4.	Stockholders’ Equity

Common Stock

As of December 31, 2012, the Company has a liability for directors’ fees of $33,615 which was a issuance of 64,556 shares of common stock in 2013. Additionally, the Company has a liability for accrued consulting fees of $29,550 that resulted in the issuance of 85,000 shares of common stock in 2013.

During the year ended December 31, 2013, the Company issued 85,000 shares of common stock for payment of fees accrued to consultants. The Company issued 44,823 shares of common stock for payment of fees accrued to related party consultants. During 2013 the Company issued 72,170 shares of common stock for payment of accrued directors fees for the period July 1, 2012 to November 30, 2013.

Effective June 28, 2013, several holders of the Company’s 15% Series A1 Convertible Preferred Stock (“Series A1 Preferred Stock”) elected to convert shares of such stock into the Company’s common stock at a redemption price of $0.75 per common share. In connection with those redemptions all such holders agreed to waive all dividend rights on their shares of Series A1 Preferred Stock subsequent to March 30, 2013. Information regarding the conversions is set forth below.


Name of Holder	Number of Shares of Series A1 Preferred Stock Converted	Number of Common Shares Issued
Burlingame Equity Investors II, LP	16		100,800
Burlingame Equity Investors Master Fund, LP	184		1,159,200
Charles B. Davis*	100		1,333,333
Tucker Family Investments LLLP	25		333,333
Mark Venjohn	10		133,333
Pete Haman	35		466,667
Nicholas L. Scheidt*	100		1,333,333
Michael J. Finney	5		66,667
William and Sara Kroske	2.5		33,333
Michael A. Geller	10		133,333
John H. Rosasco	10		133,333
Lyon Oil & Gas Company	10		133,333
T P Furlong	5		66,667

*	Executive Officer and Director of the Company

In addition, in connection with the conversions of Series A1 Preferred Stock by Burlingame Equity Investors II, LP and Burlingame Equity Investors Master Fund, LP, the Company also entered into transactions with these entities in exchange for cash consideration, promissory notes and cancellation of certain Series A1 Preferred Shares.


Name of Holder	Cash Consideration		Promissory Note–Principal		Series A1 Preferred Shares Cancelled
Burlingame Equity Investors II, LP	$	4,000	$	48,000		16
Burlingame Equity Investors Master Fund, LP	$	46,000	$	552,000		184

The above promissory notes bear interest at 7% per annum, with interest payable quarterly and all unpaid interest and principal due on July 23, 2014 and the note has been extended to April 28, 2015. If the promissory notes are not paid when due or declared due, the entire principal and interest thereon will bear interest at the rate of 12% per annum (see note 5).

The redemption of preferred stock on the earning per share applicable to common stockholders was calculated as the difference between the fair market value of common shares received on June 28, 2013 and the cost of the preferred stock redeemed which amounted to $3,160,026.

On August 15, 2014, the remaining preferred shareholders made an agreement with The Company to redeem his 10 shares of Series A-1 Convertible Preferred Stock. The Company paid $77,500 for the shares as follows; $15,500 in cash and a promissory note for $62,000.

On December 10, 2013, Burlingame Equity Investors Master Fund LP (“Burlingame”), a significant stockholder of Arête Industries, Inc. (the “Company”) entered into conditional stock option agreements with Nicholas L. Scheidt, the Company’s Chief Executive Officer and Director, pursuant to which Mr. Scheidt was granted options to purchase up to 1,460,000 shares of Company common stock at $0.19 per share. Mr. Scheidt subsequently assigned the right to purchase 1,200,000 shares to the Company on January 27, 2014. On January 30, 2014, the Company entered into a Direct Stock Purchase Agreement with Burlingame pursuant to which the Company has purchased the 1,200,000 shares of its common stock from Burlingame at a price of $0.19 per share for total consideration of $228,000. In addition, Mr. Scheidt assigned an additional 141,873 shares of Company common stock underlying his option from Burlingame to Donald W. Prosser, the Company’s Chief Financial Officer and Director. Pursuant to this assignment, Mr. Prosser agreed to purchase the entire 141,873 shares of Company common stock from Burlingame at a price of US $0.19 per share for total consideration of $26,956. Furthermore, of these 141,873 shares, Mr. Prosser agreed to transfer 57,895 shares to William W. Stewart, a Director of the Company, for $11,000 or $0.19 per share and 13,158 shares to Apex Financial Services Corp, a company controlled by Mr. Scheidt, for $2,500 or $0.19 per share. Finally, Mr. Scheidt agreed to exercise the remaining 118,127 shares of Company common stock under his option from Burlingame at a price of $0.19 per share for total consideration of $22,444.

The Company purchased an option to acquire rights in minerals owned by William W Stewart (related party) for 150,000 shares of common stock valued at $34,500.

Preferred Stock Dividends

Preferred stock dividends are payable semi-annually in cash or shares of the Company’s common stock, at the election of the Company. The Board of Directors declared the preferred dividend of $391,875 on April 26, 2013 and paid the dividend in cash on April 28, 2013.

Preferred Stock

On September 29, 2011, the Company completed a private placement of its Preferred Stock Series A1 which resulted in the issuance of 522.5 shares for gross proceeds of $5,225,000. The balance of the Preferred Stock Series 1-A at December 31, 2014 and was $ 0 as all shares have been redeemed or canceled.

