10-Q

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:  March 4, 2008

OR

o	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 organization)	(I.R.S. Employer identification no.)

150 West Church Avenue, Maryville, Tennessee 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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

51,712,660

(Number of shares of common stock, $0.01 par value, outstanding as of April 1, 2008)

RUBY TUESDAY, INC.

INDEX

	Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 4, 2008 AND JUNE 5, 2007	3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED
MARCH 4, 2008 AND MARCH 6, 2007	4
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE THIRTY-NINE WEEKS ENDED
MARCH 4, 2008 AND MARCH 6, 2007	5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS	6-18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS	19-33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK	33-34
ITEM 4. CONTROLS AND PROCEDURES	34
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	34
ITEM 1A. RISK FACTORS	35
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	36
ITEM 6. EXHIBITS	37
SIGNATURES	38

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PART I — FINANCIAL INFORMATION
ITEM 1.

RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER-SHARE DATA)

(UNAUDITED)

	MARCH 4,			JUNE 5,
	2008			2007
	(NOTE A)
Assets
Current assets:
Cash and short-term investments	$	7,121		$	25,892
Accounts and notes receivable, net		7,841			14,773
Inventories:
Merchandise		13,383			11,825
China, silver and supplies		8,964			8,207
Income tax receivable		3,233			–
Deferred income taxes		6,550			5,239
Prepaid rent and other expenses		18,147			15,551
Assets held for sale		36,332			20,368
Total current assets		101,571			101,855
Property and equipment, net		1,086,166			1,033,336
Goodwill		18,927			16,935
Notes receivable, net		3,685			9,212
Other assets		57,115			68,918
Total assets	$	1,267,464		$	1,230,256
Liabilities & shareholders’ equity
Current liabilities:
Accounts payable	$	28,422		$	39,435
Accrued liabilities:
Taxes, other than income taxes		18,367			19,986
Payroll and related costs		16,772			9,749
Insurance		7,359			13,525
Deferred revenue – gift cards		10,726			8,578
Rent and other		28,206			25,985
Current maturities of long-term debt, including capital leases		569,706			1,779
Income tax payable		–			5,730
Total current liabilities		679,558			124,767
Long-term debt and capital leases, less current maturities		42,580			512,559
Deferred income taxes		28,899			37,507
Deferred escalating minimum rent		41,945			39,824
Other deferred liabilities		64,461			76,273
Total liabilities		857,443			790,930
Commitments and contingencies (Note L)
Shareholders’ equity:
Common stock, $0.01 par value; (authorized: 100,000 shares;
issued: 51,713 shares at 3/04/08; 53,240 shares at 6/05/07)		517			532
Capital in excess of par value		7,150			2,246
Retained earnings		411,610			446,584
Deferred compensation liability payable in
Company stock		3,070			3,861
Company stock held by Deferred Compensation Plan		(3,070	)		(3,861	)
Accumulated other comprehensive loss		(9,256	)		(10,036	)
		410,021			439,326
Total liabilities & shareholders’ equity	$	1,267,464		$	1,230,256

The accompanying notes are an integral part of the condensed consolidated financial statements.

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RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS EXCEPT PER-SHARE DATA)

(UNAUDITED)

	THIRTEEN WEEKS ENDED						THIRTY-NINE WEEKS ENDED
		MARCH 4,			MARCH 6,			MARCH 4,			MARCH 6,
		2008			2007			2008			2007
	(NOTE A)						(NOTE A)
Revenue:
Restaurant sales and operating revenue	$	348,025		$	374,192		$	1,008,412		$	1,042,319
Franchise revenue		3,208			3,748			10,541			11,099
		351,233			377,940			1,018,953			1,053,418
Operating costs and expenses:
Cost of merchandise		97,260			100,590			278,971			281,638
Payroll and related costs		115,170			112,416			334,636			320,273
Other restaurant operating costs		70,322			66,341			206,995			188,308
Depreciation and amortization		24,288			19,400			73,021			56,775
Loss from Specialty Restaurant
Group, LLC bankruptcy		95			5,771			252			6,022
Selling, general and administrative,
net of support service fee income
for the thirteen and thirty-nine week
periods totaling $899 and $4,890
in fiscal 2008, and $2,710 and $8,928
in fiscal 2007, respectively		25,132			27,191			87,619			87,515
Equity in losses/(earnings) of
unconsolidated franchises		1,118			(12	)		3,576			626
Interest expense, net		8,448			4,776			23,828			13,659
		341,833			336,473			1,008,898			954,816
Income before income taxes		9,400			41,467			10,055			98,602
(Benefit)/provision for income taxes		(2,308	)		12,812			(2,392	)		31,668
Net income	$	11,708		$	28,655		$	12,447		$	66,934
Earnings per share:
Basic	$	0.23		$	0.49		$	0.24		$	1.15
Diluted	$	0.23		$	0.49		$	0.24		$	1.14
Weighted average shares:
Basic		51,381			58,124			51,635			58,353
Diluted		51,411			58,595			51,779			58,794
Cash dividends declared per share	$	-		$	0.25		$	0.25		$	0.50

The accompanying notes are an integral part of the condensed consolidated financial statements.

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RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	THIRTY-NINE WEEKS ENDED
	MARCH 4,			MARCH 6,
	2008			2007
	(NOTE A)
Operating activities:
Net income	$	12,447		$	66,934
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		73,021			56,775
Amortization of intangibles		521			327
Provision for bad debts		516			(197	)
Deferred income taxes		(8,685	)		(7,119	)
Loss on impairment or disposal of assets		2,218			196
Equity in losses of unconsolidated franchises		3,576			626
Distributions received from unconsolidated franchises		46			869
Share-based compensation expense		7,228			6,845
Excess tax benefits from share-based compensation		(384	)		(5,384	)
Other		427			372
Changes in operating assets and liabilities:
Receivables		6,436			10,063
Inventories		(1,271	)		(1,370	)
Income tax receivable		(8,579	)		10,612
Prepaid and other assets		(2,528	)		(4,068	)
Accounts payable, accrued and other liabilities		(14,347	)		15,898
Net cash provided by operating activities		70,642			151,379
Investing activities:
Purchases of property and equipment		(103,976	)		(98,563	)
Acquisition of franchise and other entities		(2,464	)		(4,669	)
Proceeds from disposal of assets		8,310			14,624
Insurance proceeds from property claims		511			2,852
Distributions and other reductions in Deferred Compensation Plan assets		7,751			10
Other, net		(1,886	)		(1,714	)
Net cash used by investing activities		(91,754	)		(87,460	)
Financing activities:
Proceeds from long-term debt		68,412			53,900
Principal payments on long-term debt		(14,377	)		(34,804	)
Proceeds from issuance of stock, including treasury stock		2,225			38,134
Excess tax benefits from share-based compensation		384			5,384
Stock repurchases		(39,491	)		(111,199	)
Dividends paid		(13,193	)		(29,148	)
Payments for debt issuance costs		(1,619	)		–
Other, net		–			(712	)
Net cash provided/(used) by financing activities		2,341			(78,445	)
Decrease in cash and short-term investments		(18,771	)		(14,526	)
Cash and short-term investments:
Beginning of year		25,892			22,365
End of quarter	$	7,121		$	7,839
Supplemental disclosure of cash flow information:
Cash paid for:
Interest, net of amount capitalized	$	23,597		$	14,049
Income taxes, net	$	19,183		$	29,767
Significant non-cash investing and financing activities:
Assumption of debt and capital leases related to franchise
partnership acquisitions	$	43,914		$	16,154
Retirement of fully depreciated assets	$	17,564		$	885
Reclassification of properties to assets held for sale	$	20,809		$	16,373
Liability for claim settlements and insurance receivables	$	(4,813	)	$	995

The accompanying notes are an integral part of the condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – BASIS OF PRESENTATION

Ruby Tuesday, Inc., including its wholly-owned subsidiaries (“RTI”, “we” or the “Company”), owns and operates Ruby Tuesday® casual dining restaurants and one Wok-Hay restaurant. We also franchise the Ruby Tuesday concept in select domestic and international markets. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring entries) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the 13 and 39-week periods ended March 4, 2008 are not necessarily indicative of results that may be expected for the year ending June 3, 2008.

The condensed consolidated balance sheet at June 5, 2007 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in RTI’s Annual Report on Form 10-K for the fiscal year ended June 5, 2007.

NOTE B – EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period presented. Diluted earnings per share gives effect to restricted stock and options outstanding during the applicable periods. The stock options and restricted shares included in the diluted weighted average shares outstanding totaled a negligible amount and 0.5 million for the 13 weeks ended March 4, 2008 and March 6, 2007, respectively, and 0.1 million and 0.4 million for the 39 weeks ended March 4, 2008 and March 6, 2007, respectively.

Stock options with an exercise price greater than the average market price of our common stock and certain options with unrecognized compensation expense do not impact the computation of diluted earnings per share because the effect would be anti-dilutive. For the 13 and 39 weeks ended March 4, 2008, there were 6.7 million and 6.4 million unexercised options, respectively, that were excluded from these calculations. Further, for both the 13 and 39 weeks ended March 4, 2008, 0.3 million restricted shares were excluded. For the 13 and 39 weeks ended March 6, 2007, there were 4.7 million and 4.8 million unexercised options, respectively, and a negligible amount of restricted shares that were excluded from the computation of diluted earnings per share.

NOTE C – SHARE-BASED EMPLOYEE COMPENSATION

The Company compensates its employees and Directors using share-based compensation through the following plans:

The Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors

Under the Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors (the “Directors’ Plan”), non-employee directors are eligible to be awarded stock-based incentives. Restricted shares granted under the Directors’ Plan vest in equal amounts after one, two and three years provided the Director continually serves on the Board. Options issued under the Directors’ Plan become vested after thirty months and are exercisable until five years after the grant date. Stock option exercises are settled with the issuance of new shares.

All options awarded under the Directors’ Plan have been at the fair market value at the time of grant. A Committee, appointed by the Board, administers the Directors’ Plan. At March 4, 2008, we had reserved 509,000 shares of common stock under this Directors’ Plan, 258,000 of which were subject to options outstanding.

6

The Ruby Tuesday, Inc. 2003 Stock Incentive Plan

A Committee, appointed by the Board, administers the Ruby Tuesday, Inc. 2003 Stock Incentive Plan (“2003 SIP”), and has full authority in its discretion to determine the key employees and officers to whom stock incentives are granted and the terms and provisions of stock incentives. Option grants under the 2003 SIP can have varying vesting provisions and exercise periods as determined by such Committee. Options granted under the 2003 SIP vest in periods ranging from immediate to fiscal 2011, with the majority vesting 24 or 30 months following the date of grant, and the majority expiring five, but some up to ten, years after grant. The 2003 SIP permits the Committee to make awards, with or without restrictions, of shares of common stock, awards of stock options, restricted stock or other derivative securities related to the value of the common stock, and certain cash awards to eligible persons. These discretionary awards may be made on an individual basis or for the benefit of a group of eligible persons. All options awarded under the 2003 SIP have a strike price equal to the fair market value of the Company’s stock at the time of grant.

At March 4, 2008, we had reserved a total of 8,295,000 shares of common stock for the 2003 SIP, 6,470,000 of which were subject to options outstanding. Approximately 668,000 of the options outstanding at March 4, 2008 expired unexercised on April 8, 2008. Stock option exercises are settled with the issuance of new shares.

Stock Options

The following table summarizes the activity in options for the 39 weeks ended March 4, 2008 under these stock option plans (in thousands, except per-share data):

			Weighted-
			Average
	Options		Exercise Price
Balance at June 5, 2007	6,928	$ 26.56
Granted	–		–
Exercised	(124)		17.96
Forfeited	(76)		24.21
Balance at March 4, 2008	6,728		$ 26.74
Exercisable at March 4, 2008	4,324		$ 25.83

At March 4, 2008, there was approximately $4.2 million of unrecognized pre-tax compensation expense related to non-vested stock options. This cost is expected to be recognized over a weighted-average period of 0.9 years.

Restricted Stock

The following table summarizes the status of our restricted-stock activity for the 39 weeks ended March 4, 2008 (in thousands, except per-share data):

		Weighted-Average
	Restricted	Grant-Date
	Stock	Fair Value
Non-vested at June 5, 2007	317	$ 27.08
Granted	14	19.05
Vested	–	–
Forfeited	–	–
Non-vested at March 4, 2008	331	$ 26.74

The fair value of the restricted share awards was based on the Company’s fair market value at the time of grant. At March 4, 2008, unrecognized compensation expense related to restricted stock grants expected to vest totaled approximately $0.6 million and will be recognized over a weighted average vesting period of approximately 1.8 years.

During the fourth quarter of fiscal 2007, RTI granted approximately 267,000 restricted shares to certain employees under the terms of the 2003 SIP. A performance condition, to be measured in June 2008, will

7

determine the maximum number of restricted shares that can vest. At March 4, 2008, there was no unrecognized compensation expense related to this award as the performance condition is not expected to be achieved.

During the second quarter of fiscal 2008, RTI granted approximately 14,000 restricted shares to non-employee directors.

NOTE D – ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable – current consist of the following (in thousands):

	March 4, 2008		June 5, 2007
Rebates receivable	$	775	$	938
Amounts due from franchisees		3,350		4,163
Other receivables		2,009		7,066
Current portion of notes receivable		3,339		2,763
		9,473		14,930
Less allowances for doubtful notes and equity
method losses		1,632		157
	$	7,841	$	14,773

The Company negotiates purchase arrangements, including price terms, with designated and approved suppliers on behalf of RTI and the franchise system. We receive various volume discounts and rebates based on purchases for our Company-owned restaurants from certain suppliers.

Amounts due from franchisees consist of royalties, license and other miscellaneous fees, almost all of which represent the prior month's billings. Also included in this amount is the current portion of the straight-lined rent receivable from franchise sublessees and the amount to be collected in exchange for RTI’s guarantees of certain franchise partnership debt.

As of March 4, 2008, other receivables consisted primarily of amounts due for third party gift card sales, amounts due from various landlords, and a refund of television advertising costs. Other receivables at June 5, 2007 primarily consisted of insurance proceeds associated with a dram shop liability case settled before, but not paid until after, year-end. The offsetting liability was included in insurance within the accrued liabilities section of the Condensed Consolidated Balance Sheet.

Included in the current portion of notes receivable are payments due from franchise partnerships within one year on acquisition-related or other loans and amounts due under line of credit arrangements.

Notes receivable consist of the following (in thousands):

	March 4, 2008		June 5, 2007
Notes receivable from domestic franchisees	$	9,247	$	17,413
Other		–		992
		9,247		18,405
Less current maturities (included in accounts and
notes receivable)		3,339		2,763
		5,908		15,642
Less allowances for doubtful notes and equity
method losses, noncurrent		2,223		6,430
Total notes receivable, net -- noncurrent	$	3,685	$	9,212

Notes receivable from franchise partnerships generally arise when Company-owned restaurants are sold to franchise partnerships (“refranchised”). Historically, these notes generally allowed for deferral of interest during the first one to three years and required only the payment of interest for up to six years from the inception of the note. Twelve current franchisees received acquisition financing from RTI as part of the

8

refranchising transactions. The amounts financed by RTI approximated 36% of the original purchase prices.

As of March 4, 2008, all the franchise partnerships were making interest and/or principal payments on a monthly basis in accordance with the current terms of these notes. All of the refranchising notes accrue interest at 10.0% per annum.

The allowance for doubtful notes represents our best estimate of losses inherent in the notes receivable at the balance sheet date. At March 4, 2008 the allowance for doubtful notes was $3.4 million. Included in the allowance for doubtful notes is $1.9 million allocated to the $4.9 million of debt due from four franchisees that, for the most recent reporting period, have either reported coverage ratios below the required levels with certain of their third party debt, or reported ratios above the required levels but for an insufficient amount of time.

Also included within the $3.4 million allowance for doubtful notes at March 4, 2008 is $0.7 million, which represents RTI’s portion of the equity method losses of one of our 50%-owned franchise partnerships which was in excess of our recorded investment in that partnership. An additional $0.5 million of equity method losses relating to two other 50%-owned franchise partnerships has been recorded as an offset to “Accounts and notes receivable, net” in the Condensed Consolidated Balance Sheet at March 4, 2008.

NOTE E – FRANCHISE PROGRAMS

As of March 4, 2008, we held a 50% equity interest in each of six franchise partnerships which collectively operate 72 Ruby Tuesday restaurants. We apply the equity method of accounting to all 50%-owned franchise partnerships. Also, as of March 4, 2008, we held a 1% equity interest in each of seven franchise partnerships which collectively operate 49 restaurants and no equity interest in various traditional domestic and international franchises which collectively operate 100 restaurants.

Beginning in May 2005, under the terms of the franchise operating agreements, we required all domestic franchisees to contribute a percentage, currently 1.0%, of monthly gross sales to a national advertising fund formed to cover their pro rata portion of the costs associated with our national advertising campaign. Under the terms of those agreements, we can charge up to 3.0% of monthly gross sales for this national advertising fund.

Advertising amounts received from domestic franchisees are considered by RTI to be reimbursements, recorded on an accrual basis as earned, and have been netted against selling, general and administrative expenses in the Condensed Consolidated Statements of Income.

See Note L to the Condensed Consolidated Financial Statements for a discussion of our franchise partnership working capital credit facility and our related guarantees.

NOTE F – BUSINESS ACQUISITIONS

In June 2007, in conjunction with a previously announced strategy to acquire certain franchisees in the Eastern United States, RTI, through its subsidiaries, acquired the remaining 50% of the partnership interests of RT West Palm Beach Franchise, LP (“RT West Palm Beach”), thereby increasing its ownership to 100% of this partnership. RT West Palm Beach, previously a franchise partnership with 11 restaurants in Florida, was acquired for $1.7 million plus assumed debt.  Our Condensed Consolidated Financial Statements reflect the results of operations of these acquired restaurants subsequent to the date of acquisition. 

In October 2007, in part for the same reasons noted above, RTI, through its subsidiaries, acquired the remaining 99% and 50% of the membership interests of RT Michigan Franchise, LLC (“RT Michigan”) and RT Detroit Franchise, LLC (“RT Detroit”), respectively, thereby increasing its ownership to 100% of these companies.  RT Michigan, previously a franchise partnership with 14 Ruby Tuesday restaurants, was acquired for assumption of debt. RT Detroit, previously a franchise partnership with 11 Ruby Tuesday restaurants, was also acquired for assumption of debt. As further consideration for the transactions, RTI surrendered collection of its notes receivable from RT Michigan and RT Detroit. These notes, net of allowances for doubtful accounts and unearned revenue, totaled $1.5 million and $0.8 million, respectively,

9

at the time of the transactions.Our Condensed Consolidated Financial Statements reflect the results of operations of these acquired restaurants subsequent to the dates of acquisition. 

These transactions were accounted for as step acquisitions using the purchase method as defined in Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.”  For RT West Palm Beach, the purchase price was allocated to the fair value of property and equipment of $3.7 million, goodwill of $1.4 million, reacquired franchise rights of $0.9 million, long-term debt and capital leases of $3.9 million, and other net liabilities of $0.4 million.  RT West Palm Beach had total debt and capital leases of $7.9 million at the time of acquisition, none of which was payable to RTI.

For RT Michigan, the purchase price was allocated to the fair value of property and equipment of $19.6 million, reacquired franchise rights of $1.3 million, long-term debt of $19.2 million, and other net liabilities of $0.2 million. The amount shown for other net liabilities was reduced by $0.2 million, which represented the cash RT Michigan had on hand at the time of acquisition.  RT Michigan had total debt of $25.1 million at the time of acquisition, $5.9 million of which was payable to RTI.

For RT Detroit, the purchase price was allocated to the fair value of property and equipment of $8.9 million, reacquired franchise rights of $0.6 million, long-term debt of $8.4 million, and other net liabilities of $0.3 million.  RT Detroit had total debt of $18.9 million at the time of acquisition, $2.1 million of which was payable to RTI. In addition to recording the amounts discussed above, RTI reclassified its investments in RT West Palm Beach, RT Michigan, and RT Detroit to account for the remainder of the assets and liabilities, which are now fully recorded within the Condensed Consolidated Balance Sheet of RTI.

On June 27, 2007, we purchased certain assets from Wok Hay, LLC for $1.0 million. The purchase price was allocated to the fair value of property and equipment of $0.3 million, goodwill of $0.6 million, and other net assets of $0.1 million. At the time of acquisition, Wok Hay, LLC operated a fast casual Asian restaurant located in Knoxville, Tennessee. One of the sellers was granted, for no cash consideration, a 10% minority interest in the subsidiary we formed to acquire the Knoxville restaurant. The Company has since converted the acquired restaurant to a full-service Asian restaurant.

NOTE G – PROPERTY, EQUIPMENT AND OPERATING LEASES

Property and equipment, net, is comprised of the following (in thousands):

	March 4, 2008		June 5, 2007
Land	$	226,029	$	205,647
Buildings		468,652		429,721
Improvements		451,786		425,498
Restaurant equipment		307,753		294,810
Other equipment		100,781		99,911
Construction in progress		32,503		55,968
		1,587,504		1,511,555
Less accumulated depreciation and amortization		501,338		478,219
	$	1,086,166	$	1,033,336

Approximately 54% of our 721 restaurants are located on leased properties. Of these, approximately 58% are land leases only; the other 42% are for both land and building. The initial terms of these leases expire at various dates over the next 20 years. These leases may also contain required increases in minimum rent at varying times during the lease term and have options to extend the terms of the leases at a rate that is included in the original lease agreement. Most of our leases require the payment of additional (contingent) rent that is based upon a percentage of restaurant sales above agreed upon sales levels for the year. These sales levels vary for each restaurant and are established in the lease agreements. We recognize contingent rental expense (in annual as well as interim periods) prior to the achievement of the specified target that triggers the contingent rental expense, provided that achievement of that target is considered probable.

10

In June 2007, RTI, through its subsidiaries, acquired the remaining partnership interests of RT West Palm Beach, in which we had previously owned a 50% interest. In October 2007, RTI, through its subsidiaries, acquired the remaining partnership interests of RT Michigan and RT Detroit, in which we had previously owned a 1% and 50% interest, respectively. At the time of acquisition, RT West Palm Beach, RT Michigan, and RT Detroit operated 11, 14, and 11 Ruby Tuesday restaurants, respectively, and were scheduled to make future sub-lease payments totaling $3.1 million, $1.1 million, and $1.4 million, respectively, to various lessors as part of the sub-lease agreements with RTI. See Note F to the Condensed Consolidated Financial Statements for more information regarding these transactions.

Amounts included in assets held for sale at March 4, 2008 primarily consist of parcels of land upon which the Company has no intention to build restaurants.

Beginning in the fiscal quarter ended June 5, 2007, the Company changed its estimates of the useful lives of certain of its restaurant equipment affected by the re-imaging of Company-owned restaurants. Assets affected by the change in estimate were or will be replaced as part of our re-imaging initiative, and will be fully depreciated by the end of the Company’s 2008 fiscal year when the re-imaging will be complete. The effect of this change in estimate was to accelerate depreciation expense by $3.9 million and $12.6 million, which decreased basic and diluted earnings per share by $0.05 and $0.15 for the 13- and 39-weeks ended March 4, 2008, respectively.

NOTE H – LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt and capital lease obligations consist of the following (in thousands):

	March 4, 2008		June 5, 2007
Revolving credit facility	$	415,400	$	347,000
Unsecured senior notes:
Series A, due April 2010		85,000		85,000
Series B, due April 2013		65,000		65,000
Mortgage loan obligations		46,704		17,073
Capital lease obligations		182		265
		612,286		514,338
Less current maturities		569,706		1,779
	$	42,580	$	512,559

On April 3, 2003, RTI issued non-collateralized senior notes totaling $150.0 million through a private placement of debt (the “Private Placement”). The Private Placement initially consisted of $85.0 million in notes with a fixed interest rate of 4.69% (the “Series A Notes”) and $65.0 million in notes with a fixed interest rate of 5.42% (the “Series B Notes”). The Series A Notes and Series B Notes mature on April 1, 2010 and April 1, 2013, respectively.

On February 28, 2007, RTI entered into an amendment and restatement of its previous five-year revolving credit agreement (the “Credit Facility”) such that the aggregate amount we could borrow increased to $500.0 million. This amount includes a $50.0 million subcommitment for the issuance of standby letters of credit and a $50.0 million subcommitment for swingline loans. Proceeds from the Credit Facility can be used for general corporate purposes, including capital expenditures and, in certain circumstances, share repurchases. The Credit Facility will mature on February 23, 2012.

Under the Credit Facility, interest rates charged on borrowings can vary depending on the interest rate option we choose to utilize. Our options for the rate are the Base Rate or an adjusted LIBO Rate plus an applicable margin. The Base Rate is defined to be the higher of the issuing bank’s prime lending rate or the Federal Funds rate plus 0.5%. The applicable margin is zero percent for the Base Rate loans and a percentage ranging from 0.5% to 1.25% for the LIBO Rate-based option. We pay commitment fees quarterly ranging from 0.1% to 0.25% on the unused portion of the Credit Facility.

Under the terms of the Credit Facility, we had borrowings of $415.4 million with an associated floating rate of interest of 4.03% at March 4, 2008. As of June 5, 2007, we had $347.0 million outstanding with an

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associated floating rate of interest of 5.95%. After consideration of letters of credit outstanding, the Company had $67.5 million available under the Credit Facility as of March 4, 2008.

Both the Credit Facility and the notes issued in the Private Placement contain various restrictions, including limitations on additional debt, the payment of dividends and limitations regarding maximum funded debt, minimum net worth, and minimum fixed charge coverage ratios. On November 30, 2007, RTI entered into amendments of both the Credit Facility and the notes issued in the Private Placement to amend the minimum fixed charge coverage and maximum funded debt ratios through the fiscal quarter ending June 2, 2009 after which time the required ratios revert back to those in effect prior to the amendments. The amendment to the Private Placement provided for a 1% increase in interest rates upon the occurrence of credit ratios outside those previously allowed under the original terms of the Private Placement, but within the revised credit ratios agreed to in the November 30, 2007 amendment. As a result of our maximum funded debt ratio exceeding that which was previously allowed by our lenders under the original terms of the Private Placement as of December 4, 2007, the interest rates of our Series A and Series B Private Placement notes increased to 5.69% and 6.42%, respectively, effective with the beginning of the third fiscal quarter of our current fiscal year.

As reported in our Form 10-Q for the fiscal quarter ended December 4, 2007, despite being in compliance at that time with our debt covenants, we anticipated, absent further modifications, at some point during the next twelve months, we would be in violation of our maximum funded debt and minimum fixed charge coverage ratios. As a result, we reclassified the Credit Facility and the notes issued in our Private Placement from long-term to current as of December 4, 2007 in accordance with Emerging Issues Task Force (“EITF”) Issue No. 86-30, “Classification of Obligations When a Violation is Waived by a Creditor” (“EITF 86-30”).

Due to concerns that, as of March 4, 2008, our maximum funded debt ratio might exceed, and our minimum fixed charge coverage ratio might be below, the threshold levels established under the November 30, 2007 amended covenants, we obtained waivers of these possible covenant violations through April 18, 2008 from the lenders in our Credit Facility (dated February 29, 2008) and the lenders in our Private Placement (dated March 4, 2008). Included as additional consideration for the waivers, we agreed to not make any further dividend payments or stock repurchases. Our actual ratios at March 4, 2008 fell within the limits allowed by our Credit Facility and Private Placement as amended on November 30, 2007. However, we anticipate, absent further modifications, at some point during the next twelve months, we will be in violation of our maximum funded debt and minimum fixed charge coverage ratios, which between December 4, 2007 and December 2, 2008 are 3.75:1 and 1.85:1, respectively. Accordingly, we continue to classify obligations under both the Credit Facility and the notes issued in the Private Placement as current at March 4, 2008 in accordance with EITF 86-30.

As of the date of this filing, we continue to work towards amendments of both our Credit Facility and notes issued in the Private Placement. We believe we have agreement in principal with our lenders on the amended terms and are currently working on completing documentation of such amendments. These amendments are anticipated to include adjustments to both the maximum funded debt and minimum fixed charge coverage ratios. We expect the amendments to require higher interest rate spreads, mandatory prepayments of principal, and restrictions on capital expenditures, dividend payments, and stock repurchases. There are no assurances that our lenders will waive any future covenant violations or agree to these, or any future, amendments of our Credit Facility and Private Placement.

NOTE I – INCOME TAXES

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48 on June 6, 2007.

As a result of the adoption of FIN 48, the Company recognized a negligible increase in its liability for unrecognized tax benefits, which was accounted for as a reduction to our opening balance of retained

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earnings on June 6, 2007. The Company had a liability for unrecognized tax benefits of $4.2 million and $5.6 million as of March 4, 2008 and June 6, 2007, respectively. As of March 4, 2008 and June 6, 2007, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $2.7 million and $3.6 million, respectively. We do not expect that the amounts of unrecognized tax benefits will change significantly within the next twelve months.

Interest and penalties related to unrecognized tax benefits are recognized as components of income tax expense. As of March 4, 2008 and June 6, 2007, the Company had accrued $1.4 million and $2.2 million, respectively, for the payment of interest and penalties.

The effective tax rate for the 39-week period ended March 4, 2008 was (23.8)% compared to 32.1% for the corresponding period of the prior year. The effective tax rate decreased as compared to the prior year primarily as a result of the impact of tax credits, which remained consistent as compared to the prior year or increased, a decrease in taxable income, and, as discussed below, settlements of audits and expiration of certain statutes of limitations.

During the fiscal quarter ended March 4, 2008, our income tax expense was reduced by approximately $1.7 million as a result of completion of an audit and the expiration of certain statutes of limitations.

At March 4, 2008, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2007, and with few exceptions, state and local examinations by tax authorities prior to fiscal year 2005.

NOTE J – COMPREHENSIVE INCOME

SFAS No. 130, “Reporting Comprehensive Income” (“SFAS 130”), requires the disclosure of certain revenue, expenses, gains andlosses that are excluded from net income in accordance with U.S. generally accepted accounting principles. Items that currently impact the Company’s other comprehensive income are the minimum pension liability adjustments and payments received in partial settlement of the Piccadilly divestiture guarantee. See Note L to the Condensed Consolidated Financial Statement for further information on the Piccadilly settlement. Amounts shown in the table below are in thousands.

	Thirteen weeks ended				Thirty-nine weeks ended
	March 4,		March 6,		March 4,		March 6,
	2008		2007		2008		2007
Net income	$	11,708	$	28,655	$	12,447	$	66,934
Pension liability reclassification, net of tax		209		–		628		–
Piccadilly settlement, net of tax		–		201		151		201
Comprehensive income	$	11,917	$	28,856	$	13,226	$	67,135

NOTE K – PENSION AND POSTRETIREMENT MEDICAL AND LIFE BENEFIT PLANS

We sponsor three defined benefit pension plans for active employees and offer certain postretirement benefits for retirees. A summary of each of these is presented below.

Retirement Plan

RTI, along with Morrison Fresh Cooking, Inc. (which was subsequently purchased by Piccadilly Cafeterias, Inc., “Piccadilly”) and Morrison Health Care, Inc. (which was subsequently purchased by Compass Group, PLC, “Compass”), have sponsored the Morrison Restaurants Inc. Retirement Plan (the “Retirement Plan”). Effective December 31, 1987, the Retirement Plan was amended so that no additional benefits would accrue and no new participants may enter the Retirement Plan after that date. Participants receive benefits based upon salary and length of service.

On October 29, 2003, Piccadilly announced that it had filed for Chapter 11 protection in the United States Bankruptcy Court. Piccadilly withdrew as a sponsor of the Retirement Plan, with court approval, on March

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4, 2004. Because RTI and Morrison Health Care, Inc. (“MHC”) were, at the time, the remaining sponsors of the Retirement Plan, they are jointly and severally required to make contributions to the Retirement Plan, or any successor plan, in such amounts as are necessary to satisfy all benefit obligations under the Retirement Plan. Participants formerly with Morrison Fresh Cooking, Inc. (“MFC”) were allocated between RTI and Compass in fiscal 2007.

Assets and obligations attributable to MHC participants, as well as participants, formerly with MFC, who were allocated to Compass following the bankruptcy, were spun out of the Retirement Plan effective June 30, 2006. Following Compass’s withdrawal, RTI remained the sole sponsor of the Retirement Plan.

Executive Supplemental Pension Plan and Management Retirement Plan

Under these unfunded defined benefit pension plans, eligible employees earn supplemental retirement income based upon salary and length of service, reduced by social security benefits and amounts otherwise receivable under other specified Company retirement plans. Effective June 1, 2001, the Management Retirement Plan was amended so that no additional benefits would accrue and no new participants may enter the plan after that date.

Included in the amounts shown below are costs and obligations associated with pension benefits for certain Piccadilly employees which were absorbed by RTI following Piccadilly's bankruptcy. See Note L to the Condensed Consolidated Financial Statements for more information.

