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It was a 355 spinoff. If you are into reading boring IRS guidelines, you can start here: http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_3...

tldr; imagine a stock split like Google did recently where the shareholders end up with 2 different stocks.

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Last time I worked at a company that did that, it was to dump their debts on the old company and scurry off with the more promising projects so they could raise more funding with the new company.

I'm pretty sure the 355 regs prevent you from doing something like that (not that you couldn't just do it anyway, but that you might get caught if you are trying to do something shady).

In our case, we didn't want to give up ownership in Fog Creek (which is profitable) and the investors were happier with a separate entity.

How do the option holders in the parent capture their share of the equity in the spinco in a transaction like this?

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