10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2014

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 000-54852

CELATOR PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter) 

Delaware	20-2680869
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
200 PrincetonSouth Corporate Center Suite 180 Ewing, New Jersey	08628
(Address of principal executive offices)	(Zip Code)

(609)-243-0123

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨    (Do not check if a smaller reporting company)	Smaller Reporting Company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of August 8, 2014 was 26,078,532.

CELATOR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets as June 30, 2014 and December 31, 2013	1
	Consolidated Statements of Loss for the three and six months ended June 30, 2014 and 2013.	2
	Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2014	3
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	15
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 6.	Exhibits	15
Signature		16
Certifications

Part I. Financial Information

Item 1. Financial Statements

Celator Pharmaceuticals, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	June 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	24,924,518		$	23,589,516
Restricted cash		287,562			287,657
Other receivables		3,328			1,417,313
Prepaid expenses and deposits		599,021			491,465
Assets held for sale		74,086			74,086
Other current assets		879,056			468,389
Total current assets		26,767,571			26,328,426
Property and equipment, net		1,046,486			1,138,579
Other assets		653,299			5,745
Total assets	$	28,467,356		$	27,472,750
Liabilities
Current liabilities:
Current portion of long-term debt	$	282,253		$	-
Accounts payable		525,400			1,193,148
Accrued liabilities		1,545,943			1,630,809
Current portion of deferred revenue		542,986			542,986
Total current liabilities		2,896,582			3,366,943
Long-term debt		9,744,407			-
Deferred revenue		316,743			588,236
Deferred rent		49,844			53,084
Total liabilities		13,007,576			4,008,263
Stockholders' equity
Preferred stock
Authorized 20,000,000 shares, par value $0.001		-			-
Common stock
Authorized 200,000,000 shares, par value $0.001
Issued and outstanding 26,078,532 and 26,035,596 shares as of June 30, 2014 and December 31, 2013 respectively		26,079			26,036
Warrants		1,083,193			1,083,193
Additional paid-in capital		157,017,839			155,953,894
Accumulated other comprehensive loss		(1,133,266	)		(1,133,266	)
Accumulated deficit		(141,534,065	)		(132,465,370	)
Total stockholders' equity		15,459,780			23,464,487
Total liabilities and stockholders' equity	$	28,467,356		$	27,472,750

See accompanying notes to consolidated financial statements.

1

Celator Pharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Loss

(Unaudited)

	Three months ended						Six months ended
	June 30						June 30
	2014			2013			2014			2013
Expenses
Research and development	$	2,936,114		$	2,018,566		$	5,903,967		$	3,669,975
Leukemia & Lymphoma Society funding		(135,746	)		(135,747	)		(771,493	)		(289,593	)
General and administrative		1,729,101			1,138,649			3,617,368			2,487,648
Loss on disposal of property and equipment		-			124,965			-			138,692
Amortization and depreciation		48,353			49,464			96,088			97,052
Operating loss		(4,577,822	)		(3,195,897	)		(8,845,930	)		(6,103,774	)
Other income (expenses)
Foreign exchange (loss) gain		(14,605	)		(1,435	)		(26,313	)		(4,484	)
Interest and miscellaneous income		1,942			3,037			4,257			3,466
Non-cash derivative instrument charge		-			(747,311	)		-			(7,473,108	)
Interest expense		(200,709	)		(99,371	)		(200,709	)		(147,025	)
Net loss	$	(4,791,194	)	$	(4,040,977	)	$	(9,068,695	)	$	(13,724,925	)
Net loss per share
Basic and diluted	$	(0.18	)	$	(0.18	)	$	(0.35	)	$	(0.77	)
Weighted average of common shares outstanding
Basic and diluted		26,078,532			22,089,921			26,058,131			17,904,791

See accompanying notes to consolidated financial statements.

2

Celator Pharmaceuticals, Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity

For the Six Months Ended June 30, 2014

(Unaudited)

									ACCUMULATED
							ADDITIONAL		OTHER
	COMMON STOCK						PAID-IN		COMPREHENSIVE			ACCUMULATED			STOCKHOLDERS’
	NUMBER		AMOUNT		WARRANTS		CAPITAL		LOSS			DEFICIT			EQUITY
Balance at December 31, 2013		26,035,596	$	26,036	$	1,083,193	$	155,953,894	$	(1,133,266	)	$	(132,465,370	)	$	23,464,487
Exercise of stock options		42,936		43		-		100,596		-			-			100,639
Stock-based compensation		-		-		-		642,597		-			-			642,597
Warrants issued		-		-		-		320,752		-			-			320,752
Net loss for the period		-		-		-		-		-			(9,068,695	)		(9,068,695	)
Balance at June 30, 2014		26,078,532	$	26,079	$	1,083,193	$	157,017,839	$	(1,133,266	)	$	(141,534,065	)	$	15,459,780

See accompanying notes to consolidated financial statements.

3

Celator Pharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended
	June 30,
	2014			2013
Operating activities
Net loss	$	(9,068,695	)	$	(13,724,925	)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization and depreciation		96,088			97,052
Non-cash stock-based compensation expense		642,597			86,780
Loss on disposal of property and equipment		-			138,692
Non-cash derivative instrument charge		-			7,473,108
Non-cash financing costs		57,167			74,752
Changes in operating assets and liabilities
Other receivables		1,410,237			1,993,925
Prepaid expenses and deposits		(107,135	)		(140,756	)
Restricted cash		(25	)		(250,022	)
Other current assets		(410,667	)		(358,359	)
Accounts payable		(666,455	)		(49,184	)
Accrued liabilities		(83,059	)		(42,816	)
Deferred rent		(3,240	)		-
Deferred revenue		(271,493	)		(289,593	)
Cash used in operating activities		(8,404,680	)		(4,991,346	)
Investing activities
Purchase of property and equipment		(3,995	)		(35,544	)
Proceeds on disposals of property and equipment		-			36,673
Cash (used in) provided by investing activities		(3,995	)		1,129
Financing activities
Proceeds from issuance of common stock and on options exercised		104,387			32,499,986
Payment of share issuance costs		-			(3,079,611	)
Proceeds from loans payable		9,827,216			-
Payment of debt issuance costs		(184,469	)		-
Repayments of loans payable		-			(3,000,000	)
Cash provided by financing activities		9,747,134			26,420,375
Effect of foreign exchange rate changes		(3,457	)		1,707
Net change in cash and cash equivalents		1,335,002			21,431,865
Cash and cash equivalents, beginning of period		23,589,516			9,648,008
Cash and cash equivalents, end of period	$	24,924,518		$	31,079,873
Supplemental disclosure of cash flow information
Interest paid	$	62,292		$	79,388
Capital expenditure incurred but not paid		-			14,687

See accompanying notes to consolidated financial statements

4

1. Nature of Business and Liquidity

Celator Pharmaceuticals, Inc. (“CPI” or the “Company”), with locations in Ewing, N.J., and Vancouver, B.C., is a pharmaceutical company developing new and more effective therapies to treat cancer. CombiPlex®, the Company’s proprietary drug ratio technology platform, represents a novel approach that identifies molar ratios of drugs that will deliver a synergistic benefit, and locks the desired ratio in a nano-scale drug delivery vehicle that maintains the ratio in patients with the goal of improving clinical outcomes.

The Company has incurred recurring losses and negative cash flows from operations since inception. As of June 30, 2014, the Company had an accumulated deficit of $141.5 million. The Company expects operating losses and negative cash flows to continue for the foreseeable future until such time, if ever, that it can generate significant revenues from its product candidates currently in development. At June 30, 2014, the Company had cash and cash equivalents of $24.9 million. Management believes that the cash and cash equivalents at June 30, 2014 will be sufficient to meet estimated working capital requirements and fund planned operations into the fourth quarter of 2015. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its product candidates.

The Company is subject to those risks associated with any specialty pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.

2. Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes included in Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted.

In the opinion of management of the Company, the interim consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, operating results and cash flows of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

Basis of consolidation: The consolidated financial statements include the accounts of Celator and its wholly-owned subsidiaries, Celator Pharmaceuticals Corp. (“CPC”) and Celator UK Ltd. All intercompany transactions have been eliminated.

Use of estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates. Significant areas requiring management estimates in the preparation of these consolidated financial statements include, among other things, assessment of other receivables, accrued liabilities, impairment and amortization of property and equipment, valuation allowance for deferred income taxes, valuation of stock-based compensation and contingencies.

New Accounting Pronouncement: In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates all incremental financial reporting requirements for development stage entities by removing Accounting Standards Codification (ASC) Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification. The amendments in this Update remove the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. ASC Topic 915 is removed effective for annual periods beginning after December 15, 2014 and early adoption is permitted. The Company adopted the ASU effective with the issuance of its June 30, 2014 financial statements.

3. Fair Value Measurements

Financial instruments of the Company consist of cash deposits, money market investments, other receivables, accounts payable, certain accrued liabilities and debt. The carrying value of these financial instruments generally approximates fair value due to their short-term nature.

ASC Topic 820, Fair Value Measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820-10 establishes three levels of inputs that may be used to measure fair value:

5

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

ASC 820 requires disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value.

The Company recognizes transfers between input levels as of the actual date of event. There were no transfers between levels and the following table provides the assets carried at fair value:

	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2014
Assets:
Certificates of Deposit	$	14,003,243	$	14,003,243	$	-	$	-
Money Market Fund		8,308,322		8,308,322		-		-
Total	$	22,311,565	$	22,311,565	$	-	$	-
December 31, 2013
Assets:
Certificates of Deposit	$	15,003,472	$	15,003,472	$	-	$	-
Money Market Fund		7,597,730		7,597,730		-		-
Total	$	22,601,202	$	22,601,202	$	-	$	-

Non-cash derivative instrument charge

The Company recognized a non-cash derivative instrument charge of $747,311 and $7,473,108 during the three and six months ended June 30, 2013 respectively. The charge related to an obligation to issue additional shares of common stock and warrants to certain existing stockholders who participated in early closings of a private placement that started in 2012 and closed on April 29, 2013. The fair value of these common shares and warrants was recognized as a derivative liability with a corresponding charge to the statement of loss. Upon the closing of the April 2013 Private Placement, the derivative liability was reclassified into stockholders’ equity as the obligation to issue additional securities no longer existed. This contractual obligation was fair valued using significant unobservable inputs (Level 3).

4. Other Receivables

Other receivables as of June 30, 2014 and December 31, 2013, consists of the following:

	June 30, 2014		December 31, 2013
Receivables related to the sale of New Jersey net operating losses	$	-	$	1,412,302
Other receivables		3,328		5,011
	$	3,328	$	1,417,313

5. Other Current Assets

Other current assets as of June 30, 2014 and December 31, 2013 consist of the following:

	June 30, 2014		December 31, 2013
Clinical trial materials	$	879,056	$	468,389

6

6. Property and Equipment

Property and equipment as of June 30, 2014 and December 31, 2013 including assets held under capital lease, consists of the following:

	June 30, 2014			December 31, 2013
Computer and equipment	$	140,495		$	136,498
Furniture and office equipment		96,457			96,457
Laboratory equipment		1,760,633			1,760,633
Capital lease equipment		155,523			155,523
Leaseholds		37,789			37,789
		2,190,897			2,186,900
Less: Accumulated depreciation		(1,144,411	)		(1,048,321	)
	$	1,046,486		$	1,138,579

	Three months ended				Six months ended
	June 30				June 30
	2014		2013		2014		2013
Depreciation and amortization	$	48,353	$	49,464	$	96,088	$	97,052

In February 2012, the Company closed a laboratory in Canada and consigned certain property and equipment for sale with net book value of $507,622. At June 30, 2014 and December 31, 2013, the net book value of the remaining consigned equipment was $74,086 and consisted solely of scientific equipment, which is presented as assets held for sale on the consolidated balance sheet.

During six months ended June 30, 2013 assets held for sale with a net book value of $174,768 were sold for proceeds of $36,673 resulting in a loss on disposal of $138,095. There were no disposals during the three and six months ended June 30, 2014.

7. Accrued Liabilities

Accrued liabilities as of June 30, 2014 and December 31, 2013 consist of the following:

	June 30, 2014		December 31, 2013
Accrued bonuses	$	562,392	$	624,472
Accrued salaries and vacation		176,836		143,484
Accrued professional fees		30,000		30,911
Accrued clinical trial expenses		631,023		636,497
Accrued trade payables other		145,692		195,445
	$	1,545,943	$	1,630,809

8. Loans Payable

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Growth Capital, Inc. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-two months including an initial interest-only period of twelve months after closing. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time between December 15, 2014 and March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014. The funds will be used to provide general working capital.

Pursuant to the loan agreement, the Company issued Hercules a warrant to purchase 158,006 shares of the Company’s common stock at an exercise price of $2.67 per share with a term of five years. The fair value of the warrants of $320,752 and financing costs of $357,253 incurred in connection with the term loan were recorded as debt issuance costs and will be amortized as interest expense using the effective interest method over the term of the loan. Amortization of debt issuance costs was $30,507 for the three and six months ended June 30, 2014 and the remaining unamortized debt issuance costs of $647,498 is included in other non-current assets.

In addition, the Company will pay an end of term charge of $592,500 on the earliest to occur of (i) the term loan maturity date, (ii) the date that the Company prepays the outstanding loan, or (iii) the date that the loan become due and payable. The end of term charge will be accrued as additional interest expense using the effective interest rate method over the term of the loan. The Company accrued $26,660 of this fee during the three months ended June 30, 2014.

Long-term debt as of June 30, 2014 consists of the following:

Loan payable	$	10,000,000
End of term fee		26,660
		10,026,660
Less: Current portion		(282,253	)
Long-term debt	$	9,744,407

7

9. Stock Based Compensation

The following table summarizes the activity of the Company’s stock option plans for the six months ended June 30, 2014:

	Number of options			Exercise price
December 31, 2013		2,578,252		$	2.98
Granted		478,500			3.15
Exercised		(42,936	)		2.34
Cancelled		(9,269	)		3.37
June 30, 2014		3,004,547		$	3.02
Exercisable at June 30, 2014		1,094,447		$	2.72

The following table provides information regarding stock options activity during the periods:

	Three months ended						Six months ended
	June 30						June 30
	2014			2013			2014			2013
Stock compensation expense recognized	$	339,615		$	82,502		$	642,597		$	86,780
Weighted average grant-date fair value of stock options issued (per share)	$	2.35		$	2.14		$	2.70		$	2.14
Grant-date fair value of stock options issued	$	197,400		$	3,268,101		$	1,291,950		$	3,268,101
Volatility		112.0	%		118.2	%		114.5	%		118.2	%
Risk-free interest rate		1.9	%		1.9	%		2.0	%		1.9	%
Dividend yield		0	%		0	%		0	%		0	%
Expected life in years		6.0			6.2			6.2			6.2
Intrinsic value of stock options exercised	$	-		$	-		$	38,892		$	-

The grant-date fair value of stock options is estimated using the Black Scholes option pricing model. The Company determined the options’ life based on the simplified method and determined the options’ expected volatility based on peer group volatility and dividend yield based on the historical dividend payments. The risk free interest rate is based on the yield of an applicable term Treasury instrument.

The Company amortizes the fair value of the stock options on a straight-line basis over the applicable requisite service periods of the awards, which is generally the vesting period. At June 30, 2014, the total compensation cost related to non-vested awards not yet recognized and weighted average period over which it will be recognized was $4,297,202 and 3.1 years, respectively.

10. Geographic Segment Information

The Company operates in the United States and Canada. The Company’s CPX-351 clinical trial materials are manufactured by a third party using the Company’s equipment located in Germany. Geographic net loss information is based on the location whereby the expenses were incurred. The geographic information about total assets is based on the physical location of the assets.

	Total Assets
	June 30, 2014		December 31, 2013
United States	$	27,301,017	$	26,190,516
Canada		242,462		284,563
Germany		923,877		997,671
Total Assets	$	28,467,356	$	27,472,750

8

				Net Loss
	Three months ended						Six months
	June 30						June 30
	2014			2013			2014			2013
United States		(4,276,673	)		(3,624,723	)		(7,931,554	)		(12,374,358	)
Canada		(514,521	)		(416,254	)		(1,137,141	)		(1,350,567	)
Total Net Loss	$	(4,791,194	)	$	(4,040,977	)	$	(9,068,695	)	$	(13,724,925	)

11. Commitments and Contingencies

In February 2013, the Company renewed its office lease agreements for office space in Vancouver, British Columbia, effective April 1, 2013, which expires in June 2016. The remaining minimum lease payments as of June 30, 2014 totaled $133,439.

In March 2013, the Company entered into an office lease agreement for office space in Ewing, New Jersey, which commenced in June 2013 with a term of sixty months. The remaining minimum lease payments as of June 30, 2014 totaled $564,624. Under the Ewing, New Jersey lease agreement, the Company will be obligated to maintain a letter of credit from a bank with respect to its security deposit obligations in the amount of $200,000 during the first year of the Agreement, which amount will be reduced by $40,000 per year on each of December 1, 2014, 2015, and 2016 and by $60,000 on December 1, 2017.

The Company has a worldwide exclusive license agreement with Princeton University dated June 2007 that provides the Company with exclusive rights to some aspects of its nanoparticle polymer technology arising from research sponsored by the Company at Princeton University between 2003 and 2007. These inventions are generally characterized as particulate constructs for release of active agents for medical application. Of the products currently in Celator’s pipeline, only the hydrophobic docetaxel prodrug nanoparticle (HDPN) formulation is subject to this agreement. The Company is obligated to pay a royalty on net sales to Princeton University of a low single-digit percentage if any invention is sold by the Company or a company to which the product covered by the invention was licensed by the Company, which was generated under the exclusive licensing agreement. No royalty or other product/sub-license-related payments have been made to date. The Company is obligated to provide Princeton University a percentage within the range of 45% to 55% of proceeds obtained from a sub-license of the intellectual property to a third party in cases where the Company has not conducted any research or development activities and is solely licensing out the original intellectual property jointly developed by the Company and Princeton University. The Company may terminate the agreement at any time by giving 90 days written notice to Princeton University. Princeton may terminate the agreement if the Company should breach or fail to perform under the agreement, with written notice of default provided by Princeton University to the Company and only if the Company fails to cure the default within 60 days. The Company is obligated under the agreement to provide an annual progress report to Princeton University on any developments of the licensed technology as well as prosecution of the patents covering the technology and the use of commercially reasonable efforts to develop licensed products.

The Company has a collaborative research agreement dated May 2001 with the British Columbia Cancer Agency (“BCCA”) whereby in consideration for the license and conditional assignment of all Company-sponsored intellectual property to the Company by BCCA, the Company will pay to BCCA a royalty in the low single digits on net sales of royalty-bearing products in territories so long as a valid claim exists for inventions made between June 2000 and June 2005 under the agreement. All obligations relating to the conduct of the research and assignment of intellectual property have been completed. No payments of royalties have been made to date. Either party may terminate the agreement if the other party commits a material breach or default and such breach or default is not reasonably cured within 45 days.

In consideration of funding by the Leukemia & Lymphoma Society ® (“LLS”) and transfer to the Company of any rights LLS may have to any project inventions developed during the term of the agreement, the Company may be required to pay LLS a cash multiple on the LLS funding, (LLS funding is the $5 million in support of the Phase 3 study in addition to the approximately $4.1 million the Company received in support of the Phase 2 study). Subject to exclusions under the agreement, the Company is obligated to pay LLS an amount equal to 50% of the cash payments the Company receives from out-licenses and transfers of rights to the product or other liquidity event, as defined in the agreement, until LLS has received an amount equal to 1.5 times the amount of funding the Company receives from LLS. The total amount payable by the Company to LLS will not exceed 3.55 times the amount of funding received from LLS, with the specific amount depending on when the payment(s) occur relative to the timing of the research program and product commercialization. The payments may take the form of cash payments or royalties (not to exceed 5% of net sales) but will not exceed the maximum amount referred to in the preceding sentence.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties that may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results, product development, product approvals, product potential and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially.

The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. In Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.

Highlights

Celator Pharmaceuticals, Inc., with locations in Ewing, N.J., and Vancouver, B.C., is a pharmaceutical company developing new and more effective therapies to treat cancer. CombiPlex®, the Company’s proprietary drug ratio technology platform, represents a novel approach that identifies molar ratios of drugs that will deliver a synergistic benefit, and locks the desired ratio in a nano-scale drug delivery vehicle that maintains the ratio in patients with the goal of improving clinical outcomes. The Company’s pipeline includes two clinical stage products, CPX-351, a liposomal formulation of cytarabine:daunorubicin for the treatment of acute myeloid leukemia, or AML, and CPX-1, a liposomal formulation of irinotecan:floxuridine, for the treatment of colorectal cancer; and preclinical stage product candidates, including CPX-571, a liposomal formulation of irinotecan:cisplatin, and CPX-8, a hydrophobic docetaxel prodrug nanoparticle, or HDPN, a formulation being studied by the National Cancer Institute’s Nanotechnology Characterization Laboratory.

Overview

Celator was founded in 1999 by a team led by Dr. Lawrence Mayer (currently Celator’s President and Chief Scientific Officer) and Dr. Marcel Bally from the British Columbia Cancer Agency. Celator’s strategy evolved into developing drug combination products based on CombiPlex, Celator’s proprietary drug ratio technology platform.

Since the founding of Celator, $95.7 million has been invested in research and development with funds being used with the Company’s proprietary technologies, including CombiPlex, creating a pipeline of drugs and managing the clinical studies. Celator’s commercial success depends upon its ability, and the ability of any of its future collaborators, to develop, manufacture, market, and sell the product candidates. Numerous U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which Celator is developing products. There is no guarantee that Celator will be able to market or sell any of its products.

Celator intends to use future net proceeds to fund its development activities, including clinical studies, manufacturing development (including capital expenditures), working capital and other general corporate purposes.

Celator believes that, based on its current financial resources, it will need to raise additional funding to complete the development and potential commercialization of CPX-351. To the extent that the costs of the planned study exceed current estimates or the survival analysis does not occur within the currently anticipated timeframe, and Celator is unable to raise sufficient additional capital to cover such additional costs, Celator will need to reduce operating expenses, enter into a collaboration or other similar arrangement with respect to development and/or commercialization rights to CPX-351, out-license intellectual property rights to CPX-351, sell assets or effect a combination of the above. No assurance can be given that Celator will be able to effect any of such transactions on acceptable terms, if at all.

Celator has spent research and development funds on clinical studies, research collaborations and intellectual property costs. For the years 2010 through June 2014, the bulk of the spending has been on clinical studies. The three major studies are:

Study 204 — Randomized Phase 2 Study of CPX-351 in Newly Diagnosed AML Patients Age 60 – 75

Study 205 — Randomized Phase 2 Study of CPX-351 in AML Patients in First Relapse, Patients Age 18 – 65

Study 301 — Randomized Phase 3 Study in Patients with sAML

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Study 204 was conducted in newly diagnosed AML patients age 60-75 years. The study was intended to be a direct test of whether delivery of a fixed, synergistic ratio of two drugs, cytarabine and daunorubicin, (i.e., CPX-351 which is a 90 minute infusion on days 1, 3 and 5) provided increased clinical efficacy over conventional administration of the same agents (i.e., which is a 7-day continuous infusion of cytarabine, combined with daunorubicin on days 1, 2 and 3, commonly referred to as the 7+3 regimen). This study is complete. In the overall population, in patients treated with CPX-351 the response rate increased by 30% (66.7% vs. 51.2%), the 60-day mortality was decreased by approximately 68% (4.7% vs. 14.6%), and the median overall survival increased approximately 14% (14.7 months vs. 12.9 months). In sAML patients (approximately 41% of the overall population), the response rate increased by 82% (57.5% vs. 31.6%), the 60-day mortality was decreased approximately 81% (6.1% vs. 31.6%), the median event-free survival increased approximately 246% (4.5 months vs. 1.3 months) and the median overall survival increased approximately 98% (12.1 months vs. 6.1 months).

Study 205 was a randomized Phase 2 study designed to be a direct test of whether CPX-351 provides increased clinical efficacy over salvage therapies in AML patients in first relapse age 18-65. This study is complete. In the overall population, CPX-351 resulted in a 21% relative increase in response rate (49.4% vs. 40.9%) compared to the control arm of salvage therapies, a 7% decrease in the 60-day mortality (14.8% vs. 15.9%), a relative 35% increase in median overall survival (8.5 months vs. 6.3 months) and an approximately 31% increase in 1-year survival rate (35.8% vs. 27.3%). For patients in the unfavorable risk category (68% of the overall population), CPX-351 resulted in a 42% relative increase in response rate (39.3% vs. 27.6%) compared to the control arm of salvage therapies, a 33% decrease in 60-day mortality (16.1% vs. 24.1%), a 57% relative increase in median overall survival (6.6 months vs. 4.2 months) and a 172% increase in 1-year survival rate (28.6% vs. 10.3%).

Study 301 has been undertaken to confirm the Study 204 clinical observations where CPX-351 provided the largest efficacy improvements in secondary AML patients and to provide the necessary data for product registration. The study is designed to randomize and treat 300 patients. Study 301 has surpassed 80% overall enrollment and the final patient to be enrolled is expected in the fourth quarter 2014 with induction response rate data available in the second quarter of 2015. The final overall survival report is expected to be available in the first quarter of 2016, with the NDA anticipated to be filed in the second half of 2016. There have been and it is expected there will continue to be significant costs associated with this study, including site enrollment, grants, patient monitoring, database maintenance, statistical monitoring, data analysis, salaries and insurance. The projected cost for this study is $35.0 million, and completion is anticipated in 2016. The timeline and costs for this study have been based on Celator’s experience with Study 204. As of August 6, 2014, 41 centers had been initiated/open for enrollment in Study 301.

