Document:

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                                                                   EXHIBIT 10.31

                                                               EXECUTION VERSION

                               FOURTH AMENDMENT TO
                                CREDIT AGREEMENT

     THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Fourth Amendment") is made
and entered into as of February 16, 2007, by and among Altra Industrial Motion,
Inc., a Delaware corporation, as Administrative Borrower ("Administrative
Borrower") for the Borrowers (as defined below), the lenders listed on the
signatory page hereof (the "Lenders"), and Wells Fargo Foothill, Inc., a
California corporation, in its capacity as the arranger and administrative agent
for the Lenders ("Agent").

                                   WITNESSETH:

     WHEREAS, each of Administrative Borrower, Warner Electric LLC, a Delaware
limited liability company, Kilian Manufacturing Corporation, a Delaware
corporation, Warner Electric Technology LLC, a Delaware limited liability
company, Formsprag LLC, a Delaware limited liability company, Boston Gear LLC, a
Delaware limited liability company, Nuttall Gear L L C, a Delaware limited
liability company, and Ameridrives International L.P., a Delaware limited
partnership (each, a "Borrower" and, collectively, the "Borrowers"), have
entered into a Credit Agreement dated as of November 30, 2004 (as amended as of
December 30, 2004, January 14, 2005, and January 31, 2005, and as may be further
amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"), with the Lenders and Agent; and

     WHEREAS, Borrowers, the Lenders and Agent wish to amend the Credit
Agreement, as provided herein;

     NOW, THEREFORE, in consideration of the agreements and provisions herein
contained, the parties hereto do hereby agree as follows:

SECTION 1. DEFINITIONS. Any capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.

SECTION 2. AMENDMENT TO CREDIT AGREEMENT. Subject to the satisfaction of the
conditions set forth in Section 4 herein, the Credit Agreement is hereby
amended, effective as of the Effective Date (as defined below), as follows:

     2.01 AMENDMENT TO SCHEDULE 1.1. Schedule 1.1 of the Credit Agreement is
hereby amended by deleting the definition of "Qualified IPO" therein and
inserting the following definition in lieu thereof:

     "Qualified IPO" means an underwritten public offering of common Stock of
     Holdings or Parent pursuant to a registration statement filed with the SEC
     (other than on Form S-8).

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SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Agent and the
Lenders to enter into this Fourth Amendment, Administrative Borrower, for itself
and on behalf of all of the other Borrowers, hereby represents and warrants
that:

     3.01 NO DEFAULT. At and as of the date of this Fourth Amendment, after
giving effect to this Fourth Amendment, no Default or Event of Default has
occurred and is continuing.

     3.02 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. At and as of the date
of this Fourth Amendment, each of the representations and warranties contained
in the Credit Agreement and the other Loan Documents is true and correct in all
material respects (except to the extent that such representations and warranties
relate solely to an earlier date).

     3.03 CORPORATE POWER, ETC. Administrative Borrower (a) has all requisite
corporate power and authority to execute and deliver this Fourth Amendment and
to consummate the transactions contemplated hereby for itself and on behalf of
all of the other Borrowers and (b) has taken all action, corporate or otherwise,
necessary to authorize the execution and delivery of this Fourth Amendment and
the consummation of the transactions contemplated hereby for itself and on
behalf of all of the other Borrowers. Administrative Borrower is entering into
this Fourth Amendment on behalf of all of the other Borrowers in accordance with
Sections 14.1 and 16.9 of the Credit Agreement.

     3.04 NO CONFLICT. The execution, delivery and performance by Administrative
Borrower of this Fourth Amendment will not (a) violate any provision of federal,
state, or local law or regulation applicable to any Borrower, the Governing
Documents of any Borrower, or any order, judgment, or decree of any court or
other Governmental Authority binding on any Borrower, (b) conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a
default under any material contractual obligation of any Borrower, (c) result in
or require the creation or imposition of any Lien of any nature whatsoever upon
any properties or assets of any Borrower, other than Permitted Liens, or (d)
require any unobtained approval or consent of any Person under any material
contractual obligation of any Borrower.

