EXHIBIT 10.1

 
MERGER AGREEMENT
 
This merger agreement is entered into as of January 30th, 2007, between Velcera
Pharmaceuticals, Inc., a Delaware corporation (“Velcera”), Denali Sciences,
Inc., a Delaware corporation (“Denali”), and Denali Acquisition Corp., a
Delaware corporation (“MergerCo”).
 
The Boards of Directors of Velcera, Denali and MergerCo have determined that it
is in the best interests of those corporations and their respective stockholders
to consummate the merger of MergerCo with and into Velcera with Velcera as the
surviving corporation (the “Merger”);
 
Denali, as the sole stockholder of MergerCo, has approved this agreement, the
Merger and the transactions contemplated by this agreement pursuant to action
taken by written consent in accordance with the requirements of the Delaware
General Corporation Law (“DGCL”) and the Bylaws of MergerCo;
 
Pursuant to the Merger, among other things, the outstanding shares of Velcera
common stock shall be converted into an identical number of shares of Denali
common stock upon the Effective Time (as defined herein);
 
The parties to this agreement intend to adopt this agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the “Code”) and the regulations promulgated thereunder, and
intend that the Merger and the transactions contemplated by this agreement be
undertaken pursuant to that plan; and
 
The parties to this agreement intend that the Merger qualify as a
“reorganization,” within the meaning of Section 368(a) of the Code, and that
Denali, MergerCo and Velcera will each be a “party to a reorganization,” within
the meaning of Section 368(b) of the Code, with respect to the Merger.
 
The parties therefore agree as follows:
 
ARTICLE I
MERGER
 
Subject to the satisfaction or waiver of the conditions set forth in Article VI,
at the Effective Time, (i) MergerCo will merge with and into Velcera, and (ii)
Velcera will become a wholly-owned subsidiary of Denali. The term “Surviving
Company” as used herein shall mean Velcera, as a wholly-owned subsidiary of
Denali after giving effect to the Merger. The Merger will be effected pursuant
to a certificate of merger in accordance with the provisions of, and with the
effect provided in, Section 251 of the DGCL. The Merger shall be effective when
a certificate of merger, in substantially the form attached hereto as Exhibit A,
is filed with the Delaware Secretary of State (the “Effective Time”). As used
herein, the term “Effective Date” shall mean the date on which the certificate
of merger is filed with the Delaware Secretary of State.
 
1.1 Effects of Merger.
 
(a) From and after the Effective Time and until further amended in accordance
with law, (i) the Certificate of Incorporation of Velcera as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Company, and (ii) the Bylaws of Velcera as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Company.
 
(b) Denali, Velcera and MergerCo shall each use their best efforts to take all
such action as may be necessary or appropriate to effectuate the Merger in
accordance with the DGCL at the Effective Time. If at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this agreement and to vest the Surviving Company with full right,
title and possession to all properties, rights, privileges, immunities, powers
and franchises of either Velcera or MergerCo, the officers of the Surviving
Company are fully authorized in the name of Denali, Velcera and MergerCo or
otherwise to take, and shall take, all such lawful and necessary action.
 

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(c) Subject to the provisions of Article VI and Article VII hereof, the closing
of the transactions contemplated hereby (the “Closing”) shall take place on or
before March 31, 2007, at 787 Seventh Avenue, 48th Floor, New York, New York, or
such other time and place as Velcera and Denali mutually agree (the “Closing
Date”). On the Closing Date, to effect the Merger, the parties hereto will cause
the Certificate of Merger to be filed with the Delaware Secretary of State in
accordance with the DGCL.
 
1.2 Effect on Velcera Capital Stock and MergerCo Capital Stock. To effectuate
the Merger, and subject to the terms of this agreement, at the Effective Time:
 
(a) Each share of Velcera common stock issued and outstanding immediately prior
to the Effective Time (other than Dissenting Shares) shall automatically be
converted into the same number of shares of Denali common stock;
 
(b) All shares of common stock of MergerCo issued and outstanding immediately
prior to the Effective Time will be converted into and become one validly
issued, fully paid and nonassessable share of common stock of the Surviving
Company.
 
(c) On the Effective Date, Denali shall assume all of Velcera’s rights and
obligations with respect to outstanding stock options (the “Options”) issued
pursuant to Velcera’s 2003 Stock Incentive Plan (the “Stock Incentive Plan”).
Each Option shall, from and after the Effective Time, evidence the right to
purchase a number of shares of Denali common stock equal to the same number of
shares of Velcera common stock into which such Option is exercisable immediately
prior to the Effective Date.
 
(d) On the Effective Date, Denali shall assume the rights and obligations with
respect to outstanding warrants (the “Warrants”), to purchase shares of Velcera
common stock. Each Warrant shall, from and after the Effective Time, evidence
the right to purchase a number of shares of Denali common stock equal to the
same number of shares of Velcera common stock into which such Warrant is
exercisable immediately prior to the Effective Date.
 
1.3 Rights of Holders of Velcera Common Stock.
 
On and after the Effective Date and until surrendered for exchange, each
outstanding stock certificate that immediately prior to the Effective Date
represented shares of Velcera common stock (except Dissenting Shares) shall be
deemed for all purposes, to evidence ownership of and to represent the same
number of shares of Denali common stock into which such shares of Velcera common
Stock shall have been converted pursuant to this agreement. The record holder of
each such outstanding certificate representing shares of Velcera common stock,
shall, after the Effective Date, be entitled to vote the shares of Denali common
stock into which such shares of Velcera common stock shall have been converted
on any matters on which the holders of record of Denali common stock, as of any
date subsequent to the Effective Date, shall be entitled to vote. In any matters
relating to such certificates of Velcera common stock, Denali may rely
conclusively upon the record of stockholders maintained by Velcera containing
the names and addresses of the holders of record of Velcera common stock on the
Effective Date.  
 
