-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ff2DbXrx15wK4zBy26JYfuqNUG3XE4LOmETY6OU78Pb7LhixwCz5zHpa3hjEdZ/7 ix4N25sYMcvERyPnxLnpwA== 0000068270-00-000002.txt : 20000202 0000068270-00-000002.hdr.sgml : 20000202 ACCESSION NUMBER: 0000068270-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991205 FILED AS OF DATE: 20000119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUBY TUESDAY INC CENTRAL INDEX KEY: 0000068270 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 630475239 STATE OF INCORPORATION: GA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12454 FILM NUMBER: 509586 BUSINESS ADDRESS: STREET 1: 150 W CHURCH ST STREET 2: P O BOX 160266 CITY: MARYVILLE STATE: TN ZIP: 37801 BUSINESS PHONE: 2053443000 MAIL ADDRESS: STREET 1: 150 W CHURCH ST CITY: MARYVILLE STATE: TN ZIP: 37801 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON RESTAURANTS INC/ DATE OF NAME CHANGE: 19930923 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON CAFETERIAS CONSOLIDATED INC DATE OF NAME CHANGE: 19680605 10-Q 1 2ND QUARTER FISCAL 00 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 5, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-12454 RUBY TUESDAY, INC. (Exact name of registrant as specified in charter) GEORGIA 63-0475239 (State of incorporation or (I.R.S. Employer identifi- organization) cation no.) 150 West Church Avenue Maryville, TN 37801 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (865) 379-5700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . 31,007,635 (Number of shares of $0.01 par value common stock outstanding as of January 14, 2000) Exhibit Index appears on page 17 INDEX PAGE NUMBER PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 5, 1999 AND JUNE 6, 1999..............3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED DECEMBER 5, 1999 AND DECEMBER 6, 1998..........4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED DECEMBER 5, 1999 AND DECEMBER 6, 1998..........5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.....................................6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................7-12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................N/A PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS..............................13 ITEM 2. CHANGES IN SECURITIES..........................NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES................NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................14 ITEM 5. OTHER INFORMATION..............................NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............15 SIGNATURES.............................................16 2 PART I - FINANCIAL INFORMATION ITEM 1 RUBY TUESDAY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT PER-SHARE DATA)
DECEMBER 5, JUNE 6, 1999 1999 (UNAUDITED) (NOTE A) Assets Current assets: Cash and short-term investments.................. $ 9,884 $ 9,117 Accounts and notes receivable.................... 5,081 5,406 Inventories...................................... 9,932 9,522 Income tax receivable............................ 2,544 Prepaid expenses................................. 9,730 7,731 Prepaid income taxes............................. 1,635 2,165 Assets held for disposal......................... 23,573 15,725 Total current assets........................... 59,835 52,210 Property and equipment - at cost....................... 519,341 503,333 Less accumulated depreciation and amortization... (196,266) (185,842) 323,075 317,491 Costs in excess of net assets acquired................. 18,699 19,037 Other assets........................................... 42,893 42,077 Total assets................................. $444,502 $430,815 Liabilities & shareholders' equity Current liabilities: Accounts payable................................. $ 37,258 $ 27,605 Short-term borrowings............................ 8,720 Accrued liabilities: Taxes, other than income taxes................. 10,984 11,256 Payroll and related costs...................... 12,892 13,283 Insurance...................................... 8,212 9,379 Rent and other................................. 14,887 13,789 Current portion of long-term debt................ 130 126 Total current liabilities.................... 84,363 84,158 Long-term debt......................................... 85,695 76,767 Deferred income taxes.................................. 5,561 6,653 Deferred escalating minimum rents...................... 12,407 12,025 Other deferred liabilities............................. 34,134 29,411 Shareholders' equity: Common stock, $0.01 par value;(authorized 100,000 shares; issued 31,273 @ 12/5/99; 32,017 @ 6/6/99) 313 320 Capital in excess of par value................... 5,280 4,049 Retained earnings................................ 217,324 218,007 222,917 222,376 Deferred compensation liability payable in Company stock................................... 3,347 2,887 Company stock held by deferred compensation plan. (3,347) (2,887) Accumulated other comprehensive income........... (575) (575) 222,342 221,801 Total liabilities & shareholders' equity..... $444,502 $430,815 The accompanying notes are an integral part of the condensed consolidated financial statements.
3 RUBY TUESDAY, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER-SHARE DATA) (UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED DEC. 5, DEC. 6, DEC. 5, DEC. 6, 1999 1998 1999 1998 Revenues: Restaurant sales and operating revenues $191,995 $174,689 $385,584 $352,016 Franchise revenues..................... 1,784 1,105 3,480 1,925 193,779 175,794 389,064 353,941 Operating costs and expenses: Cost of merchandise.................... 52,389 47,887 105,381 96,875 Payroll and related costs.............. 62,346 57,175 123,962 113,921 Other................................ 40,249 37,218 80,634 74,379 Depreciation and amortization.......... 10,331 9,838 20,692 19,645 Selling, general and administrative.... 14,814 13,106 28,164 25,447 Interest expense, net.................. 499 916 919 1,862 180,628 166,140 359,752 332,129 Income before income taxes.................. 13,151 9,654 29,312 21,812 Provision for income taxes.................. 4,719 3,503 10,580 7,865 Net income.................................. $ 8,432 $ 6,151 $ 18,732 $ 13,947 Earnings per share: Basic.................................. $ 0.27 $ 0.19 $ 0.59 $ 0.43 Diluted................................ $ 0.26 $ 0.18 $ 0.57 $ 0.41 Weighted average shares: Basic................................. 31,171 32,386 31,576 32,525 Diluted............................... 32,224 33,748 32,682 33,882 Cash dividends declared per share....... $ 0 $ 0 $ 0.045 $ 0.045 The accompanying notes are an integral part of the condensed consolidated financial statements.
4 RUBY TUESDAY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
TWENTY-SIX WEEKS ENDED DECEMBER 5, DECEMBER 6, 1999 1998 Operating activities: Net income........................................ $ 18,732 $ 13,947 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 20,692 19,645 Amortization of intangibles..................... 365 361 Deferred income taxes........................... (25) (3,760) Loss on impairment and disposition of assets.... 1,538 339 Changes in operating assets and liabilities: Decrease/(increase) in receivables........... 555 (894) Increase in inventories...................... (410) (650) Decrease in prepaid and other assets......... 1,603 1,017 Increase in accounts payable, accrued and other liabilities............... 13,560 240 (Decrease)/increase in income tax payable.... (1,053) 3,779 Net cash provided by operating activities....... 55,557 34,024 Investing activities: Purchases of property and equipment............... (37,355) (39,463) Proceeds from disposal of assets.................. 2,076 1,209 Proceeds from sale of restaurant properties to franchisees................................... 9,930 Other, net........................................ (1,532) (1,178) Net cash used by investing activities........... (36,811) (29,502) Financing activities: Proceeds from long-term debt...................... 9,000 16,000 Net change in short-term borrowings............... (8,720) (9,420) Principal payments on long-term debt and capital leases.............................. (68) (55) Proceeds from issuance of stock, including treasury stock.................................. 7,379 8,759 Stock repurchases, net of changes in the Deferred Compensation Plan...................... (24,144) (13,867) Dividends paid.................................... (1,426) (1,482) Net cash used by financing activities........... (17,979) (65) Increase in cash and short-term investments....... 767 4,457 Cash and short-term investments: Beginning of year............................... 9,117 8,291 End of quarter.................................. $ 9,884 $ 12,748 The accompanying notes are an integral part of the condensed consolidated financial statements.
5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteen and twenty-six week periods ended December 5, 1999 are not necessarily indicative of results that may be expected for the year ending June 4, 2000. The balance sheet at June 6, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Ruby Tuesday, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 6, 1999. NOTE B - EARNINGS PER SHARE Basic earnings per share are based on the weighted average number of shares outstanding during each period. The computation of diluted earnings per share includes the dilutive effect of stock options. Such stock options have the effect of increasing diluted weighted average shares outstanding by approximately 1.1 million and 1.4 million for the twenty-six weeks ended December 5, 1999 and December 6, 1998, respectively. The difference between basic and diluted weighted average shares reflects the potential dilution from the exercise of stock options. NOTE C - COMPREHENSIVE INCOME Comprehensive income for the thirteen and twenty-six week periods ending December 5, 1999 was $8.4 million and $18.7 million, respectively, which was the same as net income. Comprehensive income for the thirteen and twenty-six week periods ending December 6, 1998 was $6.2 million and $13.9 million, respectively, which was the same as net income. NOTE D - OTHER DEFERRED LIABILITIES Other deferred liabilities at December 5, 1999 and June 6, 1999 included $12.2 million and $11.7 million, respectively, for the liability due to participants in the Company's Deferred Compensation Plan. 6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General: The Company generates revenues from two primary sources: restaurant sales (food and beverage sales) and franchise revenues consisting of franchise royalties (based upon a percentage of each franchise restaurant's monthly gross sales) and development and franchise fees (which typically total $45,000 for each Ruby Tuesday domestic restaurant opened). The Company reported net income of $8.4 million for the thirteen weeks ended December 5, 1999 compared to $6.2 million for the corresponding period of the prior year. Diluted earnings per share for the second quarter was $0.26, a 44.4% increase over the diluted earnings per share of $0.18 for the second quarter of fiscal 1999. Contributing to the increase was a 2.8% increase in same store sales for Company-owned Ruby Tuesday restaurants and a reduction, as a percent of revenues, of operating costs and expenses as discussed below. The Company also reported net income of $18.7 million for the twenty-six weeks ended December 5, 1999 compared to $13.9 million for the corresponding period of the prior year. Diluted earnings per share for the year-to-date period was $0.57, a 39.0% increase over the same period of fiscal year 1999. As of December 5, 1999, the Company owned and operated 428 restaurants, including 360 Ruby Tuesday, 42 American Cafe, and 26 Tia's Tex-Mex restaurants. Franchised operations included 91 domestic and six international Ruby Tuesday restaurants. Results of Operations: The following table sets forth selected restaurant operating data as a percentage of revenues, except where otherwise noted, for the periods indicated. All information is derived from the unaudited condensed consolidated financial statements of the Company included herein. Twenty-six weeks ended December 5, December 6, 1999 1998 Revenues: Restaurant sales and operating revenues 99.1% 99.5% Franchise revenues..................... 