     3.05 BINDING EFFECT. This Fourth Amendment has been duly executed and
delivered by Administrative Borrower (on behalf of itself and all of the other
Borrowers) and constitutes the legal, valid and binding obligation of
Administrative Borrower (on behalf of itself and all of the other Borrowers),
enforceable against Administrative Borrower (on behalf of itself and all of the
other Borrowers) in accordance with its terms, except as such enforceability may
be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws, now or hereafter in effect, relating to or affecting the
enforcement of creditors' rights generally, and (b) the application of general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

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SECTION 4. CONDITIONS. This Fourth Amendment shall be effective as of December
13, 2006 (the "Effective Date") upon the fulfillment of all of the following
conditions precedent set forth in this Section 4:

     4.01 EXECUTION OF THE FOURTH AMENDMENT. Each of the parties hereto shall
have executed and delivered a counterpart of this Fourth Amendment and shall
have delivered (including by way of telefacsimile or electronic mail) the same
to Agent.

     4.02 REPRESENTATIONS AND WARRANTIES. As of the Effective Date, the
representations and warranties set forth in Section 3 hereof shall be true and
correct.

     4.03 COMPLIANCE WITH TERMS. Borrowers shall have complied in all respects
with the terms hereof and of any other agreement, document, instrument or other
writing to be delivered by Borrowers in connection herewith.

SECTION 5. MISCELLANEOUS.

     5.01 CONTINUING EFFECT. Except as specifically provided herein, the Credit
Agreement and the other Loan Documents shall remain in full force and effect in
accordance with their respective terms and are hereby ratified and confirmed in
all respects.

     5.02 NO WAIVER. This Fourth Amendment is limited as specified and the
execution, delivery and effectiveness of this Fourth Amendment shall not operate
as a modification, acceptance or waiver of any provision of the Credit Agreement
or any other Loan Document, except as specifically set forth herein.

     5.03 REFERENCES.

          (a) From and after the Effective Date, the Credit Agreement, the other
Loan Documents and all agreements, instruments and documents executed and
delivered in connection with any of the foregoing shall each be deemed amended
hereby to the extent necessary, if any, to give effect to the provisions of this
Fourth Amendment.

          (b) From and after the Effective Date, (i) all references in the
Credit Agreement to "this Agreement", "hereto", "hereof", "hereunder" or words
of like import referring to the Credit Agreement shall mean the Credit Agreement
as amended hereby and (ii) all references in the Credit Agreement, the other
Loan Documents or any other agreement, instrument or document executed and
delivered in connection therewith to "Credit Agreement", "thereto", "thereof",
"thereunder" or words of like import referring to the Credit Agreement shall
mean the Credit Agreement as amended hereby.

     5.04 GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     5.05 SEVERABILITY. The provisions of this Fourth Amendment are severable,
and if any clause or provision shall be held invalid or unenforceable in whole
or in part in any

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jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction and shall not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision in this Fourth Amendment in any jurisdiction.

     5.06 COUNTERPARTS. This Fourth Amendment may be executed in any number of
counterparts, each of which counterparts when executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. Delivery of an executed counterpart of this Fourth Amendment by
telefacsimile or electronic mail shall be equally effective as delivery of a
manually executed counterpart. A complete set of counterparts shall be lodged
with Administrative Borrower and Agent.

     5.07 HEADINGS. Section headings in this Fourth Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Fourth Amendment for any other purpose.

     5.08 BINDING EFFECT; ASSIGNMENT. This Fourth Amendment shall be binding
upon and inure to the benefit of Borrowers, the Lenders and Agent and their
respective successors and assigns; provided, however, that the rights and
obligations of Borrowers under this Fourth Amendment shall not be assigned or
delegated without the prior written consent of Agent.

     5.09 EXPENSES. Borrowers agree to pay Agent for all reasonable expenses,
including reasonable fees of attorneys and paralegals for Agent, incurred by
Agent in connection with the preparation, negotiation and execution of this
Fourth Amendment and any document required to be furnished herewith pursuant to
the terms of the Credit Agreement and the Fee Letter.

                           [Signature page to follow]

                                       4

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                                        ALTRA INDUSTRIAL MOTION, INC.,
                                        a Delaware corporation, as
                                        Administrative Borrower on behalf
                                        of itself and all other Borrowers

                                        By: /s/ Michael L. Hurt
                                            ------------------------------------
                                        Name: Michael L. Hurt
                                        Title: Chairman & Chief Executive
                                               Officer

                                        WELLS FARGO FOOTHILL, INC.,
                                        a California corporation, as Agent and
                                        Lender

                                        By: /s/ Vincent J. Egan, Jr.
                                            ------------------------------------
                                        Name: Vincent J. Egan, Jr.
                                        Title: Vice President

                      [SIGNATURE PAGE OF FOURTH AMENDMENT]exv4w5

 

Exhibit 4.5

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR (B) THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION IS REQUIRED FOR SUCH
TRANSFER.

