COMMITMENTS AND CONTINGENCIES:

Cash and cash equivalents-

The Company maintains its cash in bank deposit accounts and actively traded mutual funds which, at times, may exceed federally insured limits. The Company believes that there is no credit risk with respect to these accounts.

Leases -

The Company leases office space and office equipment under noncancelable operating leases. Lease expense for each of the three years ended December 31, 2012, 2011 and 2010 totaled $287,372, $287,177 and $326,949, respectively. Future minimum lease payments as of December 31, 2012 are as follows:



2013	$	187,031
2014	—
2015	—
Beyond	—
Total	$	187,031

The Company is in the process of relocating to Boston, Massachusetts. The move is anticipated to occur early in the second half of 2013. A lease has not yet be signed. Severance and retention expense of approximately $0.5 million will be recorded over the first half of 2013.

Royalties -

In 1989, the Company purchased the assets of Bio-Mimetics Inc., which assets consisted of the patents underlying the Company’s Bioadhesive Delivery System (BDS), other patent applications and related technology, for $2,600,000, in the form of 9% convertible debentures that were converted into 500,000 shares of Common Stock during 1991, and $100,000 in cash. In addition, Bio-Mimetics, Inc. was entitled to a royalty equal to 2% of the net sales of products based on the BDS up to an aggregate amount of $7,500,000. The royalty payments were payable over the life of the patent(s) which are specific to each product or zero years, whichever is longer. The Company was required to prepay 25% of the remaining royalty obligation, in cash or stock at the option of the Company, if the closing price of the Company’s Common Stock was $20 or more on March 2, or within 30 days after the date, of any year. The Company could not assign the patents underlying the BDS without the prior written consent of Bio-Mimetics, Inc. until the aggregate royalties were paid. Royalty expense under this agreement amounted to $0, $0, and $31,546 in 2012, 2011 and 2010, respectively. See “Legal Proceedings”

Legal Proceedings -

Claims and lawsuits are filed against the Company from time to time. Although the results of pending claims are always uncertain, the Company believes that it has adequate reserves or adequate insurance coverage in respect of these claims, but no assurance can be given as to the sufficiency of such reserves or insurance in the event of any unfavorable outcome resulting from these actions.

In connection with the 1989 purchase of the assets of Bio-Mimetics, Inc., which assets consisted of the patents underlying the Company's bioadhesive delivery system, other patent applications, and related technology, the Company agreed to pay Bio-Mimetics a royalty equal to two percent of the net sales of products based on the assets up to an aggregate of $7.5 million until the last of the relevant patents expired. The Company determined that royalty payments on STRIANT, PROCHIEVE, and CRINONE terminated in September of 2006, with the expiration of a certain Canadian patent, but continued on Replens and RepHresh. Bio-Mimetics sued the Company in the United States District Court for the District of Massachusetts (the "District Court") (Bio-Mimetics, Inc. v. Columbia Laboratories, Inc.) alleging breach of contract, unfair or deceptive trade practices, and incorrect inventorship on certain Company patents. On March 31, 2010, the District Court granted the Company's summary judgment motion in part and dismissed the claims other than the breach of contract claim. Following reconsideration of its March 31, 2010 order, on May 26, 2010, the District Court entered judgment for Bio-Mimetics on the breach of contract claim. The Company and Bio-Mimetics each appealed the rulings of the District Court adverse to their interests to the United States Court of Appeals (initially to the First Circuit, but the appeal was transferred to the Federal Circuit). The Company recorded a reserve for $2.2 million in selling and distribution expenses in the quarter ended September 30, 2010, to account for a probable decision against the Company. On December 3, 2010, the Company and Bio-Mimetics executed a settlement agreement under which all litigation was dismissed with prejudice, the prior agreements between the parties were terminated, and the Company paid Bio-Mimetics $1.8 million.

Between February 1, 2012 and February 6, 2012, two putative securities class action complaints were filed against the Company, and certain of its officers and directors in the United States District Court for the District of New Jersey. These actions were filed under the captions Wright v. Columbia Laboratories, Inc., et al., and Shu v. Columbia Laboratories, Inc., et al. Both actions have been consolidated into a single proceeding entitled In re Columbia Laboratories, Inc., Securities Litigation, have added Actavis Pharmaceuticals, Inc., and certain of its officers as defendants, and assert claims under sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated under the Exchange Act on behalf of an alleged class of purchasers of the Common Stock during the period from December 6, 2010 through January 20, 2012. The complaint alleges that the Company and certain of its officers and a director omitted to state material facts that they were under a duty to disclose, and made materially false and misleading statements that related to the results of the Company's PREGNANT study and the likelihood of approval by the FDA of an NDA to market progesterone vaginal gel 8% for the prevention of preterm birth in women with premature cervical shortening. According to the complaint, these alleged omissions and misleading statements had the effect of artificially inflating the market price of the Common Stock. The plaintiffs seek unspecified damages on behalf of the putative class and an award of costs and expenses, including attorney's fees. The Company believes that this action is without merit, and intends to defend it vigorously. At this time it is not possible to determine the likely outcome of, or estimate the liability related to, this action and the Company has not made any provision for losses in connection with it.