QUESTCOR PHARMACEUTICALS INC
EXHIBIT 10.40
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<DESCRIPTION>EXHIBIT 10.40
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<P align="right" style="font-size: 10pt">EXHIBIT 10.40



<P align="right" style="font-size: 10pt">&#091;QUESTCOR LETTERHEAD&#093;



<P align="left" style="font-size: 10pt">February&nbsp;18, 2005


<P align="left" style="font-size: 10pt">James L. Fares<BR>
3260 Whipple Road<BR>
Union City, CA 94587


<P align="left" style="font-size: 10pt">Dear Jim:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This letter agreement (this &#147;Agreement&#148;) is entered into pursuant to that certain offer letter
(the &#147;Offer Letter&#148;) dated February&nbsp;17, 2005, between you and Questcor Pharmaceuticals, Inc., a
California corporation (&#147;Questcor&#148;). Questcor considers it essential to the best interests of its
stockholders to foster the continuous employment of key management personnel. In connection with
this, Questcor&#146;s Board of Directors (the &#147;Board&#148;) recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control of Questcor may exist and that
the uncertainty and questions that it may raise among management could result in the departure or
distraction of management personnel to the detriment of Questcor and its stockholders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accordingly, the Board have decided to reinforce and encourage your attention and dedication
to your assigned duties without the distraction arising from the possibility of a change in control
of Questcor. In order to induce you to become an employee of Questcor and remain in the employ of
Questcor and its direct and indirect, majority-owned subsidiaries (collectively, the &#147;Company&#148;),
Questcor hereby agrees that after this letter agreement (this &#147;Agreement&#148;) has been fully executed
and delivered by Questcor and you, you shall be entitled to receive the benefits set forth in this
Agreement in the event of certain Changes in Control (as defined in The Questcor Pharmaceuticals
Incorporated 1992 Stock Option Plan (the &#147;Plan&#148;). You shall receive no benefits under this
Agreement unless there has been a Change in Control.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;<U>Accelerated Vesting</U>. Notwithstanding anything to the contrary in Section&nbsp;11 of the
Plan (other than Sections 11(a) and 11(h)), in the event that a Change in Control occurs, and your
employment with the Company is terminated as a result of an Involuntary Termination (as defined
below) at any time within the six (6)&nbsp;month period commencing on the date of such Change in
Control, fifty percent (50%) of the then-unvested shares of Questcor&#146;s common stock subject to each
of your outstanding stock options will become immediately vested and exercisable on the date of
your Involuntary Termination. The Company shall cause each option agreement evidencing the grant
of stock options to you (each, an &#147;Option Agreement&#148;) under the Plan to reflect the accelerated
vesting provisions set forth in this Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;<U>Definition of Involuntary Termination</U>. For purposes of this Agreement,
&#147;Involuntary Termination&#148; means the termination of your employment with the Company either: (i)&nbsp;by
the Company without Cause, or (ii)&nbsp;by you upon 30&nbsp;days&#146; prior written notice to the Company for
Good Reason.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;<U>Definition of Cause</U>. For purposes of this Agreement, &#147;Cause&#148; means the termination
of your employment for any one or more of the following: (i)&nbsp;your habitual or material neglect of
your assigned duties with the Company (other than by reason of disability), or intentional refusal
to perform your assigned duties with the Company (other than by reason of disability), which
continues uncured for thirty (30)&nbsp;days following receipt of written notice of such deficiency or
&#147;Cause&#148; event from the Board, specifying in detail the scope and nature of the deficiency or the
&#147;Cause&#148; event; (ii)&nbsp;your act of dishonesty intended to result in your gain or personal enrichment;
(iii)&nbsp;your personally engaging in illegal conduct which causes material harm to the reputation of
the Company or its Affiliates (as defined in the Plan); (iv)&nbsp;your commission of a felony or gross
misdemeanor directly relating to, your act of dishonesty or fraud against, or your misappropriation
of property belonging to, the Company or its Affiliates (as defined in the Plan); (v)&nbsp;your
personally engaging in any act of moral turpitude that causes material harm to the reputation of
the Company; (vi)&nbsp;your intentionally breach in any material respect of the terms of any
nondisclosure agreement with the Company; or (vii)&nbsp;your commencement of employment with another
company while an employee of the Company without the prior consent of the Board. Any determination
of &#147;Cause&#148; as used herein will be made only in good faith by the Board.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;<U>Definition of Good Reason</U>. For purposes of this Agreement, &#147;Good Reason&#148; means the
removal of your title of Chief Executive Officer without your written consent; provided, however,
Good Reason shall not exist as a result of any reduction of your authority, duties or
responsibilities so long as you retain the title of Chief Executive Officer of the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;<U>Arbitration</U>. Any controversy, claim or dispute involving the parties (or their
affiliated persons) directly or indirectly concerning this Agreement, or otherwise, shall be
finally settled by binding arbitration held in Union City, California, by one arbitrator in
accordance with the rules of employment arbitration then followed by the American Arbitration
Association or any successor to the functions thereof. The arbitrator shall apply California law
in the resolution of all controversies, claims and disputes. Any decision or award of the
arbitrator shall be final and conclusive on the parties to this Agreement and their respective
affiliates. The Company shall bear all costs of the arbitrator in any action brought under this
section. The parties hereto agree that any action to compel arbitration pursuant to this Agreement
may be brought in the appropriate California court and in connection with such action the laws of
the State of California shall control. Application may also be made to such court for confirmation
of any decision or award of the arbitrator, for an order of the enforcement and for any other
remedies, which may be necessary to effectuate such decision or award. The parties hereto hereby
consent to the jurisdiction of the arbitrator and of such court and waive any objection to the
jurisdiction of such arbitrator and court.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;<U>Notices</U>. For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to Questcor shall be directed to the attention of its
Secretary, or to such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective only upon receipt.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;<U>At-Will Employment</U>. Nothing contained in this Agreement shall (a)&nbsp;confer upon you
any right to continue in the employ of the Company, (b)&nbsp;constitute any contract or agreement of
employment, or (c)&nbsp;interfere in any way with the at-will nature of your employment with the
Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;<U>Entire Agreement</U>. This Agreement, the Offer Letter, the Plan and any Option
Agreements set forth the entire agreement of the parties hereto in respect of the accelerated
vesting of stock options held by you and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto, and any prior agreement of the parties
hereto in respect of the accelerated vesting of stock options held by you, is hereby terminated and
cancelled.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;<U>Miscellaneous</U>. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and signed by you
and such officer as may be specifically designated by the Board. No waiver by either party hereto
at any time of any breach by the other party hereto of or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with respect to the subject
matter hereof have been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement shall be governed by
the laws of the State of California without regard to its conflicts of law principles. The section
headings contained in this Agreement are for convenience only, and shall not affect the
interpretation of this Agreement.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Please indicate your acceptance of this Agreement by returning a signed copy of this
Agreement.

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    <TD align="left" valign="top">Sincerely,</TD>
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</TD>
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    <TD align="left" valign="top">/s/ Albert Hansen</TD>
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</DIV></TD>
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    <TD align="left" valign="top">Albert Hansen</TD>
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</DIV></TD>
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    <TD align="left" valign="top">Chairman of the Board of Directors</TD>
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    <TD align="left" valign="top">Questcor Pharmaceuticals, Inc.</TD>
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    <TD align="left" valign="top">Date: February&nbsp;18, 2005</TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Accepted by,</DIV></TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ James L. Fares</DIV></TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">James L. Fares</DIV></TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: February&nbsp;18, 2005</DIV></TD>
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