Orthofix International N.V.
ORTHOFIX INTERNATIONAL N V (Form: 10-Q, Received: 05/08/2014 06:14:51)
Table of Contents

 

 

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, 2014

OR

 

¨ 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)

 

 

 

Curaçao   Not applicable

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

7 Abraham de Veerstraat

Curaçao

  Not applicable
(Address of principal executive offices)   (Zip Code)

599-9-4658525

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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.     x   Yes     ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x   Yes     ¨   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer   ¨    Accelerated filer   x
Non-Accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     x   No

As of May 2, 2014, 18,436,516 shares of common stock were issued and outstanding.

 

 

 


Table of Contents

Table of Contents

 

         Page  

PART I

  FINANCIAL INFORMATION   

Item 1.

  Financial Statements      4   
 

Condensed Consolidated Balance Sheets as of March 31, 2014, and December 31, 2013

     4   
 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2014, and 2013

     5   
 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014, and 2013

     6   
 

Notes to Condensed Consolidated Financial Statements

     7   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     15   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     19   

Item 4.

 

Controls and Procedures

     20   

PART II

  OTHER INFORMATION   

Item 1.

  Legal Proceedings      23   

Item 1A.

  Risk Factors      23   

Item 6.

  Exhibits      24   

SIGNATURES

     25   

 

2


Table of Contents

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, 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. We undertake no obligation to further update any such statement to reflect new information, the occurrence of future events or circumstances or otherwise.

The forward-looking statements in this filing do not constitute guarantees or promises of future performance. Factors that could cause or contribute to such differences may include, but are not limited to, risks relating to our recent Audit Committee review and the recently filed restatement of our financial statements for certain prior periods and related legal proceedings (including potential action by the Division of Enforcement of the SEC and pending securities class action litigation), the Company’s review of allegations of improper payments involving the Company’s Brazil-based subsidiary, the expected sales of our products, including recently launched products, unanticipated expenditures, changing relationships with customers, suppliers, strategic partners and lenders, changes to and the interpretation of governmental regulations, the resolution of pending litigation matters (including our indemnification obligations with respect to certain product liability claims against, and the government investigation of, our former sports medicine global business unit), our ongoing compliance obligations under a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services (and related terms of probation), a deferred prosecution agreement with the U.S. Department of Justice and a consent decree with the SEC, risks relating to the protection of intellectual property, changes to the reimbursement policies of third parties, the impact of competitive products, changes to the competitive environment, the acceptance of new products in the market, conditions of the orthopedic industry, credit markets and the economy, corporate development and market development activities, including acquisitions or divestitures, unexpected costs or operating unit performance related to recent acquisitions, and other risks described in Item 1A under the heading  Risk Factors  in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 Form 10-K”), as well as in other reports that we will file in the future.

 

3


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ORTHOFIX INTERNATIONAL N.V.

Condensed Consolidated Balance Sheets

 

(U.S. Dollars, in thousands, except share data)

   March 31,
2014
     December 31,
2013
 
     (unaudited)         

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 26,747       $ 30,486   

Restricted cash

     19,270         23,761   

Trade accounts receivable, less allowance for doubtful accounts of $12,593 and $11,969 at March 31, 2014 and December 31, 2013, respectively

     76,917         75,567   

Inventories

     92,753         90,577   

Deferred income taxes

     33,956         33,947   

Prepaid expenses and other current assets

     28,781         25,906   
  

 

 

    

 

 

 

Total current assets

     278,424         280,244   

Property, plant and equipment, net

     52,532         54,606   

Patents and other intangible assets, net

     8,518         9,046   

Goodwill

     53,565         53,565   

Deferred income taxes

     18,758         18,336   

Other long-term assets

     6,743         7,385   
  

 

 

    

 

 

 

Total assets

   $ 418,540       $ 423,182   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Current liabilities:

     

Trade accounts payable

   $ 14,022       $ 20,674   

Other current liabilities

     41,467         46,146   
  

 

 

    

 

 

 

Total current liabilities

     55,489         66,820   

Long-term debt

     20,000         20,000   

Deferred income taxes

     13,307         13,132   

Other long-term liabilities

     12,487         12,736   
  

 

 

    

 

 

 

Total liabilities

     101,283         112,688   

Contingencies (Note 15)

     

Shareholders’ equity:

     

Common shares $0.10 par value; 50,000,000 shares authorized; 18,365,910 and 18,102,335 issued and outstanding as of March 31, 2014 and December 31, 2013, respectively

     1,836         1,810   

Additional paid-in capital

     223,630         216,653   

Retained earnings

     88,550         89,332   

Accumulated other comprehensive income

     3,241         2,699   
  

 

 

    

 

 

 

Total shareholders’ equity

     317,257         310,494   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 418,540       $ 423,182   
  

 

 

    

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

4


Table of Contents

ORTHOFIX INTERNATIONAL N.V.

Condensed Consolidated Statements of Operations and Comprehensive Income (loss)

For the three months ended March 31, 2014 and 2013

 

(Unaudited, U.S. Dollars, in thousands, except share and per share data)

   Three Months Ended
March 31,
 
     2014     2013  

Product sales

   $ 89,684      $ 91,336   

Marketing service fees

     11,658        12,037   
  

 

 

   

 

 

 

Net sales

     101,342        103,373   

Cost of sales

     22,632        25,617   
  

 

 

   

 

 

 

Gross profit

     78,710        77,756   

Operating expenses

    

Sales and marketing

     43,871        45,054   

General and administrative

     17,545        18,330   

Research and development

     5,939        5,741   

Amortization of intangible assets

     584        544   

Costs related to the accounting review and restatement

     8,306        —     
  

 

 

   

 

 

 
     76,245        69,669   
  

 

 

   

 

 

 

Operating income

     2,465        8,087   

Other income and expense

    

Interest expense, net

     (486     (560

Other income (expense)

     (261     4,764   
  

 

 

   

 

 

 
     (747     4,204   
  

 

 

   

 

 

 

Income before income taxes

     1,718        12,291   

Income tax expense

     (1,940     (4,681
  

 

 

   

 

 

 

Net income (loss) from continuing operations

     (222     7,610   
  

 

 

   

 

 

 

Discontinued operations (Note 14)

    

Loss from discontinued operations

     (794     (4,434

Income tax benefit

     234        1,324   
  

 

 

   

 

 

 

Net loss from discontinued operations

     (560     (3,110
  

 

 

   

 

 

 

Net income (loss)

   $ (782   $ 4,500   
  

 

 

   

 

 

 

Net income (loss) per common share- basic:

    

Net income from continuing operations

   $ (0.01   $ 0.39   

Net loss from discontinued operations

     (0.03     (0.16
  

 

 

   

 

 

 

Net income (loss) per common share- basic

   $ (0.04   $ 0.23   
  

 

 

   

 

 

 

Net income (loss) per common share- diluted:

    

Net income from continuing operations

   $ (0.01   $ 0.39   

Net loss from discontinued operations

     (0.03     (0.16
  

 

 

   

 

 

 

Net income (loss) per common share- diluted

   $ (0.04   $ 0.23   
  

 

 

   

 

 

 

Weighted average number of common shares:

    

Basic

     18,197,363        19,431,093   

Diluted

     18,197,363        19,691,141   

Other comprehensive income:

    

Unrealized gain (loss) on cross-currency swap, net of tax

     103        (318

Foreign currency translation adjustment

     439        (2,708
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ (240   $ 1,474   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

5


Table of Contents

ORTHOFIX INTERNATIONAL N.V.

Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2014 and 2013

 

     Three Months Ended
March 31,
 

(Unaudited, U.S. Dollars, in thousands)

   2014     2013  

Cash flows from operating activities:

    

Net (loss) income

   $ (782   $ 4,500   

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

    

Depreciation and amortization

     6,004        5,029   

Amortization of debt costs

     180        180   

Provision for doubtful accounts

     2,579        1,374   

Deferred income taxes

     (246     (6

Share-based compensation

     1,461        1,943   

Income tax benefit on employee stock-based awards

     412        563   

Excess income tax benefit on employee stock-based compensation

     (29     (78

Other

     166        391   

Change in operating assets and liabilities:

    

Trade accounts receivable

     (3,780     8,589   

Inventories

     (1,690     (2,100

Prepaid expenses and other current assets

     (2,806     2,695   

Trade accounts payable

     (6,670     (7,247

Other current liabilities

     (4,761     2,070   

Long-term assets

     64        (1,805

Long-term liabilities

     (280     (1,039
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (10,178     15,059   

Cash flows from investing activities:

    

Capital expenditures for property, plant and equipment

     (3,691     (6,029

Capital expenditures for intangible assets

     (46     (44
  

 

 

   

 

 

 

Net cash used in investing activities

     (3,737     (6,073

Cash flows from financing activities:

    

Net proceeds from issuance of common shares

     5,542        2,143   

Repayment of bank borrowings, net

     —          (15

Changes in restricted cash

     4,502        (8,141

Excess income tax benefit on employee stock-based awards

     29        78   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     10,073        (5,935

Effect of exchange rate changes on cash

     103        (431
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (3,739     2,620   

Cash and cash equivalents at the beginning of the period

     30,486        31,055   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   $ 26,747      $ 33,675   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

6


Table of Contents

ORTHFIX INTERNATIONAL N.V.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

1. Summary of significant accounting policies

 

  (a) Basis of presentation

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) 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 U.S., 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, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The balance sheet at December 31, 2013, 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 U.S. for complete financial statements. For further information, refer to the Consolidated Financial Statements and Notes thereto of the 2013 Form 10-K. The notes to the unaudited condensed consolidated financial statements are presented on a continuing basis unless otherwise noted.

 

  (b) Reclassifications

The Company has reclassified certain line items to conform to the current year presentation. The reclassifications have no effect on previously reported net income or shareholders’ equity.

 

  (c) Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates including those related to the resolution of U.S. government matters, contractual allowances, doubtful accounts, inventories, taxes, shared-based compensation, and potential goodwill and intangible asset impairment. Actual results could differ from these estimates.

 

  (d) Foreign currency translation

The financial statements for operations outside the United States are generally maintained in their local currency. All foreign currency denominated balance sheet accounts, except shareholders’ equity, are translated to U.S. dollars at period end exchange rates and revenue and expense items are translated at weighted average rates of exchange prevailing during the year. Gains and losses resulting from the translation of foreign currency are recorded in the accumulated other comprehensive income component of shareholders’ equity.

 

  (e) Collaborative agreement

The Company receives a marketing fee through our collaboration with Musculoskeletal Transplant Foundation (“MTF”) for Trinity Evolution, Trinity ELITE, and VersaShield, for all of which, we have exclusive marketing rights. Under our agreements with MTF, MTF processes the tissues, maintains inventory, and invoices hospitals and surgery centers and other points of care for service fees, which are submitted by customers via purchase orders. MTF is considered the primary obligor in these arrangements and therefore we recognize these marketing service fees on a net basis upon shipment of the product to the customer.

 

2. Inventories

The Company’s inventories are primarily stated at standard cost, which approximates actual cost determined on a first-in, first-out basis. The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to obsolescence or other factors. In order to make these determinations, management uses estimates of future demand and sales prices for each product to determine the appropriate inventory reserves and to make corresponding adjustments to the carrying value of these inventories to reflect the lower of cost or market value. In the event of a sudden significant decrease in demand for the Company’s products, or a higher incidence of inventory obsolescence, the Company could be required to increase its inventory reserves, which would increase cost of sales and decrease gross profit.

Work-in-process, finished products, field inventory and consignment inventory include material, labor and production overhead costs. Field inventory represents finished products inventory that is in the possession of the Company’s direct sales representatives and is available for immediate sale. Consignment inventory represents finished products that are located at third party customers, such as distributors and hospitals and is also available for immediate sale.

 

7


Table of Contents

Deferred cost of sales result from transactions where the Company has shipped product or performed services for which all revenue recognition criteria have not been met. Once the revenue recognition criteria have been met, both the deferred revenues and associated cost of sales are recognized.

