REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is entered into as of July
2, 2010, by and among STEELCLOUD, INC., a Virginia corporation (the “Company”),
CLIPPER INVESTORS LLC, an Illinois limited liability company (“Clipper”), and
CALEDONIA CAPITAL CORPORATION, a Delaware corporation (“Caledonia” and, together
with Clipper, the “Investors”).
 
The Company and Clipper are parties to (a) a Preferred Stock and Warrant
Purchase Agreement (the “Preferred Stock and Warrant Purchase Agreement”) and
(b) a Note Purchase Agreement (the “Note Purchase Agreement” and, together with
the Preferred Stock and Warrant Purchase Agreement, the “Purchase Agreements”),
each dated as of July 2, 2010.  The Company and Caledonia are parties to (i) an
Exchange Agreement dated as of July 2, 2010 pursuant to which Caledonia was
issued shares of the Company’s Preferred Stock in exchange for certain shares of
the Company’s Common Stock (the “Exchange Agreement”), and (ii) a Consolidated,
Amended and Restated Promissory Note dated July 2, 2010, made by the Company to
the order of Caledonia in the original principal amount of $570,000 (the
“Caledonia Note”).  In order to induce Clipper to enter into the Purchase
Agreements and Caledonia to enter into the Exchange Agreement, the Company has
agreed to provide the registration rights set forth in this Agreement.  The
execution and delivery of this Agreement is a condition to the closing of the
transactions contemplated by the Purchase Agreements, the Exchange Agreement and
the Caledonia Note.  Unless otherwise provided in this Agreement, capitalized
terms used herein shall have the meanings set forth in Section 8 hereof.
 
The parties hereto agree as follows:
 
1.             Demand Registrations.
 
(a)           Requests for Registration.  Each of Clipper and Caledonia may
request registration under the Securities Act of all or any portion of their
Investor Registrable Securities on Form S-1 or any similar long-form
registration (“Long-Form Registrations”) or, if then available, on Form S-2 or
S-3 (including pursuant to Rule 415 under the Securities Act) or any similar
short-form registration (“Short-Form Registrations”).  All registrations
requested pursuant to this Section 1(a) are referred to herein as “Demand
Registrations.”  Demand Registrations shall be Short-Form Registrations whenever
the Company is permitted to use any applicable short form.  Each request for a
Demand Registration shall specify the approximate number of Investor Registrable
Securities requested to be registered and the anticipated per share price range
for such offering.  Within five (5) business days after receipt of any such
request, the Company shall give written notice of such requested registration to
all other holders of Investor Registrable Securities and, subject to Section
1(d) below, shall include in such registration all Investor Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within thirty (30) days after the receipt of the Company’s
notice.

 
 

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(b)           Investor Long-Form Registrations.  Each of Clipper and Caledonia
shall be entitled to request not more than one (1) Long-Form Registration
pursuant to Section 1(a) for which the Company shall pay all Registration
Expenses (as defined in Section 5), whether or not such registration is
consummated.  All Long-Form Registrations shall be underwritten
registrations.  The selling stockholders and the Company shall bear the expenses
of the underwriter and placement agent, if any, pro rata in proportion to the
respective number of shares each is selling in such offering.
 
(c)           Investor Short-Form Registrations.  In addition to the Long-Form
Registrations provided pursuant to Section 1(b), each of Clipper and Caledonia
shall be entitled to request an unlimited number of Short-Form Registrations
pursuant to Section 1(a) for which the Company shall pay all Registration
Expenses, whether or not such registration is consummated.  The selling
stockholders and the Company shall bear the expenses of the underwriter and
placement agent, if any, pro rata in proportion to the respective number of
shares each is selling in such offering.  The Company shall use its best efforts
to make Short-Form Registrations on Form S-3 available for the sale of Investor
Registrable Securities and to maintain such S-3 eligibility thereafter.  If the
Company, pursuant to the request of the holder(s) of a majority of Investor
Registrable Securities, is qualified to and has filed with the Securities
Exchange Commission a registration statement under the Securities Act on Form
S-3 pursuant to Rule 415 under the Securities Act (the “Required Registration”),
then the Company shall use its best efforts to cause the Required Registration
to be declared effective under the Securities Act as soon as practicable after
filing, and, once effective, the Company shall cause such Required Registration
to remain effective for a period ending on the earlier of (i) the date on which
all Investor Registrable Securities included in such registration have been sold
pursuant to the Required Registration, or (ii) the date as of which the
holder(s) of the Investor Registrable Securities included in such registration
(assuming such holder(s) are affiliates of the Company) are able to sell all of
the Investor Registrable Securities included in such registration within a
ninety (90) day period in compliance with Rule 144 under the Securities Act.
 
