ex10_27.htm


    
      

    

    Exhibit
10.27

    


    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 Committee.  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 in line with
annual budgets approved by the full Board.  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 or
her potential bonus amount.  However, based on the goals set, an
executive officer can earn from 0% of this targeted bonus to 150% of his or her
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.  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.

    


    The
annual incentive program for Orthofix International N.V. currently consists of
the following performance goal components that are weighted as
follows:

    


    
      	
               
      

            	
              ·

            	
              50% – based on the attainment of
      a specified dollar amount of revenue;
and

            


    

    


    
      	
               
      

            	
              ·

            	
              50% – based on attainment of
      specified EBITDA targets.

            


    

    


    The
annual incentive program for Orthofix, Inc., Breg, Inc., Blackstone Medical,
Inc. and the Company’s international division currently consists of the
following performance goal components that are weighted as follows:

    


    
      	
               
      

            	
              ·

            	
              50% – based on the attainment of
      a specified dollar amount of revenue;
and

            


    

    


    
      	
               
      

            	
              ·

            	
              50% – based on the attainment of
      a specified dollar amount of operating income (excluding depreciation,
      amortization and SFAS 123R
expense).

            


    

    


    We
developed these weightings with the intent of linking most of the bonus to
quantifiable entity or business unit performance measures.  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%.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Exhibit
10.27

    
 

    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

                                    	 	
                                      50%

                                    	 	
                                      75%

                                    	 	
                                      37.5%

                                    	 
	 
      	 	 
      	 	
                                      Weighted
      Percentage:

                                    	 	
                                      87.5%

                                    	 


                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    


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

    


    Bonus Calculation: $80,000
(at target) multiplied by 87.5% (weighted percentage attainment) = $70,000
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.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Exhibit
10.27

    


    [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 [EBITDA or operating income] during [year]. As you will
recall, in addition to offering a sliding scale for performance achievement,
this plan also offers an over-achievement bonus. The achievement on sales
resulted in a [percentage] bonus attainment and the achievement on [EBITDA or
operating income] resulted in a [percentage] bonus attainment. The sales and
[EBITDA or operating income] components represent [percentage] and [percentage]
of the planned bonus payout respectively. 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


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Exhibit
10.27

    


    [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, this plan also
offers an over-achievement bonus. To qualify for any bonus, the [company name or
business unit] has to meet the minimum [EBITDA 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% [EBITDA or operating income] and 50% sales.

    


    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]