In June 2012, Celator entered into an agreement with LLS pursuant to which the Leukemia and Lymphoma Society (LLS) is providing $5.0 million in funding from the LLS Therapy Acceleration Program (“TAP”) program for the Phase 3 study of CPX-351. The agreement provided for LLS to make an upfront payment of $2.0 million to Celator, which was received in July 2012, and further payments totaling an additional $3.0 million on the achievement of clinical milestones; however, the amount may be refundable by the Company in the event of a material breach by the Company under the agreement. The $2.0 million upfront payment has been recorded as deferred revenue and will be recognized over the estimated performance period of the research and development services to be provided under the agreement. As of June 30, 2014, $0.9 million was deferred. Since November 2012, Celator has received a total of $1.5 million for milestones achieved under this agreement. In consideration of LLS’s funding, and transfer to the Company of any rights LLS may have to any project inventions developed during the term of the agreement, the Company must pay LLS a multiple on the LLS funding (LLS funding is the $5 million in support of the Phase 3 study in addition to the approximately $4.1 million the Company received in support of the Phase 2 study during 2010 and 2011). Subject to exclusions under the agreement, the Company is obligated to pay LLS an amount equal to 50% of the cash payments the Company receives from outlicenses and transfers of rights to the product or other liquidity event, as defined in the agreement, until LLS has received an amount equal to 1.5 times the amount of funding the Company receives from LLS. The total amount payable by the Company to LLS will not exceed 3.55 times the amount of funding received from LLS, with the specific amount depending on when the payment(s) occur relative to the timing of the research program and product commercialization. The payments may take the form of cash payments or royalties (not to exceed 5% of net sales) but will not exceed the maximum amount referred to in the preceding sentence.

On April 29, 2013, the Company entered into a securities purchase agreement and subscription agreements with certain accredited investors for the issuance and sale in the final round of a private placement of 10,430,034 shares of common stock, which the Company sold at a price of $3.116 per share for aggregate gross proceeds of $32,499,986. Warrants to purchase 0.28 shares of common stock at $3.58 per share were issued for each share of common stock purchased. The net proceeds totaled $29,420,375 for this financing.

In connection with this final closing of the financing, 1,923,599 shares of common stock and 161,327 warrants to purchase shares of common stock at $5.21 and 1,056,898 warrants to purchase shares of common stock at $3.58 per share were issued to certain existing stockholders of the Company who participated in earlier closings of this financing. The fair value of these common shares and warrants was recognized as a derivative liability with a corresponding charge to the statement of loss. The derivative liability was fair valued at $6,725,797 as of March 31, 2013. Upon the closing of the April 2013 private placement, the derivative liability was reclassed into Stockholders’ equity as the obligation to issue additional securities no longer existed.

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Growth Capital, Inc. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-two months including an initial interest-only period of twelve months after closing. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time between December 15, 2014 and March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014. The funds will be used to provide general working capital.

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Pursuant to the loan agreement, the Company issued Hercules a warrant to purchase 158,006 shares of the Company’s common stock at an exercise price of $2.67 per share with a term of five years. The fair value of the warrants of $320,752 and financing costs of $357,253 incurred in connection with the term loan were recorded as debt issuance costs and will be amortized as interest expense using the effective interest method over the term of the loan. Amortization of debt issuance costs was $30,507 for the three and six months ended June 30, 2014 and the remaining unamortized debt issuance costs of $647,498 is included in other non-current assets.

In addition, the Company will pay an end of term charge of $592,500 on the earliest to occur of (i) the term loan maturity date, (ii) the date that the Company prepays the outstanding loan, or (iii) the date that the loan become due and payable. The end of term charge will be accrued as additional interest expense using the effective interest rate method over the term of the loan. The Company accrued $26,660 of this fee during the three months ended June 30, 2014.

Results of Operations

Three months ended June 30, 2014 compared to the three months ended June 30, 2013

Expenses

Research and Development:   Celator charges research and development costs to operations as incurred. Celator’s research and development expenses were $2,936,000 for the three months ended June 30, 2014 compared to $2,019,000 for the three months ended June 30, 2013 reflecting an increase of $917,000. The increase was primarily attributable to $324,000 increase in compensation and stock option expenses, $219,000 increase in manufacturing and drug and lipid costs, $174,000 increase in outsourced clinical trial and regulatory activities related to the Phase 3 trial of CPX-351, $167,000 for a metabolism study that began during the second half of 2013 for CPX-351, and $38,000 increase in quality assurance audits and external services.

LLS Funding:   The LLS revenue recognized for the three months ended June 30, 2014 and 2013 was $136,000 and represents the amortization of a $2,000,000 upfront payment received during 2012 that was deferred and is being recognized over the estimated performance period of the research and development services to be provided under the agreement.

General and Administrative:   General and administrative expenses consist largely of salaries and related benefits, external costs for professional fees relating to legal, accounting and tax services, investor relations expenses, director and scientific advisory services as well as the lease expense for the facilities.

General and administrative expenses were $1,729,000 for the three months ended June 30, 2014 compared to $1,139,000 for the three months ended June 30, 2013, reflecting an increase of $590,000. The increase was primarily attributable to $528,000 increase in compensation and stock option expenses, $223,000 increase in consulting associated with commercial and strategic planning and $47,000 increase in investor relation and consulting costs. These increases were offset by reductions in professional fees of $115,000, leases and building operating costs of $24,000 and public company related expenses of $24,000.

Loss on Disposal of Property and Equipment: The Company recorded a loss on disposal of property and equipment of $125,000 for the three months ended June 30, 2013. The loss in 2013 arose from the sale of assets that were classified as held for sale at the beginning the year.

Amortization and Depreciation: Amortization and depreciation expense was $48,000 for the three months ended June 30, 2014 and $49,000 for the three months ended June 30, 2013.

Other Income and Expenses

Non-cash derivative instrument charge: The non-cash derivative instrument charge was $747,000 for the three months ended June 30, 2013. The charge resulted from the change in fair value related to the obligation to issue additional shares of common stock and warrants by Celator, at the April 29, 2013 closing of a private placement, to certain existing stockholders who participated in early closings of this financing.

Interest Expense: Interest expense for the three months ended June 30, 2014 was $201,000 and related to interest on a term loan entered into with Hercules Technology Capital Growth in May 2014. Interest expense for the three months ended June 30, 2013 was $99,000 and related to interest on a bank loan that was repaid in 2013. Interest expense in both years includes amortization of debt issuance costs.

Six months ended June 30, 2014 compared to the six months ended June 30, 2013

Expenses

Research and Development: Celator charges research and development costs to operations as incurred. Celator’s research and development expenses were $5,904,000 for the six months ended June 30, 2014 compared to $3,670,000 for the six months ended June 30, 2013 reflecting an increase of $2,234,000. The increase was primarily attributable to $557,000 due to increase in clinical trial material costs, $455,000 for compensation and stock option expense increase in clinical trials and regulatory departments, $450,000 increase in outsourced clinical trial and regulatory activities related to the Phase 3 trial of CPX-351, $415,000 for a metabolism study that began during the second half of 2013 for CPX-351, $199,000 increase in manufacturing, drug and lipid costs, $71,000 increase in quality assurance audits and external service related to manufacturing and $28,000 due to increase in drug storage and shipping costs to sites.

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LLS Funding: The LLS funding for the six months ended June 30, 2014 was $771,000 compared to $290,000 for the six months ended June 30, 2013. The amount recognized during the six months ended June 30, 2014 represents payment from LLS for achieving 50% overall enrollment milestone in January 2014 of $500,000 and amortization of an upfront payment received during 2012 of $272,000. The six months ended June 30, 2014 amount represents amortization of an upfront payment received during 2012 of $290,000.

General and Administrative: General and administrative expenses consist of salaries and related benefits, lease expense of the facilities, professional fees relating to legal, accounting, and tax services and other administrative costs.

General and administrative expenses were $3,617,000 for the six months ended June 30, 2014 compared to $2,488,000 for the six months ended June 30, 2013, reflecting an increase of $1,129,000. The increase was primarily attributable to $683,000 due to compensation and stock option expense increase, $306,000 increase in consulting associated with commercial and strategic planning, $105,000 increase in investor relation and consulting costs, $35,000 for increased public company related costs, $69,000 for increased board of directors’ fees. These increases were offset by reductions in leases and building operating costs of $69,000 and recruitment expenses of $24,000.

Loss on Disposal of Property and Equipment: The Company recorded a loss on disposal of property and equipment of $139,000 for the six months ended June 30, 2013. The loss in 2013 arose from the sale of assets that were classified as held for sale at the beginning the year.

Amortization and Depreciation: Amortization and depreciation expense was $96,000 for the six months ended June 30, 2014 and $97,000 for the six months ended June 30, 2013.

Other Income and Expenses

Non-cash derivative instrument charge: Non-cash derivative instrument charge was $7,473,000 for the six months ended June 30, 2013. The charge resulted from the obligation to issue additional shares of common stock and warrants by Celator, at the April 29, 2013 closing, to certain existing stockholders who participated in early closings of this financing.

Interest Expense: Interest expense was $201,000 and $147,000 for the six months ended June 30, 2014 and June 30, 2013 respectively. Interest expense of $201,000 for the six months ended June 30, 2014 related to interest on a Hercules Technology Capital Growth term loan entered into in May 2014 which includes $57,000 related to non-cash amortization of deferred financing costs. Interest expense of $72,000 for the six months ended June 30, 2013 related to interest on a bank loan and $75,000 related to non-cash financing costs.

Liquidity and Capital Resources

Overview

There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. To date, the Company has funded its operations primarily through private placements of preferred stock and common stock, convertible debt and debt financings. However, we may pursue additional financing options, including entering into agreements with collaborative partners in order to provide milestone payments, license fees and equity investments. As of June 30, 2014, the Company had cash and cash equivalents of approximately $24.9 million.

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Growth Capital, Inc. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-two months including an initial interest-only period of twelve months after closing. The net proceeds from the loan were $9.6 million. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time between December 15, 2014 and March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014. The funds will be used to provide general working capital.

In April 2013, the Company raised $29.4 million of net proceeds from the final round of a private placement. We expect to continue to incur losses as we fund our research and development activities and commercial launch activities, and we do not expect material revenues for at least the next few years.

Even though we believe we currently have access to sufficient funds to meet our financial needs into the fourth quarter of 2015, our business strategy in the future will require us to raise additional capital through licensing, debt or equity sales, other means or any combination of these options. The Company’s future capital requirements will depend on many factors, including those factors described in Item 1A. “Risk Factors” of the 2013 Form 10-K annual report as well as the Company’s ability to execute on its business and strategic plans as currently conceived.

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Cash Flows

Net cash used in operating activities was $8,405,000 for the six months ended June 30, 2014. The six months ended June 30, 2014 amount reflected the Company’s net loss of $9,069,000, offset by $796,000 in net non-cash charges including non-cash charge relating to amortization and depreciation of $96,000, stock-based compensation expense of $643,000 and non-cash interest expense of $57,000 related to the deferred financing costs amortization for a term loan. In addition, the Company used $132,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the six months ended June 30, 2014. The changes in operating assets and liabilities were decreases in other receivables of $1,410,000, offset by increases in prepaid expenses and deposits of $107,000, and other current assets of $411,000 and decreases in accounts payable of $666,000, accrued expenses of $83,000, deferred rent of $3,000 and deferred revenue of $271,000.

Net cash used in operating activities was $4,991,000 for the six months ended June 30, 2013. The six months ended June 30, 2013 amount reflected the Company’s net loss of $13,725,000, offset by $7,870,000 in net non-cash charges including non-cash charge relating to amortization and depreciation of $97,000, stock-based compensation expense of $87,000, loss on disposal of property and equipment of $139,000, a derivative instrument of $7,473,000 and non-cash interest expense of $75,000 related to the deferred financing costs amortization for bank loan. In addition, the Company generated $864,000 of operating cash as a result of changes in certain of its operating assets and liabilities during the six months ended June 30, 2013. The changes in operating assets and liabilities were decreases in other receivables of $1,994,000, offset by increases in prepaid expenses and deposits of $141,000, restricted cash of $250,000, and other current assets of $358,000 and decreases in accounts payable of $49,000, accrued expenses of $43,000 and deferred revenue of $290,000.

Cash used in investing activities for the six months ended June 30, 2014 was $4,000 for property and equipment expenditures. Cash provided by investing activities was $1,000 for the six months ended June 30, 2013, reflecting $36,000 of property and equipment expenditures and $37,000 of proceeds from the sale of property and equipment.

Cash provided by financing activities for the six months ended June 30, 2014 was $9,747,000. The cash inflow was from the net proceeds on issuance of debt of $9,643,000 and from exercised stock options of $104,000. Cash provided by financing activities for the six months ended June 30, 2013 was $26,420,000. The cash inflow was from the net proceeds of $29,420,000 from the April 2013 final round of a private placement offset by $3,000,000 for the repayment of bank debt.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.

Critical Accounting Policies

The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements for the year ended December 31, 2013 included in Celator Pharmaceuticals Inc.’s Form 10-K filed. There have been no significant changes in the Company’s critical accounting policies since December 31, 2013.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We invest excess cash in investment grade, interest-bearing securities and at June 30, 2014, had approximately $22.3 million invested in money market instruments and certificates of deposit. Such investments are subject to interest rate and credit risk and are not fully insured by the federal government. We believe our policy of investing in highly rated securities, whose liquidities are, at June 30, 2014, all less than 90 days minimizes such risks. In addition, while a hypothetical one percent per annum decrease in market interest rates would have decreased our interest income for the period, it would not have resulted in a loss of the principal and the decline in interest income would have been immaterial to us.

The Company had outstanding total debt at June 30, 2014 of $10 million. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014.

The majority of our business is conducted in U.S. dollars. However, we do conduct certain transactions in other currencies, including Canadian dollars. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations, and during the six months ended June 30, 2014 and 2013, our results of operations were not materially affected by fluctuations in foreign currency exchange rates.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.

Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

There are no material pending legal proceedings.

Item 1A. Risk Factors

Except for the historical information in this report, the matters contained in this report include forward-looking statements that involve risks and uncertainties. Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. These factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors may have a material adverse effect upon our business, results of operations and financial condition.

You should consider carefully the risk factors, together with all of the other information included in our Annual Report on Form 10-K for the year ended December 31, 2013. Each of these risk factors could adversely affect our business, results of operations and financial condition, as well as adversely affect the value of an investment in our common stock. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of equity securities during the six months ended June 30, 2014.

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto and include the following:

3.1	Third Amended and Restated Certificate of Incorporation of the Company, as amended. (Filed herewith.)
3.2	Amended and Restated By-laws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K current report filed on April 18, 2013.)
4.1	Warrant Agreement dated as of May 9, 2014 issued to Hercules Technology Growth Capital, Inc. (Filed herewith.)
10.1	Loan and Security Agreement dated as of May 9, 2014 by and among Celator Pharmaceuticals, Inc, Celator Pharmaceuticals Corp. and the lenders and Hercules Technology Growth Capital, Inc. (Filed herewith.)
10.2	Right to Invest Letter dated May 9, 2014 between Celator Pharmaceuticals, Inc and Hercules Technology Growth Capital. (Filed herewith.)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
32.1	Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer.
101.1	The following financial statements from Celator Pharmaceuticals Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2014 and December 31, 2013, (ii) the Statements of Loss and Comprehensive Loss for the three and six months ended June 30, 2014 and 2013, (iii) Statement of Shareholders’ Equity for the six months ended June 30, 2014, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CELATOR PHARMACEUTICALS, INC.

Signature	Title	Date
/s/ Scott T. Jackson Scott T. Jackson	Chief Executive Officer and a Director (principal executive officer)	August 7, 2014
/s/ Fred M. Powell Fred M. Powell	Vice President and Chief Financial Officer (principal financial and accounting officer)	August 7, 2014

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EXHIBIT INDEX 

Exhibit No.	Description
3.1	Third Amended and Restated Certificate of Incorporation of the Company, as amended. (Filed herewith.)
3.2	Amended and Restated By-laws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K current report filed on April 18, 2013.)
4.1	Warrant Agreement dated as of May 9, 2014 issued to Hercules Technology Growth Capital, Inc. (Filed herewith.)
10.1	Loan and Security Agreement dated as of May 9, 2014 by and among Celator Pharmaceuticals, Inc, Celator Pharmaceuticals Corp. and the lenders and Hercules Technology Growth Capital, Inc. (Filed herewith.)
10.2	Right to Invest Letter dated May 9, 2014 between Celator Pharmaceuticals, Inc and Hercules Technology Growth Capital. (Filed herewith.)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
32.1	Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer.
101.1	The following financial statements from Celator Pharmaceuticals Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2014 and December 31, 2013, (ii) the Statements of Loss and Comprehensive Loss for the three and six months ended June 30, 2014 and 2013, (iii) Statement of Shareholders’ Equity for the six months ended June 30, 2014, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.

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EX-3.1

Exhibit 3.1

THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

CELATOR PHARMACEUTICALS, INC.

The name of the Corporation is Celator Pharmaceuticals, Inc. (the “Corporation”). The Corporation was originally incorporated pursuant to the General Corporation Law of the State of Delaware (the “DGCL”) on March 28, 2005. The Certificate of Incorporation of the Corporation was amended on July 10, 2007, December 4, 2007 and June 2, 2008, amended and restated on July 17, 2008, further amended and restated on August 25, 2010, further amended on December 15, 2011 and further amended and restated on July 24, 2012.

The Second Amended and Restated Certificate of Incorporation of the Corporation, as heretofore amended and in effect, is hereby further amended and restated in its entirety to read as follows:

ARTICLE 1

The name of the Corporation is Celator Pharmaceuticals, Inc.

ARTICLE 2

The address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.

ARTICLE 3

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (the “DGCL”).

ARTICLE 4

A. Classes of Stock. The aggregate number of shares of stock that the Corporation shall have the authority to issue is 487,162,828, of which 255,000,000 shares are Common Stock with a par value of $0.001 per share (the “Common Stock”), and 232,162,828 shares are Preferred Stock with a par value of $0.001 per share (the “Preferred Stock”).

At the time that this Third Amended and Restated Certificate of Incorporation (this “Certificate of Incorporation”) becomes effective (the “Effective Time”) pursuant to the DGCL, without any further action on the part of the Corporation or its stockholders: (i) all shares of the Corporation’s common stock that were authorized and issued and outstanding immediately prior to the Effective Time (the “Old Common Stock”) shall be reclassified and combined into shares of Common Stock at the rate of one share of Common Stock for each 18.7495 shares of Old Common Stock; and (ii) all shares of the Corporation’s Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that were authorized and issued and outstanding immediately prior to the Effective Time (the “Old Preferred Stock”) shall be reclassified, converted and combined into shares of Common Stock at the rate of one share of Common Stock for each 18.7495 shares of Old Preferred Stock. At the Effective Time, the certificates representing shares of the Old Common Stock and the Old Preferred Stock shall be deemed cancelled and shall not be recognized as outstanding on the books of the Corporation for any purpose. Thereupon: (i) there shall be issued and delivered to each holder of Old Common Stock, promptly in such holder’s name and at the address as shown on the records of the Corporation, a certificate for the number of shares of Common Stock into which the shares of Old Common Stock were combined, and (ii) there shall be issued and delivered to each holder of Old Preferred Stock, promptly in such holder’s name and at the address as shown on the records of the Corporation, a certificate for the number of shares of Common Stock into which the shares of Old Preferred Stock were reclassified, converted and combined; provided, however, that: (A) the Corporation shall not issue any fractional shares of Common Stock but shall round the number of shares of Common Stock to which each holder of Old Common Stock and Old Preferred Stock, respectively, would otherwise be entitled so that any portion of a share equal to less than one whole share is rounded up and (B) the Corporation shall not be required to deliver to any stockholder a certificate for Common Stock unless such stockholder tenders the certificate(s) representing all Old Common Stock and Old Preferred Stock held by such stockholder.

B. Common Stock. The Common Stock shall have the following relative rights, preferences, qualifications, privileges, limitations and restrictions:

1. Dividend Rights. Subject to the rights of holders of all classes of capital stock of the Corporation at the time outstanding having rights that are prior to or pari passu with the holders of the Common Stock as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors of the Corporation (the “Board”), out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board.

2. Liquidation Rights. Subject to the rights of holders of all classes of capital stock of the Corporation at the time outstanding having rights that are prior to or pari passu with the holders of the Common Stock as to liquidation, upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed to the holders of Common Stock in proportion to the number of shares of Common Stock owned by them.

3. Voting Rights. The holders of Common Stock shall have the right to one vote for each share of Common Stock, shall be entitled to vote upon such matters and in such manner as may be provided by law and shall be entitled to notice of any meetings of stockholders in accordance with the By-Laws of the Corporation. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL.

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C. Preferred Stock. The Preferred Stock may be issued from time to time by the Board in one or more series. The designations, relative rights (including voting rights), preferences, limitations and restrictions of the Preferred Stock, and particularly of the shares of each series thereof, may, to the extent permitted by law, be similar to or may differ from those of any other series. The Board is hereby expressly granted authority to issue from time to time Preferred Stock in one or more series and to fix from time to time before issuance thereof, by filing a certificate of designations pursuant to the DGCL, the number of shares in each such series and all designations, relative rights (including the right, to the extent permitted by law, to convert into shares of any class or into shares of any series of any class), preferences, qualifications, limitations and restrictions of the shares in each such series.

ARTICLE 5

A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived any improper personal benefit. If the DGCL is amended after approval by the stockholders of this Article to authorize corporation action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.

The Corporation shall indemnify each of the Corporation’s directors and officers in each and every situation where, under Section 145 of the DGCL, as amended from time to time (“Section 145”), the Corporation is permitted or empowered to make such indemnification. The Corporation may, in the sole discretion of the Board, indemnify any other person who may be indemnified pursuant to Section 145 to the extent the Board deems advisable, as permitted by Section 145. The Corporation shall promptly make or cause to be made any determination required to be made pursuant to Section 145.

Any repeal or modification of the foregoing provisions of this Article 5 by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

ARTICLE 6

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation.

ARTICLE 7

The business and affairs of the Corporation shall be managed by or under the direction of the Board. Election of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. The right to cumulate votes in the election of directors shall not exist with respect to shares of stock of the Corporation.

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ARTICLE 8

The number of directors that shall constitute the whole Board shall be fixed from time to time by, or in the manner provided in, the By-Laws of the Corporation.

ARTICLE 9

Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws of the Corporation may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the By-Laws of the Corporation.

ARTICLE 10

Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, repeal, alter, amend and rescind any or all of the By-Laws of the Corporation.

ARTICLE 11

The shares of capital stock of the Corporation shall be represented by certificates; provided, however, that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its capital stock may be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of capital stock of the Corporation represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chief Executive Officer, the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares registered in certificate form.

The foregoing Third Amended and Restated Certificate of Incorporation has been duly adopted by the Board of Directors and the stockholders of the Corporation in accordance with applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware and executed by its Chief Executive Officer this 28th day of August, 2012.

CELATOR PHARMACEUTICALS, INC.
By:	/s/ Scott Jackson
	Scott Jackson,
	Chief Executive Officer

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CERTIFICATE OF AMENDMENT

OF

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

CELATOR PHARMACEUTICALS, INC.

Celator Pharmaceuticals, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”),

DOES HEREBY CERTIFY THAT:

FIRST: The Board of Directors (the “Board”) of Celator Pharmaceuticals, Inc. (the “Corporation”), pursuant at a meeting thereof held on April 12, 2013, duly adopted the following resolution setting forth a proposed amendment to the Third Amended and Restated Certificate of Incorporation of the Corporation filed with the Secretary of State of the State of Delaware on August 28, 2012, declaring such amendment to be advisable and calling for consideration thereof by the stockholders of the Corporation. The resolution setting forth the proposed amendment is as follows:

RESOLVED, that the Third Amended and Restated Certificate of Incorporation of the Corporation is hereby amended to add a new Article 12, to provide in full as follows:

ARTICLE 12

All action that is required or permitted to be taken by the stockholders of the Corporation shall be taken at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by written consent of stockholders in lieu of a meeting of stockholders.

SECOND: Thereafter, pursuant to a resolution of the Board, the holders of a majority of the outstanding shares of common stock of the Corporationvoted in favor of the amendment.

THIRD: The amendment was duly adopted in accordance with the provisions of Section 242 of the DGCL. With respect to such adoption, written consent has been given by the stockholders of the Corporation in accordance with the provisions of Section 228 of the DGCL and written notice has been given as provided in such Section 228.

FOURTH: Such amendment was duly adopted in accordance with the provisions of Section 242 of the DGCL.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed this 22nd day of May, 2013.

CELATOR PHARMACEUTICALS, INC.
By:	/s/ Scott T. Jackson
	Scott T. Jackson
	Chief Executive Officer

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CERTIFICATE OF AMENDMENT

OF

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

CELATOR PHARMACEUTICALS, INC.

Celator Pharmaceuticals, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”),

DOES HEREBY CERTIFY THAT:

FIRST: The Board of Directors (the “Board”) of Celator Pharmaceuticals, Inc. (the “Corporation”), at a meeting thereof held on March 8, 2014, duly adopted a resolution setting forth a proposed amendment to the Third Amended and Restated Certificate of Incorporation of the Corporation filed with the Secretary of State of the State of Delaware on August 28, 2012, as amended on May 22, 2013 (the “Certificate of Incorporation”), declaring such amendment to be advisable and calling for consideration thereof by the stockholders of the Corporation. The resolution setting forth the proposed amendment is as follows:

RESOLVED, that Article 4.A. of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows (the “Amendment”):

ARTICLE 4

A. Classes of Stock. The aggregate number of shares of stock that the Corporation shall have the authority to issue is 220,000,000, of which 200,000,000 shares are Common Stock with a par value of $0.001 per share (the “Common Stock”), and 20,000,000 shares are Preferred Stock with a par value of $0.001 per share (the “Preferred Stock”).

