EXHIBIT 10.5

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of June 26, 2008, by
and between ZYMOGENETICS, INC., a Washington corporation (the “Company”), and
Deerfield Private Design Fund, L.P. (“Deerfield Private Design”) and Deerfield
Private Design International, L.P. (“Deerfield Private Design International” and
together with Deerfield Private Design, the “Buyer”).

WHEREAS:

A. In connection with the Facility Agreement by and between the parties hereto
of even date herewith (the “Facility Agreement”), the Company has agreed, upon
the terms and subject to the conditions contained therein, to issue and sell to
the Buyer Warrants in the amount described in the Facility Agreement, where each
of the Warrants is exercisable into shares of the Company’s common stock, no par
value per share (the “Common Stock”), each upon the terms and conditions and
subject to the limitations and conditions set forth in the Warrants, all subject
to the terms and conditions of the Facility Agreement; and

B. To induce the Buyer to execute and deliver the Facility Agreement, the
Company has agreed to provide certain registration rights under the Securities
Act of 1933, as amended, and the rules and regulations thereunder, or any
similar successor statute (collectively, the “Securities Act”), and applicable
state securities laws,

NOW, THEREFORE, In consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyer hereby
agree as follows:

1. DEFINITIONS.

a. As used in this Agreement, the following terms shall have the following
meanings:

(i) “Buyer” means the purchaser of Warrants pursuant to the Facility Agreement
specified on the signature page hereof, and any permitted transferee or assignee
who agrees to become bound by the provisions of this Agreement in accordance
with Section 10 hereof.

(ii) “Filing Deadline,” for each Registration Statement required to be filed
hereunder, shall mean a date that is thirty (30) calendar days following the
date the applicable Warrant is issued.

(iii) “Registration Deadline” shall mean the earlier of (i) the date that is
ninety (90) days after the date that the applicable Registration Statement is
actually filed or (ii) the date that is ninety (90) days after the applicable
Filing Deadline.

(iv) “Warrant(s)” means the warrants issued by the Company pursuant to the
Facility Agreement.

(v) “Register,” “Registered,” and “Registration” refer to a registration
effected by preparing and filing a Registration Statement or Statements 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, and the declaration or ordering of effectiveness of such Registration
Statement by the United States Securities and Exchange Commission (the “SEC”).

(vi) “Registrable Securities,” for a given Registration, means (a) any shares of
Common Stock (the “Warrant Shares”) issued or issuable upon exercise of or
otherwise pursuant to the Warrants (without giving effect to any limitations on
exercise set forth in the Warrants), (b) any shares of capital stock issued or
issuable as a dividend on or in exchange for or otherwise with respect to any of
the foregoing, (c) any other shares of Common Stock issuable pursuant to the
terms of the Facility Agreement or this Registration Rights Agreement, and
(d) any securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the foregoing.
Securities will cease to be Registrable Securities when (A) they have been
effectively registered under the

 

1

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

Securities Act and disposed of in accordance with the registration statement
covering them; (B) they are transferred pursuant to Rule 144 or an exemption
from registration under the Securities Act; or (C) they have been otherwise
transferred and new certificates for them not bearing a restrictive legend have
been issued by the Company and the Company shall not have “stop transfer”
instructions against them.

(vii) “Registration Statement(s)” means a registration statement(s) of the
Company under the Securities Act required to be filed hereunder and for purposes
of Section 7 hereof, shall include a Shelf Registration Statement provided under
Section 4(c) of the Warrants.

