Orthofix International N.V.
ORTHOFIX INTERNATIONAL N V (Form: 10-Q, Received: 05/07/2008 13:08:50)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington , DC 20549

FORM 10-Q

(Mark one)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to ____________.

Commission File Number:  0-19961

ORTHOFIX INTERNATIONAL N.V.
 
(Exact name of registrant as specified in its charter)

Netherlands Antilles
 
N/A
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
7 Abraham de Veerstraat
   
Curaçao
   
Netherlands Antilles
 
N/A
(Address of principal executive offices)
 
(Zip Code)
 
 
599-9-4658525
 
 
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):  
Large Accelerated filer x    Accelerated filer o Non-Accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No x
As of May 2 , 2008, 17,088,856 shares of common stock were issued and outstanding.
 


 
 

 

Table of Contents
 

3
Item 1.
3
Item 2.
18
Item 3.
25
Item 4.
26
27
Item 1.
27
Item 1A.
29
Item 6.
29
33
 
 
Forward-Looking Statements
 
This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which relate to our business and financial outlook and which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential” or “continue” or other comparable terminology.  These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict.  Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements.  You should not place undue reliance on any of these forward-looking statements.  Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any such statement to reflect new information, the occurrence of future events or circumstances or otherwise.
 
Factors that could cause actual results to differ materially from those indicated by the forward-looking statements or that could contribute to such differences include, but are not limited to, unanticipated expenditures, changing relationships with customers, suppliers and strategic partners, unfavorable results in litigation matters, risks relating to the protection of intellectual property, changes to the reimbursement policies of third parties, changes to governmental regulation of medical devices, the impact of competitive products, changes to the competitive environment, the acceptance of new products in the market, conditions of the orthopedic industry and the economy, currency or interest rate fluctuations and the other risks described under Item 1A – “Business – Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and Part II, Item 1A – “Risk Factors” in this Form 10-Q.

2


PART I   FINANCIAL INFORMATION
 
Item 1.   Condensed Consolidated Financial Statements
 
CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars, in thousands except share data)
 
March 31,
   
December 31,
 
   
2008
   
2007
 
Assets
 
(Unaudited)
   
(Note 2)
 
Current assets:
           
Cash and cash equivalents
  $ 26,731     $ 25,064  
Restricted cash
    18,226       16,453  
Trade accounts receivable, net
    115,452       108,900  
Inventories, net
    104,263       93,952  
Deferred income taxes
    11,373       11,373  
Prepaid expenses and other current assets
    22,674       25,035  
Total current assets
    298,719       280,777  
Investments
    4,427       4,427  
Property, plant and equipment, net
    35,257       33,444  
Patents and other intangible assets, net
    225,082       230,305  
Goodwill
    318,665       319,938  
Deferred taxes and other long-term assets
    17,205       16,773  
Total assets
  $ 899,355     $ 885,664  
Liabilities and shareholders’ equity
               
Current liabilities:
               
Bank borrowings
  $ 10,844     $ 8,704  
Current portion of long-term debt
    3,340       3,343  
Trade accounts payable
    29,117       24,715  
Other current liabilities
    36,635       36,544  
Total current liabilities
    79,936       73,306  
Long-term debt
    290,065       294,588  
Deferred income taxes
    74,398       75,908  
Other long-term liabilities
    12,195       7,922  
Total liabilities
    456,594       451,724  
                 
Contingencies (Note 17)
               
Shareholders’ equity:
               
Common shares (17,088,356 and 17,038,304 shares issued at March 31, 2008 and December 31, 2007, respectively)
    1,709       1,704  
Additional paid-in capital
    161,362       157,349  
Retained earnings
    261,807       258,201  
Accumulated other comprehensive income
    17,883       16,686  
Total shareholders’ equity
    442,761       433,940  
Total liabilities and shareholders’ equity
  $ 899,355     $ 885,664  

The accompanying notes form an integral part of these condensed consolidated financial statements.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(Unaudited, U.S. Dollars, in thousands except share and per share data)
 
Three Months Ended
 
   
2008
   
2007
 
             
Net sales
  $ 128,032     $ 117,032  
Cost of sales
    34,238       30,796  
Gross profit
    93,794       86,236  
Operating expenses
               
Sales and marketing
    50,196       44,583  
General and administrative
    22,180       15,906  
Research and development
    6,354       6,337  
Amortization of intangible assets
    5,043       4,468  
Gain on sale of Pain Care® operations
    (1,570 )     -  
      82,203       71,294  
Operating income
    11,591       14,942  
                 
Other income (expense)
               
Interest income (expense), net
    (5,390 )     (5,664 )
Other, net
    494       (556 )
Other income (expense), net
    (4,896 )     (6,220 )
Income before minority interests and income taxes
    6,695       8,722  
Minority interests
    -       (43 )
Income before income taxes
    6,695       8,679  
Income tax expense
    (3,089 )     (2,412 )
Net income
  $ 3,606     $ 6,267  
                 
Net income per common share - basic
  $ 0.21     $ 0.38  
                 
Net income per common share - diluted
  $ 0.21     $ 0.37  
                 
Weighted average number of common shares -  basic
    17,087,003       16,464,571  
                 
Weighted average number of common shares - diluted
    17,261,172       16,926,257  

The accompanying notes form an integral part of these condensed consolidated financial statements.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(Unaudited, U.S. Dollars, in thousands)
 
2008
   
2007
 
             
Cash flows from operating activities:
           
Net income
  $ 3,606     $ 6,267  
Adjustments to reconcile net income  to net cash provided by operating activities:
               
Depreciation and amortization
    7,397       6,937  
Amortization of debt costs
    395       164  
Provision for doubtful accounts
    1,156       876  
Deferred taxes
    -       (2,978 )
Share-based compensation
    2,094       2,599  
Minority interest
    88       (10 )
Amortization of step up of fair value in inventory
    152       930  
Gain on sale of Pain Care® operations
    (1,570 )     -  
Other
    (2,430 )     (767 )
Change in operating assets and liabilities:
               
Restricted cash
    (1,773 )     1,403  
Accounts receivable
    (5,586 )     (4,597 )
Inventories
    (8,447 )     (8,224 )
Prepaid expenses and other current assets
    2,627       (2,474 )
Accounts payable
    3,809       (5,069 )
Current liabilities
    (616 )     6,539  
Net cash provided by operating activities
    902       1,596  
                 
Cash flows from investing activities:
               
Payments made in connection with acquisitions and investments, net of cash acquired
    0       (985 )
Capital expenditures
    (4,112 )     (4,571 )
Proceeds from sale of Pain Care® operations
    5,980       -  
Net cash provided by (used in) investing activities
    1,868       (5,556 )
                 
Cash flows from financing activities:
               
Net proceeds from issue of common shares
    1,907       1,637  
Repayments of long-term debt
    (4,524 )     (4,834 )
Proceeds from bank borrowings
    1,361       2,631  
Tax benefit on non-qualified stock options
    17       396  
Other
    0       -  
Net cash used in financing activities
    (1,239 )     (170 )
Effect of exchange rate changes on cash
    136       54  
Net increase (decrease) in cash and cash equivalents
    1,667       (4,076 )
Cash and cash equivalents at the beginning of the year
    25,064       25,881  
Cash and cash equivalents at the end of the period
  $ 26,731     $ 21,805  

The accompanying notes form an integral part of these condensed consolidated financial statements.


NOTES TO THE CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:
BUSINESS
 
Orthofix International N.V. (the “Company”) is a multinational corporation principally involved in the design, development, manufacture, marketing and distribution of medical devices, principally for the orthopedic products market.
 
NOTE 2:
BASIS OF PRESENTATION
 
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted.  In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.  The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  For further information, refer to the Consolidated Financial Statements and Notes thereto of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
 
NOTE 3:
RECENTLY ISSUED ACCOUNTING STANDARDS
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.”  The Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure related to the use of fair value measures in financial statements.  The provisions of SFAS No. 157 were to be effective for fiscal years beginning after November 15, 2007.  On February 6, 2008, the FASB agreed to defer the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  Effective January 1, 2008, the Company adopted SFAS No. 157 except as it applies to those nonfinancial assets and nonfinancial liabilities.  The adoption of SFAS No. 157 did not have a material impact on the Company’s results of operations or financial position.

Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115.”  SFAS No. 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement of certain financial assets and liabilities under an instrument-by-instrument election.  Subsequent measurements for the financial assets and liabilities an entity elects to fair value will be recognized in the results of operations.  SFAS No. 159 also establishes additional disclosure requirements.  The Company did not elect the fair value option under SFAS No. 159 for any of its financial assets or liabilities upon adoption.  The adoption of SFAS No. 159 did not have a material impact on the Company’s results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”.  SFAS No. 161 requires entities to provide greater transparency through additional disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows.  SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the potential impact of adopting SFAS No. 161 on the Company’s disclosures of its derivative instruments and hedging activities.
 
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), “Business Combinations (revised 2007).”  SFAS No. 141(R) amends SFAS No. 141, “Business Combinations,” and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree.  It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively.  The Company is currently evaluating the potential impact of adopting SFAS No. 141(R) on its consolidated financial position and results of operations.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51,” which establishes accounting and reporting standards pertaining to ownership interest in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated.  SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008.  The Company is currently evaluating the potential impact of adopting SFAS No. 160 on its consolidated financial position and results of operations.


NOTE 4:
SHARE-BASED COMPENSATION
 
The Company accounts for its share-based compensation plans in accordance with SFAS No. 123(R), “Share-Based Payment”, using the modified prospective transition method.  Under SFAS No. 123(R), all share-based compensation costs are measured at the grant date, based on the estimated fair value of the award, and are recognized as expense in the statement of operations over the requisite service period.  Commencing in June 2007, the Company offered restricted shares in addition to stock options as a form of share-based compensation.
 
The following table shows the detail of share-based compensation by line item in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007:
 
(In US$ thousands)
 
Three Months Ended
March 31,
 
   
2008
   
2007
 
             
Cost of sales
  $ 113     $ 89  
                 
Sales and marketing (1)
    184       551  
                 
General and administrative
    1,564       1,592  
                 
Research and development
    233       367  
                 
Total
  $ 2,094     $ 2,599  

(1)
There are no performance requirements and there was no consideration received for share-based compensation awarded to sales and marketing employees.

NOTE 5:
RECLASSIFICATIONS
 
Certain prior year amounts have been reclassified to conform to the 2008 presentation.  The reclassifications have no effect on previously reported net income or shareholders’ equity.

NOTE 6:
INVENTORY
 
Inventories are valued at the lower of cost or estimated net realizable value, after provision for excess or obsolete items.  Cost is determined on a weighted-average basis, which approximates the FIFO method.  The valuation of work-in-process, finished goods, field inventory and consignment inventory includes the cost of materials, labor and production.  Field inventory represents immediately saleable finished goods inventory that is in the possession of the Company’s direct sales representatives.
 

Inventories were as follows:
 
   
March 31,
   
December 31,
 
(In US$ thousands)
 
2008
   
2007
 
             
Raw materials
  $ 9,832     $ 10,804  
Work-in-process
    7,836       6,100  
Finished goods
    47,163       42,384  
Field inventory (as described above)
    13,461       13,997  
Consignment inventory
    35,748       30,560  
      114,040       103,845  
Less reserve for obsolescence
    (9,777 )     (9,893 )
    $ 104,263     $ 93,952  

NOTE 7:
GOODWILL
 
The changes in the net carrying value of goodwill by reportable segment for the period ended March 31, 2008 are as follows:
 
(In US$ thousands)
 
Domestic
   
Blackstone
   
 Breg
   
International
   
Total
 
At December 31, 2007
  $ 31,793     $ 136,240     $ 101,322     $ 50,583     $ 319,938  
Disposals (1)
    -       -       (2,027 )     -       (2,027 )
Purchase price adjustment (2)
    -       -       -       (365 )     (365 )
Foreign currency
    -       -       -       1,119       1,119  
At March 31, 2008
  $ 31,793     $ 136,240     $ 99,295     $ 51,337     $ 318,665  
                                         
 
(1)
Sale of operations relating to the Pain Care® business at Breg.
 
(2)
Principally relates to the recording of inventory at fair value in connection with the acquisition of the remaining 38.74% of the minority interest in the Company’s Mexican subsidiary.
 
NOTE 8:
BANK BORROWINGS
 
   
March 31,
   
December 31,
 
(In US$ thousands)
 
 2008
   
 2007
 
Borrowings under line of credit
  $ 10,844     $ 8,704  

The weighted average interest rates on borrowings under lines of credit as of March 31, 2008 and December 31, 2007 were 4.96% and 4.79%, respectively.

Borrowings under lines of credit consist of borrowings in Euros.  The Company had unused available lines of credit of 0.4 million Euros ($0.7 million) and 1.3 million Euros ($2.0 million) at March 31, 2008 and December 31, 2007, respectively, in its Italian line of credit, which gives the Company the option to borrow amounts in Italy at rates which are determined at the time of borrowing.  This line of credit is unsecured.


NOTE 9:
LONG-TERM DEBT
 
(In US$ thousands)
 
March 31,
2008
   
December 31,
2007
 
             
Long-term obligations
  $ 293,175     $ 297,700  
Other loans
    230       231  
      293,405       297,931  
Less current portion
    (3,340 )     (3,343 )
    $ 290,065     $ 294,588  
 
On September 22, 2006 the Company’s wholly-owned U.S. holding company subsidiary, Orthofix Holdings, Inc. (“Orthofix Holdings”), entered into a senior secured credit facility with a syndicate of financial institutions to finance the acquisition of Blackstone.  The senior secured credit facility provides for (1) a seven-year amortizing term loan facility of $330.0 million, the proceeds of which, together with cash balances were used for payment of the purchase price of Blackstone; and (2) a six-year revolving credit facility of $45.0 million.  As of March 31, 2008, the Company had no amounts outstanding under the revolving credit facility and $293.2 million outstanding under the term loan facility.  Obligations under the senior secured credit facility have a floating interest rate of the London Inter-Bank Offered Rate (“LIBOR”) plus a margin or prime rate plus a margin.  Currently, the term loan is a LIBOR loan, and the margin is 1.75%, which is adjusted quarterly based upon the leverage ratio of the Company and its subsidiaries.  The effective interest rates as of March 31, 2008 and December 31, 2007 on the senior secured credit facility were 4.46% and 6.58%, respectively.
 
Each of the domestic subsidiaries of the Company (which includes Orthofix Inc., Breg Inc., and Blackstone) and Colgate Medical Limited and Victory Medical Limited (wholly-owned financing subsidiaries of the Company) have guaranteed the obligations of Orthofix Holdings under the senior secured credit facility.  The obligations of the subsidiaries under their guarantees are secured by the pledges of their respective assets.
 
In conjunction with obtaining the senior secured credit facility and the amendment thereto, the Company incurred debt issuance costs of $6.5 million.  As of March 31, 2008, $4.7 million of capitalized debt issuance costs is included in other long-term assets compared to $5.2 million at December 31, 2007.
 
Certain subsidiaries of the Company have restrictions on their ability to pay dividends or make intercompany loan advances pursuant to the Company’s senior secured credit facility.  The net assets of Orthofix Holdings and its subsidiaries are restricted for distributions to the parent company.  Domestic subsidiaries of the Company as parties to the credit agreement have access to these net assets for operational purposes.  The amount of restricted net assets of Orthofix Holdings and its subsidiaries as of March 31, 2008 is $289.0 million compared to $300.7 million at December 31, 2007.
 
NOTE 10:
COMMON SHARES
 
For the three months ended March 31, 2008, the Company issued 50,052 shares of common stock upon the exercise of outstanding stock options and shares issued pursuant to its employee stock purchase plan for net proceeds of $1.9 million.
 

NOTE 11:
COMPREHENSIVE INCOME (LOSS)
 
 
Accumulated other comprehensive income (loss) is comprised of foreign currency translation adjustments and the effective portion of the gain (loss) for derivatives designated and accounted for as a cash flow hedge.  The components of and changes in other comprehensive income (loss) are as follows:
 
(In US$ thousands)
 
Foreign Currency Translation Adjustments
   
Fair Value of Derivatives
   
Accumulated Other Comprehensive Income/(Loss)
 
Balance at December 31, 2007
  $ 15,156     $ 1,530     $ 16,686  
Unrealized gain on derivative instrument, net of tax of $1,098
    -       2,824       2,824  
Foreign currency translation adjustment
    (1,627 )     -       (1,627 )
Balance at March 31, 2008
  $ 13,529     $ 4,354     $ 17,883  
 
 
(In US$ thousands)
 
Three Months Ended
March 31,
 
   
2008
   
2007
 
Net income
  $ 3,606     $ 6,267  
                 
Other comprehensive income:
               
Unrealized gain (loss) on derivative instrument, net of tax
    2,824       (203 )
Foreign currency translation adjustment
    (1,627 )     2,097  
Total comprehensive income
  $ 4,803     $ 8,161  
 
NOTE 12:
BUSINESS SEGMENT INFORMATION
 
The Company’s segment information is prepared on the same basis that the Company’s management reviews the financial information for operational decision making purposes. Concurrent with the acquisition of Blackstone, the Company redefined its business segments and market sectors.  All prior period information presented has been restated to conform to the new segments and market sectors.  The Company is comprised of the following segments:
 
Orthofix Domestic
Orthofix Domestic (“Domestic”) consists of operations in the United States of Orthofix Inc., which designs, manufactures and distributes stimulation and orthopedic products.  Domestic uses both direct and distributor sales representatives to sell Spine and Orthopedic products to hospitals, doctors and other healthcare providers in the United States market.

