Exhibit 10.5

FORM OF STRATEGIC MANAGEMENT TEAM

SEVERANCE AGREEMENT

This SEVERANCE AGREEMENT (the “Agreement”) is entered into by and between Cell
Therapeutics, Inc., a Washington corporation (“CTI” or the “Company”), and
_____________ (the “Executive”).

WHEREAS, CTI recognizes the Executive’s expertise in connection with Executive’s
employment by CTI;

WHEREAS, CTI desires to provide certain severance pay to Executive upon the
terms and conditions below, if the Executive’s employment is terminated for the
reasons set forth herein; and

NOW, THEREFORE, in consideration of the following promises, mutual agreements
and covenants and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound hereby, agree as follows:

Definition of Terms.

For purposes of this Agreement “Cause” is defined as (i) an act of material
dishonesty made by Executive in connection with Executive’s responsibilities as
an employee, (ii) Executive’s conviction of, or pleas of nolo contendere to, a
felony, (iii) Executive’s gross misconduct, or (iv) Executive’s continued
substantial violations of his employment duties after Executive has received a
written demand for performance from the Company which specifically sets forth
the factual basis for the Company’s belief that the Executive has not
substantially performed his duties and provides Executive thirty (30) days to
cure any such violation(s).

“Change in Control” shall mean the acquisition, directly or indirectly, by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1933 (the “Exchange Act”)) of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) of
securities representing fifty point one percent (50.1%) or more of either
(a) the then outstanding shares of Common Stock (the “Outstanding Company Common
Stock”) or (b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided however, that
the following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or
(D) any acquisition by any corporation pursuant to a reorganization, merger or
consolidation which does not substantially change the proportional ownership in
the Outstanding Company Common Stock and Outstanding Company Voting Securities
prior to the reorganization.

Resignation for “Good Reason” shall mean the resignation of the Executive after
the following: (A) notice in writing is given to Executive of Executive’s
relocation, without the Executive’s consent, to a place of business outside the
Greater Puget Sound area, (B) a substantial diminution of the Executive’s
responsibilities and benefits in effect on the date hereof, (C) knowledge of an

 

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act or intent to commit an act in violation of the Sarbanes-Oxley Act of 2002,
the federal securities laws and any other law applicable to the conduct of the
Company’s business; provided, however, that “Good Reason” shall not exist if
Executive knowingly participated in such act or was aware of its commission or
intended commission and did not take reasonable steps to prevent or report it,
or (D) the occurrence of a Change in Control. A change in title and any
alterations in Executive’s responsibilities which CTI imposes in response to any
unsatisfactory or unacceptable work performance by Executive after Executive has
received a written demand for performance from the Company which specifically
sets forth the factual basis for the Company’s belief that the Executive has not
substantially performed his duties and provides Executive thirty (30) days to
cure any such violation(s) shall not constitute a basis for “resignation for
Good Reason” under this Agreement.

“Severance Date” shall mean the date specified in a written notice of
termination from CTI to the Executive or the date which is the later of CTI’s
actual receipt of Executive’s written notice of resignation or the effective
date of resignation.

“Severance End Date” shall mean a date eighteen (18) months from the Executive’s
Severance Date.

“Severance Pay” shall only mean the Executive’s base salary at the Severance
Rate.

“Severance Rate” shall mean only the Executive’s base salary in effect
immediately prior to the Severance Date and shall not include any commissions
(unless already determined and awarded prior to the Severance Date), vacation
pay, sick leave, or the like whatsoever.

 

1. Termination of Employment. Subject to the Executive’s continuing obligations
under the parties’ Employment Agreement (attached):

 

  (a) Termination for Cause; Death; Disability; Resignation Without Good Reason.
If the Executive’s employment is terminated by CTI for Cause, or if the
Executive resigns from employment hereunder, other than for Good Reason or as a
result of such Executive’s death or disability (as defined in CTI’s disability
plan applicable to the Executive), the Executive shall be entitled only to
receive: i) Severance Pay through and including the Severance Date; and ii) pay
for all vacation time accrued as of the Severance Date.

