I would guess the company is correct, but I don't really know.
A disqualifying disposition DOES create compensation. It creates compensation that's the lesser of:
1) the spread at exercise or,
2) actual gain based on your exercise price
Too, if the contingent amount is in escrow, then the IRS expects to see that escrow amount included in the proceeds for the installment sale.
Do you really have any "profit" to report here?
If you do then "symetery" would suggest that you only recognize compensation as you report gain, but I really have no idea about how an installment sale and a disqualifying disposition work together, in practice.