Blackstone
Blackstone (“Blackstone”) consists of Blackstone Medical, Inc., based in Springfield, Massachusetts. Blackstone specializes in the design, development and marketing of spinal implant and related human cellular and tissue based products (“HCT/P products”, often referred to as Biologic products). Blackstone's operating loss includes amortization of acquired intangible assets and in the first quarter of 2007, it also includes inventory which has been stepped-up in value for the Blackstone acquisition. Blackstone distributes its products through a network of domestic and international distributors, sales representatives and affiliates.


Breg
Breg (“Breg”) consists of Breg, Inc. Breg, based in Vista, California, designs, manufactures, and distributes orthopedic products for post-operative reconstruction and rehabilitative patient use and sells its products through a network of domestic and international distributors, sales representatives and affiliates.

Orthofix International
Orthofix International (“International”) consists of international operations located in Europe, Mexico, Brazil and Puerto Rico, as well as independent distributors located outside the United States.  International uses both direct and distributor sales representatives to sell Spine, Orthopedics, Sports Medicine, Vascular and Other products to hospitals, doctors, and other healthcare providers.

Group Activities
Group Activities are comprised of the Parent’s and Orthofix Holdings’ operating expenses and identifiable assets.
 
The tables below present information by reportable segment for the three months ended March 31:
 
   
External Sales
   
Intersegment Sales
 
(In US$ thousands)
 
2008
   
2007
   
2008
   
2007
 
Domestic
  $ 44,127     $ 39,115     $ 1,621     $ 989  
Blackstone
    27,981       25,866       1,524       702  
Breg
    22,063       20,123       1,538       473  
International
    33,861       31,928       5,499       8,413  
Total
  $ 128,032     $ 117,032     $ 10,182     $ 10,577  
 
 
Operating Income (Loss)
 
Three Months Ended
March 31,
 
(In US$ thousands)
 
2008
   
2007
 
Domestic
  $ 14,133     $ 12,726  
Blackstone
    (3,731 )     (614 )
Breg
    4,371       1,557  
International
    4,488       6,077  
Group Activities
    (7,816 )     (3,499 )
Eliminations
    146       (1,305 )
Total
  $ 11,591     $ 14,942  

 
   
Sales by Market Sector
for the three month period ended March 31, 2008
 
       
       
(In US$ thousands)
 
Domestic
   
Blackstone
   
Breg
   
International
   
Total
 
                               
Spine
  $ 33,373     $ 27,981     $ -     $ 1,104     $ 62,458  
Orthopedics
    10,754       -       -       19,034       29,788  
Sports Medicine
    -       -       22,063       1,252       23,315  
Vascular
    -       -       -       5,333       5,333  
Other
    -       -       -       7,138       7,138  
                                         
Total
  $ 44,127     $ 27,981     $ 22,063     $ 33,861     $ 128,032  

 
   
Sales by Market Sector
for the three month period ended March 31, 2007
 
       
       
(In US$ thousands)
 
Domestic
   
Blackstone
   
Breg
   
International
   
Total
 
                               
Spine
  $ 29,604     $ 25,866     $ -     $ 679     $ 56,149  
Orthopedics
    9,511       -       -       18,134       27,645  
Sports Medicine
    -       -       20,123       1,035       21,158  
Vascular
    -       -       -       4,921       4,921  
Other
    -       -       -       7,159       7,159  
                                         
Total
  $ 39,115     $ 25,866     $ 20,123     $ 31,928     $ 117,032  
 
NOTE 13:
INCOME TAXES
 
The difference between the reported provision for income taxes and a provision computed by applying the statutory rates applicable to each subsidiary of the Company is primarily attributable to an unfavorable discrete tax item resulting from a taxable gain on the sale of the Company’s Pain Care® operations.  Further, the effective tax rate has been positively affected by the Company’s European restructuring in 2006 and a similar transaction in 2002, whereby certain intangible assets were sold between subsidiaries in order to optimize the Company’s supply chain.  Such assets were sold at estimates of fair value based upon valuations which remain subject to review by the local taxing authorities.  Further, the effective tax rate has been affected by the generation of un-utilizable net operating losses in various jurisdictions, and the Section 199 deduction related to income attributable to production activities occurring in the United States.


As of March 31, 2008, the Company’s gross unrecognized tax benefit was $1.7 million plus $0.5 million accrued for interest and penalties.  The entire $1.7 million of unrecognized tax benefit would affect the Company’s effective tax rate if recognized.  The Company believes it is reasonably possible that $1.0 million of its gross unrecognized tax benefit will decrease during the twelve months ending December 31, 2008 if certain statutes of limitations expire during 2008.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits within its global operations in income tax expense.   To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.
 
The Company is subject to tax examinations in all major taxing jurisdictions in which it operates.  The Company files a consolidated income tax return in the U.S. federal jurisdiction and numerous consolidated and separate income tax returns in many state and foreign jurisdictions. The following table summarizes these open tax years by major jurisdiction:

   
Open Tax Year
   
Examination in
 
Examination not yet
Jurisdiction
 
Progress
 
Initiated
         
United States
 
2004-2006
 
2007
         
Various States
 
1996-2005
 
1996-2007
         
Brazil
 
N/A
 
2004-2007
         
Cyprus
 
N/A
 
2005-2007
         
France
 
N/A
 
2002-2007
         
Germany
 
2003-2005
 
2006-2007
         
Italy
 
N/A
 
2003-2007
         
Mexico
 
N/A
 
2000-2007
         
Netherlands
 
N/A
 
2004-2007
         
Puerto Rico
 
N/A
 
N/A
         
Seychelles
 
N/A
 
N/A
         
Switzerland
 
N/A
 
2004-2007
         
United Kingdom
 
N/A
 
2005-2007


NOTE 14:
EARNINGS PER SHARE
 
For the three months ended March 31, 2008 and 2007, there were no adjustments to net income for purposes of calculating basic and diluted net income per common share.  The following table is a reconciliation of the weighted average shares used in the basic and diluted net income per common share computations.
 
   
Three Months Ended
March 31,
 
   
2008
   
2007
 
             
Weighted average common shares - basic
    17,087,003       16,464,571  
Effect of dilutive securities
    174,169       461,686  
Weighted average common shares – diluted
    17,261,172       16,926,257  

The Company did not include 260,668 and 10,500 options in the diluted shares outstanding calculation for the three months ended March 31, 2008 and 2007, respectively, because their inclusion would have been anti-dilutive.

NOTE 15:
DERIVATIVE INSTRUMENTS

In 2006, the Company entered into a cross-currency swap agreement to manage its foreign currency exposure related to a portion of the Company’s intercompany receivable of a U.S. dollar functional currency subsidiary that is denominated in Euro.  The derivative instrument, a ten-year fully amortizable agreement with a notional amount of $63.0 million is scheduled to expire on December 30, 2016.  The instrument is designated as a cash flow hedge.  The amount outstanding under the agreement as of March 31, 2008 is $59.8 million.  Under the agreement, the Company pays Euro and receives U.S. dollars based on scheduled cash flows in the agreement.  The Company recognized the unrealized gain on the change in fair value of this swap arrangement of $2.8 million, net of tax, within other comprehensive income for the three months ended March 31, 2008.
 
 
NOTE 16:
FAIR VALUE MEASUREMENTS
 
As described in Note 3, “Recently Issued Accounting Standards,” the Company adopted SFAS No. 157 effective January 1, 2008.  SFAS No. 157 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  SFAS No. 157 also describes three levels of inputs that may be used to measure fair value:
 
Level 1 – quoted prices in active markets for identical assets and liabilities
 
Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities
 
Level 3 – unobservable inputs in which there is little or no market data available, which require the   reporting entity to develop its own assumptions
 
The fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:
 
   
Balance
March 31,
2008
   
Level 1
   
Level 2
   
Level 3
 
Cash Equivalents
  $ 7,122     $ 7,122     $ -     $ -  
Derivative Financial Instruments (1)
                               
Cash Flow Hedges
  $ (8,485 )     -       (8,485 )     -  

(1)   See Note 15, “Derivative Instruments”.
 
NOTE 17:
CONTINGENCIES
 
Litigation
 
Effective October 29, 2007, the Company’s subsidiary, Blackstone, entered into a settlement agreement with respect to a patent infringement lawsuit captioned Medtronic Sofamor Danek USA Inc., Warsaw Orthopedic, Inc., Medtronic Puerto Rico Operations Co., and Medtronic Sofamor Danek Deggendorf, GmbH v. Blackstone Medical, Inc., Civil Action No. 06-30165-MAP, filed on September 22, 2006 in the United States District Court for the District of Massachusetts. In that lawsuit, the plaintiffs had alleged that (i) they were the exclusive licensees of United States Patent Nos. 6,926,718 B1, 6,936,050 B2, 6,936,051 B2, 6,398,783 B1 and 7,066,961 B2 (the “Patents”), and (ii) Blackstone's making, selling, offering for sale, and using within the United States of its Blackstone Anterior Cervical Plate, 3º Anterior Cervical Plate, Hallmark Anterior Cervical Plate and Construx Mini PEEK VBR System products infringed the Patents, and that such infringement was willful.  The Complaint requested both damages and an injunction against further alleged infringement of the Patents. The Complaint did not specifically state an amount of damages.  Blackstone denied infringement and asserted that the Patents were invalid.  On July 20, 2007, the Company submitted a claim for indemnification from the escrow fund established in connection with the agreement and plan of merger between the Company, New Era Medical Corp. and Blackstone, dated as of August 4, 2006 (the “Merger Agreement”), for any losses to the Company or Blackstone resulting from this matter.  The Company was subsequently notified by legal counsel for the former shareholders that the representative of the former shareholders of Blackstone has objected to the indemnification claim and intends to contest it in accordance with the terms of the Merger Agreement.  The Company is unable to predict the outcome of the escrow claim or to estimate the amount, if any, that may ultimately be returned to the Company from the escrow fund.  The settlement agreement is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.


On or about July 23, 2007, Blackstone received a subpoena issued by the Department of Health and Human Services, Office of Inspector General, under the authority of the federal healthcare anti-kickback and false claims statutes.  The subpoena seeks documents for the period January 1, 2000 through July 31, 2006 which is prior to Blackstone’s acquisition by the Company.  The Company believes that the subpoena concerns the compensation of physician consultants and related matters.  Blackstone is cooperating with the government’s request and is in the process of responding to the subpoena.  The Company is unable to predict what action, if any, might be taken in the future by the Department of Health and Human Services, Office of Inspector General or other governmental authorities as a result of this investigation or what impact, if any, the outcome of this matter might have on its consolidated financial position, results of operations, or cash flows.  On September 17, 2007, the Company submitted a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any losses to the Company or Blackstone resulting from this matter.  The Company was subsequently notified by legal counsel for the former shareholders that the representative of the former shareholders of Blackstone has objected to the indemnification claim and intends to contest it in accordance with the terms of the Merger Agreement.  The Company is unable to predict the outcome of the escrow claim or to estimate the amount, if any, that may ultimately be returned to the Company from the escrow fund.

On or about January 7, 2008, the “Company received a federal grand jury subpoena from the United States Attorney’s Office for the District of Massachusetts.  The subpoena seeks documents for the period January 1, 2000 through July 15, 2007 from the Company, including its subsidiaries.  The Company believes that the subpoena concerns the compensation of physician consultants and related matters, and further believes that it is associated with Department of Health and Human Services, Office of Inspector General’s investigation of such matters.  The Company is cooperating with the government’s request and is in the process of responding to the subpoena.  The Company is unable to predict what action, if any, might be taken in the future by governmental authorities as a result of this investigation or what impact, if any, the outcome of this matter might have on its consolidated financial position, results of operations, or cash flows.  It is the Company’s intention to submit a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any recoverable losses to the Company or Blackstone resulting from this matter.

On or about September 27, 2007, Blackstone received a federal grand jury subpoena issued by the United States’ Attorney’s Office for the District of Nevada (“USAO-Nevada”). The subpoena seeks documents for the period from January 1999 to the present. The Company believes that the subpoena concerns payments or gifts made by Blackstone to certain physicians. Blackstone is cooperating with the government’s request and is in the process of responding to the subpoena.  The Company is unable to predict what action, if any, might be taken in the future by the USAO-Nevada or other governmental authorities as a result of this investigation or what impact, if any, the outcome of this matter might have on its consolidated financial position, results of operations, or cash flows.  It is the Company’s intention to submit a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any recoverable losses to the Company or Blackstone resulting from this matter.

On February 29, 2008, Blackstone received a Civil Investigative Demand (“CID”) from the Massachusetts Attorney General’s Office, Public Protection and Advocacy Bureau, Healthcare Division.  The Company believes that the CID seeks documents concerning Blackstone’s financial relationships with certain physicians and related matters for the period from March 2004 through the date of issuance of the CID.  The Company is cooperating with the government’s request and is in the process of responding to the CID.  It is the Company’s intention to submit a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any recoverable losses to the Company or Blackstone resulting from this matter.


By order entered on January 4, 2007, the United States District Court for the Eastern District of Arkansas unsealed a qui tam complaint captioned Thomas v. Chan, et al., 4:06-cv-00465-JLH, filed against Dr. Patrick Chan, Blackstone and other defendants including another device manufacturer.  A qui tam action is a civil lawsuit brought by an individual for an alleged violation of a federal statute, in which the U.S. Department of Justice has the right to intervene and take over the prosecution of the lawsuit at its option.  The complaint alleges causes of action under the False Claims Act for alleged inappropriate payments and other items of value conferred on Dr. Chan.  On December 29, 2006, the U.S. Department of Justice filed a notice of non-intervention in the case.  Plaintiff subsequently amended the complaint to add the Company as a defendant.  On January 3, 2008, Dr. Chan pled guilty to one count of knowingly soliciting and receiving kickbacks from a medical device distributor in a criminal matter, in which neither the Company nor any of its business units or employees were defendants  In January 2008, Dr. Chan entered into a settlement agreement with the plaintiff and certain governmental entities in the civil qui tam action, and on February 21, 2008, a joint stipulation of dismissal of claims against Dr. Chan in the action was filed with the court, which removes him as a defendant in the action.  The Company believes Blackstone and the Company have meritorious defenses to the claims alleged and the Company intends to defend vigorously against this lawsuit.  On September 17, 2007, the Company submitted a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any losses to the Company or Blackstone resulting from this matter.  The Company was subsequently notified by legal counsel for the former shareholders that the representative of the former shareholders of Blackstone has objected to the indemnification claim and intends to contest it in accordance with the terms of the Merger Agreement.  The Company is unable to predict the outcome of the escrow claim or to estimate the amount, if any, that may ultimately be returned to the Company from the escrow fund.

Between January 2007 and May 2007, Blackstone and Orthofix Inc. were named defendants, along with other medical device manufacturers, in three civil lawsuits alleging that Dr. Chan had performed unnecessary surgeries in three different instances.  In January 2008, the Company learned that Orthofix Inc. was named a defendant, along with other medical device manufacturers, in a fourth civil lawsuit alleging that Dr. Chan had performed unnecessary surgeries.  All four civil lawsuits have been served and are pending in the Circuit Court of White County, Arkansas.  The Company believes that the Company and its subsidiaries have meritorious defenses to the claims alleged and the Company and its subsidiaries intend to defend vigorously against these lawsuits.  On September 17, 2007, the Company submitted a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any losses to the Company or Blackstone resulting from one of these four civil lawsuits.  The Company was subsequently notified by legal counsel for the former shareholders that the representative of the former shareholders of Blackstone has objected to the indemnification claim and intends to contest it in accordance with the terms of the Merger Agreement.  The Company is unable to predict the outcome of the escrow claim or to estimate the amount, if any, that may ultimately be returned to the Company from the escrow fund.

Of the total Blackstone purchase price, $50.0 million was placed into an escrow account.  As described in the Agreement and Plan of Merger, the Company can make claims for reimbursement from the escrow account for certain defined items relating to the acquisition for which the Company is indemnified.  As described in Note 16, the Company has certain contingencies arising from the acquisition that management expects will be reimbursable from the escrow account should the Company have to make a payment to a third party.  The Company records the claims against the escrow in an escrow receivable account which is included in other current assets on the consolidated balance sheets.  Because the Company believes that the settlement process of escrow claims is complex and all claims may not be reimbursed, management has recorded a reserve against the escrow receivable.  Further, management believes that the amount that it will be required to pay relating to the contingencies will not exceed the amount of the escrow account; however, there can be no assurance that the contingencies will not exceed the amount of the escrow account.

