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1

The Honorable Marsha J. Pechman

2 3 4 5 6 7 UNITED STATES DISTRICT COURT

8

WESTERN DISTRICT OF WASHINGTON

9

AT SEATTLE

10 11 In re CELL THERAPEUTICS, INC., DERIVATIVE LITIGATION 12 13 This Document Relates To: 14

ALL ACTIONS

15 16

) ) ) ) ) ) ) ) ) ) )

Master Docket No. C 10-564 MJP PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT NOTE ON MOTION CALENDAR: Friday, November 30, 2012

17 18 19 20 21 22 23 24 25 26 27 PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

Master Docket No. C 10-564 MJP

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1

TABLE OF CONTENTS Page

2

3 TABLE OF AUTHORITIES .......................................................................................................... ii 4 I.

BACKGROUND ON THE ACTION AND SETTLEMENT NEGOTIATIONS ...............3

5

A.

The Derivative Action..............................................................................................3

6

B.

Settlement Negotiations ...........................................................................................4

7 II.

THE SETTLEMENT MERITS PRELIMINARY APPROVAL .........................................5

8

A.

Applicable Legal Standards .....................................................................................5

9

B.

The Settlement Is Within the Range of Possible Final Approval ............................6

10

1.

The Settlement Confers Substantial Benefits on CTI ..................................6

11

2.

The Benefits Secured for CTI Are Substantial in Relation to the Serious Risks of Establishing Liability and the Complexity, Costs, and Duration of Continued Litigation ..........................................................9

3.

The Settlement Is the Product of Arm's-Length, Mediator-Guided Negotiations and Is therefore Presumptively Fair and Reasonable ............10

4.

Experienced Counsel Recommend the Settlement ....................................10

12 13 14 15 16 17 18

III.

THE PROPOSED SHAREHOLDER NOTICE IS ADEQUATE .....................................11

IV.

PROPOSED SCHEDULE .................................................................................................11

V.

CONCLUSION ..................................................................................................................12

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1

TABLE OF AUTHORITIES Page(s)

2 CASES

3 Bell Atl. Corp. v. Bolger, 2 F.3d 1304 (3d Cir. 1993).................................................................................................. 6 4 Churchill Vill., L.L.C. v. Gen. Elec., 5 361 F.3d 566 (9th Cir. 2004) ............................................................................................ 11 6 Class Plaintiffs v. City of Seattle, 955 F.2d 1268 (9th Cir. 1992) ............................................................................................ 5 7 Cohn v. Nelson, 8 375 F. Supp. 2d 844 (E.D. Mo. 2005)............................................................................... 10 9 Fernandez v. Victoria Secret Stores, LLC, 2008 WL 8150856 (C.D. Cal. July 21, 2008) ................................................................... 10 10 Garner v. State Farm Mut. Auto. Ins. Co., 11 2010 WL 1687832 (N.D. Cal. Apr. 22, 2010) .................................................................. 10 12 Granada Invs., Inc. v. DWG Corp., 962 F.2d 1203 (6th Cir. 1992) ............................................................................................ 6 13 In re Apple Computer, Inc. Derivative Litig., 14 2008 WL 4820784 (N.D. Cal. Nov. 5, 2008)................................................................ 6, 10 15 In re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996)........................................................................................... 10 16 In re First Capital Holdings Corp. Fin. Prods. Sec. Litig., 17 1992 WL 226321 (C.D. Cal. June 10, 1992) .................................................................... 11 18 In re NVIDIA Corp. Derivative Litig., 2008 WL 5382544 (N.D. Cal. Dec. 22, 2008) ............................................................ 5, 6, 9 19 In re Pac. Enters. Sec. Litig., 20 47 F.3d 373 (9th Cir. 1995) .................................................................................... 5, 10, 11 21 In re Pfizer Inc. S'holder Derivative Litig., 780 F. Supp. 2d 336 (S.D.N.Y. 2011)............................................................................... 10 22 In re Walt Disney Co. Derivative Litig., 23 907 A.2d 693 (Del. Ch. 2005), aff'd, 906 A.2d 27 (Del. 2006) .......................................................................................... 10 24 Lewis v. Anderson, 25 692 F.2d 1267 (9th Cir. 1982) ............................................................................................ 6 26 Maher v. Zapata Corp., 714 F.2d 436 (5th Cir. 1983) .............................................................................................. 6 27 PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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1 Mills v. Elec. Auto-Lite Co., 396 U.S. 375 (1970) ............................................................................................................ 6 2 Officers for Justice v. Civil Serv. Comm'n, 3 688 F.2d 615 (9th Cir. 1982) .............................................................................................. 9 4 True v. Am. Honda Motor. Co., 2009 WL 838284 (C.D. Cal. Mar. 25, 2009) ...................................................................... 5 5 Unite Nat'l Ret. Fund v. Watts, 6 2005 WL 2877899 (D.N.J. Oct. 28, 2005).......................................................................... 6 7 Zimmerman v. Bell, 800 F.2d 386 (4th Cir. 1986) ...............................................................................................6 8 RULES, STATUTES, AND OTHER AUTHORITIES 9 Federal Rules of Civil Procedure 10 Rule 23.1(c)..................................................................................................................... 1, 5 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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Plaintiffs1 hereby move unopposed for preliminary approval of the proposed Settlement set