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1.4 Procedure for Exchange of Velcera Common Stock.
 
(a) After the Effective Time, holders of certificates evidencing outstanding
shares of Velcera common stock (except Dissenting Shares), upon surrender of
such certificates to the Secretary of Denali, shall be entitled to receive
certificates representing the number of shares of Denali common stock. Denali
shall not be obligated to deliver any such shares of Denali common stock to
which any former holder of shares of Velcera common stock is entitled until such
holder surrenders the certificate or certificates representing such shares. Upon
surrender, each certificate evidencing Velcera common stock shall be canceled.
If there is a transfer of Velcera common stock ownership which is not registered
in the transfer records of Velcera, a certificate representing the proper number
of shares of Denali common stock may be issued to a person other than the person
in whose name the certificate so surrendered is registered if: (1) upon
presentation to the Secretary of Denali, such certificate shall be properly
endorsed or otherwise be in proper form for transfer, (2) the person requesting
such payment shall pay any transfer or other taxes required by reason of the
issuance of shares of Denali common stock to a person other than the registered
holder of such certificate or establish to the reasonable satisfaction of Denali
that such tax has been paid or is not applicable, and (3) the issuance of such
Denali common stock shall not, in the sole discretion of Denali, violate the
requirements of the Regulation D “safe harbor” of the Securities Act of 1933, as
amended, including the rules and regulations promulgated thereunder (the
“Securities Act”) with respect to the private placement of Denali common stock
that precedes from the Merger.
 
(b) All shares of Denali common stock issued upon the surrender of Velcera
common stock in accordance with the above terms shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to such shares of
Velcera common stock.
 
(c) Shares of Denali common stock issued pursuant to the Merger will not be
transferable except (1) pursuant to an effective registration statement under
the Securities Act or (2) upon receipt by Denali of a written opinion of counsel
for the holder reasonably satisfactory to Denali to the effect that the proposed
transfer is exempt from the registration requirements of the Securities Act and
relevant state securities laws. Restrictive legends shall be placed on all
certificates representing shares of Denali common stock containing the identical
language to the restrictive legend placed on each corresponding Velcera common
stock certificate being surrendered. The rights and obligations, including
without limitation, the restrictions on transferability, of Velcera set forth in
the subscription agreements between Velcera and the Velcera stockholders who
purchased common stock pursuant to Velcera’s 2004 private placement offering of
2,031,626 shares of common stock will inure to the benefit of Denali.
 
(d) In the event any certificate for Velcera common stock has been lost, stolen
or destroyed, Denali shall issue and pay in exchange for such lost, stolen or
destroyed certificate, promptly following its receipt of an affidavit of that
fact by the holder thereof, such shares of the Denali common stock.
 
1.5 Dissenting Shares. Shares of common stock of Velcera held by stockholders of
Velcera who have properly exercised and preserved appraisal rights with respect
to those shares in accordance with Section 262 of the DGCL (“Dissenting Shares”)
shall not be converted into shares of Denali common stock pursuant to Section
1.2 above, and the holders thereof shall be entitled only to such rights as are
granted by Section 262 of the DGCL. Each holder of Dissenting Shares who becomes
entitled to payment for such shares pursuant to Section 262 of the DGCL shall
receive payment from the Surviving Company in accordance with such laws;
provided, however, that if any holder of Dissenting Shares shall have
effectively withdrawn such holder’s demand for appraisal of such shares or lost
such holder’s right to appraisal and payment of such shares under Section 262 of
the DGCL, such holder shall forfeit the right to appraisal of such shares and
each such share shall thereupon be deemed to have been canceled, exchanged, as
of the Effective Time, into one share of Denali common stock as provided in
Section 1.2 above. Any payments with respect of Dissenting Shares will be deemed
made by the Surviving Company.
 
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1.6 Directors and Officers of the Surviving Corporation. From and after the
Effective Time, the directors and officers of the Surviving Company shall be the
persons who were directors and officers of Velcera immediately prior to the
Effective Time, respectively. These directors and officers of the Surviving
Company shall hold office for the term specified in, and subject to the
provisions contained in, the Certificate of Incorporation and Bylaws of the
Surviving Company and applicable law.
 
1.7 Directors and Officers of Denali. At the Closing, the board of directors of
Denali shall, subject to compliance with Section 14(f) of the Securities
Exchange Act of 1934, as amended, including the rules and regulations
promulgated thereunder (the “Exchange Act”), take the following action, to be
effective upon the Effective Time: (i) increase the size of the Board of
Directors of Denali to seven (7) persons; (ii) elect to the board of directors
of Denali the persons who were directors of Velcera immediately prior to the
Closing; and (iii) appoint as the officers of Denali those who were the officers
of Velcera immediately prior to the Closing, or, in either case with regard to
clauses (ii) and (iii), such other persons designated by Velcera. All of the
persons serving as directors of Denali immediately prior to the Closing shall
resign immediately following the election of the new directors, and the officers
of Denali immediately prior to the Closing shall resign at the Closing from all
of their positions with Denali, all subject to compliance with Rule 14f-1
promulgated under the Exchange Act. Subject to applicable law, Denali shall take
all action reasonably requested by Velcera, but consistent with the Certificate
of Incorporation and Bylaws of Denali, that is reasonably necessary to effect
any such election or appointment of the designees of Velcera to Denali’s board
of directors, including promptly hereafter mailing to Denali’s stockholders an
information statement containing the information required by Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder. Velcera shall supply
Denali all information with respect to it and its nominees, officers, directors
and Affiliates required by such Section 14(f) and Rule 14f-1. The provisions of
this Section 1.7 are in addition to and shall not limit any rights which Velcera
or any of its Affiliates may have as a holder or beneficial owner of shares of
capital stock of Denali as a matter of law with respect to the election of
directors or otherwise. “Affiliate” has the meaning as defined in Rule 12b-2
promulgated under the Exchange Act, as such regulation is in effect on the date
hereof.
 