SECOND: Thereafter, in accordance with a resolution adopted by the Board, the Corporation submitted the proposed Amendment to the stockholders for approval in accordance with the DGCL, and the holders of a majority of the outstanding shares of Common Stock of the Corporationvoted in favor of the Amendment.

THIRD: The Amendment was duly adopted in accordance with the provisions of Section 242 of the DGCL.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed this 12th day of June, 2014.

CELATOR PHARMACEUTICALS, INC.
By:	/s/ Scott T. Jackson
	Scott T. Jackson
	Chief Executive Officer

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EX-4.1

Exhibit 4.1

THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR, SUBJECT TO SECTION 11 HEREOF, AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT AGREEMENT

To Purchase Shares of the Common Stock of

Celator Pharmaceuticals, Inc.

Dated as of May 9, 2014 (the “Effective Date”)

WHEREAS, Celator Pharmaceuticals, Inc., a Delaware corporation (the “Company”), has entered into the Loan Agreement (as defined bellow) with Hercules Technology Growth Capital, Inc., a Maryland corporation, in its capacity as administrative agent for itself and the Lender (as defined in the Loan Agreement) (the “Warrantholder”);

WHEREAS, pursuant to the Loan Agreement and as additional consideration to the Warrantholder for, among other things, its agreements in the Loan Agreement, the Company has agreed to issue to the Warrantholder this Warrant Agreement (this “Agreement”), evidencing the right to purchase shares of the Company’s Common Stock (the “Warrant”);

NOW, THEREFORE, in consideration of the Warrantholder having executed and delivered the Loan Agreement and provided the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows:

SECTION 1.    GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.

(a)         Grant of Purchase Right. For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, up to the number of fully paid and non-assessable shares of Common Stock (as defined below) as determined pursuant to Section 1(b) below, at a purchase price per share equal to the Exercise Price (as defined below). The number and Exercise Price of such shares are subject to adjustment as provided in Section 8. As used herein, the following terms shall have the following meanings:

“Act” means the Securities Act of 1933, as amended.

“Affiliate” means a business entity that directly or indirectly Controls, is Controlled by, or is under the common Control of a party hereto, and “Control” of an organization or entity shall mean: (i) ownership or direct or indirect control of 50% or more of the outstanding voting shares or other ownership interests of such organization or entity; or (ii) direct or indirect possession of the power to elect or appoint 50% or more of the members of the board of director or other governing body of such organization or other entity.

“Charter” means the Company’s Certificate of Incorporation or other constitutional document, as it may be amended and in effect from time to time.

“Common Stock” means the Company’s common stock, $0.001 par value per share, as presently constituted under the Charter, and any class and/or series of Company capital stock for or into which such common stock may be converted or exchanged in a reorganization, recapitalization or similar transaction.

“Exercise Price” means $2.67, subject to adjustment from time to time in accordance with the provisions of the Warrant.

“Liquid Sale” means the closing of a Merger Event in which the consideration received by the Company and/or its stockholders, as applicable, consists solely of cash and/or Marketable Securities.

“Loan Agreement” means that certain Loan and Security Agreement of even date herewith among the Company, the several banks and other financial institutions or entities from time to time Lender parties thereto (including, without limitation, the Warrantholder), and Hercules Technology Growth Capital, Inc. in its capacity as administrative agent for itself and the Lender(s), as amended and/or restated and in effect from time to time.

“Marketable Securities” in connection with a Merger Event means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by the Warrantholder in connection with the Merger Event were the Warrantholder to exercise the Warrant on or prior to the closing thereof is then traded on a national securities exchange or over-the-counter market, and (iii) following the closing of such Merger Event, the Warrantholder would not be restricted from publicly re-selling all of the issuer’s shares and/or other securities that would be received by the Warrantholder in such Merger Event were the Warrantholder to exercise the Warrant in full on or prior to the closing of such Merger Event, except to the extent that any such restriction (x) arises solely under federal or state securities laws, rules or regulations, and (y) does not extend beyond six (6) months from the closing of such Merger Event.

“Merger Event” means any of the following: (i) a sale, lease or other transfer of all or substantially all assets of the Company, (ii) any merger or consolidation involving the Company in which the Company is not the surviving entity or in which the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of capital stock or other securities or property of another entity or converted into the right to receive cash, or (iii) any sale by holders of the outstanding voting equity securities of the Company in a single transaction or series of related transactions of shares constituting a majority of the outstanding combined voting power of the Company.

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“Purchase Price” means, with respect to any exercise of the Warrant, an amount equal to the then-effective Exercise Price multiplied by the number of shares of Common Stock as to which the Warrant is then exercised.

(b)         Number of Shares. The Warrant shall be exercisable for the purchase of 158,006 shares of Common Stock, subject to adjustment from time to time in accordance with the provisions of this Agreement (the “Initial Shares”); provided, that, in addition to and not in lieu of the Initial Shares, on such date (if any) as a Term Loan Advance of the Tranche B Amount (as such terms are defined in the Loan Agreement) shall first be made to the Company in any amount, the Warrant automatically shall become exercisable for a number of additional shares of Common Stock as shall equal (i) $140,625, divided by (ii) the Exercise Price in effect on and as of such date, subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant.

SECTION 2.    TERM OF THE AGREEMENT.

The term of this Agreement and the right to purchase Common Stock as granted herein shall commence on the Effective Date and, subject to Section 8(a) below, shall be exercisable for a period ending upon the fifth (5^th) anniversary of the Effective Date.

SECTION 3.    EXERCISE OF THE PURCHASE RIGHTS.

(a)         Exercise. The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the “Notice of Exercise”), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than three (3) business days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “Acknowledgment of Exercise”) indicating the number of shares which remain subject to future purchases under the Warrant, if any. The delivery by the Warrantholder of the Notice of Exercise and the payment of the Purchase Price as provided above shall constitute the Warrantholder’s certification to the Company that the Warrantholder’s representations contained in Section 10 of this Agreement are true and correct as of the exercise date as if remade in their entirety (or, in the case of any transferee Warrantholder, such transferee Warrantholder’s certification to the Company that such representations are true and correct as to such transferee Warrantholder as of the exercise date). Except as expressly set forth in this Agreement, the Warrantholder shall not be required to deliver this Agreement in order to effect an exercise of the Warrant hereunder.

The Purchase Price may be paid at the Warrantholder’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Common Stock to be exercised under this Agreement and, if applicable, an amended Agreement setting forth the remaining number of shares purchasable hereunder, as determined below (“Net Issuance”). If the Warrantholder elects the Net Issuance method, the Company will issue shares of Common Stock in accordance with the following formula:

X = Y(A-B)

A

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Where: X =      the number of shares of Common Stock to be issued to the Warrantholder.

Y =      the number of shares of Common Stock requested to be exercised under this Agreement.

A =      the then-current fair market value of one (1) share of Common Stock at the time of exercise.

B =      the then-effective Exercise Price.

For purposes of the above calculation, the current fair market value of shares of Common Stock shall mean with respect to each share of Common Stock:

(i)         at all times when the Common Stock shall be traded on a national securities exchange, inter-dealer quotation system or over-the-counter bulletin board service, the average of the closing prices over a five (5) trading day period ending three days before the day the current fair market value of the securities is being determined;

(ii)         if the exercise is in connection with a Merger Event, the fair market value of a share of Common Stock shall be deemed to be the per share value received by the holders of the outstanding shares of Common Stock upon the closing of such Merger Event as determined in accordance with the definitive transaction documents executed among the parties in connection therewith, and, in the case of an exercise upon a Merger Event that is a Liquid Sale pursuant to Section 8(a), shall be subject to the more specific provisions set forth in Section 8(a); or

(iii)        in cases other than as described in the foregoing clauses (i) and (ii), the current fair market value of a share of Common Stock shall be determined in good faith by the Company’s Board of Directors.

Upon partial exercise by either cash or Net Issuance, upon request by the Warrantholder and surrender of all or a portion of the Warrant prior to the expiration or earlier termination hereof, the Company shall promptly issue an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof.

(b)         Exercise Prior to Expiration. To the extent the Warrant is not previously exercised as to all shares subject hereto, and if the then-current fair market value of one share of Common Stock is greater than the Exercise Price then in effect, or, in the case of a Liquid Sale, where the value per share of Common Stock (as determined as of the closing of such Liquid Sale in accordance with the definitive agreements executed by the parties in connection with such Merger Event) to be paid to the holders thereof is greater than the Exercise Price then in effect, this Agreement shall be deemed automatically exercised on a Net Issuance basis pursuant to Section 3(a) (even if not surrendered) as of immediately before its expiration determined in accordance with Section 2; provided, however, that the more specific provisions of Section 8(a) shall govern in the case of an automatic exercise upon a Merger Event that is a Liquid Sale. For purposes of such automatic exercise, the fair market value of one share of Common Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent the Warrant or any portion hereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Common Stock if any, the Warrantholder is to receive by reason of such automatic exercise.

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SECTION 4.    RESERVATION OF SHARES.

During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein.

SECTION 5.    NO FRACTIONAL SHARES OR SCRIP.

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.

SECTION 6.    NO RIGHTS AS STOCKHOLDER.

Without limitation of any provision hereof, the Warrantholder agrees that this Agreement does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of any of the purchase rights set forth in this Agreement.

SECTION 7.    WARRANTHOLDER REGISTRY.

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement. The Warrantholder’s initial address, for purposes of such registry, is set forth in Section 12(g) below. The Warrantholder may change such address by giving written notice of such changed address to the Company.

SECTION 8.    ADJUSTMENT RIGHTS.

The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment from time to time, as follows:

(a)         Merger Event. In connection with a Merger Event that is a Liquid Sale where the value per share of Common Stock is greater than the exercise price then in effect, the Warrant shall, on and after the closing thereof, automatically and without further action on the part of any party or other person, represent the right to receive , in lieu of the shares of Common Stockthat are issuable hereunderas of immediately prior to the closing of such Merger Event, the consideration payable on or in respect of such shares of Common Stock less the Purchase Price for all such shares of Common Stock (such consideration to include both the consideration payable at the closing of such Merger Event and all deferred consideration payable thereafter, if any, including, but not limited to, payments of amounts deposited at such closing into escrow and payments in the nature of earn-outs, milestone payments or other performance-based payments), and such Merger Event consideration shall be paid to the Warrantholder as and when it is paid to the holders of the outstanding shares of Common Stock. In connection with a Merger Event that is not a Liquid Sale, the Company shall cause the successor or surviving entity to assume this Agreement and the obligations of the Company hereunder on the closing thereof, and thereafter the Warrant shall be exercisable for the same number and type of securities or other property as the Warrantholder would have received in consideration for the shares of Common Stock issuable hereunder had it exercised the Warrant in full as of immediately prior to such closing, at an aggregate Exercise Price no greater than the aggregate Exercise Price in effect as of immediately prior to such closing, and subject to further adjustment from time to time in accordance with the provisions of this Agreement. The provisions of this Section 8(a) shall similarly apply to successive Merger Events.

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(b)         Reclassification of Shares. Except for Merger Events subject to Section 8(a), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Agreement exist into the same or a different number of securities of any other class or classes of securities, this Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. The provisions of this Section 8(b) shall similarly apply to successive combination, reclassification, exchange, subdivision or other change.

(c)         Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Common Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased and the number of shares for which the Warrant is exercisable shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased and the number of shares for which the Warrant is exercisable shall be proportionately decreased.

(d)         Stock Dividends. If the Company at any time while this Agreement is outstanding and unexpired shall:

(i)         pay a dividend with respect to the outstanding shares of Common Stock payable in additional shares of Common Stock, then the Exercise Price shall be adjusted to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution, and the number of shares of Common Stock for which the Warrant is exercisable shall be proportionately increased; or

(ii)       make any other dividend or distribution on or with respect to Common Stock, except any dividend or distribution (A) in cash, or (B) specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise or conversion of the Warrant a proportionate share of any such distribution as though it were the holder of the Common Stock (or other stock for which the Common Stock is convertible) as of the record date fixed for the determination of the stockholders of the Company entitled to receive such distribution.

(e)         Notice of Certain Events. If: (i) the Company shall declare any dividend or distribution upon its outstanding Common Stock, payable in stock, cash, property or other securities (provided that the Warrantholder in its capacity as lender under the Loan Agreement consents to such dividend); (ii) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (iii) the Company shall effect a closing of any Merger Event; or (iv) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall give the Warrantholder notice thereof at the same time and in the same manner as it gives notice thereof to the holders of outstanding Common Stock.

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SECTION 9.    REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

(a)         Reservation of Common Stock. The Company covenants and agrees that all shares of Common Stock, if any, that may be issued upon the exercise of the rights represented by the Warrant will, upon issuance, be validly issued and outstanding, fully paid and non-assessable. The Company further covenants and agrees that the Company will, at all times during the term hereof, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by the Warrant. If at any time during the term hereof the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of the Warrant in full, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

(b)         Due Authority. The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to the Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement: (i) does not violate the Company's Charter or current bylaws; (ii) does not contravene any law or governmental rule, regulation or order applicable to it; and (iii) except as could not reasonably be expected to have a Material Adverse Effect (as defined in the Loan Agreement), does not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. This Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(c)         Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Agreement, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

(d)         [Intentionally Omitted].

(e)         [Intentionally Omitted].

(f)         Exempt Transaction. Subject to the accuracy of the Warrantholder’s representations in Section 10, the issuance of the Common Stock upon exercise of this Agreement will constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

(g)         Registration Rights. If, prior to the date on which the Warrantholder may sell all shares of Common Stock issuable upon exercise of the Warrant without restriction pursuant to Rule 144 promulgated under the Act (assuming that the Warrantholder were to exercise the Warrant by Net Issuance), the Company proposes to register under the Act for resale any shares of Common Stock held by any person (other than the Company), then the Company shall give the Warrantholder reasonable prior written notice of such proposed registration and shall permit the Warrantholder to include (but the Warrantholder shall not be obligated to include) all or a portion (as determined by the Warrantholder in its sole discretion) of the shares of Common Stock issuable upon exercise of the Warrant in such registration on a pari passu basis with the other holders participating therein and on the same terms and conditions as applicable to such other holders. Notwithstanding any other provision of this Agreement, in the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, and, if the managing underwriter determines that the inclusion of all shares issuable upon exercise of the Warrant and other Common Stock of the Company to be included in the registration (“Other Registrable Stock”) would adversely affect the offering, the Company may reduce the number of shares issuable upon exercise of the Warrant that may be included in the registration statement pro rata in proportion, as nearly as practicable, to the respective number of shares that the Warrantholder and the holders of all Other Registrable Stock had requested to be included in such registration statement, with no requirement that the number of shares of Common Stock to be included in such registration to be offered by the Company be reduced.

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(h)         Information Rights. At all times (if any) prior to the earlier to occur of (x) the date on which all shares of Common Stock issued on exercise of the Warrant have been sold, or (y) the expiration or earlier termination of the Warrant, when the Company shall not be required to file reports pursuant to Section 13 or 15(d) of the Exchange Act or shall not have timely filed all such required reports, the Warrantholder shall be entitled to the information rights contained in Section 7.1(b) – (f) of the Loan Agreement, and in any such event Section 7.1(b) – (f) of the Loan Agreement is hereby incorporated into this Agreement by this reference as though fully set forth herein; provided, however, that the Company shall not be required to deliver a Compliance Certificate once all Indebtedness (as defined in the Loan Agreement) owed by the Company to the Warrantholder has been repaid.

(i)         Rule 144 Compliance. The Company shall, at all times prior to the earlier to occur of (x) the date of sale or other disposition by the Warrantholder of the Warrant or all shares of Common Stock issued on exercise of the Warrant, (y) the registration pursuant to subsection (g) above of the shares issued on exercise of the Warrant, or (z) the expiration or earlier termination of the Warrant if its Warrant has not been exercised in full or in part on such date, use all commercially reasonable efforts to timely file all reports required under the 1934 Act and otherwise timely take all actions necessary to permit the Warrantholder to sell or otherwise dispose of the Warrant and the shares of Common Stock issued on exercise hereof pursuant to Rule 144 promulgated under the Act as amended and in effect from time to time, provided that the foregoing shall not apply in the event of a Merger Event following which the successor or surviving entity is not subject to the reporting requirements of the 1934 Act. If the Warrantholder proposes to sell Common Stock issuable upon the exercise of this Agreement in compliance with Rule 144, then, upon the Warrantholder’s written request to the Company, the Company shall furnish to the Warrantholder, within five (5) business days after receipt of such request, a written statement confirming the Company’s compliance with the filing and other requirements of such Rule.

SECTION 10.    REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:

(a)         Investment Purpose. The Warrant and the shares issued on exercise hereof will be acquired for investment and not with a view to the sale or distribution of any part thereof in violation of applicable federal and state securities laws, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption.

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(b)         Private Issue. The Warrantholder understands (i) that the Common Stock issuable upon exercise of this Agreement is not, as of the Effective Date, registered under the Act or qualified under applicable state securities laws, and (ii) that the Company's reliance on exemption from such registration is predicated on the representations set forth in this Section 10.

(c)         Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

(d)         Accredited Investor. The Warrantholder is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Act, as presently in effect.

(e)         No Short Sales. The Warrantholder has not at any time on or prior to the Effective Date engaged in any short sales or equivalent transactions in the Common Stock. The Warrantholder agrees that at all times from and after the Effective Date and on or before the expiration or earlier termination of the Warrant, it shall not engage in any short sales or equivalent transactions in the Common Stock.

SECTION 11.    TRANSFERS.

Subject to compliance with applicable federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed, together with, at the request of the Company, an opinion of counsel reasonably satisfactory to the Company to the effect that such transfer may be made pursuant to an available exemption from the registration requirements of the Act and all applicable state securities laws; provided, however, that without the prior written consent of the Company, not to be unreasonably withheld, this Warrant may be transferred only to an Affiliate (as defined below) of the Warrantholder. Subject to the foregoing, each taker and holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement. The transfer of this Agreement shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes. Notwithstanding anything herein or in any legend to the contrary, the Company shall not require an opinion of counsel in connection with any sale, assignment or other transfer by the Warrantholder of this Agreement, the Warrant (or any portion hereof or thereof or any interest herein or therein) or of any shares of Common Stock issued upon any exercise hereof to an Affiliate of the Warrantholder, provided that such Affiliate is an “accredited investor” as defined in Regulation D.

SECTION 12.    MISCELLANEOUS.

(a)         Effective Date. The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Agreement shall be binding upon any successors or assigns of the Company.

(b)         Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable.

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(c)         No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

(d)         Additional Documents. The Company agrees to supply such other documents as the Warrantholder may from time to time reasonably request.

(e)         Attorneys’ Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.

(f)         Severability. In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

(g)         Notices. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (a) personal delivery to the party to be notified, (b) when sent by confirmed electronic transmission or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt, and shall be addressed to the party to be notified as follows:

If to the Warrantholder:

Hercules Technology GROWTH CAPITAL, INC.

Legal Department

Attention: Chief Legal Officer and Manuel Henriquez

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

Telephone: 650-289-3060

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If to the Company:

CELATOR PHARMACEUTICALS, INC.

Attention: Chief Financial Officer

200 PrincetonSouth Corporate Center, Suite 180

Ewing, NJ 08628

Facsimile: (609) 243-0202

Telephone: 609-243-0123

or to such other address as each party may designate for itself by like notice.

(h)         Entire Agreement; Amendments. This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof. None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto. This Agreement does not supersede any confidentiality agreement between the Company and the Warrantholder.

(i)         Headings. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

(j)         Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed (or had an opportunity to discuss) with its counsel this Agreement and, specifically, the provisions of Sections 12(n), 12(p), 12(q) and 12(r).

(k)         No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

(l)         No Waiver. No omission or delay by the Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Warrantholder at any time designated, shall be a waiver of any such right or remedy to which the Warrantholder is entitled, nor shall it in any way affect the right of the Warrantholder to enforce such provisions thereafter during the term of this Agreement.

(m)         Survival. All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of the respective parties hereto and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

(n)         Governing Law. This Agreement has been negotiated and delivered to the Warrantholder in the State of California, and shall be deemed to have been accepted by the Warrantholder in the State of California. Delivery of Common Stock to the Warrantholder by the Company under this Agreement is due in the State of California. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

(o)         [Intentionally omitted.]

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(p)         Mutual Waiver of Jury Trial. Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes arising under or in connection with this Agreement be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND THE WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY THE COMPANY AGAINST THE WARRANTHOLDER OR ITS ASSIGNEE OR BY THE WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY RELATING TO THIS AGREEMENT. This waiver extends to all such Claims, including Claims that involve persons or entities other the Company and the Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and the Warrantholder; and any Claims for damages, breach of contract, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

(q)         Arbitration. If the Mutual Waiver of Jury Trial set forth in Section 12(p) is ineffective or unenforceable, the parties agree that all Claims shall be submitted to binding arbitration in accordance with the commercial arbitration rules of JAMS (the “Rules”), such arbitration to occur before one arbitrator, which arbitrator shall be a retired Federal court judge. The decision of the arbitrator shall be binding on the parties, and shall be final and nonappealable to the maximum extent permitted by law. Any judgment rendered by the arbitrator may be entered in a court of competent jurisdiction and enforced by the prevailing party as a final judgment of such court.

(r)         Pre-arbitration Relief. In the event Claims are to be resolved by arbitration, either party may seek from a court of competent jurisdiction, any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by binding arbitration.

(s)         Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

(t)         Specific Performance. The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to the Warrantholder by reason of the Company’s failure to perform any of the obligations under this Agreement and agree that the terms of this Agreement shall be specifically enforceable by the Warrantholder. If the Warrantholder institutes any action or proceeding to specifically enforce the provisions hereof, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that the Warrantholder has an adequate remedy at law, and such person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists.

(u)         Lost, Stolen, Mutilated or Destroyed Warrant. If the Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.

(v)         Legends. To the extent required by applicable laws, the Warrant and the shares of Common Stock issuable hereunder (and the securities issuable, directly or indirectly, upon conversion of such shares of Common Stock, if any) may be imprinted with a restricted securities legend in substantially the following form:

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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO RULE 144 OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date.

COMPANY: CELATOR PHARMACEUTICALS, INC.

By:	s/ Scott T. Jackson
Name:   Scott T. Jackson
Title:     Chief Executive Officer

WARRANTHOLDER: HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

By:	s/ Michael Penney
Name:  Michael Penney
Title:  General Counsel

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EXHIBIT I

NOTICE OF EXERCISE

To: [____________________________]

(1) The undersigned Warrantholder hereby elects to purchase [_______] shares of the Common Stock of [_________________], pursuant to the terms of the Agreement dated the [___] day of [______, _____] (the "Agreement") between [_________________] and the Warrantholder, and tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any. [NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net Issuance.]

(2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below.

(Name)

(Address)

WARRANTHOLDER: HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

By: 

Name:  Ben Bang

Title:  Senior Counsel

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EXHIBIT II

1. ACKNOWLEDGMENT OF EXERCISE

The undersigned [____________________________________], hereby acknowledge receipt of the "Notice of Exercise" from Hercules Technology Growth Capital, Inc.. to purchase [____] shares of the Common Stock of [_________________], pursuant to the terms of the Agreement, and further acknowledges that [______] shares remain subject to purchase under the terms of the Agreement.

COMPANY: [_________________]

By:

Title:

Date:

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EXHIBIT III

TRANSFER NOTICE

(To transfer or assign the foregoing Agreement execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are hereby transferred and assigned to

(Please Print)

whose address is  

Dated:

Holder's Signature:  

Holder's Address:  

Signature Guaranteed:  

NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Agreement.

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EX-10.1

Exhibit 10.1

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT is made and dated as of May 9, 2014 and is entered into by and among (a) (i) CELATOR PHARMACEUTICALS, INC., a Delaware corporation (“Inc.”), (ii) CELATOR PHARMACEUTICALS CORP., a Nova Scotia unlimited liability company (“Corp.”), and (iii) each of its subsidiaries (hereinafter collectively referred to as the “Borrower”), (b) the several banks and other financial institutions or entities from time to time parties to this Agreement (collectively, referred to as “Lender”) and (c) HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent for itself and the Lender (in such capacity, the “Agent”).

RECITALS

A.           Borrower has requested Lender to make available to Borrower two (2) term loans (each a “Term Loan Advance” and collectively, the “Term Loan Advances”) in an aggregate principal amount of up to Fifteen Million Dollars ($15,000,000) (the “Maximum Term Loan Amount”); and

B.           Lender is willing to make the Term Loan Advances on the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, Borrower, Agent and Lender agree as follows:

SECTION 1.          DEFINITIONS AND RULES OF CONSTRUCTION

1.1           Unless otherwise defined herein, the following capitalized terms shall have the following meanings:

“1933 Act” is defined in Section 8.2(c).

“Account Control Agreement(s)” means any agreement entered into by and among the Agent, Borrower and a third party Bank or other institution (including a Securities Intermediary) in which Borrower maintains a Deposit Account or an account holding Investment Property and which grants Agent a perfected first priority security interest in the subject account or accounts.

“ACH Authorization” means the ACH Debit Authorization Agreement in substantially the form of Exhibit H.

“Advance(s)” means a Term Loan Advance.

“Advance Date” means the funding date of any Advance.

“Advance Request” means a request for an Advance submitted by Borrower to Agent in substantially the form of Exhibit A.

“Agent” has the meaning given to it in the preamble to this Agreement.

“Agreement” means this Loan and Security Agreement, as amended from time to time.

“Amortization Date” means June 1, 2015; provided, however, that if the Milestone Event occurs prior to such date, at the request of Borrower, the Amortization Date shall be December 1, 2015.

“Assignee” has the meaning given to it in Section 11.13.

“BOA Account” is defined in Section 7.12.

“Board” means Borrower’s board of directors.

