XERO LIMITED — Capital/Financing Update 2016

Dec 8, 2016

Rule 2.7, 3.10.3, 3.10.4, 3.10.5

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).

1 +Class of+securities issued or to be issued	(a) Ordinary Shares (b) Options to subscribe for Ordinary Shares in Xero Limited (Options) (c) Conditional agreement to issue Ordinary Shares in Xero Limited (Restricted Stock UnitsorRSUs)
2 Number of+securities issued or to be issued (if known) or maximum number which may be issued	(a) 1,008 Ordinary Shares (b) 120,000 Options (c)19,401 RSUs relating to the future issue of up to 19,401 Ordinary Shares

		(Restricted Stock UnitsorRSUs)
2	Number of+securities issued or to be issued (if known) or	(a) 1,008 Ordinary Shares
	maximum number which may be issued	(b) 120,000 Options
		(c)19,401 RSUs relating to the future issue of up to 19,401 Ordinary Shares

3 Principal terms of the +securities (e.g. if options, exercise price and expiry date; if partly paid+securities, the amount outstanding and due dates for payment; if +convertible securities, the conversion price and dates for conversion)

(a) Ordinary Shares issued upon exercise of vested share options under the Xero Limited (USA) Equity Incentive Scheme (US Scheme); the exercise price for the options was NZ$7.70 per option (b) Grant of 120,000 Options under the Xero Limited Restricted Stock Unit and Option Plan (NZ) (NZ Plan) and US Scheme as remuneration and incentive for certain key employees based in New Zealand and the United States, respectively. The Options will vest (and therefore become available for exercise) in set percentages over a period of four years, subject to the continued employment of the respective key employee with the Xero Limited Group on each vesting date. The Options have a final exercise date of five years from the grant date (c) 19,401 RSUs have been granted pursuant to the US Scheme as part of the remuneration package of a certain key employee based in the United States. The number of RSUs granted was calculated based on the total dollar entitlement of the key employee divided by NZ$17.89, being the 20 day volume weighted average market price of Xero Limited’s Ordinary Shares on the NZX Main Board through to 8 December 2016. The RSUs will vest (i.e., meaning an equivalent number of Ordinary Shares in Xero Limited will be issued) (Vest) on 31 March 2018, subject to the terms of the US Scheme and the employment agreement of the key employee

• See chapter 19 for defined terms.

Appendix 3B Page 2

• 4 Do the[+] securities rank equally (a) Yes in all respects from the[+] issue date with an existing[+] class of (b) N/A quoted[+] securities? (c) N/A

• If the additional[+] securities do not rank equally, please state: • the date from which they do

• • 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 or interest payment

• 5 Issue price or consideration

(a) 1,008 Ordinary Shares issued upon exercise of options;; the exercise price for the options was NZ$7.70 per option (b) N/A. Grant of 120,000 Options pursuant to the NZ Plan and US Scheme, as remuneration for certain key employees based in New Zealand and the United States, respectively. The exercise price is NZ$17.89 per Option (being the 20 day volume weighted average market price of an Ordinary Share in Xero Limited on the NZX Main Board through to 8 December 2016) (c) 19,401 RSUs were granted at a value of NZ$17.89 each, being the 20 day volume weighted average market price of Xero Limited’s Ordinary Shares on the NZX Main Board through to 8 December 2016. No cash consideration is required to be paid for these RSUs to Vest

Purpose of the issue (If issued as consideration for the acquisition of assets, clearly identify those assets) 6a Is the entity an+eligible entity that has obtained security holder approval under rule 7.1A? 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 6c Number of+securities issued without security holder approval under rule 7.1 6d Number of+securities issued 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	(a) Issue of Ordinary Shares upon exercise of vested options under the US Scheme as part of the remuneration package of an employee based in the United States (b) Grant of 120,000 Options under the NZ Plan and US Scheme as remuneration and incentive for certain key employees (c) Grant of 19,401 RSUs pursuant to the US Scheme as part of the remuneration package of a certain key employee based in the United States
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A

• See chapter 19 for defined terms.

Appendix 3B Page 4

6g If+securities issued under rule 7.1A, was issue price at least 75% of 15 day VWAP as calculated under rule 7.1A.3? Include the+issue date and both values. Include the source of the VWAP calculation. 6h If+securities were issued under rule 7.1A for non-cash consideration, state date on which valuation of consideration was released to ASX Market Announcements 6i Calculate the entity’s remaining issue capacity under rule 7.1 and rule 7.1A – complete Annexure 1 and release to ASX Market Announcements 7 +Issue dates 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. 8 Number and +class of all +securities quoted on ASX (including the +securities in section 2 if applicable) 9 Number and +class of all +securities not quoted on ASX (including the +securities in section 2 if applicable)	N/A	N/A	N/A
	Number	+Class
	(a) 137,545,165	Ordinary
	Number	+Class
	(b) 2,505,557	Options (convertible into Ordinary Shares on a 1:1 basis), taking into account all forfeited options to date and the exercise of 1,008 options and the grant of 120,000 Options in accordance with the terms of this Appendix 3B

