No._______________ Recipient Name:

____________________



## CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

CARLSBAD

- PALOMAR AIRLINES, INC.

Up to $11,520,000

1,200,000 Shares of Series A Common Stock Offered at $9.20/$10.00 Per Share Minimum Purchase of 50,000 Shares ( or $500,000)

(1) The first 600,000 shares purchased in this offering will receive an 8% discount to the price of $10.00 per share on a
“first come first serve” basis.

(2) The Company may engage broker

- dealers and or syndicators to offer and sell the Shares in this Offering and in such case would be responsible to pay commissions and/or fees up to but not more than 8% of the gross proceeds of this Offering.

(3) Before deducting legal, accountin g and marketing fees, and other offering expenses payable by the Company estimated to be $15,000.

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPROVED BY THE SECURITIES AND EXCHANGE COMMISSI ON OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS THE SECURITIES AND

EXCHANGE COMMISSION OR ANY SUCH AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

The date of this Memoran dum is: January 1, 2013 Number of

Shares

Offered Offering

Price(1) Selling

Commissions

(2) Proceeds to

the Company

(2)

Per Share 600,000 $9.20 $0 $5,520,000

Per Share 600,000 $10.00 $0 $6,000,000

Total 1,200,000 $9.20/$10.00 $0 $11,520,000CONFIDENTIAL Page ii $11,520,000

CARLSBAD

- PALOMAR AIRLINES, INC. (a California corporation)

CARLSBAD

- PALOMAR AIRLINES, IN C., A CALIFORNIA COR PORATION (THE “COMPANY”), IS OFFER ING 1,200,000 SHARES OF ITS SERIES A COMM ON STOCK (THE “SHARES”) ON TE RMS AND WITH RIGHTS AS MORE PARTICULARLY SET

FORTH IN THIS CONFID ENTIAL PRIVATE PLACE MENT MEMORANDUM (T HIS “MEMORANDUM”). THE I NITIAL 600,000 SHARE S WILL RECEIVE AN 8% DISCOUNT

TO THE PURCHASE OF S HARES ON A “FIRST CO ME FIRST SERVE BASIS ”. THERE IS

NO PUBLIC MARKET FOR THE SHARES OR ANY OT HER SECURITIES OF TH E COMPANY, AND NO SUCH MARKET WILL DEVELOP AS A R ESULT OF THIS

OFFERING.

THIS MEMORANDUM CONS TITUTES AN OFFER ONL Y TO THE PERSON NAME D ABOVE, AND ONLY IF S AID PERSON MEETS THE SUITABILITY STANDARD S SET

FORTH IN THIS MEMORA NDUM. THIS MEMORANDUM MAY NOT BE REPRODUCED

OR REDISTRIBUTED. THIS MEMORANDUM SHOULD BE USED ONLY IN

CONNECTION WITH CONSIDERATION BY PROSPECTIVE INVESTORS OF AN

INVESTMENT IN THE SHARES. ANY REPRODUCTION OR DISTRIBUTION OF THIS

MEMORANDUM OR RE

- TRANSMITTAL OF ITS CONTENTS, IN WHOLE OR IN PART,

WITHOUT THE PRIOR WRITTEN CONSENT OF T HE COMPANY IS PROHIBITED.

AS A PURCHASER OF THE SHARES IN A PRIVATE PLACEMENT NOT REGISTERED

UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), EACH

INVESTOR SHOULD PROCEED ON THE ASSUMPTION THAT THE ECONOMIC RISK OF

THE INVESTMENT MUST B E BORNE FOR AN INDEFINITE PERIOD BECAUSE THE

SHARES MAY NOT BE RESOLD UNLESS THEY ARE SUBSEQUENTLY REGISTERED

UNDER THE SECURITIES ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS

AVAILABLE. IT IS NOT EXPECTED THAT THERE WILL BE A MARKET IN THE

FORESEEABLE FU TURE FOR THE RESALE OF THE SHARES.

THE PURCHASE OF THE SHARES WILL ENTAIL A HIGH DEGREE OF RISK. INVESTORS

MUST READ AND CAREFULLY CONSIDER THE COMPLETE DISCUSSION OF THE

RISKS ASSOCIATED WITH THIS OFFERING. SEE “ RISK FACTORS .” PURCHASE OF THE

SHARES IS O NLY FOR PERSONS OF SUBSTANTIAL MEANS WHO HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT AND CAN AFFORD THE TOTAL LOSS OF THEIR

INVESTMENT.

THIS MEMORANDUM IS NOT INTENDED TO PROVIDE ALL INFORMATION THAT MAY

BE MATERIAL TO A DECISION TO INVEST IN THE SHAR ES. THE COMPANY WILL

MAKE AVAILABLE TO ANY PROSPECTIVE QUALIFIED INVESTOR THE OPPORTUNITY

TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY OR PERSONS

ACTING ON BEHALF OF THE COMPANY CONCERNING THE TERMS AND

CONDITIONS OF THE OFFERING AND THE BUSINE SS AND OPERATIONS OF THECONFIDENTIAL Page iii

COMPANY, AND TO OBTAIN ANY ADDITIONAL INFORMATION TO THE EXTENT THE

COMPANY POSSESSES SUCH INFORMATION.

THIS MEMORANDUM CONTAINS SUMMARIES, BELIEVED BY THE COMPANY TO BE ACCURATE, OF CERTAIN AGREEMENTS AND OTHER DOCUMENTS. ALL SUC H

SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH

AGREEMENTS OR DOCUMENTS, WHICH DOCUMENTS WILL BE AVAILABLE TO QUALIFIED PROSPECTIVE INVESTORS UPON REQUEST. NO PERSON IS AUTHORIZED

TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS (WHETHE R ORAL

OR WRITTEN) IN CONNECTION WITH THIS OFFERING EXCEPT SUCH INFORMATION

AS IS CONTAINED IN THIS MEMORANDUM AND IN THE EXHIBITS HERETO AND

DOCUMENTS SUMMARIZED HEREIN. ONLY INFORMATION OR REPRESENTATIONS

CONTAINED THEREIN MAY BE RELIED UPON AS HAVING BE EN AUTHORIZED.

NEITHER THE DELIVERY OF THIS MEMORANDUM AT ANY TIME NOR ANY SALE

MADE BY MEANS OF THIS MEMORANDUM SHALL IMPLY THAT INFORMATION

CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE SET

FORTH ON THE COVER HEREOF.

PROSPECTIVE INVES TORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM, OR ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE

COMPANY OR ANY OF ITS AGENTS, OFFICERS OR REPRESENTATIVES, AS LEGAL OR

TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS/HER/ITS OWN

ADVISER S AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING AN

INVESTMENT IN THE SHARES.

MARKET DATA AND INDUSTRY INFORMATION CONTAINED IN THIS

MEMORANDUM ARE DERIVED FROM VARIOUS TRADE PUBLICATIONS, INDUSTRY

SOURCES AND COMPANY ESTIMATES. SUCH SOURCES AND ESTIMATES ARE

INHERENTLY IMPRECISE. HOWEVER, THE COMPANY BELIEVES THAT SUCH DATA

AND INFORMATION ARE GENERALLY INDICATIVE OF ITS MARKET POSITION.

THE SHARES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER

SECTION 4(2) OF THE SECURITIES ACT, AND RULE 506 OF REGUL ATION D

PROMULGATED THEREUNDER. THE SECURITIES ACT, AND THE SECURITIES LAWS

OF CERTAIN JURISDICTIONS, GRANT PURCHASERS OF SECURITIES SOLD IN

VIOLATION OF THE REGISTRATION OR QUALIFICATION PROVISIONS OF SUCH

LAWS THE RIGHT TO RESCIND THEIR PURCHASE OF SUCH SECURITIES AND TO

THE RETURN OF THE CONSIDERATION PAID.

THE COMPANY BELIEVES THAT THE OFFERING DESCRIBED IN THIS MEMORANDUM

IS NOT REQUIRED TO BE REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT

OR OTHER APPLICABLE SECURITIES LAWS. MANY OF THESE LAWS GRA NTING THE

RIGHT OF RESCISSION ALSO PROVIDE THAT SUITS FOR SUCH VIOLATIONS MUST BE

BROUGHT WITHIN A SPECIFIED TIME FRAME, USUALLY ONE YEAR FROMCONFIDENTIAL Page iv

DISCOVERY OF FACTS CONSTITUTING SUCH VIOLATION. SHOULD ANY INVESTOR

INSTITUTE SUCH ACTION ON THE THEORY THE OFFE RING HEREIN WAS REQUIRED

TO BE REGISTERED OR QUALIFIED, THE COMPANY CONTENDS THAT THE

CONTENTS OF THIS MEMORANDUM CONSTITUTED NOTICE OF THE FACTS

CONSTITUTING SUCH VIOLATION.

NEITHER THE COMPANY NOR ANY BROKER/DEALER ENGAGED BY THE COMPANY

IN CONNECTION WITH THIS OFFERING (THE “PLACEMENT AGENTS”) MAKES ANY

REPRESENTATION TO ANY OFFEREE OR PURCHASER OF THE SECURITIES

REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH OFFEREE OR

PURCHASER UNDER APPLICABLE LEGAL INVESTMENT OR SIMILAR LAWS. THE

INFORMAT ION CONTAINED IN THIS MEMORANDUM HAS BEEN OBTAINED FROM

THE COMPANY. THE PLACEMENT AGENTS ASSUME NO RESPONSIBILITY FOR THE

ACCURACY OR ADEQUACY OF THE INFORMATION OR PROJECTIONS CONTAINED

IN THIS MEMORANDUM OR OTHER DOCUMENTS PROVIDED TO PROSPECTIVE

INVES TORS.

ALL STATES: THE PRESENCE OF A LEGEND FOR ANY GIVEN STATE REFLECTS ONLY

THAT A LEGEND MAY BE REQUIRED BY THAT STATE AND SHOULD NOT BE

CONSTRUED TO MEAN AN OFFER OR SALE MAY BE MADE IN ANY PARTICULAR

STATE. THIS MEMORANDUM MAY BE SUPPLEMENTED BY ADDITI ONAL FEDERAL OR

STATE LEGENDS. IF YOU ARE UNCERTAIN AS TO WHETHER OR NOT OFFERS OR

SALES MAY BE LAWFULLY MADE IN ANY GIVEN STATE, YOU ARE ADVISED TO

CONTACT THE MANAGEMENT FOR A CURRENT LIST OF STATES IN WHICH OFFERS

OR SALES MAY BE LAWFULLY MADE.

CAUTIONARY STATEMENT REGARDING FORWARD

- LOOKING STATEMENTS

THIS MEMORANDUM INCLUDES FORWARD

- LOOKING STATEMENTS. THE COMPANY

BASED THESE FORWARD

- LOOKING STATEMENTS ON ITS CURRENT EXPECTATIONS

AND PROJECTIONS ABOUT FUTURE EVENTS. ACTUAL RESULTS COULD DIFFER

M ATERIALLY FROM THOSE DISCUSSED IN, OR IMPLIED BY, THESE FORWARD

LOOKING STATEMENTS. FORWARD

- LOOKING STATEMENTS ARE IDENTIFIED BY

WORDS SUCH AS “BELIEVE,” “EXPECT,” “INTEND,” “PLAN,” “WILL,” “MAY,” “SEEK,” “TARGET,” “ESTIMATE,” “CONTINUE” AND OTHER SIMILAR EXPRESSIONS. IN ADDITION, ANY STATEMENTS THAT REFER TO EXPECTATIONS, PROJECTIONS OR

OTHER CHARACTERIZATIONS OF FUTURE EVENTS OR CIRCUMSTANCES ARE

FORWARD

- LOOKING STATEMENTS.

OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE

IMPLIED BY T HE FORWARD

- LOOKING STATEMENTS ARE MORE FULLY DESCRIBED

ELSEWHERE IN THIS MEMORANDUM. SEE “ RISK FACTORS .”

ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN

THE FORWARD

- LOOKING STATEMENTS ARE REASONABLE, THE COMPANY CANNOTCONFIDENTIAL Page v

GUARANTEE FUTURE RE SULTS, LEVELS OF ACTIVITY, PERFORMANCE OR

ACHIEVEMENTS. THE COMPANY HAS NO OBLIGATION TO UPDATE OR RELEASE

THE RESULTS OF ANY REVISIONS TO THESE FORWARD

- LOOKING STATEMENTS TO

REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.

