. 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 purchase price for the asset acquisition is up to

$44.4

million, including potential future earnout payments of up to

$30.4

million contingent upon achievement of certain earnout milestones set forth in the Asset Purchase Agreement. At the closing, we paid approximately

$3.0

million in cash after the expense adjustment and issued

193,728

shares of our common stock to EGEN. The shares of common stock were issued in a private transaction exempt from registration under the Securities Act, pursuant to Section

(

) thereof. In addition,

47,862

shares of common stock were held back by us at the closing and were issuable to EGEN pending satisfactory resolution of any post-closing adjustments for expenses or in relation to EGEN’s indemnification obligations under the Asset Purchase Agreement. These shares were issued on

June 16, 2017.

There being

immediate opportunity to out-license TheraSilence, earnout payments have been adjusted and now up to

$24.4

million will become payable, in cash, shares of our common stock or a combination thereof, at our option, upon achievement of

two

major milestone events as follows:

	●	$12.4 million will become payable upon achieving certain specified development milestones relating to an ovarian cancer study of GEN- 1 (formerly known as EGEN- 001 ) to be conducted by us or our subsidiary; and

	●	$12.0 million will become payable upon achieving certain specified development milestones relating to a GEN- 1 glioblastoma multiforme brain cancer study to be conducted by us or our subsidiary.

Our obligations to make the earnout payments will terminate on the

seventh

anniversary of the closing date. As of now, the Company does

not

anticipate that the ovarian cancer earnout payment will be made before the

fourth

quarter of

2019.

The Company is continuing to evaluate the development of GEN-

in glioblastoma multiforme brain cancer in light of other substantial competitive development programs in this indication.

June 9, 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

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

was 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.

September 30, 2017,

after the Company’s annual assessment of the totality of the events that could impair IPR&D, the Company determined certain IPR&D assets related to the development of its glioblastoma multiforme cancer (GBM) product candidate

may

be impaired. To arrive at this determination, the Company assessed the status of studies in GBM conducted by its competitors and the Company’s strategic commitment of resources to its studies in primary liver cancer and ovarian cancer. The Company estimated the fair value of the IPR&D related to GBM at

September 30, 2017

using the multi-period excess earnings method (MPEEM). The Company concluded that the GBM asset, valued at

$9.4

million, was partially impaired and wrote down the GBM asset to

$6.9

million incurring a non-cash charge of

$2.5

million in the

third

quarter of

2017.

In connection with the write-off of this IPR&D asset, the Company concluded there was a reduced probability of payments of the earn-out milestones associated with the GBM asset and therefore reduced the earn-out milestone liability from

$13.8

million to

$12.5

million, recording a non-cash benefit of approximately

$1.2

million in the

third

quarter of

2017.

indicators of impairment existed during the

fourth

quarter of

2017,

the Company concluded

none

of the other IPR&D assets were impaired at

December 31, 2017.

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 pro

duct candidates

may

be impaired and after an assessment, 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 write-off of this IPR&D asset, the Company concluded there was

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 Company recorded

$277,316

of amortization expense during

2017.

The fair value of the Covenant

Not

to Compete was

$795,608

net of

$795,606

accumulated amortization as of

December 31, 2017

and

$1,022,924

net of

$568,290

accumulated amortization as of

December 31, 2016

respectively.

Following is a schedule of future amortization amounts during the remaining life of the Covenant

Not

To Compete.

	Year Ended December 31,
2018	$	227,316
2019		227,316
2020		227,316
2021		113,660
Total	$	795,608

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 30

or sooner if we believe indicators of impairment exist.

As of

September 30,

201

we concluded that the Company’s fair value exceeded its carrying value therefore “it is

not

more likely than

not”

that the Goodwill was impaired.