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“Borrower Products” means all products, software, service offerings, technical data or technology currently being designed, manufactured or sold by Borrower or which Borrower intends to sell, license, or distribute in the future including any products or service offerings under development, collectively, together with all products, software, service offerings, technical data or technology that have been sold, licensed or distributed by Borrower since its incorporation.

“Borrower Repayment Election Notice” is defined in Section 8.2(a).

“Business Day” means any day other than Saturday, Sunday and any other day on which banking institutions in the State of California are closed for business.

“Cash” means all cash and liquid funds.

“Change in Control” means any reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions) of Borrower or any Subsidiary, sale or exchange of outstanding shares (or similar transaction or series of related transactions) of Borrower or any Subsidiary in which the holders of Borrower or Subsidiary’s outstanding shares immediately before consummation of such transaction or series of related transactions do not, immediately after consummation of such transaction or series of related transactions, retain shares representing more than fifty percent (50%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent of such surviving entity if such surviving entity is wholly owned by such parent), in each case without regard to whether Borrower or Subsidiary is the surviving entity.

“Claims” has the meaning given to it in Section 11.10.

“Closing Date” means the date of this Agreement.

“Collateral” means the property described in Section 3.

“Confidential Information” has the meaning given to it in Section 11.12.

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any Indebtedness, lease, dividend, letter of credit or other obligation of another, including any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

“Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Copyrights” means all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof, or of any other country.

“Corp.” has the meaning given to it in the preamble to this Agreement.

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“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit.

“Delivery Date” is defined in Section 8.2(a).

“Domestic Subsidiary” means any Subsidiary that is not a Foreign Subsidiary.

“Draw Period” means the period commencing upon the December 15, 2014 and continuing through the earlier to occur of (i) March 31, 2015, and (ii) an Event of Default.

“End of Term Charge” is defined in Section 2.5.

“Equity Rights Letter Agreement” means the Equity Rights Letter Agreement dated as of even date hereof by and between Agent and Borrower.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“Event of Default” has the meaning given to it in Section 9.

“Facility Charge” means one percent (1.0%) of the Maximum Term Loan Amount.

“Financial Statements” has the meaning given to it in Section 7.1.

“Foreign Subsidiary” means any Subsidiary other than a Subsidiary organized under the laws of any state within the United States.

“GAAP” means generally accepted accounting principles in the United States of America, as in effect from time to time.

“Inc.” has the meaning given to it in the preamble to this Agreement.

“Indebtedness” means indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or services (excluding trade credit entered into in the ordinary course of business due within sixty (60) days), including reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.

“Indemnified Person” has the meaning given to it in Section 6.3.

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

“Intellectual Property” means all of Borrower’s Copyrights, Trademarks, Patents, Licenses, service marks and other marks, tradenames or other trade rights of the Borrower, trade secrets and inventions, mask works, and all of Borrower’s applications therefor and reissues, extensions, or renewals thereof, and all of Borrower’s goodwill associated with any of the foregoing, together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith.

“Investment” means any beneficial ownership (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person or the acquisition of all, or substantially all, of the assets of another Person.

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“Joinder Agreements” means for each Subsidiary, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit G.

“Lender” has the meaning given to it in the preamble to this Agreement.

“Liabilities” has the meaning given to it in Section 6.3.

“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, and any lease in the nature of a security interest.

“Loan” means the Advances made under this Agreement.

“Loan Documents” means this Agreement, the Notes (if any), the ACH Authorization, the Account Control Agreements, the Joinder Agreements, all UCC Financing Statements, the Warrant, the Equity Rights Letter Agreement, any subordination agreement, and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.

“Material Adverse Effect” means a material adverse effect upon: (i) the business, operations, properties, assets, prospects or condition (financial or otherwise) of Borrower; or (ii) the ability of Borrower to perform the Secured Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or Lender to enforce any of its rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or Agent’s Liens on the Collateral or the priority of such Liens.

“Maximum Term Loan Amount” shall have the meaning assigned to such term in the preamble to this Agreement.

“Maximum Rate” shall have the meaning assigned to such term in Section 2.2.

“Milestone Event” means confirmation by Lender that Borrower has delivered evidence acceptable to Lender in Lender’s sole discretion, after the Closing Date, but on or prior to June 1 2015, that Borrower has achieved full enrollment of its CPX-351 Phase 3 trial.

“Note(s)” means a promissory note or promissory notes to evidence Lender’s Loans, as such Note(s) may be requested pursuant to Section 2.6.

“Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending, in which agreement Borrower now holds or hereafter acquires any interest.

“Patents” means all letters patent of, or rights corresponding thereto, in the United States or in any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States or any other country.

“Permitted Accounts” is defined in Section 7.12.

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“Permitted Indebtedness” means: (i) Indebtedness of Borrower in favor of Lender or Agent arising under this Agreement or any other Loan Document; (ii) Indebtedness existing on the Closing Date which is disclosed in Schedule 1A; (iii) Indebtedness of up to $100,000 outstanding at any time secured by a Lien described in clause (vii) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the Equipment financed with such Indebtedness; (iv) Indebtedness to trade creditors incurred in the ordinary course of business, including Indebtedness incurred in the ordinary course of business with corporate credit cards; (v) Indebtedness that also constitutes a Permitted Investment; (vi) Subordinated Indebtedness; (vii) reimbursement obligations in connection with letters of credit that are secured by cash or cash equivalents and issued on behalf of the Borrower or a Subsidiary thereof in an amount not to exceed $200,000 at any time outstanding, (viii) other Indebtedness in an amount not to exceed $100,000 at any time outstanding, and (ix) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investment” means: (i) Investments existing on the Closing Date which are disclosed in Schedule 1B; (ii) (a) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (b) commercial paper maturing no more than one year from the date of creation thereof and currently having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (c) certificates of deposit issued by any bank with assets of at least $500,000,000 maturing no more than one year from the date of investment therein, and (d) money market accounts; (iii) repurchases of stock from former employees, directors, or consultants of Borrower under the terms of applicable repurchase agreements at the original issuance price of such securities in an aggregate amount not to exceed $250,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases; (iv) Investments accepted in connection with Permitted Transfers; (v) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; (vi) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not affiliates, in the ordinary course of business, provided that this subparagraph (vi) shall not apply to Investments of Borrower in any Subsidiary; (vii) Investments consisting of loans not involving the net transfer on a substantially contemporaneous basis of cash proceeds to employees, officers or directors relating to the purchase of capital stock of Borrower pursuant to employee stock purchase plans or other similar agreements approved by Borrower’s Board; (viii) Investments consisting of travel advances in the ordinary course of business; (ix) Investments in newly-formed Domestic Subsidiaries, provided that each such Domestic Subsidiary enters into a Joinder Agreement promptly after its formation by Borrower and execute such other documents as shall be reasonably requested by Agent; (x) Investments in Foreign Subsidiaries approved in advance in writing by Agent; (xi) joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the nonexclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $100,000 in the aggregate in any fiscal year; and (xii) additional Investments that do not exceed $250,000 in the aggregate.

“Permitted Liens” means any and all of the following: (i) Liens in favor of Agent or Lender; (ii) Liens existing on the Closing Date which are disclosed in Schedule 1C; (iii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; provided, that Borrower maintains adequate reserves therefor in accordance with GAAP; (iv) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other like Persons arising in the ordinary course of Borrower’s business and imposed without action of such parties; provided, that the payment thereof is not yet required; (v) Liens arising from judgments, decrees or attachments in circumstances which do not constitute an Event of Default hereunder; (vi) the following deposits, to the extent made in the ordinary course of business: deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than Liens arising under ERISA or environmental Liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (vii) Liens on Equipment or software or other intellectual property constituting purchase money Liens and Liens in connection with capital leases securing Indebtedness permitted in clause (iii) of “Permitted Indebtedness”; (viii) Liens incurred in connection with Subordinated Indebtedness; (ix) leasehold interests in leases or subleases and licenses granted in the ordinary course of business and not interfering in any material respect with the business of the licensor; (x) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties that are promptly paid on or before the date they become due; (xi) Liens on insurance proceeds securing the payment of financed insurance premiums that are promptly paid on or before the date they become due (provided that such Liens extend only to such insurance proceeds and not to any other property or assets); (xii) statutory and common law rights of set-off and other similar rights as to deposits of cash and securities in favor of banks, other depository institutions and brokerage firms; (xiii) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business so long as they do not materially impair the value or marketability of the related property; (xiv) Liens on cash or cash equivalents securing obligations permitted under clause (vii) of the definition of Permitted Indebtedness; and (xv) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clauses (i) through (xi) above; provided, that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon) does not increase.

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“Permitted Transfers” means (i) sales of Inventory in the ordinary course of business, (ii) licenses and similar arrangements for the use of Intellectual Property that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discrete geographical areas outside of the United States, in each case in the ordinary course of business, or (iii) dispositions of worn-out, obsolete or surplus Equipment at fair market value in the ordinary course of business, and (iv) other Transfers of assets having a fair market value of not more than $250,000 in the aggregate in any fiscal year.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, other entity or government.

“Prepayment Charge” shall have the meaning assigned to such term in Section 2.4.

“Prime Rate” means the “prime rate” as reported in The Wall Street Journal, and if not reported, then the prime rate most recently reported in The Wall Street Journal.

“Principal Installment Due Date” is defined in Section 8.2(a).

“Principal Installment Payment” is defined in Section 8.2(a).

“RBC Accounts” is defined in Section 7.12.

“Receivables” means (i) all of Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, letters of credit, proceeds of any letter of credit, and Letter of Credit Rights, and (ii) all customer lists, software, and business records related thereto.

“Required Lenders” means at any time, the holders of more than 50% of the sum of the aggregate unpaid principal amount of the Term Loan Advances then outstanding.

“SEC” is defined in Section 8.2(c).

“Secured Obligations” means Borrower’s obligations under this Agreement and any Loan Document, including any obligation to pay any amount now owing or later arising.

“Rule 144” is defined in Section 8.2(c).

“Stock Payment Conditions” is defined in Section 8.2(b).

“Stock Payment Option” is defined in Section 8.2(a).

“Subordinated Indebtedness” means Indebtedness subordinated to the Secured Obligations in amounts and on terms and conditions satisfactory to Agent in its sole discretion.

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“Subsidiary” means an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns or controls 50% or more of the outstanding voting securities, including each entity listed on Schedule 1 hereto.

“Term Commitment” means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to the Borrower in a principal amount not to exceed the amount set forth under the heading “Term Commitment” opposite such Lender’s name on Schedule 1.1.

“Term Loan Advance” and “Term Loan Advances” are each defined in Recital A hereof.

“Term Loan Interest Rate” means for any day, a floating per annum rate of interest equal to the greater of either (i) nine and three quarters of one percent (9.75%), or (ii) the sum of (A) nine and three quarters of one percent (9.75%), plus (B) the Prime Rate minus three and one quarter of one percent (3.25%). The Term Loan Interest Rate will change from time to time on each day that the Prime Rate changes.

“Term Loan Maturity Date” means December 1, 2017, and extended, if applicable, upon the occurrence of the Milestone Event, at the request of Borrower, to June 1, 2018.

“Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Trademarks” means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof.

“Tranche A Amount” has the meaning given to it in Section 2.1(a).

“Tranche B Amount” means (a) Fifteen Million Dollars ($15,000,000), minus (b) the original principal amount of the Tranche A Amount.

“ULC” means an issuer that is an unlimited company, unlimited liability corporation or unlimited liability company.

“ULC Laws” means the Companies Act (Nova Scotia) and any other present or future Nova Scotia laws governing ULCs.

“ULC Shares” means shares or other equity interests in the capital stock of a ULC

“UCC” means (a) with respect to any assets located in the United States, the Uniform Commercial Code as the same is, from time to time, in effect in the State of California; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction other than the State of California, then the term “UCC” shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions, and (b) with respect to any assets located in Canada, the Personal Property Security Act (British Columbia) as amended and as may be further amended and in effect from time to time; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Lender’s Lien on any Collateral is governed by the Personal Property Security Act or equivalent legislation in effect in a provincial jurisdiction other than Nova Scotia, the term “Code” shall mean the Personal Property Security Act or equivalent legislation as enacted and in effect in such other province solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

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“Warrant” means any warrant entered into in connection with the Loan, as may be amended, restated or modified from time to time.

Unless otherwise specified, all references in this Agreement or any Annex or Schedule hereto to a “Section,” “subsection,” “Exhibit,” “Annex,” or “Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule in or to this Agreement. Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP, consistently applied. Unless otherwise defined herein or in the other Loan Documents, terms that are used herein or in the other Loan Documents and defined in the UCC shall have the meanings given to them in the UCC.

SECTION 2.          THE LOAN

2.1           Term Loan.

(a)          Term Loan Advances. Subject to the terms and conditions of this Agreement, Lender will severally (and not jointly) make, in an amount not to exceed its respective Term Commitment, and Borrower agrees to draw, an initial Term Loan Advance on the Closing Date in an amount of at least Ten Million Dollars ($10,000,000), but not exceeding Fifteen Million Dollars ($15,000,000) (the amount of principal advanced on the Closing Date is hereinafter referred to as the “Tranche A Amount”). During the Draw Period, Borrower may request one (1) additional Term Loan Advance in an amount of up to the Tranche B Amount. The aggregate outstanding Term Loan Advances shall not exceed the Maximum Term Loan Amount. Proceeds of any Advance shall be deposited into an account that is subject to a first priority perfected security interest in favor of Agent perfected by an Account Control Agreement.

(b)           Advance Request. To obtain a Term Loan Advance, Borrower shall complete, sign and deliver an Advance Request (at least two (2) Business Days before the Advance Date) to Agent. Lender shall fund the Term Loan Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such Term Loan Advance is satisfied as of the requested Advance Date.

(c)          Interest. The principal balance of each Term Loan Advance shall bear interest thereon from the Advance Date applicable to the Term Loan Advance at the Term Loan Interest Rate based on a year consisting of 360 days, with interest computed daily based on the actual number of days elapsed. The Term Loan Interest Rate will float and change on each day that the Prime Rate changes from time to time.

(d)          Payment. Borrower will pay interest on each Term Loan Advance on the first (1^st) Business Day of each month, beginning the month after the Advance Date. Commencing on the Amortization Date, and continuing on the first (1^st) Business Day of each month thereafter, Borrower shall repay the aggregate principal balance of Term Loan Advances that are outstanding on the day immediately preceding the Amortization Date in equal monthly installments of principal and interest (mortgage style) beginning on the Amortization Date and continuing on the first (1^st) Business Day of each month thereafter until the Secured Obligations are repaid. After any change in the Term Loan Interest Rate hereunder, Agent shall recalculate future payments of principal and interest to fully amortize the outstanding principal amount over the remaining scheduled monthly payments hereunder prior to the Term Loan Maturity Date. The entire principal balance of the Term Loan Advances and all accrued but unpaid interest hereunder, and all other Secured Obligations with respect to the Term Loan Advances, shall be due and payable on Term Loan Maturity Date. For the avoidance of doubt, in the event of any conversion of a portion of any Term Loan Advance pursuant to Section 8.1 below, the remaining monthly payments described in this Section 2.1(d) shall be recalculated by Agent following such conversion date to reflect (i) the lower outstanding principal of the Term Loan Advance so converted, (ii) the lower interest payments resulting from such reduced principal, and (iii) the remaining months until the Term Loan Maturity Date. Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim or defense. Lender will initiate debit entries to the Borrower’s account as authorized on the ACH Authorization on each payment date of all periodic obligations payable to Lender under each Term Loan Advance. Once repaid, a Term Loan Advance or any portion thereof may not be reborrowed.

2.2           Maximum Interest. Notwithstanding any provision in this Agreement or any other Loan Document, it is the parties’ intent not to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the “Maximum Rate”). If a court of competent jurisdiction shall finally determine that Borrower has actually paid to Lender an amount of interest in excess of the amount that would have been payable if all of the Secured Obligations had at all times borne interest at the Maximum Rate, then such excess interest actually paid by Borrower shall be applied as follows: first, to the payment of the Secured Obligations consisting of the outstanding principal amount of the Term Loan Advances; second, after all principal is repaid, to the payment of Lender’s accrued interest, costs, expenses, professional fees and any other Secured Obligations; and third, after all Secured Obligations are repaid, the excess (if any) shall be refunded to Borrower.

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2.3           Default Interest. In the event any payment is not paid on the scheduled payment date, an amount equal to five percent (5%) of the past due amount shall be payable on demand. In addition, upon the occurrence and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest at a rate per annum equal to the rate set forth in Section 2.1(c) plus five percent (5%) per annum. In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.1(c) or Section 2.3, as applicable.

2.4           Prepayment. At its option upon at least seven (7) Business Days prior notice to Agent, Borrower may prepay all, or any portion, of the outstanding Advances by paying the entire principal balance, or a portion thereof, all accrued and unpaid interest on the portion prepaid, all unpaid Agent’s and Lender’s fees and expenses accrued to the date of the repayment (including the End of Term Charge), together with a prepayment charge on the portion prepaid equal to the following percentage of the Advance amount being prepaid: if such Advance amounts are prepaid in any of the first twelve (12) months following the Closing Date, three percent (3.00%); after twelve (12) months but prior to twenty four (24) months following the Closing Date, two percent (2.00%); and thereafter, one percent (1.00%) (each, a “Prepayment Charge”). Borrower agrees that the Prepayment Charge is a reasonable calculation of Lender’s lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Advances. Upon the occurrence of a Change in Control, Borrower shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and all unpaid Agent’s and Lender’s fees and expenses accrued to the date of the repayment (including the End of Term Charge) together with the applicable Prepayment Charge.

2.5           End of Term Charge. On the earliest to occur of (i) the Term Loan Maturity Date, (ii) the date that Borrower prepays the outstanding Secured Obligations, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lender a charge equal to Five Hundred Ninety-Two Thousand Five Hundred Dollars ($592,500) (the “End of Term Charge”). Notwithstanding the required payment date of such charge, it shall be deemed earned by Lender as of the Closing Date.

2.6           Notes. If so requested by Lender by written notice to Borrower, then Borrower shall execute and deliver to Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of Lender pursuant to Section 11.13) (promptly after the Borrower’s receipt of such notice) a Note or Notes to evidence Lender’s Loans.

2.7           Pro Rata Treatment. Each payment (including prepayment) on account of any fee and any reduction of the Term Loan Advances shall be made pro rata according to the Term Commitments of the relevant Lender.

2.8           Withholding. Payments received by Lender from Borrower under this Agreement will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any governmental authority (including any interest, additions to tax or penalties applicable thereto). Specifically, however, if at any time any governmental authority, applicable law, regulation or international agreement requires Borrower to make any withholding or deduction from any such payment or other sum payable hereunder to Lender, Borrower hereby covenants and agrees that the amount due from Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Lender receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant governmental authority. Borrower will, upon request, furnish Lender with proof reasonably satisfactory to Lender indicating that Borrower has made such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Borrower. The agreements and obligations of Borrower contained in this Section 2.8 shall survive the termination of this Agreement.

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SECTION 3.          SECURITY INTEREST

3.1           As security for the prompt, complete and indefeasible payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower grants to Agent a security interest in all of Borrower’s right, title, and interest in and to the following personal property whether now owned or hereafter acquired (collectively, the “Collateral”): (a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles (other than Intellectual Property); (e) Inventory; (f) Investment Property (but excluding thirty-five percent (35%) of the capital stock of any Foreign Subsidiary that constitutes a Permitted Investment); (g) Deposit Accounts; (h) Cash; (i) Goods; and all other tangible and intangible personal property of Borrower whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located, and any of Borrower’s property in the possession or under the control of Agent; and, to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing; provided, however, that the Collateral shall include all Accounts and General Intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the Intellectual Property (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the date of this Agreement, include the Intellectual Property to the extent necessary to permit perfection of Agent’s security interest in the Rights to Payment.

3.2           Borrower acknowledges that certain of the Collateral may now or in the future consist of ULC Shares, and that it is the intention of Lender and Borrower that the Creditor should not under any circumstances prior to realization thereon be held to be a “member” or a “shareholder”, as applicable, of a ULC for the purposes of any ULC Laws. Therefore, notwithstanding any provisions to the contrary contained in this Agreement or the Loan Documents, where Inc. is the registered owner of ULC Shares which are Collateral, Inc. shall remain the sole registered owner of such ULC Shares until such time as such ULC Shares are effectively transferred into the name of the Lender or any other Person on the books and records of the applicable ULC. Accordingly, Inc. shall be entitled to receive and retain for its own account any dividend on or other distribution, if any, with respect to such ULC Shares and shall have the right to vote such ULC Shares and to control the direction, management and policies of the applicable ULC to the same extent as Inc. would if such ULC Shares were not encumbered to the Lender pursuant hereto. Nothing in this Agreement, or the Loan Documents is intended to, and nothing in this Agreement, or the Loan Documents shall, constitute the Lender or any Person other than Inc., a member or shareholder of a ULC for the purposes of any ULC Laws (whether listed or unlisted, registered or beneficial), until such time as notice is given to Inc. and further steps are taken pursuant hereto or thereto so as to register Lender or such other Person, as specified in such notice, as the holder of the ULC Shares. To the extent any provision hereof would have the effect of constituting Lender as a member or a shareholder, as applicable, of any ULC prior to such time, such provision shall be severed herefrom and shall be ineffective with respect to ULC Shares which are Collateral without otherwise invalidating or rendering unenforceable this Agreement or invalidating or rendering unenforceable such provision insofar as it relates to Collateral which is not ULC Shares. Except upon the exercise of rights of Lender to sell, transfer or otherwise dispose of ULC Shares in accordance with this Agreement, Inc. shall not cause or permit, Lender to: (a) be registered as a shareholder or member of the applicable ULC; (b) have any notation entered in their favour in the share register of such ULC; (c) be held out as shareholders or members of such ULC; (d) receive, directly or indirectly, any dividends, property or other distributions from such ULC by reason of Lender holding a security interest over the ULC Shares; or (e) act as a shareholder of such ULC, or exercise any rights of a shareholder including the right to attend a meeting of shareholders of such ULC or to vote its ULC Shares.

SECTION 4.          CONDITIONS PRECEDENT TO LOAN

The obligation of Lender to make the Term Loan Advances hereunder are subject to the satisfaction by Borrower of the following conditions:

4.1           Initial Advance. On or prior to the Closing Date, Borrower shall have delivered to Agent the following:

(a)          executed originals of the Loan Documents, a legal opinion of Borrower’s counsel, and all other documents and instruments reasonably required by Agent to effectuate the transactions contemplated hereby or to create and perfect the Liens of Agent with respect to all Collateral, in all cases in form and substance reasonably acceptable to Agent;

(b)          certified copy of resolutions of Borrower’s Board evidencing approval of (i) the Loan and other transactions evidenced by the Loan Documents; and (ii) the Warrant and transactions evidenced thereby;

(c)          certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower;

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(d)          a certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect;

(e)          payment of the Facility Charge and reimbursement of Agent’s and Lender’s current expenses reimbursable pursuant to this Agreement, which amounts may be deducted from the initial Advance; and

(f)          such other documents as Agent may reasonably request.

4.2           All Advances. On each Advance Date:

(a)          Agent shall have received (i) an Advance Request for the relevant Advance as required by Section 2.1(b), each duly executed by Borrower’s Chief Executive Officer or Chief Financial Officer, and (ii) any other documents Agent may reasonably request.

(b)          The representations and warranties set forth in this Agreement and in Section 5 and in the Warrant shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.

(c)          Borrower shall be in compliance with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after such Advance no Event of Default shall have occurred and be continuing.

(d)          Each Advance Request shall be deemed to constitute a representation and warranty by Borrower on the relevant Advance Date as to the matters specified in paragraphs (b) and (c) of this Section 4.2 and as to the matters set forth in the Advance Request.

4.3           No Default. As of the Closing Date and each Advance Date, (i) no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default and (ii) no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

SECTION 5.          REPRESENTATIONS AND WARRANTIES OF BORROWER

Borrower represents and warrants that:

5.1           Corporate Status. Inc. is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware and Corp. is a corporation duly organized, legally existing and in good standing under the laws of the Province of Nova Scotia. Borrower is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified could reasonably be expected to have a Material Adverse Effect. Borrower’s present name, former names (if any), locations, place of formation, tax identification number, organizational identification number and other information are correctly set forth in Exhibit C, as may be updated by Borrower in a written notice (including any Compliance Certificate) provided to Agent after the Closing Date.

5.2           Collateral. Borrower owns the Collateral and the Intellectual Property, free of all Liens, except for Permitted Liens. Borrower has the power and authority to grant to Agent a Lien in the Collateral as security for the Secured Obligations.

5.3           Consents. Borrower’s execution, delivery and performance of the Notes (if any), this Agreement and all other Loan Documents, and Borrower’s execution of the Warrant, (i) have been duly authorized by all necessary corporate action of Borrower, (ii) will not result in the creation or imposition of any Lien upon the Collateral, other than Permitted Liens and the Liens created by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrower’s Certificate or Articles of Incorporation (as applicable), bylaws, or any, law, regulation, order, injunction, judgment, decree or writ to which Borrower is subject and (iv) except as described on Schedule 5.3, do not violate any contract or agreement or require the consent or approval of any other Person which has not already been obtained. The individual or individuals executing the Loan Documents and the Warrant are duly authorized to do so.

5.4           Material Adverse Effect. No event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. Borrower is not aware of any event likely to occur that is reasonably expected to result in a Material Adverse Effect.

5.5           Actions Before Governmental Authorities. Except as described on Schedule 5.5, there are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of Borrower, threatened against or affecting Borrower or its property.

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5.6           Laws. Borrower is not in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default is reasonably expected to result in a Material Adverse Effect. Borrower is not in default in any manner under any provision of any agreement or instrument evidencing Indebtedness, or any other material agreement to which it is a party or by which it is bound.