In addition to the foregoing, the Company has submitted claims for indemnification from the escrow fund established in connection with the Merger Agreement for losses that have or may result from certain claims against Blackstone alleging that plaintiffs and/or claimants were entitled to payments for Blackstone stock options not reflected in Blackstone's corporate ledger at the time of Blackstone's acquisition by the Company.  To date, the representative of the former shareholders of Blackstone has not objected to approximately $1.5 million in claims from the escrow fund, with certain claims remaining pending.

The Company cannot predict the outcome of any proceedings or claims made against the Company or its subsidiaries and there can be no assurance that the ultimate resolution of any claim will not have a material adverse impact on its consolidated financial position, results of operations, or cash flows.

In addition to the foregoing, in the normal course of our business, the Company is involved in various lawsuits from time to time and may be subject to certain other contingencies.


United Kingdom Payroll Taxes

In 2007, Intavent Orthofix Limited, the Company’s UK distribution subsidiary, received an inquiry from H.M. Revenue and Customs (HMRC) relating to the tax treatment of gains made by UK employees on the exercise of stock options.  The Company is in the process of formulating a response to HMRC.  Based on preliminary calculations, a provision of $0.5 million has been provided, of which the Company has paid $0.2 million.  The Company cannot predict the ultimate outcome of its discussions with HMRC.

Concentrations of credit risk
 
There have been no material changes from the information provided in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis addresses our liquidity, financial condition, and the results of our operations for the three months ended March 31, 2008 compared to our results of operations for the three months ended March 31, 2007.  These discussions should be read in conjunction with our historical consolidated financial statements and related notes thereto and the other financial information included in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
 
General
 
We are a diversified orthopedic products company offering a broad line of surgical and non-surgical products for the Spine, Orthopedics, Sports Medicine and Vascular market sectors. Our products are designed to address the lifelong bone-and-joint health needs of patients of all ages, helping them achieve a more active and mobile lifestyle. We design, develop, manufacture, market and distribute medical equipment used principally by musculoskeletal medical specialists for orthopedic applications. Our main products are invasive and minimally invasive spinal implant products and related human cellular and tissue based products ( HCT/P products”), non-invasive bone growth stimulation products used to enhance the success rate of spinal fusions and to treat non-union fractures, external and internal fixation devices used in fracture treatment, limb lengthening and bone reconstruction; and bracing products used for ligament injury prevention, pain management and protection of surgical repair to promote faster healing. Our products also include a device for enhancing venous circulation, cold therapy, bone cement and devices for removal of bone cement used to fix artificial implants and airway management products used in anesthesia applications.
 
We have administrative and training facilities in the United States and Italy and manufacturing facilities in the United States, the United Kingdom, Italy and Mexico.  We directly distribute our products in the United States, the United Kingdom, Italy, Germany, Switzerland, Austria, France, Belgium, Mexico, Brazil, and Puerto Rico.  In several of these and other markets, we also distribute our products through independent distributors.
 
Our condensed consolidated financial statements include the financial results of the Company and its wholly-owned and majority-owned subsidiaries and entities over which we have control.  All intercompany accounts and transactions are eliminated in consolidation.
 
Our reporting currency is the United States Dollar.  All balance sheet accounts, except shareholders’ equity, are translated at period-end exchange rates, and revenue and expense items are translated at weighted average rates of exchange prevailing during the period.  Gains and losses resulting from foreign currency transactions are included in other income (expense).  Gains and losses resulting from the translation of foreign currency financial statements are recorded in the accumulated other comprehensive income component of shareholders’ equity.
 
Our financial condition, results of operations and cash flows are not significantly impacted by seasonality trends.  However, sales associated with products for elective procedures appear to be influenced by the somewhat lower level of such procedures performed in the late summer.  Certain of the Breg® bracing products experience greater demand in the fall and winter corresponding with high school and college football schedules and winter sports.  In addition, we do not believe our operations will be significantly affected by inflation.  However, in the ordinary course of business, we are exposed to the impact of changes in interest rates and foreign currency fluctuations.  Our objective is to limit the impact of such movements on earnings and cash flows.  In order to achieve this objective, we seek to balance non-dollar income and expenditures.  During the first three months of 2008, we have used derivative instruments to hedge certain foreign currency fluctuation exposures.  See Item 3 – “Quantitative and Qualitative Disclosures About Market Risk.”
 
On September 22, 2006, we completed the acquisition of Blackstone Medical, Inc. (“Blackstone”), a privately held company specializing in the design, development and marketing of spinal implant and related human cellular and tissue based products ( HCT/P products”). The purchase price for the acquisition was $333.0 million, subject to certain closing adjustments, plus transaction costs and other accruals totaling approximately $12.6 million as of March 31, 2008. The acquisition and related costs were financed with $330.0 million of senior secured term debt and cash on hand.  Financing costs were approximately $6.5 million.
 

Effective with the acquisition of Blackstone, we manage our operations as four business segments: Domestic, Blackstone, Breg, and International.  Domestic consists of operations of our subsidiary Orthofix Inc.  Blackstone consists of Blackstone’s domestic operations and international distributors.  Breg consists of Breg Inc.’s domestic operations and international distributors.   International consists of operations which are located in the rest of the world as well as independent export distribution operations.  Group Activities are comprised of the operating expenses and identifiable assets of Orthofix International N.V. and its U.S. holding company, Orthofix Holdings, Inc.
 
Segment and Market Sector Revenues
 
The following tables display net sales by business segment and net sales by market sector.  We keep our books and records and account for net sales, costs of sales and expenses by business segment.  We provide net sales by market sector for information purposes only.
 
Business Segment:
 
   
Three Months Ended March 31,
 
(In US$ thousands)
 
2008
   
2007
 
   
Net Sales
   
Percent of
Total Net Sales
   
Net Sales
   
Percent of Total Net Sales
 
Domestic
  $ 44,127       35 %   $ 39,115       33 %
Blackstone
    27,981       22 %     25,866       23 %
Breg
    22,063       17 %     20,123       17 %
International
    33,861       26 %     31,928       27 %
Total
  $ 128,032       100 %   $ 117,032       100 %
 
Market Sector:
 
   
Three Months Ended March 31,
 
(In US$ thousands)
 
2008
   
2007
 
   
Net Sales
   
Percent of
Total Net Sales
   
Net Sales
   
Percent of Total Net Sales
 
Spine
  $ 62,458       49 %   $ 56,149       48 %
Orthopedics
    29,788       23 %     27,645       24 %
Sports Medicine
    23,315       18 %     21,158       18 %
Vascular
    5,333       4 %     4,921       4 %
Other
    7,138       6 %     7,159       6 %
Total
  $ 128,032       100 %   $ 117,032       100 %


The following table presents certain items from our Condensed Consolidated Statements of Operations as a percent of total net sales for the periods indicated:
 
   
Three Months Ended March 31,
 
   
2008
(%)
   
2007
(%)
 
             
Net sales
   
100
     
100
 
Cost of sales
   
27
     
26
 
Gross profit
   
73
     
74
 
Operating expenses
   
 
     
 
 
Sales and marketing
   
39
     
38
 
General and administrative
 
 
17
   
 
14
 
Research and development
   
5
   
 
5
 
Amortization of intangible assets
   
4
     
4
 
Gain on sale of Pain Care® operations
 
 
(1)
     
-
 
Total operating income
   
9
     
13
 
Net income
 
 
3
     
5
 
 

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 
Net sales increased 9% to $128.0 million for the first quarter of 2008 compared to $117.0 million for the first quarter of 2007.  The impact of foreign currency increased sales by $2.4 million during the first quarter of 2008 as compared to the first quarter of 2007.
 
Sales by Business Segment:
 
Net sales in Domestic increased to $44.1 million in the first quarter of 2008 compared to $39.1 million in the first quarter of 2007, an increase of 13%.  Domestic’s net sales represented 35% of total net sales during the first quarter of 2008 and 33% of total net sales for the first quarter of 2007. The increase in Domestic’s net sales was partially the result of a 13% increase in sales in our Spine market sector, which was mainly driven by the increase in sales of our Spinal-Stim® and Cervical-Stim® products.  The increase in Domestic’s net sales can also be attributed to the 13% increase in our Orthopedic market sector as sales of our internal fixation products including our eight-Plate Guided Growth System® increased 29%, and sales of our Physio-Stim products increased 9% when compared to the first quarter of 2007.  These increases were partially offset by a 9% decrease in sales of external fixation products when compared to the same period in the prior year.
 
Domestic Sales by Market Sector:
 
   
Net Sales for the
Three Months Ended March 31,
       
(In US$ thousands)
 
2008
   
2007
   
Growth
 
                   
Spine
  $ 33,373     $ 29,604       13 %
Orthopedics
    10,754       9,511       13 %
                         
Total
  $ 44,127     $ 39,115       13 %
                         


Net sales in Blackstone increased to $28.0 million in the first quarter of 2008 compared to $25.9 million in the first quarter of 2007, an increase of 8%.  Blackstone’s net sales represented 22% of total net sales during the first quarter of 2008 and 23% during the first quarter of 2007.  The increase in Blackstone’s net sales can be mainly attributed to an increase in the sales of our human cellular and tissue based products (“HCT/P products”, often referred to as Biologic products).  All of Blackstone’s sales are recorded in our Spine market sector.
 
Net sales in Breg increased $1.9 million to $22.1 million in the first quarter of 2008 compared to $20.1 million for the first quarter of 2007, an increase of 10%.  Breg’s net sales represented 17% of total net sales during the first quarters of both 2008 and 2007.  The increase in Breg’s net sales was primarily due to an increase in the sales of our Breg® bracing products which increased 16% from the first quarter of 2007, primarily as a result of the sales of our Fusion XT™ products.  Further, sales of our cold therapy products increased 12% when compared to the same period in the prior year.  These increases were partially offset by a 33% decrease in sales of our pain therapy products as a result of the sale of operations related to our Pain Care® line of ambulatory infusion pumps during March 2008.  All of Breg’s sales are recorded in our Sports Medicine market sector.
 
Net sales in International increased 6% to $33.9 million in the first quarter of 2008 compared to $31.9 million in the first quarter of 2007.  International’s net sales represented 26% and 27% of our total net sales in the first quarter of 2008 and the first quarter of 2007, respectively. The impact of foreign currency increased International net sales by 9.1% or $2.3 million, during the first quarter of 2008 as compared to the first quarter of 2007.  In addition, International net sales in the first quarter of 2008 were positively impacted by a 63% increase in our Spine products mainly as a result of the sales of Blackstone products within International, which increased from the comparable period in the prior year.  The sales of our Orthopedic products increased by 5% as compared to the first quarter of 2007 primarily as a result of the sales of our internal fixation products including the eight-Plate Guided Growth System ® , which increased 11%, as well as increased sales of our OSCAR and Physio-Stim ® products.  Further, sales of Breg products within International, included in the Sports Medicine sector, increased $0.2 million or 21% when compared to first quarter of 2007.  International sales in our Vascular sector, which consists of the A-V Impulse System ® , also increased $0.4 million or 8% from the first quarter of 2007, while sales in our Other sector, which includes the Laryngeal Mask,   remained constant at approximately $7.2 million.
 
International Sales by Market Sector:
 
   
Net Sales for the
Three Months Ended March 31,
       
(In US$ thousands)
 
2008
   
2007
   
Growth
 
                   
Spine
  $ 1,104     $ 679       63 %
Orthopedics
    19,034       18,134       5 %
Sports Medicine
    1,252       1,035       21 %
Vascular
    5,333       4,921       8 %
Other
    7,138       7,159       -  
                         
Total
  $ 33,861     $ 31,928       6 %
 
Sales by Market Sector:
 
Sales of our Spine products increased 11% to $62.5 million in the first quarter of 2008 compared to $56.1 million in the first quarter of 2007.  The increase of $6.4 million is primarily due to increased sales of Blackstone products as well as sales growth of spinal stimulation products in the United States including  the Cervical-Stim®. Spine product sales were 49% and 48% of our total net sales in the first quarter of 2008 and 2007, respectively.


Sales of our Orthopedic products increased 8% to $29.8 million in the first quarter of 2008 compared to $27.6 million in the first quarter of 2007.  The increase of $2.2 million can be mainly attributed to a 16% increase in sales of our internal fixation devices including the eight-Plate Guided Growth System®.  Further, the 11% increase in sales of our Physio-Stim® products also contributed to the increase in our Orthopedic sales.  Offsetting these increases, our external fixation product sales decreased by $0.5 million, or 4%, from the first quarter of 2007.  Orthopedic product sales were 23% and 24% of our total net sales in the first quarter of 2008 and 2007, respectively.
 
Sales of our Sports Medicine products increased 10% to $23.3 million in the first quarter of 2008 compared to $21.2 million in the first quarter of 2007.  As discussed above, the increase of $2.1 million is primarily due to sales of our Breg® bracing products as well as our cold therapy products, offset by a decrease in our pain therapy products, which can be mainly attributed to the sale of operations relating to our Pain Care ® line in March 2008.  Sports Medicine product sales were 18% of our total net sales in both the first quarter of 2008 and 2007.
 
Sales of our Vascular products, which consist of our A-V Impulse System ®, increased 8% to $5.3 million in the first quarter of 2008 compared to $4.9 million in the first quarter of 2007.  Vascular product sales were 4% of our total net sales in both the first quarter of 2008 and 2007.
 
Sales of our Other products, which include the sales of our Laryngeal Mask as well as our Woman’s Care line, remained flat at approximately $7.2 million in the first quarter of 2008 as compared to the first quarter of 2007.   Other product sales were 6% of our total net sales in both the first quarter of 2008 and 2007.
 
Gross Profit - Our gross profit increased 9% to $93.8 million in the first quarter of 2008, from $86.2 million in the first quarter of 2007.  The improvement in gross profit can be primarily attributed to increased sales, as discussed above, as well as stronger margins as a result of a favorable product mix. Sales of our spinal stimulation products, which are our higher margin products, were up 13% from the same period in the prior year.  These increased margins were only slightly offset by a decline in the margins of Blackstone’s products mainly due to the impact of a changing sales mix with a higher percentage of overall sales coming from lower profit Blackstone international distributors and Blackstone domestic sales of HCT/P products.  Further, during the first quarter of 2007, we recorded a charge of $0.9 million for amortization of the step-up in inventory associated with the Blackstone acquisition.  Since the step-up in the Blackstone inventory from purchase accounting was fully amortized during 2007, no such amortization was recorded during the first quarter of 2008.  Gross profit as a percent of net sales in the first quarter of 2008 was 73.3% compared to 73.7% in the first quarter of 2007.

Sales and Marketing Expense - Sales and marketing expense, which includes commissions, royalties and the bad debt provision, increased $5.6 million, or 13%, to $50.2 million in the first quarter of 2008 compared to $44.6 million in the first quarter of 2007.  This increase, which can be partly attributed to increased expense in order to support increased sales activity, was also due to an increase in commissions related to the completed exploration of the potential divestiture of our orthopedic fixation business.  Offsetting these increases, SFAS 123(R) expense decreased $0.4 million from the comparable period in the prior year.  As a percent of sales, sales and marketing expense was 39.2% in the first quarter of 2008 compared to 38.1% in the first quarter of 2007.

General and Administrative Expense – General and administrative expense increased $6.3 million, or 39%, in the first quarter of 2008 to $22.2 million compared to $15.9 million in the first quarter of 2007.  The increase was primarily attributable to a charge of $3.6 million in the first quarter of 2008 related to the completed exploration of the potential divestiture of our orthopedic fixation business, as well as increased audit fees and headcount, especially at our Brazilian and Blackstone subsidiaries.  General and administrative expense as a percent of sales was 17.3% in the first quarter of 2008 compared to 13.6% in the first quarter of 2007.

Research and Development Expense - Research and development expense increased $0.1 million in the first quarter of 2008 to $6.4 million compared to $6.3 million in the first quarter of 2007.  This increase was partially offset by a decrease in SFAS 123(R) expense of $0.1 million from the comparable period in the prior year.  As a percent of sales, research and development expense decreased to 5.0% in the first quarter of 2008 compared to 5.4% in the first quarter of 2007.


Amortization of Intangible Assets – Amortization of intangible assets increased $0.6 million, or 13%, in the first quarter of 2008 to $5.0 million compared to $4.5 million in the first quarter of 2007.  This increase can be primarily attributed to an increase in the rate of amortization at Blackstone associated with definite-lived intangible assets obtained in the Blackstone acquisition in September 2006.

