EX-10.3






EXHIBIT 10.3



EXECUTIVE SEVERANCE SECURITY AGREEMENT




This Agreement, dated as of April 30, 2009, is between Altus Pharmaceuticals Inc., a Delaware
corporation (the “Company”), and Thomas J. Phair, Jr., in his capacity as an officer of the
Company, as Collateral Agent (the “Collateral Agent”) for the employees covered by the
Altus Pharmaceuticals Inc. Executive Severance Policy effective April 30, 2009 through June 30,
2010 (the “Executive Severance Policy”). The parties agree as follows:



1. Security.



1.1. Grant of Collateral. As security for the payment and performance of the
Company’s obligations under the Executive Severance Policy (but only to the extent that amounts
payable under the Executive Severance Policy are exempt from Section 409A of the Internal Revenue
Code of 1986, as amended (the “Code”)), this Agreement and the Control Agreement (as
defined below) (the “Secured Obligations”), the Company hereby creates a security interest
in favor of the Collateral Agent for the benefit of the Employees (as defined below) and the
holders from time to time of the Secured Obligations in all of the Company’s right, title and
interest in and to (but none of its obligations or liabilities with respect to) that certain
deposit account described on Schedule 1 hereto (the “Collateral”). For purposes of this
agreement, “Employees” shall mean, as of any date, all employees and former employees of the
Company who are eligible as of such date to receive a severance payment under the Executive
Severance Policy, subject to the terms and conditions set forth therein, and shall, for the
avoidance of doubt, exclude any such employees or former employees who have forfeited or who have
received the severance payment provided for under the Executive Severance Policy.



1.2. Covenant with Respect to Security. The Company shall cause the financial
institution listed on Schedule 1 to enter into an account control agreement with the Collateral
Agent in form and substance reasonably satisfactory to the Collateral Agent (the “Control
Agreement”).



1.3. No Liens or Dispositions. All Collateral shall be free and clear of any liens
and restrictions on the transfer thereof, including contractual provisions which prohibit the
assignment of rights under contracts, except for nonconsensual liens imposed by law and liens and
restrictions on transfer approved by the Collateral Agent in writing.



2. Right to Realize upon Collateral. Except to the extent prohibited by applicable law
that cannot be waived, this Section shall govern the Collateral Agent’s rights to realize upon the
Collateral if the Collateral Agent has delivered a Notice of Exclusive Control (as defined in the
Control Agreement). Such Notice of Exclusive Control shall be delivered by the Collateral Agent
upon the Company’s failure to make any payment when due under the Executive Severance Policy, if
such failure is not remedied within 30 days. The provisions of this Section are in addition to any
rights and remedies available at law or in equity.



2.1. Assembly of Collateral; Receiver. The Company shall, upon the Collateral Agent’s
request, assemble the Collateral and otherwise make it available to the Collateral Agent. The
Collateral Agent may have a receiver appointed for all or any portion of the Company’s assets or
business which constitutes the Collateral in order to manage, protect, preserve, sell and otherwise
dispose of all or any portion of the Collateral.



2.2. Waiver. To the extent it may lawfully do so, the Company waives and relinquishes
the benefit and advantage of, and covenants not to assert against the Collateral Agent, any
valuation, stay, appraisement, extension, redemption or similar laws now or hereafter existing
which, but for this provision, might be applicable to the disposition of any Collateral made under
the judgment, order or decree of any court, or privately under the authority conferred by this
Agreement, or otherwise.



2.3. Application of Proceeds. All funds collected from the Company and any cash
contained in the Collateral, the application of which is not otherwise specifically provided for
herein, shall be applied as follows:




(a) First, to the payment of the reasonable expenses of the Collateral Agent and the
reasonable fees and expenses of its counsel, under this Agreement and the Control Agreement;




(b) Second, any surplus then remaining to the payment of the Secured Obligations in
such order and manner as the Collateral Agent may in its reasonable discretion determine;
and




(c) Third, any surplus then remaining shall be paid to the Company, subject, however,
to the rights of the holder of any then existing lien for which the Agent has received a
proper demand for proceeds prior to making such payment to the Company.



3. Custody of Collateral. Except as provided by applicable law that cannot be waived, the
Collateral Agent will have no duty as to the custody and protection of the Collateral, the
collection of any part thereof or of any income thereon or the preservation or exercise of any
rights pertaining thereto, including rights against prior parties, except for the use of reasonable
care in the custody and physical preservation of any Collateral in its possession.