(d)           Priority on Demand Registrations.  The Company shall not include
in any Demand Registration any securities that are not Investor Registrable
Securities without the prior written consent of the holder(s) of a majority of
the Investor Registrable Securities to be included in such registration.  If a
Demand Registration is an underwritten offering and the managing underwriters
advise the Company in writing that, in their opinion, the number of Investor
Registrable Securities and, if permitted hereunder, other securities requested
to be included in such offering exceeds the number of Investor Registrable
Securities and other securities, if any, that can be sold in an orderly manner
in such offering within a price range acceptable to the holder(s) of a majority
of the Investor Registrable Securities to be included in such registration, then
the Company shall include in such registration, prior to the inclusion of any
securities that are not Investor Registrable Securities, the maximum number of
Investor Registrable Securities requested to be included that, in the opinion of
such underwriters, can be sold in an orderly manner within the price range of
such offering, allocated pro rata among the respective holders thereof on the
basis of the amount of Investor Registrable Securities owned by each such
holder.

 
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(e)           Restrictions on Demand Registrations.  The Company shall not be
obligated to effect any Demand Registration within 180 days after the effective
date of a previous Demand Registration.  The Company may postpone for up to 180
days the filing or the effectiveness of a registration statement for a Demand
Registration if such registration would, in the good faith judgment of the
Company’s board of directors, substantially interfere with any material
transaction being considered at the time of receipt of the request for such
Demand Registration, including any proposal or plan by the Company to acquire
financing, engage in any acquisition of assets (other than in the ordinary
course of business), or engage in any merger, consolidation, tender offer,
reorganization, or similar transaction; provided that, in such event, the
holder(s) of Investor Registrable Securities initially requesting such Demand
Registration shall be entitled to withdraw such request and the Company shall
pay all Registration Expenses in connection with such registration.  The Company
may delay a Demand Registration hereunder only once in any twelve (12) month
period.
 
(f)            Selection of Underwriters.  The Company in its reasonable
discretion shall have the right to select the investment banker(s) and
manager(s) to administer any underwritten offering hereunder.
 
(g)           Other Registration Rights.  Except as provided in this Agreement,
the Purchase Agreements, the Exchange Agreement, and the documents contemplated
thereby, the Company shall not grant to any Persons the right to request the
Company to register any equity securities of the Company, or any securities,
options or rights convertible or exchangeable into or exercisable for such
securities, without the prior written consent of the holder(s) of a majority of
the Investor Registrable Securities.
 
2.             Piggyback Registrations.
 
(a)           Right to Piggyback.  Whenever the Company proposes to register any
of its securities (including any proposed registration of the Company’s
securities by any third party) under the Securities Act (other than (i) pursuant
to a Demand Registration, which is addressed by Section 1, or (ii) in connection
with registrations on Form S-4, S-8 or any successor or similar forms for
transactions as to which no cash proceeds are attributable to the Company) and
the registration form to be used may be used for the registration of Investor
Registrable Securities (a “Piggyback Registration”), the Company shall give
prompt written notice (and in any event within three (3) business days after its
receipt of notice of any exercise of demand registration rights other than under
this Agreement) to all holders of Investor Registrable Securities of its
intention to effect such a registration and shall include in such registration
all Investor Registrable Securities with respect to which the Company has
received written requests for inclusion therein within thirty (30) days after
the receipt of the Company’s notice.
 
(b)           Piggyback Expenses.  The Registration Expenses of the holders of
Investor Registrable Securities shall be paid by the Company in all Piggyback
Registrations, whether or not such registration is consummated.
 
(c)           Priority on Primary Registrations.  If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that, in their opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, then the Company shall include in such registration
the maximum number of securities that, in the opinion of such underwriters, can
be sold in an orderly manner within the price range of such offering, giving
priority (i) first, to the securities the Company proposes to sell, (ii) second,
to the Investor Registrable Securities requested to be included in such
registration (if any), allocated pro rata among the respective holders thereof
on the basis of the amount of Investor Registrable Securities owned by each such
holder, and (iii) third, to the other securities requested to be included in
such registration (if any).

 
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(d)           Priority on Secondary Registrations.  If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company’s
securities other than holders of Investor Registrable Securities (it being
understood that secondary registrations on behalf of holders of Investor
Registrable Securities are addressed in Section 1 above rather than this Section
2(d)), and the managing underwriters advise the Company in writing that, in
their opinion, the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holder(s) of a majority of the
Investor Registrable Securities to be included in such registration, then the
Company shall include in such registration, (i) first, the securities requested
to be included therein by the holders requesting such registration and the
Investor Registrable Securities requested to be included in such registration,
in each case that, in the opinion of such underwriters, can be sold in an
orderly manner within the price range of such offering (if any), pro rata among
the holders of such securities and the holders of such Investor Registrable
Securities on the basis of the number of shares of Common Stock owned by each
such holder, and (ii) second, the other securities requested to be included in
such registration that, in the opinion of such underwriters, can be sold in an
orderly manner within the price range of such offering (if any).
 