5.7           Information Correct and Current. No information, report, Advance Request, financial statement, exhibit or schedule furnished, by or on behalf of Borrower to Agent in connection with any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading at the time such statement was made or deemed made. Additionally, any and all financial or business projections provided by Borrower to Agent, whether prior to or after the Closing Date, shall be (i) provided in good faith and based on the most current data and information available to Borrower, and (ii) the most current of such projections provided to Borrower’s Board.

5.8           Tax Matters. Except as described on Schedule 5.8, (a) Borrower has filed all federal, state and local tax returns that it is required to file, or has timely filed any necessary extension to file such tax returns, (b) Borrower has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns, and (c) Borrower has paid or fully reserved for any tax assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings).

5.9           Intellectual Property Claims. Borrower is the sole owner of, or otherwise has the right to use, the Intellectual Property. Except as described on Schedule 5.9, (i) each of the material Copyrights, Trademarks and Patents is valid and enforceable, (ii) no material part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and (iii) no claim has been made to Borrower that any material part of the Intellectual Property violates the rights of any third party. Exhibit D is a true, correct and complete list of each of Borrower’s Patents, registered Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties (other than shrink-wrap software licenses), together with application or registration numbers, as applicable, owned by Borrower or any Subsidiary, in each case as of the Closing Date. Borrower is not in material breach of, nor has Borrower failed to perform any material obligations under, any of the foregoing contracts, licenses or agreements and, to Borrower’s knowledge, no third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations thereunder.

5.10         Intellectual Property. Except as described on Schedule 5.10, Borrower has, or in the case of any proposed business, will have, all material rights with respect to Intellectual Property necessary in the operation or conduct of Borrower’s business as currently conducted and proposed to be conducted by Borrower. Without limiting the generality of the foregoing, and in the case of Licenses, except for restrictions that are unenforceable under Division 9 of the UCC, Borrower has the right, to the extent required to operate Borrower’s business, to freely transfer, license or assign Intellectual Property without condition, restriction or payment of any kind (other than license payments in the ordinary course of business) to any third party, and Borrower owns or has the right to use, pursuant to valid licenses, all software development tools, library functions, compilers and all other third-party software and other items that are used in the design, development, promotion, sale, license, manufacture, import, export, use or distribution of Borrower Products.

5.11         Borrower Products. Except as described on Schedule 5.11, no Intellectual Property owned by Borrower or Borrower Product has been or is subject to any actual or, to the knowledge of Borrower, threatened litigation, proceeding (including any proceeding in the United States Patent and Trademark Office or any corresponding foreign office or agency) or outstanding decree, order, judgment, settlement agreement or stipulation that restricts in any manner Borrower’s use, transfer or licensing thereof or that may affect the validity, use or enforceability thereof. There is no decree, order, judgment, agreement, stipulation, arbitral award or other provision entered into in connection with any litigation or proceeding that obligates Borrower to grant licenses or ownership interest in any future Intellectual Property related to the operation or conduct of the business of Borrower or Borrower Products. Borrower has not received any written notice or claim, or, to the knowledge of Borrower, oral notice or claim, challenging or questioning Borrower’s ownership in any Intellectual Property (or written notice of any claim challenging or questioning the ownership in any licensed Intellectual Property of the owner thereof) or suggesting that any third party has any claim of legal or beneficial ownership with respect thereto nor, to Borrower’s knowledge, is there a reasonable basis for any such claim. Neither Borrower’s use of its Intellectual Property nor the production and sale of Borrower Products infringes the Intellectual Property or other rights of others.

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5.12         Financial Accounts. Exhibit E, as may be updated by the Borrower in a written notice provided to Agent after the Closing Date, is a true, correct and complete list of (a) all banks and other financial institutions at which Borrower or any Subsidiary maintains Deposit Accounts and (b) all institutions at which Borrower or any Subsidiary maintains an account holding Investment Property, and such exhibit correctly identifies the name, address and telephone number of each bank or other institution, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

5.13         Employee Loans. Borrower has no outstanding loans to any employee, officer or director of the Borrower nor has Borrower guaranteed the payment of any loan made to an employee, officer or director of the Borrower by a third party.

5.14         Capitalization and Subsidiaries. Borrower’s capitalization as of the Closing Date is set forth on Schedule 5.14 annexed hereto. Borrower does not own any stock, partnership interest or other securities of any Person, except for Permitted Investments. Attached as Schedule 5.14, as may be updated by Borrower in a written notice provided after the Closing Date, is a true, correct and complete list of each Subsidiary.

5.15         Use of Proceeds. Borrower shall use the proceeds of the Term Loan Advances as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

SECTION 6.          INSURANCE; INDEMNIFICATION

6.1           Coverage. Borrower shall cause to be carried and maintained commercial general liability insurance, on an occurrence form, against risks customarily insured against in Borrower’s line of business. Such risks shall include the risks of bodily injury, including death, property damage, personal injury, advertising injury, and contractual liability per the terms of the indemnification agreement found in Section 6.3. Borrower must maintain a minimum of $2,000,000 of commercial general liability insurance for each occurrence. Borrower has and agrees to maintain a minimum of $2,000,000 of directors’ and officers’ insurance for each occurrence and $5,000,000 in the aggregate. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral, insuring against all risks of physical loss or damage howsoever caused, in an amount not less than the full replacement cost of the Collateral, provided that such insurance may be subject to standard exceptions and deductibles.

6.2           Certificates. Borrower shall deliver to Agent certificates of insurance that evidence Borrower’s compliance with its insurance obligations in Section 6.1 and the obligations contained in this Section 6.2. Borrower’s insurance certificate shall state Agent is an additional insured for commercial general liability, a loss payee for all risk property damage insurance, subject to the insurer’s approval, and a loss payee for property insurance and additional insured for liability insurance for any future insurance that Borrower may acquire from such insurer. Attached to the certificates of insurance will be additional insured endorsements for liability and lender’s loss payable endorsements for all risk property damage insurance. All certificates of insurance will provide for a minimum of thirty (30) days advance written notice to Agent of cancellation or any other change adverse to Agent’s interests. Any failure of Agent to scrutinize such insurance certificates for compliance is not a waiver of any of Agent’s rights, all of which are reserved.

6.3           Indemnity. Borrower agrees to indemnify and hold Agent, Lender and their officers, directors, employees, agents, in-house attorneys, representatives and shareholders (each, an “Indemnified Person”) harmless from and against any and all claims, costs, expenses, damages and liabilities (including such claims, costs, expenses, damages and liabilities based on liability in tort, including strict liability in tort), including reasonable attorneys’ fees and disbursements and other costs of investigation or defense (including those incurred upon any appeal) (collectively, “Liabilities”), that may be instituted or asserted against or incurred by such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or the administration of such credit, or in connection with or arising out of the transactions contemplated hereunder and thereunder, or any actions or failures to act in connection therewith, or arising out of the disposition or utilization of the Collateral, excluding in all cases Liabilities to the extent resulting solely from any Indemnified Person’s gross negligence or willful misconduct. Borrower agrees to pay, and to save Agent and Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes (excluding taxes imposed on or measured by the net income of Agent or Lender) that may be payable or determined to be payable with respect to any of the Collateral or this Agreement. In no event shall any Indemnified Person be liable on any theory of liability for any special, indirect, consequential or punitive damages (including any loss of profits, business or anticipated savings).

SECTION 7.          COVENANTS OF BORROWER

Borrower agrees as follows:

7.1           Financial Reports. Borrower shall furnish to Agent the financial statements and reports listed hereinafter (the “Financial Statements”):

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(a)          as soon as practicable (and in any event within 30 days) after the end of each month, unaudited interim and year-to-date financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect, all certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year end adjustments, and (iii) they do not contain certain non-cash items that are customarily included in quarterly and annual financial statements;

(b)          as soon as practicable (and in any event within 45 days) after the end of each fiscal quarter, unaudited interim and year-to-date financial statements as of the end of such fiscal quarter (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect, certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, and (ii) that they are subject to normal year end adjustments; as well as the most recent capitalization table for Borrower, including the weighted average exercise price of employee stock options;

(c)          as soon as practicable (and in any event within one hundred fifty (150) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Agent, accompanied by any management report from such accountants;

(d)           as soon as practicable (and in any event within 30 days) after the end of each month, a Compliance Certificate in the form of Exhibit F;

(e)          promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports that Borrower has made available to holders of its capital stock and copies of any regular, periodic and special reports or registration statements that Borrower files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or any national securities exchange; and

(f)          financial and business projections promptly following their approval by Borrower’s Board, and in any event, within 30 days prior to the end of Borrower’s fiscal year, as well as budgets, operating plans and other financial information reasonably requested by Agent.

Borrower shall not make any change in its (a) accounting policies or reporting practices, or (b) fiscal years or fiscal quarters. The fiscal year of Borrower shall end on December 31.

The executed Compliance Certificate may be sent via facsimile to Agent at (650) 473-9194 or via e-mail to BJadot@herculestech.com. All Financial Statements required to be delivered pursuant to clauses (a), (b) and (c) shall be sent via e-mail to financialstatements@herculestech.com with a copy to BBang@herculestech.com provided, that if e-mail is not available or sending such Financial Statements via e-mail is not possible, they shall be sent via facsimile to Agent at: (866) 468-8916, attention Chief Credit Officer.

7.2           Management Rights. Upon five (5) Business Days’ notice (provided no notice is required if an Event of Default has occurred and is continuing) Borrower shall permit any representative that Agent or Lender authorizes, including its attorneys and accountants, to inspect the Collateral and examine and make copies and abstracts of the books of account and records of Borrower at reasonable times and upon reasonable notice during normal business hours. In addition, any such representative shall have the right to meet with management and officers of Borrower to discuss such books of account and records. In addition, Agent or Lender shall be entitled at reasonable times and intervals to consult with and advise the management and officers of Borrower concerning significant business issues affecting Borrower. Such consultations shall not unreasonably interfere with Borrower’s business operations. The parties intend that the rights granted Agent and Lender shall constitute “management rights” within the meaning of 29 C.F.R Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or participation by Agent or Lender with respect to any business issues shall not be deemed to give Agent or Lender, nor be deemed an exercise by Agent or Lender of, control over Borrower’s management or policies.

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7.3           Further Assurances. Borrower shall from time to time execute, deliver and file, alone or with Agent, any financing statements, security agreements, collateral assignments, notices, control agreements, or other documents to perfect or give the highest priority to Agent’s Lien on the Collateral. Borrower shall from time to time procure any instruments or documents as may be requested by Agent, and take all further action that may be necessary or desirable, or that Agent may reasonably request, to perfect and protect the Liens granted hereby and thereby. In addition, and for such purposes only, Borrower hereby authorizes Agent to execute and deliver on behalf of Borrower and to file such financing statements, collateral assignments, notices, control agreements, security agreements and other documents without the signature of Borrower either in Agent’s name or in the name of Agent as agent and attorney-in-fact for Borrower. Borrower shall protect and defend Borrower’s title to the Collateral and Agent’s Lien thereon against all Persons claiming any interest adverse to Borrower or Agent other than Permitted Liens.

7.4           Indebtedness. Borrower shall not create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except for the conversion of Indebtedness into equity securities and the payment of cash in lieu of fractional shares in connection with such conversion.

7.5           Collateral. Borrower shall at all times keep the Collateral, the Intellectual Property and all other property and assets used in Borrower’s business or in which Borrower now or hereafter holds any interest free and clear from any legal process known to Borrower or Liens whatsoever (except for Permitted Liens), and shall give Agent prompt written notice of any legal process affecting the Collateral, the Intellectual Property, such other property and assets, or any Liens thereon, provided however, that the Collateral and such other property and assets may be subject to Permitted Liens except that there shall be no Liens whatsoever on Intellectual Property. Borrower shall cause its Subsidiaries to protect and defend such Subsidiary’s title to its assets from and against all Persons claiming any interest adverse to such Subsidiary, and Borrower shall cause its Subsidiaries at all times to keep such Subsidiary’s property and assets free and clear from any legal process or Liens whatsoever (except for Permitted Liens, provided however, that there shall be no Liens whatsoever on Intellectual Property), and shall give Agent prompt written notice of any legal process known to Borrower affecting such Subsidiary’s assets. Borrower shall not agree with any Person other than Agent or Lender not to encumber its property.

7.6           Investments. Borrower shall not directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments.

7.7           Distributions. Borrower shall not, and shall not allow any Subsidiary to, (a) repurchase or redeem any class of stock or other equity interest other than pursuant to employee, director or consultant repurchase plans or other similar agreements, provided, however, in each case the repurchase or redemption price does not exceed the original consideration paid for such stock or equity interest, or (b) declare or pay any cash dividend or make a cash distribution on any class of stock or other equity interest, except that a Subsidiary may pay dividends or make distributions to Borrower, or (c) lend money to any employees, officers or directors or guarantee the payment of any such loans granted by a third party in excess of $100,000 in the aggregate or (d) waive, release or forgive any Indebtedness owed by any employees, officers or directors in excess of $100,000 in the aggregate.

7.8           Transfers. Except for Permitted Transfers, Borrower shall not voluntarily or involuntarily transfer, sell, lease, license, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of its assets.

7.9           Mergers or Acquisitions. Borrower shall not merge, amalgamate, or consolidate, or permit any of its Subsidiaries to merge, amalgamate, or consolidate, with or into any other business organization (other than mergers, amalgamations, or consolidations of (a) a Subsidiary which is not a Borrower into another Subsidiary or into Borrower or (b) a Borrower into another Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.

7.10         Taxes. Borrower and its Subsidiaries shall pay when due all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Agent, Lender or the Collateral or upon Borrower’s ownership, possession, use, operation or disposition thereof or upon Borrower’s rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor in accordance with GAAP.

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7.11         Corporate Changes. Neither Borrower nor any Subsidiary shall change its corporate name, legal form or jurisdiction of formation without twenty (20) days’ prior written notice to Agent. Neither Borrower nor any Subsidiary shall suffer a Change in Control. Neither Borrower nor any Subsidiary shall relocate its chief executive office or its principal place of business unless: (i) it has provided prior written notice to Agent; and (ii) such relocation shall be within the continental United States. Neither Borrower nor any Subsidiary shall relocate any item of Collateral (other than (x) sales of Inventory in the ordinary course of business, (y) relocations of Equipment having an aggregate value of up to $150,000 in any fiscal year, and (z) relocations of Collateral from a location described on Exhibit C to another location described on Exhibit C) unless (i) it has provided prompt written notice to Agent, (ii) such relocation is within the continental United States and, (iii) if such relocation is to a third party bailee, it has delivered a bailee agreement in form and substance reasonably acceptable to Agent.

7.12         Deposit Accounts. Neither Borrower nor any Subsidiary shall maintain any Deposit Accounts (other than the Permitted Accounts (as defined herein)), or accounts holding Investment Property, except with respect to which Agent has an Account Control Agreement. Notwithstanding the foregoing, Borrower may maintain (i) a petty cash account with Bank of America, provided that the aggregate balance of such account does not exceed Ten Thousand Dollars ($10,000.00) at any time (the “BOA Account”), and (ii) deposit accounts with Royal Bank of Canada, provided that the aggregate balance of such accounts do not exceed One Hundred Thousand Dollars ($100,000.00) (the “RBC Accounts”) (the BOA Account and the RBC Account, collectively the “Permitted Accounts”).

7.13         Subsidiaries. Borrower shall notify Agent of each Subsidiary formed subsequent to the Closing Date and, within 15 days of formation, shall cause any such Subsidiary to execute and deliver to Agent a Joinder Agreement.

7.14         Notification of Event of Default. Borrower shall notify Agent immediately of the occurrence of any Event of Default, such notice to be sent via facsimile to Agent.

SECTION 8.          RIGHT TO invest; PAYMENT IN CASH OR COMMON STOCK

8.1           Right to Invest. Lender or its assignee or nominee shall have the right, in its discretion, to participate in a Subsequent Financing (as defined in the Equity Rights Letter Agreement) pursuant to the terms set forth in the Equity Rights Letter Agreement.

8.2           Payment in Cash or Common Stock.

(a)          Subject to satisfaction of the Stock Payment Conditions set forth in paragraph (b) of this Section 8.2 and compliance with the other terms and conditions of this Section 8.2, Borrower may elect to pay, in whole or in part, up to $3,000,000 in the aggregate of any regularly scheduled installment of principal (a “Principal Installment Payment”) by converting the Notes into shares of Common Stock in lieu of payment in cash (such option, the “Stock Payment Option”). In order to validly exercise a Stock Payment Option, Borrower (A) must deliver written notice thereof, in the form attached hereto as Exhibit I, to Lender (a “Borrower Repayment Election Notice”) five (5) days prior to the applicable due date of the Principal Installment Payment (the “Principal Installment Due Date”) and (B) shall either (i) (provided that Borrower’s transfer agent is participating in the Fast Automated Securities Transfer Program of the Depository Trust Company) credit to Lender by no later than the second trading day following the applicable Principal Installment Due Date (such date, the “Delivery Date”) such aggregate number of shares of Common Stock to be issued to Lender with respect to such Borrower Repayment Election Notice, as determined in accordance with this Section 8.2, or (ii) deliver to Lender stock certificates evidencing the number of shares of Common Stock with respect to such Borrower Repayment Election Notice, as determined in accordance with this Section 8.2, by no later than the second trading day following the applicable Delivery Date. All payments in respect of a Principal Installment Payment shall be made in cash, unless (i) Borrower timely delivers a Borrower Repayment Election Notice in accordance with the immediately preceding sentence; (ii) Borrower timely delivers the requisite stock certificates or credits the shares of Common Stock to Lender in accordance with this Section 8.2; and (iii) the Stock Payment Conditions set forth in Section 8.2(b) are satisfied in respect of such payment. A Borrower Repayment Election Notice, once delivered by Borrower, shall be irrevocable unless otherwise agreed, in writing, by Agent, on behalf of the Lender. If Borrower elects to convert the Notes (if applicable) to repay a Principal Installment Payment, in whole or in part, in shares of Common Stock, the number of such shares of Common Stock to be issued in respect of such Principal Installment Payment shall be equal to the number determined by dividing (x) the principal amount to be paid in shares of Common Stock by (y) the Fixed Conversion Price. For purposes hereof, the “Fixed Conversion Price” shall be the price that is 15% higher than the Exercise Price (as defined in the Warrant); provided, however, that upon the occurrence of any stock split, stock dividend, combination of shares or reverse stock split pertaining to the Common Stock, the Fixed Conversion Price shall be proportionately increased or decreased as necessary to reflect the proportionate change in the shares of Common Stock issued and outstanding as a result of such stock split, stock dividend, combination of shares or reverse stock split. Any shares of Common Stock issued pursuant to a Borrower Repayment Election Notice shall be deemed to be issued upon conversion of the Notes.

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(b)          Notwithstanding Section 8.2(a), Borrower’s right to deliver, and Lender’s obligation to accept, shares of Common Stock in lieu of payment in cash of a Principal Installment Payment is conditioned on the satisfaction of each of the following conditions (the “Stock Payment Conditions”) as of such Delivery Date: (A) the closing price of the shares of Common Stock as reported by NASDAQ on the NASDAQ market for each of the seven (7) consecutive trading days immediately preceding the Delivery Date shall be greater than or equal to 115% of the Fixed Conversion Price; (B) the Common Stock issued in connection with any such payment does not exceed 15% of the total trading volume of the Common Stock for the twenty-two (22) consecutive trading days immediately prior to and including such Delivery Date; (C) only one Repayment Election Notice may be given in any calendar month; (D) the aggregate principal amount to be paid in shares of Common Stock pursuant to Section 8.2 of this Agreement shall not exceed Three Million Dollars ($3,000,000); (E) the Common Stock is (and was on each of the twenty-two (22) consecutive trading days immediately preceding such Delivery Date) quoted or listed on the NASDAQ market; (F) a registration statement is effective and available for the resale of all of the shares of Common Stock to be delivered on such Delivery Date, or such shares of Common Stock are eligible for resale to the public pursuant to Rule 144 without any limitation; (G) after giving effect to the issuance of such shares of Common Stock to Lender, any individual Lender would not (A) beneficially own, together with its affiliates, Common Stock in excess of the limitations specified in subsection 8.2(c) below and (B) have been issued shares of Common Stock pursuant to all Repayment Election Notices in an aggregate amount in excess of the Cap; (H) as of such Delivery Date, there is no outstanding Event of Default and there is no breach or default that, if left uncured, would result in an Event of Default; and (I) Inc. shall have sufficient authorized but unissued shares of Common Stock to provide for the issuance of the shares of Common Stock pursuant to the Borrower Repayment Election Notice. If any of the Stock Payment Conditions are not satisfied as of a Delivery Date, Borrower shall not be permitted to pay, and the Lender shall not be obligated to accept, the Principal Installment Payment in shares of Common Stock, and Borrower shall instead pay such principal amount in cash; provided, however, that the Stock Payment Conditions set forth in clauses (A), (B), (C), (E), (F) and (H) above may be waived by a writing executed by both Borrower and Lender. In the event the Borrower is relying upon an effective registration statement to satisfy clause (F) of the Stock Payment Conditions, each of Inc. and Lender shall provide customary indemnification to one another with respect to such registration statement in a form acceptable to the Borrower and Lender. By no later than the first trading day following the Delivery Date, Borrower shall either (i) (provided that Borrower's transfer agent is participating in the Fast Automated Securities Transfer Program of the Depository Trust Company) credit to Lender the shares of Common Stock to be delivered by Borrower with respect to the portion of the Principal Installment Payment being paid in shares of Common Stock or (ii) deliver to Agent, on behalf of each Lender, certificates, free of restrictive legends, evidencing the shares of Common Stock to be delivered by Borrower with respect to the portion of the Principal Installment Payment being paid in shares of Common Stock, which shares of Common Stock, in the case of clauses (i) and (ii), shall be allocated among each Lender in the manner specified to Borrower by the Agent.

(c)          Notwithstanding any provision herein to the contrary, no individual Lender, together with its affiliates, shall be permitted to beneficially own a number of shares of Common Stock (other than shares that may be deemed beneficially owned except for being subject to a limitation analogous to the limitation contained in this Section 8.2(c)) in excess of 9.99% of the number of shares of Common Stock then issued and outstanding, it being the intent of Borrower and each Lender that each Lender, together with its respective affiliates, not be deemed at any time to have the power to vote or dispose of greater than 9.99% of the number of shares of Common Stock issued and outstanding at any time; provided, however, that each Lender shall have the right, upon 61 days’ prior written notice to Borrower, to waive the 9.99% limitation of this subsection 8.2(c); provided, further, that upon such Lender’s waiver of such 9.99% limitation, such Lender shall comply with the provisions under Rule 144 (“Rule 144”) of the Securities Act of 1933, as amended (the “1933 Act”). Notwithstanding anything contained herein to the contrary, Borrower shall not be permitted to issue to any Lender, and no Lender shall not be required to accept, shares of Common Stock pursuant to a Borrower Repayment Election Notice if and to the extent such issuance, when taking together with all other issuances pursuant to prior Borrower Repayment Election Notices, would result in (A) the issuance of more than 19.99% of the Common Stock outstanding as of the date of this Agreement or (B) such Lender, together with its affiliates, beneficially owning in excess of 19.99% of the outstanding Common Stock (each of clauses (A) and (B) are referred to herein as the “Cap”). As used herein, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act. Upon the reasonable written request of any Lender, Borrower shall within three (3) Business Days confirm in writing to Lender the number of shares of Common Stock then issued and outstanding as of any given date. For purposes of Borrower’s compliance with this Section 8(c), in determining the percentage of Borrower’s issued and outstanding Common Stock owned beneficially and/or of record by Lender and its affiliates as at any date, Borrower shall be entitled to rely on the most recent written notice of such ownership (if any) provided by Lender to Borrower or the information as to such ownership contained in the reports and schedules then filed with the Securities and Exchange Commission (the “SEC”) by Lender; provided, that the foregoing shall not operate to impair Lender’s ability to refuse or reject any shares of Common Stock issued to Lender by Borrower pursuant to this Section 8.2 if Lender’s acceptance of such shares would violate any of the thresholds set forth in this Section 8.2(c).

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(d)          With a view to making available to Lender the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit Lender to sell shares of Common Stock issued pursuant to Section 8.2 of this Agreement to the public without registration, Borrower covenants and agrees that, upon Lender’s written request to Borrower, Borrower shall furnish to Lender, within ten (10) Business Days after receipt of such request, a written statement confirming the compliance of Inc. with the filing requirements of the SEC as set forth in paragraph (c)(1) of Rule 144, as such Rule may be amended from time to time.

(e)          If Borrower elects to deliver a Borrower Repayment Election Notice, Inc. covenants and agrees to reserve from its duly authorized capital stock, as of that date and any Delivery Date, not less than the number of shares of Common Stock that may be issuable upon payment of any Principal Installment Payment pursuant to Section 8.2 of this Agreement. Borrower further represents, warrants and covenants that, upon issuance of any shares of Common Stock pursuant to Section 8.2 of this Agreement, such shares of Common Stock shall be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof.

(f)          For so long as Lender holds any shares of Common Stock issued pursuant to Section 8.2 of this Agreement, Inc. shall make reasonable efforts to maintain the Common Stock’s authorization for listing on NASDAQ and Inc. shall not take any action which would reasonably be expected to result in the delisting or suspension of the Common Stock on NASDAQ.