 

 

			
	Warrant No. RW-6
	 	1,962,494 Shares

WARRANT

To Purchase Shares of Common Stock

of

ALTUS PHARMACEUTICALS INC.

Dated as of September 26, 2001

 

 

WHEREAS, Altus Pharmaceuticals Inc., a Delaware corporation (the “Company”),
 intends to provide the Holder an opportunity to acquire shares of its Common Stock, $.01 par value
per share (“Common Stock”), upon the exercise of a warrant with respect thereto;

     NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration,
the receipt of which is hereby acknowledged, the Company certifies and agrees as follows:

     This Warrant certifies that, for value received, ADAGE CAPITAL PARTNERS, L.P. (the “Holder”),
or registered assigns, is entitled to purchase from the Company ONE MILLION NINE HUNDRED SIXTY-TWO
THOUSAND FOUR HUNDRED NINETY-FOUR (1,962,494) shares (the “Shares”) of the fully paid and
non-assessable Common Stock of the Company, at a price of $5.64 per share (the “Exercise Price”),
such number of Shares and Exercise Price per Share subject to adjustment as provided herein and all
subject to the conditions set forth herein. This Warrant may be exercised at any time on or before
the “Expiration Date” which shall mean February 1, 2009.

1. Exercise of Warrant.

     1.1. Procedure. The Holder or any person or entity to whom the Holder has assigned its rights
under this Warrant (collectively referred to as the “Warrantholder”) may exercise this Warrant, at
any time or from time to time, prior to the Expiration Date, on any business day, by surrendering
the Warrant, accompanied by a written notice in the form attached hereto (the “Exercise Notice”),
to the Company at the address designated in Section 8.4 hereof, exercising the Warrant and
specifying the total number of Shares the Warrantholder will purchase pursuant to such exercise.
This Warrant may be exercised in whole or in part as to any or all of the

 

 

Shares. A certificate or certificates for the Shares purchased upon exercise of this Warrant
and, in the event of a partial exercise of this Warrant, a new Warrant of like tenor representing
the balance of the Shares purchasable hereunder, shall be delivered by the Company to the
Warrantholder not later than ten days after payment is made for the Shares. No fractions of a
share of Common Stock will be issued upon the exercise of this Warrant, but if a fractional share
would be issuable upon exercise, the Company will pay in cash the fair market value thereof as
determined under Section 1.2 below.

     1.2. Exercise Mechanics. The Warrantholder may exercise the Warrant by paying to the
Company, by cash or check, an amount equal to the aggregate Exercise Price of the Shares being
purchased. As used herein, the fair market value of the Common Stock shall mean the mean between
the highest and lowest quoted selling prices on such date on the securities market where the Common
Stock of the Company is traded, or if there were no sales on the applicable date, on the next
preceding date within a reasonable period (as determined in the sole discretion of the Board of
Directors of the Company) on which there were sales. In the event that there were no sales in such
a market within a reasonable period, the fair market value shall be as determined in good faith by
the Board of Directors. In the event the Warrantholder disagrees with the fair market value
determined by the Board of Directors, the Company and the Warrantholder shall use their best
efforts to agree upon the selection of an independent appraiser, who will have 30 days in which to
determine the fair market value of the Common Stock, and whose determination will be final and
binding on all parties concerned. All costs of such determination shall be borne by the Company.

     2. Record Holder. A Warrant shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as provided in Section 1.1 above and
the person entitled to receive the Shares of Common Stock issuable upon such exercise or conversion
shall be treated for all purposes as the holder of such Shares of record as of the close of
business on such date.

     3. Payment of Taxes. The Company shall pay all taxes and other governmental charges (other
than income taxes) that may be imposed in respect of the issue of delivery of the Shares or any
portion thereof. The Company shall not be required, however, to pay any tax or other charge imposed
in connection with any transfer involved in the issue of any certificate for the Shares or any
portion thereof in any name other than that of the registered holder of the Warrant surrendered in
connection with the purchase of such shares, and in such case the Company shall not be required to
issue or deliver any certificate until such tax or other charge has been paid or it has been
established to the Company’s satisfaction that no tax or other charge is due.