Inventories, net of reserves, were as follows:

 

(U.S. Dollars, in thousands)

   March 31,
2014
     December 31,
2013
 

Raw materials

   $ 4,872       $ 6,515   

Work-in-process

     7,412         6,606   

Finished products

     40,758         36,898   

Field inventory

     28,787         29,360   

Consignment inventory

     4,354         3,916   

Deferred cost of sales

     6,570         7,282   
  

 

 

    

 

 

 

Total Inventory

   $ 92,753       $ 90,577   
  

 

 

    

 

 

 

 

3. Patents and other intangible assets

 

(U.S. Dollars, in thousands)

   March 31,
2014
    December 31,
2013
 

Cost

    

Patents

   $ 36,496      $ 36,320   

Trademarks — definite lived

     645        620   

Licenses and other

     6,248        6,248   
  

 

 

   

 

 

 
     43,389        43,188   

Accumulated amortization

    

Patents

     (32,351     (31,739

Trademarks — definite lived

     (484     (454

Licenses and other

     (2,036     (1,949
  

 

 

   

 

 

 
     (34,871     (34,142
  

 

 

   

 

 

 

Patents and other intangible assets, net

   $ 8,518      $ 9,046   
  

 

 

   

 

 

 

 

4. Goodwill

As a result of the Company’s change in reportable segments in July of 2013, the Company allocated goodwill to each reportable segment, and subsequently evaluated the Extremity Fixation and Spine Fixation reportable units for the possible impairment of goodwill. The result of this evaluation was a full impairment of the goodwill allocated to our Extremity Fixation and our Spine Fixation reportable units, totaling $19.2 million. As of December 31, 2013 and March 31, 2014, accumulated impairment was $9.8 million for our Extremity Fixation reportable segment and $9.4 million for our Spine Fixation reportable segment. Our BioStim and Biologics reportable segments have not been impaired. The following table presents the net carrying value of goodwill by reportable segment as of March 31, 2014 and December 31, 2013.

 

(U.S. Dollars, in thousands)

   March 31,
2014
     December 31,
2013
 

BioStim

   $ 42,678       $ 42,678   

Biologics

     10,887         10,887   

Extremity Fixation

     —           —     

Spine Fixation

     —           —     
  

 

 

    

 

 

 

Total goodwill

   $ 53,565       $ 53,565   
  

 

 

    

 

 

 

 

8


Table of Contents
5. Bank borrowings

Borrowings under the line of credit consist of borrowings in Euros used to fund international operations. There were no borrowings under such facilities at March 31, 2014, or December 31, 2013. The weighted average interest rate on borrowings under the line of credit at March 31, 2014, was 3.70%.

The Company had an unused available line of credit of €5.8 million ($8.0 million) at both March 31, 2014 and December 31, 2013, in its Italian line of credit. This line of credit provides 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.

 

6. Long-term debt

On August 30, 2010, the Company’s wholly-owned U.S. holding company, Orthofix Holdings, Inc. (“Orthofix Holdings”) entered into a Credit Agreement (the “Credit Agreement”) with certain domestic direct and indirect subsidiaries of the Company (the “Guarantors”), JPMorgan Chase Bank, N.A., as Administrative Agent, RBS Citizens, N.A., as Syndication Agent, and certain lender parties thereto.

The Credit Agreement provides for a five year, $200 million secured revolving credit facility (the “Revolving Credit Facility”), and a five year, $100 million secured term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Credit Facilities”). Orthofix Holdings has the ability to increase the amount of the Credit Facilities by an aggregate amount of up to $50 million upon satisfaction of certain conditions.

As of March 31, 2014, and December 31, 2013, there was $20 million outstanding under the Revolving Credit Facility. Borrowings under the Credit Facilities bear interest at a floating rate, which is, at Orthofix Holdings’ option, either the London Inter-Bank Offered Rate (“LIBOR”) plus an applicable margin or a base rate (as defined in the Credit Agreement) plus an applicable margin (in each case subject to adjustment based on financial ratios). Such applicable margin will be up to 3.25% for LIBOR borrowings and up to 2.25% for base rate borrowings depending upon a measurement of the consolidated leverage ratio with respect to the immediately preceding four fiscal quarters. As of March 31, 2014, and December 31, 2013, the entire Revolving Credit Facility was at the LIBOR rate plus a margin of 2.50%. The effective interest rate on the Credit Facilities as of March 31, 2014, and December 31, 2013, was 2.7%. Outstanding balances on the Revolving Credit Facility are due on August 30, 2015.

Borrowings under the Revolving Credit Facility, which may be made in the future, will be used for working capital, capital expenditures and other general corporate purposes of Orthofix Holdings and its subsidiaries. The Guarantors have guaranteed repayment of Orthofix Holdings’ obligations under the Credit Agreement. The obligations of Orthofix Holdings and each of the Guarantors with respect to the Credit Facilities are secured by a pledge of substantially all of the assets of Orthofix Holdings and each of the Guarantors.

The Credit Agreement, as amended, requires Orthofix Holdings and the Company to comply with coverage ratios on a consolidated basis and contains affirmative and negative covenants, including limitations on additional debt, liens, investments and acquisitions. The Credit Agreement, as amended, also includes events of default customary for facilities of this type. Upon the occurrence of an event of default, all outstanding loans may be accelerated and/or the lenders’ commitments terminated.

Certain subsidiaries of the Company have restrictions on their ability to pay dividends or make intercompany loan advances pursuant to the Company’s Credit Facilities. 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, 2014, and December 31, 2013, is $194.1 million and $192.0 million, respectively. In addition, the Credit Agreement restricts the Company and subsidiaries that are not parties to the Credit Facilities from access to cash held by Orthofix Holdings, Inc. and its subsidiaries. All of the Company’s subsidiaries that are parties to the Credit Agreement have access to this cash for operational and debt repayment purposes. The amount of restricted cash of the Company as of March 31, 2014, and December 31, 2013, was $19.3 million and $23.8 million, respectively.

In conjunction with obtaining the Credit Facilities and the Credit Agreement, as amended, the Company incurred debt issuance costs of $5 million. These costs are being amortized using the effective interest method over the life of the Credit Facilities. In conjunction with the Term Loan Facility repayment in May 2012, the Company wrote off $0.8 million of related debt issuance costs. As of March 31, 2014, and December 31, 2013, debt issuance costs, net of accumulated amortization, related to the Credit Agreement were $0.9 million and $1.1 million, respectively.

 

9


Table of Contents
7. Derivative instruments

The tables below disclose the types of derivative instruments the Company owns, the classifications and fair values of these instruments within the balance sheet, and the amount of gain (loss) recognized in other comprehensive income (loss) (“OCI”) or net income (loss).

 

(U.S. Dollars, in thousands)

As of March 31, 2014

   Fair value: favorable
(unfavorable)
    Balance sheet location  

Cross-currency swap

   $ (1,035     Other long-term liabilities   

As of December 31, 2013

            

Cross-currency swap

   $ (1,036     Other long-term liabilities   

 

     Three Months Ended
March 31,
 

(U.S. Dollars, in thousands)

   2014      2013  

Cross-currency swap unrealized gain (loss) recorded in other comprehensive income (loss), net of taxes

   $ 103       $ (318

Cross-currency swap

On September 30, 2010, the Company entered into a cross-currency swap agreement (the “replacement swap agreement”) with JPMorgan Chase Bank and Royal Bank of Scotland PLC (the “counterparties”) to manage its cash flows related to foreign currency exposure for a portion of the Company’s intercompany receivable of a U.S. dollar functional currency subsidiary that is denominated in Euro.

Under the terms of the swap agreement, the Company pays Euros based on a €28.7 million notional value and a fixed rate of 5.00% and receives U.S. dollars based on a notional value of $39.5 million and a fixed rate of 4.635%. The expiration date is December 30, 2016, the date upon which the underlying intercompany debt, to which the swap agreement applies, matures. The swap agreement is designated as a cash flow hedge and therefore the Company recognized an unrealized gain (loss) on the change in fair value, net of tax, within other comprehensive income (loss).

 

8. Fair value measurements

Fair value is defined 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. Non-financial assets and liabilities of the Company measured at fair value include any long-lived assets or equity method investments that are impaired in a currently reported period. The authoritative guidance 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

As of March 31, 2014, the Company’s financial instruments included cash equivalents, restricted cash, trade accounts receivable, accounts payable, long-term secured debt and a cross currency derivative contract. Cash equivalents consist of short-term, highly liquid, income-producing investments, all of which have original maturities of 90 days or less, including money market funds. The carrying value of restricted cash, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The Company’s credit facilities carry a floating rate of interest, and therefore, the carrying value is considered to approximate the fair value.

The Company’s cross-currency derivative instrument, and deferred compensation plan instruments are the only financial instruments recorded at fair value on a recurring basis. The cross-currency derivative instrument consists of an over-the-counter contract, which is not traded on a public exchange. The fair value of the swap contract is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized the swap contract as a Level 2 derivative financial instrument. We classify deferred compensation assets as trading securities, and are intended to generate returns that offset changes in deferred compensation liabilities. We record changes in the fair value of these assets and related deferred compensation liabilities in Other income (expense). The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented.

 

10


Table of Contents

The fair value of the Company’s financial assets and liabilities on a recurring basis were as follows:

 

(U.S. Dollars in thousands)

   Balance
March 31,
2014
    Level 1     Level 2     Level 3  

Assets

        

Deferred compensation plan

        

Money market funds

   $ 281      $ 281      $ —       $ —    

Bonds

     89        89        —         —    

Treasury securities

     661        661        —         —    

Mutual funds

     1,282        1,282        —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,313      $ 2,313      $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

        

Deferred compensation plan

   $ (1,970   $ (1,970   $ —       $ —    

Cash Flow Hedges

        

Cross-currency hedge

     (1,035     —         (1,035     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (3,005   $ (1,970   $ (1,035   $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(U.S. Dollars in thousands)

   Balance
December 31,
2013
    Level 1     Level 2     Level 3  

Assets

        

Deferred compensation plan

        

Money market funds

   $ 451      $ 451      $ —       $ —    

Bonds

     51        51        —         —    

Treasury securities

     660        660        —         —    

Mutual funds

     1,165        1,165        —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,327      $ 2,327      $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

        

Deferred compensation plan

   $ (2,506   $ (2,506   $ —       $ —    

Cash Flow Hedges

        

Cross-currency hedge

     (1,036     —         (1,036     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (3,542   $ (2,506   $ (1,036   $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9. Accumulated other comprehensive income

Accumulated other comprehensive income is comprised of foreign currency translation adjustments and the effective portion of the gain (loss) on the Company’s cross-currency swap, which is designated and accounted for as a cash flow hedge. The components of and changes in accumulated other comprehensive income were as follows:

 

(U.S. Dollars, in thousands)

   Foreign
Currency
Translation
Adjustments
     Fair Value of
Cross-Currency
Swap
    Accumulated
Other
Comprehensive
Income
 

Balance at December 31, 2013

   $ 2,846       $ (147   $ 2,699   

Unrealized gain on cross-currency swap, net of tax of $25

     —          103        103   

Foreign currency translation adjustment (1)

     439         —         439   
  

 

 

    

 

 

   

 

 

 

Balance at March 31, 2014

   $ 3,285       $ (44   $ 3,241   
  

 

 

    

 

 

   

 

 

 

 

(1) As the cash generally remains permanently invested in the non-U.S. dollar denominated foreign subsidiaries, no deferred taxes are recognized on the related foreign currency translation adjustment.

 

11


Table of Contents
10. Earnings per share

For the three months ended March 31, 2014, and 2013, there were no adjustments to net income (loss) for purposes of calculating basic and diluted net income (loss) available to common shareholders. The following is a reconciliation of the weighted average shares used in the basic and diluted net income (loss) per common share computations.

 

     Three Months Ended
March 31,
 
     2014      2013  

Weighted average common shares-basic

     18,197,363         19,431,093   

Effect of dilutive securities:

     

Unexercised stock options net of treasury share repurchase

     —           260,048  
  

 

 

    

 

 

 

Weighted average common shares-diluted

     18,197,363         19,691,141   
  

 

 

    

 

 

 

Options to purchase shares of common stock with exercise prices in excess of the average market price of common shares are not included in the computation of diluted earnings per share. There were 1,691,203 and 973,037 outstanding options not included in the diluted earnings per share computation for the three months ended March 31, 2014, and 2013, respectively, because the inclusion of these options was antidilutive.

 

11. Share-based compensation

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 condensed consolidated statements of operations over the requisite service period.

The following table shows the detail of share-based compensation by line item in the condensed consolidated statements of operations:

 

     Three Months Ended
March 31,
 

(U.S. Dollars, in thousands)

   2014      2013  

Cost of sales

   $ 29       $ 287   

Sales and marketing

     444         436   

General and administrative

     916         1,175   

Research and development

     72         45   
  

 

 

    

 

 

 

Total

   $ 1,461       $ 1,943   
  

 

 

    

 

 

 

For the three months ended March 31, 2014, and 2013, there were no performance requirements for share-based compensation awarded to employees. In March 2013, the Company granted options to its newly-appointed Chief Executive Officer, which vesting is based on achieving certain market prices for the Company’s common stock.

During the three months ended March 31, 2014, and 2013, there were 263,575 and 113,965 shares, respectively, of common stock issued related to stock purchase plan issuances, stock option exercises and the vesting of restricted stock awards.

 

12. Income taxes

The Company recognized a $1.9 million and $4.7 million provision for income tax which reflects an effective tax rate of 112.9% and 38.1% on pre-tax income for the three months ended March 31, 2014, and 2013, respectively. Excluding the impact of various discrete charges, the effective tax rate on continuing operations was 73.9% and 38.1% for the first three months of 2014 and 2013, respectively. The principal factors affecting the Company’s March 31, 2014, effective tax rate were the Company’s mix of earnings among various tax jurisdictions, state taxes, current period losses in certain jurisdictions for which the Company does not currently provide a tax benefit and variations in the customary relationship between income tax expense and pretax earnings resulting from non-recurring expenses.

