<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


                                   FORM 10-Q


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

For the quarterly period ended:  September 30, 1996

                                      OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
For the transition period from_______to_______
 
                        Commission File Number 0-28386
 
                            CELL THERAPEUTICS, INC.
            (Exact name of registrant as specified in its charter)
 
          Washington                                       91-1533912
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization) 

201 Elliott Avenue West, Suite 400, Seattle,
                 Washington                                              98119
  (Address of principal executive offices)                            (Zip code)
 
                                (206) 282-7100
             (Registrant's telephone number, including area code)

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                Class                     Outstanding at October 1, 1996
                -----                     ------------------------------

     Common Stock, no par value                      17,300,574

<PAGE>
 

<TABLE> 
<CAPTION>  
                                     INDEX


                                                                                           Page
                                                                                           ----
<S>                                                                                        <C>                             

PART I    FINANCIAL INFORMATION


Item 1:   Financial Statements

          Balance Sheets - September 30, 1996 and December 31, 1995..........................

          Statements of Operations - Three months and nine months ended September 30, 1996, 
          three months and nine months ended September 30, 1995, and the period from 
          September 4, 1991 (date of incorporation) to September 30, 1996....................

          Statements of Cash Flows - Nine months ended September 30, 1996, nine months ended 
          September 30, 1995, and the period from September 4, 1991 (date of incorporation) 
          to September 30, 1996..............................................................

          Notes to Financial Statements...................................................... 


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



PART II   OTHER INFORMATION


Item 6:   Exhibits and Reports on Form 8-K................................................... 

SIGNATURE.................................................................................... 



                                       2

</TABLE>
 

<PAGE>
 

PART I


Item 1   Financial Statements

                            CELL THERAPEUTICS, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                   September 30,          December 31,
                                                                                       1996                   1995
                                                                                   ------------           ------------
                                                                                    (Unaudited)
<S>                                                                                <C>                     <C>
ASSETS
Current assets:
  Cash and cash equivalents.....................................................   $ 13,609,219            $  6,931,592
  Securities available-for-sale.................................................     11,071,838              14,974,430
  Prepaid expenses..............................................................         36,455                  20,080
                                                                                   ------------            ------------
Total current assets............................................................     24,717,512              21,926,102
Property and equipment, net.....................................................      5,182,840               5,713,227
Note receivable from officer....................................................        229,750                 221,722
Other assets....................................................................        190,274                 187,244
Deferred offering costs.........................................................        334,459                      --
                                                                                   ------------            ------------
Total assets....................................................................   $ 30,654,835            $ 28,048,295
                                                                                   ============            ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..............................................................   $  1,267,286            $  1,057,428
  Accrued expenses..............................................................      1,455,846               1,412,424
  Current portion of long-term obligations......................................      1,253,772               1,114,520
                                                                                   ------------            ------------
Total current liabilities.......................................................      3,976,904               3,584,372
Long-term obligations, less current portion.....................................      2,292,783               2,605,698
Commitments
Stockholders' equity:
  Preferred stock:
      Authorized shares--10,000,000:
        Series A Convertible Preferred Stock, no par value:
          Designated shares--150,000
          Issued and outstanding shares--140,223.123 and 95,447.004 at 
            September 30, 1996 and December 31, 1995, respectively 
            (liquidation preference $335 per share, aggregating $46,974,746 
            and $31,974,746 at September 30, 1996 and December 31, 1995,  
            respectively).......................................................     45,466,204              30,496,204
  Common stock, no par value:
      Authorized shares--100,000,000
      Issued and outstanding shares--17,300,574 and 17,265,773 at
       September 30, 1996 and December 31, 1995, respectively...................     51,808,820              51,481,481
  Deficit accumulated during development stage..................................    (72,889,876)            (60,119,460)
                                                                                   ------------            ------------
Total stockholders' equity......................................................     24,385,148              21,858,225
                                                                                   ------------            ------------
Total liabilities and stockholders' equity......................................   $ 30,654,835            $ 28,048,295
                                                                                   ============            ============
</TABLE>



                            See accompanying notes.
 
                                       3


<PAGE>
 
                                     CELL THERAPEUTICS, INC.
                                  (A DEVELOPMENT STAGE COMPANY)
                                     STATEMENTS OF OPERATIONS
 

<TABLE>
<CAPTION>
                                                                                       PERIOD FROM
                                                                                      SEPTEMBER 4,
                             THREE MONTHS ENDED            NINE MONTHS ENDED          1991 (DATE OF
                                SEPTEMBER 30,                SEPTEMBER 30,            INCORPORATION)
                         --------------------------   ---------------------------    TO SEPTEMBER 30,
                             1996          1995           1996           1995              1996
                         ------------  ------------   ------------   ------------     ------------- 
                         (UNAUDITED)   (UNAUDITED)    (UNAUDITED)    (UNAUDITED)       (UNAUDITED)
<S>                      <C>           <C>            <C>            <C>               <C>
Revenues:
  Collaboration
   agreements..........   $   250,000   $   100,000   $ 3,250,000    $    100,000      $  3,350,000
Operating expenses:
  Research and
   development.........     3,436,307     3,511,889    10,861,880       9,998,528        55,228,723
  General and
   administrative......     1,978,360     1,714,481     5,476,776       4,663,831        23,013,246
                          -----------   -----------   -----------     -----------       -----------
                            5,414,667     5,226,370    16,338,656      14,662,359        78,241,969
                          -----------   -----------  ------------     -----------       -----------
Loss from operations...    (5,164,667)   (5,126,370)  (13,088,656)    (14,562,359)      (74,891,969)
Other income (expense):
  Investment income....       199,168       389,600       746,863         840,535         3,546,403
  Interest expense.....      (128,526)     (126,337)     (387,785)       (373,352)       (1,527,650)
                          ------------  ------------ -------------    ------------     -------------       
Net loss...............   $(5,094,025)  $(4,863,107) $(12,729,578)   $(14,095,176)     $(72,873,216)
                          ============  ============  ============    ============     =============
  Net loss per
    share..............   $     (0.29)  $     (0.29)  $     (0.74)    $     (0.85)
                          ============  ============  ============    ============
  Shares used in
   computation of net
   loss per share......    17,300,574    16,581,959    17,283,564      16,541,013
                          ============  ============  ============    ============
</TABLE>

 
 
                                     See accompanying notes.
 
                                                4

<PAGE>
 
                            CELL THERAPEUTICS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                            STATEMENTS OF CASH FLOWS
 

<TABLE>
<CAPTION>

                                                              PERIOD FROM
                                                              SEPTEMBER 4,
                                NINE MONTHS ENDED             1991 (DATE OF
                                  SEPTEMBER 30,              INCORPORATION)
                          ----------------------------      TO SEPTEMBER 30,
                             1996             1995               1996
                          -----------      -----------      --------------
                          (UNAUDITED)      (UNAUDITED)       (UNAUDITED)
<S>                      <C>              <C>               <C>
OPERATING ACTIVITIES
Net loss................ $(12,729,578)    $(14,095,176)      $(72,873,216)
Adjustments to
 reconcile net loss to
 net cash used in
 operating activities:
 Depreciation and am-
  ortization............    1,250,396        1,344,898          6,053,182
 Noncash research and
  development ex-
  pense.................          --               --           1,155,750
 Noncash interest ex-
  pense.................          --               --              25,918
 Noncash rent expense...       25,047           25,047            465,119
 Investment premium
  amortization..........       93,023           65,543            503,769 
 Changes in assets and
  liabilities:
 Prepaid expenses.......      (16,375)         (12,416)           (36,455)
 Note receivable from
  officer...............       (8,028)          (8,028)          (229,750)
 Other assets...........      (15,438)         399,014           (297,363)
 Accounts payable.......      209,858          (51,011)         1,267,286
 Accrued expenses.......       43,422         (650,159)         1,455,846
                          -----------      -----------       ------------
Total adjustments.......    1,581,905        1,112,888         10,363,302
                          -----------      -----------       ------------
Net cash used in oper-
 ating activities.......  (11,147,673)     (12,982,288)       (62,509,914)
INVESTING ACTIVITIES
Purchases of securities
 available-for-sale.....   (7,055,269)     (10,715,996)       (55,967,367)
Proceeds from sales of
 securities available
 for-sale...............          --         3,659,296         14,890,313
Proceeds from maturi-
 ties of securities
 available-for-sale.....   10,824,000              --          29,484,787
Purchase of property
 and equipment..........     (707,601)        (173,101)       (10,995,897)
Dispositions of prop-
 erty and equipment.....          --            36,476            151,469
                          -----------      -----------       ------------
Net cash provided by
 (used in) investing
 activities.............    3,061,130       (7,193,325)       (22,436,695)
FINANCING ACTIVITIES
Sales of common stock
 to founders............          --               --              80,000
Proceeds of borrowings
 from stockholder.......          --               --             850,000
Sale of preferred
 stock via private
 placement, net of of-
 fering costs...........   14,970,000       30,496,204         45,466,204
Sale of common stock via
 private placements, net
 of offering costs......          --               --          49,307,084
Repurchase of common
 stock..................          --               --              (2,522)
Repayment of long-term
 obligations............     (815,010)      (2,702,574)        (8,127,091)
Proceeds from common
 stock options exer-
 cised..................       21,781           17,085             79,420
Proceeds from common
 stock warrants exer-
 cised..................      305,558              --             305,558
Change in deferred of-
 fering costs...........     (334,459)             --            (334,459)
Proceeds from the
 issuance of long-term
 obligations............      616,300        1,800,000         10,931,634
                          -----------      -----------       ------------
Net cash provided by
 financing activities...   14,764,170       29,610,715         98,555,828
                          -----------      -----------       ------------
Net increase
 in cash and cash
 equivalents............    6,677,627        9,435,102         13,609,219
Cash and cash equiva-
 lents at beginning of
 period.................    6,931,592        2,408,256                --
                          -----------      -----------       ------------
Cash and cash equiva-
 lents at end of period.  $13,609,219      $11,843,358       $ 13,609,219
                          ===========      ===========       ============
SUPPLEMENTAL SCHEDULE
 OF NONCASH INVESTING
 AND FINANCING
 ACTIVITIES:
 Acquisition of equip-
  ment pursuant to
  capital lease obli-
  gations...............  $       --       $       --        $    276,893
                          ===========      ===========       ============
 Conversion of
  convertible debt and
  related accrued
  interest into common
  stock.................  $       --       $       --        $    875,918
                          ===========      ===========       ============
SUPPLEMENTAL
 DISCLOSURE OF CASH
 FLOW INFORMATION:
 Cash paid during the
  period for interest...  $   390,034      $   395,172       $  1,501,525
                          ===========      ===========       ============
</TABLE>


 
                            See accompanying notes.
 
                                       5


<PAGE>
 
                            CELL THERAPEUTICS, INC.
                         (A Development Stage Company)


                         NOTES TO FINANCIAL STATEMENTS


                              September 30, 1996
                                  (Unaudited)

(1) Summary of Significant Accounting Policies
The accompanying unaudited financial information of Cell Therapeutics, Inc. (the
"Company") as of September 30, 1996 and for the three and nine months ended
September 30, 1996 and 1995 has been prepared in accordance with the
instructions to Form 10-Q. In the opinion of management, such financial
information includes all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of the financial
position at such date and the operating results and cash flows for such periods.
Operating results for the three and nine month periods ended September 30, 1996
are not necessarily indicative of the results that may be expected for the
entire year. These financial statements and the related notes should be read in
conjunction with the Company's audited annual financial statements for the year
ended December 31, 1995 and the unaudited financial statements for the quarter
ended March 31, 1996 included in the Company's Registration Statement on Form
10, as amended, which Registration Statement became effective on June 28, 1996, 
and the Company's unaudited financial statements for the quarter ended June 30, 
1996 included in the Company's quarterly report on Form 10-Q for the quarter 
ended June 30, 1996.

Certain prior year balances have been reclassified to conform to the current 
year presentation.

(2) Equity Offerings
On April 26, 1996, the Company filed a registration statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission in
connection with a planned initial public offering (the "Offering") of the
Company's common stock. Such Registration Statement has not been declared
effective by the Securities and Exchange Commission, and on June 27, 1996 the
Company announced that it was postponing the Offering until further notice. On 
September 3, 1996 the Company withdrew the Registration Statement.

In September 1996, the Company commenced a fourth round of equity financing
through a private offering of Series A Convertible Preferred Stock ("Convertible
Preferred Stock") at $335 per share. Total gross proceeds of the offering
amounted to $15,000,000, representing 44,776.119 shares of Convertible Preferred
Stock.

In October 1996, the Company sold an additional 5,970.1493 shares of Convertible
Preferred Stock at $335 per share for total gross proceeds of $2,000,000.

In October 1996, the Board of Directors approved the reduction in the number of
authorized shares of Convertible Preferred Stock to 146,193.2723.

(3) Subsequent Event
On November 8, 1996, the Company entered into a collaboration and license 
agreement with Ortho Biotech Inc. and the R.W. Johnson Pharmaceutical Research 
Institute, a division of Ortho Pharmaceutical Corporation (hereinafter 
collectively, "Ortho") for the development and commercialization of Lisofylline.
Under the agreement, CTI will be responsible for the development of Lisofylline 
in the United States (the "Co-Promotion Territory"). Subject to certain 
termination rights, Ortho has agreed to fund 60% of CTI's budgeted development 
expenses incurred in connection with obtaining regulatory approval for 
Lisofylline in the Co-Promotion Territory. Upon execution of the agreement, 
Ortho paid the Company a $5.0 million non-refundable up-front fee. In addition, 
Johnson & Johnson Development Corporation, an affiliate of Ortho, purchased 
14,925.373 shares of CTI's newly issued Series B Preferred Stock at $335.0 per 
share for an aggregate purchase price of $5.0 million. CTI and Ortho will 
co-promote Lisofylline in the Co-Promotion Territory and will share profits and 
losses. Ortho will have the exclusive right to develop and market Lisofylline, 
at its own expense, for markets outside of the Co-Promotion Territory, subject 
to specified royalty payments to CTI. CTI will also receive additional equity, 
license, milestone and similar payments under the agreement if certain 
milestones are achieved.

                                       6


<PAGE>
 

I
tem 2     Management's Discussion and Analysis of Financial Condition and
           Results of Operations
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES.
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES", "ANTICIPATES", "INTENDS",
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW AND IN THE COMPANY'S REGISTRATION STATEMENT ON FORM 10, AS
AMENDED. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-
LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS FORM 10-Q. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.

Overview

      The Company focuses on the discovery, development and commercialization of
small molecule drugs that modulate the production of cell membrane lipids called
phosphatidic acids ("PAs") for the treatment of cancer and inflammatory and
immune diseases. Since commencement of operations in 1992, the Company has been
engaged in research and development activities, including conducting preclinical
studies and clinical trials, and recruiting its scientific and management
personnel, establishing laboratory facilities and raising capital. The Company
has not received any revenue from the sale of products to date and does not
expect to receive revenues from the sale of products for at least the next
several years.

      As of September 30, 1996, the Company had incurred aggregate net losses of
approximately $72.9 million since its inception. The Company expects to continue
to incur significant additional operating losses over the next several years as
its research, development and clinical trial efforts expand. Operating losses
may fluctuate from quarter to quarter as a result of differences in the timing
of expenses incurred and revenues recognized. As of September 30, 1996, the
Company's operations have been funded primarily from the sale of equity
securities, which have raised aggregate net proceeds of approximately $96.1
million.

Results of Operations

      Three months ended September 30, 1996 compared with three months ended 
September 30, 1995.

      During the quarter ended September 30, 1996, the Company received a 
$250,000 milestone payment in connection with its collaboration with BioChem 
Pharma, Inc.  The Company received a milestone payment of $100,000 under the
same collaboration agreement during the quarter ended September 30, 1995.

                                       7

<PAGE>
 
     Research and development expenses decreased to approximately $3.4 million
for the quarter ended September 30, 1996 from approximately $3.5 million for the
quarter ended September 30, 1995. This decrease was primarily due to reduced
preclinical-related development activities with respect to the Company's anti-
cancer compound, CT-2584, which decrease was partially offset by increased
manufacturing-related development expenses for Lisofylline. The Company expects
that research and development expenses will increase significantly the fourth
quarter of 1996 and in future years as the Company expands its research and
development programs and undertakes additional clinical trials.

     General and administrative expenses increased to approximately $2.0 million
for the quarter ended September 30, 1996 from approximately $1.7 million for the
quarter ended September 30, 1995. This increase was primarily due to operating 
expenses associated with supporting the Company's continuing research and 
development and continuing business development activities. General and
administrative expenses are expected to increase to support the Company's
expected increase in research, development and clinical trial efforts.

     Investment income principally comprises interest income from investment of
the Company's cash reserves. Interest expense results primarily from the
financing of laboratory and other equipment. Investment income net of interest
expense decreased to approximately $71,000 for the quarter ended September 30,
1996 from approximately $263,000 for the quarter ended September 30, 1995. This
decrease was primarily associated with interest earnings on a lower average
balance of cash reserves between the quarters.

     Nine months ended September 30, 1996 compared with nine months ended
September 30, 1995

     During the nine months ended September 30, 1996, the Company received a
$250,000 milestone payment from BioChem Pharma, Inc. in connection with an
existing collaboration agreement, and a $3.0 million non-refundable signing fee
from Schering AG in connection with a collaboration agreement which terminated
in April 1996. During the nine months ended September 30, 1995, the Company
received a milestone payment of $100,000 under the collaboration agreement with
BioChem Pharma.

     Research and development expenses increased to approximately $10.9 million
for the nine months ended September 30, 1996 from approximately $10.0 million
for the nine months ended September 30, 1995. This increase was primarily due to
expanded manufacturing and clinical-related development activities with respect
to Lisofylline, which increase was partially offset by a decrease in 
preclinical-related development expenses with respect to CTI's anti-cancer 
compound, CT-2584.

     General and administrative expenses increased to approximately $5.5 million
for the nine months ended September 30, 1996 from approximately $4.7 million for
the nine months ended September 30, 1995. This increase is primarily due to
legal costs associated with the collaboration agreement with Schering AG which
terminated in April 1996, other continuing business development activities, and
to operating expenses associated with supporting the Company's increased
research, development and clinical activities.

     Investment income net of interest expense decreased to approximately
$359,000 for the nine months ended September 30, 1996 from approximately
$467,000 for the nine months ended September 30, 1995. This decrease was
primarily associated with interest earnings on a lower average balance of cash
reserves between the nine month periods.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has financed its operations since inception through the sale of
equity securities, long-term obligations and convertible debt. As of September
30, 1996, the Company had raised aggregate net proceeds of approximately 
$98.9 million from such financing activities, including $15.0 million and 
$30.5 million

                                       8

<PAGE>
 
from the sale of Convertible Preferred Stock in 1996 and 1995 respectively, 
$49.3 million from the sale of Common Stock in 1992 and 1993, $850,000 from a
bridge loan which was subsequently converted to equity, and approximately
$400,000 from the exercise of stock options and warrants. The Company has
incurred approximately $330,000 in deferred offering costs related to its
withdrawn initial public offering. In addition, the Company financed the
purchase of approximately $11.0 million of property and equipment through
financing agreements, of which approximately $2.9 million remained outstanding
as of September 30, 1996.

     The Company's principal sources of liquidity are its cash balances, cash
equivalents and securities available-for-sale, which totaled approximately $24.7
million as of September 30, 1996. The Company invests in U.S. government
obligations and other highly rated liquid debt instruments.

     The Company expects that its capital requirements will increase as the
Company expands its research and development programs and undertakes additional
clinical trials.  In connection with such expansion, the Company expects to
incur substantial expenditures for hiring additional management, scientific and
administrative personnel, for planned expansion of its facilities, and for the
purchase or lease of additional equipment.

     The Company does not expect to generate a positive cash flow from
operations for several years due to substantial additional research and
development costs, including costs related to drug discovery, preclinical
testing, clinical trials, manufacturing costs and operating expenses associated
with supporting such activities. The Company will require substantial funds to
conduct its existing and planned preclinical and clinical trials, to establish
manufacturing and marketing capabilities for any products it may develop, and to
continue research and development activities. The Company's current cash and
cash equivalents will not be sufficient to fund the Company's operations through
the commercialization of its first product. The Company expects that its
existing capital resources, together with the interest earned thereon, will
enable the Company to maintain its current and planned operations at least
through 1997. No assurance can be given that changes will not occur that will
consume available capital resources before such time. The Company will need to
raise substantial additional capital to fund its operations beyond such time.
The Company's future capital requirements will depend on, and could increase as
a result of, many factors, including continued scientific progress in its
research and development programs, the magnitude of such programs, the progress
of preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining, enforcing and defending patent claims, competing
technological and market developments, the terms of any collaborative
arrangements that the Company may enter into, the ability of the Company to
establish research, development and commercialization arrangements pertaining to
the Company's products, the cost of establishing manufacturing facilities, the
cost of commercialization activities and the demand for the Company's products
if and when approved.

     The Company intends to raise additional funds through additional equity or
debt financings, research and development financings, collaborative
relationships, or otherwise.  Because of these long-term capital requirements,
the Company may seek to access the public or private equity markets whenever
conditions are favorable, even if it does not have an immediate need for
additional capital at that time.  There can be no assurance that additional
financing will be available to the Company, or, if available, that it will be on
acceptable terms.  If additional funds are raised by issuing equity securities,
further dilutions to stockholders may result. If adequate funds are not
available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research, development and clinical activities or to
seek to obtain funds through arrangements with collaborative

                                       9

<PAGE>
 
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates or products that the Company would
otherwise seek to develop or commercialize itself.

     On April 26, 1996, the Company filed a registration statement on Form S-1
(the "Registration Statement") with the Securities and Exchange Commission (the
"Commission") in connection with a planned initial public offering (the
"Offering") of the Company's Common Stock. Such registration statement has not
been declared effective by the Commission, and on June 27, 1996 the Company
announced that it was postponing the Offering until further notice. On September
3, 1996 the Company withdrew the Registration Statement.

