Corporate Governance Guidelines

(Approved: March 10, 2006)

The Board of Directors (“Board”) has adopted these Corporate Governance Guidelines (“Guidelines”) to further its goal of providing effective governance of the business affairs of ZymoGenetics, Inc. (the “Company”). The Board believes effective corporate governance provides essential protection of the long-term interests of shareholders.

Links to other documents relating to corporate governance, including those listed below are provided within the Company's Corporate Governance section on its website found at www.zymogenetics.com. Other documents relating to corporate governance include:

  • Code of Ethics
  • Code of Conduct
  • Charters for:
    • Audit Committee
    • Compensation Committee
    • Nominating and Corporate Governance Committee

In addition, these Guidelines and other documents relating to corporate governance are available in print form to any shareholder requesting them from the Company through ir@zgi.com.

Board Structure

Leadership.  The Company's Bylaws provide that the Board will choose executive officers, including the Chairman of the Board and Chief Executive Officer. The Chairman of the Board will preside at all meetings of the Board. If the Chairman is not present at a meeting of the Board, the Chief Executive Officer shall preside. If the Chief Executive Officer is not present at a meeting of the Board, the Lead Independent Director shall preside, and if the Lead Independent Director is not present at such meeting, a Director chosen by a majority of the Directors present shall preside over the meeting.

Size and Classification of Board.  The Company's Bylaws provide that the Board or the Company's shareholders will set the number of Directors within a range of four to twelve. The Board currently believes that the optimal number of Board members is ten. The Bylaws also provide that the Board will be divided into three classes (as nearly equal in number as possible), with the Board members having staggered terms of three years each.

Majority of Independent Directors.  The Board will have a majority of members who meet the independence requirements of the Nasdaq listing standards and any other applicable laws or regulation. The Board will make an affirmative determination on an annual basis, and the Company will disclose as required, as to the independence of each Board member.

Director Qualification Standards.  The Nominating and Corporate Governance Committee is responsible for establishing criteria for Board membership and recommending to the Board candidates for election as Directors. Qualifications must include professional background or experiences evidencing an ability to serve as a valuable contributor on the Board as a director, and a commitment to the principles embodied by the Company's Corporate Governance Guidelines and Code of Conduct.

Director Orientation.  New Directors shall receive an orientation to the Company's business that includes providing them with comprehensive information about the Company's business and financial performance, as well as the policies, procedures and responsibilities of the Board and its committees. New Board members also will meet with senior management and will have the opportunity to visit Company facilities.

Board Responsibilities and Operation

Director Responsibilities.  The fundamental responsibility of Board members is to promote the best interests of the Company and its shareholders by overseeing the management of the Company's business and affairs. In doing so, Board members have the following basic legal obligations to the Company and its shareholders:

  • Duty of care
  • Duty of loyalty

The duty of care generally requires that Board members exercise appropriate diligence in making decisions and in overseeing management of the Company. The duty of loyalty generally requires that Board members make decisions based on the best interests of the Company and its shareholders and without regard to any personal interest.

Scheduling Board Meetings.  The Board expects that four regularly scheduled meetings per year at appropriate intervals are in general desirable for the discharge of the Board's responsibilities. In addition to regularly scheduled meetings, special Board meetings may be called by the Chairman of the Board, Chief Executive Officer, President, Secretary or any two members of the Board, upon appropriate notice at any time to address specific needs of the Company.

Selecting Agenda Items for Board Meetings.  The Chairman of the Board or Chief Executive Officer will establish the agenda for each Board meeting. Each Board member is free to suggest items to be included on the agenda, to request the presence of or a report by any member of the Company's management, or to raise at any Board meeting subjects that are not on the agenda for that meeting. During at least one meeting each year, the Board will review and approve the Company's annual budget. The Board also will review, annually, the Company's long-term strategic direction.

Direct Access to Management, and as Necessary and Appropriate, Independent Advisors.  The Board has complete and open access to any member of the Company's management. In addition, members of the Company's senior management routinely attend Board meetings and certain Board committee meetings and, together with other managers, brief the Board and its committees on particular topics. Each of the Board, the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee has the authority, to the extent it deems necessary or appropriate, to retain independent legal, financial or other professional advisors, and to approve each such advisor's fees and other retention terms.

Meeting Attendance and Preparation.  Board members are expected to attend all Board meetings and all meetings of committees on which they serve, to review materials in advance of such meetings, to participate in such meetings, and to meet as frequently as necessary to discharge properly their responsibilities. Members will receive the proposed agenda and other materials important to the understanding of the matters to be considered in advance of each Board and committee meeting. In addition, Board members will receive materials designed to keep them well informed as to the most significant aspects of the Company's business.

Executive Sessions of Independent Directors.  Independent Board members will hold regularly scheduled meetings without management or other Company officers present. These executive sessions will take place at least twice per year and at such other times, as the independent Board members may deem necessary or appropriate. The Lead Independent Director or other Board member selected by the independent directors will preside at these sessions.

Director Compensation.  The Board will establish the manner and amount of compensation paid to non-management Board members. Board members who are also employees of the Company receive no additional compensation for serving on the Board. The Board will conduct a periodic review of its compensation, which may include reviewing information obtained from third-party reports or surveys in order to compare the Company's Board compensation practices with those of other public companies of comparable size. In determining its compensation, the Board will consider that a Board member's independence may be compromised if a Board member's fees and emoluments exceed what is customary, or if the Company enters into material transactions with (or provides other indirect forms of compensation to) a Board member or an organization with which a Board member is affiliated (including charitable institutions).

Board Committees

Types and Responsibilities of Committees.  The Board will at all times have an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each of these committees will have a charter that sets forth the purpose and responsibilities of the committee. The Board may, from time to time, designate and appoint additional committees as necessary or appropriate.

Assignment of Committee Members.  The Board, upon the recommendation of the Nominating and Corporate Governance Committee, will appoint committee members to the various Board committees. In making its recommendation to the Board, the Nominating and Corporate Governance Committee will consider several factors, such as (a) each Board member's desires, tenure and subject matter expertise, (b) the need for both continuity and fresh ideas and perspectives, and (c) applicable rules of the Securities and Exchange Commission, The Nasdaq Stock Market, and any other applicable laws and regulations.

Independence and Qualification.  Each member of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee will meet the applicable independence and qualification requirements of The NASDAQ Stock Market, the Securities and Exchange Commission and any other applicable laws and regulations.

Committee Meeting Frequency, Length and Agendas.  The Chairman of each Board committee, in consultation with the committee members and appropriate members of management, will (a) determine the frequency and length of committee meetings, and (b) develop the agenda for each committee meeting.

Other Practices and Issues

Conduct.  Directors, executive officers and employees are required to abide by the Company's Code of Conduct. In addition, the Chief Executive Officer, Chief Financial Officer and Controller are required to abide by the Company's Code of Ethics.

Prohibition on Personal Loans.  The Company will not extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any Board member or executive officer of the Company.

These Guidelines have been adopted and approved by the Company's Board.