CELL THERAPEUTICS INC, PRE 14A, 1997-05-08

CELL THERAPEUTICS INC
PRE 14A, 1997-05-08
PHARMACEUTICAL PREPARATIONS

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934

Filed by the Registrant: [X]

Filed by a Party other than the Registrant: [_]

Check the appropriate box:

[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(e)(2))

[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

CELL THERAPEUTICS, INC.
-----------------------------------------------------
(Name of Registrant as Specified in Its Charter)

-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee was calculated and state how it was determined):
----------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------

(5) Total fee paid:
----------------------------------------------------------------------

[_] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:
----------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------

(3) Filing Party:
----------------------------------------------------------------------

(4) Date Filed:
----------------------------------------------------------------------
<PAGE>

[CTI LETTERHEAD]

May 27, 1997

Dear Shareholder:

You are cordially invited to attend the Cell Therapeutics, Inc. ("cti")
Annual Meeting of Shareholders, to be held at 11:00 a.m. on Wednesday, June
18, 1997, at the Columbia Tower Club, 7600 Columbia Center, 701 Fifth Avenue,
Seattle, Washington.

Information concerning the business to be conducted at the meeting is
included in the accompanying Notice of Annual Meeting of Shareholders and
Proxy Statement. At the meeting, we also will report on the operations of cti
and respond to any questions you may have.

A copy of the 1996 Annual Report to Shareholders is also enclosed.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the meeting,
it is important that your shares be represented. Therefore, we urge you to
sign, date and promptly return the enclosed proxy in the enclosed postage paid
envelope. If you attend the meeting, you will, of course, have the right to
vote in person. Shareholders who plan to attend the meeting in person are
requested to promptly return the enclosed postage paid attendance card to
provide us with an estimate of the number of persons to expect for the Annual
Meeting.

I look forward to greeting you personally, and on behalf of the Board of
Directors and Management, I would like to express our appreciation for your
interest in cti.

Sincerely,

James A. Bianco, M.D.,
President & Chief Executive Officer,
Shareholder
<PAGE>

CELL THERAPEUTICS, INC.
201 ELLIOTT AVENUE WEST, SUITE 400
SEATTLE, WA 98119

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JUNE 18, 1997

To Our Shareholders:

The Annual Meeting of Shareholders of Cell Therapeutics, Inc. ("cti" or the
"Company") will be held at 11:00 a.m., on Wednesday, June 18, 1997, at the
Columbia Tower Club, 7600 Columbia Center, 701 Fifth Avenue, Seattle,
Washington for the following purposes:

(1) To elect three Class III Directors, each to serve until the 2000 Annual
Meeting, one Class II Director, to serve until the 1999 Annual Meeting,
and one Class I Director, to serve until the 1998 Annual Meeting;

(2) To approve certain amendments to the Company's 1994 Equity Incentive
Plan;

(3) To approve certain option grants to non-employee Directors under the
Company's 1994 Equity Incentive Plan;

(4) To approve an amendment to the Company's 1996 Employee Stock Purchase
Plan;

(5) To ratify the selection of Ernst & Young LLP as the independent
auditors for the Company for the year ending December 31, 1997; and

(6) To transact such other business as may properly come before the
meeting, and all adjournments and postponements thereof.

All shareholders are invited to attend the meeting. Shareholders of record
at the close of business on May 21, 1997, the record date fixed by the Board
of Directors, are entitled to notice of, and to vote at, the meeting and all
adjournments and postponements thereof. A complete list of shareholders
entitled to notice of, and vote at, the meeting will be open to examination by
the shareholders beginning ten days prior to the meeting for any purpose
germane to the meeting during normal business hours at the office of the
Secretary of the Company at 201 Elliott Avenue West, Suite 400, Seattle,
Washington 98119.

Whether or not you intend to be present at the meeting, please sign and date
the enclosed proxy and return it in the enclosed envelope.

By Order of the Board of Directors

-------------------------------------
Michael J. Kennedy
Secretary

Seattle, Washington
May 27, 1997

YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN,
DATE AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE REGARDLESS OF WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING.
<PAGE>

CELL THERAPEUTICS, INC.
201 ELLIOTT AVENUE WEST, SUITE 400
SEATTLE, WA 98119

----------------

PROXY STATEMENT

----------------

INFORMATION REGARDING PROXIES

GENERAL

This Proxy Statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of Cell
Therapeutics, Inc. ("cti" or the "Company") for use at the Annual Meeting of
Shareholders (the "Annual Meeting"), to be held at 11:00 a.m. on Wednesday,
June 18, 1997, at the Columbia Tower Club, 7600 Columbia Center, 701 Fifth
Avenue, Seattle, Washington 98119, and at any adjournment thereof. Only
shareholders of record on the books of the Company at the close of business on
May 21, 1997 (the "Record Date") will be entitled to notice of, and to vote
at, the Annual Meeting.

At the Annual Meeting, shareholders will be asked to elect three Class III
Directors, each to serve until the 2000 Annual Meeting, one Class II Director,
to serve until the 1999 Annual Meeting, and one Class I Director, to serve
until the 1998 Annual Meeting. Shareholders will also be asked to approve
certain amendments to the Company's 1994 Equity Incentive Plan, to approve
certain option grants to non-employee Directors under the 1994 Equity
Incentive Plan, to approve an amendment to the Company's 1996 Employee Stock
Purchase Plan, and to ratify the selection of Ernst & Young LLP as the
independent auditors for the Company for the year ending December 31, 1997.

It is anticipated that these proxy solicitation materials will be sent to
shareholders on or prior to May 27, 1997.

SOLICITATION OF PROXIES

This solicitation is made on behalf of the Board of Directors of the
Company. All expenses in connection with the solicitation of proxies will be
borne by the Company. In addition to solicitation by mail, officers, Directors
or other regular employees of the Company may solicit proxies by mail,
telephone, facsimile or in person. No additional compensation will be paid to
such persons for such services.

VOTING RIGHTS AND OUTSTANDING SHARES

Each share of common stock, without par value ("Common Stock"), of the
Company outstanding on the Record Date is entitled to one vote per share at
the Annual Meeting. The Company presently has no other class of capital stock
outstanding and entitled to be voted at the Annual Meeting. At the close of
business on the Record Date, there were issued and outstanding [13,028,377]
shares of Common Stock. The presence at the Annual Meeting in person or by
proxy of holders of record of a majority of the outstanding shares of Common
Stock is required to constitute a quorum for the transaction of all business
at the Annual Meeting.

All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the shareholders and will
have the same effect as negative votes against Proposals II, III, IV and V.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether a matter has been approved.
<PAGE>

All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the
instructions, if any, given therein. If no instructions are provided in a
proxy, the shares of Common Stock represented by such proxy will be voted FOR
the Board's nominees for Director, FOR the approval of Proposals II, III, IV
and V and in accordance with the proxy-holder's best judgment as to any other
matters raised at the Annual Meeting.

REVOCABILITY OF PROXIES

Any shareholder of record executing a proxy has the power to revoke it at
any time prior to the voting thereof on any matter (without, however,
affecting any vote taken prior to such revocation) by delivering written
notice to Michael J. Kennedy, Secretary of the Company, at the Company's
principal executive offices, by executing and delivering another proxy dated
as of a later date or by voting in person at the meeting.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership of Common Stock, as of April 15, 1997 by (i) each shareholder known
by the Company to be the beneficial owner of more than 5% of its outstanding
shares of Common Stock, (ii) each of the Company's Directors and nominees for
Director, (iii) each executive officer of the Company named in the Summary
Compensation Table herein, and (iv) all Directors and executive officers as a
group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(1)
- ------------------------------------ --------------------- ------------
<S> <C> <C>
The International Biotechnology Trust 1,358,156 10.42%
plc(2)....................................
c/o Rothschild Asset Management Limited
Five Arrows House
St. Swithen's Lane
London, England EC4N 8NR
Kummell Investments Limited(3)............. 1,287,456 9.88
922 Europort
Gibraltar
LGT Capital................................ 1,000,000 7.68
50 California Street, 27th Floor
San Francisco, CA 94104
Collinson Howe Venture Partners(4)......... 948,801 7.28
1055 Washington Boulevard
Stamford, CT 06901
Biotechnology Investment Group, L.L.C.(5).. 815,755 6.26
c/o Collinson Howe Venture Partners
1055 Washington Boulevard
Stamford, CT 06901
Johnson & Johnson Development Corporation.. 743,262 5.70
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
The Phoenix Partners(6).................... 724,592 5.56
1000 Second Avenue, Suite 3600
Seattle, WA 98104
James A. Bianco, M.D.**(7)................. 359,233 2.74
Jack L. Bowman**(8)........................ 8,573 *
Jeremy L. Curnock Cook**(9)................ 1,364,824 10.47
Wilfred E. Jaeger, M.D.**(10).............. 6,477 *
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSH(1)
- ------------------------------------ --------------------- ----------
<S> <C> <C>
Max E. Link, Ph.D.**(11)...................... 13,334 *
Terrence M. Morris**(12)...................... 4,763 *
Mary O'Neil Mundinger, D.P.H.**(13)........... 2,858 *
Phillip M. Nudelman, Ph.D.**(14).............. 8,001 *
Jack W. Singer, M.D.**(15).................... 215,946 1.66
Louis A. Bianco(16)........................... 146,183 1.12
Maurice J. Schwarz, Ph.D.(17)................. 20,952 *
Robert A. Lewis, M.D.(18)..................... 2,858 *
All Directors and executive officers as a
group
(15 persons)(19)............................. 2,182,588 21.91
</TABLE>
- --------
* Less than 1%

** Denotes Director of the Company

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of April 15, 1997, are deemed
outstanding for computing the percentage of the person holding such
option or warrant but are not deemed outstanding for computing the
percentage of any other person. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned.

(2) Consists of 1,358,156 shares of Common Stock beneficially owned by The
International Biotechnology Trust plc, a company formed under the laws of
England ("IBT") managed by Rothschild Asset Management Limited
("Rothschild"). Rothschild has or shares voting and investment power with
respect to the shares held by IBT and may be deemed to be the beneficial
owner of such shares. Mr. Curnock Cook is a director of IBT and
Rothschild, and may be deemed to be the beneficial owner of any shares
beneficially owned by each of IBT and Rothschild. Mr. Curnock Cook
disclaims beneficial ownership of shares beneficially owned by IBT and
Rothschild except to the extent of his proportionate interest therein.
See footnote (9) below.

(3) Mr. Morris is the Chief Executive Officer of Morningside Ventures, which
advises Kummell Investments Limited ("Kummell") on its private venture
capital portfolio. Mr. Morris does not have or share voting or investment
power with respect to the shares held by Kummell. See footnote (12)
below.

(4) Collinson Howe Venture Partners ("CHVP") is a venture capital investment
management firm which is the managing member of Biotechnology Investment
Group, L.L.C., a Delaware limited liability company ("BIG"), and is the
investment advisor to Schroder Ventures Limited Partnership ("SVLP"),
Schroder Ventures U.S. Trust ("SVUST") and Schroders Incorporated ("SI").
As such, CHVP has or shares voting and investment power with respect to
the shares held by BIG, SVLP, SVUST and SI and may be deemed to be the
beneficial owner of such shares. The shares listed above consist of (i)
815,755 shares of Common Stock held by BIG, 66,991 shares of Common Stock
held by SVLP, 16,748 shares of Common Stock held by SVUST and 36,449
shares of Common Stock held by SI, and (ii) an additional 8,230, 2,057
and 2,571 shares of Common Stock issuable upon exercise of options
beneficially owned by SVLP, SVUST and SI, respectively, pursuant to an
agreement with Dr. Jaeger. See footnotes (5) and (10) below.

(5) BIG is a limited liability company which was created to acquire, hold,
protect, manage and dispose of equity, debt and derivative securities of
biotechnology and other companies. 771,429 of the shares of Common Stock
held by BIG were acquired in January 1995 from The Edward Blech Trust
("EBT"). The sole beneficiary of EBT is the minor child of David Blech, a
founder, former Director and shareholder of

3
<PAGE>

the Company. The present members of BIG are (i) the managing member, CHVP,
an investment management firm of which Jeffrey J. Collinson is President,
sole director and majority shareholder, (ii) EBT, and (iii) Wilmington
Trust Company ("WTC"), as voting trustee under a voting trust agreement
(the "Voting Trust Agreement") among WTC, BIG and BIO Holdings L.L.C.
("Holdings"). The managing member of BIG is CHVP. The members of BIG share
voting and investment power with respect to all shares held of record by
BIG. All of the shares held of record by BIG have been pledged as
collateral to Citibank, N.A. ("Citibank") to secure indebtedness owed to
such bank. Each of Citibank and Holdings has the right pursuant to the
Voting Trust Agreement to direct certain actions of WTC as a member of BIG.
WTC, as the member holding a majority interest in Holdings, has the right
to direct the actions of Holdings under the Voting Trust Agreement.
Citibank, pursuant to a separate voting trust agreement among WTC, David
Blech and Holdings, has the right to direct the actions of WTC as a member
of Holdings with respect to the rights of Holdings under the Voting Trust
Agreement. By virtue of their status as members of BIG, each of CHVP and
EBT may be deemed to be the beneficial owner of all shares held of record
by BIG. By virtue of his status as the majority owner and controlling
person of CHVP, Jeffrey J. Collinson may also be deemed the beneficial
owner of all shares held of record by BIG. Each of CHVP, EBT and Mr.
Collinson disclaims beneficial ownership of shares held by BIG except to
the extent of such person's proportionate interest therein.

(6) Consists of 190,133 shares of Common Stock held by The Phoenix Partners
II Limited Partnership Liquidating Trust ("PPII"), 234,459 shares of
Common Stock held by The Phoenix Partners III Limited Partnership
("PPIII"), and 300,000 shares of Common Stock held by The Phoenix
Partners IV Limited Partnership ("PPIV"). Stuart C. Johnston and David B.
Johnston are the Managing General Partner and Non-Managing General
Partner, respectively, of Phoenix Management Partners II ("PMPII"), which
is the General Partner of PPII, the Managing General Partner and Non-
Managing General Partner, respectively, of Phoenix Management Partners
III ("PMPIII"), which is the General Partner of PPIII, and the Managing
Member and Non-Managing Member, respectively, of Phoenix Management IV
LLC ("PMIV"), which is the General Partner of PPIV. As such, Mr. Stuart
C. Johnston and Mr. David B. Johnston each have voting and investment
power with respect to the shares held by PPII, PPIII and PPIV, and may be
deemed to be the beneficial owner of such shares. Mr. Stuart Johnston and
Mr. David B. Johnston disclaim beneficial ownership of shares held by
PPII, PPIII and PPIV, except to the extent of their proportionate
partnership interest therein. PPII and PMPII disclaim beneficial
ownership of the shares held by PPIII and PPIV; PPIII and PMPIII disclaim
beneficial ownership of the shares held by PPII and PPIV; and PPIV and
PMIV disclaim beneficial ownership of the shares held by PPII and PPIII.

(7) Includes 85,575 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 15, 1997.
Does not include 138,097 shares issuable upon exercise of options not yet
vested. 52,382 of such options vest in equal installments on December 5,
1997 and 1998, and 85,715 of such options vest in equal installments on
November 19, 1997, 1998 and 1999.

(8) Consists of 8,573 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 15, 1997.
Does not include 1,905 shares issuable upon exercise of options not yet
vested. Such options vest on May 22, 1998.

(9) Includes 1,358,156 shares of Common Stock beneficially owned by IBT. IBT
is managed by Rothschild and Rothschild has or shares voting and
investment power with respect to the shares held by IBT and may be deemed
to be the beneficial owner of such shares. Mr. Curnock Cook is a director
of IBT and Rothschild and may be deemed to be the beneficial owner of any
shares beneficially owned by each of IBT and Rothschild. Mr. Curnock Cook
disclaims beneficial ownership of shares beneficially owned by IBT and
Rothschild except to the extent of his proportionate interest therein.
Also includes an immediately exercisable option to purchase 6,668 shares
of Common Stock. See footnote (2) above, "Compensation Committee
Interlocks and Insider Participation" and "Certain Relationships and
Related Transactions."

(10) Consists of 6,477 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 15, 1997.
Does not include 12,858 shares issuable upon exercise of options
beneficially owned by affiliates of CHVP pursuant to an agreement with
Dr. Jaeger. Dr. Jaeger, a Director

4
<PAGE>

of the Company, is a former partner at CHVP. Dr. Jaeger disclaims
beneficial ownership of shares of Common Stock beneficially owned by
affiliates of CHVP. See footnote (4) above.

(11) Includes an immediately exercisable option to purchase 4,762 shares of
Common Stock.

(12) Consists of an immediately exercisable option to purchase 4,763 shares of
Common Stock. Mr. Morris is the Chief Executive Officer of Morningside
Ventures, which advises Kummell on its private venture capital portfolio.
Mr. Morris does not have or share voting or investment power with respect
to the shares held by Kummell. See footnote (3) above.

(13) Consists of an immediately exercisable option to purchase 2,858 shares of
Common Stock.

(14) Consists of 8,001 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 15, 1997.
Does not include 1,905 shares issuable upon exercise of options not yet
vested. Such options vest on May 22, 1998.

(15) Includes 16,197 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 15, 1997.
Does not include 33,334 shares issuable upon exercise of options not yet
vested. 4,762 of such options vest in equal installments on December 5,
1997 and 1998, and 28,572 of such options vest in equal installments on
November 7, 1997, 1998 and 1999.

(16) Includes 43,673 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 15, 1997.
Does not include 32,858 shares issuable upon exercise of options not yet
vested. 11,429 of such options vest in equal installments on December 5,
1997 and 1998, and 21,429 of such options vest in equal installments on
November 7, 1997, 1998 and 1999.