     4. Transfer and Exchange.

     4.1 Transfer. Subject to the terms hereof, including, without limitation, Sections 5.1 and
5.3, the Warrant and all rights thereunder are transferable, in whole or in part, on the books of
the Company maintained for such purpose at its office designated in Section 8.4 hereof by the
registered holder hereof in person or by duly authorized attorney, upon surrender of the Warrant
properly endorsed. Upon any partial exercise or transfer, the Company will issue and deliver to

2

 

such holder a new warrant or warrants with respect to the Shares not so exercised, converted
or transferred. Each taker and holder of the Warrant, by taking or holding the same, consents and
agrees that the Warrant when endorsed in blank shall be deemed negotiable, and that when the
Warrant shall have been so endorsed, the holder may be treated by the Company and all other persons
dealing with the Warrant as the absolute owner of such Warrant for any purpose and as the person
entitled to exercise the rights represented thereby, or to the transfer on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on such books, the
Company may treat the registered holder of the Warrant as the owner for all purposes. The term
“Warrant” as used herein shall include the Warrant and, any warrants delivered in substitution or
exchange therefor as provided herein.

     4.2 Exchange. The Warrant is exchangeable for a warrant or warrants for the same aggregate
number of Shares, each new Warrant to represent the right to purchase such number of Shares as the
holder shall designate at the time of such exchange. The Warrant may be subdivided, at the
Warrantholder’s option, into several warrants to purchase the Shares (collectively, also referred
to as the “Warrant”). Such subdivision may be accomplished in accordance with the provisions of
this Section 4.

5. Transfer of Securities

     5.1. Restrictions on Transfer. Neither the Warrant nor the Shares shall be transferable
except upon the conditions specified in this Section 5.1, which conditions are intended to insure
compliance with the provisions of the Securities Act of 1933 (the “1933 Act”) in respect to the
transfer of the Warrant and the Shares.

          5.1.1. Unless and until otherwise permitted by this Section 5.1, the Warrant and each
certificate or other document evidencing any of the Shares shall be endorsed with the legend
substantially in the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT, OR (B) THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION IS REQUIRED FOR SUCH TRANSFER.

          5.1.2. Neither the Warrant nor the Shares shall be transferred, and the Company shall not be
required to register any such transfer, unless and until one of the following events shall have
occurred:

               (a) the Company shall have received an opinion of counsel reasonably acceptable to the Company
and its counsel, stating that the contemplated transfer is exempt from registration under the 1933
Act as then in effect, and the Rules and Regulations of the Securities and Exchange Commission (the
“Commission”) thereunder. Within ten days after delivery to the

3

 

Company and its counsel of such an opinion, the Company either shall deliver to the proposed
transferor a statement to the effect that such opinion is not satisfactory in the reasonable
opinion of its counsel (and shall specify in detail the legal analysis supporting any such
conclusion) or shall authorize the Company’s transfer agent to make the requested transfer;

               (b) the Company shall have been furnished with a letter from the Commission in response to a
written request in form and substance acceptable to counsel for the Company setting forth all of
the facts and circumstances surrounding the contemplated transfer, stating that the Commission will
take no action with regard to the contemplated transfer; the Warrant or the Shares are transferred pursuant
to a registration statement which has been filed with the Commission and has been effective; or

               (c) the restrictions on transfer imposed by this Section 5.1 shall cease and terminate as to
the Warrant and the Shares when (i) such securities shall have been effectively registered under
the 1933 Act and sold by the holder thereof in accordance with such registration, or (ii) an
acceptable opinion as described in Section 5.1.2(a) or a “no action” letter described in Section
5.1.2(b) states that future transfers of such securities by the transferor or the contemplated
transferee would be exempt from registration under the 1933 Act. When the restrictions on transfer
contained in this Section 5.1 have terminated as provided above, the holder of the securities as to
which such restrictions shall have terminated or the transferee of such holder shall be entitled to
receive promptly from the Company, without expense to him, new certificates not bearing the legend
set forth in Section 5.1.1 hereof.

     5.2. Cooperation. The Company shall cooperate in supplying such information as may be
reasonably requested by the Warrantholder to complete and file any information reporting forms
presently or subsequently required by the Commission as a condition to the availability of an
exemption, presently existing or subsequently adopted, from the 1933 Act for the sale of the
Warrant or Shares.

