Employee Incentive Plan

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Employee Incentive

(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) Partnership Restricted 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 or 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 2012, 2011 and 2010 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, 2012 is provided below:

				Weighted
				Average
		Number of		Grant-Date
Crosstex Energy, L.P. Restricted Units:		Units		Fair Value
Non-vested, beginning of period			949,844	$	10.45
	Granted		417,677		16.58
	Vested*		(264,632)		7.93
	Forfeited		(99,730)		14.01
Non-vested, end of period			1,003,159	$	13.31
Aggregate intrinsic value, end of period (in thousands)		$	14,596
_________________________
* Vested units include 66,180 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, 2012,2011 and 2010 are provided below (in thousands):

	Years Ended December 31,
Crosstex Energy, L.P. Restricted Units:	2012		2011		2010
Aggregate intrinsic value of units vested	$	3,850	$	6,438	$	11,076
Fair value of units vested	$	2,097	$	5,945	$	5,785
As of December 31, 2012, there was $5.4 million of unrecognized compensation cost related to non-vested restricted units. That cost is expected to be recognized over a weighted-average period of 1.2 years.

(c) Partnership Unit 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 generally vest based on 3 years of service (one-third after each year of service). There have been no options granted since 2009.

	A summary of the unit option activity for the years ended December 31, 2012, 2011, and 2010 is provided below:
		Years Ended December 31,
		2012				2011				2010
				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			451,574	$	6.99		611,311	$	6.77		882,836	$	6.43
	Exercised		(87,857)		4.96		(128,477)		4.61		(198,725)		4.48
	Forfeited		(14,699)		13.39		(31,260)		12.83		(67,183)		9.27
	Expired		-		0.00		-		0.00		(5,617)		5.37
Outstanding, end of period			349,018	$	7.25		451,574	$	6.99		611,311	$	6.77
Options exercisable at end of period			286,715	$	7.52		315,742	$	7.42		278,214	$	7.78
Weighted average contractual term (years) end of period:
	Options outstanding		6.1		0.0		7.2		-		8.2		-
	Options exercisable		6.0		0.0		6.9		-		7.6		-
Aggregate intrinsic value end of period (in thousands):
	Options outstanding	$	3,016		0	$	4,648		-	$	5,350		-
	Options exercisable	$	2,483		0	$	3,260		-	$	2,463		-

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, 2012, 2011 and 2010 is provided below (in thousands):

	Years Ended December 31,
Crosstex Energy, L.P. Unit Options:	2012		2011		2010
Intrinsic value of units options exercised	$	988	$	1,527	$	1,470
Fair value of unit options vested	$	277	$	563	$	764
As of December 31, 2012, there was less than $0.1 million of unrecognized compensation cost related to non-vested unit options. That cost is expected to be recognized during the first quarter of 2013.

(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, 2013, approximately 1,248,713 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 2012, 2011 and 2010 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 the general partner of the Partnership for the year ended December 31, 2012, is provided below:

				Weighted
				Average
		Number of		Grant-Date
Crosstex Energy, Inc. Restricted Shares:		Shares		Fair Value
Non-vested, beginning of period			1,221,351	$	7.40
	Granted		528,946		13.34
	Vested*		(285,872)		6.13
	Forfeited		(135,263)		10.27
Non-vested, end of period			1,329,162	$	9.75
Aggregate intrinsic value, end of period (in thousands)		$	19,060
___________________________
* Vested units include 66,106 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, 2012, 2011 and 2010 is provided below (in thousands):

	Years Ended December 31,
Crosstex Energy, Inc. Restricted Shares:	2012		2011		2010
Aggregate intrinsic value of shares vested	$	4,099	$	3,915	$	3,163
Fair value of shares vested	$	1,754	$	5,623	$	4,388

As of December 31, 2012 there was $5.5 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 1.2 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, 2012, 2011 and 2010 is provided below:

		Years Ended December 31,
		2012				2011				2010
				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		37,500	$	6.50		67,500	$	9.54
	Forfeited		-		-		-		-		(30,000)		13.33
Outstanding, end of period			37,500	$	6.50		37,500	$	6.50		37,500	$	6.50
Options exercisable at end of period			37,500	$	6.50		37,500	$	6.50		37,500	$	6.50

No stock options were exercised or vested during the years ended December 31, 2012, 2011 and 2010.