1

2 forth in the Stipulation of Settlement dated and filed November 6, 2012 (the "Stipulation"). Dkt. No. 3 73-1. The Settlement resolves claims brought derivatively on behalf of Cell Therapeutics, Inc. 2

4 ("CTI" or the "Company") against the Individual Defendants.

This Motion seeks entry of the

5 Preliminary Approval Order, attached as Exhibit C to the Stipulation and submitted concurrently 6 herewith, approving the method, form, and content of the Notice of Pendency and Proposed 7 Settlement of Shareholder Derivative Action and scheduling a Settlement Hearing pursuant to Rule 8 23.1(c) of the Federal Rules of Civil Procedure ("Rule 23.1(c)"), at which the Court will consider 9 final approval of the Settlement and the amount of fees and expenses that would fairly compensate 10 Plaintiffs' Counsel for the substantial benefits conferred upon CTI as a result of the litigation and 11 Settlement.3 12

The Settlement is the product of substantial effort, vigorous advocacy, and months of hard-

13 fought negotiations by skilled and experienced counsel. The negotiations were presided over by 14 former Associate Justice of the California Court of Appeal, Howard D. Wiener. The Settlement 15 guarantees CTI the substantial benefits of a comprehensive set of corporate governance reforms that 16 directly address the alleged management- and Board-level breaches of duty and oversight lapses 17 Plaintiffs contend led CTI to breach FDA-approved clinical trial protocols for pixantrone (a non18 Hodgkin's lymphoma treatment), and to mislead shareholders regarding those facts and the prospects 19 for FDA approval of pixantrone. The governance reforms include, inter alia: 20

(i)

Board adoption of a detailed new charter for the Company's Disclosure Committee

21 setting out a rigorous protocol for monitoring product approval efforts and interactions with the 22

1

23

As noted in the Stipulation of Settlement, plaintiffs Joseph Shackleton and Paul Cyrek have standing to represent the Company in connection with the Settlement. Plaintiffs Terry Marbury, Lawrence J. Alexander, and Brandon Bohland no longer hold shares of Cell Therapeutics, Inc.

24

2

25 26

All capitalized terms that are not otherwise defined shall have the same definitions as set forth in the Stipulation.

3

The Parties agree Plaintiffs' Counsel are entitled to an award of reasonable attorneys' fees and expenses, but disagree regarding the amount. See Stipulation, ¶5.1. The parties have agreed to present the matter to the Court through briefing on a separate fee and expense application. See id., ¶¶5.1-5.2. Plaintiffs will file the Fee and Expense Application well before the deadline for the filing of objections to the Settlement. See Preliminary Approval Order, ¶8.

27 PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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1 FDA, and multi-constituent drafting and pre-publication review and approval of related disclosures 2 to ensure their accuracy; 3

(ii)

formal annual evaluation of the effectiveness of CTI's internal and external

4 communications regarding drug approval status and interactions with the FDA; 5

(iii)

new responsibilities for the Chief Compliance Officer, including ensuring that all

6 material communications with the FDA are provided to senior management, the Disclosure 7 Committee, and Board, and providing quarterly written updates to the Board on significant 8 developments in clinical programs; 9

(iv)

establishment of a Chief Governance Officer charged with, inter alia, maintaining and

10 monitoring the system for investigating and reporting compliance matters to the Board's Governance 11 Committee, and reporting any complaints made through the Company's "whistleblower hotline" to 12 the Chair of the Audit Committee within three business days; 13

(v)

mandatory annual Board training focused on FDA practices, polices, and regulations,

14 and disclosure of communications with the FDA; 15

(vi)

mandatory Board review of the Company's insider trading Policy to ensure

16 appropriate controls, including pre-approval of all stock sales by Section 16 officers and directors not 17 made pursuant to SEC Rule 10b5-1 trading plans and annual reporting to the Board regarding 18 violations of the Policy and remedial actions; 19