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF DENALI AND MERGERCO
 
Denali and MergerCo hereby represent and warrant to Velcera as follows:
 
2.1 Organization and Qualification
 
. Denali and MergerCo each are, and on the Effective Date will be, corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and each has, and on the Effective Date will have, the
requisite corporate power to carry on their respective businesses as now
conducted. The copies of the Certificate of Incorporation and Bylaws of Denali
and MergerCo that have been made available to Velcera on or prior to the date of
this agreement are correct and complete copies of such documents as in effect as
of the date hereof, and shall be in effect on the Effective Date.
 
2.2 Authority Relative to this Agreement; Non-Contravention. Each of Denali and
MergerCo has the requisite corporate power and authority to enter into this
agreement, and to carry out its obligations hereunder. The execution and
delivery of this agreement by Denali and MergerCo, and the consummation by
Denali and MergerCo of the transactions contemplated hereby have been duly
authorized by the boards of directors of Denali and MergerCo. No further
corporate proceedings on the part of Denali or MergerCo are necessary to
authorize the execution and delivery of this agreement and the consummation of
the transactions contemplated hereby. This agreement has been duly executed and
delivered by Denali and MergerCo and, assuming it is a valid and binding
obligation of Velcera, constitutes a valid and binding obligation of Denali and
MergerCo enforceable in accordance with its terms except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors’ rights and remedies generally. Except for (a) approvals under
applicable Blue Sky laws and the filing of Form D with the Securities and
Exchange Commission (“SEC”) and (b) the filing of the Certificate of Merger with
the Delaware Secretary of State, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of
Denali or MergerCo for the consummation by Denali or MergerCo of the
transactions contemplated by this agreement, except for such authorizations,
consents, approvals and filings as to which the failure to obtain or make the
same would not, in the aggregate, reasonably be expected to have a Material
Adverse Effect on Denali or MergerCo, or adversely affect the consummation of
the transactions contemplated hereby. For the purposes of this agreement
“Material Adverse Effect” shall, with respect to an entity, mean a material
adverse effect on the business, operations, results of operations or financial
condition of such entity on a consolidated basis.
 
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2.3 No Conflicts. Neither Denali nor MergerCo is subject to, or obligated under,
any provision of (a) their respective Certificates of Incorporation or Bylaws,
(b) any agreement, arrangement or understanding, (c) any license, franchise or
permit, nor (d) any law, regulation, order, judgment or decree, which would
conflict with, be breached or violated, or in respect of which a right of
termination or acceleration or any security interest, charge or encumbrance on
any of their respective assets would be created, by the execution, delivery or
performance of this agreement or the consummation of the transactions
contemplated hereby, other than any such conflicts, breaches, violations, rights
of termination or acceleration or security interests, charges or encumbrances
which, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect on Denali or MergerCo.
 
2.4 Capitalization.
 
(a) As of the date hereof, Denali is, and on the Effective Date will be,
authorized to issue 75,000,000 shares of common stock, par value $.001 per
share, and 10,000,000 shares of preferred stock, par value $.001 per share, of
which 125,000 shares of common stock and no shares of preferred stock are
currently issued and outstanding. The issued and outstanding shares of common
stock of Denali are, and on the Effective Date will be, duly authorized, validly
issued, fully paid and nonassessable and not issued in violation of any
preemptive rights and, to Denali’s Knowledge (as defined below), free from any
restrictions on transfer (other than restrictions under the Securities Act or
state securities laws) or any option, lien, pledge, security interest,
encumbrance or charge of any kind. Denali has, and on the Effective Date will
have, no other equity securities or securities containing any equity features
authorized, issued or outstanding. There are no agreements or other rights or
arrangements existing which provide for the sale or issuance of capital stock by
Denali and there are no rights, subscriptions, warrants, options, conversion
rights or agreements of any kind outstanding to purchase or otherwise acquire
from Denali any shares of capital stock or other securities of Denali of any
kind, and there will not be any such agreements prior to or on the Effective
Date. There are, and on the Effective Date there will be, no agreements or other
obligations (contingent or otherwise) which may require Denali to repurchase or
otherwise acquire any shares of its capital stock other than the Redemption
Agreement (as defined below). For the purposes of this agreement, “Knowledge”
means, with respect to an individual, that such individual is actually aware of
a particular fact or other matter, with no obligation to conduct any inquiry or
other investigation to determine the accuracy of such fact or other matter. A
Person other than an individual shall be deemed to have Knowledge of a
particular fact or other matter if the officers, directors or other management
personnel of such Person had Knowledge of such fact or other matter. “Person”
means any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, governmental authority or
other entity.
 
(b) Denali is not a party to, and, to Denali’s Knowledge, there do not exist,
any voting trusts, proxies, or other contracts with respect to the voting of
shares of capital stock of Denali.
 
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(c) The authorized capital of MergerCo consists of 1,000 shares of common stock,
par value $.001 per share, all of which are, and on the Effective Date will be,
issued and outstanding and held of record by Denali. The issued and outstanding
shares of capital stock of MergerCo are, and on the Effective Date will be, duly
authorized, validly issued, fully paid and nonassessable and have not been
issued in violation of any preemptive rights, and, to Denali’s Knowledge, free
from any restrictions on transfer (other than restrictions under the Securities
Act or state securities laws) or any option, lien, pledge, security interest,
encumbrance or charge of any kind. There are no rights, subscriptions, warrants,
options, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire from MergerCo any shares of capital stock or other securities
of MergerCo of any kind, and there will not be any such agreements prior to or
on the Effective Date. There are, and on the Effective Date there will be, no
agreements or other obligations (contingent or otherwise) which may require
MergerCo to repurchase or otherwise acquire any shares of its capital stock.
 