Postretirement Medical and Life Benefits

Our Postretirement Medical and Life Benefits plans provide medical benefits to substantially all retired employees and life insurance benefits to certain retirees. The medical plan requires retiree cost sharing provisions that are more substantial for employees who retire after January 1, 1990.

The following tables detail the components of net periodic benefit costs and the amounts recognized in our Condensed Consolidated Financial Statements for the Retirement Plan, Management Retirement Plan, the Executive Supplemental Pension Plan (collectively, the “Pension Benefits”) and the Postretirement Medical and Life Benefits plans (in thousands):

	Pension Benefits
	Thirteen weeks ended						Thirty-nine weeks ended
	March 4,			March 6,			March 4,			March 6,
	2008			2007			2008			2007
Service cost	$	91		$	75		$	273		$	225
Interest cost		566			532			1,698			1,596
Expected return on plan assets		(186	)		(158	)		(558	)		(474	)
Amortization of prior service cost		81			82			243			246
Recognized actuarial loss		244			223			732			668
Net periodic benefit cost	$	796		$	754		$	2,388		$	2,261
	Postretirement Medical and Life Benefits
	Thirteen weeks ended						Thirty-nine weeks ended
	March 4,			March 6,			March 4,			March 6,
	2008			2007			2008			2007
Service cost	$	2		$	4		$	6		$	12
Interest cost		26			29			78			87
Amortization of prior service cost		(2	)		(4	)		(6	)		(12	)
Recognized actuarial loss		24			29			72			87
Net periodic benefit cost	$	50		$	58		$	150		$	174

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As disclosed in our Form 10-K for fiscal 2007, we are required to make contributions to the Retirement Plan in fiscal 2008. We made contributions in the amount of $0.2 million to the Retirement Plan during the 39 weeks ended March 4, 2008. We expect to make contributions of $0.2 million for the remainder of fiscal 2008.

We also sponsor two defined contribution retirement savings plans. Information regarding these plans is included in RTI’s Annual Report on Form 10-K for the fiscal year ended June 5, 2007.

NOTE L – COMMITMENTS AND CONTINGENCIES

Guarantees

At March 4, 2008, we had certain third party guarantees, which primarily arose in connection with our franchising and divestiture activities. The majority of these guarantees expire at various dates ending in fiscal 2013. Generally, we are required to perform under these guarantees in the event that a third party fails to make contractual payments or, in the case of franchise partnership debt guarantees, achieve certain performance measures.

Franchise Partnership Guarantees

As part of the franchise partnership program, we have negotiated with various lenders a $48 million credit facility to assist the franchise partnerships with working capital needs (the “Franchise Facility”). As sponsor of the Franchise Facility, we serve as partial guarantor of the draws made by the franchise partnerships on the Franchise Facility. Although the Franchise Facility allows for individual franchise partnership loan commitments to the end of the Franchise Facility term, all current commitments are for 12 months. The Franchise Facility expires on October 5, 2011.

The Franchise Facility contains various restrictions, including limitations on RTI additional debt, the payment of dividends and limitations regarding maximum funded debt, minimum net worth, and minimum fixed charge coverage ratios. On November 30, 2007, RTI entered into an amendment of the Franchise Facility to amend the minimum fixed charge coverage and maximum funded debt ratios through the fiscal quarter ending June 2, 2009 after which time the required ratios revert back to those in effect prior to the amendments. As discussed in Note H to the Condensed Consolidated Financial Statements, the lenders have provided a limited waiver with regard to the Company’s compliance with its debt covenants. However, absent further modifications, violation of certain of these covenants is anticipated at some point during the next twelve months. Should this occur, amounts due under the Franchise Facility could be called by the lenders and the Company could be liable as guarantor of the debt.

Prior to July 1, 2004, RTI also had an arrangement with a third party lender whereby we could choose, in our sole discretion, to partially guarantee specific loans for new franchisee restaurant development (the “Cancelled Facility”). Should payments be required under the Cancelled Facility, RTI has certain rights to acquire the operating restaurants after the third party debt is paid. On July 1, 2004, RTI terminated the Cancelled Facility and notified this third party lender that it would no longer enter into additional guarantee arrangements. RTI will honor the partial guarantees of the remaining two loans to franchise partnerships that were in existence as of the termination of the Cancelled Facility.

Also in July 2004, RTI entered into a new program, similar to the Cancelled Facility, with a different third party lender (the “Franchise Development Facility”). Under the Franchise Development Facility, the Company’s potential guarantee liability was reduced, and the program included better terms and lower rates for the franchise partnerships as compared to the Cancelled Facility.  Under the Franchise Development Facility, qualifying franchise partnerships could collectively borrow up to $20 million for new restaurant development. The Company partially guarantees amounts borrowed under the Franchise Development Facility. The Franchise Development Facility had a three-year term that expired on July 1, 2007, although the guarantees outstanding at that time survived the expiration of the arrangement. Should payments be required under the Franchise Development Facility, RTI has rights to acquire the operating restaurants at fair market value after the third party debt is paid.

As of March 4, 2008, the amounts guaranteed under the Franchise Facility, the Cancelled Facility and the Franchise Development Facility were $37.5 million,$0.9 million and $4.2 million, respectively. The guarantees associated with the Franchise Development Facility are collateralized by a $4.2 million letter of

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credit. As of June 5, 2007, the amounts guaranteed under the Franchise Facility, the Cancelled Facility and the Franchise Development Facility were $30.4 million, $0.9 million and $6.8 million, respectively. Unless extended, guarantees under these programs will expire at various dates from April 2008 through February 2013. To our knowledge, all of the franchise partnerships are current in the payment of their obligations due under these credit facilities. We have recorded liabilities totaling $1.0 million and $1.2 million as of March 4, 2008 and June 5, 2007, respectively, related to these guarantees. This amount was determined based on amounts to be received from the franchise partnerships as consideration for the guarantees. We believe these amounts approximate the fair value of the guarantees.

Divestiture Guarantees

On November 20, 2000, the Company completed the sale of all 69 of its American Cafe (including L&N Seafood) and Tia’s Tex-Mex (“Tia’s”) restaurants to Specialty Restaurant Group, LLC (“SRG”), a limited liability company. A number of these restaurants were located on leased properties. RTI remains primarily liable on certain American Cafe and Tia’s leases that were subleased to SRG and contingently liable on others. SRG, on December 10, 2003, sold its 28 Tia’s restaurants to an unrelated entity and, as part of the transaction, further subleased certain Tia’s properties.

During the second quarter of fiscal 2007, the third party owner to whom SRG had sold the Tia’s restaurants declared Chapter 7 bankruptcy. This declaration left RTI and/or SRG either primarily or indirectly liable for certain of the older Tia’s leases. As of March 4, 2008, RTI has settled almost all of the Tia’s leases. Future payments to the remaining landlords are expected to be insignificant.

On January 2, 2007, SRG closed 20 of its restaurants, 14 of which were located on properties sub-leased from RTI. Four other SRG restaurants were closed in calendar 2006. SRG filed for Chapter 11 bankruptcy on February 14, 2007.

Following the closing of the 20 SRG restaurants in January 2007, RTI performed an analysis of the now-closed properties in order to estimate the lease liability to be incurred from the closings. Based upon the analysis performed, a charge of $5.8 million was recorded during fiscal 2007. An additional charge of $0.3 million was recorded during the first three quarters of fiscal 2008.

As of March 4, 2008, RTI remains primarily liable for six SRG leases which cover closed restaurants. Scheduled cash payments for rent remaining on these six leases at March 4, 2008 totaled $2.9 million. Because many of these restaurants were located in malls, RTI may be liable for other charges such as common area maintenance and property taxes. In addition to the scheduled remaining payments, we believe an additional $0.8 million for previously scheduled rent and related payments on these leases had not been paid as of March 4, 2008. As of March 4, 2008, RTI has recorded an estimated liability of $2.9 million based on the six SRG unsettled claims to date.

Two leases, which, at June 5, 2007, comprised $0.6 million of the lease liability reserve, were settled in the first quarter of fiscal 2008 at a total cost of $0.6 million. An additional $0.8 million was paid on currently unresolved leases during the three quarters of fiscal 2008.

We will continue to review the situation relative to these leases during the remainder of fiscal 2008 and adjust reserves as deemed appropriate.

During fiscal 1996, our shareholders approved the distribution (the “Distribution”) of our family dining restaurant business, then called Morrison Fresh Cooking, Inc., and our health care food and nutrition services business, then called Morrison Health Care, Inc. Subsequently, Piccadilly acquired MFC and Compass acquired MHC. Prior to the Distribution, we entered into various guarantee agreements with both MFC and MHC, most of which have expired. We do remain contingently liable for (1) payments to MFC and MHC employees retiring under (a) MFC’s and MHC’s versions of the Management Retirement Plan and the Executive Supplemental Pension Plan (the two non-qualified defined benefit plans) for the accrued benefits earned by those participants as of March 1996, and (b) funding obligations under the Retirement Plan maintained by MFC and MHC following the Distribution (the qualified plan), and (2) payments due on certain workers’ compensation claims. As payments are required under these guarantees, RTI is to divide the amounts due equally with the other remaining entity.

On October 29, 2003, Piccadilly filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court in Fort Lauderdale, Florida. In addition, on March 4, 2004, Piccadilly withdrew as a sponsor of the

16

Retirement Plan with the approval of the bankruptcy court. Because RTI and MHC were, at the time, the remaining sponsors of the Retirement Plan, they are jointly and severally required to make contributions to the Retirement Plan, or any successor plan, in such amounts as are necessary to satisfy all benefit obligations under the Retirement Plan.

The Company entered into a settlement agreement under which we agreed to accept a $5.0 million unsecured claim in exchange for the creditors’ committee agreement to allow such a claim. This settlement agreement was approved by the bankruptcy court on October 21, 2004.

As of March 4, 2008, we have received partial settlements of the Piccadilly bankruptcy totaling $2.0 million to date.The Company hopes to recover further amounts upon final settlement of the bankruptcy. The actual amount we may be ultimately required to pay towards the divestiture guarantees could be lower if there is any further recovery in the bankruptcy proceeding, or could be higher if more valid participants are identified or if actuarial assumptions are proven inaccurate.

We estimated our divestiture guarantees related to MHC at March 4, 2008 to be $3.3 million for employee benefit plans and $0.1 million for workers’ compensation claims. In addition, we remain contingently liable for MHC’s portion (estimated to be $2.6 million) of the MFC employee benefit plan and workers’ compensation claims for which MHC is currently responsible under the divestiture guarantee agreements. We believe the likelihood of being required to make payments for MHC’s portion to be remote due to the size and financial strength of MHC and Compass.

Litigation

We are presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business. We provide reserves for such claims when payment is probable and estimable in accordance with FASB Statement No. 5, “Accounting for Contingencies”. At this time, in the opinion of management, the ultimate resolution of pending legal proceedings will not have a material adverse effect on our condensed consolidated results of operations, financial position or liquidity.

NOTE M – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 for financial assets and liabilities, as well as any other assets and liabilities that are carried at fair value on a recurring basis in financial statements are effective for financial statements issued for fiscal years beginning after November 15, 2007 (fiscal year 2009 for RTI), and interim periods within those fiscal years. The provisions for nonfinancial assets and liabilities are expected to be effective for financial statements issued for fiscal years beginning after November 15, 2008 (fiscal year 2010 for RTI), and interim periods within those fiscal years. We are currently evaluating the impact of SFAS 157 on our Condensed Consolidated Financial Statements.

In September 2006, the FASB issued Statement No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132R” (“SFAS 158”). SFAS 158 requires an entity to recognize in its statement of financial condition the funded status of its defined benefit pension and postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation. We adopted this requirement of SFAS 158 as of June 5, 2007. SFAS 158 also requires companies to measure the funded status of pension and postretirement plans as of the date of a company’s fiscal year ending after December 31, 2008 (fiscal 2009 for RTI). Our plans currently have measurement dates that do not coincide with our fiscal year end. Accordingly, we will be required to change their measurement dates in fiscal 2009. The impact of the transition, including the net periodic benefit cost computed for the period between our previous measurement dates and our fiscal year end, as well as changes in the fair value of plan assets and benefit obligations, will be recorded directly to Shareholders’ Equity. We do not anticipate the adoption of this requirement will materially impact our financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value.

17

Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (fiscal 2009 for RTI). We are currently evaluating the impact of SFAS 159 on our Condensed Consolidated Financial Statements.

In March 2007, the FASB ratified the consensus reached by the EITF on Issue No. 06-10 (“EITF 06-10”), “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements”. EITF 06-10 provides guidance on an employers’ recognition of a liability and related compensation costs for collateral assignment split-dollar life insurance arrangements that provide a benefit to an employee that extends into postretirement periods and the asset in collateral assignment split-dollar life insurance arrangements. The effective date of EITF 06-10 is for fiscal years beginning after December 15, 2007 (fiscal 2009 for RTI). As of March 4, 2008 we have recorded a $2.8 million asset within our Condensed Consolidated Balance Sheet for our collateral assignment in eight split-dollar life insurance arrangements. We are currently evaluating the impact of EITF 06-10 on our Condensed Consolidated Financial Statements.

In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes the principles and requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; 2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and 3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is to be applied prospectively to business combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008 (fiscal 2010 for RTI). We are currently evaluating the impact SFAS 141R will have on any future business combinations we enter into.

In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards that require noncontrolling interests to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS 160 is to be applied prospectively to business combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008 (fiscal 2010 for RTI). We are currently evaluating the impact of SFAS 160 on our Condensed Consolidated Financial Statements.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

General:

Ruby Tuesday, Inc., including its wholly-owned subsidiaries (“RTI”, the “Company”, “we” and/or “our”), owns and operates Ruby Tuesday® casual dining restaurants. We also franchise the Ruby Tuesday concept in selected domestic and international markets. In June 2007, we acquired one Wok Hay restaurant, an Asian concept located in Knoxville, Tennessee. As of March 4, 2008 we owned and operated 721, and franchised 221, Ruby Tuesday restaurants and owned and operated one Wok Hay restaurant. Ruby Tuesday restaurants can now be found in 45 states, the District of Columbia, 11 foreign countries, Puerto Rico, and Guam.

Casual dining, the segment of the restaurant industry in which RTI operates, is intensely competitive with respect to prices, services, convenience, locations and the types and quality of food. We compete with other food service operations, including locally-owned restaurants, and other national and regional restaurant chains that offer the same or similar types of services and products as we do. Our industry is often affected by changes in consumer tastes, national, regional or local conditions, demographic trends, traffic patterns, and the types, numbers and locations of competing restaurants as well as overall marketing efforts. There also is significant competition in the restaurant industry for management personnel and for attractive commercial real estate sites suitable for restaurants.

A key performance goal for us is to get more out of existing assets. To measure our progress towards that goal, we focus on measurements we believe are critical to our growth and progress including, but not limited to, the following:

• Same-restaurant sales: a year-over-year comparison of sales volumes for restaurants that, in the current year, have been open 18 months or longer in order to remove the impact of new openings in comparing the operations of existing restaurants; and

• Average restaurant volumes: a per-restaurant calculated annual average sales amount, which helps us gauge the continued development of our brand. Generally speaking, growth in average restaurant volumes in excess of same-restaurant sales is an indication that newer restaurants are operating with sales levels in excess of the Company system average and conversely, when the growth in average restaurant volumes is less than that of same-restaurant sales, a general conclusion can be reached that newer restaurants are recording sales less than those of the existing Company system.

Our goal is to stabilize and ultimately increase same-restaurant sales 2% or greater per year and to increase average restaurant volumes towards our long-term goal of $2.5 million in sales per restaurant per year. We also have strategies to invest wisely in new restaurants (which means generating both higher sales as well as higher returns) and to maintain the right capital structure to create value for our shareholders. To that end, near the end of fiscal 2007 we began a re-imaging initiative intended to move our brand towards a higher quality casual dining restaurant and away from the traditional bar and grill category.

Our historical performance in these areas as well as further details regarding our re-imaging are discussed throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section.

RTI generates revenue from the sale of food and beverages at our restaurants and from contractual arrangements with our franchisees. Franchise development and license fees are recognized when we have substantially performed all material services and the franchise-owned restaurant has opened for business. Franchise royalties and support service fees (each generally 4.0% of monthly sales) are recognized on the accrual basis.

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Results of Operations:

The following is an overview of our results of operations for the 13- and 39-week periods ended March 4, 2008:

Net income decreased to $11.7 million for the 13 weeks ended March 4, 2008 compared to $28.7 million for the same quarter of the previous year. Diluted earnings per share for the fiscal quarter ended March 4, 2008 decreased to $0.23 per share from $0.49 per share in the corresponding period of the prior year as a result of a decrease in net income as discussed below, partially offset by fewer outstanding shares.

During the 13 weeks ended March 4, 2008:

• Six Company-owned Ruby Tuesday restaurants were opened;

• Six Company-owned Ruby Tuesday restaurants were closed;

• Two franchise restaurants were opened and four were closed; and

• Same-restaurant sales at Company-owned restaurants decreased 12.7%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 12.0%.

Net income decreased to $12.4 million for the 39 weeks ended March 4, 2008 compared to $66.9 million for the same period of the previous year. Diluted earnings per share for the 39-week period ended March 4, 2008 decreased to $0.24 from $1.14 per share in the corresponding period of the prior year as a result of a decrease in net income as discussed below, partially offset by fewer outstanding shares.

During the 39 weeks ended March 4, 2008:

• 51 Company-owned Ruby Tuesday restaurants were opened or acquired, including 36 purchased from our West Palm Beach, Michigan, and Detroit franchisees;

• Ten Company-owned Ruby Tuesday restaurants were closed;

• Aside from the restaurants sold to the Company, nine franchise restaurants were opened and five were closed;

• Same-restaurant sales at Company-owned restaurants decreased 9.6%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 7.8%; and

• One Wok Hay Asian restaurant was acquired.

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The following table sets forth selected restaurant operating data as a percentage of total revenue, except where otherwise noted, for the periods indicated. All information is derived from our Condensed Consolidated Financial Statements included in this Form 10-Q.

	Thirteen weeks ended				Thirty-nine weeks ended
	March 4,		March 6,		March 4,		March 6,
	2008		2007		2008		2007
Revenue:
Restaurant sales and operating revenue	99	.1%	99	.0%	99	.0%	98	.9%
Franchise revenue	0	.9	1	.0	1	.0	1	.1
Total revenue	100	.0	100	.0	100	.0	100	.0
Operating costs and expenses:
Cost of merchandise (1)	27	.9	26	.9	27	.7	27	.0
Payroll and related costs (1)	33	.1	30	.0	33	.2	30	.7
Other restaurant operating costs (1)	20	.2	17	.7	20	.5	18	.1
Depreciation and amortization (1)	7	.0	5	.2	7	.2	5	.4
Loss from Specialty Restaurant
Group, LLC bankruptcy	0	.0	1	.5	0	.0	0	.6
Selling, general and administrative, net	7	.2	7	.2	8	.6	8	.3
Equity in losses of
unconsolidated franchises	0	.3	0	.0	0	.4	0	.1
Interest expense, net	2	.4	1	.3	2	.3	1	.3
Income before income taxes	2	.7	11	.0	1	.0	9	.4
(Benefit)/provision for income taxes	(0	.7)	3	.4	(0	.2)	3	.0
Net income	3	.3%	7	.6%	1	.2%	6	.4%

(1)   As a percentage of restaurant sales and operating revenue.

The following table shows Company-owned and franchised Ruby Tuesday concept restaurant openings and closings, and total Ruby Tuesday concept restaurants for the 13 and 39 week periods ended March 4, 2008 and March 6, 2007.

	Thirteen weeks ended		Thirty-nine weeks ended
	March 4,	March 6,	March 4,	March 6,
	2008	2007	2008	2007
Company–owned:
Beginning number	721	673	680	629
Opened	6	6	15	38
Acquired from franchisees	–	11	36	28
Sold or leased to franchisees	–	(4)	–	(7)
Closed	(6)	(8)	(10)	(10)
Ending number	721	678	721	678
Franchise:
Beginning number	223	253	253	251
Opened	2	3	9	20
Acquired or leased from RTI	–	4	–	7
Sold to RTI	–	(11)	(36)	(28)
Closed	(4)	(1)	(5)	(2)
Ending number	221	248	221	248

The above table excludes one Wok Hay restaurant which was acquired in June 2007.

We estimate that approximately four additional Company-owned Ruby Tuesday restaurants will be opened during the remainder of fiscal 2008.

We expect our domestic and international franchisees to open approximately six to nine additional Ruby Tuesday restaurants during the remainder of fiscal 2008.

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Revenue

RTI’s restaurant sales and operating revenue for the 13 weeks ended March 4, 2008 decreased 7.0% to $348.0 million compared to the same period of the prior year. This decrease primarily resulted from a 12.7% decrease in same-restaurant sales, offset by a net addition of 43 restaurants over the prior year. The decrease in same-restaurant sales results from reductions in both customer counts and average check, as RTI utilized value-oriented direct mail and freestanding insert coupons.

Franchise revenue for the 13 weeks ended March 4, 2008 decreased 14.4% to $3.2 million compared to the same period of the prior year. Franchise revenue is predominately comprised of domestic and international royalties, which totaled $3.1 million and $3.6 million for the 13-week periods ended March 4, 2008 and March 6, 2007, respectively. The decrease in franchise revenue is a result of the acquisitions of RT West Palm Beach Franchise, LP (“RT West Palm Beach”) in June 2007 and RT Michigan Franchise, LLC (“RT Michigan”) in October 2007. Same-restaurant sales for domestic franchise Ruby Tuesday restaurants decreased 12.0% in the third quarter of fiscal 2008.

For the 39 weeks ended March 4, 2008, sales at Company-owned restaurants decreased 3.3% to $1,008.4 million compared to the same period of the prior year. This decrease primarily resulted from a 9.6% decrease in same-restaurant sales for the 39-week period ended March 4, 2008, offset by a net addition of 43 restaurants.

For the 39-week period ended March 4, 2008, franchise revenues decreased 5.0% to $10.5 million compared to $11.1 million for the same period in the prior year. Domestic and international royalties totaled $10.0 million and $10.5 million for the 39-week periods ended March 4, 2008 and March 6, 2007, respectively, as increased royalties from international franchisees were offset, in part, by the acquisition of RT West Palm Beach and RT Michigan, as previously discussed.

Average restaurant volumes at Company-owned restaurants, calculated on a rolling 12 period basis, decreased 7.8% to $1.95 million as of March 4, 2008.

Pre-tax Income

Pre-tax income decreased 77.3% to $9.4 million for the 13 weeks ended March 4, 2008, from the corresponding period of the prior year. This decrease is primarily due to a decrease of 12.7% in same-restaurant sales at Company owned restaurants combined with increases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of cost of merchandise, payroll and related costs, other restaurant operating costs, depreciation and amortization, and interest expense.

For the 39-week period ended March 4, 2008, pre-tax income decreased 89.8% to $10.1 million from the corresponding period of the prior year. This decrease is primarily due to a decrease of 9.6% in same-restaurant sales at Company owned restaurants combined with increases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of cost of merchandise, payroll and related costs, other restaurant operating costs, depreciation and amortization, selling, general, and administrative expense, and interest expense.

In the paragraphs which follow, we discuss in more detail the components of the decrease in pre-tax income for the 13 and 39-week periods ended March 4, 2008, as compared to the comparable periods in the prior year.

Cost of Merchandise

Cost of merchandise decreased 3.3% to $97.3 million for the 13 weeks ended March 4, 2008, over the corresponding period of the prior year. As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 26.9% to 27.9% for the 13 weeks ended March 4, 2008.

For the 39-week period ended March 4, 2008, cost of merchandise increased 0.9% to $279.0 million over the corresponding period of the prior year. As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 27.0% to 27.7% for the 39 weeks ended March 4, 2008.

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The increase for both the 13 and 39-week periods as a percentage of restaurant sales and operating revenue is primarily due to increased food and beverage costs as a result of offering higher quality menu items. Additionally, several promotions were offered during the current quarter which increased cost of merchandise as a percentage of restaurant sales and operating revenue, such as rib combination and seafood selection features, and utilizing direct mail and freestanding insert coupons.

Payroll and Related Costs

Payroll and related costs increased 2.4% to $115.2 million for the 13 weeks ended March 4, 2008, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 30.0% to 33.1%.

For the 39-week period ended March 4, 2008, payroll and related costs increased 4.5% to $334.6 million, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 30.7% to 33.2%.

The increase as a percentage of restaurant sales and operating revenue for both the 13 and 39-week periods is primarily due to higher hourly labor relating to the rollout of the quality service specialist program in the second quarter of fiscal 2008, minimum wage increases in several states since the end of the same quarters in the prior year, and higher management labor due to loss of leveraging with lower sales volumes.

Other Restaurant Operating Costs

Other restaurant operating costs increased 6.0% to $70.3 million for the 13-week period ended March 4, 2008, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, other restaurant operating costs increased from 17.7% to 20.2%. Increases for the 13-week period were primarily due to higher rent and lease required expenses due primarily to the acquisition of the RT West Palm Beach, RT Michigan, and RT Detroit Franchise, LLC (“RT Detroit”) franchisees since the same quarter of the prior year, higher credit card expense due to recognition of income in the prior year resulting from a settlement with a credit card vendor, higher utilities due to higher electric bills in the current year, an increase in asset impairment charges, an increase in site selection expenses due to dead site write-offs in the current quarter, and an increase in legal reserves. These increases were partially offset by lower general liability insurance due to favorable claims experience in the current quarter.

For the 39-week period ended March 4, 2008, other restaurant operating costs increased 9.9% to $207.0 million as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, these costs increased from 18.1% to 20.5%. The increase is due to the increased expenses mentioned above, coupled with an increase in repairs and maintenance costs to maintain our 5-star facilities standard, higher supplies expense due to upgrading napkins to high-quality linen-like dinner napkins and rollout of new tablecloths and glassware due to our re-imaging initiative, and higher insurance due to proceeds from a Hurricane Katrina claim received in the prior year.

Depreciation and Amortization

Depreciation and amortization expense increased 25.2% to $24.3 million for the 13-week period ended March 4, 2008, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, this expense increased from 5.2% to 7.0%.

For the 39-week period ended March 4, 2008, depreciation and amortization expense increased 28.6% to $73.0 million as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, this expense increased from 5.4% to 7.2%.

The increase for both the 13 and 39-week periods as a percentage of restaurant sales and operating revenue is primarily due to accelerated depreciation ($3.9 million and $12.6 million, respectively) for restaurants re-imaged as part of our re-imaging initiative which had begun in the latter part of fiscal 2007 and loss of leveraging with lower sales volumes.

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Selling, General and Administrative Expenses, Net

Selling, general and administrative expenses, net of support service fee income totaling $0.9 million, decreased 7.6% to $25.1 million for the 13-week period ended March 4, 2008, as compared to the corresponding period in the prior year. These expenses were 7.2% of total operating revenue for both 13-week periods ending March 4, 2008 and March 6, 2007. The decrease for the 13-week period is primarily a result of lower cable television advertising expense due to less air time, which was partially offset by higher expense for a direct mail program utilized in the current quarter in conjunction with the completion of re-imaged restaurants.

Selling, general and administrative expenses, net of support service fee income totaling $4.9 million, increased 0.1% to $87.6 million for the 39-week period ended March 4, 2008 as compared to the corresponding period in the prior year. As a percentage of total operating revenue, these expenses increased from 8.3% to 8.6%.

The increase for the 39-week period is primarily due to an increase in advertising due to utilizing a direct mail program in conjunction with the completion of re-imaged restaurants and lower marketing and advertising fee income from franchisees due to the acquisitions of RT West Palm Beach in the first quarter of fiscal 2008 and RT Michigan and RT Detroit in the second quarter of fiscal 2008, which were partially offset by lower cable and television expense due to less air time and the addition of late night purchases. The higher advertising expense was partially offset by lower general and administrative expenses, as a percentage of operating revenue, due primarily to a reduction in bonus expense based on current expectations, lower training payroll due to only fifteen new restaurant openings during the first three quarters of fiscal 2008 compared to thirty-eight openings in the same period of the prior year, offset by increased management labor due to additional catering managers since the same period of the prior year and rollout of the Regional Service Manager program, higher share-based compensation, and loss of leveraging with lower sales volumes.

Equity in Losses of Unconsolidated Franchises

Our equity in the losses of unconsolidated franchises was $1.1 million for the 13 weeks ended March 4, 2008, which is $1.1 million more than the corresponding period of the prior year.

Our equity in losses of unconsolidated franchises was $3.6 million for the 39-week period ended March 4, 2008, which is $3.0 million more than the corresponding period of the prior year.

The increase in loss for both the 13 and 39-week periods is primarily due to a reduction in earnings from investments in certain franchise partnerships, coupled with the acquisition of three franchise partnerships since the third quarter of the prior year. As of March 4, 2008, we held 50% equity investments in each of six franchise partnerships which collectively operate 72 Ruby Tuesday restaurants. As of March 6, 2007, we held 50% equity investments in each of nine franchise partnerships which then collectively operated 104 Ruby Tuesday restaurants.

Interest Expense, Net

Net interest expense increased $3.7 million for the 13 weeks ended March 4, 2008, as compared to the corresponding period in the prior year, primarily due to higher average debt outstanding resulting from the Company acquiring 4.9 million shares of its common stock subsequent to March 6, 2007 under our ongoing share repurchase program and the acquisitions of three franchise partnerships since the third quarter of the prior year. Net interest expense increased $10.2 million for the 39-week period ended March 4, 2008, as compared to the corresponding period in the prior year, primarily for the same reasons mentioned above. See “Borrowings and Credit Facilities” for more information.

(Benefit)/Provision for Income Taxes

The effective tax rate for the current quarter was (24.6)% compared to 30.9% for the same period of the prior year. The effective tax rate was (23.8)% for the 39-week period ended March 4, 2008 compared to 32.1% for the corresponding period of the prior year. The effective income tax rate for both the 13- and 39-week periods decreased primarily as a result of the impact of tax credits, which remained consistent or

24

increased, a decrease in taxable income, and the tax impact of settlements of audits and expiration of certain statutes of limitations. Based upon projected pre-tax income levels for the remainder of the fiscal year, we anticipate our effective tax rate for the fiscal year to be in the range of (12.0)% to (21.0)%, which excludes any additional discrete items.

Critical Accounting Policies:

Our MD&A is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We continually evaluate the information used to make these estimates as our business and the economic environment changes.

We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity.

Share-based Employee Compensation

We account for share-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123(R)”). As required by SFAS 123(R), share-based compensation expense is estimated for equity awards at fair value at the grant date. We determine the fair value of equity awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires various highly judgmental assumptions including the expected dividend yield, stock price volatility and life of the award. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. See Note C to the Condensed Consolidated Financial Statements for further discussion of share-based employee compensation.

Impairment of Long-Lived Assets

Each quarter we evaluate the carrying value of any individual restaurant when the cash flows of such restaurant have deteriorated and we believe the probability of continued operating and cash flow losses indicate that the net book value of the restaurant may not be recoverable. In performing the review for recoverability, we consider the future cash flows expected to result from the use of the restaurant and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the restaurant, an impairment loss is recognized for the amount by which the net book value of the asset exceeds its fair value. Otherwise, an impairment loss is not recognized. Fair value is based upon estimated discounted future cash flows expected to be generated from continuing use through the expected disposal date and the expected salvage value. In the instance of a potential sale of a restaurant in a refranchising transaction, the expected purchase price is used as the estimate of fair value.

If a restaurant that has been open for at least one quarter shows negative cash flow results, we prepare a plan to reverse the negative performance. Under our policies, recurring or projected annual negative cash flow signals a potential impairment. Both qualitative and quantitative information are considered when evaluating for potential impairments.

At March 4, 2008, we had 36 restaurants that had been open more than one year with rolling 12 month negative cash flows. Of these 36 restaurants, four had previously been impaired to salvage value and one was impaired to salvage value during the current quarter. We reviewed the plans to improve cash flows at each of the other 31 restaurants and concluded that impairments existed at certain of them. Impairment charges of $0.5 million were recorded during the quarter for open restaurants. Should sales at these restaurants not improve within a reasonable period of time, further impairment charges are possible. In addition to the above, impairments totaling $0.3 million were recorded during the quarter ended March 4, 2008 on assets classified as held for sale in our Condensed Consolidated Balance Sheet.

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Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, closure costs, salvage value, and sublease income. Accordingly, actual results could vary significantly from our estimates.

Allowance for Doubtful Notes and Interest Income

We follow a systematic methodology each quarter in our analysis of franchise and other notes receivable in order to estimate losses inherent at the balance sheet date. A detailed analysis of our loan portfolio involves reviewing the following for each significant borrower:

• terms (including interest rate, original note date, payoff date, and principal and interest start dates);

• note amounts (including the original balance, current balance, associated debt guarantees, and total exposure); and

• other relevant information including whether the borrower is making timely interest, principal, royalty and support payments, the borrower’s debt coverage ratios, the borrower’s current financial condition and sales trends, the borrower’s additional borrowing capacity, and, as appropriate, management’s judgment on the quality of the borrower’s operations.

