EXHIBIT 10.39

[QUESTCOR LETTERHEAD]

September 30, 2004

Reinhard Koenig, M.D., Ph.D.
3260 Whipple Road
Union City, CA 94587

Dear Reinhard:

     This letter amends the terms of the March 23, 2004 letter agreement between
Questcor Pharmaceuticals, Inc. (“Questcor”) and you and provides you with
certain benefits in the event of a “Change in Control” (as defined below),
subject to the terms and conditions set forth herein.

     In the event that a Change in Control occurs, and you are employed by
Questcor or one of its direct or indirect, majority-owned subsidiaries, as
determined from time to time (collectively, the “Company”), as a full-time
employee of the Company at any time during the period commencing 90 days prior
to the Change in Control and ending on the Change in Control, all of your stock
options under any plan of the Company that are then outstanding shall become
vested and exercisable immediately prior to the Change in Control.

     Also, in the event that a Change in Control occurs, and your employment
with the Company is terminated as a result of Involuntary Termination (as
defined below) other than for Cause (as defined below), at any time within the
nine (9) month period commencing ninety (90) days prior to such Change in
Control, and you are a full-time employee of the Company at any time within the
thirty (30) days prior to the termination of your employment with the Company,
then you will be entitled to receive from Questcor a severance benefit of six
(6) months of base salary continuation, payable in accordance with the Company’s
normal payroll practices. For purposes of determining your severance benefit,
your monthly rate of base salary will equal your greatest monthly rate of base
salary in effect during the thirty (30) days prior to the date of the
termination of your employment (or, if greater, your monthly rate of base salary
in effect immediately prior to the Change in Control). For purposes of this
letter amendment, you will be treated as a full-time employee of the Company if
you are regularly scheduled to work for the Company for not less than forty (40)
hours per week. Furthermore, in the event you are entitled to receive a
severance benefit under this paragraph as a result of your termination of
employment: (i) if the Board of Directors of Questcor (the “Board”) (or the
Compensation Committee thereof) has determined the amount of your bonus for the
fiscal year of Questcor immediately preceding the fiscal year of Questcor in
which your termination of employment occurs (the ‘Prior Fiscal Year’) prior to
the Change in Control, and Questcor has not paid the bonus for the Prior Fiscal
Year (if any) to you prior to such termination of employment, Questcor will pay
your bonus (as so

 

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determined) for the Prior Fiscal Year to you, or (ii) if the Board (or the
Compensation Committee thereof) has not determined the amount of your bonus for
the Prior Fiscal Year prior to the Change in Control, the Board (or the
Compensation Committee) shall promptly determine the amount of such bonus, if
any, in good faith and Questcor will pay to you the amount of such bonus, if
any, for the Prior Fiscal Year in cash in a lump sum payment not later than ten
(10) days following such termination of employment. For purposes of this
paragraph, any reference to the fiscal year of the Company will include the
fiscal year of any successor thereto.

     In the event you are entitled to a severance benefit under this letter
amendment, then in addition to such severance benefit, you will receive such
health, term life and disability insurance benefits coverage (‘Company-Provided
Coverage’) as is provided to you (and your dependents, if applicable)
immediately prior to the termination of your employment with the Company, for
six (6) months following the termination of your employment, or until you become
covered under another employer’s group insurance plan or plans providing health,
term life and disability insurance coverage, whichever occurs first. In
addition, for fifteen (15) months following the termination of the
Company-Provided Coverage, the Company will provide you (and your dependents, if
applicable) with such health, term life and disability insurance benefits
coverage as is provided to you (and your dependents, if applicable) immediately
prior to the termination of your employment with the Company, at your election
and expense. The benefits coverage provided under this paragraph will be under
such terms and conditions (including benefits, premiums, deductibles and
co-payments) as are at least as favorable as those in effect immediately prior
to the date of termination of your employment (or, if more favorable, those in
effect immediately prior to the Change in Control); provided, however, that,
following the termination of the Company-Provided Coverage, your premiums for
such benefits coverage will be based on the full cost of such coverage.

