Document:

<PAGE>
                                                                    Exhibit 10.1
                         ASSISTED LIVING CONCEPTS, INC.
                             EMPLOYEE SEVERANCE PLAN

<PAGE>

                         ASSISTED LIVING CONCEPTS, INC.
                             EMPLOYEE SEVERANCE PLAN

         WHEREAS, Assisted Living Concepts, Inc., a corporation organized and
existing under the laws of the State of Nevada (the "Company"), recognizes that
one of the Company's most valuable assets and an undeniable contributor to the
success of the Company is its outstanding employees; and

         WHEREAS, the Company further recognizes that the loss of a significant
portion of its staff would seriously impact the service quality and ultimate
value of the Company; and

         WHEREAS, the Company has determined that it is advisable to establish a
severance benefit program to mitigate the possibility of a loss of certain
valuable personnel due to uncertainties faced in the prospect of the Merger of
the Company with Alpha Acquisition, Inc., a wholly-owned subsidiary of
Extendicare Health Services, Inc. ("Extendicare"), and to deal fairly with the
contributions of the Company's employees;

         NOW, THEREFORE, the Company adopts the Assisted Living Concepts, Inc.
Employee Severance Plan, effective November 4, 2004, the terms of which are as
follows:

                                    ARTICLE 1
                                   DEFINITIONS

         1.1 "BENEFITS" means the severance benefits that a Participant is
entitled to receive pursuant to Article 3 hereof.

         1.2 "BOARD" means the Board of Directors of the Company.

         1.3 "CAUSE" means the Company's good faith belief that the Participant
has (1) failed to substantially perform his or her job duties, (2) been
convicted of any felony or a misdemeanor involving dishonesty, fraud or breach
of trust, (iii) engaged in misconduct in the performance of his or her duties,
or (vi) disparaged or engaged in other conduct detrimental to the Company, any
of its affiliates or any of their respective management or employees.

         1.4 "CEO" means the Chief Executive Officer of the Company.

         1.5 "COBRA" means the United States Consolidated Omnibus Budget
Reconciliation Act of 1986, as amended from time to time.

         1.6 "CODE" means the Internal Revenue Code of 1986, as amended.

         1.7 "COMPANY" means Assisted Living Concepts, Inc. and its successors
(whether by Merger, consolidation, operation of law, sale of all or
substantially all of the Company's assets, or otherwise).

         1.8 "COMPARABLE POSITION" means, in the case of a Participant, a
position that does

                                       1
<PAGE>

not involve a substantial adverse change in (i) the nature or scope of the
authorities and powers exercised, and duties and functions performed, by such
Participant in his or her position with the Company or (ii) Compensation at the
Effective Time.

         1.9 "COMPENSATION" means the Participant's wages from the Company as
defined in section 3401(a) of the Code for purposes of federal income tax
withholding, including elective contributions under a cafeteria plan described
in section 125 and elective contributions to a qualified cash or deferred
arrangement described in section 401(k) of the Code, and modified further by
excluding reimbursements or other expense allowances (including, but not limited
to, car allowances), fringe benefits (cash and noncash), moving expenses,
deferred compensation (other than elective contributions to the Company's
qualified cash or deferred arrangement described in section 401(k) of the Code),
welfare benefits as defined in ERISA, and any income therefrom, overtime pay,
and special performance or incentive compensation amounts (including, but not
limited to, bonuses and income from any equity-based compensation arrangements
such as stock options).

         1.10 "DISQUALIFYING EVENT" means a Participant's employment
relationship with the Company is terminated:

                  (a)      by the Company for Cause;

                  (b)      by such Participant for any reason other than as a
                           result of the occurrence of an event described in
                           Section 1.20(b) or (c); or

                  (c)      as a result of such Participant's death or a physical
                           or mental condition causing such Participant to be
                           unable to substantially perform his or her essential
                           duties with the Company (including, but not limited
                           to, such a condition entitling him or her to benefits
                           under any disability income policy or program of the
                           Company) with or without any reasonable accommodation
                           required by law.

         1.11 "EFFECTIVE DATE" means November 4, 2004.

         1.12 "EFFECTIVE TIME" means the effective time of the Merger as set
forth in a merger agreement related thereto.

         1.13 "EMPLOYMENT TERMINATION DATE" means the date on which the
employment relationship between the Participant and the Company is terminated.

         1.14 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.

         1.15 "IMMEDIATE GEOGRAPHIC AREA" means the area within a 40-mile radius
of the location where a Participant is employed immediately prior to the
Effective Time.

         1.16 "MERGER" means the consummation of the Merger of the Company with
Alpha

                                       2
<PAGE>

Acquisition, Inc., a wholly-owned subsidiary of Extendicare Health Services,
Inc.

         1.17 "PARTICIPANT" means a person (i) who is employed by the Company on
the Effective Date, (ii) who is designated by the CEO as a Participant under
this Plan and (iii) which designation has been approved by the Plan
Administrator.

         1.18 "PLAN" means the Assisted Living Concepts, Inc. Employee Severance
Plan, as set forth herein, as amended from time to time.

         1.19 "PLAN ADMINISTRATOR" means the Compensation Committee of the
Board; provided, however, that such Committee may designate any person to
administer this Plan in accordance with the provisions of Article 6.

         1.20 "QUALIFYING EVENT" means the occurrence of any of the following:

                  (a) a Participant's employment relationship with the Company
         is terminated by the Company without Cause;

                  (b) a Participant's position with the Company immediately
         prior to the Effective Time is (i) eliminated or (ii) materially
         changed to the extent that it is not a Comparable Position; or

                  (c) the permanent location of a Participant's place of
         employment with the Company is changed to a location that is not in the
         Immediate Geographic Area.

         1.21 "RELEASE AGREEMENT" means an agreement substantially in the form
attached hereto as Exhibit A.

         1.22 "WARN ACT" means the United States Worker Adjustment and
Retraining Notification Act of 1988, as amended from time to time.

                                    ARTICLE 2
                                   ELIGIBILITY

         A Participant who satisfies all of the following requirements, at any
time after the Effective Time and prior to twelve (12) months after the
Effective Time, shall be entitled to the Benefits described in Article 3 hereof:

                  (a) a Qualifying Event has occurred with respect to such
         Participant;

                  (b) a Disqualifying Event has not occurred with respect to
         such Participant; and

                  (c) such Participant has executed a Release Agreement, which
         has become irrevocable.

                                       3
<PAGE>

                                    ARTICLE 3
                                    BENEFITS

                  (a) The Company shall pay to a Participant who has satisfied
         the requirements of Article 2 hereof such Participant's Benefits as
         approved by the Compensation Committee of the Board and as agreed to by
         he president of Extendicare on or before the Effective Date.

                  (b) Each Participant (and his or her qualified beneficiaries)
         who is entitled to elect, and timely elects, continuation of health
         coverage under COBRA shall not be required to pay COBRA premiums in
         excess of the premiums or contributions paid by similarly situated
         active employees of the Company for the period during which such
         Participant is entitled to severance.

                  (c) This Plan replaces and supercedes any other severance
         plan, policy or arrangement or stay bonus agreement or arrangement,
         whether written or oral, with respect to the Participants covered
         hereby.

                  (d) The Benefits described in this Plan shall be in addition
         to, and not in lieu of, the following payment(s) to which a Participant
         is entitled on his or her Employment Termination Date pursuant to
         statute or written Company policy: (i) WARN Act payments, (ii) accrued
         but unpaid vacation, paid time off, salary, wages or bonus, (iii) COBRA
         benefits, and (iv) conversion rights under any group insurance
         contract. All other compensation and benefits, including, but not
         limited to, unemployment compensation, is waived in the Release
         Agreement.

                                    ARTICLE 4
                              TIME OF PLAN PAYMENTS

         The Company shall pay Benefits, in accordance with Article 3 hereof, to
a Participant who has satisfied the requirements of Article 2 hereof, within
fourteen (14) days after satisfaction of all such requirements.

                                    ARTICLE 5
                              UNFUNDED ARRANGEMENT

         All Benefits will be paid, as needed, from the general assets of the
Company or its successor. It is intended that this Plan shall be unfunded for
tax purposes.