Based on the results of this analysis, the allowance for doubtful notes is adjusted as appropriate. No portion of the allowance for doubtful notes is allocated to guarantees. In the event that collection is deemed to be an issue, a number of actions to resolve the issue are possible, including modification of the terms of payment of franchise fees or note obligations or a restructuring of the borrower’s debt to better position the borrower to fulfill its obligations.

At March 4, 2008 the allowance for doubtful notes was $3.4 million. Included in the allowance for doubtful notes is $1.9 million allocated to the $4.9 million of debt due from four franchisees that, for the most recent reporting period, have either reported coverage ratios below the required levels with certain of their third party debt, or reported ratios above the required levels, but for an insufficient amount of time. With the exception of amounts borrowed under one current and two former credit facilities for franchise partnerships (see Note L to the Condensed Consolidated Financial Statements for more information), the third party debt referred to above is not guaranteed by RTI. The Company believes that payments are being made by these franchisees in accordance with the terms of these debts.

We recognize interest income on notes receivable when earned, which sometimes precedes collection. A number of our franchise notes have, since the inception of these notes, allowed for the deferral of interest during the first one to three years. All franchisees that issued outstanding notes to us are currently paying interest on these notes. It is our policy to cease accruing interest income and recognize interest on a cash basis when we determine that the collection of interest is doubtful. The same analysis noted above for doubtful notes is utilized in determining whether to cease recognizing interest income and thereafter record interest payments on the cash basis.

Lease Obligations

The Company leases a significant number of its restaurant properties. At the inception of the lease, each property is evaluated to determine whether the lease will be accounted for as an operating or capital lease. The term used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty.

Our lease term used for straight-line rent expense is calculated from the date we take possession of the leased premises through the lease termination date. There is potential for variability in our “rent holiday” period which begins on the possession date and ends on the earlier of the restaurant open date or the commencement of rent payments. Factors that may affect the length of the rent holiday period generally relate to construction-related delays. Extension of the rent holiday period due to delays in restaurant opening will result in greater preopening rent expense recognized during the rent holiday period.

For leases that contain rent escalations, we record the total rent payable during the lease term, as determined above, on the straight-line basis over the term of the lease (including the “rent holiday” period

26

beginning upon possession of the premises), and we record the difference between the minimum rents paid and the straight-line rent as deferred escalating minimum rent.

Certain leases contain provisions that require additional rental payments, called "contingent rents", when the associated restaurants' sales volumes exceed agreed upon levels. We recognize contingent rental expense (in annual as well as interim periods) prior to the achievement of the specified target that triggers the contingent rental expense, provided that achievement of that target is considered probable.

Estimated Liability for Self-insurance

We self-insure a portion of our current and past losses from workers’ compensation and general liability claims. We have stop loss insurance for individual claims for workers’ compensation and general liability in excess of stated loss amounts. Insurance liabilities are recorded based on third party actuarial estimates of the ultimate incurred losses, net of payments made. The estimates themselves are based on standard actuarial techniques that incorporate both the historical loss experience of the Company and supplemental information as appropriate.

The analysis performed in calculating the estimated liability is subject to various assumptions including, but not limited to, (a) the quality of historical loss and exposure information, (b) the reliability of historical loss experience to serve as a predictor of future experience, (c) the reasonableness of insurance trend factors and governmental indices as applied to the Company, and (d) projected payrolls and revenue. As claims develop, the actual ultimate losses may differ from actuarial estimates. Therefore, an analysis is performed quarterly to determine if modifications to the accrual are required.

Income Tax Valuation Allowances and Tax Accruals

We record deferred tax assets for various items. As of March 4, 2008, we have concluded that it is more likely than not that the future tax deductions attributable to our deferred tax assets will be realized and therefore no valuation allowance has been recorded.

As a matter of course, we are regularly audited by federal and state tax authorities. We record appropriate accruals for potential exposures in accordance with Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). We evaluate these accruals, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events that may impact our ultimate tax liability.

Liquidity and Capital Resources:

Cash and cash equivalents decreased by $18.8 million and $14.5 million during the first 39 weeks of fiscal 2008 and 2007, respectively. The change in cash and cash equivalents is as follows (in thousands):

	Thirty-nine weeks ended
	March 4,		March 6,
	2008		2007
Cash provided by operating activities	$	70,642	$	151,379
Cash used by investing activities		(91,754)		(87,460)
Cash provided/(used) by financing activities		2,341		(78,445)
Decrease in cash and cash equivalents	$	(18,771)	$	(14,526)

Operating Activities

Cash provided by operating activities for the first 39 weeks of fiscal 2008 decreased 53.3% to $70.6 million due to lower net income and reductions in net operating assets, primarily accounts payable, accrued and other liabilities, offset by higher depreciation expense. The reduction in cash associated with changes in accounts payable, accrued and other liabilities is attributable to a decrease in accounts payable for the 39-weeks ended March 4, 2008 compared to an increase in accounts payable for the same period of the prior

27

year due in part to the timing of payables relating to stock repurchases, an accrual in the prior year for losses from the SRG bankruptcy, and a decrease in insurance reserves in the current year due to settlement of a dram shop liability case. The increase in depreciation expense is primarily due to accelerated depreciation ($12.6 million) for restaurants re-imaged as part of our re-imaging initiative which had begun in the latter part of fiscal 2007 coupled with additional restaurants attributable to new restaurant openings and franchise acquisitions.

Due in significant part to the reclassification of certain long-term debt totaling $565.4 million to current as a result of our projection of debt covenant violations at some point during the next twelve months, our working capital deficiency and current ratio as of March 4, 2008 were $578.0 million and 0.1:1, respectively. See the Financing Activities section of this MD&A for further discussion regarding our anticipated debt covenant violations. As is common in the restaurant industry, we carry current liabilities in excess of current assets because cash (a current asset) generated from operating activities is reinvested in capital expenditures (a long-term asset) and receivable and inventory levels are generally not significant.

Investing Activities

We require capital principally for new restaurant construction, investments in technology, equipment, remodeling of existing restaurants, and on occasion for the acquisition of franchisees or other restaurant concepts. Property and equipment expenditures for the 39 weeks ended March 4, 2008 were $104.0 million which was $33.3 million more than cash provided by operating activities for the same period. The increase in purchases of property and equipment from fiscal 2007 resulted from the $51.2 million we spent for our re-imaging initiative in fiscal 2008. As of March 4, 2008, we have completed the re-imaging of 468 Company-owned restaurants and substantially completed the re-imaging of an additional 200 Company-owned restaurants.

Capital expenditures for the remainder of fiscal 2008, primarily relating to new restaurant development, the ongoing re-imaging of our restaurants, and refurbishment and capital replacement for existing restaurants are projected to be approximately $10.0 to $15.0 million. Of this amount, approximately $2.5 to $3.0 million is projected to complete the re-image of our existing restaurants. To the extent capital expenditures have exceeded cash flow from operating activities, we have historically relied on cash provided by financing activities to fund our capital expenditures. See “Special Note Regarding Forward-Looking Information.”

Financing Activities

During the first 39 weeks of both fiscal 2008 and 2007 we required capital to repurchase shares of our common stock and to pay dividends to our common shareholders. Cash used for share repurchases during the 39 weeks ended March 4, 2008 and March 6, 2007 totaled $39.5 million and $111.2 million, respectively. Cash used for dividend payments during those same 39-week periods totaled $13.2 million and $29.1 million, respectively. As discussed further in the “Known Events, Uncertainties and Trends” section below, on January 9, 2008, our Board of Directors announced a plan of moving our semi-annual dividend to an annual review for payment. Consequently, no dividend was paid in the third quarter of fiscal 2008, whereas a payment totaling $14.6 million had been paid in the third quarter of fiscal 2007.

Historically our primary sources of cash have been operating activities and proceeds from stock option exercises and refranchising transactions. When these alone have not provided sufficient funds for both our capital and other needs, we have obtained funds through the issuance of indebtedness. Our current borrowings and credit facilities are summarized below.

We have a $500.0 million five-year revolving credit agreement (the “Credit Facility”), most recently renewed on February 28, 2007, which includes a $50.0 million swingline subcommitment and a $50.0 million subcommitment for letters of credit. The Credit Facility is scheduled to mature on February 23, 2012.

At March 4, 2008, we had borrowings of $415.4 million outstanding under the Credit Facility with an associated floating rate of 4.03%. This amount represents a net increase of $68.4 million from the $347.0 million outstanding at June 5, 2007, when our associated interest rate was 5.95%. After consideration of

28

letters of credit outstanding, the Company had $67.5 million available under the Credit Facility as of March 4, 2008.

Since fiscal 2003 we have also owed $150.0 million following a private sale of non-collateralized senior notes ("Private Placement"). The Private Placement initially consisted of $85.0 million with a fixed interest rate of 4.69% (the “Series A Notes”) and $65.0 million with a fixed interest rate of 5.42% (the “Series B Notes”). The Series A Notes and Series B Notes mature on April 1, 2010 and April 1, 2013, respectively.

On November 30, 2007, RTI entered into amendments of both the Credit Facility and the notes issued in the Private Placement to amend the minimum fixed charge coverage and maximum funded debt ratios through the fiscal quarter ending June 2, 2009 after which time the required ratios revert back to those in effect prior to the amendments. The amendment to the Private Placement provided for a 1% increase in interest rates upon the occurrence of credit ratios outside those previously allowed under the original terms of the Private Placement, but within the revised credit ratios agreed to in the November 30, 2007 amendment. As of December 4, 2007, our maximum funded debt ratio exceeded that which was previously allowed by the lenders under the original terms of the Private Placement. As a result, the interest rates of our Series A and Series B Private Placement notes for the third fiscal quarter of 2008 were 5.69% and 6.42%, respectively.

Due to concerns that, as of March 4, 2008, our maximum funded debt ratio might exceed, and our fixed charge coverage ratio might be below, the threshold levels established under the November 30, 2007 amended covenants, we obtained waivers of these possible covenant violations through April 18, 2008 from the lenders in our Credit Facility (dated February 29, 2008) and the lenders in our Private Placement (dated March 4, 2008). Included as additional consideration for the waivers, we agreed to not make any further dividend payments or stock repurchases. Our actual ratios at March 4, 2008 fell within the limits allowed by our Credit Facility and Private Placement as amended on November 30, 2007. However, we anticipate, absent further modifications, at some point during the next twelve months, we will be in violation of our maximum funded debt and minimum fixed charge coverage ratios, which between December 4, 2007 and December 2, 2008 are 3.75:1 and 1.85:1, respectively. Accordingly, we continue to classify obligations under both the Credit Facility and the notes issued in the Private Placement as current at March 4, 2008 in accordance with Emerging Issues Task Force (“EITF”) Issue No. 86-30, “Classification of Obligations When a Violation is Waived by a Creditor.”

As of the date of this filing, we continue to work towards amendments of both our Credit Facility and notes issued in the Private Placement. We believe we have agreement in principal with our lenders on the amended terms and are currently working on completing documentation of such amendments. These amendments are anticipated to include adjustments to both the maximum funded debt and minimum fixed charge coverage ratios. We expect the amendments to require higher interest rate spreads, mandatory prepayments of principal, and restrictions on capital expenditures, dividend payments, and stock repurchases. There are no assurances that our lenders will waive any future covenant violations or agree to these, or any future, amendments of our Credit Facility and Private Placement.

We expect that the amendments being drafted as of the date of this filing will allow for covenants at levels better aligned with our expected future results. We also believe that the amendments will allow the Company to make dividend payments after meeting certain performance criteria for a required period of time. If we were to violate any of our covenants and either agreements cannot be reached with our lenders or agreements are reached but we do not meet the revised covenants, our lenders could exercise their rights under the indebtedness and guarantee (see discussion of our guarantee under the Franchise Facility in the Off-Balance Sheet Arrangements section of this MD&A.) If this were to occur, we would be required to obtain new financing from alternative financial sources. If new financing is made available to us, it may be at terms less favorable than existing terms. Accordingly, our liquidity, financial condition, and results of operations would likely be adversely affected.

During the remainder of fiscal 2008, we expect to fund operations, capital expansion, and any repurchase of franchise partnership equity from operating cash flows, our Credit Facility, and operating leases. See “Special Note Regarding Forward-Looking Information” below.

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Significant Contractual Obligations and Commercial Commitments

Long-term financial obligations were as follows as of March 4, 2008 (in thousands):

	Payments Due By Period
			Less than		1-3		3-5		More than 5
	Total		1 year		Years		Years		years
Notes payable and other long-term debt, including
current maturities	$	46,886	$	4,306	$	9,134	$	9,732	$	23,714
Revolving credit facility (a)		415,400		415,400		–		–		–
Unsecured senior notes
(Series A and B) (a)		150,000		150,000		–		–		–
Interest (b)		33,307		12,785		6,532		5,013		8,977
Operating leases (c)		446,990		45,303		78,583		67,569		255,535
Purchase obligations (d)		171,720		76,416		57,567		32,644		5,093
Pension obligations (e)		29,209		2,022		4,582		5,514		17,091
Total (f)	$	1,293,512	$	706,232	$	156,398	$	120,472	$	310,410

(a) See Note H to the Condensed Consolidated Financial Statements for more information regarding the classification as current of the revolving credit facility and the unsecured senior notes.

(b) Amounts represent contractual interest payments on our fixed-rate debt instruments. Interest payments on our variable-rate revolving credit facility and variable-rate notes payable with balances of $415.4 million and $3.6 million, respectively, as of March 4, 2008 have been excluded from the amounts shown above, primarily because the balance outstanding under our revolving credit facility, described further in Note H of the Condensed Consolidated Financial Statements, fluctuates daily. Because the debt is classified as current at March 4, 2008 in our Condensed Consolidated Balance Sheet, we have included only twelve months of interest payments on our non-collateralized senior notes with balances of $150.0 million as of March 4, 2008 in the amounts shown above. See Note H of the Condensed Consolidated Financial Statements for more information.

(c) This amount includes operating leases totaling $20.6 million for which sublease income of $20.6 million from franchisees or others is expected. Certain of these leases obligate the Company to pay maintenance costs, utilities, real estate taxes, and insurance, which are excluded from the amounts shown above. See Note G to the Condensed Consolidated Financial Statements for more information.

(d) The amounts for purchase obligations include commitments for food items and supplies, construction projects, and other miscellaneous commitments.

(e) See Note K to the Condensed Consolidated Financial Statements for more information.

(f) This amount excludes $4.2 million of unrecognized tax benefits under FIN 48 due to the uncertainty regarding the timing of future cash outflows associated with such obligations.

Commercial Commitments (in thousands):

	Payments Due By Period
		Less than	1-3	3-5	More than 5
	Total	1 year	years	years	years
Letters of credit (a)	$ 17,111	$  17,111	$     –	$      –	$    –
Franchisee loan guarantees (a)	38,352	37,560	102	690	–
Divestiture guarantees	6,901	192	408	421	5,880
Total	$ 62,364	$ 54,863	$ 510	$ 1,111	$ 5,880

(a) Includes a $4.2 million letter of credit which secures franchisees’ borrowings for construction of restaurants being financed under a franchise loan facility. The franchise loan guarantee of $38.4 million also shown in the table excludes the guarantee of $4.2 million for construction to date on the restaurants being financed under the facility.

See Note L to the Condensed Consolidated Financial Statements for more information.

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Off-Balance Sheet Arrangements

See Note L to the Condensed Consolidated Financial Statements for information regarding our franchise partnership and divestiture guarantees.

As discussed in Note L to the Condensed Consolidated Financial Statements, the Franchise Facility contains various restrictions, including limitations on RTI additional debt, the payment of dividends and limitations regarding maximum funded debt, minimum net worth, and minimum fixed charge coverage ratios. On November 30, 2007, RTI entered into an amendment of the Franchise Facility to amend the minimum fixed charge coverage and maximum funded debt ratios through the fiscal quarter ending June 2, 2009 after which time the required ratios revert back to those in effect prior to the amendments. As discussed in Note H to the Condensed Consolidated Financial Statements, the Company is currently in compliance with its debt covenants. However, due to concerns that, as of March 4, 2008, our maximum funded debt ratio might exceed, and our minimum fixed charge coverage ratio might be below, the threshold levels established under the November 30, 2007 amended covenants, we obtained waivers of these possible covenant violations through April 18, 2008 from the lenders in our Franchise Facility (dated February 29, 2008). Absent further modifications, violation of these covenants is anticipated at some point during the next twelve months. Should this occur, amounts due under the Franchise Facility could be called by the lenders and the Company could be liable as guarantor of the debt for all outstanding borrowings, not just the amounts which would be owed should individual franchises default. At March 4, 2008, the total amount outstanding under the Franchise Facility was $44.5 million.

Recently Issued Accounting Pronouncements Not Yet Adopted

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 for financial assets and liabilities, as well as any other assets and liabilities that are carried at fair value on a recurring basis in financial statements are effective for financial statements issued for fiscal years beginning after November 15, 2007 (fiscal year 2009 for RTI), and interim periods within those fiscal years. The provisions for nonfinancial assets and liabilities are expected to be effective for financial statements issued for fiscal years beginning after November 15, 2008 (fiscal year 2010 for RTI), and interim periods within those fiscal years. We are currently evaluating the impact of SFAS 157 on our Condensed Consolidated Financial Statements.

In September 2006, the FASB issued Statement No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132R” (“SFAS 158”). SFAS 158 requires an entity to recognize in its statement of financial condition the funded status of its defined benefit pension and postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation. We adopted this requirement of SFAS 158 as of June 5, 2007. SFAS 158 also requires companies to measure the funded status of pension and postretirement plans as of the date of a company’s fiscal year ending after December 31, 2008 (fiscal 2009 for RTI). Our plans currently have measurement dates that do not coincide with our fiscal year end. Accordingly, we will be required to change their measurement dates in fiscal 2009. The impact of the transition, including the net periodic benefit cost computed for the period between our previous measurement dates and our fiscal year end, as well as changes in the fair value of plan assets and benefit obligations, will be recorded directly to Shareholders’ Equity. We do not anticipate the adoption of this requirement will materially impact our financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (fiscal 2009 for RTI). We are currently evaluating the impact of SFAS 159 on our Condensed Consolidated Financial Statements.

In March 2007, the FASB ratified the consensus reached by the EITF on Issue No. 06-10 (“EITF 06-10”), “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements”. EITF 06-10 provides guidance on an employers’ recognition of a liability and related compensation costs for collateral

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assignment split-dollar life insurance arrangements that provide a benefit to an employee that extends into postretirement periods and the asset in collateral assignment split-dollar life insurance arrangements. The effective date of EITF 06-10 is for fiscal years beginning after December 15, 2007 (fiscal 2009 for RTI). As of March 4, 2008 we have recorded a $2.8 million asset within our Condensed Consolidated Balance Sheet for our collateral assignment in eight split-dollar life insurance arrangements. We are currently evaluating the impact of EITF 06-10 on our Condensed Consolidated Financial Statements.

In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes the principles and requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; 2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and 3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is to be applied prospectively to business combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008 (fiscal 2010 for RTI). We are currently evaluating the impact SFAS 141R will have on any future business combinations we enter into.

In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards that require noncontrolling interests to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS 160 is to be applied prospectively to business combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008 (fiscal 2010 for RTI). We are currently evaluating the impact of SFAS 160 on our Condensed Consolidated Financial Statements.

Known Events, Uncertainties and Trends:

Financial Strategy and Stock Repurchase Plan

Our financial strategy is to utilize a prudent amount of debt, including operating leases, letters of credit, and any guarantees, to minimize the weighted average cost of capital while allowing financial flexibility and maintaining the equivalent of an investment-grade bond rating. This strategy periodically allowed us to repurchase RTI common stock. During the 39 weeks ended March 4, 2008, we repurchased 1.7 million shares of RTI common stock for a total purchase price of $39.5 million. The total number of remaining shares authorized to be repurchased, as of March 4, 2008, is approximately 7.9 million.

In anticipation of possible debt covenant defaults as of March 4, 2008, we obtained debt covenant waivers from certain of our lenders. Included as additional consideration for the waivers, we agreed to not make any further dividend payments or stock repurchases. If the amendments to our Credit Facility and notes issued in the Private Placement are completed based on the current agreement in principal, the Company will be permitted to make stock repurchases after meeting certain performance criteria for a required period of time. See the Financing Activities section of this MD&A for further information.

Re-image Progress

As discussed in previous filings, in an effort to continue moving our brand towards a high quality casual dining restaurant and away from the traditional bar and grill category, we are changing our look and feel, differentiating ourselves with a more contemporary and fresher look. As of March 4, 2008, we have completed the re-imaging of 468 Company-owned restaurants and substantially completed the re-imaging of an additional 200 Company-owned restaurants. The Company does not plan to re-image the remaining 53 Company-owned restaurants. Capital expenditures to date, excluding the costs to accelerate depreciation or write-off existing assets, totaled $55.7 million, of which $51.2 million was spent in fiscal 2008.

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Dividends

During fiscal 1997, our Board of Directors approved a dividend policy as an additional means of returning capital to RTI’s shareholders. A $0.25 per share dividend, which totaled $13.2 million, was paid on August 7, 2007, to shareholders of record on July 23, 2007. On January 9, 2008, the Board of Directors announced a plan of moving our semi-annual dividend to an annual payment, and thus no dividend was paid during fiscal 2008’s third quarter. As noted above, as partial consideration for the debt covenant waivers, we agreed not to make any further dividend payments. If the amendments to our Credit Facility and notes issued in the Private Placement are completed based on the current agreement in principal, the Company will be permitted to make dividend payments after meeting certain performance criteria for a required period of time. Assuming dividend payments are permitted by our lenders, thepayment of a dividend in any particular future period and the 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. See “Special Note Regarding Forward-Looking Information.”

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This quarterly report on Form 10-Q contains various forward-looking statements which represent the Company’s expectations or beliefs concerning future events, including one or more of the following:  future financial performance and restaurant growth (both Company-owned and franchised), future capital expenditures, future borrowings and repayment of debt, availability of debt financing on terms attractive to the Company, payment of dividends, stock repurchases, and restaurant and franchise acquisitions and re-franchises. The Company cautions the reader that a number of important factors and uncertainties 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: changes in promotional, couponing and advertising strategies; guests’ acceptance of changes in menu items; changes in our guests’ disposable income; consumer spending trends and habits; mall-traffic trends; increased competition in the restaurant market; weather conditions in the regions in which Company-owned and franchised restaurants are operated; guests’ acceptance of the Company’s development prototypes and remodeled restaurants; laws and regulations affecting labor and employee benefit costs, including further potential increases in federally mandated minimum wage; costs and availability of food and beverage inventory; the Company’s ability to attract qualified managers, franchisees and team members; changes in the availability and cost of capital; impact of adoption of new accounting standards; impact of food-borne illnesses resulting from an outbreak at either Ruby Tuesday or other restaurant concepts; effects of actual or threatened future terrorist attacks in the United States; significant fluctuations in energy prices; and general economic conditions.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosures about Market Risk

We are exposed to market risk from fluctuations in interest rates and changes in commodity prices. The interest rate charged on our Credit Facility can vary based on the interest rate option we choose to utilize. Our options for the rate are the Base Rate or LIBO Rate plus an applicable margin. The Base Rate is defined to be the higher of the issuing bank’s prime lending rate or the Federal Funds rate plus 0.5%. The applicable margin is zero percent for the Base Rate loans and a percentage ranging from 0.5% to 1.25% for the LIBO Rate-based option. As of March 4, 2008, the total amount of outstanding debt subject to interest rate fluctuations was $419.0 million. A hypothetical 100 basis point change in short-term interest rates would result in an increase or decrease in interest expense of $4.2 million per year.

As previously discussed, on November 30, 2007 we amended both the notes issued in the Private Placement and the Credit Facility to adjust minimum fixed charge coverage and maximum funded debt ratios through the fiscal quarter ending June 2, 2009 after which time the required ratios revert back to those in effect prior to the amendments. The amendment to the Private Placement provided for a 1% increase in interest rates upon the occurrence of credit ratios outside those previously allowed under the original terms of the Private Placement, but within the revised credit ratios agreed to in the November 30, 2007 amendment. At any time when RTI reports ratios within those newly-allowed outer ranges, the

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additional interest expense to be incurred on the $150.0 million Private Placement debt will be up to $1.5 million per year.

Many of the ingredients used in the products we sell in our restaurants are commodities that are subject to unpredictable price volatility. This volatility may be due to factors outside our control such as weather and seasonality. We attempt to minimize the effect of price volatility by negotiating fixed price contracts for the supply of key ingredients. Historically, and subject to competitive market conditions, we have been able to mitigate the negative impact of price volatility through adjustments to average check or menu mix.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation and under the supervision of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 4, 2008.

Changes in Internal Controls

During the fiscal quarter ended March 4, 2008, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a – 15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business. We provide reserves for such claims when payment is probable and estimable in accordance with Financial Accounting Standards Board Statement No. 5, “Accounting for Contingencies.” In the opinion of management, the ultimate resolution of these pending legal proceedings will not have a material adverse effect on our condensed consolidated results of operations, financial position, or liquidity.

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ITEM 1A.

RISK FACTORS

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. Our Form 10-K for the fiscal year ended June 5, 2007, in the section entitled Item 1A. Risk Factors, as previously supplemented in Part II, Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended December 4, 2007, describes the most significant risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows projected results, and future prospects. The following supplements the risk factors previouslydisclosed in our 2007 Annual Report on Form 10-K, as supplemented in our Quarterly Report on Form 10-Q for the quarter ended December 4, 2007. Additional risks and uncertainties not currently known to us or that we have deemed to be immaterial also may materially affect our business, financial condition, or results of operations.

Our potential inability to meet a financial covenant contained in our indebtedness or guarantee may adversely affect our liquidity, financial condition, or results of operations.

The amount of debt we carry, which we believe is prudent based upon our financial strategy, is significant. At March 4, 2008, we had a total of $612.3 million in debt and capital lease obligations and guaranteed a further $42.6 million in debt. The indebtedness requires us to dedicate a portion of our cash flows from operating activities to principal and interest payments on our indebtedness, which could prevent or limit our ability to implement growth plans, proceed with operational improvement initiatives, or pay dividends.

We have recently modified the covenants contained in the Credit Facility, the notes issued in the Private Placement, and the Franchise Facility. In connection with the amendment to the notes issued in the Private Placement, we also agreed to pay higher quarterly interest rates for so long as we do not meet the original covenants, which could be required for an indefinite period of time.

We project that, absent further modifications to the financial covenants contained therein or improvements to our operations, at some point during the next twelve months we will violate two covenants, the minimum fixed charge coverage ratio and our maximum funded debt ratio.

In anticipation of possible debt covenant defaults as of March 4, 2008, we obtained debt covenant waivers through April 18, 2008 from certain of our lenders. Included as additional consideration for the waivers, we agreed to not make any further dividend payments or stock repurchases. Although our actual ratios fell within the limits allowed as of March 4, 2008, we are currently working with our lenders to obtain additional modifications to our covenants. In the event that we obtain modifications to our current covenants, we expect the amendments to require higher interest rate spreads, mandatory prepayments of principal, and restrictions on capital expenditures, dividend payments, and stock repurchases. We anticipate that further modifications will allow for covenants at levels better aligned with our expected future results.

If we were to violate any of our covenants and either agreements cannot be reached with our lenders or agreements are reached but we do not meet the revised covenants, our lenders could exercise their rights under the indebtedness and guarantee. Under the guarantee, if the Franchise Facility were to be unwound, we could be required to repay the lenders for all then-outstanding borrowings, not just the amounts which would be owed should individual franchises default. At March 4, 2008, the total amount outstanding under the Franchise Facility was $44.5 million.

Should our lenders choose to exercise their rights under the indebtedness and guarantee, we may be required to obtain new financing from alternative financial sources. However, we may have difficulty in borrowing sufficient funds to refinance the accelerated indebtedness or to satisfy the guarantee. If new financing is made available to us, it may not be available on acceptable terms. Accordingly, our liquidity, financial condition, and results of operations would likely be adversely affected.

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ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table includes information regarding purchases of our common stock made by us during the second quarter ended March 4, 2008:

	(a)	(b)	(c)	(d)
	Total number	Average	Total number of shares	Maximum number of shares
	of shares	price paid	purchased as part of publicly	that may yet be purchased
Period	purchased	per share	announced plans or programs	under the plans or programs (1) (2)
Month #1
(December 5 to January 8)	–	–	–	7,919,227
Month #2
(January 9 to February 5)	–	–	–	7,919,227
Month #3
(February 6 to March 4)	–	–	–	7,919,227
Total	–		–	7,919,227

(1)  On January 9, 2007, the Company’s Board of Directors authorized the repurchase of an additional 5.0 million shares of Company stock under the Company’s ongoing share repurchase program. As of March 4, 2008, 3.6 million shares of the January 2007 authorization have been repurchased at a cost of approximately $93.7 million. On July 11, 2007, the Board of Directors authorized the repurchase of an additional 6.5 million shares of Company stock.

(2)  In partial consideration for debt covenant waivers received from our lenders during the fiscal quarter ended March 4, 2008, we agreed to not make any further stock repurchases. If the amendments to our Credit Facility and notes issued in the Private Placement are completed based on the current agreement in principal, the Company will be permitted to make dividend payments after meeting certain performance criteria for a required period of time. See the Financing Activities section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information.

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ITEM 6.

EXHIBITS

The following exhibits are filed as part of this report:

  Exhibit No.

10	.1	Waiver Agreement, dated as of March 4, 2008, to the Note Purchase Agreement, dated as of April 1,
		2003, by and among Ruby Tuesday, Inc. and the Purchasers.
10	.2	Limited Waiver Agreement to the Amended and Restated Revolving Credit Agreement, dated as of
		February 29, 2008, by and among Ruby Tuesday, Inc., the Lenders, the Guarantors, and Bank of
		America, N.A., as Administrative Agent for the Lenders.
10	.3	Limited Waiver Agreement to the Amended and Restated Loan Facility Agreement and Guaranty, dated
		as of February 29, 2008, by and among Ruby Tuesday, Inc., the Guarantors, the Participants, and Bank
		of America, N.A., as Servicer and Agent for the Participants.
10	.4	Indenture, dated December 31, 2007, to the Ruby Tuesday, Inc. Cafeteria Plan.
10	.5	Indenture, dated December 31, 2007, to the Ruby Tuesday, Inc. Health Savings Account Plan.
10	.6	First Amendment, dated as of April 2, 2008, to the Ruby Tuesday, Inc. Executive Supplemental Pension
		Plan (Amended and Restated as of January 1, 2007).
31	.1	Certification of Samuel E. Beall, III, Chairman of the Board, President, and Chief Executive Officer.
31	.2	Certification of Marguerite N. Duffy, Senior Vice President, Chief Financial Officer.
32	.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
		Sarbanes-Oxley Act of 2002.
32	.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
		Sarbanes-Oxley Act of 2002.

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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)

Date: April 11, 2008 BY: /s/ MARGUERITE N. DUFFY
——————————————
Marguerite N. Duffy
Senior Vice President and
Chief Financial Officer

38

EX-10

Execution Copy

RUBY TUESDAY, INC.

WAIVER AGREEMENT

Dated as of March 4, 2008

to

NOTE PURCHASE AGREEMENT

Dated as of April 1, 2003

Re:

$85,000,000 4.69% Amended and Restated Senior Notes, Series A, due April 1, 2010

$65,000,000 5.42% Amended and Restated Senior Notes, Series B, due April 1, 2013

WAIVER AGREEMENT TO NOTE PURCHASE AGREEMENT

THIS WAIVER AGREEMENT dated as of March 4, 2008 (the or this “Waiver”) to that certain Note Purchase Agreement dated as of April 1, 2003 is between RUBY TUESDAY, INC., a Georgia corporation (the “Company”), and each of the institutional investors listed on the signature pages hereto (collectively, the “Noteholders”):

RECITALS:

A.        The Company and each of the Purchasers (as defined in the hereinafter defined Note Purchase Agreement) heretofore entered into that certain Note Purchase Agreement dated as of April 1, 2003 (as amended by that certain First Amendment dated as of October 1, 2003 and that certain Second Amendment dated as of November 30, 2007, collectively, the “Note Purchase Agreement”). Pursuant to the Note Purchase Agreement, the Company issued and presently has outstanding (i) $85,000,000 aggregate principal amount of its 4.69% Amended and Restated Senior Notes, Series A, due April 1, 2010 (the“Series A Notes”) and (ii) $65,000,000 aggregate principal amount of its 5.42% Amended and Restated Senior Notes, Series B, due April 1, 2013 (the “Series B Notes”; said Series B Notes together with the Series A Notes are hereinafter collectively referred to as the “Notes”). The Noteholders are the holders of 100% of the outstanding principal amount of the Notes.