ALL COMMUNICATIONS AND INQUIRIES REL ATING TO A POSSIBLE TRANSACTION

INVOLVING THE COMPANY SHOULD BE DIRECTED TO THE COMPANY AS FOLLOWS:

THEODORE L. VALLAS, CHAIRMAN AND CEO, 5670 EL CAMINO REAL, SUITE D, CARLSBAD, CALIFORNIA 92008. TEL: (760) 438

- 3600. FAX: (760) 929

- 9315.CONFIDENTIAL Page vi TABLE OF CONTENTS

SUMMARY OF THE OFFERING

................................ ................................ ................................ ...... 1

INVESTOR SUITABILITY STANDARDS

................................ ................................ ........................ 2

RISK FACTORS

................................ ................................ ................................ ................................ ... 5

ESTIMATED SOURCES AND USES OF PROCEEDS OF THE OFFERING

............................ 19

DETERMINATION OF OFFERING PRICE

................................ ................................ ................... 19

DILUTION

................................ ................................ ................................ ................................ ......... 15

PLAN OF DISTRIBUTION

................................ ................................ ................................ ............... 15

LEGAL PROCEEDINGS

................................ ................................ ................................ ................... 21 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

............ 21

Fiduciary Responsibility

................................ ................................ ................................ .......... 21
Indemnification for Liabilities

................................ ................................ ............................... 21 Management of the Company

................................ ................................ ................................ 22

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

... 27

DESCRIPTION O F THE SHARES AND TERMS OF THE OFFERING

................................ ..... 28

BUSINESS OF THE COMPANY

................................ ................................ ................................ ...... 30

Background

................................ ................................ ................................ ............................. 23 Executive Summary

................................ ................................ ................................ ................. 24 Industry

................................ ................................ ................................ ................................ ... 24
FAA and DOT Certification

................................ ................................ ................................ .. 25
Fleet

................................ ................................ ................................ ................................ ......... 26
McClellan

- Palomar Airport

................................ ................................ ................................ .... 26 Market Analysis

................................ ................................ ................................ ....................... 28 Community Benefits

................................ ................................ ................................ ............... 29 Safety

................................ ................................ ................................ ................................ ....... 31 Competitive Advantages

................................ ................................ ................................ ......... 32

Our Routes

................................ ................................ ................................ .............................. 32 Financial Projections

................................ ................................ ................................ .............. 33

DESCRIPTION OF PROPERTY

................................ ................................ ................................ ...... 35

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

................................ .............. 35

EXECUTIVE COMPENSATION

................................ ................................ ................................ ..... 35

SUMMARY OF ORGANIZATIONAL DOCUMENTS

................................ ................................ .. 36

REPORTS TO SHAREHOLDERS

................................ ................................ ................................ ... 36

SALES MATERIALS

................................ ................................ ................................ .......................... 37

RESTRICTIONS ON TRANSFER

................................ ................................ ................................ ... 37

L EGAL COUNSEL

................................ ................................ ................................ ............................ 37CONFIDENTIAL Page vii

EXHIBIT A

– SUBSCRIPTION DOCUMENTS AND FORM OF SUBSCRIPTION

AGREEMENT

EXHIBIT B

– INVESTORS’ RIGHTS AGREEMENTCONFIDENTIAL Page 1 SUMMARY OF THE OFFERING

CARLSBAD

- PALOMAR AIRLINES, INC. is a California corporation formed on July 2, 2009 for the purpose of establishing, owning and operating California Pacific AirlinesTM which will transport business and leisure traveler’s non

- stop to and from five Western Uni ted States cities and

resort destinations in Mexico . We expect to commence operati ons in the third quarter of 2013

. The following summary is qualified in its entirety by the more detailed information appearing
elsewhere in this Memorandum.

Issuer: Carlsbad

- Palomar Airlines, Inc., a California corporation (the “ Company ”).

Offering: Shares of the Company’s Series A Common Stock (the “ Shares ”).

Offering Price: $9.20/ $10.00 per Share. The first 600,000 shares sold in this offering, on a

“first c ome first serve” basis, will receive an 8% discount to the $10.00 purchase price or $9.20 per share.

No Minimum: The Offering is for a maximum of 1,200,000 Shares. There is no minimum

amount that must be raised by the Company to close the Offering.

Th e Offering w

ill be terminated by December 31, 2013 , unless sooner terminated or extended in the sole discretion of the Company. All proceeds

will remain in an escrow account until the U.S. Federal Aviation Administration’s acceptance of the Company’s application. I n the event the Company is unable to obtain such acceptance from the FAA, the Company will return all funds paid by investors. Interest will accrue for the benefit of the Company unless funds are returned to investors as outlined above, in

wh ich case interest shall accrue for the benefit of investors.

Capitalization: Shareholde r Type of

Stock # Shares* % Ownership

Theodore
L. Vallas** Series B

Common
Stock 1,200,000 50.0%

Investors Series A

Common
Stock 1,200,000 50.0%

TOTAL: 2,400,000 100.0%

* Assumes the Offering is fully subscribed.

** Mr. Vallas has to purchase d 217,391 Shares in this Offering, which increase d his ownership to

58.3%CONFIDENTIAL Page 2

Voting Rights: Each Share shall be entitled to one (1) vote on all matters except the election

of directors, for which the Company’s Series A Common Stock shall have limited voting rights (see “ Summary of Organizational Documents ”). On all matters except the election of directors, the Shares and the Company’s Series

B Common Stock shall vot e together as a class.

Upon the conclusion of this Offering, the Company intends to offer up to $50,000,000 in equity securities and in connection therewith the voting rights and other rights and privileges of the Series A Common Stock may be lessened, al tered or removed.

Right of First

Offer in Future

Issuances: All holders of Shares shall have a pro rata right, based on their respective

percentage equity ownership in the Company (assuming the exercise of all options outstanding under any stock plan th at may be adopted in the future and the conversion of any convertible securities issued by the Company in the future, if any), to participate in subsequent issuances of equity securities of the Company, subject to customary carve

- outs.

“Piggy

- Back”
Regist ration Rights: The holders of the Shares shall be entitled to “piggy

- back” registration rights

at the time that the Company proposes to register its shares under the Securities Act in connection with the public offering of such shares; subject to the right s, however, of the Company and its underwriters to reduce the number of shares proposed to be registered in view of market conditions.

Estimated Use of

Proceeds: For operations leading to and beyond final certification from the U.S. Federal

Aviation Administration and the Department of Transportation to commence operations after the FAA accepts the operations manuals (see

“ Estimated Sources and Uses of Proceeds of the Offering ”).

No Public Market

for Shares: There is no public market for the Shares, or any other securities of the

Company, and the transferability of the Shares is restricted.

Eligible Investors: The Shares are offered solely to “accredited investors” as defined in Rule

501(a) of Regulation D promulgated under the Securities Act of 193 3, as amended, and a limited number of non

- accredited investors as governed by Rule 506 of Regulation D.

Subscription

Documents: The purchase of the Shares shall be made pursuant to the Subscription

Agreement and Confidential Purchaser Questionnaire conta ined therein, the

form of which is attached hereto as Exhibit A . Investors will also be required to sign the Investors’ Rights Agreement, the form of which is attached hereto

as Exhibit B

.

Placement Agent: The Company may engage broker/dealers and syndicators to offer and sell

the Shares and the Company will be responsible for or obligated to pay commissions or fees, provided that in no event shall the Company pay sellingCONFIDENTIAL Page 3 commissions or fees in excess of 8% as reflected on the cover page of this

Memorandum.

Risk Factors: Purchase of the Shares by an investor is speculative and involves a high degree

of risk (see “Risk Factors” ).

INVESTOR SUITABILITY STANDARDS

The offer and sale of the Shares (this “Offering”) is being made in reliance on the exemption from the registration requirements of the Securities Act under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. Accordingly , unless otherwise agreed or authorized by the Company, distribution of this Memorandum has been strictly limited to: (1) “accredited investors”; and (2) persons who satisfy the requirements and make the representations set forth below. The Company reserve s the right, in its sole discretion, to (i) accommodate non

accredited investors in accordance with Regulation D promulgated under the Securities Act; and (ii) declare any prospective investor ineligible to purchase the Shares based on any information

that may become known or available to the Company concerning the suitability of such prospective investor, or for any reason, or for no reason at all.

This investment will be sold only to investors who satisfy the investor suitability requirements

establishe d by the Company and as may be required under federal or state law. Each investor must represent in writing that he/she/it meets, among others, ALL of the following requirements:

(1) He/She/It has received, read and fully understands this Memorandum. He/She/I t is basing his/her/its decision to invest on this Memorandum. He/she/it has relied on the information contained in this Memorandum and has not relied upon any representations made by any other person; and

(2) He/She/It understands that an investment in the S hares involves substantial risks and he/she/it is fully cognizant of and understands all of the risk factors associated with the Shares, including, without limitation, those risks set forth in the “ Risk

Factors ” section of this Memorandum; and

(3) His/Her/Its overall commitment to investments that are not readily marketable is not disproportionate to his/her/its individual net worth, and his/her/its

investment in the Shares will not cause such overall commitment in such

investments to become excessi ve; and

(4) He/She/It has adequate means of providing for his/her/its financial requirements, both current and anticipated, and has no need for liquidity in this investment; and

(5) He/She/It can bear, and is willing to accept, the economic risk of losing his/her /its entire investment in the Shares; andCONFIDENTIAL Page 4

(6) He/She/It is acquiring the Shares for his/her/its own account and for investment purposes only and has no present intention, agreement or arrangement for the distribution, transfer, assignment, resale or subdivisi on of the Shares.

In addition to certain institutional investors, an investor who meets one or more of the following tests may qualify as an “Accredited Investor”:

(1) The investor is a natural person whose net worth, or joint net worth with spouse, at the tim e of purchase exceeds $1 million; or

(2) The investor is a natural person whose individual gross income exceeded $200,000 or whose joint income with that person’s spouse exceeded $300,000 in 2009 and 2010, and who reasonably expects to reach the same income le vel in 2011; or

(3) The investor is a trust with total assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a “sophisticated person” as defined in Rule 506(b)(2)(ii) of Regulatio n D; or

(4) The investor is a director or executive officer of the Company; or

(5) The investor is an entity, all of the owners of which are accredited investors; or

(6) The investor is: (a) a bank as defined in Section 3(a)(2) of the Act, or any savings and loan

asso ciation or other institution as defined in Section 3(a)(5)(A) of the Act; (b) any broker or dealer registered pursuant to Section 15 the Securities Exchange Act of 1934; (c) an insurance company as defined in Section 2(13) of the Act; (d) an investment com pany registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of such Act; (e) a Small Business Investment Company licensed by the Shared States Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; (f) an employee benefit plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions if such plan has total assets in excess of $5 million; (g) an employee benefit plan within the meaning of Title I of the Employee Retirement Income Securities Act of 1974 (“ERISA”), and the employee benefit plan has assets in excess of $5 million, or the investment decision is made by a p lan fiduciary, as defined in Section 3(21) of such act, that is either a bank, savings and loan institution, insurance company or registered investment advisor, or, if a self directed plan, with investment decisions made solely by persons that are
accredit ed investors; (h) a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940; or (i) an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar busi ness trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5

million.

The Securities and Exchange Commission (the “SEC”) has expressed the view that, in determining personal income, an investor should add to adjusted gross income any amount of income received that is tax exempt under Section 103 of the Internal Revenue Code (the “Code”), losses claimed as a limited partner in any limited partnership as reported on Schedule E of Form 1 040, deductions claimed for depletion under Section 611 of the Code and any amount by which income from long

term capital gains has been reduced in arriving at adjusted gross income pursuant to Section 1202 of the Code. The Company reserves the right to ma ke its own judgment on whether any prospective investor meets the suitability standards. Certain other representations and warranties are contained in the Subscription Agreement. In addition, a prospective investor will be requiredCONFIDENTIAL Page 5

to provide such evidenc e as may be deemed necessary to substantiate the accuracy of such representations. The above suitability standards are minimum requirements for prospective investors, and the satisfaction of these standards does not necessarily mean that the Shares are a

s uitable investment for a prospective investor.

EACH PROSPECTIVE INVESTOR SHOULD OBTAIN THE ADVICE OF THE INVESTOR’S
ATTORNEY, TAX CONSULTANT AND BUSINESS ADVISER WITH RESPECT TO THE LEGAL, TAX AND BUSINESS ASPECTS OF THIS INVESTMENT PRIOR TO

SUBSCRIBING FO R THE SHARES. THIS MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL TO, OR A SOLICITATION OF AN OFFER TO BUY FROM, ANY

PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET FORTH HEREIN

AND IN THE SUBSCRIPTION AGREEMENT.

RISK FACTORS

The purchase of the Shares involves a high

- degree of risk. Prospective investors should carefully

consider the risks described below in addition to other information set forth in this Memorandum before making a business and/or financial decision to invest. The risks and

unce rtainties described below are not exclusive. Additional risks and uncertainties not presently known or that the Company currently deems immaterial may also impair its business operations. If one or more of the following risks actually occur, the Company’s business operations and financial condition could be materially adversely affected. In that case, an investor may lose all or part of his or her financial participation.

Risks Relating to Our Company

We are an early stage business with limited working capi tal and no history of performance.

The Company was formed to operate a low fare, full service airline under the California Pacific AirlinesTM name. Although many of our managerial and supervisory personnel have had substantial airline industry experience, we have no operating history. There is no assurance that the Company will be profitable in the future. An investment in the Shares is highly speculative and is only a suitable investment for an investor who recognizes the significant level of risks

involve d, has no need for liquidity in the investment, and who can afford a total loss of his or her

investment . We have not created any revenues and, as a result of the significant expenditures that we plan to make with the proceeds from this Offering, we may in cur significant operating losses and have negative net cash flow from operations on both a quarterly and annual basis for the foreseeable future. For these and other reasons, there can be no assurance that we will ever achieve our goals or be able to sust ain profitability.

McClellan

- Palomar Airport historically has been unable to support commercial airline businesses.

We will operate our airline out of McClellan

- Palomar Airport (the “Airport”) in Carlsbad, California. Commercial flights began at the Airport in 1991 and, at one time, the Airport wasCONFIDENTIAL Page 6

serviced by three different airlines concurrently. Today, Skywest Airlin es, operating as United Express, is the only commercial airline operating at the Airport. United Express flies round trip to Los Angeles (LAX). In 1999, the Airport documented the busiest year on record with 291,873 landing and takeoff operations. Since th at operations peak was achieved there has been an overall decline in air traffic at the Airport. There can be no assurance that sufficient public support for our airline will develop, and as a result there can be no assurance that we will ever achieve or g oals or be able to sustain profitability.

Our projections are speculative.

Our sales and revenue projections set forth herein have been estimated by using approximations of the available and applicable market. Furthermore, they have been based upon assumptions of certain market penetration and market capture. There is no way to determine the amount of future actual sales and revenues, and there is no assurance that the amount will not be less than those anticipated. Additionally, there is no assuranc e we will capture the market share anticipated in the projected time period, or at all.

Expense projections are estimations.

Capital requirements for our operations as projected herein have been estimated based upon known and reasonably foreseeable costs , as well as limited contingency for unforeseen expenses. There is no assurance that actual expenditures will align with forecasts and that currently anticipated capital needs will be sufficient to accommodate operations.

Our business is subject to regula tory approval and there can be no assurance that such approval will be granted.

As part of any new airline’s regulatory review process, the U.S. Federal Aviation Administration (FAA) performs a comprehensive safety review and first examines all aspects of a new carrier’s safety programs, operations manuals, training procedures, and personnel qualifications. It then uses tabletop operations exercises, aircraft evacuations, and actual flights to test the safety effectiveness of airline flight crews and manage ment in simulated real world scenarios (“proving runs”). The “proving run” flights are the final step in this Systems Safety and operational review

process.

