ZYMOGENETICS INC
EMPLOYMENT AGREEMENT W/ J. JOHNSON, DATED 4/30/01
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>dex105.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT W/ J. JOHNSON, DATED 4/30/01
<TEXT>
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                                                                    Exhibit 10.5

                              EMPLOYMENT AGREEMENT

     This AGREEMENT, effective April 30, 2001, is between ZymoGenetics, Inc., a
Washington corporation ("Company") and James A. Johnson ("Executive").

     1.   Employment. Company will employ Executive and Executive will accept
employment as Senior Vice President, Chief Financial Officer, of the Company.
Executive accepts employment upon the terms and conditions contained in this
Agreement and for the period (hereinafter called the "Term of Employment")
specified in Section 3 below.

     2.   Duties. Executive shall, during the Term of Employment, serve the
Company under the direction of the President of the Company. Executive shall
perform the duties of his position faithfully, diligently and competently and to
the best of his ability, and shall devote his full business time to his
employment. Executive shall perform such other duties as are assigned to him by
the President or the Board of Directors of the Company. Executive shall not
engage in any other business activity (except the management of personal
investments which in the aggregate do not interfere with the performance of
Executive's duties) without first obtaining the written consent of Company, such
consent not to be unreasonably withheld.

     3.   Term of Employment; Termination.

     Executive's Term of Employment shall be two years from the date of this
Agreement, unless extended or earlier terminated as provided below.

     (a)  Termination or Extension of Term of Employment By Company

     The Company shall employ Executive, for a period commencing on the date
hereof and terminating as follows:

          (i)  Two years from the date hereof, if at least thirty (30) days
prior to such date either the Company or Executive has, at its election,
notified the other in writing that this Agreement shall terminate on such date.
If notice of termination is not given, this Agreement shall be deemed to extend
from year to year. It can then be terminated by written notice at least thirty
(30) days prior to the annual renewal date.

          (ii) With or without "Cause" (as defined below), Company may terminate
the employment of Executive at any time upon giving "Notice of Termination" (as
defined below).

<PAGE>

     (b)  By Executive

     Executive may terminate his employment at any time, for any reason, upon
giving Notice of Termination.

     (c)  Automatic Termination

     This Agreement and Executive's employment hereunder shall terminate
automatically upon the death or total disability of Executive. The term "total
disability" as used herein shall mean Executive's inability to perform the
duties set forth in paragraph 1 hereof for a period or periods aggregating
ninety (90) calendar days in any 12-month period as a result of physical or
mental illness, loss of legal capacity or any other cause beyond Executive's
control, unless Executive is granted a leave of absence by the Board of
Directors of Company. Executive and Company hereby acknowledge that Executive's
ability to perform the duties specified in paragraph 2 hereof is of the essence
of this Agreement. Termination hereunder shall be deemed to be effective (a) at
the end of the calendar month in which Executive's death occurs or (b)
immediately upon a determination by the Board of Directors of Company of
Executive's total disability, as defined herein.

     (d)  Notice

     The term "Notice of Termination" shall mean at least thirty (30) days'
written notice of termination, by either party, of Executive's employment,
during which period Executive's employment and performance of services will
continue; provided, however, that Company may, upon notice to Executive and
without reducing Executive's compensation during such period, excuse Executive
from any or all of his duties during such period. Such a reduction in duties
shall not constitute "good reason" for voluntary termination so as to trigger
termination payments in accordance with subparagraph 4.2. The effective date of
the termination (the "Termination Date") of Executive's employment hiseunder
shall be the date on which such 30-day period expires.

     4.   Termination Payments

     In the event of termination of the employment of Executive, all
compensation and benefits set forth in this Agreement shall terminate except as
specifically provided in this paragraph 4:

     4.1  Termination by Company

     (a)  Upon termination by Company, Company shall pay Executive any unpaid
annual base salary which has accrued for services already performed as of the
Termination Date, plus any accrued, but unused, vacation.

