Note 4  Business Combinations Acquisition of Adler Hot Oil Service, LLC On 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 originally included: (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 "Earn-Out Payment"), the actual amount of which is subject to Enservcos 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 18 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 "Indemnity Holdback Payment"). Certain aspects of the consideration have been modified since execution of the Agreement as further discussed under the heading "Subsequent Event" below. 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 Companys intangible assets as of October 26, 2018. Both internal and external factors influencing the value of the intangibles were considered such as Adlers financial position, results of operations, historical financial data, future financial expectations, economic conditions, status of the oil and gas industry and Adlers position in the industry. The goodwill of approximately $245,000 arising from the acquisition consists largely of the 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 three months ended March 31, 2018 as though the acquisition of Adler had been completed on January 1, 2018. March 31, 2018 Total Revenues $ 25,550 Income from continuing operations $ 4,657 Income per common share - basic and diluted $ 0.09 The pro forma results for the three months ended March 31, 2018 includes 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 8% per annum. Enservco was required to and made principal payments on November 30, 2018 of $800,000, on February 28, 2019 of $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 Enservcos 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. On 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. Subsequent Event On April 4, 2019 Enservco and the Seller entered into a Settlement Agreement and Mutual Release (the Settlement Agreement) in order to resolve certain disputes and disagreements relating to the Transaction without litigation. Pursuant to the Settlement Agreement the parties agreed to (i) waive all rights of the Seller to the Earn-Out Payment and the Indemnity Holdback Payment, (ii) reduce the original principal balance of the Seller Subordinated Note from $4,800,000 to $4,500,000, (iii) extend the maturity date of the Seller Subordinated Note from March 31, 2019 to April 10, 2019, subject to a nine day grace period, and (iv) mutually release one another from any and all demands, claims and causes of action, existing, or arising out of or related to (A) the sale and purchase of Adler, (B) the Purchase Agreement or the Ancillary Documents referred to therein, (C) Adler, (D) loans by the Seller to Adler, or (E) the transactions or activities connected with any of the foregoing or any prior dealings of any of the Seller, on the one hand, and Enservco on the other hand, in each case subject to exceptions for claims arising from breaches of the Settlement Agreement and enumerated provisions of the Purchase Agreement. All adjustments to the original purchase accounting will be recognized in the second quarter, when the settlement occured. On April 19, 2019, Enservco made the final payment to settle the principal balance and accrued interest on the Seller Subordinated Note and has no further obligations to the Seller.