XTXI Crosstex Energy, Inc. (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant       þ
Filed by a Party other than the Registrant      o
Check the appropriate box:
   o   Preliminary Proxy Statement
   o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
   þ    Definitive Proxy Statement
   o    Definitive Additional Materials
   o    Soliciting Material under Rule 14a-12

CROSSTEX ENERGY, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

		1	)		Title of each class of securities to which transaction applies:
		2	)		Aggregate number of securities to which transaction applies:
		3	)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		4	)		Proposed maximum aggregate value of transaction:
		5	)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

		1	)		Amount Previously Paid:
		2	)		Form, Schedule or Registration Statement No.:
		3	)		Filing Party:
		4	)		Date Filed:

 

CROSSTEX ENERGY, INC.

2501 Cedar Springs Rd.

Dallas, Texas 75201

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On May 7, 2009

 

To the Stockholders of Crosstex Energy, Inc.:

 

The annual meeting of stockholders of Crosstex Energy, Inc., a Delaware corporation (the “Company”), will be held on Thursday, May 7, 2009, at 8:30 a.m., local time, at the Company’s offices located at 2501 Cedar Springs Rd., Dallas, Texas 75201 for the following purposes:

 

1. To consider and vote upon the election of two Class II directors as members of the Board of Directors to serve until the Company’s 2012 annual meeting of stockholders or until their respective successors have been duly elected and qualified;

 

2. To consider and vote upon a proposal to approve the Crosstex Energy, Inc. 2009 Long-Term Incentive Plan;

 

3. To consider and vote upon a proposal to ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009; and

 

4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

Your Board of Directors recommends that you vote “FOR” the Board’s nominees for directors; “FOR” the approval of the Company’s 2009 Long-Term Incentive Plan, which the Board believes is an important tool to attract and retain qualified individuals who are essential to the future success of the Company; and “FOR” the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm.

 

The Board of Directors has fixed the close of business on March 17, 2009 as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting or any adjournment or postponement thereof. Only holders of record of shares of Common Stock of the Company at the close of business on the record date are entitled to notice of and to vote at the meeting. A record of the Company’s activities during 2008 and financial statements for the fiscal year ended December 31, 2008 are contained in the Company’s 2008 Annual Report on Form 10-K.

 

Your vote is important. All stockholders are cordially invited to attend the meeting. We urge you, whether or not you plan to attend the meeting, to submit your proxy by voting over the Internet or, if you received a paper copy of a proxy or voting instruction card by mail, by completing, signing, dating and mailing the proxy or voting instruction card in the postage-paid envelope provided. If a stockholder who has submitted a proxy attends the meeting in person, such stockholder may revoke the proxy and vote in person on all matters submitted at the meeting.

 

By Order of the Board of Directors

 

Barry E. Davis
President and
Chief Executive Officer

 

March 26, 2009

 

Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to be Held on May 7, 2009:

 

This Proxy Statement and the accompanying Annual Report to Stockholders are available at:
http://phx.corporate-ir.net/phoenix.zhtml?c=148525&p=proxy

 

CROSSTEX ENERGY, INC.
2501 Cedar Springs Rd.
Dallas, Texas 75201

 

PROXY STATEMENT

 

For Annual Meeting of Stockholders

To Be Held On May 7, 2009

 

GENERAL

 

These proxy materials (including this proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the “2008 Annual Report”)) have been made available on the Internet or delivered in paper copy to stockholders of Crosstex Energy, Inc. (the “Company”) in connection with the solicitation by our board of directors (the “Board”) of proxies for use at the annual meeting of stockholders to be held at the time and place and for the purposes set forth in the accompanying notice. The approximate date this proxy statement is first furnished to stockholders is March 26, 2009. If you received a paper copy of these materials by mail, the proxy materials also include a proxy card or a voting instruction card for the annual meeting.

 

Proxies and Voting Instructions

 

This year, we have elected to continue to use the new Securities and Exchange Commission rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our stockholders a notice about the Internet availability of the proxy materials instead of a paper copy of the proxy materials. All stockholders receiving the notice will have the ability to access the proxy materials over the Internet and may request to receive a paper copy of the proxy materials by mail. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found on the notice. In addition, the notice contains instructions on how stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis. We are providing some of our stockholders, including stockholders who have previously requested to receive paper copies of the proxy materials, with paper copies of the proxy materials instead of a notice about the Internet availability of the proxy materials. All stockholders who do not receive the notice will receive a paper copy of the proxy materials by mail.

 

If you hold shares of Common Stock, par value $0.01 per share (“Common Stock”), of the Company in your name, you can submit your proxy in the following manners:

 

 

If you hold shares of Common Stock through someone else, such as a bank, broker or other nominee, you may get material from them asking you how you want to vote your shares.

You may revoke your proxy at any time prior to its exercise by:

 

 

If you attend the annual meeting in person without voting, this will not automatically revoke your proxy. If you revoke your proxy during the meeting, this will not affect any vote previously taken. If you hold shares of Common Stock through someone else, such as a bank, broker or other nominee, and you desire to revoke your proxy, you should follow the instructions provided by your nominee.

 

Voting Procedures and Tabulation

 

We will appoint one or more inspectors of election to act at the annual meeting and to make a written report thereof. Prior to the annual meeting, the inspectors will sign an oath to perform their duties in an impartial manner and according to the best of their ability. The inspectors will ascertain the number of shares of Common Stock outstanding and the voting power of each, determine the shares of Common Stock represented at the annual meeting and the validity of proxies and ballots, count all votes and ballots and perform certain other duties as required by law. The determination of the inspectors as to the validity of proxies will be final and binding.

 

Abstentions and broker non-votes (i.e., proxies submitted by brokers that do not indicate a vote for a proposal because they do not have discretionary voting authority and have not received instructions as to how to vote on the proposal) are counted as present in determining whether the quorum requirement for the annual meeting is satisfied. For purposes of determining the outcome of any matter to be voted upon as to which the broker has indicated on the proxy that the broker does not have discretionary authority to vote, these shares will be treated as not present at the meeting and not entitled to vote with respect to that matter, even though those shares are considered to be present at the meeting for quorum purposes and may be entitled to vote on other matters. Abstentions, on the other hand, are considered to be present at the meeting and entitled to vote on the matter abstained from.

 

To be elected, nominees for director must receive a plurality of the votes cast. This means that the director nominees with the most votes are elected, regardless of whether any nominee received a majority of votes cast. With regard to the election of directors, votes may be cast in favor of or withheld from each nominee. Votes that are withheld will be excluded entirely from the vote and will have no effect. Broker non-votes and other limited proxies will have no effect on the outcome of the election of directors.

 

With regard to the proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2009, and the proposal to approve the Crosstex Energy, Inc. 2009 Long-Term Incentive Plan, an abstention will have the same effect as a vote against the proposals. Broker non-votes and other limited proxies will have no effect on the outcome of the vote with respect to such proposals.

 

VOTING SECURITIES

 

Our only outstanding voting securities are our shares of Common Stock. Only holders of record of shares of Common Stock at the close of business on March 17, 2009, the record date for the annual meeting, are entitled to notice of and to vote at the annual meeting. On the record date for the annual meeting, there were 46,452,911 shares of Common Stock outstanding and entitled to be voted at the annual meeting. A majority of such shares, present in person or represented by proxy, is necessary to constitute a quorum. Each share of Common Stock is entitled to one vote.

 

PROPOSAL ONE: ELECTION OF DIRECTORS

 

Our Restated Certificate of Incorporation provides for three classes of directors, with approximately one-third of the directors constituting our Board being elected each year to serve a three-year term. There are two directors comprising the class whose term expires at the 2009 annual meeting: Sheldon B. Lubar and Leldon E. Echols.

 

The Governance Committee of our Board has recommended, and our Board has nominated, Mr. Lubar and Mr. Echols for re-election as directors of the Company to serve three-year terms expiring in 2012.

 

The directors nominated for election this year will be elected by a plurality of the shares of Common Stock present in person or represented by proxy at the annual meeting and entitled to vote. All duly submitted and unrevoked proxies will be voted for the nominees selected by our Board, except where authorization to so vote is withheld. Proxies may not be voted for a greater number of persons than the nominees named in this proxy statement. Our Board unanimously recommends that stockholders vote “FOR” the election of its nominees for director.

 

Information with respect to the directors nominated for election this year, and the directors whose terms do not expire at the 2009 annual meeting, is presented below.

 

NOMINEES FOR DIRECTORS

 

 

CLASS WHOSE TERM EXPIRES IN 2010

 

 

CLASS WHOSE TERM EXPIRES IN 2011

 

 

ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS

 

“Independent” Directors

 

Messrs. Crain, Echols, Lubar, Martin and Murchison qualify as “independent” in accordance with the published listing requirements of The NASDAQ Global Select Market (“NASDAQ”). The NASDAQ independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not engaged in various types of business dealings with the company. In addition, as further required by the NASDAQ rules, our Board has made a subjective determination as to each independent director that no relationships exist that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

In addition, the members of the Audit Committee of our Board each qualify as “independent” under special standards established by the Securities and Exchange Commission (“SEC”) for members of audit committees, and the Audit Committee includes at least one member who is determined by our Board to meet the qualifications of an “audit committee financial expert” in accordance with SEC rules, including that the person meets the relevant definition of an “independent” director. Messrs. Echols and Martin are the independent directors who have been determined to be audit committee financial experts. Stockholders should understand that this designation is a disclosure requirement of the SEC related to their experience and understanding with respect to certain accounting and auditing matters. The designation does not impose on such directors any duties, obligations or liability that are greater than are generally imposed on them as members of the Audit Committee and the Board, and their designation as audit committee financial experts pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board.

 

Board Committees

 

Our Board has, and appoints the members of, standing Audit, Compensation and Governance Committees. Each member of the Audit, Compensation and Governance Committees is an independent director in accordance with NASDAQ standards described above. Each of the Board committees has a written charter approved by the Board. Such charters are available on our website at www.crosstexenergy.com. Copies of the charters also will be provided to any person, without charge, upon request. Contact Denise LeFevre at 214-721-9245 to request a copy of a charter or send your request to Crosstex Energy, Inc., Attn: Denise LeFevre, 2501 Cedar Springs, Dallas, Texas 75201.