 

  (b)

Termination Without Cause; Resignation for Good Reason. If the Executive’s
employment is terminated by CTI without Cause, or if the Executive resigns from
Executive’s employment for Good Reason and provided that such termination
constitutes a “separation from service” as defined in Treasury Regulation
Section 1.409A-1(h) (“Separation”) and Executive executes and does not revoke a
general release of all claims in the form prescribed by the Company and such
release becomes effective within sixty (60) days of Executive’s Separation (the
“Deadline”), the Executive shall be entitled to receive: (i) eighteen
(18) months of Severance Pay; (ii) an amount equal to the greater of the average
of the three (3) prior years’ bonuses or thirty percent (30%) of base salary in
effect upon Executive’s Severance Date; (iii) pay for all vacation time accrued
as of the

 

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Severance Date; and (iv) CTI shall continue to pay premiums to maintain any life
insurance for Executive, existing and paid for by CTI as of the Severance Date,
for eighteen (18) months following the Severance Date. The parties agree that
the foregoing shall be paid as follows: (w) the Severance Pay provided in
(i) above shall be paid in eighteen (18) equal installments pursuant to CTI’s
regular payroll procedures commencing on the Company’s first normal payroll date
that occurs on or after the Deadline, (x) the severance provided in (ii) above
shall be paid on the first normal payroll date on or after the Deadline, (y) the
accrued but unused vacation shall be paid on the Severance Date and (z) premium
payments for life insurance shall be made on each regularly scheduled due date
for such payments beginning with the first regularly scheduled due date that
occurs on or after the Deadline Date (with any payments due prior to such time
being made on such date). In addition, CTI shall reimburse the Executive for any
premium payments for COBRA continuation coverage for the Executive and
Executive’s covered dependents under CTI’s medical plan only for the period from
the Severance Date until the earlier of: (1) a date eighteen (18) months after
the Severance Date; or (2) a date on which the Executive is covered under the
medical plan of another employer, which does not exclude pre-existing
conditions. At Executive’s sole cost and expense, Executive may elect to
exercise any disability insurance conversion originally available to Executive
under the then existing group or individual disability insurance policies. In
the event of a breach of the Inventions and Proprietary Information Agreement,
in addition to any other remedy available to CTI, all of CTI’s obligations under
this Section 1(b) shall terminate immediately.

For purposes of Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), each payment that is paid under the preceding paragraph (other
than payments referenced in Section 1(b)(iii) above and COBRA reimbursements) is
hereby designated as a separate payment. Notwithstanding anything stated herein,
if the Company (for this purpose, “employer” as defined in Treasury Regulation
Section 1.409A-1(h)(3)) is publicly traded on an established securities market
or otherwise at the time of Executive’s Separation and, at the time of
Executive’s Separation Executive is a “specified employee,” as defined in
Treasury Regulation Section 1.409A-1(i), then any severance that Executive would
otherwise be entitled to pursuant to 1(b) during the six (6) month period
following his Separation (for purposes of clarity, this does not include amounts
referenced in Section 1(b)(iii) above or COBRA reimbursements) shall not be paid
during such six (6) month period and shall instead be paid on the first business
day following the expiration of such six (6) month period or, if earlier, the
date of Executive’s death, and any remaining payments shall continue to be paid
in accordance with this Section 1(b).

The Executive shall have no right under this Agreement or otherwise to receive
any bonus, stock options, or other compensation awarded or benefits provided,
determined or paid subsequent to the Severance Date to other employees of CTI,
pro rata or otherwise. However, if Executive is terminated by CTI without Cause
or the Executive resigns from Executive’s employment for Good Reason, all

 

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unvested stock based compensation to which the Executive may have rights on the
Severance Date shall accelerate and immediately vest and all options shall
remain exercisable as provided for in the parties’ corresponding Stock Option
Agreement(s). Notwithstanding the foregoing, if and only if, CTI is a privately
held company on the Executive’s Severance Date, CTI shall recommend to the Board
of Directors to extend the exercise period from three (3) months to two
(2) years after the Severance Date for stock options other than any incentive
stock options in which the Executive may have rights on the Severance Date;
provided however, should CTI stock become publicly traded during any extended
stock option exercise period granted hereunder, Executive may only exercise
stock options in which Executive may have rights during the three (3) month
period following the date a corresponding S-8 registration statement is declared
effective; or ii) the last day of the extended stock option exercise period. The
decision to accept CTI’s recommendation to extend the exercise period shall be
within the sole discretion of the Board of Directors. If CTI Common Stock is
publicly traded on the Severance Date, any exercise period will remain as
provided for in the parties’ corresponding Stock Option Agreement(s).