Gain on Sale of Pain Care® Operations – Gain on sale of Pain Care® operations was $1.6 million in the first quarter of 2008 and represented the gain on the sale of operations related to our Pain Care® line of ambulatory infusion pumps during March 2008.  No such gain was recorded in the first quarter of 2007.

Interest Income (Expense), net – Interest expense, net was $5.4 million for the first quarter of 2008 compared to $5.7 million for the first quarter of 2007.  Interest expense for the first quarters of 2008 and 2007 included interest expense of $4.9 million and $5.6 million, respectively, related to the senior secured term loan used to finance the Blackstone acquisition.  This decrease can be mainly attributed to less principal as well as a lower interest rate from the comparable period in the prior year.
 
Other, net – Other, net was income of $0.5 million for the first quarter of 2008 compared to expense of $0.6 million for the first quarter of 2007.  The increase can be mainly attributed to the effect of foreign exchange.
 
Income Tax Expense   Our estimated worldwide effective tax rates were 46% and 28% during the first quarters of 2008 and 2007, respectively.  The effective tax rate for the first quarter of 2008 included an unfavorable discrete item resulting from the sale of operations related to our Pain Care® operations.   Excluding this discrete item, our effective rate was 33%.  The effective tax rate for the first quarter of 2008 was also negatively affected by the expiration of a U.K. tax planning strategy and the generation of unutilizable net operating losses in various jurisdictions.

Net Income Net income for the first quarter of 2008 was $3.6 million, or $0.21 per basic and diluted share, compared to net income of $6.3 million, or $0.38 per basic share and $0.37 per diluted share, for the first quarter of 2007.  The weighted average number of basic common shares outstanding was 17,087,003 and 16,464,571 during the first quarters of 2008 and 2007, respectively.  The weighted average number of diluted common shares outstanding was 17,261,172 and 16,926,257 during the first quarters of 2008 and 2007, respectively.
 
Liquidity and Capital Resources
 
Cash and cash equivalents at March 31, 2008 were $45.0 million, of which $18.2 million was subject to certain restrictions under the senior secured credit agreement described below.  This compares to cash and cash equivalents of $41.5 million at December 31, 2007, of which $16.5 million was restricted.

Net cash provided by operating activities was $0.9 million for the first three months of 2008 compared to $1.6 million for the first three months of 2007.  Net cash provided by operating activities is comprised of net income, non-cash items (including share-based compensation and non-cash purchase accounting items from the Blackstone and Breg acquisitions) and changes in working capital, including changes in restricted cash.  Net income decreased $2.7 million to $3.6 million for the first three months of 2008 from net income of $6.3 million for the comparable period in the prior year.  Non-cash items for the first quarter of 2008 decreased $0.5 million from the first three months of 2007 primarily as a result of the non-cash effect of an increase in deferred taxes which was partially offset by the gain on the sale of the operations related to the Breg Pain Care ® line. Working capital accounts consumed $10.0 million of cash in the first three months of 2008 compared to $12.4 million in the same period in 2007.  The principal uses of cash for working capital can be mainly attributable to increases in accounts receivable and inventory to support additional sales and certain operational initiatives which were partially offset by a decrease in prepaid expenses and other current assets.  Overall performance indicators for our two primary working capital accounts, accounts receivable and inventory, reflect days sales in receivables of 82 days at March 31, 2008 compared to 84 days at March 31, 2007 and inventory turns of 1.3 times at March 31, 2008 compared to 1.6 times at March 31, 2007. The lower inventory turns and resultant higher inventory reflect inventory investment to support Blackstone sales and support for new internal fixation products.


Net cash provided by investing activities was $1.9 million during the first three months of 2008 compared to $5.6 million used in investing activities during the first three months of 2007.  During the first quarter of 2008, we sold the operations of our Pain Care ® line of ambulatory infusion pumps for net proceeds of $6.0 million.  We also invested $4.1 million in capital expenditures. During the first three months of 2007, we invested $4.6 million in capital expenditures of which $2.1 million were related to Blackstone.  We also invested $1.0 million in subsidiaries and affiliates which was a result of adjustments in purchase accounting related to Blackstone and a purchase of a minority interest in our subsidiary in Mexico.

Net cash used in financing activities was $1.2 million in the first quarter of 2008 compared to $0.2 million in the first quarter of 2007.  During the first three months of 2008, we repaid approximately $4.5 million against the principal on our senior secured term loan and borrowed $1.4 million to support working capital in our Italian subsidiary.  In addition, we received proceeds of $1.9 million from the issuance of 50,052 shares of our common stock upon the exercise of stock options and $0.1 million of related tax benefit.  During the first three months of 2007, we repaid $4.8 million against the principal on our senior secured term loan and borrowed $2.6 million to support working capital in our Italian subsidiary.  In addition, we received proceeds of $1.6 million from the issuance of 55,203 shares of our common stock upon the exercise of stock options and $0.4 million of related tax benefit.

On September 22, 2006 our wholly-owned U.S. holding company subsidiary, Orthofix Holdings, Inc. (“Orthofix Holdings”), entered into a senior secured credit facility with a syndicate of financial institutions to finance the acquisition of Blackstone.  The senior secured credit facility provides for (1) a seven-year amortizing term loan facility of $330.0 million, the proceeds of which, together with cash balances were used for payment of the purchase price of Blackstone; and (2) a six-year revolving credit facility of $45.0 million.  As of March 31, 2008 we had no amounts outstanding under the revolving credit facility and $293.2 million outstanding under the term loan facility.  Obligations under the senior secured credit facility have a floating interest rate of the London Inter-Bank Offered Rate (“LIBOR”) plus a margin or prime rate plus a margin.  Currently, the term loan is a LIBOR loan, and the margin is 1.75%, which is adjusted quarterly based upon the leverage ratio of the Company and its subsidiaries.  Our effective interest rate as of March 31, 2008 on our senior secured credit facility was 4.46%.

Each of the domestic subsidiaries of the Company (which includes Orthofix Inc., Breg Inc., and Blackstone) and Colgate Medical Limited and Victory Medical Limited (wholly-owned financing subsidiaries of the Company) have guaranteed the obligations of Orthofix Holdings under the senior secured credit facility.  The obligations of the subsidiaries under their guarantees are secured by the pledges of their respective assets.
 
At March 31, 2008, we had outstanding borrowings of $10.8 million and unused available lines of credit of approximately 0.4 million Euro ($0.7 million) under a line of credit established in Italy to finance the working capital of our Italian operations. The terms of the line of credit give us the option to borrow amounts in Italy at rates determined at the time of borrowing.

We continue to search for viable acquisition candidates that would expand our global presence as well as add additional products appropriate for current distribution channels.  An acquisition of another company or product line by us could result in our incurrence of additional debt and contingent liabilities.

We believe that current cash balances together with projected cash flows from operating activities, the available revolving credit facility and available Italian line of credit, the exercise of stock options, and our remaining available debt capacity are sufficient to cover anticipated working capital and capital expenditure needs including research and development costs over the near term.
 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to certain market risks as part of our ongoing business operations.  Primary exposures include changes in interest rates and foreign currency fluctuations. These exposures can vary sales, cost of sales, costs of operations, and the cost of financing and yields on cash and short-term investments.  We use derivative financial instruments, where appropriate, to manage these risks.   However, our risk management policy does not allow us to hedge positions we do not hold nor do we enter into derivative or other financial investments for trading or speculative purposes.  As of March 31, 2008, we had a currency swap in place to minimize foreign currency exchange risk related to a 42.6 million Euro intercompany note foreign currency exposure.

We are exposed to interest rate risk in connection with our senior secured term loan and borrowings under our revolving credit facility, which bear interest at floating rates based on LIBOR or the prime rate plus an applicable borrowing margin. Therefore, interest rate changes generally do not affect the fair market value of the debt, but do impact future earnings and cash flows, assuming other factors are held constant.

As of March 31, 2008, we had $293.2 million of variable rate term debt represented by borrowings under our senior secured term loan at a floating interest rate of LIBOR plus a margin or the prime rate plus a margin, currently LIBOR plus 1.75%, which is adjusted quarterly based upon the leverage ratio of the Company and its subsidiaries.  The effective interest rate as of March 31, 2008 on the senior secured term loan was 4.46%.  Based on the balance outstanding under the senior secured term loan as of March 31, 2008, an immediate change of one percentage point in the applicable interest rate on the variable rate debt would cause an increase or decrease in interest expense of approximately $2.9 million on an annual basis.

Our foreign currency exposure results from fluctuating currency exchange rates, primarily the U.S. Dollar against the Euro, Great Britain Pound, Mexican Peso and Brazilian Real.  We face cost of goods currency exposure when we produce products in foreign currencies such as the Euro or Great Britain Pound and sell those products in U.S. Dollars.  We face transactional currency exposures when foreign subsidiaries (or the Company itself) enter into transactions denominated in a currency other than their functional currency.  As of March 31, 2008, we had an uncovered intercompany receivable denominated in Euro for approximately $11.4 million.  We recorded a foreign currency gain during the first quarter of 2008 of $0.2 million which resulted from the strengthening of the Euro against the U.S. dollar during the period.

We also face currency exposure from translating the results of our global operations into the U.S. dollar at exchange rates that have fluctuated from the beginning of the period.  The U.S. dollar equivalent of international sales denominated in foreign currencies was favorably impacted during the first quarters of 2008 and 2007 by foreign currency exchange rate fluctuations with the weakening of the U.S dollar against the local foreign currency during these periods.  The U.S. dollar equivalent of the related costs denominated in these foreign currencies was unfavorably impacted during these periods.  As we continue to distribute and manufacture our products in selected foreign countries, we expect that future sales and costs associated with our activities in these markets will continue to be denominated in the applicable foreign currencies, which could cause currency fluctuations to materially impact our operating results.


Item 4.  Controls and Procedures
 
Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a - 15(e) or 15d – 15 (e)) as of the end of the period covered by this report.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
 
Changes in Internal Control over Financial Reporting
 
In April 2008, we implemented a financial performance management software system (the “system”) for consolidating and analyzing results for Orthofix International N.V.  The system, developed by COGNOS, is expected to improve and enhance internal controls over financial reporting.  This system materially changes how financial results are prepared.  However, the implementation has not had a material adverse effect on our internal control over financial reporting and is not expected to have a material adverse effect in the future.
 
Except for the processes, systems, and controls relating to the conversion to the system mentioned above, there have not been any changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2008 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
 

PART II   OTHER INFORMATION
 
 Item 1.  Legal Proceedings
 
Effective October 29, 2007, our subsidiary, Blackstone, entered into a settlement agreement with respect to a patent infringement lawsuit captioned Medtronic Sofamor Danek USA Inc., Warsaw Orthopedic, Inc., Medtronic Puerto Rico Operations Co., and Medtronic Sofamor Danek Deggendorf, GmbH v. Blackstone Medical, Inc., Civil Action No. 06-30165-MAP, filed on September 22, 2006 in the United States District Court for the District of Massachusetts. In that lawsuit, the plaintiffs had alleged that (i) they were the exclusive licensees of United States Patent Nos. 6,926,718 B1, 6,936,050 B2, 6,936,051 B2, 6,398,783 B1 and 7,066,961 B2 (the “Patents”), and (ii) Blackstone's making, selling, offering for sale, and using within the United States of its Blackstone Anterior Cervical Plate, 3º Anterior Cervical Plate, Hallmark Anterior Cervical Plate and Construx Mini PEEK VBR System products infringed the Patents, and that such infringement was willful.  The Complaint requested both damages and an injunction against further alleged infringement of the Patents. The Complaint did not specifically state an amount of damages.  Blackstone denied infringement and asserted that the Patents were invalid.  On July 20, 2007, we submitted a claim for indemnification from the escrow fund established in connection with the agreement and plan of merger between the Company, New Era Medical Corp. and Blackstone, dated as of August 4, 2006 (the “Merger Agreement”), for any losses to us resulting from this matter.  We were subsequently notified by legal counsel for the former shareholders that the representative of the former shareholders of Blackstone has objected to the indemnification claim and intends to contest it in accordance with the terms of the Merger Agreement.  We are unable to predict the outcome of the escrow claim or to estimate the amount, if any, that may ultimately be returned to us from the escrow fund.  The settlement agreement is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

On or about July 23, 2007, Blackstone received a subpoena issued by the Department of Health and Human Services, Office of Inspector General, under the authority of the federal healthcare anti-kickback and false claims statutes.  The subpoena seeks documents for the period January 1, 2000 through July 31, 2006 which is prior to Blackstone’s acquisition by the Company.  We believe that the subpoena concerns the compensation of physician consultants and related matters.  Blackstone is cooperating with the government’s request and is in the process of responding to the subpoena.  We are unable to predict what action, if any, might be taken in the future by the Department of Health and Human Services, Office of Inspector General or other governmental authorities as a result of this investigation or what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations, or cash flows.  On September 17, 2007, we submitted a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any losses to us resulting from this matter.  We were subsequently notified by legal counsel for the former shareholders that the representative of the former shareholders of Blackstone has objected to the indemnification claim and intends to contest it in accordance with the terms of the Merger Agreement.  We are unable to predict the outcome of the escrow claim or to estimate the amount, if any, that may ultimately be returned to us from the escrow fund.

On or about January 7, 2008, the Company received a federal grand jury subpoena from the United States Attorney’s Office for the District of Massachusetts.  The subpoena seeks documents for the period January 1, 2000 through July 15, 2007 from us.  We believe that the subpoena concerns the compensation of physician consultants and related matters, and further believe that it is associated with Department of Health and Human Services, Office of Inspector General’s investigation of such matters.  We are cooperating with the government’s request and are in the process of responding to the subpoena.  We are unable to predict what action, if any, might be taken in the future by governmental authorities as a result of this investigation or what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations, or cash flows.  It is our intention to submit a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any recoverable losses to us or Blackstone resulting from this matter.

On or about September 27, 2007, Blackstone received a federal grand jury subpoena issued by the United States Attorney’s Office for the District of Nevada (“USAO-Nevada”). The subpoena seeks documents for the period from January 1999 to the present. We believe that the subpoena concerns payments or gifts made by Blackstone to certain physicians. Blackstone is cooperating with the government’s request and is in the process of responding to the subpoena.  We are unable to predict what action, if any, might be taken in the future by the USAO-Nevada or other governmental authorities as a result of this investigation or what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations, or cash flows.  It is our intention to submit a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any recoverable losses to us or Blackstone resulting from this matter.


On February 29, 2008, Blackstone received a Civil Investigative Demand (“CID”) from the Massachusetts Attorney General’s Office, Public Protection and Advocacy Bureau, Healthcare Division.  We believe that the CID seeks documents concerning Blackstone’s financial relationships with certain physicians and related matters for the period from March 2004 through the date of issuance of the CID.  We are cooperating with the government’s request and are in the process of responding to the CID.  It is our intention to submit a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any recoverable losses to us or Blackstone resulting from this matter.

By order entered on January 4, 2007, the United States District Court for the Eastern District of Arkansas unsealed a qui tam complaint captioned Thomas v. Chan, et al., 4:06-cv-00465-JLH, filed against Dr. Patrick Chan, Blackstone and other defendants including another device manufacturer.  A qui tam action is a civil lawsuit brought by an individual for an alleged violation of a federal statute, in which the U.S. Department of Justice has the right to intervene and take over the prosecution of the lawsuit at its option.  The complaint alleges causes of action under the False Claims Act for alleged inappropriate payments and other items of value conferred on Dr. Chan.  On December 29, 2006, the U.S. Department of Justice filed a notice of non-intervention in the case.  Plaintiff subsequently amended the complaint to add Orthofix International N.V. as a defendant.  On January 3, 2008, Dr. Chan pled guilty to one count of knowingly soliciting and receiving kickbacks from a medical device distributor in a criminal matter in which neither the Company nor any of its business units or employees were defendants.  In January 2008, Dr. Chan entered into a settlement agreement with the plaintiff and certain governmental entities in the civil qui tam action, and on February 21, 2008, a joint stipulation of dismissal of claims against Dr. Chan in the action was filed with the court, which removes him as a defendant in the action.  We believe that we have meritorious defenses to the claims alleged and we intend to defend vigorously against this lawsuit.  On September 17, 2007, we submitted a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any losses to us resulting from this matter.  We were subsequently notified by legal counsel for the former shareholders that the representative of the former shareholders of Blackstone has objected to the indemnification claim and intends to contest it in accordance with the terms of the Merger Agreement.  We are unable to predict the outcome of the escrow claim or to estimate the amount, if any, that may ultimately be returned to us from the escrow fund.

