XERO LIMITED — Capital/Financing Update 2014

Jun 2, 2014

Appendix 3B

New issue announcement. application for quotation of additional securities and agreement

Information or documents not available now must be given to ASX as soon as available. Information and documents given to ASX become ASX's property and may be made public.

Introduced 01/07/96 Origin: Appendix 5 Amended 01/07/98, 01/09/99, 01/07/00, 30/09/01, 11/03/02, 01/01/03, 24/10/05, 01/08/12, 04/03/13

Name of entity

Xero Limited

ABN

160 661 183 (ARBN)

We (the entity) give ASX the following information.

Part 1 - All issues

You must complete the relevant sections (attach sheets if there is not enough space).

⁺Class of ⁺securities issued or to Ordinary Shares $\mathbf{1}$ be issued Number of ⁺securities issued or $16,591$ $\overline{z}$ to be issued (if known) or maximum number which may be issued $% \left( \left( \mathcal{A},\mathcal{A}\right) \right)$ of Ordinary Shares issued upon exercise of Principal the terms $\overline{\mathbf{3}}$ *securities (e.g. if options, vested options granted under the Xero exercise price and expiry date; if Limited (USA) Equity Incentive Scheme as partly paid ⁺securities, the part of the remuneration package of US amount outstanding and due based employees. dates for payment; if ⁺convertible securities. the The exercise price for the exercise of the conversion price and dates for options was NZ\$3.82 per option. conversion)

$\overline{4}$	Do the securities rank equally in all respects from the issue date with an existing class of quoted securities?	Yes
	If the additional + securities do not rank equally, please state: the date from which they do the extent to which they for participate the next dividend, (in the case of a distribution) trust, Οľ interest payment the extent to which they do not rank equally, other than the relation to in. next distribution dividend. or interest payment
5	Issue price or consideration	Ordinary Shares issued upon exercise of options; the exercise price for the exercise of the options was NZ\$3.82 per option.
6	Purpose of the issue (If issued as consideration for the acquisition of assets, clearly identify those assets)	Issue of Ordinary Shares on exercise of vested options that have been granted under the Xero Limited (USA) Equity Incentive Scheme as part of the remuneration of US based employees.
6a	Is the entity an + eligible entity obtained that has security holder approval under rule 7.1A?	N/A
	If Yes, complete sections 6b - 6h in relation to the + securities the subject of this Appendix 3B, and comply with section 6i
6b	The date the security holder resolution under rule 7.1A was passed	N/A
6c	Number of + securities issued without security holder approval under rule 7.1	N/A

⁺ See chapter 19 for defined terms.

• Number of *securities issued $6d$ with security holder approval under rule 7.1A
• 6e Number of ⁺securities issued with security holder approval under rule 7.3, or another specific security holder approval (specify date of meeting)
• $6f$ Number of ⁺securities issued under an exception in rule 7.2
• If ⁺securities issued under rule 6g 7.1A, was issue price at least 75% of 15 day VWAP as calculated under rule 7.1A.3? Include the tissue date and both values. Include the source of the VWAP calculation.
• 6h If ⁺securities were issued under for non-cash rule $7.1A$ consideration, state date on which valuation $\circ$ f consideration was released to ASX Market Announcements
• 6i Calculate the entity's remaining $N/A$ issue capacity under rule 7.1 and rule 7.1A - complete Annexure 1 and release to ASX Market Announcements
• ⁺Issue dates $\overline{7}$

Note: The issue date may be prescribed by ASX (refer to the definition of issue date in rule 19.12). For example, the issue date for a pro rata entitlement issue must comply with the applicable timetable in Appendix 7A.

Cross reference: item 33 of Appendix 3B.

Number and ⁺class of all 8 *securities quoted on ASX (including the ⁺securities in section 2 if applicable)

Number	+ Class
127,626,903	Ordinary
Number	+ Class

3 June 2014

$N/A$

N/A

$N/A$

$N/A$

$N/A$

Number and $\text{ }$ +class of all $\mid$ (a) 905,581 *securities not quoted on ASX (including the + securities in section 2 if applicable)		Options (convertible into Ordinary Shares on a 1:1 basis)
	$(b)$ 20,537	Conditional contractual right to be issued to up Ordinary 20,537 Shares in the Company (RSUs)

Dividend policy (in the case of a $\sqrt{\text{N/A}}$
trust, distribution policy) on the $10$ increased capital (interests)

Part 2 - Pro rata issue

11	approval holder security Is required?	N/A
$12 \overline{ }$	Is the issue renounceable or non- renounceable?	N/A
13	Ratio in which the + securities will be offered	N/A
14	+ Class of + securities to which the offer relates	N/A
15	to determine *Record date entitlements	N/A
16	holdings different Will on registers (or subregisters) be calculating aggregated fоr entitlements?	N/A
17	Policy for deciding entitlements $ N/A$ in relation to fractions

⁺ See chapter 19 for defined terms.