2. REGISTRATION.

a. MANDATORY REGISTRATION. Following the date of issuance of any Warrants
pursuant to the Facility Agreement, the Company shall prepare, and, on or prior
to the applicable Filing Deadline (as defined above) file with the SEC a
Registration Statement (the “Mandatory Registration Statement”) on Form S-3 (or,
if Form S-3 is not then available, on such form of Registration Statement as is
then available to effect a registration of the Registrable Securities, subject
to the consent of the Buyer, which consent will not be unreasonably withheld)
covering the resale of the Registrable Securities issued on the applicable
Issuance Date (as defined below) which Registration Statement, to the extent
allowable under the Securities Act and the rules and regulations promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon exercise of or otherwise pursuant to the Warrants to
prevent dilution resulting from stock splits, stock dividends, or similar
transactions. The number of shares of Common Stock initially included in such
Registration Statement shall be no less than the aggregate number of Warrant
Shares that are then issuable upon exercise of or otherwise pursuant to the
Warrants issued on the Issuance Date (as defined herein), without regard to any
limitation on the Buyer’s ability to exercise the Warrants and the Company
acknowledges that the number of shares initially included in each Registration
Statement represents a good faith estimate of the maximum number of shares
issuable upon exercise of or otherwise pursuant to the Warrants issued on the
applicable Issuance Date and shall be amended if not sufficient in the good
faith estimate of the Company. Each Registration Statement (and each amendment
or supplement thereto, and each request for acceleration of effectiveness
thereof) shall be provided to (and subject to the approval, which shall not be
unreasonably withheld, of) the Buyer and its counsel prior to its filing or
other submission.

b. PIGGY-BACK REGISTRATIONS. If at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company shall determine to file
with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option, stock purchase, or other employee benefit plans),
the Company shall send to Buyer written notice of such determination and, if
within ten (10) days after the effective date of such notice, the Buyer shall so
request in writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities the Buyer requests to be registered
(only if such securities are not yet registered), except that if, in connection
with any underwritten public offering for the account of the Company, the
managing underwriter(s) thereof shall impose a limitation on the number of
Registrable Securities which may be included in the Registration Statement
because, in such underwriter(s)’ judgment, marketing or other factors dictate
such limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which the Buyer has
requested inclusion hereunder as the underwriter shall permit;

PROVIDED, HOWEVER, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the holders of
which are not entitled by contract to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and

PROVIDED, FURTHER, HOWEVER, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the contractual right to include
such securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. No right to registration of Registrable
Securities under this Section 2(b) shall be construed to limit any registration
required under Section 2(a)

 

2

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

hereof. If an offering in connection with which the Buyer is entitled to
registration under this Section 2(b) is an underwritten offering, then the Buyer
shall, unless otherwise agreed by the Company, offer and sell such Registrable
Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement and the
underwriting agreement in such offering, on the same terms and conditions as
other shares of Common Stock included in such underwritten offering (including,
without limitation, execution of an agreement with the managing underwriter or
agent limiting the sale or distribution such Buyer may make of shares of Common
Stock or any securities convertible or exchangeable or exercisable for such
shares of the Company, except as part of such registration). Notwithstanding
anything to the contrary set forth herein, the registration rights of the Buyer
pursuant to this Section 2(b) shall only be available in the event the Company
fails to timely file, obtain effectiveness or maintain effectiveness of any
Registration Statement to be filed pursuant to Section 2(a) in accordance with
the terms of this Agreement.

3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the
Registrable Securities, the Company shall have the following obligations:

a. The Company shall prepare promptly, and file with the SEC as soon as
practicable after each date that any Warrants are issued under the Facility
Agreement (each an “Issuance Date”) (but no later than the applicable Filing
Deadline), a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use reasonable best efforts
to cause each such Registration Statement relating to Registrable Securities to
become effective as soon as possible after such filing, but in any event shall
cause each such Registration Statement relating to Registrable Securities to
become effective no later than the Registration Deadline, and shall keep the
Registration Statement current and effective pursuant to Rule 415 at all times
until such date as is the earlier of (i) the date on which all of the
Registrable Securities for such Registration Statement have been sold and
(ii) the date on which all of the Registrable Securities for such Registration
Statement (in the opinion of counsel to the Buyer) may be immediately sold to
the public without registration or restriction (including without limitation as
to volume by each holder thereof) under the Securities Act (the “Registration
Period”), 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 not misleading.