     At September 30, 1996, the Company had net operating loss carryforwards of
approximately $69.8 million and research and development credit carryforwards of
approximately $1.5 million.  These carryforwards begin to expire in 2007.

FACTORS THAT MAY AFFECT FUTURE RESULTS

     The Company operates in a rapidly changing environment that involves a
number of risks, some of which are outside of the Company's control.  The
following discussion highlights some of these risks and others are discussed
elsewhere herein and in other documents filed by the Company with the Securities
and Exchange Commission.

     The time frame for market success for any of the Company's potential
products is long and uncertain.  The Company is at an early stage of development
and its technology is unproven.  All of the Company's proposed products are in
research or development and will require significant additional research and
development efforts prior to any commercial use, including extensive preclinical
and clinical testing as well as lengthy regulatory approval.  There can be no
assurance that the Company's research and development efforts will be
successful, that any of its proposed products will prove to be safe and
efficacious in clinical trials or meet applicable regulatory standards, that
unforeseen problems will not develop with the Company's technologies or
applications, or that any commercially successful products will ultimately be
developed by the Company.  The Company faces substantial competition from a
variety of sources, both direct and indirect.  There can be no assurance that
research and discoveries by others will not render some or all of the Company's
programs or products noncompetitive or obsolete or that the Company will be able
to keep pace with technological developments or other market factors.

     The successful commercialization of the Company's potential products in
certain markets will be dependent, among other things, on the establishment of
commercial marketing arrangements with others.  There can be no assurance that
any such arrangements will be established.  If the Company is not able to
establish such arrangements, it could encounter delays in introducing its
products into certain markets or find that the development, manufacture or sale
of its products in such markets is adversely affected.  There can be no
assurance that the Company will enter into any such agreements on acceptable
terms or that any such parties will perform their obligations or that any
revenue will be derived from such arrangements.  The Company's proposed products
under development have never been manufactured on a commercial scale and there
can be no assurance that such products can be manufactured at a cost or in
quantities necessary to make them commercially viable.  The Company currently
has no manufacturing facilities and has no experience in sales, marketing or
distribution.  If the Company develops any products with commercial potential,
it may seek to enter into collaborative

                                      10

<PAGE>
 
arrangements with other parties which have established manufacturing, sales,
marketing and distribution capabilities or may need to develop such resources on
its own.

     The foregoing risks reflect the Company's early stage of development and
the nature of the Company's industry and potential products.  Other risk factors
that may affect the Company's future results include competition, uncertainties
regarding protection of patents and proprietary rights, government regulation
and uncertainties regarding pharmaceutical pricing and reimbursement.

SUBSEQUENT EVENT
On November 8, 1996, the Company entered into a collaboration and license 
agreement with Ortho Biotech Inc. and the R.W. Johnson Pharmaceutical Research 
Institute, a division of Ortho Pharmaceutical Corporation (hereinafter 
collectively, "Ortho") for the development and commercialization of Lisofylline.
Under the agreement, CTI will be responsible for the development of Lisofylline 
in the United States (the "Co-Promotion Territory"). Subject to certain 
termination rights, Ortho has agreed to fund 60% of CTI's budgeted development 
expenses incurred in connection with obtaining regulatory approval for 
Lisofylline in the Co-Promotion Territory. Upon execution of the agreement, 
Ortho paid the Company a $5.0 million non-refundable up-front fee. In addition, 
Johnson & Johnson Development Corporation, an affiliate of Ortho, purchased 
14,925.373 shares of CTI's newly issued Series B Preferred Stock at $335.0 per 
share for an aggregate purchase price of $5.0 million. CTI and Ortho will 
co-promote Lisofylline in the Co-Promotion Territory and will share profits and 
losses. Ortho will have the exclusive right to develop and market Lisofylline, 
at its own expense, for markets outside of the Co-Promotion Territory, subject 
to specified royalty payments to CTI. CTI will also receive additional equity, 
license, milestone and similar payments under the agreement if certain 
milestones are achieved.
 


P
ART II


ITEM 6         EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

           3.1 Restated Bylaws of the Company

          10.1 Stock Purchase Agreement, dated as of September 17, 1996, between
               the Company and Kummell Investments Limited, International
               Biotechnology Trust plc, W.R. Smith II, Vulcan Ventures Inc. and
               The Phoenix Partners III Limited Partnership.

          10.2 Stock Purchase Agreement, dated as of October 11, 1996, between 
               the Company and New York Life Insurance Company.

          10.3 Registration Rights Agreement between the Company and the other
               parties included therein, dated as of September 17, 1996, as
               amended by Amendment No. 1 thereto dated as of October 11, 1996.

          10.4 Letter Agreement between the Company and Kummell Investments 
               Limited, dated September 17, 1996.

          11.1 Computation of net loss per share

          27.1 Financial Data Schedule


(b)  Reports on Form 8-K

          Report dated September 25, 1996, reporting the closing of an
          unregistered private offering of 44,776.119 shares of Series A
          Convertible Preferred Stock for an aggregate purchase price of
          $15,000,000.


                                      11

<PAGE>
 

                                   SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:


                                    CELL THERAPEUTICS, INC.
                                         (Registrant)


     Dated:   November 14, 1996       By:   /s/  JAMES A. BIANCO, M.D.
                                      ----------------------------------
                                      James A. Bianco, M.D.
                                      President and Chief Executive Officer


     Dated:   November 14, 1996       By:   /s/  LOUIS A. BIANCO
                                      ----------------------------------
                                      Louis A. Bianco
                                      Executive Vice President, Finance and
                                      Administration (Principal Financial
                                      Officer, Principal Accounting Officer)



                                      12





<PAGE>
 

                                                                     EXHIBIT 3.1

 
                                    RESTATED
                                     BYLAWS
                                       OF
                            CELL THERAPEUTICS, INC.



                                   ARTICLE I

                     Registered Office and Registered Agent
                     --------------------------------------

      1.  The registered office of the Corporation shall be located in the State
of Washington at such place as may be fixed from time to time by the Board of
Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. A registered agent so appointed shall consent to appointment in writing
and such consent shall be filed with the Secretary of State of the State of
Washington.

      2.  If a registered agent changes the street address of the
agent's business office, the registered agent may change the street address of
the registered office of the Corporation by notifying the Corporation in writing
of the change and signing, either manually or in facsimile, and delivering to
the Secretary of State for filing a statement of such change, as required by
law.

      3.  The Corporation may change its registered agent at any time upon the
filing of an appropriate notice with the Secretary of State, with the written
consent of the new registered agent either included in or attached to such
notice.

                                  ARTICLE II

                            Shareholders' Meetings

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

      1.  Meeting Place. All meetings of the shareholders shall be held,
          -------------                                                 
pursuant to proper notice as set forth in Article II, Section 5 of these Bylaws,
at the principal executive office of the Corporation, or at such other place as
shall be determined from time to time by the Board of Directors.

      2.  Annual Meeting Time. The annual meeting of the shareholders
          -------------------                                        
for the election of directors and for the transaction of such other business as
may properly come

                                       1

<PAGE>
 
before the meeting shall be held each year on such date and at such hour as may
be determined by resolution of the Board of Directors from time to time. In the
absence of such determination, the annual meeting shall be held each year on the
1st of May at the hour of 10:00 a.m. if not a legal holiday, and if a legal
holiday, then on the next business day following, at the same hour

     3.  Annual Meeting - Order of Business. At the annual meeting of
         ------------------------- --------                          
shareholders, the order of business shall be as follows:

          (a)  Call to order.
          (b)  Proof of notice of meeting (or filing of waiver).
          (c)  Reading of minutes of last annual meeting.
          (d)  Reports of officers.
          (e)  Reports of committees.
          (f)  Election of directors.
          (g)  Other business.

     4.  Special Meetings. Special meetings of the shareholders for any purpose
         ----------------                                                      
may be called at any time by the President, the Board of Directors or the
holders of at least ten percent of all the votes entitled to be cast on any
issue proposed to be considered at such special meeting in accordance with RCW
23B.07.020. Special shareholders' meetings shall be held at the Corporation's
principal executive office or at such other place as shall be identified in the
notice of such meeting.

     5.  Notice.
         ------ 

          (a) Except as provided in subsection (c) hereunder, notice of the
date, time and place of the annual meeting of shareholders shall be given by
delivering personally or by mailing a written or printed notice of the same, at
least ten days, and not more than sixty days, prior to the meeting to each
shareholder of record entitled to vote at such meeting.

          (b) Except as provided in subsection (c) hereunder, written or printed
notice of each special meeting of shareholders shall be given at least ten days
and not more than sixty days prior to the meeting. Such notice shall state the
date, time and place of such meeting, and the purpose or purposes for which the
meeting is called, and shall be delivered personally, or mailed to each
shareholder of record entitled to vote at such meeting.

          (c) Notice of a shareholders' meeting at which the shareholders will
be called to act on an amendment to the articles of incorporation, a plan of
merger or share exchange, a proposed sale of assets other than in the regular
course of business or the

                                       2

<PAGE>
 
dissolution of the Corporation shall be given not fewer than twenty days and not
more than sixty days before the meeting date.

     6.  Record Date. For the purpose of determining shareholders entitled to
         -----------                                                         
notice of or to vote at any meeting of shareholders, or at any adjournment
thereof, or entitled to receive dividends or distributions, the Board of
Directors shall fix in advance a record date for any such determination of
shareholders, such date to be not more than seventy days and, in case of a
meeting of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.

     7.  Shareholders' List. After fixing a record date for a shareholders'
         ------------------                                                
meeting, the Corporation shall prepare an alphabetical list of the names of all
its shareholders on the record date who are entitled to notice of a
shareholders' meeting. Such list shall be arranged by voting group, and within
each voting group by class or series of shares, and show the address of and
number of shares held by each shareholder. The shareholders' list shall be kept
on file at the registered office of the Corporation for a period beginning ten
days prior to such meeting and shall be kept open at the time and place of such
meeting for the inspection by any shareholder, or any shareholder's agent or
attorney.

     8.  Quorum. Except as otherwise required by law, a quorum at any annual or
         ------                                                                
special meeting of shareholders shall consist of shareholders representing,
either in person or by proxy, a majority of the votes entitled to be cast on the
matter by each voting group.

     9.  Voting.
         ------ 

         (a) Except as otherwise provided in the Articles of Incorporation and
subject to the provisions of the laws of the State of Washington, each
outstanding share, regardless of class, is entitled to one vote on each matter
voted on at a shareholders' meeting.

         (b) If a quorum exists, action on a matter, other than the election of
directors, is approved by a voting group if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action, unless the question is one which by express provision of law, of the
Articles of Incorporation or of these Bylaws a greater number of affirmative
votes is required.

         (c) Unless otherwise provided in the Articles of Incorporation, in any
election of directors the candidates elected are those receiving the largest
numbers of votes cast by the shares entitled to vote in the election, up to the
number of directors to be elected by such shares.

     10. Proxies. A shareholder may vote either in person or by appointing a
         -------                                                            
proxy by signing an appointment form, either personally or by the shareholder's
attorney-in-

                                       3

<PAGE>
 
fact or agent. An appointment of a proxy is effective when received by the
person authorized to tabulate votes for the Corporation. An appointment of a
proxy is valid for eleven months unless a longer period is expressly provided in
the appointment form.

     11.  Action by Shareholders Without a Meeting. Any action required or which
          ----------------------------------------                              
may be taken at a meeting of shareholders of the Corporation may be taken
without a meeting if the action is taken by all the shareholders entitled to
vote on the action. The action must be evidenced by one or more written consents
describing the action taken, signed by all the shareholders entitled to vote on
the action, and delivered to the Corporation for inclusion in the minutes or
filing with the Corporation's records. Action taken in accordance with this
section shall be effective when all written consents are in the possession of
the Corporation unless the consent specifies a later effective date.

     12.  Waiver of Notice. A written waiver of any notice required to be given
          ----------------                                                     
to any shareholder, signed by the person or persons entitled to such notice,
whether before or after the time stated therein for the meeting, shall be deemed
the giving of such notice by the Corporation, provided that such waiver has been
delivered to the Corporation for inclusion in the minutes or filing with the
Corporation's records.  A shareholder's attendance at a meeting waives any
notice required, unless the shareholder at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting.

     13.  Action of Shareholders bv Communications Equipment. Shareholders may
          --------------------------------------------------                  
participate in any meeting of shareholders by any means of communication by
which all persons participating in the meeting can hear each other during the
meeting.  A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.

     14.  Shareholder Nomination of Director Candidates. Subject to the rights
          ---------------------------------------------                       
of holders of any class or series of stock having a preference over the
Corporation's common stock as to dividends or upon liquidation, if any,
nominations for the election of directors may be made by the Board of Directors
or a committee appointed by the Board of Directors or by any shareholder
entitled to vote in the election of directors generally. However; any
shareholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a meeting only if written
notice of such shareholder's intent to make such nomination or nominations has
been received by the Corporation, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation not later than
(a) with respect to the election to be held at an annual meeting of
shareholders, ninety days prior to the date one year from the date of the
immediately preceding annual meeting of shareholders, and (b) with respect to an
election to be held at a special meeting of shareholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to shareholders. Each such notice shall
set forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to

                                       4

<PAGE>
 
be nominated; (b) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected. The Chairman of the meeting may in his
discretion determine and declare to the meeting that a nomination was not made
in accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.

     15.  Shareholder Proposals. Any shareholder may make any proposal at an
          ---------------------                                             
annual meeting of shareholders and the same may be discussed and considered only
if written notice of such shareholder's intent to make such proposal(s) has been
received by the Corporation, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than ninety
days prior to the date one year from the date of the immediately preceding
annual meeting of shareholders. Each such notice shall set forth: (a) the name
and address of the shareholder who intends to make the proposal(s); (b) a
representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to vote for the proposal(s); and (c) such other
information regarding each proposal as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission. The Chairman of the meeting may in his discretion determine and
declare to the meeting that a proposal was not made in accordance with the
foregoing procedures, and if he should so determine, he shall so declare to the
meeting and the defective proposal shall be disregarded.

                                  ARTICLE III

                                Shares of Stock
                                ---------------

     1.  Issuance of Shares. No shares of the Corporation shall be issued unless
         ------------------                                                     
authorized by the Board of Directors. Such authorization shall include the
number of shares to be issued, the consideration to be received and a statement
regarding the adequacy of the consideration. Shares may but need not be
represented by certificates. Unless otherwise provided by law, the rights and
obligations of shareholders are identical whether or not their shares are
represented by certificates.

                                       5

<PAGE>
 
     2.  Certificated Shares. If shares are represented by certificates,
         -------------------                                            
certificates of stock shall be issued in numerical order; and each shareholder
shall be entitled to a certificate signed, either manually or in facsimile, by
the President or a Vice President, and the Secretary, and such certificate may
bear the seal of the Corporation or a facsimile thereof. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the person were an officer on the date of
issue.

     At a minimum each certificate of stock shall state:

          (a)  the name of the Corporation;

          (b) that the Corporation is organized under the laws of the State of
Washington;

          (c) the name of the person to whom the certificate is issued;

          (d) the number and class of shares and the designation of the series,
if any, the certificate represents; and

          (e) if the Corporation is authorized to issue different classes of
shares or different series within a class, the designations, relative rights,
preferences and limitations applicable to each class and the variations in
rights, preferences and limitations determined for each-series, and the
authority of the Board of Directors to determine variations for future series,
must be summarized either on the front or back of the certificate.
Alternatively, the certificate may state conspicuously on its front or back that
the Corporation will furnish the shareholder this information without charge on
request in writing.

     In case of any mutilation, loss or destruction of any certificate of stock,
another certificate may be issued in its place on proof of such mutilation, loss
or destruction. The Board of Directors may impose conditions on such issuance
and may require the giving of a satisfactory bond or indemnity to the
Corporation in such sum as it might determine or establish such other procedures
as it deems necessary or appropriate

     3.  Uncertificated Shares.
         --------------------- 

          (a) Unless the Articles of Incorporation provide otherwise, the Board
of Directors may authorize the issue of any of the Corporation's classes or
series of shares without certificates. This authorization does not affect shares
already represented by certificates until they are surrendered to the
Corporation.

                                       6

<PAGE>
 
          (b) Within a reasonable time after the issuance of shares without
certificates, the Corporation shall send the shareholder a complete written
statement of the information required on certificates as provided in Article
III, Section 2 of these Bylaws.

      4.  Transfers.
          --------- 

         (a) Transfers of stock shall be made only upon the stock transfer
records of the Corporation, which records shall be kept at the registered office
of the Corporation or at its principal place of business, or at the office of
its transfer agent or registrar The Board of Directors may, by resolution, open
a share register in any state of the United States, and may employ an agent or
agents to keep such register and to record transfers of shares therein.

         (b) Shares of certificated stock shall be transferred by delivery of
the certificates therefor, accompanied either by an assignment in writing on
the back of the certificate or an assignment separate from certificate, or by a
written power of attorney to sell, assign and transfer the same, signed by the
holder of said certificate. No shares of certificated stock shall be transferred
on the records of the Corporation until the outstanding certificates therefor
have been surrendered to the Corporation or to its transfer agent or registrar.

         (c) Shares of uncertificated stock shall be transferred upon receipt by
the Corporation of a written request for transfer signed by the shareholder
Within a reasonable time after the transfer of shares without certificates, the
Corporation shall provide the new shareholder a complete written statement of
the information required on certificates as provided in Article III, Section 2
of these Bylaws.

     5.  Fractional Shares or Scrip. The Corporation may:
         --------------------------                      

         (a)  issue fractions of a share;

         (b) arrange for the disposition of fractional interests by the
shareholders;

         (c) pay in money the value of fractions of a share; and 

         (d) issue scrip in registered or bearer form which shall entitle the
holder to receive a certificate for a full share upon the surrender of enough
scrip to equal a full share.

     6.   Shares of Another Corporation. Shares owned by the Corporation in
          -----------------------------                                    
another Corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.

                                       7

<PAGE>
 
                                   ARTICLE IV

                               Board of Directors
                               ------------------

     1.  Powers. The management of all the affairs, property and interests of
         ------                                                              
the Corporation shall be vested in a Board of Directors. In addition to the
powers and authorities expressly conferred upon it by these Bylaws and by the
Articles of Incorporation, the Board of Directors may exercise all such powers
of the Corporation and do all such lawful acts as are not prohibited by statute
or by the Articles of Incorporation or by these Bylaws or as directed or
required to be exercised or done by the shareholders.

     2.  General Standards for Directors.
         ------------------------------- 

         (a) A director shall discharge the duties of a director; including
duties as a member of a committee:

             (i)   in good faith;

             (ii)  with the care an ordinary prudent person in a like position
would exercise under similar circumstances; and

             (iii) in a manner the director reasonably believes to be in the 
best interests of the Corporation.

     3.   Number, Classes and Term. The Board of Directors shall consist of 
          ------------------------
eight (8) persons. The Board of Directors shall be divided into three classes,
with the classes to be as equal in number as may be possible. Upon such
division, the Board of Directors shall designate the class in which each then
current director shall serve for the terms set forth below:

                    Class           Term
                    -----           ----

                    Class I         1 year
                    Class II        2 years
                    Class III       3 years

At each annual meeting of shareholders thereafter; the number of directors equal
to the number of directors in the class whose term expires at the time of such
meeting shall be elected to serve until the third ensuing annual meeting of
shareholders. Directors need not be residents of the State of Washington.
Directors may serve for any number of consecutive terms. Unless a director dies,
resigns or is removed, he or she shall hold

                                       8

<PAGE>
 
office for the term elected or until his or her successor is elected and
qualified, whichever is later.

     4.  Change of Number.  The number of directors may at any time be
         ----------------                                           
increased or decreased by resolution of either the shareholders or directors
at any annual, special or regular meeting; provided, that no decrease in
                                           --------                     
the number of directors shall have the effect of shortening the term of any
incumbent director, except as provided in Sections 6 and 7 of this Article
IV. The Board of Directors alone shall determine into which class(es) the
director(s) shall be added or from which class(es) the director(s) shall be
removed, as appropriate.

     5.  Vacancies. All vacancies in the Board of Directors, whether caused
         ---------                                                         
by resignation, death or otherwise, may be filled by the affirmative vote
of a majority of the remaining directors in office though less than a
quorum of the Board of Directors. A director elected to fill a vacancy
shall hold office until the next shareholders' meeting at which directors
are elected and until his or her successor is elected and qualified. Any
directorship to be filled by reason of an increase in the number of
directors may be filled by the Board of Directors for a term of office
continuing only until the next election of directors by the shareholders
and until his or her successor is elected and qualified.

     6.  Resignation. A director may resign at any time by delivering
         -----------                                                 
written notice to the Board of Directors, the President or the Secretary. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date.

     7.  Removal of Directors. At a special meeting of shareholders called
         --------------------                                             
expressly for that purpose, the entire Board of Directors, or any member
thereof, may be removed from office at any time, but only (a) for Cause and (b)
if the number of votes cast to remove the director by holders of shares then
entitled to vote in an election of directors exceed the number of votes cast not
to remove the director.  For purposes of this Article III, "Cause" shall be
limited to (a) action by a director involving willful malfeasance having a
material adverse effect on the Corporation or (b) a director being convicted of
a felony; provided that any action by a director shall not constitute "Cause" 
if, in good faith, the director believed such action to be in or not opposed to
the best interests of the Corporation, or if a director shall be entitled, under
applicable law, the Articles of Incorporation of the Corporation, these Bylaws
or a contract with the Corporation, to be indemnified with respect to such
action. The notice of such meeting must state that the purpose, or one of the
purposes, of the meeting is removal of the director or directors, as the case
may be.

