Employee Incentive Plans

12 Months Ended

Dec. 31, 2011

Deferred Compensation Arrangements [Abstract]

Employee Incentive Plans

(9) Employee Incentive Plans

(a) Long-Term Incentive Plans

The Partnership has a long-term incentive plan for its employees, directors, and affiliates who perform services for the Partnership. The plan currently permits the grant of awards covering an aggregate of 5,600,000 common unit options and restricted units. The plan is administered by the compensation committee of the Partnership's board of directors. The units issued upon exercise or vesting are newly issued units.

(b) PartnershipRestricted Units

A restricted unit is a “phantom” unit that entitles the grantee to receive a common unit upon the vesting of the phantom unit, or in the discretion of the compensation committee, cash equivalent to the value of a common unit. In addition, the restricted units will become exercisable upon a change of control of the Partnership, its general partner.

The restricted units are intended to serve as a means of incentive compensation for performance and not primarily as an opportunity to participate in the equity appreciation of the common units. Therefore, plan participants will not pay any consideration for the common units they receive and the Partnership will receive no remuneration for the units. The restricted units include a tandem award that entitles the participant to receive cash payments equal to the cash distributions made by the Partnership with respect to its outstanding common units until the restriction period is terminated or the restricted units are forfeited. The restricted units granted in 2011, 2010 and 2009 generally cliff vest after three years of service.

The restricted units are valued at their fair value at the date of grant which is equal to the market value of common units on such date. A summary of the restricted unit activity for the year ended December 31, 2011 is provided below:

				Weighted
				Average
		Number of		Grant-Date
Crosstex Energy, L.P. Restricted Units:		Units		Fair Value
Non-vested, beginning of period			1,047,374	$	10.30
	Granted		385,571		15.39
	Vested*		(410,418)		14.48
	Forfeited		(72,683)		11.72
Non-vested, end of period			949,844	$	10.45
Aggregate intrinsic value, end of period (in thousands)		$	15,406
_________________________
* Vested units include 116,458 units withheld for payroll taxes paid on behalf of employees.

A summary of the restricted units' aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) during the years endedDecember 31, 2011,2010 and 2009 are provided below (in thousands):

	Years Ended December 31,
Crosstex Energy, L.P. Restricted Units:	2011		2010		2009
Aggregate intrinsic value of units vested	$	6,438	$	11,076	$	1,023
Fair value of units vested	$	5,945	$	5,785	$	4,158
As of December 31, 2011, there was $5.6 million of unrecognized compensation cost related to non-vested restricted units. That cost is expected to be recognized over a weighted-average period of 1.8 years.

(c) PartnershipUnit Options

Unit options will have an exercise price that is not less than the fair market value of the units on the date of grant. In general, unit options granted will become exercisable over a period determined by the compensation committee. In addition, unit options will become exercisable upon a change in control of the Partnership or its general partner.

The fair value of each unit option award is estimated at the date of grant using the Black-Scholes-Merton model. This model is based on the assumptions summarized below. Expected volatilities are based on historical volatilities of the Partnership's traded common units. The Partnership has used historical data to estimate share option exercise and employee departure behavior to estimate expected forfeiture rates. The expected life of unit options represents the period of time that unit options granted are expected to be outstanding. The risk-free interest rate for periods within the expected term of the unit option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Partnership used the simplified method to calculate the expected term.

Unit options are generally awarded with an exercise price equal to the market price of the Partnership's common units at the date of grant. The unit options granted in 2009 generally vest based on 3 years of service (one-third after each year of service). There were no options granted in 2011 or 2010. The following weighted average assumptions were used for the Black-Scholes-Merton option-pricing model for grants in 2009:

		Years ended December 31, 2009
Crosstex Energy, L.P. Unit Options Granted:
Weighted average distribution yield			-	%
Weighted average expected volatility			76.2	%
Weighted average risk free interest rate			2.34	%
Weighted average expected life			6 years
Weighted average contractual life			10 years
Weighted average of fair value of unit options granted		$	2.89
	A summary of the unit option activity for the years ended December 31, 2011, 2010 and 2009 is provided below:

		Years Ended December 31,
		2011				2010				2009
				Weighted				Weighted				Weighted
			Number of		Average		Number of		Average		Number of		Average
			Units		Exercise Price		Units		Exercise Price		Units		Exercise Price
Outstanding, beginning of period			611,311	$	6.77		882,836	$	6.43		1,304,194	$	30.64
	Granted (a)		-		0.00		-		0.00		636,122		4.46
	Issued in Exchange		-		0.00		-		0.00		344,319		4.80
	Rendered in Exchange		-		0.00		-		0.00		(1,032,403)		31.34
	Exercised		(128,477)		4.61		(198,725)		4.48		(2,013)		4.08
	Forfeited		(31,260)		12.83		(67,183)		9.27		(328,295)		27.51
	Expired		-		0.00		(5,617)		5.37		(39,088)		30.30
Outstanding, end of period			451,574	$	6.99		611,311	$	6.77		882,836	$	6.43
Options exercisable at end of period			315,742	$	7.42		278,214	$	7.78		159,929	$	12.51
Weighted average contractual term (years) end of period:
	Options outstanding		7.2		0.0		8.2		-		8.7		-
	Options exercisable		6.9		0.0		7.6		-		4.5		-
Aggregate intrinsic value end of period (in thousands):
	Options outstanding	$	4,648		0	$	5,350		-	$	3,143		-
	Options exercisable	$	3,260		0	$	2,463		-	$	336		-

• No options were granted with an exercise price less than or equal to market value at grant during 2009.