 

The Audit Committee of our Board is currently comprised of Mr. Echols (chair), Mr. Crain and Mr. Martin. During fiscal 2008, the Audit Committee consisted of Messrs. Echols, Crain and Martin. Mr. Echols was appointed to the Audit Committee effective as of January 1, 2008. On May 6, 2008, Mr. Echols succeeded Mr. Crain as the Chairman of the Audit Committee. The Audit Committee assists our Board in its general oversight of our financial reporting, internal controls and audit functions, and is directly responsible for the appointment, retention, compensation and oversight of the work of our independent auditors. The Audit Committee held eight meetings in 2008.

 

The Compensation Committee of our Board, is currently comprised of Messrs. Martin (chair) and Murchison. Until May 2008, the Compensation Committee consisted of Messrs. Murchison (chair) and Martin, at which time Mr. Martin was appointed as the chairman of the Compensation Committee and Mr. Murchison was appointed as a member of the Compensation Committee. The Compensation Committee oversees compensation decisions for our officers as well as the compensation plans described herein. The Compensation Committee held five meetings in 2008.

 

The Governance Committee, comprised of Messrs. Lubar (chair), Crain and Murchison, reviews matters involving governance, including assessing the effectiveness of current policies, monitoring industry developments, developing director selection criteria, recommending director nominees, recommending committee structures within the Board, managing the assessment process of the Board and individual directors, annually reviewing and recommending the compensation of directors and performing other duties as delegated from time to time. The Governance Committee held two meetings in 2008.

 

Our Governance Committee identifies and recommends qualified candidates to serve as nominees for director. When identifying director nominees, the Governance Committee may consider, among other factors, the person’s reputation, integrity and independence from us; skills and business, government or other professional acumen,

bearing in mind the composition of our Board and the current state of the Company and the industry generally; the number of other public companies for which the person serves as director; and the availability of the person’s time and commitment to us. The same criteria will be evaluated with respect to candidates recommended by stockholders. In the case of current directors being considered for re-nomination, the Governance Committee will also take into account the director’s tenure as a member of our Board, the director’s history of attendance at meetings of the Board and committees thereof and the director’s preparation for and participation in such meetings.

 

The Governance Committee also considers nominees recommended by stockholders as candidates for election to our Board. A stockholder wishing to nominate a candidate for election to the Board at the annual meeting of stockholders is required to give written notice to our Corporate Secretary of his or her intention to make a nomination. The notice of nomination must be delivered to or mailed and received at our principal executive offices not less than 120 calendar days prior to the one year anniversary of the date of our proxy statement issued in connection with the prior year’s annual meeting. Pursuant to our bylaws, the notice of nomination is required to contain certain information about both the nominee and the stockholder making the nomination, including information sufficient to allow the independent directors to determine if the candidate meets the criteria for Board membership. We may require that the proposed nominee furnish additional information in order to determine that person’s eligibility to serve as a director. A nomination that does not comply with the above procedure will be disregarded.

 

Following identification of the need to replace a director, add a director or re-elect a director to our Board, and considering of the above criteria and any stockholder recommendations, the Governance Committee will recommend to our Board one or more nominees, as appropriate, for consideration by the full Board. Following such consideration, our Board will submit its recommended nominees to the shareholders for election.

 

Board Meetings and Attendance

 

Our Board met twenty-six times in 2008. All incumbent directors attended in excess of 75% of the total number of meetings of our Board and committees of our Board on which they served. Our Board does not currently have a policy with regard to attendance of Board members at the annual meeting of stockholders and one member of our Board attended our annual meeting of stockholders in 2008.

 

Stockholder Communications with Directors

 

Our Board has approved the following process for our stockholders and other security holders to send communications to our Board. To contact all directors on our Board, all directors on a Board committee, an individual director or the non-management directors of our Board as a group, a stockholder can send written communications to our Board by mail addressed to:

 

Board of Directors

Crosstex Energy, Inc.

2501 Cedar Springs Rd.

Dallas, Texas 75201

 

Communications addressed to our Board will be received by our Corporate Secretary’s office. Our Corporate Secretary will:

 

 

Individuals may communicate with non-management directors by sending written communications to the address listed above to the attention of the Lead Director of the Board, who is a non-management director.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Relationship with Crosstex Energy, L.P.

 

General.   We own (directly and indirectly) 16,414,830 common units, representing an approximate 34% limited partnership interest, in Crosstex Energy, L.P. (the “Partnership”), the 2% general partner interest in the Partnership and the incentive distribution rights in the Partnership. Our ability, as owner of the Partnership’s general partner, to manage and operate Crosstex Energy, L.P. and our ownership of an approximate 34% limited partner interest effectively gives us the ability to veto some of the Partnership’s actions and to control its management. We pay the Partnership a fee for administrative and compensation costs incurred by the Partnership on our behalf. During 2008, this fee was approximately $0.06 million per month.

 

Omnibus Agreement.   Concurrent with the closing of the Partnership’s initial public offering, we entered into an agreement with it, Crosstex Energy GP, LLC and the Partnership’s general partner that governs potential competition among us and the other parties to the agreement. We agreed, for so long as the Partnership’s general partner or any of our affiliates is a general partner of the Partnership, not to engage in the business of gathering, transmitting, treating, processing, storing and marketing of natural gas and the transportation, fractionation, storing and marketing of natural gas liquids unless we first offer it the opportunity to engage in this activity or acquire this business, and the board of directors of Crosstex Energy GP, LLC, with the concurrence of its conflicts committee, elects to cause it not to pursue such opportunity or acquisition. In addition, we have the ability to purchase a business that has a competing natural gas gathering, transmitting, treating, processing and producer services business if the competing business does not represent the majority in value of the business to be acquired and we offer the Partnership the opportunity to purchase the competing operations following their acquisition. The noncompetition restrictions in the omnibus agreement do not apply to the assets retained and business conducted by us at the closing of the Partnership’s initial public offering. Except as provided above, we and our controlled affiliates are not prohibited from engaging in activities in which they compete directly with the Partnership.

 

Related Party Transactions

 

Crosstex Denton County Gathering J.V.   The Partnership owns a majority interest, before application of any dilution rights, in Crosstex Denton County Gathering, J.V. (CDC). CDC was formed to build, own and operate a natural gas gathering system in Denton County, Texas. The Partnership manages the business affairs of CDC. The other joint venture partner (the CDC Partner) is an unrelated third party who owns and operates a natural gas field located in Denton County, Texas. In connection with the formation of CDC, the Partnership agreed to loan the CDC Partner up to $1.5 million for their initial capital contribution. The loan bears interest at an annual rate of prime plus 2%. CDC makes payments directly to the Partnership attributable to CDC Partner’s majority share of distributable cash flow to repay the loan. The balance remaining on the note of $0.4 million is included in the current notes receivable as of December 31, 2008.

 

Reimbursement of Costs to the Partnership.   We paid the Partnership $0.7 million, $0.6 million and $0.5 million during the years ended December 31, 2008, 2007 and 2006, respectively, to cover our portion of administrative and compensation costs for officers and employees that perform services for us.

 

Approval and Review of Related Party Transactions.   If we contemplate entering into a transaction, other than a routine or in the ordinary course of business transaction, in which a related person will have a direct or indirect material interest, the proposed transaction is submitted for consideration to our Board or our senior management, as appropriate.

Renunciation of Opportunities

 

In our restated charter and in accordance with the Delaware law, we have renounced any interest or expectancy we may have in, or being offered an opportunity to participate in, any business opportunities, including any opportunities within those classes of opportunity currently pursued by the Partnership, presented:

 

 

As a result of this renunciation, these officers, directors and stockholders should not be deemed to be breaching any fiduciary duty to us if they or their affiliates or associates pursue opportunities presented as described above.

 

Crosstex Energy, L.P.’s General Partner

 

The Partnership’s general partner does not receive any management fee or other compensation in connection with its management of the Partnership’s business, but it is reimbursed for all direct and indirect expenses incurred on its behalf. These expenses include the costs of employee, officer and director compensation and benefits properly allocable to the Partnership, and all other expenses necessary or appropriate to the conduct of the business of, and allocable to, the Partnership. The partnership agreement provides that the general partner will determine the expenses that are allocable to the Partnership in any reasonable manner determined by the general partner in its sole discretion.

 

The Partnership’s general partner owns a 2% general partner interest in the Partnership and all of the incentive distribution rights in the Partnership. The Partnership’s general partner is entitled to receive incentive distributions if the amount the Partnership distributes with respect to any quarter exceeds levels specified in the partnership agreement. Under the quarterly incentive distribution provisions, generally the general partner is entitled to 13% of the amounts the Partnership distributes in excess of $0.25 per unit, 23% of the amounts the Partnership distributes in excess of $0.3125 per unit and 48% of amounts the Partnership distributes in excess of $0.375 per unit.

 

PROPOSAL TWO: APPROVAL OF THE 2009 LONG-TERM INCENTIVE PLAN

 

General Description of the Amendment and Restatement

 

Our Board of Directors believes that it is important to have equity-based incentives available to attract and retain qualified directors, employees and independent contractors who are essential to the success of the Company and its affiliates and that it is important to link the interests and efforts of such persons to the long-term interest of the stockholders of the Company. Accordingly, in 2003, our Board adopted the Crosstex Energy, Inc. Long-Term Incentive Plan (as it may be amended and restated from time to time, the “2003 Plan”), which has been amended and restated since its initial adoption. As of December 31, 2008, approximately 626,453 shares of Common Stock remained available for future issuance under the 2003 Plan to employees and directors.

 

On March 17, 2009, our Board approved, subject to stockholder approval, the 2009 Long-Term Incentive Plan (the “2009 Plan”). The 2009 Plan provides for awards to employees, contractors and directors of up to 2,600,000 shares of Common Stock and allows for grants of stock option awards, stock awards (including restricted stock awards), cash awards and performance awards.

