On September 16, 2011, the board of directors of the Company approved the 2011 Share Incentive Scheme. In October 2012, the board of directors of the Company resolved that the maximum aggregate number of Class A common shares which may be issued pursuant to all awards under the 2011 Share Incentive Scheme shall be 43,000,000 plus an annual increase of 20,000,000 on the first day of each fiscal year, or such lesser amount of Class A common shares as determined by the board of directors of the Company.

During the years ended December 31, 2016, 2017 and 2018, the Company granted restricted share units to employees of 1,530,008 , 22,090,030 and 11,977,794 respectively pursuant to the 2011 Share Incentive Plan.

During the years ended December 31, 2016, 2017 and 2018, the Company granted restricted share units to non-employees of nil, 150,000 and nil pursuant to the 2011 Share Incentive Plan.

	Number of restricted shares			Weighted average grant-date fair value (US$)

Outstanding, December 31, 2015		36,283,602			2.3535

Granted		1,530,008			1.8618
Forfeited		(4,628,202	)		2.7386
Vested		(12,229,688	)		2.0151

Outstanding, December 31, 2016		20,955,720			2.4320

Granted		22,090,030			5.3001
Forfeited		(4,007,728	)		2.5561
Vested		(8,163,878	)		2.3227

Outstanding, December 31, 2017		30,874,144			4.4969

Granted		11,977,794			4.7052
Forfeited		(5,115,304	)		4.6843
Vested		(12,507,000	)		3.6776

Outstanding, December 31, 2018		25,229,634			4.9639

Expected to vest at December 31, 2018		23,742,895			4.9552

For the years ended December 31, 2016, 2017 and 2018, the Company recorded share-based compensation of RMB143,350, RMB211,189 and RMB372,281 using the graded-vesting attribution method.

As of December 31, 2018, total unrecognized compensation expense relating to the restricted share units was RMB442,094. The expense is expected to be recognized over a weighted average period of 1.11 years using the graded-vesting attribution method.

Before the adoption of the Employee Equity Incentive Scheme (the “2009 Incentive Scheme”), 12,705,700 and 8,499,050 share options were granted to employees through individually signed share option agreements, to acquire common shares of Duowan BVI on a one-to-one basis on January 1, 2008 and 2009 respectively. In addition, on January 1, 2008, 3,832,290 share options were granted to one non-employee for the provision of consulting services to the Group (collectively defined as “Pre-2009 Scheme Options”).

The vesting of the Pre-2009 Scheme Options has already been completed before January 1, 2016. As of December 31, 2017, the outstanding, vested and exercisable share options was 154,535. As of December 31, 2018, all outstanding, vested and exercisable share options have been exercised.

During the year ended December 31, 2018, the Company granted 10,934,300 share options to employees, pursuant to the 2011 Share Incentive Scheme.

There are three types of vesting schedule, which are: i) options will be vested in three equal installments over the following 36 months, ii) 50% of the options will be vested after 24 months of the grant date and the remaining 50% will be vested in two equal installments over the following 24 months, and iii) 50% of the options will be vested after 24 months of the grant date and the remaining 50% will be vested in one installments over the following 12 months.

	Number of options		Weighted average exercise price (US$)		Weighted average remaining contractual life (years)		Aggregate intrinsic value (US$)

Outstanding, January 1, 2018		-		-		-
Granted		10,934,300		4.7025		5.29

Outstanding, December 31, 2018		10,934,300		4.7025		5.29		-

Expected to vest at December 31, 2018		10,934,300		4.7025		5.29		-
Exercisable at December 31, 2018		-		-		-		-

Forfeitures are estimated at the time of grant. If necessary, forfeitures are revised in subsequent periods if actual forfeitures differ from those estimates.

The aggregate intrinsic value in the table above represents the difference between the Company’s common shares as of December 31, 2017 and 2018 and the exercise price.

The total intrinsic value of options exercised during the year ended December 31, 2018 is nil. For the year ended December 31, 2018, the Company recorded share-based compensation of RMB41,739 using the graded vesting attribution method.

The Company has used binomial option-pricing model to determine the fair value of the share options as of the grant dates. Key assumptions are set as below:

Weighted average fair value per option granted	US$	2.6425
Weighted average exercise price	US$	4.7025
Weighted average Risk-free interest rate (1)		2.77	%
Expected term (in year) (2)		5-6
Expected volatility (3)		57	%
Dividend yield (4)		-

	(1)	The risk-free interest rate of periods within the contractual life of the share option is based on US Treasury Bonds of similar tenor at the valuation dates.
	(2)	The expected term is the contract life of the option.
	(3)	Expected volatility is estimated based on the average of historical volatilities of the Company at the valuation dates.
	(4)	The Company has no history or expectation of paying dividend on its ordinary shares. The expected dividend yield was estimated based on the Company’s expected dividend policy over the expected term of the option.

On July 10, 2017, the Board of Directors of Huya approved the establishment of 2017 Share Incentive Plan (“Huya’s 2017 Share Incentive Plan”), the purpose of which is to provide an incentive for employees contributing to Huya. Huya’s 2017 Share Incentive Plan shall be valid and effective for 10 years from the establishment date. The maximum number of shares that may be issued pursuant to all awards under 2017 Share Incentive Plan shall be 17,647,058 shares. On March 31, 2018, the Board of Directors of Huya approved to increase the maximum number of shares, that may be issued, from 17,647,058 shares to 28,394,117 shares, including incentive share options and restricted share units.