                                       -2-

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     (b)  If Company terminates Executive's employment without Cause, as defined
below, Executive shall be entitled to receive termination payments equal to
twelve (12) months annual base salary and Company payments for Executive's
medical and dental insurance coverage under COBRA for a period of twelve (12)
months from the date of termination. The termination payments shall be
calculated according to Executive's base salary as of the date of Notice of
Termination and the termination payments will be paid semi-monthly in equal
parts in accordance with the same time schedule that Company or a "Successor
Company" (as defined in the Stock Option Agreement and incorporated by reference
herein) makes its customary payroll. Company or a Successor Company may deduct
customary withholdings including social security, federal and state income
taxes, and state disability insurance from these severance payments; however,
any and all such obligations shall be Executive's responsibility. Company will
issue and file appropriate Form 1099 or similar tax documents in connection with
any termination payments. The termination payments described in this paragraph
are expressly contingent upon Executive's full compliance with the terms of his
Employee Inventions and Proprietary Information Agreement with Company (the
"Inventions Agreement"), a copy of which is attached hereto. In the event
Executive were to materially breach this Inventions Agreement, his right to any
termination payments under this paragraph shall be extinguished, Company (and
any Successor Company) shall cease payments, and Executive shall immediately
return to Company or to any Successor Company any severance payments already
made. If Executive is terminated by either Company or any Successor Company for
Cause, Executive shall not be entitled to receive any of the foregoing benefits,
other than those set forth in clause (a) above.

     4.2  Termination by Executive

     In the case of the termination of Executive's employment by Executive for
"good reason," as defined below, Executive shall be entitled to the termination
payments as set forth in clauses 4.1(a) and (b). In the case of termination of
Executive's employment by Executive for any other reason, Executive shall not be
entitled to any termination payments or accelerated vesting benefit, other than
as set forth in clause 4.1(a), above.

     4.3  Termination as a Result of Death or Total Disability

     In the event of termination of Executive's employment pursuant to
subparagraph 3(c), Executive or his estate shall be paid the compensation set
forth in clause 4.1(a) and shall not be entitled to any of the benefits under
clauses 4.1(b).

                                      -3-

<PAGE>

     4.4  "Good Reason"

     "Good reason" shall mean the occurrence of any of the following events,
without the consent of the Executive:

     a) a demotion or other material reduction in the nature or status of
        Executive's responsibilities; provided, however, that a change in the
        person or office to which Executive reports, without a corresponding
        reduction in duties, status and responsibilities, shall not constitute
        "good reason;"

     b) a non-voluntary reduction in the Executive's annual base salary;

     c) requirement by a Successor Company that the Executive relocate his
        principal place of employment to a location that is more than 50 miles
        from the principal place of employment where Executive was employed; or

     d) the failure of Company to obtain a satisfactory agreement from any
        Successor Company to assume and perform the obligations under this
        Agreement.

     4.5  Cause

     Wherever reference is made in this Agreement to termination being with or
without Cause, "Cause" shall include, without limitation, the occurrence of one
or more of the following events:

     a) willful misconduct, insubordination, or dishonesty in the performance of
        Executive's duties or other knowing and material violation of Company's
        or a Successor Company's policies and procedures in effect from time to
        time which results in a material adverse effect on Company or a
        Successor Company;

     b) willful actions (or intentional failures to act) in bad faith by
        Executive with respect to Company or a Successor Company that materially
        impair Company's or a Successor Company's business, goodwill or
        reputation;

     c) conviction of Executive of a felony involving an act of dishonesty,
        moral turpitude, deceit or fraud, or the commission of acts that could
        reasonably be expected to result in such a conviction; or

     d) any material violation by Executive of Executive's Inventions Agreement
        with Company.

                                       -4-

<PAGE>

     5.   Compensation and Fringe Benefits.

     (a)  The Company shall, during the Term of Employment, pay to the Executive
as compensation for the performance of his duties and obligations a salary of
$240,000 per annum. This compensation is subject to annual review and
adjustment, as appropriate in the judgment of the Company. The compensation
payable pursuant to this Section 5(a) shall be payable in equal semi-monthly
installments on the last day of each such pay period.

     (b) The Executive shall be enrolled and participate in any retirement,
group insurance and other fringe benefit plans and arrangements which are
applicable to the similarly situated personnel of the Company and in effect from
time to time, if the Executive is eligible therefor, in each case in accordance
with and subject to the provisions thereof.