As of March 31, 2014, and December 31, 2013, the Company’s unrecognized tax benefit was $0.7 million and $0.7 million, respectively. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company had approximately $0.5 million and $0.5 million accrued for payment of interest and penalties as of March 31, 2014, and December 31, 2013, respectively. The entire amount of unrecognized tax benefits, including interest, would favorably impact the Company’s effective tax rate if recognized. As of March 31, 2014, the Company does not expect the amount of unrecognized tax benefits to change significantly over the next twelve months.

 

12


Table of Contents
13. Business segment information

On July 1, 2013, we began certain organizational and executive leadership changes to align with how our Chief Operating Decision Maker (the “CODM”) reviews performance and makes decisions in managing the Company. We manage our business by our four strategic business units (“SBUs”), which are comprised of BioStim, Biologics, Extremity Fixation, and Spine Fixation supported by Corporate activities. These SBUs represent the segments for which our CODM reviews financial information and makes resource allocation decisions among business units. The primary metric used by the CODM in managing the Company is net margin, which is defined as gross profit less sales and marketing expense. The Company neither discretely allocates assets, other than goodwill, to its operating segments nor evaluates the operating segments using discrete asset information. Accordingly, our segment information has been prepared based on our four SBUs reporting segments. These four segments are discussed below.

BioStim

The BioStim SBU manufactures, distributes, and provides support services for a portfolio of market leading devices for enhancing bone fusion that utilize Orthofix’s patented pulsed electromagnetic field (PEMF) technology. These Food and Drug Administration-approved Class 3 medical devices are indicated as an adjunctive treatment to enhance fusion success in cervical and lumbar spine as well as a therapeutic treatment for non-healing fractures outside of the spine (non-unions). The PEMF technology is supported by a strong clinical background on mechanism of action in the scientific literature and current research and clinical studies are underway to identify potential new clinical indications.

Biologics

Biologics provides a portfolio of regenerative products that allow physicians to successfully treat a variety of spinal and orthopedic conditions. This SBU specializes in the marketing of the Company’s regeneration tissue forms. Biologics distributes its tissues through a network of distributors, sales representatives and affiliates to market to hospitals, doctors, and other healthcare providers, primarily in the U.S. Our partnership with Musculoskeletal Transplant Foundation (“MTF”) allows us to exclusively market our Trinity Evolution ® and Trinity ELITE tissue forms for musculoskeletal defects to enhance bony fusion.

Extremity Fixation

The Extremity Fixation SBU offers products that allow physicians to successfully treat a variety of orthopedic conditions unrelated to the spine. This SBU specializes in the design, development, and marketing of the Company’s orthopedic products used in fracture repair, deformity correction and bone reconstruction. Extremity Fixation distributes its products through a network of distributors, sales representatives, and affiliates. This SBU uses both direct and distributor sales representatives to sell orthopedics products to hospitals, doctors, and other health providers, globally.

Spine Fixation

The Spine Fixation SBU specializes in the design, development and marketing of a portfolio of implant products used in surgical procedures of the spine. Spine Fixation distributes its products through a network of distributors and affiliates. This SBU uses distributor sales representatives to sell spine products to hospitals, doctors and other healthcare providers, globally.

Corporate

Corporate activities are comprised of the operating expenses of Orthofix International N.V. and its holding company subsidiaries, along with activities not necessarily identifiable within the four SBUs.

The accounting policies of the segments are the same as those described in the business segment information found in Note 13, “Business segment information” to the Consolidated Financial Statements included in the 2013 Form 10-K.

 

13


Table of Contents

The table below presents external net sales by SBU reporting segment (amounts reported for prior periods have been reclassified to conform to our new segment reporting structure). Net sales include product sales and marketing service fees. Marketing service fees, which are recorded on a net basis, are comprised of fees earned for the marketing of Trinity Evolution ® , Trinity ELITE™ and Versashield™ in our Biologics segment.

 

     External Net Sales by SBU  
     Three Months Ended March 31,  

(U.S. Dollars, in thousands)

   2014      2013      Reported
Growth
    Constant
Currency
Growth
 

BioStim

   $ 38,424       $ 38,242         1     1

Biologics

     13,019         13,378         (3 )%      (3 )% 

Extremity Fixation

     27,079         26,217         3     4

Spine Fixation

     22,820         25,536         (11 )%      (11 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Net Sales

   $ 101,342       $ 103,373         (2 )%      (2 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

The table below presents net margin, defined as gross profit less sales and marketing expenses, from continuing operations by SBU reporting segment:

 

Net margin by SBU    Three Months Ended
March 31,
 

(U.S. Dollars, in thousands)

   2014     2013  

Net margin:

    

BioStim

   $ 14,188      $ 16,938   

Biologics

     6,693        6,025   

Extremity Fixation

     9,297        7,967   

Spine Fixation

     5,105        2,197   

Corporate

     (444     (425
  

 

 

   

 

 

 

Total net margin

     34,839        32,702   
  

 

 

   

 

 

 

General and administrative

     17,545        18,330   

Research and development

     5,939        5,741   

Amortization of intangible assets

     584        544   

Costs related to the accounting review and restatement

     8,306        —     
  

 

 

   

 

 

 

Operating income

   $ 2,465      $ 8,087   
  

 

 

   

 

 

 

 

14. Sale of Breg

In 2012, the Company sold its subsidiary Breg, Inc. In connection with this sale transaction, the Company agreed to indemnify the buyer with respect to certain specified matters. The portion of the indemnification related to post closing claims related to post-closing sales of cold therapy units has created a guarantee under Accounting Standards Codification ASC 460, Guarantees , and the fair value of the liability has been recorded under the initial recognition criteria in the amount of $2 million at the closing date. The Company is amortizing the fair value of the non-contingent liability ratably over the period of indemnification, which is three years. The Company’s remaining obligations under this guarantee were approximately $0.8 million and $1.0 million as of March 31, 2014 and December 31, 2013, respectively.

Included in discontinued operations for the three months ended March 31, 2014, is $0.8 million of expense related to the Company’s indemnification of certain specified matters described above.

 

15. Contingencies

The Company is party to certain outstanding legal proceedings, investigations and claims. These matters are described in the 2013 Form 10-K. As of March 31, 2014, there had been no material developments in these matters since the filing of the 2013 Form 10-K.

 

16. Stock repurchase program

On May 8, 2013, the Company announced that its Board of Directors had authorized a share repurchase program in an amount up to $50 million. To date, the Company has made total repurchases in an amount equal to $39.5 million, all of which were made between May and July 2013.

 

14


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis addresses the results of our operations which are based upon the condensed consolidated financial statements included herein, which have been prepared in accordance with U.S. GAAP, for the three months ended March 31, 2014, compared to the three months ended March 31, 2013. As discussed below and in Part IV, Item 15, “Financial Statements” – “Note 2 – Restatement of Condensed Consolidated Financial Statements,” in the 2013 Form 10-K, we have restated our previously issued consolidated financial statements for certain prior periods, including the three months ended March 31, 2013. 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 Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 (the “Report”).

Business Segments

Our segment information is prepared on the same basis that management reviews the financial information for operational decision making purposes. We manage our business by our four strategic business units (“SBUs”), which are comprised of BioStim, Biologics, Extremity Fixation, and Spine Fixation supported by Corporate activities. These SBUs represent the segments for which our Chief Operating Decision Maker (the “CODM”) reviews financial information and makes resource allocation decisions among business units. Accordingly, our segment information has been prepared based on our four SBUs reporting segments. The Company neither discretely allocates assets, other than goodwill, to its operating segments nor evaluates the operating segments using discrete asset information. These four segments are discussed below.

BioStim

The BioStim SBU manufactures, distributes, and provides support services for a portfolio of market leading devices for enhancing bone fusion that utilize Orthofix’s patented pulsed electromagnetic field (PEMF) technology. These Food and Drug Administration-approved Class 3 medical devices are indicated as an adjunctive treatment to enhance fusion success in cervical and lumbar spine as well as a therapeutic treatment for non-healing fractures outside of the spine (non-unions). The PEMF technology is supported by a strong clinical background on mechanism of action in the scientific literature and current research and clinical studies are underway to identify potential new clinical indications.

Biologics

Biologics provides a portfolio of regenerative products that allow physicians to successfully treat a variety of spinal and orthopedic conditions. This SBU specializes in the marketing of the Company’s regeneration tissue forms. Biologics distributes its tissues through a network of distributors, sales representatives and affiliates to market to hospitals, doctors, and other healthcare providers, primarily in the U.S. Our partnership with MTF allows us to exclusively market our Trinity Evolution ® and Trinity ELITE tissue forms for musculoskeletal defects to enhance bony fusion.

Extremity Fixation

The Extremity Fixation SBU offers products that allow physicians to successfully treat a variety of orthopedic conditions unrelated to the spine. This SBU specializes in the design, development, and marketing of the Company’s orthopedic products used in fracture repair, deformity correction and bone reconstruction. Extremity Fixation distributes its products through a network of distributors, sales representatives, and affiliates. This SBU uses both direct and distributor sales representatives to sell orthopedics products to hospitals, doctors, and other health providers, globally.

Spine Fixation

The Spine Fixation SBU specializes in the design, development and marketing of a portfolio of implant products used in surgical procedures of the spine. Spine Fixation distributes its products through a network of distributors and affiliates. This SBU uses distributor sales representatives to sell spine products to hospitals, doctors and other healthcare providers, globally.

Corporate

Corporate activities are comprised of the operating expenses of Orthofix International N.V. and its holding company subsidiaries, along with activities not necessarily identifiable within the four SBUs.

 

15


Table of Contents

SBU Revenues

The table below presents external net sales for the three months ended March 31, 2014 and 2013, from continuing operations, by SBU reporting segment (amounts reported for prior periods have been reclassified to conform to our new segment reporting structure):

 

     External Net Sales by SBU  
     Three Months Ended March 31,  

(U.S. Dollars, in thousands)

   2014      2013      Reported
Growth
    Constant
Currency
Growth
 

BioStim

   $ 38,424       $ 38,242         1     1

Biologics

     13,019         13,378         (3 )%      (3 )% 

Extremity Fixation

     27,079         26,217         3     4

Spine Fixation

     22,820         25,536         (11 )%      (11 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Net Sales

   $ 101,342       $ 103,373         (2 )%      (2 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

The following table presents certain items in our condensed consolidated statements of operations as a percent of total net sales for the periods indicated:

 

     Three Months Ended
March 31,
 
     2014
(%)
    2013
(%)
 

Net sales

     100        100   

Cost of sales

     22        25   

Gross profit

     78        75   

Operating expenses:

    

Sales and marketing

     43        43   

General and administrative

     17        18   

Research and development

     6        6   

Amortization of intangible assets

     1        1   

Costs related to the accounting review and restatement

     8        —     

Operating income

     2        8   

Net income (loss)

     (1     4   

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Net sales decreased $2.0 million to $101.3 million in the first quarter of 2014 compared to $103.4 million for the same period last year. The impact of foreign currency decreased sales by $0.2 million during the first quarter of 2014 when compared to the first quarter of 2013.

Sales

Net sales in our BioStim SBU increased 0.5% to $38.4 million in the first quarter of 2014 compared to $38.2 million for the same period in the prior year, an increase of $0.2 million. The increase in BioStim sales was primarily attributable to growth in Spinal Stim sales partially offset by a decrease in Physio-Stim sales.

Net sales in our Biologics SBU decreased $0.4 million or 2.7% to $13.0 in the first quarter of 2014 compared to $13.4 million for the same period in the prior year, primarily due to a decrease in our marketing service fee rate from MTF from 70% on April 1, 2013, compared to 65% in first quarter of 2014.

Net sales in our Extremity Fixation SBU increased $0.9 million, to $27.1 million in the first quarter of 2014 compared to $26.2 million for the same period last year, primarily due to increased sales in the U.K. and France, offset somewhat by lower performance in the U.S. and Brazil due to ongoing restructuring activities.

Net sales in our Spine Fixation SBU decreased $2.7 million to $22.8 million in the first quarter of 2014 compared to $25.5 million for the same period last year, primarily due to lower international sales.

Gross Profit — Our gross profit increased $1.0 million to $78.7 million in the first quarter of 2014 compared to $77.8 million for the same period last year. Gross profit as a percent of net sales was 77.7% for the first quarter of 2014 and 75.2% for 2013 during the same period. This increase is due to geographical sales mix and a reduction in costs primarily associated with inventory.

 

16


Table of Contents

Sales and Marketing Expense — Sales and marketing expense, which includes commissions and the bad debt provision, generally increase and decrease in relation to sales. Sales and marketing expense decreased $1.2 million, to $43.9 million in the first quarter of 2014 compared to $45.1 million in the first quarter of 2013. As a percent of net sales, sales and marketing expense was 43.3% in the first quarter of 2014 compared to and 43.6% in the first quarter of 2013.