(vii)

mandatory executive sessions meetings of the Board's independent directors and

20 commitments to maintain the separation of the Chairman and CEO positions and a majority of 21 independent directors; 22

(viii)

Board evaluation of the creation of a Scientific Review and Oversight Committee to

23 oversee drug research and development in the event these activities reach more than 35% of the 24 Company's annual operating expenses; and 25

(ix)

sun-setting Board eligibility for equity-based incentive awards linked to regulatory

26 approval of pixantrone, and adoption of annual "say on pay" shareholder votes, rather than once 27 every three years, with senior officers required to abstain. PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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1 See Stipulation, ¶¶2.1-2.20 & Ex. A. CTI also credits Plaintiffs' litigation efforts as being a "material 2 and substantial contributing factor" in the Company's appointment of Dr. Reed V. Tuckson to the 3 Board. Dr. Tuckson is Chief of Medical Affairs at UnitedHealth Group, where he oversees the 4 clinically-related programs of its six operating businesses. He brings substantial experience and 5 expertise in drug development and commercialization operations and oversight. 6

These reforms will substantially reduce the probability that CTI will suffer the consequences

7 of similar alleged lapses in oversight of clinical trials and interactions with the FDA, and help to 8 restore investor confidence in the accuracy and integrity of CTI's public disclosures. Plaintiffs' 9 Counsel's recommendation that the Court approve the Settlement is based on their significant 10 experience in shareholder derivative litigation, and is informed by extensive investigation and careful 11 review and analysis of the 231,000 pages of documents produced in discovery in the related 12 Securities Class Action (the Settlement of which this Court approved); 4 rigorous evaluation of the 13 strengths and weaknesses of the claims and defenses; assessment of relevant corporate governance 14 and oversight best practices and careful construction of the package of reforms proposed for CTI; 15 and careful consideration of the value of the Settlement relative to the risks and rewards of continued 16 litigation. 17

At the preliminary approval stage, the Court need only conclude that the Settlement is within

18 the range of what might be found to be fair, reasonable, and adequate, such that Notice of the 19 Settlement should be provided to CTI's shareholders and the Settlement Hearing scheduled. 20 Plaintiffs respectfully submit that the Settlement satisfies this standard. 21 I.

BACKGROUND ON THE ACTION AND SETTLEMENT NEGOTIATIONS

22

A.

23

On April 1, 2010, plaintiff Joseph Shackleton filed the first of six shareholder derivative

The Derivative Action

24 actions5 alleging the Individual Defendants failed to supervise and misrepresented CTI's compliance 25 26 27

4

In re Cell Therapeutics, Inc. Class Action Litigation, Master Docket No. C10-414MJP (W.D. Wash).

5

Shackleton v. Bauer, No. C 2:10-cv-00564-MJP ("Shackleton Action"). Marbury v. Bianco, No. 2:10-cv-00578-MJP was filed April 5, 2010, and Cyrek v. Bauer, No. 2:10-cv-00625-TSZ was filed on April 13, 2010. These cases were PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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1 with an FDA-approved clinical trial protocol for pixantrone. Plaintiffs' Counsel negotiated a 2 temporary stay in exchange for Defendants' agreement to provide Plaintiffs with discovery generated 3 in the related the Securities Class Action also pending in this Court. The Court approved this 4 arrangement on November 30, 2010. Dkt. No. 23. The stay was lifted on February 4, 2011, after the 5 Court denied the motion to dismiss the Securities Class Action (Dkt. No. 46), and Plaintiffs received 6 all discovery generated in that case. Plaintiffs' Counsel thoroughly reviewed and analyzed these 7 materials, including over 231,000 pages of documents. Declaration of Craig W. Smith in Support of 8 Plaintiffs' Unopposed Motion for Preliminary Approval of Settlement, ¶3 ("Smith Decl."), filed 9 concurrently herewith. 10

B.