0.9 0.5 Total revenues....................... 100.0 100.0 Operating costs and expenses: Cost of merchandise (1)................ 27.3 27.5 Payroll and related costs (1).......... 32.1 32.4 Other (1).............................. 20.9 21.1 Depreciation and amortization (1)...... 5.4 5.6 Selling, general and administrative.... 7.2 7.2 Interest expense, net.................. 0.2 0.5 Income before income taxes.................. 7.5 6.1 Provision for income taxes.................. 2.7 2.2 Net income.................................. 4.8% 3.9% (1) As a percentage of restaurant sales and operating revenues. 7 The following table shows year-to-date Company-owned restaurant openings, closings, and total Company-owned restaurants as of the end of the second quarter. Year-to-date Year-to-date Total Open at End Openings Closings of Second Quarter Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal 2000 1999 2000 1999 2000 1999 Ruby Tuesday 26 28 1 17* 360 326 American Cafe 0 0 3 1 42 45 Tia's Tex-Mex 3 1 0 0 26 22 The following table shows year-to-date Ruby Tuesday franchised restaurant openings, closings, and total Ruby Tuesday franchised restaurants as of the end of the second quarter. Year-to-date Year-to-date Total Open at End Openings Closings of Second Quarter Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal 2000 1999 2000 1999 2000 1999 Domestic 13 19* 0 0 91 68 International 0 0 1 0 6 6 * Includes 13 units sold to franchisees The Company estimates that 16 to 18 additional Company-owned Ruby Tuesday restaurants will be opened during the remainder of fiscal 2000. The Company expects domestic franchisees to open nine to twelve and international franchisees to open three to five Ruby Tuesday restaurants during the remainder of fiscal 2000. Also, as discussed in Known Events, Uncertainties and Trends, the Company has plans to sell 41 Ruby Tuesday restaurants to domestic franchise partners during fiscal 2000. Revenues: Company restaurant sales increased $17.3 million (9.9%) to $192.0 million for the thirteen weeks ended December 5, 1999 compared to the same period of the prior year. Restaurant sales increased $33.6 million (9.5%) for the twenty-six weeks ended December 5, 1999. This increase is attributable to positive same store sales for the Ruby Tuesday concept and an increase in the number of units in operation offset by decreases in same store sales for American Cafe and Tia's Tex-Mex. Franchise revenues totaled $1.8 million for the thirteen weeks ended December 5, 1999 compared to $1.1 million for the same period in the prior year. For the twenty-six week period ended December 5, 1999, franchise revenues were $3.5 million compared to $1.9 million for the same period in the prior year. Franchise revenues are predominately comprised of domestic and international royalties which totaled $2.8 million and $1.6 million for the twenty-six week periods ending December 5, 1999 and December 6, 1998, respectively. Operating Profits: Pre-tax income for the thirteen weeks ended December 5, 1999 was $13.2 million, an increase of $3.5 million (36.2%) over the corresponding period of the prior year. For the twenty-six week period ended on that same date, pre-tax income was $29.3 million, a $7.5 million (34.4%) increase over the corresponding period of the prior year. The increase in pre-tax income is the result of positive same store sales for the Ruby Tuesday concept and the addition of new units coupled with the cost changes discussed below. 8 Cost of merchandise increased $4.5 million (9.4%) to $52.4 million for the thirteen weeks ended December 5, 1999 compared to the same period of the prior year and $8.5 million (8.8%) for the twenty-six weeks ended December 5, 1999 compared to the same period of the prior year. However, as a percentage of Company restaurant sales, the cost of merchandise decreased 20 basis points to 27.3% for the twenty-six weeks ended December 5, 1999. This decrease is attributable to menu redesign during the second quarter which features some of the Ruby Tuesday concept's more popular combos as platters in addition to Combo and Fajita promotions and the introduction of a 22 ounce beer during the first quarter. Also, the implementation of a new American Cafe menu in October eliminated many single use, high cost ingredients which has improved efficiency and lowered costs. Payroll and related costs increased $5.2 million (9.0%) and $10.0 million (8.8%) for the thirteen and twenty-six weeks ended December 5, 1999, as compared to the same periods of the prior year. However, as a percentage of Company restaurant sales, these expenses decreased 30 basis points to 32.1% for the twenty-six week period ended December 5, 1999. The decrease is due to reductions in training costs associated with lower hourly turnover and a reduction in unit bonuses resulting from a more performance-based evaluation system being placed in service during the current year. During fiscal year 1999, under the prior evaluation system, many managers maximized their bonus potential earlier in the year. Other operating costs increased $3.0 million (8.1%) and $6.3 million (8.4%) for the thirteen and twenty-six weeks ended December 5, 1999, as compared to the same periods of the prior year. As a percentage of Company restaurant sales, however, these costs decreased 20 basis points for the twenty-six week period ended December 5, 1999, from 21.1% to 20.9%. This decrease is due to the sale of units that had higher than system average occupancy costs to franchisees beginning in the second quarter of the prior year. Also, general liability insurance expense decreased as a result of favorable claims experience. These decreases are offset by additional rent resulting from increased use of the synthetic lease program and increased asset impairment charges, primarily associated with under-performing American Cafe units. Depreciation and amortization expense increased $0.5 million (5.0%) and $1.0 million (5.3%) for the thirteen and twenty-six weeks ended December 5, 1999, as compared to the same periods of the prior year. As a percentage of Company restaurant sales, depreciation and amortization for the twenty-six weeks decreased 20 basis points to 5.4%. The decrease results from sales of units to franchisees beginning in the second quarter of the prior year coupled with increased use of the synthetic leasing program and higher average unit volumes. Selling, general and administrative expenses increased $1.7 million (13.0%) and $2.7 million (10.7%) for the thirteen and twenty-six weeks ended December 5, 1999, as compared to the same periods of the prior year. These expenses remained the same as a percentage of total revenues. Net interest expense decreased $0.4 million (45.5%) and $0.9 million (50.6%) for the thirteen and twenty-six weeks ended December 5, 1999, as compared to the same periods of the prior year. The decrease is due to increased interest income associated with notes receivable from franchisees. 9 Income Taxes: The effective income tax rate was 35.9% for the thirteen weeks ended December 5, 1999 compared to 36.3% for the same period of the prior year. However, the effective income tax rate has remained flat at 36.1% for the twenty-six weeks ended December 5, 1999 compared to the same period of the prior year. Increases in income taxes resulting from a focus of franchising (which produces taxable income but no credits) are offset by savings in taxes associated with various tax planning strategies and increased tax credits. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $55.6 million for the twenty- six weeks ended December 5, 1999 as compared to $34.0 million for the same period in the prior year. The increase over the prior year resulted from increased earnings plus increased cash from the timing of operational payments, particularly accounts payable, other accrued liabilities and income taxes. Cash provided by operating activities for the twenty-six weeks ended December 5, 1999 exceeded capital expenditures by $18.2 million. Proceeds from the issuance of stock pursuant to stock option exercises provided $7.4 million of cash. Pursuant to the Company's financial strategy approved by the Board during fiscal 1994, $24.1 million of the Company's common stock was reacquired during the twenty-six weeks ended December 5, 1999. Additionally, dividends of $1.4 million were paid to shareholders during the first quarter of fiscal 2000. The Company requires capital principally for new restaurants, equipment replacement, and remodeling of existing units. Capital expenditures for the twenty-six weeks ended December 5, 1999 were $37.4 million and expenditures for construction of new units under the Company's synthetic operating lease program were $16.4 million. Capital expenditures for the remainder of fiscal 2000 are projected to be approximately $44.2 million which the Company intends to fund with cash from operating activities. Expenditures for units to be leased by the Company under synthetic operating lease agreements are projected to be $26.9 million for the remainder of fiscal 2000. At December 5, 1999, the Company had committed lines of credit amounting to $12.2 million available and non-committed lines of credit amounting to $15.0 million available with several banks at varying interest rates. These lines are subject to periodic review by each bank and may be canceled by the Company at any time. In addition, the Company has a $100.0 million, five-year credit facility of which $15.0 million was available as of December 5, 1999. The Company's synthetic lease agreements provide for a total of $125.0 million funding for the purpose of leasing new free-standing restaurants and the Maryville Restaurant Support Services Center. As of December 5, 1999, $31.0 million was available for expenditures in accordance with these agreements. To control future interest costs relating to borrowings under the above- mentioned $100.0 million credit facility and the Company's $125.0 million master operating lease agreements, the Company has entered into five interest rate swap agreements with notional amounts aggregating $125.0 million. The swap agreements effectively fix the interest rate on an equivalent amount of the Company's debt (including floating-rate lease obligations) to rates ranging from 5.79% to 6.25% for periods up to December 7, 2003. 