Document:

EXHIBIT 10.16 –

	
Option Agreement between Mark
 Firstl, Gerdis Oil Company, Inc. and East Fork Biodiesel, LLC

OPTIONS BY EAST FORK BIODIESEL,
LLC 

TO
PURCHASE REAL ESTATE

          THIS OPTION
AGREEMENT (“Agreement’), made
and entered into effective as of May 3, 2006, by and between the undersigned
parties set forth under the “Optionor”
heading on the signature page hereof (collectively, hereinafter “Optionor” or “Seller”)
and East Fork Biodiesel, LLC, an Iowa limited liability company (hereinafter “Optionee” or “Buyer”).

          The
consideration paid and payable from Optionee to Optionor for these grants of the Options herein is
the sum of Five Thousand Dollars ($5,000.00), the payment of which shall be tendered
by Optionee upon execution hereof by Optionor. The consideration herein
shall only be refundable to Optionee in accordance with the terms and conditions in
Paragraph 1.9 of this Agreement. If Option 1 herein is exercised, the consideration herein
shall be credited against the purchase price paid at closing upon Option 1 also
in accordance with the terms and conditions in Paragraph 1.9 of this Agreement.

	
 

	

OPTION 1

WITNESSETH

          WHEREAS,
Optionor is the contract purchaser
of that certain real estate situated in Kossuth County, Iowa, legally described as:

	
 

	
 

	
 

	
          That
 part of the Northwest Fractional Quarter (NWfr1⁄4) of Section Five (5), Township
 Ninety-five (95) North, Range Twenty-eight (28), West of the 5th
 P.M., Kossuth County, Iowa, lying North of the Railroad right of way EXCEPT a tract as
 described by the Survey recorded in Book 8, Land Plats, Page 47 and also

	
 

	
          EXCEPT
 therefrom commencing at the point of intersection of the West line of said
 Section 5, and the South line of U.S. Highway 18;

	
 

	
          thence
 Easterly along the South line of said highway a distance of

	
 

	
          1,118
 feet to the point of beginning;

	
 

	
          thence
 South 500 feet;

	
 

	
          thence
 Easterly 725 feet;

	
 

	
          thence
 North 500 feet to the South line of said highway;

2

	
 

	
 

	
 

	
          thence
 Westerly along the South line of said Highway to the point of beginning, and EXCEPT
 public highway conveyed to the State of Iowa by deeds recorded in Book 91,
 Page 530 and Book 90, Page 576; and

          WHEREAS,
Optionee desires to acquire an
option to purchase a portion of the real estate from Optionor; and

          WHEREAS,
Optionor is willing to grant to
Optionee an option to purchase the South 40 net surveyed acres of the above
described real estate, with the survey to be prepared at Optionee’s
expense, (the “Property”), all on the terms and conditions herein contained.

          NOW,
THEREFORE, the parties hereto agree as
follows:

          1.1     Authority of Optionor; Grant
of Option. Optionor
hereby represents to Optionee that Optionor
is the contract purchaser of the Property and has absolute and full right and authority to execute and perform the
terms of this Agreement — subject to execution of the Consent herein by
the Contract Seller. In that regard, Optionor shall promptly (within ten (10)
days) after execution of this Agreement, deliver to Optionee evidence reasonably satisfactory to Optionee
showing Optionor’s ownership of the Property
and authority to execute and perform the terms of this Agreement including Optionor’s authority to convey to Optionee good
and marketable title to the Property as contemplated by this Agreement. Optionor hereby grants to Optionee the
exclusive right and option to purchase the Property and Optionor agrees to sell
the Property to Optionee upon the exercise of the option at any time
during the Option Period, as hereinafter set forth,
for a purchase price of Four Hundred Thirty-two Thousand Five Hundred Dollars ($432,500.00),
payable on the terms, in the amounts, and subject to the adjustments and to all the other conditions as set forth in
Paragraph 1.9 of this Agreement. 

          1.2     Option
Period. The term of the option to purchase granted hereunder shall
commence as of the date of this Agreement
and continue for 30 days thereafter. 

          1.3     Extension of Option
Period. The term of
the option to purchase granted hereunder shall be extended an additional 30 days upon
payment from Optionee to Optionor of One Thousand Dollars ($1,000.00), provided
the payment is made before the expiration of the initial 30 day option period under
Paragraph 1.2. The consideration herein shall only be refundable to Optionee in
accordance with the terms and conditions in Paragraph 1.9 of this Agreement. If the Option
herein be exercised, the consideration herein shall be credited against the purchase
price in accordance with the terms and conditions in Paragraph 1.9 of this Agreement.

3

          1.4     Exercise
of Option. To exercise this option as provided above, Optionee shall deliver to
Optionor written notice of Optionee’s intent to exercise the option specifying the “Closing
Date.” Optionor shall thereupon be obligated to convey marketable fee simple
title free and clear of all encumbrances except those items which Buyer agrees to in writing, in accordance
with the purchase and sale terms specified in Paragraph
1.9. The Closing Date shall be on or about August 1, 2006, but may be earlier if requested by Optionee. 

          1.5     Termination
of Option. If Optionee does not exercise the option as set forth herein within
the time and in the manner provided herein, this option to purchase shall expire, terminate and be
void. Upon termination Optionee shall have no other or further interest in the Property
and neither party shall have any liability or obligation to the other under this Agreement.