Settlement Negotiations

11

In fall 2011, the parties in the Securities Class Action and the Derivative Action agreed to

12 participate in a supervised mediation. Plaintiffs prepared a thorough damages analysis and report, a 13 lengthy mediation statement replete with citations to relevant documents, and a detailed written 14 settlement demand proposing comprehensive corporate governance reforms. On October 26, 2011, 15 the late Honorable Nicholas H. Politan, a former federal district court judge, conducted a day-long 16 mediation. The Securities Class Action ultimately settled for $19 million to the class, the proceeds 17 of which were funded entirely by the Company’s insurers. Cell Therapeutics, Inc., Quarterly Report 18 (Form 10-Q), at 33 (Nov. 1, 2012), Smith Decl., Ex. A. The parties to the Derivative Action 19 succeeded in developing a framework for further discussions and information exchanges, and 20 continued to negotiate at arm's-length. 21

Plaintiffs conducted substantial additional fact research and analysis in support of their

22 positions and provided CTI's counsel with a detailed supplemental settlement demand letter on 23 24 subsequently consolidated under the caption, In re Cell Therapeutics, Inc. Derivative Litigation, Master Docket No. C 25 26

10-564 MJP (the "Action" or "Derivative Action"). Dkt. No. 11. Souda v. Bauer, No. 2:10-cv-00905-MJP, was filed June 1, 2010, and consolidated on July 19, 2010. Dkt. No. 26. Bohland v. Bauer, No. 2:10-cv-00564-JCC, was filed July 27, 2010, and consolidated on November 16, 2010. Dkt. No. 43. Plaintiff Lawrence J. Alexander filed October 4, 2010, in the Superior Court of Washington, King County, was removed to this Court on October 5, 2010, assigned as No. 2:10-cv-01597-MJP, and thereafter consolidated into the Action on March 1, 2011. Dkt. No. 52.

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1 January 18, 2012, proposing additional corporate governance measures. Stipulation, §I.D. The 2 parties later agreed to participate in a second mediation. Plaintiffs' Counsel prepared a substantial 3 supplemental mediation brief reflecting their new analysis and proposing a revised settlement 4 framework. On April 17, 2012, the parties participated in a second day-long mediation before Judge 5 Wiener, and reached agreement on most of the Settlement's material terms. Further negotiations 6 produced the complete set of reforms. Subsequent negotiations failed to produce agreement on the 7 appropriate amount of fees and expenses. 8 II.

THE SETTLEMENT MERITS PRELIMINARY APPROVAL

9

A.

10

Applicable Legal Standards

Rule 23.1(c) requires Court approval of any settlement of derivative claims. Rule 23.1(c).

11 "Review of a proposed settlement generally proceeds in two stages, a hearing on preliminary 12 approval followed by a final fairness hearing." True v. Am. Honda Motor. Co., 2009 WL 838284, at 13 *3 (C.D. Cal. Mar. 25, 2009).6 At the preliminary approval stage, courts need only determine 14 "whether a proposed settlement is 'within the range of possible approval.'" Id. 15

Ninth Circuit law reflects a strong public policy favoring and encouraging settlement of

16 litigation, particularly in complex class and shareholder derivative litigation. See Class Plaintiffs v. 17 City of Seattle, 955 F.2d 1268, 1276 (9th Cir. 1992) ("strong judicial policy []favors settlements, 18 particularly where complex class action litigation is concerned"); In re NVIDIA Corp. Derivative 19 Litig., 2008 WL 5382544, at *2 (N.D. Cal. Dec. 22, 2008) (settlements of shareholder derivative 20 actions are favored because such litigation is "'"notoriously difficult and unpredictable"'"). 21

Courts in the Ninth Circuit may consider the following factors in determining whether to

22 approve a settlement: (i) the benefits conferred on the corporation; (ii) the risks of establishing 23 liability and continued litigation; (iii) whether the settlement was a product of fraud or collusion; and 24 (iv) the experience and views of counsel. See In re Pac. Enters. Sec. Litig., 47 F.3d 373, 377-79 (9th 25 Cir. 1995); NVIDIA, 2008 WL 5382544, at *3-4 (considering benefits to corporation, whether 26

6

Here, as throughout, all emphasis is deemed added and citations and footnotes are omitted unless otherwise noted.

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1 settlement was product of fraud or collusion, risks of continued litigation, and counsel's belief that 2 settlement was in best interest of company and its shareholders). B.

3 4

The Settlement Is Within the Range of Possible Final Approval 1.

5

The Settlement Confers Substantial Benefits on CTI

In determining whether to approve the settlement of a shareholder derivative action, "[t]he