B.        The Company has notified the Noteholders that (1) Events of Default are about to occur as a result of the Company’s inability (a) to maintain the minimum Fixed Charges Coverage Ratio for its fiscal quarter ending March 4, 2008 required by Section 10.1 of the Note Purchase Agreement and (b) to maintain the maximum Adjusted Total Debt to Consolidated EBITDAR for its fiscal quarter ending March 4, 2008 required by Section 10.2 of the Note Purchase Agreement and (2) an Event of Default may exist as a result of the Company’s inability to maintain the Consolidated Net Worth required by Section 10.3 of the Note Purchase Agreement (the “Consolidated Net Worth Event of Default”) during the Waiver Period (as hereinafter defined) (the Consolidated Net Worth Event of Default together with the Events of Default described in clause (1) of this Recital B being hereinafter referred to collectively as the “Waiver Events of Default”).

C.        The Company has requested that the Noteholders waive the Waiver Events of Default during the Waiver Period (as hereinafter defined).

D.        Capitalized terms used herein shall have the respective meanings ascribed thereto in the Note Purchase Agreement unless herein defined or the context shall otherwise require.

E.        All requirements of law have been fully complied with and all other acts and things necessary to make this Waiver a valid, legal and binding instrument according to its terms for the purposes herein expressed have been done or performed.

NOW, THEREFORE, upon the full and complete satisfaction of the conditions precedent to the effectiveness of this Waiver set forth in Section 3.1 hereof, and in consideration of good and

valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Company and the Noteholders do hereby agree as follows:

SECTION 1. WAIVER AND AGREEMENT.

1.1.      Subject to the terms and conditions of this Waiver, the Noteholders agree to waive the Waiver Events of Default during the period (the “Waiver Period”), whether the Consolidated Net Worth Event of Default exists on the dated of this Waiver or arises at some other point during the Waiver Period, beginning on the date of this Waiver and ending on the earlier to occur of (a) the occurrence of any Event of Default other than the Waiver Events of Default and (b) April 18, 2008. Other than the Waiver Events of Default for the Waiver Period, the Noteholders have not waived, are not by this Waiver waiving, and have made no commitment to waive, any Events of Default that may occur after the date hereof. The Noteholders reserve the right, in their discretion, to exercise any or all of their rights and remedies under the Note Purchase Agreement as a result of the Waiver Events of Default at the expiration of the Waiver Period and the Noteholders further reserve the right, at any time, in their discretion, to exercise any or all of their rights and remedies under the Note Purchase Agreement as a result of any Event of Default other than the Waiver Events of Default.

1.2.      As consideration for the waiver set forth in Section 1.1, the Company acknowledges that it has not, and agrees that at no time will it, secure any Debt outstanding under the Bank Credit Agreement or the Loan Facility Agreement (as hereinafter defined) unless the Debt in respect of the Notes is concurrently equally and ratably secured pursuant to an agreement or agreements in form and substance satisfactory to the Required Holders. The Company further agrees that any failure by the Company to comply with the terms of the immediately preceding sentence shall constitute an immediate Event of Default under Section 11 of the Note Purchase Agreement.

1.3.      As further consideration for the waiver set forth in Section 1.1, the Company agrees that it will not, and will not permit any of its Restricted Subsidiaries to, declare or make, or incur any liability to declare or make, any Distribution (as hereinafter defined) in respect of the Company or any Restricted Subsidiary (other than on account of capital stock or other equity interests of a Restricted Subsidiary owned legally and beneficially by the Company or a Wholly-Owned Restricted Subsidiary), including, without limitation, any Distribution resulting in the acquisition by the Company of Securities which would constitute treasury stock. The Company further agrees that any failure by the Company to comply with the terms of the immediately preceding sentence shall constitute an immediate Event of Default under Section 11 of the Note Purchase Agreement. For purposes of this Section 1.3, the term “Distribution” shall mean, in respect of any corporation, association or other business entity (a) dividends or other distributions or payments on capital stock or other equity interest of such corporation, association or other business entity (except distributions in such stock or other equity interest) and (b) the redemption or acquisition of such stock or other equity interests or of warrants, rights or other options to purchase such stock or other equity interests (except when solely in exchange for such stock or other equity interests) unless made, contemporaneously from the net proceeds of a sale of such stock or other equity interests.

- 2 -

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

2.1.      To induce the Noteholders to execute and deliver this Waiver (which representations shall survive the execution and delivery of this Waiver), the Company represents and warrants to the Noteholders that:

(a)       this Waiver has been duly authorized by all requisite corporate action on the part of the Company, duly executed and delivered by the Company and this Waiver constitutes the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally;

(b)       the Note Purchase Agreement, as affected by this Waiver, constitutes the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally;

(c)       the execution, delivery and performance of this Waiver (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 2.1(c);

(d)       as of the date hereof, no Default or Event of Default (other than the Waiver Events of Default) has occurred which is continuing; and

(e)       all the representations and warranties contained in Section 5 of the Note Purchase Agreement are true and correct in all material respects with the same force and effect as if made by the Company on and as of the date hereof, except that with respect to the Company’s representation in the second sentence of Section 5.15(a) of the Note Purchase Agreement, on March 4, 2008 the Company will be in default of (1) Sections 6.1 and 6.2 of the Bank Credit Agreement which anticipated defaults are currently being waived pursuant to the Credit Agreement Waiver (as hereinafter defined) and (2) Sections 6.11 and 6.12 of the Loan Facility Agreement which anticipated defaults are currently being waived pursuant to the Loan Facility Waiver (as hereinafter defined) and provided that, any representation and warranty that, by its terms, speaks as of another specified date shall be made as of such date.

- 3 -

SECTION 3. CONDITIONS TO EFFECTIVENESS OF THIS WAIVER.

3.1.      This Waiver shall not become effective until, and shall become effective when, each and every one of the following conditions shall have been satisfied:

(a)       executed counterparts of this Waiver, duly executed by the Company and the Required Holders, shall have been delivered to the Noteholders;

(b)       each Guarantor shall have duly executed the Reaffirmation of Guaranty Agreement attached hereto;

(c)       the representations and warranties of the Company set forth in Section 2 hereof are true and correct on and with respect to the date hereof;

(d)       the Company shall have delivered to each Noteholder evidence that (1) the parties to the Bank Credit Agreement shall have duly executed and delivered an agreement to the same effect as this Waiver (the “Credit Agreement Waiver”) so that no Default as defined in the Bank Credit Agreement would exist under the Bank Credit Agreement during the Waiver Period and (2) the parties to that certain Amended and Restated Loan Facility Agreement and Guaranty dated as of November 19, 2004 by and among the Company, as Sponsor, Bank of America, N.A., as Servicer, AmSouth Bank, as Documentation Agent, SunTrust Bank, as Co-Syndication Agent, and Wachovia Bank, N.A., as Co-Syndication Agent, and the Participants party thereto (as amended to the date hereof, the “Loan Facility Agreement”), shall have duly executed and delivered an agreement to the same effect as this Waiver (the “Loan Facility Waiver”) so that no Credit Event as defined in the Loan Facility Agreement would exist under the Loan Facility Agreement during the Waiver Period;

(e)       the Company shall have delivered to each Noteholder an Officer’s Certificate, dated the effective date of this Waiver, certifying that the conditions specified in Section 3.1(c) hereof have been fulfilled; and

(f)        the Company shall have paid the reasonable fees and expenses of Schiff Hardin LLP, special counsel to the Noteholders, in connection with the negotiation, preparation, approval, execution and delivery of this Waiver.

SECTION 4. MISCELLANEOUS.

4.1.      This Waiver shall be construed in connection with and as part of the Note Purchase Agreement, and except as modified by this Waiver, all terms, conditions and covenants contained in the Note Purchase Agreement and the Notes are hereby ratified and shall be and remain in full force and effect.

4.2.      Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Waiver may refer to the Note Purchase Agreement without making specific reference to this Waiver but nevertheless all such references shall include this Waiver unless the context otherwise requires.

- 4 -

4.3.      The descriptive headings of the various Sections or parts of this Waiver are for convenience only and shall not affect the meaning or construction of any of the provisions hereof.

4.4.      This Waiver shall be governed by and construed in accordance with the laws of the State of Illinois.

[Remainder of page intentionally left blank.]

- 5 -

4.5.      The execution hereof by you shall constitute a contract between us for the uses and purposes hereinabove set forth, and this Waiver may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement.

RUBY TUESDAY, INC.

By /s/ Scarlett May

Its Vice President

- 6 -

Accepted and Agreed to:

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY

By /s/ Timothy S. Collins

Name: Timothy S. Collins

Title: Its Authorized Representative

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, for its Group Annuity Separate Account

By /s/ Timothy S. Collins

Name: Timothy S. Collins

Title: Its Authorized Representative

- 7 -

Accepted and Agreed to:

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

By: /s/ Robert Derrick

Vice President

PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY

By: Prudential Investment Management, Inc.

as Investment Manager

By: /s/ Robert Derrick_

Vice President

PRUCO LIFE INSURANCE COMPANY

By: /s/ Robert Derrick

Assistant Vice President

GIBRALTAR LIFE INSURANCE CO., LTD.

By: Prudential Investment Management
(Japan), Inc., as Investment Manager

By: Prudential Investment Management, Inc.,
as Sub-Adviser

By: /s/ Robert Derrick

Vice President

- 8 -

Accepted and Agreed to:

ZURICH AMERICAN INSURANCE COMPANY

By: Prudential Private Placement Investors,
L.P. (as Investment Advisor)

By: Prudential Private Placement Investors, Inc.
(as its General Partner)

By: /s/ Robert Derrick

Vice President

- 9 -

Accepted and Agreed to:

PHOENIX LIFE INSURANCE COMPANY

By /s/ Christopher M. Wilkos

Name: Christopher M. Wilkos

Title: Senior Vice President

- 10 -

Accepted and Agreed to:

NATIONWIDE LIFE INSURANCE COMPANY

By /s/ Thomas M. Powers

Name: Thomas M. Powers

Title: Authorized Signatory

NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY

By /s/ Thomas M. Powers

Name: Thomas M. Powers

Title: Authorized Signatory

NATIONWIDE LIFE INSURANCE COMPANY OF AMERICA

By /s/ Thomas M. Powers

Name: Thomas M. Powers

Title: Authorized Signatory

NATIONWIDE LIFE AND ANNUITY COMPANY OF AMERICA

By /s/ Thomas M. Powers

Name: Thomas M. Powers

Title: Authorized Signatory

- 11 -

Accepted and Agreed to:

NATIONWIDE MUTUAL FIRE INSURANCE COMPANY

By /s/ Thomas M. Powers

Name: Thomas M. Powers

Title: Authorized Signatory

- 12 -

Accepted and Agreed to:

UNITED OF OMAHA LIFE INSURANCE COMPANY

By /s/ Curtis R. Caldwell

Name: Curtis R. Caldwell

Title: Vice President

COMPANION LIFE INSURANCE COMPANY

By /s/ Curtis R. Caldwell

Name: Curtis R. Caldwell

Title: Authorized Signer

- 13 -

Accepted and Agreed to:

MODERN WOODMEN OF AMERICA

By /s/ Douglas A. Pannier

Name: Douglas A. Pannier

Title: Portfolio Manager, Private Placements

- 14 -

Accepted and Agreed to:

ASSURITY LIFE INSURANCE COMPANY (successor in interest to Security Financial Life Insurance Co.)

By /s/ Victor Weber

Name: Victor Weber

Title: Senior Director - Investments

- 15 -

Accepted and Agreed to:

BANC OF AMERICA SECURITIES LLC

By /s/ Jonathan M. Barnes

Name: Jonathan M. Barnes

Title: Vice President

- 16 -

REAFFIRMATION OF GUARANTY AGREEMENT

The undersigned Guarantors hereby acknowledge and agree to the foregoing Waiver Agreement to Note Purchase Agreement and reaffirm the Guaranty Agreement dated as of April 1, 2003 given in favor of each Noteholder and their respective successors and assigns.

RTBD, INC.

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RUBY TUESDAY, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT FINANCE, INC.

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RUBY TUESDAY GC CARDS, INC.

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT TAMPA FRANCHISE, LP

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT ORLANDO FRANCHISE, LP

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT SOUTH FLORIDA FRANCHISE, LP

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT NEW YORK FRANCHISE, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT SOUTHWEST FRANCHISE, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT MICHIANA FRANCHISE, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT FRANCHISE ACQUISITION, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

- 18 -

RT KENTUCKY RESTAURANT HOLDINGS, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT FLORIDA EQUITY, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RTGC, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT WEST PALM BEACH FRANCHISE, LP

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT MICHIGAN FRANCHISE, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

RT DETROIT FRANCHISE, LLC

By /s/ Scarlett May

Name: Scarlett May

Title: Vice President

- 19 -

EX-10

LIMITED WAIVER AGREEMENT

THIS LIMITED WAIVER AGREEMENT dated as of February 29, 2008 (the “Agreement”) is entered into among Ruby Tuesday, Inc., a Georgia corporation (the “Borrower”), the Lenders party hereto, the Guarantors and Bank of America, N.A., as administrative agent for the Lenders (in such capacity, the “Administrative Agent”). All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement (as defined below).

RECITALS

WHEREAS, the Borrower, the Lenders and the Administrative Agent entered into that certain Amended and Restated Revolving Credit Agreement dated as of February 28, 2007 (as amended or modified from time to time, the “Credit Agreement”);

WHEREAS, the Borrower has requested that the Lenders waive the Applicable Events of Default (as defined below) and continue to make available to the Borrower the Loans provided under the Credit Agreement; and

WHEREAS, the Lenders are willing to provide a limited waiver of the Applicable Events of Default and continue to make Loans to the Borrower during the Waiver Period (as defined below) subject to the terms and conditions specified in this Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.          Reaffirmation. Each of the Loan Parties acknowledges and reaffirms (a) that it is bound by all of the terms of the Credit Agreement and the Loan Documents to which it is a party and (b) that it is responsible for the observance and full performance of all Obligations, including without limitation, the repayment of the Loans and reimbursement of any drawings on a Letter of Credit. Without limiting the generality of the preceding sentence, each of the Guarantors restates and reaffirms that it guarantees the prompt payment when due of all Guaranteed Obligations, in accordance with, and pursuant to the terms of its Subsidiary Guaranty Agreement. Furthermore, the Loan Parties acknowledge and confirm (c) that the Administrative Agent and the Lenders have performed fully all of their respective obligations under the Credit Agreement and the other Loan Documents and (d) by entering into this Agreement, the Lenders do not waive (except as specifically provided in Section 2 hereof) or release any term or condition of the Credit Agreement or any of the other Loan Documents or any of their rights or remedies under such Loan Documents or applicable law or any of the obligations of the Loan Parties thereunder.

2. Limited Waiver.

(a)        The Loan Parties acknowledge that (a) an Event of Default may exist under the Credit Agreement as a result of the failure of the Consolidated Companies to comply with the terms of Section 6.3 of the Credit Agreement during the Waiver Period (as defined below) (the “Net Worth Event of Default”) and (b) Events of Default will exist under the Credit Agreement on March 4, 2008 as a result of the failure of the Consolidated Companies to comply with the terms of Sections 6.1 and 6.2 of the Credit Agreement as of the fiscal quarter ending March 4, 2008 (the Events of Default enumerated in (a) and (b) above, the “Applicable Events of Default”).

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(b)       Subject to the other terms and conditions of this Agreement, the Administrative Agent and the Lenders hereby waive the Applicable Events of Default for the period from the date hereof until April 18, 2008 (the “Waiver Period”), whether the Net Worth Event of Default exists as of the date of this Agreement or arises at some other point during the Waiver Period, for all purposes of the Credit Agreement (including, without limitation, Section 3.2(b) thereof). Accordingly, during the Waiver Period, the Administrative Agent, the Issuing Bank and the Lenders shall, subject to the terms and conditions set forth herein, forbear exercising their rights and remedies arising exclusively as a result of the Applicable Events of Default and continue to make Loans and to issue, extend, amend or renew Letters of Credit to the Borrower in accordance with the terms thereof. The limited waiver set forth herein shall be effective only in this specific instance for the duration of the Waiver Period and shall not obligate the Lenders or the Administrative Agent to waive any other Default or Event of Default, now existing or hereafter arising. This limited waiver is limited solely to the Applicable Events of Default, and nothing contained in this Agreement shall (i) modify the Loan Parties’ obligations to comply fully with Section 6.1, 6.2 and 6.3 of the Credit Agreement and all duties, terms, conditions or covenants contained in the Credit Agreement and the other Loan Documents and (ii) be deemed to constitute a waiver of any other rights or remedies the Administrative Agent or any Lender may have under the Credit Agreement or any other Loan Documents or under applicable law. This is a one-time waiver, and the Administrative Agent and the Lenders shall have no obligation to extend the limited waiver or otherwise amend, modify or waive any provision of the Credit Agreement or any other Loan Document at the end of the Waiver Period. The provisions and agreements set forth in this Agreement shall not establish a custom or course of dealing or conduct between the Administrative Agent, the Issuing Bank, any Lender, the Borrower or any other Loan Party.

(c)        The Loan Parties acknowledge and agree that unless the Administrative Agent and the Lenders, in their sole discretion, further amend the Credit Agreement or otherwise agree in writing to continue this limited waiver beyond the Waiver Period, Events of Default will occur under the Credit Agreement as of April 19, 2008, for which no grace period or cure period shall apply, and the Administrative Agent and the Lenders may pursue all rights and remedies available to them under the Credit Agreement, the Loan Documents and applicable law. The Loan Parties further acknowledge and agree that to the extent any Defaults or Events of Default (other than the Applicable Events of Default) now exist or hereafter arise during the Waiver Period, the Administrative Agent, the Issuing Bank and the Lenders may immediately pursue all rights and remedies available to them in respect thereof under the Credit Agreement, other Loan Documents and applicable law.

(d)       The Loan Parties acknowledge and agree that the making of any Loans and the issuance, extension, amendment or renewal of any Letter of Credit pursuant to the Credit Agreement during the Waiver Period does not now, and will not in the future, constitute (i) an agreement or obligation, whether implied or express, on the part of the Lenders to make such Loans or of the Issuing Bank to issue, extend, amend or renew such Letters of Credit in the future after the expiration of the Waiver Period or (ii) a waiver by the Administrative Agent, the Issuing Bank or the Lenders of any of their respective rights or remedies at any time, now or in the future, with respect to any Default or Event of Default (other than the Applicable Events of Default) or the Applicable Events of Default after the expiration of the Waiver Period.

3.         Agreement Regarding Indebtedness.As consideration for the limited waiver set forth in Section 2 above, the Borrower acknowledges that it has not, and agrees that at no time will it, secure any Indebtedness outstanding under the Franchise Facility Credit Agreement or the Senior Note Purchase Agreement unless the Indebtedness in respect of the Credit Agreement is concurrently equally and ratably secured pursuant to an agreement or agreements in form and substance satisfactory to the

2

CHAR1\1039402v6

Required Lenders. The Borrower further agrees that any failure by the Borrower to comply with the terms of the immediately preceding sentence shall constitute an immediate Event of Default under Article VIII of the Credit Agreement.

4.         Agreement Regarding Distributions. As further consideration for the limited waiver set forth in Section 2 above, the Borrower agrees that it will not, and will not permit any of its Subsidiaries to, declare or make, or incur any liability to declare or make, any Distribution (as hereinafter defined) in respect of the Borrower or any Subsidiary (other than on account of capital stock or other equity interests of a Subsidiary owned legally and beneficially by the Borrower or a wholly-owned Subsidiary), including, without limitation, any Distribution resulting in the acquisition by the Borrower of Securities (as hereinafter defined) which would constitute treasury stock. The Borrower further agrees that any failure by the Borrower to comply with the terms of the immediately preceding sentence shall constitute an immediate Event of Default under Article VIII of the Credit Agreement. For purposes of this Section 4, the term “Distribution” shall mean, in respect of any corporation, association or other business entity (a) dividends or other distributions or payments on capital stock or other equity interest of such corporation, association or other business entity (except distributions in such stock or other equity interest) and (b) the redemption or acquisition of such stock or other equity interests or of warrants, rights or other options to purchase such stock or other equity interests (except when solely in exchange for such stock or other equity interests) unless made, contemporaneously from the net proceeds of a sale of such stock or other equity interests. For purposes of this Section 4, the term “Securities” shall have the meaning set forth in Section 2(1) of the Securities Act of 1933, as amended from time to time.

5.         Conditions Precedent. This Agreement shall be effective as of the date hereof when all of the conditions set forth below have been satisfied:

(a)        The Administrative Agent shall have received counterparts of this Agreement, duly executed by the Borrower, the Guarantors and the Required Lenders; and

(b)       The Administrative Agent shall have received a fully executed copy, certified by a Responsible Officer of the Borrower as true and complete, of (i) a waiver to the Senior Note Purchase Agreement and (ii) a waiver to the Franchise Facility Credit Agreement, each in form and substance satisfactory to the Administrative Agent.

6. Miscellaneous.

(a)Except as herein specifically agreed, the Credit Agreement, and the obligations of the Loan Parties thereunder and under the other Loan Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms.

(b)        Each Guarantor (a) acknowledges and consents to all of the terms and conditions of this Agreement, (b) affirms all of its obligations under the Loan Documents and (c) agrees that this Agreement and all documents executed in connection herewith do not operate to reduce or discharge its obligations under the Credit Agreement or the other Loan Documents.

(c) The Borrower and each Guarantor hereby represent and warrant as follows:

(i)        Each Loan Party has taken all necessary action to authorize the execution, delivery and performance of this Agreement.

3

CHAR1\1039402v6

(ii)       This Agreement has been duly executed and delivered by the Loan Parties and constitutes the legal, valid and binding obligations of each of the Loan Parties, enforceable in accordance with its terms, except as such enforceability may be subject to (A) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors’ rights generally and (B) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

(iii)      No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by any Loan Party of this Agreement.

(d)The Loan Parties represent and warrant to the Lenders that (i) the representations and warranties of the Loan Parties set forth in Article IV of the Credit Agreement, in the Guaranty and in each other Loan Document are true and correct in all material respects as of the date hereof with the same effect as if made on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date and (ii) no unwaived event has occurred and is continuing which constitutes a Default or an Event of Default.

(e)This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Agreement by telecopy shall be effective as an original and shall constitute a representation that an executed original shall be delivered.

(f)         THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.

[remainder of page intentionally left blank]

4

CHAR1\1039402v6

            Each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.

BORROWER: RUBY TUESDAY, INC.,

a Georgia corporation

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

GUARANTORS: RTBD, INC.

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   President

RT FINANCE, INC.

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RUBY TUESDAY GC CARDS, INC.

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT TAMPA FRANCHISE, LP

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT ORLANDO FRANCHISE, LP

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

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RT SOUTH FLORIDA FRANCHISE, LP

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT NEW YORK FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT SOUTHWEST FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT MICHIANA FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT FRANCHISE ACQUISITION, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT KENTUCKY RESTAURANT HOLDINGS, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT FLORIDA EQUITY, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

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RTGC, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT WEST PALM BEACH FRANCHISE, LP

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT MICHIGAN FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT DETROIT FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

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RUBY TUESDAY, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

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BANK OF AMERICA, N.A.,

as Administrative Agent

By /s/ Anne M. Zeschke

Name: Anne M. Zeschke

Title: Assistant Vice President

BANK OF AMERICA, N.A.,

as a Lender, an Issuing Bank and

Swingline Lender

By /s/ John H. Schmidt

Name: John H. Schmidt

Title: Vice President

SUNTRUST BANK,

as a Lender and an Issuing Bank

By /s/ Jean-Paul Purdy

Name: Jean-Paul Purdy

Title: Director

WACHOVIA BANK,

NATIONAL ASSOCIATION,

as a Lender

By /s/ Susan T. Gallagher

Name: Susan T. Gallagher

Title: Vice President

REGIONS BANK,

successor by merger to AmSouth Bank,

as a Lender

By /s/ Amy Gillen

Name: Amy Gillen

Title: Senior Vice President

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BRANCH BANKING AND TRUST COMPANY,

as a Lender

By /s/ R. Andrew Beam

Name: R. Andrew Beam

Title: Senior Vice President

U.S. BANK, NATIONAL ASSOCIATION,

as a Lender

By

Name:

Title:

CITIBANK, N.A.,

as a Lender

By /s/ Robert Marcus

Name: Robert Marcus

Title: Vice President

WELLS FARGO BANK, N.A.,

as a Lender

By /s/ David Cortz

Name: David Cortz

Title: Vice President

FIFTH THIRD BANK,

an Ohio banking corporation,

as a Lender

By /s/ John K. Perez

Name: John K. Perez

Title: Vice President

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EX-10

LIMITED WAIVER AGREEMENT

THIS LIMITED WAIVER AGREEMENT dated as of February 29, 2008 (the “Agreement”) is entered into among Ruby Tuesday, Inc., a Georgia corporation (the “Sponsor”), the Guarantors, the Participants party hereto and Bank of America, N.A., as servicer and agent for the Participants (in such capacity, the “Servicer”). All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Loan Facility Agreement (as defined below).

RECITALS

WHEREAS, the Sponsor, the Participants and the Servicer entered into that certain Amended and Restated Loan Facility Agreement and Guaranty dated as of November 19, 2004 (as amended or modified from time to time, the “Loan Facility Agreement”);

WHEREAS, the Sponsor has requested that the Participants and the Servicer waive the Applicable Credit Events (as defined below) and continue to establish Loan Commitments, make Advances and issue Letters of Credit under the Loan Facility Agreement; and

WHEREAS, the Participants and the Servicer are willing to provide a limited waiver of the Applicable Credit Events and continue to establish Loan Commitments, make Advances and issue Letters of Credit during the Waiver Period (as defined below) subject to the terms and conditions specified in this Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.          Reaffirmation. Each of the Credit Parties acknowledges and reaffirms (a) that it is bound by all of the terms of the Loan Facility Agreement and the Operative Documents to which it is a party and (b) that it is responsible for the observance and full performance of all Guaranteed Obligations, including without limitation, the repayment of the Loans and reimbursement of any drawings on a Letter of Credit. Without limiting the generality of the preceding sentence, the Sponsor restates and reaffirms that it guarantees the prompt payment when due of all Guaranteed Obligations, in accordance with, and pursuant to the terms of Article VIII of the Loan Facility Agreement and each of the Guarantors restates and reaffirms that it guarantees the prompt payment when due of all Guaranteed Obligations, in accordance with, and pursuant to the terms of its Subsidiary Guaranty Agreement. Furthermore, the Credit Parties acknowledge and confirm (c) that the Servicer and the Participants have performed fully all of their respective obligations under the Loan Facility Agreement and the other Operative Documents and (d) by entering into this Agreement, the Participants do not waive (except as specifically provided in Section 2 hereof) or release any term or condition of the Loan Facility Agreement or any of the other Operative Documents or any of their rights or remedies under such Operative Documents or applicable law or any of the obligations of the Credit Parties thereunder.

2. Limited Waiver.

(a)        The Credit Parties acknowledge that (a) a Credit Event may exist under the Loan Facility Agreement as a result of the failure of the Consolidated Companies to comply with the terms of Section 6.13 of the Loan Facility Agreement during the Waiver Period (as defined below) (the “Net Worth Credit Event”) and (b) Credit Events will exist under the Loan Facility Agreement on March 4, 2008 as a result of the failure of the Consolidated Companies to comply with the terms of Sections 6.11 and 6.12 of the

CHAR1\1040771v3

Loan Facility Agreement as of the fiscal quarter ending March 4, 2008 (the Credit Events enumerated in (a) and (b) above, the “Applicable Credit Events”).

(b)       Subject to the other terms and conditions of this Agreement, the Servicer and the Participants hereby waive the Applicable Credit Events for the period from the date hereof until April 18, 2008 (the “Waiver Period”), whether the Net Worth Credit Event exists as of the date of this Agreement or arises at some other point during the Waiver Period, for all purposes of the Loan Facility Agreement. Accordingly, during the Waiver Period, the Servicer and the Participants shall, subject to the terms and conditions set forth herein, forbear exercising their rights and remedies arising exclusively as a result of the Applicable Credit Events and continue to establish Loan Commitments, make Advances and issue, extend amend or renew Letters of Credit in accordance with the terms thereof. The limited waiver set forth herein shall be effective only in this specific instance for the duration of the Waiver Period and shall not obligate the Participants or the Servicer to waive any other Credit Event or Unmatured Credit Event, now existing or hereafter arising. This limited waiver is limited solely to the Applicable Credit Events, and nothing contained in this Agreement shall (i) modify the Credit Parties’ obligations to comply fully with Section 6.11, 6.12 and 6.13 of the Loan Facility Agreement and all duties, terms, conditions or covenants contained in the Loan Facility Agreement and the other Operative Documents and (ii) be deemed to constitute a waiver of any other rights or remedies the Servicer or any Participant may have under the Loan Facility Agreement or any other Operative Documents or under applicable law. This is a one-time waiver, and the Servicer and the Participants shall have no obligation to extend the limited waiver or otherwise amend, modify or waive any provision of the Loan Facility Agreement or any other Operative Document at the end of the Waiver Period. The provisions and agreements set forth in this Agreement shall not establish a custom or course of dealing or conduct between the Servicer, any Participant, the Sponsor or any other Credit Party.

(c)        The Credit Parties acknowledge and agree that unless the Servicer and the Participants, in their sole discretion, further amend the Loan Facility Agreement or otherwise agree in writing to continue this limited waiver beyond the Waiver Period, Credit Events will occur under the Loan Facility Agreement as of April 19, 2008, for which no grace period or cure period shall apply, and the Servicer and the Participants may pursue all rights and remedies available to them under the Loan Facility Agreement, the Operative Documents and applicable law. The Credit Parties further acknowledge and agree that to the extent any Credit Events or Unmatured Credit Events (other than the Applicable Credit Events) now exist or hereafter arise during the Waiver Period, the Servicer and the Participants may immediately pursue all rights and remedies available to them in respect thereof under the Loan Facility Agreement, other Operative Documents and applicable law.

(d)       The Credit Parties acknowledge and agree that the establishing of Loan Commitments, making of Advances and issuance, extension, amendment and renewal of any Letter of Credit pursuant to the Loan Facility Agreement during the Waiver Period does not now, and will not in the future, constitute (i) an agreement or obligation, whether implied or express, on the part of the Servicer and Participants to establish Loan Commitments or make Advances or of the Servicer to issue, extend, amend or renew such Letters of Credit in the future after the expiration of the Waiver Period or (ii) a waiver by the Servicer or the Participants of any of their respective rights or remedies at any time, now or in the future, with respect to any Credit Event or Unmatured Credit Event (other than the Applicable Credit Events) or the Applicable Credit Events after the expiration of the Waiver Period.

3.         Agreement Regarding Indebtedness.As consideration for the limited waiver set forth in Section 2 above, the Sponsor acknowledges that it has not, and agrees that at no time will it, secure any Indebtedness outstanding under the Revolving Facility Credit Agreement or the Senior Note Purchase Agreement unless the Indebtedness in respect of the Loan Facility Agreement is concurrently equally and

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ratably secured pursuant to an agreement or agreements in form and substance satisfactory to the Required Participants. The Sponsor further agrees that any failure by the Sponsor to comply with the terms of the immediately preceding sentence shall constitute an immediate Credit Event under Article VII of the Loan Facility Agreement.

4.         Agreement Regarding Distributions. As further consideration for the limited waiver set forth in Section 2 above, the Sponsor agrees that it will not, and will not permit any of its Subsidiaries to, declare or make, or incur any liability to declare or make, any Distribution (as hereinafter defined) in respect of the Sponsor or any Subsidiary (other than on account of capital stock or other equity interests of a Subsidiary owned legally and beneficially by the Sponsor or a wholly-owned Subsidiary), including, without limitation, any Distribution resulting in the acquisition by the Sponsor of Securities (as hereinafter defined) which would constitute treasury stock. The Sponsor further agrees that any failure by the Sponsor to comply with the terms of the immediately preceding sentence shall constitute an immediate Credit Event under Article VII of the Loan Facility Agreement. For purposes of this Section 4, the term “Distribution” shall mean, in respect of any corporation, association or other business entity (a) dividends or other distributions or payments on capital stock or other equity interest of such corporation, association or other business entity (except distributions in such stock or other equity interest) and (b) the redemption or acquisition of such stock or other equity interests or of warrants, rights or other options to purchase such stock or other equity interests (except when solely in exchange for such stock or other equity interests) unless made, contemporaneously from the net proceeds of a sale of such stock or other equity interests. For purposes of this Section 4, the term “Securities” shall have the meaning set forth in Section 2(1) of the Securities Act of 1933, as amended from time to time.