          1.6     Right
of Access. During the Option Period, Optionee’s engineers, surveyors, employees and agents
shall have the right, at Optionee’s sole cost and expense, to enter upon the Property, to
survey the same and to conduct soil tests, water quality, percolation and
related tests, drill test wells, conduct environmental tests and studies, and
engineering studies,
all as Optionee deems necessary, in Optionee’s sole judgment. Optionee shall defend, indemnify, and hold Optionor and the
Property harmless, including attorneys’ fees
and costs, from any and all liability, demands and claims (including, without limitation, claims by third parties resulting
therefrom), and from any and all mechanic’s and/or materialmen’s liens resulting from any and all activity of
Optionee and/or Optionee’s
engineers, surveyors, employees or agents thereon. 

          1.7     Farming. Optionor or
its
designee may plant all areas of the property for farming purposes at any time after the date
hereof. If Optionee exercises this Option and the transaction proceeds to closing, Optionor or
its designee shall be entitled to continue farming those portions of real estate for the
2006 crop year not needed by Optionee for its activities anywhere on the property. Optionee
will reimburse Optionor or its designee for all crops planted that are subsequently
destroyed beyond harvestibility by such activities of Optionee or its agents.
Reimbursement from Optionee to Optionor shall be at a rate of Two Hundred Dollars ($200.00) per
acre so destroyed. 

          1.8     Assignment.
Optionee may assign this
Option Agreement or Optionee’s right hereunder, in whole or in part, with or without the
consent of Optionor, if the transferee is a creditworthy, reputable person or entity, in
Optionee’s reasonable judgment. 

          1.9     Purchase
and Sale Terms and Conditions. If Optionee exercises this option as provided
above, Optionor (as Seller) and Optionee (as Buyer) will close on the 

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purchase
and sale of the Property on the Closing Date in accordance with the terms and conditions set forth in
this Paragraph 1.9 as follows:

                    (a)     The
purchase price for
the Property shall be a total of Four Hundred Thirty-two Thousand Five Hundred
Dollars ($432,500.00) payable at closing. Within fifteen (15) business days
after receiving the notice of the exercise of this option, Seller shall deliver
to Buyer an abstract of title to the Property which shall be updated and continued to the date of
delivery to Buyer for Buyer’s examination, which date shall not be earlier than fifteen
(15) days before the Closing Date. Buyer shall have ten (10) days after the
receipt of the last updated abstract of title to object to any title matters
upon its examination of the abstract of title and will notify Seller of the
same. Seller shall promptly correct all such title objections to the
satisfaction of Buyer and if such objections cannot be cured by the Closing
Date, Seller shall promptly notify Buyer of such fact whereby Buyer, in its
discretion, may extend the Closing Date to permit additional time for Seller to
continue to diligently and promptly cure such objections, or if Seller cannot or
refuses to cure such objections and make title marketable, Buyer may either terminate this
Agreement and receive a refund of the option payment and/or extension payment, or
close on the purchase and deduct the reasonable costs of curing such objections
from the purchase price at closing. All abstracting costs shall be paid for by the Seller. All
title examination costs shall be paid by Buyer. 

                    (b)     At
closing, Seller
shall convey by Warranty Deed(s), the Property to Buyer as directed, free and
clear of all liens, restrictions and encumbrances except for those items which Buyer
has specifically agreed to in writing. Possession of the Property shall be
delivered to Buyer at closing. 

                    (c)     At
closing, Seller shall
pay all real estate taxes prorated to date of possession. Seller shall pay all special
assessments which are levied or pending against the Property as of the Closing Date. Seller
represents to Buyer that it has received no notice from any governmental authority of any
public improvements to be constructed upon, or assessments which may be levied
against, the Property in the future. 

                    (d)     Seller
shall maintain
adequate insurance on the Property and shall bear all risk of loss until the
Closing Date.

                    (e)     Buyer
shall endeavor to
minimize disruption to the Property when performing Buyer’s inspections, testing and other
due diligence activities on the Property.

                    (f)     If
Buyer or Seller breaches this Agreement or otherwise fails to perform or
breaches the obligations to purchase or to sell the Property according to this Agreement
on the Closing Date, the aggrieved party shall be entitled to exercise any and

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all remedies at law or in equity including without
limitation commencing an action for damages and/or commencing a proceeding in
equity to obtain Buyer’s or Seller’s specific performance of this Agreement,
together with all costs and attorneys’ fees incurred by the aggrieved party in
connection thereof to the extent permitted by law.

                    (g)     Seller
represents and warrants to Buyer that the Property has not been used for
generating, transporting, storing, treating or disposing of “hazardous
substances” (as that term is defined under
applicable federal, state and local laws), that the Property has not been used
for disposal of waste or hazardous substances including agricultural chemicals
such as fertilizers, herbicides or pesticides, and that no underground storage
tanks are presently or have been located on the Property. Seller shall be
responsible for removing any such hazardous substances and agricultural
chemicals as its own cost prior to the
Closing Date. Seller further represents and warrants to Buyer that there exists
no judgment, lien, suit, action or legal, administrative, arbitration or
other proceeding which would effect the
Property or would prevent or limit the Seller from performing its obligations
under this Agreement.

                    (h)     At
closing, Seller shall pay for any transfer tax and revenue stamps necessary
to effect the transfer of the Property to the Buyer and Buyer will pay the cost
of any recording fees.