(17) Consists of 20,952 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 15, 1997.
Does not include 36,192 shares issuable upon exercise of options not yet
vested. 7,620 of such options vest in equal installments on December 5,
1997 and 1998, and 28,572 of such options vest in equal installments on
November 7, 1997, 1998 and 1999.

(18) Consists of 2,858 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 15, 1997.
Does not include 64,287 shares issuable upon exercise of options not yet
vested. 28,585 of such options vest on April 1, 1998, 14,273 of such
options vest on April 1, 1999, and 21,429 of such options vest in equal
installments on November 7, 1997, 1998, and 1999.

(19) Includes an aggregate of 233,593 shares of Common Stock issuable upon
exercise of options that are currently exercisable or exercisable within
60 days of April 15, 1997. See footnotes (7) through (18). Excludes, with
respect to each of Mr. Bowman, Mr. Curnock Cook, Dr. Jaeger, Mr. Morris
and Dr. Nudelman, 14,285 shares of Common Stock, and with respect to Dr.
Link, 28,570 shares of Common Stock, which will become issuable upon
exercise of outstanding options following the approval of such option
grants by the Company's shareholders at the Annual Meeting. See Proposal
III.

5
<PAGE>

PROPOSAL I
ELECTION OF DIRECTORS

The Restated Articles of Incorporation of the Company provide for the Board
of Directors to be divided into three approximately equal classes of Directors
serving staggered three year terms and until their successors are elected and
qualified. As a result, approximately one-third of the total number of
Directors will be elected every year. Under cti's Bylaws, the number of
Directors constituting the entire Board of Directors may be decreased or
increased by majority action of either the Board of Directors or the
shareholders, but no decrease in the number of Directors may have the effect
of shortening the term of any incumbent Director. In the event of a vacancy on
the Board of Directors, the Company's Bylaws permit a majority of the
remaining Directors in office to fill such a vacancy, and the Director so
chosen shall hold office until the next shareholders meeting at which
Directors are elected and until his or her successor is elected and shall
qualify.

Currently, the Board of Directors has fixed the number of Directors at nine.
The current terms of office of Class III Directors Dr. James A. Bianco, Dr.
Jack W. Singer and Dr. Wilfred B. Jaeger expire at the 1997 Annual Meeting.
The current terms of office of Class II Director Dr. Mary O'Neil Mundinger,
who was elected by the Board of Directors in April 1997 to fill a vacancy in
Class II, and of Class I Director Mr. Jeremy L. Curnock Cook, who was elected
by the holders of the Company's Series A Convertible Preferred Stock voting as
a separate class for a term of office expiring at the first Annual Meeting
following the conversion of the Company's Series A Convertible Preferred Stock
in accordance with its terms, also expire at the 1997 Annual Meeting. The
current terms of office of Class I Directors Dr. Phillip M. Nudelman and Mr.
Jack L. Bowman expire at the 1998 Annual Meeting, and the current terms of
office of Class II Directors Dr. Max E. Link and Mr. Terrence M. Morris expire
at the 1999 Annual Meeting.

Drs. Bianco, Singer and Mundinger have been nominated for re-election at the
Annual Meeting as Class III Directors for three-year terms expiring at the
2000 Annual Meeting. Dr. Jaeger has been nominated for re-election at the
Annual Meeting as a Class II Director for a two-year term expiring at the 1999
Annual Meeting. Mr. Curnock Cook has been nominated for re-election at the
Annual Meeting as a Class I Director for a one-year term expiring at the 1998
Annual Meeting. The Board of Directors has approved all such nominees.

If elected, each nominee will hold office until his or her term expires and
his or her successor is elected and shall qualify. It is intended that the
accompanying proxy will be voted for the election as Directors of the five
nominees named herein, unless the proxy contains contrary instructions. Each
nominee has agreed to serve if elected, and the Company has no reason to
believe that any of the nominees will not be a candidate or will be unable to
serve. However, if any of the nominees should become unable or unwilling to
serve as a Director, the persons named in the proxy have advised the Company
that they will vote for the election of such person or persons as shall be
designated by the Board of Directors.

The candidates elected will be those receiving the largest numbers of votes
cast by the shares of Common Stock entitled to vote in the election, up to the
number of Directors of such class to be elected by such shares. Votes that are
withheld and broker non-votes will not be counted in the election of
Directors.

6
<PAGE>

Set forth below is biographical information for each nominee for Director
and each person whose term of office as a Director will continue after the
Annual Meeting:

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE CLASS
---- --- -------- -----
<S> <C> <C> <C>
Max E. Link, Ph.D.(1)(2)................................ 56 1995 II
James A. Bianco, M.D.(2)................................ 40 1991 III
Jack W. Singer, M.D. ................................... 54 1991 III
Jack L. Bowman(3)....................................... 64 1995 I
Jeremy L. Curnock Cook(2)(3)............................ 47 1995 I
Wilfred E. Jaeger, M.D.(3)(4)........................... 41 1992 II
Terrence M. Morris(3)(4)................................ 49 1995 II
Mary O'Neil Mundinger, D.P.H. .......................... 60 1997 III
Phillip M. Nudelman, Ph.D.(2)(4)........................ 61 1994 I
</TABLE>
- --------
(1) Chairman of the Board of Directors.

(2) Member of the Executive Committee.

(3) Member of the Compensation Committee.

(4) Member of the Audit Committee.

NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL
MEETING--CLASS III DIRECTORS

DR. BIANCO is the principal founder of cti and has been cti's President and
Chief Executive Officer since February 1992 and a Director of cti since the
Company's inception in September 1991. Prior to joining cti, Dr. Bianco was an
Assistant Professor of Medicine at the University of Washington, Seattle, and
an Assistant Member in the clinical research division of the Fred Hutchinson
Cancer Research Center ("FHCRC"), the world's largest bone marrow transplant
center. From 1990 to 1992, Dr. Bianco was the director of the Bone Marrow
Transplant Program at the Veterans Administration Medical Center in Seattle.
Dr. Bianco received his B.S. degree in Biology and Physics from New York
University and his M.D. from Mount Sinai School of Medicine. Dr. Bianco and
Louis A. Bianco, the Company's Executive Vice President, Finance and
Administration, are brothers.

DR. SINGER is a founder and Director of cti and currently serves as cti's
Executive Vice President, Research Program Chairman. Dr. Singer has been a
Director of cti since the Company's inception in September 1991. From April
1992 to July 1995, Dr. Singer was cti's Executive Vice President, Research and
Development. Prior to joining cti, Dr. Singer was Professor of Medicine at the
University of Washington and full Member of the FHCRC. From 1975 to 1992, he
was the Chief of Medical Oncology at the Veterans Administration Medical
Center in Seattle. In addition, from 1978 to 1992, he served as director for
the National Transplant Board for the Veterans Administration. Dr. Singer has
authored approximately 220 scientific publications in the areas of cell
biology, hematopoiesis and BMT. Prior to joining cti, he headed the Growth
Factor Research Program at the FHCRC. Dr. Singer received his B.A. degree in
Mathematics from Columbia College and his M.D. from State University of New
York, Downstate Medical College. His clinical training was performed at the
University of Chicago and at the University of Washington.

DR. MUNDINGER has been a Director of cti since April 1997. Since 1986, she
has been a Dean and Professor at the School of Nursing, and an Associate Dean
on the Faculty of Medicine, at Columbia University. Dr. Mundinger is a
Commissioner on the Commonwealth Fund Commission on Women's Health, and also
serves on the Board on Health Care Services, Institute of Medicine of the
National Academy of Science, the Walt Disney Imagineering "Wonders of Medical
Life" Medical Advisory Board, and the Health Policy Advisory Committee. Dr.
Mundinger also serves on the editorial board of National Health Publishing
Company, Inc. Dr. Mundinger is a cum laude graduate of the University of
Michigan and received her Doctorate of Public Health from Columbia's School of
Public Health.

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NOMINEE FOR ELECTION FOR A TWO-YEAR TERM EXPIRING AT THE 1999 ANNUAL MEETING--
CLASS II DIRECTOR

DR. JAEGER has been a Director of cti since September 1992. Dr. Jaeger is a
founding general partner of Three Arch Partners, a venture capital firm which
focuses on health care investments. Prior to joining Three Arch Partners in
1993, he was a partner at Schroder Venture Advisers (presently named Collinson
Howe Venture Partners) and The Phoenix Partners. Dr. Jaeger received his M.D.
from the University of British Columbia in Vancouver, B.C., Canada, in 1981.
He practiced medicine for six years before earning an M.B.A. from Stanford
University. Dr. Jaeger is also a director of Intensiva Healthcare Corporation
and several privately held companies.

NOMINEE FOR ELECTION FOR A ONE-YEAR TERM EXPIRING AT THE 1998 ANNUAL MEETING--
CLASS I DIRECTOR

MR. CURNOCK COOK has been a Director of cti since March 1995. Mr. Curnock
Cook has been a director of the Bioscience Unit of Rothschild Asset Management
Limited since 1987. He is a director of several British companies, including
The International Biotechnology Trust, plc, Biocompatibles International, plc
and Cantab Pharmaceuticals, plc. He also serves on the boards of directors of
Creative BioMolecules, Inc., Targeted Genetics Corp., Sugen Inc. and Ribozyme
Pharmaceuticals, Inc. in the United States and Inflazyme Pharmaceuticals, Inc.
in Canada.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF EACH NAMED NOMINEE.

DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING--CLASS II
DIRECTORS

DR. LINK joined the Board of Directors in July 1995 as its Vice Chairman and
has served as Chairman of the Board of Directors since January 1996. In
addition, Dr. Link has held a number of executive positions with
pharmaceutical and healthcare companies. Most recently, he served as Chief
Executive Officer of Corange, Limited ("Corange"), from May 1993 until June
1994. Prior to joining Corange, Dr. Link served in a number of positions
within Sandoz Pharma Ltd., including Chief Executive Officer from 1987 until
April 1992, and Chairman from April 1992 until May 1993. Dr. Link currently
serves on the boards of directors of Alexion Pharmaceutical, Inc., Human
Genome Sciences, Inc., Procept, Inc. and Protein Design Labs, Inc. Dr. Link
received his Ph.D. in Economics from the University of St. Gallen.

MR. MORRIS has been a Director of cti since July 1995. He is the Chief
Executive Officer of T. Morris & Company (d/b/a Morningside Ventures), which
advises Kummell Investments Limited, an international investment concern based
in Hong Kong, on its private venture capital portfolio. Mr. Morris has served
as Chief Executive Officer of Morningside Ventures since 1991. His previous
positions include product line manager at Baxter Healthcare Corporation and
strategy consultant with the Boston Consulting Group. Mr. Morris is a director
of several privately held companies.

DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING--CLASS I
DIRECTORS

MR. BOWMAN has been a Director of cti since April 1995. From 1987 until
January 1994, Mr. Bowman was a Company Group Chairman at Johnson & Johnson,
having primary responsibility for a group of companies in the diagnostic,
blood glucose monitoring and pharmaceutical businesses. From 1980 to 1987, Mr.
Bowman held various positions at American Cyanamid Company, most recently as
Executive Vice President. Mr. Bowman was a member of the Board of Trustees of
The Johns Hopkins University and serves on the boards of directors of NeoRx
Corporation, CytRx Corporation, PharmaGenics, Inc., Cellegy Pharmaceutical,
Inc. and Targeted Genetics Corp.

DR. NUDELMAN has been a Director of cti since March 1994. Since 1990 Dr.
Nudelman has been the President and Chief Executive Officer of Group Health
Cooperative of Puget Sound, a health maintenance organization. Dr. Nudelman
received his B.S. degree in Microbiology, Zoology and Pharmacy from the
University of Washington, and holds an M.B.A. and a Ph.D. in Health Systems
Management from Pacific

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<PAGE>

Western University. Dr. Nudelman is a member of the American Hospital
Association House of Delegates, Regional Policy Board, and chairs the
Governing Counsel for Health Care Systems. Dr. Nudelman serves on the boards
of directors of Advanced Technology Laboratories, Inc., SpaceLabs Medical,
Inc., Cytran Ltd. and Intensiva Healthcare Corporation.

BOARD AND COMMITTEE MEETINGS

The Board of Directors of the Company held 12 meetings during the year ended
December 31, 1996. Each of the Directors attended at least 75% of the total
number of meetings of the Board of Directors and the total number of meetings
held by all committees of the Board of Directors on which they served.

The Board of Directors has three standing committees: an Executive
Committee, a Compensation Committee, and an Audit Committee. There is no
standing nominating committee.

The Executive Committee exercises the full power and authority of the Board
of Directors, except as limited by applicable law and except as specific
authority is otherwise delegated by the Board of Directors to its other
committees. One meeting of the Executive Committee was held during the year
ended December 31, 1996. The Executive Committee currently consists of Drs.
Bianco, Link and Nudelman and Mr. Curnock Cook.

The Compensation Committee has broad responsibility for assuring that the
officers and key management personnel of the Company are effectively
compensated in terms of salaries, supplemental compensation and benefits which
are internally equitable and externally competitive. The Compensation
Committee also administers the Company's 1994 Equity Incentive Plan and the
Company's 1996 Employee Stock Purchase Plan. Five meetings of the Compensation
Committee were held during the year ended December 31, 1996. The Compensation
Committee currently consists of Dr. Jaeger and Messrs. Bowman, Curnock Cook
and Morris.

The Audit Committee, which was established in January 1994, has
responsibility for assisting the Board of Directors in fulfilling their
responsibilities relating to the corporate accounting and reporting practices
of the Company and the quality and integrity of the Company's financial
reporting. One meeting of the Audit Committee was held during the year ended
December 31, 1996. The Audit Committee currently consists of three non-
employee Directors, Drs. Jaeger and Nudelman and Mr. Morris.

DIRECTOR COMPENSATION

Directors who are also employees of the Company are not paid an annual
retainer nor are they compensated for serving on the Board. Non-employee
Directors are paid $2,000 per meeting of the Board or Board committee, up to a
maximum of $10,000 per Director each calendar year. All Directors are
reimbursed for their expenses incurred in attending Board meetings. In
addition, each non-employee Director is entitled to certain automatic stock
option grants under the Company's 1994 Equity Incentive Plan. See Proposal II.
During 1996, each of Drs. Link, Jaeger and Nudelman, Messrs. Bowman, Curnock
Cook and Morris, and Dr. David W. Martin, Jr., who resigned from the Board of
Directors in April 1997, received an automatic option grant to purchase
1,905 shares of Common Stock under the Company's 1994 Equity Incentive Plan at
an exercise price of $11.725, the fair market value per share of Common Stock
on the respective grant dates.

In December 1996, the Board of Directors approved the grant to each non-
employee Director of a 10-year, fully-vested nonstatutory stock option to
purchase 14,285 shares of Common Stock, other than Dr. Link, who was granted a
10-year, fully-vested nonstatutory stock option to purchase 28,570 shares of
Common Stock. Such option grants will not be effective until approved by the
shareholders at the Annual Meeting. The exercise price of such options is
$11.725. See Proposal III.

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<PAGE>

PROPOSAL II
APPROVAL OF CERTAIN AMENDMENTS TO
THE 1994 EQUITY INCENTIVE PLAN

The Company's 1994 Equity Incentive Plan (the "1994 Plan") was adopted by
the Board of Directors in January 1994 and approved by the shareholders in
February 1994. A total of 582,685 shares of Common Stock were initially
reserved for issuance under the 1994 Plan and a predecessor plan, the
Company's 1992 Stock Option Plan (the "1992 Plan"). In May 1995 and April 1996
the shareholders of the Company approved the adoption of amendments to the
1994 Plan to increase the aggregate number of shares authorized for issuance
thereunder by 246,887 shares and 507,143 shares, respectively, bringing the
total number of shares reserved under the 1994 Plan to 1,336,715 shares of
Common Stock. As of April 15, 1997, options to purchase 6,709 shares have been
exercised, ten-year options to purchase 1,206,757 shares were granted and
outstanding, and options to purchase 123,249 shares of Common Stock remained
available for future grants under the 1994 Plan.

The 1994 Plan supersedes the 1992 Plan, pursuant to which the Board of
Directors was authorized to issue incentive stock options and nonstatutory
stock options upon terms and conditions similar to the 1994 Plan. Options
granted under the 1992 Plan remain valid under the terms of the 1992 Plan. The
number of shares available for future grants under the 1994 Plan will be
increased by the number of shares of Common Stock for which options granted
under the 1992 Plan expire, terminate, or are canceled.

PROPOSED AMENDMENTS TO THE 1994 PLAN

On May 7, 1997, the Board of Directors approved, subject to approval by the
shareholders of the Company, amendments to the 1994 Plan that: (i) increase
the maximum number of shares issuable under the 1994 Plan by an additional
1,000,000 shares to a total of 2,336,715 shares; (ii) impose a 233,671-share
limit on the maximum number of shares of Common Stock for which any one
individual may be granted stock options, stock appreciation rights and direct
stock awards in the aggregate per calendar year under the 1994 Plan; and (iii)
effect a series of additional changes to the provisions of the 1994 Plan
(including the stockholder approval requirements, the transferability of
nonstatutory stock options, the elimination of the six (6)-month holding
period requirement as a condition to the exercise of stock options and stock
appreciation rights by officers and Directors and the elimination of certain
restrictions of non-employee Directors to serve as an administrator of the
1994 Plan) in order to take advantage of the recent amendments to Rule 16b-3
of the Securities and Exchange Commission (the "SEC") which exempts certain
officer and director transactions under the 1994 Plan from the short-swing
liability provisions of the Federal securities laws.