In May 2009, the Partnership's unitholders approved an amendment to the Partnership's long-term incentive plan to allow an option exchange program. This option exchange program was offered to all eligible employees excluding executive officers and directors because options held by employees were “underwater,” meaning the exercise price of the options were higher than the current market price of the common units. The terms of the offer included an exchange ratio of 3 old options for 1 replacement option with an exercise price of $4.80 per common unit (120% of the average closing sales price for five trading days prior to the date of grant) which will vest over 2 years (50% after year 1 and 50% after year 2). In June 2009, a total of 453 employees elected to exchange 1,032,403 old options for 344,319 replacement options pursuant to this option exchange program. There was no incremental compensation cost resulting from the modifications under this option exchange program.

A summary of the unit options intrinsic value exercised (market value in excess of exercise price at date of exercise) and fair value of units vested (value per Black-Scholes-Merton option pricing model at date of grant) during the years ended December 31, 2011, 2010 and 2009 is provided below (in thousands):

	Years Ended December 31,
Crosstex Energy, L.P. Unit Options:	2011		2010		2009
Intrinsic value of units options exercised	$	1,527	$	1,470	$	5
Fair value of unit options vested	$	563	$	764	$	1,675
As of December 31, 2011, there was $0.3 million of unrecognized compensation cost related to non-vested unit options. That cost is expected to be recognized over a weighted average period of 1 year.

(d)Crosstex Energy, Inc.'s Restricted Stock

The Crosstex Energy, Inc. long-term incentive plan provides for the award of restricted stock (collectively, “Awards”) for up to 7,190,000 shares of Crosstex Energy, Inc.'s common stock. As of January 1, 2012, approximately 1,642,396 shares remained available under the long-term incentive plans for future issuance to participants. The maximum number of shares set forth above are subject to appropriate adjustment in the event of a recapitalization of the capital structure of Crosstex Energy, Inc. or reorganization of Crosstex Energy, Inc.Awards that are forfeited, terminated or expire unexercised become immediately available for additional awards under the long-term incentive plan.

CEI's restricted shares are included at their fair value at the date of grant which is equal to the market value of the common stock on such date. CEI's restricted stock granted in 2011, 2010 and 2009 generally cliff vest after three years of service. A summary of the restricted stock activity which includes officers and employees of the Partnership and directors of CELP for the year ended December 31, 2011, is provided below:

				Weighted
				Average
		Number of		Grant-Date
Crosstex Energy, Inc. Restricted Shares:		Shares		Fair Value
Non-vested, beginning of period			1,108,998	$	8.64
	Granted		617,347		9.44
	Vested*		(412,185)		13.64
	Forfeited		(92,809)		8.01
Non-vested, end of period			1,221,351	$	7.40
Aggregate intrinsic value, end of period (in thousands)		$	15,438
___________________________
* Vested units include 113,021 units withheld for payroll taxes paid on behalf of employees.

A summary of the restricted shares' aggregate intrinsic value (market value at vesting date) and fair value of shares vested (market value at date of grant) during the years ended December 31, 2011, 2010 and 2009 is provided below (in thousands):

	Years Ended December 31,
Crosstex Energy, Inc. Restricted Shares:	2011		2010		2009
Aggregate intrinsic value of shares vested	$	3,915	$	3,163	$	1,038
Fair value of shares vested	$	5,623	$	4,388	$	4,382

As of December 31, 2011 there was $5.2 million of unrecognized compensation costs related to CEI restricted shares for directors, officers and employees. The cost is expected to be recognized over a weighted average period of 1.9 years.

(e)Crosstex Energy, Inc.'s Stock Options

CEI stock options have not been granted since 2005. A summary of the stock option activity includes officers and employees of the Partnership and directors of CEI for the years ended December 31, 2011, 2010 and 2009 is provided below:

		Years Ended December 31,
		2011				2010				2009
				Weighted				Weighted				Weighted
		Number of		Average		Number of		Average		Number of		Average
		Units		Exercise Price		Units		Exercise Price		Units		Exercise Price
Outstanding, beginning of period			37,500	$	6.50		67,500	$	9.54		67,500	$	9.54
	Forfeited		-		-		(30,000)		13.33		-		-
Outstanding, end of period			37,500	$	6.50		37,500	$	6.50		67,500	$	9.54
Options exercisable at end of period			37,500	$	6.50		37,500	$	6.50		67,500	$	9.54

A summary of the stock options' intrinsic value (market value in excess of exercise price at date of exercise) exercised and fair value of units vested (value per Black-Scholes-Merton option pricing model at date of grant) during the years ended December 31, 2011, 2010 and 2009 is provided below (in thousands):

	Years Ended December 31,
Crosstex Energy, Inc. Stock Options:	2011		2010		2009
Fair value of units vested	$	-	$	-	$	49