     (c)  Stock Options

          (i)   Executive has been granted a ten-year stock option under the
Company's Amended and Restated 2000 Stock Incentive Plan, dated August 23, 2000,
which allows Executive to purchase 80,000 shares of the Company's common stock.

          (ii)  Executive shall be eligible to receive future periodic (i.e.,
non bonus-related) grants under the Company's stock incentive programs.

     (d)  Executive will also receive the following executive perquisites for
the duration of this contract:

          (i)   Company-paid term life insurance policy in the amount of
$200,000; and

          (ii)  Company-paid use of either a laptop computer or personal
computer, to be upgraded bi-annually at the time this contract is renewed; and

          (iii) Company-paid annual executive health physical, to be
administered by a physician selected by the Company; and

          (iv)  Company-paid expenses for a residential phone and cellular
phone.

     (e)  Upon the effective date of the Company's initial public offering,
Executive shall earn a bonus, before taxes, of $50,000, to be paid by the
Company as soon as practicable after such effective date. If Executive remains
continuously and regularly employed with the Company (i.e., his employment has
not been terminated, whether voluntarily or involuntarily) through the period
ending one year from the

                                       -5-

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effective date of the Company's initial public offering, the Company shall pay
Executive an additional bonus, before taxes, of $50,000, within ten (10) days
after the end of such period.

     6.   Expenses. All travel and other reasonable expenses incident to the
rendering of service by the Executive hereunder will be paid by the Company. If
such expenses are paid in the first instance by the Executive, the Company will
reimburse him upon presentation of proper expense accounts. Reimbursement
requests, along with supporting documentation, should be submitted within sixty
(60) days of incurring the expense.

     7.   Non-competition.

     (a)  Upon termination of Executive's employment with the Company for any
reason, and for a period of twelve (12) consecutive months after leaving his
employment with the Company, Executive will not directly or indirectly work or
otherwise engage in research, manufacture, sale or distribution of any product,
method or matter:

          (i)   For any business, whose commercial efforts are in competition
with the products manufactured or marketed by the Company during Executive's
employment with the Company or under research or development by the Company
during Executive's employment with the Company (and on which the Company has
expended at least $1,000,000); or

          (ii)  For any research institution whose research efforts pertain to
the same products manufactured or marketed by the Company during Executive's
employment with the Company or under research or development by the Company
during Executive's employment with the Company (and on which the Company has
expended at least $1,000,000), unless the Executive is not involved in any
manner in the design, conduct or supervision of such research efforts, or unless
such research is being conducted solely for scientific and not for commercial
purposes. The executive shall be deemed to be connected with a business if such
business is carried on by partnership in which he is a general or limited
partner, consultant or employee, or a corporation or association of which he is
a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prevent the purchase or ownership by the
Executive of shares of less than 1% of the outstanding shares in a publicly or
privately held corporation.

                                      -6-

<PAGE>

     Said twelve (12) months' period shall commence on the day on which the
Executive actually leaves his employment with the Company, even if this date is
prior to the expiration of any given notice of termination.

     (b)  The Company's Board of Directors may, at its own discretion, by
express or written consent, release the Executive from the restriction in
paragraph 6(a).

     (c)  For a period of one (1) year after the employment of the Executive is
terminated for any reason, Executive will not directly or indirectly, either for
Executive's account or as representative or agent for any other person, firm,
corporation or entity, solicit the services of, or entice away, any executive of
the Company, or the executive of any company affiliated with the Company.

     (d)  In the event that Executive during said period described in paragraph
6(a) violates any of the Executive's obligations towards the Company, including
but not limited to the Executive accepting a position with a competing
enterprise or Executive violating terms of paragraph 6(c), payment of Severance
or Salary Continuation shall cease automatically without notice, regardless of
whether the Company takes legal action or otherwise tries to enforce its rights.
The Company reserves all rights it may have under contract or law to relief or
damages in addition to termination of the above-described payments.

     8.   Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Executive and their respective heirs, legal or
personal representatives, successors and assigns.

