Document:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE
TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.

                            SECURED CONVERTIBLE NOTE
July 22, 2002                                            $1,000,000
                                                          -------

         FOR VALUE RECEIVED, AVIATION GENERAL, INCORPORATED, a Delaware
corporation (hereinafter called the "Borrower"), hereby promises to pay to the
order of Nyltiak Investments, LLC or registered assigns (the "Holder") the sum
of One Million Dollars ($1,000,000), on December 31, 2004 (the "Maturity Date"),
and to pay interest on the unpaid principal balance hereof at the rate of six
percent (6%) per annum from July, 2002, (the "Issue Date") until the same
becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal or interest on the Note that is
not paid when due shall bear interest at the rate of ten percent (10%) per annum
from the due date thereof until the same is paid ("Default Interest"). Interest
shall commence accruing on July 22, 2002, shall be computed on the basis of a
365-day year and the actual number of days elapsed and shall be payable (i)
semi-annually on June 30 and December 31 of each year until the Maturity Date or
(ii) at the time of conversion of the principal to which such interest relates
in accordance with Article I below. All payments of principal and accrued
interest (to the extent not converted into common stock, par value $0.50 per
share, of the Borrower (the "Common Stock") in accordance with the terms hereof)
shall be made in lawful money of the United States of America. All payments
shall be made at such address as the Holder shall hereafter give to the Borrower
by written notice made in accordance with the provisions of this Note. Whenever
any amount expressed to be due by the terms of this Note is due on any day that
is not a business day, the same shall instead be due on the next succeeding day
that is a business day and, in the case of any interest payment due that is not
the date on which this Note is paid in full, the extension of the due date
thereof shall not be taken into account for purposes of determining the amount
of interest due on such date. As used in this Note, the term "business day"
shall mean any day other than a Saturday, Sunday or a day on which commercial
banks in the city of New York, New York are authorized or required by law or
executive order to remain closed. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in that certain
Securities Purchase Agreement, dated as of the date hereof, pursuant to which
this Note was originally issued (the "Purchase Agreement"). This Note is the
"Note" described in that certain "Security Agreement" dated as of the date
hereof by and between the Lender and the Borrower, and the indebtedness
evidenced by this Note is included within the meaning of the term "Borrower's
Obligations" in such agreement.

         The following terms shall apply to this Note:

                          ARTICLE I. CONVERSION RIGHTS

         1.1 Conversion Right. The Holder shall have the right from time to
time, and at any time on or prior to the day that all of the principal, accrued
interest and other amounts payable hereunder are paid in full, to convert at any
time all or from time to time any part of the outstanding and unpaid principal
amount of this Note of at least $50,000, or such lesser amount as shall remain
unpaid at the time of the conversion (together with accrued interest thereon),
into fully paid and non-assessable shares of Common Stock, as such Common Stock
exists on the date of issuance of this Note, or any shares of capital stock of
Borrower into which such Common Stock shall hereafter be changed or reclassified
at the conversion price determined as provided herein (the "Conversion Price").

         1.2 Conversion Price. The Conversion Price shall be $0.85 (subject to
adjustment as provided in Section 1.7 and subject to equitable adjustments for
stock splits, stock dividends or rights offerings by the Borrower relating to
the Borrower's securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions
and similar events).

         1.3 Authorized Shares. The Borrower covenants that during the period
the conversion right exists, the Borrower shall reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the full conversion of this Note and the other Notes issued
on the Issue Date. As of the date of issuance of this Note, 1,176,471 authorized
and unissued shares of Common Stock have been duly reserved for issuance upon
conversion of this Note (the "Reserved Amount"). The Borrower represents that
upon issuance such shares will be duly and validly issued, fully paid and
non-assessable and free and clear of all liens, encumbrances and rights of
others.

         1.4      Method of Conversion.
                  --------------------

                  (a) Subject to Section 1.1, this Note may be converted by the
Holder in whole or in part (provided such partial conversion is at least
$50,000, or such lesser amount as shall remain unpaid at the time of the
conversion (together with accrued and unpaid interest thereon)) at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion (by facsimile or other reasonable means of communication dispatched
on the Conversion Date prior to 11:00 p.m., New York City Time) and (B) subject
to Section 1.4(b), surrendering this Note at the principal office of the
Borrower.

                  (b) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Note in accordance with the terms hereof, the Holder
shall not be required to physically surrender this Note to the Borrower unless
the entire unpaid principal amount of this Note is so converted. The Holder and
the Borrower shall maintain records showing the principal amount so converted
and the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Borrower, so as not to require physical
surrender of this Note upon each such conversion. Notwithstanding the foregoing,
if any portion of this Note is converted as aforesaid, the Holder may not
transfer this Note unless the Holder first physically surrenders this Note to
the Borrower, whereupon the Borrower will forthwith issue and deliver upon the
order of the Holder a new note of like tenor, registered as the Holder (upon
payment by the Holder of any applicable transfer taxes) may request,
representing in the aggregate the remaining unpaid principal amount of this
Note. The Holder and any assignee, by acceptance of this Note, acknowledge and
agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Note, the unpaid and unconverted principal amount of this
Note represented by this Note may be less than the amount stated on the face
hereof.