T here can be no assurance that we will receive such acceptance from the FAA. Full acceptance

could take as long as 180 days to obtain. If declined, we may reapply for certification and if ultimately denied we will return the escrowed funds to subscribers.

Our business is subject to extensive regulation which may restrict our growth or our operations

or increase our costs.CONFIDENTIAL Page 7

Our business, financial condition and results of operations could be adversely affected if we fail to maintain the required foreign and domestic governmental authorizations necessary for our operations. In order to maintain the neces sary authorizations, we must continue to comply with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future. We cannot predict or control any actions that

aviatio n regulators may take in the future, which could include restricting our operations or imposing new and costly regulations. Also, our fares are technically subject to review by countries to which we fly, any of which may in the future impose restrictions o n our fares.

The most active government regulator is the FAA. The FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. FAA requirements cover, among oth er things, collision avoidance systems, airborne wind shear avoidance systems, noise abatement and other environmental issues, and increased inspections and maintenance procedures to be conducted on older aircraft. We expect to continue

incurring expenses to comply with the FAA’s regulations, and any increase in the cost of compliance could have an adverse effect on our financial condition and results of operations. Additional new regulations continue to be regularly implemented by the U.S. Transportation

S ecurity Administration, or TSA, as well.

We plan to continue to increase the scale of our operations and revenues by expanding our presence on new and existing routes. Our ability to successfully implement this strategy will depend upon many factors, seve ral of which are outside our control or subject to change. These factors include the permanence of a suitable political, economic and regulatory environment in the countries in which we operate or intend to operate and our ability to identify strategic loc al

partners.

We are highly dependent on our home base at McClellan

- Palomar Airport.

Our business is heavily dependent on our operations at our home base at Carlsbad, California’s

McClellan

- Palomar Airport. Substantially all of our flights will either depart from or arrive at our home base. Our route structure is highly localized, not rely ing on connecting passengers. Like other airlines, we are subject to delays caused by factors beyond our control, including air traffic congestion at airports, adverse weather conditions and increased security measures. Delays inconvenience passengers, red uce aircraft utilization and increase costs, all of which in turn will negatively affect our profitability. A significant interruption or disruption in service at McClellan

Palomar Airport could have a serious impact on our business, financial condition an d operating

results.

McClel lan

- Palomar Airport is publicly owned by the County of San Diego. We depend on our good working relationship with the County of San Diego and the Manager that operates the airport to ensure that we have adequate access to aircraft parking positions, landing rights and gate assignments fo r our aircraft to accommodate our current operations and future plans for expansion. In connection with the ongoing or future expansion of the airport, the airport authority could assign new capacity to competing airlines or could reassign resources that a reCONFIDENTIAL Page 8

currently used by us to other aircraft operators. Either such event could result in significant new competition for our routes or could otherwise have a material adverse effect on our current operations or ability for future growth.

We are exposed to increases in landing charges and other airport access fees and cannot be assured access to adequate facilities and landing rights necessary to achieve our expansion plans.

We must pay fees to airport operators for the use of their facilities. Any substanti al increase in airport charges could have a material adverse impact on our results of operations. Passenger taxes and airport charges have also increased in recent years, sometimes substantially. We cannot assure you that the airports used by us will not i mpose, or further increase, passenger taxes and airport charges in the future, and any such increases could have an adverse effect on our financial condition and results of operations.

Certain airports that we will serve are subject to capacity constrain ts and impose slot restrictions during certain periods of the day. We cannot assure you that we will be able to obtain a sufficient number of slots, gates and other facilities at airports to expand our services as we are proposing to do. It is also possibl e that airports not currently subject to capacity constraints may become so in the future. In addition, an airline must use its slots on a regular and timely basis or risk having

those slots re

- allocated to others. Where slots or other airport resources ar e not available or their availability is restricted in some way, we may have to amend our schedules, change routes or reduce aircraft utilization. Any of these alternatives could have an adverse financial impact on us.

Some of the airports to which we fl y impose various restrictions, including limits on aircraft noise levels, limits on the number of average daily departures and curfews on runway use. In addition, we cannot assure you that airports at which there are no such restrictions may not implement restrictions in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability to continue to provide or to increase services at such airports. At present, all of the aircraft we contemplate wil l comply with Stage 4 noise abatement in effect at all the airports we intend to serve.

If we were to determine that our aircraft, parts or inventory were impaired, it would have a significant adverse effect on our operating results.

We will perform impa irment reviews when there are particular risks of impairment or other indicators described in Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long

- Lived Assets , in order to determine whether we will need to reduce the carrying value of our aircraft and related assets with a related charge to our prospective earnings. In addition to the fact that the value of our fleet declines as it ages, the excess capacity that currently exists in the airline industry, air line bankruptcies and other factors beyond our control may further contribute to the decline of the fair market value of our aircraft and related rotable parts and inventory. If such impairment does occur, we would be required under U.S. GAAP to write down these assets to their estimated fair market value through a charge to earnings. A significant charge to earnings would adversely affect our financial condition and operating results. In addition, in the event we incur indebtedness to acquire additional ai rcraft, the interest rates on and the availabilityCONFIDENTIAL Page 9

of certain aircraft financing loans are tied to the value of the aircraft securing the loans. If those values were to decrease substantially, our interest rates may rise or the lenders under those loans

ma y cease extending credit to us, either of which could have an adverse impact on our financial condition and results of operations.

We rely on information technology systems, and we may become more dependent on such systems in the future.

We will rely up on information technology systems to operate our business and increase our efficiency. We will be highly reliant on certain critical systems, such as the Navitaire computer

reservation and check

- in system and Navtech Systems Support, Inc. for Flight Planni ng and Scheduling. Other systems are designed to decrease distribution costs through Internet reservations and to maximize cargo distributions. These systems may not deliver their anticipated benefits. Also, in transitioning to new systems we may lose data or experience interruptions in service, which could harm our business. These technology systems may be subject to change as the Company deems necessary.

Our quarterly results can fluctuate substantially.

The airline industry is by nature cyclical and se asonal, and our operating results may vary from quarter to quarter. We expect to experience the highest levels of traffic and revenue in July and August, with a smaller peak in traffic in March through May. In general, demand for air travel is highest in t he third quarter because of the increase in vacation travel during these periods relative to the remainder of the year. We generally expect to experience our lowest levels of passenger traffic in January and February. Given our high proportion of fixed cos ts, seasonality can affect our profitability from quarter to quarter. Demand for air travel is also affected by factors such as economic conditions, war or the threat of war, terrorism or the threat of terrorism, fare levels and

weather conditions.

Our r eputation and financial results could be harmed in the event of an accident or incident involving our aircraft.

An accident or incident involving one of our aircraft could involve significant claims by injured passengers and others, as well as significa nt costs related to the repair or replacement of a damaged aircraft and its temporary or permanent loss from service. We are required to carry liability insurance and hull insurance, but the amount of such liability and hull insurance coverage may

not be a dequate and we may be forced to bear substantial losses in the event of any future accident. Our insurance premiums may also increase due to an accident or incident affecting one of our aircraft. Substantial claims resulting from an accident in excess of o ur related insurance coverage or increased premiums would harm our business and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause the public to perceive us as less safe

or reliable than other airlines which could harm our business and results of operations. Our business would also be significantly harmed if the public avoids flying our aircraft due to an adverse perception of our initial operating aircraft, the Embraer 170, due to safety concerns orCONFIDENTIAL Page 10

other pro blems, whether real or perceived, or in the event of an accident involving either of those types of aircraft.

Our maintenance costs will increase as our fleet ages and as we perform maintenance on our

older fleet.

Because we expect the average age of our aircraft to be approximately 2 years at the time our operations are launched, our fleet will require less maintenance now than it will in the future. We expect to incur a relatively low level of maintenance expenses initially because we believe most of the parts on our aircraft will be still covered under multi

- year warranties. Our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our operating expenses, as our fleet ages and these warranties expire.

We will rely on third parties to provide our customers and us with facilities and services that are integral to our business.

We will enter into agreements with third

- party contractors to provide certain facilities and se rvices required for our operations, such as heavy aircraft and engine maintenance; call center services; and catering, ground handling, cargo and baggage handling, or “below the wing” aircraft services. These agreements with third

- party contractors may be subject to termination on short notice. The loss or expiration of these agreements or our inability to renew these agreements or to negotiate new agreements with other providers at comparable rates could harm our business and results of operations. Further , our reliance on third parties to provide essential services on our behalf gives us less control over the costs, efficiency, timeliness and quality of those services. A contractor’s negligence could compromise our aircraft or endanger passengers and crew. This could also have a material adverse effect on our business. We expect to be dependent on such agreements and as we commence operations and enter new markets, we will need to have similar agreements in place.

We will depend on a limited number of supp liers for our aircraft.

One of the elements of our business strategy is to save costs by operating a simplified aircraft fleet. We will initially operate the Embraer 170 aircraft. We currently intend that we will continue to rely exclusively on these air craft for the foreseeable future. If any of our aircraft were unable to perform their contractual obligations, or if we are unable to acquire or lease new aircraft from aircraft manufacturers or lessors on acceptable terms, we would have to find another su pplier for a similar type of aircraft.

If we have to lease or purchase aircraft from another supplier, we could lose the benefits we derive from our current fleet composition. We cannot assure you that any replacement aircraft would have the same operat ing advantages as the aircraft that would be replaced or that we could lease or purchase aircraft that would be as reliable and efficient as the Embraer 170. We may also incur substantial transition costs, including costs associated with retraining our emp loyees, replacing ourCONFIDENTIAL Page 11

manuals and adapting our facilities. Our operations could also be harmed by the failure or inability of Embraer to provide sufficient parts or related support services on a timely basis.

Our business would be significantly harmed if a design defect or mechanical problem with the Embraer 170 were discovered that would ground any of our aircraft while the defect or problem was corrected, assuming it could be corrected at all. The use of our aircraft could be suspended or restricted by regulatory authorities in the event of any actual or perceived mechanical or design problems. Our business would also be significantly harmed if the public began to avoid flying with us due to an adverse perception of the Embraer 170 stemming from safety c oncerns or other problems, whether real or perceived, or in the event of an accident involving either of those types of aircraft. Carriers that operate a more diversified fleet are better positioned than we are to manage such events.

We are dependent on key personnel.

Our success depends to a significant extent upon the efforts and abilities of our senior management team and key financial, commercial, operating and maintenance personnel. We currently have no management employment agreements or non

- compet ition agreements in place with members of our senior management team. Competition for highly qualified personnel is intense, and the loss of any executive officer, senior manager or other key employee without adequate replacement or the inability to attrac t new qualified personnel could have a material adverse effect upon our business, operating results and financial condition.

Our Founder and Chairman is 92 years old.

Theodore (“Ted”) L. Vallas, our Chairman of the Board, is the founder of the Company and its visionary. California Pacific AirlinesTM has been Ted’s vision for decades. Although Ted is in good

health , he is 92 years old. We are heavily reliant on Ted’s skil ls, efforts and abilities for implementation of our business plan and for the success of our business. In the event of Ted’s death or disability that would prevent him from serving in the capacity as Chairman of the Board as determined by the Board, our V ice Chairman Frank Goldberg, will serve as Interim Chairman of the Board until the time that the Board can find suitable replacements. There is no assurance that we will be able to find a leader with the skills and expertise of Ted in a timely manner, if a t all. The failure to do so could have a material adverse effect upon our business.

Ted Vallas controls 100% of our Series B Common Stock and a large portion of our capital stock, and he can control the outcome, or greatly influence the outcome, of al l matters on

which stockholders vote.

Ted Vallas owns 100% of our Series B Common Stock. Our Series B Common Stock controls voting on the election of directors (see “ Summary of Organizational Documents ”). Therefore, Mr.

Vallas controls the election of di rectors. In addition, by virtue of his ownership of a large portion of our capital stock, Mr. Vallas will be able to control the outcome, or greatly influence the outcome, on all other matters requiring stockholder approval, including the amendment of ourCONFIDENTIAL Page 12

articles of incorporation, and any merger, consolidation or sale of all or substantially all of our assets or other transactions resulting in a change of control of our company. In addition, as our Chairman, Mr. Vallas has and will continue to have signif icant influence over our strategy and other matters. Mr. Vallas’s interests may not always coincide with the interests of other holders of

our Series A Common Stock.

At some point after the successful completion of this Offering, Mr. Vallas currently intends to convert his Series B Common Stock to Series A Common Stock on a 1:1 basis and suspend any

conditions of the Series B Common Stock.

In the future our activities may be in Mexico, which is subject to political and economic instability.

A limited portion of our activities are in Mexico, which is subject to political and economic instability. We may be materially adversely affected by risks associated with conducting operations in this country, including but not limited to:

 political instability an d violence;

 war and civil disturbance;

 expropriation or nationalization;

 changing fiscal regimes;

 fluctuations in currency exchange rates;

 high rates of inflation;

 underdeveloped industrial and economic infrastructure; and

 unenforceability of contractual r ights.

We cannot accurately predict the effect of these factors. In addition, legislation in the United States regulating foreign trade, investment and taxation could have a material adverse effect on our financial condition, results of operations and cas h flows.

We are subject to strict environmental controls.

Compliance with statutory environmental quality requirements may necessitate significant capital outlays, may materially affect our earning power, or may cause material changes in our intended

acti vities. No assurance can be given that environmental standards imposed by either federal or state governments will not be changed or become more stringent, thereby possibly materially adversely affecting our proposed activities. In addition, if we are un able to fund fully the cost of remediation of any environmental condition, we may be required to suspend operations or enter into interim compliance measures pending completion of the required remediation.CONFIDENTIAL Page 13

Our business is dependent on meeting our capital requirements and liquidity, and we plan to secure subsequent funding to achieve our business objectives which we cannot assure will be available on favorable terms, if at all, will be dilutive to our existing stockholders and may be on

terms that are more favorable and senior to the Shares.

We will adjust our expenditures in consideration of our available resources and the tasks to be performed. Our management and our Board of Directors monitor our overall costs and expenses and, if necessary, will ad just our programs and planned expenditures in an attempt to ensure we have sufficient operating capital. We intend to raise approximately $50 million in financing in addition to the $11.52 million sought in this Offering, and have engaged our Placement Age nt to secure such funding. There can be no assurance that additional funding will be available on acceptable terms, if at all. Equity financing, if available, will result in substantial dilution to existing shareholders, including purchasers of the Shares , and may have rights, preferences and privileges senior to our Series A Common Stock. If we cannot obtain needed funds for operations, we may be forced to curtail or cease our activities.