Between January 2007 and May 2007, Blackstone and Orthofix Inc. were named defendants, along with other medical device manufacturers, in three civil lawsuits alleging that Dr. Chan had performed unnecessary surgeries in three different instances.  In January 2008, we learned that Orthofix Inc. was named a defendant, along with other medical device manufacturers, in a fourth civil lawsuit alleging that Dr. Chan had performed unnecessary surgeries.  All four civil lawsuits have been served and are pending in the Circuit Court of White County, Arkansas.  We believe that we have meritorious defenses to the claims alleged and we intends to defend vigorously against these lawsuits.  On September 17, 2007, we submitted a claim for indemnification from the escrow fund established in connection with the Merger Agreement for any losses to us resulting from one of these four civil lawsuits.  We were subsequently notified by legal counsel for the former shareholders that the representative of the former shareholders of Blackstone has objected to the indemnification claim and intends to contest it in accordance with the terms of the Merger Agreement.  We are unable to predict the outcome of the escrow claim or to estimate the amount, if any, that may ultimately be returned to us from the escrow fund.

In addition to the foregoing, we have submitted claims for indemnification from the escrow fund established in connection with the Merger Agreement for losses that have or may result from certain claims against Blackstone alleging that plaintiffs and/or claimants were entitled to payments for Blackstone stock options not reflected in Blackstone's corporate ledger at the time of Blackstone's acquisition by the Company.  To date, the representative of the former shareholders of Blackstone have not objected to approximately $1.5 million in claims from the escrow fund, with certain claims remaining pending.

We cannot predict the outcome of any proceedings or claims made against the Company or its subsidiaries and there can be no assurance that the ultimate resolution of any claim will not have a material adverse impact on our consolidated financial position, results of operations, or cash flows.

In addition to the foregoing, in the normal course of our business, the Company is involved in various lawsuits from time to time and may be subject to certain other contingencies.


Item 1A.  Risk Factors
 
There have been no material changes to our risk factors from the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
 
Item 6.  Exhibits
 
(a)
Exhibits
 
Exhibit
Number
Description
   
3.1
Certificate of Incorporation of the Company (filed as an exhibit to the Company’s annual report on Form 20-F dated June 29, 2001 and incorporated herein by reference).
   
3.2
Articles of Association of the Company as amended (filed as an exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference).
   
10.1
Orthofix Inc. Employee Stock Purchase Plan (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2002 and incorporated herein by reference).
   
10.2
Orthofix International N.V. Staff Share Option Plan, as amended through April 22, 2003 (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007 and incorporated herein by reference).
   
10.3
Orthofix International N.V. Amended and Restated 2004 Long Term Incentive Plan (filed as an exhibit to the Company’s current report on Form 8-K filed June 26, 2007 and incorporated herein by reference).
   
10.4
Form of Nonqualified Stock Option Agreement Under the Orthofix International N.V. Amended and Restated 2004 Long Term Incentive Plan (filed as an exhibit to the Company’s registration statement on Form S-8 filed August 23, 2007 and incorporated herein by reference).
   
10.5
Form of Restricted Stock Grant Agreement under the Orthofix International N.V. Amended and Restated 2004 Long-Term Incentive Plan (filed as an exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference).
   
10.6
Orthofix Deferred Compensation Plan (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2006, as amended, and incorporated herein by reference).
   
10.7
Employment Agreement, dated as of April 15, 2005, between the Company and Charles W. Federico (filed as an exhibit to the Company’s current report on Form 8-K filed April 18, 2005 and incorporated herein by reference).

 
10.8
Amended and Restated Employment Agreement, dated as of December 7 2007, between Orthofix Inc. and Thomas Hein (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.9
Employment Agreement, dated as of November 20, 2003, between Orthofix International N.V. and Bradley R. Mason (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference).
   
10.10
Acquisition Agreement dated as of November 20, 2003, among Orthofix International N.V., Trevor Acquisition, Inc., Breg, Inc. and Bradley R. Mason, as shareholders’ representative (filed as an exhibit to the Company’s current report on Form 8-K filed January 8, 2004 and incorporated herein by reference).
   
10.11
Amended and Restated Voting and Subscription Agreement dated as of December 22, 2003, among Orthofix International N.V. and the significant shareholders of Breg, Inc. identified on the signature pages thereto (filed as an exhibit to the Company’s current report on Form 8-K filed on January 8, 2004 and incorporated herein by reference).
   
10.12
Amendment to Employment Agreement dated December 29, 2005 between Orthofix Inc. and Charles W. Federico (filed as an exhibit to the Company’s current report on Form 8-K filed December 30, 2005 and incorporated herein by reference).
   
10.13
Form of Indemnity Agreement (filed as an exhibit to the Company’s annual report on Form 10-K filed December 31, 2005 and incorporated herein by reference).
   
10.14
Settlement Agreement dated February 23, 2006, between Intavent Orthofix Limited, a wholly-owed subsidiary of Orthofix International N.V. and Galvin Mould (filed as an exhibit to the Company’s annual report on Form 8-K filed on April 17, 2006 and incorporated herein by reference).
   
10.15
Amended and Restated Employment Agreement, dated December 6, 2007, between Orthofix Inc. and Alan W. Milinazzo (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.16
Amended and Restated Employment Agreement, dated December  6, 2007, between Orthofix Inc. and Raymond C. Kolls (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.17
Amended and Restated Employment Agreement, dated December 6, 2007, between Orthofix Inc. and Michael M. Finegan. (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.18
Credit Agreement, dated as of September 22, 2006, among Orthofix Holdings, Inc., Orthofix International N.V., certain domestic subsidiaries of Orthofix International N.V., Colgate Medical Limited, Victory Medical Limited, Swiftsure Medical Limited, Orthofix UK Ltd, the several banks and other financial institutions as may from time to time become parties thereunder, and Wachovia Bank, National Association (filed as an exhibit to the Company’s current report on Form 8-K filed September 27, 2006 and incorporated herein by reference).
   
10.19
Agreement and Plan of Merger, dated as of August 4, 2006, among Orthofix International N.V., Orthofix Holdings, Inc., New Era Medical Limited, Blackstone Medical, Inc. and William G. Lyons, III, as Equityholders’ Representative (filed as an exhibit to the Company's current report on Form 8-K filed August 7, 2006 and incorporated herein by reference).

 
10.20
Employment Agreement, dated as of September 22, 2006, between Blackstone Medical, Inc. and Matthew V. Lyons (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2006, as amended, and incorporated herein by reference).
   
10.21
Description of Orthofix International N.V.’s Annual Incentive Plan including the Form of Participation Letter (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2006, as amended, an incorporated herein by reference).
   
10.22
Amended and Restated Employment Agreement dated December 6, 2007 between Orthofix Inc. and Timothy M. Adams (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.23
Letter Agreement between Orthofix International N.V. and Bradley R. Mason dated November 20, 2007 (filed as an exhibit to the Company’s current report on Form 8-K filed November 21, 2007 and incorporated herein by reference).
   
10.24
Amended and Restated Performance Accelerated Stock Option Agreement between Orthofix International N.V. and Bradley R. Mason dated November 20, 2007 (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.25
Nonqualified Stock Option Agreement between Timothy M. Adams and Orthofix International N.V. dated November 19, 2007 (filed as an exhibit to the Company’s current report on Form 8-K filed November 21, 2007 and incorporated herein by reference).
   
10.26
Letter Agreement between Orthofix Inc. and Thomas Hein dated December 6, 2007 (filed as an exhibit to the Company’s current report on Form 8-K filed December 11, 2007 and incorporated herein by reference).
   
10.27
First Amendment to Orthofix Inc. Employee Stock Purchase Plan, dated as of December 11, 2007 (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.28
Employment Agreement between Orthofix Inc. and Oliver Burckhardt, dated as of December 11, 2007 (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.29
Employment Agreement between Orthofix Inc. and Scott Dodson, dated as of December 10, 2007 (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.30
Employment Agreement between Orthofix Inc. and Michael Simpson, dated as of December 6, 2007 (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).
   
10.31
Description of Director Fee Policy (filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007, as amended, and incorporated herein by reference).

 
10.32
Summary of Orthofix International N.V. Annual Incentive Program (filed as an exhibit to the Company’s current report on Form 8-K filed April 11, 2008, and incorporated herein by reference).
   
Employment Agreement between Orthofix Inc. and Thomas Hein dated as of April 11, 2008.
   
Nonqualified Stock Option Agreement under the Orthofix International N.V. Amended and Restated 2004 Long-Term Incentive Plan, dated April 11, 2008, between Orthofix International N.V. and Thomas Hein.
   
Summary of Consulting Arrangement between Orthofix International N.V. and Peter Hewett.
   
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
   
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
   
Section 1350 Certification of Chief Executive Officer.
   
Section 1350 Certification of Chief Financial Officer.
 
*
Filed herewith.

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
ORTHOFIX INTERNATIONAL N.V.
     
     
Date:  May 7, 2008
By:
/s/ Alan W. Milinazzo
   
Name:  Alan W. Milinazzo
   
Title:    Chief Executive Officer and President
     
Date:  May 7, 2008
By:
/s/ Thomas Hein
   
Name:  Thomas Hein
   
Title:     Chief Financial Officer
 

33


Exhibit 10.33

EMPLOYMENT AGREEMENT

This Employment Agreement (the " Agreement "), entered into and effective as of April 11, 2008 (the " Effective Date "), is by and between Orthofix Inc., a Minnesota corporation (the " Company "), and Thomas Hein, an individual (the " Executive ").

PRELIMINARY STATEMENTS

A.            The Company and the Executive are parties to an Amended and Restated Employment Agreement entered into as of December 7, 2007 and a side letter agreement related thereto dated December 6, 2007 (together, the " Prior Agreements "), but desire to replace the Prior Agreements to memorialize the terms of their relationship in order to retain the continued services of the Executive.

B.             The Executive desires to render such services, upon the terms and conditions contained herein.

C.             The Company and the Executive agree and acknowledge that pursuant to this Agreement the Executive will receive consideration and other benefits over and above that which he was entitled to receive under the Prior Agreements and over and above that which he would otherwise be entitled to receive as compensation for services performed for the Company.

D.             The Company is a subsidiary of Orthofix International N.V., a corporation organized under the laws of the Netherlands Antilles (the " Parent ") for whom Executive will also perform services as contemplated hereby, and under certain compensation plans of which Executive shall be eligible to receive compensation, and Parent is agreeing to provide such compensation and guarantee the Company's payment obligations hereunder.

E.             Capitalized terms used herein and not otherwise defined have the meaning for them set forth on Exhibit A attached hereto and incorporated herein by reference.

The parties, intending to be legally bound, hereby agree as follows:

I.           EMPLOYMENT AND DUTIES

1.1             Duties .  The Company hereby employs the Executive as an employee, and the Executive agrees to be employed by the Company, upon the terms and conditions set forth herein.  While serving as an employee of the Company, the Executive shall serve as the Chief Financial Officer, Treasurer and Assistant Secretary of the Company, and be appointed to serve as the Chief Financial Officer, Treasurer and Assistant Secretary of the Parent.  The Executive shall have such power and authority and perform such duties, functions and responsibilities as are associated with and incident to such positions, and as the Board of Directors of Parent (the " Board ") may from time to time require of him.  The Executive also agrees to serve, if elected, as an officer or director of any other direct or indirect subsidiary of the Parent, in each such case at no compensation in addition to that provided for in this Agreement, but the Executive serves in such positions solely as an accommodation to the Company and such positions shall grant him no rights hereunder.

 
1

 
 
Exhibit 10.33
 
1.2             At-will Employment .  The Executive's employment is on an at-will basis terminable by either party at any time for any or no reason, subject only to the 30-day advance notice of termination provisions set forth in Article IV.  Excluding any periods of vacation, sick leave or disability, the Executive agrees to devote his full business time, attention and efforts to the business and affairs of the Company.

II.           COMPENSATION

2.1             General .   The base salary and Incentive Compensation (as defined in Section 2.3) payable to the Executive hereunder, shall be determined from time to time by the Board and paid pursuant to the Company's customary payroll practices or in accordance with the terms of Section 2.3.

2.2             Base Salary .  The Executive shall be paid a base salary of no less than $29,166.67 per month ($350,000 on an annualized basis) while he is employed by the Company, payable in accordance with the Company's customary payroll practices.

2.3             Bonus or other Incentive Compensation .  With respect to each fiscal year of the Company (or portion thereof) during the time the Executive is employed by the Company, the Executive shall be eligible to receive annual bonus compensation in an amount based on reasonable goals for the earning of such compensation as may be determined by the Board from time to time (the " Goals ").  Amounts that may be earned upon attainment of all reasonably achievable annual Goals will be targeted to equal not less than 50% of the annual base salary in such fiscal year.  The amount of any actual payment under the Bonus Plan will depend upon the achievement (or not) of the various performance metrics comprising the Goals, with an opportunity to earn maximum annual bonus compensation of not less than 75% of annual base salary in such fiscal year under Parent's Executive Annual Incentive Plan or any successor plan or as may be determined by the Board from time-to-time (the " Bonus Plan ").  Amounts will be less than either such target if the Goals are not met as set forth under the terms of the plan.  Amounts payable under the Bonus Plan shall be determined by the Board and shall be payable following such fiscal year and no later than two and one-half months after the end of such fiscal year.  In addition, the Executive shall be eligible to receive such additional bonus or incentive compensation as the Board may establish from time to time in its sole discretion.  Any bonus or incentive compensation under this Section 2.3 under the Bonus Plan or otherwise is referred to herein as " Incentive Compensation ."  Stock-based compensation shall not be considered Incentive Compensation under the terms of this Agreement unless the parties expressly agree otherwise in writing.

2.4             Stock Compensation .  As an inducement for the Executive to enter into this Agreement, on the Effective Date the Executive shall be granted 50,000 stock options (the " Incentive Options ") which shall vest in one-third increments beginning on the first anniversary of the Effective Date (subject to acceleration of vesting on termination of employment, as provided below).  The Incentive Options shall be subject in all respects to the terms and conditions of the related stock option agreement evidencing the Incentive Options, which shall be executed by the Executive and Parent on the Effective Date. The exercise price of the Incentive Options shall be determined as of the Effective Date based on the fair market value of the Parent's common stock in accordance with the Parent's stock option grant policies.

 
2

 
 
Exhibit 10.33
 
2.5             Additional Payments .  As an inducement for the Executive to enter into this Agreement, the Company shall pay to the Executive: (a) the Good Reason Payment (as defined in the Prior Agreements) of US$407,726.00 on the earliest to occur of (i) January 1, 2009, (ii) the Executive's termination of employment for any reason other than this death, subject to the provisions of Section 7.16 and (iii) the Executive's death and (b) the Retention Bonus (as defined in the Prior Agreements) of US$150,000.00 on July 15, 2008 (other than in the event of a Voluntary Termination (as defined below) prior to that date or a termination for Cause).  The Good Reason Payment and Retention Bonus shall each be made in one lump sum.  The Company further acknowledges and agrees that all stock options held by the Executive as of November 19, 2007, were fully vested and excercisable as of that date (with the extended exercise date approved by the Company) and may now be exercised by the Executive. The payment of the Good Reason Payment as described in clause (a) above is pursuant to the Executive's voluntary election pursuant to Notice 2007-86, Section 3.01.

III.           EMPLOYEE BENEFITS

3.1             General .  Subject only to any post-employment rights under Article V, so long as the Executive is employed by the Company pursuant to this Agreement, he shall be eligible for the following benefits to the extent generally available to senior executives of the Company or by virtue of his position, tenure, salary and other qualifications.  Any eligibility shall be subject to and in accordance with the terms and conditions of the Company's benefits policies and applicable plans (including as to deductibles, premium sharing, co-payments or other cost-splitting arrangements).

3.2             Savings and Retirement Plans .  The Executive shall be entitled to participate in, and enjoy the benefits of, all savings, pension, salary continuation and retirement plans, practices, policies and programs available to senior executives of the Company.

3.3             Welfare and Other Benefits .  The Executive and/or the Executive's eligible dependents, as the case may be, shall be entitled to participate in, and enjoy the benefits of, all welfare benefit plans, practices, policies and programs provided by the Company (including without limitation, medical, prescription, drug, dental, disability, salary continuance, group life, dependent life, accidental death and travel accident insurance plans and programs) and other benefits (including, without limitation, executive physicals and tax and financial planning assistance) at a level that is available to other senior executives of the Company.

3.4             Vacation .  The Executive shall be entitled to 4 weeks paid vacation per 12-month period.

3.5             Expenses .  The Executive shall be entitled to receive prompt reimbursement for all reasonable business-related expenses incurred by the Executive in performing his duties under this Agreement.  Reimbursement of the Executive for such expenses will be made upon presentation to the Company of expense vouchers that are in sufficient detail to identify the nature of the expense, the amount of the expense, the date the expense was incurred and to whom payment was made to incur the expense, all in accordance with the expense reimbursement practices, policies and procedures of the Company.