6 principal factor to consider ... is the benefit to [the company] as compared to the risks posed by 7 derivative litigation." In re Apple Computer, Inc. Derivative Litig., 2008 WL 4820784, at *2 (N.D. 8 Cal. Nov. 5, 2008). Federal courts have long recognized that corporate governance reforms such as 9 those obtained here provide a substantial benefit to corporations and may serve as the basis for the 10 settlement of derivative litigation. See Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 395 (1970) ("a 11 corporation may receive a 'substantial benefit' from a derivative suit … regardless of whether the 12 benefit is pecuniary in nature."); NVIDIA, 2008 WL 5382544, at *3 ("strong corporate governance is 13 fundamental to the economic well-being and success of a corporation").7 Settlements that secure 14 governance reforms designed "to prevent future harm" confer "substantial benefits" and merit 15 approval. See Unite Nat'l Ret. Fund v. Watts, 2005 WL 2877899, at *2, *4-5 (D.N.J. Oct. 28, 2005); 16 Mills, 396 U.S. at 396; see also Maher, 714 F.2d at 461 ("effects of the suit on the functioning of the 17 corporation may have a substantially greater economic impact on it, both long- and short-term, than 18 the dollar amount of any likely judgment"). 19

Pursuant to the Settlement, CTI and its shareholders will benefit from a comprehensive set of

20 corporate governance measures that directly address the alleged Board- and management-level 21 oversight lapses that led to substantial delays in the process for obtaining FDA approval of 22 23 24 25 26

7

See also Bell Atl. Corp. v. Bolger, 2 F.3d 1304, 1311 (3d Cir. 1993) (affirming derivative settlement and finding that "[d]espite the difficulties they pose to measurement, nonpecuniary benefits to the corporation may support a settlement"); Granada Invs., Inc. v. DWG Corp., 962 F.2d 1203, 1207 (6th Cir. 1992) (changes in corporate governance supported derivative settlement); Zimmerman v. Bell, 800 F.2d 386, 391 (4th Cir. 1986) (same) ("[i]nfluencing the future conduct of management may serve the interests of the corporation as fully as a recovery for past misconduct"); Maher v. Zapata Corp., 714 F.2d 436, 466 (5th Cir. 1983) ("a settlement may fairly, reasonably, and adequately serve the best interest of a corporation, on whose behalf the derivative action is brought, even though no direct monetary benefits are paid by the defendants to the corporation"); Lewis v. Anderson, 692 F.2d 1267, 1271 (9th Cir. 1982) ("While less tangible than the recovery of money damages," corporate governance reforms can be "sufficiently beneficial to a corporation.").

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1 pixantrone and resulted in CTI's publication of allegedly misleading statements concerning the 2 prospects and probable timing of FDA approval. The reforms also strengthen CTI's oversight and 3 disclosure controls, generally, and improve the information available to, and the skill matrix and 4 competence of the Board in overseeing drug approval and disclosures. 5

Strengthened Compliance Function and Board Oversight: Many of the reforms are

6 designed to address the lapses in Board oversight and internal controls over compliance that 7 Plaintiffs allege hindered and delayed the FDA's approval of pixantrone. The Company will 8 establish the new position of Chief Governance Officer, who will be charged with maintaining and 9 monitoring CTI's system for reporting and investigating compliance and ethics concerns, including 10 facilitating the communication of whistleblower reports to the Board. Stipulation, ¶¶2.8-2.9, 2.18. 11 The reforms also expand the responsibilities and duties of CTI's Chief Compliance Officer ("CCO") 12 to require the CCO to report to the Board regarding relevant FDA regulations and the Company's 13 compliance with these regulations. Id., ¶¶2.7, 2.11. These reforms will benefit CTI by increasing the 14 likelihood that the Company will comply with FDA clinical protocols and secure approval of its new 15 drug products. These reforms also will benefit CTI by fostering an ethical culture of compliance at 16 the Company. 17

Strengthened Disclosure Controls: The reforms contain measures designed to improve the

18 accuracy of the Company's disclosures and enhance Board oversight of CTI's disclosure controls. 19 Pursuant to the Settlement, the Board will adopt the detailed new Disclosure Committee charter 20 attached as Exhibit A to the Stipulation. Id., ¶2.5. Previously, the Disclosure Committee had no 21 formal charter. The charter requires the Company to make substantial changes to the composition, 22 authority, and responsibilities of the Disclosure Committee, including, among other things: (i) 23 staffing the Committee with several key constituents who are well-positioned to evaluate the 24 accuracy, sufficiency, and timeliness of the Company's disclosures; (ii) establishing internal 25 communication and monitoring practices that ensure that the Committee, executives, and the Board 26 receive the information necessary to ensure the accuracy of the Company's disclosures; (iii) establish 27 the Committee's authority access to internal and external advisory support as necessary to enable it to PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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1 fulfill its duties; and (iv) reporting requirements to ensure the Board receives sufficient information 2 to evaluate the adequacy of the Company's disclosures and its disclosure controls. Additionally, the 3 reforms provide for a check on the Disclosure Committee by requiring certain members of 4 management to assess annually the adequacy of CTI's disclosure controls and to recommend Board 5 corrective action when needed. Id., ¶2.6. These enhancements to CTI's disclosure practices will 6 increase transparency at CTI and substantially reduce the probability that the Company will publish 7 misleading statements in the future and face the kind of disclosure-related legal exposures Plaintiffs 8 contend damaged CTI. These reforms also will help restore investor confidence in the accuracy and 9 integrity of the Company's public disclosures. 10