18	Names of countries in which the entity has security holders who will not be sent new offer documents Note: Security holders must be told how their entitlements are to be dealt with. Cross reference: rule 7.7.	N/A
19	of Closing date for receipt acceptances or renunciations	N/A
20	Names of any underwriters	N/A
21	Amount of any underwriting fee or commission	N/A
22	Names of any brokers to the issue	N/A
23	Fee or commission payable to the broker to the issue	N/A
24	Amount of any handling fee payable to brokers who lodge acceptances or renunciations on behalf of security holders	N/A
25	If the issue is contingent on security holders' approval, the date of the meeting	N/A
26	Date entitlement and acceptance N/A form and offer documents will be sent to persons entitled
27	If the entity has issued options, and the terms entitle option holders participate to on exercise, the date on which notices will be sent to option holders	N/A
28	Date rights trading will begin (if $\mid N/A \rangle$ applicable)
29	Date rights trading will end (if applicable)	N/A
30	How do security holders sell	N/A

	their entitlements in full through a broker?
31	How do security holders sell part of their entitlements through a broker and accept for the balance?	N/A
32	How do security holders dispose of their entitlements (except by sale through a broker)?	N/A
33	+ Issue date	N/A

Part 3 - Quotation of securities

You need only complete this section if you are applying for quotation of securities

34	Type of + securities
	(tick one)

$(a)$

$(b)$

36

	$\mathbb N$ *Securities described in Part 1
--	---------------------------------------------	--	--	--	--

All other *securities

Example: restricted securities at the end of the escrowed period, partly paid securities that become fully paid, employee incentive share securities when restriction ends, securities issued on expiry or conversion of convertible securities

Entities that have ticked box 34(a)

Additional securities forming a new class of securities

			Tick to indicate you are providing the information or
documents

• If the *securities are *equity securities, the names of the 20 largest holders of the 35 additional ⁺securities, and the number and percentage of additional ⁺securities held by those holders
• If the *securities are *equity securities, a distribution schedule of the additional *securities setting out the number of holders in the categories $1 - 1,000$ 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over

⁺ See chapter 19 for defined terms.

A copy of any trust deed for the additional ⁺securities

Entities that have ticked box 34(b)

• Number of ⁺securities for which 38 ⁺quotation is sought
• ⁺Class of ⁺securities for which 39 quotation is sought
• Do the ⁺securities rank equally in 40 all respects from the ⁺issue date with an existing ⁺class of quoted ⁺securities?

If the additional ⁺securities do not rank equally, please state:

• the date from which they do $\bullet$ .
• the extent to which they participate for the next dividend, (in the case of a trust, distribution) or interest payment
• the extent to which they do not rank equally, other than in relation to the next dividend, distribution interest $\alpha$ r payment
• Reason for request for quotation 41 now

Example: In the case of restricted securities, end of restriction period

(if issued upon conversion of another *security, clearly identify that other ⁺security)

Number and ⁺class of all $42$ ⁺securities quoted on ASX (including the ⁺securities in clause $-28)$

Number	+ Class

Ļ
n
Ê
z,
	----------------------

37

Quotation agreement

• ⁺Ouotation of our additional ⁺securities is in ASX's absolute discretion. ASX $\mathbf{I}$ may quote the ⁺securities on any conditions it decides.
• We warrant the following to ASX. $\overline{2}$
• The issue of the *securities to be quoted complies with the law and is not for an illegal purpose.
• There is no reason why those 'securities should not be granted *quotation.
• An offer of the *securities for sale within 12 months after their issue will not require disclosure under section $707(3)$ or section $1012C(6)$ of the Corporations Act.

