XERO LIMITED — Capital/Financing Update 2016

Jun 13, 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 2 Number of+securities issued or to be issued (if known) or maximum number which may be issued	(a) Ordinary Shares (b) Options to subscribe for Ordinary Shares in Xero Limited (Options)
	(a) 78,092 Ordinary Shares (b) 1,620,000 Options (each option entitling the holder to subscribe for one ordinary share in Xero Limited subject to the terms of the NZ Plan, AU Plan, US Scheme and UK Plan(as definedinparagraph3 below).

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 as follows: 6,250 options at NZ$2.75 per option 71,842 options at NZ$5.31 per option (b) Grant of 1,590,000 Options under the Xero Limited Restricted Stock Unit and Option Plan (NZ) (NZ Plan), Xero Limited Restricted Stock Unit and Option Plan (AU) (AU Plan), US Scheme, and the United Kingdom Appendix to the NZ Plan (UK Plan) as remuneration and incentive for certain key employees; these Options will vest (and therefore become available for exercise) in set percentages over a period of four years (345,000 vesting one year from grant date, 350,000 vesting two years from grant date, 417,500 vesting three years from grant date, and 477,500 vesting four years from grant date), subject in each case to the continued employment of the respective key employee with the Xero Limited Group on each vesting date and the rules of the NZ Plan, AU Plan, US Scheme and UK Plan as applicable; these Options have a final exercise date of five years from the grant date. Grant of 30,000 Options under the US Scheme to an advisor; these Options will vest (and therefore become available for exercise) in four equal parts on 19 October 2016, 19 April 2017, 19 October 2017 and 19 April 2018, subject to the rules of the US Scheme and specified performance requirements on each vesting date; these Options have a final exercise date of three years from the grant date

• 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? 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

	(a) Yes (b) N/A
•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) Ordinary Shares issued upon exercise of options; the exercise price for the options was as follows: 6,250 options at NZ$2.75 per option 71,842 options at NZ$5.31 per option (b) N/A. Grant of 1,590,000 Options pursuant to the NZ Plan, AU Plan, US Scheme, and UK Plan, as remuneration for certain key employees based in New Zealand and Singapore, Australia, the United States and the United Kingdom, respectively. Grant of 30,000 Options pursuant to the US Scheme to an advisor. The exercise price is NZ$17.51 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 9 June 2016)

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 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.	(a) Issue of Ordinary Shares upon exercise of vested options under the US Scheme as part of the remuneration package of certain US based employees (b) Grant of 1,590,000 Options under the NZ Plan, AU Plan, US Scheme and UK Plan as remuneration and incentive for certain key employees. Grant of 30,000 Options under the US Scheme to an advisor
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A
	N/A

• See chapter 19 for defined terms.

Appendix 3B Page 4

6h If[+] securities were issued under N/A 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 N/A issue capacity under rule 7.1 and rule 7.1A – complete Annexure 1 and release to ASX Market Announcements

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)	(a) 10 June 2016 (b) 10 June 2016 (grant date)
	Number	+Class
	137,026,399	Ordinary
	Number	+Class
	(a) 2,358,573	Options (convertible into Ordinary Shares on a 1:1 basis), taking into account all forfeited Options to date and the exercise of 78,092 Options and the grant of 1,620,000 Options in accordance with the terms of this notification of allotment

(b) 467,066	Restricted Stock Units or RSUs (a conditional contractual right to be issued up to 467,066 Ordinary Shares), taking into account all forfeited RSUs to date

• 10 Dividend policy (in the case of a trust, distribution policy) on the increased capital (interests)

(a) As for all Ordinary Shares (b) 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? 17 Policy for deciding entitlements N/A in relation to fractions

• See chapter 19 for defined terms.

Appendix 3B Page 6

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) 29 Date rights trading will end (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

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

Appendix 3B Page 8

37

[A copy of any trust deed for the additional ][+][securities ]

Entities that have ticked box 34(b)

• 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

42 Number and +class of all +securities quoted on ASX (including the +securities in clause 38)

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: 13 June 2016 ( ~~Director/~~ Company secretary) Print name: Matt Vaughan

• See chapter 19 for defined terms.

Appendix 3B Page 10

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

==> picture [415 x 464] intentionally omitted <==

----- Start of picture text -----

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”
----- End of picture text -----

• See chapter 19 for defined terms.

Appendix 3B Page 11

XX/01/2015

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 12

Part 2

Part 2	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
Insertnumber 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 13

XX/01/2015

Step 4: Subtract “E” from [“A” x “D”] to calculate remaining placement capacity under rule 7.1A

Step 4: Subtract “E” from [“A” x “D”] to calculate remaining placement capacity under rule 7.1A	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 14