2.5 Exchange Act Reports. Prior to the date of this agreement, Velcera has
reviewed (a) Denali’s Registration Statement on Form 10-SB/A as filed with the
SEC on December 30, 2005 (b) Denali’s Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2005, and (c) Denali’s Quarterly Reports on Form
10-QSB for the quarters ended March 31, 2006, June 30, 2006, and September 30,
2006, as filed with the SEC (collectively, the “Denali SEC Filings”). As of
their respective dates or as subsequently amended prior to the date hereof, each
of the Denali SEC Filings (i) did 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, in light of the circumstances under which they
were made, not misleading and (ii) complied as to form in all material respects
with the applicable rules and regulations of the SEC. Since its Form 10-SB/A,
Denali has timely filed all reports that it has been required to file with the
SEC pursuant to Section 13(a), 14(a), 14(c) and 15(d) of the Exchange Act. The
financial statements (including footnotes thereto) included in or incorporated
by reference into the Denali SEC Filings have been prepared in accordance with
United States generally accepted accounting principles as in effect from time to
time (“GAAP”) applied on a consistent basis during the periods involved (except
as otherwise noted therein) and fairly present, in all material respects, the
financial condition of Denali as of the dates thereof and results of operations
for the periods referred to therein.
 
2.6 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the Knowledge of Denali, threatened against
Denali, MergerCo, or Denali’s officers, directors, employees or Affiliates,
individually or in the aggregate, at law or in equity, or before or by any
federal, state or other governmental department, court, commission, board,
bureau, agency or instrumentality, domestic or foreign, and to the Knowledge of
Denali, there is no reasonable basis for any proceeding, claim, action or
governmental investigation directly or indirectly involving Denali, MergerCo, or
Denali’s officers, directors, employees or affiliates, individually or in the
aggregate. Neither Denali nor MergerCo is a party to any order, judgment or
decree issued by any federal, state or other governmental department, court,
commission, board, bureau, agency or instrumentality, domestic or foreign.
 
2.7 Subsidiaries. MergerCo is Denali’s only subsidiary, direct or indirect.
 
2.8 No Brokers or Finders. Neither Denali, MergerCo, nor any of their officers,
directors, employees or Affiliates have employed any broker, finder, investment
banker or investment advisor or Person performing a similar function, or
incurred any liability for brokerage commissions, finders’ fees, investment
advisory fees or similar compensation in connection with the Merger.
 
2.9 Tax Matters. Denali has timely filed (or has had timely filed on its behalf)
all returns, declarations, reports, estimates, information returns, and
statements, including any schedules and amendments to such documents (“Denali
Returns”), required to be filed or sent by it in respect of any taxes or
required to be filed or sent by it by any taxing authority having jurisdiction.
All such Denali Returns are complete and accurate in all material respects and
Denali has timely and properly paid (or has had paid on its behalf) all taxes
required to be paid by it.
 
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2.10 Contracts and Commitments. Except as set forth on Schedule 2.10, Denali is
not a party to any contract, agreement, arrangement or other understanding,
whether written or oral.
 
2.11 Compliance with Laws. Except for any noncompliance that would not
reasonably be expected to have a Material Adverse Effect on Denali, Denali and
its officers, directors, agents and employees have complied with all applicable
laws, regulations and other requirements, and no claims have been filed against
Denali, and Denali has not received any notice, alleging a violation of any such
laws, regulations or other requirements. Denali is not relying on any exemption
from or deferral of any such applicable law, regulation or other requirement
that would not be available to Velcera after it acquires Denali’s properties,
assets and business.
 
2.12 Validity of the Denali Common Stock. The shares of Denali common stock to
be issued to holders of Velcera common stock pursuant to this agreement will be,
when issued, duly authorized, validly issued, fully paid and nonassessable.
 
2.13 No Business Operations. Since their respective inception dates, neither
Denali, nor MergerCo, have had any employees, revenues, or conducted any
business operations.
 
2.14 Real Property. Denali does not own or lease any real property.
 
2.15 Insurance. Denali does not own or maintain any insurance policies.
 
2.16 No Undisclosed Liabilities. Except as set forth on Schedule 2.17 hereto,
Denali has no liabilities, whether accrued, absolute, contingent, unliquidated
or otherwise.
 
2.17 Tax Free Reorganization. Neither Denali nor, to Denali’s Knowledge, any of
its Affiliates has through the date of this agreement taken or agreed to take
any action that would prevent the Merger from qualifying as a reorganization
under Section 368(a) of the Code.
 
2.18 Full Disclosure. The representations and warranties of Denali and MergerCo
contained in this agreement (and in any schedule, exhibit, certificate or other
instrument to be delivered under this agreement) are true and correct in all
material respects, and such representations and warranties do not omit any
material fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading. There is no fact
of which Denali or MergerCo has Knowledge that has not been disclosed to Velcera
pursuant to this agreement, including the schedules hereto, all taken together
as a whole, which has had or could reasonably be expected to have a Material
Adverse Effect on Denali or MergerCo, or materially adversely affect the ability
of Denali or MergerCo to consummate in a timely manner the transactions
contemplated hereby.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VELCERA
 
3.1 Organization and Qualification. Velcera is, and on the Effective Date will
be, a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has, and on the Effective Date will have,
the requisite corporate power to carry on its business as now conducted. The
copies of the Certificate of Incorporation and Bylaws of Velcera that has been
made available to Denali and MergerCo on or prior to the date of this agreement
are correct and complete copies of such documents as in effect as of the date
hereof, and shall be in effect on the Effective Date.
 
