16.	Share-based compensation

At December 31, 2016, the Company had stock option and award plans, and an employee stock purchase plan.

2012 Long Term Incentive Plan

The Board of Directors adopted the Orthofix International N.V. 2012 Long-Term Incentive Plan (the “2012 LTIP”) on April 13, 2012, subject to shareholder approval, which was subsequently provided by shareholder ratification. The 2012 LTIP provides for the grant of options to purchase shares of the Company’s common stock, stock awards (including restricted stock, unrestricted stock, and stock units), stock appreciation rights, performance-based awards and other equity-based awards. All of the Company’s employees and the employees of the Company’s subsidiaries and affiliates are eligible and may receive awards under the 2012 LTIP. In addition, the Company’s non-employee directors and consultants and advisors who perform services for the Company and the Company’s subsidiaries and affiliates may receive awards under the 2012 LTIP. Incentive share options, however, are only available to the Company’s employees. Awards granted under the 2012 LTIP expire no later than ten years after the date of grant. The Company reserves a total of 3,200,000 shares of common stock for issuance pursuant to the 2012 LTIP, subject to certain adjustments set forth in the 2012 LTIP. At December 31, 2016, there were 787,646 options outstanding under the 2012 LTIP Plan, of which 264,673 were exercisable. In addition, there were 551,229 shares of unvested restricted stock outstanding, some of which contain performance conditions, and 151,575 units of performance stock units outstanding under the plan as of December 31, 2016.

2004 Long Term Incentive Plan

The 2004 Long Term Incentive Plan (the “2004 LTIP Plan”) reserved 3.1 million shares for issuance (in addition to shares (i) available for future awards as of June 29, 2004 under prior plans or (ii) that become available for future issuance upon the expiration or forfeiture after June 29, 2004 of awards upon prior plans). At December 31, 2016, there were 199,533 options outstanding under the 2004 LTIP Plan, of which 199,533 were exercisable; in addition, there were no shares of unvested restricted stock outstanding.

Stock Purchase Plan

The Orthofix International N.V. Amended and Restated Stock Purchase Plan (the “Stock Purchase Plan”) provides for the issuance of shares of the Company’s common stock to eligible employees and directors of the Company and its subsidiaries that elect to participate in the plan and acquire shares of common stock through payroll deductions (including executive officers).

During each purchase period, eligible employees may designate between 1% and 25% of their compensation to be deducted for the purchase of common stock under the plan (or such other percentage in order to comply with regulations applicable to Employees domiciled in or resident of a member state of the European Union). For eligible directors, the designated percentage will be an amount equal to his or her annual or other director compensation paid in cash for the current plan year. The purchase price of the shares under the plan is equal to 85% of the fair market value on the first day of the plan year (which is a calendar year, running from January 1 to December 31) or, if lower, on the last day of the plan year.

Due to the compensatory nature of such plan, the Company records the related share based compensation in the consolidated statement of operations. The aggregate number of shares reserved for issuance under the Stock Purchase Plan is 1,850,000. As of December 31, 2016, 1,385,169 shares had been issued.

Share-Based Compensation Expense

The following tables present the detail of share-based compensation by line item in the consolidated statements of operations as well as by award type, for the years ended December 31, 2016, 2015 and 2014:

	Year Ended December 31,
(U.S. Dollars, in thousands)	2016		2015		2014
Cost of sales	$	553	$	440	$	137
Sales and marketing		1,230		1,304		1,701
General and administrative		13,132		5,051		3,578
Research and development		1,051		419		308
Total	$	15,966	$	7,214	$	5,724

	Year Ended December 31,
(U.S. Dollars, in thousands)	2016		2015		2014
Stock options	$	2,021	$	1,437	$	1,391
Time-based restricted stock awards		6,016		4,606		3,400
Performance-based restricted stock awards		5,716	—		—
Performance-based and market-based restricted stock units		948		—		—
Stock purchase plan		1,265		1,171		933
Total	$	15,966	$	7,214	$	5,724

The income tax benefit related to this expense was $4.3 million, $1.6 million, and $1.3 million for the years ended December 31, 2016, 2015, and 2014, respectively.

Stock Options

The fair value of service-based stock options is determined using the Black-Scholes valuation model, with such value recognized as expense over the service period net of actual forfeitures. The fair value of market-based stock options is determined at the date of the grant using the Monte Carlo valuation methodology, with such value recognized as expense over the requisite service period adjusted for forfeitures as they occur. The Monte Carlo methodology incorporates into the valuation the possibility that the market condition may not be satisfied.

