11. Stock-Based Compensation

Stock Incentive Plan

In August 2007, we adopted the Exterran Holdings, Inc. 2007 Amended and Restated Stock Incentive Plan (the “2007 Plan”) that provides for the granting of stock-based awards in the form of stock options, restricted stock, restricted stock units, stock appreciation rights and performance awards to our employees and directors. In May 2011, our stockholders approved an amendment to the 2007 Plan increasing the maximum number of shares of common stock available under the 2007 Plan to 12,500,000. Each stock option and stock appreciation right granted counts as one share against the aggregate share limit, and each share of restricted stock and stock settled restricted stock unit granted counts as two shares against the aggregate share limit. Awards granted under the 2007 Plan that are subsequently cancelled, terminated or forfeited are available for future grant, and cash settled awards are not counted against the aggregate share limit.

In February 2013, our board of directors approved the Exterran Holdings, Inc. 2013 Stock Incentive Plan (the “2013 Plan”), subject to stockholder approval at the 2013 annual meeting of stockholders. The 2013 Plan provides for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, other stock-based awards and dividend equivalent rights. Under the 2013 Plan, the maximum number of shares of common stock available for issuance pursuant to awards is 6,500,000. Each option and stock appreciation right granted will count as one share against the aggregate share limit, and any share subject to a stock settled award other than a stock option, stock appreciation right or other award for which the recipient pays intrinsic value will count as 1.75 shares against the aggregate share limit. Awards granted under the 2013 Plan that are subsequently cancelled, terminated or forfeited are available for future grant, and cash settled awards are not counted against the aggregate share limit. The 2013 Plan became effective upon receipt of stockholder approval on April 30, 2013, and no further awards may be made under the 2007 Plan after that date.

Stock Options

Under the 2007 Plan, stock options are granted at fair market value at the date of grant, are exercisable in accordance with the vesting schedule established by the compensation committee of our board of directors in its sole discretion and expire no later than seven years after the date of grant. Stock options generally vest 33 1/3% on each of the first three anniversaries of the grant date.

The weighted average grant date fair value for stock options granted during the three months ended March 31, 2013 was $10.19, and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

	Three Months Ended March 31, 2013
Expected life in years	4.5
Risk-free interest rate	0.66	%
Volatility	49.19	%
Dividend yield	0.0	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for a period commensurate with the estimated expected life of the stock options. Expected volatility is based on the historical volatility of our stock over the period commensurate with the expected life of the stock options and other factors. We have not historically paid a dividend and do not expect to pay a dividend during the expected life of the stock options.

The following table presents stock option activity during the three months ended March 31, 2013:

	Stock Options (in thousands)		Weighted Average Exercise Price Per Share		Weighted Average Remaining Life (in years)	Aggregate Intrinsic Value (in thousands)
Options outstanding, December 31, 2012	2,584		$	27.02
Granted	177		25.04
Exercised	(236	)	16.72
Cancelled	(3	)	46.92
Options outstanding, March 31, 2013	2,522		27.82		4.1	$	17,623
Options exercisable, March 31, 2013	1,812		32.58		3.3	9,573

Intrinsic value is the difference between the market value of our stock and the exercise price of each stock option multiplied by the number of stock options outstanding for those stock options where the market value exceeds their exercise price. The total intrinsic value of stock options exercised during the three months ended March 31, 2013 was $2.2 million. As of March 31, 2013, we expect $3.8 million of unrecognized compensation cost related to unvested stock options to be recognized over the weighted-average period of 2.0 years.

Restricted Stock, Restricted Stock Units, Cash Settled Restricted Stock Units and Cash Settled Performance Awards

For grants of restricted stock and restricted stock units, we recognize compensation expense over the vesting period equal to the fair value of our common stock at the date of grant. We remeasure the fair value of cash settled restricted stock units and cash settled performance awards and record a cumulative adjustment of the expense previously recognized. Our obligation related to the cash settled restricted stock units and cash settled performance awards is reflected as a liability in our condensed consolidated balance sheets. Our grants of restricted stock, restricted stock units, cash settled restricted stock units and cash settled performance awards generally vest 33 1/3% on each of the first three anniversaries of the grant date.

The following table presents restricted stock, restricted stock unit, cash settled restricted stock unit and cash settled performance award activity during the three months ended March 31, 2013:

	Shares (in thousands)		Weighted Average Grant-Date Fair Value Per Share
Non-vested awards, December 31, 2012	1,992		$	16.12
Granted	693		25.06
Vested	(720	)	18.79
Cancelled	(5	)	20.13
Non-vested awards, March 31, 2013(1)	1,960		18.29

(1) Non-vested awards as of March 31, 2013 are comprised of 480 thousand cash settled restricted stock units and cash settled performance awards and 1,480 thousand restricted stock shares and stock settled restricted stock units.

As of March 31, 2013, we expect $36.7 million of unrecognized compensation cost related to unvested restricted stock, restricted stock units, cash settled restricted stock units and cash settled performance awards to be recognized over the weighted-average period of 2.1 years.

Employee Stock Purchase Plan

In August 2007, we adopted the Exterran Holdings, Inc. Employee Stock Purchase Plan (“ESPP”), which is intended to provide employees with an opportunity to participate in our long-term performance and success through the purchase of shares of common stock at a price that may be less than fair market value. The ESPP is designed to comply with Section 423 of the Internal Revenue Code of 1986, as amended. Each quarter, an eligible employee may elect to withhold a portion of his or her salary up to the lesser of $25,000 per year or 10% of his or her eligible pay to purchase shares of our common stock at a price equal to 85% to 100% of the fair market value of the stock as of the first trading day of the quarter, the last trading day of the quarter or the lower of the first trading day of the quarter and the last trading day of the quarter, as the compensation committee of our board of directors may determine. The ESPP will terminate on the date that all shares of common stock authorized for sale under the ESPP have been purchased, unless it is extended. In May 2011, our stockholders approved an amendment to the ESPP that increased the maximum number of shares of common stock available for purchase under the ESPP to 1,000,000. At March 31, 2013, 288,318 shares remained available for purchase under the ESPP. Our ESPP is compensatory and, as a result, we record an expense in our condensed consolidated statements of operations related to the ESPP. The purchase discount under the ESPP is 5% of the fair market value of our common stock on the first trading day of the quarter or the last trading day of the quarter, whichever is lower.

Partnership Long-Term Incentive Plan

The Partnership has a Long-Term Incentive Plan (the “Plan”) that was adopted by Exterran GP LLC, the general partner of the Partnership’s general partner, in October 2006 for employees, directors and consultants of the Partnership, us and our respective affiliates. A maximum of 1,035,378 common units, common unit options, restricted units and phantom units are available under the Plan. The Plan is administered by the board of directors of Exterran GP LLC or a committee thereof (the “Plan Administrator”).

Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of the phantom unit or, at the discretion of the Plan Administrator, cash equal to the fair market value of a common unit.

Partnership Phantom Units

The following table presents phantom unit activity during the three months ended March 31, 2013:

	Phantom Units		Weighted Average Grant-Date Fair Value per Unit
Phantom units outstanding, December 31, 2012	63,884		$	23.62
Granted	55,334		23.76
Vested	(18,135	)	24.46
Phantom units outstanding, March 31, 2013	101,083		23.55

As of March 31, 2013, we expect $2.2 million of unrecognized compensation cost related to unvested phantom units to be recognized over the weighted-average period of 2.4 years.