	
 

	

OPTION(S) 2

WITNESSETH

          WHEREAS,
Optionor is the owner of
that certain real estate situated in Kossuth County, Iowa, legally
described as:

          The
balance of:

	
 

	
 

	
 

	
 

	
 

	
          That
  part of the Northwest Fractional Quarter (NWfr1⁄4) of
  Section Five (5), Township
  Ninety-five (95) North, Range Twenty-eight (28), West of the 5th
  P.M., Kossuth County, Iowa, lying North of the Railroad right of way EXCEPT a tract as described by the Survey
  recorded in Book 8, Land Plats, Page
  47 and also

	
 

	
 

	
          EXCEPT
  therefrom commencing at the point of intersection of the West line of said Section 5, and the South line
  of U.S. Highway 18;

	
 

	
 

	
 

	
thence Easterly along the
  South line of said highway a distance of

	
 

	
 

	
 

	
1,118 feet to the point of
  beginning;

	
 

	
 

	
 

	
thence South 500 feet;

	
 

6

	
 

	
 

	
 

	
 

	
 

	
 

	
thence
  Easterly 725 feet;

	
 

	
 

	
 

	
thence
  North 500 feet to the South line of said highway;

	
 

	
 

	
 

	
thence
  Westerly along the South line of said Highway to the point of

	
 

	
 

	
beginning,
  and EXCEPT public highway conveyed to the State of Iowa by deeds recorded in Book 91, Page 530 and Book 90,
  Page 576.

	
 

          Not
previously sold to Optionee under Option 1 (the “Property); and

          WHEREAS,
Optionee
desires to acquire options to purchase the Property or multiple portions
thereof in ten (10) acre minimum parcels from the Optionor; and

          WHEREAS,
Optionor
is willing to grant to Optionee options to purchase the Property
or multiple portions thereof in ten (10) acre minimum parcels, all on the terms
and conditions herein contained.

          NOW,
THEREFORE, the
parties hereto agree as follows:

          2.1     Authority of Optionor; Grant
of
Option. Optionor hereby represents to Optionee that Optionor is the contract purchaser
of the Property and has absolute and full right and authority to execute and perform the terms of this Agreement —
subject to execution of the Consent
herein by Contract Seller. In that regard, Optionor shall promptly
(within ten (10) days) after execution of this Agreement, deliver to Optionee evidence reasonably satisfactory to Optionee showing
Optionor’s ownership of the Property and authority to execute and
perform the terms of this Agreement including Optionor’s
authority to convey to Optionee good and marketable title to the Property as contemplated
by this Agreement. Optionor hereby grants to Optionee the exclusive right and
options to purchase the Property and Optionor agrees to sell the Property to
Optionee upon the exercise of the options
at any time during the Option(s) Period, as hereinafter set forth, for a purchase price of Twelve Thousand Five
Hundred Dollars ($12,500.00) per net
surveyed acre with the exact number of acres to be determined by Survey
prepared at Optionee’s expense, payable on the terms, in the amounts,
and subject to the adjustments and to all the other conditions as set forth in
Paragraph 2.8 of this Agreement.

          2.2     Option(s)
Period. The term of the options to purchase granted hereunder shall commence as of the
date of this Agreement and continue for five (5) years thereafter.

          2.3     Exercise
of Option. To exercise this option as provided above, Optionee shall deliver to
Optionor written notice of Optionee’s intent to exercise the option specifying the “Closing
Date.” Optionor shall thereupon be obligated to convey 

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marketable fee simple title free and clear of all
encumbrances except those items which Buyer
agrees to in writing, in accordance with the purchase and sale terms specified
in Paragraph 2.8. The Closing Date
shall be no later than forty-five (45) days after the notice of exercise
of the Option, but may be earlier if requested by Optionee.

          2.4     Termination of
Option. If
Optionee does not exercise the options as set forth herein within the
time and in the manner provided herein, these options to purchase shall expire, terminate and be void. Upon
termination Optionee shall have no other or further interest in the Property and neither party shall have any
liability or obligation to the other
under this Agreement.

          2.5
     Right of Access.
During the Option(s) Period, Optionee’s engineers, surveyors, employees and agents shall have the
right, at Optionee’s sole cost and expense,
to enter upon the Property, to survey the same and to conduct soil tests, water
quality, percolation and related
tests, drill test wells, conduct environmental tests and studies, and engineering studies, all as Optionee
deems necessary, in Optionee’s sole judgment.
Optionee shall defend, indemnify, and hold Optionor and the Property harmless, including attorneys’ fees and costs,
from any and all liability, demands and claims (including, without
limitation, claims by third parties resulting therefrom), and from any and all mechanic’s and/or materialmen’s
liens resulting from any and all activity
of Optionee and/or Optionee’s engineers, surveyors, employees or agents thereon.

          2.6     Farming. Optionor
or its designee may plant all areas of the property for farming purposes at any
time after the date hereof. If Optionee exercises these Options and the transaction proceeds to closing, Optionor
or its designee shall be entitled to continue
farming those portions of the property real estate in the crop year in which
the exercise is made for those acres
of property not needed by Optionee for its activities, anywhere on the property. Optionee will reimburse
Optionor or its designee for all crops planted
that are subsequently destroyed beyond harvestibility by such activities of Optionee or its agents. Reimbursement from
Optionee to Optionor shall be at a rate of Two Hundred Dollars ($200.00)
per acre so destroyed.

          2.7     Assignment. Optionee
may assign this Option Agreement or Optionee’s right hereunder, in whole or in part, with or without the consent of
Optionor, if the transferee is a
creditworthy, reputable person or entity, in Optionee’s reasonable judgment.