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(c) 677,899 Restricted Stock
Units or RSUs (a
conditional
contractual right to be
issued up to 677,899
Ordinary Shares),
taking into account all
forfeited RSUs to
date and the grant of
19,401 RSUs as set
out in this Appendix
3B
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10 Dividend policy (in the case of a (a) As for all Ordinary Shares trust, distribution policy) on the increased capital (interests) (b) N/A (c) N/A

Part 2 -­ Pro rata issue

11 Is security holder approval N/A required? 12 Is the issue renounceable or N/A non-­renounceable? 13 Ratio in which the[+] securities will N/A be offered 14 +Class of +securities to which N/A the offer relates 15 +Record date to determine N/A entitlements 16 Will holdings on different N/A registers (or subregisters) be aggregated for calculating entitlements?

• See chapter 19 for defined terms.

Appendix 3B Page 6

17 Policy for deciding entitlements in relation to fractions 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. 19 Closing date for receipt of acceptances or renunciations 20 Names of any underwriters 21 Amount of any underwriting fee or commission 22 Names of any brokers to the issue 23 Fee or commission payable to the broker to the issue 24 Amount of any handling fee payable to brokers who lodge acceptances or renunciations on behalf of security holders 25 If the issue is contingent on security holders’ approval, the date of the meeting 26 Date entitlement and acceptance form and offer documents will be sent to persons entitled 27 If the entity has issued options, and the terms entitle option holders to participate on exercise, the date on which notices will be sent to option holders 28 Date rights trading will begin (if applicable)	N/A
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A

29 Date rights trading will end (if applicable) 30 How do security holders sell 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? 32 How do security holders dispose of their entitlements (except by sale through a broker)? 33 +Issue date	N/A
	N/A
	N/A
	N/A
	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) (in respect of the “Ordinary Shares” described in Part 1 only) +Securities described in Part 1

• (b)[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

• 35[If the ] the additional[+][securities are ][+] securities, and the number and percentage of additional[+][equity securities, the names of the 20 largest holders of ] +securities held by those holders

• 36 +[If the ] securities setting out the number of holders in the categories[+][securities are ][+][equity securities, a distribution schedule of the additional ]

• See chapter 19 for defined terms.

Appendix 3B Page 8

1 -­ 1,000 1,001 -­ 5,000 5,001 -­ 10,000 10,001 -­ 100,000 100,001 and over 37[A copy of any trust deed for the additional ][+][securities ]

Entities that have ticked box 34(b)

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38 Number of [+] securities for which
+quotation is sought
39 +Class of +securities for which
quotation is sought
40 Do the [+] securities rank equally in
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
•
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 or interest
payment
41 Reason for request for quotation
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 +Class
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42 Number and +class of all +securities quoted on ASX (including the +securities in clause 38)

• See chapter 19 for defined terms.

Appendix 3B Page 10

Quotation agreement

• 1 +Quotation of our additional +securities is in ASX’s absolute discretion. ASX may quote the[+] securities on any conditions it decides.

• 2 We warrant the following to ASX.

• 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 +securities to be quoted under section 1019B of the Corporations Act at the time that we request that the[+] securities be quoted.

• 3 We will indemnify ASX to the fullest extent permitted by law in respect of any claim, action or expense arising from or connected with any breach of the warranties in this agreement.

• 4 We give ASX the information and documents required by this form. If any 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: ............................................................ Date: 9 December 2016 ( ~~Director/~~ Company secretary) Print name: Chaman Sidhu

• See chapter 19 for defined terms.

Appendix 3B Page 11

XX/01/2015

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

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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
“A”
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• See chapter 19 for defined terms.

Appendix 3B Page 12

Step 2: Calculate 15% of “A”
“B”	0.15 [Note: this value cannot be changed]
Multiply“A” by 0.15
Step 3: Calculate “C”, the amount of placement capacity under rule 7.1 that has already been used
Insertnumber 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 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
“C”
Step 4: Subtract “C” from [“A” x “B”] to calculate remaining placement capacity under rule 7.1
“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” x 0.15] – “C”	[Note: this is the remaining placement capacity under rule 7.1]

• See chapter 19 for defined terms.

Appendix 3B Page 13

XX/01/2015

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

“A” Note: number must be same as shown in Step 1 of Part 1

Step 2: Calculate 10% of “A”

“D” 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 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 securities on different dates as separate line items

• “E”

• See chapter 19 for defined terms.

Appendix 3B Page 14

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” x 0.10] – “E”	Note: this is the remaining placement capacity under rule 7.1A

• See chapter 19 for defined terms.

Appendix 3B Page 15

XX/01/2015