Increase in Authorized Shares. Currently, options for a total of 1,330,006
shares may be issued under the 1994 Plan. Of these shares, 123,249 shares
remain currently available for future options. If the shareholders do not
approve the increase, then the maximum number of shares issuable under the
1994 Plan will remain at 1,330,006. The purpose of the proposed increase is to
provide sufficient shares for future option grants to new and existing
officers, key employees, non-employee Directors and consultants of the
Company. The Board of Directors believes that the Company should have shares
available under the 1994 Plan to provide options to certain of its prospective
and existing officers, key employees, non-employee Directors and consultants.
The Board of Directors believes that the Company and its shareholders
significantly benefit from having the Company's key management and scientific
employees and consultants receive options to purchase the Company's Common
Stock, and that the opportunity thus afforded these employees and consultants
to acquire Common Stock is an essential element of an effective management
incentive program. The Board of Directors also believes that stock options are
very valuable in attracting and retaining highly qualified management and
scientific personnel and in providing additional motivation to these
individuals to use their best efforts on behalf of the Company.

Limitation on Maximum Number of Shares. The limitation on the maximum number
of shares for which any one individual may be granted stock options, stock
appreciation rights and direct stock awards in the

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<PAGE>

aggregate per calendar year will assure that any compensation deemed paid by
the Company in connection with the exercise of stock options and stock
appreciation rights under the 1994 Plan will qualify as performance-based
compensation which is not subject to the $1 million dollar limitation on the
tax deductibility of executive compensation per covered individual imposed
under Internal Revenue Code Section 162(m).

Additional Changes. The remaining amendments will facilitate plan
administration by eliminating a number of limitations and restrictions
previously incorporated into the 1994 Plan to comply with the applicable
requirements of SEC Rule 16b-3 prior to its recent amendment.

VOTE REQUIRED

The affirmative vote of a majority of the outstanding shares of Common Stock
present in person or represented by proxy entitled to vote at the Annual
Meeting will be required to approve the proposed amendments to the 1994 Plan.
Unless otherwise instructed, it is the intention of the persons named in the
accompanying form of proxy to vote shares represented by properly executed
proxies for approval of the proposed amendments to the 1994 Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENTS TO THE 1994 PLAN

The 1994 Plan provides for (a) the grant of incentive stock options,
nonstatutory stock options and stock appreciation rights, (b) the award of
stock bonuses, (c) the sale of stock, and (d) any other equity-based or
equity-related awards which the plan administrator determines to be consistent
with the purpose of the 1994 Plan and the interests of the Company. The 1994
Plan also provides for the automatic grant of nonstatutory options to non-
employee Directors pursuant to the formula described below.

The following description of the 1994 Plan is qualified in its entirety by
the full text of the 1994 Plan, as amended, which is set forth as Annex A to
this Proxy Statement.

ELIGIBILITY

The 1994 Plan authorizes the granting of awards to (a) selected employees,
officers and Directors of the Company or any parent or subsidiary of the
Company, and (b) selected non-employee agents, consultants, advisers and
independent contractors of the Company or any parent or subsidiary. Directors
who are not employees of the Company shall receive automatic nonstatutory
stock option grants under the 1994 Plan, as described below, and will also be
eligible to receive other awards under the 1994 Plan. All persons selected by
the plan administrator to receive awards under the 1994 Plan must be
individuals that the plan administrator believes have made or will make an
important contribution to the Company.

As of April 15, 1997, approximately 126 employees (including eight executive
officers), 24 consultants and seven non-employee Directors were eligible to
participate in the 1994 Plan.

AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS

Under the 1994 Plan, each non-employee Director is automatically granted a
fully vested nonstatutory stock option to purchase 2,858 shares of Common
Stock upon his or her election to the Board of Directors for the first time.
In addition, each non-employee Director is automatically granted a fully
vested nonstatutory stock option to purchase 1,905 shares of Common Stock on
each anniversary of his or her immediately preceding election to the Board of
Directors. The exercise price of such options is 100% of the fair market value
of the shares of Common Stock on the date of grant. Each such option shall
have a ten-year term from the date of grant, unless earlier terminated upon
termination of a non-employee Director's service with the Company. See "--
Stock Options."

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<PAGE>

Shareholder approval of Proposal II will also constitute pre-approval of
each automatic option grant made to the non-employee Directors on or after the
date of the 1997 Annual Meeting pursuant to such provisions of the 1994 Plan
and the subsequent exercise of that option in accordance with such provisions.

NUMBER OF SHARES COVERED BY THE 1994 PLAN

1,336,715 shares of Common Stock have been reserved for issuance under the
1994 Plan. If the shareholders approve the adoption of the amendments to the
1994 Plan, a total of 2,336,715 shares of Common Stock (representing
approximately 17.9% of the total number of shares of Common Stock issued and
outstanding as of the Record Date) will have been reserved for grant under the
1994 Plan, of which 1,206,757 shares are subject to outstanding options and
1,123,249 shares would be available for future grants. If an option or a stock
appreciation right granted under the 1994 Plan expires, terminates or is
cancelled, the unissued shares subject to such option or stock appreciation
right shall again be available for issuance under the 1994 Plan, and if shares
sold under the 1994 Plan are forfeited to the Company or are repurchased by
the Company at the issue price paid per share, the number of shares forfeited
or repurchased shall again be available for issuance under the 1994 Plan.

In addition, if the shareholders approve the amendments to the 1994 Plan, in
no event may any one participant in the 1994 Plan be granted stock options,
separately exercisable stock appreciation rights and direct stock awards for
more than 233,671 shares in the aggregate per calendar year under the 1994
Plan.

ADMINISTRATION

The 1994 Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee may promulgate rules and
regulations for the operation of the 1994 Plan, interprets the 1994 Plan and
related agreements and generally supervises the administration of the 1994
Plan. The Committee determines the persons to whom awards will be made under
the 1994 Plan, the amount of the awards, and the other terms and conditions of
the awards. The Committee may also advance the lapse of any waiting period,
accelerate any exercise date, waive or modify any restriction with respect to
an award, or give an employee an election to surrender an existing award in
exchange for the grant of a new award.

TERM OF 1994 PLAN

The 1994 Plan was approved by the Board of Directors of the Company on
January 7, 1994, and will continue until all shares available for issuance
under the 1994 Plan have been issued and all restrictions on such shares have
lapsed. However, no awards may be made under the 1994 Plan after January 1,
2004. The Company's Board of Directors has the power to suspend, terminate,
modify or amend the 1994 Plan at any time.

STOCK OPTIONS

The Committee may grant stock options under the 1994 Plan. The Committee
will determine the persons to whom options will be granted, the exercise price
of each option, the number of shares to be covered by each option, the period
of each option, the times at which each option may be exercised, and whether
each option is an incentive stock option or a nonstatutory stock option. If an
option is an incentive stock option, the exercise price must be at least 100%
of the fair market value of the underlying shares on the date of grant. If an
optionee of an incentive stock option at the time of grant possesses more than
10% of the combined voting power of all classes of the Company's stock (a "10%
Shareholder"), the exercise price may not be less than 110% of the fair market
value of the underlying shares on the date of grant. If the option being
granted under the 1994 Plan is a nonstatutory stock option, the exercise price
may not be less than the fair market value of the underlying shares on the
date of grant.

Options may be granted under the 1994 Plan for varying periods established
at the time of grant (not to exceed ten years from the date of grant for
incentive stock options, or five years from the date of grant for

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<PAGE>

incentive stock options granted to any 10% Shareholder). During the optionee's
lifetime, the option is generally exercisable only by the optionee and may not
be assigned or transferred other than by will or the laws of inheritance
following the optionee's death or pursuant to a qualified domestic relations
order in connection with divorce or marital separation proceedings. The
Committee may, however, allow nonstatutory options to be transferred or
assigned during the optionee's lifetime to one or more family members or a
trust established exclusively for such family members, to the extent such
transfer or assignment is in furtherance of the optionee's estate plan.
Options will be exercisable in accordance with the terms of an option
agreement entered into at the time of the grant. In the event of the death or
other termination of an optionee's employment or service with the Company, the
1994 Plan provides that the optionee's options may be exercised for specified
periods thereafter (one year in the case of termination by reason of death or
disability and three months in the case of termination for any other reason).
The 1994 Plan also provides that upon any termination of employment or
service, the Committee may extend the exercise period for any period up to the
expiration date of the option and may increase the portion of the option that
is exercisable. The 1994 Plan does not allow options to be exercised after
their expiration date.

The purchase price for shares of Common Stock purchased on exercise of
options granted under the 1994 Plan must be paid in cash, including cash that
may be the proceeds of a loan from the Company or, with the consent of the
Committee, in whole or in part in shares of Common Stock of the Company. With
the consent of the Committee, an optionee may request the Company to apply the
shares to be received on exercise of a portion of an option to satisfy the
exercise price for additional portions of the option.

STOCK APPRECIATION RIGHTS

The Committee may grant stock appreciation rights ("SARs") to employees
under the 1994 Plan. SARs may, but need not, be granted in connection with an
option. A SAR gives the holder the right to payment from the Company of an
amount equal in value to the excess of the fair market value on the date of
exercise of one share over its fair market value on the date of grant (or, if
granted in connection with an option, the exercise price per share under the
option to which the SAR relates), multiplied by the number of shares covered
by the portion of the SAR or option that is surrendered. An employee will not
pay the Company any cash consideration upon either the grant or exercise of a
SAR, except for tax withholding amounts upon exercise.

A SAR is exercisable only at the time or times established by the Committee.
If a SAR is granted in connection with an option, it is exercisable only to
the extent and on the same conditions that the related option is exercisable.
Payment by the Company upon exercise of a SAR may be made in shares valued at
fair market value, or in cash, or partly in shares and partly in cash, as
determined by the Committee. The Committee may withdraw any SAR at any time
and may impose any conditions upon the exercise of a SAR or adopt rules and
regulations from time to time affecting the rights of holders of SARs.

The existence of any exercisable SARs will require the Company to make
periodic charges against the Company's income to the extent of the amount of
appreciation, if any, in the market value of the shares over the exercise
price of shares subject to such SARs.

STOCK BONUSES

The Committee may award shares of Common Stock as stock bonuses under the
1994 Plan. The Committee will determine the persons to receive stock bonuses,
the number of shares to be awarded and the time of the award. No cash
consideration (other than tax withholding amounts) will be paid by persons in
connection with stock bonuses. Shares received as a stock bonus may be subject
to terms, conditions and restrictions as determined by the Committee.

STOCK PURCHASES

The Committee may authorize the sale of shares of the Company's Common Stock
under the 1994 Plan to eligible individuals in the Company's service, but in
no event may the price payable per share be less than 75%

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<PAGE>

of the fair market value of the shares at the time of issuance. The issued
shares will be subject to such terms, conditions and limitations as the
Committee deems appropriate. Such limitations may include restrictions on the
transferability of the shares and the implementation of a vesting schedule
pursuant to which the issued shares will be subject to forfeiture or
repurchase by the Company, at the issue price paid per share, should the
recipient leave the employ or service of the Company prior to vesting in those
shares.

CHANGES IN CAPITAL STRUCTURE

If any recapitalization, reclassification, stock split, combination of
shares or stock dividend causes the outstanding shares of the Company's Common
Stock to increase or decrease or to be changed into a different number or kind
of securities of the Company or any other corporation, the Committee shall
make appropriate adjustments in (i) the number and kind of securities
available for awards under the 1994 Plan, (ii) the number and kind of
securities as to which outstanding options and SARs shall be exercisable, such
that the participant's proportionate interest before and after the event is
maintained, (iii) the maximum number and kind of securities for which any one
participant may be granted options, SARs and direct stock awards under the
1994 Plan per calendar year and (iv) the number and kind of securities for
which stock options will automatically be granted to newly elected or
continuing non-employee Directors. Appropriate adjustments will also be made
to the exercise price then in effect under outstanding options or SARs.

EFFECT OF REORGANIZATION OR LIQUIDATION

The 1994 Plan provides for automatic acceleration of the vesting of options
and SARs granted under the 1994 Plan if a merger, consolidation,
reorganization, plan of exchange or liquidation results in the Company's
shareholders receiving cash, stock or other property in exchange for their
shares, except as specified in the following paragraph. Option holders will
have the right during the thirty (30) day period immediately prior to any such
event to exercise their options or SARs without any limitation on
exercisability.

The 1994 Plan provides that, if the Company's shareholders receive stock of
another corporation in exchange for shares of the Company in any merger,
consolidation, reorganization or plan of exchange, all options granted under
the 1994 Plan will be converted into options to purchase shares of the stock
of the other corporation and all SARs will be converted into SARs measured by
the stock of the other corporation. Under the 1994 Plan the Committee may, in
its discretion, accelerate the vesting of options and SARs in lieu of their
conversion, in which event holders would have a thirty (30) day period prior
to such event to exercise their options or SARs, as provided above. In
addition, the 1994 Plan allows the Committee to accelerate the vesting of the
options and SARs granted under the 1994 Plan upon the occurrence of a "Change
in Control." A "Change in Control" is defined as (a) the acquisition, directly
or indirectly, by any individual, entity or group (within the meaning of
Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934 (the "1934
Act")), of beneficial ownership (within the meaning of Rule 13d-3 under the
1934 Act) of securities representing 50.1% or more of either the then
outstanding shares of Common Stock or the combined voting power in the
election of Directors of the then outstanding voting securities of the
Company, (b) individuals who, as of the effective date of the Plan, constitute
the Board of Directors (the "Incumbent Board") (including any individual whose
subsequent election or nomination was approved by a vote of at least a
majority of the Directors then comprising the Incumbent Board) cease for any
reason to constitute at least a majority of the Board of Directors, or
(c) approval by the shareholders of the Company of certain reorganizations,
mergers or consolidations, or of certain liquidations, dissolutions or
dispositions of all or substantially all of the assets of the Company.

The Committee may make awards under the 1994 Plan that have terms and
conditions that vary from those specified in the 1994 Plan when such awards
are granted in substitution for, or in connection with the assumption of,
existing awards made by another corporation and assumed or otherwise agreed to
be provided for by the Company in connection with a corporate merger or other
similar transaction to which the Company or an affiliated Company is a party.

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<PAGE>

The Committee may also specify the terms and provisions of other equity-
based or equity-related awards not described in the 1994 Plan which the
Committee determines to be consistent with the purpose of the 1994 Plan and
the interests of the Company.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

Incentive Stock Options

Certain options authorized to be granted under the 1994 Plan are intended to
qualify as "incentive stock options" for Federal income tax purposes. Under
United States Federal income tax law in effect as of the date of this Proxy
Statement, an optionee will recognize no income upon grant or exercise of an
incentive stock option. At the time of exercise, however, the difference
between the exercise price and the fair market value constitutes a tax
preference item which may have Alternative Minimum Tax consequences for the
optionee. If an employee exercises an incentive stock option and does not
dispose of any of the shares thereby acquired within two years following the
date of grant and within one year following the date of exercise, capital gain
or loss will be realized upon the subsequent disposition of the shares. If an
employee disposes of shares acquired upon exercise of an incentive stock
option before the expiration of either the one-year or the two-year holding
period specified in the foregoing sentence (a "disqualifying disposition"),
the employee will realize ordinary income in an amount equal to the lesser of
(a) the excess of the fair market value of the shares on the date of exercise
over the option price or (b) the excess of the fair market value of the shares
on the date of disposition over the option price. Any loss or additional gain
realized upon the disqualifying disposition will constitute capital loss or
gain. In general, the Company will not be allowed any deduction for Federal
income tax purposes at either the time of grant or the time of exercise of an
incentive stock option or when the shares thereby acquired are disposed of.
Upon any disqualifying disposition by an employee, however, the Company will
be entitled to a deduction to the extent the employee realizes ordinary
income.

Nonstatutory Stock Options

Certain options authorized to be granted under the 1994 Plan will be treated
as nonstatutory stock options for United States Federal income tax purposes.
Under Federal income tax law in effect as of the date of this Proxy Statement,
no income is realized by the holder of a nonstatutory stock option until the
option is exercised. At the time of exercise, the optionee will realize
income, and the Company may be entitled to a deduction, in the amount by which
the fair market value of the shares subject to the option at the time of
exercise exceeds the exercise price. Upon the sale of shares acquired upon
exercise of a nonstatutory stock option, the employee will realize capital
gain or loss equal to the difference between the amount realized from the sale
and the employee's basis in the shares (i.e., the exercise price plus the
amount of income recognized on exercise of the option).

Bonus Shares and Shares Sold Outright Under the 1994 Plan

Bonus shares awarded under the 1994 Plan and shares sold outright under the
1994 Plan, which are transferable or not subject to a substantial risk of
forfeiture, will be taxable as ordinary income equal to the excess of the fair
market value of the shares received (determined as of the date of settlement)
over the amount, if any, paid for the shares by the participant. The Company
will be entitled to a tax deduction in the same amount.

In the case of shares that are not transferable and are subject to a
substantial risk of forfeiture on the date of issuance, the participant will
generally recognize ordinary income equal to the excess of the fair market
value of the shares (determined as of the date on which the shares either
become transferable or are not subject to a substantial risk of forfeiture)
over the amount, if any, paid for the shares. The Company will be entitled to
a tax deduction in the same amount. A participant may elect to recognize
income when the shares are received, rather than upon the expiration of the
transfer restriction or risk of forfeiture, and, in such event, the amount of
ordinary income will be determined as of the date of issuance rather than upon
expiration of the applicable restriction. The Company's tax deduction if any
will be determined at the same time.

