Exhibit 10.1
SEPARATION AGREEMENT AND WAIVER AND RELEASE
     This Separation Agreement and Waiver and Release (this “Agreement”) is
entered into by and between BPI Energy Holdings, Inc., a British Columbia
corporation (together with its affiliates and subsidiaries, “BPI”), and George
J. Zilich (“Zilich”) as of this 12th day of October, 2006.
     A. Zilich has been employed by BPI as its Chief Financial Officer and
General Counsel pursuant to a letter agreement between BPI and Zilich dated as
of January 6, 2005 (the “Employment Agreement”) and has also served as a member
of the board of directors of BPI.
     B. Zilich will resign as an employee, officer, and director of BPI, and
this Agreement sets forth the terms upon which Zilich’s employment by, and term
as a director of, BPI will cease.
     NOW, THEREFORE, in consideration of the agreements, warranties, and
covenants contained in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, BPI and Zilich
agree as follows:
     1. Resignation. Effective as of October 12, 2006, or such other date as the
parties may agree (the “Separation Date”), Zilich will and hereby does resign as
an employee, officer, and director of BPI and resigns from any and all other
positions, if any, held by him with respect to BPI and its subsidiaries and
affiliates.
     2. Consideration. In consideration of Zilich entering into this Agreement,
BPI will:

  (a)   pay to Zilich the sum of $250,000.00 within three business days after
receiving a letter from Zilich in the form attached hereto as Exhibit A but no
earlier than seven days after the date first entered above;     (b)   issue to
Zilich 250,000 unrestricted common shares of BPI (the “Unrestricted Shares”),
provided, however, that (i) 210,000 of the Unrestricted Shares will be deemed to
have been transferred by Zilich to BPI contemporaneous with the issuance of such
shares in payment of the $138,600.00 price for the exercise of warrants by
Zilich on April 28, 2006, and (ii) 40,000 of the Unrestricted Shares will be
deemed to have been transferred by Zilich to BPI contemporaneous with the
issuance of such shares in partial satisfaction of the withholding and
deductions for income and payroll taxes associated with the consideration
transferred to Zilich in accordance with this Agreement;     (c)   pay to Zilich
the sum of $8,333.33 on each of the following dates: October 15, 2006;
October 31, 2006; November 15, 2006; November 30, 2006; December 15, 2006; and
December 31, 2006;     (d)   pay to Zilich the sum of $100,000.00, on each of
the following dates: January 2, 2007; August 1, 2007; and January 2, 2008;    
(e)   take any and all actions required to assure and provide that the 380,720
shares of BPI restricted stock currently held by Zilich vest as of the
Separation Date; and     (f)   provide medical and dental insurance coverage to
Zilich through the second anniversary of the Separation Date on the same terms
as provided to Zilich as of the date of this Agreement (the “Continuing Medical
Coverage”), which terms provide that BPI pay all premiums for such insurance
coverage; provided, however, that if, at any time prior to the

 

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      second anniversary of the Separation Date, Zilich becomes eligible to
participate in an employer sponsored and fully paid medical and dental insurance
plan or policy with coverage that is comparable to the Continuing Medical
Coverage, BPI’s obligation to provide the Continuing Medical Coverage will
terminate effective as of the date that Zilich becomes eligible to enroll in
such plan or policy.