SECTION 9.          EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall be an Event of Default:

9.1           Payments. Borrower fails to pay any amount due under this Agreement, the Notes, or any of the other Loan Documents on the due date; or

9.2           Covenants. Borrower breaches or defaults in the performance of any covenant or Secured Obligation under this Agreement, or any of the other Loan Documents or any other agreement among Borrower, Agent and Lender, and (a) with respect to a default under any covenant under this Agreement (other than under Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, and 7.14,), any other Loan Document or any other agreement among Borrower, Agent and Lender, such default continues for more than ten (10) days after the earlier of the date on which (i) Agent or Lender has given notice of such default to Borrower and (ii) Borrower has actual knowledge of such default or (b) with respect to a default under any of Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, and 7.14, the occurrence of such default; or

9.3           Material Adverse Effect. A circumstance has occurred that would reasonably be expected to have a Material Adverse Effect; or

9.4           Representations. Any representation or warranty made by Borrower in any Loan Document or in the Warrant shall have been false or misleading in any material respect; or

9.5           Insolvency. Borrower (A) (i) shall make an assignment for the benefit of creditors; or (ii) shall be unable to pay its debts as they become due, or be unable to pay or perform under the Loan Documents, or shall become insolvent; or (iii) shall file a voluntary petition in bankruptcy; or (iv) shall file any petition, answer, or document seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances; or (v) shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (i.e., 33-1/3% or more) of the assets or property of Borrower; or (vi) shall cease operations of its business as its business has normally been conducted, or terminate substantially all of its employees; or (vii) Borrower or its directors or majority shareholders shall take any action initiating any of the foregoing actions described in clauses (i) through (vi); or (B) either (i) thirty (30) days shall have expired after the commencement of an involuntary action against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or (ii) a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (iii) Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or (iv) the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or (v) thirty (30) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or

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9.6           Attachments; Judgments. Any portion of Borrower’s assets is attached or seized, or a levy is filed against any such assets, or a judgment or judgments is/are entered for the payment of money, individually or in the aggregate, of at least $100,000, or Borrower is enjoined or in any way prevented by court order from conducting any part of its business; or

9.7           Other Obligations. The occurrence of any default under any agreement or obligation of Borrower involving any Indebtedness in excess of $50,000, or the occurrence of any default under any agreement or obligation of Borrower that could reasonably be expected to have a Material Adverse Effect.

SECTION 10.         REMEDIES

10.1         General. Upon and during the continuance of any one or more Events of Default, (i) Agent may, at its option, accelerate and demand payment of all or any part of the Secured Obligations together with a Prepayment Charge and declare them to be immediately due and payable (provided, that upon the occurrence of an Event of Default of the type described in Section 9.5, all of the Secured Obligations shall automatically be accelerated and made due and payable, in each case without any further notice or act), (ii) Agent may, at its option, sign and file in Borrower’s name any and all collateral assignments, notices, control agreements, security agreements and other documents it deems necessary or appropriate to perfect or protect the repayment of the Secured Obligations, and in furtherance thereof, Borrower hereby grants Agent an irrevocable power of attorney coupled with an interest, and (iii) Agent may notify any of Borrower’s account debtors to make payment directly to Agent, compromise the amount of any such account on Borrower’s behalf and endorse Agent’s name without recourse on any such payment for deposit directly to Agent’s account. Agent may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. All Agent’s rights and remedies shall be cumulative and not exclusive.

10.2         Collection; Foreclosure. Upon the occurrence and during the continuance of any Event of Default, Agent may, at any time or from time to time, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Agent may elect. Any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon ten (10) calendar days’ prior written notice to Borrower. Agent may require Borrower to assemble the Collateral and make it available to Agent at a place designated by Agent that is reasonably convenient to Agent and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be applied by Agent in the following order of priorities:

First, to Agent and Lender in an amount sufficient to pay in full Agent’s and Lender’s costs and professionals’ and advisors’ fees and expenses as described in Section 11.11;

Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations (including principal, interest, and the Default Rate interest), in such order and priority as Agent may choose in its sole discretion; and

Finally, after the full, final, and indefeasible payment in Cash of all of the Secured Obligations, to any creditor holding a junior Lien on the Collateral, or to Borrower or its representatives or as a court of competent jurisdiction may direct.

Agent shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the UCC.

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10.3         No Waiver. Agent shall be under no obligation to marshal any of the Collateral for the benefit of Borrower or any other Person, and Borrower expressly waives all rights, if any, to require Agent to marshal any Collateral.

10.4         Cumulative Remedies. The rights, powers and remedies of Agent hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Agent.

SECTION 11.         MISCELLANEOUS

11.1         Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

11.2         Notice. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication (including the delivery of Financial Statements) that is required, contemplated, or permitted under the Loan Documents or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by facsimile or hand delivery or delivery by an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, in each case addressed to the party to be notified as follows:

(a)	If to Agent:	HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
		Legal Department
		Attention:  General Counsel and Mr. Bryan Jadot
		400 Hamilton Avenue, Suite 310
		Palo Alto, California  94301
		Facsimile:  650-473-9194
		Telephone:  650-289-3060
(b)	If to Lender:	HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
		Legal Department
		Attention:  General Counsel and Mr. Bryan Jadot
		400 Hamilton Avenue, Suite 310
		Palo Alto, CA  94301
		Facsimile:  650-473-9194
		Telephone:  650-289-3060
(c)	If to Borrower:	Celator Pharmaceuticals, Inc
		Celator Pharmaceuticals Corp.
		Attention:  Chief Financial Officer
		200 Princeton South Corporate Center, Suite 180
		Ewing, New Jersey 08628
		Facsimile:  609-243-0202
		Telephone:  609-243-0123

or to such other address as each party may designate for itself by like notice.

11.3         Entire Agreement; Amendments.

(a)          This Agreement and the other Loan Documents constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, non-disclosure or confidentiality agreements, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including Agent’s revised proposal letter dated March 24, 2014).

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(b)          Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 11.3(b). The Required Lenders and Borrower party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Agent and the Borrower party to the relevant Loan Document may, from time to time, (i) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or (ii) waive, on such terms and conditions as the Required Lenders or the Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (A) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan Advance, or reduce the stated rate of any interest or fee payable hereunder) or extend the scheduled date of any payment thereof, in each case without the written consent of each Lender directly affected thereby; (B) eliminate or reduce the voting rights of any Lender under this Section 11.3(b) without the written consent of such Lender; (C) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release a Borrower from its obligations under the Loan Documents, in each case without the written consent of all Lenders; or (D) amend, modify or waive any provision of Section 11.17 without the written consent of the Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each Lender and shall be binding upon Borrower, the Lender, the Agent and all future holders of the Loans.

11.4         No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

11.5         No Waiver. The powers conferred upon Agent and Lender by this Agreement are solely to protect its rights hereunder and under the other Loan Documents and its interest in the Collateral and shall not impose any duty upon Agent or Lender to exercise any such powers. No omission or delay by Agent or Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Agent or Lender is entitled, nor shall it in any way affect the right of Agent or Lender to enforce such provisions thereafter.

11.6         Survival. All agreements, representations and warranties contained in this Agreement and the other Loan Documents or in any document delivered pursuant hereto or thereto shall be for the benefit of Agent and Lender and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement. For the avoidance of doubt, the termination of this Agreement and/or any payment or prepayment of the Secured Obligations shall not affect the term of the Warrant unless otherwise agreed in writing by Agent.

11.7         Successors and Assigns. The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement or any of the other Loan Documents without Agent’s express prior written consent, and any such attempted assignment shall be void and of no effect. Agent and Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents without prior notice to Borrower, and all of such rights shall inure to the benefit of Agent’s and Lender’s successors and assigns.

11.8         Governing Law. This Agreement and the other Loan Documents have been negotiated and delivered to Agent and Lender in the State of California, and shall have been accepted by Agent and Lender in the State of California. Payment to Agent and Lender by Borrower of the Secured Obligations is due in the State of California. This Agreement and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

11.9         Consent to Jurisdiction and Venue. All judicial proceedings (to the extent that the reference requirement of Section 11.10 is not applicable) arising in or under or related to this Agreement or any of the other Loan Documents may be brought in any state or federal court located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in Santa Clara County, State of California; (b) waives any objection as to jurisdiction or venue in Santa Clara County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 11.2, and shall be deemed effective and received as set forth in Section 11.2. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

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11.10         Mutual Waiver of Jury Trial / Judicial Reference.

(a)          Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF BORROWER, AGENT AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY BORROWER AGAINST AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE OR BY AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including Claims that involve Persons other than Agent, Borrower and Lender; Claims that arise out of or are in any way connected to the relationship among Borrower, Agent and Lender; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement, any other Loan Document.

(b)          If the waiver of jury trial set forth in Section 11.10(a) is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of the Santa Clara County, California. Such proceeding shall be conducted in Santa Clara County, California, with California rules of evidence and discovery applicable to such proceeding.

(c)          In the event Claims are to be resolved by judicial reference, either party may seek from a court identified in Section 11.9, any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

11.11         Professional Fees. Borrower promises to pay Agent’s and Lender’s fees and expenses necessary to finalize the loan documentation, including but not limited to reasonable attorney’s fees, UCC searches, filing costs, and other miscellaneous expenses. In addition, Borrower promises to pay any and all reasonable attorneys’ and other professionals’ fees and expenses (including fees and expenses of in-house counsel) incurred by Agent and Lender after the Closing Date in connection with or related to: (a) the Loan; (b) the administration, collection, or enforcement of the Loan; (c) the amendment or modification of the Loan Documents; (d) any waiver, consent, release, or termination under the Loan Documents; (e) the protection, preservation, audit, field exam, sale, lease, liquidation, or disposition of Collateral or the exercise of remedies with respect to the Collateral; (f) any legal, litigation, administrative, arbitration, or out of court proceeding in connection with or related to Borrower or the Collateral, and any appeal or review thereof; and (g) any bankruptcy, restructuring, reorganization, assignment for the benefit of creditors, workout, foreclosure, or other action related to Borrower, the Collateral, the Loan Documents, including representing Agent or Lender in any adversary proceeding or contested matter commenced or continued by or on behalf of Borrower’s estate, and any appeal or review thereof.

11.12         Confidentiality. Agent and Lender acknowledge that certain items of Collateral and information provided to Agent and Lender by Borrower are confidential and proprietary information of Borrower, if and to the extent such information either (x) is marked as confidential by Borrower at the time of disclosure, or (y) should reasonably be understood to be confidential (the “Confidential Information”). Accordingly, Agent and Lender agree that any Confidential Information it may obtain in the course of acquiring, administering, or perfecting Agent’s security interest in the Collateral shall not be disclosed to any other Person or entity in any manner whatsoever, in whole or in part, without the prior written consent of Borrower, except that Agent and Lender may disclose any such information: (a) to its own directors, officers, employees, accountants, counsel and other professional advisors and to its affiliates if Agent or Lender in their sole discretion determines that any such party should have access to such information in connection with such party’s responsibilities in connection with the Loan or this Agreement and, provided that such recipient of such Confidential Information either (i) agrees to be bound by the confidentiality provisions of this paragraph or (ii) is otherwise subject to confidentiality restrictions that reasonably protect against the disclosure of Confidential Information; (b) if such information is generally available to the public; (c) if required or appropriate in any report, statement or testimony submitted to any governmental authority having or claiming to have jurisdiction over Agent or Lender; (d) if required or appropriate in response to any summons or subpoena or in connection with any litigation, to the extent permitted or deemed advisable by Agent’s or Lender’s counsel; (e) to comply with any legal requirement or law applicable to Agent or Lender; (f) to the extent reasonably necessary in connection with the exercise of any right or remedy under any Loan Document, including Agent’s sale, lease, or other disposition of Collateral after default; (g) to any participant or assignee of Agent or Lender or any prospective participant or assignee; provided, that such participant or assignee or prospective participant or assignee agrees in writing to be bound by this Section prior to disclosure; or (h) otherwise with the prior consent of Borrower; provided, that any disclosure made in violation of this Agreement shall not affect the obligations of Borrower or any of its affiliates or any guarantor under this Agreement or the other Loan Documents.

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11.13          Assignment of Rights. Borrower acknowledges and understands that Agent or Lender may sell and assign all or part of its interest hereunder and under the Loan Documents to any Person or entity (an “Assignee”). After such assignment the term “Agent” or “Lender” as used in the Loan Documents shall mean and include such Assignee, and such Assignee shall be vested with all rights, powers and remedies of Agent and Lender hereunder with respect to the interest so assigned; but with respect to any such interest not so transferred, Agent and Lender shall retain all rights, powers and remedies hereby given. No such assignment by Agent or Lender shall relieve Borrower of any of its obligations hereunder. Lender agrees that in the event of any transfer by it of the Note(s)(if any), it will endorse thereon a notation as to the portion of the principal of the Note(s), which shall have been paid at the time of such transfer and as to the date to which interest shall have been last paid thereon.

11.14         Revival of Secured Obligations. This Agreement and the Loan Documents shall remain in full force and effect and continue to be effective if any petition is filed by or against Borrower for liquidation or reorganization, if Borrower becomes insolvent or makes an assignment for the benefit of creditors, if a receiver or trustee is appointed for all or any significant part of Borrower’s assets, or if any payment or transfer of Collateral is recovered from Agent or Lender. The Loan Documents and the Secured Obligations and Collateral security shall continue to be effective, or shall be revived or reinstated, as the case may be, if at any time payment and performance of the Secured Obligations or any transfer of Collateral to Agent, or any part thereof is rescinded, avoided or avoidable, reduced in amount, or must otherwise be restored or returned by, or is recovered from, Agent, Lender or by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment, performance, or transfer of Collateral had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, avoided, avoidable, restored, returned, or recovered, the Loan Documents and the Secured Obligations shall be deemed, without any further action or documentation, to have been revived and reinstated except to the extent of the full, final, and indefeasible payment to Agent or Lender in Cash.

11.15         Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

11.16         No Third Party Beneficiaries. No provisions of the Loan Documents are intended, nor will be interpreted, to provide or create any third-party beneficiary rights or any other rights of any kind in any Person other than Agent, Lender and Borrower unless specifically provided otherwise herein, and, except as otherwise so provided, all provisions of the Loan Documents will be personal and solely among Agent, the Lender and the Borrower.

11.17         Agency.

(a)          Lender hereby irrevocably appoints Hercules Technology Growth Capital, Inc. to act on its behalf as the Agent hereunder and under the other Loan Documents and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.

(b)          Lender agrees to indemnify the Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), according to its respective Term Commitment percentages (based upon the total outstanding Term Loan Commitments) in effect on the date on which indemnification is sought under this Section 11.17, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

(c)          Agent in Its Individual Capacity. The Person serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent and the term “Lender” shall, unless otherwise expressly indicated or unless the context otherwise requires, include each such Person serving as Agent hereunder in its individual capacity.

(d)          Exculpatory Provisions. The Agent shall have no duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Agent shall not:

1.          be subject to any fiduciary or other implied duties, regardless of whether any default or any Event of Default has occurred and is continuing;

23

2.          have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Agent is required to exercise as directed in writing by the Lender, provided that the Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Agent to liability or that is contrary to any Loan Document or applicable law; and

3.          except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and the Agent shall not be liable for the failure to disclose, any information relating to the Borrower or any of its affiliates that is communicated to or obtained by any Person serving as the Agent or any of its affiliates in any capacity.

(e)          The Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Lender or as the Agent shall believe in good faith shall be necessary, under the circumstances or (ii) in the absence of its own gross negligence or willful misconduct.

(f)          The Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 4 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent.

(g)          Reliance by Agent. Agent may rely, and shall be fully protected in acting, or refraining to act, upon, any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document that it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties. In the absence of its gross negligence or willful misconduct, Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to Agent and conforming to the requirements of the Loan Agreement or any of the other Loan Documents. Agent may consult with counsel, and any opinion or legal advice of such counsel shall be full and complete authorization and protection in respect of any action taken, not taken or suffered by Agent hereunder or under any Loan Documents in accordance therewith. Agent shall have the right at any time to seek instructions concerning the administration of the Collateral from any court of competent jurisdiction. Agent shall not be under any obligation to exercise any of the rights or powers granted to Agent by this Agreement, the Loan Agreement and the other Loan Documents at the request or direction of Lenders unless Agent shall have been provided by Lender with adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance with such request or direction.

11.18         Publicity.

(a)          Borrower consents to the publication and use by Agent or Lender the following items and information, to the extent such items and information are already contained in any regular, periodic or special reports or registration statements that Borrower files with the Securities and Exchange Commission or otherwise contained in any press release or publicly available investor presentation made available on the Borrower’s website, and provided that such items and information as depicted, described or otherwise used by Agent or Lender are done so in a manner consistent with such reports or registration statements wherein the items or information are found: (i) Borrower's name (including a brief description of the relationship among Borrower, Agent and Lender) and logo and a hyperlink to Borrower’s web site, separately or together, in written and oral presentations, advertising, promotional and marketing materials, client lists, public relations materials or on its web site (together, the “Lender Publicity Materials”); (ii) the names of officers of Borrower in the Lender Publicity Materials; and (iii) Borrower’s name, trademarks or servicemarks in any news release concerning Agent or Lender.

(b)          Borrower shall, without Agent’s or Lender’s consent, have the right to publicize or use Agent’s or Lender's name (including a brief description of the relationship among Borrower, Agent and Lender) in conjunction with (i) any regular, periodic and special reports or registration statements that Borrower files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or any national securities exchange, or (ii) any public or private offering materials or other investor relations information produced by the Borrower: Agent’s or Lender's name (including a brief description of the relationship among Borrower, Agent and Lender).

24

11.19         Borrower Liability. Either Borrower may, acting singly, request Advances hereunder.  Each Borrower hereby appoints the other as agent for the other for all purposes hereunder, including with respect to requesting Advances hereunder. Each Borrower hereunder shall be jointly and severally obligated to repay all Advances made hereunder, regardless of which Borrower actually receives said Advance, as if each Borrower hereunder directly received all Advances.  Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, including, without limitation, the benefit of California Civil Code Section 2815 permitting revocation as to future transactions and the benefit of California Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850, and 2899 and 3433, and (b) any right to require Lender to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Lender may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability.  Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Lender under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Secured Obligations, for any payment made by Borrower with respect to the Secured Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Secured Obligations as a result of any payment made by Borrower with respect to the Secured Obligations in connection with this Agreement or otherwise.  Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void.  If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Lender and such payment shall be promptly delivered to Lender for application to the Secured Obligations, whether matured or unmatured.

(SIGNATURES TO FOLLOW)

25

IN WITNESS WHEREOF, Borrower, Agent and Lender have duly executed and delivered this Loan and Security Agreement as of the day and year first above written.

	BORROWER:
	CELATOR PHARMACEUTICALS, INC.
	Signature:	/s/ Scott T. Jackson
	Print Name:	Scott T. Jackson
	Title:	Chief Executive Officer
	CELATOR PHARMACEUTICALS CORP.
	Signature:	/s/ Scott T. Jackson
	Print Name:	Scott T. Jackson
	Title:	Chief Executive Officer
Accepted in Palo Alto, California:
	AGENT:
	HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
	Signature:	/s/ Michael Penney
	Print Name:	Michael Penney
	Title:	General Counsel
	LENDER:
	HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
	Signature:	/s/ Michael Penney
	Print Name:	Michael Penney
	Title:	General Counsel

26

Table of Exhibits and Schedules

Exhibit A:	Advance Request
	Attachment to Advance Request
Exhibit B:	Promissory Note
Exhibit C:	Name, Locations, and Other Information for Borrower
Exhibit D:	Borrower’s Patents, Trademarks, Copyrights and Licenses
Exhibit E:	Borrower’s Deposit Accounts and Investment Accounts
Exhibit F:	Compliance Certificate
Exhibit G:	Joinder Agreement
Exhibit H:	ACH Debit Authorization Agreement
Exhibit I:	Borrower Repayment Election Notice
Schedule 1	Subsidiaries
Schedule 1.1	Commitments
Schedule 1A	Existing Permitted Indebtedness
Schedule 1B	Existing Permitted Investments
Schedule 1C	Existing Permitted Liens
Schedule 5.3	Consents, Etc.
Schedule 5.5	Actions Before Governmental Authorities
Schedule 5.8	Tax Matters
Schedule 5.9	Intellectual Property Claims
Schedule 5.10	Intellectual Property
Schedule 5.11	Borrower Products
Schedule 5.14	Capitalization

27

EXHIBIT A

ADVANCE REQUEST

To:	Agent:	Date:	__________, 2014
	Hercules Technology Growth Capital, Inc. (the “Agent”)
	400 Hamilton Avenue, Suite 310
	Palo Alto, CA 94301
	Facsimile:  650-473-9194
	Attn:

Celator Pharmaceuticals, Inc. and Celator Pharmaceuticals Corp. (“Borrower”) hereby requests from Hercules Technology Growth Capital, Inc. (“Lender”) an Advance in the amount of _____________________ Dollars ($________________) on ______________, _____ (the “Advance Date”) pursuant to the Loan and Security Agreement among Borrower, Agent and Lender (the “Agreement”). Capitalized words and other terms used but not otherwise defined herein are used with the same meanings as defined in the Agreement.

Please:

(a)           Issue a check payable to Borrower                            ________

or

(b)           Wire Funds to Borrower’s account                           ________

Bank:

Address:  

ABA Number:

Account Number:

Account Name:

Borrower represents that the conditions precedent to the Advance set forth in the Agreement are satisfied and shall be satisfied upon the making of such Advance, including but not limited to: (i) that no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing; (ii) that the representations and warranties set forth in the Agreement and in the Warrant are and shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date; (iii) that Borrower is in compliance with all the terms and provisions set forth in each Loan Document on its part to be observed or performed; and (iv) that as of the Advance Date, no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default under the Loan Documents. Borrower understands and acknowledges that Agent has the right to review the financial information supporting this representation and, based upon such review in its sole discretion, Lender may decline to fund the requested Advance.

Borrower hereby represents that Borrower’s corporate status and locations have not changed since the date of the Agreement or, if the Attachment to this Advance Request is completed, are as set forth in the Attachment to this Advance Request.

Borrower agrees to notify Agent promptly before the funding of the Loan if any of the matters which have been represented above shall not be true and correct on the Borrowing Date and if Agent has received no such notice before the Advance Date then the statements set forth above shall be deemed to have been made and shall be deemed to be true and correct as of the Advance Date.

(SIGNATURE PAGE FOLLOWS)

28

Executed as of [ ], 2014.

BORROWER: CELATOR PHARMACEUTICALS, INC.

SIGNATURE:________________________
TITLE:_____________________________
PRINT NAME:______________________

BORROWER: CELATOR PHARMACEUTICALS CORP.

SIGNATURE:________________________
TITLE:_____________________________
PRINT NAME:______________________

29

ATTACHMENT TO ADVANCE REQUEST

Dated: _______________________

Borrower hereby represents and warrants to Agent that Borrower’s current name and organizational status is as follows:

Name:	Celator Pharmaceuticals, Inc.
Type of organization:	Corporation
State of organization:	Delaware
Organization file number:	3946959
Name:	Celator Pharmaceuticals Corp.
Type of organization:	Unlimited Liability Company
State of organization:
Organization file number:

Borrower hereby represents and warrants to Agent that the street addresses, cities, states and postal codes of its current locations are as follows:

30

EXHIBIT B

PROMISSORY NOTE

$[  ],000,000	Advance Date:  ___ __, 20[  ]
	Maturity Date:  _____ ___, 20[ ]

FOR VALUE RECEIVED, Celator Pharmaceuticals, Inc., a Delaware corporation, and Celator Pharmaceuticals Corp., in each case for itself and its Subsidiaries (the “Borrower”) hereby promises to pay to the order of Hercules Technology Growth Capital, Inc., a Maryland corporation or the holder of this Note (the “Lender”) at 400 Hamilton Avenue, Suite 310, Palo Alto, CA 94301 or such other place of payment as the holder of this Secured Term Promissory Note (this “Promissory Note”) may specify from time to time in writing, in lawful money of the United States of America, the principal amount of [ ] Million Dollars ($[ ],000,000) or such other principal amount as Lender has advanced to Borrower, together with interest at a floating per annum rate equal to the greater of either (i) nine and three quarters of one percent (9.75%), or (ii) the sum of (A) nine and three quarters of one percent (9.75%), plus (B) the Prime Rate minus three and one quarter of one percent (3.25%) based upon a year consisting of 360 days, with interest computed daily based on the actual number of days in each month.

This Promissory Note is the Note referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated [ ], 20[ ], by and among Borrower, Hercules Technology Growth Capital, Inc., a Maryland corporation (the “Agent”) and the several banks and other financial institutions or entities from time to time party thereto as lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the “Loan Agreement”), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All payments shall be made in accordance with the Loan Agreement. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. An Event of Default under the Loan Agreement shall constitute a default under this Promissory Note.

Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest under the UCC or any applicable law. Borrower agrees to make all payments under this Promissory Note without setoff, recoupment or deduction and regardless of any counterclaim or defense. This Promissory Note has been negotiated and delivered to Lender and is payable in the State of California. This Promissory Note shall be governed by and construed and enforced in accordance with, the laws of the State of California, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction.

BORROWER FOR ITSELF AND
ON BEHALF OF ITS SUBSIDIARIES:	CELATOR PHARMACEUTICALS, INC.
	By:
	Title:
	CELATOR PHARMACEUTICALS CORP.
	By:
	Title:

EXHIBIT C

NAME, LOCATIONS, AND OTHER INFORMATION FOR BORROWER

1. Borrower represents and warrants to Agent that Borrower’s current name and organizational status as of the Closing Date is as follows:

Name:	Celator Pharmaceuticals, Inc.
	Celator Pharmaceuticals Corp.
Type of organization:	Corporation
State of organization:	Delaware
Organization file number:	3946959

2. Borrower represents and warrants to Agent that for five (5) years prior to the Closing Date, Borrower did not do business under any other name or organization or form except the following: NONE.

Name:
Used during dates of:
Type of Organization:
State of organization:
Organization file Number:
Borrower’s fiscal year ends on _____
Borrower’s federal employer tax identification number is: _______________

3. Borrower represents and warrants to Agent that its chief executive office is located at 200 PrincetonSouth Corporate Center, Suite 180, Ewing, New Jersey, USA 08628.