          2.8     Purchase and Sale Terms and
Conditions.  If Optionee exercises these options as
provided above, Optionor (as Seller) and Optionee (as Buyer) will close on the

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purchase and sale of the Property
on the Closing Date in accordance with the terms and conditions set
forth in this Paragraph 2.8 as follows:

                    
(a)     The
purchase price for the Property shall be a total of Twelve Thousand Five
Hundred Dollars ($12,500.00) per net surveyed acre with the exact number of
acres to be determined by Survey prepared
at Optionee’s expense all payable at closing. Buyer shall expand its existing
abstract at its own cost to cover the property being purchased from
Seller. Buyer shall object to any title matters upon its examination of the
abstract of title and will notify Seller of
the same. Seller shall promptly correct all such title objections to the
satisfaction of Buyer and if such objections cannot be cured by the Closing
Date, Seller shall promptly notify Buyer of such fact whereby Buyer, in its
discretion, may extend the Closing Date to permit additional time for Seller to
continue to diligently and promptly cure
such objections, or if Seller cannot or refuses to cure such objections
and make title marketable, Buyer may terminate this Agreement, or close on the
purchase and deduct the reasonable costs of curing such objections from the
purchase price at closing. All title
examination costs shall be paid by Buyer.

                    
(b)     At closing, Seller shall convey by Warranty
Deed(s), the Property to Buyer as directed, free and clear of all liens,
restrictions and encumbrances except for those items which Buyer has
specifically agreed to in writing. Possession of the Property shall be delivered
to Buyer at closing.

                     (c)
     At closing, Seller shall pay all real estate
taxes prorated to date of possession. Seller shall pay all special
assessments which are levied or pending against the Property as of the Closing Date. Seller represents to Buyer that it
has received no notice from any governmental authority of any public
improvements to be constructed upon, or assessments which may be levied
against, the Property in the future.

                     (d)
     Seller shall maintain adequate insurance
on the Property and shall bear all risk of loss until the Closing Date.

                    
(e)     Buyer
shall endeavor to minimize disruption to the Property when performing
Buyer’s inspections, testing and other due diligence activities on the
Property.

                     (f)
     If Buyer or Seller breaches this Agreement
or otherwise fails to perform or breaches the obligations to purchase or to
sell the Property according to this Agreement on the Closing Date, the
aggrieved party shall be entitled to exercise any and all remedies at law or in
equity including without limitation commencing an action for damages and/or
commencing a proceeding in equity to obtain Buyer’s or Seller’s specific
performance of this Agreement, together with all costs and attorneys’ fees
incurred by the aggrieved party in connection thereof to the extent permitted
by law.

9

                    (g)     Seller
represents and warrants to Buyer that the Property has not been used for generating, transporting, storing,
treating or disposing of “hazardous substances” (as that term is defined
under applicable federal, state and local laws), that the Property has not been used for disposal of waste or
hazardous substances including agricultural chemicals such as
fertilizers, herbicides or pesticides, and that no underground storage tanks
are presently or have been located on the Property. Seller shall be responsible
for removing any such hazardous substances
and agricultural chemicals as its own cost prior to the Closing Date.
Seller further represents and warrants to Buyer that there exists no judgment, lien, suit, action or legal, administrative,
arbitration or other proceeding which would effect the Property or would
prevent or limit the Seller from performing its obligations under this Agreement.

                    (h)     At
closing, Seller shall pay for any transfer tax and revenue stamps necessary to effect the transfer of the Property
to the Buyer and Buyer will pay the cost of any recording fees.

	
 

	

GENERAL PROVISIONS APPLICABLE

TO OPTION 1 AND OPTION(S) 2

          3.1    
 Notices. Wherever in this Option Agreement it shall be required or permitted that notice or demand be given or
served by either party, such notice or demand shall be given or served,
and shall not be deemed to have been duly given or served, unless in writing and forwarded by certified mail,
postage prepaid, return receipt requested,
addressed as follows: 

	
 

	
 

	
 

	
 

	
To Optionor: 

	
Mark Ferstl 

	
 

	
 

	
1500 East McGregor 

	
 

	
 

	
Algona, IA 50511

	
 

	
 

	
 

	
 

	
 

	
and

	
 

	
 

	
 

	
 

	
 

	
Thomas W. Lipps 

	
 

	
 

	
6 East State Street

	
 

	
 

	
P.O. Box 575 

	
 

	
 

	
Algona, IA 50511

	
 

	
 

	
 

	
 

	
To Optionee: 

	
East Fork Biodiesel, LLC 

	
 

	
 

	
c/o Kenneth M. Clark, Manager. 

	
 

	
 

	
P.O. Box 21 

	
 

	
 

	
Algona, IA 50511

	
 

	
 

	
 

	
 

	
 

	
and

	
 

	
 

	
 

	
 

	
 

	
Michael E. Gabor

	
 

	
 

	
Buchanan, Bibler, Buchanan
  & Gabor

	
 

	
 

	
111 North Dodge Street

	
 

	
 

	
P.O. Box 617

	
 

	
 

	
Algona, IA 50511

10

Notice shall be effective three
(3) days after the date of mailing, if mailed. Such addresses may be changed from time to time by
either party serving written notice as above
provided.

          3.2     Like-Kind Exchange.
It may be the
intention of the Optionor to dispose of the property(ies) as part of a
tax-deferred exchange, as defined in Internal Revenue Code Section 1031. The Optionee agrees to cooperate
with Optionor and any qualified intermediary
by executing any documentation reasonably necessary to affect said exchange. In doing so, Optionee shall bear no
additional cost nor liability as a result of the Optionor’s intent to
exchange this property. Performance under said Option is not conditioned on the
Optionee’s ability to affect said exchange.

