8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 23, 2008

BPI Energy Holdings, Inc.

(Exact Name of Registrant as Specified in Charter)

British Columbia, Canada	001-32695	75-3183021
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

30775 Bainbridge Road, Suite 280, Solon, Ohio	44139
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (440) 248-4200

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-10.1

Item 1.01 Entry into a Material Definitive Agreement.

On September 23, 2008, BPI Energy, Inc. (“BPI Energy”), a wholly owned subsidiary of BPI Energy Holdings, Inc. (“BPI Holdings”), entered into a letter agreement with GasRock Capital LLC (“GasRock”), pursuant to which GasRock has agreed to forbear exercising its rights with respect to covenants under the Advancing Term Credit Agreement between BPI Energy and GasRock, dated as of July 27, 2007 and as amended (the “GasRock Credit Agreement”), that GasRock has claimed BPI Energy has breached and the potential breach by BPI Energy of certain other covenants in the near future due to BPI Energy’s current financial circumstances. GasRock’s forbearance with respect to these alleged covenant violations and potential covenant violations extends until January 30, 2009; provided that the forbearance will extend until March 31, 2009 if there are no additional breaches by BPI Energy and prior to January 30, 2009 a binding agreement that is acceptable to GasRock is entered into by BPI Energy that involves the repayment by BPI Energy of all obligations outstanding under the GasRock Credit Agreement.

GasRock informed BPI Energy that it believes BPI Energy is in breach of four covenants under the GasRock Credit Agreement. BPI Energy has not been in compliance with the covenant that requires it to maintain its current assets above its current liabilities, and BPI Energy has not paid all of its trade creditors within the time periods required by the GasRock Credit Agreement. GasRock has also taken the position that BPI Energy failed to replace James E. Craddock, the former Chief Operating Officer of BPI Holdings, with a person acceptable to GasRock when Mr. Craddock resigned on March 31, 2008, and contends that BPI Energy has not used loan proceeds only for purposes approved by GasRock.

In return for this forbearance, GasRock required that BPI Energy provide it with a security interest in the lease agreements executed by BPI Energy with Western Fuels of Illinois, Inc. on June 18, 2008 and that BPI Energy pay GasRock a forbearance fee of $200,000, which was added to the principal amount outstanding under the GasRock Credit Agreement. GasRock also required that BPI Energy agree to apply any settlement or other proceeds received by BPI Energy in its ongoing litigation with affiliates of the Drummond Coal Co. to the obligations outstanding under the GasRock Credit Agreement, after the payment by BPI Energy of any outstanding legal fees. This obligation expires if the GasRock Credit Agreement is paid in full.

As part of the letter agreement, GasRock has also agreed to reduce until January 30, 2009 the portion of BPI Energy’s interest payment obligation that must be paid by BPI Energy in cash to a rate of 4.0% of the outstanding principal amount. The current interest rate under the GasRock Credit Agreement is 15.0%. The portion of BPI Energy’s interest payment obligation that is not paid in cash will be added to the principal amount outstanding under the GasRock Credit Agreement.

As of September 23, 2008, the aggregate amount outstanding under the GasRock Credit Agreement is approximately $12.4 million (including the $200,000 forbearance fee). This entire indebtedness is due and payable on January 30, 2009; provided that the due date will be extended to March 31, 2009 if there are no additional breaches by BPI Energy and prior to January 30, 2009 a binding agreement that is acceptable to GasRock is entered into by BPI Energy that involves the repayment by BPI Energy of all obligations outstanding under the GasRock Credit Agreement. All advances under the GasRock Credit Agreement beyond the initial draws made to BPI Energy are at the sole discretion of GasRock.

This summary is qualified by reference to the full letter agreement with GasRock, a copy of which is filed as an exhibit to this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

10.1 Forbearance Letter Agreement, dated as of September 23, 2008, by and between BPI Energy, Inc. and GasRock Capital LLC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

BPI Energy Holdings, Inc.
By:	/s/ James G. Azlein
	James G. Azlein
	Chief Executive Officer and President

Date: September 26, 2008

EXHIBIT INDEX

Exhibit No.	Description
10.1	Forbearance Letter Agreement, dated as of September 23, 2008, by and between BPI Energy, Inc. and GasRock Capital LLC.