 

As part of this proposal, stockholders are also being asked to approve the use of performance goals for performance awards under the 2009 Plan so as to allow the Company to structure awards, in its discretion, as qualified performance-based compensation exempt from the annual limit on deductible compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), denies an employer a tax deduction for certain compensation in excess of $1 million paid to “covered employees” of a publicly held corporation unless the compensation is qualified performance-based compensation. Section 162(m) regulations generally require that

stockholders approve the material terms of the performance awards. The performance measures that the Company may use as a basis for performance-based awards are discussed below.

 

The stockholders are now being requested to approve the 2009 Plan at the annual meeting.

 

Description of 2009 Plan

 

The following summary of the principal features of the 2009 Plan is qualified in its entirety by the specific language of the 2009 Plan, a copy of which is attached as Exhibit A to this proxy statement.

 

General

 

The objectives of the 2009 Plan are to attract able persons to enter the employ of the Company, to encourage employees to remain in the employ of the Company, to provide motivation to employees to put forth maximum efforts toward the continued growth, profitability and success of the Company by providing incentives to such persons through the ownership and/or performance of our Common Stock and to attract able persons to become directors of the Company and to provide such individuals with incentive and reward opportunities. Awards to participants under the 2009 Plan may be made in the form of stock options, stock awards (including restricted stock), performance awards and cash awards (collectively “Awards”).

 

Shares Subject to 2009 Plan

 

Under the 2009 Plan, a maximum of 2,600,000 shares of Common Stock may be issued to participants. A participant may not receive options or stock awards in any calendar year relating to more than 250,000 shares of Common Stock and may not receive cash awards in excess of $2 million in any calendar year. The maximum number of shares set forth above are subject to appropriate adjustment in the event of a recapitalization of the capital structure of the Company or reorganization of the Company. Shares of Common Stock underlying Awards that are forfeited, terminated or expire unexercised become immediately available for additional Awards under the 2009 Plan.

 

Administration and Eligibility

 

The Compensation Committee of our Board will administer the 2009 Plan. The administrator has the power to determine the terms of the options or other awards granted, including the exercise price of the options or other awards, the number of shares subject to each option or other award, the exercisability thereof and the form of consideration payable upon exercise. In addition, the administrator has the authority to grant waivers of 2009 Plan terms, conditions, restrictions and limitations, and to amend, suspend or terminate the plan, provided that no such action may affect any share of Common Stock previously issued and sold or any option previously granted under the plan without the consent of the holder. Awards may be granted to employees, consultants and outside directors of the Company. As of March 17, 2009, approximately 700 individuals (of which we expect up to 100 to participate) would be eligible for Awards under the 2009 Plan.

 

Awards

 

The Compensation Committee will determine the type or types of Awards made under the 2009 Plan and will designate the individuals who are to be the recipients of Awards. Each Award may be embodied in an agreement containing such terms, conditions and limitations as determined by the Compensation Committee. Awards may be granted singly or in combination. Awards to participants may also be made in combination with, in replacement of, or as alternatives to, grants or rights under the 2009 Plan or any other employee benefit plan of the Company. All or part of an Award may be subject to conditions established by the Compensation Committee, including continuous service with the Company. The types of Awards to participants that may be made under the 2009 Plan are as follows:

 

 

 

The 2009 Plan permits, but does not require, the Compensation Committee to structure any performance award made to a named executive officer as qualified performance-based compensation. At the discretion of the Compensation Committee, certain awards under the 2009 Plan will be intended to qualify as performance-based compensation under Section 162(m) of the Code. Section 162(m) of the Code generally limits the deductibility for federal income tax purposes of annual compensation paid to a company’s executive officers to $1 million per covered executive in a taxable year. The Compensation Committee and the Board of Directors may take deductibility and nondeductibility of compensation into account but retain the discretion to authorize the payment of potentially nondeductible amounts.

 

The particular performance-based objectives that may be imposed in connection with a performance award that qualifies as performance-based compensation under Code Section 162(m) are:

 

 

Performance Awards may include more than one performance goal, and a performance goal may be based on one or more business criteria applicable to the participant, the Company as a whole or one or more of the Company’s business units.

 

In the event of a “change of control” of the Company, as defined in the 2009 Plan, all Awards automatically vest and become exercisable and vesting periods with respect to restricted stock will terminate.

 

Other Provisions

 

Our Board may amend, modify, suspend or terminate the 2009 Plan for the purpose of addressing any changes in legal requirements or for any other purpose permitted by law, except that no amendment that would impair the rights of any participant to any Award may be made without the consent of such participant, and no amendment requiring stockholder approval under any applicable legal requirements will be effective until such approval has been obtained. No incentive stock options may be granted after the tenth anniversary of the effective date of the 2009 Plan.

 

In the event of any corporate transaction such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, stock split, reverse stock split, split up, spin-off or other distribution of stock or property of the Company, the Board shall substitute or adjust, as applicable: (i) the number of shares of Common Stock reserved under the 2009 Plan and the number of shares of Common Stock available for issuance pursuant to specific types of Awards as described in the 2009 Plan, (ii) the number of shares of Common Stock covered by outstanding Awards, (iii) the grant price or other price in respect of such Awards and (iv) the appropriate fair market value and other price determinations for such Awards, in order to reflect such transactions, provided that such adjustments shall only be such that are necessary to maintain the proportionate interest of the holders of Awards and preserve, without increasing, the value of such Awards.

 

Plan Benefits

 

Because the granting of Awards under the 2009 Plan is at the discretion of the Compensation Committee, it is not now possible to determine which persons (including directors, officers, consultants and employees of the Company) may be granted Awards. Also, it is not now possible to estimate the number of shares of Common Stock that may be awarded.

 

U.S. Federal Income Tax Consequences

 

The following is a general discussion of the current federal income tax consequences of Awards under the 2009 Plan to participants who are classified as United States residents for federal income tax purposes. Different or additional rules may apply to participants who are subject to income tax in a foreign jurisdiction and/or are subject to state or local income tax in the United States. Each participant should rely on his or her own tax advisers regarding federal income tax treatment under the 2009 Plan.

 

Stock Options

 

The grant of a nonqualified stock option will not result in taxable income to the participant and the Company will not be entitled to an income tax deduction. Upon the exercise of a nonqualified stock option, a participant will realize ordinary taxable income on the date of exercise. Such taxable income will equal the difference between the option price and the fair market value of the Common Stock underlying the option on the date of exercise. The Company will be entitled to an income tax deduction equal to the amount included in the participant’s ordinary income, subject to the limitations described below.

 

Upon the grant or exercise of an incentive stock option, a participant will not recognize taxable income and the Company will not be entitled to an income tax deduction. However, the exercise of an incentive stock option will result in an item of income for purposes of the “alternative minimum tax” in an amount equal to the excess of the fair market value of the Common Stock underlying the incentive stock option at the time of exercise over the option price.

The optionee will recognize taxable income in the year in which the shares of Common Stock underlying the incentive stock option are sold. Dispositions are divided into two categories: qualifying and disqualifying. A qualifying disposition occurs if the sale or disposition is made more than two years from the option grant date and more than one year from the exercise date. If the participant sells or disposes of the shares of Common Stock in a qualifying disposition, any gain recognized by the participant on such sale or disposition will be a long-term capital gain, and the Company will not be entitled to an income tax deduction.

 

If either of the two holding periods described above is not satisfied, then a disqualifying disposition will occur. If the optionee makes a disqualifying disposition of the shares of Common Stock that have been acquired through the exercise of the option, the optionee will include as ordinary income and the Company will be entitled to an income tax deduction (subject to the limitations described below) for the taxable year in which the sale or disposition occurs an amount equal to the lesser of: (a) the excess of the fair market value of such shares on the option exercise date over the exercise price paid for the shares or (b) the amount realized on the sale or disposition over the exercise price paid for the shares.

 

Stock Awards

 

Under the Code, federal income tax consequences with respect to a stock award depend on the facts and circumstances of each stock award and, in particular, the nature of the restrictions imposed with respect to the shares which are the subject of the stock award. In general, if shares which are the subject of the stock award are actually issued to a participant, but are subject to a “substantial risk of forfeiture” (for example, if rights to ownership of the shares are conditioned upon the future performance of substantial services by the participant), a taxable event generally occurs only when the risk of forfeiture lapses. At such time as the substantial risk of forfeiture lapses, the participant will realize ordinary income to the extent of the excess of the fair market value of the shares on the date the risk of forfeiture lapses over the participant’s cost for such shares (if any), and the same amount is then deductible by the Company as compensation expense, subject to the limitations described below. If the restrictions with respect to the shares that are the subject of such stock award, by their nature, do not subject the key employee to a “substantial risk of forfeiture” of the shares, then the participant will realize ordinary income with respect to the shares to the extent of the excess at the time of the grant of the fair market value of the shares over the participant’s cost.

 

However, if a participant makes a timely election under section 83(b) of the Code, the participant will recognize taxable ordinary income in the taxable year of the grant equal to the excess of the fair market value of the shares of Common Stock underlying the restricted stock award at the time of grant over the exercise price (if any) paid for such Common Stock. Furthermore, the participant will not recognize ordinary income on such restricted stock when it subsequently vests.

 

If no shares are actually issued to the participant at the time the stock award is granted, the participant will generally realize ordinary income at the time the participant receives shares free of any substantial risk of forfeiture, and the amount of such income will be equal to the fair market value of the shares at such time over the participant’s cost, if any; and the same amount is then deductible by the Company.

 

Cash Awards

 

Cash awards result in ordinary income to the participant at the time that payment is actually or constructively received by the participant.

 

Withholding; Limits on Deductibility; Excise Taxes

 

Generally, the participant’s ordinary income is subject to applicable withholding taxes. In general, a federal income tax deduction is allowed to the Company in an amount equal to the ordinary income recognized by a participant with respect to awards under the 2009 Plan, provided that such amount constitutes an ordinary and necessary business expense of the Company, that such amount is reasonable and that the Company satisfies any withholding obligation with respect to such income. As discussed above, Section 162(m) of the Code may limit the Company’s ability to deduct compensation in excess of $1 million to any named executive officer, unless the excess amounts satisfy the requirements for qualified performance-based compensation.