     5.3. Permitted Transfers. The Warrantholder may, subject to all applicable laws and rules,
transfer this Warrant and any Shares purchased hereunder.

     6. Adjustments to Exercise Price and Shares. The Exercise Price in effect from time to time
and the number of Shares shall be subject to adjustment in certain cases as set forth in this
Section 6.

     6.1. Subdivision or Combination. In the event the outstanding Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Exercise Price for the Shares
shall, simultaneously with the effectiveness of such subdivision, be proportionately reduced and
the number of Shares proportionately increased, and conversely, in case the outstanding Common
Stock shall be combined into a smaller number of shares of Common Stock, the Exercise Price shall,
simultaneously with the effectiveness of such combination, be proportionately increased and the
number of Shares proportionately reduced. For the purposes of this Section 6, a distribution or
series of distributions of Common Stock to holders of Common Stock in which the number of shares
distributed is ten percent (10%) or more of the number of

4

 

shares of Common Stock upon which the distribution is to be made shall be deemed to be a subdivision of Common Stock.

     6.2. Adjustment for Reorganization, Consolidation or Merger.

     6.2.1. In case of any reorganization of the Company (or any other corporation the stock or
other securities of which are at the time receivable on the exercise of the Warrant) after the date
on which this Warrant is first issued (the “Issuance Date”), or in case, after such date, the
Company (or any such other corporation) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation, then and in each such case
the Warrantholder, upon exercise of the Warrant as provided in Section 1 hereof at any time after
the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property receivable upon the exercise of the
Warrant prior to such consummation, the stock or other securities or property to which the
Warrantholder would have been entitled upon such consummation if the Warrantholder had exercised or
converted the Warrant immediately prior thereto; in each such case, the terms of this Warrant,
including the exercise provisions of Section 1, shall be applicable to the shares of stock or other
securities or property receivable upon the exercise of the Warrant after such consummation.

     6.2.2. The Company shall not effect any consolidation, merger or conveyance of all or
substantially all of its assets unless prior to the consummation thereof the successor corporation
(if other than the Company) resulting from such consolidation or merger or the corporation into or
for the securities of which the previously outstanding stock of the Company shall be changed into
or exchanged in connection with such consolidation or merger, or the corporation purchasing such
assets, as the case may be, shall assume by written instrument, in form and substance reasonably
satisfactory to the Warrantholder, executed and delivered in accordance with Section 8.4 hereof,
the obligation to deliver to the Warrantholder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Warrantholder is entitled to purchase.

     6.2.3. If a purchase, tender or exchange offer is made to and accepted by the holders of more
than 50% of the outstanding shares of Common Stock of the Company, the Company shall not effect any
consolidation, merger or sale with the Person having made such offer or with any Affiliate of such
Person, unless prior to the consummation of such consolidation, merger or sale the Warrantholder
shall have been given a reasonable opportunity to then elect to receive either the stock,
securities or assets then issuable upon the exercise of the Warrant or, if different, the stock,
securities or assets, or the equivalent, issued to previous holders of the Common Stock in
accordance with such offer, computed as though the Warrantholder hereof had been at the time of
such offer, a holder of the stock, securities or assets then purchasable upon the exercise or
conversion of the Warrant. As used in this paragraph 6.2.3, the term “Person” shall mean and
include an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated
organization and a government or any department or agency thereof, and an “Affiliate” of any Person
shall mean any Person directly or indirectly controlling, controlled by or under direct or indirect
common control with, such other Person. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the

5

 

direction of the management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.

6.3. Adjustments to Exercise Price for Certain Diluting Issuances.

          6.3.1 Special Definitions. The following definitions shall apply:

      (A) “Option” shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities.

      (B) “Series B Original Issue Date” shall mean the date on which a share
of Series B Preferred Stock was first issued.

      (C) “Convertible Securities” shall mean any evidences of indebtedness,
shares or other securities directly or indirectly convertible into or exchangeable
for Common Stock, but excluding Options.