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<PAGE>

PARTICIPATION IN THE 1994 PLAN

The ten-year options to purchase 1,206,757 shares of Common Stock which are
outstanding pursuant to the 1994 Plan and the 1992 Plan were granted to 141
employees, consultants and non-employee Directors and generally vest in equal
annual installments on the first three or four anniversaries of the date of
grant. Of these options, options to purchase a total of 10,715 shares are
outstanding at an exercise price of $17.50 per share, options to purchase a
total of 2,858 shares are outstanding at an exercise price of $10.00 per share
and options to purchase a total of 1,193,184 shares are outstanding at an
exercise price of $11.725 per share.

STOCK AWARDS

The table below shows, as to each executive officers of the Company named in
the Summary Compensation Table herein and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
under the 1994 Plan from the inception of the 1994 Plan in February 1994
through April 15, 1997, together with the weighted average exercise price
payable per share. No stock bonuses or sales of stock have been made to date
under the 1994 Plan.

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
NAME AND POSITION OPTION SHARES(1) ($)
- ----------------- ---------------- ----------------
<S> <C> <C>
James A. Bianco, M.D. ....................... 223,672 $11.725
Jack W. Singer, M.D. ........................ 49,531 $11.725
Louis A. Bianco.............................. 76,531 $11.725
Maurice J. Schwarz, Pd.D. ................... 57,144 $11.725
Robert A. Lewis, M.D. ....................... 67,145 $11.725
All current executive officers as a group (8
persons).................................... 614,993 $11.725
All Directors (other than executive officers)
as a group (7 persons)...................... 45,912 $11.62
All employees, including current officers who
are not executive officers, as a group (110
persons).................................... 331,014 $11.725
</TABLE>
- --------
(1) On April 21, 1995, the Board of Directors approved the repricing (the
"Repricing") of outstanding options to $11.725 per share by offering to
exchange such outstanding options for a fewer number of options pursuant
to a Black-Scholes formula. Subsequently, options for 434,664 shares, with
initial exercise prices of $17.50 and $31.50 per share, were exchanged for
377,121 options with a price of $11.725 per share. All other terms and
conditions of the options remained unchanged. The table above does not
show the original grant of options that were subsequently repriced. The
participation of the executive officers of the Company named in the
Summary Compensation Table herein is as follows: Dr. Bianco, 64,285
options were repriced and exchanged for 57,858 options; Dr. Singer, 14,285
options were repriced and exchanged for 12,858 options; Mr. Bianco, 42,857
options were repriced and exchanged for 36,432 options; and Dr. Schwarz,
21,428 options were repriced and exchanged for 17,143 options.

NEW PLAN BENEFITS

As of the date of this Proxy Statement, no awards have been made under the
1994 Plan on the basis of the share increase which forms part of Proposal II.
The number and type of awards to be granted under the 1994 Plan to any
particular individual cannot be determined as of such date, except for the
options that will automatically be granted to certain non-employee Directors
as described above and those described in Proposal III below.

16
<PAGE>

PROPOSAL III
APPROVAL OF CERTAIN OPTION GRANTS TO
NON-EMPLOYEE DIRECTORS UNDER THE
1994 EQUITY INCENTIVE PLAN

In December 1996, the Board of Directors approved the grant to each non-
employee Director of a fully-vested nonstatutory stock option to purchase
14,285 shares of Common Stock, other than Dr. Link, who was granted a fully-
vested nonstatutory stock option to purchase 28,570 shares of Common Stock
(the "Special Option Grant"), and directed that the Special Option Grant be
submitted to the shareholders of the Company for their approval. The exercise
price of such options is $11.725. Each such option shall have a ten-year term
from the date of grant, unless earlier terminated upon termination of a non-
employee Director's service with the Company. See "Proposal II--Stock
Options."

The Compensation Committee recommended that the Board approve the Special
Option Grant under the 1994 Plan to provide additional compensation to the
Company's non-employee Directors and to increase their proprietary interest in
the Company. The 1994 Plan permits the Company to grant stock options to non-
employee Directors in addition to the options which are automatically granted
to non-employee Directors under the 1994 Plan. See "Director Compensation"
under Proposal I and "Automatic Grants to Non-Employee Directors" under
Proposal II. However, the Board believes that the Company's shareholders
should have the opportunity to consider and approve the Special Option Grant,
and the Special Option Grant will not be effective until approved by the
shareholders at the Annual Meeting. No non-employee Director participated in
the Board's discussion and deliberation of, or voted on, his own option grant.

The affirmative vote of a majority of the outstanding shares of Common Stock
present in person or represented by proxy entitled to vote at the Annual
Meeting will be required to approve the Special Option Grant. Unless otherwise
instructed, it is the intention of the persons named in the accompanying form
of proxy to vote shares represented by properly executed proxies for approval
of the Special Option Grant.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE SPECIAL OPTION GRANT.

PROPOSAL IV
APPROVAL OF AN AMENDMENT TO
THE 1996 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in March 1996 and approved by the
shareholders in April 1996. The Purchase Plan is intended to encourage
ownership of the Company's Common Stock by employees of the Company and to
provide additional incentives for the employees to promote the success of the
business of the Company. A maximum of 285,714 shares of the Company's stock
have been reserved for purchase under the Purchase Plan. As of December 31,
1996, no options to purchase shares of Common Stock have been granted and no
shares of Common Stock have been purchased under the Purchase Plan.

PROPOSED AMENDMENT TO THE PURCHASE PLAN

In April 1997, the Board of Directors approved, subject to approval by the
shareholders of the Company, an amendment to the Purchase Plan that changes
the formula by which the purchase price of the shares of Common Stock issuable
upon exercise of an option granted under the Purchase Plan will be calculated.
The purchase price of shares of Common Stock issuable upon exercise of an
option granted under the Purchase Plan will be changed from 85% of the average
of the fair market value of the Common Stock at the beginning and at the end
of each six month offering period to 85% of the lower of the fair market value
of the Common Stock at the beginning and at the end of each six month offering
period.

17
<PAGE>

The Company has compared the Purchase Plan with employee stock purchase
plans of other biotechnology and biopharmaceutical companies with which the
Company competes for scientific and employee talent. On the basis of these
surveys, and in light of the historic high volatility of the market prices for
securities of biotechnology and biopharmaceutical companies in general and the
likely high volatility of the Common Stock, the Company believes that it would
be appropriate to change the pricing of options granted under the Purchase
Plan from one based on the average of the fair market values of the Common
Stock at the beginning and end of each six-month offering period to one based
on the lower of the fair market values of the Common Stock at the beginning
and end of each offering period. The Company believes that permitting employee
participants in the Purchase Plan to purchase Common Stock at the lower of the
beginning and end of period Common Stock prices, rather than the average of
the beginning and end of period Common Stock prices, would reduce the risk of
an investment in the Common Stock by employees that participate in the
Purchase Plan, thereby further encouraging ownership of Common Stock by the
Company's employees and providing additional incentives for employees to
promote the success of the business of the Company.

VOTE REQUIRED

The affirmative vote of a majority of the outstanding shares of Common Stock
present in person or represented by proxy entitled to vote at the Annual
Meeting will be required to approve the proposed amendment to the Purchase
Plan. Unless otherwise instructed, it is the intention of the persons named in
the accompanying form of proxy to vote shares represented by properly executed
proxies for approval of the proposed amendment to the Purchase Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE PURCHASE PLAN

The following description of the Purchase Plan is qualified in its entirety
by reference to the full text of the Purchase Plan, as amended, which is set
forth as Annex B to this Proxy Statement.

Employees of the Company or any of its subsidiaries who customarily work
more than twenty hours per week and more than five months per calendar year,
and who have been employed by the Company or any of its subsidiaries for at
least one year may participate in the Purchase Plan. As of April 15, 1997,
approximately 78 employees, including eight executive officers, were eligible
to participate in the Purchase Plan. The Purchase Plan is administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Purchase Plan provides for the automatic grant of options to purchase shares
of stock of the Company ("Options"). The Options are granted on the first day
of an offering period, which lasts approximately six months. Payroll
deductions are accumulated in an account for each participant, based on the
amounts specified by the participant in an enrollment form. At the end of the
offering period, the participant's account balance is used to purchase shares
of stock pursuant to the Option. The purchase price of shares of Common Stock
issuable upon exercise of an Option is currently equal to 85% of the average
of the fair market value of the Common Stock at the beginning and at the end
of the offering period. The proposed amendment to the Purchase Plan will
change the formula by which the purchase price of the shares issuable upon
exercise of an Option will be calculated to 85% of the lower of the fair
market value of the Common Stock at the beginning and at the end of the
offering period. Options may not be assigned or transferred. No participant
may purchase shares having a fair market value exceeding $25,000 in any
calendar year. A participant may withdraw from an offering period at any time
without affecting his or her eligibility to participate in future offering
periods.

There are no tax consequences to either the participant or the Company when
the Option is issued. When shares are issued upon the exercise of the Option,
there are no tax consequences to the participant or the Company. A
participant's Option will terminate and his or her accumulated account balance
will be returned if such participant ceases to be employed by the Company.

If a participant disposes of shares purchased under the Purchase Plan more
than two years after the first day of the applicable offering period, the
participant will recognize ordinary income in the year of disposition equal

18
<PAGE>

to the amount of the discount. The amount of ordinary income recognized by a
participant will be added to the participant's basis in the shares. Any
additional gain recognized upon the disposition will be long-term capital
gain. The Company will not generally be entitled to a deduction if the
participant complies with such holding period.

If a participant disposes of shares purchased under the Purchase Plan within
two years from the first day of the applicable offering period (a
"disqualifying disposition"), the participant will recognize ordinary income
in the year of such disposition equal to the amount by which the fair market
value of the shares on the date the shares were purchased exceeded the
purchase price. The amount of ordinary income will be added to the
participant's basis in the shares, and any additional gain or resulting loss
recognized on the disposition of the shares will be a capital gain or loss.
The Company will be entitled to a deduction in the year of the disqualifying
disposition equal to the amount of ordinary income recognized by the
participant as a result of the disposition.

The Purchase Plan provides that in the event of a "Change in Control" (as
defined in the Purchase Plan), the Committee will either provide for the
immediate exercise of the Options to the extent of accumulated payroll
balances or provide for a successor to adopt the Purchase Plan. For purposes
of the Purchase Plan, events constituting a Change in Control are (i) the
direct or indirect sale or exchange by the shareholders of the Company of all
or substantially all of the shares of stock of the Company where the
shareholders of the Company before the sale or exchange do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company, (ii) a merger in which the shareholders of the
Company before such merger do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the Company or
(iii) the sale, exchange or transfer of all or substantially all of the
Company's assets. The Board of Directors may terminate or amend the Purchase
Plan at any time. No termination of or amendment to the Purchase Plan may
materially adversely affect the rights of a participant in the Purchase Plan
without such participant's consent.

In the event any change is made to the stock issuable under the Purchase
Plan by reason of any stock split, stock dividend, combination of shares or
recapitalization, appropriate adjustment will be made to the share reserve of
the Purchase Plan and the number of shares that a participant may purchase
with respect to an Option. Appropriate adjustments will also be made to the
exercise price then in effect under outstanding Options.

PROPOSAL V
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS

The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1997, and has further
directed that management submit the selection of independent auditors for
ratification by the shareholders at the Annual Meeting. Ernst & Young LLP have
audited the Company's financial statements since 1992. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting, will have
an opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.

In the event the shareholders fail to ratify the selection, the Board will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the Board
feels that such a change would be in the best interests of the Company and its
shareholders. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of Ernst & Young LLP.
Abstentions will be counted toward total shares voted; broker non-votes will
not be counted toward the total.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.

19
<PAGE>

EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
executive officers of cti:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James A. Bianco, M.D. .. 40 President, Chief Executive Officer
Jack W. Singer, M.D. ... 54 Executive Vice President, Research Program Chairman
Louis A. Bianco......... 44 Executive Vice President, Finance and Administration
Maurice J. Schwarz, 57 Executive Vice President, Product Development
Ph.D. .................
Robert A. Lewis, M.D. .. 51 Executive Vice President, Chief Scientific Officer
Susan O. Moore.......... 48 Executive Vice President, Human Resource Development
Jack M. Anthony......... 50 Executive Vice President, Marketing and Business Development
Dalton W. Weekley....... 54 Managing Director, Project Planning and Controls
</TABLE>

See Proposal I for biographical information concerning Drs. Bianco and
Singer.

MR. BIANCO is a founder of cti and has been cti's Executive Vice President,
Finance and Administration since February 1, 1992, and a Director of cti from
the Company's inception in September 1991 to April 1992 and from April 1993 to
April 1995. From January 1989 through January 1992, Mr. Bianco was a Vice
President at Deutsche Bank Capital Corporation in charge of risk management.
Mr. Bianco is a Certified Public Accountant and received his M.B.A. from New
York University. Mr. Bianco and Dr. Bianco are brothers.

DR. SCHWARZ has been cti's Executive Vice President, Product Development
since May 1994. Dr. Schwarz held a variety of product development positions at
Ciba-Geigy for 26 years prior to joining cti, most recently as Vice President
of Pharmaceutical and Analytical Development and Chairman of the Development
Operations Board at Ciba-Geigy Pharmaceuticals Division. Dr. Schwarz received
his B.A. and Ph.D. degrees in chemistry from the University of Oregon.

DR. LEWIS has been cti's Executive Vice President, Chief Scientific Officer
since April 1996. From September 1994 to May 1995, Dr. Lewis was Senior Vice
President and Director, Preclinical Research and Development at Syntex-Roche
("Syntex"). From February 1992 to September 1994, he was President, Discovery
Research at Syntex. From February 1986 to February 1992, he held various
Senior and Executive Vice Presidential offices at Syntex. While at Syntex, he
held associate professorships at Stanford University and at the University of
California, San Francisco, where he also held an adjunct professorship from
1992 to 1994. Prior to joining Syntex, Dr. Lewis was an Associate Professor of
Medicine at Harvard Medical School. Dr. Lewis received his M.D. from the
University of Rochester and B.S. degree in chemistry from Yale University.

MS. MOORE has been cti's Executive Vice President, Human Resource
Development since July 1995. From March 1993 to July 1995, Ms. Moore was cti's
Vice President of Human Resources. Prior to joining cti, Ms. Moore was self-
employed as a compensation consultant. From 1991 to December 1992, Ms. Moore
was the Director of Human Resources of ICOS Corporation, a biotechnology
company.

MR. ANTHONY has been cti's Executive Vice President, Marketing and Business
Development since January 1997. From April 1996 to January 1997, Mr. Anthony
was cti's Vice President of Marketing and Business Development. Prior to
joining cti, Mr. Anthony was Vice President of Marketing and Business
Development at Inhale Therapeutic Systems, a drug delivery company, from
October 1994 to April 1996. From August 1989 to October 1994, he was Vice
President of Marketing and Business Development of Applied Immune Sciences
("AIS"), a cell and gene therapy concern. From 1973 to 1989, Mr. Anthony held
various executive management positions at Baxter Healthcare Corporation,
lastly as Vice President, Blood Therapy Group.

MR. WEEKLEY has been cti's Managing Director, Project Planning and Controls
since July 1995. From April 1994 to July 1995, Mr. Weekley was cti's Director
of Planning Support Services. Prior to joining cti, he was an Executive
Director/Senior Consultant of Milestone Computing, Inc., a management
consulting firm.

20
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the 1934 Act requires the Company's officers and Directors,
and persons who own more than ten percent of a registered class of the
Company's equity securities, to file with the SEC reports of ownership and
changes in ownership of common stock and other equity securities of the
Company. Officers, Directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. The Company does prepare Section 16(a) forms on behalf
of its officers and Directors based on the information provided by them.

Based solely on review of this information, or written representations from
reporting persons that no other reports were required, the Company believes
that, during the 1996 fiscal year, all Section 16(a) filing requirements
applicable to its officers, Directors and greater than 10% beneficial owners
were complied with, other than one late Form 3 that was filed after Jack M.
Anthony became a Section 16(a) reporting person.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth all compensation paid for the years ended
December 31, 1995 and 1996 to the Company's Chief Executive Officer and the
four other most highly compensated executive officers who were serving as
executive officers at December 31, 1996 (collectively, the "Named Executive
Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
--------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL COMPEN- OPTIONS/ ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) SATION($)(2) SARS (#) COMPENSATION ($)
------------------ ---- ---------- --------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
James A. Bianco, M.D. .. 1996 358,032 27,475 -- 85,715 72,223(4)
President and Chief 1995 315,984 -- -- 137,957(3) 7,402(5)
Executive Officer
Jack W. Singer, M.D. ... 1996 248,976 -- -- 28,572 10,524(5)
Executive Vice 1995 248,976 -- -- 20,959(3) 9,762(5)
President, Research
Program Chairman
Louis A. Bianco......... 1996 263,088 10,000 -- 21,429 55,367(4)
Executive Vice 1995 232,195 - -- 55,102(3) 6,772(5)
President, Finance and
Administration
Maurice J. Schwarz,
Ph.D. ................. 1996 187,500 12,936 -- 28,572 65,619(6)
Executive Vice 1995 187,500 -- 8,200(6) 28,572(3) 45,802(6)
President, Product
Development
Robert A. Lewis, M.D. .. 1996(7) 181,512 -- 6,964(7) 67,145 26,144(7)
Executive Vice
President, Chief
Scientific Officer
</TABLE>
- --------
(1) The Company did not make any long-term incentive plan payments to any of
the Named Executive Officers in 1995 and 1996.

(2) Other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites
and other personal benefits constituted the lesser of $50,000 or 10% of
the total annual salary and bonus for the Named Executive Officer for the
applicable year.