Change in Control.   The acceleration of the exercisability or the vesting of a grant or award upon the occurrence of a change in control may result in an “excess parachute payment” within the meaning of Section 280G of the Code. A “parachute payment” occurs when an employee receives payments contingent upon a change in control that exceed an amount equal to three times his or her “base amount.” The term “base amount” generally means the average annual compensation paid to such employee during the five-year period preceding the change in control. An “excess parachute payment” is the excess of all parachute payments made to the employee on account of a change in control over the employee’s base amount. If any amount received by an employee is characterized as an excess parachute payment, the employee is subject to a 20% excise tax on the amount of the excess, and the Company is denied a deduction with respect to such excess.

 

Code Section 409A.   Section 409A of the Code generally provides that any deferred compensation arrangement must satisfy specific requirements, both in operation and in form, regarding (1) the timing of payment, (2) the advance election of deferrals and (3) restrictions on changes to the time of payment. Failure to comply with Section 409A may result in the early taxation (plus interest) to the participant of deferred compensation and the imposition of a 20% penalty on the participant on such deferred amounts included in the participant’s income. The Company intends to structure awards under the 2009 Plan in a manner that is designed to be exempt from or comply with Section 409A.

 

Recommendation and Required Affirmative Vote

 

The affirmative vote of the holders of a majority of our Common Stock entitled to vote and who do vote (in person or by proxy) at the annual meeting is required for approval of the proposal to adopt the 2009 Plan. Our Board believes that the 2009 Plan is in the best interests of the Company and our stockholders. Accordingly, our Board recommends that you vote FOR approval of Proposal Two.

 

INTERESTED PERSONS

 

Employees of the Company, the Partnership, Crosstex Energy GP, LLC (our general partner) and Crosstex Energy GP, L.P. (the Partnership’s general partner) or any of their affiliates, and the members of the Board will be eligible to receive awards under the 2009 Plan if it is approved. Accordingly, the members of the Board and the executive officers of the Company have a substantial interest in the passage of Proposal Two.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Crosstex Energy, Inc.

 

The following table shows the beneficial ownership of our Common Stock as of February 16, 2009, held by:

 

 

The information contained in this table reflects “beneficial ownership” as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options, if any, held by that person that were exercisable on February 16, 2009 or would be exercisable within 60 days following February 16, 2009 are considered outstanding. However, such shares are not considered outstanding for the purpose of computing the percentage ownership of any other person. To our knowledge and unless otherwise indicated, each stockholder has sole voting and investment power over the shares listed as beneficially owned by such stockholder, subject to community property laws where applicable. Percentages reflected in the table below are based on a total of 46,472,805 shares of common stock outstanding as of February 16, 2009.

 

 

 

 

Crosstex Energy, L.P.

 

The following table shows the beneficial ownership of units of Crosstex Energy, L.P. as of February 16, 2009, held by:

 

 

Percentages reflected in the table are based upon a total of 44,958,955 common units and 3,875,340 senior subordinated series D units as of February 16, 2009.

 

 

 

 

EXECUTIVE COMPENSATION

 

Our named executive officers also serve as executive officers of Crosstex Energy GP, LLC, our wholly owned subsidiary and the general partner of the general partner of Crosstex Energy, L.P., and the compensation of the named executive officers discussed below reflects total compensation for services to all Crosstex entities. We pay all expenses incurred on our behalf, including the costs of employee, officer and director compensation and benefits, as well as all other expenses necessary or appropriate to the conduct of our business. We currently pay a monthly fee to Crosstex Energy, L.P. to cover our portion of administrative and compensation costs, including compensation costs relating to the named executive officers.

 

Based on the information that we track regarding the amount of time spent by each of our named executive officers on business matters relating to Crosstex Energy, Inc, we estimate that such officers devoted the following percentage of their time to the business of Crosstex Energy, Inc. and to Crosstex Energy, L.P., respectively, for 2008:

 

 

 

 

Our Compensation Committee assists our Board in discharging its responsibilities relating to compensation of executive officers and directors and has overall responsibility for approval, evaluation and oversight of all of our compensation plans, policies and programs. Each member of our Compensation Committee is an independent director in accordance with NASDAQ standards. The responsibilities of our Compensation Committee, as stated in its charter, include the following:

 

 

Compensation Philosophy and Policies.   The primary objectives of our compensation program, including compensation of the named executive officers, are to attract and retain highly qualified officers, employees and directors and to reward individual contributions to our success. We consider the following policies in determining the compensation of the named executive officers:

 

 

 

Compensation Methodology.   The elements of our compensation program for named executive officers are intended to provide a total incentive package designed to drive performance and reward contributions in support of business strategies at the entity and individual levels. All compensation determinations are discretionary.

 

Compensation Consultant.   In 2008, we retained Mercer Human Resource Consulting (“Mercer”) as our independent compensation consultant to conduct a compensation study and advise our Compensation Committee on certain matters relating to compensation programs applicable to our named executive officers and other employees. Mercer provided a presentation to our Compensation Committee regarding the compensation programs of the Crosstex entities in February 2008.

 

With respect to compensation objectives and decisions regarding the named executive officers, our Compensation Committee reviewed market data with respect to peer companies provided by Mercer in determining relevant compensation levels and compensation program elements for our named executive officers, including establishing base salaries, for fiscal 2008. Mercer has provided guidance on current industry best practices to our Compensation Committee. The market data that we reviewed included the base salaries paid to executive officers in similar positions at our peer companies, as well as a comparison of the mix of total compensation (including base salary, bonus structure, bonus methodology and short and long-term compensation elements) paid to executive officers in similar positions at such companies. For 2008, our peer companies consisted of the following: Energy Transfer Partners, L.P., Enbridge Energy Partners, L.P., ONEOK Partners, L.P., Southern Union, Magellan Midstream Holdings, L.P., NuStar Energy, L.P., Copano Energy, LLC, Regency Energy Partners, L.P., MarkWest Energy Partners, L.P., Boardwalk Pipeline Partners, L.P., Atmos Energy Corporation, El Paso Corporation, Questar Corporation, Equitable Resources, Inc., Pioneer Natural Resources Company, Plains Exploration & Production Company, Cabot Oil & Gas Corporation, St. Mary Land & Exploration Company and Range Resources Corporation. We believe that this group of companies is representative of the industry in which we operate and the individual companies were chosen because of such companies’ relative position in our industry, their relative size/market capitalization, the relative complexity of the business, similar organizational structure and the named executive officers’ roles and responsibilities.

 

In addition, our Compensation Committee has reviewed various relevant compensation surveys with respect to determining compensation for the named executive officers. In determining the long-term incentive component of compensation of our senior executives (including our named executive officers), our Compensation Committee considers the performance and relative equity holder return, the value of similar incentive awards to senior executives at comparable companies, awards made to the company’s senior executives in past years and such other factors as our Compensation Committee deems relevant.

 

With respect to bonus amounts and stock awards paid to our chief executive officer, the bonus and incentive award amounts differ in value from awards made to our other named executive officers because the scope of our chief executive officer’s responsibilities are broader than those of our other named executive officers. In addition, our Compensation Committee considers the bonus and stock awards paid to similar named executive officers by our peer companies, which awards are generally higher for chief executive officers at our peer companies than for other executive officers at our peer companies.

 

Elements of Compensation.   The primary elements of our compensation program are a combination of annual cash and long-term equity-based compensation. For fiscal year 2008, the principal elements of compensation for the named executive officers were the following:

 

 

Base Salary.   Our Compensation Committee establishes base salaries for the named executive officers based on the historical salaries for services rendered to us and our affiliates, market data and responsibilities of the named executive officers. Salaries are generally determined by considering the employee’s performance and prevailing levels of compensation in areas in which a particular employee works. As discussed above, except with respect to the monthly payment that we make to Crosstex Energy, L.P., all of the base salaries of the named executive officers were allocated to Crosstex Energy, L.P. as general and administration expenses. The base salaries paid to our named executive officers during fiscal year 2008 are shown in the Summary Compensation Table on page 28.

 

Each of the named executive officers, including Barry E. Davis, Jack M. Lafield, William W. Davis, Robert S. Purgason and Joe A. Davis have entered into employment agreements with Crosstex Energy GP, LLC. Mr. Lafield’s employment agreement was replaced with a separation agreement with his departure on January 16, 2009. All of these employment agreements are substantially similar, with certain exceptions as set forth below. Each of the employment agreements has a term of one year that will automatically be extended such that the remaining term of the agreements will not be less than one year. The employment agreements provide for a base annual salary of $435,000, $315,000, $300,000 and $285,000 for Barry E. Davis, William W. Davis, Robert S. Purgason and Joe A. Davis, respectively, as of January 1, 2009.

 

The employment agreements also provide for a noncompetition period that will continue until the later of one year after the termination of the employee’s employment or the date on which the employee is no longer entitled to receive payments under the employment agreement. During the noncompetition period, the employees are generally prohibited from engaging in any business that competes with us or our affiliates in areas in which we conduct business.

 

Annual Cash Bonus Awards.   Our Compensation Committee awarded cash bonus awards to each of the named executive officers in 2008. Crosstex uses financial and operational goals, as well as individual performance goals, to determine the amount of cash bonus awards that we pay to our named executive officers. Bonuses have been generally based on return on invested capital (“ROI”), bottom-line profitability, customer satisfaction, overall company growth, corporate governance, adherence to policies and procedures and other factors that vary depending on an employee’s responsibilities. The calculation of ROI is reviewed by the Board and includes adjustments for capital expenditures that are not yet deployed in income producing activities and other similar matters. With certain exceptions, approximately two-thirds of the bonuses payable to our named executive officers for fiscal 2008 were based upon a formula that is tied to ROI achieved by us during the year. If a predetermined ROI is accomplished, then the bonus is paid and is increased or decreased based on the ROI percentage that is achieved, with minimum payouts of 10%, target payouts ranging from 65% to 100%, and maximum payouts ranging from 130% to 200% of an executive officer’s base salary. Target ROI is based upon a standard of reasonable market expectations and company performance, and varies from year to year. Several factors are reviewed in determining target ROI, including market expectations, internal forecasts and available investment opportunities. For 2008, our ROI targets for bonuses were 9% for minimum bonuses, 11% for mid-point bonuses and 13% for maximum bonuses. We slightly exceeded the minimum ROI threshold of 9% with an ROI of 9.2% for 2008.