                  (c) The Borrower shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on conversion of this
Note in a name other than that of the Holder (or in street name), and the
Borrower shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.

                  (d) Upon receipt by the Borrower from the Holder of a
facsimile transmission (or other reasonable means of communication) of a Notice
of Conversion meeting the requirements for conversion as provided in this
Section 1.4, the Borrower shall issue and deliver or cause to be issued and
delivered to the Holder certificates for the Common Stock issuable upon such
conversion within twenty (20) business days after such receipt (and, solely in
the case of conversion of the entire unpaid principal amount hereof, surrender
of this Note) (such tenth business day being hereinafter referred to as the
"Deadline") in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirement that
certificates for shares of Common Stock issued on or after the effective date of
a registration statement under the 1933 Act including those shares upon
conversion of this Note shall not bear any restrictive legend).

                  (e) Upon receipt by the Borrower of a Notice of Conversion,
the Holder shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, the outstanding principal amount and the amount
of accrued and unpaid interest on this Note shall be reduced to reflect such
conversion, and, unless the Borrower defaults on its obligations under this
Article I, all rights with respect to the portion of this Note being so
converted shall forthwith terminate except the right to receive the Common Stock
or other securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion as provided
herein, the Borrower's obligation to issue and deliver certificates for Common
Stock shall be absolute and unconditional, irrespective of the absence of any
action by the Holder to enforce the same, any waiver or consent with respect to
any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Borrower to the holder of record, or any set off,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder of any obligation to the Borrower, and irrespective of any
other circumstance which might otherwise limit such obligation of the Borrower
to the Holder in connection with such conversion. The date of receipt of such
Notice of Conversion shall be the Conversion Date so long as it is received
before 11:00 PM, New York City Time, on such date.

                  (f) In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Borrower's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the Holder and its
compliance with the provisions contained in Section 1.1 and in this Section 1.4,
the Borrower shall cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system.

         1.5 Concerning the Shares. The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless either (i) such
shares shall have been included in an effective registration statement under the
1933 Act or (ii) the Borrower or its transfer agent shall have been furnished
with an opinion or other similar letter of legal counsel reasonably satisfactory
to Borrower to the effect that such sale or transfer is exempt from the
registration requirements of the 1933 Act or (iii) such shares are sold pursuant
to Rule 144 under the 1933 Act (or a successor rule) ("Rule 144"). Except as
otherwise provided in the Purchase Agreement (and subject to the removal
provisions set forth below), each certificate for shares of Common Stock
issuable upon conversion of this Note that has not been so included in an
effective registration statement or that has not been sold pursuant to an
effective registration statement or an exemption that permits removal of the
legend, shall bear a legend substantially in the following form, as appropriate:

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
         ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
         THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
         UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
         REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
         UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
         PURSUANT TO RULE 144 UNDER SAID ACT.

         The legend set forth above shall be removed and the Borrower shall
issue to the Holder of such shares of Common Stock a new certificate therefor
free of any transfer legend if (i) such shares of Common Stock are registered
for sale under an effective registration statement filed under the 1933 Act, or
(ii) such holder provides the Borrower with an opinion of counsel, in form,
substance and scope reasonably acceptable to the Borrower, to the effect that a
public sale or transfer of such shares of Common Stock may be made without
registration under the 1933 Act and such sale or transfer is effected or (iii)
such holder provides the Borrower with reasonable assurances that such shares
can be sold pursuant to Rule 144(k) under the 1933 Act (or a successor rule
thereto) without any restriction as to the number of shares acquired as of a
particular date that can then be immediately sold. Nothing in this Note shall
(i) limit the Borrower's obligation under the Registration Rights Agreement or
(ii) affect in any way the Holder's obligations to comply with applicable
prospectus delivery requirements upon the resale of the securities referred to
herein.

         1.6      Effect of Certain Events.
                  ------------------------

                  (a) At the option of the Holder, the sale, conveyance or
disposition of all or substantially all of the assets of the Borrower, the
effectuation by the Borrower of a transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the Borrower is
disposed of, the acquisition of more than fifty percent (50%) of the voting
power of the Borrower by one Person (as defined below) or Persons, a change in
persons constituting a majority of the board of directors in a single
stockholder meeting or action by consent, or the consolidation, merger or other
business combination of the Borrower with or into any other Person or Persons
when the Borrower is not the survivor shall either: (i) be deemed to be an Event
of Default (as defined in Article IV) pursuant to which the Borrower shall be
required to pay to the Holder an amount equal to the Default Amount (as defined
in Article IV) or (ii) be treated pursuant to Section 1.6(b) hereof. "Person"
shall mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.