     8.  Regular Meetings. Regular meetings of the Board of Directors or
         ----------------                                               
any committee may be held without notice at the principal place of business of
the Corporation or at such other place or places, either within or without the
State of Washington, as the Board of Directors or such committee, as the case
may be, may from time to time

                                       9

<PAGE>
 
designate. The annual meeting of the Board of Directors shall be held without
notice immediately after adjournment of the annual meeting of shareholders.

     9.   Special Meetings.
          ---------------- 

          (a) Special meetings of the Board of Directors may be called at any
time by the Chairman, the President or by a majority of the members of the Board
of Directors, to be held at the principal place of business of the Corporation
or at such other place as the Board of Directors or the person or persons
calling such meeting may designate.  Notice of all special meetings of the Board
of Directors, stating the date, time and place thereof, shall be given at least
three (3) days prior to the date of the meeting, in accordance with the
provisions set forth in Article VII of these Bylaws. Such notice need not 
specify the business to be transacted at, or the purpose of, the meeting.

          (b) Special meetings of any committee of the Board of Directors may be
called at any time by such person or persons and with such notice as shall be
specified for such committee by the Board of Directors, or in the absence of
such specification, in the manner and with the notice required for special
meetings of the Board of Directors.

     10.  Waiver of Notice. A director may waive any notice required by law, by
          ----------------                                                     
the Articles of Incorporation or by these Bylaws before or after the time stated
for the meeting, and such waiver shall be equivalent to the giving of such
notice. Such waiver must be in writing, signed by the director entitled to such
notice and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records. A director's attendance at or participation in a
meeting shall constitute a waiver of any required notice to the director of the
meeting unless the director at the beginning of the meeting, or promptly upon
the director's arrival, objects to holding the meeting or transacting business
at the meeting and does not thereafter vote for or assent to action taken
at the meeting.

     11.  Quorum. A majority of the full Board of Directors shall be necessary
          ------                                                              
at all meetings to constitute a quorum for the transaction of business. If a
quorum is present when a vote is taken, the affirmative vote of a majority of
directors present is the act of the Board of Directors.

     12.  Registering Dissent. A director who is present at a meeting of the
          -------------------                                                  
Board of Directors at which action on a corporate matter is taken is deemed to
have assented to such action unless:

          (a) the director objects at the beginning of the meeting, or promptly
upon the director's arrival, to the holding of, or transaction of business at,
the meeting;

          (b) the director's dissent or abstention from the action is entered in
the minutes of the meeting; or

                                       10

<PAGE>
 
               (c) the director delivers written notice of the director's
     dissent or abstention to the presiding officer of the meeting before its
     adjournment or to the Corporation within a reasonable time after
     adjournment of the meeting. The right to dissent or abstain is not
     available to a director who voted in favor of the action taken.

          13.  Action by Directors Without a Meeting.
               ------------------------------------- 

               (a) Any action required or permitted to be taken at a meeting of
     the Board of Directors, or of a committee thereof, may be taken without a
     meeting if the action is taken by all members of the Board of Directors.
     The action must be evidenced by one or more written consents setting forth
     the action taken, signed by each of the directors, or by each of the
     members of the committee, as the case may be, either before or after the
     action taken, and delivered to the Corporation for inclusion in the minutes
     or filing with the Corporation's records.

               (b) Action taken under this section is effective when the last
     director signs the consent, unless the consent specifies a later effective
     date.

          14.  Participation by Means of Communications Equipment. Any or all
               --------------------------------------------------            
     directors may participate in a regular or special meeting of the Board of
     Directors (or of a committee thereof) by, or may conduct the meeting
     through the use of, any means of communication by which all directors
     participating can hear each other during the meeting.

          15.  Committees.
               ---------- 

               (a) The Board of Directors, by resolution adopted by a majority
     of the full Board of Directors, may create one or more committees of
     directors. Each committee must have two or more members who serve at the
     pleasure of the Board of Directors. To the extent specified by the Board of
     Directors, each committee may exercise the authority of the Board of
     Directors, except that no committee shall have the authority to:

                   (i) authorize or approve a distribution except according to a
     general formula or method prescribed by the Board of Directors;

                   (ii) approve or propose to shareholders action that by law is
     required to be approved by shareholders;

                   (iii)  fill vacancies on the Board of Directors or any of its
     committees;

                   (iv) amend the Articles of Incorporation;

                   (v)   adopt, amend or repeal these Bylaws;

                                       11

<PAGE>
 
              (vi) approve a plan of merger not requiring shareholder approval;
or
              (vii) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares, except that the Board of
Directors may authorize a committee (or a senior executive officer of the
Corporation) to do so within limits specifically prescribed by the Board of
Directors.

          (b) The creation of, delegation of authority to or action by a
committee does not alone constitute compliance by a director with the standards
of conduct required by the Washington Business Corporation Act and these Bylaws.

     16.  Remuneration. No stated salary shall be paid directors, as such, for
          ------------                                                        
their service, but by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board of Directors or of a committee thereof; provided,
that nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor

                                   ARTICLE V

                                    Officers
                                    --------

     1.  Designations.  The officers of the Corporation shall be a President, a
         ------------                                                          
Secretary and, at the discretion of the Board of Directors, one or more Vice-
Presidents and a Treasurer.  The Board of Directors shall appoint all officers.
Any two or more offices may be held by the same individual.

     The Board of Directors, in its discretion, may elect a Chairman from among
its members to serve as Chairman of the Board of Directors, who, when present,
shall preside at all meetings of the Board of Directors and the shareholders,
and who shall have such other powers as the Board may determine.

     2.  Appointment and Term of Office. The officers of the Corporation shall
         ------------------------------                                       
be appointed annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the shareholders. Each
officer shall hold office until a successor shall have been appointed and
qualified, or until such officer's earlier death, resignation or removal.

     3.  Powers and Duties. If the Board appoints persons to fill the following
         -----------------                                                     
positions, such officers shall have the power and duties set forth below:

                                       12

<PAGE>
 
          (a) The President. The President of the Corporation shall be the Chief
              -------------                                                     
Executive Officer of the Corporation and, subject to the direction and control
of the Board of Directors, shall have general control and management of the
business affairs and policies of the Corporation. The President shall act as
liaison from and as spokesman for the Board of Directors. The President shall
participate in long-range planning for the Corporation and shall be available
to the other officers of the Corporation for consultation. The President shall
possess power to sign all certificates, contracts and other instruments of the
Corporation. Unless a Chairman of the Board of Directors has been appointed and
is present, the President shall preside at all meetings of the shareholders and
of the Board of Directors. The President shall perform all such other duties as
are incident to the office of President or are properly required by the Board of
Directors.

          (b) Vice-Presidents. During the absence or disability of the
              ---------------                                         
President, the Executive or Senior Vice-Presidents, if any, and the Vice-
Presidents, if any, in the order designated by the Board of Directors, shall
exercise all the functions of the President. Each Vice-President shall have such
powers and discharge such duties as may be assigned from time to time by the
Board of Directors.

          (c) The Secretary. The Secretary shall issue notices for all meetings,
              -------------                                                     
except for notices for special meetings of the shareholders and special meetings
of the directors which are called by the requisite percentage of shareholders or
number of directors, shall keep minutes of all meetings, shall have charge of
the seal and the Corporation's books, and shall make such reports and perform
such other duties as are incident to the office of Secretary, or are properly
required of him or her by the Board of Directors.

          (d) The Treasurer. The Treasurer shall have the custody of all moneys
              -------------                                                   
and securities of the Corporation and shall keep regular books of account. The
Treasurer shall disburse the funds of the Corporation in payment of the just
demands against the Corporation or as may be ordered by the Board of Directors,
taking proper vouchers or receipts for such disbursements, and shall render to
the Board of Directors from time to time as may be required an account of all
transactions as Treasurer and of the financial condition of the Corporation. The
Treasurer shall perform such other duties incident to his or her office or that
are properly required of him or her by the Board of Directors.

     4.   Standards of Conduct for Officers.
          --------------------------------- 

          (a)  An officer with discretionary authority shall discharge such
officer's duties under that authority:

               (i)   in good faith;

                                       13

<PAGE>
 
               (ii)  with the care an ordinary prudent person in a like position
would exercise under similar circumstances; and

               (iii) in a manner the officer reasonably believes to be in the 
best interests of the Corporation.
 
     5.   Delegation. In the case of absence or inability to act of any officer
          ----------                                                           
of the Corporation and of any person herein authorized to act in such officer's
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any director or other person whom
it may in its sole discretion select.

     6.   Vacancies. Vacancies in any office arising from any cause may be
          ---------  
filled by the Board of Directors at any regular or special meeting of the Board.

     7.   Other Officers. The Board of Directors, or a duly appointed officer
          --------------                                                      
to whom such authority has been delegated by Board resolution, may appoint such
other officers and agents as it shall deem necessary or expedient, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.

     8.   Resignation. An officer may resign at any time by delivering notice to
          -----------                                                           
the Corporation. Such notice shall be effective when delivered unless the notice
specifies a later effective date. Any such resignation shall not affect the
Corporation's contract rights, if any, with the officer.

     9.   Removal. Any officer elected or appointed by the Board of Directors
          -------  
may be removed at any time, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.

     10.  Salaries and Contract Rights. The salaries, if any, of the officers
          ----------------------------                                       
shall be fixed from time to time by the Board of Directors. The appointment of
an officer shall not of itself create contract rights.

     11.  Bonds. The Board of Directors may, by resolution, require any and all
          -----                                                                
of the officers to give bonds to the Corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.

                                       14

<PAGE>
 
                                  ARTICLE VI

                           Distributions and Finance
                           -------------------------

     1.   Distributions. The Board of Directors may authorize and the
          -------------      
Corporation may make distributions to its shareholders; provided that no
distribution may be made if, after giving it effect, either:

          (a)  The Corporation would not be able to pay its debts as they become
due in the usual course of business; or

          (b)  The Corporation's total assets would be less than the sum of its
total liabilities plus the amount which would be needed, if the Corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution.

     The Board of Directors may authorize distributions to holders of record at
the close of business on any business day prior to the date on which the
distribution is made. If the Board of Directors does not fix a record date for
determining shareholders entitled to a distribution, the record date shall be
the date on which the Board of Directors authorizes the distribution.

     2.   Measure of Effect of a Distribution. For purposes of determining
          -----------------------------------                             
whether a distribution may be authorized by the Board of Directors and paid by
the Corporation under Article VI, Section 1 of these Bylaws, the effect of the
distribution is measured:

          (a)  In the case of a distribution of indebtedness, the terms of which
provide that payment of principal and interest are made only if and to the
extent that payment of a distribution to shareholders could then be made under
this section, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made; or

          (b)  In the case of any other distribution:

               (i)    if the distribution is by purchase, redemption, or other
acquisition of the Corporation's shares, the effect of the distribution is
measured as of the earlier of the date any money or other property is
transferred or debt incurred by the Corporation, or the date the shareholder
ceases to be a shareholder with respect to the acquired shares;

               (ii)   if the distribution is of an indebtedness other than
described in subsection 2(a) and (b)(i) of this section, the effect of the
distribution is measured as of the date the indebtedness is distributed; and

                                       15

<PAGE>
 
               (iii)     in all other cases, the effect of the distribution is
measured as of the date the distribution is authorized if payment occurs within
120 days after the date of authorization, or the date the payment is made if it
occurs more than 120 days after the date of authorization.

     3.   Depositories. The monies of the Corporation shall be deposited in the
          ------------                                                         
name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.

                                 ARTICLE VII 

                                   Notices 
                                   -------  

     Except as may otherwise be required by law, any notice to any shareholder
or director must be in writing and may be transmitted by: mail, private carrier
or personal delivery; telegraph or teletype; or telephone, wire or wireless
equipment which transmits a facsimile of the notice. Written notice by the
Corporation to its shareholders shall be deemed effective when mailed, if mailed
with first-class postage prepaid and correctly addressed to the shareholder's
address shown in the Corporation's current record of shareholders. Except as set
forth in the previous sentence, written notice shall be deemed effective at the
earliest of the following: (i) when received; (ii) five days after its deposit
in the United States mail, as evidenced by the postmark, if mailed with first-
class postage, prepaid and correctly addressed; or (iii) on the date shown on
the return receipt, if sent by registered or certified mail, return receipt
requested, and receipt is signed by or on behalf of the addressee.

                                 ARTICLE VIII

                                     Seal
                                     ----

     The Corporation may adopt a corporate seal which seal shall be in such form
and bear such inscription as may be adopted by resolution of the Board of
Directors.

                                       16

<PAGE>
 
                                  ARTICLE IX

                         Indemnification of Officers,
                         ----------------------------
                        Directors, Employees and Agents
                        -------------------------------

     1.   Definitions. For purposes of this Article:
          -----------                               

          (a)  "Corporation" includes any domestic or foreign predecessor entity
of the Corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.

          (b)  "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise. A director is
considered to be serving an employee benefit plan at the Corporation's request
if the director's duties to the Corporation also impose duties on, or otherwise
involve services by, the director to the plan or to participants in or
beneficiaries of the plan. "Director" includes, unless the context requires
otherwise, the estate or personal representative of a director.

          (c)  "Expenses" include counsel fees.

          (d)  "Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan, or reasonable expenses incurred with respect to a proceeding.

          (e)  "Official capacity" means: (i) When used with respect to a
director, the office of director in the Corporation; and (ii) when used with
respect to an individual other than a director, as contemplated in Section 6 of
this Article IX, the office in the Corporation held by the officer or the
employment or agency relationship undertaken by the employee or agent on behalf
of the Corporation. "Official capacity" does not include service for any other
foreign or domestic corporation or any partnership, joint venture, trust,
employee benefit plan, or other enterprise.

          (f)  "Party" includes an individual who was, is, or is threatened to
be made a named defendant or respondent in a proceeding.

          (g)  "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
and whether formal or informal.

                                       17

<PAGE>
 
     2.   Right to Indemnification.
          ------------------------ 

          (a)  The Corporation shall indemnify any person who was or is a party
to any proceeding, whether or not brought by or in the right of the Corporation,
by reason of the fact that such person is or was a director of the Corporation,
against all reasonable expenses incurred by the director in connection with the
proceeding.

          (b)  Except as provided in subsection (e) of this Section 2, the
Corporation shall indemnify an individual made a party to a proceeding because
the individual is or was a director against liability incurred in the
proceeding if:

               (i)    The individual acted in good faith; and

               (ii)   The individual reasonably believed:

                      (A)  In the case of conduct in the individual's official
capacity with the Corporation, that the individual's conduct was in the
Corporation's best interests; and

                      (B)  In all other cases, that the individual's conduct was
at least not opposed to the Corporation's best interests; and

               (iii)  In the case of any criminal proceeding, the individual had
no reasonable cause to believe the individual's conduct was unlawful.

          (c)  A director's conduct with respect to an employee benefit plan for
a purpose the director reasonably believed to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection (b)(ii) of this Section 2.

          (d)  The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this Section.

          (e)  The Corporation shall not indemnify a director under this 
Section 2:

               (i)    In connection with a proceeding by or in the right of the
Corporation in which the director was adjudged liable to the Corporation; or

               (ii)   In connection with any other proceeding charging improper
personal benefit to the director, whether or not involving action in the
director's official

                                       18

<PAGE>
 
capacity, in which the director was adjudged liable on the basis that personal
benefit was improperly received by the director.

          (f)  Indemnification under this Article IX, Section 2 in connection
with a proceeding by or in the right of the Corporation is limited to reasonable
expenses incurred in connection with the proceeding.

     3.   Advance for Expenses.
          -------------------- 

          (a)  The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding and in advance of any determination and
authorization of indemnification pursuant to Section 5 of this Article IX if:

               (i)   The director furnishes the Corporation a written
affirmation of the director's good faith belief that the director has met the
standard of conduct described in Section 2 of this Article IX; and

               (ii)  The director furnishes the Corporation a written
undertaking, executed personally or on the director's behalf, to repay the
advance if it is ultimately determined that the director did not meet the
standard of conduct.

          (b)  The undertaking required by subsection (a)(i) of this Section 3
must be an unlimited general obligation of the director but need not be secured
and may be accepted without reference to financial ability to make repayment.

     4.   Court-ordered Indemnification. A director of the Corporation who is a
          -----------------------------                                        
party to a proceeding may apply for indemnification or advance of expenses to
the court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court after giving any notice
the court considers necessary may order indemnification or advance of expenses
if it determines:

          (a)  The director is entitled to mandatory indemnification pursuant to
RCW 23B.08.520, in which case the court shall also order the Corporation to pay
the director's reasonable expenses incurred to obtain court-ordered
indemnification;

          (b)  The director is fairly and reasonably entitled to indemnification
in view of all the relevant circumstances, whether or not the director met the
standard of conduct set forth in Section 2 of this Article IX, or was adjudged
liable as described in Section 2(e) of this Article IX, but if the director was
adjudged so liable, the director's indemnification is limited to reasonable
expenses incurred; or

                                       19

<PAGE>
 
          (c)  In the case of an advance of expenses, the director is entitled
pursuant to the Articles of Incorporation, Bylaws, or any applicable resolution
or contract, to payment or reimbursement of the director's reasonable expenses
incurred as a party to the proceeding in advance of final disposition of the
proceeding.

     5.   Determination and Authorization of Indemnification.
          -------------------------------------------------- 

          (a)  The Corporation shall not indemnify a director under this 
Article IX unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the circumstances
because the director has met the standard of conduct set forth in Section 2(b)
of this Article IX.

          (b)  The determination shall be made:

               (i)   By the Board of Directors by majority vote of a quorum
consisting of directors not at the time parties to the proceeding;

               (ii)  If a quorum cannot be obtained under (i) of this
subsection, by majority vote of a committee duly designated by the Board of
Directors, in which designation directors who are parties may participate,
consisting solely of two or more directors not at the time parties to the
proceeding;

               (iii) By special legal counsel:

                         (A) Selected by the Board of Directors or its committee
in the manner prescribed in (i) or (ii) of this subsection; or

                         (B) If a quorum of the Board of Directors cannot be
obtained under (i) of this subsection and a committee cannot be designated under
(ii) of this subsection, selected by majority vote of the full Board of
Directors, in which selection directors who are parties may participate; or

               (iv)  By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not be
voted on the determination.

          (c)  Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (b)
(iii) of this Section to select counsel.

                                       20

<PAGE>
 
     6.   Indemnification of Officers
          ---------------------------

          (a)  An officer of the Corporation who is not a director shall be
indemnified pursuant to RCW 23B.08.520, and is entitled to apply for court-
ordered indemnification under Section 4 of this Article IX, in each case to the
same extent as a director; and

          (b)  The Corporation shall indemnify and advance expenses to an
officer who is not a director to the same extent as to a director under this
Article IX.

          (c)  The Corporation may also indemnify and advance expenses to an
officer who is not a director to the extent, consistent with law, that may be
provided by a general or specific action of its Board of Directors, or contract.

     7.   Indemnification of Employees and Agents.
          --------------------------------------- 

          (a)  The Corporation may indemnify employees and agents of the
Corporation pursuant to RCW 23B.08.520, and may afford the right to such
employees or agents to apply for court-ordered indemnification under Section 4
of this Article IX, in each case to the same extent as a director; and

          (b)  The Corporation may indemnify and advance expenses to an employee
or agent of the Corporation who is not a director to the same extent as to a
director under this Article IX.

          (c)  The Corporation may also indemnify and advance expenses to an
employee or agent who is not a director to the extent, consistent with law, that
may be provided by a general or specific action of its Board of Directors, or
contract.

     8.   Insurance. The Corporation may purchase and maintain insurance on
          ---------                                                        
behalf of an individual who is or was a director; officer; employee, or agent of
the Corporation, or who, while a director; officer; employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director;
officer; partner; trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust employee benefit plan, or other
enterprise, against liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director; officer,
employee, or agent, whether or not the Corporation would have power to indemnify
the individual against the same liability under this Article IX.

     9.   Indemnification as a Witness. This Article IX does not limit a
          ----------------------------                                  
Corporation's power to pay or reimburse expenses incurred by a director in
connection with the director's appearance as a witness in a proceeding at a time
when the director has not been made a named defendant or respondent to the
proceeding.

                                       21

<PAGE>
 
     10.  Report to Shareholders. If the Corporation indemnifies or advances
          ----------------------                                            
expenses to a director pursuant to this Article IX in connection with a
proceeding by or in the right of the Corporation, the Corporation shall report
the indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.

     11.  Shareholder Authorized Indemnification.
          -------------------------------------- 

          (a)  If authorized by a resolution adopted or ratified, before or
after the event, by the shareholders of the Corporation, the Corporation shall
have the power to indemnify or agree to indemnify a director made a party to a
proceeding, or obligate itself to advance or reimburse expenses incurred in a
proceeding, without regard to the limitations contained in this Article IX
(other than this Section 11); provided that no such indemnity shall indemnify
any director from or on account of:

                 (i)  Acts or omissions of the director finally adjudged to be
intentional misconduct or a knowing violation of law;

                (ii)  Conduct of the director finally adjudged to be an unlawful
distribution under RCW 23B.08.310; or

               (iii)  Any transaction with respect to which it was finally
adjudged that such director personally received a benefit in money, property, or
services to which the director was not legally entitled.

          (b)  Unless a resolution adopted or ratified by the shareholders of
the Corporation provides otherwise, any determination as to any indemnity or
advance of expenses under subsection (a) of this Section 11 shall be made in
accordance with Section 5 of this Article IX.

     12.  Validity of Indemnification. A provision addressing the Corporation's
          ---------------------------                                           
indemnification of or advance for expenses to directors that is contained in
these Bylaws, a resolution of its shareholders or Board of Directors, or in a
contract or otherwise, is valid only if and to the extent the provision is
consistent with RCW 23B.08.500 through 23B.08.580.

     13.  Interpretation. The provisions contained in this Article IX shall be
          --------------                                                      
interpreted and applied to provide indemnification to directors, officers,
employees and agents of the Corporation to the fullest extent allowed by
applicable law, as such law may be amended, interpreted and applied from time to
time.

