bxg

That's just not true, and I wonder if you can cite some statistics or qualifications to back that up. In the Valley vested/exercised shares are equity, common stock, a true ownership stake in the company (see next paragraph, I'm not utopian about that means). Here, he lost his right to the stock after he vested and exercised. _No_ stock! That is profoundly at odds with industry practice that I just don't know where you are coming from in suggesting it's normal.

Standard tech industry practice does, true, allow insiders (at the time of the liquidity event) to play a variety of games to screw common shareholders. Generally, though, the bigger the event in $ terms (and this is big) the less legal room you have to play these games. For instance, as others have pointed out, you can low-ball the offer price but offer "retention bonuses" to current staff. And VCs always have their preferences. But if you keep these things on the safe side of the law, they are less and less impactful as deal size increases. I'd love to hear of a commonly employed mechanism that washes common to zero in a multi-billion dollar deal. I doubt frankly that it exists.

There's nothing wrong with such an agreement (as you describe KL), and though this type of explicit inventive plan is not so common in Silicon Valley, it is surely valid, ethical, and and useful wherever it arises. (To be more complete, in Silicon Valley there is usually such an incentive plan concerning liquidity events, but it's tacit and is anyway orthogonal to stock/option grants.)

But you say it explained to everyone at KL "clearly" what was going on. Don't you see that this is one complaint here is that not only wasn't this done, but perhaps the very opposite?

  And were you given detailed instructions on how (and how quickly) you must exercise vested options if you quit,

even though this had no meaning at all whatsoever? If the answer is no, please imagine it was yes. Would you have still been totally confident that you understood the mechanism (wouldn't you have wondered: why are they explaining something that is in practice irrelevant?)