Exhibit 10.9

 
Grantor:  
 
The Female Health Company
515 N.  State Street
Suite 225
Chicago, IL 60610
 
 
Lender:
 
Heartland Bank
212 S.  Central
St.  Louis, MO 63105

THIS COMMERCIAL SECURITY AGREEMENT dated July 20, 2004, is made and executed
between The Female Health Company, a Wisconsin corporation ("Grantor"), and
Heartland Bank ("Lender").
 
GRANT OF SECURITY INTEREST.  For valuable consideration, Grantor grants to
Lender a security interest in the Collateral to secure the Indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by law.
 
COLLATERAL DESCRIPTION.  The word "Collateral" as used in this Agreement means
the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which
Grantor is giving to Lender a security interest for the payment of the
Indebtedness and performance of all other obligations under the Note and this
Agreement:
 
All Accounts; all Chattel Paper (whether tangible or electronic); all Commercial
Tort Claims identified on Schedule 1 hereto; all Deposit Accounts, all cash, and
all other property from time to time deposited therein and the monies and
property in the possession or under the control of the Lender; all Documents;
all Equipment; all Fixtures; all General Intangibles (including, without
limitation, all Payment Intangibles); all Goods; all Instruments (including,
without limitation, Promissory Notes); all Inventory; all Investment Property;
all Copyrights, Patents and Trademarks, and all Licenses; all Letter-of-Credit
Rights; all Supporting Obligations; and all other tangible and intangible
personal property of Grantor (whether or not subject to the Code), including,
without limitation, all bank and other accounts and all cash and all investments
therein, all proceeds, products, offspring, accessions, rents, profits, income,
benefits, substitutions and replacements of and to any of the property of
Grantor described in this Collateral section (including, without limitation, any
proceeds of insurance thereon and all causes of action, claims and warranties
now or hereafter held by Grantor in respect of any of the items listed above),
and all books, correspondence, files and other records, including, without
limitation, all tapes, desks, cards, Software, data and computer programs in the
possession or under the control of Grantor or any other Person from time to time
acting for Grantor that at any time evidence or contain information relating to
any of the property described in this Collateral section or are otherwise
necessary or helpful in the collection or realization thereof.
 
In addition, the word "Collateral" also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
 

 
(A)
All accessions, attachments, accessories, tools, parts, supplies, replacements
of and additions to any of the collateral described herein, whether added now or
later.
       
(B)
All products and produce of any of the property described in this Collateral
section.

 
 
 
 

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(C)
All accounts, general intangibles, instruments, rents, monies, payments, and all
other rights, arising out of a sale, lease, or other disposition of any of the
property described in this Collateral section.
       
(D)
All Proceeds (including cash and non-cash and insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described in this
Collateral section, and sums due from a third party who has damaged or destroyed
the Collateral or from that party's insurer, whether due to judgment, settlement
or other process.
       
(E)
All records and data relating to any of the property described in this
Collateral section, whether in the form of a writing, photograph, microfilm,
microfiche, or electronic media, together with all of Grantor's right, title,
and interest in and to all computer software required to utilize, create,
maintain, and process any such records or data on electronic media.

 
RIGHT OF SETOFF.  To the extent permitted by applicable law, during the
continuance of an Event of Default, Lender shall have the right of setoff in and
against all Grantor's accounts with Lender (whether checking, savings, or some
other account).  This includes all accounts Grantor holds jointly with someone
else and all accounts Grantor may open in the future.  However, this does not
include any IRA or Keogh accounts, or any trust accounts for which setoff would
be prohibited by law.
 