There are three types of vesting schedule, which are: i) 50% of the options will be vested after 24 months of the grant date and the remaining 50% will be vested in two equal installments over the following 24 months, ii) options will be vested in four equal installments over the following 48 months, and iii) options will be vested in four equal installments over the following 24 months.

These options shall (i) be exercisable during its term cumulatively according to the vesting schedule set out in the grant notice and with the applicable provisions of Huya’s 2017 Share Incentive Plan, provided that the performance conditions otherwise agreed by the parties (if any) to which the option is subject have been fulfilled upon each corresponding vesting date; (ii) be deemed vested and exercisable immediately in the event of a change of control, regardless of the vesting schedule; (iii) be exercisable upon any arrangement as otherwise agreed by the parties based on their discussion in good faith.

	Number of options			Weighted average exercise price (US$)		Weighted average remaining contractual life (years)		Aggregate intrinsic value (US$)

As at January 1, 2016 and December 31, 2016		-			-		-		-
Granted		11,737,705			2.5500
Forfeited		(18,000	)		2.5500

As at December 31, 2017		11,719,705			2.5500		9.75		2,227
Granted		6,138,353			2.4672
Forfeited		(75,000	)		2.5500
Cancelled		(262,503	)		2.5500

As at December 31, 2018		17,520,555			2.5210		8.82		227,049
Expected to vest at December 31, 2018		13,982,830			2.5338		8.87		181,024
Exercisable as of December 31, 2018		2,736,927			2.4572		8.63		35,642

Huya has used binomial option-pricing model to determine the fair value of the share options as of the grant dates. Key assumptions are set as below:

	2017			2018

Weighted average fair value per option granted	US$	1.3798		US$	5.2130
Weighted average exercise price	US$	2.55		US$	2.47
Risk-free interest rate (1)		2.25	%		2.83	%
Expected term (in year) (2)		10			10
Expected volatility (3)		55	%		55	%
Dividend yield (4)		-			-

	(1)	The risk-free interest rate of periods within the contractual life of the share option is based on the China Government Bond yield as at the valuation dates.
	(2)	The expected term is the contract life of the option.
	(3)	Expected volatility is estimated based on the average of historical volatilities of the comparable companies in the same industry as at the valuation dates.
	(4)	Huya has no history or expectation of paying dividend on its ordinary shares. The expected dividend yield was estimated based on Huya’s expected dividend policy over the expected term of the option.

For the years ended December 31, 2016, 2017 and 2018, the Group recorded share-based compensation of nil, RMB19,473 and RMB151,242, using the graded-vesting attribution method, including accelerated compensation cost amounted to RMB1,869 due to that 262,503 share options were cancelled without concurrent grant of replacement awards, which is treated as a settlement for no consideration at the time of cancellation under ASC 718. The share-based compensation above also included the share options granted to non-employees, amounting to nil, nil and RMB20,980, recognized in general and administrative expenses, for the years ended December 31, 2016, 2017 and 2018, respectively.

As of December 31, 2018, there was RMB169,604 unrecognized share-based compensation expense of options relating to Huya 2017 Share Incentive Plan. The expense is expected to be recognized over a weighted-average remaining vesting period of 1.14 years using the graded vesting attribution method.

During the year ended December 31, 2018, Huya granted 4,183,685 and 10,000 restricted share units to employees and non-employees, respectively.

There are two types of vesting schedule for employees, which are: i) 50% of the restricted share units will be vested after 24 months of the grant date and the remaining 50% will be vested in two equal installments over the following 24 months, and ii) restricted share units will be vested in four equal installments over the following 48 months.

	Number of restricted share units			Weighted average grant-date fair value (US$)

Outstanding, January 1, 2016, December 31, 2016 and 2017		-			-
Granted		4,193,685			9.0242
Forfeited		(76,500	)		7.1600
Vested		(10,000	)		19.5900

Outstanding, December 31, 2018		4,107,185			9.0331

Expected to vest at December 31, 2018		3,795,535			8.9944

For the years ended December 31, 2016, 2017 and 2018, Huya recorded share-based compensation of nil, nil and RMB69,620 using the graded vesting attribution method. The share-based compensation above also included the restricted share units granted to non-employees, amounting to nil, nil and RMB1,076, recognized in general and administrative expenses, for the years ended December 31, 2016, 2017 and 2018, respectively.

As of December 31, 2018, total unrecognized compensation expense relating to the restricted share units was RMB166,010. The expense is expected to be recognized over a weighted average period of 1.21 year using the graded-vesting attribution method.

In October 2017, the Company transferred, at nominal consideration, 1,551,495 ordinary shares of Huya to the management of the Group, for their service provided. The share awards were immediately vested and the Company recorded a share-based compensation charge of RMB28,226 for the year ended December 31, 2017.

In 2018, the Company transferred 367,870 ordinary shares of Huya to the management of the Group, for the service provided. The shares awards will be vested over 5 years. For the year ended December 31, 2018, the Company recorded share-based compensation of RMB5,227.

For the years ended December 31, 2016, 2017 and 2018, the Company recorded share-based compensation of RMB13,936, a reversal of RMB1,227 and RMB 7,916 for restricted shares to the founders or management of the subsidiaries of a variable interest entity.