          3.3     Miscellaneous. This
Agreement shall be binding upon and inure to the benefit of the respective heirs, executors, personal representatives,
successors and assigns of the parties
hereto. Time is of the essence in the performance of this Agreement. This
Agreement contains the entire agreement and understandings of the parties
hereto. This Agreement may not be modified or amended except in a
writing signed by the Seller and the Buyer.
Each party agrees to pay their own legal fees and other fees incurred in connection
with the negotiation, execution and performance of this Agreement except as otherwise required in the event of a breach. Upon
request each party will execute a recordable
memorandum of this Agreement and agrees such memorandum may be duly recorded. This Agreement may be executed in one
or more counterparts, each of which is
an original and all of which together shall constitute one and the same
instrument.

          3.3     Survival of Provisions.
Any provision
herein not obviated by the delivery of
any Deed through the Doctrine of Merger or operation of law shall survive the
closing of any transaction herein
contemplated.

	
 

	

CONTRACT SELLER’S CONSENT TO OPTIONS

AND AGREEMENT TO SATISFY UNDERLYING
CONTRACT

          In
consideration of Five Thousand Dollars ($5,000.00) in hand paid from Optionee, Gerdis Oil Company, Inc., by Donald D.
Gerdis, President, does hereby consent
to the foregoing Options and agrees to permit satisfaction or partial
satisfaction

11

of the original Contract (Book
264, L.M., Page 182) as amended (Document No. 2006-1378) by Deed(s) upon
closings of said Options. At the closing of Option 1,. only, Contract Seller shall be entitled to an additional
one-time satisfaction payment of Ten Thousand Dollars ($10,000.00). Thereafter,
upon the closing of any successive Option, Contract Seller shall not be entitled to any further consideration for
the Deeds in additional satisfaction
or partial satisfaction of the Contract.

As to the closing of the
transactions upon said Options, only, this Consent shall specifically supercede the prepayment provisions
of Paragraph 3 of the Contract Amendment.

	
 

	

          
IN WITNESS WHEREOF, the parties hereto have executed
this Option Agreement as of the day
and year first above written and Optionor and Contract Seller agree to take
such additional steps and actions including execution of such instruments and other documents as are reasonably necessary to
effectuate the intentions of the parties.

	
 

	
 

	
 

	
OPTIONEE:

	
 

	
 

	
 

	
EAST FORK BIODIESEL, LLC

	
 

	
 

	
 

	
By:

	

	
 

	
 

	

	
 

	
 

	
Kenneth M. Clark, Manager

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
OPTIONOR: 

	
 

	

	
 

	

	
 

	
Mark Ferstl

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
CONTRACT SELLER:

	
 

	
 

	
 

	
 

	
GERDIS OIL COMPANY, INC.

	
 

	
 

	
 

	
 

	
By:

	

	
 

	
 

	

	
 

	
 

	
Donald D. Gerdis, President

	
 

12

	
 

	
 

	
STATE OF
  IOWA

	
)

	
 

	
) ss:

	
COUNTY OF
  KOSSUTH

	
)

          On this 4th
day of May, 2006, before me, a Notary Public in and for said county and
state, personally appeared Kenneth M. Clark, to me personally know, who being
by me duly sworn or affirmed did say that he is Manager of said Limited
Liability Company, that said instrument was signed on behalf of the said
Limited Liability Company by authority of its members and the said Manager
acknowledged the execution of said instrument to be the voluntary act and deed of
said Limited Liability Company by it voluntarily executed.

	
 

	
 

	
 

	

	
 

	

	
 

	

	
 

	
Notary
  Public in and for said County and State

	
 

	
 

	
STATE OF
  IOWA

	
)

	
 

	
) ss:

	
COUNTY OF
  KOSSUTH

	
)

          On
this 3 day of May,
2006, before me, the undersigned, a Notary Public in and for said County and
State, personally appeared Mark Ferstl, a single person, to me known to be the
identical person named in and who executed the foregoing instrument, and
acknowledged that he executed the same as his voluntary act and deed.

	
 

	
 

	
 

	

	
 

	

	
 

	

	
 

	
Notary
  Public in and for said County and State.

	
 

	
 

	
STATE OF
  IOWA

	
)

	
 

	
) ss:

	
COUNTY OF
  KOSSUTH

	
)

          On
this 3 day of May,
2006, before me, the undersigned, a Notary Public in and for the State of Iowa,
personally appeared Donald D. Gerdis, to me personally known, who, being by me
duly sworn, did say that he is the President of said corporation executing the
within and foregoing instrument, and that the said Donald D. Gerdis, as such
officer acknowledged the execution of said instrument to be the voluntary act
and deed of said corporation, by it and by him voluntarily executed.

	
 

	
 

	
 

	
 

	
 

	

	
 

	
 

	

	
 

	
 

	
Notary
  Public in and for said County and State.