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.  With
respect to the Collateral, Grantor represents and promises to Lender that:
 
Perfection of Security Interest.  Grantor agrees to execute financing statements
and to take whatever other actions are requested by Lender to perfect and
continue Lender's security interest in the Collateral.  Upon request of Lender,
Grantor will deliver to Lender any and all of the documents evidencing or
constituting the Collateral, and Grantor will note Lender's interest upon any
and all chattel paper if not delivered to Lender for possession by Lender.  This
is a continuing Security Agreement and will continue in effect even though all
or any part of the Indebtedness is paid in full and even though for a period of
time Grantor may not be indebted to Lender.  Upon payment in full of all
Indebtedness under the Loan Agreement and the termination of all commitments by
Lender to provide loans or other extensions of credit under the Loan Agreement,
this Security Agreement and the security interests created hereby will
terminate.
 
Notice to Lender.  Grantor will promptly notify Lender in writing at Lender's
address shown above (or such other addresses as Lender may designate from time
to time) prior to any (1) change in Grantor's name; (2) change in Grantor's
assumed business name(s); (3) change in Grantor's principal office address;
(4) change in Grantor's state of organization; or (5) conversion of Grantor to a
new or different type of business entity.  Grantor shall not change its state of
organization until after Lender has received notice from Grantor.
 
No Violation.  The execution and delivery of this Agreement will not violate any
law or agreement governing Grantor or to which Grantor is a party, and its
certificate or articles of incorporation and bylaws do not prohibit any term or
condition of this Agreement.
 
Location of the Collateral.  Except in the ordinary course of Grantor's
business, Grantor agrees to keep the Collateral (or to the extent the Collateral
consists of intangible property such as accounts or general intangibles, the
records concerning the Collateral) at Grantor's address shown above.  Lender
confirms that the locations identified in the Loan Agreement are acceptable (the
"Approved Locations").  Upon Lender's request, Grantor will deliver to Lender in
form satisfactory to Lender a schedule of real properties and Collateral
locations relating to Grantor's operations, including without limitation the
following (1) all real property Grantor owns or is purchasing; (2) all real
property Grantor is renting or leasing; (3) all storage facilities Grantor owns,
rents, leases, or uses; and (4) all other properties where Collateral is or may
be located.
 
 
 
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Removal of the Collateral.  Except in the ordinary course of Grantor's business,
including the sales of inventory, Grantor shall not remove the Collateral from
an Approved Location without Lenders' prior written consent.  To the extent that
the Collateral consists of vehicles, or other titled property, Grantor shall not
take or permit any action which would require application for certificates of
title for the vehicles outside the state of their registration, without Lender's
prior written consent.  Grantor shall, whenever requested, advise Lender of the
exact location of the Collateral.
 
Transactions Involving Collateral.  Grantor shall not pledge, mortgage, encumber
or otherwise permit the Collateral to be subject to any lien, security interest,
encumbrance, or charge, other than a lien in favor of Lender and other than
liens permitted by the Loan Agreement.  During the continuance of an Event of
Default, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not constitute consent by
Lender to any sale or other disposition.  Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
 
Title.  Grantor represents and warrants to Lender that Grantor owns the
Collateral, free and clear of all liens and encumbrances except for liens in
favor of Lender and except for liens permitted by the Loan Agreement.  Except
with respect to liens in favor of Lender, no financing statement covering any of
the Collateral is on file in any public office other than those which reflect
the security interest created by this Agreement or to which Lender has
specifically consented.  Grantor shall defend Lender's rights in the Collateral
against the claims and demands of all other persons.
 
Repairs and Maintenance.  Grantor agrees to keep and maintain, and to cause
others to keep and maintain, the Collateral in good order, repair and condition
at all times while this Agreement remains in effect (ordinary wear and tear
excepted).  Grantor further aggress to pay when due all claims for work done on,
or services rendered or material furnished in connection with the Collateral so
that no lien or encumbrance may attach to or be filed against the Collateral
(except for liens in favor of Lender and such claims as are being contested in
good faith by Grantor).
 
Inspection of Collateral.  Lender and Lender's designated representatives and
agents shall have the right at all reasonable times to examine and inspect the
Collateral wherever located.
 