5.         Conditions Precedent. This Agreement shall be effective as of the date hereof when all of the conditions set forth below have been satisfied:

(a)        The Servicer shall have received counterparts of this Agreement, duly executed by the Sponsor, the Guarantors and the Required Participants; and

(b)       The Servicer shall have received a fully executed copy, certified by a Responsible Officer of the Sponsor as true and complete, of (i) a waiver to the Senior Note Purchase Agreement and (ii) a waiver to the Revolving Facility Credit Agreement, each in form and substance satisfactory to the Servicer.

6. Miscellaneous.

(a)Except as herein specifically agreed, the Loan Facility Agreement, and the obligations of the Credit Parties thereunder and under the other Operative Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms.

(b)        Each Guarantor (a) acknowledges and consents to all of the terms and conditions of this Agreement, (b) affirms all of its obligations under the Operative Documents and (c) agrees that this Agreement and all documents executed in connection herewith do not operate to reduce or discharge its obligations under the Loan Facility Agreement or the other Operative Documents.

(c) The Sponsor and each Guarantor hereby represent and warrant as follows:

(i)        Each Credit Party has taken all necessary action to authorize the execution, delivery and performance of this Agreement.

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(ii)       This Agreement has been duly executed and delivered by the Credit Parties and constitutes the legal, valid and binding obligations of each of the Credit Parties, enforceable in accordance with its terms, except as such enforceability may be subject to (A) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors’ rights generally and (B) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

(iii)      No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by any Credit Party of this Agreement.

(d)The Credit Parties represent and warrant to the Participants that (i) the representations and warranties of the Credit Parties set forth in Article V of the Loan Facility Agreement, in the Guaranty and in each other Operative Document are true and correct in all material respects as of the date hereof with the same effect as if made on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date and (ii) no unwaived event has occurred and is continuing which constitutes a Credit Event or Unmatured Credit Event.

(e)This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Agreement by telecopy shall be effective as an original and shall constitute a representation that an executed original shall be delivered.

(f)         THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.

[remainder of page intentionally left blank]

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            Each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.

SPONSOR: RUBY TUESDAY, INC.,

a Georgia corporation

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Senior Vice President

GUARANTORS: RTBD, INC.

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   President

RT FINANCE, INC.

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RUBY TUESDAY GC CARDS, INC.

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT TAMPA FRANCHISE, LP

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT ORLANDO FRANCHISE, LP

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

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RT SOUTH FLORIDA FRANCHISE, LP

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT NEW YORK FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT SOUTHWEST FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT MICHIANA FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT FRANCHISE ACQUISITION, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT KENTUCKY RESTAURANT HOLDINGS, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT FLORIDA EQUITY, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

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RTGC, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT WEST PALM BEACH FRANCHISE, LP

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT MICHIGAN FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

RT DETROIT FRANCHISE, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

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RUBY TUESDAY, LLC

By: /s/ Marguerite N. Duffy

Name: Marguerite N. Duffy

Title:   Vice President

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SERVICER: BANK OF AMERICA, N.A.,

in its capacity as Servicer

By: /s/ Anne M. Zeschke

Name: Anne M. Zeschke

Title: Assistant Vice President

PARTICIPANTS: BANK OF AMERICA, N.A.

By: /s/ John H. Schmidt

Name: John H. Schmidt

Title: Vice President

REGIONS BANK,

successor by merger to AmSouth Bank

By: /s/ Amy Gillen

Name: Amy Gillen

Title: Senior Vice President

WACHOVIA BANK, N.A.

By: /s/ Susan T. Gallagher

Name: Susan T. Gallagher

Title: Vice President

SUNTRUST BANK

By: /s/ Jean- Paul Purdy

Name: Jean-Paul Purdy

Title: Director

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EX-10

RUBY TUESDAY, INC.

CAFETERIA PLAN

THIS INDENTURE is made as of this 31^st day of December, 2007, by RUBY TUESDAY, INC. (the “Primary Sponsor”).

INTRODUCTION

The Primary Sponsor maintains the Ruby Tuesday, Inc. Cafeteria Plan (the “Old Cafeteria Plan”), under an indenture dated July 1, 2000. The Primary Sponsor also maintains the Ruby Tuesday, Inc. Flexible Spending Plan (the “Old Flex Plan”), effective January 1, 2002.

The Primary Sponsor wishes to consolidate the Old Cafeteria Plan and the Old Flex Plan into two separate plans, with one plan providing for contributions to health savings accounts and the other plan not providing for such contributions. The Primary Sponsor wishes to name the plan that does not provide for contributions to health savings accounts the Ruby Tuesday, Inc. Cafeteria Plan (the “Plan”) and wishes to update the Plan for changes in the law.

This Plan is intended meet the requirements of Section 105, Section 125 and Section 129 of the Internal Revenue Code of 1986, as amended.

NOW, THEREFORE, the Primary Sponsor does hereby establish the Plan, effective January 1, 2008, as follows:

RUBY TUESDAY, INC.

CAFETERIA PLAN

TABLE OF CONTENTS

	PAGE
SECTION 1	DEFINITIONS	1
SECTION 2	PARTICIPATION	8
2.1	DATE OF PARTICIPATION	8
2.2	CESSATION OF PARTICIPATION	9
2.3	FORMER PARTICIPANTS	9
2.4	CONTINUATION COVERAGE	9
SECTION 3	ELECTIONS	10
3.1	ELECTION FOR INSURANCE COVERAGE	10
3.2	ELECTIONS FOR EXPENSE ACCOUNT OR HEALTH SAVINGS ACCOUNT	10
3.3	REVOCATION OR MODIFICATIONS OF ELECTIONS	12
3.4	REJECTION OF ELECTIONS	15
SECTION 4	HEALTH AND DEPENDENT CARE EXPENSE ACCOUNTS	16
4.1	ESTABLISHMENT OF HEALTH CARE EXPENSE ACCOUNTS	16
4.2	ESTABLISHMENT OF DEPENDENT CARE EXPENSE ACCOUNTS	16
4.3	BENEFITS PAYABLE FROM HEALTH CARE EXPENSE ACCOUNTS	16
4.4	BENEFITS PAYABLE FROM DEPENDENT CARE EXPENSE ACCOUNTS	17
4.5	PAYMENT OF CLAIMS	17
4.6	NO REIMBURSEMENTS IN EXCESS OF ACCOUNT	17
4.7	SUBMISSION OF CLAIMS FOR QUALIFYING HEALTH CARE EXPENSES	17
4.8	SUBMISSION OF CLAIMS FOR QUALIFYING DEPENDENT CARE EXPENSES	17
4.9	TIME LIMIT FOR CLAIMING BENEFITS	17
4.10	FORFEITURE OF ACCOUNTS	18
4.11	LIMITATION OF BENEFITS FOR CERTAIN SHAREHOLDERS	18
4.12	COMPENSATION AS CEILING	18
4.13	PROHIBITION OF PAYMENT FOR SERVICES OF CERTAIN PROVIDERS OF DEPENDENT CARE	19
4.14	LIMITATIONS ON REIMBURSEMENT FOR SERVICES OUTSIDE THE HOUSEHOLD	19
SECTION 5	ADMINISTRATION	20
5.1	ADMINISTRATIVE POWERS AND DUTIES	20
5.2	APPOINTMENT OF PLAN ADMINISTRATOR	21
5.3	APPEALS FIDUCIARY	21
5.4	DELEGATION OF RESPONSIBILITIES	21
5.5	EXAMINATION OF RECORDS	21
5.6	RELIANCE ON TABLES, ETC.	21
5.7	CLAIMS PROCEDURE	21
5.8	REVIEW OF DENIED CLAIM	23
5.9	CLAIMS AND REVIEW PROCEDURE FOR INSURED BENEFITS	25
5.10	PROHIBITION OF DISCRIMINATION	25
SECTION 6	AMENDMENT OR TERMINATION	25
6.1	AMENDMENT OF PLAN	25
6.2	TERMINATION OF PLAN	25
6.3	PRESERVATION OF RIGHTS	25

(i)

SECTION 7	ADOPTION OF PLAN BY AFFILIATES	25
SECTION 8	MISCELLANEOUS	26
8.1	COMMUNICATION TO ELIGIBLE EMPLOYEES	26
8.2	NO EMPLOYMENT RIGHTS CREATED	26
8.3	LEGALLY ENFORCEABLE	26
8.4	UNFUNDED PLAN	26
8.5	NONALIENATION	26
8.6	NO GUARANTEE OF TAX CONSEQUENCES	26
8.7	NOTICE OF ADDRESS	26
8.8	INDEMNIFICATION OF FIDUCIARIES	27
8.9	INDEMNIFICATION OF PLAN SPONSOR BY PARTICIPANTS	27
8.10	TITLES AND HEADINGS	27
8.11	GENDER AND NUMBER	27
8.12	APPLICABLE LAW	27
SECTION 9	HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996	27
9.1	COMPLIANCE	27
9.2	DISCLOSURE OF SUMMARY HEALTH INFORMATION TO THE PLAN SPONSOR	28
9.3	DISCLOSURE OF PROTECTED HEALTH INFORMATION TO THE PLAN SPONSOR FOR THE PLAN ADMINISTRATION PURPOSES	28
9.4	DISCLOSURE OF CERTAIN ENROLLMENT INFORMATION TO THE PLAN SPONSOR	29
9.5	DISCLOSURE OF PHI TO OBTAIN STOP-LOSS OR EXCESS LOSS COVERAGE	30
9.6	OTHER DISCLOSURES AND USES OF PHI	30
9.7	DISCLOSURE OF ELECTRONIC PHI TO THE PLAN SPONSOR FOR PLAN ADMINISTRATION PURPOSES	30

(ii)

SECTION 1

DEFINITIONS

1.1       “Affiliate” means (a) any corporation which is a member of the same controlled group of corporations, within the meaning of Section 414(b) of the Code, as is a Plan Sponsor; (b) any other trade or business (whether or not incorporated) under common control, within the meaning of Section 414(c) of the Code, with a Plan Sponsor; (c) any corporation, partnership or organization which is a member of an affiliated service group, within the meaning of Section 414(m) of the Code, with a Plan Sponsor; and (d) any other entity required to be aggregated with a Plan Sponsor pursuant to regulations under Section 414(o) of the Code. 

1.2       “Appeals Fiduciary” means an individual or group of individuals appointed to review appeals of claims for benefits under the Health Care Expense Account made pursuant to Section 5.8.

1.3       “Benefit Package Option” means each specific benefit paid for under the Plan as the result of a Participant’s election (e.g., as to Insurance Coverage, a health maintenance organization, indemnity, or preferred provider organization, or as to Dependent Care Expenses, the specific dependent care program or provider selected by the Participant).

1.4       “Code” means the Internal Revenue Code of 1986, as amended.

1.5       “Compensation” means wages, within the meaning of Code Section 3401(a), paid or made available to a person, after he becomes a Participant, for personal services rendered in the course of employment with the Plan Sponsor.

1.6       “Dependent” means any Eligible Employee’s dependent, within the meaning of Code Section 152 (without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), except that for Plan Sections relating to the Dependent Care Expense Account, “Dependent” means:

(a)       an Eligible Employee’s dependent, as defined in Code Section 152(a)(1), who is under the age of thirteen (13);

(b)       an Eligible Employee’s dependent, as defined in Code Section 152 (without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), who is physically or mentally incapable of caring for himself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year; or

(c)       the spouse of an Eligible Employee, if such spouse is physically or mentally incapable of caring for himself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year.

1.7       “Dependent Care Expense Account” means an account established pursuant to Section 4 of the Plan which shall reflect the dollar amount of any before-tax contributions elected by the Participant to be applied towards reimbursement of Dependent Care Expenses.

1.8       “Dependent Care Expenses” means amounts paid by a Participant for the care of a Dependent, either inside or outside of the Participant’s home, or for related household services, subject to the further limitations under Plan Section 4, in order to enable the Participant to be gainfully employed for any period for which he has a Dependent. In no event shall a Participant be reimbursed for any of the following expenses:

(a)       Any expenses which are incurred by a Participant for personal employment, convenience or ease rather than to enable the Participant to be gainfully employed.

(b)       Amounts paid for services outside the Participant’s household at a camp where a Dependent stays overnight.

(c)       Educational expenses incurred at or beyond the level of kindergarten; provided, however, expenses incurred for the care of a child at an educational facility may be reimbursed if such expenses for the care of the child can be separated from the cost of the education.

(d)       Transportation expenses, other than those transportation expenses that are attributable to transportation provided by a dependent care provider and are attributable to the care of the child.

(e)        Expenses reimbursed or provided for under any other plan or program maintained by a Plan Sponsor for employees.

(f)        Expenses not actually incurred while the Eligible Employee was a Participant.

(g)       Any other expenses which would not be considered “employment related expenses” under Code Section 21(b).

1.9       “Earned Income” means a person’s wages, salaries, tips and other employee compensation plus the amount of any net earnings from self-employment for the Plan Year. In determining the Earned Income of a spouse who is a student or incapable of caring for himself, the provisions of Section 21(d)(2) of the Code shall apply.

1.10     “Effective Date” means, as to the Primary Sponsor, January 1, 2008, and as to each other Plan Sponsor which adopts the Plan, the date designated as such by the adopting Plan Sponsor. 

1.11     “Eligible Employee” means,

(a)       with respect to a Participating Plan, an Employee of a Plan Sponsor who is covered or eligible for coverage under such Participating Plan, but only with respect to such plan or plans as the Plan Sponsor may designate by resolution for inclusion under this Plan; and

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(b)       with respect to the Health Care Expense Account or Dependent Care Expense Account, each Employee of a Plan Sponsor.

1.12     “Employee” means each person who is employed by a Plan Sponsor in the legal relationship of employer and employee and not in the relationship of independent contractor or leased employee and whose wages from the Plan Sponsor are subject to withholding as evidenced by Form W-2 or its successor. The term “Employee” does not include an individual who is employed by a Plan Sponsor as a leased employee or independent contractor and is subsequently determined by the Plan Sponsor, the Internal Revenue Service, the Department of Labor or a court of competent jurisdiction to be a common law employee of the Plan Sponsor for any period prior to such determination. The term “Employee” also excludes any employee covered by a collective bargaining agreement if benefits were the subject of good faith bargaining and the Plan Sponsor and such collective bargaining unit have not bargained that the unit will be covered by the Plan.

1.13 “Governmental or Educational Institution Program” shall include the following:

(a)       a state’s children’s health insurance program under Title XXI of the Social Security Act;

(b)       a medical care program of an Indian Tribal government (as defined in Code Section 7701(a)(40)), the Indian Health Service, or a tribal organization;

(c)       A state health benefits risk pool; or

(d)       A foreign government group health plan.

1.14     “Grace Period” means with respect to any Plan Year of a Health Care Expense Account, the two and one-half (2 ½) month period after the expiration of such Plan Year.

1.15     “Health Care Expense Account” means an account established pursuant to Section 4 of the Plan which shall reflect the dollar amount of any before-tax contributions and after-tax contributions (if the Participant elects continuation coverage under Code Section 4980B) elected by the Participant to be applied towards reimbursement of Qualifying Health Care Expenses.

1.16     “Health Savings Account” means an account established pursuant to Section 223(d) of the Code.

1.17     “High Deductible Health Plan” means a health plan that meets the definition of a high deductible health plan under Section 223(c)(2) of the Code.

1.18     “Highly Compensated Employee” means a Participant who is a “highly compensated employee” as defined in Code Section 125(e)(3) or regulations issued thereunder, except that, for purposes of Section 3.4, Highly Compensated Employee shall be determined pursuant to Code Section 105(h)(5) or Code Section 414(q), as applicable.

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1.19     “HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended from time to time. References to HIPAA includes any comparable or succeeding law which amends, replaces, or supplements the provisions of the HIPAA as in effect as of the Effective Date.

1.20     “HSA Eligible Employee” means an Eligible Employee who:

(a)       is covered under the High Deductible Health Plan;

(b)       is not covered under any other health plan and/or a health flexible spending arrangement within the meaning of Code Section 125 (a “Health FSA”) (other than a health plan or Health FSA provides for certain coverage that is disregarded under Code Section 223(c)(1)(B) or a Health FSA that only provides for reimbursement after the deductible for the High Deductible Health Plan has been satisfied); and

(c)       certifies, in a process determined by the Plan Administrator, that he is not covered under any other health plan and/or Health FSA that is prohibited by Subsection (b).

For purposes of this Section 1.20, an Eligible Employee will not be considered to be covered under a Health FSA if such Eligible Employee either had a zero dollar balance in such Health FSA, determined on a cash basis, as of the end of the Plan Year to which the Grace Period applies or elects on or before the last day of such Plan Year to have the remaining balance in his Health FSA contributed to his Health Savings Account in accordance with Section 3.2(c) or similar procedures under another cafeteria plan within the meaning of Code Section 125.

1.21     “Insurance Coverage” means any payment of any contribution toward premiums or other payments which are required on behalf of the Participant to obtain coverage for the Participant, his spouse and/or Dependents under the Participating Plans for the Plan Year.

1.22     “Key Employee” means a Participant who is a “key employee” as defined in Code Section 416(i)(1).

1.23     “Loss of Coverage” means (a) a complete loss of coverage under the Benefit Package Option or other coverage (including the elimination of a Benefit Package Option, an HMO ceasing to be available in the area where the individual resides, or the individual losing all coverage under the option by reason of an overall lifetime or annual limitation); (b) a substantial decrease in the medical care providers available under the option (such as a major hospital ceasing to be a member of a preferred provider network or a substantial decrease in the physicians participating in a preferred provider network or an HMO); (c) a reduction in the benefits for a specific type of medical condition or treatment with respect to which the Participant or the Participant’s spouse or Dependent is currently in the course of treatment; or (d) any other similar fundamental loss of coverage.

1.24     “Participant” means any Eligible Employee or former Eligible Employee who has elected to participate in the Plan in accordance with the terms of the Plan, for so long as his participation has not ceased.

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1.25     “Participating Plans” means the group health, dental, vision, group-term life insurance, accidental death and dismemberment, short-term disability and/or long-term disability plans which shall be maintained by a Plan Sponsor from time to time.

1.26     “Plan” means the Ruby Tuesday, Inc. Cafeteria Plan.

1.27     “Plan Administrator” means the Primary Sponsor, unless the Primary Sponsor selects another person, committee or entity in accordance with Section 5.2 to administer the Plan.

1.28     “Plan Sponsor” means, individually, the Primary Sponsor or any successor thereto and each Affiliate or other trade or business which has adopted the Plan in the manner set forth in Section 7.

1.29     “Plan Year” means;

(a)       with respect to a Participating Plan,

(1)       for periods before July 1, 2007, the period beginning July 1 and ending June 30;

(2)       for the period commencing July 1, 2007, the period beginning July 1, 2007 and ending December 31, 2007; and

(3)       effective January 1, 2008, the calendar year; and

(b)       with respect to any Benefit Package Option that is not a Participating Plan, the calendar year.

In the event a Participant commences participation during a Plan Year, the initial coverage period shall be that portion of the Plan Year commencing on the effective date of the Participant’s participation pursuant to Section 2.1 and ending on the last day of the Plan Year.

1.30     “Qualifying Health Care Expenses”

(a)means amounts paid by a Participant for diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body, including, by way of example but not by limitation, amounts paid for:

(1)operations or treatments affecting any portion of the body, including obstetrical expenses, legal abortion, legal vasectomy and expenses of therapy or X-ray treatments;

(2)the prevention or alleviation of a physical or mental defect or illness, including acupuncture services, chiropractic services, vision, physical or dental examinations and treatments and well-baby care;

5

(3)hospital services, nursing services, medical laboratory, surgical, dental and other diagnostic and healing services, X-rays, medicine and drugs, and ambulance service;

(4)eyeglasses and contact lenses, hearing aids, a guide dog for the blind or deaf, artificial teeth and limbs, wheel chair, crutches, or an inhalator;

(5)in-patient hospital care;

(6)care and supervision, or treatment and training, of a mentally retarded individual at an institution or special home on the recommendation of a psychiatrist;

(7)installation and repair of special telephone and television equipment for use by the deaf; design, installation and operating cost of special equipment on a car used by a physically handicapped individual;

(8)medicine and drugs which are legally procured and which are generally accepted as falling within the categories of medicine and drugs if:

(A)      such medicine or drug is a prescribed drug or insulin; or

(B)      such medicine or drug is purchased without a prescription;

(9)       payments to a special school for a mentally impaired or physically disabled person if the main reason for using the school is its resources for relieving the disability (and not the benefits of the course of study or discipline), including, but not limited to, the following:

(A)       teaching Braille to a visually impaired child;

(B)       teaching lip reading to a hearing impaired child; or

(C)       providing remedial language training to correct a condition caused by a birth defect;

(10)       the cost of meals, lodging, and ordinary education supplied by a special school referred to in clause (9) above provided that the main reason for the child’s being there is the resources the school has for relieving the mental or physical disability;

(11)       the cost of meals or lodging at a hospital or similar facility while receiving treatment at such facility;

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(12)       the cost of meals or lodging not provided at a hospital or medical facility if:

(A)       the lodging is primarily for and essential to medical care;

(B)       the medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital;

(C)       the lodging is not lavish; and

(D)       there is no significant element of recreation or vacation in the travel away from home;

(13)       expenses associated with the cost of a program to stop smoking;

(14)       the medical expenses tuition fees paid to a special school for a child who has severe learning disabilities caused by mental or physical impairment, provided that a doctor must recommend that the child attend the school; and

(15)       laser eye surgery.

(b)       means transportation primarily for and essential to medical care referred to in Subsection (a) above.

(c)       shall not include expenses incurred prior to the date of an Eligible Employee’s enrollment in the Plan or after the end of the Plan Year (except to the extent of expenses incurred during an applicable Grace Period) or expenses including but not limited to the expenses described below:

(1)Cosmetic surgery, unless necessary to improve a deformity arising from or directly related to a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease;

(2)       Marriage or family counseling unless provided by an M.D., Ph.D., psychologist, licensed and certified psychologist, or a licensed social worker;

(3)The salary expense of a licensed practical nurse (LPN) incurred in connection with the care of a normal and healthy newborn (even though such care may be required due to the death of the mother in childbirth);

(4)Funeral and burial expenses;

(5)Household and domestic help (even though recommended by a licensed physician due to an employee’s or Dependent’s inability to perform physical housework);

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(6)Any expenses incurred in connection with an illegal operation or treatment;

(7)Custodial care in an institution;

(8)Cost of sending a problem child to a special school for benefits the child may receive from the course of study and disciplinary methods;

(9)Health club dues, YMCA dues, steam bath, etc.; social activities, such as dance lessons or classes (even though recommended by a licensed physician for general health improvement);

(10)Bottled water; maternity clothes, diaper service, etc.; cosmetics; toiletries, toothpaste, and similar supplies; vitamins or other nutritional supplements taken for general health purposes; uniforms;

(11)Automobile insurance premiums; premiums paid for life insurance policies or for policies providing repayment for loss of earnings or for accidental loss of life, limb, sight, etc.;

(12)Vacation or travel taken for general health purposes, a change in environment, improvement of morale, or taken to relieve physical or mental discomfort;

(13)Transportation expenses to and from work, even though a physical condition may require special means of transportation;

(14)       Premiums paid for health insurance including premiums paid for health coverage under a plan maintained by the employer of the Participant’s spouse or Dependent; and

(15)       Custodial care in an institution unless otherwise described above as a Qualifying Health Care Expense.

1.31     “Unpaid Leave Under the Family and Medical Leave Act” means a family or medical leave of absence pursuant to the Family and Medical Leave Act of 1993, as approved by a Plan Sponsor.

SECTION 2

PARTICIPATION

2.1       Date of Participation. Except as otherwise provided in Section 2.3, each Eligible Employee of a Plan Sponsor shall become a Participant under the Plan:

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(a)       with respect to any Participating Plan, on the first date the Eligible Employee satisfies the enrollment requirements as set forth in Plan Section 3.1; and

(b)       with respect to the Dependent Care Expense Account and the Health Care Expense Account on the first date following the completion of ninety (90) days of continuous employment with a Plan Sponsor; provided that the Eligible Employee satisfies the enrollment requirements set forth in Plan Section 3.2 on such date.

2.2       Cessation of Participation. Participation in the Plan shall cease effective as of the earliest of:

(a)       the date the Participant’s elections under Plan Section 3 expire or terminate;

(b)       the date on which a Participant’s elections under Section 3 are all revoked;

(c)       the date the Participant ceases to be an Eligible Employee for any reason (including, but not limited to, lay-off, strike, retirement, termination or death), except as otherwise provided in Plan Section 2.4; or

(d)       the date the Plan terminates.

2.3       Former Participants. If a person who has met the eligibility requirements of the Plan ceases to be a Participant because he is no longer an Employee of a Plan Sponsor and is subsequently reemployed by a Plan Sponsor, or because he ceases to be an Eligible Employee and subsequently meets the eligibility requirements of the Plan, the Employee shall again become a Participant as of the later of the date he:

(a)recommences service with the Plan Sponsor as an Eligible Employee; or

(b)makes an election in accordance with Section 3 herein.

Notwithstanding the preceding, if a former Participant ceases to be a Participant because he fails to make the required contributions, such former Participant shall not again be eligible to be a Participant until the next Plan Year.

2.4       Continuation Coverage.

(a)       Notwithstanding anything to the contrary contained in this Plan, a Participant and any qualified beneficiary (as defined by Code Section 4980B(g)(1)) of a Participant shall have the option to elect continuation coverage in the portion of the Plan relating to Health Care Expense Accounts upon the occurrence of a “qualifying event” within the meaning of Code Section 4980B(f)(3), to the extent such election is consistent with Code Section 125. If elected, the continuation coverage shall consist of coverage identical to that provided under the Plan to a similarly situated person whose coverage has not been terminated as a result of a “qualifying event”; provided, however, that any

9

election may not be revoked or modified after the beginning of the period for which it is effective. The timing, length, cost and methods of making an election pursuant to this Plan Section 2.4 shall be governed by the provisions of Code Section 4980B and relevant proposed or final Treasury Regulations.

(b)       Notwithstanding anything to the contrary contained in this Plan, if a Participant leaves service with a Plan Sponsor due to military leave with the “uniformed services”, as defined in the Uniformed Services Employment and Reemployment Rights Act of 1994 and the regulations thereunder (“USERRA”), such Participant may be eligible for continuation coverage as provided by, and subject to the rules, restrictions, and limitations in, USERRA.

SECTION 3

ELECTIONS

3.1       Election for Insurance Coverage. To become a Participant, each Eligible Employee must make an initial election for Insurance Coverage on a pre-tax basis for the Plan Year at the time and in the manner required by the Plan Administrator. Any election under this Plan Section 3.1 shall be effective as of the date of eligibility indicated in the Participating Plans. Each Participant shall be deemed to have made an affirmative election under this Section with respect to each succeeding Plan Year in which he participates in the Participating Plans as an Eligible Employee unless such Participant elects otherwise in writing delivered to the Plan Administrator before the first day of each such succeeding Plan Year. Upon an election under this Section, each Participant’s Compensation shall be reduced in approximately pro rata amounts (or, for Participants who are on Unpaid Leave Under the Family and Medical Leave Policy of the Plan Sponsor, in such amounts as may be agreed to by the Participant and the Plan Administrator), each pay period by the amount of Insurance Coverage and that amount shall be applied by the Plan Sponsor toward providing Insurance Coverage, subject to the limitations contained herein. An Eligible Employee who fails to make a timely initial election under this Section 3.1 shall be deemed to have elected, and will be automatically enrolled in coverage under such plans or programs as may be designated by the Plan Administrator from time to time at a level covering only the Eligible Employee.

3.2       Elections for Expense Accounts or Rollover to a Health Savings Account.

(a)       Election for Health Care Expense Account. Prior to the first day of each Plan Year, a Participant may elect to receive reimbursement for Qualifying Health Care Expenses by making an election on a pre-tax basis for a salary reduction in the manner required by, and before the deadline designated by, the Plan Administrator. Any Eligible Employee who becomes a Participant in the Health Care Expense Account on or after the first day of that same Plan Year may elect to receive reimbursement for Qualifying Health Care Expenses for the remainder of the Plan Year by making an election for a salary reduction in the manner required by, and before the deadline designated by, the Plan Administrator. Such elections shall be effective as of the first day of the next following pay period after the election is made following date of hire. Subject to the

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conditions and limitations of this Plan, each Plan Year the Participant may elect to have an amount no less than an amount designated by the Plan Administrator from time to time and no greater than $4,000 allocated to a Health Care Expense Account established and maintained for the Participant instead of receiving that amount as cash compensation. If the Eligible Employee is hired by the Plan Sponsor on or after the first day of that same Plan Year, such Eligible Employee may still elect the maximum amount that can be elected under the this paragraph. Each Participant’s Compensation shall be reduced in approximately equal amounts each pay period by the amount elected pursuant to this Section 3.2(a) divided by the number of pay periods during the Plan Year and that amount shall be applied by the Plan Sponsor to such Participant’s Health Care Expense Account pursuant to Section 4.

(b)       Election for Dependent Care Expense Account. Prior to the first day of each Plan Year, a Participant may elect to receive reimbursement for Dependent Care Expenses by making an election on a pre-tax basis for a salary reduction in the manner required by, and before the deadline designated by, the Plan Administrator. Any Eligible Employee who becomes a Participant in the Dependent Care Expense Account on or after the first day of that same Plan Year may elect to receive reimbursement for Dependent Care Expenses for the remainder of the Plan Year by making an election for a salary reduction in the manner required by, and before the deadline designated by, the Plan Administrator. Such elections shall be effective as of the first day of the next following pay period after the election is made following date of hire. Subject to the conditions and limitations of the Plan, each Plan Year the Participant may elect to have an amount no less than an amount designated by the Plan Administrator from time to time and no greater than $5,000 (or, if the Participant is married and files a separate federal income tax return, $2,500) allocated to a Dependent Care Expense Account established and maintained for the Participant instead of receiving that amount as cash compensation. If the Participant is married and the Participant’s spouse is also covered by a dependent care assistance program, such spouse’s salary reduction contributions shall reduce the $5,000 limit on allocations provided above. If the Eligible Employee is hired by the Plan Sponsor on or after the first day of that same Plan Year, such Eligible Employee may still elect the maximum amount that can be elected under the this paragraph; provided, however, that if such Eligible Employee was covered under a dependent care assistance program of another employer prior to becoming an Eligible Employee during the calendar year in which he became an Eligible Employee, such Eligible Employee shall, if requested by the Plan Administrator, provide the Plan Administrator with information sufficient to determine the amount of such Eligible Employee’s contributions to such dependent care assistance program for such calendar year and the maximum amount that can be reimbursed under this paragraph shall be reduced by the amount of the Eligible Employee’s contributions to such other dependent care assistance program for such year. The Participant shall provide the Plan Administrator with all the pertinent information regarding his spouse’s participation in a dependent care assistance program. Each Participant’s Compensation shall be reduced in approximately equal amounts each pay period by the amount elected pursuant to this Section 3.2(b) divided by the number of pay periods during the Plan Year and that amount shall be applied by the Plan Sponsor to such Participant’s Dependent Care Expense Account pursuant to Section 4.

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(c)       Election for Rollover to a Health Savings Account. If an Eligible Employee would be an HSA Eligible Employee but for the fact that he has a balance in his Health Care Expense Account as of the end of the Plan Year prior to the Plan Year for which he would otherwise be an HSA Eligible Employee (the “Election Year”), such Eligible Employee may elect to have the remaining balance in his Health Care Expense Account contributed to his Health Savings Account (an “HSA Rollover”), in accordance with the following rules:

(1)       such Eligible Employee has not previously made an election under this Section 3.2(c);

(2)       such Eligible Employee elects by the last day of the Election Year to have the Plan Sponsor make an HSA Rollover;

(3)       the HSA Rollover does not exceed the lesser of the balance of the Health Care Expense Account (or similar coverage under the Old Flex Plan) on (I) September 21, 2006, or (II) the date of the distribution; and

(4)       after the HSA Rollover, there is a zero dollar balance in the Health Care Expense Account;

provided that, if an Eligible Employee makes such an election, the Health Care Expense Account will not make any reimbursements to the Eligible Employee after the last day of the Election Year and the Plan Sponsor will make the HSA Rollover directly to the trustee of the Eligible Employee’s Health Savings Account by no later than the earlier of (x) fifteenth day of the third calendar month following the end of the Election Year or (y) December 31, 2011. An Eligible Employee who did not have coverage under the “Health Care Reimbursement Plan” (as defined in the Old Flex Plan) on September 21, 2006 is not eligible to make an election under this Subsection (c).