10 KNOWN EVENTS, UNCERTAINTIES AND TRENDS Financial Strategy and Stock Repurchase Plan The Company employs a financial strategy which utilizes a prudent amount of debt to minimize the weighted average cost of capital while allowing the Company to maintain financial flexibility and the equivalent of an investment-grade (BBB) bond rating. This financial strategy sets a target debt-to-capital ratio of no more than 60%, including operating leases. The strategy also provides for repurchasing Company stock whenever cash flow exceeds funding requirements while maintaining the target capital structure. Pursuant to this strategy, the Company has repurchased 1.3 million shares as of December 5, 1999. The total number of remaining shares authorized to be repurchased as of December 5, 1999 is 6.0 million. Additional repurchases will be funded by additional borrowings on the credit facilities and/or cash received in conjunction with the sale of units to franchisees and excess cash from operations. Cash Dividend During fiscal 1997, the Board of Directors approved a dividend policy as a means of returning excess capital to its shareholders. This policy calls for payment of semi-annual dividends of $0.045 per share. The payment of a dividend in any particular future period and actual amount thereof remain, however, at the discretion of the Board of Directors and no assurance can be given that dividends will be paid in the future as currently anticipated. Dividends totaling approximately $1.4 million were paid to shareholders during the first quarter of fiscal 2000. On January 12, 2000, the Board of Directors declared a semi-annual dividend of $0.045 per share, payable on February 11, 2000, to shareholders of record at the close of business on January 28, 2000. Refranchising The Company has pending the sale of restaurants to 5 potential franchise partners. Such pending transactions provide, among other things, for the sale of 22 units in Michigan, seven in New York, nine in Illinois, and three in Indiana. The closing of the sale of these units is expected to occur by the end of fiscal 2000, and these units will be operated as Ruby Tuesday restaurants under separate franchising agreements. The aggregate sales price the Company expects to receive for these units is approximately $58.3 million, of which approximately $39.8 million - $41.8 million is expected to be paid in cash. The remaining amounts will be in the form of notes payable to the Company and due through fiscal 2011 bearing interest at a rate of 10.0% per year. The sales of these units are expected to result in a pre-tax gain of approximately $6.6 million - $8.2 million. Of the units to be sold, 40 were in operation as of December 5, 1999 and one was under construction. Revenues from these 40 units for the thirteen and twenty-six week periods ended December 5, 1999 totaled $18.9 million and $35.8 million, respectively, with operating profits of $1.6 million and $3.1 million, respectively. Year 2000 Issue The Company recognized the need to ensure that its operations, as well as those of third parties with whom the Company conducts business, would not be adversely impacted by Year 2000 software failures. Software failures due to processing errors potentially arising from calculations using the Year 2000 date were a known risk. The Company addressed this risk to the availability and integrity of financial systems and the reliability of operational systems through a combination of actions 11 including the implementation, upgrading, and enhancing of new financial, payroll, and human resource software packages that are Year 2000 compliant and a coordinated review of the Year 2000 readiness of key suppliers, financial institutions and others with which it does business. With regard to information technology, the Company implemented a new client-server platform for its financial, payroll and human resources systems at its support centers. The Company activated the financial system in October 1998 and the payroll and human resource systems in March 1999. In September and November 1999, the Company upgraded and further enhanced these systems to a version certified to be Year 2000 compliant. In addition, older systems in the individual restaurants were replaced by new systems which are Year 2000 compliant. The Company incurred approximately $6.6 million on converting, upgrading, and enhancing systems which addressed, among other priorities, the Year 2000 issue. The majority of these costs related to the new financial, payroll and human resource software packages. Funds were provided by income from continuing operations. The computer systems in the individual restaurants were scheduled to be replaced as a result of Company growth and not as a direct result of Year 2000 issues. The Company compiled a list of third party vendors who were monitored regarding their compliance with Year 2000 issues. Although several vendors did not acknowledge Year 2000 compliance, the Company has not experienced, and does not anticipate, any material problems with its major vendors. The Company has not experienced any material issues as a result of the Year 2000 issue. The Company cannot provide assurances, however, that its suppliers and vendors have not been nor will not be affected in a manner that is not yet apparent. As a result, the Company will continue to monitor its own Year 2000 compliance and that of its suppliers and vendors. Nonetheless, based on the actions taken as described above, the Company believes that its operations will not be materially impacted by the Year 2000 issue. SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION The foregoing section contains various "forward-looking statements" which represent the Company's expectations or beliefs concerning future events, including future financial performance and unit growth (both Company- owned and franchised). The Company cautions that a number of important factors could, individually or in the aggregate, cause actual results to differ materially from those included in the forward-looking statements including, without limitation, the following: consumer spending trends and habits; increased competition in the casual dining restaurant market; weather conditions in the regions in which Company-owned and franchised restaurants are operated; consumers' acceptance of the Company's development concepts; laws and regulations affecting labor and employee benefit costs; costs and availability of food and beverage inventory; the Company's ability to attract qualified managers and franchisees; the state of Year 2000 readiness of third parties with which the Company does business; changes in the availability of capital; and general economic conditions. 12 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is currently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of its business. In addition, the Company, as successor to Morrison Restaurants Inc. ("Morrison"), is a party to a case (Morrison Restaurants Inc. v. United States of America, et al.), originally filed by Morrison in 1994 to claim a refund of taxes paid in the amount of approximately $3,000 and abatement of taxes assessed by the Internal Revenue Service ("IRS") against Morrison on account of the employer's share of FICA taxes on unreported tips allegedly received by employees. The IRS filed a counterclaim for approximately $7,000 in additional taxes. The case was decided by the U.S. District Court in favor of the Company in February 1996 on summary judgment. The IRS appealed the District Court's decision and, on August 12, 1997, the U.S. Court of Appeals for the Eleventh Circuit reversed the award of summary judgment and remanded the case to the District Court for proceedings consistent with the Court's opinion. In its reversal, the Eleventh Circuit upheld the IRS' enforcement policy with respect to the employer's share of FICA taxes on allegedly unreported tips. The Company subsequently petitioned the U.S. Court of Appeals for a review of the matter by the full Court. Such petition was denied. There are three additional lawsuits on this issue filed by other restaurant companies pending in other U.S. federal courts. In September, 1998, the District Court in Northern California held in favor of the taxpayer on the identical issue in Fior d Italia v. United States ("Fior"). The District Court rejected the holding of the Eleventh Circuit holding, inter alia, that the Eleventh Circuit opinion was rejected by recently expressed congressional intent. The IRS' motion for reconsideration in light of the Federal Circuit's decision in The Bubble Room v. United States (infra) was denied. The IRS has appealed the district court's ruling on Fior. In October 1998, in a split decision, the United States Court of Appeals for the Federal Circuit issued a decision unfavorable to the taxpayer in The Bubble Room v. United States. The taxpayer's petition for a rehearing En Banc was also denied. In June, 1999, the United States District Court for the Northern District of Florida, Pensacola Division, in Quietwater Entertainment, Inc. v. United States, GA No. 3:98CV160, held in favor of the taxpayer notwithstanding and distinguishing the controlling law in the Eleventh Circuit in Morrison. The IRS has appealed the Quietwater decision forcing the Eleventh Circuit to revisit the issue and the Morrison decision. Although the amount in dispute is not material, it is possible that the IRS will attempt to assess taxes in additional units of the Company (as well as other restaurant companies). In such event, the Company believes that a business tax credit would be available to the Company to offset, over a period of years, a majority of any additional taxes determined to be due. Moreover, the Company is a participant in an IRS enforcement program which would eliminate the risk of additional assessments by the IRS in return for a restaurant employer's proactive role in encouraging employee tip reporting. In light of the proactive role of the Company, the protection against additional assessment afforded by the agreement should be available to the Company. In the opinion of management, the ultimate resolution of all pending legal proceedings will not have a material adverse effect on the Company's operations or financial position. 