[lrm242]

Never, ever exercise options unless you have a market to immediately sell into OR otherwise have means to cover the potentially significant tax bill. This bit so many people in the dot-com boom. Options should be exercised and a portion of the received stock immediately sold to cover the tax which will be due on the exercised vs strike price. This is one reason that restricted stock in the US is MUCH better tax wise. In the US you can file an 83-b election and receive tax treatment on the basis at time of purchase, which for most startups is effectively 0.

NEVER EVER exercise options unless there is a real market in which you can realize value from the received stock directly UNLESS you REALLY know what you're doing (read: have money and a good accountant/lawyer).