General and Administrative Expense — General and administrative expense decreased $0.8 million, or 4.3%, in the first quarter of 2014 to $17.5 million compared to $18.3 million in the first quarter of 2013. General and administrative expense as a percent of net sales was 17.3% in the first quarter of 2014 compared to 17.7% for the same period last year.

Research and Development Expense — Research and development expense increased $0.2 million in the first quarter of 2014 to $5.9 million compared to $5.7 million in the first quarter of 2013. As a percent of net sales, research and development expense was 5.9% in the first quarter of 2014 compared to 5.6% for the same period last year.

Amortization of Intangible Assets — Amortization of intangible assets was $0.6 million in the first quarter of 2014 and $0.5 million for the same period last year.

Costs related to the accounting review and restatement — As part of our accounting review and restatement of our consolidated financial statements, the Company incurred $8.3 million of charges related to these activities in the first quarter of 2014.

Interest Expense, net — Interest expense, net was $0.5 million for the first quarter of 2014 compared to $0.6 million for the same period last year.

Other Income and Expense — Other expense was ($0.3) million compared to other income of $4.8 million for the first quarters of 2014 and 2013, respectively. The fluctuation is mainly attributable to our receipt of $4.4 million cash related to the demutualization of a mutual insurance company in which we were an eligible member to share in such proceeds. Other income (expense) also includes the effect of foreign exchange. Several of our foreign subsidiaries hold trade payables or receivables in currencies (most notably the U.S. Dollar) other than their functional (local) currency which results in foreign exchange gains or losses when there is relative movement between those currencies.

Income Tax Expense — Our worldwide effective tax rate was 112.9% and 38.1% during the first quarters of 2014 and 2013, respectively. When adjusted for various discrete items, the effective tax rate for the first quarter of 2014 and 2013 was 73.9% and 38.1% respectively. The principal factors affecting the Company’s March 31, 2014, effective tax rate was the Company’s mix of earnings among various tax jurisdictions, state taxes, current period losses in certain jurisdictions for which the Company does not currently provide a tax benefit and variations in the customary relationship between income tax expense and pretax earnings resulting from non-recurring expenses.

Discontinued operations — Discontinued operations include approximately ($0.6) million and ($3.1) million in the first quarter of 2014 and 2013, respectively, of legal settlements and legal costs, net of income taxes, related to certain specified product liability matters related to our former subsidiary, Breg. We agreed to indemnify Breg and its purchaser with respect to such matters.

Net Income (loss) — Net loss for the first quarter of 2014 was ($0.8) million, or ($0.04) per basic and diluted share, compared to net income of $4.5 million, or $0.23 per basic share and diluted share for the same period last year. The weighted average number of basic common shares outstanding was 18,197,363 and 19,431,093 during the three months ended March 31, 2014 and 2013, respectively. The weighted average number of diluted common shares outstanding was 18,197,363 and 19,691,141 during the three months ended March 31, 2014, and 2013, respectively.

Liquidity and Capital Resources

Cash and cash equivalents including Restricted Cash at March 31, 2014, were $46.0 million, of which $19.3 million was subject to certain restrictions under the senior secured credit agreement described below. This compares to cash and cash equivalents of $54.2 million at December 31, 2013, of which $23.8 million was subject to certain restrictions under the senior secured credit agreement discussed below.

Net cash (used in) provided by operating activities was ($10.2) million and $15.1 million, respectively, for the three months ended March 31, 2014, and 2013, respectively. Net cash used by and provided by operating activities is comprised of net income, non-cash items (including depreciation and amortization, provision for doubtful accounts, share-based compensation and deferred income taxes) and changes in working capital. Net income decreased $5.3 million to net loss of ($0.8) million for the three months ended March 31, 2014, from net income of $4.5 million for the comparable period in the prior year. Non-cash items for the three months ended March 31, 2014, increased $1.1 million to $10.5 million compared to non-cash items of $9.4 million in the same period of 2013. Working capital accounts used $19.9 million of cash for the three months ended March 31, 2014, and provided $1.2 million for the three months ended March 31, 2013. Overall performance indicators for our two primary working capital accounts, accounts receivable and inventory reflect day’s sales in receivables of 68 days at March 31, 2014, and 84 days at March 31, 2013, and inventory turns of 1.1 times as of March 31, 2014, and 1.2 times as of March 31, 2013.

 

17


Table of Contents

Net cash used by investing activities was $3.7 million for the three months ended March 31, 2014, compared to $6.1 million for the three months ended March 31, 2013.

Net cash provided by (used in) financing activities was $10.1 million and ($5.9) million for the three months ended March 31, 2014, and 2013, respectively. During the three months ended March 31, 2014, and 2013, we made no repayments on our revolving debt. Our restricted cash balance usage decreased $12.6 million from ($8.1) million in the three months ended March 31, 2013, to cash provided by changes in restricted cash of $4.5 million in the three months ended March 31, 2014, primarily related to the cash received from the Blackstone escrow fund which was recorded in Restricted Cash in accordance with the credit facility. During the three months ended March 31, 2014, and 2013, we received proceeds of $5.5 million and $2.1 million, respectively, from the issuance of 263,575 shares and 113,965 shares, respectively, of our common stock related to stock purchase plan issuances, stock option exercises and the vesting of restricted stock awards.

On August 30, 2010, our wholly-owned U.S. holding company, Orthofix Holdings, Inc. (“Orthofix Holdings”) entered into a Credit Agreement (the “Credit Agreement”) with certain of our domestic direct and indirect subsidiaries (the “Guarantors”), JPMorgan Chase Bank, N.A., as Administrative Agent, RBS Citizens, N.A., as Syndication Agent, and certain lender parties thereto.

The Credit Agreement provides for a five year, $200 million secured revolving credit facility (the “Revolving Credit Facility”), and a five year, $100 million secured term loan facility (the “Term Loan Facility”, and together with the Revolving Credit Facility, the “Credit Facilities”). Orthofix Holdings has the ability to increase the amount of the Credit Facilities by an aggregate amount of up to $50 million upon satisfaction of certain conditions.

As of March 31, 2014, our Term Loan Facility has been repaid in full and there was $20 million outstanding under the Revolving Credit Facility. Borrowings under the Credit Facilities bear interest at a floating rate, which is, at Orthofix Holdings’ option, either the London Inter-Bank Offered Rate (“LIBOR”) plus an applicable margin or a base rate (as defined in the Credit Agreement) plus an applicable margin (in each case subject to adjustment based on financial ratios). Such applicable margin will be up to 3.25% for LIBOR borrowings and up to 2.25% for base rate borrowings depending upon a measurement of the consolidated leverage ratio with respect to the immediately preceding four fiscal quarters. As of March 31, 2014, and December 31, 2013, the entire Revolving Credit Facility was at the LIBOR rate plus a margin of 2.50%. The effective interest rate on the Credit Facilities at March 31, 2014 and December 31, 2013 was 2.7%.

Outstanding balances on the Revolving Credit Facility are due on August 30, 2015.

Borrowings under the Revolving Credit Facility, which may be made in the future, will be used for working capital, capital expenditures and other general corporate purposes of Orthofix Holdings and its subsidiaries. The Guarantors have guaranteed repayment of Orthofix Holdings’ obligations under the Credit Agreement. The obligations of Orthofix Holdings and each of the Guarantors with respect to the Credit Facilities are secured by a pledge of substantially all of the assets of Orthofix Holdings and each of the Guarantors.

The Credit Agreement, as amended, requires us and Orthofix Holdings to comply with coverage ratios on a consolidated basis and contains affirmative and negative covenants, including limitations on additional debt, liens, investments and acquisitions. We are in compliance with the affirmative and negative covenants as of March 31, 2014, and there were no events of default.

Certain of our subsidiaries have restrictions on their ability to pay dividends or make intercompany loan advances pursuant to the Credit Facilities. The net assets of Orthofix Holdings and its subsidiaries are restricted for distributions to the parent company. Our domestic subsidiaries, 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, 2014, and December 31, 2013, was $194.1 million and $192.0 million, respectively. In addition, the Credit Agreement restricts us and our subsidiaries that are not parties to the Credit Facilities from access to cash held by Orthofix Holdings and its subsidiaries. The amount of restricted cash as of March 31, 2014, and December 31, 2013, was $19.3 million and $23.8 million, respectively.

At March 31, 2014, we had no outstanding bank borrowings and unused available line of credit of approximately €5.8 million ($8.0 million) under the 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.

On May 8, 2013, the Company announced that its Board of Directors had authorized a share repurchase program in an amount up to $50 million. Repurchases began on May 10, 2013, consisting primarily of open market transactions at prevailing market prices in accordance with the guidelines specified under Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Repurchases are being made from cash on hand, cash generated from operations and additional borrowings. The timing of the transactions and the aggregate number of shares of common stock that will be ultimately repurchased under the repurchase program will depend on a

 

18


Table of Contents

variety of factors, including market conditions and the prices at which the securities are repurchased. The Company may discontinue repurchases without prior notice at any time if the Company determines additional repurchases are not warranted. During the fiscal quarter ended March 31, 2014, the Company made no repurchases. The Company has not made any further purchases between March 31, 2014, and the date hereof. To date, the Company has made total repurchases in an amount equal to $39.5 million.

We believe that current cash balances together with projected cash flows from operating activities, the availability of the $180 million revolving credit facility, the available Italian line of credit and our debt capacity are sufficient to cover additional stock repurchases, anticipated working capital and capital expenditure needs including research and development costs over the next twelve months.

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, 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, 2014, we had a currency swap in place to minimize foreign currency exchange risk related to a €28.7 million ($39.5 million translated at the March 31, 2014, foreign exchange rate) intercompany note. As of March 31, 2014, the fair value of the currency swap was approximately ($1.0) million and is recorded in other long-term liabilities.

We are exposed to interest rate risk in connection with our Term Loan Facility and Revolving Credit Facility, which bear interest at floating rates based on LIBOR plus an applicable borrowing margin or at a base rate (as defined in the Credit Agreement) 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, 2014, $20 million of the Revolving Credit Facility is at the LIBOR rate plus a margin of 2.50%. The margin is adjusted based upon the measurement of the consolidated leverage ratio of our Company and our subsidiaries with respect to the immediately preceding four fiscal quarters. As of March 31, 2014, our effective interest rate on our Credit Facilities was 2.7%. Based on the balance outstanding under the Credit Facilities as of March 31, 2014, an immediate change of one percentage point in the applicable interest rate on the Revolving Credit Facility would cause a change in interest expense of approximately $0.2 million annually.

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 are subject to cost of sales 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 are subject to 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, 2014, we had an un-hedged intercompany receivable denominated in Euro of approximately €23.2 million ($31.9 million). We recorded a foreign currency loss during the three months ended March 31, 2014, of $0.1 million related to this un-hedged long-term intercompany note in accumulated other comprehensive income, which resulted from the strengthening of the U.S. dollar against the Euro during the period. For the three months ended March 31, 2014, we recorded a foreign currency gain of $0.1 million on the statement of operations resulting from gains and losses in foreign currency transactions.

We also are subject to currency exposure from translating the results of our global operations into the U.S. dollar at exchange rates that have fluctuated during the period. 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.

 

19


Table of Contents

Item 4. Controls and Procedures

Background of Restatement

In July 2013, members of our senior management brought certain information to the attention of the chair of the Audit Committee (“Audit Committee”) of our Board of Directors (the “Board”) that raised questions regarding whether we had properly recognized revenue under GAAP in connection with revenue from distributor sales that had been recorded in 2012 and 2011, including a significant return processed in the second quarter of 2013 relating to revenue recognized in 2012. On the recommendation of management and after discussion with our independent registered public accounting firm, Ernst & Young LLP (“Ernst & Young”), the Audit Committee concluded, with the concurrence of the Board, that we would commence an independent review into these matters with the assistance of outside professionals engaged by the Audit Committee (the “Independent Review”).

On August 5, 2013, our Audit Committee concluded that certain revenues recognized during 2012 and 2011, upon further evaluation, should not have been recognized or should not have been recognized during the periods in which they were recognized. As a result of the foregoing, on August 5, 2013, our Audit Committee concluded that our previously issued consolidated financial statements as of and for the fiscal years ended December 31, 2012, and December 31, 2011, as well as for the interim quarterly period ended March 31, 2013, should no longer be relied upon (the “Non-Reliance Period”). On August 6, 2013, our Board ratified the foregoing conclusion by our Audit Committee.

The Independent Review focused on the periods between January 1, 2010, and March 31, 2013, and included (i) over 50 witness interviews, (ii) collection of emails and files from 70 document custodians, and (iii) quantitative analysis. The scope of the Independent Review, which was determined by our Audit Committee in consultation with outside professionals engaged by the Audit Committee, focused primarily on revenue recognition related to distributor arrangements and inventory reserve adjustments. In conjunction with the Independent Review, management concluded that errors existed in our previously issued financial statements with respect to the Non-Reliance Period, as well as in our previously issued consolidated financial statements for the fiscal years ended December 31, 2010, 2009, 2008 and 2007.

