EQUITY INCENTIVE PLANS

As of June 30, 2013, under the 2006 Stock Incentive Plan ("2006 Plan"), the Company had 1,704,344 shares of common stock available for issuance pursuant to future awards that may be granted under the plan of which up to 404,104 shares were available for the issuance of awards other than stock options.

Stock Options

The Company uses a Black-Scholes option valuation model to estimate the fair value of each option awarded. A summary of the activity of stock option awards issued and outstanding under Company plans is as follows for the six months ended June 30, 2013:



	Shares		Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contractual Term (years)	Aggregate Intrinsic Value
	(in thousands)					(in thousands)
Options outstanding at December 31, 2012	1,198		$	18.92	6.85	$	11,090
Options granted	—		—
Options exercised	(234	)	$	17.43
Options forfeited/canceled/expired	(5	)	$	21.34
Options outstanding at June 30, 2013	959		$	19.28	6.75	$	14,074
Options vested and expected to vest at June 30, 2013	929		$	19.21	6.71	$	13,701
Options exercisable at June 30, 2013	594		$	18.23	6.13	$	9,346

The Company did not grant any stock options during the six months ended June 30, 2013. For the six months ended June 30, 2013 and July 1, 2012, the amount of stock-based compensation expense related to stock options was $0.7 million and $1.4 million, respectively. As of June 30, 2013, the Company had $1.8 million of unrecognized compensation costs related to non-vested stock option awards that are expected to be recognized over a weighted average period of 1.8 years.

Restricted Stock

Compensation expense for nonvested stock awards is recorded over the vesting period based on the fair value at the date of grant. Generally, the restricted stock awards vest in equal increments over either a three or four year period. The Company has issued share-based awards with service-based, performance-based and market-based vesting criteria.

A summary of the activity of restricted stock outstanding is as follows for the six months ended June 30, 2013:



	Shares		Wtd. Avg. Grant Date Fair Value
	(in thousands)
Restricted stock outstanding at December 31, 2012	670		$	18.14
Granted	345		37.40
Vested	(131	)	21.29
Forfeited/canceled	—		—
Restricted stock outstanding at June 30, 2013	884		$	23.00

During the six months ended June 30, 2013, the Company granted 345,060 shares of restricted stock to certain employees and executive officers. Of these awards, 92,810 are performance-based awards which will be forfeited if the Company does not achieve certain annual metrics during 2013, 2014 and 2015.

The vesting of these performance-based restricted stock grants are subject to the achievement by GEO of two annual performance metrics as follows: (i) up to 75% of the shares of restricted stock ("Target Award") can vest at the end of a three-year performance period if GEO meets certain total shareholder return ("TSR") performance targets, as compared to the total shareholder return of a peer group of companies, during 2013, 2014 and 2015; and (ii) up to 25% of the shares of restricted stock ("Target Award") can vest at the end of a three-year period if GEO meets certain return on capital employed ("ROCE") performance targets in 2013, 2014 and 2015. These performance awards can vest at between 0% and 200% of the Target Awards for both metrics. The number of shares shown for the performance-based awards is based on the Target Awards for both metrics.

The metric related to ROCE is considered to be a performance condition. For share-based awards that contain a performance condition, the achievement of the targets must be probable before any share-based compensation expense is recorded. The Company reviews the likelihood of which target in the range will be achieved and if deemed probable, compensation expense is recorded at that time. If subsequent to initial measurement there is a change in the estimate of the probability of meeting the performance condition, the effect of the change in the estimated quantity of awards expected to vest is recognized by cumulatively adjusting compensation expense. If ultimately the performance targets are not met, for any awards where vesting was previously deemed probable, previously recognized compensation expense will be reversed in the period in which vesting is no longer deemed probable. The fair value of these awards was determined based on the closing price of the Company's common stock on the date of grant.

The metric related to TSR is considered to be a market condition. For share-based awards that contain a market condition, the probability of satisfying the market condition must be considered in the estimate of grant-date fair value and previously recorded compensation expense is not reversed if the market condition is never met. The fair value of these awards was determined based on a Monte Carlo simulation, which calculates a range of possible outcomes and the probabilities that they will occur, using the following key assumptions: (i) volatility of 26.6%; (ii) beta of 0.681; and (iii) risk free rate of 0.42%.

For the six months ended June 30, 2013 and July 1, 2012, the Company recognized $2.6 million and $2.1 million, respectively, of compensation expense related to its restricted stock awards. As of June 30, 2013, the Company had $18.2 million of unrecognized compensation costs related to non-vested restricted stock awards, including non-vested restricted stock awards with performance-based and market-based vesting, that are expected to be recognized over a weighted average period of 3.1 years.

Employee Stock Purchase Plan

The Company adopted The GEO Group Inc. 2011 Employee Stock Purchase Plan (the “Plan”). The purpose of the Plan, which is qualified under Section 423 of the Internal Revenue Service Code of 1986, as amended, is to encourage stock ownership through payroll deductions by the employees of GEO and designated subsidiaries of GEO in order to increase their identification with the Company’s goals and secure a proprietary interest in the Company’s success. These deductions are used to purchase shares of the Company’s common stock at a 5% discount from the then current market price. The Company has made available up to 500,000 shares of its common stock, which were registered with the Securities and Exchange Commission on May 4, 2012, for sale to eligible employees.

The Plan is considered to be non-compensatory. As such, there is no compensation expense required to be recognized. Share purchases under the Plan are made on the last day of each month. During the six months ended June 30, 2013, 4,625 shares were issued out of the Company's treasury stock in connection with the Plan.