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders held on September 30, 1999, the shareholders of the Company elected Class I Directors to serve a three year term on the Board. The results of the votes were as follows: Authority Director Nominees For Withheld Dr. Benjamin F. Payton 25,495,040 580,325 James A. Haslam, III 25,641,961 433,404 The shareholders of the Company elected one additional Class III Director to serve a two year term on the Board. The results of the votes were as follows: Authority Director Nominees For Withheld Elizabeth L. Nichols 25,632,115 443,250 The Directors continuing in office are: Samuel E. Beall, III, Dr. Donald Ratajczak, Claire L. Arnold, Dolph W. von Arx and John B. McKinnon. In addition to the above proposal, the shareholders voted on a proposal to amend the Company's 1996 Stock Incentive Plan to increase the number of shares available for issuance by 3,000,000. The results of the voting were as follows: 12,526,963 shares FOR the Amendment 9,719,950 shares AGAINST the Amendment 95,430 shares ABSTAIN Also, the shareholders voted on a proposal to reapprove the Company's Incentive Bonus Plan for the Chief Executive Officer. The results of the voting were as follows: 24,997,765 shares FOR the Plan 880,005 shares AGAINST the Plan 197,595 shares ABSTAIN 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS The following exhibits are filed as part of this report: Exhibit No. 27.1 Financial Data Schedule 99.1 Employment Agreement dated as of June 19, 1999 by and between Ruby Tuesday, Inc. and Samuel E. Beall, III* 99.2 Third Amendment to the Ruby Tuesday, Inc. 1996 Stock Incentive Plan* 99.3 Seventh Amendment to the Ruby Tuesday, Inc. Executive Supplemental Pension Plan* * Management contract or compensatory plan or arrangement REPORTS ON FORM 8-K On December 10, 1999, the Company filed a report on Form 8-K reporting the engagement of KPMG LLP as its new independent accountants. The appointment of KPMG LLP was approved by the Company's Audit Committee and Board of Directors on December 6, 1999. The Company also reported that during the two most recent fiscal years and through the date of the report, the Company had no disagreements with its former accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which would have caused the former accountants to make a reference thereto in its report on the financial statements of the Company for such periods. No financial statements were filed as part of that form. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RUBY TUESDAY , INC. (Registrant) 1/19/00 By: /s/ J. RUSSELL MOTHERSHED DATE J. RUSSELL MOTHERSHED Senior Vice President and Chief Financial Officer 16 EXHIBIT INDEX Exhibit Number Description 27.1 Financial Data Schedule 99.1 Employment Agreement dated as of June 19, 1999 by and between Ruby Tuesday,Inc. and Samuel E. Beall, III* 99.2 Third Amendment to the Ruby Tuesday, Inc. 1996 Stock Incentive Plan* 99.3 Seventh Amendment to the Ruby Tuesday, Inc. Executive Supplemental Pension Plan* * Management contract or compensatory plan or arrangement 17 EX-27.1 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF RUBY TUESDAY, INC. AS OF AND FOR THE TWENTY-SIX WEEKS ENDED DECEMBER 5, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUN-04-2000 DEC-05-1999 9,884 0 5,081 0 9,932 59,835 519,341 196,266 444,502 84,363 85,695 0 0 313 222,342 444,502 385,584 389,064 105,381 225,288 0 0 919 29,312 10,580 18,732 0 0 0 18,732 $0.59 $0.57
EX-99.1 3 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 19th day of June, 1999, by and between RUBY TUESDAY, INC., a Georgia corporation, (the "Company") and SAMUEL E. BEALL, III, a resident of the State of Tennessee (the "Executive"). RECITALS: The Company desires to continue the employment of the Executive as its Chief Executive Officer on the terms and conditions set forth herein and the Executive desires to accept such employment. In consideration of the above premises and the mutual agreements hereinafter set forth, the parties hereby agree as follows: 1. Duties. 1.1 Positions. The Executive shall serve as the Chief Executive Officer of the Company and, for all periods that the Executive occupies a seat on the Board of Directors of the Company, shall serve as the Chairman of the Board of Directors of the Company. In carrying out his duties under this Agreement, the Executive shall report to the Board of Directors of the Company. 1.2 Primary Responsibilities. The Executive shall lead the Company in the development of goals and operating plans and policies and shall be responsible for the successful implementation of programs that support the objectives identified. The Executive shall coordinate the activities of management according to the Company's business plan with a focus on achieving desired levels of growth, profitability and return on invested capital. 2. Term. Except as otherwise provided herein, the term of this Agreement shall commence as of the Effective Date and shall continue until June 18, 2006. The Agreement may continue for any subsequent renewal periods agreed to by the Executive and the Company. The period described herein, as the same may be renewed as provided for herein, shall be referred to as the "Term". 3. Compensation. During the Term, the Executive shall receive the following salary and benefits: 3.1 Base Salary. The Executive shall be compensated at a base salary rate equal to $860,000. The base salary rate shall be adjusted annually by an amount equal to the greater of (a) four percent (4%) of the base salary then in effect, or (b) an amount determined by the Board of Directors of the Company, or appropriate committee thereof, based upon peer group competitive market data (as so adjusted from time to time, the "Base Salary"). Base Salary shall be payable in accordance with the Company's normal payroll practices. 3.2 Incentive Compensation. (a) The Executive shall be entitled to an annual bonus opportunity pursuant to the terms of the Ruby Tuesday, Inc. Chief Executive Officer's Incentive Bonus Plan, based upon performance criteria approved by the Board of Directors of the Company, or appropriate committee thereof, with a target bonus equal to fifty percent (50%) of Base Salary and a maximum bonus equal to one hundred and twenty-five percent (125%) of Base Salary. (b) The Executive shall also be entitled to participate in such long-term incentive compensation programs as may be developed from time to time for the senior management of the Company, including annual grants of stock options under the Company's Executive Stock Option Plan. Such grants shall be awarded to Executive according to the same criteria pursuant to which such grants are awarded to other senior executives of the Company. If target performance is achieved, Executive's annual grants are estimated to be as shown on Schedule 3.2(b). 3.3 Benefits. The Executive shall be entitled both to such additional pension and welfare benefits as may be provided from time to time to employees generally and to such additional pension and welfare benefits as may be provided only to executives generally. 3.4 Vacation. On a non-cumulative basis, the Executive shall be entitled to four (4) weeks (or such greater time as may be agreed between the Executive and the Company's Board of Directors) of vacation in each successive twelve-month period during the Term, during which his compensation shall be paid in full. 3.5 Life Insurance. The Company shall provide the Executive with life insurance coverage providing a death benefit of not less than four (4) times Base Salary, payable to such beneficiary or beneficiaries as the Executive may designate. This obligation may be satisfied in whole or in part by the Executive's participation in the Ruby Tuesday, Inc. Executive Life Insurance Plan. 3.6 Reimbursement of Expenses. The Company agrees to reimburse the Executive for all reasonable and necessary business (including travel) expenses incurred by him in the performance of his duties hereunder; provided, however, that the Executive shall, as a condition of reimbursement, submit verification of the nature and amount of such expenses in accordance with reimbursement policies from time to time adopted by the Company and in sufficient detail to comply with rules and regulations promulgated by the Internal Revenue Service. 3.7 Stock Options. The Company agrees to grant the Executive a non-qualified stock option award to acquire 78,000 shares of the Company's common stock under the Company's 1996 Stock Incentive Plan at a per share exercise price equal to the fair market value of a share of the Company's common stock determined as of the close of business on the day before the Company and the Executive have executed this Agreement (the "1999 Option"). The 1999 Option shall vest on July 1, 2006 and shall expire on December 18, 2008; provided, however, the 1999 Option shall expire earlier immediately upon any termination of the Executive's employment, other than a termination or resignation pursuant to Section 4.1, 4.2, 4.7 or 4.8 hereof. In addition, the Company agrees to grant the Executive a second non-qualified stock option award to acquire a number of shares of the Company's common stock under the Company's 1996 Stock Incentive Plan at a per share exercise price equal to the fair market value of a share of the Company's common stock determined as of the close of business on the day before the date of grant determined as described 2 below, which shall be the date of the Board of Directors meeting that immediately follows the regular annual meeting of shareholders to be held in the year 2000 (the "2000 Option"). The 2000 Option also shall vest on July 1, 2006 and shall expire on December 18, 2008; provided, however, the 2000 Option shall expire earlier immediately upon any termination of the Executive's employment, other than a termination or resignation pursuant to Section 4.1, 4.2, 4.7 or 4.8 hereof. Notwithstanding the foregoing, the 2000 Option shall not be granted if the Executive is no longer employed by the Company as of the grant date, other than a termination or resignation pursuant to Section 4.1, 4.2, 4.7 or 4.8 hereof, and its granting shall also be conditioned upon the approval at the regular 2000 meeting of shareholders of the Company of appropriate amendments to the 1996 Stock Incentive Plan, including an increase of the per employee fiscal year limit from 250,000 to not less than 350,000. The number of shares to be included in the 2000 Option is intended to be the number of shares necessary to create a present value, as of September, 1999, of $1,500,000, when the 2000 Option is aggregated with the 1999 Option, using the Black- Sholes model to calculate present value. In the event the aforementioned amendments to the 1996 Stock Incentive Plan are not approved by the Company's shareholders, the obligations of the Company under this Section 3.7 shall be extended from year to year until sufficient options have been granted to create such present value. The Executive agrees not to purchase any shares of the Company's common stock under the terms of the Management Stock Option Program during fiscal 2000. 3.8 Withholding. The Company may deduct from each payment of compensation hereunder all amounts required to be deducted and withheld in accordance with applicable federal and state income, FICA and other withholding requirements. 