They are almost certainly not offered way below par. Par value for Oracle stock is $0.01 per share.
Perhaps you meant his stock options were issued below market value. Doing so would be a huge problem for Oracle and Larry.
I think Ellison's stock options are NQSOs (non-qualified stock options). There's an extremely low possibility he was issued ISOs (Incentive Stock Options) - I say low possibility because ISOs are complex for both the company and the recipient.
NQSOs are issued to many employees at Oracle and they all fall under a filed stock option plan. The options must be issued at market value. The market value used by Oracle used to be the closing price on the day the option was issued. (There are other IRS approved methods for determining market value such as sampling lowest closing price over a 30-day period).
When Larry gets an option each option is priced at the market closing price on the date issued. Yesterday's close was $33.50.
Larry can exercise his options in one of two ways after the defined vesting period has occurred. (The vesting period for Oracle's stock options is 4 years which means he is permitted to exercise 25% of the granted options each year starting after 1 year has passed. The options expire after 10 years - if he doesn't exercise them he loses them.)
Larry can do a same-day-sale exercise. In this case he would use the value of immediately selling the shares on the open market to purchase the options. If he was granted 1,000 shares at an exercise price of $33.50 and the current market price is $43.50 then on the first year he could get $2,500 in income. (Exercising 250 shares with a same-day-sale netting $10 per share.)
With a same-day-sale he would pay ordinary income taxes on the $2,500.
Larry could also simply purchase the shares with his own money. In this case he would have to pay $83,750 to buy the 250 shares available to him. If he holds those 250 shares for less than two-years then he would owe ordinary income tax on the difference between what he paid and the price at which he sold them. If, however, he holds those shares for more than two years then he would pay the capital gains rate on those shares.
Larry will only make money if the price of the stock increases. In the case of a same-day exercise he takes no risk with his personal money and has to pay ordinary income tax on the profit. In the case of an outright purchase then he is placing his personal money at risk on the value of the company increasing over time and would only owe capital gains taxes on any profit if he risks his money for at least two years.
If, as others have argued here, the stock loses 99% of its value then Larry would make nothing and, if he had purchased the stock outright he would lose 99% of his personal money tied to that particular option.
I don't know what he does today but he used to wait until near the end of the exercise period (10 years) before purchasing the stock outright rather than a same-day exercise.