Risks Relating to the Airline Industry

The airline industry is highly competitive.

We face intense indirect competition throughout our route network. Overall airline industry profit margins are low and industry earnings are volatile. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on - time performance, frequent flyer programs and other services. While no airline directly competes on any of our proposed routes from Carlsbad, there is strong, indirect competition from San Diego’s Lindbergh Field to each of our proposed

destinations. Al l of our competitors have larger customer bases and greater brand recognition in the markets we serve, and all of our competitors have significantly greater financial and marketing resources than we have. The commencement of service on any of the proposed routes we will serve by existing or new carriers could negatively impact our operating results. Likewise, competitors’ service on routes that we are targeting for expansion may make those expansion plans less

attractive.

We must constantly react to chang es in prices and services offered by our competitors to remain competitive. The airline industry is highly susceptible to price discounting, particularly because airlines incur very low marginal costs for providing service to passengers occupying otherwise unsold seats. Carriers use discount fares to stimulate traffic during periods of lower demand to generate cash flow and to increase market share. Any lower fares offered by one airline are often matched by competing airlines, which often results in lower industry yields with little or no increase in traffic levels. Price competition among airlines in the future could lead to lower fares or passenger traffic on some or all of our routes, which could negatively impact our profitability. We

cannot assure you that any competitors will not undercut our fares or increase capacity on routes in an effort to increase their respective market shares. Although we intend to compete vigorously and to assert our rights against any predatory conduct, such activity by other airlines could reduce the level of fares or passenger traffic on our routes to the point where profitable levels of operations could not be maintained. Due to our smaller size and financial resources compared toCONFIDENTIAL Page 14

several of our competitors, we may be less able to withstand aggressive marketing tactics or fare wars engaged in by our competitors should such events occur.

Significant changes or extended periods of high fuel costs or fuel supply disruptions could materially affect our operating results.

Fuel costs will constitute a significant portion of our total operating expenses. As a result, substantial increases in fuel costs materially affect our operating results. Jet fuel costs have been subject to wide fluctuations as a result of increases in de mand, sudden disruptions in and other concerns about global supply, as well as market speculation. Both the cost and availability of fuel are subject to many economic and political factors and events occurring throughout the world that

we can neither contr ol nor accurately predict, including international political and economic circumstances such as the political instability in major oil

- exporting countries in Latin America, Africa and Asia. As a result, fuel prices continue to exhibit substantial volatilit y.

We do not plan to enter into hedging agreements for our projected fuel needs, which would provide limited protection against future increases in the price of fuel. If a future fuel supply shortage were to arise as a result of production curtailments b y the Organization of the Petroleum Exporting Countries, or OPEC, a disruption of oil imports, supply disruptions resulting from severe weather or natural disasters, the continued unrest in Iraq, other conflicts in the Middle East or otherwise, higher fuel prices or further reductions of scheduled airline services could result. Significant increases in fuel costs would materially and negatively affect our operating results. We cannot assure you that we would be able to offset any increases in the price of f uel by increasing

our fares.

Because the airline industry is characterized by high fixed costs and relatively elastic revenues, airlines cannot quickly reduce their costs to respond to shortfalls in expected revenue.

The airline industry is characterized by low gross profit margins, high fixed costs and revenues that generally exhibit substantially greater elasticity than costs. The operating costs of each flight do not vary significantly with the number of passengers flown and, therefore, a relatively small change in the number of passengers, fare pricing or traffic mix could have a significant effect on operating and financial results. These fixed costs cannot be adjusted quickly to respond to changes in

revenues and a shortfall from expected revenue levels could have a material adverse effect on our

net income.

Airline bankruptcies could adversely affect the industry.

In recent years, several air carriers have sought to reorganize under Chapter 11 of the
United States Bankruptcy Code, including some of our competitors. Successful completion ofCONFIDENTIAL Page 15

such reorganizations could present us with competitors with significantly lower operating costs derived from labor, supply and financing contracts renegotiated under the p rotection of the U.S. Bankruptcy Code. In addition, air carriers involved in reorganizations have historically undertaken substantial fare discounting in order to maintain cash flows and to enhance continued customer loyalty. Such fare discounting could fu rther lower yields for all carriers, including us. Further, the market value of aircraft would likely be negatively impacted if a number of air carriers seek to reduce capacity by eliminating aircraft from their fleets.

Terrorist attacks on the United St ates have adversely affected, and any additional terrorist attacks or hostilities would further adversely affect, the airline industry by decreasing demand and increasing costs.

The terrorist attacks in the United States on September 11, 2001 had a severe adverse impact on the airline industry. Airline traffic in the United States fell dramatically after the attacks. Our revenues depend on the number of passengers traveling on our flights. Therefore, any future terrorist attacks or threat of attacks, wheth er or not involving commercial aircraft, any increase in hostilities relating to reprisals against terrorist organizations or otherwise and any related economic impact could result in decreased passenger traffic and materially and negatively affect our bus iness, financial condition and results of operations.

The airline industry experienced increased costs following the 2001 terrorist attacks. Airlines have been required to adopt additional security measures and may be required to comply with more

rigorou s security guidelines in the future. Premiums for insurance against aircraft damage and liability to third parties increased substantially, and insurers could reduce their coverage or increase their premiums even further in the event of additional terroris t attacks, hijackings, airline crashes or other events adversely affecting the airline industry abroad or in the United States. In the future, certain aviation insurance could become unaffordable, unavailable or available only for

reduced amounts of covera ge that are insufficient to comply with the levels of insurance coverage required by aircraft lenders and lessors or applicable government regulations. Increases in the cost of insurance may result in both higher airline ticket prices and a decreased deman d for air travel generally, which could materially and negatively affect our business, financial condition and results of operations.

The negative impact on the airline industry of the current global state of affairs, including the Iraq war and the thre

at of another outbreak of communicable disease, may continue or possibly

worsen.

The combination of continued instability in the aftermath of in the middle east and the public’s concerns about the possibility of an outbreak of a disease that can be spre ad by fellow commercial air passengers (such as avian flu, H1N1 or Severe Acute Respiratory Syndrome) has continued to have a negative impact on the public’s willingness to travel by air. It is impossible to determine if

and when such adverse effects will abate and whether they will further decrease demand for airCONFIDENTIAL Page 16

travel, which could materially and negatively affect our business, financial condition and results of

operations.

Government regulation may impose substantial impediments to our ability to operate our business profitably, or at all.

We are subject to regulation by the DOT and the FAA under the provisions of Title 49 of the United States Code, and by certain other governmental agencies. The DOT regulates principally economic issues affecting air service, including, among other matters, air carrier certification and fitness, insurance, certain leasing arrangements, allocation of international route rights, authorization of proposed scheduled and charter operations, tariffs, advertising, consum er protection and competitive practices.

The DOT issued a final order for California Pacific Airlines on August 25, 2011 allowing the certification process to proceed. Two extensions to this order have been approved by the DOT

that to allow the FAA to c ontinue the 121 certification process.

We are also subject to the jurisdiction of and regulation by the FAA primarily with respect to aircraft maintenance and operations generally, including flight operations, equipment maintenance, aircraft noise, ground facilities and equipment, flight dispatch, communications, training and licensing of flight crews, maintenance and flight dispatch personnel, flight time, aircraft registration and inspection and other matters relating to air safety. The FAA requires each air carrier to obtain and maintain an operating certificate and certificates of airworthiness for all of its aircraft. The FAA has the authority to suspend temporarily or revoke permanently the operating authority and certificates of California Pacific Ai rlines for failure to comply with FAA regulations and to assess civil penalties for such failures. Our flight personnel, flight and emergency procedures, aircraft and maintenance facilities will be subject to periodic inspections and tests by
the FAA. We b elieve the FAA often applies strict scrutiny to the operations of small, newer airlines to ensure proper compliance with FAA regulations making them susceptible to regulatory demands that can negatively impact their operations. A modification, suspension o r revocation of any of our DOT or FAA authorizations or certificates could have a material adverse effect upon the Company.

There can be no assurance that we will be able to persuade the DOT to increase the number of aircraft permitted to be flown under our DOT certificate authority.

Under legislation enacted in the United States in 1990 and related FAA regulations, each carrier’s aircraft fleet generally must comply with certain “Stage 3” noise restrictions by certain specified deadlines. Currently, al l of our aircraft meet the Stage 3 requirements, with our Embraer 170 aircraft as “Stage 4” aircraft. The FAA has also issued a series of Airworthiness Directives under its “Aging Aircraft” program. Although this program is not currently applicable to our aircraft, if the FAA were to revise its Airworthiness Directives so as to accelerate the deadlines for making required maintenance or repairs, or if new Airworthiness Directives were promulgated, they could have a material adverse effect on the Company.CONFIDENTIAL Page 17

In addition, our maintenance activities involve the use of materials which are regulated as hazardous under federal, state and local law. We are required to maintain programs to protect the safety of our employees who use these materials and to manage and dispose of any waste generated by the use of these materials in compliance with all such laws. In addition, we are subject to compliance with standards for aircraft exhaust emissions promulgated by the Environmental Protection Agency (EPA) pursuant to the Clean Air Act of 1970, as amended. More generally, we are also subject to federal, state and local regulations relating to protection of the environment and to discharge of materials into the environment.

We are also subject to regulations adopted by the various local authorities which operate the airports served throughout the route networks, including but not limited, to aircraft noise regulations and curfews. While we intend to obtain and maintain all appropriate government licenses and to comply with all appropriate standards, there can be no assurance that such licenses can be obtained or maintained or that such standards will not be changed in the future.

Risks Related to This Offering

There will not be a market for your Shares and there will be r estrictions placed on their

transfer.

Our common stock is not currently traded on any stock exchange. There will not be a public market for your Shares. As a result, you may not be able to sell your Shares at the time you desire and any sale may be at a su bstantial discount. Because the Shares are being sold in accordance with exemptions from the registration and/or qualification requirements of federal and state securities laws, resale or further transfer of the Shares is highly restricted by such securit ies laws which an investor desiring to resell or transfer his/her/its securities must fully comply with and pay all of the costs associated with. The share certificates evidencing the Shares will have appropriate legends. Therefore, it may be difficult for you to sell your Shares promptly or at all. If you are able to sell your Shares, you may only be able to sell them at a substantial discount from the price you paid. We cannot assure you that the Shares will ever appreciate in value to the point where, e ven if such shares were sold at a substantial discount, you would receive the price you paid for your Shares.

The offering price is based upon future projections.

The offering price of the Shares is based upon management’s experience with similar projec ts and the anticipated expenses to be paid as a result of this Offering. These prices are no indication of the value of the Shares or of our assets. No assurance is or can be given that any of the Shares, if transferable, could be sold for the offering pri ce or for any amount.

We do not intend to declare a cash or stock dividend in the foreseeable future.CONFIDENTIAL Page 18

Because we do not intend to declare or pay any dividends in the foreseeable future, we cannot assure that holders of the Shares will receive any addition al cash, stock or other dividends on their Shares until we have funds which the Board of Directors determines, in its judgment, can be allocated to dividends. Future dividends on the Shares, if any, will depend on future earnings, financing requirements a nd other factors. There can be no assurance that our operations, conducted wholly through our subsidiary, will result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flow.

The estimates and projections cont ained in this Memorandum may not be realized.

Any estimates or projections in this Memorandum have been prepared on the basis of assumptions and hypotheses, which the management believes to be reasonable. However, no assurance can be given that the pote ntial benefits described in this Memorandum will prove to be available.

Our management will have broad discretion in the application of funds raised from this Offering.

Although we have designated specific uses for the proceeds of this Offering, management will have wide discretion as to the exact priority and timing of the allocation of funds raised from this Offering and may allocate the proceeds differently than investors in this Offering would have preferred, or in a manner that does not incre ase the value of the Shares. The use of the proceeds of this Offering may vary significantly depending upon numerous factors and may be used disproportionately to that set forth in “ Estimated Sources and Uses of Proceeds of the Offering ”. Management may i nvest the proceeds from this Offering in ways in which not all the investors may

agree.

Investors will have little control over operations.

Holders of our Shares shall not be able to control the election of directors, which shall be controlled by the h older(s) of our Series B Common Stock (See “ Summary of Organizational

Documents ”) until Mr. Vallas tenders his Series B Common Stock in exchange for Series A Common Stock. Until that time, subscribers will have limited voting rights, if any, and will have limited control, if any, over management and must rely almost exclusively on the management. Management has complete authority to make decisions regarding our day

- to

- day operations. Management may take actions with which you disagree. Subscribers will n ot have any right to object to most management decisions unless management breaches its duties. Our shareholders will not be able to amend our bylaws in ways that adversely affect our management without its

consent.

Upon the conclusion of this Offering, t he Company intends to offer up to $50,000,000 in equity securities and in connection therewith the voting rights and other rights and privileges of the Series A Common Stock may be lessened, altered or removed.CONFIDENTIAL Page 19

ESTIMATED SOURCES AND USES OF PROCEEDS OF THE OFFERING

The Company seeks to raise $11,520,000 (i) for operations toward obtaining final certification from the FAA and DOT to commence operations after the FAA approves the Company’s operations manuals, and (ii) to implement market strategy and to pu rchase or lease the aircraft

needed for new routes. The following table shows how we expect to use these proceeds. Several of the items listed below cannot be precisely calculated and could vary materially from the amounts

shown.

Estimated Uses (1)

Amou nt ($) Percentage (%)

Aircraft 1,500,000 13.4% Promotion/Advertising 400,000 3.7% Operating Expenses 7,481,600 66.8%

Maintenance Reserve 1,800,000 16.1%

TOTAL: $11,520,000 100%

(1) Not reflected in this table, we may engage broker

- dealers and/or syndicators for fees and commissions of up to 8% of the proceeds of this Offering.