     In the event that you are entitled to a severance benefit under this letter
amendment, then in addition to such severance benefit, you will have the right
to require an extension of the exercise period of each of your stock options
under any plan of the Company (or any options into which any such options have
been converted) for a period of 90 days following the later of: (i) the
termination of employment, or (ii) the expiration of a lock-up agreement (if
any) imposed on the Company’s optionees at the time of your termination of
employment; provided, however, that in no event will such extension of such
option extend beyond the expiration of the original term of the option.

     For purposes of this letter amendment, “Cause” means: (i) a material and
willful violation of any federal or state law by you, (ii) the commission of a
fraud by you against the Company, (iii) your repeated unexplained or unjustified
absence from the Company, or (iv) your gross negligence or willful misconduct
where such gross negligence or willful misconduct has resulted or is likely to
result in substantial and material damage to the Company.

     Also, for purposes of this letter amendment, a “Change in Control” will
occur upon any of the following events: (i) upon the acquisition (other than
from Questcor) by any person, entity or “group,” within the meaning of
Section 13(d)(3) or

 

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14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time
(the “Exchange Act”) (excluding, for this purpose, Questcor or its affiliates,
or any employee benefit plan of Questcor or its affiliates which acquires
beneficial ownership of voting securities of Questcor), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty
percent (50%) or more of either the then outstanding shares of common stock, no
par value, of Questcor or the combined voting power of Questcor’s then
outstanding voting securities entitled to vote generally in the election of
directors; (ii) at the time individuals who, as of the date hereof, constitute
the Board of Directors (the “Board”) of Questcor (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the date hereof, whose election, or
nomination for election by Questcor’s stockholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of Questcor, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for
purposes of this letter amendment, considered as though such person were a
member of the Incumbent Board; (iii) immediately prior to the consummation by
Questcor of a reorganization, merger, consolidation, (in each case, with respect
to which persons who were the stockholders of Questcor immediately prior to such
reorganization, merger, consolidation, (in each case, with respect to which
persons who were the stockholders of Questcor immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than fifty percent (50%) of the combined voting power entitled to vote generally
in the election of directors of the reorganized, merged, or consolidated
company’s then outstanding voting securities) or a liquidation or dissolution of
Questcor or the sale of all or substantially all of the assets of Questcor; or
(iv) the occurrence of any other event which the Incumbent Board in its sole
discretion determines constitutes a Change of Control.

     Finally, for purposes of this letter amendment, “Involuntary Termination”
means the termination of your employment with the Company either: (i) by the
Company, or (ii) by you upon 30 days’ prior written notice to the Company as a
result of any of the following, without your written consent: (A) a material
reduction in overall job responsibilities from your position with the Company
and your prior responsibilities (provided, however, that the fact that the
Company may no longer be a public reporting or publicly-held company shall not
be the basis for an Involuntary Termination pursuant to this clause (A)), (B) a
reduction in your annual base compensation or material reduction of your bonus
opportunity from the Company, (C) a requirement that you perform services at a
principal location that is more than 50 miles from the principal location at
which you perform services for the Company, (D) a material reduction in your
benefits from the Company, or (E) a reduction of your regularly scheduled work
hours for the Company to less than 40 hours per week. The principal location at
which you perform services for the Company on the date of this letter amendment
is the Company’s principal offices at 3260 Whipple Road, Union City, California
94587. During the notice period set forth in clause (ii) above, the Company
shall be afforded opportunity to demonstrate that the circumstances references
to in your notice were not present on the

 

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date of such notice, or are no longer present, in which case your employment
shall not have been terminated and an “Involuntary Termination” shall not have
occurred.

