LOAN MODIFICATION AND EXTENSION AGREEMENT

THIS LOAN MODIFICATION AND EXTENSION AGREEMENT (“Agreement”) is made as of
the 31st day of March, 2010, by and between STEELCLOUD, INC., a Virginia
corporation (hereinafter referred to as the “Maker”, the “Company” or the
"Borrower") and CALEDONIA CAPITAL CORPORATION, a Delaware corporation
(hereinafter called the "Lender").

WITNESSETH:

WHEREAS, Borrower heretofore executed and delivered to the Lender its one
certain Secured Promissory Note dated July 1, 2009 in the original principal
amount of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) (together
with all amendments, modifications, substitutions, extensions or renewals
thereof hereinafter referred to as "Note 1"); and

WHEREAS, Note 1 is governed and secured by that certain Business Loan and
Security Agreement dated July 1, 2009 between Borrower and Lender (the "Loan
Agreement"), encumbering Borrower’s interest in certain business asset, as more
particularly described in the Loan Agreement (the "SteelWorks Mobile System");
and

WHEREAS, Borrower heretofore executed and delivered to the Lender its one
certain Revolving Line of Credit Promissory Note dated November 3, 2009 in the
original principal amount of One Hundred Fifty Thousand and 00/100 Dollars
($150,000.00) (together with all amendments, modifications, substitutions,
extensions or renewals thereof hereinafter referred to as "Note 2" and, together
with Note 1 sometimes collectively referred to herein as the “Notes”); and

WHEREAS, Note 2 is governed and secured by that certain Line of Credit and
Security Agreement dated November 3, 2009 between Borrower and Lender (the "Line
of Credit Agreement"), encumbering all of Borrower’s business asset, as more
particularly described in the Loan Agreement (the "Business Assets"); and

WHEREAS, the Maturity Date of Note 1 and Note 2 is currently March 31, 2010; and

WHEREAS, Borrower and Lender have agreed hereby upon the terms and conditions
for the extension of the Maturity date of Note 1 and Note 2, as hereinafter set
forth.

NOW, THEREFORE, the parties hereto in consideration of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, do hereby agree
as follows:

 
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1.           Incorporation of Recitals. The parties hereto acknowledge and agree
that the recitals hereinabove set forth are true and correct in all material
respects and that the same are incorporated herein and made a part hereof by
this reference.

2.           Extension of Maturity Date. The Maturity Date of both Notes is
hereby extended to December 31, 2011 (the “Extended Maturity Date”), when the
entire principal balance remaining unpaid, together with interest accrued
thereon, shall be due and payable in full.

3.           Interest. From and after April 1, 2010, interest shall accrue on
the unpaid principal balance of both Notes at the rate of twenty percent
(20.00%) per annum until paid. Interest shall continue to be due and payable in
monthly installments of accrued interest on the 1st day of each month hereafter
until the Extended Maturity Date. Section 1.2 of Note 1 is hereby deleted in its
entirety without replacement. The following provision is hereby deleted from
Note 2 without replacement:

“or (b) the date that the Borrower shall have raised a total of not less than
$1,000,000 in New Equity Capital (defined below) from one or more investors
(“Capitalization Date”). For the purposes of this clause, New Equity Capital
shall be defined as capital invested in the equity of the Borrower accompanied
by the issuance by Borrower of shares of stock which were not trading in the
public markets prior to the date of this Note.”

4.           Outstanding Obligations.  Maker hereby represent that as of the
date hereof the outstanding principal indebtedness evidenced by Note 1 is
$250,000.00 and Note 2 is $150,000.00.

5.           Extension Fee/Accrued Late Fees.   In consideration of Lender’s
agreement to extend the Maturity Date of the Notes and in satisfaction of
certain accrued late fees due pursuant to the Notes, Borrower shall, concurrent
with its execution of this Agreement shall issue and deliver to Lender
certificate(s) evidencing 500,000 fully paid and non-assessable shares of the
Borrower’s Common Stock, par value $0.001 per share (“Common Stock”).

6.           Modification of Existing Warrants.   It is recognized and
acknowledged that Borrower has previously issued to Lender (i) that certain
Common Stock Purchase Warrant dated November 4, 2009 granting to Lender the
right to purchase from time to time up to 150,000 shares of Common Stock at a
purchase price of $0.25 for each share of Common Stock so purchased, and (ii)
that certain Common Stock Purchase Warrant dated November 23, 2009 granting to
Lender the right to purchase from time to time up to 225,000 shares of Common
Stock at a purchase price of $0.25 for each share of Common Stock so purchased
(said Common Stock Purchase Warrants being collectively referred to herein as
the “Existing Warrants”). Borrower and Lender do hereby agree that the Existing
Warrants are both hereby amended to provide that the Exercise Price (as defined
in such Existing Warrants) shall hereafter be $0.15 per share rather than $0.25
per share, subject to adjustment as provided in the Existing Warrants.

 
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7.           Confirmation of Liens.  The Maker hereby acknowledge and agree that
(i) the SteelWorks Mobile System is and shall remain in all respects subject to
the lien, charge and encumbrance of the Loan Agreement, (ii) the Business Assets
are and shall remain in all respects subject to the lien, charge and encumbrance
of the Line of Credit Agreement, (iii) and nothing herein contained, and nothing
done pursuant hereto, shall adversely affect or be construed to adversely affect
the lien, charge, or encumbrance of, or conveyance effected by the Loan
Agreement or the Line of Credit Agreement or the priority thereof over other
liens, charges, encumbrances or conveyances, or to release or adversely affect
the liability of any party or parties whomsoever who may now or hereafter be
liable under or on account of the Notes or any of the Loan Documents (as
hereinafter defined), nor shall anything herein contained or done in pursuance
hereof adversely affect or be construed to adversely affect any other security
or instrument held by the Lender as security for or evidence of the indebtedness
evidenced and secured thereby.

