ACQUISITION OF EGEN, INC.

June

20,

2014,

Celsion completed the acquisition of substantially all of the assets of EGEN, Inc., an Alabama Corporation (EGEN) pursuant to an Asset Purchase Agreement (EGEN Purchase Agreement). CLSN Laboratories, Inc., a Delaware corporation and a wholly-owned subsidiary of Celsion (CLSN Laboratories), acquired all of EGEN’s right, title and interest in and to substantially all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other tangible personal property. In addition, CLSN Laboratories assumed certain specified liabilities of EGEN, including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date.

The total aggregate purchase price for the acquisition is up to

$44.4

million, which includes potential future payments of up to

$30.4

million contingent upon achievement of certain milestones set forth in the EGEN Purchase Agreement (Earn-Out Payments). At the closing, Celsion paid approximately

$3.0

million in cash after expense adjustment and issued

2,712,188

shares of its common stock to EGEN. The shares of Celsion’s common stock were issued in a private transaction exempt from registration under the Securities Act of

1933,

as amended, pursuant to Section

4(2)

thereof. In addition,

670,070

shares of Celsion common stock are issuable to EGEN pending satisfactory resolution of any post-closing adjustments of expenses and EGEN’s indemnification obligations under the EGEN Purchase Agreement (Holdback Shares). A Registration Statement (File No.

333

198786)

was filed on

September

16,

2014

and declared effective on

September

30,

2014

for the resale of the shares of common stock issued and issuable to EGEN under the EGEN Purchase Agreement.

The Earn-Out Payments of up to

$30.4

million will become payable, in cash, shares of Celsion common stock or a combination thereof, at Celsion’s option, as follows:

	●	$12.4 million will become payable upon achieving certain specified development milestones relating to an ovarian cancer study of GEN- 1 to be conducted by the Company or its subsidiary;

	●	$12.0 million will become payable upon achieving certain specified development milestones relating to a glioblastoma multiforme brain cancer study of GEN- 1 to be conducted by the Company or its subsidiary; and

	●	Up to $6.0 million will become payable upon achieving certain specified milestones relating to the TheraSilence™ technology.

June

2014,

Celsion borrowed an additional

million pursuant to a certain Loan and Security Agreement dated as of

November

25,

2013,

by and between Celsion and Hercules Technology Growth Capital, Inc. (see Note

8).

Celsion used the loan proceeds to pay the upfront cash payment at closing and certain transaction costs incurred by Celsion in connection with the acquisition.

The EGEN Purchase Agreement contains customary representations and warranties regarding EGEN and Celsion, covenants regarding the conduct of EGEN’s business prior to the consummation of the acquisition, indemnification provisions, termination and other provisions customary for transactions of this nature.

The acquisition of EGEN was accounted for under the acquisition method of accounting which required the Company to perform an allocation of the purchase price to the assets acquired and liabilities assumed. The fair value of the consideration transferred for the acquisition was approximately

$27.6

million. Under the acquisition method of accounting, the total purchase price was allocated to EGEN’s net tangible and intangible assets and liabilities based on their estimated fair values as of the acquisition date. The following table summarizes the fair values of these assets acquired and liabilities assumed related to the acquisition.

Property and equipment, net	$	35,000
In-process research and development		24,211,000
Other Intangible assets (Covenant not to compete)		1,591,000
Goodwill		1,976,000
Total assets:		27,813,000
Accounts payable and accrued liabilities		(235,000	)
Net assets acquired	$	27,578,000

Acquired in-process research and development (IPR&D) consists of EGEN's drug technology platforms: TheraPlas and TheraSilence. The fair value of the IPR&D drug technology platforms was estimated to be

$24.2

million as of the acquisition date. As of the closing of the acquisition, the IPR&D is considered indefinite lived intangible assets and will not be amortized. IPR&D is reviewed for impairment at least annually as of our

third

quarter ended

September

30,

and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable.

●

As of

September

30,

2016,

after our assessment of the totality of the events that could impair IPR&D, it was the Company’s conclusion “it is not more likely than not” that the indefinite-lived intangible assets are impaired. Therefore, the Company was not required to calculate the fair value of the intangible assets and perform a quantitative impairment test.

●

December

31,

2016,

the Company determined

one

of the IPR&D assets related to the development of its RNA delivery system being developed with collaborators using their RNA product candidates

may

impaired. After reassessment of the

September

30,

2016

analysis above, the Company concluded that this asset, valued at

$1.4

million, was impaired. Therefore, the Company wrote off the value of this IPR&D asset incurring a non-cash charge of

$1.4

million in the

fourth

quarter of

2016.

In connection with the writeoff of this IPR&D asset, the Company concluded there was no probability of payments of the earn-out milestones associated with this asset and therefore reduced the earn-out milestone liability by

$0.7

million at the same time. The Company concluded none of the other IPR&D assets were impaired at

December

31,

2016.

Pursuant to the EGEN Purchase Agreement, EGEN provided certain covenants (“Covenant Not To Compete”) to the Company whereby EGEN agreed, during the period ending on the

seventh

anniversary of the closing date of the acquisition on

June

20,

2014,

not to enter into any business, directly or indirectly, which competes with the business of the Company nor will it contact, solicit or approach any of the employees of the Company for purposes of offering employment.

At the end of

2016,

the Company concluded the Covenant Not To Compete which was valued at approximately

$1.6

million at the date of the EGEN acquisition had a definitive life and should be amortized on a straight line basis over its life of

years. Therefore, in the

fourth

quarter of

2016,

the Company recorded a non-cash adjustment of

$568,290

representing the cumulative amount of amortization expense from the date of acquisition through the end of

2016.

The fair value of the Covenant Not To Compete was

$1,022,924

net of

$568,290

accumulated amortization as of

December

31,

2016

and

$1,591,214

as of

December

31,

2015.

Following is a schedule of future amortization amounts during the remaining life of the Covenant Not To Compete.

	Year Ended December 31,
2017	$	227,316
2018		227,316
2019		227,316
2020		227,316
2021		113,660
Total	$	1,022,924

The purchase price exceeded the estimated fair value of the net assets acquired by approximately

$2.0

million which was recorded as Goodwill. Goodwill represents the difference between the total purchase price for the net assets purchased from EGEN and the aggregate fair values of tangible and intangible assets acquired, less liabilities assumed. Goodwill is reviewed for impairment at least annually as of our

third

quarter ended

September

or sooner if we believe indicators of impairment exist.

●

As of

September

30,

2016,

after our assessment of the totality of the events that could impair goodwill, it is the Company’s conclusion “it is not more likely than not” that the Goodwill is impaired. Therefore, the Company was not required to conduct a

two

-step quantitative goodwill impairment test.

●

December

31,

2016,

as a result of the substantial doubt in the Company’s ability to continue as a going concern (Note

2),

we again reviewed Goodwill for impairment by comparing the Company’s fair value to see if it exceeded its carrying value, known as the Step

approach. We concluded that the Company’s fair value exceeded its carrying value, and that measurement for an amount of an impairment loss, known as Step

was not required as Goodwill is considered not to be impaired.