Strengthened Board Independence, Skill Sets, and Competencies: To ensure that CTI's

11 Board is sufficiently independent of management and can provide rigorous and objective oversight, 12 the reforms: (i) commit the Company to maintaining a majority of independent directors and separate 13 Chairman and CEO positions; and (ii) mandate a minimum of four executive session meetings each 14 year by the Board's independent directors. Id., ¶¶2.15-2.17. The reforms ensure the directors have 15 the skills and experience necessary to exercise effective oversight of CTI's clinical programs and to 16 evaluate the accuracy of the Company's disclosures by: (i) requiring annual Board training programs 17 on relevant FDA practices, policies, and regulations, interactions with the FDA, and how to address 18 disclosure of communications with the FDA (id., ¶2.11); and (ii) requiring the Board consider 19 forming a Scientific Review and Oversight Committee once research and development activities 20 reach 35% of operating expenses. Id., ¶¶2.1-2.2, 2.4. The litigation also played a substantial and 21 material role in prompting the Company to appoint Dr. Tuckson to the Company's Board, which will 22 substantially improve the Board's experience and knowledge base with respect to oversight of drug 23 development processes and FDA interaction. Id., ¶¶2.1-2.2. 24

Improved Alignment of Compensation with Shareholder Interests: The reforms more

25 closely align CTI's director compensation practices with shareholder interests by: (i) sun-setting 26 director eligibility for equity-based incentive awards linked to regulatory approval of pixantrone by 27 2017; and (ii) increasing the frequency of the shareholder advisory vote on the Board's compensation PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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1 decisions from once every three years to once every year. Id., ¶¶2.19, 2.20. These reforms incent 2 CTI's directors to maximize share value and to respond to shareholder concerns regarding executive 3 compensation. 4

Enhanced Insider Trading Controls: The reforms directly respond to Plaintiffs' allegations

5 that certain officers and directors of CTI engaged in improper insider trading by expanding the 6 responsibilities and duties of the Company's Trading Compliance Officer to require monitoring and 7 review of insider stock sales, as well as mandatory pre-approval of Section 16 officer and director 8 sales not made pursuant to Rule 10b5-1 trading plans. Policy violations and remedial actions must 9 be reported to the Board. Id., ¶¶2.12-2.14. Taken together, these reforms substantially reduce the 10 risk that CTI will be tainted by improper insider sales in the future, and help to restore investor 11 confidence in the Company's ethics and transparency. 12

CTI will maintain the reforms for no less than four years – more than enough time to ensure

13 they become embedded in its corporate culture. Stipulation, ¶2.1. 14

2.

15

The Benefits Secured for CTI Are Substantial in Relation to the Serious Risks of Establishing Liability and the Complexity, Costs, and Duration of Continued Litigation

16

Weighed against the significant risk that continued litigation would yield no benefit at all for

17 CTI, and the enormous costs and burdens such litigation would impose, the guaranteed and 18 immediate benefits of the Settlement are indeed substantial. See NVIDIA, 2008 WL 5382544, at *3; 19 see also Officers for Justice v. Civil Serv. Comm'n, 688 F.2d 615, 624 (9th Cir. 1982) ("the very 20 essence of a settlement is compromise, 'a yielding of absolutes and an abandoning of highest 21 hopes'"). While Plaintiffs believe their claims have merit, there is a significant risk that Plaintiffs 22 would not prevail on Defendants' motions to dismiss, particularly given the difficult standards 23 applicable to pleading that demand on the Board would have been futile. Even if Plaintiffs were to 24 prevail at the pleading stage, continued litigation would involve costly discovery and substantial 25 risks. Plaintiffs face considerable challenges in establishing liability on their breach of fiduciary duty 26 claims, including proving by a preponderance of the evidence that each of the Individual Defendants 27 acted in bad faith. In re Pfizer Inc. S'holder Derivative Litig., 780 F. Supp. 2d 336, 342 (S.D.N.Y. PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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1 2011) (citing In re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959, 967 (Del. Ch. 1996)).8 As 2 the Ninth Circuit cogently observed, "the odds of winning [a] derivative lawsuit [are] extremely 3 small." Pac. Enters., 47 F.3d at 378. The Settlement eliminates the very real risk that CTI might 4 recover nothing after years of costly litigation, in exchange for the guarantee of immediate, 5 substantial, and lasting benefits, and is eminently reasonable. See Apple, 2008 WL 4820784, at *3 6 (settlement reasonable in light of substantial risks). 7

3.