3.3       Revocation or Modifications of Elections. No election once made may be revoked or modified, except as provided in this Section 3.3. Any revocation or modification of an election under Section 3.3 shall be in writing and shall be delivered to the Plan Administrator within the thirty (30) day period following the date of the circumstances permitting the revocation or modification.Any revocation or modification shall become effective as of the first day of the next following pay period after which it is received. Elections may be further restricted by insurance policies or agreements between a Plan Sponsor and insurance carriers. Whether any particular circumstance permits a modification or revocation under this Section 3.3 will be construed by the Plan Administrator in a manner consistent with Treasury Regulations Section 1.125-4 or any successor regulation. Notwithstanding any other provision of the Plan, a Participant may revoke or modify an election for Insurance Coverage(s) under other circumstances as permitted by the Plan Administrator pursuant to Code Section 125 and any guidance issued thereunder. Any revocation or modification of an election under this Section 3.3 shall be permitted under the Plan only if the revocation or modification is on account of and is consistent with the change in circumstances permitting the revocation or modification. Subject to

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the foregoing, a Participant may revoke or modify an existing election only upon the occurrence of any of the following events:

(a)       with respect solely to Insurance Coverage or the Health Care Expense Account, any event which gives the Participant special enrollment rights under Code Section 9801(f) and any available guidance issued thereunder;

(b)       with respect solely to Insurance Coverage or the Health Care Expense Account, the issuance of a judgment, decree or order resulting from a divorce, legal separation, annulment or change in legal custody that requires such coverage to be provided to a Participant’s Dependent child or foster child, provided that such coverage must actually be provided to the Dependent child or foster child;

(c)       with respect solely to Insurance Coverage or the Health Care Expense Account, a Participant or a Participant’s spouse and/or Dependents becomes eligible or ceases to be eligible for coverage under Medicare, as described in Part A or B of Title XVIII of the Social Security Act (Medicare) or Title XIX of the Social Security Act (Medicaid) (other than coverage consisting solely of benefits under Section 1928 of the Social Security Act (the program for distribution of pediatric vaccines));

(d)       with respect solely to Insurance Coverage or the Health Care Expense Account, a Participant takes a leave of absence under the Family Medical Leave Act;

(e)       one of the following changes in status:

(1)       a change in a Participant’s legal marital status, including marriage, death of a spouse, divorce, legal separation and annulment;

(2)       a change in the number of a Participant’s Dependents, including birth of a child, death of a Dependent spouse or child, adoption of a child and placement of a child for adoption;

(3)       a change in the employment status of a Participant or a Participant’s spouse or a Participant’s Dependents, including: (A) a termination or commencement of employment; (B) a strike or lockout; (C) a commencement of or return from an unpaid leave of absence; (D) a change in worksite; or (E) a change in employment status which causes a Participant or a Participant’s spouse or Dependent to become or no longer satisfy the eligibility requirements under the Plan or under any insurance policy pursuant to which Insurance Coverage is provided;

(4)       an event which causes a Participant’s Dependent to satisfy or cease to satisfy the eligibility requirements under the Plan or under any insurance policy pursuant to which Insurance Coverage is provided, including attainment of age, a change in student status, or any similar circumstance; or

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(5)       a change in the place of residence of the Participant or the Participant’s spouse or Dependent.

(f)       Premium Changes.

(1)       If, during the Plan Year, the cost of Insurance Coverage or Dependent Care Expenses to the Participant increases or decreases, the amount deducted from a Participant’s Compensation shall be automatically adjusted on a prospective basis (but as to Dependent Care Expenses such adjustment shall be prospective from the later of the date of the change in cost or the date the Participant submits written documentation to the Plan Administrator reflecting the change, and only if the cost change is imposed by a dependent care provider who is not a relative of the Participant); or

(2)       If, during the Plan Year, the cost charged to a Participant for Insurance Coverage or Dependent Care Expenses significantly increases or decreases, a Participant may make a corresponding change in his or her elections under the Plan. Changes that may be made include, in the situation of an Eligible Employee who has not yet commenced participation in the Plan, commencing participation in the Plan for the purpose of electing the option with the reduced cost.

For purposes of this Section 3.3(f)(2), a significant change in the cost charged to a Participant refers to an increase or decrease in the cost of an option whether the increase or decrease results from an action taken by a Participant (such as switching from full-time to part-time status) or from action by the Plan Sponsor (such as reducing the amount of Plan Sponsor contributions).

(g)       Coverage Changes. A Participant may revoke or modify his existing election for Insurance Coverage or the Dependent Care Expense Account after the beginning of the Plan Year in the event of the occurrence of any of the following events:

(1)       a significant curtailment of coverage under a Benefit Package Option that is a Loss of Coverage, in which case the Participant may either make a new election for coverage under another Benefit Package Option (only to the extent offered by the Plan Sponsor in the case of Insurance Coverage) providing similar coverage or drop coverage altogether if no similar Benefit Package Option is available;

(3)       during a Plan Year, the addition of a Benefit Package Option, or the significant improvement of an existing Benefit Package Option, in which case a Participant may revoke his or her prior election under the Plan and, in lieu thereof, make an election on a prospective basis for coverage under the new or improved Benefit Package Option.

(4)       a change in coverage under another employer plan (including a plan of the same employer or of another employer) that is intended to meet the

14

requirements of Code Section 125 under which a Participant’s spouse or Dependent is covered (the “Other Employer Plan”), provided that one of the following requirements is satisfied:

(i)        the Other Employer Plan permits participants to make election changes as provided under Treasury Regulations Sections 1.125-4(b) through (g); or

(ii)       the period of coverage or plan year under the Other Employer Plan is different from the period of coverage or Plan Year for the Insurance Coverage.

(5)       if the Participant, spouse, or Dependent loses coverage sponsored by a Governmental or Educational Institution Program, in which case a Participant may elect on a prospective basis to add coverage for the Participant, spouse, or Dependent.

(h)       COBRA. If a Participant or a Participant’s spouse or Dependent becomes eligible for continuation coverage pursuant to Code Section 4980B or any similar state law, the Participant may modify his existing election for the Health Care Expense Account or Insurance Coverage to increase the amount deducted from Compensation to cover any premium increase for such continuation coverage.

(i)       Significant Change in Health Coverage Attributable to Spouse’s Employment. As to Insurance Coverage or the Health Care Expense Account, a Participant may revoke a prior election and make a new election where there has been a significant change in the health coverage of the Participant’s spouse attributable to the spouse’s employment.

3.4       Rejection of Elections. Anything to the contrary in the Plan notwithstanding, the Plan Administrator shall reject any election to (a) receive Insurance Coverage, (b) receive reimbursement for Qualifying Health Care Expenses, (c) receive reimbursement for Dependent Care Expenses, or, in the alternative, shall reduce the amount elected for (x) reimbursement for Qualifying Health Care Expenses or (y) reimbursement for Dependent Care Expenses, even if such election has already become effective, to the extent the Plan Administrator deems necessary to assure that the Plan does not discriminate in favor of Highly Compensated Employees in violation of Code Section 125, Code Section 129, or any other applicable provision of law. Any rejection or reduction of elections shall be made by the Plan Administrator on a reasonable and nondiscriminatory basis. The Plan Administrator shall ensure that Insurance Coverage to Key Employees shall not exceed twenty-five percent (25%) of the aggregate of the benefits provided under the Plan to all Participants in any Plan Year.

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SECTION 4

HEALTH AND DEPENDENT CARE EXPENSE ACCOUNTS

4.1       Establishment of Health Care Expense Accounts.  A separate non-interest bearing Health Care Expense Account shall be maintained on the books of the Primary Sponsor to reflect the amount allocated for each Participant pursuant to his election under Plan Section 3.2(a) and the cost of all reimbursements that he receives for Qualifying Health Care Expenses. The Primary Sponsor shall credit to the Health Care Expense Account of each Participant, as of the effective date of the election, the total amount the Participant has elected to contribute towards reimbursements for Qualifying Health Care Expenses for the Plan Year. The Primary Sponsor shall, in accordance with and as often as permitted in the administrative procedures established by the Plan Administrator for, debit the Health Care Expense Account of each Participant in the amount of any reimbursement under the Plan made to or for the benefit of the Participant for Qualifying Health Care Expenses incurred during the Plan Year (or during the applicable Grace Period) while he is a Participant.

4.2       Establishment of Dependent Care Expense Accounts.  A separate non-interest bearing Dependent Care Expense Account shall be maintained on the books of the Primary Sponsor to reflect the amount allocated for each Participant pursuant to his election under Plan Section 3.2(b) and the cost of all reimbursements that he receives for Dependent Care Expenses. The Primary Sponsor shall credit to the Dependent Care Expense Account of each Participant, in approximately pro rata amounts each pay period during the Plan Year, the amount the Participant has elected to contribute towards reimbursements for Dependent Care Expenses.  Notwithstanding the above, a Participant’s Dependent Care Expense Account shall not be credited with any additional amounts following the pay period in which he ceases to be a Participant or revokes his election as provided in Section 3.3. The Primary Sponsor shall debit each Participant’s Dependent Care Expense Account in the amount of any reimbursements made to or for the benefit of the Participant for Dependent Care Expenses incurred during the Plan Year.

4.3       Benefits Payable from Health Care Expense Accounts. If a Participant allocates any amount to his Health Care Expense Account for a Plan Year, the Participant, subject to limitations set forth in the Plan, will be entitled to reimbursement from such account for the Qualifying Health Care Expenses with respect to the Participant, his spouse, or Dependents incurred during the portion of the Plan Year in which he is a Participant in the Health Care Expense Account and during the applicable Grace Period after the expiration of that Plan Year. Qualifying Health Care Expenses will be deemed to have been incurred on the date in which the health care is provided and not when the Participant is billed, charged for or actually pays for such care. If a Participant has not made all his required contributions, no reimbursement shall be made to him except for those Qualifying Health Care Expenses incurred through the date for which all the required contributions have been made. A Participant shall not be reimbursed for Qualifying Health Care Expenses to the extent that such expenses are otherwise reimbursable to the Participant, his spouse or Dependent. It is not necessary that a Participant actually pay Qualifying Health Care Expenses before being reimbursed for them, and the Plan Administrator may, in its discretion, pay any such claim directly to the health care provider. The Plan Administrator may require verification that the expenses have been incurred by the Participant.

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4.4       Benefits Payable from Dependent Care Expense Accounts. If a Participant allocates any amount to his Dependent Care Expense Account for a Plan Year, the Participant, subject to limitations set forth in the Plan, will be entitled to reimbursement from such account for Dependent Care Expenses incurred during the portion of the Plan Year in which he is a Participant in the Dependent Care Expense Account. Dependent Care Expenses will be deemed to have been incurred on the date in which the dependent care is provided and not when the Participant is billed, charged for or actually pays for such care. If a Participant has not made all his required contributions, no reimbursements shall be made to him except for those Dependent Care Expenses incurred through the date for which all the required contributions have been made. A Participant shall not be reimbursed for Dependent Care Expenses to the extent such expenses are otherwise reimbursable to the Participant, his spouse or Dependent. Each Participant must actually pay Dependent Care Expenses before being reimbursed for them.  The Plan Administrator may require verification that the expenses have been paid. 

4.5       Payment of Claims. The Plan Administrator may establish reasonable rules with regard to the minimum amounts and the frequency of reimbursements hereunder.

4.6       No Reimbursements in Excess of Account.  No Participant may receive reimbursement for Qualifying Health Care Expenses to the extent they exceed the balance in his Health Care Expense Account, or for Dependent Care Expenses to the extent they exceed the balance in his Dependent Care Account, at the time of reimbursement.

4.7       Submission of Claims for Qualifying Health Care Expenses.  Claims shall be submitted for Qualifying Health Care Expenses to the service provider designated by the Plan Administrator in the form and manner and at the time as may be established by the Plan Administrator. Participants may be required to include a copy of the itemized bill reflecting the health care provider, the name of the patient, the date of service, itemized charges, or such other information as deemed necessary by the Plan Administrator to verify the expenses or to comply with the Code and regulations issued thereunder. Reimbursement of the Qualifying Health Care Expenses shall be made at such time and in accordance with the administrative procedures established by the Plan Administrator.

4.8       Submission of Claims for Dependent Care Expenses.  Claims for Dependent Care Expenses shall be submitted in the form and manner and at the time as may be established by the Plan Administrator. Participants may be required to provide the name and taxpayer identification number of the provider, the time period for which payment was made, the amount of the payment, the names and ages of the Dependents receiving the care, or such other information as deemed necessary by the Plan Administrator to verify the expenses or to comply with the Code and regulations issued thereunder.

4.9       Time Limit for Claiming Benefits. 

(a)       Time Limit for Health Care Expense Account. With respect to all claims for reimbursement of Qualifying Health Care Expenses, the Primary Sponsor, unless otherwise instructed by the Plan Administrator for good cause, shall not reimburse a

17

Participant for any Qualifying Health Care Expense unless a proper claim is received by the Plan Administrator no later than the earlier of:

(1)       ninety (90) days following the date the Participant ceases to be an Eligible Employee; or

(2)       ninety (90) days following the end of the Plan Year.

To qualify for reimbursement under this Section 4.9(a), the Qualifying Health Care Expense must have been incurred during either the Plan Year or the Grace Period.

(b)       Time Limit for Dependent Care Expense Account. With respect to all claims for reimbursement for Dependent Care Expenses incurred during a Plan Year, the Primary Sponsor, unless otherwise instructed by the Plan Administrator for good cause, shall not reimburse a Participant for any Dependent Care Expense unless a proper claim is received by the Plan Administrator no later than the earlier of:

(1)       ninety (90) days following the date the Participant ceases to be an Eligible Employee; or

(2)       ninety (90) days following the end of the Plan Year in which the Dependent Care Expense was incurred.

4.10       Forfeiture of Accounts. 

(a)       Amounts in Health Care Expense Account. Any balance remaining in the Health Care Expense Account of a Participant related to contributions for a Plan Year shall be forfeited at the expiration of the time limit for claiming benefits under Section 4.9(a). Forfeitures shall be used to reduce the administrative expenses of the Plan.

(b)       Amounts in Dependent Care Expense Account. Any balance remaining in the Dependent Care Expense Account of a Participant related to contributions for a Plan Year shall be forfeited at the expiration of the time limit for claiming benefits for under Section 4.9(b). Forfeitures shall be used to reduce the administrative expenses of the Plan.

4.11       Limitation of Benefits for Certain Owners.  In no event may more than twenty-five percent (25%) of the amounts paid hereunder by the Primary Sponsor for Dependent Care Expenses during a Plan Year be provided for the class of Participants who are owners (or their spouses or dependents within the meaning of Section 152 of the Code), each of whom on any day of the year owns more than five percent (5%) of the capital or profits interest of the Primary Sponsor.  The Plan Administrator shall reduce reimbursement for the Dependent Care Expenses for such Participants to the extent that it reasonably believes necessary to prevent this limitation from being exceeded.

4.12       Compensation As Ceiling.  The amount of reimbursement for Dependent Care Expenses for a Participant during any taxable year of the Participant shall not exceed:

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(a)       in the case of a Participant who is not married at the close of the taxable year, the Compensation of such Participant for the taxable year (not to exceed $5,000); or

(b)       in the case of a Participant who is married at the close of the taxable year, the lesser of:

(1)       the Compensation of the Participant for the taxable year;

(2)       the Earned Income of the spouse of the Participant for the taxable year.  For purposes of Paragraph (2) of this Subsection, if the Participant’s spouse is a full-time student or physically or mentally incapable of caring for himself, such spouse shall be deemed to have Earned Income of $200 per month, if the Participant has only one Dependent, and $400 per month if the Participant has two or more Dependents; or

(3)       $5,000.

4.13       Prohibition of Payment for Services of Certain Providers of Dependent Care.  No reimbursement for Dependent Care Expenses shall be provided to a Participant during any taxable year of the Participant for Dependent Care Expenses paid to an individual:

(a)       with respect to whom, for the taxable year, a deduction is allowable under Code Section 151(c) to the Participant or his spouse; or

(b)       who is a child of the Participant (within the meaning of Code Section 152(f)(1)) under the age of nineteen (19) at the close of the taxable year.

4.14       Limitations on Reimbursement for Services Outside the Household. 

(a)       Dependent Care Centers. No reimbursement for Dependent Care Expenses shall be provided for services provided outside a Participant’s household by a facility that provides care for more than six (6) individuals other than individuals who reside at the facility, and receives a fee, payment or grant for providing services for any of the individuals, unless:

(1)       the facility complies with all applicable laws and regulations of a state or unit of local government, and

(2)       the requirements of Subsection (b) of this Section are met.

(b)       Certain Dependents.   No reimbursement for Dependent Care Expenses shall be provided for services outside a Participant’s household unless the services are provided for the care of:

(1)       an individual described in Plan Section 1.6(b); or

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(2)       any other Dependent who regularly spends at least eight (8) hours each day in the Participant’s household.

SECTION 5

ADMINISTRATION

5.1       Administrative Powers and Duties. The Plan Administrator shall have discretionary authority to take all actions required to carry out the provisions of the Plan in a manner consistent with the provisions of the Plan including the power:

(a)       to administer the Plan for the exclusive benefit of Participants;

(b)       to interpret the Plan, and make rules and regulations under the Plan to the extent deemed advisable by the Plan Administrator;

(c)       to decide all questions as to eligibility to become a Participant in the Plan and as to the rights of Participants under the Plan;

(d)       to file or cause to be filed all annual reports, returns, schedules, descriptions, financial statements and other statements as may be required by any federal or state statute, agency, or authority within the time prescribed by law or regulation for filing such documents;

(e)       to obtain from the Primary Sponsor, Eligible Employees, and Participants information as shall be necessary to the proper administration of the Plan;

(f)        to contract with insurance carriers or other suppliers as may be necessary to provide for benefits under the Plan;

(g)       to communicate to any insurer or other contract supplier of benefits under the Plan in writing all information required to carry out the provisions of the Plan;

(h)       to notify the Participants of the Plan in writing of any amendment or termination of the Plan, or of a change in any benefits available under the Plan;

(i)        to prescribe forms for Eligible Employees to make elections under the Plan;

(j)        to compute the amount, manner and timing of benefits which shall be payable to any Participant or other person in accordance with the provisions of the Plan, and to determine the person to whom such benefits shall be paid;

(k)        to authorize the payment of benefits;

20

(l)        to appoint agents, counsel, accountants, consultants, and actuaries as may be required to assist in administering the Plan; and

(m)      to do any other acts as it deems reasonably required to administer the Plan in accordance with its provisions, or as may be provided for or required by law.

5.2       Appointment of Plan Administrator. The Primary Sponsor shall have the power, by written instrument, to appoint a Plan Administrator. The Plan Administrator shall serve at the pleasure of the Primary Sponsor. The Plan Administrator may resign by delivering written notice to the Plan Sponsor, or may be removed if the Primary Sponsor delivers written notice to the Plan Administrator. Any vacancy shall be filled by the Primary Sponsor.

5.3       Appeals Fiduciary. The Primary Sponsor shall appoint an Appeals Fiduciary. The Appeals Fiduciary shall be required to review claims for benefits payable under the Health Care Expense Account that are initially denied by the Plan Administrator and for which the claimant requests a full and fair review pursuant to Section 5.8. The Appeals Fiduciary may not be the individual who made the initial adverse determination with respect to any claim the Appeals Fiduciary reviews and may not be a subordinate of any individual who made the initial adverse determination. The Appeals Fiduciary (or any member of a committee appointed to be the Appeals Fiduciary) may resign by delivering written notice to the Primary Sponsor. The Primary Sponsor may remove the Appeals Fiduciary (or any member of a committee appointed to be the Appeals Fiduciary) by delivering written notice of the removal to the Appeals Fiduciary, and, if applicable, to the individual being removed. Any vacancy shall be filled by the Primary Sponsor.

5.4       Delegation of Responsibilities. The Plan Administrator and the Primary Sponsor shall have the power, by written instrument, to delegate specific responsibilities under the Plan to Eligible Employees, or to other individuals or entities, each of whom shall serve at the pleasure of the entity that appointed him. Any person so appointed may resign by delivering written notice to the entity, or may be removed if the entity delivers written notice to that person.

5.5       Examination of Records. The Plan Administrator shall make available to each Participant such of its records as pertain to the Participant for examination at reasonable times during normal business hours.

5.6       Reliance on Tables, Etc.   In administering the Plan, the Plan Administrator shall be entitled, to the extent permitted by law, to rely conclusively on all tables, valuations, certificates, opinions and reports which are furnished by any accountant, counsel or other expert who is employed or engaged by the Plan Administrator.

5.7       Claims Procedure. Any person who believes that he is entitled to a benefit under the Plan shall have the right to file with the Plan Administrator a written notice of claim for the benefit. The Plan Administrator shall follow the following procedures with respect to claims for benefits filed under the Plan.

21

(a)       Claims Other Than Under the Health Care Expense Account. For claims other than claims for benefits under the Health Care Expense Account, the Plan Administrator shall either grant or deny the claim within ninety (90) days after its receipt of written notice of the claim, unless special circumstances require an extension of time of up to an additional ninety (90) days for processing the claim and appropriate notice to the claimant of the extension is given before the end of the initial ninety-day period. Such notice shall describe the circumstances requiring the extension, the additional information needed to process the claim, if any, and the date by which the Plan Administrator expects to render a decision. Any delay on the part of the Plan Administrator in arriving at a decision shall not adversely affect benefits payable under a granted claim. The failure to pay interest on the value of a Participant’s Account during the processing of a claim shall not be deemed to be an adverse effect attributable to Plan Administrator delay.

(b)       Health Care Expense Account Claims. For claims for benefits under the Health Care Expense Account, the Plan Administrator will grant or deny the claim within thirty (30) days after its receipt of written notice of the claim, unless matters beyond the control of the Plan Administrator require an extension of time of up to an additional fifteen (15) days for processing the claim and notice to the claimant of the extension is given before the end of the initial thirty-day period. Such notice shall describe the circumstances requiring the extension, the additional information needed to process the claim, if any, and the date by which the Plan Administrator expects to render a decision. If additional information is required, the claimant shall have forty-five (45) days after his receipt of the notice to provide the Plan Administrator with the requested additional information. Any delay on the part of the Plan Administrator in arriving at a decision shall not adversely affect benefits payable under a granted claim. The failure to pay interest on the value of a Participant’s Account during the processing of a claim shall not be deemed to be an adverse effect attributable to Plan Administrator delay.

(c)       In the case of a denied claim, the Plan Administrator shall provide written notice to the claimant setting forth:

(1)       the specific reason for the denial;

(2)       specific reference to the pertinent Plan provisions on which the denial is based;

(3)       a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why the material or information is necessary;

(4)       an explanation of the Plan’s claim review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review;

(5)       in the case of a claim for benefits under the Health Care Expense Account, if an internal rule, guideline, protocol or other similar criterion is relied

22

upon in making the adverse determination, either the specific rule, guideline, protocol or other similar criterion; or a statement that such rule, guideline, protocol or other similar criterion was relied upon in making the decision and that a copy of such rule, guideline, protocol or other similar criterion will be provided free of charge upon request; and

(6)       in the case of a claim for benefits under the Health Care Expense Account, if a denial of the claim is based on a medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the denial, an explanation applying the terms of the Plan to the claimant’s medical circumstances or a statement that such explanation will be provided free of charge upon request.

5.8       Review of Denied Claim.

(a)       Any Participant who makes a claim that is denied shall have the right to appeal the denial of his claim to the Plan Administrator or the Appeals Fiduciary, as described in Subsection (b) for a full and fair review at any time within sixty (60) days (one-hundred eighty (180) days for claims under the Health Care Expense Account) after the claimant receives written notice of the denial.  In the event of an appeal, the Plan Administrator or the Appeals Fiduciary, as applicable, shall afford the claimant or his duly authorized representative the opportunity:

(1)       to request, free of charge, reasonable access to, and copies of all documents, records and other information relevant to the claim;

(2)       to submit written comments, documents, records, and other information relating to the denied claim to the reviewer; and

(3)       to a review that takes into account all comments, documents, records and other information submitted by the claimant or his duly authorized representative relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

(b)       With respect to claims for benefits under the Health Care Expense Account, any appeal of a claim for benefits shall be reviewed by the Appeals Fiduciary. In deciding an appeal of any denial based in whole or in part on a medical judgment (including determinations with regard to whether a particular treatment, drug, or other item is experimental, investigational or not medically necessary or appropriate), the Appeals Fiduciary shall:

(1)       consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment; and

(2)       identify the medical and vocational experts whose advice was obtained on behalf of the Plan in connection with the denial without regard to

23

whether the advice was relied upon in making the determination to deny the claim.

Notwithstanding the foregoing, the health care professional consulted pursuant to this Subsection (b) shall be an individual who was not consulted with respect to the initial denial of the claim that is the subject of the appeal or a subordinate of such individual.

(c)       The final decision of the Plan Administrator shall be made not later than sixty (60) days after its receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be made as soon as possible but not later than one hundred twenty (120) days after receipt of the request for review and only after appropriate notice to the claimant of such extension is given before the end of the initial 60-day period.  The notice shall indicate the special circumstances requiring the extension and the date by which the Plan Administrator or the Appeals Fiduciary, as applicable, expects to render a decision on the claim. The decision shall be communicated in writing in a manner calculated to be understood by the claimant and shall include the following:

(1)       the specific reasons for the decision;

(2)       specific references to pertinent Plan provisions on which the decision is based;

(3)       a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records and other information relevant to the claimant’s claim for benefits; and

(4)       an explanation of the Plan’s claim review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring an action under Section 502(a) of ERISA following the denial of the claim upon review;

(5)       in the case of a claim for benefits under the Health Care Expense Account, if an internal rule, guideline, protocol or other similar criterion is relied upon in making the adverse determination, either the specific rule, guideline, protocol or other similar criterion; or a statement that such rule, guideline, protocol or other similar criterion was relied upon in making the decision and that a copy of such rule, guideline, protocol or other similar criterion will be provided free of charge upon request;

(6)       in the case of a claim for benefits under the Health Care Expense Account, if a denial of the claim is based on a medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the denial, an explanation applying the terms of the Plan to the claimant’s medical circumstances or a statement that such explanation will be provided free of charge upon request; and

24

(7)       in the case of a claim for benefits under the Health Care Expense Account, a statement regarding the availability of other voluntary alternative dispute resolution options.

To the extent permitted by law, the Plan Administrator’s or the Appeals Fiduciary’s decision, as applicable, shall be final and binding on the claimant.  The decision of the Plan Administrator or the Appeals Fiduciary shall be the final review provided by the Plan.

5.9       Claims and Review Procedure for Insured Benefits. To the extent that benefits hereunder are provided by an insurance company, the provisions of Sections 5.7 and 5.8 shall not apply to claims for benefits, and claims shall be filed with and subject to review by the insurance company.

5.10     Prohibition of Discrimination. Any discretionary acts to be taken under the terms and provisions of the Plan by the Plan Administrator or by the Primary Sponsor shall be uniform in their nature and application to all those similarly situated, and no discretionary acts shall be taken that would be discriminatory under the provisions of the Code relating to cafeteria plans, as such provisions now exist or may from time to time be amended.

SECTION 6

AMENDMENT OR TERMINATION

6.1       Amendment of Plan. The Primary Sponsor, by action in writing approved by its governing body or its delegate pursuant to normal administrative procedures, may amend any or all provisions of the Plan at any time.

6.2       Termination of Plan. The Primary Sponsor, by action in writing approved by its governing body or its delegate pursuant to normal administrative procedures, may terminate the Plan in whole or in part. In the event of Plan termination, all Compensation reduction elections shall be revoked and no additional amounts shall be credited towards Insurance Coverage, Health Care Expense Accounts or Dependent Care Expense Accounts on a pre-tax basis.

6.3       Preservation of Rights. Termination or amendment of the Plan shall not affect the right of any Participant to claim reimbursement for expenses incurred prior to the termination or amendment, as the case may be, to the extent the expenses are reimbursable under the terms of the Plan prior to the effective date of the termination or amendment.

SECTION 7

ADOPTION OF PLAN BY AFFILIATES

Any trade or business related to the Primary Sponsor by function or operation and any Affiliate, if the trade or business or Affiliate is authorized to do so by a resolution adopted by the Primary Sponsor, may adopt the Plan by written action of the trade or business or Affiliate. Any adoption shall be evidenced by certified copies of resolutions of the board of directors or other

25

appropriate governing body of the trade or business or Affiliate indicating the adoption. The resolution shall state and define the Effective Date for the purpose of the adopting trade or business or Affiliate. Each Plan Sponsor other than the Primary Sponsor may terminate its participation in the Plan (unless the termination of participation would adversely affect the status of the Plan under Section 125 of the Code as to any other Plan Sponsor) by written notice to the Primary Sponsor and written action of the Plan Sponsor evidenced by certified copies of resolutions of its board of directors or other appropriate governing body indicating the termination of participation. 

SECTION 8

MISCELLANEOUS

8.1       Communication to Eligible Employees.  Each Plan Sponsor shall promptly notify all Eligible Employees of the availability and terms of the Plan. 

8.2       No Employment Rights Created.  Neither the establishment of the Plan nor participation therein shall be construed as giving any Eligible Employee the right to continued employment with a Plan Sponsor. 

8.3       Legally Enforceable.  All Plan Sponsors intend that the terms of the Plan, including those relating to coverage and benefits, are legally enforceable.

8.4       Unfunded Plan.  The Primary Sponsor shall have the authority to, but need not, establish a trust or other arrangement for holding contributions to the Plan.  Nothing contained in the Plan shall give any Participant any right, title, or interest in any property of a Plan Sponsor. 

8.5       Nonalienation.  No benefit or other sum at any time reimbursable under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to the benefit, and any attempt to anticipate, sell, transfer, assign, pledge, encumber, or charge the same shall be void.

8.6       No Guarantee of Tax Consequences.  Neither the Plan Administrator nor a Plan Sponsor makes any commitment or guarantee that any amounts reimbursed under the Plan will be excludable from the Participant’s gross income for federal or state income tax purposes, or that any other federal or state tax treatment will apply to or be available to any Participant.  It shall be the obligation of each Participant to determine whether each reimbursement under the Plan is excludable from the Participant’s gross income for federal and state income tax purposes, and to notify the Plan Sponsor if the Participant has reason to believe that any reimbursement is not so excludable. 

8.7       Notice of Address.  Each Participant shall file a current mailing address and any address change with the Plan Administrator.  Any mailing under the Plan which is addressed to a Participant’s most recent address so filed shall for all purposes be presumed to have been received by the Participant and the Plan Administrator shall not be obliged to search for or ascertain the Participant’s whereabouts.

26

8.8       Indemnification of Fiduciaries.  To the extent permitted by law, a Plan Sponsor shall indemnify and hold harmless the Plan Administrator, any Participant, any Eligible Employee, and any other person to whom the Plan Sponsor or the Plan Administrator has delegated fiduciary or other duties under the Plan, against any and all claims, losses, damages, expenses, and liabilities arising from any act or failure to act that constitutes or is alleged to constitute a breach of the person’s responsibilities in connection with the Plan under applicable law, unless the same is determined to be due to gross negligence, willful misconduct, or willful failure to act.

8.9       Indemnification of Plan Sponsor by Participants.  If any Participant receives payments under the Plan that are for taxable benefits, the Participant shall indemnify and reimburse a Plan Sponsor for any liability it may incur for failure to withhold federal or state income tax or Social Security tax from the reimbursements or payments.

8.10     Titles and Headings.  The titles and headings of the Sections of the Plan are placed herein for convenience of reference only, and in the case of any conflicts, the text of the Plan, rather than the titles or headings, shall control.

8.11     Gender and Number.  The masculine pronoun, wherever used herein, shall include the feminine pronoun, and the singular shall include the plural, except where the context requires otherwise.

8.12     Applicable Law.  The provisions of the Plan shall be construed according to the laws of the State of Tennessee, except as superseded by federal law, and in accordance with the Code.  The Plan is intended to be a cafeteria plan under Section 125 of the Code, and shall be construed accordingly.

SECTION 9

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

9.1       Compliance. Pursuant to the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) and the regulations promulgated thereunder, the Plan will comply with:

(a)       The Standards for Privacy of Individually Identifiable Health Information (the “Privacy Standards”) at 45 CFR, Part 160, Subpart A, and Part 164, Subpart E; and

(b)       Effective April 20, 2006, the Security Standards for the Protection of Electronic Protected Health Information (the “Security Standards”) at 45 CFR, Part 160, Subpart A, and Part 164, Subpart C.

27

9.2       Disclosure of Summary Health Information to the Plan Sponsor.

(a)       In accordance with the Privacy Standards, the Plan may disclose Summary Health Information to the Plan Sponsor, if the Plan Sponsor requests the Summary Health Information for the purpose of (1) obtaining premium bids from health plans for providing health insurance coverage under this Plan, or (2) modifying, amending or terminating the Plan.

(b)       “Summary Health Information” may be individually identifiable health information and it summarizes the claims history, claims expenses or the type of claims experienced by individuals in the Plan, but it excludes all identifiers that must be removed for the information to be de-identified, except that it may contain geographic information to the extent that it is aggregated by five-digit zip code.