         This Plan is only a general corporate commitment, and each Participant
must rely upon the general credit of the Company for the fulfillment of its
obligations hereunder. Under all circumstances, the rights of Participants to
any asset held by the Company will be no greater than the rights expressed in
this Plan. Nothing contained in this Plan shall constitute a guarantee by the
Company that the assets of the Company will be sufficient to pay any Benefits
under this Plan or would place the Participant in a secured position ahead of
general creditors of the Company. The Participants are only unsecured creditors
of the Company with respect to any

                                       4
<PAGE>

Benefits, and this Plan constitutes a mere promise by the Company to make
Benefit payments in the future under certain circumstances. No specific assets
of the Company have been or shall be set aside, or shall in any way be
transferred to a trust or shall be pledged in any way for the performance of the
Company's obligations under this Plan which would remove such assets from being
subject to the general creditors of the Company.

                                    ARTICLE 6
                                 ADMINISTRATION

         The Plan Administrator shall have the full power and authority to
administer this Plan, carry out its terms and conditions and effectuate its
purposes. The Plan Administrator shall be the "named fiduciary," as such term is
defined in ERISA, of this Plan, with responsibility for administration of this
Plan.

          The Plan Administrator shall serve without compensation for its
services as such. However, all reasonable expenses of the Plan Administrator
shall be paid or reimbursed by the Company upon proper documentation. The Plan
Administrator shall be indemnified by the Company against personal liability for
actions taken in good faith in the discharge of duties as the Plan
Administrator.

         The Plan Administrator shall keep all individual and group records
relating to participants and former participants and all other records necessary
for the proper operation of this Plan. Such records shall be made available to
the Company and to each Participant for examination during business hours except
that a Participant shall examine only such records as pertain exclusively to the
examining Participant and to this Plan. The Plan Administrator shall prepare and
shall file as required by law or regulation all reports, forms, documents and
other items required by ERISA, and every other relevant statute, each as
amended, and all regulations thereunder (except that the Company, as payor of
the Benefits, shall prepare and distribute to the proper recipients all forms
relating to withholding of income or wage taxes, Social Security taxes, and
other amounts which may be similarly reportable).

         The Plan Administrator is authorized to make the rules for
administering this Plan, to construe its provisions, to correct its defects, and
to supply any omissions or reconcile any inconsistencies which may appear in
this Plan, to determine all questions of eligibility and entitlement to benefits
and resolve all controversies. The actions of the Plan Administrator in these
matters, when performed in good faith and in his sole judgment, shall be final
as to all parties.

         The Plan Administrator has full and absolute discretion in the exercise
of the Plan Administrator's authority under this Plan, including, without
limitation, the authority to determine any person's right to benefits under this
Plan and the correct amount and form of any Benefits. Any action taken or ruling
or decision made by the Plan Administrator in the exercise of any of the Plan
Administrator's powers and authorities under this Plan, shall be final and
conclusive as to all parties. No final action, ruling, or decision of the Plan
Administrator may be set aside unless it is held to have been arbitrary and
capricious.

                                       5
<PAGE>

                                    ARTICLE 7
                            AMENDMENT AND TERMINATION

         Prior to the Effective Time, the Company shall have the right to amend
or terminate this Plan, in whole or in part, for any reason. This Plan may not
be terminated or amended on or after the Effective Time in any manner that would
negatively affect a Participant's rights under this Plan without the consent of
all the Participants or, in the alternative, the Participants whose Benefits are
affected by such termination or amendment. Notwithstanding the foregoing, this
Plan will terminate on the earlier of twelve (12) months after the Effective
Time or the date on which the Company determines that the Merger will not take
place; provided, however, that such termination shall not affect Benefits
accrued by a participant prior to such termination.

                                    ARTICLE 8
                                CLAIM PROCEDURES

         The Company will advise each Participant of any Benefits to which the
Participant is entitled under this Plan. If any person believes that the Company
has failed to advise him or her of any Benefit to which he or she is entitled,
then he or she may file a written claim with the Plan Administrator. The Plan
Administrator shall review such claim and respond thereto within a reasonable
time after receiving the claim. The Plan Administrator shall provide to every
claimant who is denied a claim for benefits written notice setting forth in a
manner calculated to be understood by the claimant:

                  (a) the specific reason or reasons for the denial;

                  (b) specific reference to pertinent Plan provisions on which
         the denial is based;

                  (c) a description of any additional material or information
         necessary for the claimant to perfect the claim and an explanation of
         why such material or information is necessary; and

                  (d) an explanation of the Plan claims review procedures.

         Within sixty (60) days of receipt by a claimant of a notice denying a
claim under the preceding paragraph, the claimant or his or her duly authorized
representative may request in writing a full and fair review of the claim by the
Plan Administrator. The Plan Administrator may extend the 60-day period where
the nature of the Benefit involved or other attendant circumstances make such
extension appropriate. In connection with such review, the claimant or his or
her duly authorized representative may review pertinent documents and may submit
issues and comments in writing. The Plan Administrator shall make a decision
promptly, and not later than sixty (60) days after the Plan's receipt of a
request for review, unless special circumstances (such as the need to hold a
hearing) require an extension of time for processing, in which case a decision
shall be rendered as soon as possible, but not later than one hundred twenty
(120) days after receipt of a request for review. The decision on review shall
be in writing and shall include specific reasons for the decision, written in a
manner calculated to be understood by the

                                       6
<PAGE>

claimant, and specific references to the pertinent Plan provisions on which the
decision is based.

                                    ARTICLE 9
                                  MISCELLANEOUS

         9.1 TAX WITHHOLDING. The Company will calculate the deductions from the
amount of the Benefit paid under this Plan for any taxes required to be withheld
by federal, state or local government and shall cause them to be withheld.

         9.2 PLAN NOT AN EMPLOYMENT CONTRACT. The adoption and maintenance of
this Plan is not a contract between the Company and its employees which gives
any employee the right to be retained in its employment. Likewise, it is not
intended to interfere with the rights of the Company to discharge any employee
at will and at any time and for any reason or no reason at all or to interfere
with the employee's right to terminate his employment at any time.

         9.3 ALIENATION PROHIBITED. No benefits hereunder shall be subject to
anticipation or assignment by a Participant, to attachment by, interference
with, or control of, any creditor of a Participant, or to being taken or reached
by any legal or equitable process in satisfaction of any debt or liability of a
Participant prior to its actual receipt by the Participant. Any attempted
conveyance, transfer, assignment, mortgage, pledge, or encumbrance of the
benefits hereunder prior to payment thereof shall be void.

         9.4 GENDER AND NUMBER. If the context requires it, words of one gender
when used in this Plan shall include the other genders, and words used in the
singular or plural shall include the other.

         9.5 SEVERABILITY. Each provision of this Agreement may be severed. If
any provision is determined to be invalid or unenforceable, that determination
shall not affect the validity or enforceability of any other provision.

         9.6 BINDING EFFECT. This Agreement shall be binding upon any successor
of the Company (whether by Merger, consolidation, operation of law, sale of all
or substantially all of the Company's assets or otherwise).

         9.7 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas and, to the
extent applicable, by the laws of the United States.

                                           [SIGNATURE PAGE FOLLOWS]

                                       7
<PAGE>

         IN WITNESS WHEREOF, the Company has caused a Plan to be executed by its
duly authorized officer effective the 4th day of November, 2004.

                                       ASSISTED LIVING CONCEPTS, INC.

                                       By:      /s/ Steven Vick
                                          --------------------------------------
                                       Name:    Steven Vick
                                       Title:   President and CEO

                                       8
<PAGE>

                                    EXHIBIT A
                            Form of Release Agreement

         This Release Agreement ("Agreement") is entered into by and between
___________________________ (hereafter "Employee") and Assisted Living Concepts,
Inc. (hereafter "Employer"). In consideration of Employee's participation in the
Assisted Living Concepts, Inc. Employee Severance Plan (the "Plan"), Employee
hereby knowingly and voluntarily executes this Agreement.

