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, accounting 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 COMMISSION 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 Memorandum 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 $11,520,000
CONFIDENTIAL Page ii

$11,520,000

CARLSBAD-PALOMAR AIRLINES, INC.

(a California corporation)

CARLSBAD-PALOMAR AIRLINES, INC., A CALIFORNIA CORPORATION (THE 

“COMPANY”), IS OFFERING 1,200,000 SHARES OF ITS SERIES A COMMON STOCK 

(THE “SHARES”) ON TERMS AND WITH RIGHTS AS MORE PARTICULARLY SET 

FORTH IN THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THIS 

“MEMORANDUM”). THE INITIAL 600,000 SHARES WILL RECEIVE AN 8% DISCOUNT 

TO THE PURCHASE OF SHARES ON A “FIRST COME FIRST SERVE BASIS”. 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.

THIS MEMORANDUM CONSTITUTES AN OFFER ONLY TO THE PERSON NAMED 

ABOVE, AND ONLY IF SAID PERSON MEETS THE SUITABILITY STANDARDS SET 

FORTH IN THIS MEMORANDUM. 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 THE 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 BE 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 FUTURE 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 ONLY 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 SHARES. 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 BUSINESS AND OPERATIONS OF THE
CONFIDENTIAL 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 SUCH

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 (WHETHER 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 BEEN 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 INVESTORS 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

ADVISERS 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 REGULATION 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 GRANTING THE

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

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

DISCOVERY OF FACTS CONSTITUTING SUCH VIOLATION. SHOULD ANY INVESTOR

INSTITUTE SUCH ACTION ON THE THEORY THE OFFERING 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

INFORMATION 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

INVESTORS.

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 ADDITIONAL 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

MATERIALLY FROM THOSE DISCUSSED IN, OR IMPLIED BY, THESE FORWARDLOOKING 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 THE 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 CANNOT
CONFIDENTIAL Page v

GUARANTEE FUTURE RESULTS, 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 RELATING 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 OF 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

LEGAL COUNSEL ............................................................................................................................37
CONFIDENTIAL Page vii

EXHIBIT A – SUBSCRIPTION DOCUMENTS AND FORM OF SUBSCRIPTION 

AGREEMENT

EXHIBIT B – INVESTORS’ RIGHTS AGREEMENT
CONFIDENTIAL 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 United States cities and 

resort destinations in Mexico. We expect to commence operations 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 come 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. 

The Offering will 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. In 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 

which case interest shall accrue for the benefit of investors.

Capitalization: Shareholder 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 purchased 217,391 Shares in this Offering, which increased 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 vote 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, altered 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 that 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” 

Registration 

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 rights, 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 1933, 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 contained 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 selling 
CONFIDENTIAL 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 reserves the right, in its sole discretion, to (i) accommodate nonaccredited 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 

established 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/It 

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 Shares 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 excessive; 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; and 
CONFIDENTIAL 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 subdivision 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 time 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 level 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 Regulation 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 

association 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 company 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 plan 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 

accredited 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 business 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 1040, deductions 

claimed for depletion under Section 611 of the Code and any amount by which income from longterm capital gains has been reduced in arriving at adjusted gross income pursuant to Section 1202 

of the Code. The Company reserves the right to make 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 required 
CONFIDENTIAL Page 5

to provide such evidence 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 

suitable 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 FOR 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 

uncertainties 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 capital 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 

involved, 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 incur 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 sustain 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 was 
CONFIDENTIAL Page 6

serviced by three different airlines concurrently. Today, Skywest Airlines, 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 that 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 goals 

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 assurance 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 regulatory 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 management in simulated real world scenarios (“proving 

runs”). The “proving run” flights are the final step in this Systems Safety and operational review 

process. 

There 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 necessary 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 

aviation 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 on 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 other 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 

Security 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, several 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 local 

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 relying 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, reduce aircraft utilization and increase costs, all of which in turn will 

negatively affect our profitability. A significant interruption or disruption in service at McClellanPalomar Airport could have a serious impact on our business, financial condition and operating 

results. 

McClellan-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 for 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 are 
CONFIDENTIAL 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 substantial 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 impose, 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 constraints 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 possible 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 are 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 fly 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 will 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 impairment 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, airline 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 aircraft, the interest rates on and the availability 
CONFIDENTIAL 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 

may 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 upon 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 Planning 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 seasonal, 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 the 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 costs, 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 reputation 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 significant 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 adequate 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 our 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 or 
CONFIDENTIAL Page 10

other problems, 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 services 

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 suppliers 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 aircraft 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 supplier 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 operating 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 employees, replacing our 
CONFIDENTIAL 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 concerns 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-competition 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 attract 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 skills, 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 Vice 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 at 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 all 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 directors. 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 our
CONFIDENTIAL 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 significant 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 and 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 rights.

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 cash 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 

activities. 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 unable 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 adjust 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 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, 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. All 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 changes 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 to 
CONFIDENTIAL 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 demand, 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 control 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 volatility. 

