2010-12-06 07:57 ET - News Release

Mr. Thomas French reports

AEROMECHANICAL SERVICES LTD. ANNOUNCES PROPOSED PRIVATE PLACEMENT OF CONVERTIBLE SECURED SUBORDINATE DEBENTURES

AeroMechanical Services Ltd. has engaged a syndicate of agents led by Raymond James Ltd. and including Byron Securities Ltd. The agents will act on a best efforts basis in connection with a private placement of convertible secured debentures of AMA for aggregate gross proceeds of up to $6-million.

The net proceeds of the offering will be used to complete the corporation's next-generation product, the AFIRS 228 (automated flight information reporting system), and for working capital and business development objectives. The debentures, warrants and common shares, issuable upon conversion of the debentures and/or warrants, will be subject to a four-month hold period in accordance with applicable securities laws. The debentures will not be listed on any stock exchange.

The debentures will mature on the date four years from the date of issuance (if not otherwise converted) and bear interest at a rate of 8 per cent per year, which shall be accrued and paid annually in arrears commencing Dec. 31, 2011. The debentures shall be convertible into common shares of the corporation at a conversion rate of 40 cents per share at any time prior to maturity, subject to adjustment in certain events.

Purchasers of the debentures will also be issued 1.25 common share purchase warrants for every $1.00 principal amount of debentures acquired pursuant to the offering. Each warrant shall be exercisable, to acquire one common share of the corporation for a period of four years from the date of issuance at an exercise price of 75 cents per share, subject to adjustment in certain events. In the event the 20-day moving average trading price of the common shares on the TSX Venture Exchange equals or exceeds $1.00, the corporation shall be entitled to accelerate the exercise period of the warrants to a period ending at least 30 days from the date notice of such acceleration is provided to the holders of the warrants.

The debentures will be secured against all personal property of the corporation, with the exception of the corporation's intellectual property, pursuant to a general security agreement. The debentures will be subordinated in right of payment to all existing and future secured bank and/or governmental indebtedness of the corporation. The corporation may, at its option, subject to providing no more than 60 and no less than 30 days prior notice, redeem the debentures, in whole or, from time to time, in part, at any time prior to the date that is three years following the date of issuance at a redemption price equal to 125 per cent of the principal amount of the debentures then outstanding plus accrued and unpaid interest and, during the period from the date that is three years following the date of issuance until the maturity date, at a redemption price equal to the principal amount of the debentures then outstanding plus accrued and unpaid interest, provided that in the event that the weighted average trading price of the common shares on the TSX Venture Exchange during the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is less than 40 cents, the exercise price of the warrants shall be adjusted immediately following any such redemption and become 50 cents per share.

In consideration for their services, the agents shall receive a fee equal to 7 per cent of the gross proceeds raised in connection with the offering as well as broker warrants in an amount equal to 7 per cent of the aggregate number of common shares underlying the debentures sold pursuant to this offering (on an "as converted" basis). Each broker warrant shall be exercisable for a period of four years from the date of issuance to acquire one common share at a price of 40 cents per share, subject to adjustment in certain events.

The offering is expected to close on or about Dec. 21, 2010, and remains subject to regulatory approval, including approval of the TSX Venture Exchange.

We seek Safe Harbor.