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3.2 Authority Relative to this Agreement; Non-Contravention. Velcera has the
requisite corporate power and authority to enter into this agreement, and to
carry out its obligations hereunder. The execution and delivery of this
agreement by Velcera, and the consummation by Velcera of the transactions
contemplated hereby have been duly authorized by its board of directors. No
further corporate proceedings on the part of Velcera are necessary to authorize
the execution and delivery of this agreement and the consummation of the
transactions contemplated hereby. This agreement has been duly executed and
delivered by Velcera and, assuming it is a valid and binding obligation of
Denali and MergerCo, constitutes a valid and binding obligation of Velcera
enforceable in accordance with its terms except as enforcement may be limited by
general principles of equity whether applied in a court of law or a court of
equity and by bankruptcy, insolvency and similar laws affecting creditors’
rights and remedies generally. Except for (a) approvals under applicable Blue
Sky laws and the filing of Form D with the SEC and (b) the filing of the
certificate of merger with the Delaware Secretary of State, no authorization,
consent or approval of, or filing with, any public body, court or authority is
necessary on the part of Velcera for the consummation by Velcera of the
transactions contemplated by this agreement, except for such authorizations,
consents, approvals and filings as to which the failure to obtain or make the
same would not, in the aggregate, reasonably be expected to have a Material
Adverse Effect on Velcera, or adversely affect the consummation of the
transactions contemplated hereby.
 
3.3 No Conflicts. Velcera is not subject to, or obligated under, any provision
of (a) its Certificate of Incorporation or Bylaws, (b) any agreement,
arrangement or understanding, (c) any license, franchise or permit, or (d) any
law, regulation, order, judgment or decree, which would conflict with, be
breached or violated, or in respect of which a right of termination or
acceleration or any security interest, charge or encumbrance on any of their
respective assets would be created, by the execution, delivery or performance of
this agreement or the consummation of the transactions contemplated hereby,
other than any such conflicts, breaches, violations, rights of termination or
acceleration or security interests, charges or encumbrances which, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect on
Denali or MergerCo.
 
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
 
4.1 Conduct of Business by Denali and MergerCo. From the date of this agreement
to the Effective Date, unless Velcera shall otherwise agree in writing or as
otherwise expressly contemplated or permitted by other provisions of this
agreement, including but not limited to this Section 4.1, neither Denali nor
MergerCo shall, directly or indirectly, (a) amend its Certificate of
Incorporation or Bylaws, (b) split, combine or reclassify any outstanding shares
of capital stock of Denali, (c) declare, set aside, make or pay any dividend or
distribution in cash, stock, property or otherwise with respect to the capital
stock of Denali, (d) issue or sell any additional shares of, or options,
warrants, conversions, privileges or rights of any kind to acquire any shares
of, any of its capital stock, (e) acquire (by merger, exchange, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership, joint
venture or other business organization or division or material assets thereof or
(f) make or change any material tax elections.
 
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
 
5.1 Governmental Filings. Subject to the terms provided herein, each party will
use all reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
agreement. Each party will use all reasonable efforts and will cooperate with
the other party in the preparation and filing, as soon as practicable, of all
filings, applications or other documents required under applicable laws,
including, but not limited to, the Exchange Act, to consummate the transactions
contemplated by this agreement. Prior to submitting each filing, application,
registration statement or other document with the applicable regulatory
authority, each party will, to the extent practicable, provide the other party
with an opportunity to review and comment on each such application, registration
statement or other document to the extent permitted by applicable law. Each
party will use all reasonable efforts and will cooperate with the other party in
taking any other actions necessary to obtain such regulatory or other approvals
and consents at the earliest practicable time, including participating in any
required hearings or proceedings.
 
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5.2 Expenses. Except as otherwise provided in this agreement, all costs and
expenses incurred in connection with this agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
 
5.3 Due Diligence; Access to Information. To the extent not previously provided,
Denali shall afford to Velcera and its authorized representatives the
opportunity to conduct and complete a due diligence investigation of Denali. In
light of the foregoing, Denali shall disclose and make available (together with
the right to copy) to Velcera and its officers, employees, attorneys,
accountants and other representatives (hereinafter collectively referred to as
“Representatives”), all books, papers, and records relating to the assets,
stock, properties, operations, obligations and liabilities of Denali and
MergerCo.
 
5.4 Tax Treatment. It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code.
Each of the parties hereto adopts this agreement as a “plan of reorganization”
within the meaning of Treasury Regulation § 1.368-2(g) and 1.368-3(a). Both
prior to and after the Closing, each party’s books and records shall be
maintained, and all federal, state and local income tax returns and schedules
thereto shall be filed in a manner consistent with the Merger being qualified as
a reverse triangular merger under Section 368(a)(2)(E) of the Code (and
comparable provisions of any applicable state or local laws); except to the
extent the Merger is determined in a final administrative or judicial decision
not to qualify as a reorganization within the meaning of Code Section 368(a).
 
5.5 Press Releases. Velcera and Denali shall agree with each other as to the
form and substance of any press release or public announcement related to this
agreement or the transactions contemplated hereby; provided, however, that
nothing contained herein shall prohibit either party, following notification to
the other party, from making any disclosure which is required by law or
regulation. If any such press release or public announcement is so required, the
party making such disclosure shall consult with the other party prior to making
such disclosure, and the parties shall use all reasonable efforts, acting in
good faith, to agree upon a text for such disclosure which is satisfactory to
both parties.
 