 

2. Gross-Up. In the event that any compensation and other benefits provided for
in this Agreement or amounts otherwise payable to the Executive constitute
“parachute payments” within the meaning of Section 280G of the Code and will be
subject to the excise tax imposed by Section 4999 of the Code, then the
Executive shall receive (i) a payment from the Company sufficient to pay such
excise tax, and (ii) an additional payment from the Company sufficient to pay
the excise tax and federal and state income taxes arising from the payments made
by the Company to Executive pursuant to this sentence. Any payment required
pursuant to this Section 2 shall be paid as soon as practicable after a
determination is made pursuant to this Section; provided that, in any event,
such payment shall be paid by the end of the calendar year next following the
calendar year in which Executive remits the related taxes in compliance with
Treasury Regulation Section 1.409A-3(i)(1)(v). Any determination required under
this Section shall be made in writing by the Company’s independent public
accountants (the “Accountants”), whose determination shall be conclusive and
binding upon the Executive and the Company for all purposes. In the event that
the excise tax incurred by Executive is determined by the Internal Revenue
Service to be greater or lesser than the amount so determined by the
Accountants, the Company and Executive agree to promptly make such additional
payment, including interest and any tax penalties, to the other party as the
Accountants reasonably determine is appropriate to ensure that the net economic
effect to Executive under this Section, on an after-tax basis, is as if the Code
Section 4999 excise tax did not apply to Executive. For purposes of making the
calculations required by this Section, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
interpretations of the Code for which there is a “substantial authority” tax
reporting position. The Company and the Executive shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section.

 

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3. Agreement Termination; Employment at Will. This Agreement shall terminate on
the date of termination of the Executive’s employment or, if applicable, the
Severance End Date, but Executive’s obligations under the attached Inventions
and Proprietary Information Agreement shall continue in accordance with the
terms and conditions therein. Although this Agreement sets forth certain rights
and obligations of CTI and Executive if Executive’s employment is terminated
without Cause by CTI or if the Executive resigns for Good Reason from CTI,
nothing in this Severance Agreement is intended to limit CTI’s right or ability
to terminate the Executive’s employment with or without cause at any time or the
Executive’s ability to resign Executive’s employment for any reason. No term of
this Severance Agreement shall be construed to conflict with or lessen
Executive’s obligations under the Employment Agreement previously signed.

 

4. Amendment; Waiver. This Agreement may not be modified, amended or waived in
any manner except by an instrument in writing signed by both parties. Any such
modification, amendment or waiver on the part of CTI shall have been previously
approved by the Board. The waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreement, or of any subsequent
breach by such party of any provision of this Agreement. This Agreement shall be
binding upon any successor to CTI, by merger or otherwise.

 

5. Withholding. Payments to the Executive of all compensation contemplated under
this Agreement shall be subject to all applicable legal requirements with
respect to the withholding of taxes and similar deductions. Additionally, if the
Executive owes any moneys to CTI on the Severance Date, Executive’s signature
below constitutes Executive’s written consent to deduct from any Severance Pay
amounts that the Executive owes CTI.

 

6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON APPLICABLE
TO CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS.

 

7. Supersedes Previous Agreements. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements and writings with respect
to the subject matter hereof, without limitation. All such other negotiations,
commitments, agreements and writings shall have no further force or effect, and
the parties to any such other negotiation, commitment, agreement or writing
shall have no further rights or obligations thereunder.

 

8. Voluntary Agreement. Executive understands the significance and consequences
of this Agreement and acknowledges that CTI has not coerced Executive’s
acceptance thereof, and has signed this Agreement only after full reflection and
analysis. Executive expressly confirms that the Agreement is to be given full
force and effect according to all of its terms. Executive was advised to seek
legal counsel prior to signing the Agreement.

 

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9. Assignment. This Agreement will be binding upon and inure to the benefits of
(a) the heirs, executors and legal representatives of Executive upon Executive’s
death and (b) any successor of the Company. Any such successor to the Company
will be deemed substituted for the Company under the terms of the Agreement for
all purposes. For this purpose “successor” means any person, firm, corporation
or other business entity which at any time, whether by purchase, merger or
otherwise, directly or indirectly acquires all or substantially all of the
assets or business of the Company. None of the rights of Executive to receive
any form of compensation payable pursuant to this Agreement may be assigned or
transferred except by will or the laws of descent and distribution. Any other
attempted assignment, transfer, conveyance or other disposition of Executive’s
right to compensation or other benefits will be null and void.

IN WITNESS WHEREOF, this Agreement has been executed by a duly authorized
officer of CTI and by the Executive in Executive’s individual capacity as of the
date(s) set forth below.

 

CELL THERAPEUTICS, INC.     By:         By:             [Insert Name] Title:    
    Title:   [Insert Title] Date:         Date:     Address:   501 Elliott
Avenue West, Suite 400     Address:       Seattle, WA 98119        

 

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