                  (b) If, at any time when this Note is issued and outstanding,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Borrower or
another Person, or in case of any sale or conveyance of all or substantially all
of the assets of the Borrower other than in connection with a plan of complete
liquidation of the Borrower, then the Holder of this Note shall thereafter have
the right to receive upon conversion of this Note, upon the bases and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the Holder would have been entitled to receive in such transaction
had this Note been converted in full immediately prior to such transaction
(without regard to any limitations on conversion set forth herein), and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Note to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Note) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the exercise hereof. The
Borrower shall not effect any transaction described in this Section 1. 6(b)
unless (a) it first gives, to the extent practicable, forty-five (45) days prior
written notice (but in any event at least thirty (30) days prior written notice)
of the record date of the special meeting of stockholders to approve, or if
there is no such record date, the consummation of, such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event or
sale of assets (during which time the Holder shall be entitled to convert this
Note) and (b) the resulting successor or acquiring entity (if not the Borrower)
assumes by written instrument the obligations of this Section 1.6(b). The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.

                  (c) If the Borrower shall declare or make any distribution of
its assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise (including
any dividend or distribution to the Borrower's stockholders in cash or shares
(or rights to acquire shares)) of capital stock of a subsidiary (i.e., a
spin-off) (a "Distribution"), the Holder of this Note shall be entitled, upon
any conversion of this Note after the date of record for determining
stockholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the Holder with respect to the shares of Common
Stock issuable upon such conversion had such Holder been the holder of such
shares of Common Stock on the record date for the determination of stockholders
entitled to such Distribution.

                  (d) If, at any time when any Notes are issued and outstanding,
the Borrower issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the Holder of this Note upon
any conversion of this Note following the issuance of such Purchase Rights will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without regard to any limitations on conversion
contained herein) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.

                   (e) If the Borrower issues additional shares of Common Stock,
options to purchase or rights to subscribe for Common Stock, securities by their
terms convertible or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable Securities ("Additional
Stock") without consideration or for a consideration per share less than the
Conversion Price in effect on the date of and immediately prior to such
issuance, then, in each such event, the Conversion Price then in effect shall be
reduced to a price (calculated to the nearest cent) determined by multiplying
the Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock that the aggregate consideration received by
the Borrower for such issuance would purchase at the Conversion Price in effect
immediately prior to such issuance, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of such Additional Stock; provided that, for the
purposes of this calculation, the number of shares of Common Stock outstanding
immediately prior to such issuance shall be calculated on a fully diluted basis,
as if the Note and all other outstanding convertible securities of the Borrower
had been fully converted into shares of Common Stock immediately prior to such
issuance and any outstanding options had been fully exercised immediately prior
to such issuance (and the resulting securities fully converted into shares of
Common Stock, if so convertible) as of such date, but such calculation shall not
include any additional shares of Common Stock issuable with respect to the Note,
other convertible securities or outstanding options, solely as a result of the
adjustment of the Conversion Price resulting from the issuance of additional
shares of Common Stock causing such adjustment. Notwithstanding the foregoing,
the following issuances of Common Stock or options to purchase Common Stock
shall not cause any adjustment of the Conversion Price: (i) the exercise of any
options to purchase Common Stock outstanding as of the date hereof and (ii) the
grant or exercise of up to 500,000 additional options to purchase Common Stock
having exercise prices of less than $1.00 per share that may be granted from
time to time to officers, directors, employees or consultants of the Company.

                  (f) In the case of the issuance of shares of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Borrower for any underwriting or otherwise in
connection with the issuance and sale thereof.

                  (g) In the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors.

                  (h) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock or options to purchase or rights to subscribe
for such convertible or exchangeable securities, the following provisions shall
apply when calculating the adjustment to the Conversion Price under Section
1.6(e):

         (i) In the case of options to purchase or rights to subscribe for
Common Stock, (x) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued, and (y) the aggregate consideration received by the Borrower
shall equal the consideration, if any, received by the Borrower upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby (the consideration in each
case to be determined in the manner provided in Sections 1.6(f) and (g).

         (ii) In the case of securities convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, (x) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued, and (y) the
aggregate consideration received by the Borrower shall equal the consideration,
if any, received by the Borrower for any such securities and related options or
rights (excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received by
the Borrower (without taking into account potential antidilution adjustments)
upon the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be determined in
the manner provided in Sections 1.6(f) and (g).

         (iii) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to the Borrower upon exercise
of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price, to the
extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or
conversion or exchange of such securities.