A summary of the Company’s assumptions used in determining the fair value of the stock options granted during the year is shown in the following table.

	Year Ended December 31,
Assumptions:	2016		2015		2014
Expected term (in years)	4.50		4.50		5.00
Expected volatility	30.6% – 32.3%		31.1% – 31.6%		31.7% – 34.5%
Risk free interest rate	1.07% – 1.92%		1.37% – 1.54%		1.52% – 1.70%
Dividend yield	—		—		—
Weighted average grant date fair value	$	11.79	$	9.49	$	10.45

The expected term of the options granted is estimated based on a number of factors, including the vesting and expiration terms of the award, historical employee exercise behavior for both options that are currently outstanding and options that have been exercised or are expired, the historical volatility of the Company’s common stock and an employee’s average length of service. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option award. Expected volatility is estimated based on the historical volatility of the Company’s stock.

Summaries of the status of the Company’s stock option plans as of December 31, 2016 and 2015 and changes during the year ended December 31, 2016 are presented below:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at December 31, 2015		1,412,602		$	34.26
Granted		250,432		$	43.04
Exercised		(469,945	)	$	34.50
Forfeited		(55,910	)	$	35.04
Outstanding at December 31, 2016		1,137,179		$	36.05		6.69
Vested and expected to vest at December 31, 2016		1,137,179		$	36.05		6.69
Exercisable at December 31, 2016		464,206		$	33.76		4.57

The table below summarizes the options outstanding and exercisable by exercise price range as of December 31, 2016:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$16.62 – $25.01		106,207		5.74	$	22.32		80,271	$	22.55
$25.05 – $29.23		102,750		5.06	$	27.57		82,750	$	27.82
$30.78 – $32.28		99,650		6.63	$	31.96		57,288	$	31.90
$33.12 – $33.12		142,815		8.50	$	33.12		35,708	$	33.12
$33.24 – $36.25		121,875		7.74	$	35.51		52,051	$	35.82
$36.46 – $40.19		262,750		6.64	$	38.93		45,438	$	39.24
$41.73 – $42.89		59,500		4.71	$	41.93		37,500	$	41.37
$44.39 – $44.39		168,432		9.50	$	44.39		—	$	—
$44.87 – $50.50		65,700		0.48	$	45.17		65,700	$	45.17
$50.99 – $50.99		7,500		0.04	$	50.99		7,500	$	50.99
$16.62 – $50.99		1,137,179		6.69	$	36.05		464,206	$	33.76

As of December 31, 2016, the unamortized compensation expense relating to options granted and expected to be recognized was $3.2 million. This amount is expected to be recognized through December 2020 or over a weighted average period of approximately 1.6 years. The total intrinsic value of options exercised was $4.3 million, $0.7 million and $2.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2016 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the shares that had exercise prices that were lower than the $36.18 closing price of the Company’s stock on December 31, 2016. The aggregate intrinsic value of options outstanding was $3.3 million, $8.0 million and $2.4 million for the years ended December 31, 2016, 2015, and 2014, respectively. The aggregate intrinsic value of options exercisable was $2.2 million, $4.3 million and $1.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Time-based Restricted Stock Awards

During the year ended December 31, 2016, the Company granted to employees and non-employee directors 186,515 shares of restricted stock, which vest at various dates through November 2020. During the year ended December 31, 2015, the Company granted to employees and non-employee directors 203,618 shares of restricted stock, which vest at various dates through August 2019. The compensation expense, which represents the fair value of the stock measured at the market price at the date of grant, is recognized on a straight-line basis over the vesting period, net of actual forfeitures. The aggregate fair value of restricted stock that vested during the years ended December 31, 2016, 2015 and 2014 was $5.5 million, $5.6 million and $2.5 million, respectively. Unamortized compensation expense related to restricted stock amounted to $10.6 million at December 31, 2016, and is expected to be recognized over a weighted average period of approximately 2.4 years. The aggregate intrinsic value of restricted stock outstanding was $13.0 million, $14.9 million and $11.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Performance-based Restricted Stock Awards

The fair value of performance-based restricted stock awards is calculated based upon the closing stock price at the date of grant. Such value is recognized as expense over the derived requisite service period beginning in the period in which they are deemed probable to vest, net of actual forfeitures. Vesting probability is assessed based upon forecasted earnings and financial results.

