Unless the ability to exercise such a “discounted” stock option is limited to certain predetermined events or specified dates, the option is taxed as soon as it vests, regardless of when it is exercised or whether it was intended to be a non-qualified or incentive stock option.
Now, you could try backdating, but that's probably ruled out by the option plan, and could be viewed as fraudulent depending on circumstances.
Of course, the employer can issue new options based on the current FMV of the company... but for anyone in this situation, that probably means a substantial loss as the new strike price will match the current valuation of the company.
As for paying the employee out, I've never heard of that happening in practice... and it has its own pros and cons, the most obvious being that you're now out of the game if there's a subsequent liquidity event.
Unless the ability to exercise such a “discounted” stock option is limited to certain predetermined events or specified dates, the option is taxed as soon as it vests, regardless of when it is exercised or whether it was intended to be a non-qualified or incentive stock option.
Now, you could try backdating, but that's probably ruled out by the option plan, and could be viewed as fraudulent depending on circumstances.
Of course, the employer can issue new options based on the current FMV of the company... but for anyone in this situation, that probably means a substantial loss as the new strike price will match the current valuation of the company.
As for paying the employee out, I've never heard of that happening in practice... and it has its own pros and cons, the most obvious being that you're now out of the game if there's a subsequent liquidity event.