Paul Buchheit (the creator of Gmail and one of the speakers at Startup School 2007 http://www.bosstalks.com/topic/52) posted a very clear post about shares in startup and changes, which happen to them during the fundraising stages. A very nice post, highly recommended to read for everyone.
http://paulbuchheit.blogspot.com/2007/03/equity-math-for-startups.html
You may find Explanation of Certain Terms Used In Venture Financing Terms Survey useful while reading the post (see http://www.fenwick.com/VC_Terms.htm).
Although, I got a question right away. What happens if the option pool is completely exhausted, but the company still need to hire new people, and the old employees have quit, but took shares?