(3) In April 1995, the Board of Directors approved the repricing of
outstanding options to $11.725 per share by exchanging such outstanding
options for a fewer number of options pursuant to a Black-Scholes formula.
All other terms and conditions of the options remained unchanged. Grants
for the year ended December 31,

21
<PAGE>

1995 include options which were initially granted in prior years and have
been repriced and exchanged for a fewer number of options in 1995 is as
follows: Dr. Bianco, 64,285 options were repriced and exchanged for 57,858
options; Dr. Singer, 14,285 options were repriced and exchanged for 12,858
options; Mr. Bianco, 42,857 options were repriced and exchanged for 36,432
options; and Dr. Schwarz, 21,428 options were repriced and exchanged for
17,143 options.

(4) All other compensation represents payment of unused sick leave for Dr.
Bianco and Mr. Bianco accrued during 1992, 1993 and 1994, pursuant to the
terms of their employment agreements then in effect, aggregating $64,526
and $47,415, respectively, and reimbursement for long-term disability
insurance premiums of $7,697 and $7,952, respectively.

(5) Represents reimbursement for long-term disability insurance premiums.

(6) All other compensation includes the amount of loan principal and interest
forgiven in 1995 and 1996 of $42,210 and $60,789, respectively, in
connection with Dr. Schwarz's relocation to the Seattle area and $3,592
and $4,830 of relocation expenses which were reimbursed in 1995 and 1996,
respectively. Other annual compensation represents amounts reimbursed for
the payment of income taxes on the reimbursement of Dr. Schwarz's
relocation expenses in 1994. See "Employment Agreements."

(7) Includes compensation for employment beginning on April 1, 1996, the date
on which Dr. Lewis joined the Company as Executive Vice President, Chief
Scientific Officer. All other compensation represents reimbursement of
relocation expenses. Other annual compensation represents amounts
reimbursed for the payment of income taxes on the reimbursement of Dr.
Lewis' relocation expenses.

The following table sets forth for each of the Named Executive Officers the
number of options granted during the year ended December 31, 1996 and the
potential realizable value of such grants. No SARs were granted to such
individuals during 1996.

OPTIONS GRANTED IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL
REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -------------------
NAME GRANTED(1) YEAR (%) ($/SH)(2) DATE 5% ($) 10%($)
- ---- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
James A. Bianco, M.D. .. 85,715 18.1% $11.725 11/19/06 $632,148 $1,602,013
Jack W. Singer, M.D. ... 28,572 6.0% 11.725 11/07/06 210,719 534,011
Louis A. Bianco......... 21,429 4.5% 11.725 11/07/06 158,039 400,508
Maurice J. Schwarz,
Ph.D. .................. 28,572 6.0% 11.725 11/07/06 210,719 534,011
Robert A. Lewis, M.D. .. 2,858 * 11.725 03/29/06 21,078 53,416
42,858 9.0% 11.725 04/01/06 316,078 801,016
21,429 4.5% 11.725 11/07/06 158,039 400,508
</TABLE>
- --------
* Less than one percent.

(1) Options were granted under the 1994 Plan.

(2) Stock options were granted at an exercise price equal to 100% of the
estimated fair value of the Common Stock, as determined by the Board of
Directors on the date of grant.

(3) Potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rates shown (compounded annually) from the
date of grant until the expiration of the option term. These assumed rates
of appreciation are mandated by the rules of the SEC and do not represent
the Company's estimate or projection of the future Common Stock price.
There can be no assurance that any of the values reflected in this table
will be achieved.

22
<PAGE>

The following table sets forth for each of the Named Executive Officers, the
fiscal year-end number and value of unexercised options. No options or SARs
were exercised by any of the Named Executive Officers during 1996, and none of
the Named Executive Officers held any SARs at the end of such year.

AGGREGATED OPTION EXERCISES IN LATEST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL FISCAL YEAR-END
YEAR-END (#) 1996($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James A. Bianco, M.D. .. 85,575 138,097 $ 0 $ 0
Jack W. Singer, M.D. ... 16,197 33,334 0 0
Louis A. Bianco......... 43,673 32,858 0 0
Maurice J. Schwarz,
Ph.D. ................. 20,952 36,192 0 0
Robert A. Lewis, M.D. .. 2,858 64,287 0 0
</TABLE>
- --------
(1) Based on the estimated fair value of the underlying securities at December
31, 1996, the fiscal year end, no options were "in-the-money."

EMPLOYMENT AGREEMENTS

Dr. Bianco, President and Chief Executive Officer, entered into an
employment agreement with cti, effective December 17, 1996 which agreement
will expire on December 31, 1999. The agreement provides that Dr. Bianco would
receive a base salary at an annual rate of $393,835 in 1997 or such greater
amount as the Board of Directors shall determine. The agreement provides that,
in the event that cti terminates Dr. Bianco's employment without cause or Dr.
Bianco terminates his employment for cause, cti shall at such time pay Dr.
Bianco an amount equal to twenty-four months' base salary, all of Dr. Bianco's
stock options in cti shall immediately become vested and cti shall continue to
provide certain benefits through the term of the agreement. The agreement also
provides for the forgiveness over the term of the agreement of certain
indebtedness of Dr. Bianco to cti. See "Certain Relationships and Related
Transactions." In addition, the agreement provides that Dr. Bianco is entitled
to four weeks of paid vacation per year and that any unused vacation time
shall be paid in cash upon the termination of Dr. Bianco's employment for any
reason or at such earlier time as required to avoid forfeiture of accrued but
unused vacation time. The employment agreement restricts Dr. Bianco from
competing with cti for the term of the agreement and for two years after
termination of his employment with cti, unless cti shall have terminated Dr.
Bianco's employment without cause or Dr. Bianco shall have terminated his
employment for cause. The agreement also provides that, in the event a "Change
in Ownership" (as defined in Dr. Bianco's employment contract) occurs, then
all stock options of Dr. Bianco shall immediately become vested.

Mr. Bianco, Executive Vice President, Finance and Administration, entered
into a three-year employment agreement with cti, effective February 1, 1992,
which agreement was extended for an additional three-year period to expire on
January 31, 1998 by a letter agreement dated May 27, 1994. Effective January
1, 1997, cti's Board of Directors increased Mr. Bianco's annual base salary to
$298,080. His employment agreement provides that this base salary is subject
to annual increases in proportion to increases in the consumer price index
("CPI"), plus 10% of the CPI-adjusted annual base salary, or such greater
amount as the Board of Directors shall determine. The agreement provides that,
in the event that cti terminates Mr. Bianco's employment without cause or Mr.
Bianco terminates his employment for cause, cti shall at such time pay Mr.
Bianco an amount equal to the total base salary otherwise payable through the
expiration of the term of the agreement or six months' base salary, whichever
is greater, and shall continue to provide certain benefits through the term of
the agreement. The agreement also provides that Mr. Bianco is entitled to four
weeks of paid vacation per year and that any unused vacation time and sick
leave shall be paid in cash upon the termination of Mr. Bianco's employment
for any reason.

23
<PAGE>

Dr. Schwarz, Executive Vice President, Product Development, entered into a
two-year employment agreement with cti effective May 2, 1994, which is
renewable automatically for successive one-year terms subject to certain
termination provisions contained in the agreement. The agreement provides that
Dr. Schwarz initially would receive an annual base salary of $187,500, subject
to periodic increases based on performance. In the event cti terminates Dr.
Schwarz's employment without cause, cti shall pay Dr. Schwarz such amounts
owing for the remaining term of the agreement. The agreement further provides
that in connection with his relocation to the Seattle area, Dr. Schwarz be
reimbursed for capital loss on the sale of his former residence in the form of
a forgivable loan in an amount not to exceed $150,000. The loan shall be
forgiven in three annual installments, subject to Dr. Schwarz's continued
employment with cti, with any unforgiven portion becoming immediately due and
payable within three months of any termination of Dr. Schwarz's employment.

Dr. Lewis, Executive Vice President, Chief Scientific Officer, has a two-
year severance agreement with cti, effective April 1, 1996. The agreement
provides that, in the event that Dr. Lewis is terminated by cti without cause
or that Dr. Lewis terminates his employment for good reason, cti shall
continue to pay Dr. Lewis his monthly base salary and benefits through the
expiration of the term of the agreement. The inventions and proprietary
information agreement restricts Dr. Lewis from competing with cti for two
years after his termination of employment with cti.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION/(1)/

The Compensation Committee of the Board of Directors (the "Committee") is
composed of Directors who are not employees of the Company. The Committee is
responsible for establishing and administering the Company's executive
compensation arrangements, including the compensation of the Chief Executive
Officer and the other executive officers and key employees of the Company,
subject to ratification by the Board. The Committee also administers the 1994
Plan and the Purchase Plan and makes all stock option grants under such plans
to the Company's executive officers.

GENERAL COMPENSATION POLICY

The Company operates in the extremely competitive and rapidly changing
biotechnology industry. The Committee believes that the compensation programs
for executive officers of the Company should be designed to attract, motivate,
and retain talented executives responsible for the success of the Company and
should be determined within a competitive framework and based on the
achievement of strategic corporate objectives and individual performance and
teamwork. Within this overall philosophy, the Committee's objectives are to:

. Offer a total compensation program that takes into consideration the
compensation practices of a specifically identified peer group of
companies with which the Company competes for executive talent.

. Integrate each officer's compensation package with annual and long-term
corporate objectives and focus the officer's attention on the attainment
of those objectives.

. Encourage the creation of shareholder value through the achievement of
strategic corporate objectives.

. Provide annual variable incentive awards that take into account the
Company's performance relative to corporate objectives and the individual
officer's contributions.

. Align the financial interests of executive officers with those of
shareholders by providing significant equity-based, long-term incentives.

- --------
/(1)/ The material in this report is not "soliciting material," is not deemed
filed with the Securities and Exchange Commission and is not to be
incorporated by reference in any filing of the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.

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COMPENSATION COMPONENTS AND PROCESS

The Committee has developed a compensation policy which is designed to
attract and retain qualified key executive officers critical to the Company's
success. In developing this policy, the Committee has concluded that it is not
appropriate to base a significant percentage of the compensation payable to
the executive officers upon traditional financial targets, such as profit
levels and return on equity. This is primarily because the Company's products
are still in either development or clinical testing phases, and the Company
has not yet realized any significant revenues or product sales. In addition,
the Company's stock price performance may often reflect larger market forces
than the Company's actual performance. For these reasons, it is difficult to
tie the Company's compensation programs to financial performance. Instead, the
Committee bases its decisions upon the attainment of corporate-wide, team and
individual performance. Such performance is evaluated in terms of the
achievement of strategic and business plan goals, including long-term goals
tied to the expansion of the Company's core technology and innovative product
development, the discovery of new drug candidates and the development of the
Company's organizational infrastructure.

In establishing the compensation package for the Company's executive
officers, the Committee has adopted a "total pay" philosophy which includes
three major components: (i) base salary set at levels which are commensurate
with those of comparable positions at other biotechnology companies, (ii)
annual bonuses and stock option grants tied to the achievement of strategic
corporate and team objectives and individual performance and (iii) long-term,
stock-based incentive awards intended to strengthen the mutuality of interests
between the executive officers and the Company's shareholders.

The Committee determines the compensation levels for the executive officers
with the assistance of an independent consulting firm that furnishes the
Committee with executive compensation data drawn from several nationally
recognized surveys of companies within the biotechnology and biopharmaceutical
industries. On the basis of those surveys, the Committee has identified a peer
group of companies with which the Company competes for executive talent and
which have a total capitalization and head count similar to the Company's and
are at approximately the same development stage (the "Peer Companies").

The positions of the Company's Chief Executive Officer and the other
executive officers were compared with those of their counterparts at the Peer
Companies, and the market compensation levels for comparable positions were
examined to determine base salary, target incentives, and total cash
compensation. In addition, the practices of the Peer Companies concerning
stock option grants were also reviewed and compared.

Base Salary. The base salary for each executive officer is set at a level
considered appropriate for comparable positions at the Peer Companies. The
Committee's policy is to target base salary levels at the market average level
of base salary in effect for comparable positions at the Peer Companies.
Executive officers who attain the core competencies required of their
positions are paid at that level. The Committee makes its base salary
determinations in accordance with the market average level of base salary in
effect for comparable positions at the Peer Companies and the evaluation of
performance and core competency provided for each executive officer by the
Chief Executive Officer. However, the base salary payable to the Chief
Executive Officer is set by the terms of the employment contract which the
Company has negotiated with him and by competitive market forces.

Variable Incentive Awards. To reinforce the attainment of Company goals, the
Committee believes that a substantial portion of the annual compensation of
each executive officer should be in the form of variable incentive pay. The
annual incentive payment for each executive officer is determined on the basis
of the achievement of the corporate objectives established for the fiscal year
and the Committee's evaluation of the officer's performance both on an
individual and team basis. For the 1996 fiscal year, the corporate performance
objectives were tied to the following measures of financial success: (i) the
influx of additional capital in the form of debt or equity, (ii) the
establishment of new corporate partnering or other collaborative arrangements,
and (iii) certain milestones in the clinical testing of the Company's
products.

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<PAGE>

Based on the surveys of the short-term incentive programs of the Peer
Companies, the bonuses awarded to the executive officers for the 1996 fiscal
year was at the mid-range of the bonus levels in effect for comparable
positions at the Peer Companies and were on average equal to 14% of base
salary for the year.

Long-Term, Equity-Based Incentive Awards. The goal of the Company's long-
term equity-based incentive awards is to align the interests of executive
officers with the shareholders and to provide each executive officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Such incentive is provided through stock
option grants made under the 1994 Plan. The size of the option grant to each
executive officer is set at a level which the Committee feels is appropriate
to create a meaningful opportunity for stock ownership based upon the
executive officer's current position with the Company, internal comparability
with stock option grants made to other Company executives, the executive
officer's current level of performance and his or her potential for future
responsibility and promotion over the option term. The Committee also takes
into account comparable equity incentives provided to individuals in similar
positions in the biotechnology and biopharmaceutical industries, as reflected
in external surveys, and the number of unvested options held by the executive
officer at the time of the new grant. The Committee has established certain
general guidelines by which the Committee seeks to target a fixed number of
unvested option shares for each executive officer based upon his or her
current position with the Company and his or her potential for growth within
the Company, i.e. future responsibilities and possible promotions over the
option term. However, the Committee does not strictly adhere to these
guidelines in making stock option grants, and the relative weight which is
given to the various factors varies from individual to individual, as the
circumstances warrant.

During fiscal 1996, the Committee awarded the executive officers stock
options for an aggregate of 274,291 shares of Common Stock. Each grant allows
the officer to acquire the shares underlying the stock option at a fixed price
per share (the market price on the grant date) over a specified period of
time. Specifically, the option vests in periodic installments over a four-year
period, contingent upon the executive officer's continued employment with the
Company. Accordingly, the option will provide a return only if the officer
remains with the Company and then only if the market price appreciates over
the option term.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

The base salary of the Company's Chief Executive Officer, James A. Bianco,
M.D., is reviewed annually by the Committee and was set at $358,032 for the
1996 fiscal year. Such salary level was established on the basis of the
employment contract then in effect between the Company and Dr. Bianco and the
base salary levels in effect for chief executive officers at the other
biotechnology and biopharmaceutical companies comprising the Peer Companies.
The salary level for Dr. Bianco brought him to % of the median of the
salary levels then in effect for the chief executive officers of the Peer
Companies. In December 1996, the Company entered into a new employment
agreement with Dr. Bianco which provides for a base salary for the 1997 fiscal
year of $393,835.

The incentive compensation awarded to Dr. Bianco for the 1996 fiscal year
was equal to 14% of his base salary for the year and was based on the
attainment of the following corporate developments: a commercial collaboration
arrangement with Johnson & Johnson, the infusion of new equity capital and
progress in clinical trials. Dr. Bianco was also awarded stock options for
85,715 shares of Common Stock at an exercise price of $11.725 per share. The
grant reflected the Committee's continuing policy to maintain his option
holdings at a level consistent with that for other chief executive officers of
comparable development-stage companies in the biopharmaceutical industry and
to subject a portion of his overall compensation each year to the market
performance of the Company's Common Stock. Accordingly, the stock option
grants will be of no value to Dr. Bianco unless there is appreciation in the
value of the Company's Common Stock over the option term.

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<PAGE>

COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)

As a result of Section 162(m) of the Internal Revenue Code, which was
enacted into law in 1993, the Company will not be allowed a Federal income tax
deduction for compensation paid to certain officers, to the extent that
compensation exceeds one (1) million dollars per officer in any one year. This
limitation will apply to all compensation which is not considered to be
performance based. Compensation which does qualify as performance-based
compensation will not have to be taken into account for purposes of this
limitation. The Company's 1994 Plan has been structured so any compensation
deemed paid in connection with the exercise of stock options granted under
that plan with an exercise price equal to the market price of the option
shares on the grant date will qualify as performance-based compensation.

The cash compensation paid to the Company's executive officers during fiscal
1996 did not exceed the one (1) million dollar limit per officer, nor is the
cash compensation to be paid to the Company's executive officers for the 1997
fiscal year expected to reach that level. Because it is very unlikely that the
cash compensation payable to any of the Company's executive officers in the
foreseeable future will approach the one (1) million dollar limitation, the
Committee has decided not to take any action at this time to limit or
restructure the elements of cash compensation payable to the Company's
executive officers. The Committee will reconsider this decision should the
individual compensation of any executive officer ever approach the one (1)
million dollar level.