         (iv) Upon the expiration of any such options or rights, the termination
of any such rights to convert or exchange or the expiration of any options or
rights related to such convertible or exchangeable securities, the Conversion
Price, to the extent in any way affected by or computed using such options,
rights or securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities which remain in effect) actually
issued upon the exercise of such options or rights related to such securities
and the consideration deemed paid therefor shall be appropriately adjusted to
reflect such termination or expiration.

                  (i) Upon the occurrence of each adjustment or readjustment of
the Conversion Price as a result of the events described in this Section 1.6,
the Borrower, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to the Holder of a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Borrower shall, upon the written
request at any time of the Holder, furnish to such Holder, a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of the Note.

         1.7 Status as Stockholder. Upon submission of a Notice of Conversion by
a Holder, (i) the shares covered thereby shall be deemed converted into shares
of Common Stock and (ii) the Holder's rights as a Holder of such converted
portion of this Note shall cease and terminate, excepting only the right to
receive certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to such Holder
because of a failure by the Borrower to comply with the terms of this Note.
Notwithstanding the foregoing, if a Holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any portion of this
Note for any reason, then (unless the Holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Borrower), the Holder
shall regain the rights of a Holder of this Note with respect to such
unconverted portions of this Note and the Borrower shall, as soon as
practicable, return such unconverted Note to the holder or, if the Note has not
been surrendered, adjust its records to reflect that such portion of this Note
has not been converted.

                         ARTICLE II. NEGATIVE COVENANTS

         So long as the Borrower shall have any obligation under this Note, the
Borrower shall not without the Holder's written consent (a) pay, declare or set
apart for such payment, any dividend or other distribution (whether in cash,
property or other securities) on shares of capital stock other than dividends on
shares of Common Stock solely in the form of additional shares of Common Stock,
(b) directly or indirectly or through any subsidiary make any other payment or
distribution in respect of its capital stock, or (c) redeem any shares of its
capital stock.

                       ARTICLE III. PAYMENT AND REDEMPTION

         3.1 Mandatory Payment. The Borrower shall be required to pay this Note
in accordance with this Section 3.1 to the extent the Holder hereof has not
previously converted the Note or any portion thereof outstanding on the Maturity
Date in accordance with Section 1.1. No later than five (5) business days after
the Maturity Date (the "Payment Date"), the Borrower shall make payment of the
Mandatory Payment Amount (as defined below) in cash to or upon the order of the
Holder as specified by the Holder in writing to the Borrower. The "Mandatory
Payment Amount" shall be equal to the sum of (a) the outstanding principal
amount of this Note plus (b) accrued and unpaid interest on the principal amount
of this Note plus (c) Default Interest, if any, on the interest referred to in
the immediately preceding clause.

         3.2 Optional Redemption. So long as no Event of Default shall have
occurred and be continuing, the Borrower may redeem all or any portion of this
Note upon ten (10) days prior written notice (a "Redemption Notice") delivered
prior to the Maturity Date in accordance with this Section 3.2. Any Redemption
Notice shall be delivered to the Holder at its registered address appearing on
the records of the Borrower and shall state (1) that the Borrower is exercising
its right to redeem this Note and (2) the date of redemption, which date must be
on or prior to the Maturity Date. On the date fixed for redemption (the
"Redemption Date"), the Borrower shall make payment of the Redemption Amount (as
hereinafter defined) in cash to or upon the order of the Holder as specified by
the Holder in writing to the Borrower at least one (1) business day prior to the
Redemption Date. The "Redemption Amount" shall be equal to the sum of (a) one
hundred fifteen percent (115%) of the then outstanding principal amount of this
Note plus (b) accrued and unpaid interest on the unpaid principal amount of this
Note to the date of payment plus (c) Default Interest, if any, on the interest
referred to in the immediately preceding clause. Notwithstanding anything to the
contrary contained in this Section 3.2, the Holder shall at all times following
the Issue Date and prior to the Redemption Date maintain the right to convert
all or any part of this Note in accordance with Article I and any amounts so
converted after receipt of a Redemption Notice and prior to the Redemption Date
set forth in such notice and payment of the aggregate Redemption Amount shall be
deducted from the amount which is otherwise subject to redemption pursuant to
the Redemption Notice.

         3.3 Deposit of Redemption Price. On or prior to the date of a
Redemption Notice, the Borrower shall deposit with an escrow agent or segregate
and hold in trust an amount of money sufficient to pay the Redemption Amount. If
the Note or any portion thereof is converted prior to its redemption, any money
deposited with the escrow agent or so segregated and held in trust for the
redemption of such portion of the Note shall be paid to the Borrower or, if then
held by he Borrower, discharged from such trust.

