EQUITY INCENTIVE PLANS

As of September 30, 2012, under the 2006 Stock Incentive Plan ("2006 Plan"), the Company had 1,396,954 shares of common stock available for issuance pursuant to future awards that may be granted under the plan of which up to 651,804 shares were available for the issuance of awards other than stock options. During the thirty-nine weeks ended September 30, 2012, the Company repurchased and retired 57,457 shares of fully vested employee equity awards.

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 thirty-nine weeks ended September 30, 2012:



	Shares		Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contractual Term (years)	Aggregate Intrinsic Value
	(in thousands)					(in thousands)
Options outstanding at January 1, 2012	1,601		$	19.44	6.73	$	2,778
Options granted	96		25.78
Options exercised	(164	)	11.27
Options forfeited/canceled/expired	(64	)	22.77
Options outstanding at September 30, 2012	1,469		$	20.62	6.51	$	10,200
Options exercisable at September 30, 2012	933		$	18.98	5.56	$	8,111

There were 96,000 stock options granted by the Company during the thirty-nine weeks ended September 30, 2012 with an aggregate fair value of $0.7 million and a weighted average exercise price of $25.78. For the thirty-nine weeks ended September 30, 2012 and October 2, 2011, the amount of stock-based compensation expense related to stock options was $1.9 million and $2.2 million, respectively. As of September 30, 2012, the Company had $3.2 million of unrecognized compensation costs related to non-vested stock option awards that are expected to be recognized over a weighted average period of 2.4 years.

Restricted Stock

Shares of restricted stock become unrestricted shares of common stock upon vesting on a one-for-one basis. The cost of these awards is determined using the closing price of the Company’s common stock on the date of the grant and compensation expense is recognized over the vesting period. 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 non-performance and performance-based vesting criteria. For share-based awards that are performance-based, achievement of the milestones must be “probable” before share-based compensation expense is recorded. At each reporting date, the Company reviews the likelihood that these awards will vest and if the vesting is deemed probable, compensation expense is recorded at that time. If ultimately performance goals are not met, for any awards where vesting was previously deemed probable, previously recognized compensation cost will be reversed.

A summary of the activity of restricted stock outstanding is as follows for the thirty-nine weeks ended September 30, 2012:



	Shares		Wtd. Avg. Grant Date Fair Value
	(in thousands)
Restricted stock outstanding at January 1, 2012	442		$	23.32
Granted	315		18.39
Vested	(139	)	23.26
Forfeited/canceled	(23	)	22.52
Restricted stock outstanding at September 30, 2012	595		$	20.98

During the thirty-nine weeks ended September 30, 2012, the Company granted 315,000 shares of restricted stock to its Directors and to certain senior employees. Of these awards, 205,000 are performance based awards which will be forfeited if the Company does not achieve certain annual metrics during fiscal years 2012, 2013 and 2014. These performance based awards, which were previously granted on March 12, 2012 to certain executive officers and senior employees, were canceled and new performance based awards were granted on July 20, 2012 in connection with a resolution by the Compensation Committee of the Board of Directors to revise the performance metrics used from targeted revenues to multiple metrics, which include earnings-per-share performance and return on capital employed results. These new restricted awards granted on July 20, 2012 were to the same executive officers and senior employees covering the same number of shares of restricted stock as were granted in March 2012.

The vesting of these new restricted stock grants will be subject to the achievement by GEO of two annual performance metrics as follows: (i) up to 75% of the shares of restricted stock in each award can vest annually or cumulatively if GEO meets certain earnings per share performance targets during years 2012, 2013 and 2014; and (ii) up to 25% of the shares of restricted stock in each award can vest annually if GEO meets certain return on capital performance targets in 2012, 2013 and 2014. Based on the terms of the agreement, there was no incremental compensation cost related to the modified awards.

For performance based awards granted prior to July 20, 2012, these grants vested over a three year period from the date of the award if the previous metric, targeted revenue, was achieved. The aggregate fair value of the awards issued during the thirty-nine weeks ended September 30, 2012 and the fiscal year ended January 1, 2012, based on the closing price of the Company's common stock on the respective grant dates, was $5.8 million and $9.3 million, respectively.

For the thirty-nine weeks ended September 30, 2012 and October 2, 2011, the Company recognized $3.2 million and $2.6 million, respectively, of compensation expense related to its restricted stock awards. As of September 30, 2012, the Company had $9.6 million of unrecognized compensation costs related to non-vested restricted stock awards, including non-vested restricted stock awards with performance-based vesting, that are expected to be recognized over a weighted average period of 2.5 years.

Employee Stock Purchase Plan

On July 9, 2011, the Company adopted The GEO Group Inc. 2011 Employee Stock Purchase Plan (the “Plan”), subject to obtaining shareholder approval. The Plan was approved by the Company’s Compensation Committee and its Board of Directors on May 4, 2011. 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 Plan, which was approved by the Company's shareholders on May 4, 2012, specifies that the pre-shareholder approval period began on July 9, 2011 with shares being purchased on June 29, 2012. During the pre-shareholder approval periods, which ended on June 29, 2012, the Plan was considered to be compensatory due to an option feature contained in the Plan during that period. Stock-based compensation recorded during the pre-shareholder period was not significant. During the post-shareholder approval periods, the Plan no longer contains an option feature and therefore is considered to be non-compensatory. As such, no compensation expense has been recorded during the post-shareholder approval periods. Share purchases for the post-shareholder approval offering periods begin on the last day of each month. During the thirty-nine weeks ended September 30, 2012, 19,487 shares were issued out of the Company's treasury stock in connection with the Plan. The Company will offer 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.