     BPI will make each of the payments and take each of the actions
contemplated by this Section 2 notwithstanding the death or disability of Zilich
prior to January 2, 2008. BPI and Zilich agree that the payments to be made to
Zilich pursuant to this Section 2 are allocated as follows: the payments
provided for in (a) of this Section to BPI’s obligations under the Employment
Agreement, the payments provided for in (c) of this Section for Zilich’s
obligations under Section 4 of this Agreement, and the payments provided for in
(d) and (e) of this Section for Zilich’s obligations and undertakings under
Sections 3, 5(a) and 10 of this Agreement. BPI and Zilich further agree that the
other consideration to be provided to Zilich pursuant to this Section 2 is
allocated as follows: the consideration provided for in (f) of this Section to
BPI’s obligations under the Employment Agreement and the consideration provided
for in (b) of this Section for Zilich’s obligations under Section 4 of this
Agreement. BPI and Zilich further agree that as of the date of this Agreement
Zilich holds 475,000 shares of BPI restricted stock and that any purported
transfer of any shares of such restricted stock by Zilich to BPI prior to the
date of this Agreement is and will be deemed null and void. BPI and Zilich
further agree that all federal, state and local income and payroll taxes
associated with the consideration to be transferred to Zilich hereunder and
which may be subject to withholding and deductions will be deemed satisfied in
full as follows: (i) the transfer by Zilich to BPI of 40,000 of the Unrestricted
Shares pursuant to (b) of this Section; and (ii) the surrender by Zilich of
94,280 shares of the BPI restricted stock currently held by Zilich. The
consideration paid under (a) of this Section will be reported by BPI on an IRS
Form W-2. To the extent reportable by BPI, all other consideration paid
hereunder will be reported as income to Zilich with applicable taxing
authorities by way of an IRS Form 1099.
     3. Non-Competition; Non-Solicitation. Between the Separation Date and the
second anniversary of the Separation Date, Zilich will not (a) engage, either
directly or indirectly, as an employee, officer, director, shareholder (other
than as a shareholder of less than five percent (5%) of the issued and
outstanding stock of a publicly-traded corporation), or partner in a business
that is competitive with the coal bed or coal mine methane gas extraction,
exploration, analysis, or development business of BPI in the geographical
territory known as the “Illinois Basin,” or (b) solicit or attempt to solicit,
either on Zilich’s behalf or on behalf of any of third party, or assist any
third party in soliciting, any employee of BPI to leave or terminate their
employment with BPI; provided, however, that Zilich may respond affirmatively to
any requests from employees of BPI that he act as an employment reference for
any such employee.
     4. Continuing Services. Between the Separation Date and January 2, 2008,
Zilich will provide BPI with consulting services as may be reasonably requested
by BPI from time to time in order to facilitate the continuing operation of BPI
and the transition of his duties and responsibilities; provided, however, that
Zilich will not be required (a) to travel from his residence or any future place
of employment or (b) to devote more than five hours during any calendar month in
providing such consulting services. BPI and Zilich will, in good faith,
coordinate the time and manner of the consulting services to be provided by
Zilich to avoid conflicts with Zilich’s personal or business activities or
schedule. BPI will reimburse Zilich for any reasonable out-of-pocket expenses
incurred by Zilich in providing any consulting services requested by BPI in
accordance with BPI’s expense reimbursement policy. In the event that BPI
requests that Zilich perform consulting services that would be inconsistent with
the limitations contained in (a) and (b) of this Section, Zilich may condition
providing such services upon payment by BPI of reasonable additional
compensation.

 

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     5. Waiver and Release.