The proceeds from this Offering are designed to carry the Company to a point of operation where

revenues and cash flow offset operating costs. However, there can be no assurance that the Company will have sufficient funds to support ongoing operations. We plan to raise $5 0 million in financing in addition to the $11.52 million sought in this Offering, and have engaged our Placement Agent to secure such funding. There can be no assurance that additional funding will be available on acceptable terms, if at all. Equity financing, if available, will result in substantial dilution to existing shareholders, incl uding purchasers of the Shares, and may have rights, preferences and privileges senior to our Series A Common Stock. If we cannot obtain needed funds for operations, we may be forced to curtail or cease our activities.

DETERMINATION OF OFFERING PRICE

Th e offering price of the Shares has been established at $9.20/ $10.00 per Share. This price was determined solely by the Company and is arbitrary. This price should not be considered a determination of the actual present or future value of the Shares. Addit ionally, this price may not be indicative of the price at which the Shares would trade if they were listed on an exchange or actively traded by brokers nor of the proceeds that an investor would receive if we were liquidated

or dissolved.

DILUTION

The C ompany anticipates that additional capital formation will be required to maintain operations to the point of a positive cash flow. The Company intends to raise an additional $5 0CONFIDENTIAL Page 20

million after the closing of this Offering in order to fund its growth, expand market presence and purchase aircraft and may require additional funds over time. The Company may in the future also seek further debt or equity financing. In addition, the Company may implement an Equity Incentive Plan, whereby the Company will issue sto ck options to compensate its Board members, certain employees, consultants and other service providers, and to attract, retain and award key employees. Accordingly, purchasers of Shares will experience significant dilution of the Share holdings in connecti on with such future issuances.

The dilution depicted herein represents the price difference between what the founding investor Ted Vallas purchased in Series B common stock and the offering of 1,200,000 shares of ‘A’ common stock at $9.20/$10.00 per share.

For the amount of $4.2 million in equity Mr. Vallas has received 1,200,000 shares of Series ‘B’ common stock at a per share price of $3.50 per share. The company has consumed a significant

amount of the Phase I start

- up capital supplied by Mr. Val las. This offering is also deemed as start

up capital, Phase II, at $9.20/$10.00 per share.

The company has not had an audited financial statement to determine start

- up losses, capitalized expenses and resulting net worth. Therefore the dilution compar isons are made between the capital subscriptions of this offering and the initial capital supplied by Mr. Vallas.

The total capital from Phase I ($4.2m) and Phase II ($11.52m) is $15.72m or $6.55 per share. Should this offering be fully subscribed the d ilutive effect on Phase II investors is $2.65/$3.45, depending on the stock purchase price.

Prior to this offering Mr. Vallas purchased ‘B’ shares with cash advances and services to the company categorized as paid in capital in the amount of $4.2m.

Pri ce Per Share Offered $9.20/$10.00

Net capital invested per share in Phase I $3.50

Increase to initial investor attributable to this offering

– Phase II $3.05

Per share value after dilution $6.55

Dilution to Shareholders in Offering (at $9.20/ $10.00 per Share) $2.65/ $3.45

PLAN OF DISTRIBUTION

The Offering of the Shares has not been registered or qualified with, nor has the adequacy or accuracy of this Memorandum been reviewed or passed upon by the SEC or by any state securitiesCONFIDENTIAL Page 21

administrator. The Offering is being made in reliance on the exemption from registration and qualification under Section 4(2) of the Securities Act, and Rule 506 of Regulation D promulgated thereunder. The availability of these exemptions is dependent upon , among other things, the investment intent and qualification of each prospective investor.

O ffering of the Shares

The Shares will be offered on behalf of the Company by the officers and directors of the Company. The Offering will be terminated on Decem ber 31 , 2013 unless sooner terminated or extended in the sole discretion of the Company. The Company reserves the right to refuse subscriptions from any prospective investor for any reason, or no reason at all, in its sole discretion. The Company may exten d or close this Offering at any time in its sole discretion.

Mr. Vallas, our Chairman, Has purchased 217,391 shares in this Offering at $9.20 per share.

LEGAL PROCEEDINGS

The Company is currently not a party to any litigation, nor is the Company aware of any pending

or threatened claims.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Fiduciary Responsibility

The Company’s management is accountable to the Co mpany and shareholders and must exercise good faith in handling the Company’s affairs. The Company’s management has fiduciary responsibility for the safekeeping and use of all its capital and assets, whether or not in the management’s possession or contro l. Additionally, the Company’s management is prohibited from employing, or allowing any other person or entity, to employ its capital or assets in any manner except for the exclusive benefit of the Company’s shareholders.

This is a rapidly developing an d changing area of the law and shareholders and potential investors should consult with their own legal counsel or accountants in this regard. The fiduciary duty of the management is in addition to the other duties and obligations of, and limitations on, the management set forth in the Bylaws, Articles of Incorporation and this Memorandum.

Indemnification for Liabilities

The Bylaws provide that Company will, to the maximum extent permitted by California law and by its Articles of Incorporation, indemnify each of its agents against liability, expenses, judgments, fines, settlements, attorneys’ fees, ERISA taxes or penalties, and other amounts actually and reasonably incurred in connection with any proceeding arising from the fact that the person is or

was a n agent of the Company. Any such indemnification shall only be recoverable out of theCONFIDENTIAL Page 22

assets of the Company and not from the individual shareholders, attorneys’ fees, ERISA taxes or penalties,

In the opinion of the SEC and the securities administrators of most states, indemnification for liabilities arising under securities laws is against public policy and therefore unenforceable. If a claim for indemnification for liabilities under securities laws is asserted by the Company’s

management in connection wi th registration of the Shares, after apprising such court of the position of the SEC and state securities administrators, the Company will submit to a court of appropriate jurisdiction the question of whether indemnification by the Company is against publi c policy and will be governed by the final adjudication of such issue.

Shareholders may have a more limited right of action than they would have absent these provisions in the Bylaws. A successful indemnification of the Company’s management could deplete the assets of the Company. Shareholders who believe that a breach of the management’s fiduciary duty has occurred should consult with their own legal counsel.

Management of the Company

The management of the Company will have power and authority on behalf of the Company to manage its business and affairs. No debt shall be contracted or liability incurred by or on behalf of the Company except by the management. Management will coordinate a nd manage all of the Company’s activities, maintain its records and accounts, and arrange for the preparation and filing of all its tax returns. The Company’s executive officers currently consist of 12 individuals and the Board of Directors currently consi sts of nine individuals, each as listed below. Officers of the Company are chosen by and serve at the discretion of the Board of Directors. The following table

shows information for members of our Board of Directors and our executive officers.

Name Age P osition

Theodore (“Ted”) L. Vallas 92 Founder, Chairman of the Board

John Sel vaggio 66 President CEO, Board Member

Steve Trac as 64 COO, Board Member

Jeff Holshouser 62 VP, Operations

Dean Sinerius 54 VP

, Air Worthiness

Bill Green 62 Chief Pilot

Larry Walthall 45 Director of Safety

Patrick Randall 57 Chief Inspector

Frank Goldberg 81 Vice Chairman, Board MemberCONFIDENTIAL Page 23 Fernando Iriarte
Woodside 43 Board Member

Victor Ramirez 70 Secretary, Board Member

Lloyd Proessor 72 Board Member

John Todd 73 Board Member

Thomas Morrow 72 Board Member

Theodore (“Ted”) L. Vallas

– Founder, Chairman of the Board

Ted Vallas has been a businessman and entrepreneur in North County San Diego for over 60 years. He has developed and managed over 40 businesses rang ing from the construction of golf courses around the world to building and running resorts. Ted was the co

- founder and President of General Design and Instrumentation Company (Sca nivalve), a wind tunnel and instrumentation company. In the 1970’s, Ted form ed a re gional airline called Air Resorts which ran for 17 years. They operated out of Lindbergh Airport serving Burbank, Phoenix, Tucson and other point

- to

- point destinations. Ted also provided charter service as well as support to a number of government programs. During this time, he formed the Super 580 Aircraft Company, which was created to reconfigure and increase the seating capacity of the Convair 580. Ted holds a B.A. de gree from Balboa University and an MBA from Cal Western University.

John Selvaggio

– President CEO, Board Member

John Selvaggio began his Airline career in the American Airlines Finance organization, attaining the position of Chief Accounting Officer (Assistant Controller

- Corporate Accounting) at the age of 26. After spendi ng 13 years in Finance, he moved into Airport Operations, Sales and Marketing, and then headed up the Strategic Planning organization, crafting the successful business plans that created several hubs, AA’s expansion into International markets, the merger w ith AirCal (and subsequent integration), and the creation of American Eagle. He spent six years as President of California

- based Wings West (American Eagle), before joining post

- bankruptcy Midway Airlines as President and CEO, where he created the bankrup tcy

- emergence business plan that moved the company from Chicago to Raleigh Durham in 1995.

After selling Midway to a group of local investors in 1997, John joined US Airways where he managed the regional operations of ten carriers.

Delta Airlines recrui ted John in 1999 for the role of Senior VP

– Airport CustomerCONFIDENTIAL Page 24

Services, where he was responsible for creating Delta’s industry leading airport technology, including the development of the check

- in kiosks and the flat screen monitors at the gates,

as well a s a host of behind

- the

- scenes technologies. His most recognized and important accomplishment was as Founder, President and CEO of Song Airlines, Delta’s highly acclaimed low cost, high tech subsidiary that introduced several new concepts in Customer

Servi ce. After retiring early due to the Delta bankruptcy, Delta re

- hired him in 2007 to be President and CEO of Comair, in order to re

- build employee morale and operational performance.

During his entire airline career, he has developed a reputation for taki ng innovative approaches to tackle the most challenging projects and completing them in record time, and under budget.

Steve Tracas

– COO

Steve Tracas has extensive background within the travel industry, most recently as

President and Chief Executive Officer of Vacation.com

– North America’s Largest Vacation Selling Network

– with member locations throughout the United States and Canada.

Vac ation.com, based in Alexandria, Virginia was owned by Amadeus, a travel technology company, with Tracas reporting to their global headquarters in Madrid, Spain.

Tracas has experience in distribution, electronic commerce, online sales and aviation. Prior

t o Vacation.com, Tracas served as President of Orbitz for Business, based in Chicago. Tracas was responsible for overseeing all aspects of the business including strategy, business development, technology, marketing and sales. In 2004, Orbitz for Business r eceived the Chicago Sun

- Times Innovation Award.

Before joining Orbitz, Tracas served as Vice President for US Airways from 1997

- 2004 based in Crystal City, Virginia. While at US Airways, Tracas led a team that developed

usairways.com which was recognized by eMarketer and NPD New Media Services as the #1 airline Web site. Tracas was also responsible for corporate and travel agency sales, airline distribution, electronic commerce and global Cargo operations.

Previously, Tracas held a number of leadership po sitions during his 19

- year career with AMR Corporation including positions at American Airlines and the Sabre Group. He joined AMR in 1978 and held positions in San Francisco, Austin, Seattle, Los Angeles and Dallas, progressing to Managing Director Passen ger Sales for American Airlines covering
the Western United States.

Tracas also served as Managing Director for the Sabre Group from 1990 until 1995, responsible for travel agency technology sales and training within the Western United

States and later ov ersaw Sabre’s National Account agency program.CONFIDENTIAL Page 25

Tracas holds a Bachelor of Science degree in Aeronautical Technology from Arizona State University in Tempe. His wife Stevi and their two daughters reside in Carlsbad, California.

Jeff Holshouser

– Vice President

, Flight Operations

Dean Sinerius

– Vice President, Technical Operations

Dean has 35 years of experience in aircraft maintenance and maintenance management with FAA Airframe and Power Plant Certification. He began his career in the US Navy as a

P

- 3 flight engineer and later joined Northwest Orient as an A&P mechanic for 6 years before being promoted to management. Dean spent 18 years with Northwest in various management positions before moving on to Champion Air as the Director of Technical Prog rams. Dean has also worked in management and leadership positions for GE Aircraft Engines, America West, Frontier and the Mesa Air Group. Most notable among his accomplishments are the creation, subsequent FAA approval and implementation of the

Aircraft Ma intenance Reliability Program and the maintenance tracking and planning computer systems (Trax and Omega) while working with Champion Air and The Mesa Air Group. Dean graduated from Inver Hills College in Minneapolis, MN, with a degree in

Aviation Busines s Management.

Bill Green

– Chief Pilot

Larry Walthall

– Director of Safety

Patrick Randall

– Chief Inspector

Mr. Randall is a proven, successful professional with a 25 year track record in the aircraft maintenance industry in such capacities as Maintenance Control Supervisor, Maintenance Supervisor, Lead Mechanic, Quality Assurance Inspector, Union Shop Steward, Shift Supervisor, Aircraft Electrician, and In

- Flight Election. Career qualifications include FAA compliant and long

- term service with US Air and Pacific Southwest Airlines (in supervisory and technical positions; multiple current and past certifications in aircraft, airframe, power plant and landing systems.

Frank Goldberg

– Vice Chairman, Board Member

San Diego entrepreneur Frank Goldb erg is Vice Chairman of the CP Air board. A native of Chicago, Goldberg grew up in Madison, WI. He found his way West where he graduated in 1952 from San Diego State University with a double major in business management and economics. Newly graduated with degree in hand, Goldberg proceeded to launch a furniture retail business and manufacturing business that grew to 11 stores in

California and Nevada. His store chain consisted of two brand names known as United

Furniture and Edwards Interiors. His furniture manufacturing plant, Boyd Furniture, wasCONFIDENTIAL Page 26

located in Los Angeles. In 1957, Goldberg began investing in real estate development and holdings. Goldberg entered the world of professional sports ownership in 1971, when he purchased and became the general partn er of the National Basketball Association's Denver Nuggets. In 1987, Goldberg sold his furniture retail businesses but continued with his manufacturing facility. Goldberg has remained successfully involved in real estate development and investment holdings to the present.