EX-10.1

Exhibit 10.1

[Letterhead of GasRock Capital LLC]

September 23, 2008

Via Overnight Delivery

BPI Energy, Inc.
Attn: James G. Azlein, President
30775 Bainbridge Road, Suite 280
Solon, Ohio 44139

Re: Advancing Term Credit Agreement dated as of July 27, 2007 (as amended by the First Amendment dated November 29, 2007, and as further amended from time to time, the “Credit Agreement”), among BPI Energy, Inc., as borrower (“Borrower”), and GasRock Capital LLC, as lender (“Lender”)

Gentlemen:

     Reference is made to the Credit Agreement. Capitalized terms used but not defined in this letter have the meanings given them in the Credit Agreement.

     Borrower has failed to comply with the following covenants and agreements which has resulted in the occurrence of certain Defaults and Events of Default under the Credit Agreement (the “Existing Defaults”):

1.	Borrower’s failure to replace James E. Craddock with another manager acceptable to Lender within 90 days from Mr. Craddock’s official separation date of March 31, 2008, as required by Section 10.1(l) of the Credit Agreement.
2.	Borrower’s failure to prevent its adjusted current liabilities from exceeding its adjusted current assets, as required by Section 7.2(s) of the Credit Agreement for any period ending prior to the date of this letter.
3.	Borrower’s failure to pay all indebtedness due to Superior Well Services, Inc. and other creditors within 60 days after its due date, as required by Section 7.1(k) of the Credit Agreement.
4.	Borrower’s failure to use Discretionary D&A Loans proceeds only for uses approved by Lender, as required by Sections 2.1 and 2.8 of the Credit Agreement.

BPI Energy, Inc.
September 23, 2008
Page 2 of 5

     In addition, as we have discussed, that certain Coal Bed Gas Lease, dated May 22, 2008, by and between Western Fuels-Illinois, Inc., as lessor, and BPI Energy, Inc., as lessee (the “Additional Lease”), recorded by that certain Memorandum of Coal Bed Gas Lease in the Official Public Records of Saline County, Illinois at Book 1938/Page 156-159, is part of the Collateral pursuant to the terms of the Credit Agreement and the Security Documents. It is an additional Event of Default if Lender does not have a perfected first priority Lien on any part of the Collateral. Furthermore, any disposition of the Additional Lease or other Collateral (including without limitation the granting of any lien or other security interest) without Lender’s express written consent is prohibited under Section 7.2(a) of the Credit Agreement (and other terms of the Security Documents) and would constitute an Event of Default under the Credit Agreement. For the purposes of perfecting Lender’s interest in the Additional Lease, please execute (and have notarized) the enclosed Mortgage, Security Agreement, Financing Statement and Assignment of Production and Revenues (the “Additional Mortgage”) covering the Additional Lease and return it to my attention in the enclosed federal express envelope immediately upon receipt of this letter.

     Borrower has requested that Lender forbear from exercising its rights and remedies under the Loan Documents in connection with the Existing Defaults until January 30, 2009 (or until March 31, 2009 if Borrower meets certain requirements set out below), and also to forbear from exercising its rights and remedies under the Loan Documents in connection with the following potential Defaults and Events of Defaults (the “Potential Future Defaults”) until January 30, 2009 (or until March 31, 2009 if Borrower meets certain requirements set out below):

1.	Borrower’s potential failure to prevent its adjusted current liabilities from exceeding its adjusted current assets, or to prevent its Loan to Value Ratio to exceed 1.0 to 1.0 as required by Section 7.2(s) of the Credit Agreement for any period ending after the date of this letter.
2.	Net Revenue attributable to Proved Reserves becomes insufficient to fully amortize the Loans as required by Section 10.1 (b) of the Credit Agreement.
3.	Borrower’s potential failure to pay the full amount of accrued and unpaid interest at the Pay Rate as required by Section 2.6(b) of the Credit Agreement between the date of this letter and January 30, 2009.

Item 3 of the definition of Potential Future Defaults above shall be included in definition of Potential Future Defaults only if 100% of the Net Revenue for each month is applied to pay accrued and unpaid interest at the Pay Rate. Any remaining accrued and unpaid interest shall be capitalized and added to the principal under the Note.

     During the period that Lender has agreed to forbear with respect to the Existing Defaults and the Potential Future Defaults, provided that no other Default or Event of Default has

BPI Energy, Inc.
September 23, 2008
Page 3 of 5

occurred, the term “Pay Rate” in the Credit Agreement shall mean “an annual fixed rate equal to 4% through January 30, 2009, and 8% thereafter.”

     During the period that Lender has agreed to forbear with respect to the Existing Defaults and the Potential Future Defaults, provided that no other Default or Event of Default has occurred, the term “Initial Termination Date” in the Credit Agreement shall mean “March 31, 2009.”