9.3       Disclosure of Protected Health Information (“PHI”) to the Plan Sponsor for Plan Administration Purposes. In order that the Plan Sponsor may receive and use PHI for Plan Administration purposes, the Plan Sponsor agrees to:

(a)       Not use or further disclose PHI other than as permitted or required by the Plan documents or as required by law (as identified in the Privacy Standards);

(b)       Ensure that any agents, including a subcontractor, to whom the Plan Sponsor provides PHI received from the Plan agree to the same restrictions and conditions that apply to the Plan Sponsor with respect to such PHI;

(c)       Not use or disclose PHI for employment-related actions and decisions or in connection with any other benefit or employee benefit plan of the Plan Sponsor, except pursuant to an authorization which meets the requirements of the Privacy Standards;

(d)       Report to the Plan any PHI use or disclosure that is inconsistent with the uses or disclosures provided for of which the Plan Sponsor becomes aware;

(e)       Make available PHI in accordance with Section 164.524 of the Privacy Standards (45 CFR 164.524);

(f)        Make available PHI for amendment and incorporate any amendments to PHI in accordance with Section 164.526 of the Privacy Standards (45 CFR 164.526);

(g)       Make available the information required to provide an accounting of disclosures in accordance with Section 164.528 of the Privacy Standards (45 CFR 164.528);

(h)       Make its internal practices, books and records relating to the use and disclosure of PHI received from the Plan available to the Secretary of the U.S. Department of Health and Human Services (“HHS”), or any other officer or employee of HHS to whom the authority involved has been delegated, for purposes of determining

28

compliance by the Plan with Part 164, Subpart E, of the Privacy Standards (45 CFR 164.500 et seq.);

(i)        If feasible, return or destroy all PHI received from the Plan that the Plan Sponsor still maintains in any form and retain no copies of such PHI when no longer needed for the purpose for which disclosure was made, except that, if such return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction of the PHI infeasible; and

(j)        Ensure that adequate separation between the Plan and the Plan Sponsor, as required in Section 164.504(f)(2)(iii) of the Privacy Standards (45 CFR 164.504(f)(2)(iii)), is established as follows:

(1)       Such employees, or classes of employees, or other persons under the control of the Plan Sponsor as discussed in the Plan Sponsor’s HIPAA policies and procedures., shall be given access to the PHI to be disclosed.

(2)       The access to and use of PHI by the individuals described in Subsection (1) above shall be restricted to the Plan Administration functions that the Plan Sponsor performs for the Plan.

(3)       In the event any of the individuals described in Subsection (1) above do not comply with the provisions of the Plan documents relating to use and disclosure of PHI, the Administrator shall impose reasonable sanctions as necessary, in its discretion, to ensure that no further non-compliance occurs. Such sanctions shall be imposed in accordance with the Plan Sponsor’s current policy violation sanctions.

“Plan Administration” activities are limited to activities that would meet the definition of payment or health care operations, but do not include functions to modify, amend or terminate the Plan or solicit bids from prospective issuers. “Plan Administration” functions include quality assurance, claims processing, auditing, monitoring and management of carve-out plans, such as vision and dental. It does not include any employment-related functions or functions in connection with any other benefit or benefit plans.

The Plan shall disclose PHI to the Plan Sponsor only upon receipt of a certification by the Plan Sponsor that (x) the Plan documents have been amended to incorporate the above provisions, and (y) the Plan Sponsor agrees to comply with such provisions.

9.4       Disclosure of Certain Enrollment Information to the Plan Sponsor. Pursuant to Section 164.504(f)(1)(iii) of the Privacy Standards (45 CFR 164.504(f)(1)(iii)), the Plan may disclose to the Plan Sponsor information on whether an individual is participating in the Plan or is enrolled in or has disenrolled from a health insurance issuer or health maintenance organization offered by the Plan to the Plan Sponsor.

29

9.5       Disclosure of PHI to Obtain Stop-loss or Excess Loss Coverage. The Plan Sponsor hereby authorizes and directs the Plan, through the Plan Administrator or the third party administrator, to disclose PHI to stop-loss carriers, excess loss carriers or managing general underwriters (MGUs) for underwriting and other purposes in order to obtain and maintain stop-loss or excess loss coverage related to benefit claims under the Plan. Such disclosures shall be made in accordance with the Privacy Standards.

9.6       Other Disclosures and Uses of PHI. With respect to all other uses and disclosures of PHI, the Plan shall comply with the Privacy Standards.

9.7       Disclosure of Electronic PHI to the Plan Sponsor for Plan Administration Purposes. In order that the Plan Sponsor may receive and use electronic PHI for Plan Administration purposes, the Plan Sponsor agrees to:

(a)       Implement administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of the electronic PHI that it creates, receives, maintains or transmits on behalf of the Plan, as required by Part 164, Subpart C, of the Security Standards (45 CFR 164.300 et seq.);

(b)       Ensure that the adequate separation required by Section 164.504(f)(2)(iii) of the Privacy Standards (45 CFR 164.504(f)(2)(iii) is supported by reasonable and appropriate security measures;

(c)       Ensure that any agent, including a subcontractor, to whom it provides electronic PHI agrees to implement reasonable and appropriate security measures to protect the electronic PHI; and

(d)       Report to the Plan any Security Incident of which it becomes aware. “Security Incident” means the attempted or successful unauthorized access, use, disclosure, modification, or destruction of information or interference with systems operations in an information system.

IN WITNESS WHEREOF, the Primary Sponsor has caused this Indenture to be executed as of the day and year first above written.

RUBY TUESDAY, INC.

By: /s/ Samuel E. Beall, III

Title: Chairman, CEO and President

30

EX-10

RUBY TUESDAY, INC.

HEALTH SAVINGS ACCOUNT PLAN

THIS INDENTURE is made as of this 31^st day of December, 2007, by RUBY TUESDAY, INC. (the “Primary Sponsor”).

INTRODUCTION

The Primary Sponsor maintains the Ruby Tuesday, Inc. Cafeteria Plan (the “Old Cafeteria Plan”), under an indenture dated July 1, 2000. The Primary Sponsor also maintains the Ruby Tuesday, Inc. Flexible Spending Plan (the “Old Flex Plan”), effective January 1, 2002.

The Primary Sponsor wishes to consolidate the Old Cafeteria Plan and the Old Flex Plan into two separate plans, with one plan providing for contributions to health savings accounts and the other plan not providing for such contributions. The Primary Sponsor wishes to name the plan providing for contributions to health savings accounts the Ruby Tuesday, Inc. Health Savings Account Plan (the “Plan”) and wishes to update the Plan for changes in the law.

This Plan is intended meet the requirements of Section 105 and Section 125 of the Internal Revenue Code of 1986, as amended.

NOW, THEREFORE, the Primary Sponsor does hereby establish the Plan, effective January 1, 2008, as follows:

RUBY TUESDAY, INC.

HEALTH SAVINGS ACCOUNT PLAN

TABLE OF CONTENTS

	PAGE
SECTION 1	DEFINITIONS	1
SECTION 2	PARTICIPATION	5
2.1	DATE OF PARTICIPATION	5
2.2	CESSATION OF PARTICIPATION	5
2.3	FORMER PARTICIPANTS	6
2.4	CONTINUATION COVERAGE	6
SECTION 3	ELECTIONS	6
3.1	ELECTION FOR INSURANCE COVERAGE	6
3.2	ELECTIONS FOR EXPENSE ACCOUNT OR HEALTH SAVINGS CONTRIBUTIONS	7
3.3	REVOCATION OR MODIFICATIONS OF ELECTIONS	8
3.4	REJECTION OF ELECTIONS	11
SECTION 4	VISION AND DENTAL CARE EXPENSE ACCOUNT	11
4.1	ESTABLISHMENT OF VISION AND DENTAL CARE EXPENSE ACCOUNTS	11
4.2	BENEFITS PAYABLE FROM VISION AND DENTAL CARE EXPENSE ACCOUNTS	12
4.3	PAYMENT OF CLAIMS	12
4.4	NO REIMBURSEMENTS IN EXCESS OF ACCOUNT	12
4.5	SUBMISSION OF CLAIMS FOR QUALIFYING VISION AND DENTAL CARE EXPENSES	12
4.6	TIME LIMIT FOR CLAIMING BENEFITS	13
4.7	FORFEITURE OF ACCOUNTS	13
SECTION 5	ADMINISTRATION	13
5.1	ADMINISTRATIVE POWERS AND DUTIES	13
5.2	APPOINTMENT OF PLAN ADMINISTRATOR	14
5.3	APPEALS FIDUCIARY	14
5.4	DELEGATION OF RESPONSIBILITIES	14
5.5	EXAMINATION OF RECORDS	15
5.6	RELIANCE ON TABLES, ETC.	15
5.7	CLAIMS PROCEDURE	15
5.8	REVIEW OF DENIED CLAIM	16
5.9	CLAIMS AND REVIEW PROCEDURE FOR INSURED BENEFITS	18
5.10	PROHIBITION OF DISCRIMINATION	18
SECTION 6	AMENDMENT OR TERMINATION	18
6.1	AMENDMENT OF PLAN	18
6.2	TERMINATION OF PLAN	18
6.3	PRESERVATION OF RIGHTS	19
SECTION 7	ADOPTION OF PLAN BY AFFILIATES	19
SECTION 8	MISCELLANEOUS	19
8.1	COMMUNICATION TO ELIGIBLE EMPLOYEES	19
8.2	NO EMPLOYMENT RIGHTS CREATED	19
8.3	LEGALLY ENFORCEABLE	19

(i)

8.4	UNFUNDED PLAN	19
8.5	NONALIENATION	19
8.6	NO GUARANTEE OF TAX CONSEQUENCES	20
8.7	NOTICE OF ADDRESS	20
8.8	INDEMNIFICATION OF FIDUCIARIES	20
8.9	INDEMNIFICATION OF PLAN SPONSOR BY PARTICIPANTS	20
8.10	TITLES AND HEADINGS	20
8.11	GENDER AND NUMBER	20
8.12	APPLICABLE LAW	20
SECTION 9	HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996	21
9.1	COMPLIANCE	21
9.2	DISCLOSURE OF SUMMARY HEALTH INFORMATION TO THE PLAN SPONSOR	21
9.3	DISCLOSURE OF PROTECTED HEALTH INFORMATION TO THE PLAN SPONSOR FOR THE PLAN ADMINISTRATION PURPOSES	21
9.4	DISCLOSURE OF CERTAIN ENROLLMENT INFORMATION TO THE PLAN SPONSOR	23
9.5	DISCLOSURE OF PHI TO OBTAIN STOP-LOSS OR EXCESS LOSS COVERAGE	23
9.6	OTHER DISCLOSURES AND USES OF PHI	23
9.7	DISCLOSURE OF ELECTRONIC PHI TO THE PLAN SPONSOR FOR PLAN ADMINISTRATION PURPOSES	23

(ii)

SECTION 1

DEFINITIONS

1.1       “Affiliate” means (a) any corporation which is a member of the same controlled group of corporations, within the meaning of Section 414(b) of the Code, as is a Plan Sponsor; (b) any other trade or business (whether or not incorporated) under common control, within the meaning of Section 414(c) of the Code, with a Plan Sponsor; (c) any corporation, partnership or organization which is a member of an affiliated service group, within the meaning of Section 414(m) of the Code, with a Plan Sponsor; and (d) any other entity required to be aggregated with a Plan Sponsor pursuant to regulations under Section 414(o) of the Code. 

1.2       “Appeals Fiduciary” means an individual or group of individuals appointed to review appeals of claims for benefits under the Vision and Dental Care Expense Account made pursuant to Section 5.8.

1.3       “Benefit Package Option” means each specific benefit paid for under the Plan as the result of a Participant’s election.

1.4       “Code” means the Internal Revenue Code of 1986, as amended.

1.5       “Compensation” means wages, within the meaning of Code Section 3401(a), paid or made available to a person, after he becomes a Participant, for personal services rendered in the course of employment with the Plan Sponsor.

1.6       “Dependent” means any Eligible Employee’s dependent, within the meaning of Code Section 152 (without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof).

1.7       “Effective Date” means, as to the Primary Sponsor, January 1, 2008, and as to each other Plan Sponsor which adopts the Plan, the date designated as such by the adopting Plan Sponsor. 

1.8       “Eligible Employee” means

(a)       with respect to a Participating Plan, an Employee of a Plan Sponsor who is covered or eligible for coverage under such Participating Plan, but only with respect to such plan or plans as the Plan Sponsor may designate by resolution for inclusion under this Plan; and

(b)       with respect to the Vision and Dental Care Expense Account or making Health Savings Contributions, each Employee of a Plan Sponsor.

1.9       “Employee” means each person who is employed by a Plan Sponsor in the legal relationship of employer and employee and not in the relationship of independent contractor or leased employee and whose wages from the Plan Sponsor are subject to withholding as evidenced by Form W-2 or its successor. The term “Employee” does not include an individual who is employed by a Plan Sponsor as a leased employee or independent contractor and is subsequently determined by the Plan Sponsor, the Internal Revenue Service, the

Department of Labor or a court of competent jurisdiction to be a common law employee of the Plan Sponsor for any period prior to such determination. The term “Employee” also excludes any employee covered by a collective bargaining agreement if benefits were the subject of good faith bargaining and the Plan Sponsor and such collective bargaining unit have not bargained that the unit will be covered by the Plan.

1.10     “Governmental or Educational Institution Program” shall include the following:

(a)       a state’s children’s health insurance program under Title XXI of the Social Security Act;

(b)       a medical care program of an Indian Tribal government (as defined in Code Section 7701(a)(40)), the Indian Health Service, or a tribal organization;

(c)       A state health benefits risk pool; or

(d)       A foreign government group health plan.

1.11     “Grace Period” means with respect to any Plan Year of a Vision and Dental Care Expense Account, the two and one-half (2 ½) month period after the expiration of such Plan Year.

1.12     “Health Savings Account” means an account established pursuant to Section 223(d) of the Code that is acceptable to the Plan Administrator.

1.13     “Health Savings Contributions” means an election by a Participant on a pre-tax basis for salary reduction where such reduction is contributed to a Health Savings Account.

1.14     “High Deductible Health Plan” means a health plan designated by the Plan Administrator that meets the definition of a high deductible health plan under Section 223(c)(2) of the Code.

1.15     “Highly Compensated Employee” means a Participant who is a “highly compensated employee” as defined in Code Section 125(e)(3) or regulations issued thereunder, except that, for purposes of Section 3.4, Highly Compensated Employee shall be determined pursuant to Code Section 105(h)(5) or Code Section 414(q), as applicable.

1.16     “HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended from time to time. References to HIPAA includes any comparable or succeeding law which amends, replaces, or supplements the provisions of the HIPAA as in effect as of the Effective Date.

1.17     “HSA Eligible Employee” means an Eligible Employee who:

(a)       is covered under the High Deductible Health Plan;

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(b)       is not covered under any other health plan and/or a health flexible spending arrangement within the meaning of Code Section 125 (a “Health FSA”) (other than a health plan or Health FSA that provides for certain coverage that is disregarded under Code Section 223(c)(1)(B) or a Health FSA that only provides for reimbursement after the deductible for the High Deductible Health Plan has been satisfied); and

(c)       certifies, in a process determined by the Plan Administrator, that he is not covered under any other health plan and/or Health FSA that is prohibited by Subsection (b).

For purposes of this Section 1.17, an Eligible Employee will not be considered to be covered under a Health FSA if such Eligible Employee either had a zero dollar balance in such Health FSA, determined on a cash basis, as of the end of the Plan Year to which the Grace Period applies or elects on or before the last day of such Plan Year to have the remaining balance in his Health FSA contributed to his Health Savings Account in accordance with IRS Notice 2007-22 or any successor guidance under Code Section 125.

1.18     “Insurance Coverage” means any payment of any contribution toward premiums or other payments which are required on behalf of the Participant to obtain coverage for the Participant, his spouse and/or Dependents under the Participating Plans for the Plan Year.

1.19     “Key Employee” means a Participant who is a “key employee” as defined in Code Section 416(i)(1).

1.20     “Loss of Coverage” means (a) a complete loss of coverage under the Benefit Package Option or other coverage (including the elimination of a Benefit Package Option or the individual losing all coverage under the option by reason of an overall lifetime or annual limitation); (b) a substantial decrease in the medical care providers available under the option (such as a major hospital ceasing to be a member of a preferred provider network or a substantial decrease in the physicians participating in a preferred provider network); (c) a reduction in the benefits for a specific type of medical condition or treatment with respect to which the Participant or the Participant’s spouse or Dependent is currently in the course of treatment; or (d) any other similar fundamental loss of coverage.

1.21     “Participant” means any Eligible Employee or former Eligible Employee who has elected to participate in the Plan in accordance with the terms of the Plan, for so long as his participation has not ceased.

1.22     “Participating Plans” means the group health, dental, vision, group-term life insurance, accidental death and dismemberment, short-term disability and/or long-term disability plans which shall be maintained by a Plan Sponsor from time to time; provided that any such group health plan must be a High Deductible Health Plan.

1.23     “Plan” means the Ruby Tuesday, Inc. Health Savings Account Plan.

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1.24     “Plan Administrator” means the Primary Sponsor, unless the Primary Sponsor selects another person, committee or entity in accordance with Section 5.2 to administer the Plan.

1.25     “Plan Sponsor” means, individually, the Primary Sponsor or any successor thereto and each Affiliate or other trade or business which has adopted the Plan in the manner set forth in Section 7.

1.26     “Plan Year” means;

(a)       with respect to a Participating Plan,

(1)       for periods before July 1, 2007, the period beginning July 1 and ending June 30;

(2)       for the period commencing July 1, 2007, the period beginning July 1, 2007 and ending December 31, 2007; and

(3)       effective January 1, 2008, the calendar year; and

(b)       with respect to any Benefit Package Option that is not a Participating Plan, the calendar year.

In the event a Participant commences participation during a Plan Year, the initial coverage period shall be that portion of the Plan Year commencing on the effective date of the Participant’s participation pursuant to Section 2.1 and ending on the last day of the Plan Year.

1.27     “Qualifying Vision and Dental Care Expenses”

(a)       means amounts paid by a Participant for diagnosis, cure, mitigation, treatment or prevention of disease, relating to vision or dental care.

(b)       means transportation primarily for and essential to medical care referred to in Subsection (a) above.

(c)       shall not include expenses incurred prior to the date of an Eligible Employee’s enrollment in the Plan or after the end of the Plan Year (except to the extent of expenses incurred during an applicable Grace Period) or expenses including but not limited to the expenses described below:

(1)       Cosmetic surgery, unless necessary to improve a deformity arising from or directly related to a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease;

(2)       Any expenses incurred in connection with an illegal operation or treatment; and

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(3)       Premiums paid for health insurance including premiums paid for health coverage under a plan maintained by the employer of the Participant’s spouse or Dependent.

1.28     “Unpaid Leave Under the Family and Medical Leave Act” means a family or medical leave of absence pursuant to the Family and Medical Leave Act of 1993, as approved by a Plan Sponsor.

1.29     “Vision and Dental Care Expense Account” means an account established pursuant to Section 4 of the Plan which shall reflect the dollar amount of any before-tax contributions and after-tax contributions (if the Participant elects continuation coverage under Code Section 4980B) elected by the Participant to be applied towards reimbursement of Qualifying Vision and Dental Care Expenses.

SECTION 2

PARTICIPATION

2.1       Date of Participation. Except as otherwise provided in Section 2.3, each Eligible Employee of a Plan Sponsor shall become a Participant under the Plan:

(a)       with respect to any Participating Plan, on the first date the Eligible Employee satisfies the enrollment requirements as set forth in Plan Section 3.1;

(b)       with respect to Health Savings Contributions, on the first day of the month coinciding with or following the date the Eligible Employee is an HSA Eligible Employee; and

(c)       with respect to the Vision and Dental Care Expense Account on the first date following the completion of ninety (90) days of continuous employment with a Plan Sponsor; provided that the Eligible Employee satisfies the enrollment requirements set forth in Plan Section 3.2 on such date.

2.2       Cessation of Participation. Participation in the Plan shall cease effective as of the earliest of:

(a)       the date the Participant’s elections under Plan Section 3 expire or terminate;

(b)       the date on which a Participant’s elections under Section 3 are all revoked;

(c)       the date the Participant ceases to be an Eligible Employee for any reason (including, but not limited to, lay-off, strike, retirement, termination or death), except as otherwise provided in Plan Section 2.4; or

(d)       the date the Plan terminates.

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2.3       Former Participants. If a person who has met the eligibility requirements of the Plan ceases to be a Participant because he is no longer an Employee of a Plan Sponsor and is subsequently reemployed by a Plan Sponsor, or because he ceases to be an Eligible Employee and subsequently meets the eligibility requirements of the Plan, the Employee shall again become a Participant as of the later of the date he:

(a)       recommences service with the Plan Sponsor as an Eligible Employee; or

(b)       makes an election in accordance with Section 3 herein.

Notwithstanding the preceding, if a former Participant ceases to be a Participant because he fails to make the required contributions, such former Participant shall not again be eligible to be a Participant until the next Plan Year.

2.4       Continuation Coverage.

(a)       Notwithstanding anything to the contrary contained in this Plan, a Participant and any qualified beneficiary (as defined by Code Section 4980B(g)(1)) of a Participant shall have the option to elect continuation coverage in the portion of the Plan relating to Vision and Dental Care Expense Accounts upon the occurrence of a “qualifying event” within the meaning of Code Section 4980B(f)(3), to the extent such election is consistent with Code Section 125. If elected, the continuation coverage shall consist of coverage identical to that provided under the Plan to a similarly situated person whose coverage has not been terminated as a result of a “qualifying event”; provided, however, that any election may not be revoked or modified after the beginning of the period for which it is effective. The timing, length, cost and methods of making an election pursuant to this Plan Section 2.4 shall be governed by the provisions of Code Section 4980B and relevant proposed or final Treasury Regulations.

(b)       Notwithstanding anything to the contrary contained in this Plan, if a Participant leaves service with a Plan Sponsor due to military leave with the “uniformed services”, as defined in the Uniformed Services Employment and Reemployment Rights Act of 1994 and the regulations thereunder (“USERRA”), such Participant may be eligible for continuation coverage as provided by, and subject to the rules, restrictions, and limitations in, USERRA.

SECTION 3

ELECTIONS

3.1       Election for Insurance Coverage. To become a Participant, each Eligible Employee must make an initial election for Insurance Coverage on a pre-tax basis for the Plan Year at the time and in the manner required by the Plan Administrator. Any election under this Plan Section 3.1 shall be effective as of the date of eligibility indicated in the Participating Plans. Each Participant shall be deemed to have made an affirmative election under this Section with

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respect to each succeeding Plan Year in which he participates in the Participating Plans as an Eligible Employee unless such Participant elects otherwise in writing delivered to the Plan Administrator before the first day of each such succeeding Plan Year. Upon an election under this Section, each Participant’s Compensation shall be reduced in approximately pro rata amounts (or, for Participants who are on Unpaid Leave Under the Family and Medical Leave Policy of the Plan Sponsor, in such amounts as may be agreed to by the Participant and the Plan Administrator), each pay period by the amount of Insurance Coverage and that amount shall be applied by the Plan Sponsor toward providing Insurance Coverage, subject to the limitations contained herein. An Eligible Employee who fails to make a timely initial election under this Section 3.1 shall be deemed to have elected, and will be automatically enrolled in coverage under such plans or programs as may be designated by the Plan Administrator from time to time at a level covering only the Eligible Employee.

3.2       Elections for Expense Account or Health Savings Contributions.

(a)       Election for Vision and Dental Care Expense Account.Prior to the first day of each Plan Year, a Participant may elect to receive reimbursement for Qualifying Vision and Dental Care Expenses by making an election on a pre-tax basis for a salary reduction in the manner required by, and before the deadline designated by, the Plan Administrator. Any Eligible Employee who becomes a Participant in the Vision and Dental Care Expense Account on or after the first day of that same Plan Year may elect to receive reimbursement for Qualifying Vision and Dental Care Expenses for the remainder of the Plan Year by making an election for a salary reduction in the manner required by, and before the deadline designated by, the Plan Administrator. Such elections shall be effective as of the first day of the next following pay period after the election is made following date of hire. Subject to the conditions and limitations of this Plan, each Plan Year the Participant may elect to have an amount no less than an amount designated by the Plan Administrator from time to time and no greater than $4,000 allocated to a Vision and Dental Care Expense Account established and maintained for the Participant instead of receiving that amount as cash compensation. If the Eligible Employee is hired by the Plan Sponsor on or after the first day of that same Plan Year, such Eligible Employee may still elect the maximum amount that can be elected under the this paragraph. Each Participant’s Compensation shall be reduced in approximately equal amounts each pay period by the amount elected pursuant to this Section 3.2(a) divided by the number of pay periods during the Plan Year and that amount shall be applied by the Plan Sponsor to such Participant’s Vision and Dental Care Expense Account pursuant to Section 4.

(b)       Election for Health Savings Contributions to a Health Savings Account.

(1)       Prior to the first day of each Plan Year, a Participant may elect to make Health Savings Contributions by making an election in the manner required by, and before the deadline designated by, the Plan Administrator. Any Eligible Employee who becomes a Participant by electing to make Health Savings Contributions on or after the first day of that same Plan Year may elect to make Health Savings Contributions for the remainder of the Plan Year by making such

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election in the manner required by, and before the deadline designated by, the Plan Administrator. Such elections shall be effective as of the first day of the next following pay period after the election is made following date of hire. Subject to the conditions and limitations of this Plan, each Plan Year, the Participant may elect to have the amount of his Health Savings Contribution be no more than $2,900 (for 2008) per year for individuals, $5,800 (for 2008) per year for families, (which amounts may be adjusted annually by the Secretary of the Treasury for changes in the cost of living) instead of receiving cash compensation. Each Participant’s Compensation shall be reduced in approximately equal amounts each pay period by the amount elected pursuant to this Section 3.2(b) divided by the number of pay periods during the Plan Year and that amount shall be deposited in Participant’s Health Savings Account. If the Eligible Employee becomes a Participant on or after the first day of a Plan Year by electing to make Health Savings Contributions, the maximum amount that can be elected under this paragraph shall be prorated based on the number of months remaining in the Plan Year divided by 12. In order to be eligible for this option, a Participant must be an HSA Eligible Employee.

(2)       Notwithstanding Section 3.3, any Employee who becomes an HSA Eligible Employee during a Plan Year and a Participant who has elected to make Health Savings Contributions for a Plan Year may make a prospective election to commence or change, as applicable, the amount of his Health Savings Contributions for the remainder of such Plan Year. Such election may be made in in any month during such Plan Year, subject to the maximum dollar limit in paragraph (1). Any Participant who ceases to be an HSA Eligible Employee during the Plan Year may revoke his election to make Health Savings Contributions. Any election under this paragraph (2) will be effective as of the next pay period following such election.

3.3       Revocation or Modifications of Elections. No election once made may be revoked or modified, except as provided in this Section 3.3. Any revocation or modification of an election under Section 3.3 shall be in writing and shall be delivered to the Plan Administrator within the thirty (30) day period following the date of the circumstances permitting the revocation or modification.Any revocation or modification shall become effective as of the first day of the next following pay period after which it is received. Elections may be further restricted by insurance policies or agreements between a Plan Sponsor and insurance carriers. Whether any particular circumstance permits a modification or revocation under this Section 3.3 will be construed by the Plan Administrator in a manner consistent with Treasury Regulations Section 1.125-4 or any successor regulation. Notwithstanding any other provision of the Plan, a Participant may revoke or modify an election for Insurance Coverage(s) under other circumstances as permitted by the Plan Administrator pursuant to Code Section 125 and any guidance issued thereunder. Any revocation or modification of an election under this Section 3.3 shall be permitted under the Plan only if the revocation or modification is on account of and is consistent with the change in circumstances permitting the revocation or modification. Subject to the foregoing, a Participant may revoke or modify an existing election only upon the occurrence of any of the following events:

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(a)       with respect solely to Insurance Coverage or the Vision and Dental Care Expense Account, any event which gives the Participant special enrollment rights under Code Section 9801(f) and any available guidance issued thereunder;

(b)       with respect solely to Insurance Coverage or the Vision and Dental Care Expense Account, the issuance of a judgment, decree or order resulting from a divorce, legal separation, annulment or change in legal custody that requires such coverage to be provided to a Participant’s Dependent child or foster child, provided that such coverage must actually be provided to the Dependent child or foster child;

(c)       with respect solely to Insurance Coverage or the Vision and Dental Care Expense Account, a Participant or a Participant’s spouse and/or Dependents becomes eligible or ceases to be eligible for coverage under Medicare, as described in Part A or B of Title XVIII of the Social Security Act (Medicare) or Title XIX of the Social Security Act (Medicaid) (other than coverage consisting solely of benefits under Section 1928 of the Social Security Act (the program for distribution of pediatric vaccines));

(d)       with respect solely to Insurance Coverage or the Vision and Dental Care Expense Account, a Participant takes a leave of absence under the Family Medical Leave Act;

(e)       one of the following changes in status:

(1)       a change in a Participant’s legal marital status, including marriage, death of a spouse, divorce, legal separation and annulment;

(2)       a change in the number of a Participant’s Dependents, including birth of a child, death of a Dependent spouse or child, adoption of a child and placement of a child for adoption;

(3)       a change in the employment status of a Participant or a Participant’s spouse or a Participant’s Dependents, including: (A) a termination or commencement of employment; (B) a strike or lockout; (C) a commencement of or return from an unpaid leave of absence; (D) a change in worksite; or (E) a change in employment status which causes a Participant or a Participant’s spouse or Dependent to become or no longer satisfy the eligibility requirements under the Plan or under any insurance policy pursuant to which Insurance Coverage is provided;

(4)       an event which causes a Participant’s Dependent to satisfy or cease to satisfy the eligibility requirements under the Plan or under any insurance policy pursuant to which Insurance Coverage is provided, including attainment of age, a change in student status, or any similar circumstance; or

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(5)       a change in the place of residence of the Participant or the Participant’s spouse or Dependent.

(f)       Premium Changes

(1)       If, during the Plan Year, the cost of Insurance Coverage to the Participant increases or decreases, the amount deducted from a Participant’s Compensation shall be automatically adjusted on a prospective basis; or

(2)       If, during the Plan Year, the cost charged to a Participant for Insurance Coverage significantly increases or decreases, a Participant may make a corresponding change in his or her elections under the Plan. Changes that may be made include, in the situation of an Eligible Employee who has not yet commenced participation in the Plan, commencing participation in the Plan for the purpose of electing the option with the reduced cost.

For purposes of this Section 3.3(f)(2), a significant change in the cost charged to a Participant refers to an increase or decrease in the cost of an option whether the increase or decrease results from an action taken by a Participant (such as switching from full-time to part-time status) or from action by the Plan Sponsor (such as reducing the amount of Plan Sponsor contributions).

(g)       Coverage Changes. A Participant may revoke or modify his existing election for Insurance Coverage after the beginning of the Plan Year in the event of the occurrence of any of the following events:

(1)       a significant curtailment of coverage under a Benefit Package Option that is a Loss of Coverage, in which case the Participant may either make a new election for coverage under another Benefit Package Option (only to the extent offered by the Plan Sponsor in the case of Insurance Coverage) providing similar coverage or drop coverage altogether if no similar Benefit Package Option is available;

(3)       during a Plan Year, the addition of a Benefit Package Option, or the significant improvement of an existing Benefit Package Option, in which case a Participant may revoke his or her prior election under the Plan and, in lieu thereof, make an election on a prospective basis for coverage under the new or improved Benefit Package Option.

(4)       a change in coverage under another employer plan (including a plan of the same employer or of another employer) that is intended to meet the requirements of Code Section 125 under which a Participant’s spouse or Dependent is covered (the “Other Employer Plan”), provided that one of the following requirements is satisfied:

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(i)        the Other Employer Plan permits participants to make election changes as provided under Treasury Regulations Sections 1.125-4(b) through (g); or

(ii)       the period of coverage or plan year under the Other Employer Plan is different from the period of coverage or Plan Year for the Insurance Coverage.

(5)       if the Participant, spouse, or Dependent loses coverage sponsored by a Governmental or Educational Institution Program, in which case a Participant may elect on a prospective basis to add coverage for the Participant, spouse, or Dependent.

(h)       COBRA. If a Participant or a Participant’s spouse or Dependent becomes eligible for continuation coverage pursuant to Code Section 4980B or any similar state law, the Participant may modify his existing election for the Vision and Dental Care Expense Account or Insurance Coverage to increase the amount deducted from Compensation to cover any premium increase for such continuation coverage.