The following are the terms of the Preferred Stock Series A1:

Authorized Shares, Stated Value and Liquidation Preference. Seven hundred fifty shares are designated as the Series A1 15% Convertible Preferred Stock, which has a stated value and liquidation preference of $10,000 per share plus accrued and unpaid dividends.

Ranking. The Series A1 Preferred Stock will rank senior to future classes or series of preferred stock established after the issue date of the Series A1 Preferred Stock, unless the Company’s Board of Directors expressly provides otherwise when establishing a future class or series. The Series A1 Preferred Stock ranks senior to the Company’s common stock in liquidation and dissolution.

Dividends. Holders of Series A1 Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors, non-cumulative dividends at an annual rate of 15.0% of the $10,000 per share stated value. Declared dividends are payable in cash or in shares of Common Stock (at its then fair market value), at the election of the Company.

Voting Rights. The holders of the Series A1 Preferred Stock will vote together with the holders of common stock as a single class on all matters upon which the holders of common stock are entitled to vote, except that the common stock will elect four directors and the Series A1 Preferred Stock will elect three directors. Each share of Series A Preferred Stock will be entitled to such number of votes as the number of shares of common stock into which such share of Preferred Stock is convertible; however, solely for the purpose of determining such number of votes, the conversion price per share will be deemed to be $3.30, subject to customary anti-dilution adjustment. In addition, the holders of the Series A1 Preferred Stock will vote as a separate class with respect to certain matters, including amendments to the Company’s Articles of Incorporation that alter the voting powers, preferences and special rights of the Series A1 Preferred Stock.

Liquidation. In the event we voluntarily or involuntarily liquidate, dissolve or wind up, the holders of the Series A1 Preferred Stock will be entitled, before any distribution or payment out of the Company’s assets may be made to or set aside for the holders of any junior capital stock and subject to the rights of creditors, to receive a liquidation distribution in an amount equal to $10,000 per share, plus any accrued but unpaid dividends. A merger, consolidation or sale of all or substantially all of the Company’s property or business is not deemed to be a liquidation for purposes of the preceding sentence.

Redemption. The Series A1 Preferred Stock is redeemable in whole or in part at the Company’s option at any time. The redemption price is equal to $10,000 per share, plus any accrued but unpaid dividends.

Preemptive Rights. Holders of the Series A1 Preferred Stock do not have preemptive rights to purchase securities of the Company.

Mandatory Conversion. Each share of Series A1 Preferred Stock remaining outstanding will automatically be converted into shares of our common stock upon the earlier of (i) any closing of underwritten offering by the Company of shares of Common Stock to the public pursuant to an effective registration statement under the Securities Act of 1933, in which the aggregate cash proceeds to be received by the Company and selling stockholders (if any) from such offering (without deducting underwriting discounts, expenses and commissions) are at least $15,000,000, and the price per share paid by the public for such shares is at least $3.30 (such price to be adjusted for any stock dividends, combinations or splits or (ii) the date agreed to by written consent of the holders of a majority of the outstanding Series A1 Preferred Stock.

Optional Conversion by Investors. At any time, each holder of Series A1 Preferred Stock has the right, at such holder’s option, to convert all or any portion of such holder’s Series A1 Preferred Stock into shares of common stock prior to the mandatory conversion of the Series A1 Preferred Stock at a price of $3.30 per share.

Optional Conversion by the Company. If the closing price of the Company’s common stock on the Trading Market is $4.50 or more for 20 consecutive trading days, then up to 25% of the outstanding stated value of the Series A1 Preferred Stock, plus any accrued and unpaid dividends, will be subject to conversion into Company common stock at the option of the Company. For each successive period that the closing price of the common stock is at least $4.50 for a period of 20 consecutive trading days beyond the first 20 day period, the Company will have the right to convert another 25% of the outstanding Series A1 Preferred Stock, such that if the closing price of the common stock is at least $4.50 for 80 consecutive trading days, then all of the outstanding shares of Series A1 Preferred Stock may be converted into common stock at the Company’s option.

Conversion Price. Each share of Series A1 Preferred Stock is convertible into shares of common stock at a conversion price of $3.30 per share, subject to customary anti-dilution adjustments, including in connection with stock dividends and distributions, stock splits, subdivisions and combinations.

Redemption by Holder. Unless prohibited by Colorado law, upon 90 days’ prior written request from any holders of outstanding shares of Series A1 Preferred Stock, the Company may at its discretion, redeem at a redemption price equal to the sum of (i) $10,000 per share and (ii) the accrued and unpaid dividends thereon, to the redemption date, up to one-third of each holder’s outstanding shares of Series A1 Preferred Stock on: (i) the first anniversary of the Original Issuance Date (the “First Redemption Date”), (ii) the second anniversary of the Original Issue Date (the “Second Redemption Date”) and (iii) the third anniversary of the Original Issue Date (the “Third Redemption Date”, along with the First Redemption Date and the Second Redemption Date, collectively, each a “Redemption Date”). The redemption price for any shares of Series A1 Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. The Company may instead at its option, reduce the applicable conversion price by 50% with respect to the shares of preferred stock for which redemption has been requested.