Greetings all,

Well, the share consolidation topic certainly has the board on fire. There have been some great arguments both for and against the consolidation ... kudos to all for having this very important discussion. I have also read many posts here where some folks seemed to have questions about how things would look after the split and what effect a reverse split might have on things such as stock options or future capital raises. Thought I would try to offer some clarity, so people have the proper information available to make an informed decision for the AGM.

First, "reverse split" = "share consolidation" ... they mean the same thing, in case I use both terms.

EFFECT ON OPTIONS AND WARRANTS

A reverse split has NO effect on the intrinsic value of any warrants or options. The value of in-the-money options or warrants is the exact same before and after the split. As an example, consider Ajit Manocha's new stock options: 2,000,000 of them with a strike price of $1.75. In the event of a 5:1 reverse split, both the strike price and amount of options are adjusted accordingly; you divide the number of options by the split ratio (so in this case divide by 5) and you multiply the strike price by the split ratio (so multiply by 5). So thus Mr. Manocha would end up with 400,000 options at a strike price of $8.75.

Assuming that pre-split, the stock price is $2.00 ... the value of Mr. Manocha's options PRIOR to the split would be 2,000,000 x (2.00 - 1.75) = $500,000. After the split, the new share price would be $10.00 (5 x $2.00). The value of his adjusted options at the new price of $10.00 would be 400,000 * ($10.00 - $8.75) = $500,000. So the value is the same. There is NO benefit to insiders who own options or large investors who own warrants in seeing a share consolidation, with respect to the value of their options / warrants being increased.

EFFECT OF DILUTION FROM FUTURE CAPITAL RAISES

A reverse split has no direct effect on the dilutive nature of future capital raises by the company. For example: say POET wanted to raise another $18,000,000 for the treasury and the share price was $2.00 (I know we are less than that but I'm just using round numbers as an example). And assume in our example, you are a shareholder with 100,000 shares. Current share count is 160M or so, so you own about 0.0625% of the company before the newest financing. Your shares are worth $200,000. Capital raises are almost always done at a discount to market. Say for this example, to keep the math simple, the discount is 10%, so the offering price of the private placement will be $1.80 per share. Thus, to raise the required amount of money, POET has to issue 10,000,000 new shares. The new share count is 170,000,000. With your 100,000 shares, you have now been diluted down to owning only 0.0588% of the company (a decrease of about 5% in your ownership level).

Now, consider the same financing done after a 5:1 reverse split. After the split, but before the financing, you now own 20,000 shares worth $10.00 (net value $200,000 which has not changed) and your ownership percentage before the financing is the same as above: 0.06245%. The oustanding share count of the company is reduced to 32,000,000 shares with each share now being worth $10.00. The company wishes to raise the same amount of money: $18,000,000. New share price is $10.00 but the offering will be again done at a 10% discount, so $9.00 per share for the private placement. To raise the required amount of money, the company must issue 2,000,000 new shares. The new outstanding share count is now 34,000,000 shares. With your 20,000 shares, you have now been diluted down to owning only 0.0588% of the company (a decrease of about 5% in your ownership level). Therefore, you are in the EXACT SAME situation after the financing has been completed, both with or without a reverse split. The split has had no effect on how much your shares get diluted when new money is raised in an equity financing.

EFFECT ON INSIDER HOLDINGS

Insiders are NOT affected differently from regular shareholders in a reverse split. All shareholders, whether they are retail, institutional, high net worth, insiders, Board of Directors members, executives, etc., are treated the exact same. Everyone's share count is decreased by the same ratio. On paper, the value of your holdings both before and after a reverse split is exactly the same. You have fewer shares, but they are worth more. (IF the market reacts negatively to the split afterwards, the share price will drop and THEN your overall value will drop)

REVERSE SPLITS ARE *ALWAYS* A BAD THING AND THE SHARE PRICE *ALWAYS* RETURNS TO THE PRE-SPLIT LEVEL

This is incorrect. It is certainly fair to say that often, reverse splits can be a bad thing, and it can certainly be said that sometimes the share price will return to the pre-split level. However, this statement cannot be said of every situation. Reverse splits have a bad reputation because they can often (but not always) indicate a company that is in trouble. This trouble usually takes one of 2 forms:

