Note

– Stock Options

Stock Option Plans

July

27,

2010,

the Company’s Board of Directors adopted the

2010

Stock Incentive Plan (the

“2010

Plan”). The aggregate number of shares of common stock that could be granted under the

2010

Plan was reset at the beginning of each year based on

15%

of the number of shares of common stock then outstanding. As such, on

January

2016

the number of shares of common stock available under the

2010

Plan was reset to

5,719,069

shares based upon

38,127,129

shares outstanding on that date.

Options were typically granted with an exercise price equal to the estimated fair value of the Company's common stock at the date of grant with a vesting schedule of

one

three

years and a contractual term of

years. As discussed below, the

2010

Plan has been replaced by a new stock option plan and no additional stock option grants will be granted under the

2010

Plan. As of

December

31,

2016,

there were options to purchase

2,251,168

shares outstanding under the

2010

Plan.

July

18,

2016,

the Board of Directors unanimously approved the adoption of the Enservco Corporation

2016

Stock Incentive Plan (the

“2016

Plan”), which was approved by the stockholders on

September

29,

2016.

The aggregate number of shares of common stock that

may

be granted under the

2016

Plan is

8,000,000

shares plus authorized and unissued shares from the

2010

Plan totaling

2,391,711

for a total reserve of

10,391,711

shares. As of

December

31,

2016,

there were options to purchase

1,960,000

shares outstanding under the

2016

Plan.

A summary of the range of assumptions used to value stock options granted for the years ended

December,

2016

and

2015

are as follows:

	For the Years Ended December 31,
	2016				2015

Expected volatility		81	-	104%		107	-	109%
Risk-free interest rate		0.57	–	1.02%		0.75	–	0.86%
Dividend yield			-				-
Expected term (in years)		1.0	–	3.5		3.3	–	3.5

During the year ended

December

31,

2016,

the Company granted options to acquire

3,525,000

shares of common stock with a weighted-average grant-date fair value of

$0.28

per share. During the year ended

December

31,

2016,

options were exercised. As of

December

31,

2016

the outstanding options have an intrinsic value of

$46,233

as of

December

31,

2016.

During the year

December

31,

2015,

the Company granted options to acquire

1,123,500

shares of common stock with a weighted-average grant-date fair value of

$1.19

per share. During the year ended

December

31,

2015,

options to acquire

720,333

shares of common stock were exercised by way of a cashless exercise whereby the option holders elected to receive

550,276

shares of common stock without payment of the exercise price and the remaining options for

170,057

shares were cancelled. The options had an intrinsic value of

$1,131,371

at the time of exercise. In addition, options to acquire

404,667

shares of common stock were exercised for cash payments of

$198,285.

The options had an intrinsic value of

$423,837

at the time of exercise.

The following is a summary of stock option activity for all equity plans for the years ended

December

31,

2016

and

2015:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining C ontractual Term (Years)		Aggregate Intrinsic Value

Outstanding at January 1, 2015		3,500,168		$	0.90		2.02	$	2,785,893
Granted		1,123,500			1.75
Exercised		(1,125,000	)		0.48
Forfeited or Expired		(13,500	)		2.06

Outstanding at December 31 , 2015		3,485,168		$	1.31		2.53	$	63,067
Granted		3,525,000			0.78
Exercised		-			-
Forfeited or Expired		(2,799,000	)		0.96
Outstanding at December 31, 2016		4,211,168		$	1.09		2.85	$	46,233
Vested or Expected to Vest at December 31, 2016		2,551,334		$	1.09		2.21	$	26,333
Exercisable at December 31, 2016		2,551,334		$	1.09		2.21	$	26,333

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the estimated fair value of the Company’s common stock and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they exercised their options on

December

31,

2016.

As discussed below in the Forfeiture and Grant of Stock Options paragraph, on

July

18,

2016,

options to purchase

2,560,000

shares of common stock that were granted under the

2010

Plan to certain officers and directors were cancelled pursuant to certain letter agreements. The Company subsequently granted options to purchase

1,960,000

of shares under the

2016

Plan, which was approved by the stockholders on

September

29,

2016.

