancellations and forfeitures		(237	)		7.19
Unvested at end of year		564		$	6.29

Performance-Based Vesting:
Unvested at beginning of year		–		$	–
Granted		262			6.51
Cancellations and forfeitures		(37	)		6.51
Unvested at end of year		225		$	6.51

The

fair value of restricted stock and RSU awards is based on the closing price of our common stock on the date prior to the grant date. The total intrinsic value of restricted stock and RSU grants vesting during fiscal years 2016, 2015, and 2014 was $2.1 million, $5.4 million, and $3.4 million, respectively. At May 31, 2016, unrecognized compensation expense related to restricted stock and RSU grants expected to vest totaled $2.1 million and will be recognized over a weighted average vesting period of 1.4 years.

During fiscal year 2016, we granted 244,000 service-based and 262,000 performance-based RSUs with a market condition 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 performance-based RSUs will cliff vest at the end of a three-year period following the date of grant. Vesting of the performance-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.

During fiscal

years 2016, 2015, and 2014, we granted 100,000, 109,000, and 60,000 restricted shares, respectively, to non-employee directors. The shares cliff vest over a one year period following the grant of the award.

Included within Selling,

general, and administrative, net in our Consolidated Statements of Operations and Comprehensive Loss is share-based compensation expense of $2.1 million, $7.1 million, and $7.6 million for the fiscal years ended May 31, 2016, June 2, 2015, and June 3, 2014, respectively.

Netted

within share-based compensation expense for fiscal year 2016 are forfeiture credits of $1.6 million in connection with the forfeiture of unvested stock options, restricted stock, and restricted stock units related to the departure of our then President Ruby Tuesday Concept and Chief Operations Officer during the first quarter of

fiscal year 2016 and the departure of our then Executive Vice President, Chief Financial Officer during the fourth quarter of fiscal year 2016. Included within share-based compensation expense for fiscal years 2015 and 2014 were charges of $0.2 million and $0.3 million, respectively, representing the incremental costs resulting from accelerated vesting, net of forfeitures, primarily related to departure of certain employees.

As discussed further in Note 8 to the Consolidated Financial Statements, various management personnel left the Company during fiscal years

2016, 2015, and 2014. Several of these individuals held share-based compensation awards at the times of their separations, and these awards were either vested or forfeited in accordance with the terms of the original awards.