	
 

	
 

	
 

	

	
 

	
 

13Deferred Equity Participation Plan

 Exhibit 10.16.1 
 ARTHUR J. GALLAGHER & CO. 
 DEFERRED EQUITY PARTICIPATION PLAN 
 (as amended and restated, effective January 1, 2008) 
 The purpose of this Deferred Equity Participation Plan (the “Plan”) is to provide a facility through which Arthur J. Gallagher & Co. (“AJG”), on behalf of its subsidiaries and affiliates (collectively referred
to as the “Company”), can encourage key executives to stay with the Company until at least the normal retirement date of age 62. The retention of key executives will promote the interests of the Company and its shareholders by providing
continuity of management and leadership, and capitalizing on the investment in training and experience the Company has made in its key executives over the years. The Plan shall be deemed a subplan under the Arthur J. Gallagher & Co.
Restricted Stock Plan (the “Restricted Stock Plan”) solely for the purpose of granting restricted stock units to such key executives. 
 1.
Trust and Trust Funding. The Company has formed The Arthur J. Gallagher & Co. Deferred Equity Trust (the “Trust”), pursuant to the trust agreement dated March 22, 2001, as amended. Between March 15 and
June 15 of each calendar year, the Company will contribute to the Trust either (i) shares of AJG common stock, par value $1.00 per share (“Common Stock”), or (ii) effective March 15, 2007, cash contributions, in either
case in an amount approved by the Compensation Committee (the “Committee”) of the AJG Board of Directors (the “Annual Funding”). 
 To
the extent the Company contributes shares of Common Stock to the Trust, the Trust shall reinvest dividends on an annual basis in AJG Common Stock. To the extent the Company contributes cash to the Trust, the Trust shall invest such cash in such
investments as the Company shall determine from time to time. The AJG Common Stock acquired by the Trust in a given year, or from the reinvestment of dividends from AJG Common Stock originally acquired in that year, and the cash contributions and
all earnings or losses with respect to such contributions shall be referred to as “Trust Assets.” The trustees of the Trust shall have and may exercise all rights of ownership, including voting control, of the Trust Assets prior to
distribution. 
 2. Participant Accounts. The Company shall maintain for the benefit of each executive who participates in the Plan (a
“Participant”) an unfunded, bookkeeping account (an “Account”). On or before June 15 of each year, the Chief Executive Officer of AJG, in conjunction with the Compensation Committee, will approve a list of the key executives
whose Accounts will be credited with an amount equal to an interest in the Trust Assets acquired with the Annual Funding from that year. The list shall set out a percentage for each Participant that represents that Participant’s interest in the
Trust Assets for that year, and an amount equal to such percentage of the Trust Assets shall be credited to such Participant’s Account. To the extent a Participant’s Account is deemed invested in shares of Common Stock, such Account shall
be credited with such number of additional shares of Common Stock as would be acquired by the 

 
reinvestment of each cash dividend payable on the number of shares that are credited to such Account immediately prior to the payment of such dividend. To
the extent a Participant’s Account is deemed invested in cash contributions, earnings and losses shall be credited to the balance of such Account at a rate determined by the Company from time to time; provided that the Company may, in its sole
discretion, provide for such earnings and losses to be measured by reference to investment funds designated by Participants from time to time, in accordance with rules and procedures established by the Company. Receiving an allocation under the Plan
in any year does not in any way entitle the Participant to receive an allocation in any future year. 
 3. Vesting. A Participant shall become vested
in his Account upon the earliest to occur of (i) the date on which the Participant attains age 62, (ii) the Participant’s death, (iii) a termination of the Participant’s employment by the Company because of Disability, as
defined below, (iv) a termination of the Participant’s employment by the Company in a manner that entitles the Participant to receive a severance benefit pursuant to AJG’s Severance Plan, as then in effect, or (v) a Change in
Control, as defined below; provided, in each case, that such Participant remains employed by the Company from the date he received the allocation to his Account until the date on which such Account becomes vested (the “Vesting Date”). For
purposes of the Plan, (A) “Disability” shall mean the termination of the Participant’s employment relationship at a time when the Participant is disabled and qualifies to receive benefits under the Company’s long-term
disability plan, and (B) “Change in Control” shall have the meaning ascribed to it in the Restricted Stock Plan or any successor thereto. 
 4. Distributions. The amount allocated to a Participant’s Account under the Plan shall be distributed or commence to be distributed at one of the following times occurring on or after the Vesting Date as the Participant shall
elect (the “Distribution Date”): (i) the Participant’s Vesting Date, (ii) the six-month anniversary of the date on which such Participant separates from service with the Company after the Vesting Date or (iii) the first
day of any calendar year beginning after the year in which the Participant attains age 62 but not later than the calendar year in which the Participant attains age 70. If the Participant receives an allocation to his Account at any time after his
Distribution Date, such allocation shall be paid or begin to be paid as of the date on which such allocation is awarded, as though such date were the Distribution Date. The Participant may elect to receive a distribution of his Account in the form
of (A) a lump sum payment, (B) in ten equal annual installment payments commencing on the Distribution Date, and due on the next nine anniversaries of the Distribution Date or (C) in five equal annual installment payments commencing
on the Distribution Date, and due on the next four anniversaries of the Distribution Date. The distribution elections for each Participant’s Account shall be made on such forms and subject to such other terms and conditions not inconsistent
with this Plan as are required by the Committee, and shall be submitted within 30 days after the Participant first receives an award under the Plan; provided, however, that (1) any Participant who fails to make such elections within such period
and any Participant whose Vesting Date occurs less than 12 months after the date on which such elections are submitted to the Company shall be deemed to have elected to receive a lump sum payment on the six-month anniversary of the date on which
such Participant separates from service with the Company and (2) each person who is a Participant in the Plan as of December 31, 2008 may make such distribution elections on or before December 31, 2008 in accordance with, and to the
extent permitted by, the transition rule set forth in IRS Notice 2005-1 and regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). 
  