         Upon execution of this Agreement and the acceptance of benefits under
the Plan, Employee knowingly and voluntarily waives recovery on, covenants not
to sue and fully and forever releases and discharges Employer, its parents,
affiliates and subsidiaries, including all predecessors and successors, assigns,
administrators, executors, officers, directors, trustees, shareholders,
employees, agents, insurers and attorneys, past and present (hereinafter
collectively, the "Company"), from any and all claims, demands, contracts,
causes of action, obligations, damages, and liabilities, of any kind or nature,
known or unknown, arising out of Employee's employment with the Company or the
termination thereof ("Release"). This Release shall include, but not be limited
to, any claims for relief or causes of action under federal, state or local
statute, ordinance or regulation. This Release also includes, but is not limited
to, claims of employment, benefits, wages and/or compensation of any form, or
discrimination Employee may have, if any, pursuant to the Age Discrimination in
Employment Act of 1967 (28 U.S.C. par. 621 et seq.), Title VII of the Civil
Rights Act of 1964 (42 U.S.C. par. 2000 et seq.), the Civil Rights Act of 1866
and 1871 (42 U.S.C. par. 1981 and 1983), the Americans with Disabilities Act (42
U.S.C. Section 206 et seq.), the Rehabilitation Act of 1973 (29 U.S.C. Section
791 et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206 et seq.), and the
Employee Retirement Income Security Act of 1974 as amended. This Release
includes, but is not limited to, any claim of retaliatory discharge under any
law, including those mentioned above.

         Employee expressly acknowledges that:

(a)      he or she entered into this release knowingly and voluntarily, without
         any duress or coercion;

(b)      he or she has read and understands this release in its entirety;

(c)      he or she has been advised orally and is hereby advised in writing to
         consult with an attorney with respect to this release BEFORE signing
         it;

(d)      he or she has not been forced to sign this Agreement by any employee or
         agent of the Company;

(e)      he or she has forty-five (45) calendar days after receipt of the
         Agreement to consider its terms before signing it; and

(f)      he or she has seven (7) calendar days from the date of signing this
         Agreement to terminate and revoke this Agreement, in which case this
         Agreement shall be unenforceable, null and void. Employee may revoke
         this Agreement during those seven (7) days by providing

                                      A-1
<PAGE>

         written Notice of Revocation to the Company and stating, "I hereby
         revoke my acceptance of our Agreement." The Notice of Revocation must
         be personally delivered to or mailed to _____________. This Agreement
         shall not become effective or enforceable until the seven-day
         revocation period has expired.

         To the extent that Employee has signed this Agreement less than
forty-five (45) calendar days after receipt of the Agreement, Employee
acknowledges that he or she hereby waives any additional time that Employee has
to consider to terms of the Agreement and that Employee was not coerced into
signing the Agreement prior to the end of such 45-day period. Employee does NOT,
however, waive the seven (7) day revocation period mention in (f) above.

         The following information regarding the Agreement is being provided to
you:

         Item 1:  The class, unit, or group of individuals being offered the
                  Agreement include the following:

                           Employees of the __________________ Department.

         Item 2:  The eligibility factors for the Agreement are as follows:

                           Satisfactory performance until your date of
                           separation and signing and not revoking the
                           Agreement.

         Item 3:  The time limits for the Agreement are as follows:

                           The Agreement is available for consideration and
                           signing for a period of not less than forty-five (45)
                           days after the date the Agreement is delivered to
                           Employee.

                           Written revocations of the Agreement must be
                           delivered to the Company representative in the manner
                           stated in this Agreement no later than seven (7) days
                           after signing the Agreement to be considered valid.

         Item 4:   The job titles and ages of all individuals eligible or
                   selected for the Agreement are as follows:

                           [Job Title]               [Age]

         Item 5:   The ages of all individuals in the same job classification
                   or organizational unit who are not eligible or selected for
                   the program are as follows:

                           [Job Title]               [Age]

         Employee expressly agrees that upon termination of employment, he/she
will never attempt to assert a right to reinstatement with the Company and
expressly releases and discharges the Company from any obligation to employ him
or her in any capacity.

                                      A-2
<PAGE>

         Employee has fully reviewed the terms of this Agreement, acknowledges
that he or she understands the terms of this Agreement and states that he or she
is entering into this Agreement knowingly, voluntarily and in full settlement of
all claims that he or she may have as a result of his or her employment with or
separation of employment from the Company.

         This Agreement shall be binding upon the Employee and the Company and
each of their representatives, agents and assigns, and as to Employee, his or
her spouse, heirs, legatees, administrators and personal representatives.

         Subject to the terms of the Plan, this Agreement constitutes the
exclusive and complete agreement between the parties hereto relating to the
subject matter hereof. No amendment of this Agreement shall be binding unless in
writing and signed by the parties.

         The provisions of this Agreement are severable. If any provision or the
scope of any provision is found to be unenforceable by a court of competent
jurisdiction, the other provisions or the affected provisions as reduced in
scope shall remain fully valid and enforceable.

         This Agreement shall be governed by the laws of the State of Texas
(excluding choice of law principles) to the extent such law is not preempted by
federal law.

         IN WITNESS WHEREOF, the undersigned acknowledge that they have executed
this instrument as their free and voluntary act, for the uses and purposes set
forth herein on the dates set forth below.

Accepted:

EMPLOYER                            EMPLOYEE

By:_______________________________  By:___________________________________
      Authorized Representative

Date: ____________________________  Date:_________________________________

                                      A-3<PAGE>

                                                                   EXHIBIT 10.34

Date: July 31, 2004                                     $2,200,000.00

                         QUESTCOR PHARMACEUTICALS, INC.

                             SECURED PROMISSORY NOTE

                  Questcor Pharmaceuticals, Inc., a California corporation
("Maker"), for value received, promises to pay to the order of Defiante
Farmaceutica LdA, a Portuguese corporation ("Holder"), a principal amount equal
to Two Million Two Hundred Thousand Dollars ($2,200,000.00), in immediately
available funds in lawful money of the United States of America, plus interest
in like money on the principal amount hereof at a rate of interest equal to nine
and eighty three hundredths percent (9.83%) per annum due and payable as set
forth in Section 2 hereof.

                  1. Security. This Note is the Note referred to in, and is
executed and delivered in connection with, that certain Security Agreement dated
as of the date hereof between Maker and Holder (the "Security Agreement"). The
full principal amount of this Note together with all outstanding and unpaid
interest and all other amounts payable hereunder or under the Security Agreement
are secured by the collateral identified and described as security in the
Security Agreement. Upon the occurrence of any Default (as defined below), in
addition to and not in limitation of any other rights and remedies of Holder,
hereunder or otherwise, all of such rights and remedies being cumulative, Holder
may exercise its rights and remedies under the Security Agreement.

                  2. Repayment. The outstanding principal of this Note, together
with interest accrued thereon, shall be due and payable in the installments and
on the dates set forth on Schedule A attached hereto. This note shall mature on
August 1, 2008 (the "Maturity Date"), and all amounts payable hereunder shall be
due not later than the Maturity Date. All payments made by the Maker under this
Note shall be made, at such address or account as Holder may from time to time
designate, without offset, counterclaim or deduction of any amount (including,
without limitation, taxes), and shall be made in amounts not less than the
amounts otherwise specified to be paid under or in connection with this Note.
All payments, including prepayments, made hereunder shall be applied first to
amounts other than principal or interest owed hereunder or under the Security
Agreement by Maker to Holder, second to accrued interest, and third to
principal. This Note may be prepaid in whole or in part at any time without
premium or penalty, with any partial prepayment applicable to principal being
applied to payments of principal in reverse chronological order, as set forth on
Schedule A.

                  3. Default. A default ("Default") shall occur hereunder,
without the need for further notice, in the event that (a) Maker fails, for ten
(10) days, to pay in full any sum due Holder pursuant to this Note or to perform
any other obligation arising pursuant to this Note, (b) Maker fails to pay in
full on the Maturity Date any sum payable pursuant to this Note, (c) a default
or event of default occurs arising from the failure to pay when due any
principal or interest of any indebtedness of Maker or any subsidiary of Maker
with an aggregate principal amount in excess of $100,000, or which permits the
acceleration of any note, instrument or agreement evidencing any such
indebtedness of Maker or any subsidiary of Maker, or (d) a default occurs under
the Security Agreement that is uncured after the lapse of the cure period, if
any, expressly provided for therein. Upon the occurrence of a Default, all
outstanding principal and interest shall become immediately due and payable.

                  4. Certain Waivers. Maker hereby waives notice, demand for
payment, presentment for payment, protest, notice to protest, notice of
dishonor, notice of nonpayment, and diligence in taking any action to collect
sums owing hereunder and all duty or obligation of Holder to effect, protect,
perfect, retain or enforce any security for the payment of this Note or to
proceed against
<PAGE>
any collateral before otherwise enforcing this Note. The delay in exercising or
nonexercise by Holder of any of its rights or remedies hereunder in any
particular instance shall not constitute a waiver thereof in that or any other
instance. No single or partial exercise by the Holder of any right or remedy
shall preclude any other or further exercise thereof or the exercise of any
other right or remedy.

                  5. Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of California without regard to its
conflict of laws provisions.

                  6. Entire Agreement. This Note, including the schedules
hereto, and the Security Agreement reflect the entire agreement of the parties
with respect to the subject matter hereof, and supersede all previous written or
oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to in this Note, including the schedules hereto, and
the Security Agreement.

                  7. No Third-Party Beneficiaries. This Note shall not confer
any rights or remedies upon any person other than the parties and their
respective successors and permitted assigns.

                  8. Construction. Holder and Maker have participated jointly in
the negotiation and drafting of this Note. In the event an ambiguity or question
of intent or interpretation arises, this Note shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Note. The word "including" shall mean including without
limitation.

                  9. Successors and Assigns. All rights of Holder hereunder
shall inure to the benefit of its successor and assigns. Maker shall not assign
any of its interest under this Note without the prior written consent of Holder.
Any purported assignment inconsistent with this provision shall, at the option
of Holder, be null and void.

                  10. Captions. The captions in this Note are for convenience
only and shall not affect the construction or interpretation of any term or
provision hereof.

                  11. Execution in Counterparts. For the convenience of the
parties and to facilitate execution, this Note may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.

                  12. Amendments. This Note may not be amended or modified, nor
may compliance with any condition or covenant set forth herein be waived, except
by a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.

                  13. Consent to Jurisdiction. Each party hereto hereby
irrevocably and unconditionally consents to the jurisdiction and venue of any
court of competent jurisdiction within the State of California with respect to
any suit, action or other legal proceeding arising out of this Note, and waives
any right to contest the appropriateness of any action brought in any such court
based upon lack of personal jurisdiction or forum non-conveniens.

                  14. WAIVER OF JURY TRIAL. EACH PARTY HERETO BY ITS ACCEPTANCE
HEREOF WAIVES THE RIGHT TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR IN CONNECTION WITH THIS PROMISSORY NOTE.

                                       2
<PAGE>
                  15. Enforcement. The Maker shall pay upon demand all of the
Holder's reasonable costs, fees and expenses (including reasonable attorneys'
fees) resulting from any Default or any enforcement of Holder's rights or
remedies with respect thereto.

                  16. Default Interest. If principal, interest, or other amounts
payable hereunder or under the Security Agreement are not paid when due, whether
on the date interest is due, at scheduled maturity, upon acceleration, upon
demand, or otherwise, all unpaid amounts then due shall bear interest thereafter
until paid at a rate equal to the interest rate such forth above plus 2% per
annum.

                  17. Usury. Notwithstanding any other provision herein, the
aggregate interest rate charged with respect to any of the obligations under
this Note, including all charges or fees in connection therewith deemed in the
nature of interest under applicable law shall not exceed the Highest Lawful Rate
(as defined below). If the rate of interest (determined without regard to the
preceding sentence) under this Note at any time exceeds the Highest Lawful Rate,
the outstanding amount of the loans made hereunder shall bear interest at the
Highest Lawful Rate until the total amount of interest due hereunder equals the
amount of interest which would have been due hereunder if the stated rates of
interest set forth in this Agreement had at all times been in effect. In
addition, if when the loans made hereunder are repaid in full the total interest
due hereunder (taking into account the increase provided for above) is less than
the total amount of interest which would have been due hereunder if the stated
rates of interest set forth in this Note had at all times been in effect, then
to the extent permitted by law, Maker shall pay to Holder an amount equal to the
difference between the amount of interest paid and the amount of interest which
would have been paid if the Highest Lawful Rate had at all times been in effect.
Notwithstanding the foregoing, it is the intention of Holder and Maker to
conform strictly to any applicable usury laws. Accordingly, if Holder contracts
for, charges, or receives any consideration which constitutes interest in excess
of the Highest Lawful Rate, then any such excess shall be cancelled
automatically and, if previously paid, shall at Holder's option be applied to
the outstanding amount of the Loans made hereunder or be refunded to Maker. As
used herein, "HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if
any, that at any time or from time to time may be contracted for, charged, or
received under the laws applicable to Holder that are presently in effect or, to
the extent allowed by law, under such applicable laws as may hereafter be in
effect and that allow a higher maximum nonusurious interest rate than applicable
laws now allow.

                  18. Severability. If any provision or obligation of this
Agreement should be found to be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions and obligations or any other agreement executed in connection
herewith, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby and shall nonetheless remain in
full force and effect to the maximum extent permitted by law.

                                       3
<PAGE>
                  IN WITNESS WHEREOF, the parties hereto have caused this Note
to be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.

DEFIANTE FARMACEUTICA LDA,                  QUESTCOR PHARMACEUTICALS, INC.,
a Portuguese corporation                    a California corporation

By:    /s/ Pedro Quintas                    By:    /s/ Timothy E. Morris
       --------------------------------            ----------------------------
Name:  Pedro Quintas                        Name:  Timothy E. Morris

Title: Director                             Title: Chief Financial Officer

                        [SIGNATURE PAGE TO SECURED NOTE]
<PAGE>
                                   SCHEDULE A
                                PAYMENT SCHEDULE

<TABLE>
<CAPTION>
PAYMENT DUE DATE                          PAYMENT AMOUNT
----------------                          --------------
<S>                                       <C>
September 1, 2004                         Principal: $0
                                          Interest:  $18,022

October 1, 2004                           Principal: $0
                                          Interest:  $18,022

November 1, 2004                          Principal: $0
                                          Interest:  $18,022

December 1, 2004                          Principal: $0
                                          Interest:  $18,022

January 1, 2005                           Principal: $0
                                          Interest:  $18,022

February 1, 2005                          Principal: $0
                                          Interest:  $18,022

March 1, 2005                             Principal: $0
                                          Interest:  $18,022

April 1, 2005                             Principal: $0
                                          Interest:  $18,022

May 1, 2005                               Principal: $0
                                          Interest:  $18,022

June 1, 2005                              Principal: $0
                                          Interest:  $18,022

July 1, 2005                              Principal: $0
                                          Interest:  $18,022

August 1, 2005                            Principal: $0
                                          Interest:  $18,022

September 1, 2005                         Principal: $52,790
                                          Interest:  $18,022

October 1, 2005                           Principal: $53,223
                                          Interest:  $17,589

November 1, 2005                          Principal: $53,659
                                          Interest:  $17,153
</TABLE>
<PAGE>
<TABLE>
<S>                                       <C>
December 1, 2005                          Principal: $54,098
                                          Interest:  $16,714

January 1, 2006                           Principal: $54,541
                                          Interest:  $16,271

February 1, 2006                          Principal: $54,988
                                          Interest:  $15,824

March 1, 2006                             Principal: $55,439
                                          Interest:  $15,373

April 1, 2006                             Principal: $55,893
                                          Interest:  $14,919

May 1, 2006                               Principal: $56,351
                                          Interest:  $14,461

June 1, 2006                              Principal: $56,812
                                          Interest:  $14,000

July 1, 2006                              Principal: $57,278
                                          Interest:  $13,534

August 1, 2006                            Principal: $57,747
                                          Interest:  $13,065

September 1, 2006                         Principal: $58,220
                                          Interest:  $12,592

October 1, 2006                           Principal: $58,697
                                          Interest:  $12,115

November 1, 2006                          Principal: $59,178
                                          Interest:  $11,634

December 1, 2006                          Principal: $59,662
                                          Interest:  $11,150

January 1, 2007                           Principal: $60,151
                                          Interest:  $10,661

February 1, 2007                          Principal: $60,644
                                          Interest:  $10,168

March 1, 2007                             Principal: $61,141
                                          Interest:  $9,671

April 1, 2007                             Principal: $61,641
                                          Interest:  $9,171
</TABLE>

                                       6
<PAGE>
<TABLE>
<S>                                       <C>
May 1, 2007                               Principal: $62,146
                                          Interest:  $8,666

June 1, 2007                              Principal: $62,655
                                          Interest:  $8,157

July 1, 2007                              Principal: $63,169
                                          Interest:  $7,643

August 1, 2007                            Principal: $63,686
                                          Interest:  $7,126

September 1, 2007                         Principal: $64,208
                                          Interest:  $6,604

October 1, 2007                           Principal: $64,734
                                          Interest:  $6,078

November 1, 2007                          Principal: $65,264
                                          Interest:  $5,548

December 1, 2007                          Principal: $65,799
                                          Interest:  $5,013

January 1, 2008                           Principal: $66,338
                                          Interest:  $4,474

February 1, 2008                          Principal: $66,881
                                          Interest:  $3,931

March 1, 2008                             Principal: $67,429
                                          Interest:  $3,383

April 1, 2008                             Principal: $67,981
                                          Interest:  $2,831

May 1, 2008                               Principal: $68,538
                                          Interest:  $2,274

June 1, 2008                              Principal: $69,100
                                          Interest:  $1,712

July 1, 2008                              Principal: $69,666
                                          Interest:  $1,146

August 1, 2008                            Principal: $70,236
                                          Interest:  $576
</TABLE>

                                       7
<PAGE>

                               SECURITY AGREEMENT

                  This SECURITY AGREEMENT ("Agreement") is entered into as of
July 31, 2004, by and between Questcor Pharmaceuticals, Inc., a California
corporation located at 3260 Whipple Road, Union City, California, 94587
("Borrower"), and Defiante Farmaceutica LdA, a Portuguese corporation located at
Rua dos Ferreiros, 260 Funchal-Madeira, Portogallo, 9000-082 ("Lender").

                  A. WHEREAS, Borrower owns or controls intellectual property
rights relating to the cyanocobalamin - containing drug presently marketed under
the brand name "NASCOBAL" (such drug, as it may be enhanced, reformulated, or
modified after the date hereof, in all strengths, dosages and delivery forms and
regardless of the names or name under which it is or may become known, is herein
referred to as "NASCOBAL");

                  B. Borrower has issued to Lender that certain Secured
Promissory Note dated of even date herewith, evidencing indebtedness in the
principal amount of $2,200,000.00 (the "Note"); and

                  C. As a condition precedent to the effectiveness of the Note,
Lender has required Borrower to execute and deliver this Agreement.

                  NOW, THEREFORE, in consideration of the above recitals, the
mutual covenants hereinafter set forth, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged hereto agrees as
follows:

                  1. Creation of Security Interest. In order to secure the
payment and performance of the Secured Obligation (as defined below). Borrower
hereby pledges and grants to Lender, a security interest in all of Borrower's
right, title and interest in and to the following property, whether now owned or
hereafter acquired or arising, and wherever located:

                           (i) trademarks, trade names, Internet domain names,
                  trade styles, service marks, logos, other source or business
                  identifiers, general intangibles of like nature, all
                  registrations and applications for any of the foregoing, in
                  each case, associated with NASCOBAL, including the registered
                  trademarks and trademark applications set forth in Schedule A
                  hereto; all renewals of any of the foregoing; the goodwill of
                  the business connected with the use of and symbolized by the
                  foregoing trademarks, trade names, trade styles, service
                  marks, logos and other source or business identifiers; the
                  right to sue for past infringement or dilution of any of the
                  foregoing or for any injury to goodwill,

                           (ii) patents and applications for patents which cover
                  the making, using, formulation, or commercialization of
                  NASCOBAL, including, each patent and patent application listed
                  in Schedule B hereto, all reissues, divisions, continuations,
                  substitutions supplementary protection certificates
                  continuations-in-part, extensions, renewals, reexaminations
                  and equivalents to any of the foregoing, the right to sue for
                  past infringements of any of the foregoing (collectively, the
                  "Patents").
<PAGE>
                           (iii) technical and other information which is not in
                  the public domain, including information comprising or
                  relating to concepts, discoveries, data, designs, formulae,
                  ideas, inventions, methods, models, assays, research plans,
                  procedures, designs for experiments and tests and results of
                  experimentation and testing (including results of research or
                  development), processes (including manufacturing processes,
                  specifications and techniques), laboratory records, chemical,
                  pharmacological, toxicological, clinical, analytical and
                  quality control data, trial data, case report forms, data
                  analyses, reports, manufacturing data, summaries, information
                  contained in submissions to and information from ethical
                  committees and regulatory authorities, data concerning pricing
                  or reimbursement including discounts and rebates to particular
                  customers, data concerning dealings with managed and similar
                  healthcare providers including lists of customers and key
                  prescribers, data concerning trade inventory levels, data
                  concerning returns and chargebacks and any other data covering
                  the supply chain, which relates to NASCOBAL or to its
                  development ("Know How");

                           (iv) copyrights, including copyrights in software and
                  databases, in the items set forth in Section (iii) above or
                  otherwise in the works of authorship pertaining to the
                  development, manufacture, or marketing of NASCOBAL, including
                  the registered copyrights and copyright applications set forth
                  on Schedule C hereto, registrations and applications for, and
                  renewals and extensions of, any the foregoing, the right to
                  sue for past infringement of any of the foregoing
                  (collectively, the "Copyrights");

                           (v) license agreements granting rights to use any
                  Trademarks, Patents, Copyrights, or Know-How (whether the
                  Borrower is the licensor or the licensee thereunder);

                           (vi) New Drug Applications ("NDAs") filed with the
                  FDA, and other regulatory filings and approvals for NASCOBAL;

                           (vii) all of Borrower's contractual rights and
                  remedies in connection with that certain Asset Purchase
                  Agreement between Nastech Pharmaceutical Company, Inc. and
                  Borrower, dated as of June 16, 2003;

                           (viii) all proceeds and products of any of the
                  foregoing.

                  All of the foregoing are, collectively, referred to as the
"Collateral", and the items in subparagraphs (i) through (v) are, collectively,
referred to as the "Intellectual Property Collateral."

                  Notwithstanding anything to the contrary herein, the foregoing
grant of Lien shall not attach to (i) applications filed in the U.S. Patent and
Trademark Office to register Trademarks filed on the basis of Borrower's "intent
to use" such Trademarks unless and until the filing of a "Statement of Use" or
"Amendment to Allege Use" has been filed, whereupon such applications shall be
automatically subject to the lien granted herein and deemed included in the
Intellectual Property Collateral and (ii) any license, contract, property rights
or agreement to

                                       2
<PAGE>
which the Borrower is a party or any of its rights or interests thereunder if
the grant of such security interest shall constitute or result in (x) the
abandonment, invalidation or unenforceability of any right, title or interest of
the Borrower therein or (y) in a breach or termination pursuant to the terms of,
or a default under, any such license, contract property rights or agreement
(other than to the extent that any such term would be rendered ineffective
pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code
(or any successor provision or provisions) of any relevant jurisdiction or any
other applicable law or principles of equity).

                  2. Secured Obligation. For purposes of this Agreement,
"Secured Obligation" shall mean the obligation of Borrower to repay Lender for
the indebtedness and other obligations evidenced by the Note (including
principal, interest, and any other amounts payable hereunder or thereunder).

                  3. Perfection of Security Interest. Borrower will, at its sole
expense, execute, acknowledge, and deliver all such instruments, and take all
such actions, as Lender may, from time to time, reasonably request or require so
that Lender shall have a first priority perfected security interest in the
Collateral. In furtherance thereof, Borrower shall file such financing
statements, continuation statements, or amendments thereto, and other documents,
agreements, instruments, endorsements, powers of attorney or notices, as may be
necessary or as Lender may require, in order to perfect the security interest
granted hereunder, including;

                           (a) Furnishing to Lender, from time to time,
         statements and schedules further identifying and describing the
         Intellectual Property Collateral and such other reports in connection
         with the Intellectual Property Collateral as Lender may reasonably
         request, all in reasonable detail;

                           (b) initially, filing UCC-1 financing statements in
         the State of California. In the event that Borrower changes its name or
         the location of its chief executive office it will give Lender written
         notice clearly describing such new name or location. If such new
         location is in a state other than California, then Borrower shall
         additionally file a UCC-1 filing statement in such state evidencing the
         security interest granted hereby, and shall during the remaining term
         of this Agreement (or, if earlier, until Borrower moves its chief
         executive office to another state), upon the request of Lender, file
         such continuation statements as are required to prevent expiration of
         such UCC-1 financing statement in such state. Such UCC-1 financing
         statement and continuation statements shall describe the Collateral in
         the same manner as described herein;

                           (c) recording appropriate evidence of the liens
         granted hereunder in the Intellectual Property Collateral in the United
         States Patent and Trademark Office, the United States Copyright Office,
         or any other jurisdiction within the United States.

                  Borrower authorizes and requests that the U.S. Patent and
Trademark Office and, U.S. Copyright Office to file and record this Agreement in
order to reflect the interests of the Lender in the Intellectual Property
Collateral.

                                       3
<PAGE>
                  4. Representation and Warranties. Borrower represents and
warrants as follows:

                           (a) Existence and Power. Borrower is a duly formed
         and validly existing corporation in good standing under the laws of the
         State of California, and has the requisite power and authority to own
         its property and assets and to execute , deliver and perform its
         obligations under this Agreement and the Note.

                           (b) Enforceability. This Agreement and the Note have
         each been duly authorized, executed and delivered by Borrower and each
         constitutes the legal, valid and binding obligation of Borrower,
         enforceable against Borrower in accordance with its terms.

                           (c) No Conflict. The execution, delivery, and
         performance of this Agreement and the Note by Borrower, and the
         consummation of the transactions contemplated hereby and thereby, will
         not (i) conflict with or result in a breach of any of the terms and
         provisions of, or constitute a default (or an event which with the
         giving of notice or the lapse of time or both would constitute a
         default) under, or result in the creation or imposition of (or the
         obligation to create or impose) any lien (except as provided herein)
         upon any assets of the Borrower or any of its subsidiaries pursuant to,
         any agreement, indenture, mortgage, deed of trust, equipment lease,
         license instrument or other document to which Borrower is a party or to
         which it or any of its assets or subsidiaries assets may be subject,
         except for such conflicts which have been duly waived; (ii) conflict
         with any law, order, rule or regulation of any court or any federal or
         state government, regulatory body or administrative agency, or any
         other governmental body having jurisdiction over Borrower or its
         properties; or (iii) violate any provision of the organizational
         documents of the Borrower or any of its subsidiaries.

                           (d) Governmental Approvals. No order, consent,
         approval, or other authorization or filing, recording, or registration
         with, or exemption by, any governmental or public body or authority is
         required to authorize, or is required in connection with, (i) the
         execution, delivery, and performance by the Borrower of this Agreement
         and the Note or (ii) the legality, validity, or enforceability of this
         Agreement and the Note.

                           (e) Collateral.

                                    (i) Schedules A, B and C set forth a true
                  and accurate list of all registrations of and applications for
                  Trademarks, and Patents and Copyrights which are owned by or
                  exclusively licensed to Borrower and included in the
                  Intellectual Property Collateral;

                                    (ii) The Borrower has good and marketable
                  title to the Collateral, free and clear of all liens, security
                  interests, charges or encumbrances or adverse claims or other
                  interests whatsoever. There is no financing statement or other
                  document or instrument now executed, or on file or recorded in
                  any public office, granting a security interest, in or
                  otherwise encumbering, any part of the Collateral.

                                       4
<PAGE>
                                    (iii) All Intellectual Property Collateral
                  is subsisting and has not been adjudged invalid or
                  unenforceable, in whole or in part, except as disclosed on
                  schedules A, B and C, and Borrower has performed all acts and
                  has paid all renewal, maintenance, and other fees and taxes
                  required to maintain each and every registration and
                  application pertaining to the Intellectual Property Collateral
                  in the United States in full force and effect;

                                    (iv) All Intellectual Property Collateral is
                  valid and enforceable; no holding, decision, or judgment has
                  been rendered in any action or proceeding before any court or
                  administrative authority challenging the validity of,
                  Borrower's right to register, or Borrower's rights to own or
                  use, any Intellectual Property Collateral and no such action
                  or proceeding is pending or, to the best of Borrower's
                  knowledge, threatened;

                                    (v) Borrower is the sole and exclusive owner
                  of the entire right, title, and interest in and to all
                  Intellectual Property Collateral set forth on Schedules A, B
                  and C, all registrations and applications for Intellectual
                  Property Collateral are standing in the name of Borrower
                  without gaps in the chain of title, and none of the
                  Intellectual Property Collateral has been licensed by Borrower
                  to any affiliate or third party, except as disclosed in
                  Schedule D;

                                    (vi) Neither Borrower's use of the
                  Intellectual Property Collateral, nor the conduct of
                  Borrower's business, infringes, misappropriates or otherwise
                  violates any mark, patent, copyright, trade secret or similar
                  intellectual property right owned or controlled by a third
                  party; no such claim has been made and remains outstanding,
                  and Borrower has not received any written notification that
                  Borrower (or its licensee's) use of any Intellectual Property
                  Collateral, violates the rights of any third party;

                                    (vii) To the Borrower's knowledge, no third
                  party is infringing upon or otherwise violating any
                  Intellectual Property Collateral;

                                    (viii) No settlement or consents, covenants
                  not to sue, non-assertion assurances, co-existence agreements,
                  or releases have been entered into by Borrower or to which
                  Borrower is bound that adversely affect its rights to own or
                  use any Intellectual Property Collateral; and

                                    (ix) There are no Patents, Trademark,
                  Copyrights, Know-How, Licenses, Books and Records, or
                  Regulatory Approvals, owned by or licensed to any affiliate or
                  subsidiary of Borrower.

                  5. Covenants.

                           (a) Borrower and Lender agree that the execution,
         delivery and performance of this Agreement by Borrower and the
         consummation of the transactions contemplated hereby do not violate,
         and shall not be considered a breach of, Section 8 of that certain 8%
         Convertible Debenture dated March 15, 2002.

                                       5
<PAGE>
                           (b) Borrower represents that it is the true and
         lawful owner of the Collateral and agrees to use commercially
         reasonable efforts to protect the Collateral in any lawful manner from
         any third party claims.

                  6. No Transfer; Maintenance of Collateral.

                           (a) Borrower shall not sell, assign, license,
         exchange or otherwise voluntarily or involuntarily transfer or dispose
         of the Collateral or encumber, or hypothecate, or create or permit to
         exist any lien, security interest, charge or encumbrance, or adverse
         claim upon or other interest in the Collateral except the lien created
         by this Agreement without the prior written consent of Lender.

                           (b) Borrower shall not do any act or omit to do any
         act whereby any of the Intellectual Property Collateral may lapse, or
         become abandoned, dedicated to the public, or unenforceable, or which
         would adversely affect the validity, grant, or enforceability of the
         security interest granted herein, and Borrower agrees to pay all
         renewal, maintenance, and other fees and taxes required to maintain
         each and every registration and application of Intellectual Property
         Collateral in the United States in full force and effect.

                           (c) In the event that any Intellectual Property
         Collateral owned by or exclusively licensed to Borrower is infringed
         otherwise violated or challenged by a third party, Borrower shall
         promptly take all reasonable actions to stop such infringements or
         other violations, defend such challenges, and protect its exclusive
         rights in such Intellectual Property Collateral including, but not
         limited to, the initiation of a suit for injunctive relief and to
         recover damages.

                  7. New Collateral.

                           (a) Borrower shall promptly (but in no event more
         than thirty (30) days after Borrower obtains knowledge thereof) report
         to Lender (i) the filing of any application to register any
         Intellectual Property Collateral with the United States Patent and
         Trademark Office or United States Copyright Office or elsewhere in the
         world (whether such application is filed by Borrower or through any
         agent, employee, licensee, or designee thereof) and (ii) the
         registration of any Intellectual Property Collateral by any such
         office. Borrower hereby authorizes Lender to modify this Agreement by
         amending Schedules A, B or C to reference such Intellectual Property
         Collateral, and will otherwise cooperate with Lender in effecting any
         such amendment to this Agreement deemed necessary by Lender, to include
         any Trademarks, Patents or Copyrights which shall become part of the
         Intellectual Property Collateral after the date hereof.