Fernando Iriarte Woodside

– Board Member

Fernando Iriarte Woodside is CEO of Sui Generis Entertainment Group and a member of the Board of Directors for Grupo Formula. Both of these Mexican corporations are doing

business in the United St ates. Woodside is a bilingual marketing specialist creating and developing successful advertising campaigns for international brands such as PepsiCo, LG, Nextel, ING, and Ford Motor Company in Mexico. As part of Grupo Formula, a prestigious Mexican radio a nd television group currently expanding into the Hispanic market in the United States, he provides research counsel, behavior and marketing strategies and production expertise to enrich Formula’s content and sales growth. A Rancho Santa Fe resident, one of Woodside’s latest projects is forming a joint venture with AmeriSciences and NASA to launch a program for consumers in Latin America and the Hispanic market in the United States that is introducing nutraceutical products designed

and made for astronauts. Woodside is an avid aviation and racing enthusiast. He is a four

time Formula Cars National Champion in Mexico. He also is the world’s distance record holder for distance paragliding with a motor, as well as having more than 1,100 skydives to

his credit. H e is licensed as a pilot for fixed

- wing aircraft and is in the process of attaining a private helicopter license..

Victor Ramirez

– Secretary, Board Member

Victor is a retired Judge from the Superior Court of San Diego County after 23 years of

service. He served 8 years practicing criminal law and 13 years in Civil Court at both Municipal and Superior levels. He was honored with the highest rating of all judges in San Diego by a San Di ego Union Tribune poll. Victor holds a Bachelor and Masters of Arts

d egree from Pepperdine University and a Law Degree from the University of San Diego

.

Lloyd Prosser

– Board Member

Lloyd is a retired marine lieutenant colonel having served in combat during the Vietnam War. After 23 years of active duty he has worked in the water and wastewater industry first as a water agency staff member and then as a management consultant. He is a 1968 graduate of San Diego State University and resides in Oceanside, CA.

John Todd

– Board Member

John is a Southern California native and settled in Oceanside following a 34 year career of various command and staff positions with the U.S. Marines. His last tour of duty was asCONFIDENTIAL Page 27

the Chief of Staff of MCB Camp Pendleton where he became involved in community organizations and events. John joined the Southern California Edison Company where he

was the Manager of Site Security for the San On ofre Nuclear Ge nerating Station and retired in February 2011.

Upon retirement from the Marines, John participated on several non

- profit boards and civic groups. He is a former Board Secretary for the North County Economic Development Council (now the San Diego North EDC ) and former appointee to the San Diego Regional Housing Task Force. John was appointed to the County’s Blue Ribbon Commission to evaluate the San Diego Chapter of the Red Cross following the Alpine Fire. He has served on both the Oceanside Housing and Pla nning Commissions and he is currently serving on the Rehabilitation Loan Review Committee and the Treasurer’s Investment Oversight Committee. In January 2011, he was appointed to the County’s Board of the San Diego Capital Asset and Leasing Corporation.

J ohn is currently the Treasurer on the Board of Directors for the Ivey Ranch Park Association providing childcare for disabled and abled bodied children. He is also a Board member and past chair of the Oceanside Charitable Foundation.

John is a graduate of George Mason University and he and his wife have two sons and four grandchildren.

Thomas Morrow

– Board Member

Thomas Morrow, Ph.D., has more than 40 years in the communications field as an award winning writer and editor, as well as a newspaper publis her and noted publicist for a number of corporations, including the historic Hotel Del Coronado. Tom was business editor of the daily Blade

- Citizen and later daily columnist for the North County Times. For five years he taught advertising and public relati ons as an adjunct faculty member at Mira Costa College in Oceanside, CA. A published author of seven books to his credit, presently Morrow is chairman of the San Diego Telecom Commission. He holds degrees from Columbia Pacific University, Phoenix College a nd Arizona State University

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The amounts and percentages of common stock beneficially owned prior to this Offering in the following table are based on 1,200,000 shares outstanding immediately prior to the closing. Currently, there are 928,609 shares outstanding.

Beneficial ownership is determined in accordance with the rules of the SEC governing beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a beneficial owner of a security if that person has or controls share voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of th e security. Unless otherwise indicated below, each beneficial owner named in the table below has sole voting and sole investment power with respect to all sharesCONFIDENTIAL Page 28

beneficially owned, subject to community property laws where applicable. Except as indicated by footnote and subject to community property laws where applicable, to our knowledge the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

The following table contains information about the beneficial ownership of our common stock

for:

o Each stockholder known by us to own beneficially more than 5% of the common stock of the Company;

o Each of the directors; and

o Each of the executive officers.

Security Ownership of Certain Beneficial Owners and Management

(1) In exchange for his Shares, Mr. Vallas paid $4,200,000 in cash.

(2) Percentage based on 1,400,000 shares outstanding assuming this Offering is fully subscribed and paid for. Mr. Vallas purchase d 217,391 shares of Series A common stock in this Offering.

(3) Percentage based on 2,400,000 shares outstanding is fully subscribed.

DESCRIPTION OF THE SHARES AND TERMS OF THE OFFERING

We are offering 1,200,000 Shares. There is no public market for the Shares or any other securities of the Company, and no such market will develop as a result of this Offering.

Voting Rights

Title of

Class Name of

Beneficia

l Owners Title/Positi

on Shares

Owned (1) % of

Shares

Outstandi ng Before Offering % of

Shares

Outstandi ng After Offering (2)

Series B

Common
Stock Theodore

L. Vallas Chief

Executive Officer;

Chairman of
the Board 1,200,000

/
1,400,00 100% 58.3%CONFIDENTIAL Page 29

Each Share shall be entitled to one (1) vote on all matters except the election of director s, for which each Share shall have no votes. On all matters except the election of directors, the Shares and the Company’s Series B Common Stock shall vote together as a class.

Dividends

The holders of the Shares shall be entitled to receive dividends w hen and if declared by the Board of Directors to the Company’s shareholders. There can be no assurance that the Company will ever declare dividends (see “ Risk Factors ”).

The following summary description of certain provisions of the Investors’ Rights Agr eement is subject to, and qualified in its entirety by, the full text of the Investors’ Rights Agreement, the

form of which is attached hereto as Exhibit B . In the event of any inconsistencies between the following summary and the Investors’ Rights Agreem ent, the Investors’ Rights Agreement shall

control.

The Company intends to conduct an immediate subsequent offering of equity securities in an amount of approximately $50 million upon the conclusion of this Offering, pursuant to which the rights, prefer ences and privileges of the Series A Common Stock and Series B Common Stock as described herein and the transaction documents likely will be diminished, in an amount that is

undeterminable at this time.

Right of First Offer

All holders of Shares shall have a pro rata right, based on their respective percentage equity ownership in the Company (assuming the exercise of all options outstanding under any stock plan that may be adopted in the future and the conversion of all convertible securities issued by the Company, if any), to participate in subsequent issuances of equity securities of the Company, as more fully set forth in the Investors’ Rights Agreement attached hereto as Exhibit B . This Right of First Offer is subject to customary carve

- outs for deb t arrangements and securities issued: (i) pursuant to any stock option, stock purchase or stock bonus plan approved by the Board of Directors; (ii) pursuant to the acquisition of another business entity or business segment of any such entity by the Company by merger, purchase of substantially all of the assets or other reorganization; (iii) in connection with obtaining lease financing; (iv) in connection with obtaining debt financing; (v) in a public offering; (vi) in connection with any stock split, stock dividend or recapitalization of the Company; (vii) in connection with corporate partnering transactions; (viii) upon conversion of preferred stock outstanding, if any; (ix) pursuant to any other business arrangement not entered into by the Company for the purpose of raising equity capital.

Registration Rights

The holders of the Shares will be entitled to “piggy

- back” registration rights on all registration statements of the Company (other than pursuant to registration statements on Forms S

- 8, S

- 4 or
simil ar registrations of employee benefit plans or business combination transactions), subject toCONFIDENTIAL Page 30

the right of the Company and its underwriters to reduce the number of shares proposed to be registered to a minimum of 20% on a pro rata basis and to complete redu ction on an initial public offering at the underwriter’s discretion as more fully set forth in the Investors’ Rights Agreement

attached hereto as Exhibit B

.

____________________________________________

BUSINESS OF THE COMPANY

Background

Carlsbad

- Palomar Airlines, Inc. (the “Company,” “we,” or “us”) was organized pursuant to the laws of the State of California on July 2, 2009 for the purpose of establishing, owning and operating California Pacific AirlinesTM (“CP Air”). CP Air will transpo rt business and leisure travelers out of our primary hub at McClellan

- Palomar Airport in Carlsbad, California. Initially, our flight routes
will be short

- haul covering five cities in the Western United States and resort destinations in Mexico. We expect to comm ence service in the fall of 2013

.

Our corporate offices are located at 5670 El Camino Real, Suite D, Carlsbad, California 92008, and our telephone number is (760) 710

- 2000. Our website is www.flycpair.com

.

Executi ve Summary

CP Air is a new commercial airline in its formative stages. It has been organized to take advantage of a specific gap in the short

- haul travel market serving leisure and business travelers in San Diego’s North County. The gap in the availability of commercial service in and out of North County’s McClellan

- Palomar Airport, coupled with the demand for passenger travel on selected routes from North County, indicates that a new entrant airline could be expected to capture a significant portion of cur rent air travel business currently served by Lindbergh Field in San Diego.

From our inception, our activities have been limited to start

- up activities, including raising capital, recruiting key personnel, training and seeking certification from the Depart ment of Transportation (the “DOT”) and the Federal Aviation Administration (the “FAA”).

Our management team collectively has over 200 years of experience in the airline industry, and we currently have a team of 12 employees. We are in negotiations with Emb raer for our initial two aircraft. Our founder, Theodore (“Ted”) L. Valla s, has committed $12 million ($6 .2 million in cash and $7.8 million in services) toward Phase I certification with the FAA and initial start

- up phase of the operation. Phase I include s development of the operational manuals, agreements on aircraft, development of the Business Plan and related material. Mr. Vallas has undertaken the sole financial risk up to the acceptance from the FAA of our 121 application. As a result, we have no
deb t, short

- term or long

- term, and we have had the financial resources to take us through the initial stage of FAA clearance. We are seeking $6 million to fund the Company through the remaining Phases of the certification process.CONFIDENTIAL Page 31

Industry

The airline indus try is dominated by the major carriers. It is an industry characterized by merger, acquisition, and consolidation. Like so many other industries it has quickly evolved into an industry that has room only for major players and smaller “specialty” or “niche” participants. There are two specialty segments that have characteristically been exploited by new entrants. One is the “price” niche and the other is the “route” niche. One focuses on charging less, the other on providing either the only service between t wo given points (the “commuter” or “feeder” concept) or superior or more convenient or less costly service between two heavily

- traveled destinations.

In today’s marketplace, the “price” positioning, in and of itself, is no longer a sufficient concept on

wh ich to build an airline. Since de

- regulation, the flying public has been inundated with low fares. Low fares have become an expectation, not a promise. Thus, the true market segment opportunities today have become a combination of service mix, price, and r oute selection. The more critical decision has become one of deciding on service mix and price in conjunction with length of route. The specialty carrier is now relegated to either “short

- haul” or “long

- haul”

concentration. There is room for a short

- haul c arrier to take advantage of similar economies available with new technology and the proper equipment.

Short

- haul carriers also may operate efficiently out of a single home base. This enables
consolidation of services and economies of down

- sized scale. At the same time, the revenues
available from short

- hauls are comparatively higher than long hauls on a per

- passenger - mile basis.
We believe short

- haul revenues can be sufficient to build a substantial business in the hundred million dollar multiple range.

T he U.S. government de

- regulated the airline industry in 1978. Prior to that time, the government virtually guaranteed the profitability of the airline industry, at the expense of the consumer. Routes were restricted, fares were fixed and costs were unmanag eable. Today, some of the major carriers still continue to operate at less than optimum efficiency. This has spawned the success of various “discount” carriers, most notably Southwest Airlines.

De

- regulation has succeeded in providing air travelers with b etter service but has not necessarily provided service at a lower price. In the recent times of financial trouble, many airlines have complained of an under supply of air travelers, when in fact there is an under supply of affordable
seats. It is CP Air’s goal to provide these affordable seats while maintaining a profitable airline.

Many major airlines today are experiencing significant losses. The management of CP Air feels that these losses can be traced directly to the high cost of labor, operational ine fficiency and poor management. Management further believes that the major carriers cannot profitably compete
against start

- up carriers with limited and specific market focus and lower over

- all cost structures.

The most critical factor for CP Air or any ne w airline to overcome is the issue of brand awareness and name recognition. Customers prefer to fly with carriers they know and trust. There is little doubt that CP Air will need to spend heavily and frequently to advertise and promote its product.
The nee ded amounts are budgeted in our business plan and indicated herein under “ Financial Projections ,” below. The advantage is that local media can be utilized which is more cost effective on

a per - impression basis. It can also be highly targeted. Regional airp ort authorities can also apply toCONFIDENTIAL Page 32

the DOT for Small County Development grants to further aid marketing. It has been proven in the past that market share can be achieved for a new airline.

FAA and DOT Certification

As part of any new airline’s regulatory review process, the U.S. Federal Aviation Administration (FAA) performs a comprehensive safety review and first examines all aspects of a new carrier’s safety programs, operations manuals, training procedures, and personnel qualifications. It then

uses tab letop operations exercises, aircraft evacuations, and actual flights to test the safety effectiveness of airline flight crews and management in simulated real world scenarios.

The “proving run” flights are the final step in this Systems Safety and operati onal review process. Typically, new carriers will engage in up to 50 hours of proving flights with five hours at night. The proving flights are done after all the manuals are approved and the training program is completed by all the appropriate personnel. Once an airline receives its “Final Order” from the FAA indicating that it has passed its “proving run” test, it awaits its show cause order from Department of Transportation (DOT). This order outlines any remaining issues that must be addressed before

the DOT will issue a final order that permits an airline to begin passenger operations.

We have already begun the process of obtaining an Air Carrier Certificate from the FAA and a Certificate of Convenience and Necessity (Financial Viability) from the DOT.

Our team of seasoned airline professionals have been hired to fill the management positions overseeing critical operational departments as required by the FAA to complete

certification

.

The initial final order was approved by the DOT in August 2011. CP A ir has requested an extension to this order to permit the FAA 121 certification to move forward.

On March 9, 2013 CP Air resubmitted its 121 application to the FAA. Authority for this application is being managed by the Western Regional office and will eventually be under the jurisdiction of the Phoenix office. Approval is expected some time this su mmer.

