Archangel Diamond Corporation closes private placement offering of Subscription Receipts for gross proceeds, upon release from escrow, of US$172.4 million


    TORONTO, June 25 /CNW/ - Archangel Diamond Corporation ("Archangel" or
the "Corporation") (TSXV: AAD) is pleased to announce that it has closed the
private placement offering (the "Offering") of subscription receipts (the
"Subscription Receipts") described in the Corporation's news release issued on
3 June 2008. Archangel has issued 137,920,000 Subscription Receipts at a
subscription price of US$1.25 per Subscription Receipt for gross proceeds of
    The proceeds of the Offering will be used, upon satisfaction of the
escrow release conditions described below, to fund: (i) the initial payment
obligation with respect to Archangel's proposed acquisition (the
"Transaction") from OAO LUKOIL ("LUKOIL") of shares in OAO Arkhangelskoe
Geologodobychnoe Predpriyatie ("AGD"), the holder of the licence to explore
and mine the Verkhotina licence area, pursuant to a share purchase agreement
(the "Share Purchase Agreement") dated 15 April 2008; (ii) other settlement
costs and transaction costs; (iii) project development costs; (iv) repayment
of the Cencan S.A. ("Cencan", a wholly-owned subsidiary of De Beers Société
Anonyme ("De Beers")) working capital loan; (v) repayment of the De Beers
standby term loan facility (if required); and (vi) for general corporate
purposes. Details of the Transaction were previously disclosed in the
Corporation's news release issued on 16 April 2008.
    The gross proceeds of the Offering have been placed in escrow with
Computershare Trust Company of Canada and will be released to Archangel, net
of Offering expenses, upon satisfaction of certain escrow release conditions,
including: (i) the fulfilment, satisfaction or performance of each of the
conditions precedent to the completion of the Transaction without waiver of
any condition by any party thereto; (ii) no termination event having occurred,
as defined in the Share Purchase Agreement; (iii) other than certain permitted
amendments, the Share Purchase Agreement and the Resolution Agreement shall
not have been amended since the date of their execution; and (iv) no order,
judgement, rule, law, statute or regulation shall be in force or otherwise
have effect or have come in to force or otherwise have effect which would
prevent the completion of the transactions and agreements contemplated by the
Share Purchase Agreement, the Resolution Agreement and the Project Agreement.
    The escrow release conditions also include a condition that, if required
by the rules of the TSX Venture Exchange or applicable Canadian securities
laws, the Corporation shall have received all necessary shareholder approvals
and valuations or otherwise had the benefit of or obtained a waiver,
permission or exemption there from with respect to: (i) the Offering and the
issuance of the Subscription Receipts and underlying securities; (ii) any
repayment of debt by the Corporation to a related party as that term is
defined under Multilateral Instrument 61-101 - Protection of Minority Security
Holders In Special Transactions, (referred to herein as "MI 61-101"); (iii)
the completion of the Transaction; and (iv) any other "related party
transaction" as that term is defined under MI 61-101 involving the Corporation
in connection with the Transaction and the Offering.
    Upon satisfaction of the escrow release conditions, each Subscription
Receipt will be automatically exchanged, without payment of any additional
consideration, for one unit of Archangel (each a "Unit"). Each Unit is
comprised of one common share of Archangel (the "Common Shares") and one-half
of one common share purchase warrant (each whole warrant, a "Warrant"). Each
Warrant will entitle the holder thereof to purchase one additional common
share of Archangel (each a "Warrant Share") at a price of C$1.50 per Warrant
Share at any time prior to the day that is two years from the date of the
release of the escrowed funds to the Corporation.
    In the event that the escrow release conditions have not been satisfied
on or before 17 October 2008, the escrowed funds (plus any accrued interest
earned thereon) will be returned pro rata to each holder of the Subscription
Receipts, and the Subscription Receipts held by such holder will be cancelled.
    Archangel has agreed to pay to Canaccord Capital Corporation and RBC
Capital Markets (jointly, the "Agents"), upon release of the escrowed funds to
Archangel, a cash commission in the amount of 5.0% of the gross proceeds
raised from the Offering other than from subscriptions to the Offering by
Cencan and Firebird Global Master Fund Limited and its affiliates
("Firebird"), and 3.0% of the gross proceeds raised from subscriptions to the
Offering by Firebird. No commission will be payable with respect to that
portion of the Offering taken-up by Cencan.
    In accordance with the policies of the TSX Venture Exchange and
applicable securities laws, the Subscription Receipts, Common Shares, Warrants
and Warrant Shares will be subject to a hold period expiring on 25 October
2008. The officers and directors of the Corporation, together with Cencan,
have also entered into a lock-up agreement in favour of the Agents with
respect to any shares of the Corporation held by such parties for a period of
120 days from the closing date of the Offering.