In reaching these conclusions, we considered information obtained in the Independent Review, including emails, data and interviews with current and former employees that indicated (i) the existence of extra-contractual terms or arrangements at the onset of the sale and concessions agreed to subsequent to the initial sale (such as extended payment terms and return and exchange rights for sales to distributors with respect to certain transactions), including some with which certain senior-level personnel were involved, (ii) that at the time of some sales collection was not reasonably assured, and (iii) that certain amounts previously characterized as commissions were paid to related parties of the applicable customer.

We assessed the information derived from the Independent Review in making determinations with respect to appropriate accounting adjustments. These adjustments were reflected in our restated consolidated financial statements contained in our Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2012, and our Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, and such determinations are consistent with the findings of the Independent Review (collectively, the “Restatement”). In addition to the matters that were the subject of the Independent Review, certain other adjustments identified by management, including revisions to inventory reserves and royalties, were made to our consolidated financial statements in connection with the restatement.

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Report, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer (who became our principal financial and accounting officer in April 2014), we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. As described below, as of December 31, 2013, management identified material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures. Our remediation efforts with respect to these weaknesses are continuing. As a result of these ongoing material weaknesses, our President and Chief Executive Officer and Interim Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2014.

Material Weaknesses in Internal Control over Financial Reporting

In connection with the filing of the 2013 Form 10-K, our management, including our President and Chief Executive Officer and our then Chief Financial Officer, concluded that, because of the material weaknesses described below, our internal control over financial reporting was not effective as of December 31, 2013.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or

 

20


Table of Contents

detected on a timely basis. In connection with our management’s evaluation of our internal control over financial reporting described above, our management has identified the following deficiencies that it believes constituted individually, and in the aggregate, material weaknesses in our internal control over financial reporting as of December 31, 2013:

 

    Revenue recognition practices for sales to our distributors . We have concluded that we recognized revenue in certain instances in advance of all revenue recognition criteria being met, and that our controls were not effective to reasonably ensure accurate recognition of revenue in accordance with GAAP for certain distributor sales transactions previously recorded by our domestic and international business units. In general, we did not establish and maintain procedures throughout the Company to reasonably ensure proper communication to, and assessment by, our finance and accounting department of deviations from contractually established terms, which included written or unwritten arrangements made with, or extra-contractual terms provided to, our distributors at the onset of the sale regarding extended payment terms, product return or exchange rights, and similar concessions agreed to subsequent to the initial sale (which were not memorialized by any formal contractual amendment). Such additional terms were not evaluated, or not evaluated correctly, and were not maintained or reflected in our customer sales files. In addition, our personnel were not adequately trained with respect to certain revenue recognition principles applicable under GAAP that may have led to appropriate consideration of the additional terms entered into outside of the written contractual terms.

 

    Inventory reserves . Errors occurred in establishing our inventory reserves due to a design deficiency in our controls over the computation and recording of such reserves. Our method of calculating inventory reserves resulted in the misapplication of GAAP, which caused us to make adjustments in the restated consolidated financial statements. Specifically, our controls were not designed to detect that increases in our forecasted demand for products resulted in reductions in subsequent fiscal years to reserves previously recorded. ASC Topic 330 Inventory (specifically ASC 330-10-35-14) states that a write-down of inventory to the lower-of-cost-or-market value at the close of a fiscal year creates a new cost basis that subsequently should not be marked up based on changes in underlying circumstances, and our controls were not designed to prevent such mark ups due to increases in forecasted demand for products.

 

    Foreign subsidiary oversight. Oversight of certain foreign subsidiaries was insufficiently designed to detect material misstatement of financial information. Specifically, while these entities were included in oversight activities similar to our other locations, we believe the design of our controls did not adequately address the additional risks associated with certain entities. These additional risks include: sales comprised of higher risk distributor revenues; no specific requirements for statutory audits that may detect inadequacies in our customer and business records; and a business culture where oral agreements were more common, resulting in contract terms that were less likely to be formally documented.

 

    Manual journal entry control procedures . In connection with the completion of the audit for the fiscal year ended December 31, 2013, we determined that our controls over manual journal entries were not effective. Specifically, we determined that some manual journal entries were not supported with sufficient documentation, and that some manual journal entries were not adequately reviewed and approved.

Some of the material weaknesses described above resulted in material misstatements in our annual and interim consolidated financial statements that led to the Restatement.

Plans for Remediation

Our management has worked, and continues to work, to strengthen our disclosure controls and procedures and internal control over financial reporting in connection with the material weaknesses that have been described above. We intend to continue taking measures, including engaging outside professionals, as may be necessary and advisable, to assist us as we continue to address and rectify the foregoing material weaknesses.

We are committed to maintaining an effective control environment and making changes necessary to enhance effectiveness. This commitment has been, and will continue to be, communicated to and reinforced throughout our organization. As part of this commitment, we are implementing an internal audit program that will take into account the nature of our business and the geographies in which we conduct it. We are also updating our code of conduct, and all our employees will be required to annually acknowledge their commitment to adhering to its provisions. We also will inform all new employees and regularly remind all existing employees of the availability of our compliance hotline, through which employees at all levels can anonymously submit information or express concerns regarding accounting, financial reporting and other irregularities they may have become aware of or observed.

We are in the process of developing a plan for remediation of the ineffective internal control over financial reporting described above. In addition, we have designed and plan to implement, and in some cases have already implemented, the specific remediation initiatives described below:

Management’s remediation plan with respect to controls over revenue recognition practices relating to our distributors:

 

    We have enhanced our revenue recognition training materials for all sales personnel;

 

21


Table of Contents
    We are in the process of training sales management personnel (including senior-level management) pursuant to our updated revenue recognition training materials;

 

    We have created and implemented an improved sales certification process to identify any sales with deviations from written sales contracts;

 

    We have established and hired a new Senior Manager of Revenue position in our finance department, which we believe will bring additional revenue recognition expertise to address our more complex revenue transactions to help ensure that our revenue recognition policies are correctly applied; and

 

    We are working to improve procedures with respect to the proper communication, approval, documentation and accounting review of deviations from written sales contracts.

Management’s remediation plan with respect to controls over the computation and recording of our inventory reserves:

 

    We have enhanced controls over our model for determining inventory reserves to ensure that, once reserves are established in a fiscal year, subsequent write-ups based on demand are not recognized; and

 

    We are implementing additional review of our inventory reserve analysis, including the involvement of both finance and operational executives, and more analysis of days inventory on hand at the product line level, which we expect to provide better controls to assess excess and obsolete inventory based on the current inventory on hand in relation to the demand forecast and related reserve.

Management’s remediation plan with respect to controls over foreign subsidiary oversight:

 

    We have changed our structure so that all of our subsidiaries’ accounting functions now report to the VP, Controller within the corporate accounting function, which we believe will provide additional corporate-level oversight of their activities;

 

    We have established and hired a Director of Controls and Process Improvement, whose primary duties are the design and implementation of internal control over financial reporting;

 

    We have engaged a professional firm to perform testing and evaluation of our internal controls, and to assist us in designing and implementing additional financial reporting controls and financial reporting control enhancements; and

 

    We are evaluating our accounting systems to determine appropriate enhancements.

Management’s remediation plan with respect to controls over manual journal entries:

 

    We intend to implement a new accounting policy setting forth specific requirements regarding supporting documentation standards and review and approval procedures for manual journal entries, including specifying the types and levels of review to be performed based on specifically defined criteria associated with the nature and magnitude of manual journal entries; and

 

    We intend to design and conduct training for the accounting group regarding manual journal entry preparation, documentation and review and approval procedures.

We believe the remediation steps outlined above, which in some cases have already been implemented, have improved and will continue to improve the effectiveness of our internal control over financial reporting. However, we have not completed all of the corrective processes and procedures identified above. Accordingly, as we continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above, we will perform additional procedures prescribed by our management, including the use of manual mitigating control procedures, and will employ any additional tools and resources deemed necessary to provide assurance that our financial statements continue to be fairly stated in all material respects. As our management continues to evaluate and work to improve our disclosure controls and procedures and internal control over financial reporting, we may determine to take additional measures to address these deficiencies or determine to modify certain of the remediation measures described above. Our management does not expect to conclude that our disclosure controls and procedures are effective until our efforts to remediate the material weaknesses in our internal control over financial reporting described above have been in effect for a period of time sufficient to provide reasonable assurance to our management of achieving the desired control objectives.

Changes in Internal Control over Financial Reporting

Other than as described above (including the material weakness related to controls over manual journal entries that we determined exists in connection with the completion of the audit for the fiscal year ended December 31, 2013), there have not been any changes in our internal control over financial reporting during the first quarter of 2014 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

22


Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to certain outstanding legal proceedings, investigations and claims. These matters are described in the 2013 Form 10-K. As of March 31, 2014, there had been no material developments in these matters since the filing of the 2013 Form  10-K.

Item 1 A . Risk Factors

As of March 31, 2014, there had 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, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Stock Repurchases Made in the Quarter

Under our stock repurchase program, repurchases are being made from time to time in the open market based on market conditions, securities law limitations and other factors. During the three months ended March 31, 2014, there were no stock repurchases.

 

Period

   Total
Number of
Shares
Purchased
     Average
price
Paid Per
Share
     Total
Number of
Shares
Purchased
under
Approved
Stock
Repurchase
Program
     Maximum
Dollar
Value of
Shares
Yet to be
Purchased
under
Approved
Stock
Repurchase
Program
 

May 2013

     515,865       $ 26.64         515,865       $ 36,269,366   

June 2013

     472,650       $ 27.77         988,515       $ 23,131,669   

July 2013

     449,063       $ 28.04         1,437,758       $ 10,505,778   
  

 

 

          

Total for period ending March 31, 2014

     1,437,578       $ 27.55         1,437,758       $ 10,505,778   
  

 

 

          

 

23


Table of Contents

Item 6. Exhibits

 

  10.1    Amendment No. 1 to Employment Agreement, entered into on February 27, 2014, by and between Orthofix Inc. and Emily Buxton (filed as an exhibit to the Company’s current report on Form 8-K filed March 4, 2014 and incorporated herein by reference).
  10.2*    Employment Agreement, dated November 26, 2013, by and between Orthofix AG and Davide Bianchi.
  31.1*    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
  31.2*    Rule 13a-14(a)/15d-14(a) Certification of Interim Chief Financial Officer.
  32.1*    Section 1350 Certifications of each of the Chief Executive Officer and Interim Chief Financial Officer.
101*    The following materials from the Orthofix International N.V. Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, formatted in Extensible Business Reporting Language (“XBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Cash Flows and (iv) related notes, detail tagged.

 

* Filed herewith.

 

24


Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 8, 2014     By:  

/s/ Bradley R. Mason

    Name:   Bradley R. Mason
    Title:   President and Chief Executive Officer
Date: May 8, 2014     By:  

/s/ David E. Ziegler

    Name:   David E. Ziegler
    Title:   Interim Chief Financial Officer

Exhibit 10.2

 

LOGO

E MPLOYMENT C ONTRACT

between

Orthofix AG

c/o ALLconsultServices

Bundesstrasse 3

CH-6304 Zug

(referred to in the following as “Employer” or “Company”)

and

Davide Bianchi

born on 14 April 1965

Chemin du Mont Blanc 4

1272 Genolier, Switzerland

(referred to in the following as “Employee”)

 

Page 1 of 19


LOGO    Employment Contract

 

§ 1 Start, Place of Work and Relocation

The Employee will join effective 22. July 2013 (the “Effective Date”) as President of International Extremity Fixation and will report to the Chief Executive Officer of Orthofix International N.V.

His office will be in the Verona subsidiary of Orthofix (i.e. Orthofix Srl). At the discretion of the Employer, the employee’s place of work may be changed to other subsidiaries of the company, also at a different location inside Europe. The Employee may be asked but will not be obliged to relocate his place of living.

It is also at the Employer’s discretion to move the Employee to a different function which corresponds with his skills and knowledge, or to change the scope of the position, or to change the reporting line. This, however, cannot lead to a decrease in remuneration.

§ 2 Work Hours

Regular work hours per week are 40 hours.

The duration of the daily work as well as start and finish time is at the discretion of the Employer.

The Employee agrees, in accordance with business requirements as well as legal limits, to work overtime as well as to work on Sundays and bank holidays. Upon request of the overtime, the Employer has to consider the business needs as well as the rights of the Employee. Overtime is covered inside the remuneration package.

§ 3 Term of Contract and Termination

Notice of six (6) months to terminate the contract of employment can be given by either party to take effect as of the end of a calendar month.

The Employer has the right to release the Employee from work in the case of a termination, by either party, until the end of the notice period, continuing any contractual payments.