8

The Settlement Is the Product of Arm's-Length, Mediator-Guided Negotiations and Is therefore Presumptively Fair and Reasonable

Where "a settlement is the product of arms-length negotiations conducted by capable and 9 experienced counsel, the court begins its analysis with a presumption that the settlement is fair and 10 reasonable." Garner v. State Farm Mut. Auto. Ins. Co., 2010 WL 1687832, at *13 (N.D. Cal. Apr. 11 22, 2010); see Fernandez v. Victoria Secret Stores, LLC, 2008 WL 8150856, at *4 (C.D. Cal. July 12 21, 2008) (same). The Settlement is presumptively fair and reasonable as it is the product of months 13 of arm's-length negotiations conducted by skilled and experienced counsel and supervised by two 14 eminent former jurists. Declaration of Justice Howard B. Wiener (Ret.), ¶¶6-10 (dated Nov. 12, 15 2012 and filed concurrently herewith); Stipulation, §I.D.; see Apple, 2008 WL 4820784, at *3 16 (mediator supervision "weighs considerably" against possibility of collusion). 17 4.

18

Experienced Counsel Recommend the Settlement

Significant weight is properly attributed to the parties' belief that the litigation should be 19 settled on the proposed terms because "[p]arties represented by competent counsel are better 20 positioned than courts to produce a settlement that fairly reflects each party's expected outcome in 21 22 23 24 25 26

8

The theory that directors are liable for employee failures is "possibly the most difficult theory in corporation law upon which a plaintiff might hope to win judgment." Caremark, 698 A.2d at 697. Application of this theory here would have been especially difficult given the highly technical nature of the operations at issue and their arguable distance from direct Board oversight. Plaintiffs would have to overcome the business judgment rule, which affords directors a strong presumption that they act in good faith when they rely reasonably on employees and advisors. In re Walt Disney Co. Derivative Litig., 907 A.2d 693, 746-47 (Del. Ch. 2005), aff'd, 906 A.2d 27 (Del. 2006). Plaintiffs also would have to overcome the exculpation and indemnification CTI affords its directors and officers. The extraordinary complexity, expense and duration of this type of litigation is broadly recognized. See, e.g., Cohn v. Nelson, 375 F. Supp. 2d 844, 852 (E.D. Mo. 2005) ("'[s]ettlements of shareholder derivative actions are particularly favored because such litigation "is notoriously difficult and unpredictable"'").

27 PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

Master Docket No. C 10-564 MJP

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ROBBINS UMEDA LLP 600 B Street, Suite 1900 San Diego, CA 92101 Tel: (619) 525-3990 ● Fax: (619) 525-3991

Case 2:10-cv-00564-MJP Document 77 Filed 11/13/12 Page 15 of 18

1 litigation." Pac. Enters., 47 F.3d at 378; see also In re First Capital Holdings Corp. Fin. Prods. Sec. 2 Litig., 1992 WL 226321, at *2 (C.D. Cal. June 10, 1992) (counsel's view that settlement in class's 3 best interests is compelling factor favoring approval). Lead Plaintiffs' Counsel used their extensive 4 experience and expertise in shareholder representative litigation to secure an outstanding result for 5 CTI and its shareholders. See Smith Decl., Exs. B-C. CTI's Board also was represented by skilled 6 and experienced counsel in determining the Settlement is in CTI's best interests.

See

7 Stipulation, §III. 8 III.

THE PROPOSED SHAREHOLDER NOTICE IS ADEQUATE

9

The Stipulation and proposed Preliminary Approval Order contemplate that, within twenty

10 calendar days after entry of the Preliminary Approval Order, CTI shall: (i) publish the Summary 11 Notice in Investors' Business Daily; (ii) post copies of the Notice and Stipulation on CTI's website; 12 and (iii) file the Notice on Form 8-K with the SEC. Stipulation, ¶3.1. This method is reasonable and 13 satisfies due process standards. The Notice is drafted in plain language, clearly describes the nature 14 of the Actions and the claims, the terms of and reasons for the Settlement, and the maximum amount 15 of attorneys' fees and unreimbursed expenses Plaintiffs' Counsel may seek. Stipulation, Ex. C.9 16 IV.

