(7) Employee Incentive Plans

(a) Long-Term Incentive Plans

The Company accounts for share-based compensation in accordance with FASB ASC 718, which requires that compensation related to all stock-based awards, including stock options, be recognized in the consolidated financial statements. On May 9, 2013, the Partnership’s unitholders approved the amendment and restatement of the Crosstex Energy GP, LLC Long-Term Incentive Plan (the “Plan”), which increased the number of common units representing limited partner interests in the Partnership authorized for issuance under the Plan by 3,470,000 common units to an aggregate of 9,070,000 common units and made certain other technical amendments.

(b) Partnership Restricted Incentive Units

Awards of restricted incentive units are rights that entitle the grantee to receive common units of the Partnership upon the vesting of such restricted incentive unit. In addition, the restricted incentive units will become exercisable upon a change of control of the Partnership or its general partner.

The restricted incentive 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 incentive 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 incentive units are forfeited. The restricted incentive units granted in 2013, 2012 and 2011 generally cliff vest after three years of service.

The restricted incentive 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 incentive unit activity for the year ended December 31, 2013 is provided below:



Crosstex Energy, L.P. Restricted Incentive Units:	Number of Units			Weighted Average Grant-Date Fair Value
Non-vested, beginning of period	1,003,159			$	13.31
Granted	625,339			16.19
Vested*	(396,927		)	9.50
Forfeited	(52,648		)	13.52
Non-vested, end of period	1,178,923			$	16.11
Aggregate intrinsic value, end of period (in thousands)	$	32,358

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*	Vested units include 114,831 units withheld for payroll taxes paid on behalf of employees.

In March 2013, the Partnership issued 57,897 restricted incentive units with a fair value of $1.0 million to officers and certain employees as bonus payments for 2012, which vested immediately and are included in the restricted incentive units granted and vested line items above.

A summary of the restricted incentive units' aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) during the years ended December 31, 2013, 2012 and 2011 are provided below (in thousands):



	Years Ended December 31,
Crosstex Energy, L.P. Restricted Incentive Units:	2013		2012		2011
Aggregate intrinsic value of units vested	$	6,750	$	3,850	$	6,438
Fair value of units vested	$	3,771	$	2,097	$	5,945

As of December 31, 2013, there was $7.4 million of unrecognized compensation cost related to non-vested restricted incentive units. That cost is expected to be recognized over a weighted-average period of 1.2 years.

Unit options will have an exercise price that is not less than 100% of 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, 2013, 2012, and 2011 is provided below:



	Years Ended December 31,
	2013					2012					2011
	Number of Units			Weighted Average Exercise Price		Number of Units			Weighted Average Exercise Price		Number of Units			Weighted Average Exercise Price
Outstanding, beginning of period	349,018			$	7.25	451,574			$	6.99	611,311			$	6.77
Exercised	(151,795		)	5.50		(87,857		)	4.96		(128,477		)	4.61
Forfeited	(3,109		)	23.60		(14,699		)	13.39		(31,260		)	12.83
Outstanding, end of period	194,114			$	8.36	349,018			$	7.25	451,574			$	6.99
Options exercisable at end of period	194,114			$	8.36	286,715			$	7.52	315,742			$	7.42
Weighted average contractual term (years) end of period:
Options outstanding	5.2					6.1					7.2
Options exercisable	5.2					6.0					6.9
Aggregate intrinsic value end of period (in thousands):
Options outstanding	$	3,829				$	3,016				$	4,648
Options exercisable	$	3,829				$	2,483				$	3,260

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, 2013, 2012 and 2011 is provided below (in thousands):



	Years Ended December 31,
Crosstex Energy, L.P. Unit Options:	2013		2012		2011
Intrinsic value of units options exercised	$	2,104	$	988	$	1,527
Fair value of unit options vested	$	254	$	277	$	563

As of December 31, 2013, all options were vested and fully expensed.

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

The Crosstex Energy, Inc. long-term incentive plans provide for the award of restricted stock (collectively, "Awards") for up to 8,975,000 shares of Crosstex Energy, Inc.'s common stock. On May 9, 2013, CEI's stockholders approved the amendment and restatement of the Crosstex Energy, Inc. 2009 Long-Term Incentive Plan (the “CEI Plan”), which increased the number of shares of CEI's common stock authorized for issuance under the CEI Plan by 1,785,000 shares to an aggregate of 4,385,000 shares of common stock and made certain other technical amendments.

As of January 1, 2014, approximately 2,464,665 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 2013, 2012 and 2011 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, 2013, is provided below:



Crosstex Energy, Inc. Restricted Shares:	Number of Shares			Weighted Average Grant-Date Fair Value
Non-vested, beginning of period	1,329,162			$	9.75
Granted	632,912			15.08
Vested*	(445,177		)	7.43
Forfeited	(63,864		)	11.69
Non-vested, end of period	1,453,033			$	12.69
Aggregate intrinsic value, end of period (in thousands)	$	51,089

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* Vested shares include 123,791 shares withheld for payroll taxes paid on behalf of employees.

In March 2013, CEI issued 60,018 restricted shares with a fair value of $1.0 million to officers and certain employees as bonus payments for 2012, which vested immediately and are included in restricted shares granted and vested in the above line items.

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, 2013, 2012 and 2011 is provided below (in thousands):



	Years Ended December 31,
Crosstex Energy, Inc. Restricted Shares:	2013		2012		2011
Aggregate intrinsic value of shares vested	$	7,593	$	4,099	$	3,915
Fair value of shares vested	$	3,307	$	1,754	$	5,623

As of December 31, 2013 there was $7.4 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 1.1 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, 2013, 2012 and 2011 is provided below:



	Years Ended December 31,
	2013				2012			2011
	Number of Units		Weighted Average Exercise Price		Number of Units	Weighted Average Exercise Price		Number of Units	Weighted Average Exercise Price
Outstanding, beginning of period	37,500		$	6.50	37,500	$	6.50	37,500	$	6.50
Exercised	(22,500	)	6.50		—	—		—	—
Outstanding, end of period	15,000		$	6.50	37,500	$	6.50	37,500	$	6.50
Options exercisable at end of period	15,000		$	6.50	37,500	$	6.50	37,500	$	6.50

A summary of the stock options intrinsic value exercised (market value in excess of exercise price at date of exercise) and fair value of shares vested (value per Black-Scholes-Merton option pricing model at date of grant) during the years ended December 31, 2013, 2012, and 2011 is provided below (in thousands):



	Years Ended December 31,
Crosstex Energy, Inc. Stock Options:	2013		2012		2011
Intrinsic value of stock options exercised	$	317	$	—	$	—
Fair value of stock options vested	$	—	$	—	$	—

As of December 31, 2013, all options were vested and fully expensed.