The employment contract ends without the need for notice, no later than the end of the month in which the employee reaches the legal retirement age (currently age 65). It also ends with the day on which the worker receives an early retirement pension or a full pension for disability.

§ 3a Termination without Cause; Termination for Good Reason by the Employee.

A one-time lump sum severance payment in an amount equal to 100% of the gross annual base salary and the average of the last three years bonus payout plus, for a termination by the Employee for Good Reason (please refer to Exhibit B for definitions) or a termination by the Company without Cause only, CHF 11.500,— to be used by the Employee for outplacement services. The lump sum severance payment shall be paid on the 60th day following the Employee’s termination of employment, provided that prior to such time the Executive has signed the release described in Exhibit A and the applicable revocation period for such release has expired, subject, in the case of termination other than as a result of the Executive’s death.

 

Page 2 of 19


LOGO    Employment Contract

 

A termination without cause and a termination for good reason by the employee has to be given with 30 days notice.

§ 3b Termination for Cause.

If at any time during the Term the Employee’s employment with the Company is terminated by the Employer for Cause (refer to Appendix for definition), the Employee shall be entitled to the following:

 

  a) any unpaid base salary and accrued unpaid vacation then owing through the date of termination, which amounts shall be paid to the Employee within 30 days of the date of termination.

 

  b) whatever rights, if any, that are available to the Employee upon such a termination pursuant to the Plans or any award documents related to any stock-based compensation such as stock options, stock appreciation rights or restricted stock grants. This Agreement does not grant any greater rights with respect to such items than provided for in the Plans or the award documents in the event of any termination for Cause or a Voluntary Termination.

For a termination for cause there is no notice period, it comes into effect immediately.

§ 3c Termination following Change of Control

The Employee shall have no specific right to terminate this Agreement or right to any severance payments or other benefits solely as a result of a Change of Control or Potential Change of Control. However, if during a Change of Control Period during the Term, (a) the Employee terminates his employment with the Company for Good Reason, or (b) the Company terminates the Employee’s employment without Cause, a lump sum severance payment in the amount of 150% of the gross annual base salary shall be paid to the Employee. No other rights result from termination during a Change of Control Period; provided, however, that nothing in this Section is intended to limit or impair the rights of the Employee under the Plans or any documents evidencing any stock-based compensation awards in the event of a Change of Control if such Plans or award documents grant greater rights than are set forth herein.

§ 4 Remuneration.

The gross annual base salary of the Employee amounts to CHF 330.000.— (three hundred and thirty thousand Swiss Francs); this equals a monthly base salary of CHF 27.500.— (twenty seven thousand five hundred Swiss Francs). The monthly base salary is payable in arrears at the end of the calendar month.

The premium contribution to the corporate pension scheme of the Employer is compliant with the requirement of the Swiss Occupational Pension Legislation BVG (Berufsvorsorgegesetz). The annual premium depends on the amount of the salary and the age of the Employee. At the present time, it is about CHF 56’400. Two-thirds of the Premium is paid by the Employer and one third by the Employee. The Employee’s contribution is deducted from the salary in monthly installments of about CHF 1.600,—. In Addition, the Employee will receive further a voluntary contributions to the 3 rd column in the amount of CHF 6.739,— per annum.

 

Page 3 of 19


LOGO    Employment Contract

 

§ 4a Variable Compensation

With respect to each fiscal year of the Company during the Term, the Employee shall be eligible to receive annual bonus compensation under the Parent’s Employee Annual Incentive Plan or any successor plan (the “Bonus Plan”) based on the achievement of goals established by the Board from time to time (the “Goals”). During the Term, the Employee will have a target bonus opportunity under the Bonus Plan of at least 60% of his then-applicable Base Salary and an opportunity to earn a maximum annual bonus of not less than 90% of his then-applicable Base Salary; provided, however, the Employee’s bonus under the Annual Incentive Plan with respect to work performed during the 2013 calendar year shall be pro-rated based on the number of days employed during the 2013 calendar year. The amount of any actual payment will depend upon the achievement (or not) of the Goals established by the Board. Except as otherwise provided in this Agreement, to receive a bonus under the Bonus Plan, the Employee must be employed on the date of payment of such bonus. Amounts payable under the Bonus Plan shall be determined by the Board and shall be paid following such fiscal year and no later than two and one-half months after the end of such fiscal year. In addition, the Employee 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 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.

§ 4b Stock Compensation

The Employee shall be eligible to receive stock-based compensation, whether stock options, stock appreciation rights, restricted stock grants or otherwise, under the Parent’s 2012 Long Term Incentive Plan or other stock-based compensation plans as Parent may establish from time to time (collectively, the “Plans”). The Employee shall be considered for such grants no less often than annually as part of the Board’s annual compensation review, but any such grants shall be at the sole discretion of the Board. Notwithstanding the foregoing, with respect to the 2013 calendar year, the Employee shall receive on the Effective Date (i) a grant of stock options to acquire up to 10,000 shares of common stock of Parent (vesting annually 25% per year over a 4-year period), and (ii) a grant of 2,500 restricted shares of common stock of Parent (vesting annually 25% per year over a 4-year period).

§ 4c Company Car / Car Allowance

The Employee will receive a Company car allowance equal to CHF 24.000.— gross per annum, i.e. CHF 2.000.— gross per month.

The Orthofix Car Policy – Europe is applicable (see attachment).

§ 4d Social Security

The legal regulations of Switzerland apply (AHV, BVG, UVG, KTG).

 

Page 4 of 19


LOGO    Employment Contract

 

§ 4e Insurances

The Company shall take out accident insurance for the employee according to Swiss law and to the terms usually offered by the company.

§ 5 Travel Expenses

Travel expenses, if appropriate and occasioned by and in the interest of the Employer, will be reimbursed against proper receipts and in accordance with tax regulations as well as the Company Travel Policy.

§ 6 Leave

The Employee is entitled to 25 work days of leave for a full calendar year. Saturdays and Sundays are not considered work days in this regulation.

If the employment starts or ends during a calendar year, the leave entitlement will be pro-rated, however not below the legal minimum. For the year 2013 the employee is entitled to 25 business days.

Further details about the granting of leave are regulated in the Company Policy.

§ 7 Inability to Work

The Employee is required to inform the Employer via the direct line manager as well as HR immediately at the start of the inability to work, under specification of the reasons. If the inability is previously unknown, the Employer needs to be informed as soon as possible.

If the inability to work is caused by sickness and the duration exceeds 2 days, the Employee is required to produce a doctor’s note before the end of the third workday after the beginning of the inability to work, confirming the sickness as well as the expected duration.

§ 8 Spare-time Work

The employee agrees to dedicate his regular work hours fully to the employer, spare time work shall not conflict with the business interest of the employer.

§ 9a Non-Disclosure

The Employee is obligated to keep business and company secrets as well as any information of confidential nature, which are verbally or in writing declared as such or if apparent as such, confidential and not disclose to any third party without prior consent of the Company.

Business and Company secrets in this sense are especially non-public information about products, salaries, distribution channels, suppliers, calculations, discounts, business deals, or other material information about the Company. In doubt the Employee is obligated to inquire with the Management if a certain fact is to be handled confidentially.

 

Page 5 of 19


LOGO    Employment Contract

 

This obligation is valid also after the end of the employment. Should this non-disclosure obligation hinder the Employee in an inappropriate way after the end of the employment, the Employee is entitled to be relieved of this duty.

The Employee is aware of and agrees to, that at the end of the employment, all rights of any kind to customers acquired by the Employee do not exist, and that no severance or compensation will be paid for existing or initiated customer relationships.

For every case of breach of this non-disclosure agreement, the Employee is obligated to pay a contractual penalty in the amount of an average monthly base salary (average of the last 12 months) to the Employer. This however does not eliminate the enforcement of further claims for damages.

§ 9b Non-Competition.

The non-competition agreement can be found in exhibit C in the attachment to this contract.

§ 9c Obligation not to entice away Workforce in the Aftermath of the Employment Relationship

The Employee agrees that for a period of one year after the termination of the Employment Contract the employee shall neither directly nor indirectly entice away employees of the Company, its subsidiaries or parent company or cause them in any other way to leave the Company, its subsidiaries or parent company, if for that purpose the employee induces them to break the contract or uses information which is subject to the post-contractual duty of secrecy.

The obligation not to entice away workforce also applies to the benefit of the Company’s affiliated companies the Company dealt with either directly or indirectly.

Every time the Employee breaches the obligations described under in clause 9c, the employee shall pay a contractual penalty in the amount of one monthly gross salary. The amount of the relevant monthly gross salary depends on the monthly gross salary including variable salary the Employee last received under this Employment Contract.

The Company’s right to further damages shall not be affected.

§10 Term of Preclusion

Any claim stemming from the employment or any that are related to the employment, are required to be asserted inside the term of preclusion of 3 months for the respective claim from the other contractual party in writing, or they expire.

If the opposing party declines the claim in writing or does not assert itself after one months of the initial assertion of the claim, then it expires if it is not asserted after three months of the decline in front of a court.

These terms of preclusion do not apply to claims of damages of life, body or health, as well as for damages resulting from deliberate or gross misconduct of either party.

 

Page 6 of 19


LOGO    Employment Contract

 

§ 11 Application Information

The Employee assures that all information provided during the hiring process is the truth and agrees to inform the Employer of any changes in this information without delay.

§ 12 Data Security

The employee is prohibited to acquire, process or publish personal data, make it accessible or use in any other way than the lawful task fulfillment requires. As data processing in course of work may include the entry, recording, storing, over-transmit, modify, delete, use, collection and freezing of personal data, the employee is hereby informed of the obligation to maintain confidentiality of personal data. The obligation of the employee to data secrecy continues even after the termination of employment.

The employee expressly agrees that his personal data is stored, automated and processed.

§ 13 Final Provisions

For all non-regulated contractual areas the corresponding Swiss Code of Obligations applies.

Amendments and additions to this contract must be made in writing. This shall also apply to the amendment of the clause requiring written form.

Verbal side-agreements do not exist. Further agreements than documented in this contract are not agreed to.

Place of jurisdiction is Zug/Switzerland.

If any provision of this agreement should be unlawful, void or unenforceable or should the contract contain a gap, the validity of the contract shall not be affected.

 

November 26, 2013

    November 18, 2013

Date

    Date
ORTHOFIX AG    

/s/ Armin L. Landtwing

    /s/ Davide Bianchi

Armin L. Landtwing

Verwaltungsrat

    Davide Bianchi

/s/ Brad Mason

   

Brad Mason

CEO Orthofix International

   

 

Page 7 of 19


 

LOGO

E XHIBIT A

R ELEASE

In exchange for the consideration set forth in the Employment Agreement, entered into and effective as of [     ], 2013, by and among Orthofix AG. (the “Company”) and myself (the “Employment Agreement”), the respective terms of which are incorporated herein by reference, I, Davide Bianchi, am entering into this Release (this “Release”) for good and valuable consideration as required by the Employment Agreement, and agree as follows:

1. GENERAL RELEASE.

(a) On behalf of myself, my heirs, executors, successors and assigns, I and unconditionally release, waive and forever discharge the Company, its members, divisions, subsidiaries, affiliates and related companies, including the Company Group (as defined below), or any member of the Company Group, and their present and former agents, employees, officers, directors, attorneys, stockholders, plan fiduciaries, successors and assigns (collectively, the “Releasees”), from any and all claims, demands, actions, causes of action, costs, fees and all liability whatsoever, whether known or unknown, fixed or contingent, suspected or unsuspected (collectively, “Claims”), which I had, have, or may have against Releasees relating to or arising out of my employment by or separation from the Company and its direct and indirect subsidiaries and parents, including, without limitation, Orthofix International N.V. (collectively, the “Company Group”), up to and including the date of execution of this Release, other than my right to receive the severance payments and other benefits and consideration described in the Employment Agreement. This Release includes, without limitation: (i) claims at law or equity or sounding in contract (express or implied) or tort; (ii) claims arising under any federal, state or local laws of any jurisdiction that prohibit age, sex, race, national origin, color, disability, religion, veteran or military status, sexual orientation or any other form of discrimination, harassment or retaliation (including, without limitation, the Civil Rights Act of 1866, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Americans with Disabilities Act, Title VII of the 1964 Civil Rights Act, the Civil Rights Act of 1991, the Rehabilitation Act, the Family and Medical Leave Act, the Sarbanes-Oxley Act, the Employee Polygraph Protection Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Unruh Civil Rights Act, or any other federal, state or local laws, regulations and ordinances governing discrimination, harassment or retaliation in employment; and the right to bring demands, complaints, causes of action, and claims under any other federal, state, local or common law, statute, regulation or decision); (iii) claims arising under the Employee Retirement Income Security Act; or (iv) any other statutory or common law claims related to my employment with the Company or my separation from the Company. I further covenant not to sue any of the Releasees with respect to any matters released hereby.