      (D) “Additional Shares of Common Stock” shall mean all shares of Common
Stock issued (or pursuant to Section 6.3.3 deemed to be issued) by the Company after
the Series B Original Issue Date, other than:

         (I) shares of Common Stock issued or issuable upon conversion or
exchange of any Convertible Securities or exercise of any Options
outstanding on the Series B Original Issue Date;

         (II) shares of Common Stock issued or issuable as a dividend or
distribution on any series of Preferred Stock;

         (III) shares of Common Stock issued or issuable by reason of a
dividend, stock split, split-up or other distribution on shares of Common
Stock that is covered by Subsection 6.1 or 6.2 above; and

         (IV) shares of Common Stock (or Options with respect thereto), issued
or issuable for compensatory purposes to employees or directors of, or
consultants to, the Company or any of its subsidiaries pursuant to a plan,
agreement or arrangement approved by the Board of Directors of the
Corporation, provided that the maximum number of shares issuable under such
plan, agreement or arrangement has also been approved by the Board of
Directors of the Company (“Employee Options”).

      6.3.2 No Adjustment of Exercise Price. No adjustment in the Exercise Price
shall be made as the result of the issuance of Additional Shares of Common Stock if: (a)
the consideration per share (determined pursuant to Subsection 6.3.5) of such Additional
Share of Common Stock issued or deemed to be issued by the Company is equal to or greater
than the Exercise Price in effect immediately prior to the issuance or deemed issuance of
such Additional Shares of Common Stock, or (b) prior to such issuance or deemed issuance,
the Company receives written notice from the holders of a majority in

6

 

interest of the Shares agreeing that no such adjustment shall be made as the result of
the issuance or deemed issuance of Additional Shares of Common Stock.

      6.3.3 Deemed Issue of Additional Shares of Common Stock. If the Company at any
time or from time to time after the Series B Original Issue Date shall issue any Options
(excluding Employee Options) or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock (as set forth in
the instrument relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share (determined pursuant to
Subsection 6.3.5 hereof) of such Additional Shares of Common Stock would be less than the
applicable Exercise Price in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:

         (A) No further adjustment in the Exercise Price shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible Securities;

         (B) If such Options or Convertible Securities by their terms provide, with the
passage of time or otherwise, for any increase or decrease in the consideration
payable to the Company, then upon the exercise, conversion or exchange thereof, the
Exercise Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the rights
of conversion or exchange under such Convertible Securities;

         (C) Upon the expiration or termination of any such unexercised Option or
unconverted Convertible Security, the Exercise Price shall not be readjusted, but
the Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option or Convertible Security shall not be deemed issued for the
purposes of any subsequent adjustment of the Exercise Price;

         (D) In the event of any change in the number of shares of Common Stock issuable
upon the exercise, conversion or exchange of any such Option or Convertible
Security, including, but not limited to, a change resulting from the anti-dilution
provisions thereof, the Exercise Price then in effect shall forthwith be

7

 

readjusted to such Exercise Price as would have obtained had the adjustment
which was made upon the issuance of such Option or Convertible Security not
exercised, converted or exchanged prior to such change been made upon the basis of
such change but no further adjustments shall be made for the actual issuance of
Common Stock upon exercise of any such Option or Convertible Security; and

         (E) No readjustment pursuant to clause (B) or (D) above shall have the effect
of increasing the Exercise Price to an amount which exceeds the lower of (i) the
Exercise Price on the original adjustment date, or (ii) the Exercise Price that
would have resulted from any issuances of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.

     In the event that, after the Series B Original Issue Date, the price at which Options or
Convertible Securities may be exercised or converted is decreased, or the number of shares into
which Options or Convertible Securities may be exercised or converted is increased, (whether such
Options or Convertible Securities were outstanding on the Series B Original Issue Date or were
issued after the Series B Original Issue Date), then such Options or Convertible Securities, as so
modified, shall be deemed to have been issued after the Series B Original Issue Date and the
provisions of this Subsection 6.3.3 shall apply.

      6.3.4 Adjustment of Exercise Price Upon Issuance of Additional Shares of Common
Stock. In the event the Company shall at any time after the Series B Original Issue
Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Subsection 6.3.3, but excluding Additional Shares of Common
Stock issued in a Qualifying Public Offering, as defined in the Company’s Certificate of
Incorporation, as amended and in effect from time to time), without consideration or for a
consideration per share less than the applicable Exercise Price in effect immediately prior
to such issue, then and in such event, such Exercise Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by multiplying such
Exercise Price by a fraction, (A) the numerator of which shall be (1) the number of shares
of Common Stock outstanding immediately prior to such issue plus (2) the number of shares of
Common Stock which the aggregate consideration received or to be received by the Company for
the total number of Additional Shares of Common Stock so issued would purchase at such
Exercise Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such Additional Shares
of Common Stock so issued, provided that, (i) for the purpose of this
Subsection 6.3.4, all shares of Common Stock issuable upon conversion or exchange of
Convertible Securities outstanding immediately prior to such issue shall be deemed to be
outstanding, and (ii) the number of shares of Common Stock deemed issuable upon conversion
or exchange of such outstanding Convertible Securities shall not give effect to any
adjustments to the conversion or exchange price or conversion or exchange rate of such
Convertible Securities resulting from the issuance of Additional Shares of Common Stock that
is the subject of this calculation.