(i)        Significant Change in Health Coverage Attributable to Spouse’s Employment. As to Insurance Coverage or the Vision and Dental Care Expense Account, a Participant may revoke a prior election and make a new election where there has been a significant change in the health coverage of the Participant’s spouse attributable to the spouse’s employment.

3.4       Rejection of Elections. Anything to the contrary in the Plan notwithstanding, the Plan Administrator shall reject any election to (a) receive Insurance Coverage, (b) receive reimbursement for Qualifying Vision and Dental Care Expenses, (c) make Health Savings Contributions, or, in the alternative, shall reduce the amount elected for (x) reimbursement for Qualifying Vision and Dental Care Expenses or (y) Health Savings Contributions even if such election has already become effective, to the extent the Plan Administrator deems necessary to assure that the Plan does not discriminate in favor of Highly Compensated Employees in violation of Code Section 125 or any other applicable provision of law. Any rejection or reduction of elections shall be made by the Plan Administrator on a reasonable and nondiscriminatory basis. The Plan Administrator shall ensure that Insurance Coverage to Key Employees shall not exceed twenty-five percent (25%) of the aggregate of the benefits provided under the Plan to all Participants in any Plan Year.

SECTION 4

VISION AND DENTAL CARE EXPENSE ACCOUNT

4.1       Establishment of Vision and Dental Care Expense Accounts.  A separate non-interest bearing Vision and Dental Care Expense Account shall be maintained on the books of the Primary Sponsor to reflect the amount allocated for each Participant pursuant to his election under Plan Section 3.2(a) and the cost of all reimbursements that he receives for Qualifying

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Vision and Dental Care Expenses. The Primary Sponsor shall credit to the Vision and Dental Care Expense Account of each Participant, as of the effective date of the election, the total amount the Participant has elected to contribute towards reimbursements for Qualifying Vision and Dental Care Expenses for the Plan Year. The Primary Sponsor shall, in accordance with and as often as permitted in the administrative procedures established by the Plan Administrator for, debit the Vision and Dental Care Expense Account of each Participant in the amount of any reimbursement under the Plan made to or for the benefit of the Participant for Qualifying Vision and Dental Care Expenses incurred during the Plan Year (or during the applicable Grace Period) while he is a Participant.

4.2       Benefits Payable from Vision and Dental Care Expense Account. If a Participant allocates any amount to his Vision and Dental Care Expense Account for a Plan Year, the Participant, subject to limitations set forth in the Plan, will be entitled to reimbursement from such account for the Qualifying Vision and Dental Care Expenses with respect to the Participant, his spouse, or Dependents incurred during the portion of the Plan Year in which he is a Participant in the Vision and Dental Care Expense Account and during the applicable Grace Period after the expiration of that Plan Year. Qualifying Vision and Dental Care Expenses will be deemed to have been incurred on the date in which the health care is provided and not when the Participant is billed, charged for or actually pays for such care. If a Participant has not made all his required contributions, no reimbursement shall be made to him except for those Qualifying Vision and Dental Care Expenses incurred through the date for which all the required contributions have been made. A Participant shall not be reimbursed for Qualifying Vision and Dental Care Expenses to the extent that such expenses are otherwise reimbursable to the Participant, his spouse or Dependent. It is not necessary that a Participant actually pay Qualifying Vision and Dental Care Expenses before being reimbursed for them, and the Plan Administrator may, in its discretion, pay any such claim directly to the health care provider. The Plan Administrator may require verification that the expenses have been incurred by the Participant.

4.3       Payment of Claims. The Plan Administrator may establish reasonable rules with regard to the minimum amounts and the frequency of reimbursements hereunder.

4.4       No Reimbursements in Excess of Account.  No Participant may receive reimbursement for Qualifying Vision and Dental Care Expenses to the extent they exceed the balance in his Vision and Dental Care Expense Account.

4.5       Submission of Claims for Qualifying Vision and Dental Care Expenses.  Claims shall be submitted for Qualifying Vision and Dental Care Expenses to the service provider designated by the Plan Administrator in the form and manner and at the time as may be established by the Plan Administrator. Participants may be required to include a copy of the itemized bill reflecting the health care provider, the name of the patient, the date of service, itemized charges, or such other information as deemed necessary by the Plan Administrator to verify the expenses or to comply with the Code and regulations issued thereunder. Reimbursement of the Qualifying Vision and Dental Care Expenses shall be made at such time and in accordance with the administrative procedures established by the Plan Administrator.

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4.6       Time Limit for Claiming Benefits.  With respect to all claims for reimbursement of Qualifying Vision and Dental Care Expenses, the Primary Sponsor, unless otherwise instructed by the Plan Administrator for good cause, shall not reimburse a Participant for any Qualifying Health Care Expense unless a proper claim is received by the Plan Administrator no later than the earlier of:

(a)       ninety (90) days following the date the Participant ceases to be an Eligible Employee; or

(b)       ninety (90) days following the end of the Plan Year.

To qualify for reimbursement under this Section 4.6, the Qualifying Health Care Expense must have been incurred during either the Plan Year or the Grace Period.

4.7       Forfeiture of Account.  Any balance remaining in the Vision and Dental Care Expense Account of a Participant related to contributions for a Plan Year shall be forfeited at the expiration of the time limit for claiming benefits under Section 4.6. Forfeitures shall be used to reduce the administrative expenses of the Plan.

SECTION 5

ADMINISTRATION

5.1       Administrative Powers and Duties. The Plan Administrator shall have discretionary authority to take all actions required to carry out the provisions of the Plan in a manner consistent with the provisions of the Plan including the power:

(a)       to administer the Plan for the exclusive benefit of Participants;

(b)       to interpret the Plan, and make rules and regulations under the Plan to the extent deemed advisable by the Plan Administrator;

(c)       to decide all questions as to eligibility to become a Participant in the Plan and as to the rights of Participants under the Plan;

(d)       to file or cause to be filed all annual reports, returns, schedules, descriptions, financial statements and other statements as may be required by any federal or state statute, agency, or authority within the time prescribed by law or regulation for filing such documents;

(e)       to obtain from the Primary Sponsor, Eligible Employees, and Participants information as shall be necessary to the proper administration of the Plan;

(f)        to contract with insurance carriers or other suppliers as may be necessary to provide for benefits under the Plan;

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(g)       to communicate to any insurer or other contract supplier of benefits under the Plan in writing all information required to carry out the provisions of the Plan;

(h)       to notify the Participants of the Plan in writing of any amendment or termination of the Plan, or of a change in any benefits available under the Plan;

(i)       to prescribe forms for Eligible Employees to make elections under the Plan;

(j)       to compute the amount, manner and timing of benefits which shall be payable to any Participant or other person in accordance with the provisions of the Plan, and to determine the person to whom such benefits shall be paid;

(k)       to authorize the payment of benefits;

(l)       to appoint agents, counsel, accountants, consultants, and actuaries as may be required to assist in administering the Plan; and

(m)       to do any other acts as it deems reasonably required to administer the Plan in accordance with its provisions, or as may be provided for or required by law.

5.2       Appointment of Plan Administrator. The Primary Sponsor shall have the power, by written instrument, to appoint a Plan Administrator. The Plan Administrator shall serve at the pleasure of the Primary Sponsor. The Plan Administrator may resign by delivering written notice to the Plan Sponsor, or may be removed if the Primary Sponsor delivers written notice to the Plan Administrator. Any vacancy shall be filled by the Primary Sponsor.

5.3       Appeals Fiduciary. The Primary Sponsor shall appoint an Appeals Fiduciary. The Appeals Fiduciary shall be required to review claims for benefits payable under the Vision and Dental Care Expense Account that are initially denied by the Plan Administrator and for which the claimant requests a full and fair review pursuant to Section 5.8. The Appeals Fiduciary may not be the individual who made the initial adverse determination with respect to any claim the Appeals Fiduciary reviews and may not be a subordinate of any individual who made the initial adverse determination. The Appeals Fiduciary (or any member of a committee appointed to be the Appeals Fiduciary) may resign by delivering written notice to the Primary Sponsor. The Primary Sponsor may remove the Appeals Fiduciary (or any member of a committee appointed to be the Appeals Fiduciary) by delivering written notice of the removal to the Appeals Fiduciary, and, if applicable, to the individual being removed. Any vacancy shall be filled by the Primary Sponsor.

5.4       Delegation of Responsibilities. The Plan Administrator and the Primary Sponsor shall have the power, by written instrument, to delegate specific responsibilities under the Plan to Eligible Employees, or to other individuals or entities, each of whom shall serve at the pleasure of the entity that appointed him. Any person so appointed may resign by delivering written notice to the entity, or may be removed if the entity delivers written notice to that person.

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5.5       Examination of Records. The Plan Administrator shall make available to each Participant such of its records as pertain to the Participant for examination at reasonable times during normal business hours.

5.6       Reliance on Tables, Etc.In administering the Plan, the Plan Administrator shall be entitled, to the extent permitted by law, to rely conclusively on all tables, valuations, certificates, opinions and reports which are furnished by any accountant, counsel or other expert who is employed or engaged by the Plan Administrator.

5.7       Claims Procedure. Any person who believes that he is entitled to a benefit under the Plan shall have the right to file with the Plan Administrator a written notice of claim for the benefit. The Plan Administrator shall follow the following procedures with respect to claims for benefits filed under the Plan.

(a)       Claims Other Than Under the Vision and Dental Care Expense Account. For claims other than claims for benefits under the Vision and Dental Care Expense Account, the Plan Administrator shall either grant or deny the claim within ninety (90) days after its receipt of written notice of the claim, unless special circumstances require an extension of time of up to an additional ninety (90) days for processing the claim and appropriate notice to the claimant of the extension is given before the end of the initial ninety-day period. Such notice shall describe the circumstances requiring the extension, the additional information needed to process the claim, if any, and the date by which the Plan Administrator expects to render a decision. Any delay on the part of the Plan Administrator in arriving at a decision shall not adversely affect benefits payable under a granted claim. The failure to pay interest on the value of a Participant’s Account during the processing of a claim shall not be deemed to be an adverse effect attributable to Plan Administrator delay.

(b)       Vision and Dental Care Expense Account Claims. For claims for benefits under the Vision and Dental Care Expense Account, the Plan Administrator will grant or deny the claim within thirty (30) days after its receipt of written notice of the claim, unless matters beyond the control of the Plan Administrator require an extension of time of up to an additional fifteen (15) days for processing the claim and notice to the claimant of the extension is given before the end of the initial thirty-day period. Such notice shall describe the circumstances requiring the extension, the additional information needed to process the claim, if any, and the date by which the Plan Administrator expects to render a decision. If additional information is required, the claimant shall have forty-five (45) days after his receipt of the notice to provide the Plan Administrator with the requested additional information. Any delay on the part of the Plan Administrator in arriving at a decision shall not adversely affect benefits payable under a granted claim. The failure to pay interest on the value of a Participant’s Account during the processing of a claim shall not be deemed to be an adverse effect attributable to Plan Administrator delay.

(c)       In the case of a denied claim, the Plan Administrator shall provide written notice to the claimant setting forth:

(1)       the specific reason for the denial;

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(2)       specific reference to the pertinent Plan provisions on which the denial is based;

(3)       a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why the material or information is necessary;

(4)       an explanation of the Plan’s claim review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review;

(5)       in the case of a claim for benefits under the Vision and Dental Care Expense Account, if an internal rule, guideline, protocol or other similar criterion is relied upon in making the adverse determination, either the specific rule, guideline, protocol or other similar criterion; or a statement that such rule, guideline, protocol or other similar criterion was relied upon in making the decision and that a copy of such rule, guideline, protocol or other similar criterion will be provided free of charge upon request; and

(6)       in the case of a claim for benefits under the Vision and Dental Care Expense Account, if a denial of the claim is based on a medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the denial, an explanation applying the terms of the Plan to the claimant’s medical circumstances or a statement that such explanation will be provided free of charge upon request.

5.8       Review of Denied Claim.

(a)       Any Participant who makes a claim that is denied shall have the right to appeal the denial of his claim to the Plan Administrator or the Appeals Fiduciary, as described in Subsection (b) for a full and fair review at any time within sixty (60) days (one-hundred eighty (180) days for claims under the Vision and Dental Care Expense Account) after the claimant receives written notice of the denial.  In the event of an appeal, the Plan Administrator or the Appeals Fiduciary, as applicable, shall afford the claimant or his duly authorized representative the opportunity:

(1)       to request, free of charge, reasonable access to, and copies of all documents, records and other information relevant to the claim;

(2)       to submit written comments, documents, records, and other information relating to the denied claim to the reviewer; and

(3)       to a review that takes into account all comments, documents, records and other information submitted by the claimant or his duly authorized representative relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

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(b)       With respect to claims for benefits under the Vision and Dental Care Expense Account, any appeal of a claim for benefits shall be reviewed by the Appeals Fiduciary. In deciding an appeal of any denial based in whole or in part on a medical judgment (including determinations with regard to whether a particular treatment, drug, or other item is experimental, investigational or not medically necessary or appropriate), the Appeals Fiduciary shall:

(1)       consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment; and

(2)       identify the medical and vocational experts whose advice was obtained on behalf of the Plan in connection with the denial without regard to whether the advice was relied upon in making the determination to deny the claim.

Notwithstanding the foregoing, the health care professional consulted pursuant to this Subsection (b) shall be an individual who was not consulted with respect to the initial denial of the claim that is the subject of the appeal or a subordinate of such individual.

(c)       The final decision of the Plan Administrator shall be made not later than sixty (60) days after its receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be made as soon as possible but not later than one hundred twenty (120) days after receipt of the request for review and only after appropriate notice to the claimant of such extension is given before the end of the initial 60-day period.  The notice shall indicate the special circumstances requiring the extension and the date by which the Plan Administrator or the Appeals Fiduciary, as applicable, expects to render a decision on the claim. The decision shall be communicated in writing in a manner calculated to be understood by the claimant and shall include the following:

(1)       the specific reasons for the decision;

(2)       specific references to pertinent Plan provisions on which the decision is based;

(3)       a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records and other information relevant to the claimant’s claim for benefits; and

(4)       an explanation of the Plan’s claim review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring an action under Section 502(a) of ERISA following the denial of the claim upon review;

(5)       in the case of a claim for benefits under the Vision and Dental Care Expense Account, if an internal rule, guideline, protocol or other similar criterion is relied upon in making the adverse determination, either the specific rule,

17

guideline, protocol or other similar criterion; or a statement that such rule, guideline, protocol or other similar criterion was relied upon in making the decision and that a copy of such rule, guideline, protocol or other similar criterion will be provided free of charge upon request;

(6)       in the case of a claim for benefits under the Vision and Dental Care Expense Account, if a denial of the claim is based on a medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the denial, an explanation applying the terms of the Plan to the claimant’s medical circumstances or a statement that such explanation will be provided free of charge upon request; and

(7)       in the case of a claim for benefits under the Vision and Dental Care Expense Account, a statement regarding the availability of other voluntary alternative dispute resolution options.

To the extent permitted by law, the Plan Administrator’s or the Appeals Fiduciary’s decision, as applicable, shall be final and binding on the claimant.  The decision of the Plan Administrator or the Appeals Fiduciary shall be the final review provided by the Plan.

5.9       Claims and Review Procedure for Insured Benefits. To the extent that benefits hereunder are provided by an insurance company, the provisions of Sections 5.7 and 5.8 shall not apply to claims for benefits, and claims shall be filed with and subject to review by the insurance company.

5.10     Prohibition of Discrimination. Any discretionary acts to be taken under the terms and provisions of the Plan by the Plan Administrator or by the Primary Sponsor shall be uniform in their nature and application to all those similarly situated, and no discretionary acts shall be taken that would be discriminatory under the provisions of the Code relating to cafeteria plans, as such provisions now exist or may from time to time be amended.

SECTION 6

AMENDMENT OR TERMINATION

6.1       Amendment of Plan. The Primary Sponsor, by action in writing approved by its governing body or its delegate pursuant to normal administrative procedures, may amend any or all provisions of the Plan at any time.

6.2       Termination of Plan. The Primary Sponsor, by action in writing approved by its governing body or its delegate pursuant to normal administrative procedures, may terminate the Plan in whole or in part. In the event of Plan termination, all Compensation reduction elections shall be revoked and no additional amounts shall be credited towards Insurance Coverage, Vision and Dental Care Expense Accounts, or Health Savings Contributions on a pre-tax basis.

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6.3       Preservation of Rights. Termination or amendment of the Plan shall not affect the right of any Participant to claim reimbursement for expenses incurred prior to the termination or amendment, as the case may be, to the extent the expenses are reimbursable under the terms of the Plan prior to the effective date of the termination or amendment.

SECTION 7

ADOPTION OF PLAN BY AFFILIATES

Any trade or business related to the Primary Sponsor by function or operation and any Affiliate, if the trade or business or Affiliate is authorized to do so by a resolution adopted by the Primary Sponsor, may adopt the Plan by written action of the trade or business or Affiliate. Any adoption shall be evidenced by certified copies of resolutions of the board of directors or other appropriate governing body of the trade or business or Affiliate indicating the adoption. The resolution shall state and define the Effective Date for the purpose of the adopting trade or business or Affiliate. Each Plan Sponsor other than the Primary Sponsor may terminate its participation in the Plan (unless the termination of participation would adversely affect the status of the Plan under Section 125 of the Code as to any other Plan Sponsor) by written notice to the Primary Sponsor and written action of the Plan Sponsor evidenced by certified copies of resolutions of its board of directors or other appropriate governing body indicating the termination of participation. 

SECTION 8

MISCELLANEOUS

8.1       Communication to Eligible Employees.  Each Plan Sponsor shall promptly notify all Eligible Employees of the availability and terms of the Plan. 

8.2       No Employment Rights Created.  Neither the establishment of the Plan nor participation therein shall be construed as giving any Eligible Employee the right to continued employment with a Plan Sponsor. 

8.3       Legally Enforceable.  All Plan Sponsors intend that the terms of the Plan, including those relating to coverage and benefits, are legally enforceable.

8.4       Unfunded Plan.  The Primary Sponsor shall have the authority to, but need not, establish a trust or other arrangement for holding contributions to the Plan.  Nothing contained in the Plan shall give any Participant any right, title, or interest in any property of a Plan Sponsor. 

8.5       Nonalienation.  No benefit or other sum at any time reimbursable under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to the benefit, and any attempt to anticipate, sell, transfer, assign, pledge, encumber, or charge the same shall be void.

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8.6       No Guarantee of Tax Consequences.  Neither the Plan Administrator nor a Plan Sponsor makes any commitment or guarantee that any amounts reimbursed under the Plan will be excludable from the Participant’s gross income for federal or state income tax purposes, or that any other federal or state tax treatment will apply to or be available to any Participant.  It shall be the obligation of each Participant to determine whether each reimbursement under the Plan is excludable from the Participant’s gross income for federal and state income tax purposes, and to notify the Plan Sponsor if the Participant has reason to believe that any reimbursement is not so excludable. 

8.7       Notice of Address.  Each Participant shall file a current mailing address and any address change with the Plan Administrator.  Any mailing under the Plan which is addressed to a Participant’s most recent address so filed shall for all purposes be presumed to have been received by the Participant and the Plan Administrator shall not be obliged to search for or ascertain the Participant’s whereabouts.

8.8       Indemnification of Fiduciaries.  To the extent permitted by law, a Plan Sponsor shall indemnify and hold harmless the Plan Administrator, any Participant, any Eligible Employee, and any other person to whom the Plan Sponsor or the Plan Administrator has delegated fiduciary or other duties under the Plan, against any and all claims, losses, damages, expenses, and liabilities arising from any act or failure to act that constitutes or is alleged to constitute a breach of the person’s responsibilities in connection with the Plan under applicable law, unless the same is determined to be due to gross negligence, willful misconduct, or willful failure to act.

8.9       Indemnification of Plan Sponsor by Participants.  If any Participant receives payments under the Plan that are for taxable benefits, the Participant shall indemnify and reimburse a Plan Sponsor for any liability it may incur for failure to withhold federal or state income tax or Social Security tax from the reimbursements or payments.

8.10     Titles and Headings.  The titles and headings of the Sections of the Plan are placed herein for convenience of reference only, and in the case of any conflicts, the text of the Plan, rather than the titles or headings, shall control.

8.11     Gender and Number.  The masculine pronoun, wherever used herein, shall include the feminine pronoun, and the singular shall include the plural, except where the context requires otherwise.

8.12     Applicable Law.  The provisions of the Plan shall be construed according to the laws of the State of Tennessee, except as superseded by federal law, and in accordance with the Code.  The Plan is intended to be a cafeteria plan under Section 125 of the Code, and shall be construed accordingly.

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SECTION 9

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

9.1       Compliance. Pursuant to the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) and the regulations promulgated thereunder, the Plan will comply with:

(a)       The Standards for Privacy of Individually Identifiable Health Information (the “Privacy Standards”) at 45 CFR, Part 160, Subpart A, and Part 164, Subpart E; and

(b)       Effective April 20, 2006, the Security Standards for the Protection of Electronic Protected Health Information (the “Security Standards”) at 45 CFR, Part 160, Subpart A, and Part 164, Subpart C.

9.2 Disclosure of Summary Health Information to the Plan Sponsor.  

(a)       In accordance with the Privacy Standards, the Plan may disclose Summary Health Information to the Plan Sponsor, if the Plan Sponsor requests the Summary Health Information for the purpose of (1) obtaining premium bids from health plans for providing health insurance coverage under this Plan, or (2) modifying, amending or terminating the Plan.

(b)       “Summary Health Information” may be individually identifiable health information and it summarizes the claims history, claims expenses or the type of claims experienced by individuals in the Plan, but it excludes all identifiers that must be removed for the information to be de-identified, except that it may contain geographic information to the extent that it is aggregated by five-digit zip code.

9.3       Disclosure of Protected Health Information (“PHI”) to the Plan Sponsor for Plan Administration Purposes. In order that the Plan Sponsor may receive and use PHI for Plan Administration purposes, the Plan Sponsor agrees to:

(a)       Not use or further disclose PHI other than as permitted or required by the Plan documents or as required by law (as identified in the Privacy Standards);

(b)       Ensure that any agents, including a subcontractor, to whom the Plan Sponsor provides PHI received from the Plan agree to the same restrictions and conditions that apply to the Plan Sponsor with respect to such PHI;

(c)       Not use or disclose PHI for employment-related actions and decisions or in connection with any other benefit or employee benefit plan of the Plan Sponsor, except pursuant to an authorization which meets the requirements of the Privacy Standards;

(d)       Report to the Plan any PHI use or disclosure that is inconsistent with the uses or disclosures provided for of which the Plan Sponsor becomes aware;

21

(e)       Make available PHI in accordance with Section 164.524 of the Privacy Standards (45 CFR 164.524);

(f)       Make available PHI for amendment and incorporate any amendments to PHI in accordance with Section 164.526 of the Privacy Standards (45 CFR 164.526);

(g)       Make available the information required to provide an accounting of disclosures in accordance with Section 164.528 of the Privacy Standards (45 CFR 164.528);

(h)       Make its internal practices, books and records relating to the use and disclosure of PHI received from the Plan available to the Secretary of the U.S. Department of Health and Human Services (“HHS”), or any other officer or employee of HHS to whom the authority involved has been delegated, for purposes of determining compliance by the Plan with Part 164, Subpart E, of the Privacy Standards (45 CFR 164.500 et seq.);

(i)       If feasible, return or destroy all PHI received from the Plan that the Plan Sponsor still maintains in any form and retain no copies of such PHI when no longer needed for the purpose for which disclosure was made, except that, if such return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction of the PHI infeasible; and

(j)       Ensure that adequate separation between the Plan and the Plan Sponsor, as required in Section 164.504(f)(2)(iii) of the Privacy Standards (45 CFR 164.504(f)(2)(iii)), is established as follows:

(1)       Such employees, or classes of employees, or other persons under the control of the Plan Sponsor as discussed in the Plan Sponsor’s HIPAA policies and procedures., shall be given access to the PHI to be disclosed.

(2)       The access to and use of PHI by the individuals described in Subsection (1) above shall be restricted to the Plan Administration functions that the Plan Sponsor performs for the Plan.

(3)       In the event any of the individuals described in Subsection (1) above do not comply with the provisions of the Plan documents relating to use and disclosure of PHI, the Administrator shall impose reasonable sanctions as necessary, in its discretion, to ensure that no further non-compliance occurs. Such sanctions shall be imposed in accordance with the Plan Sponsor’s current policy violation sanctions.

“Plan Administration” activities are limited to activities that would meet the definition of payment or health care operations, but do not include functions to modify, amend or terminate the Plan or solicit bids from prospective issuers. “Plan Administration” functions include quality

22

assurance, claims processing, auditing, monitoring and management of carve-out plans, such as vision and dental. It does not include any employment-related functions or functions in connection with any other benefit or benefit plans.

The Plan shall disclose PHI to the Plan Sponsor only upon receipt of a certification by the Plan Sponsor that (x) the Plan documents have been amended to incorporate the above provisions, and (y) the Plan Sponsor agrees to comply with such provisions.

9.4       Disclosure of Certain Enrollment Information to the Plan Sponsor. Pursuant to Section 164.504(f)(1)(iii) of the Privacy Standards (45 CFR 164.504(f)(1)(iii)), the Plan may disclose to the Plan Sponsor information on whether an individual is participating in the Plan or is enrolled in or has disenrolled from a health insurance issuer or health maintenance organization offered by the Plan to the Plan Sponsor.

9.5       Disclosure of PHI to Obtain Stop-loss or Excess Loss Coverage.     The Plan Sponsor hereby authorizes and directs the Plan, through the Plan Administrator or the third party administrator, to disclose PHI to stop-loss carriers, excess loss carriers or managing general underwriters (MGUs) for underwriting and other purposes in order to obtain and maintain stop-loss or excess loss coverage related to benefit claims under the Plan. Such disclosures shall be made in accordance with the Privacy Standards.

9.6       Other Disclosures and Uses of PHI. With respect to all other uses and disclosures of PHI, the Plan shall comply with the Privacy Standards.

9.7       Disclosure of Electronic PHI to the Plan Sponsor for Plan Administration Purposes.  In order that the Plan Sponsor may receive and use electronic PHI for Plan Administration purposes, the Plan Sponsor agrees to:

(a)       Implement administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of the electronic PHI that it creates, receives, maintains or transmits on behalf of the Plan, as required by Part 164, Subpart C, of the Security Standards (45 CFR 164.300 et seq.);

(b)       Ensure that the adequate separation required by Section 164.504(f)(2)(iii) of the Privacy Standards (45 CFR 164.504(f)(2)(iii) is supported by reasonable and appropriate security measures;

(c)       Ensure that any agent, including a subcontractor, to whom it provides electronic PHI agrees to implement reasonable and appropriate security measures to protect the electronic PHI; and

(d)       Report to the Plan any Security Incident of which it becomes aware. “Security Incident” means the attempted or successful unauthorized access, use, disclosure, modification, or destruction of information or interference with systems operations in an information system.

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IN WITNESS WHEREOF, the Primary Sponsor has caused this Indenture to be executed as of the day and year first above written.

RUBY TUESDAY, INC.

By: /s/ Samuel E. Beall, III

Title: Chairman, CEO and President

24

EX-10

FIRST AMENDMENT TO THE RUBY TUESDAY, INC.

EXECUTIVE SUPPLEMENTAL PENSION PLAN

(AMENDED AND RESTATED AS OF JANUARY 1, 2007)

THIS FIRST AMENDMENT is made as of this 2nd day of April, 2008, by RUBY TUESDAY, INC. (the “Primary Sponsor”), a corporation organized and existing under the laws of the State of Georgia.

WITNESSETH:

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 as of January 1, 2007.

WHEREAS, the Primary Sponsor desires to amend the Plan to provide the Plan administrator with the discretion to adjust a participant’s Continuous Service (as defined in the Plan) under the limited circumstances set forth herein.

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 May 22, 2000, as follows:

1. By deleting Section 2(i) in its entirety and by substituting therefor the following:

“(i)      “Continuous Service” refers, except as provided below, to the period of unbroken employment of an Eligible Employee with the Company or one or more of its Affiliates from his last date of employment. Notwithstanding the foregoing, Continuous Service of an Eligible Employee:

(a) shall not be broken by and shall include the periods of:

(i)        any leaves of absence required to be granted pursuant to the Family and Medical Leave Act of 1993 and the Uniformed Services Employment and Reemployment Rights Act;

(ii)       his absence because of lay-off not in excess of one (1) years if the Eligible Employee returns to employment with the Company or an Affiliate when notified of his recall to work; and/or

(iii)      any approved leave of absence, whether paid or unpaid;

(b)       may, at the discretion of the Plan Administrator where an Eligible Employee is so advised in writing, include non-consecutive periods of employment of an Eligible Employee with the Company or one or more of its Affiliates; and

(c)       may, at the discretion of the Plan Administrator where an Eligible Employee is so advised in writing, include a period of employment other than with the Company or an Affiliate which the Eligible Employee has completed immediately prior to his employment or re-employment with Company or an Affiliate; and

(d) shall exclude:

(1)       except as otherwise provided above, any service prior to a Separation from Service performed by an employee whose Continuous Service has been broken because of a Separation from Service and who is thereafter reemployed by the Company or an Affiliate, in such case should any such employee become a Participant, he shall be deemed to be newly employed for all purposes of the Plan;

(2)       with respect to any Eligible Employee who first becomes a Participant in the Plan after December 31, 1993, any period of employment subsequent to such Eligible Employee’s participation in the Plan (A) during which the Eligible Employee no longer holds any one of the Qualifying Positions; (B) following three (3) consecutive Plan Years during which the Eligible Employee failed to earn an Annual Base Salary, plus bonus, of at least $120,000 (as adjusted in accordance with Section 3.1(a) below); or (C) from and after the date the Plan Administrator has expressly terminated an otherwise Eligible Employee’s participation in the Plan. An Eligible Employee who experiences a break in Continuous Service as described in this Section 2(i)(d)(2) who again becomes a Participant or who is reinstated by action of the Plan Administrator shall have his periods of Continuous Service aggregated for purposes of calculating his Accrued Benefit, but in no event shall such aggregated periods of Continuous Service include periods during which the otherwise Eligible Employee no longer holds any Qualifying Position; any period of employment following a three-consecutive Plan Year period during which the otherwise Eligible Employee failed to earn at least $120,000 (as adjusted in accordance with Section 3.1(a) below); or after the date the Eligible Employee’s participation in the Plan has been expressly terminated by the Plan Administrator; and

(3)       with respect to Eligible Employees who were Participants in the Plan prior to January 1, 1994, Continuous Service shall not include any period of employment subsequent to an Employee’s participation in the Plan from and after the date the Plan Administrator has expressly terminated an employee’s participation in the Plan, unless and until he or she thereafter qualifies as an Eligible Employee in accordance with the provisions of Section 3.1.

2

In exercising its discretion pursuant to Subsections (b) and (c) above, the affirmative decision of the Plan Administrator to adjust a Participant’s Continuous Service shall be based upon advancing one or more business purposes of the Company, including, but not limited to, the necessity of attracting key employees.”

2. By deleting Section 3.3 in its entirety and by substituting therefor the following:

“3.3     Inactive Participant. A Participant who ceases to qualify as a Participant or experiences a break in Continuous Service but who, in either case, does not experience a Separation from Service shall become an inactive Participant. An inactive Participant who again satisfies the criteria for eligibility under Section 3.1 or resumes a period of employment that qualifies as Continuous Service shall become a Participant but his Accrued Benefit shall be determined without regard to any period of prior Plan participation, except as contemplated by Section 2(i)(d)(2).”

Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this First Amendment.

IN WITNESS WHEREOF, the Primary Sponsor has caused this First Amendment to be executed as of the day and year first above written.

RUBY TUESDAY, INC.

By:

  /s/ Samuel E. Beall, III 

Chairman and Chief Executive Officer

[CORPORATE SEAL]

ATTEST:

/s/ Scarlett May  

Secretary 

3

EX-31

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Samuel E. Beall, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Ruby Tuesday, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 11, 2008 /s/ Samuel E. Beall, III  

Samuel E. Beall, III

Chairman of the Board, President

and Chief Executive Officer

EX-31

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Marguerite N. Duffy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Ruby Tuesday, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 11, 2008 /s/ Marguerite N. Duffy  

Marguerite N. Duffy

Senior Vice President and

Chief Financial Officer

EX-32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Ruby Tuesday, Inc. (the “Company”) on Form 10-Q for the period ended March 4, 2008 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Samuel E. Beall, III, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 11, 2008 /s/ Samuel E. Beall, III  

Samuel E. Beall, III

Chairman of the Board, President

and Chief Executive Officer

EX-32

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Ruby Tuesday, Inc. (the “Company”) on Form 10-Q for the period ended March 4, 2008 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Marguerite N. Duffy, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 11, 2008 /s/ Marguerite N. Duffy  

Marguerite N. Duffy

Senior Vice President and

Chief Financial Officer