(b) This release does not include a release or waiver of any rights or claims I have, or might subsequently have in my capacity as a stockholder of Orthofix International N.V. In addition, this Release shall not release the Company from its continuing obligation to honor the terms of the Employment Agreement. However, this Release shall remain in full force and effect regardless of any claim by me that the Company failed to honor the terms of the Employment Agreement. In the event of any such dispute, my sole remedy against the Company shall be to enforce the terms of the Employment Agreement. I am also not waiving, and nothing in this Release is intended to waive, any right to coverage under any directors and officers insurance coverage, if any, provided by the Company, the Company Group, or any member of the Company Group, or any right to indemnification or expense advancement under any indemnification agreement, or any applicable Company Group articles of incorporation, bylaws or similar organizational document, if any, in each case, to which I might be entitled. I am also not waiving, and nothing in this Release is intended to waive any claims I may have for unemployment insurance or workers’ compensation benefits, state disability compensation, claims for any vested benefits under any Company-sponsored benefit plan, or any claims that, as a matter of law, may not be released by private agreement. I am also not waiving, and nothing in this Release is intended to waive, any claims relating to the validity or enforceability of this Release; or any non-waivable right to file a charge with the United States Equal Employment Opportunity Commission (the “EEOC”) or the National Labor Relations Board (“NLRB”); provided, however, that I shall not be entitled to recover any monetary damages or to non-monetary relief if the EEOC or NLRB were to pursue any claims relating to my employment with the Company.

 

Page 8 of 19


LOGO

E XHIBIT A

R ELEASE

 

EXCEPT AS OUTLINED ABOVE, THIS MEANS THAT, BY SIGNING THIS RELEASE, I WILL WAIVE ANY RIGHT I MAY HAVE HAD TO PURSUE OR BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE COMPANY OR THE RELEASEES THAT IN ANY WAY ARISES FROM OR RELATES TO MY EMPLOYMENT OR THE TERMINATION OF THAT EMPLOYMENT, UP TO AND INCLUDING THE DATE OF THE EXECUTION OF THIS RELEASE.

(c) I acknowledge that different or additional facts may be discovered in addition to what I now know or believe to be true with respect to the matters herein released, and I agree that this Release shall be and remain in effect in all respects as a complete and final release of the matters released, notwithstanding any such different or additional facts. I represent and warrant that I have not previously filed or joined in any claims against the Company or any of the Releasees, that I have not given or sold any portion of any claims released herein to anyone else, and that I will indemnify and hold harmless the Releasees from all liabilities, claims, demands, costs, expenses and/or attorneys’ fees incurred as a result of any such assignment or transfer.

(d) I acknowledge that I have been given an opportunity of [twenty one (21) / forty five (45) ] to consider this Release, but I may voluntarily waive that period by signing it earlier, and I acknowledge that I am being advised herein to consult with legal counsel of my own choosing prior to executing this Release. I understand that for a period ending at the end of the seventh calendar day following my execution of this Release (“Revocation Period”), I shall have the right to revoke this Release by delivering a written notice of revocation to Jeffrey M. Schumm, Orthofix Inc. Senior Vice President, General Counsel and Corporate Secretary, 3451 Plano Pkwy, Lewisville, TX 75056 no later than the end of the seventh calendar day after I sign this Release. I understand and agree that this Release will not be effective and enforceable until after the Revocation Period expires without revocation, and if I elect to exercise this revocation right, this Release shall be voided in its entirety, and the Company shall be relieved of all obligations under this Release and all obligations under the Employment Agreement as provided therein. This Release shall be effective on the eighth calendar day after it is executed by me (“Effective Date”) provided it has not been previously revoked as provided herein.

2. I agree not to disclose, publish or use any confidential information of the Company Group, except as the Company directs or authorizes unless required by law to do so. I also agree that I will take all reasonable measures to protect the secrecy of and avoid disclosure and unauthorized use of confidential information of the Company Group, and I will immediately notify the Company in the event of any unauthorized use or disclosure of the Company Group’s confidential information of which I become aware. I agree that the obligations set forth in this paragraph do not supersede, but are in addition to, any previous confidentiality obligations agreed to by me and any member of the Company Group, including those under the Agreement. The confidentiality provisions set forth in this Release are contractual and their terms are material to this Release. In any proceeding brought to enforce or seek damages for the alleged breach of the confidentiality provisions of this Release, the party successfully prosecuting or defending such action shall be entitled to recover from the opposing party its reasonable expenses, including attorneys’ fees.

3. I agree to hold harmless the Releasees, at my sole cost and expense, from and against any claims arising from my breach of this Release (including breaches of my post separation obligations under the Agreement).

4. I agree that I have not made and shall not make, publicly or privately, any critical or negative comments to the media or any significant critical or negative comments to any other person (including future or prospective employees) regarding any of the Releasees.

 

Page 9 of 19


LOGO

E XHIBIT A

R ELEASE

 

5. I understand it is my choice whether or not to enter into this Release and that my decision to do so is voluntary and is made knowingly.

6. I represent and acknowledge that in executing this Release, I do not rely, and have not relied, on any communications, statements, inducements or representations, oral or written, by any of the Releasees, except as expressly contained in this Release.

7. I also represent and warrant that, on or before my last date of employment, I will have delivered 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 Company Group (whether or not confidential), and (b) all other documents, materials and other property belonging to any member of the Company Group that are or were in my possession or under my control.

8. The Company and I agree that this Release shall be binding on us and our heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of our heirs, administrators, representatives, executors, successors and assigns.

9. This Release shall be interpreted under and governed by the laws of the State of Texas. The Company and I agree that the language of this Release shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against either party.

10 The Company and I agree that should that any provision of this Release be determined to be illegal or invalid, the validity of the remaining provisions will not be affected and any illegal or invalid provision will be deemed not to be a part of this Release.

11. The Company and I agree that this Release may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall be deemed one and the same instrument.

Please read carefully as this document includes a General Release of claims.

As evidenced by my signature below, I certify that I have read the above Release and agree to its terms.

Accepted and Acknowledged:

 

November 26, 2013

    November 18, 2013

Date

    Date
ORTHOFIX AG    

/s/ Armin L. Landtwing

    /s/ Davide Bianchi

Armin L. Landtwing

Verwaltungsrat

    Davide Bianchi

/s/ Brad Mason

   

Brad Mason

CEO Orthofix International

   

 

Page 10 of 19


LOGO

 

E XHIBIT B

D EFINITIONS

For purposes of this Agreement, the following capitalized terms have the meanings set forth below:

Board shall mean the Board of Directors of Parent. Any obligation of the Board other than termination for Cause under this Agreement may be delegated to an appropriate committee of the Board, including its compensation committee, and references to the Board herein shall be references to any such committee, as appropriate.

“Cause” shall mean termination of the Employee’s employment because of the Employee’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 Employee to follow the reasonable instructions of the Board or Chief Executive Officer; (v) willful commission by the Employee 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 Employee has undertaken to provide any certification or related back-up material required for the chief and principal executive and financial officers to provide a 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 or related back-up material was accurate or otherwise in compliance with the requirements of the Sarbanes-Oxley Act or (b) the Employee’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 Employee 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.

“Change of Control” shall occur upon any of the following events:

(i) the acquisition by any individual, entity or group of beneficial ownership, in any individual transaction or series of related transactions, of 50% or more of either (A) the then outstanding shares of common stock of Parent (the “ Outstanding Common Stock ”) or (B) the combined voting power of the then outstanding voting securities of Parent entitled to vote generally in the election of directors (the “ Outstanding Voting Securities ”); excluding , however , the following: (1) any acquisition directly from Parent, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from Parent; (2) any acquisition by Parent; (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Parent or any entity controlled by Parent; or (4) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this definition of Change of Control;

(ii) a change in the composition of the Board such that the individuals who as of the Effective Date constitute the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Board; provided , however , for purposes of this paragraph, that any individual who becomes a member of the Board subsequent to the Effective Date, whose appointment, election, or nomination for election by Parent’s shareholders was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but

 

Page 11 of 19


LOGO

E XHIBIT B

D EFINITIONS

 

provided further that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board;

(iii) 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 ”); expressly excluding , however , any such Business Combination pursuant to which all of the following conditions are met: (A) all or substantially all of the Person(s) who are the beneficial owners of the Outstanding Common Stock and Outstanding Voting Securities, respectively, immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns Parent or all or substantially all of Parent’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be, (B) no Person (other than Parent, any employee benefit plan (or related trust) of Parent or such entity resulting from such Business Combination) will beneficially own, directly or indirectly, 50% or more of, respectively, the outstanding shares of common stock of the entity resulting from such Business Combination or the combined voting power of the outstanding voting securities of such entity entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Business Combination, and (C) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the entity resulting from such Business Combination;

(iv) the approval by the shareholders of Parent of a complete liquidation or dissolution of Parent;

(v) the Parent Group (or any of them) shall sell or dispose of, in a single transaction or series of related transactions, business operations that generated two-thirds of the consolidated revenues of the Parent Group (determined on the basis of Parent’s four most recently completed fiscal quarters for which reports have been filed under the Exchange Act) and such disposal shall not be exempted pursuant to clause (iii) of this definition of Change of Control;

(vi) Parent files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change of control of Parent has or may have occurred or will or may occur in the future pursuant to any then-existing agreement or transaction; notwithstanding the foregoing, unless determined in a specific case by a majority vote of the Board, a “ Change of Control ” shall not be deemed to have occurred solely because: (A) an entity in which Parent directly or indirectly beneficially owns 50% or more of the voting securities, or any Parent-sponsored employee stock ownership plan, or any other employee plan of Parent or the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by form or report or item therein, disclosing beneficial ownership by it of shares of stock of Parent, or because Parent reports that a change of control of Parent has or may have occurred or will or may occur in the future by reason of such beneficial ownership or (B) any Parent-sponsored employee stock ownership plan, or any other employee plan of Parent or the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any

 

Page 12 of 19


LOGO

E XHIBIT B

D EFINITIONS

 

successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by form or report or item therein, disclosing beneficial ownership by it of shares of stock of Parent, or because Parent reports that a change of control of Parent has or may have occurred or will or may occur in the future by reason of such beneficial ownership; or

(vii) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in any of the preceding clauses in this definition.

Notwithstanding the above definition of Change of Control, the Board, in its sole discretion, may determine that a Change of Control has occurred for purposes of this Agreement, even if the events giving rise to such Change of Control are not expressly described in the above definition.

“Change of Control Date” shall mean the date on which a Change of Control occurs.

“Change of Control Period” shall mean the 24 month period commencing on the Change of Control Date; provided, however, if the Company terminates the Employee’s employment with the Company prior to the Change of Control Date but on or after a Potential Change of Control Date, and it is reasonably demonstrated that the Employee’s (i) employment was terminated at the request of an unaffiliated third party who has taken steps reasonably calculated to effect a Change of Control or (ii) termination of employment otherwise arose in connection with or in anticipation of the Change of Control, then the “Change of Control Period” shall mean the 24 month period beginning on the date immediately prior to the date of the Employee’s termination of employment with the Company.

“Competing Business” means any business or activity that (i) competes with any member of the Parent Group for which the Employee performed services or the Employee 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 Term or (B) products or services so similar in nature to that of any member of the Parent Group during Term (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 Employee 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.

 

Page 13 of 19


LOGO

E XHIBIT B

D EFINITIONS

 

“Exchange Act shall mean the Securities Exchange Act of 1934, or amended.

“Good Reason” shall mean the occurrence of any of the following without the written consent of the Employee: (1) the assignment to the Employee of any duties materially inconsistent in any respect with the Employee’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by this Agreement, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (2) the Company’s material reduction of the Employee’s Base Salary or bonus opportunity, each as in effect on the date hereof or as the same may be increased from time to time; (3) the Company’s failure to obtain a satisfactory agreement from any successor entity to assume and agree to perform this Agreement; or (4) any material breach of this Agreement or any other material agreement with the Employee by the Company or any successor entity.

“Parent” shall mean Orthofix International N.V., an entity organized under the laws of Curacao.

“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.

“Potential Change of Control” shall mean the earliest to occur of: (i) the date on which Parent executes an agreement or letter of intent, the consummation of the transactions described in which would result in the occurrence of a Change of Control or (ii) the date on which the Board approves a transaction or series of transactions, the consummation of which would result in a Change of Control, and ending when, in the opinion of the Board, the Parent (or the Company) or the respective third party has abandoned or terminated any Potential Change of Control.

“Potential Change of Control Date” shall mean the date on which a Potential Change of Control occurs; provided, however, such date shall become null and void when, in the opinion of the Board, the Parent (or the Company) or the respective third party has abandoned or terminated any Potential Change of Control.

“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.

