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Exhibit 10.1
 
ANNUAL INCENTIVE PROGRAM

The Company does not have a formal, written plan with respect to its annual
incentive program applicable to all executive officers. The below summarizes the
principal aspects of the Company's annual incentive program, which is modified
from time to time upon approval by the Compensation Commitee.  Each year the
Company does notify, in writing, those executive officers selected to
participate in the annual incentive program and, if awards are earned, the
amount of annual incentive program compensation earning. Samples of those
letters also appear below.

The Compensation Committee (the "Committee") believes that a significant portion
of the compensation for each executive officer should be in the form of annual
performance-based cash bonuses.  Short-term incentives like our annual incentive
program tie executive compensation to our immediate financial performance as
well as, to a certain extent, individual performance.  Each executive officer
generally participates in our annual incentive program as it is our primary
means of providing for an annual cash bonus.

The annual incentive program is based on goals determined by
the Committee.  Outside of the annual incentive program, the Committee has and
does exercise its discretion to grant bonuses for performance or for other
circumstances in any year.  Under our program, at the outset of each year the
Committee establishes target performance goals and a range of performance around
the target performance goals for which a bonus would be paid as described
below.  We set the performance goals with the intent that it will be challenging
for a participant to receive 100% of his potential bonus amount.  However, based
on the goals set, an executive officer can earn from 0% of this targeted bonus
to 150% of his targeted bonus based upon actual performance measured against the
range of established performance goals.  Varying bonuses are paid for the
attainment of specified goals within that range.

Under our program we establish separate performance goals for each of Orthofix
International N.V., Orthofix Inc., Breg, Inc., Blackstone Medical, Inc. and our
international division based on a matrix of performance goals as set forth
below.  As a result, executive officers of any of our divisions may be treated
differently according to the applicable objectives specific to them.  The Chief
Financial Officer is responsible for overseeing the process of determining
proposed goals for the Company and each of its divisions and subsidiaries.

The proposed goals and related matrix are then provided to the Committee for
review and approval.  Typically, the goals are set in February for the current
year and payments are made the following March for the previous fiscal
year.  Executive officers are notified in writing of the goals and bonus
eligibility for any given year.  The terms of the notice generally require that
the executive officer be an employee on the date of payment in order to be paid
any compensation under the annual incentive program, which requirements can vary
if the executive has a written employment agreement with the Company or one of
its subsidiaries.

While each entity and business unit generally has different performance goal
amounts applicable to it, the annual incentive program for Orthofix
International N.V., Orthofix, Inc., for Blackstone Medical, Inc. and Breg, Inc.
(only with respect to the President of Breg, Inc.), currently consists of the
following performance goal components and are weighted as follows:

 
·
50% – based on the attainment of a specified dollar amount of net income or
operating income;

 
·
40% – based on attainment of specified dollar amount of sales; and

 
·
10% – based on individual performance goals.

The annual incentive program for the Company's international division currently
consists of the following performance goal components and are weighted as
follows:

 
·
90% – based on the attainment of a specified dollar amount of operating income;
and

 
·
10% – based on individual performance goals.

 
 

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Exhibit 10.1
 
We developed these weightings with the intent of linking most of the bonus to
quantifiable entity or business unit performance measures, while also providing
discretion so as to recognize individual or division performance, as
applicable.  The percent of attainment of the goals relating to corporate
performance (net income or operating income and sales) have a threshold and a
maximum of performance ranging from 25% to 150%.

With respect to the individual or division performance component of the
applicable formula, each respective entity or business unit determines the
appropriate performance level ranging from 0% to 100% of the target attainment
goals and makes a recommendation to the Committee.

To calculate the bonus amount, each percentage is multiplied by its component's
percentage weight.  The products are added together to produce a resulting
weighted percentage.  For each participant, this percentage is used to determine
what amount of the pre-established bonus goal amount will be paid.  The weighted
percentage is then multiplied by the target amount of bonus for which that
participant is eligible.  The following is an illustration only of how this
calculation may work using sample attainment percentages and maximum eligible
bonus numbers:

Performance Goal
Weighting
Attainment
Product
Net/Operating Income
50%
100%
50%
Sales
40%
75%
30%
Individual Objectives
10%
80%
8%
   
Weighted Percentage:
88%

Target Bonus:  40% of base salary of $200,000 = $80,000

Bonus Calculation: $80,000 (at target) multiplied by 88% (weighted percentage
attainment) = $70,400 bonus

The Committee has the discretion to review an entity's or business unit's actual
results (or an individual's or division's performance) and consider certain
mitigating factors, such as one-time costs or events such as acquisitions or
other unique corporate (or personal) events not contemplated at the time the
goals were established.  These may be excluded from the financial information
used in connection with the determination of bonuses or the financial (or
individual) information may be otherwise adjusted in light of these mitigating
factors.

 
 

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Exhibit 10.1

[SAMPLE LETTER - AWARD OF BONUS UNDER ANNUAL INCENTIVE PROGRAM]

[Orthofix Letterhead]

[Date]

[Participant]
[Address]

Dear [Participant]:

As a key contributor included in the [year] incentive bonus program for [company
name or business unit], I wish to report to you what we achieved against the
bonus targets for sales and [net or operating] income during [year]. As you will
recall, in addition to offering a sliding scale for performance achievement and
individual objectives, this plan also offers an over achievement bonus. The
achievement on sales resulted in a [percentage] bonus attainment and the
achievement on [net or operating] income resulted in a [percentage] bonus
attainment. The sales and [net or operating] income components represent
[percentage] and [percentage] of the planned bonus payout respectively. You
achieved [percentage] of the remaining [percentage] as determined by your
manager’s review of your performance against individual objectives. This
calculates out to an overall [percentage] payout against your bonus potential.

[If applicable:] In addition, you were granted an incremental [amount] bonus
award by the Compensation Committee in recognition of your efforts in
contributing to _________________.

You will find attached your bonus check. Federal withholding at the supplemental
rate of 25% plus any applicable state or benefits taxes were deducted. The
designated percentages for both the Employee Stock Purchase Plan and the 401k
were also deducted.

Your inclusion is confidential and not a guarantee of future participation.
During the next couple of months, management will be selecting and notifying
participants for [following year].

Thank you for your continued effort in [year].

Best regards,

Orthofix International NV

Thomas Kester
Chairman, Compensation Committee

 
 

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Exhibit 10.1

[SAMPLE LETTER - SELECTION AS PARTICIPANT IN ANNUAL INCENTIVE PROGRAM]

[Orthofix Letterhead]

[Date]

[Participant]
[Address]

Dear [Participant]:

I am pleased to inform you that as a key contributor you have been selected to
participate in the [year] bonus program at Orthofix International N.V. at
[percentage] of your salary level.

In addition to offering a sliding scale for performance achievement and
individual objectives, this plan also offers an over achievement bonus. To
qualify for any bonus, the [company name or business unit] has to meet the
minimum [net or operating] income and sales objectives of [amount]* and [amount]
respectively. Once these minimum objectives are achieved, either individually or
collectively, the weighing of the bonus is 50% [net or operating] income, 40%
sales and 10% individual objectives.

This is a yearly program subject to change. Your inclusion is confidential and
not a guarantee of future participation. To receive the bonus, you must be an
employee at the time the bonus is paid.

Thank you for your continued effort, and we look forward to the [company name or
business unit] achieving this year’s targets.

Best regards,

Orthofix International NV

Thomas Kester
Chairman, Compensation Committee

*Before stock option expense
 
 

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