    Purpose and Effect of the Offering

    As stated above, the proceeds of the Offering are intended to finance
certain obligations related to the Transaction, repay existing loans and
provide the Corporation with working capital for general corporate purposes.
The Transaction contemplated by the Share Purchase Agreement will, if
completed, settle the claims pursued by Archangel as part of the Stockholm
commercial arbitration against AGD and in the lawsuit in the Denver District
Court, State of Colorado, USA against LUKOIL. More importantly, it will
provide the Corporation with an opportunity to move forward as an operating
entity, as opposed to an entity whose principal asset is the subject of
litigation, with an interest in a property of merit and with adequate funding
to pursue its business over the short to medium term.
    The following table summarizes the anticipated dilution upon satisfaction
of the escrow release conditions and exercise of the Subscription Receipts:

                                                      As at        of the
                                                     June 23,   Subscription
    Security                                          2008        Receipts
    Class and series of voting or equity
     securities for which there are securities
      Common Shares                                 85,010,327   222,930,327
    Class and series of securities for which there
     are securities outstanding if the securities
     are convertible into, or exercisable or
     exchangeable for, voting or equity securities
      Stock Options                                   N/A(1)        N/A(1)
      Warrants                                         N/A        68,960,000
      Convertible Debentures                           N/A           N/A
    Class and series of voting or equity
     securities that are issuable on the
     conversion, exercise or exchange of
     outstanding securities above
      Common Shares                                    N/A        68,960,000
    Fully Diluted Share Capital                     85,010,327   291,890,327
    (1) The Corporation currently has no common shares reserved for issuance
        pursuant to an Incentive Stock Option Plan or outstanding stock
        options. Such to an Incentive Stock Option Plan may be adopted in the

    Interest of Certain Parties

    In order to facilitate the Offering and Transaction Cencan agreed to
subscribe for Subscription Receipts of the Offering representing a minimum of
58% of the Offering and, in the event that the aggregate amount of the
Offering was less than US$200 million, up to a maximum amount of
US$116 million in Subscription Receipts, all on terms reasonably acceptable to
the Agents.
    Cencan, which owned approximately 58% of the issued common shares of
Archangel prior to the closing of the Offering, has acquired 92,800,000
Subscription Receipts for a total amount of US$116 million which, on a fully
diluted basis, results in its post closing ownership interest in Archangel
increasing to approximately 65%. Firebird, which owned approximately 19% of
the issued common shares of Archangel prior to the closing of the Offering,
has acquired 24,000,000 Subscription Receipts for a total amount of
US$30 million which, on a fully diluted basis, results in its post closing
ownership interest in Archangel decreasing to approximately 18%.
    Participation by Cencan and Firebird in the Offering constitutes a
related party transaction pursuant to MI 61-101 and TSX Venture Exchange
Policy 5.9 (the "Related Party Transactions").

    Approval Process

    The Board of Archangel formed an independent committee comprised of two
directors each of whom is unrelated to Cencan or Firebird and is otherwise
independent as determined pursuant to Part 7 of MI 61-101 (the "Independent
Committee"). The mandate of the Independent Committee included reviewing the
proposed terms of any financing involving the participation of related
parties, reviewing the fairness of any proposed related party transaction, and
conducting such investigations and considering such matters concerning the
foregoing as the Independent Committee deemed necessary or advisable. The
Independent Committee retained its own legal counsel.
    In its consideration of the Offering, the Independent Committee reviewed
the Corporation's most recent financial statements, considered the
Corporation's current financial position as advised by the Chief Financial
Officer of the Corporation and considered an advisory letter addressed to the
Independent Committee from the Corporation's auditors with respect to common
benchmarks typically considered when assessing the financial health of a
    As at May 31, the Corporation's total creditor balance was estimated to
be $4,390,141 or higher. The Corporation had a cash balance of $1,774,838 and
$950,000 was still available under the unsecured loan facility of
US$4.5 million made available to the Corporation by Cencan in December 2007
($3,550,000 of this facility having already been drawn down). The Corporation
therefore had a net working capital deficiency of $2,615,303 and was not able
to meet its current liabilities.
    In light of the financial situation of the Corporation and the
opportunity afforded to the Corporation by virtue of the Transaction, the
Independent Committee believed that the Corporation was in serious financial
difficulty, and that the Transaction and the Offering could improve the
Corporation's financial position in order that it may continue as a going
concern by securing an interest in the Corporation's sole material asset,
retiring existing loans and providing working capital. The Independent
Committee also believed that the terms of the Offering, including the
participation of Cencan in the Offering, were reasonable in the circumstances
of the Corporation, and that completion of the Offering was in the best
interests of the Corporation. The Independent Committee therefore recommended
to the Board of Directors that the Corporation proceed with the Offering,
including the participation of Cencan in the Offering.
    The full Board of Directors of the Corporation then considered the
Offering, the status of the Corporation and the recommendation of the
Independent Committee and resolved unanimously that the Corporation was in
serious financial difficulty; that the Offering was designed to improve the
Corporation's financial position and otherwise is in the best interests of the
Corporation. The Board of Directors further unanimously resolved that the
proposed Offering and the terms thereof were reasonable in the circumstances
of the Corporation and, subject to the acceptance of the TSX Venture Exchange,
the Offering was authorized and approved.
    The subscription received from Cencan was subsequently considered by the
Board and approved with those directors affiliated with De Beers abstaining.
All terms and conditions related to the Cencan subscription are on the same
terms as those applicable to subscribers introduced to the Corporation by the