     9.   Rights of Assignment or Delegation. This Agreement is personal to the
Executive and shall not be assignable. Company may assign its rights hereunder
to (a) any corporation resulting from any merger, consolidation, or other
reorganization to which Company is a party or (b) any corporation, partnership,
association, or other person to which Company may transfer all or substantially
all of the assets in business of Company existing at such time. All the terms
and provisions of this Agreement shall be binding upon and shall inure to the
benefit and be enforceable by the parties hereto and their respective successors
and permitted assigns.

     10.  Waiver. No delay or failure by any party in exercising, protecting or
enforcing any of its rights, titles, interests, or remedies hereunder and no
course of dealing or performance with respect thereto, shall constitute a
waiver. The express waiver by a party of any right, title, interest, or remedy
in a particular instance or circumstance shall not constitute a waiver in any
other instance or circumstance. All rights and remedies shall be cumulative and
not exclusive or any rights or remedies.

                                       -7-

<PAGE>

     11.  Arbitration. Any controversies or claims arising out of or relating to
this Agreement shall be finally and fully settled by arbitration in the City of
Seattle, Washington in accordance with the Employment Arbitration Rules of the
American Arbitration Association then in effect (the "AAA Rules"), conducted by
one arbitrator, mutually agreed upon by Company and Executive or chosen in
accordance with the AAA Rules, except the parties thereto shall have any right
to discovery that would be permitted by the Federal Rules of Civil Procedure for
a period of 90 days following the commencement of such arbitration and the
arbitrator shall resolve any dispute which arises in connection with such
discovery. The prevailing parties shall be entitled to costs, expenses,
reasonable attorneys' fees, and judgment upon the award rendered by the
arbitrator. The award may be entered in any court having jurisdiction.

     12.  Amendments in Writing. No amendment, modification, waiver, termination
or discharge of any provision of this Agreement, nor consent to any departure by
either party, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated, or discharged and assigned by Company
and Executive. Each such amendment, modification, waiver, termination, or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted, or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in agreement in writing and signed
by Company and Executive.

     13.  Notices. Any notice required or desired to be given hereunder shall be
in writing and shall be deemed sufficiently given when delivered or when mailed
by first class certified or registered mail, postage prepaid, to the party for
whom intended at the following address:

     To the Company:

                Dr. Bruce L. A. Carter
                CEO and President
                ZymoGenetics, Inc.
                1201 Eastlake Avenue East
                Seattle, WA 98102

     To the Executive:

                James A. Johnson
                Senior Vice President, Chief Financial Officer
                8503 Inverness Drive N.E.
                Seattle, WA 98115

or to such other address, as to either party, as such party shall from time to
time designate by like notice to the other.

                                       -8-

<PAGE>

     14.  Entire Agreement. This Agreement will, upon the commencement of the
Term of Employment, supersede all prior agreements between the Executive and the
Company, except the Employee Inventions and Proprietary Information Agreement
dated February 1, 2001, and any such prior agreements and the terms and
conditions thereof shall hereafter be null, void and of no effect.

     15.  Governing Law. This Agreement is made under and shall be governed by
and construed in accordance with the internal laws of the State of Washington.

     16.  Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable in any jurisdiction, for any reason, including
without limitation, the duration of such provision, it's geographical scope or
the extent of the activities prohibited or required by it, then, to the full
extent permitted by law (a) all other provisions hereof shall remain in full
force and effect and such jurisdiction shall be liberally construed in order to
carry out the intent of the parties as nearly as may be possible, (b) such
invalidity, illegality, or unenforcability shall not effect the validity,
legality or enforceability of any other provision, and (c) any court or
arbitrator having jurisdiction there over shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.

     17.  Multiple Copies. This Agreement may be executed in two or more
counterparts of like tenor and effect, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument.

                                    ZYMOGENETICS, INC.

                                    By: /s/ Bruce L.a. Carter
                                        --------------------------------------
                                    Dr. Bruce L. A. Carter, President and CEO

                                    EXECUTIVE:

                                     /s/ James A. Johnson
                                    ------------------------------------------
                                    James A. Johnson

                                       -9-

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