     14.  Savings Clause. If this Article IX or any portion thereof shall be
          --------------                                                    
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless

                                       22

<PAGE>
 
indemnify each director as to reasonable expenses and liabilities with respect
to any proceeding, whether or not brought by or in the right of the Corporation,
to the full extent permitted by any applicable portion of this Article IX that
shall not have been invalidated, or by any other applicable law.

     15.  Nonexclusivity of Rights. The right to indemnification under this
          ------------------------                                         
Article IX for directors, officers, employees and agents shall not be exclusive
of any other right which any person may have, or hereafter acquire, under any
statute, provision of the Articles of Incorporation, Bylaws, other agreement,
vote of shareholders or disinterested directors, insurance policy, principles of
common law or equity, or otherwise.

                                   ARTICLE X

                               Books and Records
                               -----------------

     The Corporation shall maintain appropriate accounting records and shall
keep as permanent records minutes of all meetings of its shareholders and Board
of Directors, a record of all actions taken by the shareholders or the Board of
Directors without a meeting and a record of all actions taken by a committee of
the Board of Directors. In addition, the Corporation shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and class of the shares held by each. Any books, records and minutes
may be in written form or any other form capable of being converted into written
form within a reasonable time.

     The Corporation shall keep a copy of the following records at its principal
office:

     1.   The Articles or Restated Articles of Incorporation and all amendments
thereto currently in effect;

     2.   The Bylaws or Restated Bylaws and all amendments thereto currently in
effect;

     3.   The minutes of all shareholders' meetings, and records of all actions
taken by shareholders without a meeting, for the past three years;

     4.   Its financial statements for the past three years, including balance
sheets showing in reasonable detail the financial condition of the Corporation
as of the close of each fiscal year, and an income statement showing the results
of its operations during each fiscal year prepared on the basis of generally
accepted accounting principles or, if not, prepared on a basis explained
therein;

                                       23

<PAGE>
 
     5.   All written communications to shareholders generally within the past 
three years;

     6.   A list of the names and business addresses of its current directors
and officers; and

     7.   Its most recent annual report delivered to the Secretary of State of
Washington.  
 
                                   ARTICLE XI

                                   Amendments
                                   ----------

     1.   By Shareholders. These Bylaws may be amended or repealed by the
          ---------------                                                 
shareholders in the manner set forth in Article II, Section 9 of these Bylaws at
any regular or special meeting of the shareholders.

     2.   By Directors. The Board of Directors shall have power to amend or 
          ------------                                                     
repeal the Bylaws of, or adopt new bylaws for, the Corporation. However, any
such Bylaws, or any alteration, amendment or repeal of the Bylaws, may be
subsequently changed or repealed by the holders of a majority of the stock
entitled to vote at any shareholders' meeting.

     3.   Emergency Bylaws. The Board of Directors may adopt emergency Bylaws,
          ----------------                                                    
subject to repeal or change by action of the shareholders, which shall be
operative during any emergency in the conduct of the business of the Corporation
resulting from an attack on the United States, any state of emergency declared
by the federal government or any subdivision thereof, or any other catastrophic
event.    

     Restated by resolution of the Corporation's Board of Directors on July 16,
1996.

                         /s/ Michael J. Kennedy
                         ---------------------------------
                         Michael J. Kennedy, Secretary

                                       24



<PAGE>
 
                                                                    EXHIBIT 10.1

                            CELL THERAPEUTICS, INC.

                     SERIES A CONVERTIBLE PREFERRED STOCK,
                               without par value

                            STOCK PURCHASE AGREEMENT
                           _________________________

                                                        as of September 17, 1996

Cell Therapeutics, Inc.
201 Elliott Avenue West, Suite 400
Seattle, Washington  98119

Gentlemen:

          This Stock Purchase Agreement ("Agreement") is made by and between
Cell Therapeutics, Inc., a Washington corporation ("CTI" or the "Company"), and
the undersigned prospective purchasers (each, an "Investor," and collectively,
the "Investors") who are subscribing hereby for up to an aggregate of 44,776.119
shares (the "Shares") of the Company's Series A Convertible Preferred Stock,
without par value (the "Preferred Stock"), pursuant to the terms set forth
herein.  The Shares and the Conversion Shares (as defined herein) are herein
referred to collectively as the "Securities."

          In consideration of the Company's agreement to sell Shares to each
Investor, and each Investor's agreement to purchase Shares from the Company, all
on the terms and subject to the conditions contained herein, each of the Company
and each Investor agrees and represents as follows:

A.   SUBSCRIPTION

          1.  Subject to the terms and conditions of this Agreement, each
Investor hereby subscribes for and agrees to purchase, and the Company
 agrees to
sell, the number of Shares indicated on the signature pages hereto at a purchase
price of $335.00 per share, for the consideration set forth on the signature
pages hereto (the "Subscriptions").

          2.  (a) The closing (the "Closing") of the purchase of the Shares
provided for in Section A.1 shall take place at the offices of the Company, 201
Elliott Avenue West, Suite 400, Seattle, Washington, at 10:00 A.M. (Seattle
time) on September 17, 1996 or at such other place or such other time or date as
the Company and the Investors may agree.

          (b) At the Closing, against delivery by the Investors of payment
therefor to the account of the Company at First Interstate Bank of Oregon, N.A.,
Portland,

<PAGE>
 
                                       2


Oregon, ABA # 123-000-123, NW Trust Custody T-13, Account Number 450878,
Attention:  Ramona Steinbrugge or Luann Bird, Reference:  Cell Therapeutics,
Inc., and subject to the satisfaction of all conditions precedent set forth
herein, the Company will deliver to each Investor a certificate or certificates
evidencing the number of Shares purchased by such Investor, registered in such
Investor's name.

B.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          The Company hereby represents and warrants to, and agrees with, the
Investors as follows:

          1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington and is duly licensed or qualified as a
foreign corporation in each other jurisdiction where the nature of business
transacted by it makes such licensing or qualification necessary. The Company
has the corporate power and authority and the legal right, to own and operate
its properties and to carry on its business as currently conducted, to execute
deliver, and perform this Agreement and that certain Registration Rights
Agreement, dated as of the Closing Date, among the Company and the Investors and
substantially in the form annexed hereto as Exhibit A (the "Registration Rights
Agreement"), to issue, sell and deliver the Shares, to issue and deliver the
shares of Common Stock, no par value, of the Company ("Common Stock"), issuable
upon conversion of the Shares ("Conversion Shares") and in all other respects to
consummate the transactions contemplated hereby and thereby.

          2.  The Company does not own any shares of any corporation or have any
ownership or other investment interest, either of record, beneficially or
equitably, in any association, partnership, joint venture or other legal entity.

          3.  The execution and delivery by the Company of this Agreement and
the Registration Rights Agreement, the performance by the Company of its
obligations hereunder and thereunder, the issuance, sale and delivery by the
Company of the Shares pursuant hereto and the issuance and delivery of the
Conversion Shares upon conversion of the Shares, have been duly authorized by
all requisite corporate action, including without limitation all requisite
action on the part of the Company's shareholders, and will not violate any
provision of law, any order of any court or other agency of government, the
Articles of Incorporation or By-laws of the Company, any judgment award or
decree or any provision of any indenture, agreement or other instrument, to
which the Company is a party, or by which it, or any of its properties or
assets, is bound or affected, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company,

<PAGE>
 
                                       3

or result in any suspension, revocation, impairment, forfeiture or nonrenewal of
any Governmental Permit (as hereinafter defined).

          4.    The Shares have been duly authorized by the Company and, when
paid for in accordance with this Agreement, will be validly issued, fully paid
and nonassessable shares of Preferred Stock. The Conversion Shares have been
duly reserved for issuance upon conversion of the Shares and, when so issued,
will be duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock. Neither the issuance, sale and delivery of the Shares nor the
issuance and delivery of the Conversion Shares are subject to any preemptive
rights of shareholders of the Company or to any right of first refusal or other
similar right in favor of any person.

          5.    Each of this Agreement and the Registration Rights Agreement has
been duly executed and delivered by the Company and, subject to due execution by
the Investors, constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its respective
terms.

          6.    The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, of which 17,300,574 shares are issued and
outstanding as of the date hereof, and 10,000,000 shares of preferred stock, no
par value ("Existing Preferred Stock"), of which 150,000 shares have been
authorized and designated as Preferred Stock, of which 95,447.004 shares are
issued and outstanding as of the date hereof. All shares of capital stock
outstanding as of the date hereof have been duly authorized and validly issued,
and are fully paid and nonassessable. 15,000,000 shares of Common Stock have
been reserved for issuance upon conversion of the Preferred Stock. The
designations, preferences, limitations and relative rights of the Preferred
Stock are set forth in the Certificate of Amendment to Articles of Incorporation
of the Company, as set forth in Exhibit B annexed hereto (the "Articles of
Amendment").

          7.    The Shares to be issued and delivered to the Investors pursuant
to this Agreement shall be offered, issued and sold in compliance with the
Securities Act of 1933, as amended (the "Securities Act"), and any other
applicable United States federal or state securities laws.

          8.    Except (a) for the obligations of the Company to the Investors
under this Agreement, (b) as otherwise set forth in the SEC Reports, and (c) for
stock options granted to employees, officers and consultants of the Company
subsequent to the date of the SEC Reports pursuant to the Company's 1994 Equity
Incentive Plan, (i) no subscription, warrant, option, convertible security or
other right (contingent or other) to purchase or acquire any shares of any class
of capital stock of the Company is authorized or outstanding, (ii) there is not
any commitment of the Company to issue any shares, warrants, options or other
such rights or to distribute to holders of any class of its capital stock any
evidences of

<PAGE>
 
                                       4

indebtedness or assets and (iii) the Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any shares of the capital stock
of the Company or any interest therein or to pay any dividend or make any other
distribution in respect thereof.

          9.  (a)   The Company has filed all forms, reports and documents
required to be filed with the Securities and Exchange Commission (the "SEC")
since April 29, 1996 and has made available to the Investors (i) its
Registration Statement on Form 10, as amended by Amendment No. 2 thereto filed
with the SEC on June 28, 1996; (ii) its Quarterly Report on Form 10-Q for the
period ended June 30, 1996; (iii) all other reports or registration statements
filed by the Company with the SEC since June 28, 1996; and (iv) all amendments
and supplements to all such reports and registration statements filed by the
Company with the SEC (collectively, the "SEC Reports"). The SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amending or superseding filing) contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

          (b)       Each of the financial statements (including, in each case,
any related notes thereto) contained in the SEC Reports was prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis throughout the periods involved (except as may be
indicated therein or in the notes thereto) and each fairly presented the
financial position of the Company as at the respective dates thereof and the
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount.

          10.       Except as set forth in the SEC Reports, since June 30, 1996,
the Company has conducted its business in the ordinary course and there has not
occurred: (i) any change or effect that is or is reasonably likely to be
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Company taken as a whole,
(ii) any amendments or changes in the Articles of Incorporation or By-laws of
the Company, other than an amendment to the Company's By-laws adopted on July
16, 1996, (iii) any change by the Company in its accounting methods, principles
or practices, (iv) any revaluation by the Company of any of its assets, (v) any
sale of a material amount of property of the Company, (vi) any discharge or
satisfaction by the Company of any material lien, security interest, charge or
other encumbrance or any payment by the Company of any material obligation or
liability (fixed or contingent), other than in the ordinary course of business
and consistent with past practice, (vii) any investment by the Company of a
capital nature, whether by purchase of stock or securities, contributions

<PAGE>
 
                                       5

to capital, property transfers or otherwise, in any other partnership,
corporation or other entity, or any purchase by the Company of any material
property or assets, (viii) any cancellation or compromise by the Company of any
debt or claim other than in the ordinary course of business consistent with past
practice, (ix) any waiver or release by the Company of any rights of material
value, including, without limitation, any Intangible Rights (as hereinafter
defined), (x) any material wage or salary increase by the Company applicable to
any group or classification of employees generally, or any material employment
contract with, loan to, or material transaction of any other nature with, any
officer or employee of the Company, or (xi) any establishment by the Company of
any employee benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974.

          11.  Except as and to the extent (i) reflected in the financial
statements contained in the SEC Reports or (ii) incurred since June 30, 1996 in
the ordinary course of business and consistent with past practice, the Company
has no liabilities or obligations of any kind or nature, whether secured or
unsecured (whether absolute, accrued, contingent or otherwise, and whether due
or to become due), including without limitation any tax liabilities due or to
become due, or whether incurred in respect of or measured by the assets, sales,
income or receipts of the Company for any period, which liabilities or
obligations would be required to be reflected on a balance sheet of the Company
as of December 31, 1995, prepared in accordance with generally accepted
accounting principles.

         12.   No order, authorization, approval or consent from, or filing
with, any federal or state governmental or public body or other authority having
jurisdiction over the Company is required for the valid execution (where called
for), delivery and performance of this Agreement or the Registration Rights
Agreement by the Company, the issuance, sale and delivery of the Shares or, upon
conversion of the Shares, the issuance and delivery of the Conversion Shares, or
is required in order that the business of the Company can be conducted
immediately following the Closing Date substantially in the same manner as
heretofore conducted, except for those that have been made and obtained, and for
those filings under state "blue sky" laws which are now not required to be made
or obtained.

          13.  Except as set forth in the SEC Reports, the Company has good and
valid title to all its assets and properties, in each case free and clear of all
liens, charges, security interests or other encumbrances of any nature
whatsoever, other than (x) liens for taxes not yet due, (y) mechanic's,
materialman's and similar statutory liens arising in the ordinary course of
business and which, in the aggregate, would not have a material adverse effect
on the business, properties or condition (financial or other) of the Company, or
(z) security interests securing indebtedness not in default for the purchase
price of or lease rental payments on property purchased or leased under capital
lease arrangements in the ordinary course of business.

<PAGE>
 
                                       6

          14.  Except as is set forth in the SEC Reports, the Company complies
with its contractual obligations relating to the protection of such of the
patents, trademarks and trade names, trademark and trade name registrations,
logos, servicemark registrations, copyright registrations, all applications
pending on the date hereof for patent or for trademark, trade name, servicemark
or copyright registrations, and all other material proprietary rights
(collectively "Intangible Rights") used by it pursuant to licenses or other
contracts, the Company has the right to its Intangible Rights for the purposes
intended thereby, and to conduct its business as heretofore conducted, and the
consummation of the transactions contemplated hereby will not alter or impair
any such Intangible Rights, and, to the knowledge of the Company, all such
Intangible Rights that are capable of being enforced are valid, enforceable and
in good standing, and no claims have been asserted with respect to the ownership
by the Company of any of the Intangible Rights or otherwise. To the knowledge of
the Company, except as is set forth in the SEC Reports (i) no person is
infringing an Intangible Right owned by the Company and (ii) the Company is not
infringing any valid patent, copyright or trademark owned by any third party.

          15.  Except as set forth in the SEC Reports, there are no material
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened, by or against the Company or any of its
properties, assets, rights or businesses. No such pending or threatened claims,
actions, suits, proceedings or investigations, if adversely determined, would,
individually or in the aggregate, have a material adverse effect on the
business, properties or condition (financial or other) of the Company. Except as
set forth in the SEC Reports, the Company knows of no basis for any other such
claim, action, suit, proceeding or investigation which, if adversely decided,
would have such a material adverse effect. Except as set forth in the SEC
Reports, there are no actions, suits, proceedings or claims pending before or by
any court, arbitrator, regulatory authority or government agency against or
affecting the Company that might enjoin or prevent the consummation of the
transactions contemplated by this Agreement or the Registration Rights
Agreement.

          16.  The Company has duly and timely filed or caused to be filed (or
obtained valid, currently effective extensions for filing) all Federal, state,
local and foreign income, franchise, excise, payroll, sales and use, property,
withholding and other tax returns, reports, estimates and information and other
statements or returns (collectively "Tax Returns") required to be filed by or on
behalf of it pursuant to any applicable Federal, state, local or foreign tax
laws for all years and periods for which such Tax Returns have become due. All
such Tax Returns were correct in all material respects as filed and correctly
reflect the Federal, state, local and foreign income, franchise, excise,
payroll, sales and use, property, withholding and other taxes, duties, imposts
and governmental charges (and charges in lieu of any thereof), together with
interest, any additions to tax and penalties (collectively "Taxes") required to
be paid or collected by (or allocable to) the Company. The Company (i) has paid
or caused to be paid all Taxes as shown on Tax Returns filed by it or on any
assessment received by it and (ii) has properly and fully accrued on its audited
and

<PAGE>
 
                                       7

interim unaudited financial statements all Taxes for any period from the date of
the last reporting period covered by such Tax Returns.  There is no audit
pending or threatened in writing, and, to the knowledge of the Company, there is
no dispute or claim being threatened by any relevant taxing authority concerning
any Tax Return or liability for Taxes.  Without limiting the foregoing, the
Company has withheld or collected from each payment made to each of its
employees (or has otherwise paid or made provision for) the amount of all Taxes
(including, but not limited to, Federal income taxes, Federal Insurance
Contribution Act taxes, state and local income and wage taxes, payroll taxes,
worker's compensation and unemployment compensation taxes) required to be
withheld or collected therefrom, and the Company has paid (or caused to be paid)
the same in respect of its employees when due.

          17.  (a) The Company has all material governmental licenses,
franchises and permits ("Governmental Permits") required under applicable law
for the conduct of its business as currently conducted, including, without
limitation, all such licenses, franchises and permits as are required for
laboratory use, manufacturing, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances.

          (b)  The business of the Company is being conducted in material
compliance with all applicable laws, ordinances, rules and regulations of all
governmental authorities relating to the Company's properties or applicable to
its business, including without limitation the terms of all Governmental
Permits, federal securities laws, and laws relating to safe working conditions,
laboratory and manufacturing practices (including current Good Manufacturing
Practices prescribed by the U.S. Food and Drug Administration ("FDA")), the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances (including, without limitation, radioactive compounds and
solvents).  The Company has not received any notice from any third party of any
alleged violation of any of the foregoing.

          (c)  Neither the Company nor any of its properties, operations or
businesses is subject to any order, judgment, injunction or decree.  To the
knowledge of the Company, no action has been taken or recommended by any
governmental or regulatory official, body or authority, either to revoke,
withdraw or suspend any certificate of need or any license to operate the
Company.

          18.  (a) No collective bargaining agreement is applicable to any
employees of the Company. There are no disputes between the Company and any such
employees that might reasonably be expected to materially adversely affect the
conduct of its business or any unresolved labor union grievances or unfair labor
practice or labor arbitration proceedings pending, or to the knowledge of the
Company, threatened, relating to the business of the Company. To the knowledge
of the Company, there are not any organizational efforts presently being made or
threatened involving any of such employees. The Company has not received notice
of any claim that the Company has failed to comply with

<PAGE>
 
                                       8

any laws relating to employment, including any provisions thereof relating to
wages, hours, collective bargaining, the payment of social security and other
payroll or similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that the Company is liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing except for routine non-material grievances.

          (b) There are no proceedings pending or, to the knowledge of the
Company, threatened before the National Labor Relations Board with respect to
any employees of the Company.  There are no discrimination charges (relating to
sex, age, religion, race, national origin, ethnicity, handicap or veteran
status) pending before any Federal or state agency or authority against the
Company.

          19.  The Company is a named insured under all policies of fire,
liability, workers' compensation, malpractice and professional liability and
other forms of insurance providing insurance coverage to or for the Company. All
premiums with respect to such policies covering all periods have been paid. No
notice of cancellation or termination has been received with respect to any such
policy. All such policies are in full force and effect and will remain in full
force and effect to and including the Closing Date, and coverage thereunder will
continue to be in effect immediately after the Closing Date, without limit as to
time, for occurrences prior to the Closing Date.

          20.  All real property leased by the Company are used and operated by
the Company in material compliance and conformity with all applicable leases.
The Company has not received notice of any material violation of any applicable
zoning or building regulation, ordinance or other law, order, regulation or
requirement relating to the respective real estate assets of the Company and, to
the knowledge of the Company, there are no such material violations.

          21.  All tangible personal property, fixtures and equipment comprising
the assets of the Company are in a good state of repair (ordinary wear and tear
excepted) and operating condition, in all material respects, and are sufficient
and adequate to conduct its business on the date hereof.

          22.  For the purposes of this Section B(22), the following terms shall
have the following meanings:

          "Environmental Law" means any federal, state, provincial or local
     statute, law, ordinance, rule or regulation of the United States and any
     other jurisdiction within the United States now effective and any order, to
     which the Company is a party or is otherwise directly bound, of the United
     States or other jurisdiction within the United States now effective
     relating to:  (a) pollution or protection of the environ-

<PAGE>
 
                                       9

     ment, including natural resources; or (b) exposure of persons, including
     employees, to Hazardous Substances;

          "Hazardous Substances" means any substance, whether liquid, solid or
     gas (a) listed, identified or designated as hazardous or toxic under any
     Environmental Law, (b) which, applying criteria specified in any
     Environmental Law, is hazardous or toxic, or (c) the use or disposal of
     which is regulated under Environmental Law.

          (a) No Hazardous Substances have been, or have been threatened to be,
discharged, released or emitted into the air, water, surface water, ground
water, land surface or subsurface strata or transported to or from the property
of the Company except in accordance with Environmental Law and except for
incidental release of Hazardous Substances in amounts or concentrations which
would not reasonably be expected to give rise to any claims or liabilities
against the Company under Environmental Law.

          (b) The Company has not received any notification from a governmental
agency that there is any material violation of any Environmental Law with
respect to the business and properties of the Company and the Company has not
received any notification from a governmental agency pursuant to Section 104,
106 or 107 of the Comprehensive Environmental Response Compensation and
Liability Act, as amended.