COMPENSATION COMMITTEE

Jack L. Bowman
Jeremy L. Curnock Cook
Wilfred E. Jaeger, M.D.
Terrence M. Morris

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the last completed fiscal year, the Compensation Committee consisted
of Dr. Jaeger and Messrs. Curnock Cook and Bowman. None of these individuals
was at any time during the last completed fiscal year, or at any other time,
an officer or employee of the Company. At the 1996 Annual Meeting of
Shareholders, Mr. Curnock Cook was elected as a Director by the holders of the
outstanding shares of the Company's Series A Convertible Preferred Stock
voting as a separate class. In September 1996, The International Biotechnology
Trust plc ("IBT"), which is an affiliate of Mr. Curnock Cook and Rothschild
Asset Management Limited, purchased 14,925.373 shares of Series A Convertible
Preferred Stock for an aggregate purchase price of $5.0 million. In March
1997, IBT purchased 250,000 shares of Common Stock in the Company's initial
public offering for an aggregate purchase price of $2.5 million. See "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions."

STOCK PERFORMANCE GRAPH

Cti became a reporting company under Section 12(g) of the Securities
Exchange Act of 1934 in June 1996 because it had more than 500 shareholders of
record and total assets in excess of $5,000,000 as of December 31, 1995.
However, no performance graph for 1996 is included in this Proxy Statement
because there was no public market for cti's common stock in 1996 and
accordingly, cti does not believe that a performance graph would provide any
meaningful disclosure. In March 1997 cti completed an initial public offering
of its Common Stock and commenced trading on the Nasdaq National Market
("Nasdaq") under the symbol "CTIC" in March 1997. Cti's proxy statement for
its first meeting of shareholders after December 31, 1997 at which directors
will be elected will include a performance graph covering the period from the
date that cti's Common Stock commenced trading on Nasdaq through December 31,
1997.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In December 1993 cti loaned Dr. Bianco $200,000 at 5.35% annual interest.
The promissory note originally provided for a single payment of principal and
interest on the earlier of July 1, 1997 or the third anniversary of

27
<PAGE>

the effective date of the initial underwritten public offering of cti's Common
Stock. In December 1996 Dr. Bianco entered into an employment agreement with
the Company which amended the note to provide for the forgiveness of one-third
of the loan on each anniversary of the agreement. The unpaid portion of the
loan will accelerate and become due and payable in the event that cti
terminates Dr. Bianco's employment for cause or Dr. Bianco terminates his
employment without cause. The unpaid portion of the loan will be forgiven in
the event that cti terminates Dr. Bianco's employment without cause, Dr.
Bianco terminates his employment for cause, dies or becomes disabled, a
"Change in Ownership" (as defined in Dr. Bianco's employment agreement) occurs
or cti's public market capitalization equals or exceeds $500 million. See
"Employment Agreements." The loan is secured by a pledge of 5,715 shares of
Common Stock owned by Dr. Bianco. The highest amount of the loan outstanding
during 1996 was $232,423.

At the 1996 Annual Meeting of Shareholders, Mr. Curnock Cook was elected as
a Director by the holders of the outstanding shares of Series A Convertible
Preferred Stock voting as a separate class. In September 1996, The
International Biotechnology Trust plc ("IBT"), which is an affiliate of Mr.
Curnock Cook and Rothschild Asset Management Limited ("Rothschild"), purchased
14,925.373 shares of Series A Convertible Preferred Stock for an aggregate
purchase price of $5.0 million. In March 1997, IBT purchased 250,000 shares of
Common Stock in the Company's initial public offering for an aggregate
purchase price of $2.5 million. See "Security Ownership of Certain Beneficial
Owners and Management" and "Compensation Committee Interlocks and Insider
Participation."

In September 1996 Kummell Investments Limited ("Kummell") purchased
14,925.373 shares of Series A Convertible Preferred Stock for an aggregate
purchase price of $5.0 million. In connection with this transaction, the
Company agreed that (i) it will take all necessary action to nominate a
designee of Kummell at the 1999 Annual Meeting of Stockholders to serve as a
Director until the 2002 Annual Meeting of Stockholders, and (ii) if prior to
the 1999 Annual Meeting of Stockholders Mr. Morris, as a designee of Kummell,
shall cease to be a Director, it will take all necessary action to nominate a
designee of Kummell as a Director to fill the vacancy created by Mr. Morris'
termination. Mr. Morris is the Chief Executive Officer of Morningside
Ventures, which advises Kummell on its private venture capital portfolio. Such
agreement terminated upon the closing of the Company's initial public offering
on March 26, 1997.

In November 1996 Johnson & Johnson Development Corporation ("JJDC"), a
wholly-owned subsidiary of Johnson & Johnson, purchased 14,925.373 shares of
Series B Convertible Preferred Stock, for an aggregate purchase price of $5.0
million, pursuant to a Stock Purchase Agreement entered into between cti and
JJDC in connection with the execution of a collaboration agreement between the
Company and subsidiaries of Johnson & Johnson. JJDC also purchased an
additional 300,000 shares of Common Stock on March 26, 1997, concurrent with
the closing of the Company's initial public offering for an aggregate purchase
price of $3.0 million. Pursuant to the Stock Purchase Agreement, cti is
entitled to require JJDC to purchase additional shares of Common Stock upon
the achievement of certain milestones.

OTHER BUSINESS

As of the date of this Proxy Statement, management knows of no other
business that will be presented for action at the meeting. Management has not
received any advance notice of business to be brought before the meeting by
any shareholder. If other business requiring a vote of the shareholders should
come before the meeting, the person designated as your proxy will vote or
refrain from voting in accordance with his best judgment.

OTHER INFORMATION

The Company's Annual Report to Shareholders for the year ended December 31,
1996 (the "Annual Report") is being mailed concurrently with the mailing of
the Notice of Annual Meeting and Proxy Statement to all shareholders entitled
to notice of and to vote at the Annual Meeting. The Annual Report is not
considered proxy soliciting material nor is it incorporated into this Proxy
Statement.

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SHAREHOLDER PROPOSALS

A shareholder who intends to nominate a candidate for election to the Board
of Directors or to present a proposal of business at the 1998 Annual Meeting
and desires that information regarding the proposal be included in the 1998
proxy statement and proxy materials must ensure that such information is
received in writing by the Secretary of the Company at the Company's principal
executive offices not later than April 19, 1998.

By Order of the Board of Directors

_____________________________________
Michael J. Kennedy
Secretary

Seattle, Washington
May 21, 1997

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ANNEX A

CELL THERAPEUTICS, INC.
1994 EQUITY INCENTIVE PLAN
AS AMENDED AND RESTATED MAY 7, 1997

1. PURPOSE. The purpose of this 1994 Equity Incentive Plan (the "Plan") is
to enable Cell Therapeutics, Inc., a Washington corporation (the "Company"),
to attract and retain the services of (a) selected employees, officers and
directors of the Company or of any parent or subsidiary corporation of the
Company, (b) non-employee members of the Company's Board of Directors and (c)
other selected non-employee agents, consultants, advisers and independent
contractors of the Company or any parent or subsidiary (together, "Eligible
Persons").

2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and
in paragraph 11, up to 2,336,715 shares of the Company's Common Stock
(inclusive of the 1,000,000-share increase authorized by the Board on May 5,
1997, subject to shareholder approval at the Company's 1997 annual meeting of
shareholders), plus such shares of Common Stock for which options previously
granted under the Company's 1992 Stock Option Plan may expire, terminate or be
cancelled (the "Shares") shall be offered and issued under the Plan. To the
fullest extent permitted under Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), (a) if an option or a stock
appreciation right granted under the Plan expires, terminates or is cancelled,
the unissued Shares subject to such option or stock appreciation right shall
again be available under the Plan, and (b) if Shares sold under the Plan are
forfeited to the Company or repurchased by the Company at the purchase price
paid per share, the number of Shares forfeited or repurchased shall again be
available under the Plan. In accordance with the requirements of Section
162(m) of the Code, no eligible employee shall receive stock options,
separately exercisable stock appreciation rights and direct stock awards for
more than 233,671 shares in the aggregate per calendar year under the Plan.

3. EFFECTIVE DATE AND DURATION OF PLAN.

(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors of the Company (the "Board") and approved by the
affirmative vote of the holders of a majority of the Common Stock of the
Company represented at a shareholder meeting at which a quorum is present.
Options and stock appreciation rights may be granted and Shares may be awarded
as bonuses or sold under the Plan at any time after the effective date and
before termination of the Plan.

(b) Duration. No options or stock appreciation rights may be granted under
the Plan, no stock bonuses may be awarded under the Plan, and no Shares may be
sold pursuant to paragraph 8 of the Plan on or after January 1, 2004. However,
the Plan shall continue in effect until all Shares available for issuance
under the Plan have been issued and all restrictions on such Shares have
lapsed. The Board may suspend or terminate the Plan at any time, except with
respect to options, stock appreciation rights and Shares subject to
restrictions then outstanding under the Plan. Termination shall not affect any
outstanding options, stock appreciation rights, any right of the Company to
repurchase Shares or the forfeitability of Shares issued under the Plan.

4. ADMINISTRATION.

(a) The Plan shall be administered by a committee appointed by the Board
consisting of not less than two directors (the "Committee"). The Committee
shall determine and designate from time to time the Eligible Persons to whom
awards shall be made, the amount of the awards, and the other terms and
conditions of the awards; provided, however, that only the Board may amend or
terminate the Plan as provided in paragraphs 3 and 15. At any time when the
officers and directors of the Company are subject to Section 16(b) of the
Exchange Act, the Committee shall consist solely of "non-employee directors"
as such term is defined from time to time in Rule 16b-3 under the Exchange
Act. In addition, at any time when the Company is subject to Section 162(m) of
the Code, the Committee shall consist solely of "outside directors", as
defined in the regulations promulgated

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pursuant to Section 162(m) of the Code. Notwithstanding the provisions of this
Section 4(a) and Section 4(b) below, all discretionary actions to be taken
with respect to the options granted to Non-Employee Directors pursuant to
Section 10 below shall be made by the Board.

(b) Subject to the provisions of the Plan, the Committee may from time to
time adopt and amend rules and regulations relating to administration of the
Plan, advance the lapse of any waiting period, accelerate any exercise date,
waive or modify any restriction applicable to Shares (except those
restrictions imposed by law) and make all other determinations in the judgment
of the Committee necessary or desirable for the administration of the Plan.
The interpretation and construction of the provisions of the Plan and related
agreements by the Committee shall be final and conclusive. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any related agreement in the manner and to the extent it shall
deem expedient to carry the Plan into effect, and it shall be the sole and
final judge of such expediency.

5. TYPES OF AWARDS; ELIGIBILITY. The Committee may, from time to time, take
the following actions under the Plan: (i) grant Incentive Stock Options, as
defined in Section 422 of the Code, as provided in paragraph 6(b); (ii) grant
options other than Incentive Stock Options ("Nonstatutory Stock Options") as
provided in paragraph 6(c); (iii) award stock bonuses as provided in paragraph
7; (iv) sell Shares as provided in paragraph 8; and (v) grant stock
appreciation rights as provided in paragraph 9. Any such awards may be made to
employees (including employees who are officers or directors of the Company or
of any parent or subsidiary corporation of the Company, and to other Eligible
Persons described in paragraph 1 who the Committee believes have made or will
make an important contribution to the Company or its parent or subsidiaries;
provided, however, that only employees of the Company or a parent or
subsidiary shall be eligible to receive Incentive Stock Options under the
Plan. The Committee shall select the Eligible Persons to whom awards shall be
made and shall specify the action taken with respect to each Eligible Person
to whom an award is made under the Plan. At the discretion of the Committee,
an Eligible Person may be given an election to surrender an award in exchange
for the grant of a new award.

6. OPTION GRANTS

(a) Grant. Each option granted under the Plan shall be evidenced by a stock
option agreement in such form as the Committee shall prescribe from time to
time in accordance with the Plan. With respect to each option grant, the
Committee shall determine the number of Shares subject to the option, the
option price, the period of the option, and the time or times at which the
option may be exercised and whether the option is an Incentive Stock Option or
a Nonstatutory Stock Option.

(b) Incentive Stock Options. Incentive Stock Options granted under the Plan
shall be subject to the following terms and conditions:

(i) No employee may be granted Incentive Stock Options under the Plan
such that the aggregate fair market value, on the date of grant, of the
Shares with respect to which Incentive Stock Options are exercisable for
the first time by that employee during any calendar year under the Plan and
under any other incentive stock option plan (within the meaning of Section
422 of the Code) of the Company or of any parent or subsidiary corporation
of the Company exceeds $100,000.

(ii) An Incentive Stock Option may be granted under the Plan to an
employee possessing more than 10 percent of the total combined voting power
of all classes of stock of the Company or of any parent or subsidiary
corporation of the Company only if the option price is at least 110 percent
of the fair market value, as described in paragraph 6(b)(iv), of the Shares
subject to the option on the date it is granted, and the option by its
terms is not exercisable more than five years from the date of grant.

(iii) Subject to paragraphs 6(b)(ii) and 6(d), Incentive Stock Options
granted under the Plan shall continue in effect for the period fixed by the
Committee, except that no Incentive Stock Option shall be exercisable more
than 10 years from the date of grant.

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(iv) The option price per Share shall be determined by the Committee at
the time of grant. Subject to paragraph 6(b)(ii), the option price shall
not less than 100 percent of the fair market value of the Shares covered by
the Incentive Stock Option at the date the option is granted. The fair
market value shall be fixed by the Committee at whatever price the
Committee may determine in the exercise of its sole discretion; provided,
that the per share exercise price for any option granted following the
effective date of registration of any of the Company's securities under
Section 12 of the Exchange Act shall be deemed to be the average of the
closing bid and asked prices for the Common Stock of the Company as
reported on the National Association of Securities Dealers, Inc. Automated
Quotation System on the day preceding the day the option is granted, or if
there has been no sale on that date, on the last preceding date on which a
sale occurred, or such other reported value of the Common Stock of the
Company as shall be specified by the Committee.

(v) The Committee may at any time without the consent of the optionee
convert an Incentive Stock Option into a Nonstatutory Stock Option.

(c) Nonstatutory Stock Options. Nonstatutory Stock Options shall be subject
to the following additional terms and conditions:

(i) The option price for Nonstatutory Stock Options shall be determined
by the Committee at the time of grant. The option price may not be less
than the fair market value of the Shares covered by the Nonstatutory Stock
Option on the date of grant. The fair market value of the Shares covered by
a Nonstatutory Stock Option shall be determined pursuant to paragraph
6(b)(iv).

(ii) Nonstatutory Stock Options granted under the Plan shall continue in
effect for the period fixed by the Committee.

(d) Exercise of Options. Except as provided in paragraph 6(f) or as
determined by the Committee, no option granted under the Plan may be exercised
unless at the time of such exercise the optionee is employed by or in the
service of the Company or any parent or subsidiary corporation of the Company
and shall have been so employed or have provided such service continuously
since the date such option was granted. Absence on leave or on account of
illness or disability under rules established by the Committee shall not,
however, be deemed an interruption of employment for purposes of the Plan.
Unless otherwise determined by the Committee, vesting of options shall not
continue during an absence on leave (including an extended illness) or on
account of disability. Except as provided in paragraphs 6(f), 11 and 13,
options granted under the Plan may be exercised from time to time over the
period stated in each option in such amounts and at such times as shall be
prescribed by the Committee; provided that options shall not be exercised for
fractional shares. Unless otherwise determined by the Committee, if the
optionee does not exercise an option in any one year with respect to the full
number of Shares to which the optionee is entitled in that year, the
optionee's right shall be cumulative and the optionee may purchase those
Shares in any subsequent year during the term of the option.

(e) Limited Transferability. During the lifetime of the optionee, options
under the Plan shall be exercisable only by the optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the optionee's death. However, with the consent of the
Committee, Nonstatutory Stock Options may, in connection with the optionee's
estate plan, be assigned in whole or in part during the optionee's lifetime to
one or more members of the optionee's immediate family or to a trust
established exclusively for one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for
the option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee by the Committee. Nonstatutory Stock Options
may also be assigned or transferred pursuant to a qualified domestic relations
order.

(f) Termination of Employment or Service.

(i) In the event the employment or service of the optionee by the Company
or a parent or subsidiary corporation of the Company terminates for any
reason other than because of death or physical disability,

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the option may be exercised at any time prior to the expiration date of the
option or the expiration of three months after the date of such
termination, whichever is the shorter period, but only if and to the extent
the optionee was entitled to exercise the option at the date of such
termination.

(ii) In the event of the termination of the optionee's employment or
service with the Company or a parent or subsidiary corporation of the
Company because the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code), the option may be exercised at any time
prior to the expiration date of the option or the expiration of one year
after the date of such termination, whichever is the shorter period, but
only if and to the extent the optionee was entitled to exercise the option
at the date of such termination.

(iii) In the event of the death of an optionee while employed by or
providing service to the Company or a parent or subsidiary corporation of
the Company, the option may be exercised at any time prior to the
expiration date of the option or the expiration of one year after the date
of such death, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option on the date of
death, and only by the person or persons to whom such optionee's rights
under the option shall pass by the optionee's will or by the laws of
descent and distribution of the state or country of domicile at the time of
death.

(iv) The Committee, at the time of grant or at any time thereafter, may
extend the three-month and one-year expiration periods any length of time
not later than the original expiration date of the option, and may increase
the portion of an option that is exercisable, subject to such terms and
conditions as the Committee may determine.

(v) To the extent that the option of any deceased optionee or of any
optionee whose employment or service terminates is not exercised within the
applicable period, all further rights to purchase Shares pursuant to such
option shall cease and terminate.