5.6 Securities Reports. Denali shall timely file with the SEC all reports and
other documents required to be filed under the Securities Act or Exchange Act.
All such reports and documents (i) shall not, as of the date of such filing,
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (ii)
shall comply as to form, in all material respects, with the applicable rules and
regulations of the SEC.
 
5.7 Private Placement. Each of Velcera and Denali shall take all necessary
action on its part such that the issuance of the Denali common stock to Velcera
stockholders constitutes a valid “private placement” under the Securities Act.
Without limiting the generality of the foregoing, Velcera shall (1) provide each
Velcera stockholder with a stockholder qualification questionnaire in the form
reasonably acceptable to both Denali and Velcera (a “Stockholder Questionnaire”)
and (2) use its best efforts to cause each Velcera stockholder to truthfully
attest that (i) such stockholder is acquiring the Denali common stock for his,
her or its sole account, for investment and not with a view to the resale or
distribution thereof and (ii) that stockholder either (A) is an “accredited
investor” as defined in Regulation D of the Securities Act, (B) has such
knowledge and experience in financial and business matters that the stockholder
is capable of evaluating the merits and risks of receiving the Denali common
stock, or (C) has appointed an appropriate person reasonably acceptable to both
Denali and Velcera to act as the stockholder’s purchaser representative in
connection with evaluating the merits and risks of receiving the Merger.
 
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5.8 Velcera Stockholder Written Consent; Materials to Stockholders.
 
(a) Velcera shall use its best efforts to obtain, in lieu of holding a
stockholder meeting, the written consent of the number of Velcera stockholders
necessary under its Certificate of Incorporation, Bylaws, and the DGCL to
approve this agreement and the Merger.
 
(b) Velcera shall as promptly as practicable following the date of this
agreement prepare and mail to Velcera stockholders all information as may
required to comply with the DGCL, the Securities Act and the Exchange Act.
 
5.9 NoSolicitation. Unless and until this agreement shall have been terminated
pursuant to Section 7.1, neither Denali nor its officers, directors or agents
shall, directly or indirectly, encourage, solicit or initiate discussions or
negotiations with, or engage in negotiations or discussions with, or provide
non-public information to, any Person or group of Persons concerning any merger,
sale of capital stock, sale of substantial assets or other business combination.
 
5.10 Failure to Fulfill Conditions. In the event that either of the parties
hereto determines that a condition to its respective obligations to consummate
the transactions contemplated hereby cannot be fulfilled on or prior to the
termination of this agreement, it will promptly notify the other party.
 
5.11 Notification of Certain Matters. On or prior to the Effective Date, each
party shall give prompt notice to the other party of (i) the occurrence or
failure to occur of any event or the discovery of any information, which
occurrence, failure or discovery would be likely to cause any representation or
warranty on its part contained in this agreement to be untrue, inaccurate or
incomplete after the date hereof in any material respect or, in the case of any
representation or warranty given as of a specific date, would be likely to cause
any such representation or warranty on its part contained in this agreement to
be untrue, inaccurate or incomplete in any material respect as of such specific
date, and (ii) any material failure of such party to comply with or satisfy any
covenant or agreement to be complied with or satisfied by it hereunder.
 
5.12 Redemption of Denali Shares. Contemporaneously with the execution of this
agreement, Lindsay A. Rosenwald, M.D., who holds approximately 97% of the
outstanding common stock of Denali, shall have entered into a redemption
agreement with Denali in the form of Exhibit B hereto (the “Redemption
Agreement”) pursuant to which Denali will redeem all shares of Denali common
stock beneficially held by him. Prior to the Closing, Denali shall use its best
efforts to cause the other Denali stockholders to enter into the Redemption
Agreement. The Denali stockholders who enter into the Redemption Agreement will
receive, in exchange for their shares of Denali common stock, an aggregate
amount equal to $125,000 less Denali liabilities as of the Effective Date,
multiplied by the percent of outstanding shares of Denali common stock held by
parties to the Redemption Agreement. The redemption of the Denali common stock
will become effective concurrently with the Effective Time, however the
completion of the Merger is a condition to the redemption. Other than the shares
of Denali common stock which will be issued to Velcera Stockholders hereunder,
upon the consummation of such redemption (assuming all Denali stockholders enter
into the Redemption Agreement), there will be no other shares of Denali common
stock outstanding. 
 
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ARTICLE VI
CONDITIONS
 
6.1 Conditions to Obligations of Each Party. The respective obligations of each
party to effect the transactions contemplated hereby are subject to the
fulfillment or waiver at or prior to the Effective Date of the following
conditions:
 
(a) No Prohibitive Change of Law. There shall have been no law, statute, rule or
regulation, domestic or foreign, enacted or promulgated which would prohibit or
make illegal the consummation of the transactions contemplated hereby.
 
(b) Velcera Stockholder Approval. This agreement and the Merger shall have been
approved by the Stockholders of Velcera in accordance with the DGCL. 
 
(c) Section 14(f) Compliance. Ten days shall have elapsed since an information
statement containing the information required by Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder has been filed with the SEC and
transmitted to the stockholders of Denali in accordance with said Rule 14f-1.
 
(d) Tax Opinion. Maslon Edelman Borman & Brand, LLP, counsel to Velcera, shall
have issued an opinion, which opinion may be based on customary reliance and
subject to customary qualifications, to the effect that for federal income tax
purposes: (i) the Merger will qualify as a reorganization under Section 368 of
the Code; and (ii) Velcera, Denali and MergerCo will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
 
(e) Adverse Proceedings. There shall not be threatened, instituted or pending
any action or proceeding before any court or governmental authority or agency
(i) challenging or seeking to make illegal, or to delay or otherwise directly or
indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection with
such transactions, (ii) seeking to prohibit direct or indirect ownership or
operation by Denali or MergerCo of all or a material portion of the business or
assets of Velcera, or to compel Denali or MergerCo or Velcera to dispose of or
to hold separately all or a material portion of the business or assets of Denali
or MergerCo or of Velcera, as a result of the transactions contemplated hereby;
(iii) seeking to invalidate or render unenforceable any material provision of
this agreement or any of the other agreements attached as exhibits hereto or
contemplated hereby, or (iv) otherwise relating to and materially adversely
affecting the transactions contemplated hereby. 
 