• Company is being threatened with delisting: Exchanges like the Nasdaq have continued listing standards that companies must meet in order to stay listed and trading. For example, a company's share price cannot fall below $1.00. Companies that are in trouble and experiencing a falling share price can attempt a reverse split to increase the price so they do not fall below the $1.00 threshold and get delisted, but this simply masks the problem and does not fix the fundamental reasons for the decreasing share price in the first place. Thus, after the reverse split occurs, the share price continues to fall as nothing has really changed.
• Company can no longer raise money at its current price: This is not uncommon with Venture exchange stocks. TSX-V rules stipulate you cannot announce a private placement at a price lower than $0.05. If a company's price is lower than this, they may not be able to raise any money to keep the company operating. For example, if a company's shares trade at $0.025, there is no way any investor will give them money in a private placement to buy new shares at $0.05. Thus, the company's only option to raise money is to consolidate shares. Say for example, 4:1, which results in a new price of $0.10. Now, the company is allowed to issue a private placement at this price. Typically, however, a company in this situation is in a bad spot to begin with ... there is a reason their price was so low to start and likely there are few parties willing to give them any money. After the split, investors will continue to sell and drive the price down as the future of the company looks grim. Few buyers may be there to offer any bids, so motivated sellers will drive the price down quickly. The price may very likely end up right back around where it started (this certainly has happened).

It is fair to say that POET's situation is quite different from both situations listed above. POET is not in danger of being delisted, nor does it need to have a higher share price in order to raise new money (if it wanted and/or needed to).

EFFECT ON LIQUIDITY

In the short term, liquidity will decrease. Fewer shares means fewer shares being traded. Entities acting as a market maker (in an unofficial capacity) now have fewer shares to play around with and therefore a decrease in trading volume is expected.

For the long term, the company is making the argument that a U.S. exchange listing and a higher price will bring new, interested parties to the mix who want shares and want to take a position (that weren't able to take a position before). Robust demand for shares would fairly be expected to lead to higher liquidity, but this will only occur in the long term ... it will not materialize overnight.

Now, for my own opinion. I don't think this is the doomsday scenario some believe. The company is in a very healthy financial position right now with probably still more than $11M in the treasury which makes them well capitalized. Therefore, I would not expect them to be raising any money soon, nor would they need a share consolidation to raise money (and as detailed above, raising money post-reverse split has the exact same dilutive effect as doing it without a reverse split). I think it is important to remember that management and insiders have their own share holdings reduced as well. No one is going to come out of this ahead of anyone else on paper. Ultimately, the Board of Directors and management owe a duty to all shareholders to act in the best interests of the shareholders ... I personally have yet to see this management team act in a manner that is immoral or of questionable intent. Using a share consolidation to obtain a Nasdaq listing is not the ideal way to go about things, but I think it is fair to say that management would not use this option if they didn't believe that the positives outnumbered the negatives. Keep in mind that options will be increased before any possible split ... so it is not like management is issuing options after the consolidation. Options will be adjusted accordingly (per my discussion above) with no net effect on their value. The reverse split is simply an option and the consolidation factor is not set in stone at 5:1 (it could be that, but it could also potentially be less). There is no obligation to consolidate. The management team will make the decision at the time, if they are so empowered to do so ... keeping in mind that they are affected by the decision just as much as other shareholders are.

I still believe POET is in an excellent position with some amazing, disruptive technology in a market that is craving it. They are in an excellent financial position and would be the envy of many (most?) Venture exchange companies in this regard for sure. They are not far away from hitting the share price requirements for a Nasdaq listing without any consolidation. They have improved the management team by bringing on a major industry player. To me, the company is in a position of relative strength. I hope growth occurs organically like probably everyone here does ... but if a consolidation is required, then I feel the benefits would outweigh the negatives. Keep in mind that the company is not obligated or being forced to trade on the Nasdaq; if they are establishing that as a priority, it is because they feel it would be a positive thing. I would definitely not be surprised if there are several, perhaps many groups from the the U.S. wanting shares but unable to purchase due to the price being too cheap to meet their standards and/or being unable to buy Venture exchange stocks. A Nasdaq listing will bring new money and new demand that I believe will drive the price up. On the matter of manipulation: there will be share manipulation no matter where you trade. The Nasdaq is not exempt.

As for short term effect ... I strongly suspect the price will drop on Monday. Some folks just won't be comfortable being involved with a potential reverse split and may see the passing of this as inevitable ... so they will bow out. I truly sympathize with those folks and understand that many have had VERY negative experiences in the past with other Venture stocks doing a reverse split. And then there will be those parties with rather devious motives, who I have no doubt read these boards, and they will see the confusion, anger and fear this has caused, and take full advantage to give the tree a good hard shake. Over the medium to long term, though, I don't see any of the fundamentals as having changed.

Good luck to all shareholders, and I hope everyone gathers as much information as possible to make an informed decision before voting, whether FOR or AGAINST.

Respectfully,

BUMBLEBEE