(g) Purchase of Shares. Unless the Committee determines otherwise, Shares
may be acquired pursuant to an option only upon receipt by the Company of
notice in writing from the optionee of the optionee's intention to exercise,
specifying the number of Shares as to which the optionee desires to exercise
the option and the date on which the optionee desires to complete the
transaction, and, if required to comply with the Securities Act of 1933, as
amended, or state securities laws, the notice shall include a representation
that it is the optionee's present intention to acquire the Shares for
investment and not with a view to distribution. The certificates representing
the Shares shall bear any legends required by the Committee. Unless the
Committee determines otherwise, on or before the date specified for completion
of the purchase of Shares pursuant to an option, the optionee must have paid
the Company the full purchase price of such Shares in cash (including, with
the consent of the Committee, cash that may be the proceeds of a loan from the
Company), or, with the consent of the Committee, in whole or in part, in
Shares valued at fair market value, as determined pursuant to paragraph
6(b)(iv). Unless the Committee determines otherwise, all payments made to the
Company in connection with the exercise of an option must be made by a
certified or cashier's bank check or by the transfer of immediately available
federal funds. No Shares shall be issued until full payment therefor has been
made. With the consent of the Committee, an optionee may request the Company
to apply automatically the Shares to be received upon the exercise of a
portion of a stock option (even though stock certificates have not yet been
issued) to satisfy the purchase price for additional portions of the option.
Each optionee who has exercised an option shall immediately upon notification
of the amount due, if any, pay to the Company in cash amounts necessary to
satisfy any applicable federal, state and local tax withholding requirements.
If additional withholding is or becomes required beyond any amount deposited
before delivery of the certificates, the optionee shall pay such amount to the
Company on demand. If the optionee fails to pay the amount demanded, the
Company or any parent or subsidiary corporation of the Company may withhold
that amount from other amounts payable to the optionee by the Company or the
parent or subsidiary corporation, including salary, subject to applicable law.
With the consent of the Committee, an optionee may deliver Shares to the
Company to satisfy the withholding obligation.

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7. STOCK BONUSES. The Committee may award Shares to Eligible Persons under
the Plan as stock bonuses. Shares awarded as a stock bonus shall be subject to
such terms, conditions, and restrictions as shall be determined by the
Committee, all of which shall be evidenced in a writing signed by the
recipient prior to receiving the bonus Shares. The Committee may not require
the recipient to pay any monetary consideration other than amounts necessary
to satisfy tax withholding requirements. The certificates representing the
Shares awarded shall bear any legends required by the Committee. The Company
may require any recipient of a stock bonus to pay to the Company in cash upon
demand amounts necessary to satisfy any applicable federal, state or local tax
withholding requirements. If the recipient fails to pay the amount demanded,
the Company or any parent or subsidiary corporation of the Company may
withhold that amount from other amounts payable to the recipient by the
Company or the parent or subsidiary corporation, including salary, subject to
applicable law. With the consent of the Committee, a recipient may deliver
Shares to the Company to satisfy the withholding obligation.

8. STOCK SALES. The Committee may issue Shares to Eligible Persons under the
Plan for such consideration (including promissory notes and services) as
determined by the Committee, provided that in no event shall the consideration
be less than 75 percent of the fair market value of the Shares at the time of
issuance, determined pursuant to paragraph 6(b)(iv). Shares issued under this
paragraph 8 shall be subject to the terms, conditions and restrictions
determined by the Committee. The restrictions may include restrictions
concerning transferability, repurchase by the Company and forfeiture of the
Shares issued, together with such other restrictions as may be determined by
the Committee. The certificates representing the Shares shall bear any legends
required by the Committee. The Company may require any purchaser of stock
issued under this paragraph 8 to pay to the Company in cash upon demand
amounts necessary to satisfy any applicable federal, state or local tax
withholding requirements. If the purchaser fails to pay the amount demanded,
the Company or any parent or subsidiary corporation of the Company may
withhold that amount from other amounts payable to the purchaser by the
Company or any parent or subsidiary corporation, including salary, subject to
applicable law. With the consent of the Committee, a purchaser may deliver
Shares to the Company to satisfy the withholding obligation.

9. STOCK APPRECIATION RIGHTS.

(a) Grant. Stock appreciation rights may be granted under the Plan by the
Committee, subject to such rules, terms, and conditions as the Committee
prescribes. The Committee shall pre-approve, at the time any such right is
granted to an officer or director subject to Section 16 of the Exchange Act,
the subsequent exercise of that right in accordance with the terms of the
grant and the provisions of this paragraph 9. Accordingly, no additional
approval of the Committee or the Board shall be required at the time the right
is actually exercised.

(b) Exercise.

(i) A stock appreciation right shall be exercisable only at the time or
times established by the Committee. If a stock appreciation right is
granted in connection with an option, the stock appreciation right shall be
exercisable only to the extent and on the same conditions that the related
option could be exercised. Upon exercise of a stock appreciation right, any
option or portion thereof to which the stock appreciation right relates
terminates. If a stock appreciation right is granted in connection with an
option, upon exercise of the option, the stock appreciation right or
portion thereof to which the option relates terminates.

(ii) The Committee may withdraw any stock appreciation right granted
under the Plan at any time and may impose any conditions upon the exercise
of a stock appreciation right (including conditions designed to ensure
compliance with the requirements for an exemption pursuant to Rule 16b-3
under the Exchange Act) or adopt rules and regulations from time to time
affecting the rights of holders of stock appreciation rights. Such rules
and regulations may govern the right to exercise stock appreciation rights
granted before adoption or amendment of such rules and regulations as well
as stock appreciation rights granted thereafter.

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(iii) Each stock appreciation right shall entitle the holder, upon
exercise, to receive from the Company in exchange therefor an amount equal
in value to the excess of the fair market value on the date of exercise of
one Share over its fair market value on the date of grant (or, in the case
of a stock appreciation right granted in connection with an option, the
option price per Share under the option to which the stock appreciation
right relates), multiplied by the number of Shares covered by the stock
appreciation right or the option, or portion thereof, that is surrendered.
No stock appreciation right shall be exercisable at a time that the amount
determined under this subparagraph is negative. Payment by the Company upon
exercise of a stock appreciation right may be made in Shares valued at fair
market value, in cash, or partly in Shares and partly in cash, all as
determined by the Committee.

(iv) For purposes of this paragraph 9, the fair market value of the
Shares shall be determined pursuant to paragraph 6(b)(iv), on the trading
day preceding the date the stock appreciation right is exercised.

(v) No fractional Shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal to
the value of the fraction or, if the Committee shall determine, the number
of Shares may be rounded downward to the next whole Share.

(vi) Each participant who has exercised a stock appreciation right shall,
upon notification of the amount due, pay to the Company in cash amounts
necessary to satisfy any applicable federal, state or local tax withholding
requirements. If the participant fails to pay the amount demanded, the
Company or any parent or subsidiary corporation of the Company may withhold
that amount from other amounts payable to the participant by the Company or
any parent or subsidiary corporation, including salary, subject to
applicable law. With the consent of the Committee, a participant may
satisfy this obligation, in whole or in part, by having the Company
withhold from any Shares to be issued upon the exercise that number of
Shares that would satisfy the withholding amount due or by delivering
Shares to the Company to satisfy the withholding amount.

(vii) Upon the exercise of a stock appreciation right for Shares, the
number of Shares reserved for issuance under the Plan shall be reduced by
the number of Shares issued. Cash payments of stock appreciation rights
shall not reduce the number of Shares reserved for issuance under the Plan.

10. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.

(a) Automatic Grants. Each Non-Employee Director shall automatically be
granted a fully vested Nonstatutory Stock Option to purchase 2,858 Shares upon
his or her election to the Board of Directors for the first time. In addition,
on each anniversary of each Non-Employee Director's immediately preceding
election or appointment to the Board, such Non-Employee Director who is a
member of the Board on such anniversary date shall automatically be granted,
effective as of such anniversary date, a fully vested Nonstatutory Stock
Option to purchase 1,905 shares. A "Non-Employee Director" is a director of
the Company who is not an employee of the Company or of any parent or
subsidiary corporation of the Company on the date the option is granted.

(b) Terms of Options. The exercise price for options granted under this
paragraph 10 shall be the fair market value of the Shares on the date of
grant, determined pursuant to paragraph 6(b)(iv). Each such option shall have
a 10 year term from the date of grant, unless earlier terminated as provided
in paragraph 6(f).

11. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common Stock
of the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of any recapitalization,
reclassification, stock split, combination of shares or dividend payable in
shares, the Committee shall make appropriate adjustments to (i) the number and
kind of securities available for awards under the Plan; (ii) in the number and
kind of securities as to which outstanding options and stock appreciation
rights, or portions thereof then unexercised, shall be exercisable, so that
the participant's proportionate interest before and after the occurrence of
the event is maintained, provided that this paragraph 11 shall not apply with
respect to transactions referred to in paragraph

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13; (iii) the maximum number and kind of securities for which any one person
may be granted stock options, separately exercisable stock appreciation rights
and direct stock awards per calendar year; and (iv) the number and kind of
securities for which automatic option grants are to be made to newly-elected
or continuing Non-Employee Directors pursuant to paragraph 10 hereof.
Appropriate adjustments to reflect any such transaction shall also be made to
the exercise price per share in effect under each outstanding stock option or
stock appreciation right, provided the aggregate exercise price of each grant
shall remain the same. The Committee may also require that any securities
issued in respect of or exchanged for Shares issued hereunder that are subject
to restrictions be subject to similar restrictions. Notwithstanding the
foregoing, the Committee shall have no obligation to effect any adjustment
that would or might result in the issuance of fractional shares, and any
fractional shares resulting from any adjustment may be disregarded or provided
for in any manner determined by the Committee. Any such adjustment made by the
Committee shall be conclusive.

12. OTHER AWARDS. The Committee shall have the authority to specify the
terms and provisions of other equity-based or equity-related awards not
described herein which the Committee determines to be consistent with the
purpose of the Plan and the interests of the Company.

13. EFFECT OF REORGANIZATION OR LIQUIDATION.

(a) Cash, Stock or Other Property for Stock. Except as provided in paragraph
13(b), upon a merger, consolidation, reorganization, plan of exchange or
liquidation involving the Company, as a result of which the shareholders of
the Company receive cash, stock or other property in exchange for or in
connection with their Common Stock (any such transaction to be referred to in
this paragraph 13 as an "Accelerating Event"), any option or stock
appreciation right granted hereunder shall terminate, but the optionee shall
have the right during a 30-day period immediately prior to any such
Accelerating Event to exercise his or her option or stock appreciation right,
in whole or in part, without any limitation on exercisability.

(b) Stock for Stock. If the shareholders of the Company receive capital
stock of another corporation ("Exchange Stock") in exchange for their Common
Stock in any transaction involving a merger, consolidation, reorganization, or
plan of exchange, all options granted hereunder shall be converted into
options to purchase shares of Exchange Stock and all stock appreciation rights
granted hereunder shall be converted into stock appreciation rights measured
by the Exchange Stock, unless the Committee, in its sole discretion,
determines that any or all such options or stock appreciation rights granted
hereunder shall not be converted, but instead shall terminate in accordance
with the provisions of paragraph 13(a). The amount and price of converted
options and stock appreciation rights shall be determined by adjusting the
amount and price of the options or stock appreciation rights granted hereunder
to take into account the relative values of the Exchange Stock and the Common
Stock in the transaction.

(c) Change in Control. In the event of a Change in Control and except as the
Committee (as constituted immediately prior to such Change in Control) may
otherwise determine in its sole discretion, (i) all options and stock
appreciation rights granted hereunder (including options and stock
appreciation rights granted to officers or directors less than six months
prior to any such Change in Control) shall become fully exercisable as of the
date of the Change in Control, whether or not then exercisable, and (ii) all
restrictions and conditions of all bonus Shares then outstanding shall lapse
as of the date of the Change in Control. A "Change in Control" means:

(i) The acquisition, directly or indirectly, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) of beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of securities representing 50.1 percent or more of either (a)
the then outstanding shares of Common Stock (the "Outstanding Company
Common Stock") or (b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege, (B) any
acquisition by the

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<PAGE>

Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled
by the Company or (D) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation which would not be a Change of
Control under paragraph (iii) below; or

(ii) Individuals who, as of the effective date of the Plan, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the effective date of the Plan whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board will be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of
a person other than the Board; or

(iii) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless following such
reorganization, merger or consolidation, (a) more than 50 percent of the
then outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, and
(b) at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement providing for such reorganization, merger or
consolidation; or

(iv) Approval by the shareholders of the Company of (a) a complete
liquidation or dissolution of the Company or (b) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 50 percent of the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, and (B) at least a majority of the members
of the board of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such sale or other disposition of assets of the
Company.
(d) The rights set forth in this paragraph 13 shall be transferable only to
the extent the related option or stock appreciation right is transferable.

14. CORPORATE MERGERS, ACQUISITIONS, ETC. The Committee may also grant
options, grant stock appreciation rights, award stock bonuses and sell stock
under the Plan having terms, conditions and provisions that vary from those
specified in the Plan; provided that any such awards are granted in
substitution for, or in connection with the assumption of, existing options,
stock appreciation rights, stock bonuses and stock sold or awarded by another
corporation and assumed or otherwise agreed to be provided for by the Company
pursuant

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<PAGE>

to or by reason of a transaction involving a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation to
which the Company or a parent or subsidiary corporation of the Company is a
party.

15. AMENDMENT OF PLAN.

(a) The Board may at any time, and from time to time, modify or amend the
Plan in such respects as it shall deem advisable because of changes in the law
while the Plan is in effect or for any other reason; except that no such
modification or amendment shall be effective without shareholders approval if
such approval is required to comply with any applicable law, rule or
regulation. Except as provided in paragraphs 6(b)(v), 10, 11 and 13, however,
no change in an award already granted shall be made without the written consent
of the holder of such award.

(b) The Plan was amended and restated by the Board on May 7, 1997 (the "1997
Restatement") to effect the following changes: (i) increase the maximum number
of shares of Common Stock authorized for issuance over the term of the Plan by
an additional 1,000,000 shares, (ii) render the Non-Employee Directors who are
serving as members of the Committee eligible to receive option grants, stock
appreciation rights and direct stock awards under the Plan during their period
of service on the Committee, and (iii) effect a series of additional changes to
the provisions of the Plan (including the stockholder approval requirements,
the transferability of Nonstatutory Stock Options and the elimination of the
six (6)-month holding period requirement as a condition to the exercise of
stock options and stock appreciation rights held by officers and directors
subject to Section 16 of the Exchange Act) in order to take advantage of the
recent amendments to Rule 16b-3 of the Securities and Exchange Commission which
exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the Federal securities laws. The 1997
Restatement is subject to shareholder approval at the Company's 1997 annual
meeting of shareholders, and no option grants made on the basis of the
1,000,000-share increase shall become exercisable in whole or in part unless
and until the 1997 Restatement is approved by the shareholders. Should such
shareholder approval not be obtained, then any options granted on the basis of
the 1,000,000-share increase shall terminate without ever becoming exercisable
for those shares, and no further option grants, stock appreciation rights or
direct stock issuances shall be made on the basis of such share increase.
However, option grants, stock appreciation rights and direct stock issuances
may continue to be made pursuant to the provisions of the Plan as in effect
immediately prior to the 1997 Restatement. All option grants, stock
appreciation rights and direct stock issuances made prior to the 1997
Restatement shall remain outstanding in accordance with the terms and
conditions of the respective instruments evidencing those options, rights or
issuances, and nothing in the 1997 Restatement shall be deemed to modify or in
any way affect those outstanding options, rights or issuances. Subject to the
foregoing limitations, the Committee may grant stock options and stock
appreciation rights and make direct stock issuances under the Plan at any time
before the date fixed herein for the termination of the Plan.

16. APPROVALS. The obligations of the Company under the Plan are subject to
the approval of state and federal authorities or agencies with jurisdiction in
the matter. The Company shall not be obligated to issue or deliver Shares under
the Plan if such issuance or delivery would violate applicable state or federal
securities laws, or if compliance with such laws would, in the opinion of the
Company, be unduly burdensome or require the disclosure of information which
would not be in the Company's best interests.

17. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award pursuant
to the Plan shall (i) confer upon any employee any right to be continued in the
employment of the Company or any parent or subsidiary corporation of the
Company or shall interfere in any way with the right of the Company or any
parent or subsidiary corporation of the Company by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to increase or decrease such employee's compensation
or benefits; or (ii) confer upon any person engaged by the Company or any
parent or subsidiary

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corporation of the Company any right to be retained or employed by the Company
or the parent or subsidiary or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company or the parent or subsidiary.

18. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall
have no right as a shareholder with respect to any Shares until the date of
issue to the recipient of a stock certificate for such Shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.

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ANNEX B

CELL THERAPEUTICS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN

1. Purpose. The Cell Therapeutics, Inc. 1996 Employee Stock Purchase Plan
(the "Plan") is intended to encourage ownership of stock by employees of Cell
Therapeutics, Inc., a Washington corporation (the "Company"), and certain
affiliates, and to provide additional incentive for the employees to promote
the success of the business of the Company and any such affiliates. It is
intended that the Plan shall be an "employee stock purchase plan" within the
meaning of Section 423 of the Code.

2. Definitions. As used in this Plan, the following terms shall have the
meanings set forth below:

(a) "Beneficiary" means the person designated as beneficiary on the
Optionee's Enrollment Agreement or, if no such beneficiary is named or no
such agreement is in effect at the Optionee's death, his or her beneficiary
as determined under the provisions of the Company's program of life
insurance for employees.

(b) "Board" means the Board of Directors of the Company.

(i) the direct or indirect sale or exchange by the shareholders of
the Company of all or substantially all of the Stock where the
shareholders of the Company before such sale or exchange do not retain,
directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the Company;

(ii) a merger in which the shareholders of the Company before such
merger do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Company;

(iii) the sale, exchange or transfer of all or substantially all of
the Company's assets (other than a sale, exchange or transfer to one or
more corporations or other entities where the shareholders of the
Company before such sale, exchange or transfer retain, directly or
indirectly, at least a majority of the beneficial interest in the
voting stock of the corporation(s) or other entities to which the
assets were transferred).