    Exemptions from Minority Approval Requirements of MI 61-101

    The Related Party Transactions are exempt from the requirement to obtain
an independent valuation pursuant to Section 5.5(b) of MI 61-101 as Archangel
is listed only on the TSX Venture Exchange. In consideration of the financial
circumstances of the Corporation and in light of the determinations of the
Board of Directors, the Corporation has relied upon the prescribed exemption
from the requirement to obtain minority shareholder approval pursuant to the
financial hardship exemption in Section 5.7(e) of MI 61-101.
    In light of uncertain market conditions, advice received from the Agents,
and as the proceeds of the Offering were to be held in escrow pending
satisfaction of escrow release conditions; it was determined that if the
Corporation received confirmed subscriptions in excess of US$170 million it
was in the best interest of the Corporation to close the Offering at the
earliest possible opportunity and hold the funds in escrow.
    While the Corporation intends to diligently pursue the satisfaction of
the condition precedents set out in the Share Purchase Agreement, and seek to
meet the escrow release conditions of the Offering as soon as possible, it is
not anticipated that such conditions precedent, and therefore the escrow
release conditions, will be satisfied within the next 21 days.

    The Subscription Receipts, the Common Shares and the common shares
issuable upon exercise of the Warrants have not been registered under the
United States Securities Act of 1933 (the "Act") and may not be offered or
sold absent registration under the Act or an applicable exemption from the
registration requirements thereof. This news release does not constitute an
offer to sell or a solicitation of an offer to buy, nor shall there be any
sale of these securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction or an exemption therefrom.

    This news release shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of the securities
in any state in which such offer, solicitation or sale would be unlawful.

FINANCIAL PROJECTIONS - This news release contains "forward-looking
statements", within the meaning of applicable Canadian securities legislation.
Forward-looking statements include, but are not limited to, statements with
respect to the outcome of future negotiations, completion of the offerings and
share purchase transactions, execution of definitive agreements, success of
financing activities, government regulation, receipt of regulatory approvals,
and participation of certain parties in the offerings. Generally, these
forward-looking statements can be identified by the use of forward-looking
terminology such as "plans", "expects" or "does not expect", "is expected",
"budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or
"does not anticipate", or "believes", or variations of such words and phrases
or state that certain actions, events or results "may", "could", "would",
"might" or "will be taken", "occur" or "be achieved". Forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors that may cause the actual outcomes, results, level of activity,
performance or achievements of Archangel to be materially different from those
expressed or implied by such forward-looking statements, including but not
limited to: risks described in the above news release; those risks set out in
Archangel's disclosure documents and its annual, interim management discussion
and analysis and annual report; and the failure to obtain necessary consents
and approvals to complete the offerings. Although Archangel has attempted to
identify important factors that could cause actual results to differ
materially from those contained in forward-looking statements, there may be
other factors that cause results not to be as anticipated, estimated or
intended. There can be no assurance that such statements will prove to be
accurate, as actual results and future events could differ materially from
those anticipated in such statements. Accordingly, readers should not place
undue reliance on forward-looking statements. Archangel does not undertake to
update any forward-looking statements or financial projections, except in
accordance with applicable securities laws.


For further information:

For further information: Ms. Jocelyn Fraser, Archangel - Investor
Relations, Vancouver, British Columbia, Canada, Tel: (604) 731-6164,

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