(f) Governmental Action. There shall not be any action taken, or any statute,
rule, regulation, judgment, order or injunction proposed, enacted, entered,
enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby, by any federal, state or other court, government or
governmental authority or agency, that would reasonably be expected to result,
directly or indirectly, in any of the consequences referred to in Section
6.1(e).
 
(g) Market Condition. There shall not have occurred any general suspension of
trading on the New York Stock Exchange, the Nasdaq Stock Markets, or any general
bank moratorium or closing or any war, national emergency or other event
affecting the economy or securities trading markets in any of the foregoing
cases generally that would make completion of the Merger impossible.
 
(h) Representations and Compliance. The representations of Denali, MergerCo, and
Velcera contained in this agreement were accurate as of the date of this
agreement and are accurate as of the Effective Time, in all respects (in the
case of any representation containing any materiality qualification) or in all
material respects (in the case of any representation without any materiality
qualification), except for representations and warranties made as of a specific
date, which shall be accurate as of such date. Denali, MergerCo, and Velcera,
respectively, shall in all material respects have performed each obligation and
agreement and complied with each covenant to be performed and complied with by
them hereunder at or prior to the Effective Date.
 
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(i) Officer’s Certificate. Denali and Velcera shall have furnished to each other
a certificate of their respective Chief Executive Officers, dated as of the
Effective Date, in which such officer shall certify that, to their Knowledge,
the conditions set forth in Section 6.1(h) have been fulfilled with respect to
their corporation.
 
(j) Secretary’s Certificate. Denali and Velcera shall have furnished to each
other (i) copies of the text of the resolutions by which the corporate action
necessary to approve this agreement and the certificate of merger, which shall
be accompanied by a certificate of the corporate secretary of each respective
corporation dated as of the Closing Date certifying to each other that such
copies are true, correct and complete copies of such resolutions and that such
resolutions were duly adopted and have not been amended or rescinded, (ii) an
incumbency certificate dated as of the Closing Date executed by their respective
corporate secretaries certifying the signature and office of the officer of
their respective corporations who executes this agreement and the certificate of
merger, and (iii) a copy of the corporation’s respective Certificates of
Incorporation, certified by the Secretary of State of Delaware, with
certificates from the Secretary of State of Delaware evidencing the good
standing in such jurisdiction as of a day within three business days prior to
the Closing Date.
 
6.2 Additional Conditions to Obligation of Velcera. The obligation of Velcera to
consummate the transactions contemplated hereby in accordance with the terms of
this agreement is also subject to the fulfillment or waiver of the following
conditions:
 
(a) Filing of SEC Reports. Denali shall have timely filed with the SEC all
reports and other documents required to be filed under the Securities Act or
Exchange Act, including without limitation, its Form 10-KSB for the year ended
December 31, 2006.
 
(b) Resignations. Each of the officers and directors of Denali immediately prior
to the Effective Time shall deliver duly executed resignations from their
positions with Denali effective immediately after the Effective Time.
 
(c) Denali Redemption of Outstanding Shares. The Redemption Agreement between
Denali and Lindsay A. Rosenwald, M.D. shall be in full effect and no party
thereto shall be in breach thereof or have threatened to breach the Redemption
Agreement.
 
(d) Denali Liabilities. Except for the liabilities set forth on Schedule 2.17,
Denali shall have no liabilities.
 
(e) Dissenters’ Rights. Holders of no more than 5% of the outstanding shares of
Velcera common stock and shall have validly exercised, or remained entitled to
exercise, their appraisal rights under Section 262 of the DGCL.
 
(f) Private Placement. Velcera shall have completed a private placement offering
of its common stock prior to or contemporaneously with the Merger, on such terms
as are satisfactory to Velcera in its sole discretion.
 
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
 
7.1 Termination. This agreement may be terminated prior to the Effective Date:
 
(a) by mutual consent of Velcera and Denali, if the board of directors of each
so determines by vote of a majority of the members of its entire board;
 
(b) by either Denali or Velcera, if any representation of the non-terminating
party set forth in this agreement was inaccurate when made or becomes inaccurate
such that the condition set forth in Section 6.1(h) could not be satisfied by
the non-terminating party;
 
(c) by either Denali or Velcera, if the non-terminating party fails to perform
or comply with any of the obligations that it is required to perform or to
comply with under this agreement such that the condition set forth in
Section 6.1(h) could not be satisfied by the non-terminating party;
 
(d) by Velcera, if, Velcera fails to receive stockholder approval to the Merger
as required by the DGCL; and
 
(e) by either Velcera or Denali if the Closing Date is not on or before March
31, 2007, or such later date as Velcera and Denali may mutually agree (except
that a party seeking to terminate this agreement pursuant to this clause may not
do so if the failure to consummate the Merger by such date shall be due to the
action or failure to act of the party seeking to terminate this agreement in
breach of such party’s obligations under this agreement).
 
Any party desiring to terminate this agreement shall give prior written notice
of such termination and the reasons therefor to the other party.
 
