EXHIBIT 4.07

                          Archangel Diamond Corporation

                                                               December 19, 2002

Mr. Timothy J. Haddon
312 High Street
Denver, Colorado
80218


Dear Mr. Haddon:

     The  purpose  of  this  letter  is to set  forth  the  arrangement  between
Archangel  Diamond  Corporation (the "Company") and Timothy J. Haddon ("Haddon")
with  respect to (a) certain  options to purchase  common  shares of the Company
("Options")  that were  previously  issued to Haddon  under the  Company's  1999
Equity  Incentive  Plan, as Amended and Restated in 2001 ("the Option Plan") and
(b) certain deferred compensation  ("Deferred  Compensation")  payable to Haddon
under the terms of his  Executive  Employment  Agreement  with the  Company,  as
amended January 1, 2002 (the "Employment Agreement").

The parties acknowledge and agree that:

     (a)  Haddon has agreed to resign as a director  and office of the  Company,
          effective December 19, 2002 and to terminate the Employment Agreement;

     (b)  under the Option Plan, all Options held by Haddon would expire 30 days
          from the date on which  Haddon  ceases to be an officer or director of
          the Company, unless otherwise determined by the Board of Directors;

     (c)  on December 19, 2002 the Board of Directors agreed to waive the 30-day
          expiry  period of the Options  referred to in (b) above and permit the
          Options to expire on the final expiry date provided when those Options
          were first issued;

     (d)  as of the date hereof,  Haddon holds 1,500,000 Options  exercisable at
          C$0.11/share  and  expiring  November 25, 2006 and  1,000,000  Options
          exercisable at C$0.10/share and expiring November 28, 2007 for a total
          of 2,500,000 Options (the "Haddon Options"); and

     (e)  the  Deferred  Compensation  payable  to Haddon  under the  Employment
          Agreement is US$139,870.50

In  consideration of Haddon agreeing to resign as an officer and director of the
Company  and  for  other  good  and  valuable  consideration,  the  receipt  and
sufficiency of which are acknowledged, the parties agree as follows:



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1.   Haddon  shall be  permitted  to keep all of the  Haddon  Options,  at their
     current exercise price, until their respective final expiry dates stated in
     such Options.

2.   Haddon  agrees to defer his right to payment of the  Deferred  Compensation
     under the Employment Agreement as provided in paragraph 4 below.

3.   If at any time Haddon  chooses to exercise any of the Haddon  Options,  the
     Deferred  Compensation shall be used to pay the exercise price and shall be
     automatically  reduced by an amount equal to the funds required to exercise
     such Options.

4.   On the earlier of (a) the date on which Haddon has exercised all the Haddon
     Options  and (b) the date on which  Haddon's  Options  expire,  the Company
     shall  pay  Haddon  the  balance  of the  Deferred  Compensation  after all
     reductions referred to in paragraph 3 above.

5.   Haddon agrees that he hereby  relinquishes all rights to any other payments
     that may be payable by the Company under the Employment Agreement.

6.   This agreement  shall be binding upon and shall enure to the benefit of the
     parties hereto and their respective  successors and assigns,  provided that
     Haddon may not  assign  this  agreement  without  the prior  consent of the
     Company.

7.   This  agreement  shall  be  subject  to,  governed  by,  and  construed  in
     accordance with the laws of the Province of Ontario and the federal laws of
     Canada applicable therein.


                                           ARCHANGEL DIAMOND
                                           CORPORATION


                                           By: /s/ Michael J.M. Farmiloe
                                               ---------------------------------
                                                 Name:
                                                 Title:

                                   **********

Agreed to and accepted by the undersigned this 19th day of December, 2002.

                                            )
                                            )
                                            )
/s/ Christopher Bent                        )            /s/ Timothy J. Haddon
-----------------------                     )           -----------------------
Witness                                     )           Timothy J. Haddon
                                            )