EXHIBIT D

BORROWER’S PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES

EXHIBIT E

BORROWER’S DEPOSIT ACCOUNTS AND INVESTMENT ACCOUNTS

EXHIBIT F

COMPLIANCE CERTIFICATE

Hercules Technology Growth Capital, Inc. (as “Agent”)
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301

Reference is made to that certain Loan and Security Agreement dated [ ], 20[ ] and all ancillary documents entered into in connection with such Loan and Security Agreement all as may be amended from time to time, (hereinafter referred to collectively as the “Loan Agreement”) by and among Hercules Technology Growth Capital, Inc. (the “Agent”), the several banks and other financial institutions or entities from time to time party thereto (collectively, the “Lender”) and Hercules Technology Growth Capital, Inc., as agent for the Lender (the “Agent”) and Celator Pharmaceuticals, Inc. and Celator Pharmaceuticals Corp. (the “Borrower”) as Borrower. All capitalized terms not defined herein shall have the same meaning as defined in the Loan Agreement.

The undersigned is an Officer of the Borrower, knowledgeable of all Borrower financial matters, and is authorized to provide certification of information regarding the Borrower; hereby certifies that in accordance with the terms and conditions of the Loan Agreement, the Borrower is in compliance for the period ending ___________ of all covenants, conditions and terms and hereby reaffirms that all representations and warranties contained therein are true and correct on and as of the date of this Compliance Certificate with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, after giving effect in all cases to any standard(s) of materiality contained in the Loan Agreement as to such representations and warranties. Attached are the required documents supporting the above certification. The undersigned further certifies that these are prepared in accordance with GAAP (except for the absence of footnotes with respect to unaudited financial statement and subject to normal year end adjustments) and are consistent from one period to the next except as explained below.

		CHECK IF
REPORTING REQUIREMENT	REQUIRED	ATTACHED
Interim Financial Statements	Monthly within 30 days
Interim Financial Statements	Quarterly within 45 days
Audited Financial Statements	FYE within 150 days

ACCOUNT BALANCES
Name of Bank	Balance of Account (as of the delivery of the Compliance Certificate)
Bank of America	$________________

Very Truly Yours,

CELATOR PHARMACEUTICALS, INC.

By:

Name:

Its:

CELATOR PHARMACEUTICALS CORP.

By:

Name:

Its:

EXHIBIT G

FORM OF JOINDER AGREEMENT

This Joinder Agreement (the “Joinder Agreement”) is made and dated as of [ ], 20[ ], and is entered into by and between__________________., a ___________ corporation (“Subsidiary”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation (as “Agent”).

RECITALS

A. Subsidiary’s Affiliate, Celator Pharmaceuticals, Inc. and Celator Pharmaceuticals Corp.(“Borrower”) [has entered/desires to enter] into that certain Loan and Security Agreement dated [ ], 2014, with the several banks and other financial institutions or entities from time to time party thereto as lender (collectively, the “Lender”) and the Agent, as such agreement may be amended (the “Loan Agreement”), together with the other agreements executed and delivered in connection therewith;

B. Subsidiary acknowledges and agrees that it will benefit both directly and indirectly from Borrower’s execution of the Loan Agreement and the other agreements executed and delivered in connection therewith;

AGREEMENT

NOW THEREFORE, Subsidiary and Agent agree as follows:

1. The recitals set forth above are incorporated into and made part of this Joinder Agreement. Capitalized terms not defined herein shall have the meaning provided in the Loan Agreement.

2. By signing this Joinder Agreement, Subsidiary shall be bound by the terms and conditions of the Loan Agreement the same as if it were the Borrower (as defined in the Loan Agreement) under the Loan Agreement, mutatis mutandis, provided however, that (a) with respect to (i) Section 5.1 of the Loan Agreement, Subsidiary represents that it is an entity duly organized, legally existing and in good standing under the laws of [ ], (b) neither Agent nor Lender shall have any duties, responsibilities or obligations to Subsidiary arising under or related to the Loan Agreement or the other agreements executed and delivered in connection therewith, (c) that if Subsidiary is covered by Borrower’s insurance, Subsidiary shall not be required to maintain separate insurance or comply with the provisions of Sections 6.1 and 6.2 of the Loan Agreement, and (d) that as long as Borrower satisfies the requirements of Section 7.1 of the Loan Agreement, Subsidiary shall not have to provide Agent separate Financial Statements. To the extent that Agent or Lender has any duties, responsibilities or obligations arising under or related to the Loan Agreement or the other agreements executed and delivered in connection therewith, those duties, responsibilities or obligations shall flow only to Borrower and not to Subsidiary or any other Person or entity. By way of example (and not an exclusive list): (i) Agent’s providing notice to Borrower in accordance with the Loan Agreement or as otherwise agreed among Borrower, Agent and Lender shall be deemed provided to Subsidiary; (ii) a Lender’s providing an Advance to Borrower shall be deemed an Advance to Subsidiary; and (iii) Subsidiary shall have no right to request an Advance or make any other demand on Lender.

3. Subsidiary agrees not to certificate its equity securities without Agent’s prior written consent, which consent may be conditioned on the delivery of such equity securities to Agent in order to perfect Agent’s security interest in such equity securities.

4. Subsidiary acknowledges that it benefits, both directly and indirectly, from the Loan Agreement, and hereby waives, for itself and on behalf on any and all successors in interest (including without limitation any assignee for the benefit of creditors, receiver, bankruptcy trustee or itself as debtor-in-possession under any bankruptcy proceeding) to the fullest extent provided by law, any and all claims, rights or defenses to the enforcement of this Joinder Agreement on the basis that (a) it failed to receive adequate consideration for the execution and delivery of this Joinder Agreement or (b) its obligations under this Joinder Agreement are avoidable as a fraudulent conveyance.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGE TO JOINDER AGREEMENT]

SUBSIDIARY:

_________________________________.

By:

Name:

Title:

Address:

Telephone: ___________

Facsimile: ____________

AGENT:

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

By:

Name:

Title:

Address:

400 Hamilton Ave., Suite 310

Palo Alto, CA 94301

Facsimile:  650-473-9194

Telephone:  650-289-3060

EXHIBIT H

ACH DEBIT AUTHORIZATION AGREEMENT

Hercules Technology Growth Capital, Inc.
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301

Re:       Loan and Security Agreement dated _______________ between Celator Pharmaceuticals, Inc. and Celator Pharmaceuticals Corp. (“Borrower”) and Hercules Technology Growth Capital, Inc. (“Agent”) (the “Agreement”)

In connection with the above referenced Agreement, the Borrower hereby authorizes the Agent to initiate debit entries for the periodic payments due under the Agreement to the Borrower’s account indicated below. The Borrower authorizes the depository institution named below to debit to such account.

Depository Name	Branch
City	State and Zip Code
Transit/ABA Number	Account Number

This authority will remain in full force and effect so long as any amounts are due under the Agreement.

(Borrower)(Please Print)

By:

Date:

EXHIBIT I

BORROWER REPAYMENT ELECTION NOTICE

[INSERT DATE]

Hercules Technology Growth Capital, Inc.

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Reference is made to that certain Loan and Security Agreement dated [ ], 20[ ] and all ancillary documents entered into in connection with such Loan and Security Agreement all as may be amended from time to time, (hereinafter referred to collectively as the “Loan Agreement”) by and among Hercules Technology Growth Capital, Inc. (the “Agent”), the several banks and other financial institutions or entities from time to time party thereto (collectively, the “Lender”) and Hercules Technology Growth Capital, Inc., as agent for the Lender (the “Agent”) and Celator Pharmaceuticals, Inc. and Celator Pharmaceuticals Corp. (the “Borrower”) as Borrower. All capitalized terms not defined herein shall have the same meaning as defined in the Loan Agreement.

Borrower hereby irrevocably elects to make the Principal Installment Payment in the amount of $_________ due on [________] (the “Delivery Date”) in shares of Common Stock in accordance with Section 8.1 of the Loan Agreement.1 The number of shares of Common Stock to be delivered to Agent, on or prior to the Delivery Date, is [_____________], which amount was determined in accordance with Section 8.2 of the Loan Agreement. The stock certificates shall be delivered free and clear of any restrictive legends.

Borrower hereby represents, warrants and certifies to Agent and Lender that, as of the Delivery Date, all of the Stock Payment Conditions shall be satisfied. Borrower acknowledges and agrees that its right to pay the Principal Installment Payment in Common Stock in accordance with this Borrower Repayment Election Notice is subject to the satisfaction of all of the Stock Payment Conditions on the Delivery Date and, to the extent any of the Stock Payment Conditions are not satisfied on the Delivery Date, Borrower shall pay the Principal Installment Payment in cash.

Sincerely,

Very Truly Yours,

CELATOR PHARMACEUTICALS, INC.

By:

Name:  

Its:

CELATOR PHARMACEUTICALS CORP.

By:

Name:    

Its:

1 Note: In accordance with Section 8.2 of the Loan Agreement, the date of delivery of this Borrower Repayment Election Notice must occur at least 5 days prior to the Delivery Date.

SCHEDULE 1.1

COMMITMENTS

LENDER	TERM COMMITMENT
Hercules Technology Growth Capital, Inc.	$	15,000,000
TOTAL COMMITMENTS	$	15,000,000

EX-10.2

Exhibit 10.2

CELATOR PHARMACEUTICALS, INC.

200 PrincetonSouth Corporate Center, Suite 180

Ewing, NJ 08628

May 9, 2014

Hercules Technology Growth Capital, Inc.

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Attention: Mr. Manuel A. Henriquez

Ladies and Gentlemen:

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Celator Pharmaceuticals, Inc., a Delaware corporation (the “Company”), the Company hereby grants to Hercules Technology Growth Capital, Inc., a Maryland corporation (“Hercules”), the right to participate in and/or designate one or more of its Affiliates (Hercules, together with such Affiliates, collectively, “Hercules Purchasers”) to participate in any one or more Subsequent Financings (as defined below) of the Company selected by Hercules in its sole discretion by permitting all Hercules Purchasers who participate in such Subsequent Financings to purchase up to a maximum aggregate (for all Subsequent Financings) of $2,000,000 of Subsequent Financing Securities (as defined below) therein. Hercules Purchasers shall have no obligation to purchase Subsequent Financing Securities in any Subsequent Financing. Each Hercules Purchaser purchasing Subsequent Financing Securities shall be an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “Act”).

As used herein:

“Affiliate” means a business entity that directly or indirectly Controls, is Controlled by, or is under the common Control of a party hereto, and “Control” (and each derivative of such term) of an organization or entity shall mean: (i) ownership or direct or indirect control of 50% or more of the outstanding voting shares or other ownership interests of such organization or entity; or (ii) direct or indirect possession of the power to elect or appoint 50% or more of the members of the board of director or other governing body of such organization or other entity.

“Subsequent Financing” means each sale and issuance by the Company on or after the date hereof, in a single transactions or series of related transactions, of shares of its common stock, convertible preferred stock or other equity securities of the Company, whether or not currently authorized (or instruments exercisable for or convertible into shares of common stock, convertible preferred stock or other equity securities of the Company), to one or more investors for cash for financing purposes in an offering that is broadly marketed to multiple investors, other than a sale effected pursuant to an effective registration statement under the Act.

“Subsequent Financing Securities” means, with respect to any Subsequent Financing, the class and series of common stock, convertible preferred stock or other equity security of the Company, whether or not currently authorized (or instruments exercisable for or convertible into shares of common stock, convertible preferred stock or other equity securities of the Company), sold and issued by the Company to the investor purchasers in such Subsequent Financing.

The purchase by each Hercules Purchaser of Subsequent Financing Securities in any Subsequent Financing shall be made, subject to the provisions of this letter (and subject to Hercules’ rights set forth in the Loan Agreement (as defined below)), upon the same terms and conditions (including, without limitation, price) as purchases by the other investor purchasers of Subsequent Financing Securities therein, and each such Hercules Purchaser shall execute the definitive stock or securities purchase agreement, investor rights agreement, stockholders agreement, voting agreement and other agreements and documents (collectively, the “Operative Documents”) executed by such other investor purchasers in connection with such Subsequent Financing. As used herein, “Loan Agreement” means that certain Loan and Security Agreement of even date herewith among the Company, the several banks and other financial institutions or entities from time to time Lender parties thereto, and Hercules in its capacity as administrative agent for itself and the Lender(s), as amended and/or restated and in effect from time to time.

The Company shall give Hercules not less than fifteen (15) days written notice prior to the anticipated closing of each Subsequent Financing summarizing the principal terms and conditions of such Subsequent Financing (including, without limitation, price and the principal institutional investor purchasers), and shall provide such drafts and definitive copies of the Operative Documents and other documents and information in connection with such Subsequent Financing as are provided to the other investor purchasers or prospective investor purchasers of Subsequent Financing Securities therein. Hercules may exercise its purchase right hereunder on behalf of itself or any other Hercules Purchaser(s) by delivering written notice thereof to the Company no later than the later to occur of (i) five (5) days prior to such anticipated closing, and (ii) ten (10) days after Hercules’ actual receipt of such Company notice, which notice shall specify the name and address of each Hercules Purchaser participating in such Subsequent Financing and the amount of Subsequent Financing Securities to be purchased by each. The Operative Documents and other materials and information provided by the Company to Hercules Purchasers in connection with each Subsequent Financing shall be held and treated by each such Hercules Purchaser in confidence as Confidential Information (as defined in Section 11.12 of the Loan Agreement) in the same manner and according to the same requirements thereunder as apply to Confidential Information obtained in the course of acquiring, administering, or perfecting Agent’s security interest in the Collateral (as such capitalized terms are defined in the Loan Agreement). All notices and other communications from the Company to Hercules hereunder shall be given in accordance with the requirements of the notice provisions set forth in the Loan Agreement.

2

This Agreement, and all rights and obligations hereunder, shall expire and terminate on the earlier to occur of (i) expiration or other termination of the Loan Agreement, and (ii) as of immediately prior to the consummation of a Merger Event, as such term is defined in that certain Warrant Agreement of even date herewith issued by the Company to Hercules.

[Remainder of page left blank intentionally]

3

This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws of the State of California, excluding its conflict of laws provisions that would cause the application of the laws of any other jurisdiction.

Very truly yours,
CELATOR PHARMACEUTICALS, INC.
By:	s/ Scott T. Jackson
Name: Scott T. Jackson
Title:   Chief Executive Officer

Acknowledged and agreed to:

HERCULES TECHNOLOGY GROWTH

CAPITAL, INC.

By:	s/ Michael Penney
Name: Michael Penney
Its:       General Counsel

4

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to

Exchange Act Rules 13a-14(a) or 15d-14(a)

I, Scott T. Jackson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Celator Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2014	/s/ Scott T. Jackson
	Scott T. Jackson,
	Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to

Exchange Act Rules 13a-14(a) or 15d-14(a)

I, Fred M. Powell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Celator Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 7, 2014	/s/ Fred M. Powell
	Fred M. Powell, Vice President and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

In connection with the quarterly report of Celator Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the date indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 7, 2014	/s/ Scott T. Jackson
	Scott T. Jackson,
	Chief Executive Officer
	(Principal executive officer)
Date:  August 7, 2014	/s/ Fred M. Powell
	Fred M. Powell, Vice President and
	Chief Financial Officer
	(Principal financial and accounting officer)

XML

Stock Based Compensation (Details 1) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock compensation expense recognized	$ 339,615	$ 82,502	$ 642,597	$ 86,780
Weighted average grant-date fair value of stock options issued (per share)	$ 2.35	$ 2.14	$ 2.70	$ 2.14
Grant-date fair value of stock options issued	197,400	3,268,101	1,291,950	3,268,101
Volatility	112.00%	118.20%	114.50%	118.20%
Risk-free interest rate	1.90%	1.90%	2.00%	1.90%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected life in years	6 years	6 years 2 months 12 days	6 years 2 months 12 days	6 years 2 months 12 days
Intrinsic value of stock options exercised	$ 0	$ 0	$ 38,892	$ 0

XML

Property and Equipment (Details 1) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Depreciation and amortization	$ 48,353	$ 49,464	$ 96,088	$ 97,052

XML

Stock Based Compensation (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

The following table summarizes the activity of the Company’s stock option plans for the six months ended June 30, 2014:

	Number of options	Exercise price
December 31, 2013	2,578,252	$	2.98
Granted	478,500		3.15
Exercised	(42,936)		2.34
Cancelled	(9,269)		3.37
June 30, 2014	3,004,547	$	3.02
Exercisable at June 30, 2014	1,094,447	$	2.72

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The following table provides information regarding stock options activity during the periods:

	Three months ended						Six months ended
	June 30						June 30
	2014			2013			2014			2013
Stock compensation expense recognized	$	339,615		$	82,502		$	642,597		$	86,780
Weighted average grant-date fair value of stock options issued (per share)	$	2.35		$	2.14		$	2.70		$	2.14
Grant-date fair value of stock options issued	$	197,400		$	3,268,101		$	1,291,950		$	3,268,101
Volatility		112.0	%		118.2	%		114.5	%		118.2	%
Risk-free interest rate		1.9	%		1.9	%		2.0	%		1.9	%
Dividend yield		0	%		0	%		0	%		0	%
Expected life in years		6.0			6.2			6.2			6.2
Intrinsic value of stock options exercised	$	-		$	-		$	38,892		$	-

XML

Commitments and Contingencies (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2014
Princeton University Agreement [Member]
Loss Contingencies [Line Items]
Agreement termination notice period	90 days
Rectification of default period	60 days
Leukemia & Lymphoma Society Agreement [Member]
Loss Contingencies [Line Items]
Percentage of royalty payable from the amount received from out-licenses and transfers	50.00%
Cash Payment Or Royalties on net sales	5.00%
Leukemia & Lymphoma Society Agreement [Member] | Phase 3 study [Member]
Loss Contingencies [Line Items]
Funding for project inventions	$ 5,000,000
Leukemia & Lymphoma Society Agreement [Member] | Phase 2 study [Member]
Loss Contingencies [Line Items]
Funding for project inventions	4,100,000
Vancouver, British Columbia [Member]
Loss Contingencies [Line Items]
Operating Leases, Future Minimum Payments Due, Total	133,439
Lease Commencement Date	2013-04-01
Lease Expiration Date	Jun. 30, 2016
Ewing, New Jersey [Member]
Loss Contingencies [Line Items]
Operating Leases, Future Minimum Payments Due, Total	564,624
Letters of Credit Outstanding, Amount	200,000
Contractual Obligation of letter of credit payment as on December 1, 2014	40,000
Contractual Obligation of letter of credit payment as on December 1, 2015	40,000
Contractual Obligation of letter of credit payment as on December 1, 2016	40,000
Contractual Obligation of letter of credit payment as on December 1, 2017	$ 60,000
Lease Commencement Date	2013-06-01
Operating Lease Expiration Term	60 months
British Columbia Cancer Agency [Member]
Loss Contingencies [Line Items]
Rectification of default period	45 days
Minimum [Member] | Princeton University Agreement [Member]
Loss Contingencies [Line Items]
Percentage of royalty payable from the amount received from out-licenses and transfers	45.00%
Minimum [Member] | Leukemia & Lymphoma Society Agreement [Member]
Loss Contingencies [Line Items]
Number of times amount payable under research funding program	1.5
Maximum [Member] | Princeton University Agreement [Member]
Loss Contingencies [Line Items]
Percentage of royalty payable from the amount received from out-licenses and transfers	55.00%
Maximum [Member] | Leukemia & Lymphoma Society Agreement [Member]
Loss Contingencies [Line Items]
Number of times amount payable under research funding program	3.55

XML

Loans Payable (Details Textual) (USD $)	0 Months Ended	3 Months Ended	6 Months Ended
	May 09, 2014	Jun. 30, 2014	Jun. 30, 2014	Jun. 30, 2013
Schedule Of Loan payable [Line Items]
Amortization Of Financing Costs And Discounts			$ 57,167	$ 74,752
Adjustments to Additional Paid in Capital, Warrant Issued			320,752
Unamortized Debt Issuance Expense		647,498	647,498
Line of Credit Facility, Frequency of Payments	any time between December 15, 2014 and March 31, 2015.
Warrants Maturity Term	5 years
End of Loan Term, Fees		26,660
Warrant [Member]
Schedule Of Loan payable [Line Items]
Amortization Of Financing Costs And Discounts		30,507	30,507
Adjustments to Additional Paid in Capital, Warrant Issued			0
Term Loan [Member]
Schedule Of Loan payable [Line Items]
Debt Issuance Cost			357,253
End of Term Fee [Member]
Schedule Of Loan payable [Line Items]
Debt Issuance Cost			592,500
Hercules Technology Growth Capital [Member]
Schedule Of Loan payable [Line Items]
Line of Credit Facility, Fair Value of Amount Outstanding	10,000,000
Line of Credit Facility, Maximum Borrowing Capacity	15,000,000
Line of Credit Facility, Remaining Borrowing Capacity	5,000,000
Long-term Debt, Maturities, Repayment Terms	repayable in installments over forty-two months including an initial interest-only period of twelve months after closing.
Line of Credit Facility, Interest Rate Description	Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015,
Hercules Technology Growth Capital [Member] | Warrant [Member]
Schedule Of Loan payable [Line Items]
Stock Issued During Period, Shares, New Issues	158,006
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 2.67
Adjustments to Additional Paid in Capital, Warrant Issued	$ 320,752

XML

Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

3. Fair Value Measurements

Financial instruments of the Company consist of cash deposits, money market investments, other receivables, accounts payable, certain accrued liabilities and debt. The carrying value of these financial instruments generally approximates fair value due to their short-term nature.

ASC Topic 820, Fair Value Measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

ASC 820 requires disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value.

The Company recognizes transfers between input levels as of the actual date of event. There were no transfers between levels and the following table provides the assets carried at fair value:

	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2014
Assets:
Certificates of Deposit	$	14,003,243	$	14,003,243	$	-	$	-
Money Market Fund		8,308,322		8,308,322		-		-
Total	$	22,311,565	$	22,311,565	$	-	$	-
December 31, 2013
Assets:
Certificates of Deposit	$	15,003,472	$	15,003,472	$	-	$	-
Money Market Fund		7,597,730		7,597,730		-		-
Total	$	22,601,202	$	22,601,202	$	-	$	-

Non-cash derivative instrument charge

The Company recognized a non-cash derivative instrument charge of $747,311 and $7,473,108 during the three and six months ended June 30, 2013 respectively. The charge related to an obligation to issue additional shares of common stock and warrants to certain existing stockholders who participated in early closings of a private placement that started in 2012 and closed on April 29, 2013. The fair value of these common shares and warrants was recognized as a derivative liability with a corresponding charge to the statement of loss. Upon the closing of the April 2013 Private Placement, the derivative liability was reclassified into stockholders’ equity as the obligation to issue additional securities no longer existed. This contractual obligation was fair valued using significant unobservable inputs (Level 3).

XML

Fair Value Measurements (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-cash derivative instrument charge	$ 0	$ 747,311	$ 0	$ 7,473,108
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-cash derivative instrument charge		$ 747,311	$ 7,473,108

XML

Fair Value Measurements (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Assets:
Total	$ 22,311,565	$ 22,601,202
Fair Value, Inputs, Level 1 [Member]
Assets:
Total	22,311,565	22,601,202
Fair Value, Inputs, Level 2 [Member]
Assets:
Total	0	0
Fair Value, Inputs, Level 3 [Member]
Assets:
Total	0	0
Certificates of Deposit [Member]
Assets:
Certificates of Deposit	14,003,243	15,003,472
Certificates of Deposit [Member] | Fair Value, Inputs, Level 1 [Member]
Assets:
Certificates of Deposit	14,003,243	15,003,472
Certificates of Deposit [Member] | Fair Value, Inputs, Level 2 [Member]
Assets:
Certificates of Deposit	0	0
Certificates of Deposit [Member] | Fair Value, Inputs, Level 3 [Member]
Assets:
Certificates of Deposit	0	0
Money Market Funds [Member]
Assets:
Money Market Fund	8,308,322	7,597,730
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Assets:
Money Market Fund	8,308,322	7,597,730
Money Market Funds [Member] | Fair Value, Inputs, Level 2 [Member]
Assets:
Money Market Fund	0	0
Money Market Funds [Member] | Fair Value, Inputs, Level 3 [Member]
Assets:
Money Market Fund	$ 0	$ 0

XML

Other Receivables (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Other Receivables [Line Items]
Receivables related to the sale of New Jersey net operating losses	$ 0	$ 1,412,302
Other receivables	3,328	5,011
Other receivables, net	$ 3,328	$ 1,417,313

XML

Other Current Assets (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Other Current Assets [Line Items]
Clinical trial materials	$ 879,056	$ 468,389

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes included in Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted.

In the opinion of management of the Company, the interim consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, operating results and cash flows of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

Basis of consolidation: The consolidated financial statements include the accounts of Celator and its wholly-owned subsidiaries, Celator Pharmaceuticals Corp. (“CPC”) and Celator UK Ltd. All intercompany transactions have been eliminated.

Use of estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates. Significant areas requiring management estimates in the preparation of these consolidated financial statements include, among other things, assessment of other receivables, accrued liabilities, impairment and amortization of property and equipment, valuation allowance for deferred income taxes, valuation of stock-based compensation and contingencies.

New Accounting Pronouncement: In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates all incremental financial reporting requirements for development stage entities by removing Accounting Standards Codification (ASC) Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification. The amendments in this Update remove the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. ASC Topic 915 is removed effective for annual periods beginning after December 15, 2014 and early adoption is permitted. The Company adopted the ASU effective with the issuance of its June 30, 2014 financial statements.

