What does it mean to be a 10% shareholder?

Special conditions are required for individuals who own (or are treated as owning) stock accounting for 10% or more of the total combined voting power of all classes of stock of the corporation employing the optionee.

If, immediately before an option is granted, an individual does own (or is treated as owning) stock accounting for 10% or more of the total combined voting power of all classes of stock, options granted to the individual cannot qualify as ISOs unless the strike price is at least 110% of the fair market value (FMV) with a grant expiration date that is no later than five years after the initial grant grate.

Learn more from the IRS – See §§1.422-2(f)