(e)           Other Registrations.  If the Company has previously filed a
registration statement with respect to Investor Registrable Securities pursuant
to Section 1 or pursuant to this Section 2, and if such previous registration
has not been withdrawn or abandoned, then, unless such previous registration is
a Required Registration, the Company shall not file or cause to be effected any
other registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least 180 days has elapsed from the effective date of such previous
registration.
 
3.             Lockup Agreements
 
(a)           Each holder of Investor Registrable Securities shall not effect
any public sale or distribution (including sales pursuant to Rule 144 under the
Securities Act) of equity securities of the Company, or any securities, options
or rights convertible into or exchangeable or exercisable for such securities,
during the seven (7) days prior to and the 180-day period beginning on the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree.

 
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(b)           The Company (i) shall not effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and during
the 180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration in which Investor
Registrable Securities are included (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form),
unless the underwriters managing the registered public offering otherwise agree,
and (ii) shall cause each holder of its equity securities, or any securities
convertible into or exchangeable or exercisable for equity securities, purchased
from the Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144 under the Securities Act) of
any such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
 
4.             Registration Procedures.  Whenever the holders of Investor
Registrable Securities have requested that any Investor Registrable Securities
be registered pursuant to this Agreement (subject to Section 1(e)), the Company
shall use its best efforts to effect the registration and the sale of such
Investor Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible:
 
(a)           prepare and, within sixty (60) days after the receipt of a request
for registration, file with the Securities and Exchange Commission a
registration statement with respect to such Investor Registrable Securities and
use its best efforts to cause such registration statement to become effective as
soon as practicable thereafter (provided that, before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
shall furnish to the counsel selected by the holder(s) of a majority of the
Investor Registrable Securities covered by such registration statement copies of
all such documents proposed to be filed, which documents shall be subject to the
review and comment of such counsel);
 
(b)           notify in writing each holder of Investor Registrable Securities
of the effectiveness of each registration statement filed hereunder and prepare
and file with the Securities and Exchange Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 180 days (or, if such registration statement relates
to an underwritten offering, such longer period as in the opinion of counsel for
the underwriters a prospectus is required by law to be delivered in connection
with sales of Investor Registrable Securities by an underwriter or dealer) and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
 
(c)           furnish to each seller of Investor Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus), and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Investor Registrable
Securities owned by such seller;
 
(d)           use its best efforts to register or qualify such Investor
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
of Investor Registrable Securities to consummate the disposition in such
jurisdictions of the Investor Registrable Securities owned by such seller of
Investor Registrable Securities (provided that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 4(d), (ii) subject itself
to taxation in any such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction);

 
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(e)           promptly notify in writing each seller of such Investor
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement (i)
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading in light of the circumstances under
which they were made or (ii) is otherwise not legally available to support sales
of Investor Registrable Securities, and the Company shall promptly prepare and
furnish to each such seller a reasonable number of copies of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Investor Registrable Securities, such prospectus shall not contain an
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading;
 
(f)           cause all such Investor Registrable Securities to be listed on a
national securities exchange or trading system and each securities exchange and
trading system (if any) on which similar securities issued by the Company are
then listed;
 
(g)           provide a transfer agent and registrar for all such Investor
Registrable Securities not later than the effective date of such registration
statement;
 
(h)           enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holder(s)
of a majority of the Investor Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of Investor Registrable Securities (including effecting a stock
split or a combination or shares);
 
(i)            make available for inspection by any underwriter participating in
any disposition pursuant to such registration statement, and any attorney,
accountant, or other agent retained by any such underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company’s officers, directors, employees, and independent accountants
to supply all information reasonably requested by any such underwriter,
attorney, accountant, or agent in connection with such registration statement
and assist and, at the request of any participating underwriter, use its best
efforts to cause such officers or directors to participate in presentations to
prospective purchasers;
 
(j)            otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve (12) months beginning
with the first day of the Company’s first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;

 
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(k)           in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any equity securities included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order;
 
(l)            use its best efforts to cause such Investor Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the sellers thereof to consummate the disposition of such Investor
Registrable Securities;
 
(m)          obtain one or more cold comfort letters, dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), from the Company’s independent public accountants in
customary form and covering such matters of the type customarily covered by cold
comfort letters as the holder(s) of a majority of the Investor Registrable
Securities being sold in such registered offering reasonably request; and
 
(n)           provide a legal opinion of the Company’s outside counsel, dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), with respect to the registration statement, each
amendment and supplement thereto, the prospectus included therein (including the
preliminary prospectus) and such other documents relating thereto in customary
form and covering such matters of the type customarily covered by legal opinions
of such nature.
 