  (a)   In consideration of the payments to be made to Zilich on and after the
Separation Date, Zilich, for himself, his heirs, administrators, executors, and
assigns, knowingly and voluntarily waives, releases, and discharges BPI and its
affiliates, successors, and assigns and the shareholders, employees, officers,
directors, agents, and representatives of any of them (the “BPI Released
Parties”), from any and all claims, liabilities, demands, and causes of action,
known and unknown, which Zilich has or may have against BPI as of the Separation
Date, including, without limitation, any and all claims arising out of or
relating to Zilich’s employment with BPI, his status as a director of BPI, and
Zilich’s departure from that employment and that status based upon or related to
any contention (i) that his employment or his status as a director terminated or
ended because of any wrongful, unlawful, or improper reason or in violation or
breach of any express or implied contract or agreement, or (ii) that the BPI
Released Parties, or any of them, engaged in any unlawful or discriminatory act,
event, pattern, or practice involving age, religion, sex, national origin,
ancestry, handicap, veteran status, race, or color, including without
limitation, the federal Age Discrimination in Employment Act, 29 U.S.C. §621 et
seq., or any similar state or local law. The foregoing is not intended to and
shall not be construed or deemed to release, discharge or waive any rights of
Zilich under this Agreement or the obligation of BPI to indemnify, defend or
advance expenses or the rights to indemnification, defense or advancement of
expenses Zilich has pursuant to (i) any director and officer or other insurance
policy BPI maintains or has maintained, (ii) the applicable laws of British
Columbia, Canada, (iii) the articles of incorporation or code of regulations of
BPI, or (iv) the Employment Agreement, for and from any action, suit or
liability that may be threatened or asserted against Zilich in connection with
his service as an officer or director of BPI.     (b)   BPI, on its behalf and
on behalf of its affiliates, subsidiaries, officers, directors, successors and
assigns, knowingly and voluntarily waives, releases, and discharges Zilich, and
his heirs, administrators, and executors (the “Zilich Released Parties”), from
any and all claims, liabilities, demands, and causes of action, known and
unknown, which BPI or its officers or directors have or may have against the
Zilich Released Parties as of the Separation Date, including, without
limitation, any and all claims arising out of or relating to Zilich’s employment
with BPI, his status as a director of BPI, and Zilich’s departure from that
employment and that status.     (c)   Zilich warrants that (i) no promise or
inducement has been offered to him other than as set forth in this Agreement and
that he is entering into this Agreement voluntarily, (ii) he is relying on no
statement or representation by the BPI Released Parties other than as set forth
in this Agreement, (iii) he has read this Agreement, has had a full opportunity
to consider it (including the opportunity to consult with an attorney of his
choice) and that he understands that by signing this Agreement he is giving up
important rights, including any right to sue under federal, state, or local law.
    (d)   Zilich further warrants that:

  (i)   He understands that he is specifically waiving rights or claims under
the federal Age Discrimination in Employment Act, 29 U.S.C. §621 et seq.;    
(ii)   He understands that he is not hereby waiving any rights or claims that
may arise after the Separation Date;

 

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  (iii)   He understands that this Agreement is being signed by him in exchange
for consideration that is more valuable to him than what he is entitled to
without this Agreement and the waiver and release contained in this Agreement;  
  (iv)   He has been advised in writing by BPI that he should have, at his
expense, an attorney of his choice review this Agreement;     (v)   He has been
advised by BPI that he may take up to 21 days from receipt of this Agreement to
determine whether to execute the same;     (vi)   He has been advised by BPI
that this Agreement may be revoked by him within seven days following execution
of this Agreement whereupon this Agreement will be null and void; and     (vii)
  The effect of this Agreement will be to preclude him from bringing any action
against any of the BPI Released Parties for any claims of any kind relating to
any matter whatsoever occurring on or before the Separation Date other than as
specified in Section 5(a) hereof with respect to any obligation of BPI to
indemnify, defend or advance expenses to Zilich for and from any action, suit or
liability that may be threatened or asserted against him in connection with his
service as an officer or director of BPI.

     6. Rights or Obligations as Shareholder. In addition to having been
employed by and serving as an officer and director of BPI, Zilich is a
shareholder of BPI. Between the Separation Date and October 1, 2011, Zilich will
not (a) initiate any action against BPI in his capacity as a shareholder of BPI
or (b) initiate, encourage, help to finance, or otherwise actively participate
in any proxy contest or any effort to take control of BPI. Except as provided in
this Section 6, this Agreement does not alter Zilich’s rights or obligations
vis-à-vis BPI in his capacity as a shareholder of BPI, including Zilich’s right
to tender his common shares in connection with a tender offer, participate in
the conversion of his common shares in connection with any merger or
consolidation of BPI, to receive dividends and distributions, or to exercise
appraisal rights on the same basis as any other shareholder.
     7. Effect on Employment Agreement. From and after the execution of this
Agreement, BPI will not have any obligation to Zilich under the Employment
Agreement except for such obligations as may arise pursuant to Section 8 of the
Employment Agreement.
     8. No Disclosure Regarding This Agreement. The parties will, in good faith,
endeavor to agree upon the wording of a press release to be issued by BPI
regarding Zilich’s resignation. Until the issuance of the press release and
filing of a copy of this Agreement with the Securities and Exchange Commission,
neither Zilich nor BPI will disclose any information regarding the existence or
terms of this Agreement without the prior written consent of the other party,
except (a) as may be necessary for BPI to comply with its disclosure obligations
as a publicly held company (whether by law, regulation, rule, or otherwise,
including any requirement or rule of the American Stock Exchange), (b) to an
attorney with whom a party chooses to consult regarding this Agreement, (c) to
Zilich’s spouse and children, (d) to Zilich’s tax advisers, (e) if and only to
the extent necessary to secure enforcement of this Agreement, and (f) if and
only to the extent required by a valid subpoena or court order, in which case
the party subject to such subpoena or court order will first afford the other
party the opportunity to raise any objection that the other party may have to
the purported requirement to disclose such information. To the extent such
disclosure is made to any of the individuals identified in (b), (c), or (d) of
this Section 8, the disclosing party shall inform such individual of the terms
of this Section 8 and instruct such individual not to disclose any information
regarding this Agreement to any other person or entity.

