Tianli Agritech (NASDAQ:OINK)

"Certain shareholders of our company [Tianli Agritech Inc], Hanying Li and Bihong Zhang, have agreed to place, on a prorated basis, that number of beneficially owned common shares into escrow that is equal to 50% of the maximum number of shares to be sold in this offering .  To the extent our audited after-tax earnings per share for the year ending December 31, 2010 are less than $0.7407, our company will redeem and cancel to the extent necessary to cause our audited after-tax earnings per share to be equal to $0.7407:"

Source: SEC Filing

^a Tianli Agritech Inc. is paying no taxes.  The GeoTeam® applies a 25% and 36% tax rate for Chinese and United States companies respectively.

This is the first Make-Good agreement that we have come by that ensures the attainment of an EPS target by canceling escrow shares necessary to attain a target. In most cases the escrow shares transfer to investors of an IPO or merger transaction if a target is not met.

We view this as very shareholder friendly move and one we hope more firms will follow.  We are also impressed by the following statement Tianli made in the filing:

"We believe the Make-Good Escrow arrangement benefits the shareholders of our company (other than those who may forfeit shares without consideration) because it is designed to increase the likelihood that our company will achieve the after-tax earnings per share upon which our valuation is based. To the extent Make-Good Shares are redeemed without cost, the after-tax per-share earnings will increase for all remaining outstanding shares."

We will track this story.