PROPOSED SCHEDULE

17

The Settling Parties request that the Court establish dates by which the Notice of Settlement

18 will be provided and current CTI shareholders may submit objections to the Settlement and/or Fee 19 Application, and a date for the Settlement Hearing. The following schedule is proposed: 20 21 22 23 24 25 26

9

See Churchill Vill., L.L.C. v. Gen. Elec., 361 F.3d 566, 575 (9th Cir. 2004) (notice satisfactory where it "'generally describes the terms of the settlement in sufficient detail to alert those with adverse viewpoints to investigate and to come forward and be heard'"). Publication and website posting notice has gained broad acceptance in shareholder derivative actions due to the transition from paper-based to web-based disclosures. See In re Cheesecake Factory Inc. Derivative Litig., No. CV-06-6234 ABC (MANx), slip op. at 3 (C.D. Cal. Mar. 7, 2008) (publication in Investor's Business Daily meets due process), Smith Decl., Ex. D; Alaska Elec. Pension Fund v. Sperling, No. CV-06-2124-PHX-ROS, slip op. at 2-3 (D. Ariz. Apr. 18, 2008) (publication in Investor's Business Daily and posting on company's website held satisfactory), Smith Decl., Ex. E.

27 PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

Master Docket No. C 10-564 MJP

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ROBBINS UMEDA LLP 600 B Street, Suite 1900 San Diego, CA 92101 Tel: (619) 525-3990 ● Fax: (619) 525-3991

Case 2:10-cv-00564-MJP Document 77 Filed 11/13/12 Page 16 of 18

Publication of Summary Notice in Investor's Business Daily ("Notice Date"), filing of Notice with SEC, and posting of Notice on Company website

No later than 10 calendar days after entry of the Preliminary Approval Order

Plaintiffs shall file and serve their Fee and Expense Application and Motion for Final Approval of Settlement

14 calendar days prior to the deadline for Current CTI Shareholders to serve and file objections to the Settlement

Defendants shall file and serve their opposition papers, if any, to the Fee and Expense Application

21 calendar days prior to the Settlement Hearing

Date by which Current CTI Shareholders must serve and file objections to the Settlement

21 calendar days prior to the Settlement Hearing 7 calendar days prior to the Settlement Hearing

12

Plaintiffs shall file and serve their reply, if any, in further support of their Fee and Expense Application and Motion for Final Approval of Settlement

13

Settlement Hearing

At least 75 days after the entry of the Preliminary Approval Order

1 2 3 4 5 6 7 8 9 10 11

14 15 V.

CONCLUSION

16

For the foregoing reasons, Plaintiffs respectfully request that the Court enter the proposed

17 Preliminary Approval Order, approve the proposed Notice, and schedule the Settlement Hearing to 18 consider the final approval of the Settlement and Plaintiffs' Counsels' Fee and Expense Application. 19 DATED: November 13, 2012

Respectfully submitted,

20

s/Craig W. Smith Craig W. Smith (pro hac vice) Shane P. Sanders (pro hac vice) ROBBINS UMEDA LLP 600 B Street, Suite 1900 San Diego, CA 92101 Telephone: (619) 525-3990 Facsimile: (619) 525-3991

21 22 23 24

William B. Federman FEDERMAN & SHERWOOD 10205 N. Pennsylvania Ave. Oklahoma City, OK 73120

25 26 27 PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

Master Docket No. C 10-564 MJP

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ROBBINS UMEDA LLP 600 B Street, Suite 1900 San Diego, CA 92101 Tel: (619) 525-3990 ● Fax: (619) 525-3991

Case 2:10-cv-00564-MJP Document 77 Filed 11/13/12 Page 17 of 18

1

Telephone: (405) 235-1560 Facsimile: (405) 239-2112

2

Co-Lead Counsel for Plaintiffs

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

781689

PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

Master Docket No. C 10-564 MJP

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ROBBINS UMEDA LLP 600 B Street, Suite 1900 San Diego, CA 92101 Tel: (619) 525-3990 ● Fax: (619) 525-3991

Case 2:10-cv-00564-MJP Document 77 Filed 11/13/12 Page 18 of 18

CERTIFICATE OF SERVICE

1 2

I hereby certify that on November 13, 2012, I electronically filed the foregoing with the Clerk

3 of the Court using the CM/ECF system, and served all parties via ECF. 4 5 s/Craig W. Smith Craig W. Smith

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 PLAINTIFFS' UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

Master Docket No. C 10-564 MJP

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ROBBINS UMEDA LLP 600 B Street, Suite 1900 San Diego, CA 92101 Tel: (619) 525-3990 ● Fax: (619) 525-3991