The New Options contain relatively the same terms as the forfeited options, with the exception that the exercise price on New Options was not below the closing market price on the date the Special Committee approved the New Options. Accordingly, the Company will treat the forfeiture and granting of New Options as a modification of stock options for accounting purposes.

During the years ended

December

31,

2016

and

2015,

the Company recognized stock-based compensation costs for stock options of

$661,924

and

$617,529,

respectively in general and administrative expenses. The Company currently expects all outstanding options to vest. Compensation cost is revised if subsequent information indicates that the actual number of options vested due to service is likely to differ from previous estimates.

A summary of the status of non-vested shares underlying the options are presented below:

	Number of Shares			Weighted- Average Grant- Date Fair Value

Non-vested at January 1, 2015		498,504		$	1.05
Granted		1,123,500			1.19
Vested		(287,835	)		0.83
Forfeited		(10,500	)		1.48
Non-vested at December 31, 2015		1,323,669		$	1.22
Granted		3,525,000			0.28
Vested		(1,934,835	)		0.49
Forfeited		(1,254,000	)		0.56
Non-vested at December 31, 2016		1,659,834		$	0.58

As of

December

31,

2016

there was

$679,881

of total unrecognized compensation costs related to non-vested shares under the qualified stock option plans which will be recognized over the remaining weighted-average period of

1.61

years.

Forfeiture and Grant of Stock Options

June

17,

2016,

the Board of Directors appointed a special committee of disinterested directors (the “Special Committee”) to address certain claims in a letter dated

June

14,

2016

from an attorney purporting to represent a stockholder of the Company regarding the Company’s

2010

Stock Incentive Plan (the

“2010

Plan”) and equity awards granted thereunder. After investigation and consultation with special counsel, the Special Committee verified that certain stock options granted under the

2010

Plan had exceeded an applicable limitation in the

2010

Plan.

July

2016,

the Special Committee unanimously approved: (a) the rescission (and forfeiture by the holders) of certain stock option awards to purchase

2,560,000

shares of the Company’s common stock that had been granted to various officers and directors in excess of the

2010

Plan’s limitations (“Excess Shares”), and (b) the grant of new options to purchase

1,960,000

shares of the Company’s common stock (the “New Options”), pursuant to the

2016

Plan. The New Options were subject to: (i) each of the option holders entering into a rescission letter agreement with the Company and (ii) stockholder approval of the

2016

Plan.

July

18,

2016,

the Board of Directors unanimously approved the adoption of the

2016

Plan, which after stockholder approval thereof, replaced the

2010

Plan. Further, the Company entered into rescission letter agreements with the various executive officers and directors whereby each such officer/director agreed to forfeit their Excess Shares. The Company agreed to grant the New Options pursuant to new stock option agreements that provide for vesting on substantially the same schedule as the Excess Shares would have vested but could not have been exercised prior to stockholder approval of the

2016

Plan on

September

29,

2016.

The exercise price of the New Options is the greater of the original exercise price of the Excess Shares or the closing market price on

July

2016,

the date the Special Committee approved the New Options. Under the letter agreements, the termination date of each New Option is the termination date of the rescinded option, except that if the termination date of the rescinded option is prior to the

two

-year anniversary of the date of the letter agreement, then the termination date of the New Option is extended

six

months past the termination date of the rescinded option. Further, the Company agreed to submit the

2016

Plan to the stockholders of the Company for approval and on

September

29,

2016,

the stockholders approved the

2016

Plan. The re-priced options did not have any change in the non-cash compensation recognize during the period, since the re-priced fair-value was not in excess of the original fair value.

November

2016,

the Special Committee reached a settlement with the attorney and stockholder that sent the initial demand letter and agreed to pay an immaterial amount in settlement of the matter above.