 

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     9. Confidentiality. Zilich will keep confidential and not divulge to any
third party, without BPI’s express written consent or under legal compulsion,
any confidential, proprietary, and/or trade secret information of BPI,
including, without limitation, information regarding BPI’s practices, policies,
financial data, marketing strategies, business plans, scientific and technical
information, and customers. Zilich further agrees not to use any confidential,
proprietary, or trade secret information of BPI for Zilich’s own or another’s
benefit.
     10. Non-Disparagement.

  (a)   Zilich will not make any comment or statement that is negative or
disparaging of the business, products, reputation, competence, or character of
BPI or any of the BPI Released Parties. The prohibition in the immediately
preceding sentence applies to all statements that disparage, discredit, or
otherwise call into disrepute, without regard to the truth or falsity of the
statement. Zilich will not initiate any communications (whether written or oral)
with any governmental or regulatory authority concerning or relating to BPI or
any of the BPI Released Parties other than as may be required by statute or
regulation. Notwithstanding the foregoing, Zilich is free to answer, in a
forthright and truthful manner, any inquiries made by or on behalf of the Audit
Committee of BPI’s Board of Directors or any governmental or regulatory
authority or pursuant to compulsory legal process.     (b)   BPI and its
officers, directors, employees, agents and representatives will not make any
comment or statement that is negative or disparaging of the reputation,
competence, or character of Zilich or any of the Zilich Released Parties. The
prohibition in the immediately preceding sentence applies to all statements that
disparage, discredit, or otherwise call into disrepute, without regard to the
truth or falsity of the statement. BPI and its officers, directors, employees,
agents, and representatives will not initiate any communications (whether
written or oral) with any governmental or regulatory authority concerning or
relating to Zilich other than as may be required by statute or regulation.
Notwithstanding the foregoing, BPI and its officers, directors, employees,
agents, and representatives are free to answer, in a forthright and truthful
manner, any inquiries made by or on behalf of any governmental or regulatory
authority or pursuant to compulsory legal process.

     11. Return of Records. Zilich represents and warrants that, as of the
Separation Date, he is not in possession or control of any records, reports,
written or electronic data, or memoranda relating to or regarding BPI or any
employee, officer, or director of BPI that were generated or acquired by Zilich
during the term of Zilich’s employment with BPI other than (a) any documents
filed with the Securities and Exchange Commission prior to the Separation Date,
(b) any documents posted on BPI’s website prior to the Separation Date,
(c) copies of electronic correspondence (“Emails”) concerning or relating to
BPI, (d) documents distributed to and received by Zilich in his capacity as a
director of BPI, and (e) memoranda, correspondence, notes and other documents
relating to or regarding BPI that Zilich prepared or generated at the request or
direction of his personal legal counsel, for the guidance of such counsel in
assisting and advising Zilich, or in anticipation of possible litigation with
BPI, or that were prepared or generated by such counsel in the course of
representing Zilich. Zilich will return to BPI, destroy, or delete all copies of
Emails (including copies in electronic form) referred to in (c) of this Section
and all documents referred to in (d) of this Section. Zilich may retain all
documents referred to in (a), (b) and (e) of this Section; provided, however,
that all documents referred to in (e) of this Section retained by Zilich shall
be subject to the confidentiality provisions of Section 9 hereof.