b. The Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to each Registration Statement and
the prospectus used in connection with each Registration Statement as may be
necessary to keep each Registration Statement current and effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by each Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in each Registration Statement. In the event that on any
Trading Day (as defined below) (the “Registration Trigger Date”) the number of
shares available under the Registration Statements filed pursuant to this
Agreement is insufficient to cover all of the Registrable Securities issued or
issuable upon exercise of or otherwise pursuant to the Warrants, the Company
shall amend the applicable Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover the total number of Registrable Securities so issued or issuable
(without giving effect to any limitations on exercise contained in the Warrants
or limitations on conversion or exercise) as of the Registration Trigger Date as
soon as practicable, but in any event within thirty (30) days after the
Registration Trigger Date, or as promptly as practicable if the Company is
required to increase its authorized shares (based on the Exercise Price (as
defined in the applicable Warrants) of the Warrants, and other relevant factors
on which the Company reasonably elects to rely). The Company shall use its
reasonable best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof, but in any event the Company shall cause such amendment and/or new
Registration Statement to become effective within sixty (60) days of the
Registration Trigger Date or as promptly as practicable in the event the Company
is required to increase its authorized shares. “Trading Day” shall mean any day
on which the Common Sock is traded for any period on the NASDAQ Global Select
Market, or on the principal securities exchange or other securities market on
which the Common Stock is then being traded.

c. The Company shall furnish to the Buyer and its legal counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in

 

3

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

the case of a Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of the SEC, and
each item of correspondence from the SEC or the staff of the SEC, in each case
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as the Buyer may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by the Buyer. The Company will
immediately notify the Buyer by facsimile of the effectiveness of each
Registration Statement or any post-effective amendment. The Company will
promptly respond to any and all comments received from the SEC, with a view
towards causing each Registration Statement or any amendment thereto to be
declared effective by the SEC as soon as practicable and shall file an
acceleration request as soon as practicable, but no later than three
(3) business days, following the resolution or clearance of all SEC comments or,
if applicable, following notification by the SEC that any such Registration
Statement or any amendment thereto will not be subject to review.

d. The Company shall use reasonable best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statements under such other
securities or “blue sky” laws of such jurisdictions in the United States as the
Buyer shall reasonably request, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction.

e. As promptly as practicable after becoming aware of such event, the Company
shall notify the Buyer of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in any 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, and use reasonable best efforts
promptly to prepare a supplement or amendment to any Registration Statement to
correct such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to the Buyer as the Buyer may reasonably request.

f. The Company shall use reasonable best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of any Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest possible moment and to notify the Buyer who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.

g. The Company shall permit a single firm of counsel designated by the Buyer to
review such Registration Statement and all amendments and supplements thereto
(as well as all requests for acceleration or effectiveness thereof), at Buyer’s
own cost, a reasonable period of time prior to their filing with the SEC (but
not less than five (5) business days prior to filing) and shall not file any
document in a form to which such counsel reasonably objects and will not request
acceleration of such Registration Statement without prior notice to such
counsel.

h. The Company shall hold in confidence and not make any disclosure of
information concerning the Buyer provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities laws
or rules of any securities exchange of trading market on which the Company’s
securities are then listed or traded, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning the Buyer is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Buyer
prior to making such disclosure, and allow the Buyer, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.

 

4

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

i. The Company shall use reasonable best efforts to cause all the Registrable
Securities covered by each Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, and, if listed on
a national exchange, to arrange for at least two market makers to register with
the Financial Industry Regulatory Authority, Inc. (“FINRA”) as such with respect
to such Registrable Securities.

j. The Company shall provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the initial Registration Statement.

k. The Company shall cooperate with the Buyer who holds Registrable Securities
being offered and the managing underwriter or underwriters with respect to an
applicable Registration Statement, if any, to facilitate the timely preparation
and delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to such Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or the Buyer may
reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Buyer may request, and, within three (3) business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Buyer) an appropriate instruction and
an opinion of such counsel in the form required by the transfer agent in order
to issue the Registrable Securities free of restrictive legends.

l. At the request of the Buyer, the Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.

m. The Company shall not, and shall not agree to, allow the holders of any
securities of the Company to include any of their securities in any Registration
Statement under Section 2(a) hereof or any amendment or supplement thereto under
Section 3(b) hereof without the consent of the Buyer. In addition, the Company
shall not offer any securities for its own account or the account of others in
any Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the Buyer.