ARTICLE VIII
GENERAL PROVISIONS
 
8.1 Notices. All notices and other communications hereunder shall be in writing
and shall be sufficiently given if made by hand delivery, by facsimile, by
overnight delivery service for next business day delivery, or by registered or
certified mail (return receipt requested), in each case with delivery charges
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by it by like notice):
 

If to Velcera:
Velcera Pharmaceuticals, Inc.
201 Corporate Drive
Langhorne, Pennsylvania 19047
Attn: Dennis F. Steadman
Facsimile: (215) 579-8335
   
If to Denali
or MergerCo:
Denali Sciences, Inc. / Denali Acquisition Corp.
c/o Paramount BioCapital Investments, LLC
787 Seventh Avenue, 48th Floor
New York, New York 10019
Attn: Timothy Hofer
Facsimile: (212) 554-4355

 
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All such notices and other communications shall be deemed to have been duly
given as follows: when delivered by hand, if personally delivered, when
received; (i) if delivered by registered or certified mail (return receipt
requested), when receipt acknowledged; or (ii) if sent by facsimile, on the day
of transmission or, if that day is not a business day, on the next business day;
and the next business day delivery after being timely delivered to a recognized
overnight delivery service.
 
8.2 No Survival. The representations and warranties and obligations contained in
this agreement will terminate at the Effective Time or on termination of this
agreement in accordance with Section 7.1, except that the obligations contained
in Article I and any other obligation contained in this agreement requiring
performance or compliance after the Effective Time will survive the Effective
Time indefinitely.
 
8.3 Interpretation. The headings contained in this agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this agreement. References to Sections and Articles refer to Sections and
Articles of this agreement unless otherwise stated. Words such as “herein,”
“hereinafter,” “hereof,” “hereto,” “hereby” and “hereunder,” and words of like
import, unless the context requires otherwise, refer to this agreement
(including the Schedules hereto). As used in this agreement, the masculine,
feminine and neuter genders shall be deemed to include the others if the context
requires.
 
8.4 Severability. If any term, provision, covenant or restriction of this
agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this agreement and to preserve each party’s anticipated
benefits under this agreement.
 
8.5 Amendment. This agreement may not be amended or modified except by an
instrument in writing approved by the parties to this agreement and signed on
behalf of each of the parties hereto.
 
8.6 Waiver. At any time prior to the Effective Date, any party hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other party hereto or (b) waive compliance with any of the agreements of the
other party or with any conditions to its own obligations, in each case only to
the extent such obligations, agreements and conditions are intended for its
benefit. Any such extension or waiver shall only be effective if made in writing
and duly executed by the party giving such extension or waiver.
 
8.7 Miscellaneous. This agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties, with respect to the subject matter hereof; and (b) shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, but shall not be assignable by either party hereto
without the prior written consent of the other party hereto.
 
8.8 Counterparts. This agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. Signatures
delivered by facsimile and other electronic means of transmission shall be valid
and binding to the same extent as original signatures.
 
8.9 Third Party Beneficiaries. Each party hereto intends that this agreement,
except as expressly provided herein, shall not benefit or create any right or
cause of action in or on behalf of any person other than the parties hereto.
 
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8.10 Governing Law. This agreement is governed by the internal laws of the State
of Delaware without regard to such state’s principles of conflicts of laws that
would defer to the substantive laws of another jurisdiction.
 
8.11 Jurisdiction; Service of Process. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this agreement
must, to the extent such courts will accept such jurisdiction, be brought
against any of the parties in the courts of the State of Delaware, or, if it has
or can acquire jurisdiction, in the United States District Court for the
District of Delaware, and each of the parties consents to the jurisdiction of
those courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any such
action or proceeding may be served by sending or delivering a copy of the
process to the party to be served at the address and in the manner provided for
the giving of notices in Section 8.1. Nothing in this Section 8.11, however,
affects the right of any party to serve legal process in any other manner
permitted by law.
 
[Remainder of Page Left Intentionally Blank - Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
on the date first written above by their respective officers.
 

 

   
VELCERA PHARMACEUTICALS, INC.
 
By: /s/Dennis Steadman
Title: Chief Executive Officer
 
   
DENALI SCIENCES, INC.
 
By:/s/Timothy M. Hofer
Title: Director
 
   
DENALI ACQUISITION CORP.
 
By:/s/Timothy M. Hofer
Title: Director

 
Signature Page
Merger Agreement

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EXHIBIT A
 
CERTIFICATE OF MERGER
of
VELCERA PHARMACEUTICALS, INC.
and
DENALI ACQUISITION CORP.
 
In accordance with Section 251 of the General Corporation Law of the State of
Delaware, Velcera Pharmaceuticals, Inc. hereby certifies as follows:
 
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
 
NAME
 
STATE OF INCORPORATION
Velcera Pharmaceuticals, Inc.
 
Delaware
Denali Acquisition Corp.
 
Delaware

 
SECOND: That an Agreement and Plan of Merger has been approved, adopted and
executed by each of the constituent corporations in accordance with the
requirements of Section 251 of the General Corporation Law of the State of
Delaware.
 
THIRD: That the name of the surviving corporation of the merger is Velcera
Pharmaceuticals, Inc.
 
FOURTH: The certificate of incorporation of Velcera Pharmaceuticals, Inc. will
be the certificate of incorporation of the surviving corporation.
 
FIFTH: The executed Merger Agreement is on file at an office of the surviving
corporation, the address of which is 201 Corporate Drive, Langhorne,
Pennsylvania 19047.
 
SIXTH:. That a copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of any constituent
corporation.
 
The undersigned corporation has caused this certificate of merger to be signed
on ___________, 2007.
 

   
VELCERA PHARMACEUTICALS, INC.
 
By: ______________________________
Name: Dennis Steadman
Title: Chief Executive Officer
   
 
DENALI ACQUISITION CORP.
 
By: ______________________________
Name: ____________________________
Title: _____________________________

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EXHIBIT B

Form of Redemption Agreement