     Notwithstanding the foregoing, in the event that the Company sells,
transfers or otherwise disposes of all or substantially all of the assets or
business related to any business unit, division, department or operational unit
of the Company, and you are offered employment with the purchaser or other
acquirer of such assets or business, or accept employment with such purchaser or
acquirer, within 30 days following the termination of your employment with the
Company, you will thereupon cease to be eligible for severance benefits and
health insurance benefits coverage under this letter amendment, unless you
reject such offer of employment, and the terms and conditions of employment
offered by the purchaser or other acquirer would result in any of the following:
(A) a material reduction in job responsibilities inconsistent with your position
with the Company and your prior responsibilities, (provided, however, that the
fact that the purchaser or acquirer (i) may not be a public reporting company or
publicly-held company or (ii) may be a substantially larger or smaller entity
than the Company, shall not be the basis for triggering benefits pursuant to
this clause (A)), (B) a reduction in your annual base compensation or material
reduction of your bonus opportunity from the Company, (C) a requirement that you
perform services at a principal location that is more than 50 miles from the
principal location at which you perform services for the Company, (D) a material
reduction in your benefits, or (E) a reduction of your regularly scheduled work
hours to less than 40 hours per week.

     If any legal action or other proceeding is brought for the enforcement of
this letter amendment, or because of an alleged dispute, breach or default in
connection with any of the provisions of this letter amendment, the successful
or prevailing party will be entitled to recover attorneys’ fees and other
expenses and costs incurred in that action or proceeding, in addition to any
other relief that may be granted.

     As a condition to receiving your severance benefit under this letter
amendment, you will waive any and all claims against the Company and its
affiliates. Such waiver will be a general release of claims, and will be
substantially in the form of the general release attached as Exhibit A hereto
(or in such other form of general release as Questcor will, in its sole
discretion, determine). The general release will be executed and delivered by
you prior to receiving your severance benefit, and your severance benefits will
commence ten days after you execute and deliver the general release, unless you
have revoked the general release.

 

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     Except as provided in this letter amendment, the letter agreement will
remain in full force and effect. Please indicate your acceptance of this letter
amendment by returning a signed copy of this letter amendment.

         

      Sincerely,
 
       

      /s/ Timothy E. Morris          

      Timothy E. Morris

      Sr. Vice President, Finance & Administration Chief Financial Officer
Member, Office of the President

      Questcor Pharmaceuticals, Inc.
 
       

      Date: September 30, 2004
Accepted by,
       
 
       
/s/ Reinhard Koenig
                 
Reinhard Koenig, M.D., Ph.D.
       
 
       
Date: September 30, 2004
       

 

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EXHIBIT “A”

FORM OF GENERAL RELEASE

     1. General Release by Employee. In consideration for certain severance
benefits from Questcor Pharmaceuticals, Inc. (“Questcor”) under the offer letter
amendment (the “Letter Amendment”) between Questcor and ___(“Employee”) and
other valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Employee does hereby release and forever discharge the “Company
Releasees” herein, consisting of Questcor and each of Questcor’s parents,
subsidiaries, and affiliates, associates, members, owners, stockholders,
predecessors, successors, heirs, assigns, employees, agents, directors,
officers, partners, representatives, lawyers, and all persons acting by,
through, under, or in concert with them, or any of them, of and from any and all
manner of action or actions, causes or causes of action, in law or in equity,
suits, debts, liens, contracts, agreements, promises, liabilities, claims,
demands, damages, losses, costs or expenses, of any nature whatsoever, known or
unknown, fixed or contingent (hereinafter called “Claims”), which they now have
or may hereafter have against the Releasees by reason of any and all acts,
omissions, events or facts occurring or existing prior to the date hereof,
except as expressly provided herein. The Claims released hereunder include,
without limitation, any alleged breach of any employment agreement; any alleged
breach of any covenant of good faith and fair dealing, express or implied; any
alleged torts or other alleged legal restrictions relating to the Employee’s
employment and the termination thereof; and any alleged violation of any
federal, state or local statute or ordinance including, without limitation,
Title VII of the Civil Rights Act of 1964, as amended, the Federal Age
Discrimination in Employment Act of 1967, as amended, the Americans with
Disabilities Act, as amended, the Family and Medical Leave Act, as amended, the
Sarbanes-Oxley Act, as amended, the California Fair Employment and Housing Act,
as amended, and the California Family Right Act, as amended. This Release shall
also not apply to Employee’s right to retirement and/or employee welfare
benefits that have vested and accrued prior to his separation from employment
with Questcor and its parents, subsidiaries and affiliates; or Employee’s rights
to indemnification under Section 2802 of the California Labor Code.