 

The remaining amount of the bonuses payable to our named executive officers for fiscal 2008 were determined in the discretion of the Compensation Committee, based upon the Compensation Committee’s assessment of performance objectives. These performance objectives include the quality of leadership within the named executive officer’s assigned area of responsibility, the achievement of technical and professional proficiencies by the named executive officer, the execution of identified priority objectives by the named executive officer and the named executive officer’s contribution to, and enhancement of, the desired company culture. These performance objectives are reviewed and evaluated by our Compensation Committee as a whole. All of our named executive officers met or exceeded their personal performance objectives for 2008.

 

For 2009, the Board has approved a modification to the Annual Cash Bonus Plan to substitute earnings before interest, income taxes, depreciation and amortization, or EBITDA, as the performance metric in place of ROI. Under the revised 2009 plan, bonuses will be determined based on EBITDA levels ranging from a threshold of $195.0 million to a maximum of $280.0 million, with a mid-point EBITDA of $225.0 million. Payout of any such bonuses will be contingent on the Partnership’s compliance with all long term debt covenants. The discretionary portion of the bonus will operate in the same manner as in 2008. In addition, the Board has approved a Key

Employee Retention Plan for 2009 that will include each of the named executive officers and certain other members of senior management. Under the plan, participants will receive retention payments in quarterly installments equal to 20% of base salary for the first three quarters of the year and 40% of base salary for the fourth quarter, provided that the participant is employed by the Partnership at the time of payment. In the case of a participant who is terminated by Crosstex without cause, such participant will receive a prorated payment based on time of employment. Payments made under this plan will be in lieu of payments that would otherwise be payable to a participant under the Annual Cash Bonus Plan up to the mid-point EBITDA of $225.0 million. The Key Employee Retention Plan is designed to retain and compensate certain key employees that are very important for the accomplishment of the Partnership’s objectives during critical times. Participation in the plan is at the discretion of the Compensation Committee and the Board.

 

Long-Term Incentive Plans.   We compensate our employees and directors with grants under long-term incentive plans adopted by each of Crosstex Energy, Inc. and Crosstex Energy GP, LLC. A discussion of each plan (prior to (i)  the adoption of the proposed 2009 Plan described in Proposal Two and (ii) any proposed amendment to the Crosstex Energy GP, LLC plan after January 1, 2009) follows:

 

Crosstex Energy, Inc. Long-Term Incentive Plan.   The objectives of our long-term incentive plan are to attract able persons to enter the employ of the company, to encourage employees to remain in the employ of the company, to provide motivation to employees to put forth maximum efforts toward the continued growth, profitability and success of the company by providing incentives to such persons through the ownership and/or performance of our common stock and to attract able persons to become directors of the company and to provide such individuals with incentive and reward opportunities. Awards to participants under the long-term incentive plan may be made in the form of stock options or restricted stock awards.

 

The Crosstex Energy, Inc. long-term incentive plan provides for the award of stock options and restricted stock (collectively, “Awards”) for up to 4,590,000 shares of our common stock. As of January 1, 2009, approximately 626,453 shares remained available under the long-term incentive plan for future issuance to participants. A participant may not receive in any calendar year options relating to more than 100,000 shares of common stock. The maximum number of shares set forth above are subject to appropriate adjustment in the event of a recapitalization of our capital structure or our reorganization. Shares of common stock underlying Awards that are forfeited, terminated or expire unexercised become immediately available for additional Awards under the long-term incentive plan.

 

The Compensation Committee of the Board administers the long-term incentive plan. The administrator has the power to determine the terms of the options or other awards granted, including the exercise price of the options or other awards, the number of shares subject to each option or other award, the exercisability thereof and the form of consideration payable upon exercise. In addition, the administrator has the authority to grant waivers of long-term incentive plan terms, conditions, restrictions and limitations, and to amend, suspend or terminate the plan, provided that no such action may affect any share of common stock previously issued and sold or any option previously granted under the plan without the consent of the holder. Awards may be granted to employees, consultants and our outside directors.

 

Our Compensation Committee will determine the type or types of Awards made under the plan and will designate the individuals who are to be the recipients of Awards. Each Award may be embodied in an agreement containing such terms, conditions and limitations as determined by our Compensation Committee. Awards may be granted singly or in combination. Awards to participants may also be made in combination with, in replacement of, or as alternatives to, grants or rights under the plan or any other employee benefit plan of the company. All or part of an Award may be subject to conditions established by our Compensation Committee, including continuous service with the company.

 

 

 

The Board may amend, modify, suspend or terminate the long-term incentive plan for the purpose of addressing any changes in legal requirements or for any other purpose permitted by law, except that no amendment that would impair the rights of any participant to any Award may be made without the consent of such participant, and no amendment requiring stockholder approval under any applicable legal requirements will be effective until such approval has been obtained. No incentive stock options may be granted after the tenth anniversary of the effective date of the plan.

 

In the event of any corporate transaction such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, stock split, reverse stock split, split up, spin-off or other distribution of our stock or property, the Board shall substitute or adjust, as applicable: (i) the number of shares of common stock reserved under this plan and the number of shares of common stock available for issuance pursuant to specific types of Awards as described in the plan, (ii) the number of shares of common stock covered by outstanding Awards, (iii) the grant price or other price in respect of such Awards and (iv) the appropriate fair market value and other price determinations for such Awards, in order to reflect such transactions, provided that such adjustments shall only be such that are necessary to maintain the proportionate interest of the holders of Awards and preserve, without increasing, the value of such Awards.

 

On an aggregate basis, in the past the Crosstex entities generally have granted equity compensation in a amount of up to 300% of the chief executive officer’s base salary and up to 200% of each other named executive officer’s base salary. The total value of the equity compensation granted to our executive officers generally has been awarded 50% in restricted units of Crosstex Energy, L.P. and 50% in restricted stock of Crosstex Energy, Inc. In addition, our executive officers may receive additional grants of equity compensation in certain circumstances, such as promotions. For fiscal year 2008, Crosstex Energy, Inc. granted 58,748, 27,011, 28,361, 27,011 and 25,660 performance shares at target to Barry E. Davis, Jack M. Lafield, William W. Davis, Robert S. Purgason and Joe A. Davis, respectively. All performance and restricted shares that we grant are charged against earnings according to SFAS No. 123R.

 

Crosstex Energy GP, LLC Long-Term Incentive Plan.   Crosstex Energy GP, LLC has adopted a long-term incentive plan for employees and directors of Crosstex Energy GP, LLC and its affiliates who perform services for us. The long-term incentive plan is administered by Crosstex Energy GP, LLC’s Compensation Committee and

permits the grant of awards covering an aggregate of 4,800,000 common units, which may be awarded in the form of restricted units or unit options. Of the 4,800,000 common units that may be awarded under the long-term incentive plan, 1,915,696 common units remain eligible for future grants by Crosstex Energy GP, LLC as of January 1, 2009. The long-term compensation structure is intended to align the employee’s performance with long-term performance for our unitholders.

 

Crosstex Energy GP, LLC’s board of directors in its discretion may terminate or amend the long-term incentive plan at any time with respect to any units for which a grant has not yet been made. Crosstex Energy GP, LLC’s board of directors also has the right to alter or amend the long-term incentive plan or any part of the plan from time to time, including increasing the number of units that may be granted subject to the approval requirements of the exchange upon which the common units are listed at that time. However, no change in any outstanding grant may be made that would materially impair the rights of the participant without the consent of the participant.

 

 

As discussed above, on an aggregate basis, in the past the Crosstex entities generally have granted equity compensation in an amount of up to 300% of the chief executive officer’s base salary and up to 200% of each other named executive officer’s base salary. The total value of the equity compensation granted to our named executive officers generally has been allocated 50% in restricted units of Crosstex Energy, L.P. and 50% in restricted stock of Crosstex Energy, Inc. For fiscal year 2008, Crosstex Energy GP, LLC granted 61,985, 28,499, 29,924, 28,499 and 27,074 performance units at target to Barry E. Davis, Jack M. Lafield, William W. Davis, Robert S. Purgason and Joe A. Davis, respectively. All performance and restricted units that we grant are charged against earnings according to SFAS No. 123R.

 

Retirement and Health Benefits.   We offer a variety of health and welfare and retirement programs to all eligible employees. The named executive officers are generally eligible for the same programs on the same basis as our other employees. We maintain a tax-qualified 401(k) retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantages basis. In 2008, we matched 100% of every dollar contributed for contributions of up to 6% of salary (not to exceed the maximum amount permitted by law) made by eligible participants. The retirement benefits provided to the named executive officers were allocated to us as general and administration expenses. Our executive officers are also eligible to participate in any additional retirement and health benefits available to our other employees.

 

Perquisites and Other Compensation.   We generally do not pay for perquisites for any of the named executive officers, other than payment of dues, sales tax and related expenses for membership in an industry related private lunch club (totaling less than $2,500 per year per person).

 

Compensation Mix.   Our Compensation Committee determines the mix of compensation, both among short and long-term compensation and cash and non-cash compensation, to establish structures that it believes are appropriate for each of the named executive officers. We believe that the mix of base salary, cash bonus awards, awards under the long-term incentive plan, retirement and health benefits and perquisites and other compensation fit our overall compensation objectives. We believe this mix of compensation provides competitive compensation opportunities to align and drive employee performance in support of our business strategies and to attract, motivate and retain high quality talent with the skills and competencies that we require.