Fleet

We will have a fleet of three twin

- jet Embraer 170 series aircraft and two nearly

- new Embraer 170 series aircraft. This aircraft has a 1,550 mile range and the planned passenger configuration will have 6 First Class, 20 Business Class, and 44 E conomy seats. The aircraft will have two seats on each side with no middle seats and more leg

room and space between the seats.

Our aircraft will boast the following features:

• No middle seats • Wider seats than any other single

- aisle jet
• Flown b y major airlines around the worldCONFIDENTIAL Page 33

• Full

- sized overheads for roll

- about luggage

The distinct 2x2 seating arrangement guarantees no middle seats, allowing all guests on board either an aisle or window seat, which also improves cabin comfort. All overhead bins can easily accommodate large carry

- on bags. In fact, the E

- 170 offers up to 28% more total stowage volume per seat when compared to other similar capacity narrow

- body jets.

The Embraer jet family is engineered from the ground up and is designed spec ifically to serve markets that can be optimized with 67 to 111 seat capacity. Embraer’s family of E

- Jets is a new concept in commercial air transport. It moves beyond smaller regional jets and brings mainline quality comfort to the 67 to 111 seat market. N either the stretched versions of smaller models nor

the scaled

- down derivatives of larger, heavier existing aircraft have accomplished this objective.

Superior cabin spaciousness, generous under

- floor cargo capacity, state

- of

- the

- art avionics, fly

- by

wir e technology and extraordinary, uncompromising performance all combine in a common platform. As the most spacious aircraft in its category, it even exceeds the per passenger space found on single

- aisle mainline jets such as the 737 and A320. Short ground t urnaround time, common crew type rating, common parts, high fuel efficiency and low maintenance costs ensure operating expenses are minimized.

Our aircraft are rated at the most strict “Stage 4” noise compliance level, and currently there are

no residents living within the 65db noise control area around the airport. There is no mandatory airport curfew at Carlsbad. We anticipate this will help maintain community support for a future runway extension to 6,000 feet, and a terminal expansion.

CP Air will be the only airline in the U.S. to fly mid

- sized, multi

- class jet aircraft not tied to the hubs of a major airline partner. This will allow us to target business routes too small to support larger 137

- passenger 737 service.

McClellan

- Palomar Airport

McCl ellan

- Palomar Airport (CLD), also known as Carlsbad San Diego North, is located 3 miles southeast of Carlsbad at Palomar Airport Road and El Camino Real, and is 30 miles north of downtown San Diego, Southern California. The airport is a gateway to/from San Diego’s North County. It serves the general aviation community, corporate aircraft and commercial services. Currently, Skywest Airlines, operating as United Express, has daily flights to Los Angeles Airport (LAX). Major corporations and world

- class resorts are just minutes from the airport.CONFIDENTIAL Page 34 CLD covers an area of 466 acres which

contains one asphalt p aved runway (6/24) measuring 4,897 ft × 150 ft (1,493 m × 46 m). Parking costs $3 per day, with a maximum stay of 30 days.

In early 2009, the new $28.5 million passenger terminal opened to the public as part of major improvements made to the airport facilities. CLD is an FAA Part 139 certified facility, allowing larger scheduled jet operations such as ours and boasts extremely low costs, at $600 or less per flight opposed to Lindbergh Field’s

m ore expensive per flight cost. We will hold a lease on all available facilities. This, combined with a short runway which limits larger jets from operating out of CLD, would limit any competition from primary carriers.

Features of the airport include a sp acious lobby, a boarding lounge area with leather seating inside, and a unique secure outdoor waiting area. CLD has the latest in environmentally friendly airport technology.

Free Wi

- Fi service is provided, and the U.S. Transportation Safety Administration (TSA) has the latest technology in high

- tech baggage screening.

Benefiting from wealthy demographics, low operating costs and local convenience, CLD mirrors many of the factors that gave rise to Orange County’s John Wayne Airport. Expansion of the

facili ties and extension of the runway at CLD may allow CP Air to expand to identified markets such as Seattle, Denver, Dallas, Chicago and Mexico City. CLD possesses the equipment and services needed to make larger jet air carrier operations possible. CP Air ha s the first right of refusal on the ticket

counters and in

- terminal office space. Limited faci lities and a short runway reduces the impact of any direct competitive response into the airport. The only potential response would be Horizon Q400 turboprop serv ice which has limited range to fly short

- haul routes of an hour and a half or

less.

Our aircraft will effectively have takeoff priority over non

- scheduled general aviation traffic, allowing quicker departures and reduced taxi times. This allows for large s avings in fuel used andCONFIDENTIAL Page 35

more productive scheduling of planes. An aircraft on the ground is generating no revenue for an

airline.

Weather conditions are much less problematic at CLD than at Lindbergh Field. Operational interruptions due to poor weather cond itions are one

- tenth of that at Lindbergh Field. Lindbergh Field has weather issues an average of 38 days per year, four hours a day. This results in numerous flight cancellations or diversions

– over 3,000 per year. CLD, on the other hand, usually has

wea ther issues only eight days per year for two hours. This usually occurs early in the morning which will have minimal disruption to our departing flights.

Lindbergh Field also is facing capacity constraints. Having only one runway and one taxiway severely limits hourly flight operations. A 2008 Regional Airport Authority study predicts that Lindbergh Field’s congestion will increase to 260,000 annual flights by 2015. When Lindbergh Field reaches the expected 300,000 flights in 2022, excessive flight delays will prevent any additional expansion. This will result in delays of 20 minutes or more on the average. This is greater than is recorded by New York’s La Guardia Airport, currently the most gridlocked in the

United States.

Operating from CLD also offers s ignificant cost savings over Lindbergh Field’s operations. CLD has significantly lower landing fees and facility rental charges. This helps dramatically reduce the cost per flight for ground operations to only $274 per flight, versus $875 for a similar fli ght at Lindbergh Field. This represents a savings of over $4 million in ground operation expenses in 2012 over Lindbergh Field. We expect this will grow to an annual savings of $8 million per year by

2014. An airline operating out of Lindbergh Field has to carry an additional 13 passengers to cover this added expense.

Having our company headquarters on airport grounds and flying a vast majority of the airport’s departures makes CP Air the anchor tenant of CLD. It also allows us to work closely with the

Air port Director in planning future runway and terminal issues as we expand our operations.

Market Analysis

The San Diego region’s traffic is 96% local, with passengers either beginning or ending their trip in San Diego County. San Diego is primarily served on short

- haul regional routes by Southwest Airlines. Major airlines such as Delta or United operate to their various hub airports across the country. There currently is very little international service with only two daily flights to Cabo San
Lucas, Mexic o.

Direct service from McClellan

- Palomar Airport is provided by Skywest Airlines, operating as United Express. It operates seven daily flights to Los Angeles Airport (LAX) on 28 seat, EMB

- 120 Brasilia turboprop aircraft. These flights primarily target con necting traffic from Carlsbad through Los Angeles. There is currently no non

- stop service from Carlsbad

- Palomar Airport to any destination planned by CP Air.CONFIDENTIAL Page 36

The regional flights operated by Southwest Airlines represent some of the most traveled routes in the United States. Four out of five of CP Air’s initial U.S. destinations are among the top 20 busiest routes in the country. CP Air’s focus on Mexico routes takes advantage of strong markets with high fares that currently lack non

- stop service from the S an Diego region.

Mexico City, a city of over 21 million, has no non

- stop links from the San Diego region. Puerto Vallarta is a popular upscale vacation resort, and Guadalajara, the second largest city in Mexico, is an important communications and industri al center. Despite each market having at least 10 flights a day to Los Angeles, there is no non

- stop service from San Diego. This explains why 25% of San Diegans drive to Los Angeles to catch non

- stop flights to Mexico instead of connecting from San Diego.

CPAir will benefit from a growing business and leisure relationship between the U.S. and Mexico. Mexico represents the U.S.’s second largest trading partner fostered by the NAFTA free trade agreement. Many international companies frequently travel betwe en headquarters in San Diego and manufacturing plants south of the border.

San Diego is a very seasonal market. During the summer, demand can be almost 30% greater than during the winter months for routes within the U.S. Mexico routes peak during the wi nter months which makes a nice compliment to our schedule, which offsets weaker demand to the North. Seasonal routes to popular ski resorts such as Aspen, Colorado, Santa Fe, New Mexico and Grand Junction, Colorado also represent good seasonal options duri ng the winter.

Routes from San Diego to the California Bay Area, Phoenix, Arizona and Las Vegas, Nevada are heavily traveled. However, they are mature, growing only 1% a year, matching the rate of population growth in San Diego. Medium

- haul routes (500

- 2 ,000 miles), and those to Mexico, are growing at a higher 3% rate per year. These routes represent an excellent opportunity for expansion of CP Air in the years ahead.CONFIDENTIAL Page 37

Community Benefits

In San Diego County, 40% of the residents and 60% of the wealth reside in North County. The individuals are a mix of upper

- income people from such communities as Del Mar, Rancho Santa Fe and Fairbanks Ranch, complimented by middle

- income earners from Encin itas, Solana Beach, Carlsbad, Oceanside, San Marcos and Escondido.

The areas surrounding McClellan

- Palomar Airport have higher income and trips per capita with greater travel spending than any other area in the United States. Given that residents in Nort h County travel 50% more frequently than those in South County, half of the trips originating in San Diego County originate from North County. Within North County, there is a thriving business and light manufacturing community, as well as the sprawling U.S . Marine Corp base at Camp Pendleton. As home to the majority of San Diego County’s 25 top employers, North County is a region of booming industry and diverse small business.CONFIDENTIAL Page 38

A pro

- business local government, resilient business climate and an educated a nd skilled workforce have attracted world class companies to North County. North County is projected to continue to grow at rates that exceed the entire Southern California region. Six of the 10 fastest growing cities
in California are in our market area. It is reported that North County represents 70% of San Diego County’s population growth in the next 20 years. This represents an average North County population growth of 1.7% per year, compared to 0.7% for Southern San Diego, and 0.9% for the
U.S. on the average.

The area’s propensity to travel is among the highest in the U.S. Per capita travel and spending is based on income, higher education, mid and upper

- level management positions and research

oriented positions. The people of North County lack a conv enient option for air travel. CP Air will address the transportation needs of the more than 1.3 million residents who live and work in North County.

North County is also served by other air carriers out of San Diego’s Lindbergh Field. Depending

on the tim e of day, travel to/from Lindbergh Field can require a drive of more than an hour to get there. Additional parking and fuel expenses also add to the cost of a passenger’s travel. Passengers will have a more convenient and pleasant experience at

McClellan

- Palomar Airport, avoiding the added time, hassle and expense of driving to Lindbergh Field. CP Air will substantially decrease the drive to/from the airport and having parking/car rental just steps away.

Airports serve as an economic engine for the commu nities they serve. By 2012, we anticipate that CP Air will have an estimated $90 million annual contribution to the North County economy. We expect that this will grow to $230 million by our fifth year of operation. In our first year of

operations, we expe ct to employ over 150 people and more than 500 people by year five, creatingCONFIDENTIAL Page 39

many new jobs in North County. By our third phase of operations, we expect to have employees in 22 cities residing in three countries.

The economic benefits of California tourism are substantial. In 2009, 49% of the $97 billion annual tourism spending is by in

- state travelers, 32 percent comes from other Americans, and 19% is from international tourists. Internationally, 78% of California’s visitors come from just seven

countries, led by Mexico, which accounts for half, followed by Canada. We expect the economic contribution CP Air will have to the San Diego economy to be substantial:

Category Year 1 (2012) ($) Year 4 (2015)

($)

Wages (San Diego County) 5,600,000 13,200,000 CLD Expenses 900,000 2,400,000 SD Marketing Expense 1,591,000 6,545,000 Community Benefit 90,000,000 200,000,000

In addition, CP Air expects economic contributions to the local economy through tax revenue to

be substantial:

Category 2012 ($) 2013

($) 2014

($) 2015

($)

Fuel 253,260 369,978 500,080 550,084

PFC 1,639,753 2,258,496 2,914,866 3,167,364 Parking 654,936 902,070 1,164,231 1,216,549

Total

Tax Revenue 2,547,949 3,530,544 4,579,177 4,933,997

Being the “hometown airline,” our strong air service will help attract new business to the North County community and drive tourism to local attractions. We will be heavily involved with local charities, the Chamber of Commerce and other organizations in our destination cities.

Safety

We have insti tuted an overall policy designed to ensure that, to the greatest extent possible, each of our flights will be memorable only for the beautiful view, excellent service and quickly reaching the traveler’s destination in the safest possible way. While every e mployee of CP Air, from the baggage handler to the CEO, will be trained on safety systems and expected to conduct daily business with safety awareness, there are two positions devoted exclusively to assuring that safety is the first

consideration in each a nd every operational decision.

Our Safety Inspector has the responsibility and the authority to constantly and repeatedly inspect and review each and all of our policies, to review each procedure spelled out in our instructions toCONFIDENTIAL Page 40

our personnel, and to confer on a regular basis with other management for the purpose of

improvement.

A Director of Safety and Quality Assurance has the responsibility and the authority to conduct inspections of all company records, assuring that all re quired personnel tests and competency checks are not only accomplished, but effective. The Director of Safety and Quality Assurance will constantly interact with all the members of the CP Air team, encouraging and rewarding suggestions that will improve ou r safety posture.

Each employee will be encouraged to offer suggestions on how the job can better be accomplished so as to decrease the possibility of human error at all levels. When policies or procedures can be improved, they will be. Then, under a Vol untary Disclosure Program, we will share our findings with the appropriate officials of the FAA so that improvements may be shared with the entire air transportation industry.

Our management team has recently completed a 40

- hour Safety Management System ( SMS) training course developed by the International Civil Aviation Organization (ICAO) under instruction by Purdue University Professors and observed by a local FAA Principal Avionics Instructor. Completing this training prior to certification gives us a s ignificant advantage and knowledge of safety management concepts and ICAO Standards and Recommended Practices (SARP’s). This will provide us with the necessary information and tools to identify, implement and oversee key components of safety management, su ch as risks, hazards and regulations. Even though Safety Management System training may not be an FAA requirement at the present time and may not be for some time, we have positioned CP Air to become a leader of the SMS program.

