17.

EMPLOYEE EQUITY INCENTIVE PLAN

The Company's 2002 employee equity incentive plan ("2002 Plan") allows the Company to offer a variety of incentive awards to employees, consultants or external service advisors of the Company. Options to purchase 105,000,000 ordinary shares are authorized under the 2002 Plan. In 2005, the shareholders authorized additional 32,000,000 options under the 2002 Plan. The Company's 2006 Equity Incentive Plan ("2006 Plan") allows the Company to offer a variety of incentive awards to employees, consultants or advisors of the Company. 40,000,000 nonvested ordinary shares are authorized under the 2006 Plan. In 2008, the shareholders authorized additional 140,000,000 nonvested ordinary shares under the 2006 Plan. The Company's 2013 Equity Incentive Plan ("2013 Plan") allows the Company to offer a variety of incentive awards to officers, other employees, prospective employees, directors, consultants and advisors of the Company. The total number of ordinary shares that may be transferred pursuant to the incentive awards granted under the 2013 Plan shall not exceed 80,000,000 ordinary shares. The majority of the options and nonvested shares will vest over four years where 25% of the options and nonvested shares will vest at the end of the first year, 6.25% will vest quarterly in the second year through the fourth year. The stock options expire 10 years from the date of grant.

As of December 31, 2015, 6,744,940 options, 2,682,500 nonvested shares and incentive awards that may be transferred to 71,680,000 ordinary shares were available for future grants under the 2002 Plan, the 2006 Plan and the 2013 Plan, respectively.

The Company recognizes the compensation costs net of estimated forfeitures on a straight-line basis over the requisite service period of the award, which is generally the vesting period. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of share-based compensation expense to be recognized in future periods.

Stock options

A summary of the stock option activities is as follows:

	Outstanding options
				Weighted		Weighted average
	Number of			average		grant-date
	options			exercise price		fair value

Options outstanding at January 1, 2013		43,054,457		$	0.10	$	0.08
Granted		13,320,000		$	0.21	$	0.06
Forfeited		(1,515,040	)	$	0.12	$	0.08
Exercised		(8,602,960	)	$	0.10	$	0.06

Options outstanding at December 31, 2013		46,256,457		$	0.10	$	0.12
Granted		9,520,000		$	0.22	$	0.06
Forfeited		(8,832,517	)	$	0.22	$	0.06
Exercised		(4,052,480	)	$	0.11	$	0.09

Options outstanding at December 31, 2014		42,891,460		$	0.14	$	0.12
Forfeited		(1,327,000	)	$	0.16	$	0.05
Exercised		(8,915,040	)	$	0.11	$	0.08

Options outstanding at December 31, 2015		32,649,420		$	0.14	$	0.13

There were no options granted during the year ended December 31, 2015.

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for each applicable period.

Option grants	2013			2014			2015

Weighted average risk-free interest rate		0.60	%		0.81	%		N/A
Weighted average expected option life		2.75 years			2.75 years			N/A
Weighted average volatility rate		54.36	%		52.94	%		N/A
Weighted average dividend yield		-			-			N/A

(1)

Risk-free interest rate

Risk-free interest rate was estimated based on the yield to maturity of treasury bonds of the United States with a maturity period close to the expected life of the options.

(2)

Expected life

The expected life was estimated based on historical and other economic data trended into the future.

(3)

Volatility

The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock price volatility of KongZhong over a period comparable to the expected life of the options.

(4)

Dividend yield

The dividend yield was estimated by the Company based on its expected dividend policy over the expected life of the options.

(5)

Exercise price

The exercise price of the options was determined by the Board of Directors.

(6)

Fair value of underlying ordinary shares

The closing market price of the ADSs of KongZhong as of the grant date was used to determine the fair value of the ordinary shares on that date.

The weighted average per share fair value of options granted in each year was as follows:

	For the years ended December 31,
	2013		2014		2015

Stock options	$	0.26	$	0.22		N/A

The total intrinsic value of options exercised during the years ended December 31, 2013, 2014 and 2015 was $31,708, $111,476 and $731,689 respectively.

The following table summarizes information with respect to stock options outstanding at December 31, 2015:

	Options outstanding								Options exercisable
			Weighted		Weighted						Weighted		Weighted
			average		average		Aggregate				average		average		Aggregate
	Number		exercise		remaining		intrinsic		Number		exercise		remaining		intrinsic
	outstanding		price		contractual life		value		exercisable		price		contractual life		value
Average exercise price
$0.07		4,064,337						476,544		4,064,337						476,544
$0.09		1,600,000						160,400		1,600,000						160,400
$0.10		6,925,040						640,566		6,925,040						640,566
$0.12		2,000,000						136,000		2,000,000						136,000
$0.13		2,772,520						172,364		2,772,520						172,364
$0.14		400,000						18,500		100,000						4,625
$0.15		2,112,523						77,635		2,112,523						77,635
$0.19		7,655,000						-		3,315,000						-
$0.22		5,120,000						-		1,895,000						-

Total		32,649,420	$	0.14		5.94 years		1,682,009		24,784,420	$	0.12		5.25 years		1,668,134

The number of the options expected to vest was 7,865,000 with a weighted-average exercise price of $0.20 and the weighted-average remaining contractual term of 8.13 years. The aggregate intrinsic value of the option expected to vest was $13,875 as of December 31, 2015.

Nonvested shares

A summary of the nonvested share activities is as follows:

	Number of			Weight average
	nonvested			grant-date
	shares outstanding			fair value

Nonvested shares outstanding at January 1, 2013		22,555,000		$	0.13
Vested		(12,885,000	)	$	0.15

Nonvested shares outstanding at December 31, 2013		9,670,000		$	0.11
Granted		3,680,000		$	0.22
Forfeited		(825,000	)	$	0.11
Vested		(5,525,000	)	$	0.12

Nonvested shares outstanding at December 31, 2014		7,000,000		$	0.16
Granted		2,640,000		$	0.14
Vested		(5,120,000	)	$	0.13

Nonvested shares outstanding at December 31, 2015		4,520,000		$	0.18

There were no nonvested shares forfeited during the year ended December 31, 2015.

The weighted average per share fair value of nonvested shares granted in each year was as follows:

	For the years ended December 31,
	2013		2014		2015

Nonvested shares		N/A	$	0.22	$	0.14

The total intrinsic value of shares vested in the year of 2013, 2014 and 2015 was $2,325,743, $747,256 and $960,000, respectively.

The following table summarizes information with respect to nonvested shares outstanding at December 31, 2015:

	Nonvested
	share outstanding
			Aggregate
	Number		intrinsic
	outstanding		value
Grant date
May 21, 2014		2,240,000		420,000
January 5, 2015		2,280,000		427,500

Total		4,520,000		847,500

The Company recorded share-based compensation expenses of $1,573,729, $1,547,780 and $1,045,448 for the years ended December 31, 2013, 2014 and 2015, respectively. The amount of stock-based compensation currently estimated to be expensed from 2016 through 2018 related to unvested share-based payment awards at December 31, 2015 is $1,067,466. This amount will be recognized as presented in the following table.

Year

2016			489,493
2017			459,433
2018			118,540

Total			1,067,466

That cost is expected to be recognized over a weighted average period of 2.24 years. To the extent the actual forfeiture rate is different from the Company's original estimate, share-based compensation related to these awards may require to be adjusted.