 

Potential Payments Upon a Change of Control or Termination

 

Employment Agreements.   Under the employment agreements with our executive officers, we may be required to pay certain amounts upon a change of control of us or our affiliates or upon the termination of the executive officer in certain circumstances. Except in the event of our becoming bankrupt or ceasing operations, termination for cause or termination by the employee other than for good reason, or if a change in control occurs during the term of an employee’s employment and either party to the agreement terminates the employee’s employment as a result thereof, the employment agreements entered into between Crosstex Energy GP, LLC and each of the named executive officers provide for continued salary payments, bonus and benefits following termination of employment for the remainder of the employment term under the agreement. The terms contained in the employment agreements were established at the time Crosstex Energy GP, LLC entered into such agreements with our named executive officers. These terms were determined based on past practice and our understanding of similar agreements utilized by public companies generally at the time we entered into such agreements. The

determination of the reasonable consequences of a change of control is periodically reviewed by the Compensation Committee. For purposes of the employment agreements:

 

 

 

 

 

No act or failure to act on Crosstex Energy GP, LLC’s part shall be considered “good reason” unless the employee has given Crosstex Energy GP, LLC written notice of such act or failure to act within 30 days thereof and Crosstex Energy GP, LLC fails to remedy such act or failure to act within 30 days of its receipt of such notice.

 

 

 

If a termination of a named executive officer by us other than for cause, a termination by a named executive officer for good reason or upon a change in control were to have occurred as of December 31, 2008, our named executive officers would have been entitled to the following:

 

 

 

Long-Term Incentive Plans.   With respect to the Long-Term Incentive Plans, the amounts to be received by our named executive officers in these circumstances will be automatically determined based on the number of unvested stock or unit awards or restricted stock or units held by a named executive officer at the time of a change in control. The terms of the Long-Term Incentive Plans were determined based on past practice and our understanding of similar plans utilized by public companies generally at the time we adopted such plans. The determination of the reasonable consequences of a change of control is periodically reviewed by the Compensation Committee.

 

Crosstex Energy, Inc. Long-Term Incentive Plan.   Under current policy, if a grantee’s employment is terminated for any reason other than death or disability, depending on the particular terms of the agreement in question, a grantee’s options and restricted shares that have been granted may automatically be forfeited unless, and to the extent, the Compensation Committee provides otherwise. With respect to performance shares, however, in the case of a termination without cause or for good reason, the pro-rata portion of the number of shares that have accrued to the date of termination will vest and become payable to the participant. A grantee’s options, restricted shares and performance shares will generally vest in the event of death or disability. Immediately prior to a “change of control” of us, all option awards, restricted stock awards and performance shares will automatically vest and become payable or exercisable, as the case may be, in full and all vesting periods will terminate. For purposes of the long-term incentive plan, a “change of control” means:

 

 

 

If a change in control were to have occurred as of December 31, 2008, options and restricted stock held by the named executive officers would have automatically vested and become payable or exercisable, and any vesting periods of restricted stock would have terminated, as follows:

 

 

Crosstex Energy GP, LLC Long-Term Incentive Plan.   Under current policy, if a grantee’s employment is terminated for any reason other than death or disability, depending on the particular terms of the agreement in question, a grantee’s unit options and restricted units granted under the long-term incentive plan may automatically be forfeited unless, and to the extent, Crosstex Energy GP, LLC’s Compensation Committee provides otherwise. With respect to performance units, however, in the case of a termination without cause or for good reason, the pro-rata portion of the number of units that have accrued to the date of termination will vest and become payable to the participant. A grantee’s options, restricted units and performance units will generally vest in the event of death or disability. Upon a change in control of Crosstex Energy, L.P. or its general partner, all unit options, restricted units and performance units will automatically vest and become payable or exercisable, as the case may be, in full and any restricted periods or performance criteria shall terminate or be deemed to have been achieved at the maximum level. For purposes of the long-term incentive plan, a “change in control” means, and shall be deemed to have occurred if:

 

 

If a change in control were to have occurred as of December 31, 2008, unit options, restricted units and performance units held by the named executive officers would have automatically vested and become payable or exercisable, as follows:

 

 

Role of Executive Officers in Executive Compensation.   Our Compensation Committee determines the compensation payable to each of the named executive officers. None of the named executive officers serves as a member of the Compensation Committee. However, our chief executive officer, Barry E. Davis, provides periodic recommendations to the Compensation Committee regarding the compensation of the other named executive officers.

 

Tax and Accounting Considerations.   The equity compensation grant policies of the Crosstex entities have been impacted by the implementation of SFAS No. 123R, which we adopted effective January 1, 2006. Under this accounting pronouncement, we are required to value unvested unit options granted prior to our adoption of SFAS 123 under the fair value method and expense those amounts in the income statement over the stock option’s remaining vesting period. As a result, the Crosstex entities currently intend to discontinue grants of unit option and stock option awards and instead grant restricted unit and restricted stock awards to the named executive officers and other employees. The Crosstex entities have structured the compensation program to comply with Internal Revenue Code Section 409A. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A, and such benefits do not comply with Section 409A, then the benefits are taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, the service provider is subject to regular federal income tax, interest and an additional federal income tax of 20% of the benefit includible in income. None of the named executive officers or other employees had non-performance based compensation paid in excess of the $1.0 million tax deduction limit contained in Internal Revenue Code Section 162(m).

 

Summary Compensation Table

 

The following table sets forth certain compensation information for our chief executive officer and our four other most highly compensated executive officers in 2008.

 

 

 

 

Grants of Plan-Based Awards for Fiscal Year 2008 Table

 

The following tables provide information concerning each grant of an award made to a named executive officer for fiscal year 2008, including, but not limited to, awards made under the Crosstex Energy, Inc. Long-Term Incentive Plan and the Crosstex Energy GP, LLC Long-Term Incentive Plan.

 

CROSSTEX ENERGY, INC. — GRANTS OF PLAN-BASED AWARDS

 

 

 

 

CROSSTEX ENERGY GP, LLC — GRANTS OF PLAN-BASED AWARDS

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End Table for Fiscal Year 2008

 

The following tables provide information concerning all outstanding equity awards made to a named executive officer as of December 31, 2008, including, but not limited to, awards made under the Crosstex Energy, Inc. Long-Term Incentive Plan and the Crosstex Energy GP, LLC Long-Term Incentive Plan.

 

CROSSTEX ENERGY, INC. — OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

 

 

 

CROSSTEX ENERGY GP, LLC — OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

 

 

Option Exercises and Units and Shares Vested Table for Fiscal Year 2008

 

The following table provides information related to the exercise of options and vesting of restricted units and restricted shares during fiscal year ended 2008.

 

OPTION EXERCISES AND UNITS AND SHARES VESTED

 

 

Compensation of Directors for Fiscal Year 2008

 

DIRECTOR COMPENSATION

 

 

 

 

Each non-employee director (except Mr. Lawrence) is paid an annual retainer fee of $50,000. Directors do not receive a fee for each regularly scheduled quarterly board meeting, but are paid $1,500 for each additional meeting

that they attend. Also, an attendance fee of $1,500 is paid to each director for each committee meeting he attends. Each committee chairman receives $2,500 annually, except the Audit Committee chairman who receives $7,500 annually. The Lead Director is paid a fee of $7,500 annually. During 2008, Board members that served on Special Committees were paid a retainer fee of $25,000 for their service in lieu of any meeting attendance fees. Messrs. Crain and Murchison each served on two Special Committees during the year. Directors are also reimbursed for related out-of-pocket expenses. Barry E. Davis, as an executive officer of Crosstex Energy GP, LLC, is otherwise compensated for his services and therefore receives no separate compensation for his service as a director. For directors that serve on both the boards of Crosstex Energy GP, LLC and Crosstex Energy, Inc., the above listed fees are generally allocated 75% to Crosstex Energy, L.P. and 25% to us. Messrs. Crain and Murchison serve solely on our Board and none of their fees are allocated to Crosstex Energy, L.P. The Governance Committee annually reviews and makes recommendations to the Board of Directors regarding the compensation of the directors.

 

Compensation Committee Interlocks and Insider Participation

 

During the fiscal year ended 2008, the Compensation Committee was composed of Cecil E. Martin (Chairman) and Robert F. Murchison. Until May 2008, the Compensation Committee consisted of Messrs. Murchison (chair) and Martin, at which time Mr. Martin was appointed as the chairman of the Compensation Committee and Mr. Murchison was appointed as a member of the Compensation Committee. No member of the Compensation Committee was an officer or employee of Crosstex Energy, Inc. during the last fiscal year. None of our executive officers served on the board of directors or the compensation committee of any other entity for which any officers of such other entity served either on our Board of Directors or Compensation Committee.

 

Compensation Committee Report

 

The Compensation Committee of Crosstex Energy, Inc. held five meetings during fiscal year 2008. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon such review, the related discussions and such other matters deemed relevant and appropriate by the Compensation Committee, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Cecil E. Martin (Chairman)
Robert F. Murchison

 

Equity Compensation Plans

 

The following table provides information regarding our equity compensation plan as of December 31, 2008.

 

 

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and certain officers and any 10% beneficial owners of us to send reports of their beneficial ownership of Common Stock and changes in beneficial ownership to the SEC. Based on our records, except as set forth below, we believe that during fiscal 2008 all of such reporting persons complied with all Section 16(a) filing requirements applicable to them. Due to administrative errors, Form 4s were filed late on behalf of Joe E. Davis on November 12, 2008, Robert F. Murchison, Sheldon B. Lubar and James C. Crain on July 30, 2008, Cecil E. Martin and Leldon E. Echols on July 25, 2008, Barry E. Davis on April 3, 2008, Sheldon B. Lubar on March 25, 2008, Susan J. McAden, William W. Davis, Jack M. Lafield, Barry E. Davis and Robert S. Purgason on January 29, 2008. Due to administrative error, a Form 3 was filed late on behalf of Leldon E. Echols on January 30, 2008. The appropriate filings were made by us on behalf of these persons promptly following discovery of the errors.