n. The Company shall take all other reasonable actions necessary to expedite and
facilitate disposition by the Buyer of Registrable Securities pursuant to a
Registration Statement.

o. The Company shall use reasonable best efforts to comply with all applicable
laws related to a Registration Statement and offering and sale of securities and
all applicable rules and regulations of governmental authorities in connection
therewith (including without limitation the Securities Act and the Exchange Act
and the rules and regulations promulgated by the SEC).

p. FINRA Rule 2710 Filing; Broker Compensation. If required by the Financial
Industry Regulatory Authority, Inc. Corporate Financing Department, the Company
shall promptly effect a filing with FINRA pursuant to FINRA Rule 2710 with
respect to the public offering contemplated by resales of securities under the
Registration Statement (an “Issuer Filing”), and pay the filing fee required by
such Issuer Filing. The Company shall use commercially reasonable efforts to
pursue the Issuer Filing until FINRA issues a letter confirming that it does not
object to the terms of the offering contemplated by the Registration Statement.

q. Notwithstanding anything to the contrary herein, at any time after any
Registration Statement has been declared effective by the SEC, the Company may
delay or suspend the effectiveness of any Registration Statement or the use of
any prospectus forming a part of the Registration Statement due to the
non-disclosure of material, non-public information concerning the Company, the
disclosure of which at the time is not in its best interest of the Company in
the good faith opinion of the Company (a “Grace Period”); provided, that the
Company shall promptly notify the Buyer in writing of the existence of a Grace
Period in conformity with the provisions of this Section 3(q) and the date on
which the Grace Period will begin (such notice, a “Commencement Notice”); and,
provided further, that no Grace Period shall exceed forty-five (45) days, and
such Grace Periods shall not exceed an aggregate total of sixty (60) days during
any 360-day period. For purposes of determining the length of a Grace Period
above, the Grace

 

5

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

Period shall begin on and include the date specified by the Company in the
Commencement Notice and shall end on and include the date the Buyer receives
written notice of the termination of the Grace Period by the Company (which
notice may be contained in the Commencement Notice). The provisions of
Section 3(e) hereof shall not be applicable during any Grace Period. Upon
expiration of the Grace Period, the Company shall again be bound by
Section 3(e) with respect to the information giving rise thereto unless such
material, non-public information is no longer applicable.

r. Notwithstanding anything to the contrary herein, a delay in the effectiveness
of a Registration Statement caused solely by the filing of a request for
confidential treatment shall not be deemed a breach of the Company’s obligations
set forth herein and in such event the Registration Deadline shall be deemed
extended to the date that is ten (10) Business Days after the date the SEC
agrees to allow confidential treatment pursuant to such request or the date such
request is withdrawn by the Company, as applicable.

4. OBLIGATIONS OF THE BUYER. In connection with the registration of the
Registrable Securities, the Buyer shall have the following obligations:

a. It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of the Buyer that the Buyer shall furnish to the Company
such information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request. At least five (5) business days prior to the
first anticipated filing date of the Registration Statement, the Company shall
notify the Buyer of the information the Company requires from each Buyer. The
Buyer must provide such information to the Company at least three (3) business
days prior to the first anticipated filing date of such Registration Statement
if such Buyer elects to have any Registrable Securities included in the
Registration Statement.

b. The Buyer, by the Buyer’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of a Registration Statement hereunder, unless
the Buyer has notified the Company in writing of the Buyer’s election to exclude
all of the Buyer’s Registrable Securities from such Registration Statement.

c. In the event of an underwritten offering pursuant to Section 2(b) in which
any Registrable Securities are to be included, the Buyer agrees to enter into
and perform the Buyer’s obligations under an underwriting agreement, in
reasonable form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless the Buyer has
notified the Company in writing of the Buyer’s election to exclude all of the
Buyer’s Registrable Securities from such Registration Statement.

d. The Buyer agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(e) or 3(f) or the
commencement of a Grace Period, the Buyer will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until the Buyer’s receipt of the copies of
the supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and,
if so directed by the Company, the Buyer shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in the Buyer’s possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such notice.

e. The Buyer agrees that it will not effect any disposition or other transfer of
the Registrable Securities that would constitute a sale within the meaning of
the Securities Act other than transactions exempt from the registration
requirements of the Securities Act or pursuant to, and as contemplated in, the
Registration Statement, and that it will promptly notify the Company of any
material changes in the information set forth in the Registration Statement
furnished by or regarding the Buyer or its plan of distribution.