     2. Release of Unknown Claims. EMPLOYEE ACKNOWLEDGES THAT HE IS FAMILIAR
WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS
FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

EMPLOYEE BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE
MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW
PRINCIPLES OF SIMILAR EFFECT.

 

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     3. Release of Age Discrimination Claims and Rights under the Older Workers’
Benefit Protection Act. Employee agrees and expressly acknowledges that this
Letter Amendment includes a waiver and release of all claims which Employee has
or may have under the Age Discrimination in Employment Act of 1967, as amended,
29 U.S.C. § 621, et seq. (“ADEA”). The following terms and conditions apply to
and are part of the waiver and release of the ADEA claims under this Letter
Amendment:

          (a) That this paragraph, this General Release and the Letter Amendment
are written in a manner calculated to be understood by Employee.

          (b) The waiver and release of claims under the ADEA contained in this
General Release do not cover rights or claims that may arise after the date on
which Employee signs this General Release.

          (c) The Letter Amendment provides for consideration in addition to
anything of value to which Employee is already entitled.

          (d) Employee is advised to consult an attorney before signing this
General Release.

          (e) Employee is granted twenty-one (21) days (or forty-five (45) days,
if this General Release is in connection with an exit incentive or other
employment termination program) after Employee is presented with this General
Release to decide whether or not to sign this General Release. If Employee
executes this General Release prior to the expiration of such period, Employee
does so voluntarily and after having had the opportunity to consult with an
attorney.

          (f) If this General Release is in connection with an exit incentive or
other termination program, Employee has received the information required to be
disclosed under Section 7(f)(1)(H) of ADEA and the regulations thereunder.

          (g) Employee will have the right to revoke the waiver and release of
claims under the ADEA within seven (7) days of signing this General Release. In
the event this General Release is revoked, the General Release executed
concurrently herewith will be null and void in their entirety.

     4. Manner and Consequences of Revocation of Release

          (a) Manner of Revocation. In the event that Employee elects to revoke
this General Release, he or she shall deliver within the time period prescribed
above to the Chairperson of the Company’s Board of Directors, a writing stating
that he or she is revoking this General Release and subscribed by the Employee.

          (b) Consequences of Revocation. In the event that Employee should
elect to revoke this General Release as described in the paragraph above, this
General Release shall be

 

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null and void in its entirety, and Employee will not receive the benefits
provided for under the Letter Amendment.

     5. No Claims. Employee represents and warrants to the Releasees that there
has been no assignment or other transfer of any interest in any Claim which
Employee may have against the Releasees, or any of them. Employee agrees to
indemnify and hold harmless the Releasees released by him or her from any
liability, claims, demands, damages, costs, expenses and attorneys’ fees
incurred as a result of any person asserting such assignment or transfer of any
right or claims under any such assignment or transfer from Employee.

     6. Indemnification. Employee agrees that if he or she hereafter commence,
join in, or in any manner seek relief through any suit arising out of, based
upon, or relating to any of the Claims released hereunder or in any manner
asserts against the Releasees any of the Claims released hereunder, then
Employee will pay to the Releasees against whom such claim(s) is asserted, in
addition to any other damages caused thereby, all attorneys’ fees incurred by
such Releasees in defending or otherwise responding to said suit or Claim.

          The Parties further understand and agree that neither the payment of
money nor the execution of this Release shall constitute or be construed as an
admission of any liability whatsoever by the Releasees.

              QUESTCOR PHARMACEUTICALS, INC.
 
       

  By:              
 
       

    Title:              
 
       

  Date:              
 
            “EMPLOYEE”

  By:              

      Print Name
 
                 

      Signature
 
       

  Date: