SECURITY AGREEMENT AND COLLATERAL ASSIGNMENT OF LIMITED LIABILITY COMPANY INTERESTS

Exhibit 10.4

SECURITY AGREEMENT AND COLLATERAL ASSIGNMENT
OF
LIMITED LIABILITY COMPANY INTERESTS

     This SECURITY AGREEMENT AND COLLATERAL ASSIGNMENT OF LIMITED LIABILITY COMPANY INTERESTS (as may be at any time hereafter amended, restated, supplemented or modified, this “ Agreement ”), dated as of September 27, 2005, is entered into between MATRIXX INITIATIVES, INC. , a Delaware corporation (referred to herein as “ Matrixx ” or “ Assignor ”), and COMERICA BANK , a Michigan banking corporation (“ Bank ”), with reference to the following facts:

R E C I T A L S

     A. Assignor and Zicam, LLC, an Arizona limited liability company, formerly known as Gel Tech, L.L.C. (“ Zicam ” or “ Company ”) (collectively, “ Borrowers ”), on the one hand, and Bank, on the other hand, are contemporaneously herewith entering into that certain Amended and Restated Credit Agreement, dated as of even date herewith (as may be at any time hereafter supplemented, modified, amended or restated, the “ Loan Agreement ”).

     B. Assignor owns one hundred percent (100%) of the Limited Liability Company Interest in Zicam.

     C. In order to induce Bank to enter into the Loan Agreement, and in consideration thereof, Assignor has agreed to execute and deliver this Agreement.

A G R E E M E N T

     NOW, THEREFORE, in consideration of the foregoing, Assignor and Bank hereby agree as follows:

     1.  Defined Terms; Construction .

          1.1 All initially capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Loan Agreement. In addition, as used in this Agreement:

               “ Act ” shall mean the Arizona Limited Liability Company Act, or any successor statute governing the subject matter thereof, and any and all rules and regulations issued or promulgated in connection therewith.

               “ Articles of Organization ” shall have the meaning given to such term in the Act.

               “ Assigned Benefits ” shall have the meaning given to such term in Section 4.1.

               “ Assignment ” shall have the meaning given to such term in Section 4.1.

               “ Certificated Security ,” “ Endorsement ,” “ Registered Form ,” “ Security ,” “ Security Certificate ,” and “ Uncertificated Security ” have the meanings ascribed to such terms in the Code.

               “ Code ” shall mean the Arizona Uniform Commercial Code, as amended and supplemented from time to time, and any successor statute.

               “ Collateral ” shall have the meaning given to such term in Section 2.

               “ Company ” shall have the meaning set forth in the Recitals.

               “ Event of Default ” shall have the meaning given to such term in Section 12.

               “ Governmental Authority ” means any federal, state, local or other governmental department, commission, board, bureau, agency, central bank, court, tribunal or other instrumentality or authority or subdivision thereof, domestic or foreign, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

               “ Limited Liability Company Interest ” means membership interest as defined in the Act.

               “ Manager ” shall have the meaning given to such term the Act.

               “ Member ” shall have the meaning given to such term the Act.

               “ Operating Agreement ” means that certain Amended and Restated Operating Agreement of Gel Tech, L.L.C., dated December 5, 2001.

               “ Secured Obligations ” shall have the meaning given to such term in Section 2.

          1.2 Construction . Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, and the term “including” is not limiting. The words “hereof,” “herein,” “hereby,” “hereunder,” and other similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement. Article, section, subsection, clause, exhibit and schedule references are to this Agreement, unless otherwise specified. Any reference herein to the Loan Agreement includes any and all alterations, amendments, extensions, modifications, renewals, or supplements thereto or thereof, as applicable. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Bank or Assignor, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by Bank and Assignor and their respective counsel, and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of Bank and Assignor.

     2.  Security Interest . Assignor hereby grants a continuing security interest to Bank in the collateral described in Section 3 (the “ Collateral ”) as security for the prompt payment and performance of all of Borrowers’ obligations owing to Bank under the Loan Agreement and the obligations of Assignor hereunder (collectively, the “ Secured Obligations ”).

     3.  Collateral . The Collateral under this Agreement consists of all of the following:

          (a) All of Assignor’s right, title and interest in and to Assignor’s Limited Liability Company Interest in the Company;

          (b) All of Assignor’s rights as a member (including without limitation the Assigned Benefits and the right to receive the Assigned Benefits), whether now existing or hereafter arising, under the Operating Agreement and any and all amendments thereto, whether arising from Assignor’s Limited Liability Company Interest in the Company; and

          (c) All proceeds from the foregoing, including without limitation any distributions and profits payable to Assignor as a Member in the Company or as a creditor of the Company, whether in cash or in kind, and any proceeds from a disposition of the foregoing or of Assignor’s Limited Liability Company Interest in the Company.