4. Reimbursement of Expenses. The Company shall promptly pay on demand all reasonable
expenses of the Collateral Agent (including reasonable attorney fees and expenses) in connection
with the preparation of this Agreement, operations hereunder and enforcement and collection hereof,
whether before or after bankruptcy or similar proceedings (and whether or not allowed as a claim
therein).



5. Termination. Upon the earlier of (x) the Expiration Date (as defined in the Executive
Severance Policy) and (y) the first date following the date hereof upon which the fair market value
of one share of the Company’s common stock equals $5.00, this Agreement shall terminate and the
Collateral Agent shall promptly execute appropriate documents to evidence such termination and
return all Collateral in its possession to the Company. For purposes of the preceding sentence,
“fair market value” shall mean (i) the average of the closing sales prices for the shares of Common
Stock on the NASDAQ Global Market or other trading market where such security is listed or traded
as reported by Bloomberg Financial Markets (or a comparable reporting service of national
reputation selected by the Company and reasonably acceptable to the Collateral Agent if Bloomberg
Financial Markets is not then reporting sales prices of such security) for the ten (10) consecutive
trading days immediately preceding such date or (ii) if fair market value cannot be calculated as
of such date on the foregoing basis, the fair market value shall be as determined by the Board of
Directors of the Company in the exercise of its good faith judgment. Notwithstanding any other
provision of this Agreement, the security interest created by this Agreement shall immediately
terminate with respect to any amounts deemed necessary by the Company to satisfy its tax
withholding obligations with respect to the Secured Obligations, any such amounts shall be released
from the Collateral and delivered to the Company promptly upon the Company’s request therefor, and
the Collateral Agent shall take any actions necessary to effect such release and delivery. The
Collateral Agent shall provide notice to the Company reasonably in advance of making payment with
respect to any Secured Obligation so that appropriate arrangements may be made for tax withholding
requirements to be satisfied with respect to such payment, to the extent such requirements have not
previously been satisfied.



6. Section 409A. For the avoidance of doubt, to the extent that any severance payment
under the Executive Severance Policy (or portion thereof) is not exempt from Section 409A of the
Code, such severance payment (or portion) shall not constitute a Secured Obligation under this
Agreement.



7. General. This Agreement shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns and shall not give rights to any third parties, including
but not limited to the Employees; provided, however, that the Company may not
assign its rights or obligations hereunder without the prior written consent of the Collateral
Agent. Notices shall be furnished in writing to each party at its addresses appearing below or as
it may otherwise direct in writing actually received by the other party. The invalidity or
unenforceability of any provision hereof shall not affect the validity or enforceability of any
other provision hereof, and any invalid or unenforceable provision shall be modified so as to be
enforceable to the maximum extent of its validity or enforceability. The headings in this Agreement
are for convenience of reference only and shall not limit, alter or otherwise affect the meaning
hereof. This Agreement constitutes the entire understanding of the parties with respect to the
subject matter hereof and supersedes all prior and current understandings and agreements, whether
written or oral. This Agreement and all actions in connection herewith shall be governed by and
construed in accordance with the laws (other than the conflict of laws rules) of the Commonwealth
of Massachusetts, except as may be required by the Uniform Commercial Code of other jurisdictions
with respect to matters involving the perfection of the Collateral Agent’s lien on the Collateral
located in such other jurisdictions. This Agreement is not intended to form and shall not be
construed as forming any part of an employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, as amended.



[The remainder of this page is left intentionally blank.]Each of the undersigned has
caused this Agreement to be executed and delivered by its duly authorized officer as an agreement
under seal as of the date first written above.




ALTUS PHARMACEUTICALS INC.




/s/ Georges Gemayel




	 	 	      






Name: Georges Gemayel, Ph.D.


Title: President and Chief Executive Officer




333 Wyman Street


Waltham, MA 02451




COLLATERAL AGENT




/s/ Thomas J. Phair, Jr.




	 	 	      






Name: Thomas J. Phair, Jr.


Title: Vice President, Finance and Treasurer




333 Wyman Street


Waltham, MA 02451



1



Schedule 1




Deposit Account




	 	 	 	 	 
	Account #	 	Owner	 	Bank
	[Account Number]

	 	Altus Pharmaceuticals Inc.
	 	The Bank of New York
	 

	 	 
	 	 







2