5. REGISTRATION FAILURE. In the event of a Registration Failure (as defined in
the Warrants), the Buyer shall be entitled to the applicable Failure Payments
(as defined in the Warrants) and such other rights as set forth in the Warrants.

 

6

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

6. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, and
the fees and disbursements of counsel for the Company (but not including fees
and disbursements for counsel for the Buyer) shall be borne by the Company.

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

a. The Company will indemnify, hold harmless and defend (i) the Buyer, (ii) the
directors, officers, partners, managers, members, employees, agents and each
person who controls any Buyer within the meaning of the Securities Act or the
Exchange Act, if any, (iii) any underwriter (as defined in the Securities Act)
for the Buyer in connection with an underwritten offering pursuant to
Section 2(b) hereof, and (iv) the directors, officers, partners, employees and
each person who controls any such underwriter within the meaning of the
Securities Act or the Exchange Act, if any (each, an “Indemnified Person”),
against any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, “Claims”) to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading; or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, “Violations”). The Company shall reimburse the Indemnified Person,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 7(a) shall not apply (A)(i) to a Claim arising out of
or based upon a Violation to the extent that such Violation occurs in reliance
upon and in conformity with information furnished in writing to the Company by
any Indemnified Person for use in connection with the preparation of such
Registration Statement or any such amendment thereof or supplement thereto, or
(ii) to the extent due to the failure of Buyer to timely deliver any amendment
or supplement to the Registration Statement or prospectus (whether preliminary
or final), including any corrected prospectus, timely made available by the
Company pursuant to Section 3(c); or (B) to any amounts paid in settlement of
any Claim effected without the prior written consent of the Company (which
consent shall not be unreasonably withheld or delayed). Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Buyer pursuant to Section 10.

b. Promptly after receipt by an Indemnified Person under this Section 7 of
notice of the commencement of any action (including any governmental action),
such Indemnified Person shall, if a Claim in respect thereof is to be made
against the Company under this Section 7, deliver to the Company a written
notice of the commencement thereof, and the Company shall have the right to
participate in, and, to the extent the Company so desires, to assume control of
the defense thereof with counsel mutually satisfactory to the Company and the
Indemnified Person, as the case may be.

PROVIDED, HOWEVER, that an Indemnified Person shall have the right to retain its
own counsel with the reasonable fees and expenses to be paid by the Company, if,
in the reasonable opinion of counsel for the Buyer, the representation by such
counsel of the Indemnified Person and the Company would be inappropriate due to
actual or potential differing interests between such Indemnified Person and any
other party represented by such counsel in such proceeding. In the event of a
potential differing interests scenario, the Company shall pay for only one
separate legal counsel for the Indemnified Persons, and such legal counsel shall
be selected by Buyer.

 

7

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

PROVIDED FURTHER, the failure to deliver written notice to the Company within a
reasonable time of the commencement of any such action shall not relieve the
Company of any liability to the Indemnified Person under this Section 7, except
to the extent that the Company is actually prejudiced in its ability to defend
such action. The indemnification required by this Section 7 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense as such expense, loss, damage or liability is incurred and is due and
payable.