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 by 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 fuel 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 of 
CONFIDENTIAL Page 15

such reorganizations could present us with competitors with significantly lower operating costs 

derived from labor, supply and financing contracts renegotiated under the protection 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 further 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 States 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, whether 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 business, 

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 

rigorous 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 terrorist 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 coverage 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 demand 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 threat 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 spread 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 air 
CONFIDENTIAL 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, consumer 

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 continue 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 Airlines 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 believe 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 or 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, all 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 restrictions 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 substantial 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 securities 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, even 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 projects 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 price 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 additional 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 and 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 contained 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 potential 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 increase 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 invest 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 holder(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 not 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, 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, 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 purchase 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)

Amount ($) 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 $50 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, 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. 

DETERMINATION OF OFFERING PRICE

The 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. Additionally, 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 Company 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 $50 
CONFIDENTIAL 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 stock 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 connection 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. Vallas. This offering is also deemed as startup 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 comparisons 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 dilutive 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. 

Price 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 securities 
CONFIDENTIAL 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.

Offering 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 December 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 extend 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 Company 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 control. 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 and 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 an agent of the Company. Any such indemnification shall only be recoverable out of the 
CONFIDENTIAL 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 with 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 public 

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 and 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 consists 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 Position

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

John Selvaggio 66 President CEO, Board Member

Steve Tracas 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 Member
CONFIDENTIAL 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 ranging 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 (Scanivalve), a wind 

tunnel and instrumentation company. In the 1970’s, Ted formed a regional 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. degree 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 spending 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 with 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 bankruptcy-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 recruited John in 1999 for the role of Senior VP – Airport Customer 
CONFIDENTIAL 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 as 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 

Service. 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 taking 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. 

Vacation.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 

to 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 received 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 positions 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 Passenger 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 oversaw 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 

Programs. 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 Maintenance 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 Business 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 Goldberg 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, was 
CONFIDENTIAL 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 partner 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 States. 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 and 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 fourtime 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. He 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 Diego Union Tribune poll. Victor holds a Bachelor and Masters of Arts 

degree 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 as 
CONFIDENTIAL 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 Onofre Nuclear Generating 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 Planning 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.

John 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 publisher 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 relations 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 and 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 the security. Unless otherwise indicated below, each beneficial owner 

named in the table below has sole voting and sole investment power with respect to all shares 
CONFIDENTIAL 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

purchased 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 directors, 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 when 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 Agreement 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 Agreement, 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, preferences 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 debt 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 

similar registrations of employee benefit plans or business combination transactions), subject to 
CONFIDENTIAL 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 reduction 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 transport 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 commence 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.

Executive 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 current 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 Department 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 Embraer for our initial two 

aircraft. Our founder, Theodore (“Ted”) L. Vallas, 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 includes 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 

debt, 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 industry 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 two 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 

which 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 route 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 carrier 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. 

The 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 unmanageable. 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 better 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 inefficiency 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 new 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 needed 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 airport authorities can also apply to 
CONFIDENTIAL 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 tabletop 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 operational 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 Air 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 summer.

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 Economy 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 by major airlines around the world
CONFIDENTIAL 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 specifically 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. Neither 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-bywire 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 turnaround 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

McClellan-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 paved 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 

more 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 spacious 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 

facilities 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 has the first right of refusal on the ticket 

counters and in-terminal office space. Limited facilities and a short runway reduces the impact of

any direct competitive response into the airport. The only potential response would be Horizon 

Q400 turboprop service 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 savings in fuel used and 
CONFIDENTIAL 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 conditions 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 

weather 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 significant 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 flight 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 

Airport 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, Mexico.

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 connecting 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 San 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 industrial 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 between 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 winter 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 during 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 Encinitas, 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 North 

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 and 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 researchoriented positions. The people of North County lack a convenient 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 time 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 communities 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 expect to employ over 150 people and more than 500 people by year five, creating 
CONFIDENTIAL 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 instituted 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 employee 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 and 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 to 
CONFIDENTIAL 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 required 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 our 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 Voluntary 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 significant 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, such 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 highend business and leisure customer who work and reside in San Diego’s North County.

CP Air will offer the following attributes: 

• Competitive fares

• First Class 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, Southwest 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 Southwest 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 rewards 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 will 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 provide 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 

approximate 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 additions 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 long term profit 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 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 assurance we will 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 forecasts 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 Projection
CONFIDENTIAL 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 Company has 

contracted for the use of three offices at Carlsbad’s McClellan-Palomar Airport. The Lease is renewable annually, 

however, either party may terminate 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 program. 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 our 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 compensation 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 expected to exceed $100,000 in 2012. Currently, no medical, 

group 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 - - - - - 132,000
CONFIDENTIAL 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. Compensation 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 Directors 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 following 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 which 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 Directors. 

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 Class 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. Vacancies 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 inserted 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 of 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 number 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 when 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 only 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 under 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 in 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 certain 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 served 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. 










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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 widely-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, 

accredited 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 Jumpstart 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 accredited 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 find 
investors 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 only 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, in 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 accredited 

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 

considered 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 

measures 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 provided 
that:

 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 same 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 the transaction. Nevertheless, in response to 

commenters' requests, the final rule provides a nonexclusive 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 separate 

exemption are not affected by the final rule. Issuers 
conducting 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 verification rule.

Rule 144A

Under the final rule, securities sold pursuant to Rule 

144A can be offered to persons other than QIBs, 

including by means of general solicitation, provided that 

the securities are sold only to persons whom the seller 

and any person acting 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.