2003 Audit Charter: RI

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AuditCommCharter.FINAL.doc
RUBY TUESDAY, INC. AUDIT COMMITTEE CHARTER (Effective October 7, 2002) 1. Establishment. There shall be a Committee of the Board of Directors of Ruby Tuesday, Inc. (the "Board of Directors" [or "Board"] and the "Company", respectively) to be known as the Audit Committee ("Committee"). 2. Purpose. The Committee shall serve as an independent and objective party to review and monitor the Company's financial reporting process, internal controls regarding finance, accounting and legal compliance and the independence and performance of the Company's independent auditors ("Auditor"), including, without limitation, (a) assist Board oversight of (i) the integrity of the Company's financial statements, (ii) the Company's compliance with legal and regulatory requirements, (iii) the Auditor's qualifications and independence, and (iv) the performance of the Company's internal audit function and Auditor, and (b) prepare the report that the Securities and Exchange Commission ("SEC") rules require be included in the Company's annual proxy statement. The Committee shall also provide assistance to the Board in fulfilling its oversight responsibility to the shareholders, potential shareholders, the investment community, and others relating to the Company's financial statements and financial reporting process, the systems of internal accounting and financial controls, the annual independent audit of the Company's financial statements, and the legal compliance and ethics programs as established by management and the Board. The Committee shall also provide an open avenue of communication among the Auditor, financial and senior management and the Board of Directors. 3. Composition and Term of Office. The Committee shall consist of no fewer than three (3) or more than five (5) members of the Board, including a Chairperson, elected by the Board annually from among the Directors on the recommendation of the Board's Nominating and Governance Committee, all of whom shall satisfy the independence requirements and any other requirements of the New York Stock Exchange ("NYSE") and other regulatory agencies, and therefore, shall have: (a) no relationship to the Company that may interfere with the exercise of their independence from management and the Company; (b) no employment relationship to the Company or any of its affiliates, unless such employment relationship was terminated more than five years prior to the date of the independence determination; (c) no affiliation or employment relationship with the Company's Auditor or former independent auditors unless either such affiliation or employment or the applicable auditing relationship terminated more than five years prior to the date of the independence determination; (d) no employment relationship as an executive of another corporation where any of the Company's executives serves on that corporation's compensation committee; (e) no relationship as an immediate family member of an individual who is included in one of categories (b) through (d) above, unless such individual's applicable relationship has been terminated for five years prior to the date of the independence determination; and (f) no consulting, advisory or other relationship with the Company providing for direct or indirect compensation other than directors' fees. The Committee may determine its own rules of procedure but shall adhere to standards required by the NYSE and other appropriate governing bodies. Each member of the Committee shall be financially literate and at least one (1) member of the Committee shall have accounting or related financial management expertise, as determined by the Board in its business judgment. Any Committee member may be removed at any time by majority vote of the full Board. 4. Duties, Authority and Responsibilities. The Committee shall: (a) Meet as often as necessary to fulfill its duties, but not less than four (4) times per year. The Committee may ask members of management, representatives of the Auditor or others to attend meetings and provide information as necessary. The Committee shall meet separately, at least quarterly, with management, with internal
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AuditCommCharter.FINAL.doc
auditors (or other personnel responsible for the internal audit function), and with representatives of the Auditor. (b) Have the sole authority to retain and terminate the Auditor (subject, if applicable, to shareholder ratification) to audit the annual financial statements of the Company and review the fees charged for such audit and to approve any consulting engagements or other relationship with the Auditor that are beyond the scope of the audit. (c) Oversee the independence of the Auditor by reviewing and discussing with the Auditor and/or Board any relationships between the Auditor and the Company or any other relationships that may adversely affect the independence of the Auditor. (d) Communicate with the Auditor the fact that the Board and the Committee, as the stockholders' representatives, are the Auditor's client. (e) Review with the Auditor, at a time when the annual audit plan is being developed, its scope, purpose or procedures to be included. This review shall include inquiry into the items identified in Section 5 below. (f) Review with Company management and the Auditor the Company's judgments about the quality of the accounting principles used in the Company's financial reporting for the quarter and any item required by SAS 61, prior to filing of each quarterly report on Form10-Q. (g) Review with Company management and the Auditor the (i) unaudited financial statements of each fiscal quarter, and (ii) audited financial statements for each year, including in each case the footnotes thereto and the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations". (h) Review and discuss earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. (i) At least annually, obtain and review a report by the Auditor describing: the firm's internal quality control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by an inquiry or investigation by governmental or professional authorities, within the preceding five (5) years, respecting one or more independent audits carried out by the firm and any steps taken to deal with any such issues; and (to assess the Auditor's independence) all relationships between the Auditor and the Company. (j) Review with the Auditor, on completion of the annual report, their experience, any restrictions on their work, any audit problems or difficulties and management's response, management's handling of proposed audit adjustments identified by the Auditor, cooperation received, the Auditor's findings and their recommendations. This review shall include inquiry into the issues identified in Section 5 below. (k) Review with the Auditor, with or without management, the Auditor's evaluation of the Company's internal controls. (l) Review annually the programs that the Company has instituted to correct any control deficiencies noted by the Auditor in its annual review. (m) Review, at its discretion, compliance with codes of conduct established by the Company, and discuss policies with respect to risk assessment and risk management, including major financial risk exposures and the steps management has taken to monitor and control such exposures.
