Five months after a buyout offer from "big brother" Consol Energy was terminated, CNX Gas has formalized provisions for how its top executives would be treated should the Upper St. Clair coal producer come courting again.

Consol [Ticker: CNX] spun off a minority interest in Robinson-based CNX Gas [CXG] in 2005, retaining an 81.5 percent interest in the natural gas producer. The coal miner purchased additional shares last summer, increasing its stake to 81.7 percent.

Early this year, Consol had second thoughts about the break up. On Jan. 29, Consol offered to exchange 0.44 of its shares for each of the 27.7 million CNX Gas shares it did not own. Based on Consol's closing price the previous day, the offer valued CNX Gas shares at $33.70, 12 percent above the close the previous day.

The proposal was made directly to CNX Gas shareholders, not to CNX Gas' board of directors, which is elected by Consol. CNX Gas' eight-member board includes five people who were directors and/or executives of Consol. A sixth director, CNX Gas Chief Executive Officer Nicholas J. DeIuliis, still draws pay from the coal producer.

Consol withdrew the offer March 25, saying it was no longer in the interests of shareholders for two reasons: unreasonable price demands from some CNX Gas shareholders and a volatile stock market that made it difficult to determine the ultimate price tag on the all-stock transaction.

Even before Consol and CNX Gas publicly disclosed they were considering reuniting, one issue on the table was how Mr. DeIuliis and other CNX Gas executives would be compensated for the stock options, restricted stock and other equity incentives they had earned. Provisions of CNX Gas' incentive plan only outlined how the incentives would be treated if someone other than Consol purchased all of the shares, says CNX Gas spokesman Dan Zajdel.

A prospectus Consol filed March 6 disclosed that Mr. DeIuliis raised the matter as early as Jan. 21 in conversations with Consol CEO J. Brett Harvey and CNX Gas Chairman Philip W. Baxter, a former Consol director and one of the gas producer's two independent directors.

In the end, Consol agreed to pay cash for the stock options and restricted stock, and gave them the option of taking cash or Consol equity for their performance share units. Consol estimated that, based on the trading range of CNX Gas shares in the five days after the offer was made, Mr. DeIuliis would have received about $9.6 million and three other CNX Gas executives would have been paid a total of about $5.8 million, according to the prospectus.

Last week, CNX Gas disclosed it had amended its incentive plan to cover the contingency of Consol making another offer.

"The board wanted to take action that provided some clarity where cloudiness existed," Mr. Zajdel said. "We really don't see this as a big deal."

Under the formalized arrangement, vested stock options would be cashed out in the event of a Consol buyout. Options that aren't vested would be converted to Consol options and continue to vest at the same pace as they do now. So would shares of restricted stock. For half of their performance share units, the executives would have the option of cashing them out or converting them to Consol performance share units. The other half would automatically be converted into performance share units.

The changes also provide for severance payments for Mr. DeIuliis and other top executives if they were terminated or resigned under certain circumstances following a reunification.

Mr. Zajdel says that unlike the mostly cash payments executives would have received if Consol's January offer had been accepted, the new provisions give them more "skin in the game" if Consol ends up making a successful offer. That's because more of their incentives would be converted to incentives linked to the performance of Consol shares.

Consol has not made a new offer. It said in March it would continue purchasing CNX Gas shares based on price and other considerations.

The reasons Consol gave when it made the proposal in January still make sense. Consol spun off CNX Gas because it believed the value of the natural gas business wasn't reflected in the price of Consol shares. Being a separate company also was supposed to sharpen management focus.

In January, Mr. Harvey said Wall Street had a better appreciation of the value of the natural gas operations and that increasing the gas part of Consol's business would be prudent given regulatory concerns about coal. Moreover, reuniting the two companies would result in administrative cost savings of at least $5 million, Consol told shareholders in the prospectus.

Through the end of July, CNX Gas shares had generated annualized returns of about 11 percent since their January 2006 debut, roughly a third of the returns Consol shareholders have enjoyed over the same period. CNX Gas closed Friday at $30.46, leaving it down nearly 5 percent for the year. Consol, which hit a 52-week high of $119.10 in June, finished at $69.49, down 3 percent for the year.