 

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     12. Return of Property. On dates to be arranged and agreed to by legal
counsel for the parties, but no later than seven business days after the
Separation Date, (a) Zilich will provide BPI with access to his residence, at
which time BPI will remove and transport all personal property owned by BPI
located at Zilich’s residence, and (b) BPI will provide Zilich with access to
his office at BPI’s corporate headquarters, at which time Zilich will remove and
transport all personal property owned by Zilich located on BPI’s premises.
     13. Governing Law and Interpretation. This Agreement will be governed by,
and will be construed in accordance with, the laws of the State of Ohio,
notwithstanding any conflict of law provision to the contrary. Zilich and BPI
agree that the state and federal courts located in the State of Ohio have
exclusive jurisdiction in any action, suit, or proceeding based on or arising
out of this Agreement, and Zilich and BPI hereby (a) submit to the exclusive
personal jurisdiction of such courts, (b) consent to the service of process in
connection with any such action, suit, or proceeding and (c) waive any other
requirement (whether imposed by statute, rule of court, or otherwise) with
respect to personal jurisdiction, venue, or service of process.
     14. Severability. If any provision contained in this Agreement is
determined to be invalid, illegal, or unenforceable in any respect for any
reason, the validity, legality, and enforceability of any such provision in
every other respect and the remaining provisions of this Agreement will not in
any way be impaired. Notwithstanding any of the foregoing, if any such provision
that is determined to be invalid, illegal, or unenforceable may be made valid,
legal, or enforceable by modification thereof, then the parties will amend or
modify this Agreement as may be necessary to make such provision valid, legal,
or enforceable to the maximum extent permitted by law. If Zilich claims or
asserts that any portion of Section 5 above regarding the waiver and release by
Zilich should be ruled to be unenforceable for any reason other than BPI’s
breach of any of the provisions of Section 5 above, then Zilich will be liable
for the return to BPI of all of the consideration paid to him under this
Agreement.
     15. No Admission of Wrongdoing. Neither this Agreement nor the furnishing
of the consideration provided in Section 2 hereof will be deemed or construed at
any time for any purpose as an admission by BPI or Zilich of any wrongful or
unlawful conduct of any kind. This Agreement is made in compromise of disputed
claims and nothing herein is intended to be, nor shall it be deemed, construed
or treated in any respect as an admission of liability with respect to such
disputed claims or with respect to any claims asserted by third parties. The
parties expressly agree that neither this Agreement nor any of its terms ,
including the recitals herein, shall be offered or asserted by any of them as an
admission of any fact or as evidence of any liability except for the purpose of
enforcing the covenants, warranties and releases contained herein
     16. Amendment. This Agreement may not be modified, altered, or changed
except as provided in Section 14 above or upon the written consent of both
parties with specific reference to this Agreement.
     17. Entire Agreement. This Agreement sets forth the entire agreement
between the parties hereto and supersedes any prior agreements or understandings
(whether written or oral) between the parties with respect to the subject matter
of this Agreement. BPI and Zilich acknowledge and agree that this Agreement was
the product of negotiations between them and that any rule of construction that
ambiguities are to be resolved against the drafting party shall not apply in the
interpretation of this Agreement.
     18. Authority and Binding Effect. BPI represents and warrants that David
Preng, chairman of the Compensation Committee of BPI’s Board of Directors, has
been duly authorized and has the requisite authority to execute and deliver this
Agreement on behalf of and to bind BPI to the terms and

 

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conditions of this Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors, assigns and heirs,
as applicable.
     19. Counterparts. This Agreement may be executed in one or more
counterparts, including by facsimile, each of which shall be deemed an original,
but all of which together constitute one and the same instrument.
     IN WITNESS WHEREOF, Zilich and BPI have executed this Agreement on the date
first written above.

              /s/ George J. Zilich      
 
  George   J. Zilich
 
            BPI Energy Holdings, Inc.
 
       
 
  By:   /s/ David Preng
 
       
 
      David Preng, Chairman of
 
      Compensation Committee