3.9 Existing and Future Stock Options. The Company and the Executive agree that, subject to the approval by the Company's Compensation and Stock Option Committee of the Board of Directors, options previously granted to the Executive to acquire the common stock of the Company shall be amended to provide, or shall provide if granted in the future, that (a) such options which have not then vested shall vest in full upon the death or Disability of the Executive; upon the involuntary termination of the Executive's employment by the Company without Cause; upon the Executive's retirement on or after satisfying the Rule of 90 set forth in the Ruby Tuesday, Inc. Executive Supplemental Pension Plan; or upon a Change of Control; and (b) the term within which vested options may be exercised shall be the maximum stated term except as follows: such option(s) shall expire no later than ninety (90) days following a voluntary resignation by the Executive (unless the resignation qualifies as a Qualified Termination) prior to Executive qualifying for the Rule of 90 under Company's Executive Supplemental Pension Plan; no later than ninety (90) days following an involuntary termination of the Executive's employment by the Company without Cause with respect to options which vest prior to normal vesting as a result of such involuntary termination without Cause or, with respect to the portion of any option which has then previously vested, no later than one (1) year following any other involuntary termination of Executive's employment, prior to a Change of Control, without Cause; and no later than fifteen (15) days following an involuntary termination of the Executive's employment by the Company for Cause, or in each case the expiration of the stated term of such option, whichever first occurs. 4. Termination. During the Term, the employment of the Executive under this Agreement may be terminated only as follows: 4.1 Death. In the event of the Executive's death, this Agreement shall terminate and the Company shall have no further obligations hereunder except as follows: (a) immediate payment of any obligations accrued but unpaid as of the date of death; (b) payment of that portion of Base Salary payable through the end of the calendar month in which the death occurs; (c) payment of earned but unused vacation through 3 the end of the calendar month in which the death occurs; and (d) payment of a pro rata portion of the annual bonus, if any, payable for the fiscal year in which the death occurs with such pro rata portion paid when and as such annual bonus would normally be determined. Payment of obligations under any other employee benefit plans shall be determined in accordance with the provisions of those plans. 4.2 Disability. In the event of the Executive's Disability, this Agreement shall terminate and the Company shall have no further obligations hereunder except as follows: (a) immediate payment of any obligations accrued but unpaid as of the date of Disability; (b) payment of that portion of Base Salary payable through the end of the calendar month in which the Disability occurs; (c) payment of an amount equal to thirty (30) days of sick pay; (d) payment of earned but unused vacation through the end of the calendar month in which the Disability occurs; and (e) payment of a pro rata portion of the annual bonus, if any, payable for the fiscal year in which the Disability occurs with such pro rata portion paid when and as such annual bonus would normally be determined. Payment of obligations under any other employee benefit plans shall be determined in accordance with the provisions of those plans. 4.3 Normal Retirement. In the event of the Executive's Normal Retirement, this Agreement shall terminate and the Company shall have no further obligations hereunder except as follows: (a) immediate payment of any obligations accrued but unpaid as of the date of Normal Retirement; (b) payment of that portion of Base Salary payable through the end of the calendar month in which the Normal Retirement occurs; ( c) payment of earned but unused vacation through the end of the calendar month in which the Normal Retirement occurs; and (d) payment of a pro rata portion of the annual bonus, if any, payable for the fiscal year in which the Normal Retirement occurs with such pro rata portion paid when and as such annual bonus would normally be determined. Payment of obligations under any other employee benefit plans shall be determined in accordance with the provisions of those plans. 4.4 Early Retirement. In the event of the Executive's Early Retirement, this Agreement shall terminate and the Company shall have no further obligations hereunder except as follows: (a) immediate payment of any obligations accrued but unpaid as of the date of Early Retirement except that no payment shall be made for any annual bonus that may have been earned but remained unpaid as of the date of the Early Retirement; (b) payment of earned but unused vacation through the end of the calendar month in which the Early Retirement occurs; and( c) payment of that portion of Base Salary payable through the end of the calendar month in which the Early Retirement occurs. Payment of obligations under any other employee benefit plans shall be determined in accordance with the provisions of those plans. 4.5 Voluntary Resignation Prior to Early Retirement. In the event the Executive resigns voluntarily prior to his eligibility for Early Retirement, this Agreement shall terminate and the Company shall have no further obligations hereunder except as follows: (a) immediate payment of any obligations accrued but unpaid as of the date of resignation except that no payment shall be made for any annual bonus that may have been earned but remained unpaid as of the date of the resignation; (b) payment of earned but unused vacation through the end of the calendar month in which the resignation occurs; and (c) payment of that portion of Base Salary payable through the end of the calendar month in which the resignation occurs. Payment of obligations under any other employee benefit plans shall be determined in accordance with the provisions of those plans. 4.6 Involuntary Termination for Cause. In the event the Company terminates the Executive's employment for Cause, this Agreement shall terminate and the Company shall have no further obligations hereunder except as follows: (a) immediate payment of any obligations accrued 4 but unpaid as of the date of termination except that no payment shall be made for any annual bonus that may have been earned but remained unpaid as of the date of the termination; (b) payment of earned but unused vacation through the end of the calendar month in which the termination occurs; and (c) payment of that portion of Base Salary payable through the end of the calendar month in which the termination occurs. Payment of obligations under any other employee benefit plans shall be determined in accordance with the provisions of those plans. 4.7 Involuntary Termination other than for Cause. In the event the Company terminates the Executive's employment other than for Cause, this Agreement shall terminate and the Company shall have no further obligations hereunder except as follows: (a) immediate payment of any obligations accrued but unpaid as of the date of termination; (b) payment of Base Salary then in effect for a period equal to twenty-four (24) months (the "Severance Period"); (c) payment of annual bonuses (or pro rata portion thereof), if any, payable for each of those fiscal years that overlap, in whole or in part, with the Severance Period, with such amounts paid when and as such annual bonuses would normally be determined; (d) payment of earned but unused vacation through the end of the calendar month in which the termination occurs; and (e) the provision of health, life and disability coverages to the Executive and eligible dependents for the Severance Period at active employee rates (or cash equal to the cost of any such coverage to the extent such continued coverage can not be provided pursuant to any underlying insurance policy then in effect or where such continued coverage would have adverse tax effects to the Executive or other plan participants). Payment of obligations under any other employee benefit plans shall be determined in accordance with the provisions of those plans. Company and Executive agree that the failure of the Board of Directors of the Company to elect, or the action of the Board of Directors to remove, Executive as Chairman of the Board shall, in the absence of Cause, permit Executive to terminate this Agreement within sixty (60) days of such event and such termination shall be deemed to constitute an involuntary termination other than for cause by Company pursuant to this Section 4.7. 4.8 Qualified Termination following a Change of Control. In the event of a Qualified Termination of the Executive's employment following a Change of Control, this Agreement shall terminate and the Company shall have no further obligations hereunder except as follows: (a) immediate payment of any obligations accrued but unpaid as of the date of termination; (b) immediate payment of a lump sum amount equal to the product of three (3), multiplied by the sum of (i) Base Salary then in effect, plus (ii) the greater of (A) the target annual bonus for the fiscal year in which the Qualified Termination occurs, or (B) the average of the last three annual bonuses earned by the Executive; (c) immediate payment of a pro rata portion of the target annual bonus for the fiscal year in which the Qualified Termination occurs; and (d) the provision of health, life and disability coverages to the Executive and eligible dependents for a period of thirty-six (36) months at active employee rates (or cash equal to the cost of any such coverage to the extent such continued coverage can not be provided pursuant to any underlying insurance policy then in effect or where such continued coverage would have adverse tax effects to the Executive or other plan participants). Payment of obligations under any other employee benefit plans shall be determined in accordance with the provisions of those plans; provided, however, that the Executive's accrued benefit under the Ruby Tuesday, Inc. Executive Supplemental Pension Plan shall be determined by increasing the Executive's actual years of "Continuous Service" (as defined therein) by an additional three (3) full years. Notwithstanding any other provision of this Agreement to the contrary, if the aggregate amount provided for in this Agreement and any other payments and benefits which the Executive has the right to receive from the Company and its Affiliates (determined without regard to the provisions of this paragraph) would subject the Executive to an excise tax under Section 4999 5 of the Internal Revenue Code (or any successor federal tax law), or any interest or penalties are incurred or paid by the Executive with respect to such excise tax (any such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to an additional payment from the Company as is necessary (after taking into account all federal, state and local taxes (regardless of type, whether income, excise or otherwise) imposed upon the Executive as a result of the receipt of the payment contemplated by this Agreement) to place the Executive in the same after-tax position the Executive would have been in had no Excise Tax been imposed or incurred or paid by the Executive. Ernst & Young LLP (or its successor) or any other certified public accounting firm agreed to by the Company and the Executive shall determine the extent, if any, of the Company's obligations pursuant to this paragraph after receipt of notice from either the Company or the Executive that a payment has been made that may subject the Executive to the Excise Tax. The accounting firm shall make its determination within thirty (30) days after the receipt of any such notice. The Company shall pay to the Executive in cash in a lump sum any amount that the accounting firm determines is due pursuant to this paragraph not later than five (5) business days prior to the date that the Executive must file the Executive's federal income tax return which reflects the payment that subjects the Executive to the Excise Tax. 4.9 Severance Amounts and the Executive Supplemental Pension Plan. Notwithstanding any possible interpretation to the contrary, for purposes of determining the Executive's accrued benefit under the Ruby Tuesday, Inc. Executive Supplemental Pension Plan, no amounts payable to the Executive pursuant to Section 4 hereof shall increase his "Annual Base Salary" (as defined therein). 