[oroup]

How about this - the company agrees to purchase And give to the employee any options that are vested and un-exercised for two years and agrees to cooperate w a declared set of known secondary buyers. Employees are on their own for the taxes and can always decline.

* It extends the retention effect of equity since it starts kicking in at year 3 and extends smoothly forward.

* It has no cash impact on the company since its buying the shares from itself.

* In the early years the tax impact should be minimal. In later years there should be secondary buyers who can give employees enough cash to cover the tax liability at the cost of offering a discount.

* It discourages the pure lottery players since it requires the employee to either cover the tax burden or engage a secondary firm and deal w the discount they require.

* The downside for the company (aside from increased dilution vs the status quo) is that it establishes a clear market price for common equity which can be disadvantageous.