 
3

 
 
Exhibit 10.33
 
3.6             Key Man Insurance .  The Company shall be entitled to obtain a "key man" or similar life or disability insurance policy on the Executive, and neither the Executive nor any of his family members, heirs or beneficiaries shall be entitled to the proceeds thereof.  Such insurance shall be available to offset any payments due to the Executive pursuant to Section 5.1 of this Agreement due to his death or disability.

IV.           TERMINATION OF EMPLOYMENT

4.1             Termination by Mutual Agreement .  The Executive's employment may be terminated at any time by mutual written agreement of the Company and the Executive.

4.2             Death .  The Executive's employment hereunder shall terminate upon his death.

4.3             Termination by the Company .  The Executive understands and acknowledges the "at-will" status of his employment with the Company.  The Company may terminate the Executive's employment at any time by delivering to the Executive a Notice of Termination 30 days in advance of the date of termination; provided that as part of such notice the Company may request that the Executive immediately tender the resignations contemplated by Section 4.6 and otherwise cease performing his duties hereunder.  The Notice of Termination need not state any reason for termination and such termination can be for any reason or no reason (including for Cause).  The date of termination shall be the date set forth in the Notice of Termination.

4.4             Voluntary Termination .  The Executive may voluntarily terminate his employment at any time by delivering to the Company a Notice of Termination 30 days in advance of the date of termination (a " Voluntary Termination ").  For purposes of this Agreement, a Voluntary Termination shall include voluntary termination upon retirement in accordance with the Company's retirement policies.  A Voluntary Termination shall not be considered a breach or other violation of this Agreement.

4.5             Notice of Termination .  Any termination of employment under this Agreement by the Company or the Executive requiring a notice of termination shall require delivery of a written notice by one party to the other party (a " Notice of Termination ").  A Notice of Termination must indicate the date of termination, which shall comply with the time periods required under this Article IV and may in no event be earlier than the date such Notice of Termination is delivered to or received by the party getting the notice.  If the Executive fails to include a date of termination in any Notice of Termination he delivers, the Company may establish such date in its sole discretion.  The terms "termination" and "termination of employment," as used herein are intended to mean a termination of employment which constitutes a "separation from service" under Section 409A.

 
4

 

4.6             Resignations .  Upon ceasing to be an employee of the Company for any reason, or earlier upon request by the Company pursuant to Section 4.3, the Executive agrees to immediately tender written resignations to the Company with respect to all officer and director positions he may hold at that time with any member of the Parent Group.

V.           PAYMENTS ON TERMINATION

5.1             Termination other than Voluntary Termination or for Cause .  If at any time the Executive's employment is terminated pursuant to Sections 4.1 through 4.3 and for a reason other than termination by the Company for Cause, the Executive shall be entitled to the following only:

(a)           any unpaid base salary and accrued unpaid vacation then owing through the date of termination or Incentive Compensation that is as of such date actually earned or owing under Article II, but not yet paid to the Executive, which amounts shall be paid to the Executive within 30 days of the date of termination; provided, however, the Executive shall be entitled to receive the pro rata amount of any Bonus Plan Incentive Compensation for the fiscal year of his termination of employment (based on the number of business days he was actually employed by the Company during the fiscal year in which the termination of employment occurs) that he would have received had his employment not been terminated during such year.  Nothing in the foregoing sentence is intended to give the Executive greater rights to such Incentive Compensation than a pro rata portion of what he would ordinarily be entitled to under the Bonus Plan Incentive Compensation that would have been applicable to him had his employment not been terminated, it being understood that Executive's termination of employment shall not be used to disqualify Executive from or make him ineligible for a pro rata portion of the Bonus Plan Incentive Compensation to which he would otherwise have been entitled.  The pro rata portion of Bonus Plan Incentive Compensation shall, subject to Section 7.16,  be paid at the time such Incentive Compensation is paid to senior executives of the Company (" Severance Bonus Payment Date ").
 
(b)           if termination of employment occurs prior to the payment of the Retention Bonus, the Retention Bonus, payable in accordance with Section 2.5.
 
(c)           the Incentive Options shall vest in full and be immediately exercisable, notwithstanding any language to the contrary appearing in the stock option agreement relating to the Incentive Options.
 
(d)           to the fullest extent permitted by the Company's then-current benefit plans, continuation of coverage (including family coverage) under basic employee group benefits that are welfare benefits (such as group health and group life benefits), but not pension, retirement, profit-sharing, severance or similar compensatory benefits, for the Executive and the Executive's spouse substantially similar to coverage they were receiving or which they were entitled to immediately prior to the termination of the Executive's employment until the Executive's 65 th birthday.
 
 
5

 
 
Exhibit 10.33
 
In the event that the terms of an employee welfare plan do not permit the Executive's continued participation in such plan, the Company agrees as follows: (i) if the employee welfare benefit plan is a group health plan, the Company will pay the premiums for COBRA continuation coverage of the Executive and his spouse; (ii) if the employee welfare benefit plan can be converted to individual coverage for the Executive and his spouse at a reasonable expense, the Company will assist the Executive in exercising such conversion rights and will reimburse the Executive for any conversion costs and or any premium or other coverage costs incurred for the Executive and his spouse prior to the Executive's 65 th birthday; and (iii) in the event that the employee welfare benefit plan does not fall under clauses (i) or (ii) of this sentence, or the Company, in its sole discretion, determines that the cost of conversion to individual coverage is unreasonable or if this option is otherwise preferable to it, then the Company will purchase a suitable replacement policy for the Executive and his spouse (the " Replacement Policy ") which provides coverage for the Executive and his spouse equivalent to the coverage provided to the Executive and his spouse under the employee welfare benefit plan on the date of the Executive's termination, and the Company will pay the premiums on the Replacement Policy through the Executive's 65 th birthday. In the event of the Executive's death prior to his 65 th birthday, the Company will provide continuation coverage to his surviving spouse in accordance with the provisions of this subparagraph (d) until the date that would have been the Executive's 65 th birthday.   The Executive agrees to provide any assistance or information required by the insurer necessary to obtain the Replacement Policy.  In order to receive the benefits provided for in this Section 5.1(d), the Executive or his spouse must continue to make any required co-payments, deductibles, premium sharing or other cost-splitting arrangements the Executive was otherwise paying immediately prior to the date of termination and nothing herein shall require the Company to be responsible for such items.  Payments to the Executive pursuant to this Section 5.1(d) shall be treated as a series of separate payments for purposes of Section 409A to the extent applicable thereto.  The Executive agrees to indemnify and hold harmless the Company from any liability, expense, cost or charge incurred by the Company (including interest and penalties) due to or as a result of its failure to withhold, pay or remit any applicable tax in connection with the benefits paid or payable to the Executive under this Section 5.1(d).
 
(e)           the Good Reason Payment, payable in accordance with Section 2.5.
 
5.2             Termination for Cause; Voluntary Termination .  If at any time while this Agreement is in effect the Executive's employment with the Company is terminated for Cause or pursuant to Section 4.4, the Executive shall be entitled to only the following:

(a)           any unpaid base salary and accrued unpaid vacation then owing through the date of termination or Incentive Compensation that is as of such date actually earned or owing under Article II, but not yet paid to the Executive, which amounts shall be paid to the Executive within 30 days of the date of termination.  Nothing in this provision is intended to imply that the Executive is entitled to any partial or pro rata payment of Incentive Compensation on termination unless the Bonus Plan expressly provides as much under its specific terms.

 
6

 
 
Exhibit 10.33
 
(b)           the right to exercise any portion of the Incentive Options (or other stock options) that are already vested as of the date of termination, all to be exercisable in accordance with the terms of the award documents related thereto.

(c)           the Good Reason Payment, payable in accordance with Section 2.5.

5.3             Release .  The Company's obligation to pay or provide any benefits to the Executive following termination (other than in the event of death pursuant to Section 4.2) is expressly subject to the requirement that he execute and not breach or rescind a release relating to employment matters and the circumstances surrounding his termination in favor of the members of the Parent Group and their officers, directors and related parties and agents, in a form acceptable to the Company at the time of termination of employment.

5.4             Other Benefits .  Except as expressly provided otherwise in this Article V, the provisions of this Agreement shall not affect the Executive's participation in, or terminating distributions and vested rights under, any pension, profit-sharing, insurance or other employee benefit plan of the Parent Group to which the Executive is entitled pursuant to the terms of such plans, or expense reimbursements he is otherwise entitled to under Section 3.5.

5.5             No Mitigation .  The parties hereto expressly agree that the payment of severance compensation in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to seek other employment, or otherwise, to mitigate any payment provided for hereunder.

5.6             Limitation; No Other Rights .  Any amounts due or payable under this Article V are in the nature of severance payments or liquidated damages, or both, and the Executive agrees that such amounts shall fully compensate the Executive, his dependents, heirs and beneficiaries and the estate of the Executive for any and all direct damages and consequential damages that they do or may suffer as a result of the termination of the Executive's employment, or both, and are not in the nature of a penalty.  Notwithstanding the above, no member of the Parent Group shall be liable to the Executive under any circumstances for any consequential, incidental, punitive or similar damages.  The Executive expressly acknowledges that the payments and other rights under this Article V shall be the sole monies or other rights to which the Executive shall be entitled to relating to his employment with the Company or any other services provided to any other member of the Parent Group and such payments and rights will be in lieu of any other rights or remedies he might have or otherwise be entitled to.  In the event of any termination under this Article V, the Executive hereby expressly waives any rights to any other amounts, benefits or other rights, including without limitation whether arising under current or future compensation or severance or similar plans, agreements or arrangements of any member of the Parent Group (including as a result of changes in (or of) control or similar transactions), unless Executive's entitlement to participate or receive benefits thereunder has been expressly approved by the Board.  Similarly, no one in the Parent Group shall have any further liability or obligation to the Executive following the date of termination, except as expressly provided in this Agreement.

 
7

 
 
Exhibit 10.33
 
5.7             No Right to Set Off .  The Company shall not be entitled to set off against amounts payable to the Executive hereunder any amounts earned by the Executive in other employment, or otherwise, after termination of his employment with the Company, or any amounts which might have been earned by the Executive in other employment had he sought such other employment.

5.8             Adjustments Due to Excise Tax .

(a)           If it is determined that any amount or benefit to be paid or payable to the Executive under this Agreement or otherwise in conjunction with his employment (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in conjunction with his employment) would give rise to liability of the Executive for the excise tax imposed by Section 4999 of the Code, as amended from time to time, or any successor provision (the " Excise Tax "), then the amount or benefits payable to the Executive (the total value of such amounts or benefits, the " Payments ") shall be reduced by the Company to the extent necessary so that no portion of the Payments to the Executive is subject to the Excise Tax.  Such reduction shall only be made if the net amount of the Payments, as so reduced (and after deduction of applicable federal, state, and local income and payroll taxes on such reduced Payments other than the Excise Tax (collectively, the " Deductions ")) is greater than the excess of (1) the net amount of the Payments, without reduction (but after making the Deductions) over (2) the amount of Excise Tax to which the Executive would be subject in respect of such Payments.

(b)           In the event it is determined that the Excise Tax may be imposed on the Executive prior to the possibility of any reductions being made pursuant to Section 5.8(a), the Company and the Executive agree to take such actions as they may mutually agree in writing to take to avoid any such reductions being made or, if such reduction is not otherwise required by Section 5.8(a), to reduce the amount of Excise Tax imposed.
 
(c)           The independent public accounting firm serving as the Company's auditing firm, or such other accounting firm, law firm or professional consulting services provider of national reputation and experience reasonably acceptable to the Company and Executive (the " Accountants ") shall make in writing in good faith all calculations and determinations under this Section 5.8, including the assumptions to be used in arriving at any calculations.  For purposes of making the calculations and determinations under this Section 5.8, the Accountants and each other party may make reasonable assumptions and approximations concerning the application of Section 280G and Section 4999.  The Company and Executive shall furnish to the Accountants and each other such information and documents as the Accountants and each other may reasonably request to make the calculations and determinations under this Section 5.8.  The Company shall bear all costs the Accountants incur in connection with any calculations contemplated hereby.

VI.           PROTECTIVE PROVISIONS

6.1             Noncompetition .  Without the prior written consent of the Board (which may be withheld in the Board's sole discretion), so long as the Executive is an employee of the Company or any other member of the Parent Group and for a one-year period thereafter, the Executive agrees that he shall not anywhere in the Prohibited Area, for his own account or the benefit of any other, engage or participate in or assist or otherwise be connected with a Competing Business.  For the avoidance of doubt, the Executive understands that this Section 6.1 prohibits the Executive from acting for himself or as an officer, employee, manager, operator, principal, owner, partner, shareholder, advisor, consultant of, or lender to, any individual or other Person that is engaged or participates in or carries out a Competing Business or is actively planning or preparing to enter into a Competing Business.  The parties agree that such prohibition shall not apply to the Executive's passive ownership of not more than 5% of a publicly-traded company.

 
8

 
 
Exhibit 10.33
 
6.2             No Solicitation or Interference .  So long as the Executive is an employee of the Company or any other member of the Parent Group (other than while an employee acting solely for the express benefit of the Parent Group) and for a one-year period thereafter, the Executive shall not, whether for his own account or for the account or benefit of any other Person, throughout the Prohibited Area:

(a)           request, induce or attempt to influence (i) any customer of any member of the Parent Group to limit, curtail, cancel or terminate any business it transacts with, or products or services it receives from or sells to, or (ii) any Person employed by (or otherwise engaged in providing services for or on behalf of) any member of the Parent Group to limit, curtail, cancel or terminate any employment, consulting or other service arrangement, with any member of the Parent Group. Such prohibition shall expressly extend to any hiring or enticing away (or any attempt to hire or entice away) any employee or consultant of the Parent Group.

(b)           solicit from or sell to any customer any products or services that any member of the Parent Group provides or is capable of providing to such customer and that are the same as or substantially similar to the products or services that any member of the Parent Group, sold or provided while the Executive was employed with, or providing services to, any member of the Parent Group.

(c)           contact or solicit any customer for the purpose of discussing (i) services or products that are competitive with and the same or closely similar to those offered by any member of the Parent Group or (ii) any past or present business of any member of the Parent Group.

(d)           request, induce or attempt to influence any supplier, distributor or other Person with which any member of the Parent Group has a business relationship or to limit, curtail, cancel or terminate any business it transacts with any member of the Parent Group.

(e)           otherwise interfere with the relationship of any member of the Parent Group with any Person which is, or within one-year prior to the Executive's date of termination was, doing business with, employed by or otherwise engaged in performing services for, any member of the Parent Group.

 
9

 
 
Exhibit 10.33
 
6.3             Confidential Information .  During the period of the Executive's employment with the Company or any member of the Parent Group and at all times thereafter, the Executive shall hold in secrecy for the Company all Confidential Information that may come to his knowledge, may have come to his attention or may have come into his possession or control while employed by the Company (or otherwise performing services for any member of the Parent Group).  Notwithstanding the preceding sentence, the Executive shall not be required to maintain the confidentiality of any Confidential Information which (a) is or becomes available to the public or others in the industry generally (other than as a result of disclosure or inappropriate use, or caused,   by the Executive in violation of this Section 6.3) or (b) the Executive is compelled   to disclose under any applicable laws, regulations or directives of any government agency, tribunal or authority having jurisdiction in the matter or under subpoena.  Except as expressly required in the performance of his duties to the Company under this Agreement, the Executive shall not use for his own benefit or disclose (or permit or cause the disclosure of) to any Person, directly or indirectly, any Confidential Information unless such use or disclosure has been specifically authorized in writing by the Company in advance.  During the Executive's employment and as necessary to perform his duties under Section 1.2, the Company will provide and grant the Executive access to the Confidential Information.  The Executive recognizes that any Confidential Information is of a highly competitive value, will include Confidential Information not previously provided the Executive and that the Confidential Information could be used to the competitive and financial detriment of any member of the Parent Group if misused or disclosed by the Executive.  The Company promises to provide access to the Confidential Information only in exchange for the Executive's promises contained herein, expressly including the covenants in Sections 6.1, 6.2 and 6.4.

6.4             Inventions .

(a)           The Executive shall promptly and fully disclose to the Company any and all ideas, improvements, discoveries and inventions, whether or not they are believed to be patentable (" Inventions "), that the Executive conceives of or first actually reduces to practice, either solely or jointly with others, during the Executive's employment with the Company or any other member of the Parent Group, and that relate to the business now or thereafter carried on or contemplated by any member of the Parent Group or that result from any work performed by the Executive for any member of the Parent Group.

(b)           The Executive acknowledges and agrees that all Inventions shall be the sole and exclusive property of the Company (or member of the Parent Group) and are hereby assigned to the Company (or applicable member of the Parent Group).  During the term of the Executive's employment with the Company (or any other member of the Parent Group) and thereafter, whenever requested to do so by the Company, the Executive shall take such action as may be requested to execute and assign any and all applications, assignments and other instruments that the Company shall deem necessary or appropriate in order to apply for and obtain Letters Patent of the United States and/or of any foreign countries for such Inventions and in order to assign and convey to the Company (or any other member of the Parent Group) or their nominees the sole and exclusive right, title and interest in and to such Inventions.