During the year ended December 31, 2016, the Company did not grant any performance-based restricted stock awards to employees. During the year ended December 31, 2015, the Company granted to employees 110,660 shares of performance-based restricted stock, which vest based upon the achievement of certain earnings or return on invested capital targets as of and for any of the years ended December 31, 2016, 2017, or 2018. Approximately $5.7 million of compensation expense has been recorded for the year ended December 31, 2016 associated with the determination in 2016 that it is probable the performance criteria related to certain grants of the Company’s performance-based vesting restricted stock will be achieved. No expense was recorded for the years ended December 31, 2015 and 2014, related to performance-based restricted stock. Unamortized compensation expense related to performance-based restricted stock amounted to $0.9 million at December 31, 2016, which is contingent upon meeting certain performance-based vesting criteria and is expected to be recognized over a weighted average period of approximately 2.0 years. The aggregate intrinsic value of performance-based restricted stock awards outstanding was $7.0 million, $7.6 million and $2.6 million for the years ended December 31, 2016, 2016, and 2014, respectively.

Performance-based and Market-based Restricted Stock Units

The Company’s performance-based stock units (“PSUs”) consist of awards that contain either market conditions or performance conditions as a requirement for vesting.

The fair value of market-based PSUs is determined at the date of the grant using the Monte Carlo valuation methodology, with any discounts for post-vesting restrictions estimated using the Chaffe Model. The Monte Carlo methodology incorporates into the valuation the possibility that the market condition may not be satisfied. Such value is recognized on a straight-line basis over the vesting period, net of actual forfeitures. During the year ended December 31, 2016, the Company granted 96,245 shares of market-based PSUs to executive officers and certain employees. The awards, if the market conditions are achieved, will be settled in shares of common stock, with one share of common stock issued per PSU if targets are achieved at the 100% level. Awards may be achieved at a minimum level of 50% and a maximum of 200%. The market conditions are based on the Company’s stock achieving certain total shareholder return targets relative to specified index companies during a 3-year performance period beginning on July 1, 2016. The Company recorded $0.9 million in compensation expense for the year ended December 31, 2016, and no expense for the years ended December 31, 2015 and 2014, respectively related to market-based PSUs. Unamortized compensation expense for market-based PSUs amounted to $3.8 million at December 31, 2016, and is expected to be recognized over a weighted average period of approximately 2.5 years. The aggregate intrinsic value of market-based PSUs outstanding was $3.5 million, $0.0 million, and $0.0 million for the years ended December 31, 2016, 2015, and 2014, respectively.

The fair value of performance-based PSUs is calculated based upon the closing stock price at the date of grant. Such value is recognized as expense over the derived requisite service period beginning in the period in which the awards are deemed probable to vest. Vesting probability is assessed based upon forecasted earnings and financial results. During the year ended December 31, 2015, the Company granted 55,330 shares of performance-based PSUs to employees, which vest based upon the achievement of certain earnings or return on invested capital targets for the year ended December 31, 2018. The Company has not recorded any compensation expense for the years ended December 31, 2016, 2015, or 2014 related to performance-based PSUs as the performance conditions are not currently considered probable to vest. Unamortized compensation expense related to performance-based PSUs amounts to $1.8 million at December 31, 2016 and is expected to be recognized over a weighted average period of approximately 2.0 years, if all performance conditions are met. The aggregate intrinsic value of performance-based PSUs outstanding was $2.0 million, $2.2 million, and $0.0 million for the years ended December 31, 2016, 2015, and 2014, respectively.

A summary of the status of our restricted stock and stock units as of December 31, 2016 and 2015 and changes during the year ended December 31, 2016 are presented below:

	Time-based Awards					Performance-based Awards				Performance-based or Market-based Stock Units
	Shares			Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Non-vested as of December 31, 2015		379,138		$	32.15		192,310	$	34.45		55,330	$	33.12
Granted		186,515		$	43.73		—	$	—		96,245	$	49.53
Vested		(171,451	)	$	31.86		—	$	—		—	$	—
Cancelled		(35,283	)	$	32.54		—	$	—		—	$	—
Non-vested as of December 31, 2016		358,919		$	38.27		192,310	$	34.45		151,575	$	43.54