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AuditCommCharter.FINAL.doc
(n) Attempt to resolve any differences arising between Company management and the Auditors. (o) Review with Company's counsel, legal compliance matters including (i) corporate securities trading policies, (ii) Securities and Exchange Commission comment letters or other communications concerning the Company's public filings, and (iii) any other legal matter that could have a significant impact on the Company's financial statements. (p) Assure candid communication about the quality of financial reporting, consult with the Auditor, at the Committee's discretion, out of the presence of management, meet at the Committee's discretion with the head of the internal auditing department to discuss matters that the Committee or the head of the internal auditing department believes should be discussed, including addressing the adequacy of the Company's internal audit function. (q) Initiate, at its discretion, investigations within the parameters of the foregoing responsibilities, and as appropriate, obtain advice and assistance from outside legal, accounting, or other advisors. The Committee is empowered to engage the necessary resources (including external) to fulfill its oversight responsibilities without additional Board approval. (r) Review and monitor instances where Company management seeks a second opinion from other independent public accountants on a significant accounting issue. (s) Report regularly to the Board of Directors, not less than each fiscal quarter, as well as on any other occasion that it deems appropriate, activities of the Committee. Ensure that the Auditor meets at least annually with the full Board. (t) Issue Committee Report in compliance with Securities and Exchange Commission and New York Stock Exchange rules to be included in the Company's proxy statement. State in such report whether the Committee recommends the audited financial statements be included in the Annual Report. (u) Provide written affirmation to the New York Stock Exchange of all such matters as required. (v) Set clear hiring policies for employees and former employees of the Auditor. (w) Perform any other activities consistent with this Charter, the Company's By-laws and governing law, as the Committee or the Board deems necessary or appropriate. (x) Review and assess the Company's policies and procedures with respect to executive officer expense accounts and perquisites, including their use of corporate assets. (y) Review and assess any significant conflicts of interest and related-party transactions. 5. Ensuring the Credibility of Financial Reporting. As part of its oversight responsibility the Committee shall provide for the following to ensure the credibility of financial reporting, namely: (a) Ensure that financial management and the Auditor perform a timely analysis of significant financial reporting issues and practices, including review of (a) major
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issues regarding accounting principles and financial statement presentations, including any significant changes in the Company's selection or application of accounting principles, and major issues as to the adequacy of the Company's internal controls and any special audit steps adopted in light of material control deficiencies; (b) analyses prepared by management and/or the Auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements; and (c) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures on the financial statements of the Company. (b) Ensure that financial management and the Auditor discuss with the Committee their qualitative judgments about the appropriateness, not just the acceptability, of accounting principles and financial disclosure practices used or proposed to be adopted by the Company and, particularly, about the degree of aggressiveness or conservatism of its accounting principles and underlying estimates. (c) At least annually, review the judgments made by management in determining appropriate asset valuation allowances or liability reserves. Review the accounting principles and policies to be applied to complex and/or unusual transactions on an as-needed basis. (d) Ensure that representatives of the Auditor are available to the full Board of Directors at least quarterly. The Committee's discussion with the Auditor about the appropriateness of accounting principles and financial disclosure practices shall generally include the following: (i) discuss whether the financial statements are in accordance with (a) GAAP and (b) Securities and Exchange Commission disclosure requirements, and whether the financial statements fairly present to investors, with clarity and completeness, the Company's financial position and performance for the reporting period; (ii) the Auditors' independent qualitative judgments about the appropriateness, not just the acceptability, of the accounting principles and the clarity of the financial disclosure practices used or proposed to be adopted by the Company; (ii) the Auditors' views about whether management's choices of accounting principles are conservative, moderate or extreme and whether those principles are common practices or are minority practices; (iii) the Auditors' reasoning in determining the appropriateness of changes in accounting principles and disclosure practices; (iv) the Auditors' reasoning in determining the appropriateness of the accounting principles and disclosure practices adopted by management for new transactions or events; (v) the Auditors' reasoning in accepting or questioning significant estimates made by management; (vi) the Auditors' views about how the Company's choices of accounting principles and disclosure practices may affect shareholders and public views and attitudes about the Company; (vii) the Auditor's opinion if there are any significant accounting judgments made by management in preparing the financial statements that would have been made
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differently had the Auditor itself prepared and been responsible for the financial statements; (viii) any issues that the Auditor reviewed with its national office; and (ix) any correspondence from regulators or governmental agencies, and any employee complaints or published reports, which raise issues regarding the Company's financial statements or accounting policies. 6. Meetings/Miscellaneous. (a) Notice of Committee meetings shall be given as provided in the Company's bylaws for meetings of the full Board. (b) A majority of Committee members shall constitute a quorum for the transaction of business. The action of a majority of those present at a meeting, at which a quorum is present, shall be the act of the Committee. (c) The Committee shall keep a record of its actions and proceedings, and make a report thereof from time to time (not less than quarterly) to the Board. (d) The Committee shall perform such other functions which from time to time may be assigned by the Board. (e) The Committee may form, and delegate authority to, subcommittees when appropriate, as determined by the Committee. (f) The Committee shall review and reassess the adequacy of this Charter annually and recommend changes with respect thereto to the Board of Directors (g) The Committee shall annually evaluate its own performance and recommend changes with respect thereto.