 
10

 
 
Exhibit 10.33
 
(c)           The Company acknowledges and agrees that the provisions of this Section 6.4 do not apply to an Invention: (i) for which no equipment, supplies, or facility of any member of the Parent Group or Confidential Information was used; (ii) that was developed entirely on the Executive's own time and does not involve the use of Confidential Information; (iii) that does not relate directly to the business of any member of the Parent Group or to the actual or demonstrably anticipated research or development of any member of the Parent Group; and (iv) that does not result from any work performed by the Executive for any member of the Parent Group.

6.5             Return of Documents and Property .  Upon termination of the Executive's employment for any reason, the Executive (or his heirs or personal representatives) shall immediately deliver to the Company (a) all documents and materials containing Confidential Information (including without limitation any "soft" copies or computerized or electronic versions thereof) or otherwise containing information relating to the business and affairs of any member of the Parent Group (whether or not confidential), and (b) all other documents, materials and other property belonging to any member of the Parent Group   that are in the possession or under the control of the Executive.

6.6             Reasonableness; Remedies .  The Executive acknowledges that each of the restrictions set forth in this Article VI are reasonable and necessary for the protection of the Company's business and opportunities (and those of the Parent Group) and that a breach of any of the covenants contained in this Article VI would result in material irreparable injury to the Company and the other members of the Parent Group for which there is no adequate remedy at law and that it will not be possible to measure damages for such injuries precisely.  Accordingly, the Company and any member of the Parent Group shall be entitled to the remedies of injunction and specific performance, or either of such remedies, as well as all other remedies to which any member of the Parent Group may be entitled, at law, in equity or otherwise, without the need for the posting of a bond or by the posting of the minimum bond that may otherwise be required by law or court order.

6.7             Extension; Survival .  The Executive and the Company agree that the time periods identified in this Article VI will be stayed, and the Company's obligation to make any payments or provide any benefits under Article V shall be suspended, during the period of any breach or violation by the Executive of the covenants contained herein.  The parties further agree that this Article VI shall survive the termination or expiration of this Agreement for any reason.  The Executive acknowledges that his agreement to each of the provisions of this Article VI is fundamental to the Company's willingness to enter into this Agreement and for it to provide for the severance and other benefits described in Article V, none of which the Company was required to do prior to the date hereof.  Further, it is the express intent and desire of the parties for each provision of this Article VI to be enforced to the fullest extent permitted by law.  If any part of this Article VI, or any provision hereof, is deemed illegal, void, unenforceable or overly broad (including as to time, scope and geography), the parties express desire is that such provision be reformed to the fullest extent possible to ensure its enforceability or if such reformation is deemed impossible then such provision shall be severed from this Agreement, but the remainder of this Agreement (expressly including the other provisions of this Article VI) shall remain in full force and effect.

 
11

 
 
Exhibit 10.33
 
VII.           MISCELLANEOUS

7.1             Notices .  Any notice required or permitted under this Agreement shall be given in writing and shall be deemed to have been effectively made or given if personally delivered, or if sent via U.S. mail or recognized overnight delivery service or sent via confirmed e-mail or facsimile to the other party at its address set forth below in this Section 7.1, or at such other address as such party may designate by written notice to the other party hereto. Any effective notice hereunder shall be deemed given on the date personally delivered, three business days after mailed via U.S. mail or one business day after it is sent via overnight delivery service or via confirmed e-mail or facsimile, as the case may be, to the following address:

If to the Company:

Orthofix Inc.
Attn: General Counsel
The Storrs Building
Suite 250
10115 Kincey Ave.
Huntersville, NC 28078

Facsimile:  704-948-2690
E-mail: raykolls@orthofix.com

With a copy which shall not constitute notice to:

Baker & McKenzie LLP
Pennzoil Place, South Tower
711 Louisiana, Suite 3400
Houston, Texas 77002-2746
Attention: Jonathan B. Newton
Telephone No.: (713) 427-5000
Facsimile No.: (713) 427-5099
E-mail: Jonathan.B.Newton@Bakernet.com

If to the Executive:

At the most recent address on file with the Company

With a copy which shall not constitute notice to:

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
201 South College Street, Suite 2300
Charlotte, North Carolina 28244
Attention: Robert M.Bisanar
Telephone No.: (704) 342-2588
Facsimile No.: (704) 342-4379
E-mail:  Robert.Bisanar@Ogletreedeakins.com

 
12

 
 
Exhibit 10.33
 
7.2             Legal Fees .

(a)           The Company shall pay all reasonable legal fees and expenses of the Executive's counsel in connection with the preparation and negotiation of this Agreement.

(b)           It is the intent of the Company that the Executive not be required to bear the legal fees and related expenses associated with the enforcement or defense of the Executive's rights under this Agreement by litigation, arbitration or other legal action because having to do so would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, the parties hereto agree that any dispute or controversy arising under or in connection with this Agreement shall be resolved exclusively and finally by binding arbitration in Huntersville, North Carolina, in accordance with the rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator's award in any court having jurisdiction.  The Company shall be responsible for its own fees, costs and expenses and shall pay to the Executive an amount equal to all reasonable attorneys' and related fees, costs and expenses incurred by the Executive in connection with such arbitration unless the arbitrator determines that the Executive (a) did not commence or engage in the arbitration with a reasonable, good faith belief that his claims were meritorious or (b) the Executive's claims had no merit and a reasonable person under similar circumstances would not have brought such claims.  If there is any dispute between the Company and the Executive as to the payment of such fees and expenses, the arbitrator shall resolve such dispute, which resolution shall also be final and binding on the parties, and as to such dispute only the burden of proof shall be on the Company.

7.3             Severability .  If an arbitrator or a court of competent jurisdiction determines that any term or provision hereof is void, invalid or otherwise unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) such arbitrator or court shall replace such void, invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the void, invalid or unenforceable term or provision. For the avoidance of doubt, the parties expressly intend that this provision extend to Article VI of this Agreement.

7.4             Entire Agreement .  This Agreement represents the entire agreement of the parties with respect to the subject matter hereof and shall supersede any and all previous contracts, arrangements or understandings between the Company, the Parent and the Executive relating to the Executive's employment by the Company, expressly including the Prior Agreements, which Prior Agreements are hereby terminated in their entirety and of no further force and effect. The Executive expressly acknowledges that he has no further rights, and hereby waives or forfeits any and all rights he may have or may have had, under the Prior Agreements as a result of its termination hereby, and neither the Company nor any member of the Parent Group shall have any obligation to make any payments or satisfy any other liability to him thereunder.  Nothing in this Agreement shall modify or alter the Indemnity Agreement dated August 1, 2005, by and between Parent and the Executive (the " Indemnity Agreement ") or alter or impair any of the Executive's rights under the Plans or related award agreements.  In the event of any conflict between this Agreement and any other agreement between the Executive and the Company (or any other member of the Parent Group), this Agreement shall control.

 
13

 
 
Exhibit 10.33
 
7.5             Amendment; Modification .  This Agreement may be amended at any time only by mutual written agreement of the Executive and the Company; provided , however , that, notwithstanding any other provision of this Agreement, the Plans (or any award documents under the Plans) or the Indemnity Agreement, the Company may reform this Agreement, the Plans (or any award documents under the Plans), the Indemnity Agreement or any provision thereof (including, without limitation, an amendment instituting a six-month waiting period before a distribution) or otherwise as contemplated by Section 7.16 below.

7.6             Withholding .  The Company shall be entitled to withhold, deduct or collect or cause to be withheld, deducted or collected from payment any amount of withholding taxes required by law, statutory deductions or collections with respect to payments made to the Executive in connection with his employment, termination (including Article V) or his rights hereunder, including as it relates to stock-based compensation.

7.7             Representations .

(a)           The Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by the Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which he is bound, and (ii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms.  The Executive hereby acknowledges and represents that he has consulted with legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein.

(b)           The Company hereby represents and warrants to the Executive that (i) the execution, delivery and performance of this Agreement by the Company do not and shall not conflict with, breach, violate or cause a default under any material contract, agreement, instrument, order, judgment or decree to which the Company is a party or by which it is bound and (ii) upon the execution and delivery of this Agreement by the Executive, this Agreement shall be the valid and binding obligation of the Company, enforceable in accordance with its terms.

7.8             Governing Law; Jurisdiction .  This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of North Carolina without regard to any provision of that State's rules on the conflicts of law that might make applicable the law of a jurisdiction other than that of the State of North Carolina.   Except as otherwise provided in Section 7.2, all actions or proceedings arising out of this Agreement shall exclusively be heard and determined in state or federal courts in the State of North Carolina having appropriate jurisdiction.  The parties expressly consent to the exclusive jurisdiction of such courts in any such action or proceeding and waive any objection to venue laid therein or any claim for forum nonconveniens.

 
14

 
 
Exhibit 10.33
 
7.9             Successors .  This Agreement shall be binding upon and inure to the benefit of, and shall be enforceable by the Executive, the Company, and their respective heirs, executors, administrators, legal representatives, successors, and assigns.  In the event of the consummation of a reorganization, merger, consolidation or other business combination or the sale or other disposition of all or substantially all of the assets of Parent (including assets that are shares held by Parent in its subsidiaries) (any such transaction, a "Business Combination"), the provisions of this Agreement shall be binding upon and inure to the benefit of the parent or entity resulting from such Business Combination or to which the assets shall be sold or transferred, which entity from and after the date of such Business Combination shall be deemed to be the Company for purposes of this Agreement.  In the event of any other assignment of this Agreement by the Company, the Company shall remain primarily liable for its obligations hereunder; provided , however , that if the Company is financially unable to meet its obligations hereunder, the Parent shall assume responsibility for the Company's obligations hereunder pursuant to the guaranty provision following the signature page hereof.  The Executive expressly acknowledges that the Parent and other members of the Parent Group (and their successors and assigns) are third party beneficiaries of this Agreement and may enforce this Agreement on behalf of themselves or the Company.  Both parties agree that there are no third party beneficiaries to this Agreement other than as expressly set forth in this Section 7.9.

7.10           Nonassignability .  Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive, his beneficiaries, dependents or legal representatives without the Company's prior written consent; provided , however , that nothing in this Section 7.10 shall preclude (a) the Executive from designating a beneficiary to receive any benefit payable hereunder upon his death or (b) the executors, administrators or other legal representatives of the Executive or his estate from assigning any rights hereunder to the Person(s) entitled thereto.

7.11           No Attachment .  Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation in favor of any third party, or to execution, attachment, levy or similar process or assignment by operation of law in favor of any third party, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect.

7.12           Waiver .  No term or condition of this Agreement shall be deemed to have been waived, nor there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.  No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.

 
15

 
 
Exhibit 10.33
 
7.13           Construction .  The headings of articles or sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. References to days found herein shall be actual calendar days and not business days unless expressly provided otherwise.

7.14           Counterparts .  This Agreement may be executed by any of the parties hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.

7.15           Effectiveness . This Agreement shall be effective upon the Effective Date when signed by the Executive and the Company.

7.16           Code Section 409A .

(a)           It is the intent of the parties that payments and benefits under this Agreement comply with Section 409A and, accordingly, to interpret, to the maximum extent permitted, this Agreement to be in compliance therewith.  If the Executive notifies the Company in writing  (with specificity as to the reason therefore) that the Executive believes that any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause the Executive to incur any additional tax or interest under Section 409A and the Company concurs with such belief or the Company (without any obligation whatsoever to do so) independently makes such determination, the parties shall, in good faith, reform such provision to try to comply with Code Section 409A through good faith modifications to the minimum extent reasonably appropriate to conform with Code Section 409A.  To the extent that any provision hereof is modified by the parties to try to comply with Code Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent of the applicable provision without violating the provisions of Code Section 409A.  Notwithstanding the foregoing, the Company shall not be required to assume any economic burden in connection therewith.

(b)           If the Executive is deemed on the date of "separation from service" to be a "specified employee" within the meaning of that term under Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is specified as subject to this Section, such payment or benefit shall be made or provided at the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of such "separation from service" of the Executive, and (B) the date of the Executive's death (the "Delay Period").  Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 7.16 (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.  If a payment is to be made promptly after a date, it shall be made within sixty (60) days thereafter.

 
16

 
 
Exhibit 10.33
 
(c)           Any expense reimbursement under this Agreement shall be made promptly upon Executive's presentation to the Company of evidence of the fees and expenses incurred by the Executive and in all events on or before the last day of the taxable year following the taxable year in which such expense was incurred by the Executive, and no such reimbursement or the amount of expenses eligible for reimbursement in any taxable year, or the in-kind benefits provided, shall in any way affect the expenses eligible for reimbursement, or the in-kind benefits to be provided, in any other taxable year, except for any limit on the amount of expenses that may be reimbursed under an arrangement described in Code Section 105(b).

7.17           Termination;   Survival .   This Agreement shall be deemed terminated and no longer in force or effect when either party terminates the Executive's employment with the Company pursuant to Article IV.  Notwithstanding the above, in accordance with their respective terms,  Articles V, VI and VII shall survive the termination or expiration of this Agreement for any reason.

 
17

 
 
Exhibit 10.33
 
IN WITNESS WHEREOF , the parties have executed this Agreement as of the Effective Date.


ORTHOFIX INC.
 
EXECUTIVE
       
       
/s/ Raymond C. Kolls    /s/ Thomas Hein
     
Thomas Hein, an individual
Name: 
Raymond C. Kolls   
 
       
Title: 
Senior Vice President, General Counsel and Corporate Secretary    


 
Guaranty by Parent
 
 
Parent (Orthofix International N.V.) is not a party to this Agreement, but joins in this Agreement for the sole purpose of guaranteeing the obligations of the Company to pay, provide, or reimburse the Executive for all cash or other benefits provided for in this Agreement, including the provision of all benefits in the form of, or related to, securities of Parent and to elect or appoint Executive to the positions with Parent and provide Executive with the authority relating thereto as contemplated by Section 1.1 of this Agreement, and to ensure the Board will take the actions required of it hereby.
 
ORTHOFIX INTERNATIONAL N.V.


/s/ Raymond C. Kolls   
     
Name: 
Raymond C. Kolls   
     
Title: 
Senior Vice President, General Counsel and Corporate Secretary  

 
18

 
 
Exhibit 10.33
 
EXHIBIT A
 
Definitions
 
For purposes of this Agreement, the following capitalized terms have the meanings set forth below:
 
" Cause " shall mean termination of the Executive's employment because of the Executive's:  (i) involvement in   fraud, misappropriation or embezzlement related to the business or property of the Company; (ii) conviction for, or guilty plea to, or plea of nolo contendere to, a felony or crime of similar gravity in the jurisdiction in which such conviction or guilty plea occurs; (iii) intentional wrongful disclosure of Confidential Information or other intentional wrongful violation of Article VI;  (iv) willful and continued failure by the Executive to follow the reasonable instructions of the Board or Chief Executive Officer; (v) willful commission by the Executive of acts that are dishonest and demonstrably and materially injurious to a member of the Parent Group, monetarily or otherwise; (vi) willful or material violation of, or willful or material noncompliance with, any securities law, rule or regulation or stock exchange listing rule adversely affecting the Parent Group including without limitation (a) if the Executive has undertaken to provide any chief financial officer or principal financial officer   certification required under the Sarbanes-Oxley Act of 2002, including the rules and regulations promulgated thereunder (the " Sarbanes-Oxley Act "), and he willfully or materially fails to take reasonable and appropriate steps to determine whether or not the certificate was accurate or otherwise in compliance with the requirements of the Sarbanes-Oxley Act or (b) the Executive's willful or material failure to establish and administer effective systems and controls applicable to his area of responsibility necessary for the Parent to timely and accurately file reports pursuant to Section 13 or 15(d) of the Exchange Act.  No act or omission shall be deemed willful or material for purposes of this definition if taken or omitted to be taken by Executive in a good faith belief that such act or omission to act was in the best interests of the Parent Group or if done at the express direction of the Board.
 
" Code " shall mean the Internal Revenue Code of 1986, as amended.

" Competing Business " means any business or activity that (i) competes with any member of the Parent Group for which the Executive performed services or the Executive was involved in for purposes of making strategic or other material business decisions and involves (ii) (A) the same or substantially similar types of products or services (individually or collectively) manufactured, marketed or sold by any member of the Parent Group during the Executive's employment or (B) products or services so similar in nature to that of any member of the Parent Group during the Executive's employment (or that any member of the Parent Group will soon thereafter offer) that they would be reasonably likely to displace substantial business opportunities or customers of the Parent Group.
 
