2015 Ruling 2014-0558831R3 - No-type of property spin-off butterfly -- summary under Subsection 7(1.4)

A butterfly spin-off by a specified corporation (DC) of two business divisions (which it prepackages in a Newco subsidiary) to “Spinco” entails an exchange of old DC employee options for new options with a no-greater in-the-money value. In particular, there will be an exchange of a pro rata portion (based on the relative FMV of the Newco shares) of each DC stock option to Spinco and DC in consideration for the grant of replacement options. Such issuance by Spinco will be treated as non-share consideration for the butterfly transfer of Newco shares to Spinco (otherwise occurring in consideration only, or mostly, for the issuance of Spinco special shares).