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 A Participant may change his or her prior distribution election at any time, and from time to time; provided,
however, that (i) no such election change shall become effective until the first anniversary of the date on which such election change is submitted to the Company on a form prescribed by the Company, (ii) no such election change
shall be effective if the Participant is previously scheduled to receive distributions under the Plan within one year following the date on which such election change is submitted to the Company and (iii) such election change provides for a
Distribution Date that is at least five years later than the previous Distribution Date, in accordance with Section 409A of the Code, but in no event later than the calendar year in which the Participant attains age 70. In the event an election
change does not become effective, the prior valid election of such Participant shall govern the form and timing of distribution. 
 If a Participant dies
before such Participant’s distribution has begun or has been paid in full, any unpaid portion of such Participant’s vested Account under the Plan shall be paid in a lump sum, as soon as practicable after the date of such Participant’s
death, to the beneficiary designated by the Participant, or if no beneficiary has been designated, to the Participant’s estate. 
 The portion of each
Account, if any, that is deemed invested in shares of Common Stock shall be distributed in shares of unrestricted Common Stock and all other distributions under the Plan shall be paid in cash. 
 5. Forfeitures. In the event a Participant’s employment with the Company terminates prior to such Participant’s Vesting Date, then the
Participant’s Account under the Plan shall be forfeited. In the event a Participant violates the provisions of Section 6 herein below prior to the Participant’s Distribution Date or the date(s) any payment are due after a
Participant’s Distribution Date, then the unpaid portion of the Participant’s Account under the Plan shall be forfeited. Forfeited Trust Assets shall be returned to the Company, and not subject to claim by any Participant. 
 6. Restrictive Covenants; Clawback. (a)(i) If, at any time within (A) ten years after the Vesting Date; or (B) two years after the final payment
of any installment due to the Participant after the Distribution Date, whichever is the latest, the Participant, in the determination of the management of the Company, engages in any activity in competition with any activity of the Company, or
inimical, contrary or harmful to the interests of the Company, including, but not limited to: (1) conduct related to his employment for which either criminal or civil penalties against him may be sought, (2) violation of Company policies,
including, without limitation, the Company’s Insider Trading Policy, (3) directly or indirectly, soliciting, placing, accepting, aiding, counseling or consulting in the renewal, discontinuance or replacement of any insurance or reinsurance
by, or handling self-insurance programs, insurance claims or other insurance administrative functions (“insurance services”) for, any existing Company account or any actively solicited prospective account of the Company for which he
performed any of the foregoing functions during the two-year period immediately preceding such termination or providing any employee benefit brokerage, consulting, or administration services, in the areas of 

  

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group insurance, defined benefit and defined contribution pension plans, individual life, disability and capital accumulation products, investment advisory
services and all other employee benefit areas (“benefit services”) the Company is involved with, for any existing Company account or any actively solicited prospective account of the Company for which he performed any of the foregoing
functions during the two-year period immediately preceding such termination or, if the Participant has not terminated employment, the date of the prohibited activity (the term Company account as used in this Section shall be construed broadly to
include all users of insurance services or benefit services including commercial and individual consumers, risk managers, carriers, agents and other insurance intermediaries), (4) the rendering of services for any organization which is
competitive with the Company, (5) employing or recruiting any current or former employee of the Company, (6) disclosing or misusing any confidential information or material concerning the Company, or (7) participating in a hostile
takeover attempt of the Company, then the Participant’s Account shall be forfeited effective as of the date on which the Participant enters into such activity, unless terminated sooner by operation of another term or condition of this Plan, and
any payments made from a Participant’s Account to such Participant from and after the Distribution Date shall be repaid by the Participant to the Company. Such repayment shall include interest measured from the first date the Participant
engaged in any of the prohibited activities set forth above at the highest rate allowable under Delaware law. 
 (ii) By participating in the Plan, each
Participant acknowledges that the Participant’s engaging in activities and behavior in violation of Section 6(a)(i) above will result in a loss to the Company which cannot reasonably or adequately be compensated in damages in an action at
law, that a breach of Section 6(a)(i) will result in irreparable and continuing harm to the Company and that therefore, in addition to and cumulative with any other remedy which the Company may have at law or in equity, the Company shall be
entitled to injunctive relief for a breach of Section 6(a)(i) by the Participant. By participating in the Plan each Participant acknowledges and agrees that the requirement in Section 6(a)(i) above that Participant disgorge and pay over to
the Company any payments received from the Participant’s Account by such Participant is not a provision for liquidated damages. The Participant agrees to pay any and all costs and expenses, including reasonable attorneys’ fees, incurred by
the Company in enforcing any breach of any covenant in this Plan. 
 (b) By participating in the Plan, each Participant consents to deductions from any
amounts the Company owes the Participant from time to time (including amounts owed as wages or other compensation, fringe benefits or vacation pay, as well as any other amounts owed to the Participant by the Company) to the extent of the amounts the
Participant owes the Company under Section 6(a) above. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount owed, calculated as set forth above, the
Participant agrees to pay immediately the unpaid balance to the Company. 
 7. Adjustment of Shares. The number of shares of Common Stock allocated to
each Participant’s Account shall be appropriately adjusted, in the sole discretion of the Board, to reflect any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation,
spin-off or other similar change in capitalization or event, and the reinvestment of cash dividends. 
  