Taxes, Assessments and Liens.  Grantor will pay when due all taxes, assessments
and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the Indebtedness, or upon any of the
other Related Documents.  Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay.  In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment before
enforcement against the Collateral.  Grantor shall name Lender as an additional
obligee under any surety bond furnished in the contest proceedings.  Grantor
further agrees to furnish Lender with evidence that such taxes, assessments, and
governmental and other charges have been paid in full and in a timely
manner.  Grantor may withhold any such payment or may elect to contest any lien
if Grantor is in good faith conducting an appropriate proceeding to contest the
obligation to pay.
 
 
 
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Compliance with Governmental Requirements.  Grantor shall comply promptly with
all laws and, in all material respects, all ordinances, rules and regulations of
all governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral, including all laws
or regulations relating to the undue erosion of highly-erodible land or relating
to the conversion of wetlands for the production of an agricultural product or
commodity.  Grantor may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including appropriate
appeals.
 
Hazardous Substances.  Grantor represents and warrants that the Collateral never
has been, and never will be so long as this Agreement remains in lien on the
Collateral, used in violation of any Environmental Laws or for the generation,
manufacture, storage, transportation, treatment, disposal, release or threatened
release of any Hazardous Substance.  The representations and warranties
contained herein are based on Grantor's due diligence in investigating the
Collateral for Hazardous Substances.  Grantor hereby (1) releases and waives any
future claims against Lender for indemnity or contribution in the event Grantor
becomes liable for cleanup or other costs under any Environmental Laws, and
(2) agrees to indemnify and hold harmless Lender against any and all claims and
losses resulting from a breach of this provision of this Agreement.  This
obligation to indemnify shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.
 
Insurance.  Grantor shall procure and maintain insurance as provided in the Loan
Agreement.
 
Application of Insurance Proceeds.  Grantor shall promptly notify Lender of any
material loss or damage to the Collateral.  Upon prior written notice to
Grantor, Lender may make proof of loss if Grantor fails to do so within fifteen
(15) days of the casualty.  All proceeds of any insurance on the Collateral
shall be applied by Grantor to the repair or replacement of the damaged or
destroyed Collateral.  Any proceeds which have not been so applied within six
(6) months after their receipt shall be used to prepay the Indebtedness.
 
Insurance Reports.  Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as Lender
may reasonably request including the following:  (1) the name of the insurer;
(2) the risks insured; (3) the amount of the policy; (4) the property insured;
(5) the then current value on the basis of which insurance has been obtained and
the manner of determining that value; and (6) the expiration date of the policy.
 
Financing Statements.  Grantor authorizes Lender to file a UCC Financing
Statement, or alternatively, a copy of this Agreement to perfect Lender's
security interest.  At Lender's request, Grantor additionally agrees to sign all
other documents that are necessary to perfect, protect, and continue Lender's
security interest in the Property.  Grantor will pay all filing fees, title
transfer fees, and other fees and costs involved unless prohibited by law or
unless Lender is required by law to pay such fees and costs.  Grantor
irrevocably appoints Lender to execute financing statements and documents of
title in Grantor's name and to execute all documents necessary to transfer title
during the continuance of an Event of Default.  Lender may file a copy of this
Agreement as a financing statement.  If Grantor changes Grantor's name or
address, Grantor will promptly notify the Lender of such change.
 
 
 
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GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS.  Until an Event of
Default has occurred and is continuing and except as otherwise provided below
with respect to accounts, Grantor may have possession of the tangible personal
property and beneficial use of all the Collateral and may use it in any lawful
manner not inconsistent with this Agreement or the Related Documents, provided
that Grantor's right to possession and beneficial use shall not apply to any
Collateral where possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral.  Until otherwise notified
by Lender, Grantor may collect any of the Collateral consisting of accounts.  At
any time and even though no Event of Default exists, and upon giving written
notice to Grantor, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender, for application to
the Indebtedness if there exists an Event of Default.  If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for the purpose as
Grantor shall request or as Lender, in Lender's reasonable discretion, shall
deem appropriate under the circumstances, but failure to honor any request by
Grantor shall not of itself be deemed to be a failure to exercise reasonable
care.  Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure to Indebtedness.
 