 

PROPOSAL THREE: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

 

The Audit Committee of our Board has selected KPMG LLP (“KPMG”) to continue as our independent registered public accounting firm for the fiscal year ending December 31, 2009, subject to ratification by our stockholders. If our stockholders do not ratify the appointment, the Audit Committee will consider whether it should select a different firm, however, it is not required to do so. On the other hand, even if the appointment is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Crosstex Energy, Inc. and our stockholders. A representative of KPMG will be present at the annual meeting of stockholders and will have the opportunity to make a statement if he or she so desires to do so and is expected to be available to respond to appropriate questions. Our Board unanimously recommends that stockholders vote “FOR” the ratification of the appointment of KPMG as our independent public accounting firm for the fiscal year ended December 31, 2009.

 

FEES PAID TO INDEPENDENT PUBLIC ACCOUNTING FIRM

 

Audit Fees

 

The fees for professional services rendered for the audit of our annual financial statements for each of the fiscal years ended December 31, 2008 and December 31, 2007, review of our internal control procedures for the fiscal year ended December 31, 2008 and December 31, 2007, and the reviews of the financial statements included in our Quarterly Reports on Forms 10-Q or services that are normally provided by KPMG in connection with statutory or regulatory filings or engagements for each of those fiscal years were $243,000 and $212,000, respectively. The fees for professional services rendered for the audit of Crosstex Energy, L.P.’s annual financial statements for each of the fiscal years ended December 31, 2008 and December 31, 2007, review of our internal control procedures for the fiscal year ended December 31, 2008 and December 31, 2007, and the reviews of the financial statements included in Crosstex Energy, L.P.’s Quarterly Reports on Forms 10-Q or services that are normally provided by KPMG in connection with statutory or regulatory filings or engagements for each of those fiscal years were $1.2 million. These amounts also included fees associated with comfort letters and consents related to debt and equity offerings of Crosstex Energy, L.P.

 

Audit-Related Fees

 

KPMG did not perform any assurance and related services related to the performance of the audit or review of our financial statements for the fiscal years ended December 31, 2008 and December 31, 2007 that were not included in the audit fees listed above.

 

Tax Fees

 

We did not incur any fees by KPMG for tax compliance, tax advice and tax planning for the years ended December 31, 2008 and December 31, 2007.

 

All Other Fees

 

KPMG did not render services to us, other than those services covered in the section captioned “Audit Fees” for the fiscal years ended December 31, 2008 and December 31, 2007.

 

Audit Committee Approval of Audit and Non-Audit Services

 

All audit and non-audit services and any services that exceed the annual limits set forth in the policy must be pre-approved by the Audit Committee. In 2009, the Audit Committee has not pre-approved the use of KPMG for any non-audit related services. The Chairman of the Audit Committee is authorized by the Audit Committee to pre-approve additional KPMG audit and non-audit services between Audit Committee meetings; provided that the additional services do not affect KPMG’s independence under applicable Securities and Exchange Commission rules and any such pre-approval is reported to the Audit Committee at its next meeting.

 

REPORT OF THE AUDIT COMMITTEE

 

The following statement is furnished by the Audit Committee of Crosstex Energy, Inc. and is not incorporated by reference into any document that we file with the SEC.

 

Audit Committee Charter.   Our Audit Committee acts pursuant to the Audit Committee Charter (the “Charter”) adopted by the Board in February 2007. The Audit Committee consists solely of independent members of the Board. The primary responsibility of the Audit Committee is to oversee the Company’s financial reporting process on behalf of the Board, including the evaluation, retention, and, if necessary, termination of the Company’s independent accountants, the system of internal control and the audit process. In performing its role, the Audit Committee maintains effective working relationships with the Board, management, the internal auditors and the independent accountants. The Audit Committee has discussed with senior management and the independent accountants the reporting and internal controls that have been undertaken by the Company in connection with certification by the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 in certain of the Company’s filings with the Securities and Exchange Commission and such other matters as it deemed appropriate. As set forth in the Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and in accordance with generally accepted accounting principles and applicable rules and regulations of the Securities and Exchange Commission and the NASDAQ Stock Market. The independent accountants are responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with generally accepted accounting principles.

 

Auditor Independence.   In the performance of its oversight function, the Audit Committee has reviewed and discussed the quarterly and audited financial statements, including the quality of accounting principles, with management and the independent accountants. The Audit Committee has also discussed with the independent accountants the matters required to be discussed by Statement on Auditing Standards No. 114, The Auditor’s Communication With Those Charged With Governance, as currently in effect. Finally, the Audit Committee (i) reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2008 with the Company’s management and with the Company’s independent auditors; (ii) discussed with the Company’s independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended; and (iii) received the written disclosures and the letter from the Company’s independent accountants required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants’ communications with the Audit Committee concerning independence and discussed with the Company’s independent auditors the independent auditors’ independence.

 

Members of the Audit Committee rely, without independent verification, on the information provided to them and on the representations made by management and the independent accountants. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not assure that the audits of the Company’s financial statements have been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles or that the Company’s independent accountants are in fact “independent”.

 

Audit Committee Recommendation.   Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in the Audit Committee Charter, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

Submitted by the Audit Committee of the Board:

 

Leldon E. Echols (chair)
James C. Crain
Cecil E. Martin Jr.

 

STOCKHOLDER PROPOSALS AND OTHER MATTERS

 

Stockholder Proposals

 

Any proposal by a stockholder intended to be presented at the 2010 annual meeting of stockholders must be received by us at our principal executive offices at 2501 Cedar Springs Road, Dallas, Texas, 75201, Attention: Corporate Secretary, no later than November 27, 2009 for inclusion in our proxy materials relating to that meeting.

 

In order for a stockholder to bring other business before an annual meeting of stockholders, timely notice must be received in proper written form by our Corporate Secretary. To be timely, notice by a stockholder must be delivered to or mailed and received at our principal executive offices not less than 120 days prior to the one year anniversary of the date of our proxy statement issued in connection with the prior year’s annual meeting, and not less than 60 days prior to the meeting. To be in proper written form, notice by a stockholder to our Corporate Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a description of the business desired to be brought before the meeting, (ii) the name and address of the stockholder proposing such business and of the beneficial owner, if any, on whose behalf the business is being brought, (iii) the class, series and number of shares of us which are beneficially owned by the stockholder and such other beneficial owner, (iv) any material interest of the stockholder and such other beneficial owner in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual or special meeting to bring such business before such meeting.

 

Householding of Proxy Materials

 

We have adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders who have the same address and have consented to our mailing of proxy materials and other stockholder information only to one account in such household will receive only one copy of the notice regarding Internet availability of the proxy materials or one paper copy of the proxy materials, as applicable, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure helps reduce our printing costs and postage fees.

 

Stockholders who participate in householding will continue to receive separate proxy or voting instruction cards. Also, householding will not in any way affect dividend check mailings.

 

If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of the notice regarding Internet availability of the proxy materials or the proxy materials, as applicable, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of each of these documents for your household, please contact Denise LeFevre at 214-721-9245 or send your request to Crosstex Energy, Inc., Attn: Denise LeFevre, 2501 Cedar Springs, Dallas, Texas 75201. You may also contact us at this phone number or address if you participate in householding and wish to receive a separate copy of these documents.

 

Stockholders who hold their shares through a brokerage may elect to participate in householding or revoke their consent to participate in householding by contacting their respective brokers.

 

Solicitation of Proxies

 

The cost of the solicitation of proxies will be paid by us. In addition to solicitation by mail, our directors, officers and employees may also solicit proxies from stockholders by telephone, facsimile, electronic mail or in person. We will also make arrangements with brokerage houses and other custodians, nominees and fiduciaries to send the proxy materials to beneficial owners. Upon request, we will reimburse those brokerage houses and custodians for their reasonable expenses in so doing.

 

Additional Information about the Company

 

You can learn more about us and our operations by visiting our website at www.crosstexenergy.com. For additional information about us, please refer to our 2008 Annual Report. Stockholders receiving a notice about the Internet availability of the proxy materials will find instructions about how to obtain a paper copy of the proxy

materials on their notice. All stockholders who do not receive the notice will receive a paper copy of the proxy materials by mail.

 

CROSSTEX ENERGY, INC.

 

 

Barry E. Davis

President and

Chief Executive Officer

Exhibit A

 

CROSSTEX ENERGY, INC.
2009 LONG-TERM INCENTIVE PLAN
(Effective as of March 17, 2009)

 

ARTICLE I. ESTABLISHMENT AND PURPOSE

 

1.1  Establishment.   The Crosstex Energy, Inc. 2009 Long-Term Incentive Plan (the “Plan”) is hereby established by the Board of Directors of Crosstex Energy, Inc., a Delaware corporation, to be effective as of March 17, 2009, subject to stockholder approval as provided in Section 1.3.

 

1.2  Purpose.   The purposes of the Plan are to attract able persons to enter the employ of the Company, to encourage Employees to remain in the employ of the Company and to provide motivation to Employees to put forth maximum efforts toward the continued growth, profitability and success of the Company, by providing incentives to such persons through the ownership and/or performance of the Common Stock of Crosstex. A further purpose of the Plan is to provide a means through which the Company may attract able persons to become directors of the Company and to provide such individuals with incentive and reward opportunities. Toward these objectives, Awards may be granted under the Plan to Employees and Outside Directors on the terms and subject to the conditions set forth in the Plan.

 

1.3  Effectiveness.   This Plan shall become effective as of March 17, 2009, following its adoption by the Board, provided it is duly approved by the holders of at least a majority of the shares of Common Stock present or represented and entitled to vote at a meeting of the stockholders of Crosstex duly held in accordance with applicable law within twelve months after the date of adoption of the Plan by the Board. If the Plan is not so approved, the Plan shall not be effective and any Award granted under the Plan shall be null and void.

 

ARTICLE II. DEFINITIONS

 

2.1  Affiliate.   “Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. With respect to an Incentive Stock Option, “Affiliate” means a “parent corporation” or a “subsidiary corporation” of Crosstex, as those terms are defined in Section 424(e) and (f) of the Code.

 

2.2  Award.   “Award” means an award granted to a Participant in the form of an Option, Cash Award or Stock Award. All Awards shall be granted by, confirmed by, and subject to the terms of, an Award Agreement.