Note: An entity may need to obtain appropriate warranties from subscribers for the securities in order to be able to give this warranty

• Section 724 or section 1016E of the Corporations Act does not apply to any applications received by us in relation to any *securities to be quoted and that no-one has any right to return any 'securities to be quoted under sections 737, 738 or 1016F of the Corporations Act at the time that we request that the 'securities be quoted.
• If we are a trust, we warrant that no person has the right to return the $\bullet$ *securities to be quoted under section 1019B of the Corporations Act at the time that we request that the 'securities be quoted.
• We will indemnify ASX to the fullest extent permitted by law in respect of any $\overline{3}$ claim, action or expense arising from or connected with any breach of the warranties in this agreement.
• We give ASX the information and documents required by this form. If any $\overline{4}$ information or document is not available now, we will give it to ASX before ⁺quotation of the ⁺securities begins. We acknowledge that ASX is relying on the information and documents. We warrant that they are (will be) true and complete.

Sign here:

Example 2014 Date: 3 June 2014 (Director/Company secretary)

Print name:

Matt Vaughan

⁺ See chapter 19 for defined terms.

Appendix 3B - Annexure 1

Calculation of placement capacity under rule 7.1 and rule 7.1A for eligible entities

Introduced 01/08/12 Amended 04/03/13

Part 1

	Rule 7.1 – Issues exceeding 15% of capital
Step 1: Calculate "A", the base figure from which the placement capacity is calculated
Insert number of fully paid + ordinary securities on issue 12 months before the *issue date or date of agreement to issue
Add the following:
Number of fully paid *ordinary securities issued in that 12 month period under an exception in rule 7.2
Number of fully paid *ordinary securities issued in that 12 month period with shareholder approval
Number of partly paid +ordinary securities that became fully paid in that 12 month period
Note: Include only ordinary securities here - other classes of equity securities cannot be added Include here (if applicable) the securities the subject of the Appendix 3B to which this form is annexed It may be useful to set out issues of securities on different dates as separate line items
Subtract the number of fully paid +ordinary securities cancelled during that 12 month period
"А"

⁺ See chapter 19 for defined terms.

Step 2: Calculate 15% of "A"
"B"	0.15
	[Note: this value cannot be changed]
Multiply "A" by 0.15
that has already been used	Step 3: Calculate "C", the amount of placement capacity under rule 7.1
Insert number of + equity securities issued or agreed to be issued in that 12 month period not counting those issued:
Under an exception in rule 7.2
Under rule 7.1A
With security holder approval under rule 7.1 or rule 7.4
Note: This applies to equity securities, unless specifically excluded - not just ordinary securities Include here (if applicable) the securities ۰ the subject of the Appendix 3B to which this form is annexed It may be useful to set out issues of ٠ securities on different dates as separate line items
"C"
Step 4: Subtract "C" from ["A" x "B"] to calculate remaining placement capacity under rule 7.1
$^{\circ}$ A" x 0.15
Note: number must be same as shown in Step 2
Subtract "C"
Note: number must be same as shown in Step 3
Total ["A" $\times$ 0.15] - "C"
	[Note: this is the remaining placement capacity under rule 7.1]

⁺ See chapter 19 for defined terms.

Part 2

	Rule 7.1A - Additional placement capacity for eligible entities
Step 1: Calculate "A", the base figure from which the placement capacity is calculated
$^{\prime\prime}$ A"
Note: number must be same as shown in Step 1 of Part 1
Step 2: Calculate 10% of "A"
יירו"	0.10
	Note: this value cannot be changed
Multiply "A" by 0.10
Step 3: Calculate "E", the amount of placement capacity under rule 7.1A that has already been used
Insert number of + equity securities issued or agreed to be issued in that 12 month period under rule 7.1A Notes: This applies to equity securities - not just ordinary securities Include here $-$ if applicable $-$ the securities the subject of the Appendix 3B to which this form is annexed Do not include equity securities issued ٠ under rule 7.1 (they must be dealt with in Part 1), or for which specific security holder approval has been obtained It may be useful to set out issues of ٠ securities on different dates as separate line items

⁺ See chapter 19 for defined terms.

Step 4: Subtract "E" from ["A" x "D"] to calculate remaining placement capacity under rule 7.1A
"A" x 0.10
Note: number must be same as shown in Step 2
Subtract "E"
Note: number must be same as shown in Step 3
Total ["A" $\times$ 0.10] $-$ "E"
	Note: this is the remaining placement capacity under rule 7.1A

⁺ See chapter 19 for defined terms.