LENDER'S EXPENDITURES.  If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to), and
upon written notice to Grantor, take any action that Lender deems reasonably
appropriate, including but not limited to discharging or paying all taxes,
liens, security interests, encumbrances and other claims, at any time levied or
placed on the Collateral and paying all costs for insuring, maintaining and
preserving the Collateral.  All such expenditures incurred or paid by Lender for
such purposes will then bear interest at the annual rate of four percent (4%) in
excess of the prime rate of Lender from time to time, from the date incurred or
paid by Lender to the date of repayment by Grantor.  All such expenses will
become a part of the Indebtedness and, at Lender's option, will (A) be payable
on demand; (B) be added to the balance of the Note and be apportioned among and
be payable with any installment payments to become due during either (1) the
term of any applicable insurance policy; or (2) the remaining term of the Note;
or (C) be treated as a balloon payment which will be due and payable at the
Note's maturity.  The Agreement also will secure payment of these amounts.  Such
right shall be in addition to all other rights and remedies to which Lender may
be entitled upon the occurrence and during the continuance of an Event of
Default.
 
EVENT OF DEFAULT.  An "Event of Default" under the Loan Agreement shall
constitute an Event of Default under this Agreement.
 
RIGHTS AND REMEDIES ON EVENT OF DEFAULT.  Upon the occurrence and during the
continuance of an Event of Default, Lender shall have all the rights of a
secured party under the Uniform Commercial Code.  In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies.:
 
Accelerate Indebtedness.  Lender may declare the entire Indebtedness, including
any prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice of any kind to Grantor.
 
 
 
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Assemble Collateral.  Lender may require Grantor to deliver to Lender all or any
portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral.  Lender may require Grantor to assemble
the Collateral and make it available to Lender at a place to be designed by
Lender.  Lender also shall have full power to enter upon the property of Grantor
to take possession of and remove the Collateral.
 
Sell the Collateral.  Lender shall have full power to sell, lease, transfer, or
otherwise deal with the Collateral or proceeds thereof in Lender's own name or
that of Grantor.  Lender may sell the Collateral at public auction or private
sale.  Unless the Collateral threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Lender will give Grantor, and
other persons as required by law, reasonable notice of the time and place of any
public sale, or the time after which any private sale or any other disposition
of the Collateral is to be made.  However, no notice need be provided to any
person who, after Event of Default occurs, enters into and authenticates an
agreement waiving that person's right to notification of sale.  The requirements
of reasonable notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition.  All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of expenditure until
repaid.
 
Appoint Receiver.  Lender shall have the right to have a receiver appointed to
take possession of all or any part of the Collateral, with the power to protect
and preserve the Collateral, to operate the Collateral preceding foreclosure or
sale, and to collect the Rents from the Collateral and apply the proceeds, over
and above the cost of the receivership, against the Indebtedness.  The receiver
may serve without bond if permitted by law.  Lender's right to the appointment
of a receiver shall exist whether or not the apparent value of the Collateral
exceeds the Indebtedness by a substantial amount.
 
Collect Revenues, Apply Accounts.  Lender, either itself or through a receiver,
may collect the payments, rents, income, and revenues from the
Collateral.  Lender may at any time in Lender's discretion transfer any
Collateral into Lender's own name and that of Lender's nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as security
for the Indebtedness or apply it to payment of the Indebtedness in such order of
preference as Lender may determine.  Insofar as the Collateral consists of
accounts, general intangibles, insurance policies, instruments, chattel paper,
choses in action, or similar property, Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine.  For these purposes, Lender may, on behalf of and in the
name of the Grantor, receive, open and dispose of mail addressed to Grantor;
change any address to which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral.  To facilitate
collection, Lender may notify account debtors and obligors on any Collateral to
make payments directly to Lender.
 