                          ARTICLE IV. EVENTS OF DEFAULT

                  If any of the following events of default (each, an "Event of
Default") shall occur:

         4.1 Failure to Pay Principal or Interest. The Borrower fails to pay the
principal hereof when due or fails to pay interest thereon within five (5)
business days of the date it is due, whether at maturity, upon acceleration, or
otherwise.

         4.2 Conversion and the Shares. The Borrower fails to issue shares of
Common Stock to the Holder upon exercise by the Holder of the conversion rights
of the Holder in accordance with the terms of this Note, fails to transfer any
certificate for shares of Common Stock issued to the Holder upon conversion of
this Note and when required by this Note or the Investor Rights Agreement, or
fails to remove any restrictive legend on any certificate for any shares of
Common Stock issued to the Holder upon conversion of this Note as and when
required by this Note, the Purchase Agreement or the Investor Rights Agreement
and any such failure shall continue uncured (or any announcement, statement or
threat not to honor conversions shall not be rescinded) for twenty (20) days
after the Borrower shall have been notified thereof in writing by the Holder.

         4.3 Breach. The Borrower breaches in any material respect any
representation, warranty, covenant or other term or condition contained in any
of the Transaction Documents or any document delivered by or on behalf of the
Borrower in connection therewith, and such breach continues for a period of ten
(10) business days after written notice thereof to the Borrower from the Holder.

         4.4 Receiver or Trustee. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed.

         4.5 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower.

         4.6 Other Defaults. Failure by the Borrower to pay or perform any other
indebtedness or material obligation whether contingent or otherwise, or if any
such other indebtedness or material obligation shall be accelerated, or if there
exists any event of default under any instrument, document or agreement
governing, evidencing or securing such other indebtedness or material
obligation.

         4.7 Certain Legal Actions. Any levy, seizure, attachment, execution or
similar process shall be issued or levied on any of the Borrower's property,
which such process could have a Material Adverse Effect on the business of the
Borrower in the Holder's reasonable judgment.

then, upon the occurrence and during the continuation of any Event of Default
specified in Sections 4.1, 4.2, 4.3, 4.6 or 4.7, at the option of the Holder,
and upon the occurrence of an Event of Default specified in Sections 4.4 or 4.5,
the Notes shall become immediately due and payable and the Borrower shall pay to
the Holder, in full satisfaction of its obligations hereunder, an amount equal
to the sum of (w) the then outstanding principal amount of this Note plus (x)
accrued and unpaid interest on the unpaid principal amount of this Note to the
date of payment plus (y) Default Interest, if any, on the interest referred to
in the immediately preceding clause (the "Default Amount") and all other amounts
payable hereunder shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity.

                            ARTICLE V. MISCELLANEOUS

         5.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

         5.2 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be Aviation
General, Incorporated, 7200 Northwest 63rd Street, Bethany, Oklahoma 73008,
facsimile number: (405) 495-8383. Both the Holder and the Borrower may change
the address for service by service of written notice to the other as herein
provided.

         5.3 Amendments. This Note and any provision hereof may only be amended
by an instrument in writing signed by the Borrower and the Holder. The term
"Note" and all reference thereto, as used throughout this instrument, shall mean
this instrument (and the other Notes issued pursuant to the Purchase Agreement)
as originally executed, or if later amended or supplemented, then as so amended
or supplemented.

         5.4 Assignability. Borrower may not assign this Note without the prior
written consent of the Holder. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to be the benefit of the Holder and
its successors and assigns. Each transferee of this Note must be an "accredited
investor" (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything
in this Note to the contrary, this Note may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.

         5.5 Cost of Collection. If default is made in the payment of this Note,
the Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.

         5.6 Governing Law. This Note shall be governed by the internal laws of
the State of New York, without regard to the principles of conflict of laws.

         5.7 Certain Amounts. Whenever pursuant to this Note the Borrower is
required to pay an amount in excess of the outstanding principal amount (or the
portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Note may be difficult to determine and the amount to be so paid by the
Borrower represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this Note
and to earn a return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated damages is not plainly disproportionate to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.

         5.8 Denominations. At the request of the Holder, upon surrender of this
Note, the Borrower shall promptly issue new Notes in the aggregate outstanding
principal amount hereof, in the form hereof, in such denominations of at least
$50,000 as the Holder shall request.

         5.9 Purchase Agreement. By its acceptance of this Note, the Holder
agrees to be bound by the applicable terms of the Purchase Agreement.

         5.10 Notice of Corporate Events. Except as otherwise provided below,
the Holder of this Note shall have no rights as a Holder of Common Stock unless
and only to the extent that it converts this Note into Common Stock. The
Borrower shall provide the Holder with prior notification of any meeting of the
Borrower's stockholders (and copies of proxy materials and other information
sent to stockholders). In the event of any taking by the Borrower of a record of
its stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining stockholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
5.10.

         IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer this 22 day of July, 2002.

                                 AVIATION GENERAL, INCORPORATED

                              By:
                   -----------------------------------------------------------
                               Name:
                               Title:

<PAGE>

                                                               Exhibit A

                              NOTICE OF CONVERSION
                           OF SECURED CONVERTIBLE NOTE

TO:

                  (1) Pursuant to the terms of the attached Secured Convertible
Note (the "Note"), the undersigned hereby elects to convert $ principal amount
of the Note into shares of Common Stock of Aviation General, Incorporated, a
Delaware corporation (the "Borrower"). Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the Note.

                  (2) Please issue a certificate or certificates for the number
of shares of Common Stock into which such principal amount of the Note (plus
interest thereon to the extent not paid in cash in accordance with the terms of
the Note) is convertible ( shares, based on the Holder's calculation attached
hereto) in the name(s) specified immediately below or, if additional space is
necessary, on an attachment hereto:

Name                                                          Name

Address                                                       Address

SS or Tax ID Number                                         SS or Tax ID Number

                  (3) Holder acknowledges and affirms that the Common Stock
issued pursuant to this Notice of Conversion has been or will be sold in
accordance with the requirements of the 1933 Act, if applicable, or pursuant to
an exemption under the 1933 Act.

Date                                                          Signature of
                                                              Registered Holder
                                                              (must be signed
                                                              exactly as name
                                                              appears in the
                                                              Note).INVESTOR RIGHTS AGREEMENT

         INVESTOR RIGHTS AGREEMENT (this "Agreement"), dated as of July 22,
2002, by and between AVIATION GENERAL INCORPORATED, a Delaware Corporation (the
"Company"), and the undersigned (together with its respective affiliates and any
assignee or transferee of all of its respective rights hereunder, the
"Investor").

                  WHEREAS:

         A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Investor (i) a 6% Secured Convertible Note
(the "Note") that is, under certain circumstances, convertible into shares (the
"Conversion Shares") of the Company's common stock (the "Common Stock"), upon
the terms and subject to the limitations and conditions set forth in the Note;
and

         B. To induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agree as follows:

         1.       DEFINITIONS.
                  -----------

         a. As used in this Agreement, the following terms shall have the
following meanings:

         (i) "Investor" means the Investor and any transferee or assignee who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 hereof.

         (ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").

         (iii) "Registrable Securities" means the Conversion Shares (including
shares issued in respect of interest under the Note) and any shares of capital
stock issued or issuable as a dividend on or in exchange for or otherwise with
respect to any of the foregoing.

         (iv) "Registration Statement" means a registration statement of the
Company under the 1933 Act.

         b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.

         2.       REGISTRATION.
                  ------------

                  a. Mandatory Registration. The Company shall prepare, and, on
or prior to 30 days from the date of this Agreement (the "Filing Date"), file
with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available) to
effect a registration of the Registrable Securities covering the resale of the
Registrable Securities underlying the Note issued or issuable pursuant to the
Securities Purchase Agreement. The Company shall use reasonable efforts to
obtain effectiveness of the Registration Statement as soon as practicable.

                  b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investor shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.

                  c. Piggy-Back Registration. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to the Investor written notice of such determination and, if within fifteen
(15) days after the effective date of such notice, the Investor shall so request
in writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities the Investor requests to be registered,
except that if, in connection with any underwritten public offering for the
account of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which the Investor has requested inclusion hereunder as the
underwriter shall permit. The Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities. No right to registration of Registrable Securities under
this Section 2(c) shall be construed to limit any registration required under
Section 2(a) hereof. If an offering in connection with which the Investor is
entitled to registration under this Section 2(c) is an underwritten offering,
then the Investor shall, unless otherwise agreed by the Company, offer and sell
such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering.

                  d. Eligibility for Form S-3. The Company represents and
warrants that it will use its reasonable efforts to meet the registrant
eligibility and transaction requirements for the use of Form S-3 for
registration of the sale by the Investor and the Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
maintain such eligibility for the use of Form S-3.