" Confidential Information " shall include Trade Secrets and includes information acquired by the Executive in the course and scope of his activities under this Agreement, including information acquired from third parties, that (i) is not generally known or disseminated outside the Parent Group (such as non-public information), (ii) is designated or marked by any member of the Parent Group as "confidential" or reasonably should be considered confidential or proprietary, or (iii) any member of the Parent Group indicates through its policies, procedures, or other instructions should not be disclosed to anyone outside the Parent Group.  Without limiting the foregoing definitions, some examples of Confidential Information under this Agreement include (a) matters of a technical nature, such as scientific, trade or engineering secrets, "know-how", formulae, secret processes, inventions, and research and development plans or projects regarding existing and prospective customers and products or services, (b) information about costs, profits, markets, sales, customer lists, customer needs, customer preferences and customer purchasing histories, supplier lists, internal financial data, personnel evaluations, non-public information about medical devices or products of any member of the Parent Group (including future plans about them), information and material provided by third parties in confidence and/or with nondisclosure restrictions, computer access passwords, and internal market studies or surveys and (c) and any other information or matters of a similar nature.
 

 
19

 
 
Exhibit 10.33
 
" Parent Group " shall mean Parent, together with its subsidiaries including the Company.
 
" Person " shall include individuals or entities such as corporations, partnerships, companies, firms, business organizations or enterprises, and governmental or quasi-governmental bodies.
 
" Prohibited Area " means North America, South America and the European Union, which Prohibited Area the parties have agreed to as a result of the fact that those are the geographic areas in which the members of the Parent Group conduct a preponderance of their business and in which the Executive provides substantive services to the benefit of the Parent Group.
 
" Section 409A " shall mean Section 409A of the Code and regulations promulgated thereunder (and any similar or successor federal or state statute or regulations).
 
" Trade Secrets " are information of special value, not generally known to the public that any member of the Parent Group has taken steps to maintain as secret from Persons other than those selected by any member of the Parent Group.
 
 
20


Exhibit 10.34
 
Nonqualified Stock Option Agreement under
the Orthofix International N.V.
Amended and Restated 2004 Long-Term Incentive Plan


This Option Agreement (the “ Agreement ”) is made this 11th day of April 2008 (the “ Grant Date ”) between Orthofix International N.V., a Netherlands Antilles company (the “ Company ”), and the person signing this Agreement adjacent to the caption “Optionee” on the signature page hereof (the “ Optionee ”).  Capitalized terms used and not otherwise defined herein shall have the meanings attributed thereto in the Orthofix International N.V. Amended and Restated 2004 Long-Term Incentive Plan (the “ Plan ”).

WHEREAS, the Optionee is entering into that certain Employment Agreement of even date herewith with Orthofix Inc., a Minnesota corporation and wholly owned subsidiary of the Company (the “ Employment Agreement ”);

WHEREAS, pursuant to the Plan and the Employment Agreement, the Company desires to afford the Optionee the opportunity to purchase Common Shares on the terms and conditions set forth herein;

NOW, THEREFORE, in connection with the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows:

1.    Grant of Option . Subject to the provisions of this Agreement, the Employment Agreement and the Plan, the Company hereby grants to the Optionee the right and option (the “ Option ”) to purchase 50,000 Common Shares at an exercise price of $31.83 per share (the “ Exercise Price ”).

2.    Incorporation of Plan . The Optionee acknowledges receipt of the Plan, a copy of which is annexed hereto, and represents that he or she is familiar with its terms and provisions and hereby accepts this Option subject to all of the terms and provisions of the Plan and all interpretations, amendments, rules and regulations which may, from time to time, be promulgated and adopted pursuant to the Plan. The Plan is incorporated herein by reference. In the event of any conflict or inconsistency between the Plan and this Agreement, the Plan shall govern and this Agreement shall be interpreted to minimize or eliminate any such conflict or inconsistency.  In the event of any conflict between this Agreement and the Employment Agreement, the applicable provision of the Employment Agreement shall supersede the conflicting provision in this Agreement.

3.    Nature of the Option . The Option shall be a Nonqualified Stock Option.

4.    Vesting . Subject to earlier termination in accordance with the Plan, the Employment Agreement or this Agreement and the terms and conditions therein or herein, the Option shall vest and become exercisable with respect to 33 1/3% of the shares covered thereby on each of the first, second and third anniversaries of the Grant Date; provided, however, that the exercisability of any portion of the Option relating to a fractional share shall be deferred until such time, if any, that such portion can be exercised as a whole Common Share.

5.    Term . The Option shall expire and no longer be exercisable 10 years from the Grant Date, subject to earlier termination in accordance with the Plan, this Agreement or the Employment Agreement; provided, however: (i) if the termination date falls on a date on which the exercise of the Option would violate any applicable federal, state, local or foreign law, such termination date shall be extended to 30 days after the first date that exercise of the Option would no longer violate any applicable federal, state, local or foreign law, and (ii) if the termination date falls on a date on which the Optionee is prohibited by Company policy in effect on such date from engaging in transactions in the Company’s securities, such termination date shall be extended to the first date that the Optionee is permitted to engage in transaction in the Company’s securities under such Company policy so long as such extension does not cause the Option to become subject to Code Section 409A or violate any other applicable law.

 
 

 
Exhibit 10.34

6.    Termination of Employment .

(a)      General . A termination of employment shall be deemed to have occurred if the Optionee is no longer employed by, or otherwise providing services to, the Company or any of its Subsidiaries for any reason, expressly including as provided in Article IV of the Employment Agreement.

(b)      Termination of Employment on Death or Other than for Cause . In the event (i) the Company terminates the Optionee's employment prior to vesting other than for Cause (as defined in the Employment Agreement) or (ii) of the death of the Optionee, then the Option shall be considered vested in full and be immediately exercisable as of the date of such termination of employment as provided in the Employment Agreement.  Following the term of such employment, the Optionee shall have the right, subject to the other terms and conditions set forth in this Agreement and the Plan, to exercise the Option until the expiration of the Option as provided in Section 5 hereof. To the extent the vested portion of the Option is not exercised within such period, the Option shall be cancelled and revert back to the Company and the Optionee shall have no further right or interest therein.

(d)      Termination of Employment for Cause or Voluntary Termination . If the Optionee's employment is terminated by the Optionee in a Voluntary Termination or by the Company or any of its Subsidiaries for Cause prior to the full vesting of the Option, the unvested portion of the Option shall be cancelled and revert back to the Company as of the date of such termination of employment, and the Optionee shall have no further right or interest therein unless the Committee in its sole discretion shall determine otherwise. The Optionee shall have the right, subject to the other terms and conditions set forth in this Agreement, the Employment Agreement and the Plan, to exercise the portion of the Option, if any, to the extent it was vested as of the date of such termination of employment at any time within three months after the date of such termination, subject to the earlier expiration of the Option as provided in Section 5 hereof.

7.    Method of Exercising Option .

(a)      Notice of Exercise . Subject to the terms and conditions of this Agreement, the Option may be exercised by written or electronic notice to the Company, from the Optionee, a Permitted Transferee, a transferee pursuant to a domestic relations order, or following the Optionee’s death, the Optionee’s estate, personal representative, or beneficiary, as applicable, and stating the number of Common Shares in respect of which the Option is being exercised. Such notice shall be accompanied by payment of the Exercise Price for all Common Shares purchased pursuant to the exercise of such Option. The date of exercise of the Option shall be the later of (i) the date on which the Company receives the notice of exercise or (ii) the date on which the conditions set forth in Sections 7(b) and (e) are satisfied. Notwithstanding any other provision of this Agreement, the Optionee may not exercise the Option and no Common Shares will be issued by the Company with respect to any attempted exercise when such exercise is prohibited by law or any Company policy then in effect. The Option may not be exercised at any one time as to less than 100 shares (or such number of shares as to which the Option is then exercisable if less than 100). In no event shall the Option be exercisable for a fractional share.

 
 

 
Exhibit 10.34
 
(b)      Payment . Prior to the issuance of the Common Shares pursuant to Section 7(e) hereof in respect of which all or a portion of the Option shall have been exercised, the Optionee shall have paid to the Company the Exercise Price for all Common Shares purchased pursuant to the exercise of such Option. Payment may be made by personal check, bank draft or postal or express money order (such modes of payment are collectively referred to as “cash”) payable to the order of the Company in U.S. dollars. Payment may also be made in mature Common Shares owned by the Optionee, or in any combination of cash or such mature shares as the Committee in its sole discretion may approve. The Company may also permit the Optionee to pay for such Common Shares by directing the Company to withhold Common Shares that would otherwise be received by the Optionee, pursuant to such rules as the Committee may establish from time to time. In the discretion of the Committee, and in accordance with rules and procedures established by the Committee, the Optionee may be permitted to make a “cashless” exercise of all or a portion of the Option.

(c)      Shareholder Rights . The Optionee shall have no rights as a shareholder with respect to any Common Shares issuable upon exercise of the Option until the Optionee shall become the holder of record thereof, and no adjustment shall be made for dividends or distributions or other rights in respect of any Common Shares for which the record date is prior to the date upon which the Optionee shall become the holder of record thereof.

(d)      Limitation on Exercise . The Option shall not be exercisable unless the offer and sale of Common Shares pursuant thereto has been registered under the Securities Act of 1933, as amended (the “ 1933 Act ”), and qualified under applicable state “blue sky” laws or the Company has determined that an exemption from registration under the 1933 Act and from qualification under such state “blue sky” laws is available.

(e)      Issuance of Common Shares . Subject to the foregoing conditions, as soon as is reasonably practicable after its receipt of a proper notice of exercise and payment of the Exercise Price for all Common Shares purchased pursuant to the exercise of such Option, the Company shall either: (i) deliver or cause to be delivered to the Optionee (or a Permitted Transferee, a transferee under a domestic relations order, or following the Optionee's death, the Optionee's estate, personal representative or beneficiary, as applicable) one or more share certificates for the appropriate number of Common Shares issued in connection with such exercise (less any Common Shares withheld under Section 9 below), or (ii) cause its third-party recordkeeper to credit an account established and maintained in the name of the Optionee (or a Permitted Transferee, a transferee under a domestic relations order, or following the Optionee's death, the Optionee's estate, personal representative or beneficiary, as applicable) with the number of Common Shares issued in connection with such exercise (less any Common Shares withheld under Section 9 below); provided, however, that an actual share certificate shall be delivered if requested by the Optionee (or a Permitted Transferee, a transferee under a domestic relations order, or following the Optionee's death, the Optionee's estate, personal representative or beneficiary, as applicable). Such Common Shares shall be fully paid and nonassessable and shall be issued in the name of the Optionee (or a Permitted Transferee, a transferee under a domestic relations order, or following the Optionee's death, the Optionee's estate, personal representative or beneficiary, as applicable).

 
 

 
Exhibit 10.34

8.    Adjustment of and Changes in Common Shares . In the event of any merger, consolidation, recapitalization, reclassification, stock dividend, extraordinary dividend, or other event or change in corporate structure affecting the Common Shares, the Committee shall make such adjustments, if any, as it deems appropriate in the number and class of shares subject to, and the exercise price of, the Option. The foregoing adjustments shall be determined by the Committee in its sole discretion.

9.      Tax Withholding . The Company shall have the right, prior to the issuance of any Common Shares upon full or partial exercise of the Option (whether by the Optionee or any Permitted Transferees, a transferee under a domestic relations order, or following the Optionee’s death, the Optionee’s estate, personal representative, or beneficiary, as applicable), to require the Optionee to remit to the Company any amount sufficient to satisfy the minimum required federal, state or local tax withholding requirements, as well as all applicable withholding tax requirements of any other country or jurisdiction. The Company may permit the Optionee to satisfy, in whole or in part, such obligation to remit taxes, by directing the Company to withhold Common Shares that would otherwise be received by the Optionee, pursuant to such rules as the Committee may establish from time to time. The Company shall also have the right to deduct from all cash payments made pursuant to, or in connection with, the Option, the minimum federal, state or local taxes required to be withheld with respect to such payments.

10.      Transfers . Unless the Committee determines otherwise after the Grant Date, the Option shall not be transferable other than by will or by the laws of descent and distribution or pursuant to a domestic relations order; provided, however, the Option may be transferred to the Optionee's family members or to one or more trusts or partnerships established in whole or in part for the benefit of one or more of such family members (collectively, the “Permitted Transferees”). Any Option transferred to a Permitted Transferee shall be further transferable only by will or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Optionee. The Committee may in its discretion permit transfers of Options other than those contemplated by this Section 10.

11.      Option Exercisable Only by the Optionee . During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or by a Permitted Transferee to whom such Option has been transferred in accordance with Section 10.

12.       Prohibition on Repricing .  The Agreement may not be amended to (a) reduce the Exercise Price of the Option granted hereunder, nor (b) cancel or replace the Option  hereunder with an Option having a lower exercise price.

13.      Miscellaneous Provisions .

(a)      Notices . Any notice required by the terms of this Agreement shall be delivered or made electronically, over the Internet or otherwise (with request for assurance of receipt in a manner typical with respect to communications of that type), or given in writing.  Any notice given in writing shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid, and shall be addressed to the Company at its principal executive office and to the Optionee at the address that he or she has most recently provided to the Company.   Any notice given electronically shall be deemed effective on the date of transmission.

(b)      Headings . The headings of sections and subsections are included solely for convenience of reference and shall not affect the meaning of the provisions of this Agreement.

 
 

 
Exhibit 10.34
 
(c)      Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

(d)      Entire Agreement . This Agreement and the Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof.

(e)      Amendments . The Board and the Committee shall have the power to alter or amend the terms of the Option as set forth herein from time to time, in any manner consistent with the provisions of Sections 16 and 19 of the Plan, and any alteration or amendment of the terms of the Option by the Board or the Committee shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give notice to the Optionee of any such alteration or amendment as promptly as practicable after the adoption thereof. The foregoing shall not restrict the ability of the Optionee and the Board or the Committee by mutual written consent to alter or amend the terms of the Option in any manner which is consistent with the Plan.

(f)       Binding Effect . This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto and may only be amended by written agreement of the parties hereto.

(g)      Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the choice of law provisions thereof.

(h)      No Employment or Other Rights . This Option grant does not confer upon the Optionee any right to be continued in the employment of, or otherwise provide services to, the Company or any Subsidiary or other affiliate thereof, or interfere with or limit in any way the right of the Company or any Subsidiary or other affiliate thereof to terminate such Optionee’s employment at any time.

 
 

 
Exhibit 10.34

EXECUTED as of the date first written above.


COMPANY:
ORTHOFIX INTERNATIONAL N.V.
   
 
By:   /s/ Alan W. Milinazzo                                                                
 
Name:  Alan W. Milinazzo
 
Title:  Chief Executive Officer
   
OPTIONEE:
 
 
By:   /s/ Thomas Hein                                                                         
 
Name:  Thomas Hein
 
Title:  Chief Financial Officer

 


Exhibit 10.35
 
Summary of
Consulting Arrangement between Orthofix International N.V. and Peter Hewett


Orthofix International N.V. (the "Company") and Peter Hewett, a member of the Board of Directors of the Company (the "Board"), agreed to the consulting arrangement detailed below related to the services provided by Mr. Hewett to the Board in effect since 2003.

1.  Mr. Hewett will provide consulting and advisory services at such times and on such special projects as requested by the Board from time to time.  Mr. Hewett will report directly to the Board.

2.  The Company will pay to Mr. Hewett $1,500 for each day that Mr. Hewett provides consulting and advisory services to the Company.  The Company will also reimburse Mr. Hewett for his travel and related expenses in connection with his consulting and advisory services.

3.  Mr. Hewett will submit an invoice to the Company in order to receive payment for his consulting and advisory services and reimbursement for his travel and related expenses.

 


Exhibit 31.1
 
CERTIFICATION

 
I, Alan W. Milinazzo, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Orthofix International N.V.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has material affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:     May 7, 2008


/s/ Alan W. Milinazzo
Name:
Alan W. Milinazzo
Title:
Chief Executive Officer and President
 
 


Exhibit 31.2

CERTIFICATION

 
I, Thomas Hein, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Orthofix International N.V.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has material affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over  financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:     May 7, 2008


/s/ Thomas Hein
Name:
Thomas Hein
Title:
Chief Financial Officer
 
 


Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

 
In connection with the Quarterly Report of Orthofix International N.V. (“Orthofix”) on Form 10-Q for the period ended March 31, 2008 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Alan W. Milinazzo, Chief Executive Officer and President of Orthofix, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Orthofix.
 
 
Dated:  May 7, 2008
/s/ Alan W. Milinazzo
 
Name: 
Alan W. Milinazzo
 
Title: 
Chief Executive Officer and President
 
 


Exhibit 32.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

 
In connection with the Quarterly Report of Orthofix International N.V. (“Orthofix”) on Form 10-Q for the period ended March 31, 2008 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Thomas Hein, Chief Financial Officer of Orthofix, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Orthofix.
 
 
Dated:  May 7, 2008
/s/ Thomas Hein
 
Name: 
Thomas Hein
 
Title: 
Chief Financial Officer