c. The Buyer will indemnify, hold harmless and defend (i) the Company, and
(ii) the directors, officers, partners, managers, members, employees, or agents
of the Company, if any (each, a “Company Indemnified Person”), against any joint
or several losses, claims, damages, liabilities or expenses (collectively,
together with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, “Indemnity Claims”) to which any of them may become subject insofar as
such Indemnity Claims arise out of or are based upon (x) any Violation, which
occurs due to the inclusion by the Company in a Registration Statement of false
or misleading information about the Buyer, where such information was furnished
in writing to the Company by the Buyer for the purpose of inclusion in such
Registration Statement or (y) any Violation described in Section 7(a) which was
corrected pursuant to any subsequent amendment or supplement to the Registration
Statement or prospectus (whether preliminary or final) that was timely made
available by the Company to the Buyer pursuant to Section 3(c) before any
pertinent sale by the Buyer, such corrected amendment or supplement to the
Registration Statement or prospectus was not timely delivered to the applicable
purchaser and the timely delivery of such amendment or supplement would have
constituted a complete defense to the claim asserted. Notwithstanding anything
herein to the contrary, (a) the indemnity agreement contained in this
Section 7(c) shall not apply to amounts paid in settlement of any Indemnity
Claim if such settlement is effected without the prior written consent of the
Buyer which consent shall not be unreasonably withheld or delayed; and (b) the
Buyer shall be liable under this Section 7(c) for only that amount of an
Indemnity Claim as does not exceed the net amount of proceeds received by the
Buyer as a result of the sale of Registrable Securities pursuant to the
applicable Registration Statement. This indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a Company
Indemnified Person.

d. Promptly after receipt by a Company Indemnified Person under this Section 7
of notice of the commencement of any action (including any governmental action),
such Company Indemnified Person shall, if an Indemnity Claim in respect thereof
is to be made against the Buyer under this Section 7, deliver to the Buyer a
written notice of the commencement thereof, and the Buyer shall have the right
to participate in, and, to the extent the Buyer so desires, to assume control of
the defense thereof with counsel mutually satisfactory to the Buyer and the
Company Indemnified Person, as the case may be.

PROVIDED, HOWEVER, that a Company Indemnified Person shall have the right to
retain its own counsel with the reasonable fees and expenses to be paid by the
Buyer, if, in the reasonable opinion of counsel for the Company, the
representation by such counsel of the Company Indemnified Person and the Buyer
would be inappropriate due to actual or potential differing interests between
such Company Indemnified Person and any other party represented by such counsel
in such proceeding. In the event of a potential differing interests scenario,
the Buyer shall pay for only one separate legal counsel for the Company
Indemnified Persons, and such legal counsel shall be selected by Company.

PROVIDED FURTHER, the failure to deliver written notice to the Buyer within a
reasonable time of the commencement of any such action shall not relieve the
Buyer of any liability to the Company Indemnified Persons under this Section 7,
except to the extent that the Buyer is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 7 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense as such expense, loss, damage or liability is incurred
and is due and payable.

8. CONTRIBUTION. To the extent any indemnification by the Company or Buyer is
prohibited or limited by law, each of the Company and the Buyer agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 7 to the fullest extent permitted by law,
based upon a comparative fault standard; PROVIDED, HOWEVER, that (i) no Person
that is guilty of fraudulent misrepresentation (within the meaning
Section 11(f) of the Securities Act) in connection with such sale shall be
entitled to contribution from any Person who was not guilty of fraudulent
misrepresentation; and (ii) contribution by the Buyer shall be limited in amount
to the net amount of proceeds received by the Buyer from the sale of the
Registrable Securities pursuant to the applicable Registration Statement.

 

8

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

9. REPORTS UNDER THE 1934 ACT. With a view to making available to the Buyer the
benefits of Rule 144 promulgated under the Securities Act or any other similar
rule or regulation of the SEC that may at any time permit the Buyer 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 Rule 144;

b. file with the SEC in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act so long as the
Company remains subject to such requirements and the filing of such reports and
other documents is required for the applicable provisions of Rule 144; and

c. furnish to the Buyer so long as the Buyer owns Registrable Securities,
promptly upon written request, (i) a written statement by the Company that it
has complied with the reporting requirements of the Securities Act and the
Exchange Act as required for applicable provisions of Rule 144, (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 to permit the Buyers to sell such securities pursuant to
Rule 144 without registration.