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      6.3.5 Determination of Consideration. For purposes of this Subsection 6.3, the
consideration received by the Company for the issue of any Additional Shares of Common Stock
shall be computed as follows:

         (A) Cash and Property: Such consideration shall:

            (I) insofar as it consists of cash, be computed at the aggregate of
cash received by the Company, excluding amounts paid or payable for accrued
interest;

            (II) insofar as it consists of property other than cash, be computed at
the fair market value thereof at the time of such issue, as determined in
good faith by the Board of Directors; and

            (III) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the Company for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (I) and (II) above, as determined
in good faith by the Board of Directors.

         (B) Options and Convertible Securities. The consideration per share
received by the Company for Additional Shares of Common Stock deemed to have been
issued pursuant to Subsection 6.3.3, relating to Options and Convertible Securities,
shall be determined by dividing

            (x) the total amount, if any, received or receivable by the Company as
consideration for the issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
Company upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by

            (y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.

     6.4. Notice of Adjustment. When any adjustment is required to be made in the Exercise Price,
the Company shall promptly notify the Warrantholder of such event, of the calculation by which such
adjustment is to be made and of the resulting Exercise Price.

9

 

     6.5. Duty to Make Fair Adjustments in Certain Cases. If any event occurs as to which in the
opinion of the Board of Directors the other provisions of this Section 6 are not strictly
applicable or if strictly applicable would not fairly protect the purchase and exercise rights of
the Warrant in accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such purchase rights as aforesaid.

     7. Reservation of Shares. The Company shall at all times reserve and keep available out of
its authorized but unissued Common Stock the full number of Shares deliverable upon exercise of the
Warrant, Shares as such number may change from time to time. Also, the Company shall, at its own
expense, take all such actions and obtain all such permits and orders as may be necessary to enable
the Company lawfully to issue the Shares upon the exercise or conversion of the Warrant.

8. Miscellaneous.

     8.1. Entire Agreement. This Warrant constitutes the full and entire understanding and
agreements between the parties hereto with respect to the subjects hereof and thereof.

     8.2. Successors and Assigns. The terms and conditions of this Warrant shall inure to the
benefit of and be binding upon the respective successors and assigns of the parties hereto, except
as expressly provided otherwise herein.

     8.3. Governing Law. This Warrant shall be governed by and construed under the laws of the
Commonwealth of Massachusetts.

     8.4. Notices, Etc. All notices and other communications required or permitted hereunder shall
be in writing and shall be deemed effectively given upon personal delivery or upon the seventh day
following mailing by registered air mail, postage prepaid, addressed (a) if to the Warrantholder,
to Adage Capital Partners, L.P., 200 Clarendon Street, 52nd Floor, Boston, Massachusetts
02116, Attention: Dan Lehan, or to such other address Warrantholder shall have furnished to the
Company in writing, (b) if to the Company, a copy should be sent to 125 Sidney Street, Cambridge,
MA 02139, Attention: President, or at such other address as the Company shall have furnished in
writing to the Warrantholder, with a copy to Mintz, Levin Cohn, Ferris, Glovsky and Popeo, P.C.,
One Financial Center, MA 02111, Attention: Jonathan L. Kravetz, or (c) if to any other
Warrantholder, at such address as such holder shall have furnished to the Company in writing, or,
until such Warrantholder so furnishes an address to the Company, then to and at the address of the
last holder of such Warrant who so furnished an address to the Company.

     8.5. Delays or Omissions. No delay or omission to exercise any right, power or remedy
accruing to any holder of any securities issued or sold or to be issued or sold hereunder, upon any
breach or default of the Company under this Warrant, shall impair any such right, power or remedy
of such holder nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or in any similar breach or default thereafter occurring, nor

10

 

shall any waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this Warrant, or any waiver on
the part of any holder of any provisions or conditions of this Warrant must be in writing and shall
be effective only to the extent specifically set forth in such writing. All remedies, either under
this Warrant or by law or otherwise afforded to any holder, shall be cumulative and not
alternative.