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 8. Termination or Amendment of the Plan. AJG reserves the right to amend or terminate the Plan at any time or for
any reason, or suspend the Plan for any given calendar year by action of the Chief Executive Officer of AJG. Upon a termination or suspension of the Plan, the Participant’s Account shall be payable in accordance with the Participant’s
payment election and the terms of this Plan; provided, however, that if the Plan is terminated in connection with a change in control event, within the meaning of Section 409A of the Code and the regulations promulgated thereunder, the Board of
Directors of the Company, as constituted immediately prior to such change in control event, may elect to distribute each Participant’s Account within 12 months after the consummation of such change in control event, to the extent permitted
under Section 409A of the Code. 
 9. Compliance with Section 409A. It is intended that any amounts payable under this Plan will comply with
Section 409A of the Code, and the regulations promulgated thereunder, so as not to subject any Participant to the payment of any interest and tax penalty which may be imposed under Section 409A of the Code, and the Plan shall be
interpreted accordingly, provided, however, that the Company shall not be responsible for any such interest and tax penalties. The timing of the payments or benefits hereunder may be modified to so comply with Section 409A of the Code. To the
extent any Participant is entitled to receive a payment under the Plan upon such Participant’s separation from service, such payment shall be made on the date that is six months after the date of such separation from service. 
 10. Consent to Transfer Personal Data. By participating in this Plan, Participant voluntarily acknowledges and consents to the collection, use, processing and
transfer of personal data as described in this Section. Participants are not obliged to consent to such collection, use, processing and transfer of personal data. However, failure to provide the consent may affect the Participant’s ability to
participate in the Plan. The Company holds certain personal information about the Participant, that may include his/her name, home address and telephone number, date of birth, social security number or other employee identification number, salary
grade, hire data, salary, nationality, job title, any shares of stock held in the Company, or details of all awards under the Plan, for the purpose of managing and administering the Plan (“Data”). The Company will transfer Data amongst
themselves as necessary for the purpose of implementation, administration and management of Participant’s participation in the Plan, and the Company may each further transfer Data to any third parties assisting the Company in the
implementation, administration and management of the Plan. These recipients may be located throughout the world, including the United States. Each Participant authorizes them to receive, possess, use, retain and transfer the Data, in electronic or
other form, for the purposes of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan and/or the subsequent
holding of shares of stock on the Participant’s behalf to a broker or other third party with whom the Participant may elect to deposit any shares of stock acquired pursuant to the Plan. A Participant may, at any time, review Data, require any
necessary amendments to it or withdraw the consents herein in writing by contacting the Company; however, withdrawing consent may affect the Participant’s ability to participate in the Plan. 
  

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 11. Administration. This Plan shall be administered by the Committee. The Committee shall, subject to the terms of
this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to any
award. All such interpretations, rules, regulations and conditions shall be final, binding and conclusive. Subject to applicable law, the Committee may delegate some or all of its power and authority hereunder to the Board or the Chief Executive
Officer or other executive officer of the Company as the Committee deems appropriate; provided, however, that the Committee may not delegate its power and authority to the Chief Executive Officer or other executive officer of the Company with regard
to the selection for participation in this Plan of an officer or other person subject to Section 16 of the Exchange Act or decisions concerning the timing or amount of an award to such an officer or other person. No member of the Board or
Committee, and neither the Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in
connection with this Plan in good faith, and the members of the Board and the Committee and the Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss,
damage or expense (including attorneys’ fees) arising therefrom to the full extent permitted by law, except as otherwise may be provided in the Company’s Certificate of Incorporation and/or By-laws, and under any directors’ and
officers’ liability insurance that may be in effect from time to time. 
 12. Non-Transferability of Accounts. No Account shall be transferable
other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the preceding sentence, no Account may be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose
of any such Account, such Account and all rights thereunder shall immediately become null and void. 
 13. Tax Withholding. The Company shall have the
right to withhold or require payment by each Participant of any Federal, state, local or other taxes which may be required to be withheld or paid in connection with the vesting or distribution of such Participant’s Account. 
 14. Restrictions on Shares. Each award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a
condition of, or in connection with, the delivery of shares pursuant to an award granted under this Plan, no shares shall be so delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to the Plan bear a legend indicating that the sale, transfer or other disposition thereof
by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder. 
  

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 15. No Right of Participation or Employment. No person shall have any right to participate in this Plan. Neither
this Plan nor any award made hereunder shall confer upon any person any right to continued employment by the Company or affect in any manner the right of the Company to terminate the employment of any person at any time without liability hereunder.

 16. Rights as Stockholder. No person shall have any right as a stockholder of the Company with respect to any shares of Common Stock or other
equity security of the Company which is subject to this Plan unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security. 
 17. Designation of Beneficiary. If permitted by the Company, a Participant may file with the Company a written designation of one or more persons as such Participant’s beneficiary or beneficiaries (both
primary and contingent) in the event of the Participant’s death. Each beneficiary designation shall become effective only when filed in writing with the Company during the Participant’s lifetime on a form prescribed by the Company. The
spouse of a married Participant domiciled in a community property jurisdiction shall join in any designation of a beneficiary other than such spouse. The filing with the Company of a new beneficiary designation shall cancel all previously filed
beneficiary designations. 
 18. Governing Law. This Plan and all determinations made and actions taken pursuant thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 
 19. Foreign Employees. Without amending this Plan, the Chief Executive Officer of AJG and the Committee may grant awards to eligible persons who are foreign
nationals on such terms and conditions different from those specified in this Plan as may in their judgment be necessary or desirable to foster and promote achievement of the purposes of this Plan and, in furtherance of such purposes the Chief
Executive Officer and the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Company operates or
has employees. 
  

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