          23.  (a)  Neither the Company nor, to the knowledge of the Company,
any officer, director, employee or agent of the Company, nor any other person or
entity acting on behalf of the Company, acting alone or together, has (i)
received, directly or indirectly, any rebates, payments, commissions,
promotional allowances or any other economic benefits, regardless of their
nature or type, from any customer, governmental employee or other person or
entity with whom the Company has conducted business activities directly or
indirectly, or (ii) directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, governmental employee or other person or entity
who is or may be in a position to help or hinder the business of the Company (or
assist the Company in connection with any actual or proposed transaction)
which, under current law, in the case of either clause (i) or clause (ii) above,
would reasonably be expected to subject the Company to any damage or penalty in
any civil, criminal or governmental litigation or proceeding.

          (b) To the knowledge of the Company, no employee, officer or director
of the Company, has been debarred under (S)306(a) or (S)306(b) of the Federal
Food, Drug and Cosmetic Act or has, within the last five years, been convicted
of (x) a criminal offense relating to the development or approval process of any
drug product, or (y) a felony involving bribery, payment of illegal gratuities,
fraud, perjury, false statements, racketeering, blackmail, extortion,
falsification or destruction of records, or interference with, obstruction of an
investigation into, or prosecution of, any criminal offense or a conspiracy to
commit, aid or abet such felony.

<PAGE>
 
                                       10

          24.  No person authorized by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Shares, or any similar
securities, has taken or will take any action (including, without limitation,
any offer or sale of any securities under circumstances which would require the
integration of such securities with the Shares being issued and sold hereunder
under the Securities Act, or the rules and regulations of the SEC thereunder),
which would subject such offer and sale to the registration provisions of the
Securities Act.

          25.  All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by the Company directly with the
Investors, without the intervention of any person on behalf of the Company in
such manner as to give rise to any claim by any person against any Investor for
a finder's fee, brokerage commission or similar payment.

C.   REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

          Each Investor, severally, hereby represents and warrants to, and
agrees with, the Company as follows:

          1.   Each of this Agreement and the Registration Rights Agreement have
been duly authorized, executed and delivered by the Investor and constitute the
legal, valid and binding obligations of the Investor, enforceable against the
Investor in accordance with their respective terms.

          2.   The Investor acknowledges its understanding that the offering and
sale of the Shares to be purchased hereto by the Investor are intended to be
exempt from registration under the Securities Act.  In furtherance thereof, the
Investor represents and warrants to the Company that the Investor is an
"accredited investor" within the meaning of Rule 501(a) of Regulation D
promulgated under the Securities Act ("Regulation D").

          3.   The Investor has been advised and understands that the Securities
have not been registered under the Securities Act.  The Investor, by purchasing
the Shares, agrees for the benefit of the Company that the Securities may be
resold, pledged or otherwise transferred only (1) to the Company (upon, exchange
or redemption thereof or otherwise), (2) if the Company is then subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act and the
Securities are eligible for resale pursuant to Rule 144A under the Securities
Act ("Rule 144A"), to a person whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A, purchasing for
its own account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or other transfer is being made in
reliance on Rule 144A, (3) in an offshore transaction in accordance with Rule
904 of Regulation S under the Securities Act, but only in the case of a transfer
that is effected by the delivery to the transferee of definitive Securities
registered in

<PAGE>
 
                                       11

its name (or in its nominee's name) on the books maintained by the Company, (4)
pursuant to an exemption from registration in accordance with Rule 144 under the
Securities Act (if available and upon delivery of an opinion of counsel
satisfactory in form and substance to the Company, if requested by the Company),
(5) pursuant to an effective registration statement under the Securities Act, or
(6) pursuant to any other exemption from registration under the Securities Act,
provided an opinion of counsel is furnished reasonably satisfactory in form and
substance to the Company, stating that an exemption from the registration
requirements of the Securities Act is available, in each case in accordance with
any applicable securities laws of any state of the United States.  The Investor
is acquiring the Shares to be purchased by it for its own account for
investment, and not with a view to, or for resale in connection with, the
distribution thereof, and has no present intention of distributing or reselling
any of the Securities.

          4.   The Investor is familiar with the business and operations of the
Company and understands and has evaluated the merits and risks of a purchase of
the Securities.  The Investor has carefully considered and has, to the extent
the Investor believes such discussion necessary, discussed with the Investor's
professional legal, tax, accounting and financial advisors the suitability of an
investment in the Securities and has determined that the Shares being subscribed
for by the Investor are a suitable investment for the Investor.

          5.   The Investor: (i) has a pre-existing business relationship with
the Company or any of its officers, directors or controlling persons or (ii) by
reason of the Investor's business or financial experience, or by reason of the
business or financial experience of the Investor's professional advisors who are
unaffiliated with and who are not compensated by the Company or any affiliate of
the Company, directly or indirectly, has the capacity to protect the Investor's
interest in connection with the investment in the Securities.

          6.   The Company has made available to the Investor all documents and
information that the Investor has requested relating to an investment in the
Securities.  The Investor has been given the opportunity to ask questions of,
and has received answers from, the Company with respect to the business of the
Company, the financial condition of the Company, the terms and conditions of
this investment and other matters pertaining to an investment in the Company,
and the Investor has been given the opportunity to obtain such additional
information necessary to verify the accuracy of the information that was
provided in order for the Investor to evaluate the merits and risks of an
investment in the Company.

          7.   The Investor recognizes that the Company has incurred substantial
accumulated net losses to date and expects to continue to incur operating
losses.  The Investor also recognizes that an investment in the Company involves
substantial risk and could afford a complete loss of such investment.

<PAGE>
 
                                       12

          8.  If this Agreement is executed and delivered on behalf of a
partnership, corporation, trust or estate: (i) such partnership, corporation,
trust or estate has the full legal right and power and all authority and
approval required (a) to execute and deliver, or authorize execution and
delivery of, this Agreement and all other instruments executed and delivered by
or on behalf of such partnership, corporation, trust or estate, in connection
with the purchase of the Shares, (b) to delegate authority pursuant to a power
of attorney and (c) to purchase such Shares and hold the Securities; (ii) the
signature of the party signing on behalf of such partnership, corporation, trust
or estate is binding on such partnership, corporation, trust or estate; and
(iii) such partnership, corporation or trust has not been formed for the
specific purpose of acquiring such Shares, unless each beneficial owner of such
entity is an accredited investor within the meaning of Rule 501(a) of Regulation
D.

          9.   The Investor is not subscribing for the Shares as a result of,
or, to the Investor's knowledge, subsequent to, any general solicitation or
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or meeting.

          10.  The Investor acknowledges that the Company is entering into this
Agreement in reliance upon the Investor's representations and warranties in this
Agreement, including, without limitation, those set forth in this Section C.

          11.  The Investor agrees to provide such additional information,
representations and agreements as the Company may reasonably request in order to
assure compliance with all United States federal and state securities laws
applicable to the offer or sale of the Shares to be purchased by it; provided,
                                                                     -------- 
that, the Investor shall not be obligated to provide the Company with a copy of
- ----                                                                           
its or any of its affiliates' partnership agreement.

D.   CERTAIN UNDERSTANDINGS OF THE INVESTORS

          Each Investor understands, acknowledges and agrees with the Company as
follows:

          1.   The offering and sale of the Securities is intended to be exempt
from registration under the Securities Act by virtue of Section 4(2) of the
Securities Act which is in part dependent upon the truth, completeness and
accuracy of the statements made by the Investor herein.  There is no public
trading market for the Securities and none is expected to develop.

          2.   The Shares are being offered only in a transaction not involving
any public offering within the meaning of the Securities Act, and that (A) if
within three years after the date of original issuance of the Shares it decides
to resell, pledge or otherwise transfer the Securities, the Securities may be
resold, pledged or transferred only (i) to the

<PAGE>
 
                                       13

Company (upon exchange, redemption or otherwise), (ii) if the Company is then
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
and such Security is eligible for resale pursuant to Rule 144A, to a person whom
the seller reasonably believes is a Qualified Institutional Buyer ("QIB") within
the meaning of Rule 144A, (iii) in an offshore transaction in accordance with
Rule 904 of Regulation S, but only in the case of a transfer that is effected by
the delivery to the transferee of definitive securities registered in its name
(or its nominee's name) on the books maintained by the Company, (iv) pursuant to
an exemption from registration in accordance with Rule 144 under the Securities
Act (if available and upon delivery of an opinion of counsel satisfactory in
form and substance to the Company, if requested by the Company), (v) pursuant to
an effective registration statement under the Securities Act, or (vi) pursuant
to any other exemption from registration under the Securities Act, provided an
opinion of counsel is furnished reasonably satisfactory in form and substance to
the Company, stating that an exemption from the registration requirements of the
Securities Act is available, in each case in accordance with any applicable
securities laws of any state of the United States and (B) the Investor will, and
each subsequent holder is required to, notify any purchaser of the Securities
from it of the resale restrictions referred to in (A) above, if then applicable.

          3.   Except as provided in the Registration Rights Agreement, the
Company is under no obligation to register the Securities on behalf of the
Investor.

          4.   The Investor acknowledges that the information furnished to the
Investor by the Company in connection with this Subscription is confidential and
non-public and agrees that all such information shall be kept in confidence by
the Investor and neither used by the Investor to the Investor's personal benefit
(other than in connection with this Subscription) nor disclosed to any third
party for any reason; provided, however, that this obligation shall not apply to
                      --------  -------                                         
any such information which (a) is part of the public knowledge or literature and
readily accessible by publication (except as a result of a breach of this
provision); (b) becomes part of the public knowledge or literature and readily
accessible by publication (except as a result of a breach of this provision); or
(c) is received from third parties (except third parties who disclose such
information in violation of any confidentiality agreements including, without
limitation, any subscription agreement they may have entered into with the
Company).  Notwithstanding the foregoing, if the Investor has been requested or
is required (by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process) to disclose
any such confidential information, the Investor will notify the Company of such
request(s) so that the Company may seek an appropriate protective order or waive
the Investor's compliance with the provisions of this Section D.4.  If, in the
absence of a protective order or the receipt of a waiver hereunder, the Investor
is nonetheless compelled to disclose such confidential information or else stand
liable for contempt or suffer other censure or other penalty, the Investor may
disclose such confidential information pursuant to such requests or requirements
without liability hereunder.

<PAGE>
 
                                       14

          5.  The following legend(s) will be placed on the Securities, unless
otherwise agreed by the Company:

          (a) THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED (THE "SECURITIES ACT").  THE HOLDER HEREOF BY PURCHASING
     THIS SECURITY, AGREES FOR THE BENEFIT OF CELL THERAPEUTICS, INC. ("THE
     COMPANY") THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
     TRANSFERRED ONLY (1) TO THE COMPANY (UPON EXCHANGE OR REDEMPTION THEREOF OR
     OTHERWISE), (2) IF THE COMPANY IS THEN SUBJECT TO THE REPORTING
     REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT AND THIS
     SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
     ACT ("RULE  144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
     QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
     PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) IN AN
     OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF REGULATIONS UNDER THE
     SECURITIES ACT, BUT ONLY IN THE CASE OF A TRANSFER THAT IS EFFECTED BY THE
     DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME
     (OR IN ITS NOMINEE'S NAME) ON THE BOOKS MAINTAINED BY THE COMPANY, (4)
     PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE 144
     UNDER THE SECURITIES ACT (IF AVAILABLE AND UPON DELIVERY OF AN OPINION OF
     COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, IF REQUESTED BY
     THE COMPANY), (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
     SECURITIES ACT, OR (6) PURSUANT TO ANY OTHER EXEMPTION FROM REGISTRATION
     UNDER THE SECURITIES ACT, PROVIDED AN OPINION OF COUNSEL IS FURNISHED
     REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, STATING THAT
     AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS
     AVAILABLE, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
     OF ANY STATE OF THE UNITED STATES.

          (b) IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
     EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE
     MERITS AND RISKS INVOLVED.  THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY
     ANY FEDERAL, STATE OR FOREIGN SECURITIES COMMISSION OR REGULATORY
     AUTHORITY.  FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED OR
     PASSED ON THE ACCURACY OR ADEQUACY OF THE

<PAGE>
 
                                       15

     SECURITIES OR ANY OTHER DOCUMENT DELIVERED IN CONNECTION WITH THE
     INVESTOR'S PURCHASE OF THE SECURITIES.  ANY REPRESENTATION TO THE CONTRARY
     IS A CRIMINAL OFFENSE.

          (c) THIS OFFERING IS BEING MADE IN RELIANCE UPON AN EXEMPTION FROM
     REGISTRATION UNDER THE SECURITIES ACT FOR AN OFFER AND SALE OF SECURITIES
     THAT DO NOT INVOLVE A PUBLIC OFFERING.  THE SECURITIES OFFERED HEREBY ARE
     SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
     TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
     APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
     THEREFROM. THERE IS CURRENTLY NO PUBLIC OR OTHER MARKET FOR THE SHARES OF
     CELL THERAPEUTICS, INC. COMMON STOCK, AND THERE CAN BE NO ASSURANCE THAT A
     PUBLIC OR OTHER MARKET WILL DEVELOP.  EACH PROSPECTIVE INVESTOR SHOULD
     PROCEED ONLY ON THE ASSUMPTION THAT SUCH PROSPECTIVE INVESTOR MAY HAVE TO
     BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
     TIME.

          6.   The Investor agrees not to sell, transfer, encumber or otherwise
dispose of any Securities owned by it in contravention of Section D.5(a).

E.  CONDITIONS TO CLOSING

          1.   The obligation of each Investor to purchase and pay for the
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before such date, of the following conditions:

               (a) The representations and warranties of the Company contained
     in Section B hereof shall be true and correct on and as of the Closing Date
     with the same effect as though such representations and warranties had been
     made on and as of such date, and the Company shall have certified to such
     effect to the Investors;

               (b) The Investors shall have received from Shearman & Sterling,
     counsel for the Company, and Stephen Faciszewski, Manager, Legal Affairs of
     the Company, legal opinions dated the Closing Date in substantially the
     form of Exhibit C-1 and C-2 hereto, respectively;

               (c) The Company shall have performed and complied with all
     agreements and conditions contained herein required to be performed or
     complied with by it prior to or at the Closing Date, and the Company shall
     have certified to such effect to the Investors;

<PAGE>
 
                                       16

               (d) Certified copies of (A) the resolutions of the Board of
     Directors of the Company approving this Agreement and the Registration
     Rights Agreement and the transactions contemplated hereby and thereby, (B)
     all documents evidencing other necessary corporate action and government
     approvals, if any with respect to this Agreement, (C) the certificate of
     incorporation and by-laws of the Company, and (D) a good standing
     certificate with respect to the Company from the Secretary of State (or
     similar official) of the State of Washington;

               (e) A certificate of the Secretary or an Assistant Secretary of
     the Company certifying the names and true signatures of its officers
     authorized to sign this Agreement and the Registration Rights Agreement and
     the other documents to be delivered by it hereunder;

               (f) On the Closing Date, the Company shall have executed and
     delivered the Registration Rights Agreement; and

               (g) The Company shall have received Subscriptions from Investors
     totalling not less than $9,500,000.

          2.   The obligation of the Company to issue and sell the Shares being
issued and sold by it on the Closing Date is, at its option, subject to the
satisfaction, on or before such date, of the following conditions:

               (a) The representations and warranties of the Investors contained
     in Section C hereof shall be true and correct on and as of the Closing Date
     with the same effect as though such representations and warranties had been
     made on and as of such date; and

               (b) The Company shall have received Subscriptions from Investors
     totalling not less than $9,500,000.

F.  MISCELLANEOUS

          1.   All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the delivery to the
Investors of the Shares to be purchased pursuant hereto and the payment therefor
and, notwithstanding any investigation heretofore and hereafter made by or on
behalf of a party hereto, shall continue in full force and effect.  The rights
and obligations of the Investors under this Agreement shall not be assignable by
the Investors without the prior written consent of the Company.  Nothing herein
expressed or implied is intended to confer upon any person, other than the
parties hereto or their respective permitted assignees, successors, heirs and
legal

<PAGE>
 
                                       17

representatives, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.

          2.   Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered,
telecopied (which is confirmed) or sent by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):

          (a)  If to the Company, to

                    Cell Therapeutics, Inc.
                    201 Elliott Avenue West, Suite 400
                    Seattle, Washington 98119
                    Attention:    Dr. James A. Bianco, President
                    Telecopy No.:  (206) 284-6114

          (b) If to any Investor, to such Investor's address set forth on the
signature page hereof.

          3.   Failure of the Company, on the one hand, or any Investor, on the
other hand, to exercise any right or remedy under this Agreement or any other
agreement between the Company and such Investor, or otherwise, or delay by the
Company, on the one hand, or such Investor, on the other hand, in exercising
such right or remedy, will not operate as a waiver thereof.

          4.   This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of New York, as such laws are
applied by New York courts to agreements entered into and to be performed in New
York by and between residents of New York, and shall be binding upon the
Investors, the Investors' heirs, estate, legal representatives, successors and
assigns and shall inure to the benefit of the Company and its successors and
assigns.  In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law.  Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.

          5.   This Agreement and the other agreements referred to herein or
expressly contemplated hereby embody the entire agreement and understanding
between the Investors and the Company with respect to the acquisition of the
Shares contemplated hereby and supersede all prior oral or written agreements,
memoranda, understandings and

<PAGE>
 
                                       18

undertakings among the parties hereto relating to the subject matter hereof.
This Agreement may only be amended in a written instrument executed by the
Investor and the Company.

          6.   Whether or not the transactions contemplated by this Agreement
are consummated, neither of the parties hereto shall have any obligation to pay
any of the fees and expenses of any other party incident to the negotiation,
preparation and execution of this  Agreement, including the fees and expenses of
counsel, accountants, investment bankers and other experts.  The Company, on the
one hand, and each Investor, on the other hand, will indemnify the other and
hold it harmless from and against any claims for finders' fees or brokerage
commissions in relation to or in connection with such transactions as a result
of any agreement or understanding between such indemnifying party and any third
party.

          7.   During the period of 180 days after the date of the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act, covering the offer and sale of
Common Stock for the account of the Company to the public, the Investors shall
not, directly or indirectly offer to sell, sell, issue, distribute or otherwise
dispose of any securities, any shares of Common Stock or any options, rights or
warrants with respect to any equity securities of the Company without the prior
written consent of the managing underwriter of such public offering (which
consent may be withheld at the sole discretion of such managing underwriter);
                                                                             
provided, however, that the foregoing shall not prohibit the Investors from
- --------  -------                                                          
privately selling Common Stock in a transaction effected off-exchange and
without use of an intermediate broker or dealer and exempt from registration
under the Securities Act and provided, further, that the foregoing restriction
                             --------  -------                                
shall not be applicable unless, immediately prior to the consummation of such
offering each officer, director and 10% stockholder has agreed in writing to be
bound to a 180 day lock-up period on terms substantially similar to those set
forth in this Section F.7.

          8.   This Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.

          9.   The Investors agree that a stop order shall be placed in the
stock transfer records of the Company against the transfer of the Securities in
contravention of the terms of this Agreement or applicable United States federal
and state securities laws.

          10.  If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party.  Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as

<PAGE>
 
                                       19

possible in an acceptable manner to all parties to the end that the transactions
contemplated hereby are fulfilled to the greatest extent possible.

<PAGE>
 
                                       20

          IN WITNESS WHEREOF, the Company and the Investors have caused this
Agreement to be executed as of the date first written above.

                           THE COMPANY
                           -----------

                           CELL THERAPEUTICS, INC.


                           By:  /s/  James A. Bianco
                              --------------------------------------------------
                              Name:   James A. Bianco, M.D.
                              Title:    President and Chief Executive Officer


<TABLE> 
<CAPTION> 
Number
of Shares
Subscribed     Purchase
For            Price       THE INVESTORS
- ---            -------     -------------
<C>            <C>         <S> 
14,925.373     $5,000,000  KUMMELL INVESTMENTS LIMITED
                            Suite 922C
                            Europort, Gibraltar
                            Telecopy No.:  011-3-504-2676
                            With copies to:

                            Morningside Ventures
                            200 Putnam Street, Suite 600
                            Marietta, OH 45750
                            Attention:  Terrence M. Morris
                            Telecopy No.:  (614) 373-3707
                            and
                            Springfield Financial Advisory Limited
                            22nd Floor Hang Lung Centre
                            2-20 Paterson Street
                            Causeway Bay, Hong Kong
                            Telecopy No.:  011-85-2-257-6863
</TABLE>
 

                           By:  /s/  Andy Kit-Chung Chan
                              --------------------------------------------------
                              Name:  Andy Kit-Chung Chan
                              Title: Director


                           By:  /s/  Sandra E. Pallas
                              --------------------------------------------------
                              Name:  Sandra E. Pallas
                              Title: Joint Secretary

<PAGE>
 
                                       21

14,925.373     $5,000,000  INTERNATIONAL BIOTECHNOLOGY TRUST plc
                            Rothschild Asset Management
                            Five  Arrows House
                            St. Swithen's Lane
                            London, England, EC4N 8NR
                            Attention:  Bruce McHarrie
                            Telecopy No.: 011-44-71-623-6261


                           By:  /s/  Jeremy Curnock Cook
                              --------------------------------------------------
                              Name:  Jeremy Curnock Cook
                              Title: Director


10,447.761     $3,500,000  W.R. SMITH II
                            Smith Rede Capital
                            375 N.W. Gilman Blvd., Suite B-201
                            Issaquah, WA 98027-2459
                            Attention: W.R. Smith
                            Telecopy No.: (206) 392-5753

                            /s/ W.R. Smith
                            --------------------------------------------------
 


2,985.075      $1,000,000  VULCAN VENTURES INC.
                            Vulcan Ventures Northwest                     
                            110 - 110th Avenue Northeast, Suite 550
                            Bellevue, WA 98004
                            Attention: Ruth B. Kunath
                            Telecopy No.: (206) 453-1985


                           By   /s/  William D. Savoy
                              --------------------------------------------------
                              Name:  William D. Savoy
                              Title: Vice President

<PAGE>
 
                                       22


1,492.537      $  500,000  THE PHOENIX PARTNERS III LIMITED PARTNERSHIP
                            1000 Second Avenue
                            Suite 3600
                            Seattle, WA  98104
                            Attention:  Stuart C. Johnston
                            Telecopy No.:  (206) 624-1907


                           By   /s/  Stuart C. Johnston
                              --------------------------------------------------
                              Name:  Stuart C. Johnston
                              Title: Managing General Partner


============   ============
44,776.119     $15,000,000



<PAGE>
 
                                                                    EXHIBIT 10.2


                            CELL THERAPEUTICS, INC.