 

Page 14 of 19


LOGO

 

E XHIBIT C

N ON -C OMPETITION A GREEMENT

 

OPZIONE PER UN PATTO DI NON CONCORRENZA

 

Tra

 

Orthofix AG

c/o ALLconsultServices

Bundesstrasse 3

CH-6304 Zug

 

E

 

Il Mr. Davide Bianchi, residente in Ch. Du Mont Blanc 4, 1272 Genolier, Vaud- Svizzera (di seguito “Dirigente”)

 

Di seguito denominate “le Parti”

Premesso che

 

i)       La Società e il Gruppo cui essa appartiene (con il termine “Gruppo” si intende includere la Società, la sua controllante e tutte le società dalle stesse direttamente o indirettamente controllate o partecipate) ricoprono una posizione leader a livello mondiale nel settore delle Tecnologie Medicali. In particolare il Gruppo si occupa di sviluppo, della produzione, e della vendita di prodotti nei seguenti segmenti del mercato: tutti i prodotti alla gamma di « Extremity Fixation »

 

ii)     il Dirigente è stato assunto dalla Società dal giorno 22 July 2013 con la posizione di Presidente Internazionale della fissazione esterna (di seguito il “Rapporto di Lavoro”;

 

iii)    nel corso del Rapporto di Lavoro il Dirigente verrà a conoscenza di informazioni riservate riguardanti la Società e il Gruppo, nonché i prodotti della Società e del Gruppo, che rivestono primaria importanza per lo svolgimento dell’attività di impresa della Società;

 

iv)    la Società e il Gruppo intendono tutelare i loro interessi in relazione alle attività e agli incarichi che il Dirigente potrebbe svolgere in concorrenza con la Società successivamente alla cessazione del Rapporto di Lavoro.

  

OPTION OF NON-COMPETITION AGREEMENT

 

Between

 

Orthofix AG

c/o ALLconsultServices

Bundesstrasse 3

CH-6304 Zug

 

And

 

Il Mr. Davide Bianchi, residente in Ch. Du Mont Blanc 4, 1272 Genolier, Vaud- Svizzera (below “Manager”)

 

Hereinafter mentioned as “Parties”

WHEREAS

 

i)       The Company and the Group to which it belongs, (Group intended to include the Company, its holding company, and all companies directly or indirectly controlled by the same or associated), cover a worldwide leading position in the field of Medical Technologies. In particular, the Group is engaged in the development, production and sales of products in the following market sector: all products in the Product Range “Extremity Fixation”

 

ii)     The Manager has been employed by the Company since 22 July 2013, for the position of President of International Extremity Fixation (hereinafter “The Employment Relationship”);

 

iii)    In the course of the Employment Relationship Manager will be aware of confidential information regarding the Company and the Group, as well as the products of the Company and the Group, which are of major importance for the conduct of the business of the Company;

 

iv)    The Company and the Group wish to protect their interests in relation to the activities and the tasks that the Manager could carry out in competition with the Company subsequent to the termination of the Employment Relationship.

 

Page 15 of 19


LOGO

E XHIBIT C

N ON -C OMPETITION A GREEMENT

 

Ciò premesso, le Parti convengono quanto segue:

 

1) OPZIONE- EFFICACIA E CONDIZIONE SOSPENSIVA:

 

1.1. Il Dirigente concede alla Società un’opzione per la conclusione di un patto di non concorrenza nei termini e alle condizioni specificati al successivo paragrafo 4 (qui di seguito l’Opzione).

 

1.2. La Società accetta l’Opzione e si impegna ad esercitarla nei termini e alle condizioni specificati al successivo paragrafo 2.

 

  

Accordingly the Parties agree as follows:

 

1) OPTION- EFFECTIVENESS AND SUSPENSION CONDITION:

 

1.1. The Manager, grants to the Company an option for the conclusion of a non-competition agreement, under the terms and conditions specified in the following paragraph 4 (hereinafter “the Option”);

 

1.2. The Company accepts and agrees to exercise the option according to the terms and condition specified in paragraph 2.

 

2) ESERCIZIO DELL’OPZIONE

 

2.1 La Società potrà esercitare l’Opzione in ogni momento nel corso del Rapporto di Lavoro.

 

2.2. La volontà della Società di esercitare l’Opzione e, di conseguenza, di concludere il patto di non concorrenza di cui al successivo paragrafo 4, dovrà essere comunicata ad Dirigente per iscritto.

 

  

2) OPTION EXERCISE

 

2.1 The Company may exercise the option at any time during the Employment Relationship;

 

2.2. The intention of the Company to exercise the Option and, therefore, to conclude the non-competition agreement, referred to in paragraph 4, shall be notified to the manager in written form.

 

3) CORRISPETTIVO PER L’OPZIONE

 

A titolo di corrispettivo per la concessione dell’Opzione la Società Le corrisponderà un importo lordo pari a Euro 5000,—, in tre tranche di uguale importo e unitamente alle competenze dei tre mesi successivi alla sottoscrizione della presente Opzione. Resta inteso e convenuto che il predetto importo si intende già comprensivo di ogni incidenza su tutti gli istituti contrattuali e di legge, e che non sarà considerato retribuzione utile ai fini del calcolo del Trattamento di Fine Rapporto e degli istituti ad esso collegati.

  

3) PAYMENT AGREEMENT

 

For the grant of the Option, the Company will correspond a gross amount of € 5,000.00, in three installments each of the same amount and together with the payment of three months’ remuneration after the signature of the present otion. It is agreed that said amount already includes any effect on any contractual and legal obligations, and that compensation will not be considered useful for the calculating severance indemnities and institutions connected to it.

 

Page 16 of 19


LOGO

E XHIBIT C

N ON -C OMPETITION A GREEMENT

 

4) REGOLAMENTAZIONE DEL PATTO DI NON CONCORRENZA

 

4.1 Qualora la Società eserciti l’Opzione secondo i termini e alle condizioni di cui al precedente paragrafo 2, per un periodo di 12 mesi (dodici) decorrente dalla data di effettiva cessazione del Rapporto di Lavoro (a prescindere dalle ragioni di tale cessazione) il Dirigente si impegna a non prestare la sua opera, direttamente o indirettamente, in favore di soggetti terzi, né a svolgere attività in qualità di titolare, socio, dipendente, lavoratore autonomo o agente, nel campo dei Orthofix prodotti alla gamma di « Extremity Fixation »su tutto il territorio dell’Unione Europea e degli Stati Uniti d’America.

 

4.2. Il Dirigente si impegna inoltre a non distrarre e/o stornare clienti con i quali ella abbia trattato, direttamente o indirettamente, negli ultimi tre anni del Rapporto di Lavoro. Il Dirigente si asterrà altresì dal distrarre e/o stornare dipendenti o altri collaboratori della Società, nonché dall’indurli a cessare il loro rapporto di collaborazione con la Società stessa.

 

4.3. Al fine di consentire alla Società un adeguato controllo sul rispetto del patto di non concorrenza da parte del Dirigente, quest’ultimo si impegna a fornire alla Società tutte le informazioni rilevanti riguardanti le attività lavorative e professionali che la stessa svolgerà durante il periodo di validità del patto di non concorrenza. Tali informazioni verranno comunicate per iscritto e anteriormente all’effettivo svolgimento delle predette attività. Il Dirigente si impegna altresì ad informare anticipatamente il proprio nuovo datore di lavoro e/o committente dell’esistenza del presente patto di non concorrenza, del quale il Dirigente è autorizzato a fornire copia.

  

4) REGULATION OF NON-COMPETITION AGREEMENT

 

4.1. If the Company exercises the Option in accordance with the terms and conditions referred to paragraph in 2 above, for a period of 12 months (twelve months) from the effective date of termination of the Employment Relationship (independently from the reason of termination of the employment relation) the Manager agrees not to provide his work, directly or indirectly, in favor of third parties, or engage as owner, partner, employee, self-employed or agent, in the field of the Orthofix Portfolio “Extremity Fixation” on the whole territory of the European Union and the United States of America.

 

4.2 The Manager agrees not to distract or divert a customer to whom he has dealt with, directly or indirectly, in the last three years of the Employment Relationship.. The Manager will also refrain from distracting and/or divert employees or other employees of the Company and from inducing them to cease their relationship with the Company.

 

4.3. In order to allow the Company an adequate monitoring compliance with the non-competition agreement by the Manager, the latter undertakes to provide the Company with all relevant information concerning the business and professional activities that take place during the same period of validity of the non-competition agreement.

 

These informations have to be communicated in written form and prior to the actual performance of said activities. The Manager has to inform in advance his new employer of the existence of this non-competition agreement. The Manager is authorized to provide a copy of this contract to his employer.

 

Page 17 of 19


LOGO

E XHIBIT C

N ON -C OMPETITION A GREEMENT

 

4.4. Ogni singola violazione, da parte del Dirigente, degli obblighi di non concorrenza di cui al presente paragrafo 4, comporterà il pagamento, da parte del Dirigente stesso, di una penale pari ad Euro 150.000 senza alcun pregiudizio per il diritto della Società al risarcimento dell’eventuale maggior danno. Al verificarsi della violazione, e fermo restando il pagamento della penale di cui sopra, la Società avrà la facoltà di risolvere il patto di non concorrenza per inadempimento o di continuare a chiederne il corretto adempimento da parte del Dirigente. In questo caso è fatto salvo il diritto del Dirigente al corrispettivo ancora eventualmente dovuto ai sensi del successivo paragrafo 5.1. In caso di risoluzione, il Dirigente, oltre a corrispondere la penale di cui sopra, sarà tenuta a restituire alla Società il corrispettivo eventualmente già percepito ai sensi di quanto previsto al successivo paragrafo 5.1.

 

4.5 Resta inteso che la Società potrà decidere di non esercitare l’Opzione. In questo caso, il patto di non concorrenza come regolato al presente paragrafo 4 non entrerà in vigore e non produrrà nessun effetto, e al dirigente non spetterà alcun corrispettivo ai sensi di quanto previsto al successivo paragrafo 5.1.

 

5) CORRISPETTIVO PER IL PATTO DI NON CONCORRENZA

 

5.1 Tenuto conto del background professionale del Dirigente, le Parti convengono che un corrispettivo per il predetto patto di non concorrenza pari al 70% della retribuzione fissa annua lorda in vigore al momento della cessazione del Rapporto di lavoro, sia equo e ragionevole.

 

5.2. Il corrispettivo di cui al presente paragrafo 5.1. verrà corrisposto in due rate di pari importo come segue:

 

- il 50% entro e non oltre sette mesi dalla data di entrata in vigore del patto;

 

- il residuo 50% entro e non oltre il mese successivo alla data di termine del patto.

  

4.4. For each violation incurred by the Manager, of this non-compete option, according to what referred to in this paragraph 4, the Manager will pay to the Company, a penalty of Euros 150,000.00 without prejudice to compensation for further damages to the Company. Upon occurrence of the violation, and without prejudice of payment of the abovementioned penalty, The Company will have the right to terminate the non-competition agreement for non-performance or to continue to ask for the proper performance by the Manager.. In this case, the Manager is entitled to the payment, as defined in paragraph 5.1..

 

In case of termination of the contract, the Manager will have to pay the penalty, and will have to return back to the Company the amount he has already received under the provisions of paragraph 5.1.

 

4.5. It is understood that the Company may decide not to exercise the option. In this case, the non-competition agreement, as regulated in this Paragraph 4, will not produce any effect, and the Manager will not receive any payment, as defined in paragraph 5.1.

 

5) PAYMENT FOR NON-COMPETITION AGREEMENT

 

5.1. According to the professional background of the Manager, the Parties agree that a remuneration for the non-competition agreement of 70% of annual gross salary in force at the time of the termination of the employment relationship, is fair and reasonable.

 

5.2. The remuneration, referred to in this paragraph 5.1., will be paid in two installments as follows:

 

- 50% no later than seven months from the date of entry into force of the agreement;

 

- The remaining 50% within and no later than the month following the date of termination of the agreement.

 

Page 18 of 19


LOGO

E XHIBIT C

N ON -C OMPETITION A GREEMENT

 

November 26, 2013     November 18, 2013
Date     Date

ORTHOFIX AG

 

/s/ Armin L. Landtwing

    /s/ Davide Bianchi

Armin L. Landtwing

Verwaltungsrat

    Davide Bianchi
/s/ Brad Mason    

Brad Mason

CEO Orthofix International

   

 

Page 19 of 19

Exhibit 31.1

CERTIFICATION

I, Bradley R. Mason, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 31, 2014, 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.

 

Dated: May 8, 2014   By:  

/s/ Bradley R. Mason

  Name:   Bradley R. Mason
  Title:   President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, David E. Ziegler, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 31, 2014, 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.

 

Dated: May 8, 2014

  By:  

/s/ David E. Ziegler

  Name:   David E. Ziegler
  Title:   Interim 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 quarterly period ended March 31, 2014, (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, Bradley R. Mason, Chief Executive Officer and President of Orthofix, and David E. Ziegler, Interim Chief Financial Officer, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

 

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 8, 2014

 

/s/ Bradley R. Mason

  Name: Bradley R. Mason
  Title: President and Chief Executive Officer

Dated: May 8, 2014

 

/s/ David E. Ziegler

  Name: David E. Ziegler
  Title: Interim Chief Financial Officer