                           (b) Borrower will not change the name of NASCOBAL
         without prior notice to Lender. For the avoidance of doubt, the parties
         acknowledge that all such new names shall be considered within the
         definition of "Trademarks" hereunder.

                  8. Right to Enter. Lender shall have, with reasonable notice
to Borrower, the right to enter into and upon any premises where the Collateral
or records with respect thereto are located for the purpose of inspecting the
same, performing an audit, making copies of records,

                                       6
<PAGE>
protecting Lender's security interest in the Collateral, or otherwise
determining whether Borrower is in compliance with the terms of this Agreement.

                  9. Further Assurances. Borrower hereby authorizes the filing
or recording of any financing statements or continuation statements, and
amendments to financing statements, notices of lien or the recording in any
jurisdictions and with any filing offices or Intellectual Property registries as
the Lender may determine, in its sole discretion, are necessary or advisable
from time to time to record or perfect the security interest granted to the
Lender in connection herewith. Borrower hereby agrees to take such further
actions and to execute, acknowledge and/or deliver such further instruments or
agreements as the Lender may determine, in its reasonable discretion, are
necessary or advisable from time to time to record or perfect the security
interest granted to the Lender in connection herewith or to establish and
maintain the validity and effectiveness of this Agreement or the Note and the
validity, perfection, and priority of the liens intended to be created thereby.

                  10. Defaults. Borrower shall be in default under this
Agreement upon the happening of any one or more of the following events (an
"Event of Default"):

                           (a) Payments. Borrower shall fail to make any payment
         required under the Note, subject to the applicable cure period;

                           (b) Representations and Warranties. Any
         representation or warranty made by Borrower in this Agreement shall
         prove to have been untrue, incorrect or misleading in any material
         respect when made;

                           (c) Other Covenants. Borrower shall fail to duly
         observe or perform any covenant contained in this Agreement or the
         Note, subject to the applicable cure period;

                           (d) Collateral. Borrower shall fail to pay and
         discharge any judgment or levy of any attachment, execution or other
         process against the Collateral and such judgment shall not be
         satisfied, or such levy or other process shall not be removed within
         twenty (20) calendar days after the entry or levy thereof, or at least
         ten (10) calendar days prior to the time of any proposed sale under any
         such judgment levy; or

                           (e) Insolvency. Borrower commences or proposes to
         commence any bankruptcy, reorganization or insolvency proceeding, or
         other proceeding under any federal, state or other law for the relief
         of debtors; Borrower fails to obtain the dismissal, within thirty (30)
         days after the commencement thereof, of any bankruptcy, reorganization
         or insolvency proceeding, or other proceeding under any law for the
         relief of debtors, instituted by one or more third parties, fails
         actively to oppose any such proceeding, or, in any such proceeding,
         defaults or files an answer admitting the material allegations upon
         which the proceeding was based or alleges its willingness to have an
         order for relief entered or its desire to seek liquidation,
         reorganization or adjustment of its debts; or any receiver, trustee or
         custodian is appointed to take possession of all or any substantial
         portion of the assets of Borrower or any committee of Borrower's
         creditors, or any class thereof, is formed for the purpose of
         monitoring or investigating the financial affairs of Borrower or
         enforcing such creditors' rights.

                                       7
<PAGE>
                           (f) Remedies.

                                    (i) Foreclosure and Other Rights. Upon an
                  Event of Default, the Secured Obligation shall be immediately
                  due and payable. Upon the occurrence and continuance of such
                  Even of Default, in addition to any not in limitation of any
                  other rights and remedies of Holder, hereunder or otherwise,
                  all of such rights and remedies being cumulative, Lender shall
                  have the remedies of a secured party under the California
                  Uniform Commercial Code and may require Borrower to assemble
                  the Collateral and turn it over to Lender at a place
                  designated by Lender. Borrower hereby expressly waives and
                  releases all rights to have the Collateral marshaled upon the
                  exercise of any remedies under this Agreement. Without
                  limiting the generality of the foregoing, if an Event of
                  Default shall occur and be continuing, Lender may immediately,
                  without demand of performance, which is expressly waived,
                  endorse the Borrower's name on all applications, documents,
                  papers and instruments necessary or desirable for Lender in
                  the use of the Collateral, and Lender may sell, assign, lease,
                  license (on an exclusive or non-exclusive basis) given an
                  option or options to purchase or to otherwise dispose of the
                  Collateral, and after deducting from proceeds of sale or other
                  disposition of the Collateral all documented expenses
                  (including all reasonable expenses for broker's fees and legal
                  services), Lender shall apply the residue of such proceeds
                  toward the payment of the obligations. Any remainder of the
                  proceeds after payment in full of the obligations immediately
                  shall be paid over to Borrower. Notice of any sale or other
                  disposition of the Collateral shall be given to Borrower at
                  least ten (10) days before the time of any intended public or
                  private sale or other disposition of the Collateral, which
                  Borrower hereby agrees shall be reasonable notice of such sale
                  or other disposition. As to any such sale or other
                  disposition, Lender may, to the extent permissible under
                  applicable law, purchase the whole or any part of the
                  Collateral, free from any right of redemption on the part of
                  Borrower, which right is hereby waived and released.

                                    (ii) Grants of License. In addition, solely
                  for the purpose of enabling Lender to exercise rights and
                  remedies under this Section 10, and at such time as Lender
                  shall be lawfully entitled to exercise such rights and
                  remedies, Borrower hereby grants to Lender, an irrevocable,
                  non-exclusive license (exercisable without payment of royalty
                  or other compensation to Borrower), with rights of sublicense,
                  subject, in the case of Trademarks, to sufficient rights to
                  quality control and inspection in favor of the Borrower to
                  avoid the risk of invalidation of said Trademarks, to use,
                  operate under, or license, any Intellectual Property
                  Collateral.

                  11. Power of Attorney. Borrower hereby irrevocably grants to
Lender a power of attorney, to act, following the occurrence of any Event of
Default, as Borrower's attorney-in-fact, with full authority in the name, place
and stead of Borrower, from time to time in Lender's discretion, to take any
action and to execute any instrument that Borrower may deem necessary or
advisable in its discretion to accomplish the purposes of this Agreement, and in
connection with the exercising of its rights and remedies hereunder, such power
of attorney being coupled with an interest.

                                       8
<PAGE>
                  12. Notices. All notices, requests and other communications
required or permitted to be made hereunder shall, except as otherwise provided,
be in writing and may be delivered personally or sent by telegram, telecopy,
telex, overnight courier or certified mail, postage prepaid, to the parties.
Such notices, requests and other communications sent shall be effective upon
receipt, unless sent by (i) overnight courier, in which case they shall be
effective exactly one (1) business day after deposit with such overnight
courier, or (ii) mail, in which case they shall be effective exactly three (3)
business days after deposit in the United States mail. Either party may change
its address or other information by giving notice thereof to the other party
hereto in conformity with this Section 8.

                  13. Termination of Security Agreement. This Agreement and the
security interest hereunder shall terminate upon the full and final payment and
performance of the Secured Obligation. Notwithstanding anything to the contrary
herein, this Agreement (including all representations, warranties and covenants
contained herein) shall continue to be effective or be reinstated, as the case
may be, if at any time any amount received by Lender in respect of the Secured
Obligation is rescinded or must otherwise be restored or returned by Lender upon
or in connection with the insolvency, bankruptcy, dissolution, liquidation or
reorganization of Borrower or otherwise, all as though such payment had not been
made.

                  14. Headings. The various headings in this Agreement are
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.

                  15. Amendments. This Agreement or any provision hereof may be
changed, waived, or terminated only by a statement in writing signed by the
party against which such change, waiver or termination is sought to be enforced,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

                  16. Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended as a complete
and exclusive statement of the terms and conditions thereof. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even though the accepting
or acquiescing party had knowledge of the nature of the performance and
opportunity for objection.