(d) "Code" means the Internal Revenue Code of 1986, as amended, or any
statute successor thereto, and any regulations issued from time to time
thereunder.

(e) "Committee" means a committee of the Board consisting of not less
than two directors of the Company who are not employees of the Company or
any Related Corporation, each appointed by the Board from time to time to
serve at its pleasure for the purpose of carrying out the responsibilities
of the Committee under the Plan. Each member of the Committee will be
"disinterested" within the meaning of Rule 16b-3 of the Securities Exchange
Act of 1934, as amended. For any period during which no such committee is
in existence, all authority and responsibility assigned to the Committee
under this Plan shall be exercised, if at all, by the Board.

(f) "Compensation" means the total taxable cash compensation of an
Optionee, exclusive of expense reimbursement or relocation allowances.

(g) "Eligible Employee" means a person who is eligible under the
provisions of Section 7 to receive an Option as of a particular Offering
Commencement Date.

(h) "Enrollment Agreement" means an agreement whereby an Optionee
authorizes a Participating Employer to withhold payroll deductions from his
or her Compensation and otherwise is in such form as the Committee may
specify.

(i) "Fair Market Value" means, as of any given date, the last reported
sales price of the Stock as reported in The Wall Street Journal for such
date or, if either no such sale is reported or the Stock is not

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<PAGE>

publicly traded on or as of such date, the fair market value of the Stock
as determined by the Committee in good faith based on the available facts
and circumstances at the time.

(j) "Offering Commencement Date" means any date on which Options are
granted under the Plan as determined by the Committee pursuant to Section
8.

(k) "Offering Period" means a period of approximately six months'
duration, beginning on an Offering Commencement Date and ending, subject to
Section 9.6, on the last business day of the sixth calendar month ending
after such date, during which Options are granted and outstanding under the
Plan pursuant to a determination by the Committee under Section 4.

(l) "Offering Termination Date" means the last business day of an
Offering Period, on which Options must, if ever, be exercised.

(m) "Option" means an option to purchase shares of Stock granted under
the Plan.

(n) "Optionee" means an Eligible Employee to whom an Option is granted.

(o) "Option Shares" means shares of Stock purchasable under an Option.

(p) "Participating Employer" means the Company or any Related Corporation
which is designated by the Committee as a corporation whose Eligible
Employees are to receive Options as of a particular Offering Commencement
Date.

(q) "Related Corporation" means any corporation which is or during the
term of the Plan becomes a parent corporation of the Company, as defined in
Section 424(e) of the Code, or a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.

(r) "Stock" means the common stock, without par value, of the Company.

3. Term of Plan. The Plan shall become effective upon (a) the adoption of
the Plan by the Board, subject to the approval of the Plan by the shareholders
of the Company within 12 months of such adoption, and (b) the effectiveness of
a registration statement on Form S-8 under the Securities Act of 1933, as
amended, covering the shares of Stock subject to the Plan. No Option shall be
granted under the Plan on or after the tenth anniversary of such approval but
Options theretofore granted may extend beyond that date.

4. Administration. The Plan shall be administered by the Committee, which
shall determine from time to time whether to grant Options under the Plan as
of any date otherwise qualifying as an Offering Commencement Date. The
Committee shall further determine which (if any) Related Corporation shall be
Participating Employers as of each Offering Commencement Date. The Committee
shall have authority in its discretion to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to determining the terms of
Options granted under the Plan, and to make all other determinations necessary
or advisable for the administration of the Plan. Any determination of the
Committee shall be final and binding upon all persons having or claiming any
interest under the Plan or under any Option granted pursuant to the Plan.

5. Amendment and Termination. The Board may terminate or amend the Plan at
any time and from time to time. No termination of or amendment to the Plan may
materially adversely affect the rights of an Optionee with respect to any
Option held by the Optionee as of the date of such termination or amendment
without the Optionee's consent.

6. Shares of Stock Subject to the Plan. No more than an aggregate of
1,000,000 shares of Stock may be issued or delivered pursuant to the exercise
of Options granted under the Plan. Shares to be delivered upon the exercise of
Options may be either shares of Stock which are authorized but unissued or
shares of Stock held by the Company in its treasury. If an Option expires or
terminates for any reason without having been exercised in full, the
unpurchased shares subject to the Option shall become available for other
Options granted under the Plan. The Company shall, at all times during which
Options are outstanding, reserve and keep available shares of Stock sufficient
to satisfy such Options, and shall pay all fees and expenses incurred by the
Company in

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<PAGE>

connection therewith. In the event of any capital change in the outstanding
Stock as contemplated by Section 9.6, the number and kind of shares of Stock
reserved and kept available by the Company shall be appropriately adjusted.

7. Eligibility. Each employee of a Participating Employer shall be granted
an Option on each Offering Commencement Date on which such employee meets all
of the following requirements:

(a) The employee is customarily employed by a Participating Employer for
more than twenty hours per week and for more than five months per calendar
year and has been employed by one or more Participating Employers for at
least twelve months (consecutive or nonconsecutive) prior to the applicable
Offering Commencement Date.

(b) The employee will not, after grant of the Option, own stock
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or of any Related Corporation. For purposes
of this subparagraph (b), the rules of Section 424(d) of the Code shall
apply in determining the stock ownership of the employee, and stock which
the employee may purchase under outstanding options shall be treated as
stock owned by the employee.

(c) Upon grant of the Option, the employee's rights to purchase stock
under all employee stock purchase plans (as defined in Section 423(b) of
the Code) of the Company and its Related Corporations will not accrue at a
rate which exceeds $25,000 of fair market value of the stock (determined as
of the grant date) for each calendar year in which such option is
outstanding at any time. The accrual of rights to purchase stock shall be
determined in accordance with Section 423(b)(8) of the Code.

8. Offering Commencement Dates. Options shall be granted on the first
business day of any calendar month which is designated by the Committee as the
beginning of an Offering Period.

9. Terms and Conditions of Options.

9.1 General. All Options granted on a particular Offering Commencement
Date shall comply with the terms and conditions set forth in Sections 9.2
through 9.10.

9.2 Purchase Price. The purchase price of Option Shares shall be 85% of
the LOWER of (a)
=====
the Fair Market Value of the shares as of the Offering Commencement Date
and (b) the Fair Market Value of the shares as of the Offering Termination
Date.

9.3 Restrictions on Transfer. Options may not be assigned, transferred,
pledged or otherwise disposed of. An Option may not be exercised by anyone
other than the Optionee during the lifetime of the Optionee. Option Shares
may not be assigned, transferred, pledged or otherwise disposed of, except
by will or under the laws of descent and distribution, until after the
first anniversary of the Offering Termination Date on which acquired (or
the death of the Optionee, if earlier) without the of consent the
Committee, but thereafter may be sold or otherwise transferred without
restriction. The Optionee shall agree in the Enrollment Agreement to notify
the Company of any transfer of the shares within two years of the Offering
Commencement Date of those shares. The Company shall have the right to
place a legend on all stock certificates instructing the transfer agent to
notify the Company of any transfer of the shares. The Company shall also
have the right to place a legend on certificates setting forth the
restriction on transferability of such shares.

9.4 Expiration. Each Option shall expire at the close of business on the
Offering Termination Date or on such earlier date as may result from the
operation of Section 9.5 or by action of the Committee taken pursuant to
Section 9.6.

9.5 Termination of Employment of Optionees. If an Optionee ceases for any
reason to be continuously employed by a Participating Employer, whether due
to death, retirement, voluntary severance, involuntary severance, transfer,
or disaffirmation of a Related Corporation with the Company, his or her
Option shall immediately expire, and the Optionee's accumulated payroll
deductions shall be returned to the Optionee or his or her Beneficiary, as
the case may be, by the Company. For purposes of this Section 9.5, an
Optionee shall be deemed to be employed throughout any leave of absence for
military service,

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<PAGE>

illness or other bona fide purpose which does not exceed the longer of
ninety days or the period during which the Optionee's reemployment rights
are guaranteed by statute or by contract. If the Optionee does not return
to active employment prior to the termination of such period, his or her
employment shall be deemed to have ended on the ninety-first day of such
leave of absence.

9.6 Capital Changes Affecting the Stock. In the event that, between the
Offering Commencement Date and the Offering Termination Date of an Option,
a stock dividend is paid or becomes payable in respect of the Stock or
there occurs a split-up or contraction in the number of shares of Stock,
the number of shares for which the Option may thereafter be exercised and
the price to be paid for each such share shall be proportionately adjusted.
In the event of a Change in Control, the Committee, in its sole discretion,
shall either (a) provide that Options granted under the Plan shall be fully
exercisable to the extent of each Participant's accumulated withholdings
for the Offering Period as of a date prior to the Change in Control or (b)
arrange with the surviving, continuing, successor or purchasing
corporation, as the case may be, that such corporation assume the Company's
rights and obligations under the Plan. In the event that there is to occur
a recapitalization involving an increase in the par value of the Stock
which would result in a par value exceeding the exercise price under an
outstanding Option, the Company shall notify the Optionee of such proposed
recapitalization immediately upon its being recommended by the Board to the
Company's shareholders, after which the Optionee shall have the right to
exercise his or her Option prior to such recapitalization; if the Optionee
fails to exercise the Option prior to recapitalization, the exercise price
under the Option shall be appropriately adjusted. In the event that, after
the Offering Commencement Date, there occurs a dissolution or liquidation
of the Company, except pursuant to a transaction to which Section 424(a) of
the Code applies, each Option shall terminate, but the Optionee shall have
the right to exercise his or her Option prior to such dissolution or
liquidation.

9.7 Payroll Deductions. An Optionee may purchase shares under his or her
Option during any particular Offering Period by completing and returning to
the Human Resources department of the Company at least ten days prior to
the beginning of such Offering Period an Enrollment Agreement indicating a
percentage (which shall be a full integer between two and ten) of his or
her Compensation which is to be withheld each payroll period. The Optionee
shall not be permitted to change the percentage of Compensation withheld
during an Offering Period. However, the Optionee may withdraw any or all of
his or her accumulated payroll deductions by submitting a written request
therefor to the Human Resources department of the Company no later than two
weeks prior to the Offering Termination Date whereupon his or her payroll
deduction for the remainder of the Offering Period shall cease and he or
she shall not be permitted to re-enroll in such Offering Period. Any
Enrollment Agreement in effect for an Offering Period shall remain in
effect as to any subsequent Offering Period unless revoked by a withdrawal
of the Optionee's accumulated payroll deduction amounts (in which case
submission of a new Enrollment Agreement will be required for participation
in a future Offering Period) or modified by submission of a new Enrollment
Agreement, or until the Optionee's termination of employment for any
reason.

9.8 Exercise of Options. On the Offering Termination Date, the Optionee
may purchase the number of shares purchasable by his or her accumulated
payroll deductions (subject to any maximum limit established by the
Committee, in its sole discretion, on the number of shares available under
every Option in a particular Offering Period), provided that:

(a) If the total number of shares which all Optionees elect to
purchase, together with any shares already purchased under the Plan,
exceeds the total number of shares which may be purchased under the
Plan pursuant to Section 6, the number of shares which each Optionee is
permitted to purchase shall be decreased pro rata based on the
Optionee's accumulated payroll deductions in relation to all
accumulated payroll deductions currently being withheld under the Plan.

(b) If the number of shares purchasable includes a fraction, such
number shall be adjusted to the next smaller whole number and the
purchase price shall be adjusted accordingly.

Accumulated payroll deductions not withdrawn prior to the Offering
Termination Date shall be automatically applied by the Company toward the
purchase of Option Shares. Accumulated payroll

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<PAGE>

deductions, to the extent in excess of the aggregate purchase price of the
shares purchased by the Optionee on an Offering Termination Date, shall be
refunded to the Optionee.

9.9 Delivery of Stock. Except as provided below, within a reasonable time
after the Offering Termination Date, the Company shall deliver or cause to
be delivered to the Optionee a certificate or certificates for the number
of shares purchased by the Optionee. A stock certificate representing the
number of shares purchased will be issued in the participant's name only,
or if his or her Enrollment Agreement so specifies, in the name of the
employee and another person of legal age as joint tenants with rights of
survivorship. If any law or applicable regulation of the Securities and
Exchange Commission or other body having jurisdiction in the premises shall
require that the Company or the Optionee take any action in connection with
the shares being purchased under the Option, delivery of the certificate or
certificates for such shares shall be postponed until the necessary action
shall have been completed, which action shall be taken by the Company at
its own expense, without unreasonable delay. The Optionee shall have no
rights as a shareholder in respect of shares for which he or she has not
received a certificate.

Notwithstanding the foregoing, the Company may elect to hold for the
benefit of the Optionee any shares otherwise to be delivered to the
Optionee pursuant to this Section 9.9, or to deliver the same to such agent
or agents of the Company for the benefit of the Optionee as the Company may
select, for the period during which the transfer of such shares is limited
by this Plan and by Section 423 of the Code (and thereafter, until the
Optionee requests delivery of such shares of Stock in writing). In that
event, the Optionee shall have all of the rights of a shareholder in the
shares so held by the Company or its agent, except as limited by the
restriction on transferability, from and after the issuance of the same and
the Company or its agent shall adopt reasonable procedures to enable the
Optionee to exercise such rights. In the event of the Optionee's death
while any shares are so held, such shares shall be delivered to the
Optionee's Beneficiary promptly following the Committee's receipt of
evidence satisfactory to the Committee of the Optionee's death.

9.10 Return of Accumulated Payroll Deductions. In the event that the
Optionee or his or her Beneficiary is entitled to the return of accumulated
payroll deductions, whether by reason of voluntary withdrawal, termination
of employment, retirement, death, or in the event that accumulated payroll
deductions exceed the price of shares purchased, such amount shall be
returned by the Company to the Optionee or the Beneficiary, as the case may
be, as soon as practicable following the Offering Termination Date of the
Offering Period in which the same were deducted. Accumulated payroll
deductions held by the Company shall not bear interest nor shall the
Company be obligated to segregate the same from any of its other assets.

10. No Enlargement of Employment Rights. Neither the establishment or
continuation of the Plan nor the grant of any Option hereunder shall be deemed
to give any employee the right to be retained in the employ of the Company or
a Related Corporation, or any successor to either, or to interfere with the
right of the Company or such Corporation or successor to discharge the
employee at any time.

11. Tax Withholding. If, at any time, the Company or any Related Corporation
is required, under applicable laws and regulations, to withhold, or to make
any deduction of any taxes or take any other action in connection with any
exercise of an Option or transfer of shares of Stock, the Company or such
Related Corporation shall have the right to deduct from all amounts paid in
cash any taxes required by law to be withheld therefrom, and in the case of
shares of Stock, the Optionee or his or her estate or Beneficiary shall be
required to pay the Company or such Related Corporation the amount of taxes
required to be withheld, or, in lieu thereof, the Company or such Related
Corporation shall have the right to retain, or sell without notice, a
sufficient number of shares of Stock to cover the amount required to be
withheld, or to make other arrangements with respect to withholding as it
shall deem appropriate.

12. Governing Law. The Plan and all Options and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Washington, without regard to the conflict of laws principles thereof.

----------------

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<PAGE>

CELL THERAPEUTICS, INC.
ANNUAL MEETING OF SHAREHOLDERS
June 18, 1997
The Proxy is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints James A. Bianco, M.D., and Stephen Faciszewski,
and each of them, as proxies, with full power of substitution, to represent and
vote for and on behalf of the undersigned the number of shares of Common Stock
of Cell Therapeutics, Inc. that the undersigned would be entitled to vote if
personally present at the Annual Meeting of Shareholders to be held on June 18,
1997, or at any adjournment thereof. The undersigned directs that this proxy be
voted as follows:

1. Election of Directors:

FOR ALL NOMINEES WITHHOLD AUTHORITY
(except as indicated to the to vote for all nominees listed
contrary below) ________ below _________

Class III: James A. Bianco, M.D., Jack W. Singer, M.D. and Mary
O'Neil Mundinger, D.P.H.
Class II: Wilfred E. Jaeger, M.D.
Class I: Jeremy L. Curnock Cook

INSTRUCTION: To withhold authority to vote for a nominee, print that
nominee's name in the following space: _____________________________________

2. Approval of the amendments to the Company's 1994 Equity Incentive Plan.

FOR __________ AGAINST __________ ABSTAIN ___________

3. Approval of the grants of stock options to non-employee Directors under
the Company's 1994 Equity Incentive Plan.

FOR __________ AGAINST __________ ABSTAIN ___________

4. Approval of the amendment to the Company's 1996 Employee Stock Purchase
Plan.

FOR __________ AGAINST __________ ABSTAIN ___________

<PAGE>

5. Ratification of the selection of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 1997.

FOR _________ AGAINST __________ ABSTAIN _________

In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. This proxy, when properly
executed, will be voted in the manner directed herein by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR ALL
NOMINEES" IN ITEM 1 AND "FOR" ITEMS 2, 3, 4 AND 5.

Please sign exactly as your name(s) appears on your stock certificate(s).
When shares are held jointly, each person must sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
An authorized person should sign on behalf of corporations, partnerships and
associations and give his or her title.

Dated: _____________, 1997

- ------------------------------------------
Print name of shareholder

- ------------------------------------------
Print name and title if signing for entity

- ------------------------------------------
Signature

- ------------------------------------------
Signature if held jointly

YOUR VOTE IS IMPORTANT. PLEASE SIGN AND RETURN THIS PROXY PROMPTLY.