         3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall have the following obligations:

                  a. The Company shall prepare promptly, and file with the SEC
not later than the Filing Date, a Registration Statement with respect to the
number of Registrable Securities provided in Section 2(a), and thereafter use
its best efforts to cause such Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing, and keep
the Registration Statement effective pursuant to Rule 415 at all times until
such date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the Registrable Securities
(in the opinion of counsel to the Investor) may be immediately sold without
restriction (including without limitation as to volume by each holder thereof)
without registration under the 1933 Act (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.

                  b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement.

                  c. The Company shall furnish to the Investor and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, and each preliminary prospectus and prospectus and
each amendment or supplement thereto, and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as the Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Investor. The Company will immediately notify the Investor by
facsimile of the effectiveness of the Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly file an acceleration request as soon as
practicable following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that the Registration Statement or
any amendment thereto will not be subject to review.

                  d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investor reasonably requests, (ii) prepare and file in
those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.

                  e. In the event the Investor selects underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.

                  f. As promptly as practicable after becoming aware of such
event, the Company shall notify the Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to the Investor as the Investor may
reasonably request: provided that, for not more than thirty (30) consecutive
trading days (or a total of not more than sixty (60) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investor in writing of the existence of (but in no event, without the prior
written consent of the Investor, shall the Company disclose to the Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investor in writing to cease all
sales under the Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.

                  g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.

                  h. The Company shall permit a single firm of counsel
designated by the Investor to review the Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) for a reasonable period of time prior to their filing
with the SEC, and not file any document in a form to which such counsel
reasonably objects and will not request acceleration of the Registration
Statement without prior notice to such counsel. The sections of the Registration
Statement covering information with respect to the Investor, the Investor's
beneficial ownership of securities of the Company and the Investor's intended
method of disposition of Registrable Securities shall conform to the information
provided to the Company by the Investor.

                  i. At the request of the Investor, the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investor and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investor.

                  j. The Company shall make available for inspection by (i) the
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investor, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto. Each Investor agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.

                  k. The Company shall hold in confidence and not make any
disclosure of information concerning the Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning the
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Investor prior to
making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.

                  l. The Company shall use its best efforts to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on
each national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on the Nasdaq National Market, or if not
eligible for the Nasdaq National Market on the Nasdaq SmallCap Market and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. ("NASD)" as such with respect to such Registrable Securities.

                  m. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.

                  n. The Company shall cooperate with the Investor and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the managing underwriter or underwriters, if any, or the
Investor may reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investor may request.

                  o. At the request of the Investor, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.

                  p. From and after the date of this Agreement, the Company
shall not, and shall not agree to, allow the holders of any securities or the
Company to include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under Section 3(b)
hereof without the consent of the Investor.

                  q. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investor of Registrable
Securities pursuant to the Registration Statement.

         4.       OBLIGATIONS OF THE INVESTOR.
                  ---------------------------

         In connection with the registration of the Registrable Securities, the
Investor shall have the following obligations:

                  a. It shall be a condition precedent to the obligation of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of the Investor that the Investor shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it and the intended method of disposition of the Registrable Securities held
by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify the Investor of the information the Company requires
from the Investor.

                  b. The Investor, by its acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
the Investor's election to exclude all of the Investor's Registrable Securities
from the Registration Statement.

                  c. In the event the Investor determines to engage the services
of an underwriter, the Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities.

                  d. The Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Sections 3(f)
or 3(g), the Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until the Investor's receipt of the copies or the supplemented or
amended prospectus contemplated by Sections 3(f) or 3(g) and, if so directed by
the Company, the Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in the Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.

                  e. The Investor may not participate in any underwritten
registration hereunder unless the Investor (i) agrees to sell the Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.

         5.       EXPENSES OF REGISTRATION.
                  ------------------------

         All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Investor pursuant to Sections 2(b)
and 3(h) hereof shall be borne by the Company.

         6.       INDEMNIFICATION.
                  ---------------

         In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

                  a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) the Investor, (ii) the directors, officers,
partners, employees, agents and each person who controls the Investor within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), if any, (iii) any underwriter (as defined in the 1933 Act) for the
Investor, and (iv) the directors, officers, partners, employees and each person
who controls any such underwriter within the meaning of the 1933 Act or the 1934
Act, if any (each, an "Indemnified Person"), against any joint or several
losses, claims, damages, liabilities or expenses (collectively, together with
actions, proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect thereof, "Claims") to
which any of them may become subject insofar as such Claims arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees and other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed; and (iii) with respect to
any preliminary prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investor pursuant to Section 9.

                  b. In connection with any Registration Statement in which the
Investor is participating, the Investor agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the 1933 Act or the 1934 Act, any underwriter and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder or underwriter within the
meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Party"), against
any Claim to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation by the Investor, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by the Investor expressly for use in
connection with such Registration Statement; and subject to Section 6(c) the
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim or delayed; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Investor, which consent shall not be
unreasonably withheld; provided further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to the Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investor pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus as then amended or
supplemented.

                  c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by the Investor if the
Investor is entitled to indemnification hereunder, or the Company, if the
Company is entitled to indemnification hereunder, as applicable. Notwithstanding
anything in this Section 6(c) to the contrary, if the indemnifying party does
not assume control of the defense of a Claim as provided in this Section 6(c),
the Indemnified Person or Indemnified Party shall have the right to defend such
Claim in such manner as it may deem appropriate. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

         7.       CONTRIBUTION.
                  ------------

         To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to contribute to the
amount paid or payable by the Indemnified Person or the Indemnified Party as a
result of such Claim in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the Indemnified
Person or Indemnified Party on the other in connection with the statements or
omissions that resulted in such Claim as well as any other relevant equitable
considerations; provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (ii) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent misrepresentation,
and (iii) contribution (together with any indemnification or other obligations
under this Agreement) by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities. The relative fault of the indemnifying party and of
the Indemnified Person or Indemnified Party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the Indemnified Person or Indemnified Party and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission.