     4.  Assignment; Assigned Benefits .

          4.1 Assignment of Certain Funds . Assignor hereby collaterally assigns and transfers to Bank (the “ Assignment ”), all of Assignor’s right, title and interest in and to: (a) all payments and/or distributions of revenue, income, profits, property and other sums now or hereafter due from the Company to Assignor in respect of Assignor’s Limited Liability Company Interest in the Company, whether in cash or in kind; (b) all monies owed and payable to Assignor by the Company, other than in respect of Assignor’s Limited Liability Company Interest in the Company, whether owed in connection with loans, management agreements, marketing agreements, other contracts or otherwise; (c) the right of Assignor to receive any of the foregoing; and (d) all proceeds of the foregoing (collectively, “ Assigned Benefits ”). The Assignment shall be binding upon Assignor and shall inure to the benefit of Bank but shall impose no obligations or liabilities upon Bank. Assignor hereby agrees to indemnify, defend and hold Bank harmless from and against any and all claims, liabilities, costs, losses, demands, damages, judgments and awards (including without limitation reasonable attorney’s fees and costs of defense by counsel chosen and controlled by Bank) arising from or in connection with this Assignment, the Assigned Benefits or the Operating Agreement (except to the extent that it is finally judicially determined to have resulted from the gross negligence or willful misconduct of Bank).

          4.2 Payment of Assigned Benefits; Voting Rights . So long as no Event of Default is continuing, Assignor may receive the Assigned Benefits and may exercise any voting rights to which Assignor is entitled under the Operating Agreement and applicable law; provided , however , no vote shall be cast or any consent, waiver or ratification given or any action taken which would violate or be inconsistent with the terms of this Agreement or any other instrument or agreement referred to therein or herein. During the continuance of an Event of Default, the provisions of Section 13 shall apply.

          4.3 Assignor to Cooperate . Assignor hereby covenants and agrees that Assignor shall take any and all actions within Assignor’s power to cause the Company to comply with all terms and conditions of this Agreement.

     5.  Control of Collateral . Assignor shall promptly deliver to Bank any and all Certificated Securities comprising all or any portion of the Collateral for Bank to hold pursuant to the terms hereof, and if such Certificated Securities are in Registered Form, (i) such Certificated Securities shall be endorsed in blank by an effective undated Endorsement, in form and substance satisfactory to Bank, in its sole and absolute discretion, or (ii) Assignor shall cause the Company or the Company’s transfer agent to transfer such Securities into the name of Bank and issue a replacement Security Certificate evidencing the same in the name of Bank. In the event that all or any portion of the Collateral consists of Uncertificated Securities, Assignor shall cause the Company to enter into a control agreement with respect to such Uncertificated Securities, in form and substance satisfactory to Bank, in its sole and absolute discretion.

     6.  Further Assurances . Assignor agrees that it shall cooperate with Bank and shall execute and deliver, or cause to be executed and delivered, to Bank all proxies, assignments, financing statements, instruments, control agreements and other documents, and shall take all further action, at the expense of Assignor, from time to time requested by Bank, in order to maintain a continuing, first-priority, perfected security interest in the Collateral in favor of Bank and to enable Bank to exercise and enforce its rights and remedies hereunder with respect to the Collateral, and Assignor agrees that it shall execute and deliver to Bank, at Bank’s request, any further applications, agreements, documents and instruments, and shall perform any and all acts deemed necessary by Bank to carry into effect the terms, conditions, and provisions of this Agreement and the transactions connected herewith. Should Assignor fail to execute or deliver any such applications, agreements, documents, financing statements and instruments, or to perform any such acts, Assignor acknowledges that Bank may, to the extent permitted by law, execute and deliver the same and perform such acts in the name of Assignor and on its behalf as its attorney-in-fact in accordance with Section 11. Assignor hereby authorizes Bank or its designee to file such Uniform Commercial Code financing statements or financing statement amendments in any jurisdiction as Bank shall deem necessary or desirable, at any time and from time to time, to carry out the terms of this Agreement, or otherwise to protect, perfect or continue Bank’s security interests in the Collateral, in each case naming Assignor, as debtor, and Bank, as secured party, and without Assignor’s signature.

     7.  Bank’s Duties . Bank shall not have any duties with respect to the Collateral other than the duty to use reasonable care of the Collateral is in its possession and other duties imposed by applicable law. In accordance with the Code, Bank shall be deemed to have used reasonable care if it observes substantially the same standard of care with respect to the custody or preservation of the Collateral as it observes with respect to similar assets owned by Bank. Without limiting the generality of the foregoing, Bank shall be under no obligation to take any steps necessary to preserve rights in the Collateral against any other parties, to sell the same if it threatens to decline in value, or to exercise any rights represented thereby (including rights with respect to calls, conversions, exchanges, maturities, or tenders); provided , however , that Bank may, at its option, do so, and any and all expenses incurred in connection therewith shall be for the account of Assignor.

     8.  Representations and Warranties . Assignor hereby represents and warrants to Bank that:

          8.1 Assignor is the lawful owner of the Collateral, free of all claims, liens or encumbrances other than Permitted Liens.

          8.2 The Operating Agreement is in full force and effect.