                  17. Severability. If any provision or obligation of this
Agreement should be found to be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions and obligations or any other agreement executed in connection
herewith, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby and shall nonetheless remain in
full force and effect to the maximum extent permitted by law.

                  18. Successors and Assigns. All rights of Lender hereunder
shall inure to the benefit of its successor and assigns. Borrower shall not
assign any of its interest under this Agreement without the prior written
consent of Lender. Any purported assignment inconsistent with this provision
shall, at the option of Lender, be null and void.

                                       9
<PAGE>
                  19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to the principles thereof relating to conflicts of law.

                  20. Delay; Waiver. No delay in enforcing or failing to enforce
any right under this Agreement by Lender shall constitute a waiver by Lender of
such right. No waiver by Lender of any default hereunder shall be effective
unless in writing, nor shall any waiver operate as a waiver of any other default
or of the same default on a future occasion.

                  21. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which shall together constitute one and the same agreement.

                  22. Consent to Jurisdiction. Each party hereto irrevocably and
unconditionally hereby consents to the jurisdiction and venue of any court of
competent jurisdiction within the State of California with respect to any suit,
action or other legal proceeding arising out of this Agreement, and waives any
right to contest the appropriateness of any action brought in any such court
based upon lack of personal jurisdiction or forum non-conveniens.

                  23. Construction.

                           (a) Borrower and Lender have participated jointly in
         the negotiation and drafting of this Agreement. In the event an
         ambiguity or question of intent or interpretation arises, this
         Agreement shall be construed as if drafted jointly by the parties and
         no presumption or burden of proof shall arise favoring or disfavoring
         any party by virtue of the authorship of any of the provisions of this
         Agreement.

                           (b) Except where expressly stated otherwise in this
         Agreement, the following rules of interpretation apply to this
         Agreement: (i) "either" and "or" are not exclusive and "include",
         "includes" and "including" are not limiting; (ii) "hereof", "hereto",
         "hereby", "herein" and "hereunder" and words of similar import when
         used in this Agreement refer to this Agreement as a whole and not to
         any particular provision of this Agreement; (iii) "date hereof" refers
         to the date set forth in the initial caption of this Agreement; (iv)
         "extent" in the phrase "to the extent" means the degree to which a
         subject or other thing extends, and such phrase does not mean simply
         "if"; (v) definitions contained in this Agreement are applicable to the
         singular as well as the plural forms of such terms; (vi) references to
         an agreement, instrument or schedule mean such agreement, instrument or
         schedule as from time to time amended, modified or supplemented, in
         each case to the extent not prohibited by such agreement or instrument;
         (vii) references to a "person" are also to its permitted successors and
         assigns; (viii) references to a "Section" or "Schedule" refer to a
         Section of or Schedule to this Agreement; and (ix) references to a law
         include any amendment or modification to such law and any rules,
         regulations and delegated legislation issued thereafter, whether such
         amendment or modification is made, or issuance of such rules,
         regulations or delegated legislation occurs, before or after the date
         of this Agreement.

                                       10
<PAGE>
                  24. WAIVER OF JURY TRIAL. EACH PARTY HERETO BY ITS ACCEPTANCE
HEREOF WAIVES THE RIGHT TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.

                     [remainder of page intentionally blank]

                                       11
<PAGE>
                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective officers as of
the date first above written.

DEFIANTE FARMACEUTICA LDA,                   QUESTCOR PHARMACEUTICALS, INC.,
a Portuguese corporation                     a California corporation

By:    /s/ Pedro Quintas                     By:    /s/ Timothy E. Morris
       ----------------------                       ----------------------
Name:  Pedro Quintas                         Name:  Timothy E. Morris

Title: Director                              Title: Chief Financial Officer

                                      S-1
<PAGE>
                        Schedule A to Security Agreement
                                  (Trademarks)

<TABLE>
<CAPTION>
                                        REGISTRATION NO.      DATE REGISTERED
COUNTRY                    MARK            (SERIAL NO.)           (DATE FILED)
<S>                      <C>            <C>                   <C>
Australia                Nascobal           733,493               11/12/97
Switzerland              Nascobal           446,146               10/17/97
Community -CTM           Nascobal           528455                10/20/99
Hungary                  Nascobal           150,653               4/14/98
Japan                    Nascobal          4,190,179              9/18/98
Norway                   Nascobal           187,774               12/23/97
Taiwan                   Nascobal           798240                3/16/98
South Africa             Nascobal          97/06437               10/12/00
United States            Nascobal          2,157,783              5/12/98
</TABLE>

                                       1
<PAGE>
                        Schedule B to Security Agreement
                                    (Patents)

<TABLE>
<CAPTION>
                                      PATENT TITLE                   PATENT NO.       DATE ISSUED
      COUNTRY                     (ISSUED PATENTS ONLY)             (SERIAL NO.)     (DATE FILED)
<S>                 <C>                                             <C>              <C>
United States       Nasal Compositions Containing Vitamin B12        4,724,231           2/9/88
</TABLE>

Lien release submitted on July 21, 2004.

                                       2
<PAGE>
                        Schedule C to Security Agreement
                                  (Copyrights)

<TABLE>
<CAPTION>
                                                             DATE REGISTERED
    TITLE OF WORK     NATURE OF WORK     REGISTRATION NO.       DATE FILED
<S>                   <C>                <C>                 <C>
NONE
</TABLE>

                                        3
<PAGE>
                        Schedule D to Security Agreement
                       (Foreign Patents and applications)

Questcor has not made and does not intend to make any annuity payments with
respect to the following foreign Nascobal patents and patent applications.

<TABLE>
<CAPTION>
                                                                                                        DATE REGISTERED
TITLE OF WORK      NATURE OF WORK                                            REGISTRATION NO.              DATE FILED
-------------      --------------                                            ----------------              ----------
<S>                <C>                                                       <C>                        <C>
PCT  (Closed)      Aerosol Compositions for Nasal Delivery of Vitamin B12    Appl No. (PCT/US86/00793)     (4/15/86)
Canada             Aerosol Compositions for Nasal Delivery of Vitamin B12    1317881                         5/18/93
Europe             Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
Belgium            Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
France             Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
Great Britain      Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
Germany            Aerosol Compositions for Nasal Delivery of Vitamin B12    P3682862.9                     12/11/91
Italy              Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
Luxembourg         Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
Netherlands        Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
Sweden             Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
Switzerland        Aerosol Compositions for Nasal Delivery of Vitamin B12    0218679                        12/11/91
Australia          Nasal Compositions Containing Vitamin B12                 584703                         10/20/89
Canada             Nasal Compositions Containing Vitamin B12                 1,300,014                       5/5/92
Europe             Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Belgium            Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Denmark            Nasal Compositions Containing Vitamin B12                 (6038/86)                      (4/15/86)
France             Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Great Britain      Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Germany            Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Ireland            Nasal Compositions Containing Vitamin B12                 58533                           9/27/93
Italy              Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
</TABLE>

                                       4
<PAGE>
<TABLE>
<S>                <C>                                                       <C>                            <C>
Luxembourg         Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Netherlands        Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Spain              Nasal Compositions Containing Vitamin B12                 553,999                         4/20/87
Sweden             Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Switzerland        Nasal Compositions Containing Vitamin B12                 0216917                         7/4/90
Hungary            Nasal Compositions Containing Vitamin B12                 196124                          6/16/88
Japan              Nasal Compositions Containing Vitamin B12                 1945666                         6/23/95
Norway             Nasal Compositions Containing Vitamin B12                 174.182                         3/30/94
South Africa       Nasal Compositions Containing Vitamin B12                 86/2845                        10/29/86
Taiwan             Nasal Compositions Containing Vitamin B12                 NI-029728                      12/10/88
</TABLE>

A lien on the below patents exists but a Lien release submitted on July 21,
2004.

<TABLE>
<CAPTION>
                                       PATENT TITLE                         PATENT NO.         DATE ISSUED
    COUNTRY                        (ISSUED PATENTS ONLY)                   (SERIAL NO.)       (DATE FILED)
<S>                         <C>                                            <C>                <C>
United States               Nasal Compositions Containing Vitamin B12        4,724,231            2/9/88
</TABLE>

                                       5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}]]