                     SERIES A CONVERTIBLE PREFERRED STOCK,
                               without par value

                           STOCK PURCHASE AGREEMENT

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

                                                          as of October 11, 1996

Cell Therapeutics, Inc.
201 Elliott Avenue West, Suite 400
Seattle, Washington  98119

Gentlemen:

          This Stock Purchase Agreement ("Agreement") is made by and between
Cell Therapeutics, Inc., a Washington corporation ("CTI" or the "Company"), and
New York Life Insurance Company (the "Investor"), who is subscribing hereby for
5,970.1493 shares (the "Shares") of the Company's Series A Convertible Preferred
Stock, without par value (the "Preferred Stock"), pursuant to the terms set
forth herein.  The Shares and the Conversion Shares (as defined herein) are
herein referred to collectively as the "Securities."

          In consideration of the Company's agreement to sell Shares to the
Investor, and the Investor's agreement to purchase Shares from the Company, all
on the terms and subject to the conditions contained herein, each of the Company
and the Investor agrees and represents as follows:

A.   SUBSCRIPTION

          1.   Subject to the terms and conditions of this Agreement, the
Investor hereby subscribes for and agrees to purchase, and the Company agrees to
sell, the number of Shares indicated on the signature pages
 hereto at a purchase
price of $335.00 per share, for the consideration set forth on the signature
pages hereto (the "Subscription").

          2.   (a)  The closing (the "Closing") of the purchase of the Shares
provided for in Section A.1 shall take place at the offices of the Company, 201
Elliott Avenue West, Suite 400, Seattle, Washington, at 10:00 A.M. (Seattle
time) on October 11, 1996 or at such other place or such other time or date as
the Company and the Investor may agree.

               (b)  At the Closing, against delivery by the Investor of payment
therefor to the account of the Company at First Interstate Bank of Oregon, N.A.,
Portland, Oregon, ABA # 123-000-123, NW Trust Custody T-13, Account Number
450878, Attention:

<PAGE>
 
                                       2

Ramona Steinbrugge or Luann Bird, Reference:  Cell Therapeutics, Inc., and
subject to the satisfaction of all conditions precedent set forth herein, the
Company will deliver to the Investor a certificate or certificates evidencing
the number of Shares purchased by the Investor, registered in the Investor's
name.

B.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          The Company hereby represents and warrants to, and agrees with, the
Investor as follows:

          1.   The Company is a corporation duly incorporated and validly
existing under the laws of the State of Washington and is duly licensed or
qualified as a foreign corporation in each other jurisdiction where the nature
of business transacted by it makes such licensing or qualification necessary.
The Company has the corporate power and authority and the legal right, to own
and operate its properties and to carry on its business as currently conducted,
to execute deliver, and perform this Agreement and that certain Registration
Rights Agreement, dated as of September 17, 1996 between the Company and the
investors parties thereto, in the form annexed hereto as of Exhibit A-1, as
amended by Amendment No. 1 thereto dated as of the Closing Date, substantially
in the form annexed hereto as Exhibit A-2, (collectively, the "Registration
Rights Agreement"), to issue, sell and deliver the Shares, to issue and deliver
the shares of Common Stock, no par value, of the Company ("Common Stock"),
issuable upon conversion of the Shares ("Conversion Shares") and in all other
respects to consummate the transactions contemplated hereby and thereby.

          2.   The Company does not own any shares of any corporation or have
any ownership or other investment interest, either of record, beneficially or
equitably, in any association, partnership, joint venture or other legal entity.

          3.   The execution and delivery by the Company of this Agreement and
the Registration Rights Agreement, the performance by the Company of its
obligations hereunder and thereunder, the issuance, sale and delivery by the
Company of the Shares pursuant hereto and the issuance and delivery of the
Conversion Shares upon conversion of the Shares, have been duly authorized by
all requisite corporate action, including without limitation all requisite
action on the part of the Company's shareholders, and will not violate any
provision of law, any order of any court or other agency of government, the
Articles of Incorporation or By-laws of the Company, any judgment award or
decree or any provision of any indenture, agreement or other instrument, to
which the Company is a party, or by which it, or any of its properties or
assets, is bound or affected, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture,  agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company,

<PAGE>
 
                                       3

or result in any suspension, revocation, impairment, forfeiture or nonrenewal of
any Governmental Permit (as hereinafter defined).

          4.   The Shares have been duly authorized by the Company and, when
paid for in accordance with this Agreement, will be validly issued, fully paid
and nonassessable shares of Preferred Stock.  The Conversion Shares have been
duly reserved for issuance upon conversion of the Shares and, when so issued,
will be duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock.  Neither the issuance, sale and delivery of the Shares nor the
issuance and delivery of the Conversion Shares are subject to any preemptive
rights of shareholders of the Company or to any right of first refusal or other
similar right in favor of any person.

          5.   Each of this Agreement and the Registration Rights Agreement has
been duly executed and delivered by the Company and, subject to due execution by
the Investor, constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its respective
terms.

          6.   The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, of which 17,300,574 shares are issued and
outstanding as of the date hereof, and 10,000,000 shares of preferred stock, no
par value ("Existing Preferred Stock"), of which 150,000 shares have been
authorized and designated as Preferred Stock, of which 140,223.123 shares are
issued and outstanding as of the date hereof.  All shares of capital stock
outstanding as of the date hereof have been duly authorized and validly issued,
and are fully paid and nonassessable.  15,000,000 shares of Common Stock have
been reserved for issuance upon conversion of the Preferred Stock.  The
designations, preferences, limitations and relative rights of the Preferred
Stock are set forth in the Certificate of Amendment to Articles of Incorporation
of the Company, as set forth in Exhibit B annexed hereto (the "Articles of
Amendment").

          7.   The Shares to be issued and delivered to the Investor pursuant to
this Agreement shall be offered, issued and sold in compliance with the
Securities Act of 1933, as amended (the "Securities Act"), and any other
applicable United States federal or state securities laws.

          8.   Except (a) for the obligations of the Company to the Investor
under this Agreement, (b) as otherwise set forth in the SEC Reports, and (c) for
stock options granted to employees, officers and consultants of the Company
subsequent to the date of the SEC Reports pursuant to the Company's 1994 Equity
Incentive Plan, (i) no subscription, warrant, option, convertible security or
other right (contingent or other) to purchase or acquire any shares of any class
of capital stock of the Company is authorized or outstanding, (ii) there is not
any commitment of the Company to issue any shares, warrants, options or other
such rights or to distribute to holders of any class of its capital stock any
evidences of

<PAGE>
 
                                       4

indebtedness or assets and (iii) the Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any shares of the capital stock
of the Company or any interest therein or to pay any dividend or make any other
distribution in respect thereof.

          9.   (a) The Company has filed all forms, reports and documents
required to be filed with the Securities and Exchange Commission (the "SEC")
since April 29, 1996 and has made available to the Investor (i) its Registration
Statement on Form 10, as amended by Amendment No. 2 thereto filed with the SEC
on June 28, 1996; (ii) its Quarterly Report on Form 10-Q for the period ended
June 30, 1996; (iii) all other reports or registration statements filed by the
Company with the SEC since June 28, 1996; and (iv) all amendments and
supplements to all such reports and registration statements filed by the Company
with the SEC (collectively, the "SEC Reports"). The SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amending or superseding filing) contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

          (b)  Each of the financial statements (including, in each case, any
related notes thereto) contained in the SEC Reports was prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated
therein or in the notes thereto) and each fairly presented the financial
position of the Company as at the respective dates thereof and the results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount.

          10.  Except as set forth in the SEC Reports, since June 30, 1996, the
Company has conducted its business in the ordinary course and there has not
occurred:  (i) any change or effect that is or is reasonably likely to be
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Company taken as a whole,
(ii) any amendments or changes in the Articles of Incorporation or By-laws of
the Company, other than an amendment to the Company's By-laws adopted on July
16, 1996, (iii) any change by the Company in its accounting methods, principles
or practices, (iv) any revaluation by the Company of any of its assets, (v) any
sale of a material amount of property of the Company, (vi) any discharge or
satisfaction by the Company of any material lien, security interest, charge or
other encumbrance or any payment by the Company of any material obligation or
liability (fixed or contingent), other than in the ordinary course of business
and consistent with past practice, (vii) any investment by the Company of a
capital nature, whether by purchase of stock or securities, contributions

<PAGE>
 
                                       5

to capital, property transfers or otherwise, in any other partnership,
corporation or other entity, or any purchase by the Company of any material
property or assets, (viii) any cancellation or compromise by the Company of any
debt or claim other than in the ordinary course of business consistent with past
practice, (ix) any waiver or release by the Company of any rights of material
value, including, without limitation, any Intangible Rights (as hereinafter
defined), (x) any material wage or salary increase by the Company applicable to
any group or classification of employees generally, or any material employment
contract with, loan to, or material transaction of any other nature with, any
officer or employee of the Company, or (xi) any establishment by the Company of
any employee benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974.

          11.  Except as and to the extent (i) reflected in the financial
statements contained in the SEC Reports or (ii) incurred since June 30, 1996 in
the ordinary course of business and consistent with past practice, the Company
has no liabilities or obligations of any kind or nature, whether secured or
unsecured (whether absolute, accrued, contingent or otherwise, and whether due
or to become due), including without limitation any tax liabilities due or to
become due, or whether incurred in respect of or measured by the assets, sales,
income or receipts of the Company for any period, which liabilities or
obligations would be required to be reflected on a balance sheet of the Company
as of December 31, 1995, prepared in accordance with generally accepted
accounting principles.
 
          12.  No order, authorization, approval or consent from, or filing
with, any federal or state governmental or public body or other authority having
jurisdiction over the Company is required for the valid execution (where called
for), delivery and performance of this Agreement or the Registration Rights
Agreement by the Company, the issuance, sale and delivery of the Shares or, upon
conversion of the Shares, the issuance and delivery of the Conversion Shares, or
is required in order that the business of the Company can be conducted
immediately following the Closing Date substantially in the same manner as
heretofore conducted, except for those that have been made and obtained, and for
those filings under state "blue sky" laws which are now not required to be made
or obtained.

          13.  Except as set forth in the SEC Reports, the Company has good and
valid title to all its assets and properties, in each case free and clear of all
liens, charges, security interests or other encumbrances of any nature
whatsoever, other than (x) liens for taxes not yet due, (y) mechanic's,
materialman's and similar statutory liens arising in the ordinary course of
business and which, in the aggregate, would not have a material adverse effect
on the business, properties or condition (financial or other) of the Company, or
(z)  security interests securing indebtedness not in default for the purchase
price of or lease rental payments on property purchased or leased under capital
lease arrangements in the ordinary course of business.

<PAGE>
 
                                       6

          14.  Except as is set forth in the SEC Reports, the Company complies
with its contractual obligations relating to the protection of such of the
patents, trademarks and trade names, trademark and trade name registrations,
logos, servicemark registrations, copyright registrations, all applications
pending on the date hereof for patent or for trademark, trade name, servicemark
or copyright registrations, and all other material proprietary rights
(collectively "Intangible Rights") used by it pursuant to licenses or other
contracts, the Company has the right to its Intangible Rights for the purposes
intended thereby, and to conduct its business as heretofore conducted, and the
consummation of the transactions contemplated hereby will not alter or impair
any such Intangible Rights, and, to the knowledge of the Company, all such
Intangible Rights that are capable of being enforced are valid, enforceable and
in good standing, and no claims have been asserted with respect to the ownership
by the Company of any of the Intangible Rights or otherwise.  To the knowledge
of the Company, except as is set forth in the SEC Reports (i) no person is
infringing an  Intangible Right owned by the Company and (ii) the Company is not
infringing any valid patent, copyright or trademark owned by any third party.

          15.  Except as set forth in the SEC Reports, there are no material
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened, by or against the Company or any of its
properties, assets, rights or businesses.  No such pending or threatened claims,
actions, suits, proceedings or investigations, if adversely determined, would,
individually or in the aggregate, have a material adverse effect on the
business, properties or condition (financial or other) of the Company.  Except
as set forth in the SEC Reports, the Company knows of no basis for any other
such claim, action, suit, proceeding or investigation which, if adversely
decided, would have such a material adverse effect.  Except as set forth in the
SEC Reports, there are no actions, suits, proceedings or claims pending before
or by any court, arbitrator, regulatory authority or government agency against
or affecting the Company that might enjoin or prevent the consummation of the
transactions contemplated by this Agreement or the Registration Rights
Agreement.

          16.  The Company has duly and timely filed or caused to be filed (or
obtained valid, currently effective extensions for filing) all Federal, state,
local and foreign income, franchise, excise, payroll, sales and use, property,
withholding and other tax returns, reports, estimates and information and other
statements or returns (collectively "Tax Returns") required to be filed by or on
behalf of it pursuant to any applicable Federal, state, local or foreign tax
laws for all years and periods for which such Tax Returns have become due.  All
such Tax Returns were correct in all material respects as filed and correctly
reflect the Federal, state, local and foreign income, franchise, excise,
payroll, sales and use, property, withholding and other taxes, duties, imposts
and governmental charges (and charges in lieu of any thereof), together with
interest, any additions to tax and penalties (collectively "Taxes") required to
be paid or collected by (or allocable to) the Company.  The Company (i) has paid
or caused to be paid all Taxes as shown on Tax Returns filed by it or on any
assessment received by it and (ii) has properly and fully accrued on its audited
and

<PAGE>
 
                                       7

interim unaudited financial statements all Taxes for any period from the date of
the last reporting period covered by such Tax Returns.  There is no audit
pending or threatened in writing, and, to the knowledge of the Company, there is
no dispute or claim being threatened by any relevant taxing authority concerning
any Tax Return or liability for Taxes.  Without limiting the foregoing, the
Company has withheld or collected from each payment made to each of its
employees (or has otherwise paid or made provision for) the amount of all Taxes
(including, but not limited to, Federal income taxes, Federal Insurance
Contribution Act taxes, state and local income and wage taxes, payroll taxes,
worker's compensation and unemployment compensation taxes) required to be
withheld or collected therefrom, and the Company has paid (or caused to be paid)
the same in respect of its employees when due.

          17.  (a)  The Company has all material governmental licenses,
franchises and permits ("Governmental Permits") required under applicable law
for the conduct of its business as currently conducted, including, without
limitation, all such licenses, franchises and permits as are required for
laboratory use, manufacturing, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances.

          (b)  The business of the Company is being conducted in material
compliance with all applicable laws, ordinances, rules and regulations of all
governmental authorities relating to the Company's properties or applicable to
its business, including without limitation the terms of all Governmental
Permits, federal securities laws, and laws relating to safe working conditions,
laboratory and manufacturing practices (including current Good Manufacturing
Practices prescribed by the U.S. Food and Drug Administration ("FDA")), the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances (including, without limitation, radioactive compounds and
solvents).  The Company has not received any notice from any third party of any
alleged violation of any of the foregoing.

          (c)  Neither the Company nor any of its properties, operations or
businesses is subject to any order, judgment, injunction or decree.  To the
knowledge of the Company, no action has been taken or recommended by any
governmental or regulatory official, body or authority, either to revoke,
withdraw or suspend any certificate of need or any license to operate the
Company.

          18.  (a)  No collective bargaining agreement is applicable to any
employees of the Company.  There are no disputes between the Company and any
such employees that might reasonably be expected to materially adversely affect
the conduct of its business or any unresolved labor union grievances or unfair
labor practice or labor arbitration proceedings pending, or to the knowledge of
the Company, threatened, relating to the business of the Company.  To the
knowledge of the Company, there are not any organizational efforts presently
being made or threatened involving any of such employees.  The Company has not
received notice of any claim that the Company has failed to comply with

<PAGE>
 
                                       8

any laws relating to employment, including any provisions thereof relating to
wages, hours, collective bargaining, the payment of social security and other
payroll or similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that the Company is liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing except for routine non-material grievances.

          (b)  There are no proceedings pending or, to the knowledge of the
Company, threatened before the National Labor Relations Board with respect to
any employees of the Company.  There are no discrimination charges (relating to
sex, age, religion, race, national origin, ethnicity, handicap or veteran
status) pending before any Federal or state agency or authority against the
Company.

          19.  The Company is a named insured under all policies of fire,
liability, workers' compensation, malpractice and professional liability and
other forms of insurance providing insurance coverage to or for the Company.
All premiums with respect to such policies covering all periods have been paid.
No notice of cancellation or termination has been received with respect to any
such policy.  All such policies are in full force and effect and will remain in
full force and effect to and including the Closing Date, and coverage thereunder
will continue to be in effect immediately after the Closing Date, without limit
as to time, for occurrences prior to the Closing Date.

          20.  All real property leased by the Company are used and operated by
the Company in material compliance and conformity with all applicable leases.
The Company has not received notice of any material violation of any applicable
zoning or building regulation, ordinance or other law, order, regulation or
requirement relating to the respective real estate assets of the Company and, to
the knowledge of the Company, there are no such material violations.

          21.  All tangible personal property, fixtures and equipment comprising
the assets of the Company are in a good state of repair (ordinary wear and tear
excepted) and operating condition, in all material respects, and are sufficient
and adequate to conduct its business on the date hereof.

          22.  For the purposes of this Section B(22), the following terms shall
have the following meanings:

          "Environmental Law" means any federal, state, provincial or local
     statute, law, ordinance, rule or regulation of the United States and any
     other jurisdiction within the United States now effective and any order, to
     which the Company is a party or is otherwise directly bound, of the United
     States or other jurisdiction within the United States now effective
     relating to:  (a) pollution or protection of the environ-

<PAGE>
 
                                       9

     ment, including natural resources; or (b) exposure of persons, including
     employees, to Hazardous Substances;

          "Hazardous Substances" means any substance, whether liquid, solid or
     gas (a) listed, identified or designated as hazardous or toxic under any
     Environmental Law, (b) which, applying criteria specified in any
     Environmental Law, is hazardous or toxic, or (c) the use or disposal of
     which is regulated under Environmental Law.

          (a)  No Hazardous Substances have been, or have been threatened to be,
discharged, released or emitted into the air, water, surface water, ground
water, land surface or subsurface strata or transported to or from the property
of the Company except in accordance with Environmental Law and except for
incidental release of Hazardous Substances in amounts or concentrations which
would not reasonably be expected to give rise to any claims or liabilities
against the Company under Environmental Law.

          (b)  The Company has not received any notification from a governmental
agency that there is any material violation of any Environmental Law with
respect to the business and properties of the Company and the Company has not
received any notification from a governmental agency pursuant to Section 104,
106 or 107 of the Comprehensive Environmental Response Compensation and
Liability Act, as amended.

          23.  (a)  Neither the Company nor, to the knowledge of the Company,
any officer, director, employee or agent of the Company, nor any other person or
entity acting on behalf of the Company, acting alone or together, has (i)
received, directly or indirectly, any rebates, payments, commissions,
promotional allowances or any other economic benefits, regardless of their
nature or type, from any customer, governmental employee or other person or
entity with whom the Company has conducted business activities directly or
indirectly, or (ii) directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, governmental employee or other person or entity
who is or may be in a position to help or hinder the business of the Company (or
assist the Company in connection with any actual or proposed transaction)
which, under current law, in the case of either clause (i) or clause (ii) above,
would reasonably be expected to subject the Company to any damage or penalty in
any civil, criminal or governmental litigation or proceeding.

          (b)  To the knowledge of the Company, no employee, officer or director
of the Company, has been debarred under (S)306(a) or (S)306(b) of the Federal
Food, Drug and Cosmetic Act or has, within the last five years, been convicted
of (x) a criminal offense relating to the development or approval process of any
drug product, or (y) a felony involving bribery, payment of illegal gratuities,
fraud, perjury, false statements, racketeering, blackmail, extortion,
falsification or destruction of records, or interference with, obstruction of an
investigation into, or prosecution of, any criminal offense or a conspiracy to
commit, aid or abet such felony.

<PAGE>
 
                                      10

          24.  No person authorized by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Shares, or any similar
securities, has taken or will take any action (including, without limitation,
any offer or sale of any securities under circumstances which would require the
integration of such securities with the Shares being issued and sold hereunder
under the Securities Act, or the rules and regulations of the SEC thereunder),
which would subject such offer and sale to the registration provisions of the
Securities Act.

          25.  All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by the Company directly with the
Investor, without the intervention of any person on behalf of the Company in
such manner as to give rise to any claim by any person against the Investor for
a finder's fee, brokerage commission or similar payment.

C.   REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

          The Investor hereby represents and warrants to, and agrees with, the
Company as follows:

          1.   Each of this Agreement and the Registration Rights Agreement have
been duly authorized, executed and delivered by the Investor and constitute the
legal, valid and binding obligations of the Investor, enforceable against the
Investor in accordance with their respective terms.

          2.   The Investor acknowledges its understanding that the offering and
sale of the Shares to be purchased hereto by the Investor are intended to be
exempt from registration under the Securities Act.  In furtherance thereof, the
Investor represents and warrants to the Company that the Investor is an
"accredited investor" within the meaning of Rule 501(a) of Regulation D
promulgated under the Securities Act ("Regulation D").

          3.   The Investor has been advised and understands that the Securities
have not been registered under the Securities Act.  The Investor, by purchasing
the Shares, agrees for the benefit of the Company that the Securities may be
resold, pledged or otherwise transferred only (1) to the Company (upon, exchange
or redemption thereof or otherwise), (2) if the Company is then subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act and the
Securities are eligible for resale pursuant to Rule 144A under the Securities
Act ("Rule 144A"), to a person whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A, purchasing for
its own account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or other transfer is being made in
reliance on Rule 144A, (3) in an offshore transaction in accordance with Rule
904 of Regulation S under the Securities Act, but only in the case of a transfer
that is effected by the delivery to the transferee of definitive Securities
registered in

<PAGE>
 
                                      11

its name (or in its nominee's name) on the books maintained by the Company, (4)
pursuant to an exemption from registration in accordance with Rule 144 under the
Securities Act (if available and upon delivery of an opinion of counsel
satisfactory in form and substance to the Company, if requested by the Company),
(5) pursuant to an effective registration statement under the Securities Act, or
(6) pursuant to any other exemption from registration under the Securities Act,
provided an opinion of counsel is furnished reasonably satisfactory in form and
substance to the Company, stating that an exemption from the registration
requirements of the Securities Act is available, in each case in accordance with
any applicable securities laws of any state of the United States.  The Investor
is acquiring the Shares to be purchased by it for its own account for
investment, and not with a view to, or for resale in connection with, the
distribution thereof, and has no present intention of distributing or reselling
any of the Securities.

          4.   The Investor is familiar with the business and operations of the
Company and understands and has evaluated the merits and risks of a purchase of
the Securities.  The Investor has carefully considered and has, to the extent
the Investor believes such discussion necessary, discussed with the Investor's
professional legal, tax, accounting and financial advisors the suitability of an
investment in the Securities and has determined that the Shares being subscribed
for by the Investor are a suitable investment for the Investor.

          5.   The Investor: (i) has a pre-existing business relationship with
the Company or any of its officers, directors or controlling persons or (ii) by
reason of the Investor's business or financial experience, or by reason of the
business or financial experience of the Investor's professional advisors who are
unaffiliated with and who are not compensated by the Company or any affiliate of
the Company, directly or indirectly, has the capacity to protect the Investor's
interest in connection with the investment in the Securities.

          6.   The Company has made available to the Investor all documents and
information that the Investor has requested relating to an investment in the
Securities.  The Investor has been given the opportunity to ask questions of,
and has received answers from, the Company with respect to the business of the
Company, the financial condition of the Company, the terms and conditions of
this investment and other matters pertaining to an investment in the Company,
and the Investor has been given the opportunity to obtain such additional
information necessary to verify the accuracy of the information that was
provided in order for the Investor to evaluate the merits and risks of an
investment in the Company.

          7.   The Investor recognizes that the Company has incurred substantial
accumulated net losses to date and expects to continue to incur operating
losses.  The Investor also recognizes that an investment in the Company involves
substantial risk and could afford a complete loss of such investment.

<PAGE>
 
                                      12

          8.  If this Agreement is executed and delivered on behalf of a
partnership, corporation, trust or estate: (i) such partnership, corporation,
trust or estate has the full legal right and power and all authority and
approval required (a) to execute and deliver, or authorize execution and
delivery of, this Agreement and all other instruments executed and delivered by
or on behalf of such partnership, corporation, trust or estate, in connection
with the purchase of the Shares, (b) to delegate authority pursuant to a power
of attorney and (c) to purchase such Shares and hold the Securities; (ii) the
signature of the party signing on behalf of such partnership, corporation, trust
or estate is binding on such partnership, corporation, trust or estate; and
(iii) such partnership, corporation or trust has not been formed for the
specific purpose of acquiring such Shares, unless each beneficial owner of such
entity is an accredited investor within the meaning of Rule 501(a) of Regulation
D.

          9.   The Investor is not subscribing for the Shares as a result of,
or, to the Investor's knowledge, subsequent to, any general solicitation or
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or meeting.

          10.  The Investor acknowledges that the Company is entering into this
Agreement in reliance upon the Investor's representations and warranties in this
Agreement, including, without limitation, those set forth in this Section C.

          11.  The Investor agrees to provide such additional information,
representations and agreements as the Company may reasonably request in order to
assure compliance with all United States federal and state securities laws
applicable to the offer or sale of the Shares to be purchased by it; provided,
                                                                     -------- 
that, the Investor shall not be obligated to provide the Company with a copy of
- ----                                                                           
its or any of its affiliates' partnership agreement.

D.   CERTAIN UNDERSTANDINGS OF THE INVESTOR

          The Investor understands, acknowledges and agrees with the Company as
follows:

          1.   The offering and sale of the Securities is intended to be exempt
from registration under the Securities Act by virtue of Section 4(2) of the
Securities Act which is in part dependent upon the truth, completeness and
accuracy of the statements made by the Investor herein.  There is no public
trading market for the Securities and none is expected to develop.

          2.   The Shares are being offered only in a transaction not involving
any public offering within the meaning of the Securities Act, and that (A) if
within three years after the date of original issuance of the Shares it decides
to resell, pledge or otherwise transfer the Securities, the Securities may be
resold, pledged or transferred only (i) to the

<PAGE>
 
                                      13

Company (upon exchange, redemption or otherwise), (ii) if the Company is then
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
and such Security is eligible for resale pursuant to Rule 144A, to a person whom
the seller reasonably believes is a Qualified Institutional Buyer ("QIB") within
the meaning of Rule 144A, (iii) in an offshore transaction in accordance with
Rule 904 of Regulation S, but only in the case of a transfer that is effected by
the delivery to the transferee of definitive securities registered in its name
(or its nominee's name) on the books maintained by the Company, (iv) pursuant to
an exemption from registration in accordance with Rule 144 under the Securities
Act (if available and upon delivery of an opinion of counsel satisfactory in
form and substance to the Company, if requested by the Company), (v) pursuant to
an effective registration statement under the Securities Act, or (vi) pursuant
to any other exemption from registration under the Securities Act, provided an
opinion of counsel is furnished reasonably satisfactory in form and substance to
the Company, stating that an exemption from the registration requirements of the
Securities Act is available, in each case in accordance with any applicable
securities laws of any state of the United States and (B) the Investor will, and
each subsequent holder is required to, notify any purchaser of the Securities
from it of the resale restrictions referred to in (A) above, if then applicable.

          3.   Except as provided in the Registration Rights Agreement, the
Company is under no obligation to register the Securities on behalf of the
Investor.

          4.   The Investor acknowledges that the information furnished to the
Investor by the Company in connection with this Subscription is confidential and
non-public and agrees that all such information shall be kept in confidence by
the Investor and neither used by the Investor to the Investor's personal benefit
(other than in connection with this Subscription) nor disclosed to any third
party for any reason; provided, however, that this obligation shall not apply to
                      --------  -------                                         
any such information which (a) is part of the public knowledge or literature and
readily accessible by publication (except as a result of a breach of this
provision); (b) becomes part of the public knowledge or literature and readily
accessible by publication (except as a result of a breach of this provision); or
(c) is received from third parties (except third parties who disclose such
information in violation of any confidentiality agreements including, without
limitation, any subscription agreement they may have entered into with the
Company).  Notwithstanding the foregoing, if the Investor has been requested or
is required (by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process) to disclose
any such confidential information, the Investor will notify the Company of such
request(s) so that the Company may seek an appropriate protective order or waive
the Investor's compliance with the provisions of this Section D.4.  If, in the
absence of a protective order or the receipt of a waiver hereunder, the Investor
is nonetheless compelled to disclose such confidential information or else stand
liable for contempt or suffer other censure or other penalty, the Investor may
disclose such confidential information pursuant to such requests or requirements
without liability hereunder.

<PAGE>
 
                                      14

          5.  The following legend(s) will be placed on the Securities, unless
otherwise agreed by the Company:

          (a) THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED (THE "SECURITIES ACT").  THE HOLDER HEREOF BY PURCHASING
     THIS SECURITY, AGREES FOR THE BENEFIT OF CELL THERAPEUTICS, INC. ("THE
     COMPANY") THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
     TRANSFERRED ONLY (1) TO THE COMPANY (UPON EXCHANGE OR REDEMPTION THEREOF OR
     OTHERWISE), (2) IF THE COMPANY IS THEN SUBJECT TO THE REPORTING
     REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT AND THIS
     SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
     ACT ("RULE  144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
     QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
     PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) IN AN
     OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF REGULATIONS UNDER THE
     SECURITIES ACT, BUT ONLY IN THE CASE OF A TRANSFER THAT IS EFFECTED BY THE
     DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME
     (OR IN ITS NOMINEE'S NAME) ON THE BOOKS MAINTAINED BY THE COMPANY, (4)
     PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE 144
     UNDER THE SECURITIES ACT (IF AVAILABLE AND UPON DELIVERY OF AN OPINION OF
     COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, IF REQUESTED BY
     THE COMPANY), (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
     SECURITIES ACT, OR (6) PURSUANT TO ANY OTHER EXEMPTION FROM REGISTRATION
     UNDER THE SECURITIES ACT, PROVIDED AN OPINION OF COUNSEL IS FURNISHED
     REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, STATING THAT
     AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS
     AVAILABLE, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
     OF ANY STATE OF THE UNITED STATES.

          (b) IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
     EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE
     MERITS AND RISKS INVOLVED.  THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY
     ANY FEDERAL, STATE OR FOREIGN SECURITIES COMMISSION OR REGULATORY
     AUTHORITY.  FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED OR
     PASSED ON THE ACCURACY OR ADEQUACY OF THE

<PAGE>
 
                                      15

     SECURITIES OR ANY OTHER DOCUMENT DELIVERED IN CONNECTION WITH THE
     INVESTOR'S PURCHASE OF THE SECURITIES.  ANY REPRESENTATION TO THE CONTRARY
     IS A CRIMINAL OFFENSE.

          (c) THIS OFFERING IS BEING MADE IN RELIANCE UPON AN EXEMPTION FROM
     REGISTRATION UNDER THE SECURITIES ACT FOR AN OFFER AND SALE OF SECURITIES
     THAT DO NOT INVOLVE A PUBLIC OFFERING.  THE SECURITIES OFFERED HEREBY ARE
     SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
     TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
     APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
     THEREFROM. THERE IS CURRENTLY NO PUBLIC OR OTHER MARKET FOR THE SHARES OF
     CELL THERAPEUTICS, INC. COMMON STOCK, AND THERE CAN BE NO ASSURANCE THAT A
     PUBLIC OR OTHER MARKET WILL DEVELOP.  EACH PROSPECTIVE INVESTOR SHOULD
     PROCEED ONLY ON THE ASSUMPTION THAT SUCH PROSPECTIVE INVESTOR MAY HAVE TO
     BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
     TIME.

          6.   The Investor agrees not to sell, transfer, encumber or otherwise
dispose of any Securities owned by it in contravention of Section D.5(a).

E.  CONDITIONS TO CLOSING

          1.   The obligation of the Investor to purchase and pay for the Shares
being purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before such date, of the following conditions:

               (a) The representations and warranties of the Company contained
     in Section B hereof shall be true and correct on and as of the Closing Date
     with the same effect as though such representations and warranties had been
     made on and as of such date, and the Company shall have certified to such
     effect to the Investor;

               (b) The Investor shall have received from Shearman & Sterling,
     counsel for the Company, and Stephen Faciszewski, Manager, Legal Affairs of
     the Company, legal opinions dated the Closing Date in substantially the
     form of Exhibit C-1 and C-2 hereto, respectively;

               (c) The Company shall have performed and complied with all
     agreements and conditions contained herein required to be performed or
     complied with by it prior to or at the Closing Date, and the Company shall
     have certified to such effect to the Investor;

<PAGE>
 
                                      16

               (d) Certified copies of (A) the resolutions of the Board of
     Directors of the Company approving this Agreement and the Registration
     Rights Agreement and the transactions contemplated hereby and thereby, (B)
     all documents evidencing other necessary corporate action and government
     approvals, if any with respect to this Agreement, (C) the certificate of
     incorporation and by-laws of the Company, and (D) a good standing
     certificate with respect to the Company from the Secretary of State (or
     similar official) of the State of Washington;

               (e) A certificate of the Secretary or an Assistant Secretary of
     the Company certifying the names and true signatures of its officers
     authorized to sign this Agreement and the Registration Rights Agreement and
     the other documents to be delivered by it hereunder; and

               (f) On the Closing Date, the Company, the Investor and the
     holders of at least a majority in interest of the "Registrable Securities"
     (as such term is defined in the Registration Rights Agreement) shall have
     entered into Amendment No. 1 to the Registration Rights Agreement
     substantially in the form annexed hereto as Exhibit A-2.

          2.   The obligation of the Company to issue and sell the Shares being
issued and sold by it on the Closing Date is, at its option, subject to the
satisfaction, on or before such date, of the following conditions:

               (a) The representations and warranties of the Investor contained
     in Section C hereof shall be true and correct on and as of the Closing Date
     with the same effect as though such representations and warranties had been
     made on and as of such date; and

               (b) On the Closing Date, the Company, the Investor and the
     holders of at least a majority in interest of the "Registrable Securities"
     (as such term is defined in the Registration Rights Agreement) shall have
     entered into Amendment No. 1 to the Registration Rights Agreement
     substantially in the form annexed hereto as Exhibit A-2.

F.  MISCELLANEOUS

          1.   All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the delivery to the
Investor of the Shares to be purchased pursuant hereto and the payment therefor
and, notwithstanding any investigation heretofore and hereafter made by or on
behalf of a party hereto, shall continue in full force and effect.  The rights
and obligations of the Investor under this Agreement shall not be assignable by
the Investor without the prior written consent of the Company.

<PAGE>
 
                                      17

Nothing herein expressed or implied is intended to confer upon any person, other
than the parties hereto or their respective permitted assignees, successors,
heirs and legal representatives, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

          2.   Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered,
telecopied (which is confirmed) or sent by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):

          (a)  If to the Company, to

                    Cell Therapeutics, Inc.
                    201 Elliott Avenue West, Suite 400
                    Seattle, Washington 98119
                    Attention:    Dr. James A. Bianco, President
                    Telecopy No.:  (206) 284-6114

          (b)  If to the Investor, to the Investor's address set forth on the
signature page hereof.

          3.   Failure of the Company, on the one hand, or the Investor, on the
other hand, to exercise any right or remedy under this Agreement or any other
agreement between the Company and the Investor, or otherwise, or delay by the
Company, on the one hand, or the Investor, on the other hand, in exercising such
right or remedy, will not operate as a waiver thereof.

          4.   This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of New York, as such laws are
applied by New York courts to agreements entered into and to be performed in New
York by and between residents of New York, and shall be binding upon the
Investor, the Investor's heirs, estate, legal representatives, successors and
assigns and shall inure to the benefit of the Company and its successors and
assigns.  In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law.  Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.

          5.   This Agreement and the other agreements referred to herein or
expressly contemplated hereby embody the entire agreement and understanding
between the

<PAGE>
 
                                      18

Investor and the Company with respect to the acquisition of the Shares
contemplated hereby and supersede all prior oral or written agreements,
memoranda, understandings and undertakings among the parties hereto relating to
the subject matter hereof.  This Agreement may only be amended in a written
instrument executed by the Investor and the Company.

          6.   Whether or not the transactions contemplated by this Agreement
are consummated, neither of the parties hereto shall have any obligation to pay
any of the fees and expenses of any other party incident to the negotiation,
preparation and execution of this  Agreement, including the fees and expenses of
counsel, accountants, investment bankers and other experts.  The Company, on the
one hand, and the Investor, on the other hand, will indemnify the other and hold
it harmless from and against any claims for finders' fees or brokerage
commissions in relation to or in connection with such transactions as a result
of any agreement or understanding between such indemnifying party and any third
party.

          7.   During the period of 180 days after the date of the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act, covering the offer and sale of
Common Stock for the account of the Company to the public, the Investor shall
not, directly or indirectly offer to sell, sell, issue, distribute or otherwise
dispose of any securities, any shares of Common Stock or any options, rights or
warrants with respect to any equity securities of the Company without the prior
written consent of the managing underwriter of such public offering (which
consent may be withheld at the sole discretion of such managing underwriter);
provided, however, that the foregoing shall not prohibit the Investor from
- --------  -------                                                         
privately selling Common Stock in a transaction effected off-exchange and
without use of an intermediate broker or dealer and exempt from registration
under the Securities Act and provided, further, that the foregoing restriction
                             --------  -------                                
shall not be applicable unless, immediately prior to the consummation of such
offering each officer, director and 10% stockholder has agreed in writing to be
bound to a 180 day lock-up period on terms substantially similar to those set
forth in this Section F.7.

          8.   This Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.

          9.   The Investor agrees that a stop order shall be placed in the
stock transfer records of the Company against the transfer of the Securities in
contravention of the terms of this Agreement or applicable United States federal
and state securities laws.

          10.  If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party.  Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith

<PAGE>
 
                                      19

to modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to all parties to the end that the
transactions contemplated hereby are fulfilled to the greatest extent possible.



                  [Remainder of page intentionally left blank]

<PAGE>
 
                                      20

          IN WITNESS WHEREOF, the Company and the Investor has caused this
Agreement to be executed as of the date first written above.

                         THE COMPANY
                         -----------

                         CELL THERAPEUTICS, INC.


                         By: /s/ James A. Bianco
                            ----------------------------------------------------
                            Name:   James A. Bianco, M.D.
                            Title:  President and Chief Executive Officer

Number
of Shares
Subscribed     Purchase
For            Price       THE INVESTOR
- ----------     --------    ------------

5,970.1493     $2,000,000  NEW YORK LIFE INSURANCE COMPANY
                            51 Madison Avenue, Room 207
                            New York, NY 10010
                            Attention:  Richard F. Drake
                            Telecopy No.:  (212) 576-8080
 


                         By: /s/ Richard F. Drake
                            ----------------------------------------------------
                            Name:  Richard F. Drake
                            Title: Investment Vice President
 



<PAGE>
 
                                                                    EXHIBIT 10.3


                         REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made by Cell
Therapeutics, Inc., a Washington corporation (the "Company"), for the benefit of
the investors party to this Agreement (collectively, the "Investors," and each
an "Investor").


                                   RECITALS


     A.   The Investors desire to purchase from the Company, and the Company
          desires to issue and sell to the Investors, up to an aggregate of
          44,776.119 shares of the Company's Series A Convertible Preferred
          Stock, without par value (the "Series A Preferred"), each convertible
          into 100 shares of the Company's common stock, without par value (the
          "Common Stock"), all upon the terms set forth in that certain Stock
          Purchase Agreement dated as of September 17, 1996 (the "Stock Purchase
          Agreement") between the Investors and the Company.

     B.   As further inducement for the Investors to purchase the Shares from
          the Company, the Company desires to undertake to register under the
          Securities Act of 1933, as amended, and the rules and regulations
          thereunder (collectively, the "Securities Act"), the shares of Common
          Stock (the "Shares") issuable upon conversion of the Series A
          Preferred. This Agreement sets forth the terms and conditions of such
          undertaking.


                                  AGREEMENTS


The Company and the Investors covenant and agree as follows:

     1.   Definitions.  For purposes of this Agreement:

     a.   The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
statements or similar documents in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor rule providing
for offering securities on a continuous basis ("Rule 415"), and the declaration
or ordering of effectiveness of such registration statement or document by the
Securities and Exchange Commission (the "SEC').

     b.   The term "Registrable Securities" means (i) the Shares and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any

<PAGE>
 
                                       2

convertible security, warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of the Series A Preferred (other than the Shares) or the Shares;
provided, however, that the Shares or other shares of Common Stock shall no
- --------  -------                                                          
longer be treated as "Registrable Securities" if (A) they have been sold by an
Investor in a transaction in which its registration rights under this Agreement
are not assigned, (B) a registration statement with respect to the sale of such
Registrable Securities shall have become effective under the Securities Act and
such Registrable Securities shall have been disposed of in accordance with such
registration statement, (C) such Registrable Securities shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (D) such Registrable Securities shall have been
otherwise transferred, new certificates for such Registrable Securities not
bearing a legend restricting further transfer shall have been delivered by the
Company and subsequent disposition of such Registrable Securities shall not be
subject to registration or qualification under the Securities Act or any state
securities or blue sky law then in force, or (E) such Registrable Securities
shall have ceased to be outstanding; and

     c.   Capitalized terms not defined herein shall have the meanings set forth
in the Stock Purchase Agreement.


     2.   Registration.

     a.   Subject to the provisions of subsection 3(a) below, not later than six
months after the final closing date of an initial public offering of the Common
Stock of the Company to the general public covered by a registration statement
under the Securities Act (the "IPO Closing Date"), the Company shall use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities; provided, however, that an Investor may inform the
Company in writing that it wishes to exclude all or a portion of its Registrable
Securities from such registration.

     b.   If the Company shall not have effected the registration of all
Registrable Securities (other than any Registrable Securities excluded from
registration at the request of an Investor) by the last day of the 24th month
after the date of this Agreement, the holders of a majority in interest of
Registrable Securities shall have the right at any time (but only once),
commencing with the first day of the 25th month after the date of this
Agreement, to make a written request (a "Demand") to the Company for
registration (a "Demand Registration") under and in accordance with the
provisions of the Securities Act of all Registrable Securities; provided,
                                                                -------- 
however, that an Investor may inform the Company in writing that it wishes to
- -------                                                                      
exclude all or a portion of its Registrable Securities from such registration.
The Company may, if its Board of Directors shall determine in the good faith
exercise of their reasonable business judgment that it would be significantly
adverse to the Company and its stockholders to effect a Demand Registration,
defer such Demand

<PAGE>
 
Registration (but only once) for a period of not more than ninety (90) days
after receipt of the Demand; provided, that the Company shall effect such Demand
                             --------                                           
Registration promptly upon the expiration of such period unless the holders of a
majority in interest of Registrable Securities shall have notified the Company
in writing not to effect such Demand Registration.

     c.   The holders of a majority in interest of the Registrable Securities
shall have the right to select the managing underwriters, if any, for a
registration pursuant to this Section 2, subject to the approval of the Company,
which shall not be unreasonably withheld.

     d.   The Company is obligated to use its best efforts to effect only one
registration pursuant to this Agreement.

