By Seattle Times business staff

ZymoGenetics will ask shareholders next month to allow the Seattle
biotech's employees to swap their existing stock options for a smaller
number of options with a lower exercise price.

The company, whose shares ended the week at $5.96, said in a
regulatory filing Friday that it wants to let employees exchange their
vested or unvested options for new ones exercisable at current prices.

ZymoGenetics employees have stock options for 4.9 million shares
eligible for the swap, with exercise prices averaging $14.91. The
company's top seven executives have options covering nearly 1.2 million
shares, at an average exercise price of $15.89, that would also be
eligible.

The exchange will "provide renewed incentives and motivate the
eligible employees," and "will significantly improve employee morale,
which was negatively impacted by the corporate restructuring" in April,
when ZymoGenetics cut about one-third of its work force, the filing
said. The swap also would reduce the "overhang" of potential shares to
be issued.

The new strike price would be the closing price at the end of an
exchange period that will be set following shareholder approval of the
plan. Non-employee members of the board of directors won't participate
in the exchange program.

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