(1) Holding period requirement: no disposition (defined below) of the stock may be made by the employee within two years of the date the option was granted, nor within one year of the date the stock was transferred pursuant to the option; and
(2) Employment requirement: the transferee must be employed by the corporation granting the option (or its parent or subsidiary) at all times from the date the option was granted until three months before the date of exercise.2
If an employee becomes permanently and totally disabled, the three-month employment period is extended to 12 months.3 In the case of the death of an employee, the employment and holding requirements are waived.4