Obtain Deficiency.  If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on the
Indebtedness due to Lender after application of all amounts received from the
exercise of the rights provided in this Agreement.  Grantor shall be liable for
deficiency even if the transaction described in this subsection is a sale of
accounts or chattel paper.
 
 
 
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Other Rights and Remedies.  Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may be
amended from time to time.  In addition, Lender shall have and may exercise any
or all other rights and remedies it may have available at law, inequity, or
otherwise.
 
Election of Remedies.  Except as may be prohibited by applicable law, all of
Lender's rights and remedies, whether evidenced by this Agreement, the Related
Documents, or by any other writing, shall be cumulative and may be exercised
singularly or concurrently.  Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare an
Event of Default.
 
COUNTERPARTS.  This Agreement may be executed in any number of counterparts
(including by facsimile), each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
 
FINAL AGREEMENT.  BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES
THAT:  (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY
COMMITMENT LETTER, TERM SHEET OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS
RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET
OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE
CONTRARY, (C) THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS
DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
 
ADDRESS FOR NOTICES.  All notices required or permitted hereunder shall be given
in the manner and at the addresses as provided in the Loan Agreement.
 
MISCELLANEOUS PROVISIONS.  This following miscellaneous provisions are a part of
this Agreement:
 
Amendments.  This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement.  No alteration of or amendment to this Agreement shall
be effective unless give in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.
 
Attorneys' Fees; Expenses.  Grantor agrees to pay upon demand all of Lender's
reasonable costs and expenses, including Lender's reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of this
Agreement.  Lender may hire or pay someone else to enforce this Agreement, and
Grantor shall pay the reasonable costs and expenses of such enforcement.  Costs
and expenses include Lender's reasonable attorneys' fees and legal expenses
whether or not there is a lawsuit, including reasonable attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated post-judgment
collection services.  Lender may also recover from Grantor all reasonable court
or other collection costs (including, without limitation, fees and charges of
collection agencies) actually incurred by Lender.
 
 
 
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Caption Headings.  Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
 
Governing Law.  This Agreement will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Missouri, except and
only to the extent of procedural matters related to the perfection and
enforcement of Lender's rights and remedies against the Collateral, which
matters shall be governed by the laws of the State of Wisconsin.  However, in
the event that the enforceability or validity or any provision of this Agreement
is challenged or questioned, such provision shall be governed by whichever
applicable state or federal law would uphold or would enforce such challenged or
questioned provision.  The loan transaction which is evidenced by the Note and
this Agreement has been applied for, considered, approved and made, and all
necessary loan documents have been accepted by Lender in the State of Missouri.
 
Choice of Venue.  If there is a lawsuit, Grantor agrees, upon Lender's request
to submit to the jurisdiction of the courts of St.  Louis County, Missouri and
the United States District Court for the Eastern District of Missouri.
 
No Wavier by Lender.  Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by Lender.  No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right.  A waiver by Lender or a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement.  No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights or of
any of Grantor's obligations as to any future transactions.  Whenever the
consent of Lender is required under this Agreement, the granting of such consent
by Lender in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and, except as otherwise provided in
this Agreement or the Loan Agreement, in all cases such consent may be granted
or withheld in the sole discretion of Lender.
 
Power of Attorney.  Grantor hereby appoints Lender as Grantor's irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect, amend, or to continue the security interest granted in this Agreement
or to demand termination of filings of other secured parties.  Lender may at any
time, and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of this
Agreement for use as a financing statement.  Grantor will reimburse Lender for
all expenses for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral.
 
