10. 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

August 30, 2016 and May 31, 2016.

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.

August 30, 2016, we had reserved a total of 6,726,000 shares of common stock for the SIP and 1996 SIP. Of the reserved shares at August 30, 2016, 2,282,000 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 August 30, 2016 were 4,444,000.

Stock Options

The following table summarizes our stock option activity under these stock option plans for the

13 weeks ended August 30, 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 May 31, 2016		2,066		$	7. 89
Granted		809			3.82
Cancellations and forfeitures		( 3	)		6.40
Expired		( 87	)		6.64
Outstanding at August 30, 2016		2,785		$	6.75		4.07	$	–
Exercisable at August 30, 2016		1,806		$	8.14		2.72	$	–

At May 31, 2016, there was approximately $

1.1 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 1.9 years.

During the 13 weeks ended August 30, 2016, we granted 809,000 service-based stock options to certain employees under the terms of the SIP. The stock options awarded vest in equal annual installments over a three-year period following grant of the award, and have a maximum life of seven years.

Restricted Stock and Restricted Stock Units (“RSU”)

The following table summarizes our restricted stock and RSU activity for the

13 weeks ended August 30, 2016 (in thousands, except per-share data):

	Shares			Weighted Average Fair Value
Service-Based Vesting:
Unvested at May 31, 2016		564		$	6. 29
Granted		292			3.82
Vested		( 102	)		6.67
Cancellations and forfeitures		( 16	)		6.47
Unvested at August 30, 2016		738		$	5.25

Performance-Based Vesting:
Unvested at May 31, 2016		225		$	6.51
Cancellations and forfeitures		( 5	)		6.51
Unvested at August 30, 2016		220		$	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. At August 30, 2016, unrecognized compensation expense related to restricted stock and RSU grants expected to vest totaled $2.5 million and will be recognized over a weighted average vesting period of 1.6 years.

During

the 13 weeks ended August 30, 2016, we granted 286,000 service-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.

Also during the 13 weeks ended August

30, 2016, we granted 571,000 performance-based stock units that will settle in cash and vest approximately three years after the grant date. Vesting of the performance-based stock units is contingent upon the Company’s achievement of a same-restaurant sales performance condition related to the next three fiscal years. Included in our Condensed Consolidated Balance Sheets as of August 30, 2016 and May 31, 2016 are amounts within Other deferred liabilities of $0.4 million and $0.2 million, respectively, relating to all of our long-term incentive awards that will settle in cash.

ncluded within Selling, general, and administrative, net in our Consolidated Statements of Operations and Comprehensive Loss is share-based compensation expense of $0.9 million for the 13 weeks ended August 30, 2016 and net credit of $0.3 million for the 13 weeks ended September 1, 2015 as a result of forfeitures.