5. Confidentiality. 5.1 Ownership of Information. All Company Information received or developed by the Executive while employed by the Company will remain the sole and exclusive property of the Company. 5.2 Obligations of Executive. Executive agrees (a) to hold Company Information in strictest confidence, and (b) not to use, duplicate, reproduce, distribute, disclose or otherwise disseminate Company Information or any physical embodiments thereof and may in no event take any action causing or fail to take any action necessary in order to prevent any Company Information from losing its character or ceasing to qualify as Confidential Information or a Trade Secret. In the event that Executive is required by law to disclose any Company Information, Executive will not make such disclosure unless and until prior written notice is given to the Company to enable it to seek protection against disclosure, as the Company deems necessary. This Section shall survive for a period of two (2) years following termination of this Agreement with respect to Confidential Information, and shall survive termination of this Agreement with respect to Trade Secrets for so long as the information qualifies as a trade secret under applicable law. 5.3 Delivery upon Request or Termination. Upon request by the Company, and in any event upon termination of his employment with the Company, the Executive will promptly 6 deliver to the Company all property belonging to the Company, including without limitation all Company Information then in his possession or control. 6. Non-Competition. The Executive agrees that during his employment by the Company and for a period of two years thereafter, he will not (except on behalf of or with the prior written consent of the Company), within the United States, either directly or indirectly, on his own behalf or in the service or on behalf of others, as a principal, partner, officer, director, manager, supervisor, administrator, consultant, executive employee or in any other capacity which involves duties and responsibilities similar to those undertaken for the Company, engage in any business which is the same as or essentially the same as the Business of the Company. For purposes of this Section, the term "Business of the Company" shall mean any multi-unit, multi-state foodservice business that is of a character and concept similar to the restaurants operated by the Company including, but not limited to, a casual dining restaurant business with a generic, broad-based menu similar in concept to restaurants operated by the Company (such as Ruby Tuesday, American Cafe, and Tia's), serving soups, sandwiches, chicken, ethnic cuisine, health or fitness oriented dishes and a full bar. Company and Executive expressly agree that the restaurant concept know as "Truffles" (currently operating in Hilton Head, South Carolina) is excluded from the covenants in this Section 6 for so long as there are no more than five (5) units of such restaurant concept. 7. Non-Solicitation of Employees. The Executive agrees that during his employment by the Company and for a period of two years thereafter, he will not, on his own behalf or in the service or on behalf of others, solicit or recruit any employee of the Company with whom the Executive worked or had dealings in the course of his employment with the Company. 8. Non-Disparagement. The Executive agrees that at any time during or after his employment with the Company, he shall not make any disparaging remarks to the public regarding the Company or otherwise attempt to cast the Company in an unfavorable light. 9. Remedies. The Executive agrees that the covenants contained in Sections 5 through 9 of this Agreement are of the essence of this Agreement; that each of the covenants is reasonable and necessary to protect the business, interests and properties of the Company; and that irreparable loss and damage will be suffered by the Company should he breach any of the covenants. Therefore, the Executive agrees and consents that, in addition to all the remedies provided by law or in equity, the Company shall be entitled to a temporary restraining order and temporary and permanent injunctions to prevent a breach or contemplated breach of any of the covenants. The Company and the Executive agree that all remedies available shall be cumulative. 10. Severability. The parties agree that each of the provisions included in this Agreement is separate, distinct and severable from the other provisions of this Agreement and that the invalidity or unenforceability of any Agreement provision shall not affect the validity or enforceability of any other provision of this Agreement. Further, if any provision of this Agreement is ruled invalid or unenforceable by a court of competent jurisdiction because of a conflict between the provision and any applicable law or public policy, the provision shall be 7 redrawn to make the provision consistent with and valid and enforceable under the law or public policy. 11. Applicable Law and Choice of Forum. This Agreement shall be construed and enforced under and in accordance with the laws of the State of Tennessee. The parties agree that any appropriate state or federal court located in Knox or Blount County, Tennessee, shall have exclusive jurisdiction of any case or controversy arising under or in connection with Sections 5 through 9 of this Agreement and shall be a proper forum in which to adjudicate such case or controversy. The parties consent and waive any objection to the jurisdiction or venue of such courts. 12. No Set-Off by the Executive. The existence of any claim, demand, action or cause of action by the Executive against the Company, or any Affiliate of the Company, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of its rights hereunder. 13. Notice. All notices and other communications required or permitted under this Agreement shall be in writing and, if mailed by prepaid first- class mail or certified mail, return receipt requested, shall be deemed to have been received on the earlier of the date shown on the receipt or three (3) business days after the postmarked date thereof. In addition, notices hereunder may be delivered by hand, facsimile transmission or overnight courier, in which event the notice shall be deemed effective when delivered or transmitted. All notices and other communications under this Agreement shall be given to the parties hereto at the following addresses: (a) If to the Company, to it at: Ruby Tuesday, Inc. c/o General Counsel 150 West Church Avenue Maryville, Tennessee 37801 (b) If to the Executive, to him at: 1443 West Miller's Cove Walland, TN 37886 14. Assignment/Successors. Neither party hereto may assign or delegate this Agreement or any of its rights and obligations hereunder without the written consent of the other party hereto. This Agreement shall inure to the benefit of and be binding upon the successors of the Company. 15. Waiver. A waiver by the Company of any breach of this Agreement by the Executive shall not be effective unless in writing, and no waiver shall operate or be construed as a waiver of the same or another breach on a subsequent occasion. 16. Indemnification. During the Term, the Company shall maintain directors and officers liability insurance coverage that covers the Executive. 17. Arbitration. Except for matters contemplated by Section 11 above, any controversy or claim 8 arising out of or relating to this contract, or the breach thereof, shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding on the parties and judgment upon the award rendered by the arbitrator may be entered in any federal or state court located in Knox or Blount County, Tennessee. The Company and the Executive agree to share equally the fees and expenses associated with the arbitration proceedings. 18. Entire Agreement. This Agreement embodies the entire and final agreement of the parties on the subject matter stated in the Agreement. No amendment or modification of this Agreement shall be valid or binding upon the Company or the Executive unless made in writing and signed by both parties. All prior understandings and agreements relating to the subject matter of this Agreement are hereby expressly terminated. 19. Survival. The obligations of the Executive pursuant to Sections 5 through 9 shall survive the termination of the employment of the Executive hereunder for the period designated under each of those respective sections. 20. Definitions. Whenever used in this Agreement, the following terms and their variant forms shall have the meanings set forth below: 20.1 "Affiliate" shall mean any business entity which controls the Company, is controlled by or is under common control with the Company. 20.2 "Agreement" shall mean this Agreement with any amendments hereto made in the manner described in this Agreement. 20.3 "Cause" shall mean, with respect to termination of the Executive's employment by the Company: (a) the Executive's conviction of a felony; (b) conduct by the Executive constituting a willful refusal to perform any material duty assigned by the Board of Directors of the Company; (c) conduct by the Executive that amounts to fraud against the Company or its Affiliates; (d) a breach of the terms of this Agreement by the Executive that is materially injurious to the Company or its Affiliates; or (e) conduct by the Executive that amounts to willful gross neglect or willful gross misconduct resulting in material economic harm to the Company or its Affiliate. 