Severability.  If a court of competent jurisdiction finds any provision on this
Agreement to be illegal, invalid, or unenforceable as to any circumstance, that
finding shall not make the offending provision illegal, invalid or unenforceable
as to any other circumstances.  If feasible, the offending provision shall be
considered modified so that it becomes legal, valid and enforceable.  If the
offending provision cannot be so modified, it shall be considered deleted from
this Agreement.  Unless otherwise required by law, the illegality, invalidity,
or unenforceability of any provision of this Agreement shall not affect the
legality, validity or enforceability of any other provision of this Agreement.
 
 
 
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Successors and Assigns.  Subject to any limitations stated in this Agreement on
transfer of Grantor's interest, this Agreement shall be binding upon and inure
to the benefit of the parties, their successor and assigns.  If ownership of the
Collateral becomes vested in a person other than Grantor, Lender, without notice
to Grantor, may deal with Grantor's successors with reference to this Agreement
and the Indebtedness by way of forbearance or extension without releasing
Grantor from the obligations of this Agreement or liability under the
Indebtedness.
 
Survival of Representations and Warranties.  All representations, warranties,
and agreements made by Grantor in this Agreement shall survive the execution and
delivery of this Agreement, shall be continuing in nature, and shall remain in
full force and effect until such time as Grantor's Indebtedness shall be paid in
full.
 
Time is of the Essence.  Time is of the essence in the performance of this
Agreement.
 
Waive Jury.  All parties to this Agreement hereby waive the right to any jury
trial in any action, proceeding, or counterclaim brought by any party against
any other party.
 
DEFINITIONS.  The following capitalized words and terms shall have the following
meanings when used in this Agreement.  Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America.  Words and terms used in the singular shall
include the plural, and the plural shall include the singular, as the context
may require.  Words and terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code:
 
Account.  The word "Account" means a trade account, account receivable, other
receivable, or other right to payment for goods sold or services rendered owning
to Grantor (or to a third party grantor acceptable to Lender).
 
Agreement.  The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Commercial Security
Agreement from time to time, together with all exhibits and schedules attached
to this Commercial Security Agreement from time to time.
 
Borrower.  The word "Borrower" means The Female Health Company.
 
Collateral.  The word "Collateral" means all of Grantor's right, title and
interest in and to all the Collateral as described in the Collateral Description
section of this Agreement.
 
Environmental Laws.  The words "Environmental Laws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq.  ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub.  L.  No.  99-499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or
other applicable state or federal laws, rules, or regulations adopted pursuant
thereto.
 
 
 
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Event of Default.  The words "Event of Default" has the meaning set forth in the
Loan Agreement.
 
Grantor.  The word "Grantor" means The Female Health Company.
 
Indebtedness.  The word "Indebtedness" means the indebtedness evidenced by the
Note, including all principal and interest together with all other indebtedness
and costs and expenses for which Borrower or Grantor or any other borrower,
guarantor, pledgor, obligor or accommodation party is responsible under this
Agreement, including any swap, option or forward obligations.
 
Lender.  The word "Lender" means Heartland Bank, its successors and assigns.
 
Loan Agreement.  The words "Loan Agreement" means the Loan Agreement dated of
even date herewith between Grantor and Lender, as the same may be amended,
renewed or extended.
 
Note.  The word "Note" means the promissory note made by Grantor payable to the
order of Lender evidencing the obligation of Grantor to pay the aggregate unpaid
principal amount of the loan made by Lender to Grantor in the principal face
amount of $500,000, and all extensions, renewals and modifications thereto.
 
Property.  The word "Property" means all of Grantor's right, title and interest
in and to all the Property as described in the "Collateral Description" section
of this Agreement.
 
GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT AND AGREES TO ITS TERMS.
 
GRANTOR:
 
THE FEMALE HEALTH COMPANY
 

By: /s/ O.B. Parrish                                                    
Name: O.B. Parrish                                        
Title: Chairman and CEO                              

 
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SCHEDULE 1

COMMERCIAL TORT CLAIMS

[None]

 
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