         8.       REPORTS UNDER THE 1934 ACT.
                  --------------------------

         With a view to making available to the Investor the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investor to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:

                  a.       make and keep public  information  available,  as
those terms are understood and defined in Rule 144;

                  b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

                  c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company with the SEC, and (iii) such other information as may be reasonably
requested to permit the Investor to sell such securities pursuant to Rule 144
without registration.

         9.       ASSIGNMENT OF REGISTRATION RIGHTS.
                  ---------------------------------

         The rights under this Agreement shall be automatically assignable by
the Investor to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.

         10.      AMENDMENT OF REGISTRATION RIGHTS.
                  --------------------------------

         Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
the Investor. Any amendment or waiver effected in accordance with this Section
10 shall be binding upon the Investor and the Company.

         11.      ADDITIONAL COVENANTS OF THE COMPANY.
                  -----------------------------------

         a. Delivery of Documents. The Company shall deliver to Investor:

         (i) as soon as practicable, but in any event no later than ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by an independent public
accountants selected by the Company.

         (ii) as soon as practicable, but in any event no later than forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and a statement showing
the number of shares of each class and series of capital stock convertible into
or exercisable for shares of capital stock outstanding at the end of the period,
the number of common shares issuable upon conversion or exercise of any
outstanding securities or convertible thereto, all in sufficient detail as to
permit the Investor to calculate its percentage equity ownership in the Company.

         (iii) within thirty (30) days of the end of each month, an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet for and as of the end of each month, in reasonable detail.

                  b. Board Representation. So long as any amount remains
outstanding under the Note or the Investor beneficially owns any Conversion
Shares, the Company shall invite the Investor or a representative of the
Investor to attend all meetings of its Board of Directors or Committees of the
Board of Directors in a nonvoting observer capacity and, in this respect, shall
give the Investor or the Investor's representative copies of all notices,
minutes, consents and other materials it provides to its directors; provided
that the Investor or such representative shall agree to hold in confidence and
trust all information so provided.

         c. Inspection. The Company shall permit the Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all such reasonable times as may be requested by
the Investor.

                  12.      MISCELLANEOUS.
                           -------------

         a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

         b. Any notices required or permitted to be given under the terms hereof
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:

         If to the Company:

         Aviation General Incorporated
         7200 Northwest 63rd Street
         Bethany, Oklahoma  73008
         Telephone: (405) 495-8080  Facsimile: (405) 495-8383

         With copy to:

         Dyer Ellis & Joseph PC
         600 New Hampshire Avenue, N.W.
         Suite 1100
         Washington, D.C.  20037
         Attn:  John Kearney
         Facsimile:  (202) 944-3068

If to the Investor:

         Nyltiak Investments, LLC
         511 Avenleigh Court
         Ashton, MD 20861

         With copy to:

         Miles & Stockbridge P.C.
         1751 Pinnacle Drive, Suite 500
         McLean, VA 22102-3833
         Attn:    Morris DeFeo
         Facsimilie:       703-610-8686

                  c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof. In addition to its right to
damages and any other right it may have, each party hereto shall have the right
to obtain injunctive relief or other equitable relief to restrain any breach or
threatened breach of or otherwise to specifically enforce this Agreement, it
being agreed that money damages alone would be inadequate to compensate such
party and would be an inadequate remedy for such breach.

                  d. This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in New York with
respect to any dispute arising under this Agreement or the transactions
contemplated hereby.

                  e. This Agreement, the Securities Purchase Agreement and the
agreements referenced herein and therein (including all schedules and exhibits
thereto) constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Securities Purchase Agreement and the agreements
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

                  f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties hereto. Notwithstanding the foregoing
sentence, the Company shall not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the Investor.

                  g.       The headings in this  Agreement  are for  convenience
of  reference  only and shall not limit or otherwise affect the meaning hereof.

                  h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

                  i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

                  j. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.

                  IN WITNESS WHEREOF, the Company and the undersigned Investor
have caused this Agreement to be duly executed as of the date first above
written.

AVIATION GENERAL INCORPORATED

By:
      ----------------------------------
      Name:
      Title:

NYLTIAK INVESTMENTS, LLC

By:
      ----------------------------------
      Name:
      Title:

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