20.4 "Change of Control" means any one of the following events: (a) the acquisition by any individual, entity or "group" (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of voting securities of the Company where such acquisition causes any such 9 Person to own twenty-five percent (25%) or more of the combined voting power of the then outstanding voting securities then entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); provided, however, that for purposes of this Section 20.4, the following shall not constitute a Change of Control: (i) any acquisition directly from the Company, unless such a Person subsequently acquires additional shares of Outstanding Voting Securities other than from the Company; or (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate. (b) within any twelve-month period (beginning on or after the Effective Date), the persons who were directors of the Company immediately before the beginning of such twelve-month period (the "Incumbent Directors") shall cease to constitute at least a majority of the Board of Directors of the Company; provided that any director who was not a director as of the Effective Date shall be deemed to be an Incumbent Director if that director was elected to the Board of Directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors; and provided further that no director whose initial assumption of office is in connection with an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) relating to the election of directors shall be deemed to be an Incumbent Director; (c) the approval by the stockholders of theCompany of a reorganization, merger or consolidation, with respect to whichpersons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities; (d) the sale, transfer or assignment of all or substantially all of the assets of the Company and its Affiliates to any third party; or (e) the liquidation or dissolution of the Company. 20.5 "Company Information" means Confidential Information and Trade Secrets. 20.6 "Confidential Information" means data and information relating to the Company or the business of the Company (which does not rise to the status of a Trade Secret) which is or has been disclosed to the Executive or of which the Executive became aware as a consequence of or through the Executive's relationship to the Company and which has value to the Company and is not generally known to its competitors. Confidential Information shall not include any data or information that has been voluntarily disclosed to the public by the Company (except where such public disclosure has been made by the Executive without authorization) or that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means. 20.7 "Disability" shall mean the total inability of the Executive to perform his duties under this Agreement for the duration of the short-term disability period (but not less than six [6] months) under the Company's short-term disability policy then in effect as certified by a physician chosen by the Company and reasonably acceptable to the Executive. 10 20.8 "Early Retirement" shall mean a voluntary termination of employment by the Executive on or after attaining age 55 but prior to attaining age 65. 20.9 "Effective Date" means the date first set forth above. 20.10 "Normal Retirement" shall mean a voluntary termination of employment by the Executive on or after attaining age 65. 20.11 "Qualified Termination" shall mean, during the Term, any one of the following events: (a) an involuntary termination of the Executive's employment by the Company other than for Cause; (b) a resignation by the Executive for any reason within twelve (12) months following a Change of Control; or (c) a resignation by the Executive following a Change of Control for any one of the following reasons: (i) a reduction in the Executive's then current Base Salary or a reduction in the Executive's target bonus opportunity, expressed as a percentage of Base Salary; (ii) a failure to elect or reelect the Executive to the positions of Chief Executive Officer and Chairman of the Board of Directors; (iii) a material diminution in the Executive's duties or responsibilities; or (iv) a change in supervisory authority such that the Executive no longer reports directly to the Board of Directors of the Company. 20.12 "Trade Secrets" means information, without regard to form, which (a) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by other persons who can obtain economic value from its disclosure or use; and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy, including, but not limited to, formulas, patterns, compilations, programs, devices, methods, techniques, processes, financial data, financial plans or product plans. 11 IN WITNESS WHEREOF, the Company and the Executive have executed and delivered this Agreement as of the date first shown above. COMPANY: RUBY TUESDAY, INC. By: /s/ J. RUSSELL MOTHERSHED By: /s/ DOLPH W. VON ARX J. Russell Mothershed Dolph W. von Arx Senior Vice President & Chairman, Chief Financial Officer Compensation & Stock Option Committee EXECUTIVE: /s/ SAMUEL E. BEALL, III SAMUEL E. BEALL, III 12 SCHEDULE 3.2(b) FISCAL ESOP MSOP SPECIAL TOTAL ESOP ESOP YEAR END(1) GRANT(2) GRANT GRANT (3) VESTING DATE EXPIRATION DATE 2000 172,000 0 78,000 250,000 10/02 4/05 2001 184,000 8,200 87,653(4) 279,853 10/03 4/06 2002 197,000 7,600 N/A 204,600 10/04 4/07 2003 211,000 7,200 N/A 218,200 10/05 4/08 2004 226,000 6,800 N/A 232,800 6/06 4/09 2005 242,000 6,400 N/A 248,400 6/06 4/10 2006 259,000 6,000 N/A 265,000 6/06 4/11 (1) Assumes stock option grants continue through year of retirement. (2) Assumes a 7% increase in the number of options granted each year from ESOP. (3) Assumes 250,000 limit on option grants in any fiscal year is increased. (4) To the extent the actual number of options necessary to deliver the desired value is in excess of the new limit on option grants, this option grant will not take the total options granted over the limit in place at that time. Rather, the Company will make an additional option grant in fiscal year 2002 to deliver the remaining value. 13 EX-99.2 4 THIRD AMENDMENT TO THE RUBY TUESDAY, INC. 1996 STOCK INCENTIVE PLAN THIS THIRD AMENDMENT is made as of September 30, 1999, by RUBY TUESDAY, INC., a corporation organized and existing under the laws of the State of Georgia (hereinafter called the "Company"). W I T N E S S E T H: WHEREAS, the Company maintains the Ruby Tuesday, Inc. 1996 Stock Incentive Plan (the "Plan"). WHEREAS, the Company wishes to amend the Plan to reflect the wishes of certain institutional shareholders. WHEREAS, the Board of Directors of the Company has duly approved and authorized these amendments to the Plan in resolutions dated September 30, 1999. NOW, THEREFORE, the Company does hereby amend the Plan, effective September 30, 1999, as follows: 1. By adding the following to the end of Section 2.2: "Notwithstanding any other provision in the Plan, five percent (5%) of the shares of Stock reserved for issuance hereunder, subject to adjustment in accordance with Section 5.2, may be granted hereafter without regard to those provisions of the Plan that became effective on September 30, 1999." 2. By deleting the first sentence of Section 2.4 and by substituting therefor the following: "Stock Incentives may be granted only to officers, directors, and employees of the Company or an affiliate; provided, however, that directors of the Company who are not also employees of either the Company or an affiliate shall not be eligible to receive Stock Incentives under the Plan." 3. By deleting Plan Section 3.2(a) in its entirety and by substituting therefor the following: "(a) Option Price. (i) Subject to adjustment in accordance with Section 5.2 and the other provisions of this Section 3.2, the exercise price (the "Exercise Price") per share of Stock purchasable under any Option shall be as set forth in the applicable Stock Incentive Agreement. With respect to each grant of an Option to a Participant, the Exercise Price per share shall not be less than its Fair Market Value on the date the Option is granted. Notwithstanding the immediately preceding sentence, with respect to each grant of an Incentive Stock Option to a Participant who is an Over 10% Owner, the Exercise Price per share shall not be less than 110% of its Fair Market Value on the date the Option is granted. (ii) For purposes of this Section 3.2(a), the Fair Market Value of the Stock shall be determined (1) as of the date all of the material terms of an Option are determinable, or (2) if the Option is awarded pursuant to a formula under a then existing program established by the Committee, as of a date no earlier than the later of sixty (60) days prior to the date all of the material terms of the Option are determinable or sixty (60) days following the date the program is established. (iii) Notwithstanding any other provision of this Section 3.2(a), the Committee may continue to maintain the existing Management Stock Option Program as in effect on September 30, 1999 or in any modified form; provided, however, that no such modified form shall contain pricing terms more favorable than those as in effect under the Management Stock Option Program on September 30, 1999. (iv) Notwithstanding any other provision in the Plan, following the grant of an Option, no amendment shall be made to reduce the price of the Option, except an adjustment as described in Section 5.2, without the prior approval of the stockholders of the Company." 4. By deleting Section 3.4 in its entirety and by substituting therefor the following: "3.4 Terms and Conditions of Stock Awards. (a) The number of shares of Stock subject to a Stock Award and restrictions or conditions on such shares, if any, shall be as the Committee determines, and the certificate for such shares shall bear evidence of any restrictions or conditions. Subsequent to the date of the grant of the Stock Award, the Committee shall have the power to permit, in its discretion, an acceleration of the expiration of an applicable restriction period with respect to any part or all of the shares awarded to a Participant. Subject to Subsections (b) and (c) below, the Committee may require a cash payment from the Participant in an amount no greater than the aggregate Fair Market Value of the shares of Stock awarded determined at the date of grant in exchange for the grant of a Stock Award or may grant a Stock Award without the requirement of a cash payment. (b) Any Stock Award containing forfeitability provisions shall vest over a period of no less than three (3) years. (c) Any Stock Award that does not contain forfeitability provisions shall be granted only in lieu of salary or cash bonus otherwise payable to a Participant and may be 2 granted at up to a fifteen percent (15%) discount to the Fair Market Value of the Stock as of the date of grant only if the Stock is subject to material restrictions on transferability." 