 

2.3  Award Agreement.   “Award Agreement” means a written agreement between Crosstex and a Participant that sets forth the terms, conditions, restrictions and/or limitations applicable to an Award.

 

2.4  Board.   “Board” means the Board of Directors of Crosstex.

 

2.5  Cash Award.   “Cash Award” means an award denominated and payable in cash.

 

2.6  Cause.   “Cause” means (i) Participant has failed to perform the duties assigned to him and such failure has continued for thirty (30) days following delivery by the Company of written notice to Participant of such failure, (ii) Participant has been convicted of a felony or misdemeanor involving moral turpitude, (iii) Participant has engaged in acts or omissions against the Company constituting dishonesty, breach of fiduciary obligation, or intentional wrongdoing or misfeasance or (iv) Participant has acted intentionally or in bad faith in a manner that results in a material detriment to the assets, business or prospects of the Company.

 

2.7  Change of Control.   “Change of Control” shall have the meaning set forth in Section 12.1.

 

2.8  Code.   “Code” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.

2.9  Committee.   “Committee” means (i) with respect to the application of this Plan to Employees, the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board to administer the Plan, which committee shall consist of two or more non-employee directors, each of whom is both a “non-employee director” under Rule 16b-3 of the Exchange Act and an “outside director” under Section 162(m) of the Code, and (ii) with respect to the application of this Plan to an Outside Director, the Board. To the extent that no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board. If for any reason the appointed Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of the Code, such noncompliance with such requirements shall not affect the validity of Awards, grants, interpretations or other actions of the Committee.

 

2.10  Common Stock.   “Common Stock” means the common stock, $.01 par value per share, of Crosstex, or any stock or other securities of Crosstex hereafter issued or issuable in substitution or exchange for the Common Stock.

 

2.11  Company.   “Company” means Crosstex and its Affiliates.

 

2.12  Consultant.   “Consultant” means an individual performing services for Crosstex or an Affiliate who is treated for tax purposes as an independent contractor at the time of performance of the services.

 

2.13  Crosstex.   “Crosstex” means Crosstex Energy, Inc., a Delaware corporation, or any successor thereto.

 

2.14  Effective Date.   “Effective Date” means the date this amended and restated Plan becomes effective as provided in Section 1.3.

 

2.15  Employee.   “Employee” means an employee of the Company; provided, however, that the term Employee does not include an Outside Director or a Consultant.

 

2.16  Exchange Act.   “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

2.17  Executive Officer.   “Executive Officer” means a “covered employee” within the meaning of Section 162(m)(3) or any other executive officer designated by the Committee for purposes of exempting compensation payable under this Plan from the deduction limitations of Section 162(m).

 

2.18  Fair Market Value.   “Fair Market Value” means the closing sales price of a share of Common Stock on the applicable date (or if there is no trading in the Common Stock on such date, on the next preceding date on which there was trading) as reported in The Wall Street Journal (or other reporting service approved by the Committee). In the event the Common Stock is not publicly traded at the time a determination of fair market value is required to be made hereunder, the determination of fair market value shall be made in good faith by the Committee.

 

2.19  Grant Date.   “Grant Date” means the date an Award is granted by the Committee.

 

2.20  Incentive Stock Option.   “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422(b) of the Code.

 

2.21  Nonqualified Stock Option.   “Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.

 

2.22  Option.   “Option” means an option to purchase shares of Common Stock granted to a Participant pursuant to Article VII. An Option may be either an Incentive Stock Option or a Nonqualified Stock Option, as determined by the Committee.

 

2.23  Outside Director.   “Outside Director” means a “non-employee director” of the Company, as defined in Rule 16b-3.

 

2.24  Participant.   “Participant” means an Employee, Consultant or Outside Director to whom an Award has been granted under the Plan.

 

2.25  Performance Award.   “Performance Award” means an award made pursuant to this Plan to a Participant, which Award is subject to the attainment of one or more Performance Goals.

2.26  Performance Goal.   “Performance Goal” means a standard established by the Committee, to determine in whole or in part whether a Performance Award shall be earned.

 

2.27  Person.   “Person” means an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity.

 

2.28  Plan.   “Plan” means this Crosstex Energy, Inc. 2009 Long-Term Incentive Plan, as amended from time to time.

 

2.29  Restricted Stock.   “Restricted Stock” means shares of Common Stock granted to a Participant pursuant to Article VIII, which are subject to such restrictions as may be determined by the Committee. Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes.

 

2.30  Restriction Period.   “Restriction Period” means the period of time established by the Committee at the time of a grant of Restricted Stock during which the Restricted Stock shall be fully or partially forfeitable.

 

2.31  Rule 16b-3.   “Rule 16b-3” means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time.

 

2.32  Stock Award.   “Stock Award” means an Award of shares of Common Stock or units denominated in Common Stock, including an Award of Restricted Stock.

 

ARTICLE III. PLAN ADMINISTRATION

 

3.1  Plan Administrator.   The Plan shall be administered by the Committee. The Committee may delegate some or all of its power to the Chief Executive Officer or other executive officer of the Company as the Committee deems appropriate; provided, that (i) the Committee may not delegate its power with regard to the grant of an Award to any person who is a “covered employee” within the meaning of Section 162(m) of the Code or who, in the Committee’s judgment, is likely to be a covered employee at any time during the period an Award to such employee would be outstanding, and (ii) the Committee may not delegate its power with regard to the selection for participation in the Plan of an officer or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an Award to such an officer or other person.

 

3.2  Authority of Administrator.   The Committee shall have total and exclusive responsibility to control, operate, manage and administer the Plan in accordance with its terms. The Committee shall have all the authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to the Plan. Without limiting the generality of the preceding sentence, but subject to the limitation that none of the enumerated powers of the Committee shall be deemed to include any action that would cause a tax to be imposed on a Participant pursuant to Section 409A of the Code, the Committee shall have the exclusive right to: (i) interpret the Plan and the Award Agreements executed hereunder; (ii) determine eligibility for participation in the Plan; (iii) decide all questions concerning eligibility for, and the amount of, Awards granted under the Plan; (iv) construe any ambiguous provision of the Plan or any Award Agreement; (v) prescribe the form of the Award Agreements embodying Awards granted under the Plan; (vi) correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement; (vii) issue administrative guidelines as an aid to administering the Plan and make changes in such guidelines as the Committee from time to time deems proper; (viii) make regulations for carrying out the Plan and make changes in such regulations as the Committee from time to time deems proper; (ix) determine whether Awards should be granted singly or in combination; (x) to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions and limitations; (xi) accelerate the exercise, vesting or payment of an Award when such action or actions would be in the best interests of the Company; (xii) grant Awards in replacement of Awards previously granted under the Plan or any other employee benefit plan of the Company; and (xiii) take any and all other actions the Committee deems necessary or advisable for the proper operation or administration of the Plan.

 

3.3  Discretionary Authority.   The Committee shall have full discretionary authority in all matters related to the discharge of its responsibilities and the exercise of its authority under the Plan, including, without limitation, its construction of the terms of the Plan and its determination of eligibility for participation and Awards under the Plan. The decisions of the Committee and its actions with respect to the Plan shall be final, conclusive and binding

on all persons having or claiming to have any right or interest in or under the Plan, including Participants and their respective estates, beneficiaries and legal representatives.

 

3.4  Liability; Indemnification.   No member of the Committee nor any person to whom authority has been delegated, shall be personally liable for any action, interpretation or determination made in good faith with respect to the Plan or Awards granted hereunder, and each member of the Committee (or delegatee of the Committee) shall be fully indemnified and protected by Crosstex with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law.

 

ARTICLE IV. SHARES SUBJECT TO THE PLAN

 

4.1  Available Shares.   The maximum number of shares of Common Stock that shall be available for grant of Awards under the Plan shall not exceed a total of 2,600,000 shares, subject to adjustment as provided in Sections 4.2 and 4.3; provided, however, the maximum number of shares of Common Stock for which Options or Stock Awards may be granted under the Plan to any one Participant during a calendar year is 250,000. All shares of Common Stock that remain available for issuance hereunder may be issued as Incentive Stock Options. No Participant may be granted Cash Awards resulting in the payment of more than $2 million in any calendar year. Shares of Common Stock issued pursuant to the Plan may be shares of original issuance or treasury shares or a combination of the foregoing, as the Committee, in its absolute discretion, shall from time to time determine.

 

4.2  Adjustments for Recapitalizations and Reorganizations.

 

(a) The shares with respect to which Awards may be granted under the Plan are shares of Common Stock as presently constituted, but if, and whenever, prior to the expiration or satisfaction of an Award theretofore granted, Crosstex shall effect a subdivision or consolidation of shares of Common Stock or the payment of a stock dividend on Common Stock in the form of Crosstex Common Stock without receipt of consideration by Crosstex, the number of shares of Common Stock with respect to which such Award may thereafter be exercised or satisfied, as applicable, (i) in the event of an increase in the number of outstanding shares, shall be proportionately increased, and the exercise price per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares, shall be proportionately reduced, and the exercise price per share shall be proportionately increased.

 

(b) If Crosstex recapitalizes or otherwise changes its capital structure, thereafter upon any exercise or satisfaction, as applicable, of an Award theretofore granted the Participant shall be entitled to (or entitled to purchase, if applicable) under such Award, in lieu of the number of shares of Common Stock then covered by such Award, the number and class of shares of stock or other securities to which the Participant would have been entitled pursuant to the terms of the recapitalization if, immediately prior to such recapitalization, the Participant had been the holder of record of the number of shares of Common Stock then covered by such Award.

 

(c) In the event of changes in the outstanding Common Stock by reason of a reorganization, merger, consolidation, combination, separation (including a spin-off or other distribution of stock or property), exchange, or other relevant change in capitalization occurring after the date of grant of any Award and not otherwise provided for by this Section 4.2, any outstanding Awards and any Award Agreements evidencing such Awards shall be subject to adjustment by the Committee in its absolute discretion as to the number, price and kind of shares or other consideration subject to, and other terms of, such Awards to reflect such changes in the outstanding Common Stock.