10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be
automatically assignable by the Buyer to any transferee of all or any portion of
the Registrable Securities if: (i) the Buyer agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment,
(ii) the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, and (iii) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein. In the event that the Buyer transfers all or
any portion of its Registrable Securities pursuant to this Section 10, the
Company shall have at least ten business (10) days to file any amendments or
supplements necessary to keep the Registration Statement current and effective
pursuant to Rule 415, and the commencement date of any Event of Failure (as
defined in the Warrants) or Event of Default (as defined in the Warrants) under
the Warrants caused thereby will be extended by ten business (10) days.

11. AMENDMENT OF REGISTRATION RIGHTS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the prior written consent of the holders of a majority
of the Registrable Securities and the Company. Any amendment or waiver effected
in accordance with this Section 11 shall be binding upon the Buyer and the
Company.

12. MISCELLANEOUS.

a. A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record or beneficially through a “street
name” holder such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Registrable Securities, the Company shall act upon the basis
of instructions, notice or election received from the registered owner of such
Registrable Securities.

b. Any notices required or permitted to be given under the terms hereof shall be
sent by certified or registered mail (return receipt requested) or delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile and shall be effective five days after being placed in the mail, if
mailed by regular United States mail, or upon receipt, if delivered personally
or by courier (including a recognized overnight delivery service) or by
facsimile, in each case addressed to a party. The addresses for such
communications shall be:

 

9

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

If to the Company:

Zymogenetics, Inc.

1201 Eastlake Avenue East

Seattle, WA 98102

Fax:    (206) 442-6608 Attn:    James A. Johnson, Chief Financial Officer

With copy to:

Perkins Coie LLP

1201 Third Avenue, Suite 4800

Seattle, WA 98101

Fax:    (206) 359-9000 Attn:    James R. Lisbakken

If to a Buyer:

c/o Deerfield Capital, L.P.

780 Third Avenue, 37th Floor

New York, New York 10017

Fax:    (212) 599-1248 Attn:    Alexander Karnal

With a copy to:

Katten Muchin Rosenman LLP

575 Madison Avenue

New York, New York 10022

Fax:    (212) 940-8776 Attn:    Mark I. Fisher, Esq.    Elliot Press, Esq.

Each party shall provide notice to the other party of any change in address.

c. 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, shall not
operate as a waiver thereof.

d. Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law. The parties hereby waive all rights to a trial by jury.
If either party shall commence an action or proceeding to enforce any provisions
of this Agreement, then the prevailing party in such action or proceeding shall
be reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such action or proceeding.

 

10

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

e. This Agreement, the Warrants, the Royalty Agreement (as defined in the
Facility Agreement) and the Facility Agreement (including all schedules and
exhibits to such documents) constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Warrants, the Royalty
Agreement and the Facility Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.

f. Subject to the requirements of Section 10 hereof, this Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties hereto.

g. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.

h. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.

i. Each party shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

j. The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Buyer by vitiating the intent and purpose of
the transactions contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for breach of its obligations hereunder will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of any of
the provisions hereunder, that the Buyer shall be entitled, in addition to all
other available remedies in law or in equity, to an injunction or injunctions to
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, without the necessity of showing
economic loss and without any bond or other security being required.

k. The language used in this Agreement will be deemed to be the language chosen
by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.

l. 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.

m. In the event a Buyer shall sell or otherwise transfer any of such holder’s
Registrable Securities, each transferee shall be allocated a pro rata portion of
the number of Registrable Securities included in a Registration Statement for
such transferor.

n. There shall be no oral modifications or amendments to this Agreement. This
Agreement may be modified or amended only in writing.

[Remainder of page left intentionally blank]

[Signature page follows]

 

11

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

IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the 26th day of June, 2008.

 

COMPANY:     BUYER: ZYMOGENETICS, INC.     DEERFIELD PRIVATE DESIGN FUND, L.P.
By:  

/s/ James A. Johnson

    By:  

/s/ James E. Flynn

Name:   James A. Johnson     Name:   James E. Flynn Title:   Executive Vice
President & Chief Financial Officer     Title:   General Partner       DEERFIELD
PRIVATE DESIGN INTERNATIONAL, L.P.       By:  

/s/ James E. Flynn

      Name:   James E. Flynn       Title:   General Partner

 

12