5. By deleting Section 5.8 in its entirety and by substituting therefor the following: "5.8 Termination and Amendment of the Plan. The Board of Directors may, at any time, amend or terminate the Plan without stockholder approval; provided, however that the Board of Directors shall condition any material amendment on the approval of the stockholders of the Company. No such termination or amendment without the consent of the holder of a Stock Incentive shall adversely affect the rights of the Participant under such Stock Incentive." Except as specifically provided herein, the Plan shall remain in full force and effect as prior to this Third Amendment. IN WITNESS WHEREOF, the Company has caused this Third Amendment to be executed on the day and year first above written. RUBY TUESDAY, INC. By: /s/ SAMUEL E. BEALL III Samuel E. Beall, III Chairman and Chief Executive Officer Attest: By: /s/ DANIEL T. CRONK Daniel T. Cronk Secretary [CORPORATE SEAL] 3 EX-99.3 5 SEVENTH AMENDMENT TO THE RUBY TUESDAY, INC. EXECUTIVE SUPPLEMENTAL PENSION PLAN THIS SEVENTH AMENDMENT is made as of this 19th day of June, 1999, by RUBY TUESDAY, INC. (the "Primary Sponsor"), a corporation organized and existing under the laws of the State of Georgia. W I T N E S S E T H: WHEREAS, the Primary Sponsor maintains the Ruby Tuesday, Inc. Executive Supplemental Pension Plan (the "Plan"), which was established by indenture effective as of June 1, 1983, and which was last amended and restated by indenture effective June 1, 1986. WHEREAS, the Primary Sponsor desires to amend the Plan to provide an enhanced early retirement benefit opportunity to one or more employees as may be designated from time to time by the Board of Directors of the Primary Sponsor. WHEREAS, the amendments effected hereby have been approved by the Board of Directors of the Primary Sponsor. NOW, THEREFORE, the Plan is hereby amended, effective as of June 19, 1999, as follows: 1. By adding new Section 2.01(c1), as follows: "(c1) The term `Cause' shall mean, with respect to a Subsection (c) Participant's termination of employment with the Company or any of its subsidiaries: (1) the Participant's conviction of a felony; (2) conduct by the Participant constituting a willful refusal to perform any material duty assigned by the Board; (3) conduct by the Participant that amounts to fraud against the Company or any entity which is controlled by or is under common control with the Company; (4) a breach of the terms of any employment agreement between the Participant and the Company or any entity which is controlled by or is under common control with the Company; or (5) conduct by the Participant that amounts to willful gross neglect or willful gross misconduct resulting in material economic harm to the Company or any entity which is controlled by or is under common control with the Company." 2. By redesignating existing Section 2.01(f1) as Section 2.01(f2) and by adding new Section 2.01(f1), as follows: "(f1) The term `Disability' shall mean the total inability of the Participant to perform his duties for the duration of the short-term disability period under the Company's short-term disability policy then in effect as certified by a physician chosen by the Company and reasonably acceptable to the Participant." 3. By deleting Section 2.01(k) in its entirety and by substituting therefor the following: "(k) The term `Participant' refers to any Eligible Employee upon his entry into the Plan. An Eligible Employee shall become a Participant as of the January 1st immediately following the date the eligibility criteria stated in Section 2.01(h) are satisfied. Upon retirement, termination of employment or cessation of the accrual of Continuous Service in accordance with Section 2.01(f), a Participant's status shall become that of a former Participant. Except as the context may otherwise require in Section 4.02, the term 'Participant' shall encompass any Subsection (b) Participant and any Subsection (c) Participant." 4. By deleting Section 4.02 in its entirety and by substituting therefor the following: "4.02 Early Retirement. (a) Actuarially Reduced Early Retirement Benefit. Before a Participant is eligible for normal retirement pursuant to Section 4.01 above, the Participant may retire from service with the Company or any of its subsidiaries prior thereto and commence receiving benefits pursuant to this Subsection (a) if the Participant has attained age 55 while in the service of the Company or any of its subsidiaries. The Accrued Benefit determined under Section 3.01, but payable pursuant to this Section 4.02(a), shall be reduced by multiplying the Accrued Benefit amount by the applicable early retirement reduction factor indicated in the table below: Number of Years until Eligible For Unreduced Retirement Benefit Early Retirement Factor 1 .93 2 .86 3 .79 4 .72 5 .65 6 .62 7 .59 8 .56 9 .53 10 .50 2 (b) Unreduced Early Retirement Benefit. A Participant identified in Appendix B to the Plan, as Appendix B may be amended from time to time by action of the Board (a Participant so identified on Appendix B is referred to hereafter as a `Subsection (b) Participant') may retire from service with the Company or any of its subsidiaries prior to reaching his Normal Retirement Date and commence receiving benefits from the Plan pursuant to this Section 4.02(b) if: (i) the Subsection (b) Participant attains age 60 prior to termination of employment from the Company or any of its subsidiaries; or (ii) at the time of retirement from service with the Company or any of its subsidiaries, the Subsection (b) Participant is at least age 55 and the sum of the Subsection (b) Participant's age and years of Continuous Service equals or exceeds ninety (90) (referred to herein as the "Rule of 90"). The Accrued Benefit, as determined in Section 3.01, but payable pursuant to this Section 4.02(b), will not be subject to actuarial reduction. (c) Special Early Retirement Benefit. A Participant identified in Appendix C to the Plan, as Appendix C may be amended from time to time by action of the Board (a Participant so identified on Appendix C is referred to hereafter as a `Subsection (c) Participant') may retire from service with the Company and its subsidiaries prior to satisfying the Rule of 90 and commence receiving benefits from the Plan pursuant to this Section 4.02(c) if the Subsection (c) Participant (i) is involuntarily terminated (other than for Cause) by the Company and its subsidiaries; or (ii) experiences a termination of employment from the Company and its subsidiaries due to a Disability. The Accrued Benefit, as determined in Section 3.01, but payable pursuant to this Section 4.02(c), will be either: (1) determined without the actuarial reduction provided for in Section 4.02(a) with such Accrued Benefit payable commencing as of the date the Subsection (c) Participant would have satisfied the Rule of 90 had his employment not terminated; or (2) multiplied by the reduction factor of .93 with such adjusted Accrued Benefit payable commencing at age 55. A Subsection (c) Participant may elect whether payment shall be made pursuant to Clause (1) or (2) of the immediately preceding sentence, if the Subsection (c) Participant irrevocably so elects in writing at least one (1) year prior to the date that the Accrued Benefit becomes payable. If the Subsection (c) Participant fails to make a timely election as so provided in the immediately preceding sentence, payment shall be made pursuant to Clause (1) or (2) as elected by the Participant, but only with the approval of the Chairman of the Compensation and Stock Option Committee of the Board or the approval of a majority of the members of 3 either the Board or the Compensation and Stock Option Committee of the Board present at a meeting duly called and convened at which a quorum is present. In determining any Accrued Benefit under this Section 4.02, the amount of any offset under Section 3.01(C) shall be calculated as the retirement benefit payable in the form of a single life annuity to the Participant under the Morrison Restaurants Inc. Retirement Plan at the Participant's Normal Retirement Date (as defined therein). Any amounts that become payable pursuant to Section 4.02(c) to a Subsection (c) Participant who experiences a termination of employment due to a Disability shall be reduced by the amount of disability payments actually paid to the Subsection (c) Participant under a long-term disability plan maintained by the Company or any of its subsidiaries. Such offsets shall occur only as and when disability payments are paid to the Subsection (c) Participant by the insurer of the disability benefits so provided; provided, however, that if the Subsection (c) Participant's Accrued Benefit is paid in the form of a lump sum, there shall be no offset applied on account of the receipt of disability benefits." 5. By deleting second paragraph of Section 5.02 in its entirety and by substituting therefor the following: "A benefit payable under the Plan shall be paid in the same form and at the same time as any retirement benefit payable to the Participant under the Morrison Restaurants Inc. Retirement Plan. If a Participant does not have an accrued benefit under the Morrison Restaurants Inc. Retirement Plan, the benefit payable under the Plan shall nevertheless be subject to the same distribution rules as provided under the Morrison Restaurants Inc. Retirement Plan, as the same may be amended from time to time; provided, however, that the selection of the form and timing of the benefit shall be subject to the approval of the Company. Except as otherwise expressly provided herein, if a benefit payable under this Plan is paid other than as a life annuity, the amount of the benefit when paid in such other form shall be determined by using the then applicable actuarial equivalence factors of the Morrison Restaurants Inc. Retirement Plan." "Notwithstanding the foregoing, the Accrued Benefit of a Subsection (c) Participant may be paid in a lump sum. In determining the amount of the lump sum payment, the Accrued Benefit shall be discounted by the then current FAS 87 discount rate and by applying the applicable FAS 87 mortality table. The Accrued Benefit of a Subsection (c) Participant will be paid in a lump sum (1) if the Subsection (c) Participant irrevocably elects in writing to receive a lump sum payment from the Plan at least one (1) year prior to the date that the Accrued Benefit becomes payable; or (2) if the Subsection (c) Participant fails to make a timely election as provided in Clause (1), with the approval of the Chairman of the Compensation and Stock Option Committee of the Board or the approval of a majority of the members of either the Board or the Compensation and Stock Option Committee of the Board present at a meeting duly called and convened at which a quorum is present." 4 6 . By deleting Paragraph (1) of Section 8.05 in its entirety and by substituting therefor the following: "(1) If to the Company, in care of its Chief Financial Officer, 150 West Church Avenue, Maryville, Tennessee 37801." Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Seventh Amendment. IN WITNESS WHEREOF, the Primary Sponsor has caused this Seventh Amendment to be executed as of the day and year first above written. RUBY TUESDAY, INC. By: /s/ SAMUEL E. BEALL III [CORPORATE SEAL] Samuel E. Beall, III Chairman and Chief Executive Officer ATTEST: /s/ DANIEL T. CRONK Daniel T. Cronk Secretary 5 APPENDIX C The following person(s) have been designated as "Subsection (c) Participant(s)": Samuel E. Beall, III -----END PRIVACY-ENHANCED MESSAGE-----