     Effective upon Lender’s receipt of

     (a) an original executed and notarized Additional Mortgage from Borrower covering the Additional Lease, and

     (b) the consent of Borrower, represented by its signature below, to amend the Credit Agreement to provide for a $200,000 forbearance fee (the “Forbearance Fee”) from Borrower to Lender, and to add such Forbearance Fee amount to the principal amount against the Note,

Lender agrees to forbear from exercising any rights and remedies under the Loan Documents solely in connection with the Existing Defaults and the Potential Future Defaults until January 30, 2009.

     Effective upon Lender’s receipt of, on or before January 30, 2009,

     (a) a fully executed, binding and definitive agreement acceptable to Lender in its sole discretion with Blue Source, LLC or another party acceptable to Lender for the sale of all or part of the Delta Properties in an amount sufficient to pay all of the Obligations on or before March 31, 2009, or

     (b) a fully executed, binding and definitive agreement reasonably acceptable to Lender with a party acceptable to Lender which provides for financing to Borrower in an amount sufficient to pay all of the Obligations on or before March 31, 2009,

Lender agrees to forbear from exercising any rights and remedies under the Loan Documents solely in connection with the Existing Defaults and Potential Future Defaults until March 31, 2009.

     The foregoing agreements to forbear shall not be construed to waive Borrower’s compliance with all other covenants, obligations, restrictions and agreements in the Credit Agreement and other Loan Documents.

     The parties agree that the Forbearance Fee will be advanced as a Loan under the Credit Agreement and added to the principal amount against the Note, and that this letter shall serve as a Request for Commitment in connection with the Forbearance Fee.

BPI Energy, Inc.
September 23, 2008
Page 4 of 5

     Borrower agrees that the proceeds received by Borrower arising directly or indirectly from any claim, settlement, lawsuit, litigation or other proceeding, including without limitation the following litigation:

(a) Case No. 07-CV-186-DRH; BPI Energy, Inc., et. al. v. IEC (Montgomery), LLC, et. al.; In the United States District Court for the Southern District of Illinois,

(b) Case No. 07-CH-20; ICG Natural Resources, LLC v. BPI Energy, Inc, et. al.; In the Circuit Court of the Twentieth Judicial Circuit, Perry County, Illinois,

shall be immediately applied (a) first against any outstanding and unpaid fees that are owed by Borrower as of the date of this letter to Thompson Hine LLP, and (b) second against the outstanding principal under the Note (including capitalized interest thereunder). Borrower further agrees that the foregoing agreement shall constitute a covenant under the Credit Agreement for all purposes and any non-compliance shall result in an immediate Event of Default under the Credit Agreement. For the purpose of clarity, the parties acknowledge that the foregoing agreement shall no longer apply if the Obligations are otherwise paid in full.

     This letter is only intended to operate as a limited forbearance and agreement between the parties. This letter is not intended to operate as a waiver of rights and remedies and does not constitute or operate as (a) a waiver of (or a consent to) any existing Default or Event of Default (including without limitation the Existing Defaults), or any other violation of or noncompliance with any provision of the Credit Agreement or any Loan Document, (b) an agreement to waive any future Default or Event of Default (including without limitation the Potential Future Defaults), (c) a waiver of Lender’s right to insist upon strict compliance with each term, covenant, condition and provision of the Credit Agreement or the other Loan Documents, or (d) an admission by Borrower of any existing Default or Event of Default. Lender reserves any and all rights and remedies under the Loan Documents at law and in equity. Any single or partial exercise by Lender of any right or remedy shall not preclude any other or further exercise of any available right or remedy. Borrower releases Lender from any liability for actions or failures to act in connection with the Loan Documents prior to the date of this letter.

     If Borrower understands and accepts the provisions set forth in this letter, please execute and return one counterpart of this letter and the Additional Mortgage to Lender to the attention of Mr. Marshall Lynn Bass by facsimile at (713) 300-1401 and in the enclosed overnight delivery envelope. This letter and the forbearance offered under this letter will not be effective if (a) Lender has not received an original executed counterpart of this letter and (b) the other conditions to the effectiveness of the forbearance have not been satisfied, by October 1, 2008.

[Signatures on following page]

BPI Energy, Inc.
September 23, 2008
Page 5 of 5

Very truly yours,

GASROCK CAPITAL, LLC

By:	/s/ Scott W. Johnson
	Scott W. Johnson
	Principal

Accepted and agreed to this 25th day of September, 2008.

BORROWER:

BPI ENERGY, INC.,
a Nevada corporation

By:	/s/ James G. Azlein
	James G. Azlein
	President