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 amended and restated Crosstex Energy GP, LLC Long-Term Incentive Plan (the “Plan”). Amendments to the Plan include an increase in 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. In addition, the Plan includes technical amendments to certain other provisions of the Plan (i) to describe awards of restricted units as restricted incentive units, (ii) to revise the change in control definition to (among other things) eliminate and clarify certain change in control events, (iii) to make minor changes to better conform certain provisions to applicable law and (iv) to include minor updates to clarify the meaning of, and consistently describe, certain terms thereunder.

The Company and the Partnership each have similar unit or share-based payment plans for employees, which are described below. Share-based compensation associated with the CEI share-based compensation plan awarded to officers and employees of the Partnership are recorded by the Partnership since CEI has no substantial or managed operating activities other than its interest in the Partnership. Amounts recognized in the condensed consolidated financial statements with respect to these plans are as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of share-based compensation charged to general and administrative expense	$	2,610	$	2,233	$	7,157	$	4,473
Cost of share-based compensation charged to operating expense	421		316		980		640
Total amount charged to income	$	3,031	$	2,549	$	8,137	$	5,113
Interest of non-controlling partners in share-based compensation	$	1,166	$	1,722	$	3,152	$	2,716
Amount of related income tax benefit recognized in income	$	690	$	306	$	1,848	$	887

(b) Partnership Restricted Incentive Units

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 six months ended June 30, 2013 is provided below:



	Six Months Ended June 30, 2013
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	580,785			15.83
Vested*	(277,404		)	9.00
Forfeited	(36,758		)	12.43
Non-vested, end of period	1,269,782			$	15.43
Aggregate intrinsic value, end of period (in thousands)	$	26,183

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* Vested units include 81,321 units withheld for payroll taxes paid on behalf of employees.

The Partnership issued restricted incentive units in 2013 to officers and other employees. These restricted incentive units typically vest at the end of three years and are included in the restricted incentive units outstanding and the current share-based compensation cost calculations at June 30, 2013. 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 during the three and six months ended June 30, 2013 and 2012 are provided below (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
Crosstex Energy, L.P. Restricted Incentive Units:	2013		2012		2013		2012
Aggregate intrinsic value of units vested	$	279	$	280	$	4,293	$	3,806
Fair value of units vested	$	222	$	281	$	2,496	$	1,608

As of June 30, 2013, there was $9.8 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 1.5 years.

A summary of the unit option activity for the six months ended June 30, 2013 is provided below:



	Six Months Ended June 30, 2013
Crosstex Energy, L.P. Unit Options:	Number of Units			Weighted Average Exercise Price
Outstanding, beginning of period	349,018			$	7.25
Exercised	(109,438		)	5.68
Forfeited	(2,681		)	26.75
Outstanding, end of period	236,899			$	7.76
Options exercisable at end of period	236,899
Weighted average contractual term (years) end of period:
Options outstanding	5.8
Options exercisable	5.8
Aggregate intrinsic value end of period (in thousands):
Options outstanding	$	3,312
Options exercisable	$	3,312

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 exercised (value per Black-Scholes-Merton option pricing model at date of grant) during the three and six months ended June 30, 2013 and 2012 are provided below (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
Crosstex Energy, L.P. Unit Options:	2013		2012		2013		2012
Intrinsic value of unit options exercised	$	546	$	67	$	1,361	$	478
Fair value of unit options vested	$	—	$	—	$	254	$	277

As of June 30, 2013, all options were vested and fully expensed.

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

On May 9, 2013, CEI's stockholders approved the amended and restated the Crosstex Energy, Inc. 2009 Long-Term Incentive Plan (the “CEI Plan”). Amendments to the CEI Plan include an increase in 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. In addition, the CEI Plan includes technical amendments to certain other provisions of the CEI Plan (i) to clarify that awards of restricted stock units may be granted as stock awards, (ii) to revise the change of control definition to (among other things) eliminate and clarify certain change of control events, (iii) to make minor changes to better conform certain provisions to applicable law and (iv) to include minor updates to clarify the meaning of, and consistently describe, certain terms thereunder.

The Company’s restricted shares are valued at their fair value at the date of grant which is equal to the market value of the common stock on such date. A summary of the restricted share activities for the six months ended June 30, 2013 is provided below:



	Six Months Ended June 30, 2013
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	587,571			14.69
Vested*	(281,145		)	7.77
Forfeited	(43,692		)	11.43
Non-vested, end of period	1,591,896			$	11.87
Aggregate intrinsic value, end of period (in thousands)	$	31,456

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* Vested shares include 79,723 shares withheld for payroll taxes paid on behalf of employees.

CEI issued restricted shares in 2013 to officers and other employees. These restricted shares typically vest at the end of three years and are included in restricted shares outstanding and the current share-based compensation cost calculations at June 30, 2013. 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 during the three and six months ended June 30, 2013 and 2012 are provided below (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
Crosstex Energy, Inc. Restricted Shares:	2013		2012		2013		2012
Aggregate intrinsic value of shares vested	$	298	$	391	$	4,303	$	3,127
Fair value of shares vested	$	217	$	260	$	2,184	$	1,266

As of June 30, 2013, there was $9.8 million of unrecognized compensation costs related to non-vested CEI restricted shares. The cost is expected to be recognized over a weighted average period of 1.4 years.

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

CEI stock options have not been granted to officers or employees of the Partnership since 2005. All options outstanding at June 30, 2013 were vested and exercisable with all associated costs recognized. The following is a summary of the CEI stock options outstanding as of June 30, 2013:



	Six Months Ended June 30, 2013
		Weighted
	Number of	Average
Crosstex Energy, Inc. Stock Options:	Shares	Exercise Price
Outstanding, beginning of period	37,500	$	6.50
Forfeited	—	—
Outstanding, end of period	37,500	$	6.50
Options exercisable at end of period	37,500
Weighted average contractual term (years) end of period	1.5