8.           Continuation of Loan Terms.  Except as otherwise expressly set
forth herein, the outstanding principal balance of the Notes shall continue to
bear interest and to be repaid on the terms and subject to the conditions set
forth in the Notes and the other documents evidencing and securing the Notes
(this Agreement, the Notes, the Loan Agreement, the Line of Credit Agreement and
all such other documents, whether currently existing or hereafter executed, and
all modifications thereto, extensions or renewals thereof and substitutions
therefor being hereinafter collectively referred to as the "Loan Documents").
All capitalized terms used but not defined in this Agreement shall have the
meaning given to such terms in the Loan Documents.

9.           Expenses.  The Maker covenants and agrees to pay all fees, costs,
charges and expenses incurred by the Lender in connection with the preparation
of this Agreement and the extension of the Notes, including without limitation,
the Lender's reasonable attorneys fees.

10.        Release of Claims.  The Maker hereby releases and waives all claims
and/or defenses it now or hereafter may have against the Lender and its
successors and assigns on account of any occurrence relating to the Notes and/or
the other Loan Documents which accrued prior to the date hereof, including, but
not limited to, any claim that the Lender (a) breached any obligations to the
Maker in connection with the indebtedness evidenced by the Notes, (b) was or is
in any way involved with the Maker as a partner, joint venturer, or in any other
capacity whatsoever other than as a lender, (c) failed to timely respond to any
offers to cure any defaults under any document or agreement executed by the
Maker or any third party or parties in favor of the Lender. This release and
waiver shall be effective as of the date of this Agreement and shall be binding
upon the Maker, and shall inure to the benefit of the Lender and its successors
and assigns. The term "Lender" as used herein shall include, but shall not be
limited to, its present and former officers, directors, employees, agents and
attorneys.

11.        Continuing Agreements; Novation.  Except as expressly modified
hereby, the parties hereto ratify and confirm each and every provision of the
Notes and each of the other Loan Documents as if the same were set forth herein.
In the event that any of the terms and conditions in the Notes or in any of the
other Loan Documents conflict in any way with the terms and provisions hereof,
the terms and provisions hereof shall prevail. The parties hereto covenant and
agree that the execution of this Agreement is not intended to and shall not
cause or result in a novation with regard to the Notes and/or the other Loan
Documents and that the existing indebtedness of the Maker to the Lender
evidenced by the Notes is continuing, without interruption, and has not been
discharged by a new agreement.

 
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12.        Captions. The captions herein set forth are for convenience only and
shall not be deemed to define, limit or describe the scope or intent of this
Agreement.

13.        Governing Law. The provisions of this Agreement shall be
construed, interpreted and enforced in accordance with the laws of the
Commonwealth of Virginia as the same may be in effect from time to time.

14.        Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original. It
shall not be necessary that the signature of, or on behalf of, each party, or
that the signatures of the persons required to bind any party, appear on more
than one counterpart.

15.        Additional Financial Covenants. Anything contained in the
Loan Documents to the contrary notwithstanding, until Note 1 and Note 2 have
been paid in full, Borrower covenants and agrees as follows:

Limitation on Indebtedness. Without the Lender’s prior written consent,
Borrower shall not incur, create, contract for, waive, assume, have outstanding,
guarantee or otherwise become liable with respect to any indebtedness other than
(i) the indebtedness evidenced by the Notes, and (ii) unsecured trade payables
incurred by Borrower in the ordinary course of operating its business.

16.         Lender’s Conversion Option. The Lender shall have the right at any
time and from time to time to convert the all, or any part, of the outstanding
balance due under the Notes into shares of Common Stock of the Borrower at the
conversion rate of $0.10 per share of Common Stock (subject to adjustment in the
event of stock splits or combinations). To exercise such conversion right,
Lender must give written notice to Borrower (“Conversion Notice”) of such intent
at least five (5) days prior to such conversion and specifying the portion of
the outstanding principal balance of the Notes to be so converted. No fractional
shares of the Company's Common Stock shall be issued upon conversion of the
Notes. In lieu of the Company issuing any fractional shares to the Lender upon
the conversion of the Notes, the Company shall pay to the Lender the amount of
outstanding principal that is not so converted in cash. Within five (5) days
after receipt of the Conversion Notice, (a) the Company at its expense will
issue and deliver to the Lender a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion and pay any
outstanding interest accrued under the Notes, (b) the principal balance of the
Notes shall be reduced by the amount so converted, and (c) upon conversion of
all of the outstanding principal balance due under the Notes, the Lender shall
concurrently surrender the Notes, marked paid, at the principal office of the
Company. Upon conversion of all of the outstanding principal balance due under
the Notes, and payment of any accrued and outstanding interest thereon, the
Company shall be forever released from all its obligations and liabilities under
the Notes. Anything contained in the Notes to the contrary notwithstanding,
neither of the Notes may be prepaid without the Borrower providing the Lender
not less than thirty (30) days prior written notice of such prepayment and the
Lender shall not be required to accept any prepayment of the Notes if following
receipt of such written notice Lender has delivered a Conversion Notice to the
Company.

 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.

 
BORROWER:
     
SteelCloud, Inc.
     
By:
/s/ Brian Hajost     
Brian Hajost, President
     
LENDER:
     
Caledonia Capital Corporation
     
By:
/s/ Edward M. Murchie     
Edward M. Murchie, President

 
 
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