Competitive Advantages

CP Air will offer a superior product and marketing strategy designed to be a magnet to the high

end business and leisure customer who work and reside in San Diego’s North County.

CP Air will offer the following attributes: • Competitive fares
• First Cl ass seat

- style for a full coach fare • Seat assignments
• No middle seat • Only non

- stop jet flights from McClellan

- Palomar Airport

• WiFi Service
• Power outlets • Significant time and trip cost savings

In contrast to our primary competitor, South west Airlines, we will offer advance seat assignments,

multi

- class services (First, Premium and Economy), 2x2 seating and non

- stop service to our destinations. In addition, our average price will be competitive with the Business Select fare on Southwest, and our multi

- tiered pricing allows for selective fare matching against Southwest to

maximize revenue.CONFIDENTIAL Page 41

Our Routes

Phase I Phase II Phase III

The San Diego market represents 3% of Southwest’s revenue. We believe a price war response to our entry would be too costly to Southwest. We do not plan on direct comparison advertising which would antagonize our largest competitor. With the absence of Sou thwest on the GDS system, it will be difficult for any Southwest customer to fare shop. Perhaps most importantly, the convenience of our airport location provides a distinct and substantial competitive advantage.

Like our competitors, we will offer a rew ards program targeted to the high

- yield business traveler. Our sales force will market directly to high

- yield business and corporate travel agents. We will also offer discounts and incentives for local businesses, which are not offered by Southwest.

We wi ll advertise as San Diego’s “hometown airline,” and have deep involvement with local charities and events. We will build partnerships with local hotels, golf courses and theme parks to increase visibility and customer base.

CP Air projected routes, fleet size and fleet mix are subject to Department of Transportation and FAA approval.

Financial Projections

Our research and projections, as more specifically set forth below, indicate that air travel to and
from McClellan

- Palomar Airport is sufficient to pro vide a new carrier with excellent revenues in its first full year of operations, utilizing four aircraft and selected short

- haul routes. These projections are based upon load estimations of only 77 % in year one. We have conservatively projected an
approxim ate 23% increase in second year revenues based on additions to our fleet. Load estimations for year two are 77 %. In years three through four, we have conservatively estimated steady year

- to

-

year growth of approximately 30% on the average based upon additio ns to our fleet and expanded routes.CONFIDENTIAL Page 42

We anticipate these sales levels will produce net loss in the first operational year of approximately ($4,062, 000 ) with steady year

- to

- year growth in flight

-

years two through five. The over

- all operational lo ng term pr ofit target will be 8.7 % of sales as net profit in years four and five.

Our sales and revenue projections set forth herein have been estimated by using approximations of the available and applicable market. Furthermore, they have been based upon assumptio ns of certain market penetration and market capture. There is no way to determine the amount of future actual sales and revenues, and there is no assurance that the amount will not be less than those anticipated. Additionally, there is no assurance we wi ll capture the market share anticipated in the projected time period, or at all.

Capital requirements for our operations as projected herein have been estimated based upon known and reasonably foreseeable costs, as well as limited contingency for unforeseen expenses. There is no assurance that actual expenditures will align with foreca sts and that currently anticipated capital needs will be sufficient to accommodate

operations. Any projections in this Memorandum should be read in conjunction with “ Risk Factors ”, above.

[Remainder of Page Intentionally Left Blank]CONFIDENTIAL Page 43

5 Year Financial ProjectionCONFIDENTIAL Page 44 DESCRIPTION OF PROPERTY

Lease

We entered into an Airport Use Permit and Lease, dated January 1, 2012 , with the County of San Diego. The Permit
is to conduct a scheduled airline service as McClellan

- Palomar Airport, and is intended to start in advance of operations, while CP Air completes federal requirements. Under the Lease portion of the Permit, the Co mpany has
contracted for the use of three offices at Carlsbad’s McClellan

- Palomar Airport. The Lease is renewable annually, however, either party may t erminate prior to December, 2013 , by giving the other party at least 90 days’ prior written

consent.

Trademarks

We have filed a registration request to obtain trademarks and service marks on the following names: (1) the California
Pacific Airlines name and accompanying logo design; (2) CP Air; and (3) Voyager, for the name of the frequent flyer bonus prog ram. These applications are pending approval.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Holders of our Series A Common Stock will not have any interest in management of the Company and will not be in a position to control our activities. Holders of ou r Series A Common Stock must rely on the general fiduciary standards which apply to the management of a corporation to prevent unfairness by the management in a transaction with the Company.

EXECUTIVE COMPENSATION

The following table sets forth all comp ensation expected to be earned for services to be rendered to us in all capacities by the Chief Executive Officer and each of the Company’s other executive officers whose salary and bonus is exp ected to exceed $100,000 in 2012 . Currently, no medical,

grou p life insurance or other benefits are generally available to our salaried employees, although we plan to offer competitive benefits at some point in the future.

Summary Compensation Table

Annual Compensation Annual

Compensation Long Term Compensation

Name and Principal

Position Year Base Salary

($) Bonus Stock

Awards Option

Awards Incentive

Plan Deferred

($) Other Total

($)

Theodore L.
Vallas 2011 144,000

- - - - -

- 144,000

John Selvaggio 2011 132,000

- - - - - 132,000CONFIDENTIAL Page 45

Director Compensation

By resolution of the Board of Directors, our directors may be compensated for attendance at regular or special meetings of the Board of Directors, or for work requested by the Board of Directors to be performed on behalf of the Company. Comp ensation may be in cash or shares of Series A Common Stock of the Company in such amounts as determined by resolution of the Board of Directors from time to time. Directors may also be reimbursed for reasonable expenses incurred in attending Board of Direc tors meetings. Nothing herein shall be construed to preclude any director from serving the Company in any other capacity and receiving compensation therefor.

SUMMARY OF ORGANIZATIONAL DOCUMENTS

Upon purchase of Shares, you will become a shareholder of the Company. Your rights as a shareholder in the Company are established and governed by the Company’s Bylaws and the Investors’ Rights Agreement attached to this Memorandum as Exhibit B . The follo wing is a summary of the material provisions of the Bylaws and Articles of Incorporation. Potential investors should not rely solely on this summary, which is qualified in its entirety by reference to the entire Bylaws and Articles of Incorporation, and wh ich are available in their entirety for investors to read.

Bylaws

The Bylaws of the Company provide that the Board of Directors shall consist of nine people to be chosen annually by the shareholders. There are currently eight members of the Board of Direct ors. The directors are divided into two classes, designated Class I and Class II. Class I consists of five directors and Class II consists of four directors, with holders of our Series A Common Stock electing two of the Class I directors and one of the Cla ss II directors. Holders of our Series B
Common Stock elect three of the Class I directors and three of the Class II directors. Directors currently serve one (1) year terms. Each Director serves until his or her successor is elected and qualified. Vacanci es may be filled by a majority of the remaining directors.

Articles of Incorporation

The Articles of Incorporation of the Company may be amended, altered or repealed, and other provisions authorized by California law then in force may be added or inserte d in the manner and at the time prescribed by said laws.

Shareholder Voting Matters

Annual shareholder meetings shall be held at such date, time and place as may be designated by the Board of Directors. Special meetings may be called by: (i) the Board o f Directors; (ii) the Chairman of the Board of Directors; (iii) the President; (iv) any Vice President; or (v) by

shareholders entitled to cast not less than one

- tenth of all outstanding shares of the corporation entitled to vote at the meeting.CONFIDENTIAL Page 46 REPORTS TO SHAREHOLDERS

The Company’s books and records will be maintained at its principal offices and will be open for examination and inspection by its shareholders during reasonable business hours. The Company

will furnish a list of names and addresses and num ber of shares held by shareholders to any investor who requests the list in writing for a proper purpose, with costs of photocopying and postage to be borne by the Company.

SALES MATERIALS

Sales material may be used in connection with this Offering only w hen accompanied or preceded by the delivery of this Memorandum. The sales materials that may be disseminated to prospective investors include a brochure and a slide presentation describing the Company and its proposed

operations.

This Offering is made onl y by means of this Memorandum. Although the information contained in the supplemental sales material does not conflict with the information contained in this Memorandum, such sales material does not purport to be complete and should not be considered

part of this Memorandum or as forming the basis of the offering of the Shares.

RESTRICTIONS ON TRANSFER

The Shares are being offered pursuant to exemptions from the registration requirements of the Securities Act, and must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available and state securities laws are complied with. The Company is under no obligation to register the Shares under the Securities Act or qualify the Shares unde r any state securities laws. Share certificates will bear appropriate legends with respect to these restrictions.

Rule 144 of the Securities Act governs the resale of restricted securities. Sales of securities in reliance upon Rule 144 can be made only i n accordance with the terms of that rule which permits

non - affiliates of the Company to sell such securities after six (6) months, provided that certain conditions are met. In the case of securities to which Rule 144 is not applicable, an exemption

under the Securities Act will be required to affect a sale.

Rule 144A under the Securities Act permits the resale of restricted securities to qualified institutional buyers. Sales of securities under Rule 144A may be made only if the Company agrees to provide c ertain information to such buyers. Because the Company has not agreed to provide such information, Rule 144A will not be available for sales of the Shares.CONFIDENTIAL Page 47 LEGAL COUNSEL

Procopio, Cory, Hargreaves & Savitch LLP of San Diego, California (“PCHS”) has ser ved as the Company’s counsel with respect to this Offering, and such representation may continue in the future. PCHS does not represent any shareholder of the Company or any investor in connection with the Offering.Home | Previous Page

**FACT SHEET**

**Eliminating the Prohibition on General Solicitation and General Advertising in Certain Offerings** 

**SEC Open Meeting**

**July 10, 2013** 

**Background**

**Current Offering Process**

Companies seeking to raise capital through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration. Most of the exemptions from registration prohibit companies from engaging in general solicitation or general advertising

- that is, advertising in newspapers or on the Internet among other things

- in connection with securities offerings. Rule 506 of Regulation D is the

most wi dely

- used exemption from registration.

In an offering that qualifies for the Rule 506 exemption, an issuer may raise an unlimited amount of capital from an unlimited number of "accredited investors" and up to
35 non

- accredited investors. Under SEC rules,

a ccredited investors are individuals who meet certain minimum income or net worth levels, or certain institutions such as trusts, corporations, or charitable organizations that meet certain minimum asset levels.

**JOBS Act**

In April 2012, Congress passed the J umpstart Our Business Startups Act (JOBS Act). Section 201(a)(1) of the JOBS Act directs the SEC to remove the prohibition on general solicitation or general advertising for securities offerings relying on Rule 506 provided that
sales are limited to accred ited investors and an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors. By requiring the SEC to remove this general solicitation restriction, Congress sought to make it easier for a company to findinve stors and thereby raise capital.

While issuers will be able to widely solicit and advertise for potential investors, the JOBS Act required the SEC to adopt rules that "require the issuer to take reasonable steps to verify that purchasers of the

securities are accredited investors, using such methods as determined by the Commission." In other words, there is no restriction on who an issuer can solicit, but an issuer faces restrictions on who is permitted to purchase its securities.

The law also directed the SEC to amend Rule 144A under the Securities Act, an exemption from registration that applies to the resale of securities to larger institutional investors known as qualified institutional buyers (QIBs). Under current Rule 144A, offers of
securities can onl y be made to QIBs. Under the new rule, Rule 144A is amended so that offers of securities can be made to investors who are not QIBs as long as the securities are sold only to persons whom the seller reasonably believes are QIBs.

**2012 Proposal**

Last August, i n order to comply with the Congressional mandate to implement Section 201(a)(1) of the JOBS Act, the Commission proposed a rule that would remove the general solicitation ban for certain 506 offerings in
which sales of securities would be limited to accred ited investors and issuers would be required to take reasonable steps to verify such accredited status. After doing so, the Commission received numerous comments, including requests seeking greater clarification on the types of verification that would be

c onsidered reasonable under the rule.

Commenters also suggested that the SEC consider measures that they believed would provide additional protections for investors in connection with removing the general solicitation ban. Several of those additional

measur es identified by these commenters are included in a separate proposal that the Commission approved today.

**New Rulemaking**

**Rule 506**

The final rule approved today makes changes to Rule 506 to permit issuers to use general solicitation and general advertising to offer their securities providedthat:

 The issuer takes reasonable steps to verify that
the investors are accredited investors.

 All purchasers of the securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the issuer reasonably believes
that the investors fall within one of the categories at the time of the sale of the

securities.

Under existing Rule 501, a person qualifies as an
accredited investor if he or she has either:

 An individual net worth or joint net worth with a spouse that exceeds $1 million at the time of the purchase, excluding the value (and any related indebtedness) of a primary residence.

 An individual annual income that exceeded $200,000 in each of the two most recent years or a joint annual income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the sa me income level in the current year.

The determination of the reasonableness of the steps taken to verify an accredited investor is an objective assessment by an issuer. An issuer is required to consider the facts and circumstances of each purchaser
and th e transaction. Nevertheless, in response to commenters' requests, the final rule provides a non

exclusive list of methods that issuers may use to satisfy the verification requirement for individual investors.

The methods described in the final rule include the following:

 Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year.

 Receiving a written confirmation from a registered broker

- dealer, SEC

- registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status.

The existing provisions of Rule 506 as a se parate exemption are not affected by the final rule. Issuersconducting Rule 506 offerings without the use of general solicitation or general advertising can continue to conduct securities offerings in the same manner and aren't subject to the new verifica tion rule.

**Rule 144A**

Under the final rule, securities sold pursuant to Rule 144A can be offered to persons other than QIBs,

inc luding by means of general solicitation, provided that the securities are sold only to persons whom the seller and any person act ing on behalf of the seller reasonably believe to be QIBs.

**Form D**

The final rule amends Form D, which is the notice that issuers must file with the SEC when they sell securities under Regulation D. The revised form adds a separate
box for issuers to check if they are claiming the new Rule 506 exemption that would permit general solicitation or general advertising.

**What's Next**

The rule amendments become effective 60 days after publication in the Federal Register.