Archangel Diamond Corporation
TSX VENTURE : AAD

Archangel Diamond Corporation

March 20, 2009 21:07 ET

Archangel Diamond Corporation to Undertake Private Placement of Unsecured, Convertible Notes and Concurrent Debt Restructuring

TORONTO, ONTARIO--(Marketwire - March 20, 2009) - Archangel Diamond Corporation ("Archangel" or the "Corporation") (TSX VENTURE:AAD) announces that it intends to enter into non-binding term sheets with each of Cencan Societe Anonyme, a subsidiary of the De Beers Group ("De Beers") and Firebird Global Master Fund Limited and its affiliates ("Firebird") in connection with a proposed non-brokered private placement of an aggregate of CDN$6 million principal amount of unsecured, convertible notes (the "Notes"). The Notes mature five years after their date of issue and bear interest at Libor plus 7.5% per year. The Notes are convertible at the option of the noteholders at any time up to maturity or payment, as the case may be, into common shares of the Corporation at CDN$0.065 per share. Any accrued interest is also convertible at the option of the noteholders into common shares of the Corporation at a price to be determined on the basis of the market price of the shares at the time of conversion. For each CDN$0.065 principal amount of Notes, each noteholder will also receive one share purchase warrant (the "Warrants") entitling the noteholder to purchase one common share of the Corporation for a period of five years from the closing at a price per share of CDN$0.10.

Concurrent with, and as a condition of, the proposed private placement the Corporation will also enter into a debt restructuring arrangement with De Beers. Under this arrangement approximately CAD$12.3 million of existing indebtedness will be settled: (1) CDN$4.4 million will be settled in exchange for common shares of the Corporation; and (2) CDN$7.9M will be settled in exchange for the issuance of a corresponding principal amount of Notes (without Warrants); both at a conversion price of CDN$0.065 per share.

De Beers will therefore acquire a total of approximately CDN$10.9 million in principal amount Notes (CDN$3.0 million private placement and CDN$7.9 debt restructuring) convertible into approximately 167.6 million common shares of the Corporation and receive Warrants to acquire a further 46.2 million common shares of the Corporation. Firebird will acquire approximately CDN$3.0 million in principal amount Notes convertible into 46.2 million common shares of the Corporation and receive Warrants to acquire a further 46.2 million common shares of the Corporation.

De Beers and Firebird currently hold approximately 58% and 19% respectively of the Corporation's 85.0 million issued and outstanding shares. Upon the closing of the debt re-structuring the Corporation's share capital will increase to 153.1 million shares and the respective interests of De Beers and Firebird, on an undiluted basis will be 77% and 11%. Assuming the eventual conversion of the Notes and the exercise of the warrants the Corporation's share capital will increase to 459.1 million shares and the respective interests of De Beers and Firebird will be 72% and 24%. All of these numbers are approximate and subject to exchange rate fluctuations.

Completion of this proposed private placement and debt restructuring will be subject to the negotiation, execution and delivery of definitive agreements and applicable regulatory approvals. Any securities to be issued will be subject to a hold period of four months from the closing date in accordance with the rules and policies of the TSX Venture Exchange and applicable Canadian securities laws.

Participation by De Beers and Firebird in the private placement and the participation by De Beers in the debt restructuring each constitute a related party transaction pursuant to MI 61-101 and TSX Venture Exchange Policy 5.9 (the "Related Party Transactions").

The Board of Archangel consists of six directors, two of whom are unrelated to De Beers or Firebird, and their respective affiliates, and are otherwise independent as determined pursuant to Part 7 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's shares are listed only on the TSX Venture Exchange. In consideration of the financial circumstances of the Corporation, the Corporation intends to rely 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. Both the Board and the independent directors have determined that the Corporation is in serious financial difficulty and that the Related Party Transactions are reasonable in the circumstances.

The funds made available through the private placement and the restructuring of the existing debt will enable the Corporation to meet its normal running costs including approximately CAD$235,000 interest owing to De Beers and to continue with its current activities.

The Corporation anticipates that the proposed private placement and debt restructuring will be completed on or about April 10, 2009.

The securities to be issued pursuant to the proposed private placement and debt restructuring 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.

CAUTIONARY NOTE TO SHAREHOLDERS CONCERNING FORWARD LOOKING STATEMENTS AND 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 Transaction, execution of definitive agreements, exercise of future call rights, success of financing activities, identification or upgrade of mineral resources, requirements for additional capital, government regulation, results of future diamond exploration, results of diamond marketing, changes in legal requirements, changes in the political environment, environmental liabilities and title disputes. 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 Diamond Corporation 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 reports. 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.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

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