Note

– Business Combinations

Acquisition of Adler Hot Oil Service, LLC

October 26, 2018,

Enservco Corporation entered into a Membership Interest Purchase Agreement (the “Agreement”) with Adler Hot Oil Holdings, LLC, a Delaware limited liability company (the “Seller”), pursuant to which Enservco acquired all of the outstanding membership interests of Adler Hot Oil Service, LLC, a Delaware limited liability company (“Adler”) for a gross aggregate purchase price of

$12.5

million, plus approximately

$500,000

in working capital adjustments (the “Transaction”). The purchase price allocation differs from the gross aggregate purchase price due to fair value adjustments to the indemnity holdback, earnout, plus the discount on the subordinated note. Certain former members of Adler are also parties to the Agreement. Adler is a provider of frac water heating and hot oiling services, whose assets consist primarily of vehicles and equipment, with a complementary base of customers in several oil and gas producing basins where Enservco operates.

The consideration paid or to be paid by Enservco under the Agreement includes: (i)

$3.7

million in cash paid to or for the benefit of the Seller at the closing; (ii) a subordinated promissory note issued to the Seller in the principal amount of

$4.8

million, plus interest accrued thereon (the “Seller Subordinated Note”), as further discussed below; (iii) retirement by Enservco of

$2.5

million in indebtedness of Adler; (iv) an earn-out payment of up to

$1.0

million in cash payable to the Seller, the actual amount of which is subject to Enservco’s satisfaction of certain EBITDA-related performance conditions during

2019;

and (v)

$1.0

million in cash held by Enservco and payable to the Seller on the

month anniversary of

October 26, 2018,

subject to offset by Enservco for any indemnification obligations owed by the Seller or certain former members of Adler under the Agreement.

The acquisition of Adler qualified as a business combination and as such, we estimated the fair value of the assets acquired and liabilities assumed as of the closing date. The fair value measure of the assets acquired and liabilities assumed applied various valuation methods to estimate the value of the intangibles that would provide a fair and reasonable value to a market participant, in view of the facts available at the time. Each valuation method was analyzed to determine which method would generate the most reasonable estimate of value of the Company’s intangible assets as of

October 26, 2018.

Both internal and external factors influencing the value of the intangibles were considered such as Adler’s financial position, results of operations, historical financial data, future financial expectations, economic conditions, status of the oil and gas industry and Adler’s position in the industry.

The goodwill of approximately

$245,000

arising from the acquisition consists largely of the expected synergies expected be achieved from combining the operations of Enservco and Adler.

None

of the goodwill is expected to be deductible for income tax purposes.

Our Consolidated Statements of Operations include approximately

$3.2

million in revenues, and approximately

$371,000

in income before taxes. We expensed approximately

$224,000

of transaction and due diligence costs related to the acquisition of Adler that are included in Sales, general, and administrative expenses in the accompanying Consolidated Statements of Operations.

The following tables represent the consideration paid to the Seller and the estimated fair value of the assets acquired and liabilities assumed.

Consideration paid to Seller:
Cash consideration, including payment to retire Adler debt	$	6,206
Subordinated note, net of discount		4,580
Indemnity holdback at fair value		873
Earnout at fair value		44
Net purchase price	$	11,703

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	43
Accounts receivable, net		1,317
Prepaid expenses and other current assets		239
Property, plant, and equipment		9,664
Intangible assets		1,045
Accounts payable and accrued liabilities		(850	)
Total identifiable net assets		11,458
Goodwill		245
Total identifiable assets acquired	$	11,703

Below are consolidated results of operations for the years ended

December 31, 2018

and

2017

as though the acquisition of Adler had been completed on

January 1, 2017.

	December 31,			December 31,
	2018			2017

Total Revenues	$	59,442		$	54,071
Loss from continuing operations	$	(5,475	)	$	(4,698	)
Loss per common share - basic and diluted	$	(0.12	)	$	(0.11	)

The pro forma results for the years ended

December 31, 2018

and

2017

include adjustments related to the following purchase accounting and acquisition related items:

- Elimination of Adler interest expense.

- Additional interest expense related to long-term debt issued to fund the acquisition.

- Adjustment to depreciation expense based on the adjustment of Adler's Property, plant, and equipment to fair value.

- Adjustment to remove certain professional fees from Adler's expenses.

- Adjustment to remove gain on extinguishment of debt from Adler's results.

Subordinated Note

In connection with the Transaction and pursuant to the terms of the Agreement, on

October 26, 2018,

Enservco issued to the Seller the Seller Subordinated Note in the original principal amount of

$4.8

million, and unpaid amounts thereunder bear simple interest at a rate of

per annum. Enservco was required to and made principal payments on

November 30, 2018

$800,000,

February 28, 2019

$200,000,

and on the final maturity date of the Seller Subordinated Note of

March 31, 2019

of all remaining outstanding principal and interest. Enservco

may

prepay the Seller Subordinated Note in whole or in part, without penalty or premium, at any time prior to its maturity date. The Seller Subordinated Note is guaranteed by Enservco’s subsidiaries and secured by a junior security interest in substantially all assets of Enservco and its subsidiaries. The Seller Subordinated Note is subject to a subordination agreement by and among Enservco, the Seller, and East West Bank.

Second Amendment to Loan and Security Agreement and Consent

In connection with the Transaction, on

October 26, 2018,

Enservco and East West Bank entered into a Second Amendment to Loan and Security Agreement and Consent (the “Second Amendment to LSA”), which amended the Loan and Security Agreement dated

August 10, 2017

by and between Enservco and East West Bank (the “Loan Agreement”). Pursuant to the Second Amendment to LSA, East West Bank consented to the Transaction and increased the maximum borrowing limit of the senior secured revolving credit facility provided to Enservco under the Loan Agreement to

$37.0

million. Proceeds of

$6.2

million from the increased senior secured revolving credit facility were used in the Transaction to make the cash payments at closing and retire the indebtedness of Adler. In connection with the Second Amendment to LSA the capital expenditure limitation contained within the Loan Agreement was increased to

$3.0

million from

$2.5

million.

October 26, 2018,

in connection with the Second Amendment to LSA, Adler entered into a Joinder Agreement, pursuant to which Adler was joined as a party to the Loan Agreement.