XML

Property and Equipment (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 2,190,897	$ 2,186,900
Less: Accumulated depreciation	(1,144,411)	(1,048,321)
Property and equipment, net	1,046,486	1,138,579
Computer and equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	140,495	136,498
Furniture and office equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	96,457	96,457
Laboratory equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,760,633	1,760,633
Capital lease equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	155,523	155,523
Leaseholds [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 37,789	$ 37,789

XML

Stock Based Compensation (Details Textual) (Non vested Awards [Member], USD $)	6 Months Ended
	Jun. 30, 2014
Non vested Awards [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	$ 4,297,202
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	3 years 1 month 6 days

XML

Consolidated Balance Sheets (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 24,924,518	$ 23,589,516
Restricted cash	287,562	287,657
Other receivables	3,328	1,417,313
Prepaid expenses and deposits	599,021	491,465
Assets held for sale	74,086	74,086
Other current assets	879,056	468,389
Total current assets	26,767,571	26,328,426
Property and equipment, net	1,046,486	1,138,579
Other assets	653,299	5,745
Total assets	28,467,356	27,472,750
Current liabilities:
Current portion of long-term debt	282,253	0
Accounts payable	525,400	1,193,148
Accrued liabilities	1,545,943	1,630,809
Current portion of deferred revenue	542,986	542,986
Total current liabilities	2,896,582	3,366,943
Long-term debt	9,744,407	0
Deferred revenue	316,743	588,236
Deferred rent	49,844	53,084
Total liabilities	13,007,576	4,008,263
Stockholders' equity
Preferred stock Authorized 20,000,000 shares, par value $0.001	0	0
Common stockAuthorized 200,000,000 shares, par value $0.001Issued and outstanding 26,078,532 and 26,035,596 shares as of June 30, 2014 and December 31, 2013 respectively	26,079	26,036
Warrants	1,083,193	1,083,193
Additional paid-in capital	157,017,839	155,953,894
Accumulated other comprehensive loss	(1,133,266)	(1,133,266)
Accumulated deficit	(141,534,065)	(132,465,370)
Total stockholders' equity	15,459,780	23,464,487
Total liabilities and stockholders' equity	$ 28,467,356	$ 27,472,750

XML

Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Operating activities
Net loss	$ (9,068,695)	$ (13,724,925)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization and depreciation	96,088	97,052
Non-cash stock-based compensation expense	642,597	86,780
Loss on disposal of property and equipment	0	138,692
Non-cash derivative instrument charge	0	7,473,108
Non-cash financing costs	57,167	74,752
Changes in operating assets and liabilities
Other receivables	1,410,237	1,993,925
Prepaid expenses and deposits	(107,135)	(140,756)
Restricted cash	(25)	(250,022)
Other current assets	(410,667)	(358,359)
Accounts payable	(666,455)	(49,184)
Accrued liabilities	(83,059)	(42,816)
Deferred rent	(3,240)	0
Deferred revenue	(271,493)	(289,593)
Cash used in operating activities	(8,404,680)	(4,991,346)
Investing activities
Purchase of property and equipment	(3,995)	(35,544)
Proceeds on disposals of property and equipment	0	36,673
Cash (used in) provided by investing activities	(3,995)	1,129
Financing activities
Proceeds from issuance of common stock and on options exercised	104,387	32,499,986
Payment of share issuance costs	0	(3,079,611)
Proceeds from loans payable	9,827,216	0
Payment of debt issuance costs	(184,469)	0
Repayments of loans payable	0	(3,000,000)
Cash provided by financing activities	9,747,134	26,420,375
Effect of foreign exchange rate changes	(3,457)	1,707
Net change in cash and cash equivalents	1,335,002	21,431,865
Cash and cash equivalents, beginning of period	23,589,516	9,648,008
Cash and cash equivalents, end of period	24,924,518	31,079,873
Supplemental disclosure of cash flow information
Interest paid	62,292	79,388
Capital expenditure incurred but not paid	$ 0	$ 14,687

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Accrued Liabilities (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Accrued Liabilities [Line Items]
Accrued bonuses	$ 562,392	$ 624,472
Accrued salaries and vacation	176,836	143,484
Accrued professional fees	30,000	30,911
Accrued clinical trial expenses	631,023	636,497
Accrued trade payables other	145,692	195,445
Accrued liabilities	$ 1,545,943	$ 1,630,809

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2014

Property Plant And Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Property and equipment as of June 30, 2014 and December 31, 2013 including assets held under capital lease, consists of the following:

	June 30, 2014		December 31, 2013
Computer and equipment	$	140,495	$	136,498
Furniture and office equipment		96,457		96,457
Laboratory equipment		1,760,633		1,760,633
Capital lease equipment		155,523		155,523
Leaseholds		37,789		37,789
		2,190,897		2,186,900
Less: Accumulated depreciation		(1,144,411)		(1,048,321)
	$	1,046,486	$	1,138,579

Schedule Of Depreciation And Amortisation [Table Text Block]

	Three months ended				Six months ended
	June 30				June 30
	2014		2013		2014		2013
Depreciation and amortization	$	48,353	$	49,464	$	96,088	$	97,052

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Loans Payable (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Schedule Of Loan payable [Line Items]
Loan payable	$ 10,000,000
End of term fee	26,660
Long-term Debt	10,026,660
Less: Current portion	(282,253)	0
Long-term debt	$ 9,744,407	$ 0

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Loans Payable (Tables)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

Long-term debt as of June 30, 2014 consists of the following:

Loan payable	$	10,000,000
End of term fee		26,660
		10,026,660
Less: Current portion		(282,253)
Long-term debt	$	9,744,407

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Nature of Business and Liquidity

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Nature of Operations [Text Block]

1. Nature of Business and Liquidity

Celator Pharmaceuticals, Inc. (“CPI” or the “Company”), with locations in Ewing, N.J., and Vancouver, B.C., is a pharmaceutical company developing new and more effective therapies to treat cancer. CombiPlex®, the Company’s proprietary drug ratio technology platform, represents a novel approach that identifies molar ratios of drugs that will deliver a synergistic benefit, and locks the desired ratio in a nano-scale drug delivery vehicle that maintains the ratio in patients with the goal of improving clinical outcomes.

The Company has incurred recurring losses and negative cash flows from operations since inception. As of June 30, 2014, the Company had an accumulated deficit of $141.5 million. The Company expects operating losses and negative cash flows to continue for the foreseeable future until such time, if ever, that it can generate significant revenues from its product candidates currently in development. At June 30, 2014, the Company had cash and cash equivalents of $24.9 million. Management believes that the cash and cash equivalents at June 30, 2014 will be sufficient to meet estimated working capital requirements and fund planned operations into the fourth quarter of 2015. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its product candidates.

The Company is subject to those risks associated with any specialty pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Preferred Stock, Shares Authorized	20,000,000	20,000,000
peferred stock, par valur (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized shares	200,000,000	200,000,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, issued shares	26,078,532	26,035,596
Common stock, outstanding shares	26,078,532	26,035,596

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments And Contingencies Disclosure [Abstract]

Commitments And Contingencies Disclosure [Text Block]

11. Commitments and Contingencies

In February 2013, the Company renewed its office lease agreements for office space in Vancouver, British Columbia, effective April 1, 2013, which expires in June 2016. The remaining minimum lease payments as of June 30, 2014 totaled $133,439.

In March 2013, the Company entered into an office lease agreement for office space in Ewing, New Jersey, which commenced in June 2013 with a term of sixty months. The remaining minimum lease payments as of June 30, 2014 totaled $564,624. Under the Ewing, New Jersey lease agreement, the Company will be obligated to maintain a letter of credit from a bank with respect to its security deposit obligations in the amount of $200,000 during the first year of the Agreement, which amount will be reduced by $40,000 per year on each of December 1, 2014, 2015, and 2016 and by $60,000 on December 1, 2017.

The Company has a worldwide exclusive license agreement with Princeton University dated June 2007 that provides the Company with exclusive rights to some aspects of its nanoparticle polymer technology arising from research sponsored by the Company at Princeton University between 2003 and 2007. These inventions are generally characterized as particulate constructs for release of active agents for medical application. Of the products currently in Celator’s pipeline, only the hydrophobic docetaxel prodrug nanoparticle (HDPN) formulation is subject to this agreement. The Company is obligated to pay a royalty on net sales to Princeton University of a low single-digit percentage if any invention is sold by the Company or a company to which the product covered by the invention was licensed by the Company, which was generated under the exclusive licensing agreement. No royalty or other product/sub-license-related payments have been made to date. The Company is obligated to provide Princeton University a percentage within the range of 45% to 55% of proceeds obtained from a sub-license of the intellectual property to a third party in cases where the Company has not conducted any research or development activities and is solely licensing out the original intellectual property jointly developed by the Company and Princeton University. The Company may terminate the agreement at any time by giving 90 days written notice to Princeton University. Princeton may terminate the agreement if the Company should breach or fail to perform under the agreement, with written notice of default provided by Princeton University to the Company and only if the Company fails to cure the default within 60 days. The Company is obligated under the agreement to provide an annual progress report to Princeton University on any developments of the licensed technology as well as prosecution of the patents covering the technology and the use of commercially reasonable efforts to develop licensed products.

The Company has a collaborative research agreement dated May 2001 with the British Columbia Cancer Agency (“BCCA”) whereby in consideration for the license and conditional assignment of all Company-sponsored intellectual property to the Company by BCCA, the Company will pay to BCCA a royalty in the low single digits on net sales of royalty-bearing products in territories so long as a valid claim exists for inventions made between June 2000 and June 2005 under the agreement. All obligations relating to the conduct of the research and assignment of intellectual property have been completed. No payments of royalties have been made to date. Either party may terminate the agreement if the other party commits a material breach or default and such breach or default is not reasonably cured within 45 days.

In consideration of funding by the Leukemia & Lymphoma Society ® (“LLS”) and transfer to the Company of any rights LLS may have to any project inventions developed during the term of the agreement, the Company may be required to pay LLS a cash multiple on the LLS funding, (LLS funding is the $5 million in support of the Phase 3 study in addition to the approximately $4.1 million the Company received in support of the Phase 2 study). Subject to exclusions under the agreement, the Company is obligated to pay LLS an amount equal to 50% of the cash payments the Company receives from out-licenses and transfers of rights to the product or other liquidity event, as defined in the agreement, until LLS has received an amount equal to 1.5 times the amount of funding the Company receives from LLS. The total amount payable by the Company to LLS will not exceed 3.55 times the amount of funding received from LLS, with the specific amount depending on when the payment(s) occur relative to the timing of the research program and product commercialization. The payments may take the form of cash payments or royalties (not to exceed 5% of net sales) but will not exceed the maximum amount referred to in the preceding sentence.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 08, 2014
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Trading Symbol	CPXX
Entity Common Stock, Shares Outstanding		26,078,532
Entity Registrant Name	Celator Pharmaceuticals Inc
Entity Central Index Key	0001327467
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Basis of consolidation: The consolidated financial statements include the accounts of Celator and its wholly-owned subsidiaries, Celator Pharmaceuticals Corp. (“CPC”) and Celator UK Ltd. All intercompany transactions have been eliminated

Use of Estimates, Policy [Policy Text Block]

Use of estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates. Significant areas requiring management estimates in the preparation of these consolidated financial statements include, among other things, assessment of other receivables, accrued liabilities, impairment and amortization of property and equipment, valuation allowance for deferred income taxes, valuation of stock-based compensation and contingencies.

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Pronouncement: In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates all incremental financial reporting requirements for development stage entities by removing Accounting Standards Codification (ASC) Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification. The amendments in this Update remove the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. ASC Topic 915 is removed effective for annual periods beginning after December 15, 2014 and early adoption is permitted. The Company adopted the ASU effective with the issuance of its June 30, 2014 financial statements.

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Consolidated Statements of Loss (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Expenses
Research and development	$ 2,936,114	$ 2,018,566	$ 5,903,967	$ 3,669,975
Leukemia & Lymphoma Society funding	(135,746)	(135,747)	(771,493)	(289,593)
General and administrative	1,729,101	1,138,649	3,617,368	2,487,648
Loss on disposal of property and equipment	0	124,965	0	138,692
Amortization and depreciation	48,353	49,464	96,088	97,052
Operating loss	(4,577,822)	(3,195,897)	(8,845,930)	(6,103,774)
Other income (expenses)
Foreign exchange (loss) gain	(14,605)	(1,435)	(26,313)	(4,484)
Interest and miscellaneous income	1,942	3,037	4,257	3,466
Non-cash derivative instrument charge	0	(747,311)	0	(7,473,108)
Interest expense	(200,709)	(99,371)	(200,709)	(147,025)
Net loss	$ (4,791,194)	$ (4,040,977)	$ (9,068,695)	$ (13,724,925)
Net loss per share
Basic and diluted (in dollars per share)	$ (0.18)	$ (0.18)	$ (0.35)	$ (0.77)
Weighted average of common shares outstanding
Basic and diluted (in shares)	26,078,532	22,089,921	26,058,131	17,904,791

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Property and Equipment

6 Months Ended

Jun. 30, 2014

Property Plant And Equipment [Abstract]

Property Plant And Equipment Disclosure [Text Block]

6. Property and Equipment

Property and equipment as of June 30, 2014 and December 31, 2013 including assets held under capital lease, consists of the following:

	June 30, 2014		December 31, 2013
Computer and equipment	$	140,495	$	136,498
Furniture and office equipment		96,457		96,457
Laboratory equipment		1,760,633		1,760,633
Capital lease equipment		155,523		155,523
Leaseholds		37,789		37,789
		2,190,897		2,186,900
Less: Accumulated depreciation		(1,144,411)		(1,048,321)
	$	1,046,486	$	1,138,579

	Three months ended				Six months ended
	June 30				June 30
	2014		2013		2014		2013
Depreciation and amortization	$	48,353	$	49,464	$	96,088	$	97,052

In February 2012, the Company closed a laboratory in Canada and consigned certain property and equipment for sale with net book value of $507,622. At June 30, 2014 and December 31, 2013, the net book value of the remaining consigned equipment was $74,086 and consisted solely of scientific equipment, which is presented as assets held for sale on the consolidated balance sheet.

During six months ended June 30, 2013 assets held for sale with a net book value of $174,768 were sold for proceeds of $36,673 resulting in a loss on disposal of $138,095. There were no disposals during the three and six months ended June 30, 2014.

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Other Current Assets

6 Months Ended

Jun. 30, 2014

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Current Assets [Text Block]

5. Other Current Assets

Other current assets as of June 30, 2014 and December 31, 2013 consist of the following:

	June 30, 2014		December 31, 2013
Clinical trial materials	$	879,056	$	468,389

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Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2014

Payables And Accruals [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

Accrued liabilities as of June 30, 2014 and December 31, 2013 consist of the following:

	June 30, 2014		December 31, 2013
Accrued bonuses	$	562,392	$	624,472
Accrued salaries and vacation		176,836		143,484
Accrued professional fees		30,000		30,911
Accrued clinical trial expenses		631,023		636,497
Accrued trade payables other		145,692		195,445
	$	1,545,943	$	1,630,809

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value, by Balance Sheet Grouping [Table Text Block]

There were no transfers between levels and the following table provides the assets carried at fair value:

	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2014
Assets:
Certificates of Deposit	$	14,003,243	$	14,003,243	$	-	$	-
Money Market Fund		8,308,322		8,308,322		-		-
Total	$	22,311,565	$	22,311,565	$	-	$	-
December 31, 2013
Assets:
Certificates of Deposit	$	15,003,472	$	15,003,472	$	-	$	-
Money Market Fund		7,597,730		7,597,730		-		-
Total	$	22,601,202	$	22,601,202	$	-	$	-

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Stock Based Compensation

6 Months Ended

Jun. 30, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

9. Stock Based Compensation

The following table summarizes the activity of the Company’s stock option plans for the six months ended June 30, 2014:

	Number of options	Exercise price
December 31, 2013	2,578,252	$	2.98
Granted	478,500		3.15
Exercised	(42,936)		2.34
Cancelled	(9,269)		3.37
June 30, 2014	3,004,547	$	3.02
Exercisable at June 30, 2014	1,094,447	$	2.72

The following table provides information regarding stock options activity during the periods:

	Three months ended						Six months ended
	June 30						June 30
	2014			2013			2014			2013
Stock compensation expense recognized	$	339,615		$	82,502		$	642,597		$	86,780
Weighted average grant-date fair value of stock options issued (per share)	$	2.35		$	2.14		$	2.70		$	2.14
Grant-date fair value of stock options issued	$	197,400		$	3,268,101		$	1,291,950		$	3,268,101
Volatility		112.0	%		118.2	%		114.5	%		118.2	%
Risk-free interest rate		1.9	%		1.9	%		2.0	%		1.9	%
Dividend yield		0	%		0	%		0	%		0	%
Expected life in years		6.0			6.2			6.2			6.2
Intrinsic value of stock options exercised	$	-		$	-		$	38,892		$	-

The grant-date fair value of stock options is estimated using the Black Scholes option pricing model. The Company determined the options’ life based on the simplified method and determined the options’ expected volatility based on peer group volatility and dividend yield based on the historical dividend payments. The risk free interest rate is based on the yield of an applicable term Treasury instrument.

The Company amortizes the fair value of the stock options on a straight-line basis over the applicable requisite service periods of the awards, which is generally the vesting period. At June 30, 2014, the total compensation cost related to non-vested awards not yet recognized and weighted average period over which it will be recognized was $4,297,202 and 3.1 years, respectively.

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Accrued Liabilities

6 Months Ended

Jun. 30, 2014

Payables And Accruals [Abstract]

Accounts Payable And Accrued Liabilities Disclosure [Text Block]

7. Accrued Liabilities

Accrued liabilities as of June 30, 2014 and December 31, 2013 consist of the following:

	June 30, 2014		December 31, 2013
Accrued bonuses	$	562,392	$	624,472
Accrued salaries and vacation		176,836		143,484
Accrued professional fees		30,000		30,911
Accrued clinical trial expenses		631,023		636,497
Accrued trade payables other		145,692		195,445
	$	1,545,943	$	1,630,809

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Loans Payable

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

8. Loans Payable

On May 9, 2014, the Company entered into a term loan agreement for $15 million with Hercules Technology Growth Capital, Inc. The first $10 million of the term loan was funded at closing, and is repayable in installments over forty-two months including an initial interest-only period of twelve months after closing. The remaining $5 million of the term loan can be drawn down at the Company’s option at any time between December 15, 2014 and March 31, 2015. Interest is payable monthly at the greater of 9.75% or an adjusted rate based upon the US prime rate with interest only period extendable to December 1, 2015, contingent upon achieving full enrollment of the CPX-351 Phase 3 study by December 31, 2014. The funds will be used to provide general working capital.

Pursuant to the loan agreement, the Company issued Hercules a warrant to purchase 158,006 shares of the Company’s common stock at an exercise price of $2.67 per share with a term of five years. The fair value of the warrants of $320,752 and financing costs of $357,253 incurred in connection with the term loan were recorded as debt issuance costs and will be amortized as interest expense using the effective interest method over the term of the loan. Amortization of debt issuance costs was $30,507 for the three and six months ended June 30, 2014 and the remaining unamortized debt issuance costs of $647,498 is included in other non-current assets.

In addition, the Company will pay an end of term charge of $592,500 on the earliest to occur of (i) the term loan maturity date, (ii) the date that the Company prepays the outstanding loan, or (iii) the date that the loan become due and payable. The end of term charge will be accrued as additional interest expense using the effective interest rate method over the term of the loan. The Company accrued $26,660 of this fee during the three months ended June 30, 2014.

Long-term debt as of June 30, 2014 consists of the following:

Loan payable	$	10,000,000
End of term fee		26,660
		10,026,660
Less: Current portion		(282,253)
Long-term debt	$	9,744,407

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Geographic Segment Information

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

10. Geographic Segment Information

The Company operates in the United States and Canada. The Company’s CPX-351 clinical trial materials are manufactured by a third party using the Company’s equipment located in Germany. Geographic net loss information is based on the location whereby the expenses were incurred. The geographic information about total assets is based on the physical location of the assets.

	Total Assets
	June 30, 2014		December 31, 2013
United States	$	27,301,017	$	26,190,516
Canada		242,462		284,563
Germany		923,877		997,671
Total Assets	$	28,467,356	$	27,472,750

			Net Loss
	Three months ended				Six months
	June 30				June 30
	2014		2013		2014		2013
United States		(4,276,673)		(3,624,723)		(7,931,554)		(12,374,358)
Canada		(514,521)		(416,254)		(1,137,141)		(1,350,567)
Total Net Loss	$	(4,791,194)	$	(4,040,977)	$	(9,068,695)	$	(13,724,925)

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Property and Equipment (Details Textual) (USD $)	3 Months Ended		6 Months Ended					3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Feb. 29, 2012	Jun. 30, 2014 Scientific Equipment [Member]	Dec. 31, 2013 Scientific Equipment [Member]	Jun. 30, 2014 Assets Held for Sale [Member]	Jun. 30, 2014 Assets Held for Sale [Member]	Jun. 30, 2013 Assets Held for Sale [Member]
Property, Plant and Equipment [Line Items]
Assets Held For Sale Long Lived					$ 507,622	$ 74,086	$ 74,086
Assets Disposals, Written Off Net Book Value										174,768
Proceeds from sale of assets			0	36,673						36,673
Loss on disposal of property and equipment	$ 0	$ 124,965	$ 0	$ 138,692				$ 0	$ 0	$ 138,095

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Other Current Assets (Tables)

6 Months Ended

Jun. 30, 2014

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Current Assets [Table Text Block]

Other current assets as of June 30, 2014 and December 31, 2013 consist of the following:

	June 30, 2014		December 31, 2013
Clinical trial materials	$	879,056	$	468,389

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Geographic Segment Information (Tables)

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

The geographic information about total assets is based on the physical location of the assets.

	Total Assets
	June 30, 2014		December 31, 2013
United States	$	27,301,017	$	26,190,516
Canada		242,462		284,563
Germany		923,877		997,671
Total Assets	$	28,467,356	$	27,472,750

			Net Loss
	Three months ended				Six months
	June 30				June 30
	2014		2013		2014		2013
United States		(4,276,673)		(3,624,723)		(7,931,554)		(12,374,358)
Canada		(514,521)		(416,254)		(1,137,141)		(1,350,567)
Total Net Loss	$	(4,791,194)	$	(4,040,977)	$	(9,068,695)	$	(13,724,925)

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Geographic Segment Information (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Assets	$ 28,467,356		$ 28,467,356		$ 27,472,750
Total Net Loss	(4,791,194)	(4,040,977)	(9,068,695)	(13,724,925)
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Assets	27,301,017		27,301,017		26,190,516
Total Net Loss	(4,276,673)	(3,624,723)	(7,931,554)	(12,374,358)
Canada [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Assets	242,462		242,462		284,563
Total Net Loss	(514,521)	(416,254)	(1,137,141)	(1,350,567)
Germany [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Assets	$ 923,877		$ 923,877		$ 997,671

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Consolidated Statement of Stockholders' Equity (USD $)	Total	COMMON STOCK [Member]	WARRANTS [Member]	ADDITIONAL PAID-IN CAPITAL [Member]	ACCUMULATED OTHER COMPREHENSIVE LOSS [Member]	ACCUMULATED DEFICIT [Member]
Balance at Dec. 31, 2013	$ 23,464,487	$ 26,036	$ 1,083,193	$ 155,953,894	$ (1,133,266)	$ (132,465,370)
Balance (in shares) at Dec. 31, 2013		26,035,596
Exercise of stock options	100,639	43	0	100,596	0	0
Exercise of stock options (in shares)	42,936	42,936
Stock based compensation	642,597	0	0	642,597	0	0
Warrants issued	320,752	0	0	320,752	0	0
Net loss for the period	(9,068,695)	0	0	0	0	(9,068,695)
Balance at Jun. 30, 2014	$ 15,459,780	$ 26,079	$ 1,083,193	$ 157,017,839	$ (1,133,266)	$ (141,534,065)
Balance (in shares) at Jun. 30, 2014		26,078,532

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Other Receivables

6 Months Ended

Jun. 30, 2014

Other Receivables, Net, Current [Abstract]

Other Receivable [Text Block]

4. Other Receivables

Other receivables as of June 30, 2014 and December 31, 2013, consists of the following:

	June 30, 2014		December 31, 2013
Receivables related to the sale of New Jersey net operating losses	$	-	$	1,412,302
Other receivables		3,328		5,011
	$	3,328	$	1,417,313

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Nature of Business and Liquidity (Details Textual) (USD $)	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2013	Dec. 31, 2012
Nature Of Business And Liquidity [Line Items]
Accumulated deficit	$ (141,534,065)	$ (132,465,370)
Cash and Cash Equivalents, at Carrying Value	$ 24,924,518	$ 23,589,516	$ 31,079,873	$ 9,648,008

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Stock Based Compensation (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Schedule Of Share Based Compensation Stock Options Activity [Line Items]
Number of options, Beginning balance	2,578,252
Number of options, Granted	478,500
Number of options, Exercised	(42,936)
Number of options, Cancelled	(9,269)
Number of options, Ending balance	3,004,547
Number of options, Exercisable	1,094,447
Exercise price, Beginning balance	$ 2.98
Exercise price, Granted	$ 3.15
Exercise pice, Exercised	$ 2.34
Exercise price, Cancelled	$ 3.37
Exercise price, Ending balance	$ 3.02
Exercise price, Exercisable	$ 2.72

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Other Receivables (Tables)

6 Months Ended

Jun. 30, 2014

Other Receivables, Net, Current [Abstract]

Schedule Of Other Receivables And Other Assets [Table Text Block]

Other receivables as of June 30, 2014 and December 31, 2013, consists of the following:

	June 30, 2014		December 31, 2013
Receivables related to the sale of New Jersey net operating losses	$	-	$	1,412,302
Other receivables		3,328		5,011
	$	3,328	$	1,417,313