     8.6. Survival. The representations, warranties, covenants and agreements made herein shall
survive the execution and delivery of this Warrant, except as expressly provided otherwise herein
or therein.

     8.7. Waivers and Amendments. With the written consent of the record or beneficial holders of
more than 50% in interest of the Shares, the obligations of the Company and the rights of the
Warrantholders may be waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and with the same consent
the Company, when authorized by resolution of its board of directors, may enter into a supplemental
agreement for the purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Warrant; provided, however, that no such waiver or supplemental agreement
shall reduce the aforesaid percentage of the Shares, the holders of which are required to consent
to any waiver or supplemental agreement, without the consent of the record or beneficial holders of
all the Shares (treated as if exercised). Upon the effectuation of each such waiver, consent,
agreement of amendment or modification. the Company promptly shall give written notice thereof to
the record holders of the Warrant and the Shares. This Warrant or any provision hereof may not be
changed, waived, discharged or terminated orally, but only by a statement in writing signed by the
party against which enforcement of the change, waiver, discharge or termination is sought, except
to the extent provided in this Section 8.7.

     8.8. Severability. If one or more provisions of this Warrant are held to be invalid, illegal
or unenforceable under applicable law, such provision shall be modified in such manner as to be
valid, legal and enforceable, but so as to most nearly retain the intent of the parties. and if
such modification is not possible, such provision shall be severed from this Warrant as if such
provision were not included. in either case, and the balance of this Warrant shall not in any way
be affected or impaired thereby and shall be enforceable in accordance with its terms.

     8.9. Registered Holder. The Company may deem and treat the registered Warrantholder(s) hereof
as the absolute owner(s) of this Warrant (notwithstanding any notation of ownership or other
writing hereon made by anyone), for the purpose of any exercise or conversion hereof, of any
distribution to the Warrantholder(s) hereof, and for all other purposes, and the Company shall not
be affected by any notice to the contrary. Other than as set forth herein, this Warrant does not
entitle any Warrantholder hereof to any rights of a stockholder of the Company.

     8.10. Titles and Subtitles. The titles of the sections and subsections of this Warrant are
for convenience and are not to be considered in construing this Warrant.

11

 

     IN WITNESS WHEREOF, Company has caused this Warrant to be signed by its duly authorized
officer and issued as of the date set forth below.

Dated: October 11, 2006

	 	 	 	 	 
	 	ALTUS PHARMACEUTICALS INC.

 	 
	 	By:  	/s/ Jonathan I. Lieber
 	 
	 	 	Jonathan I. Lieber 	 
	 	 	Vice President and Chief Financial Officer 	 
	 

12

 

NOTICE OF EXERCISE

(To be Executed by the Registered Warrantholder

in order to Exercise the Warrant)

     The undersigned hereby irrevocably elects to exercise the right to purchase ____________(_________) shares of the
Common Stock, $.01 par value, of Altus Pharmaceuticals Inc., a Delaware corporation, covered by
Warrant No. W- ___, according to the conditions thereof and herewith makes payment of the
Exercise Price of such Shares in full.

     Such payment is hereby tendered in the form of $_________by wire transfer or
certified or bank check.

	 	 	 	 	 
	 

	 	Printed Name of Warrantholder:
	 	                                        
	 
	 	 	 	 
	 

	 	Signature:
	 	                                        
	 
	 	 	 	 
	 

	 	Title (if signing on

behalf of a Warrantholder):
	 	                                        
	 
	 	 	 	 
	 

	 	Date:
	 	                                        
	 
	 	 	 	 
	 

	 	Address:
	 	                                        

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FORM OF ASSIGNMENT

     For Value Received, the undersigned registered owner of this Warrant issued by Altus
Pharmaceuticals Inc. hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant No. W- , with respect to the number of Shares of
Common Stock set forth below:

	 	 	 	 	 
	Name of Assignee	 	Address	 	Number of Shares
	 

	 	 
	 	 
	 
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 

and does hereby irrevocably constitute and appoint _________ attorney to make such transfer on the books of
Altus Pharmaceuticals Inc., maintained for such purpose, with full power of substitution in the
premises.

	 	 	 
	Dated: __________________

	 	___________________________

Signature of registered owner
	Witness: ______________________________
	 	 

14

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