     3.   Obligations of the Company.  When required under this Agreement to
effect the registration of the Registrable Securities, the Company shall, as
expeditiously as reasonably possible:

     a.   Prepare and file with the SEC a registration statement or statements
or similar documents (the "Registration Statement") with respect to all
Registrable Securities, other than any Registrable Securities excluded by
Investors pursuant to Section 2(a) or 2(b), and use its best efforts to cause
the Registration Statement to become effective not later than six months after
the IPO Closing Date, or, in the event of a Demand Registration pursuant to
Section 2(b), as soon as practicable after receipt of the Demand (plus such
additional period that the Demand Registration may be deferred by the Company
pursuant to Section 2(b)), and to keep the Registration Statement effective
pursuant to Rule 415 at all times until three years after September 17, 1996,
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.

     b.   Prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until three
years after September 17, 1996 and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
Registration Statement.

     c.   Furnish promptly to the Investors such numbers of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as the Investors may reasonably request in order to
facilitate the disposition of Registrable

<PAGE>
 
                                       4


Securities.

     d.   Use its best efforts to register and qualify the securities covered by
the Registration Statement under such other securities or Blue Sky laws of such
jurisdiction as shall be reasonably requested by the Investors, and prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements and to take such other actions as may be necessary
to maintain such registration and qualification in effect at all times until
three years after September 17, 1996, and to take all other actions necessary or
advisable to enable the disposition of such securities in such jurisdictions,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions or to provide any
undertaking or make any change in its charter or bylaws which the Board of
Directors determines to be contrary to the best interest of the Company and its
shareholders.

     e.   In the event the holders of a majority in interest of the Registrable
Securities select underwriters for the offering, enter into and perform its
obligations under an underwriting agreement in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering. The Investors shall
also enter into and perform their customary obligations under any such agreement
including, without limitation, customary indemnification and contribution
obligations.

     f.   Notify the Investors, at any time when a prospectus relating to
Registrable Securities covered by the Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.  The Company shall
promptly amend or supplement the Registration Statement to correct any such
untrue statement or omission.

     g.   Notify the Investors of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose. The Company will make every reasonable effort
to prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible time.

     h.   Permit a single firm of counsel designated as selling shareholders'
counsel by the holders of a majority in interest of the Registrable Securities
to review the Registration Statement and all amendments and supplements thereto
a reasonable period of time prior to their filing, and shall not file any
document in a form to which such counsel reasonably

<PAGE>
 
                                       5


objects.

     i.   Make generally available to its security holders as soon as
practicable. but not later than 90 days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement.

     j.   At the request of the Investors, furnish to the underwriters on the
date that Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement (i) an opinion, dated
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters.

     k.   Make available for inspection by the Investors, any underwriters
participating in the offering pursuant to the registration and the counsel,
accountants or other agents retained by the Investors or any such underwriter,
all pertinent financial and other records, corporate documents and proprieties
of the Company, and cause the Company's officers, directors and employees to
supply all information reasonably requested by the Investors or any such
underwriters in connection with the registration; provided, that the Company may
                                                  --------                      
require the recipient of any such information to execute a confidentiality
agreement containing such provisions as are reasonable under the circumstances.

     l.   If the Common Stock is then listed on a national securities exchange,
use its best efforts to cause the Registrable Securities to be listed on such
exchange, or if the Common Stock is not then listed on a national securities
exchange, use its best efforts to facilitate the reporting of the Common Stock
on the Nasdaq National Market.

     m.   Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement.

     n.   Take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be sold pursuant to the Registration
Statement and to enable such certificates to be in such denominations and
registered in such names as the Investors or any underwriters may reasonably
request.

     o.   Take all other reasonable actions necessary to expedite and facilitate

<PAGE>
 
                                       6


disposition by the Investors of the Registrable Securities pursuant to the
Registration Statement.


     4.   Furnish Information.  It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to each Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be reasonably
required to effect the registration of the Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.


     5.   Expenses of Registration.  All expenses other than underwriting
discounts and commissions incurred in connection with registration, filings, or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing, filing and qualification fees, printers and accounting
fees, the fees and disbursements of counsel or the Company and the reasonable
fees and disbursements of one firm of counsel for the Investors shall be borne
by the Company.


     6.   Indemnification.  In the event any Registrable Securities are included
in a Registration Statement under this Agreement:

     a.   To the extent permitted by law, the Company will indemnify and hold
harmless each Investor, the directors, if any, of such Investor, the officers,
if any, of such Investor who sign the Registration Statement, each person, if
any, who controls such Investor, any underwriter (as defined in the Securities
Act) for the Investors and each person, if any, who controls any such
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "1934 Act"), against any losses. claims, damages,
expenses or liabilities (joint or several) to which any of them may become
subject under the Securities Act, the 1934 Act or otherwise, insofar as such
losses, claims, damages, expenses or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading
or (iii) any violation or alleged violation by the Company of the Securities
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the 1934 Act or any state securities law;
and the Company will reimburse the Investors and each such underwriter or
controlling person,

<PAGE>
 
                                       7


promptly as such expenses are incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided, however,
that the indemnity agreement contained in subsection 6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Investors or any such underwriter or controlling
person, as the case may be.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Investors or
any such underwriter or controlling person and shall survive the transfer of the
Registrable Securities by Investors.

     b.   To the extent permitted by law, each Investor, severally and not
jointly, will indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the Registration Statement, each person, if
any, who controls the Company within the meaning of the Securities Act or the
1934 Act, any underwriter and any other stockholder selling securities pursuant
to the Registration Statement or any of its directors or officers or any person
who controls such holder or underwriter, against any losses, claims, damages or
liabilities (joint or several) to which any of them may become subject, under
the Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Investor expressly for use in connection
with such registration; and such Investor will reimburse any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 6(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of such Investor,
which consent shall not be unreasonably withheld; and provided further, that the
Investor shall be liable under this paragraph for only that amount of losses,
claims, damages and liabilities as does not exceed the proceeds to such Investor
as result of the sale of Registrable Securities pursuant to such registration.

     c.   Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
parties;

<PAGE>
 
                                       8


provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel for the indemnifying party,
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding.  The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Section 6 only to the extent prejudicial to its ability to
defend such action, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 6.  The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, promptly as such
expense, loss, damage or liability is incurred.

     d.   To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 6 to the extent permitted by law, provided that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in this
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (iii) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.

     7.   Reports Under Securities Exchange Act of 1934.  With a view to making
available to the Investors the benefits of SEC Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit the Investors to sell securities of the Company to the public without
registration, the Company agrees to:

     a.   make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;

     b.   file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the 1934 Act; and

     c.   furnish to each Investor, so long as such Investor owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after 90 days after

<PAGE>
 
                                       9


the effective date of the first registration statement filed by the Company),
the Securities Act and the 1934 Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably requested in
availing the Investors of any rule or regulation of the SEC which permits the
selling of any such securities without registration.


     8.   Assignment of Registration Rights.  The rights to have the Company
register Registrable Securities pursuant to this Agreement may be assigned by
the Investors to transferees or assignees of such securities provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act.  The term "Investors" as used
in this Agreement shall include permitted assignees.


     9.   Miscellaneous.

     a.   Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed (i) if to the
Company, at Cell Therapeutics, Inc., 201 Elliott Avenue West, Suite 400,
Seattle, Washington 98119, Attention: James A. Bianco, M.D., President and Chief
Executive Officer, and (ii) if to an Investor, at the address set forth under
its name in the Stock Purchase Agreement, or at such other address as each such
party furnishes by notice given in accordance with this Section 9(a).

     b.   Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
will not operate as a waiver thereof. No waiver will be effective unless and
until it is in writing and signed by the party giving the waiver.

     c.   This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of New York, as such laws are
applied by New York courts to agreements entered into and to be performed in New
York by and between residents of New York.  In the event that any provision of
this Agreement is invalid or unenforceable under any applicable statute or rule
of law, then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with such statute
or rule of law.  Any provision hereof which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other

<PAGE>
 
                                      10


provision hereof.

     d.   This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by the Company and the holders of a majority in interest of the
Registrable Securities.

     DATED as of this 17th day of September, 1996.

                         THE COMPANY
                         -----------

                         CELL THERAPEUTICS, INC.


                         By: /s/ James A. Bianco
                            ----------------------------------------------- 
                             James A. Bianco, M.D.
                             President and Chief Executive Officer


                         THE INVESTORS
                         -------------

                         KUMMELL INVESTMENTS LIMITED


                         By: /s/ Andy Kit-Chung Chan
                            ----------------------------------------------- 
                             Name: Andy Kit-Chung Chan
                             Title: Director 


                         By: /s/ Sandra E. Pallas
                            ----------------------------------------------- 
                             Name: Sandra E. Pallas
                             Title: Joint Secretary


                         INTERNATIONAL BIOTECHNOLOGY TRUST plc


                         By: /s/ Jeremy Curnock Cook
                            ----------------------------------------------- 
                             Name: Jeremy Curnock Cook
                             Title: Director

<PAGE>
 
                                      11


                         W.R. SMITH II

                         /s/ W.R. Smith 
                         ----------------------------------------------- 

 


                         VULCAN VENTURES INC.


                         By: /s/ William D. Savoy
                            ----------------------------------------------- 
                             Name: William D. Savoy
                             Title: Vice President


                         THE PHOENIX PARTNERS III LIMITED PARTNERSHIP
 

                         By  /s/ Stuart C. Johnston
                            ----------------------------------------------- 
                             Name: Stuart C. Johnston
                             Title: Managing General Partner

<PAGE>
 
                                AMENDMENT NO. 1
                                       TO
                         REGISTRATION RIGHTS AGREEMENT

     THIS AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT (the "Amendment") is
made by and between Cell Therapeutics, Inc., a Washington corporation (the
"Company"), the investors party to this Agreement (collectively, the
"Investors," and each an "Investor"), and New York Life Insurance Company (the
"Additional Investor").

                                    RECITALS

     A.   Pursuant to a Stock Purchase Agreement dated as of September 17, 1996
          (the "Stock Purchase Agreement") between the Company and the
          Investors, the Investors purchased from the Company 44,776.119 shares
          of the Company's Series A Convertible Preferred Stock, without par
          value (the "Series A Preferred"), and in connection with the Stock
          Purchase Agreement the Company and the Investors entered into that
          certain Registration Rights Agreement, dated as of September 17, 1996
          (the "Registration Rights Agreement").

     B.   The Additional Investor desires to purchase from the Company, and the
          Company desires to issue and sell to the Additional Investor,
          5,970.1493 shares of Series A Preferred, upon the terms set forth in
          that certain Stock Purchase Agreement dated as of October 11, 1996
          (the "Additional Investor Stock Purchase Agreement") between the
          Additional Investor and the Company.

     C.   As further inducement for the Additional Investor to purchase the
          Shares from the Company, the parties hereto intend to amend the
          Registration Rights Agreement to provide the Additional Investor with
          the rights and privileges that the Company provided to the Investors
          pursuant to the Registration Rights Agreement.


                                  AGREEMENTS

          The Company, the Additional Investor, and the Investors party hereto,
being the holders of a majority in interest of the Registrable Securities (as
defined in the Registration Rights Agreement), hereby agree as follows:
 
          SECTION 1.  Amendments to Registration Rights Agreement.  The
                      -------------------------------------------      
Registration Rights Agreement is, effective as of October 11, 1996 (the
"Effective Date")

<PAGE>
 
and subject to the satisfaction of the conditions precedent set forth in Section
2 hereof, hereby amended as follows:

          (a) The Additional Investor shall be an "Investor" under the
     Registration Rights Agreement; and

          (b) The shares of Common Stock issuable upon conversion of the
     5,970.1493 shares of Series A Preferred purchased by the Additional
     Investor pursuant to the Additional Investor Stock Purchase Agreement shall
     constitute "Shares" under the Registration Rights Agreement.

          SECTION 2.  Agreement of Additional Investor.  The Additional Investor
                      --------------------------------                          
agrees to all of the terms and conditions of the Registration Rights Agreement,
as amended hereby.

          SECTION 3.  Conditions of Effectiveness.  This Amendment shall become
                      ---------------------------                              
effective as of the Effective Date if, on or prior to that date, the Company
shall have received counterparts of this Amendment duly executed by the holders
of a majority interest of the Registrable Securities and the Additional
Investor.

          SECTION 4.  Reference to and Effect on the Registration Rights
                      --------------------------------------------------
Agreement.  (a)  Upon the effectiveness of this Amendment, on and after the date
- ---------                                                                       
hereof, each reference in the Registration Rights Agreement to "this Agreement,"
"hereunder," "hereof " or words of like import referring to the Registration
Rights Agreement, shall mean and be a reference to the Registration Rights
Agreement as amended hereby.

          (b)  Except as specifically amended above, the Registration Rights
Agreement is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.

          SECTION 5.  Execution in Counterparts.  This Amendment may be executed
                      -------------------------                                 
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.

          SECTION 6.  GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY, AND
                      -------------                                           
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

<PAGE>
 
          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.


                              DATED as of this 11th day of October, 1996.

                              THE COMPANY
                              -----------

                              CELL THERAPEUTICS, INC.


                              By: /s/ James A. Bianco
                                 --------------------------------------------
                                    James A. Bianco, M.D.
                                    President and Chief Executive Officer


                              THE INVESTORS
                              -------------

                              KUMMELL INVESTMENTS LIMITED


                              By:  
                                 --------------------------------------------
                                   Name:  
                                   Title: 


                              By:  
                                 --------------------------------------------
                                   Name:  
                                   Title: 


                              INTERNATIONAL BIOTECHNOLOGY
                              TRUST plc


                              By:  /s/ Jeremy Curnock Cook
                                 --------------------------------------------
                                    Name:  Jeremy Curnock Cook
                                    Title: Director

<PAGE>
 
                              W.R. SMITH II


                              /s/ W.R. Smith
                              --------------------------------------------
 


                              VULCAN VENTURES INC.


                              By:  /s/ William D. Savoy
                                 --------------------------------------------
                                   Name:  William D. Savoy
                                   Title: Vice President


                              THE PHOENIX PARTNERS III LIMITED   
                              PARTNERSHIP
 

                              By    
                                 --------------------------------------------
                                    Name:  
                                    Title: 

 
                              THE ADDITIONAL INVESTOR
                              -----------------------

                              NEW YORK LIFE INSURANCE COMPANY


                              By:   /s/ Richard F. Drake
                                 --------------------------------------------
                                    Name:  Richard F. Drake
                                    Title: Investment Vice President



<PAGE>
 
                                                                    EXHIBIT 10.4

                       [LETTERHEAD OF CTI APPEARS HERE]


                                                         September 17, 1996



     KUMMELL INVESTMENTS LIMITED
     Suite 922C
     Europort, Gibraltar

     Gentlemen:

     This is to confirm our understanding that in consideration for Kummell
     Investments Limited's ("Kummell") agreement to purchase 14,925.373 shares
     of the Series A Convertible Preferred Stock, without par value
     ("Preferred"), of Cell Therapeutics, Inc., a Washington corporation
     ("CTI"), pursuant to that certain Stock Purchase Agreement dated as of
     September 17, 1996 by and among CTI and the Investors party thereto (the
     "Stock Purchase Agreement"), (1) CTI will take all necessary action to
     nominate a designee of Kummell to CTI's Board of Directors at CTI's 1999
     Annual Meeting of Shareholders to serve as a Class II Director until CTI's
     2002 Annual Meeting of Shareholders, and (2) if at any time prior to the
     date that CTI shall have nominated a designee of Kummell to CTI's Board of
     Directors pursuant to clause (1) Terrence M. Morris shall cease to be a
     Director of CTI, CTI will take all necessary action to (A) nominate a
     designee of Kummell to CTI's Board of Directors to fill the vacancy created
     by Mr. Morris's termination of service as a Director and (B) nominate a
     designee of Kummell to CTI's Board of Directors
 at CTI's first Annual
     Meeting of Shareholders following the date of termination of Mr. Morris's
     termination of service as a Director to serve as a Class II Director until
     CTI's 1999 Annual Meeting of Shareholders, in each case provided, that
                                                             --------      
     Kummell shall have furnished the name of such nominee to the Company within
     the period required for shareholder nomination of Director candidates
     pursuant to CTI's Articles of Incorporation and By-laws as then in effect,
     or in the event that such nomination is pursuant to clause (2)(A), within
     ten (10) days of the date of termination of Mr. Morris's termination of
     service as a Director; and provided, further, that such designee is
                                --------  -------
     reasonably acceptable to CTI's Board of Directors (it being agreed that Mr.
     Morris is acceptable) .

     Notwithstanding the foregoing, this Agreement shall be of no further force
     and effect:

          (i) upon the closing of a firm commitment underwritten public offering
          pursuant to an effective registration statement under the Securities
          Act of 1933, as amended (the "Securities Act"), covering the offer and
          sale of shares of CTI's common stock, without par value ("Common"),
          for the account of CTI to the public at an aggregate offering price to
          the public of not less than $15,000,000;

<PAGE>
 
     (ii)   upon the acceptance for listing or quotation, as applicable, of any
     class of equity security of CTI on the New York Stock Exchange or any other
     national securities exchange or on the NASDAQ National Market or any
     successor thereto;

     (iii)  if at any time after the date hereof Kummell shall hold less than
     twelve percent (12.0%) of the shares of Common then outstanding (after
     giving effect to an assumed conversion into Common of all shares of
     Preferred then outstanding);

     (iv)   if at any time after the date hereof Kummell shall acquire, directly
     or indirectly, by purchase or otherwise, of record or beneficially, other
     than by the transactions contemplated by the Stock Purchase Agreement or
     pursuant to any stock option plan of CTI providing for the grant of stock
     options to Directors, any securities of CTI or rights or options to acquire
     any securities from any holder of such securities, without the prior
     approval of CTI's Board of Directors;

     (v)    if at any time after the date hereof Kummell or any of its
     "Affiliates" (as such term is defined in the Securities Act) shall solicit
     proxies with respect to any securities of CTI under any circumstances or
     initiate, propose or otherwise solicit any stockholder for the approval of
     one or more stockholder proposals at any time, or induce or attempt to
     induce any other person to initiate any stockholder proposal; or

     (vi)   if as of the last day upon which a shareholder may nominate a
     candidate for Director at the 1999 Annual Meeting of Shareholders pursuant
     to CTI's Articles of Incorporation and By-laws as then in effect, a
     designee of Kummell or an Affiliate of Kummell shall then be serving as a
     Director with a term of office that will continue beyond the 1999 Annual
     Meeting of Shareholders.

CTI and Kummell shall consult with each other before issuing any press release
or otherwise making any public statements with respect to this Agreement and
shall not issue any such press release or make any such public statement without
the prior consent of the other party, which shall not be unreasonably withheld;
                                                                               
provided, however, that a party may, without the prior consent of the other
- --------  -------                                                           
party, issue such press release or make such public statement as may upon the
advice of counsel be required by law, the National Association of Securities
Dealers or any stock exchange or over-the-counter market upon which CTI's
securities may be listed or quoted, if it has used all reasonable efforts to
consult with the other party.

<PAGE>
 
Please confirm that the foregoing correctly sets forth our agreement by signing
and returning to CTI the enclosed original copy of this Letter Agreement.

                                        Very truly yours,

                                        CELL THERAPEUTICS, INC.

                                        /s/ James A. Bianco, M.D.
                                        -----------------------------
                                        James A. Bianco, M.D.
                                        President & Chief Executive Officer


Agreed and accepted as of the date
written above,

KUMMEL INVESTMENTS LIMITED

By: /s/ Andy Kit-Chung Chan
- -------------------------------
    Name: Andy Kit-Chung Chan
    Title: Director

By: /s/ Sandra E. Pallas
- -------------------------------
    Name: Sandra E. Pallas
    Title: Joint Secretary



<PAGE>
 
                                                                    Exhibit 11.1

                            CELL THERAPEUTICS, INC.
                         (A Development Stage Company)
                       Computation of Net Loss Per Share


<TABLE> 
<CAPTION> 
                                              Three Months Ended September 30,        Nine Months Ended September 30,
                                              --------------------------------        -------------------------------  
                                                 1996               1995                  1996              1995
                                              --------------------------------        -------------------------------  
<S>                                           <C>                <C>                  <C>               <C>          
Net loss                                      $(5,094,025)        $(4,863,107)        $(12,729,578)      $(14,095,176)
                                              ================================        ===============================  
                                                                                                                   
Weighted average common shares outstanding     17,300,574          16,581,959          17,283,564          16,541,013  
                                              ================================        ===============================  
Net loss per share                            $     (0.29)        $     (0.29)        $     (0.74)         $    (0.85)
                                              ================================        ===============================   
</TABLE>
 






<TABLE> <S> <C>


<PAGE>
 
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 
SEPTEMBER 30, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               SEP-30-1996
<CASH>                                      13,609,219
<SECURITIES>                                11,071,838
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                            24,717,517
<PP&E>                                      11,040,728
<DEPRECIATION>                               5,857,888
<TOTAL-ASSETS>                              30,654,835
<CURRENT-LIABILITIES>                        3,976,904
<BONDS>                                      2,292,783
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                 45,466,204
<COMMON>                                    51,808,820
<OTHER-SE>                                (72,889,876)
<TOTAL-LIABILITY-AND-EQUITY>                30,654,835
<SALES>                                              0
<TOTAL-REVENUES>                             3,250,000
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                            16,338,656
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             387,785
<INCOME-PRETAX>                           (12,729,578)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                       (12,729,578)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                              (12,729,578)
<EPS-PRIMARY>                                   (0.74)
<EPS-DILUTED>                                   (0.74)
        

</TABLE>