5.             Registration Expenses.
 
(a)           Subject to Section 5(b) below, all expenses incident to the
Company’s performance of or compliance with this Agreement, including all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, travel expenses, filing expenses, messenger
and delivery expenses, fees and disbursements of custodians, and fees and
disbursements of counsel for the Company, and fees and disbursements of all
independent certified public accountants, underwriters including, if necessary,
a “qualified independent underwriter” within the meaning of the rules of the
National Association of Securities Dealers, Inc. (in each case, excluding
discounts and commissions), and other Persons retained by the Company or by
holders of Investor Registrable Securities or their affiliates on behalf of the
Company (all such expenses being herein called “Registration Expenses”), shall
be borne as provided in this Agreement, except that the Company shall, in any
event, pay its internal expenses (including all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance,
and the expenses and fees for listing the securities to be registered in
accordance with Section 4(f).  The Company shall have no obligation to pay any
underwriting discounts attributable to the Investor Restristrable Securities
being sold by the holder thereof, which underwriting discounts shall be borne by
such holders.
 
(b)           In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Investor Registrable
Securities included in such registration for the reasonable fees and
disbursements of one (1) counsel chosen by the holder(s) of a majority of the
Investor Registrable Securities included in such registration.

 
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(c)           To the extent Registration Expenses are not required to be paid by
the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder’s securities so included, and any Registration Expenses not so allocable
shall be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
 
6.           Indemnification.
 
(a)           The Company agrees to indemnify and hold harmless, to the fullest
extent permitted by law, each holder of Investor Registrable Securities, its
officers, directors, agents, and employees, and each Person who controls such
holder (within the meaning of the Securities Act) against all losses, claims,
damages, liabilities, and expenses (or actions or proceedings, whether commenced
or threatened, in respect thereof), whether joint and several or several,
together with reasonable costs and expenses (including reasonable attorney’s
fees) to which any such indemnified party may become subject under the
Securities Act or otherwise (collectively, “Losses”) caused by, resulting from,
arising out of, based upon, or relating to (i) any untrue or alleged untrue
statement of material fact contained in (A) any registration statement,
prospectus or preliminary prospectus, or any amendment thereof or supplement
thereto or (B) any application or other document or communication (in this
Section 6, collectively called an “application”) executed by or on behalf of the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify any securities covered by
such registration under the blue sky or securities laws thereof or (ii) any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such holder and each such director, officer, and controlling Person
for any legal or any other expenses incurred by them in connection with
investigating or defending any such Losses; provided that the Company shall not
be liable to any holder in any such case to the extent that any such Losses
result from, arise out of, are based upon, or relate to an untrue statement or
alleged untrue statement, or omission or alleged omission, made in such
registration statement, any such prospectus, or preliminary prospectus or any
amendment or supplement thereto, or in any application, in each case, in
reliance upon, and in conformity with, written information prepared and
furnished in writing to the Company by such holder expressly for use therein or
by such holder’s failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of the same.  In
connection with an underwritten offering, the Company shall indemnify such
underwriters, their officers and directors, and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Investor
Registrable Securities.

 
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(b)           In connection with any registration statement in which a holder of
Investor Registrable Securities is participating, each such holder will furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, shall indemnify and hold
harmless the Company and its officers, directors, agents, and employees, and
each other Person who controls the Company (within the meaning of the Securities
Act) against any Losses to the extent caused by, resulting from, arising out of,
based upon, or relating to (i) any untrue or alleged untrue statement of
material fact contained in the registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto or in any
application, or (ii) any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
made in such registration statement, any such prospectus or preliminary
prospectus or any amendment or supplement thereto, or in any application, in
each case, in reliance upon and in conformity with written information prepared
and furnished to the Company by such holder expressly for use therein, and such
holder will reimburse the Company and each such other indemnified party for any
legal or any other expenses incurred by them in connection with investigating or
defending any such Losses; provided that the obligation to indemnify will be
individual, not joint and several, for each holder and shall be limited to the
net amount of proceeds received by such holder from the sale of Investor
Registrable Securities pursuant to such registration statement.
 
(c)           Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person’s right to indemnification hereunder to the extent
such failure has not materially and actually prejudiced the indemnifying party)
and (ii) unless in such indemnified party’s reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party.  If
such defense is assumed, then (x) the indemnifying party will not be subject to
any liability for any settlement made by the indemnified party without the
indemnifying party’s consent (but such consent will not be unreasonably
withheld) and (y) the indemnifying party will not enter into any settlement
agreement with respect to such claim unless there is no finding or admission of
liability by the indemnified party in such settlement agreement.  An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
 
(d)           The indemnification provided for under this Agreement shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract, and will remain in full
force and effect regardless of any investigation made or omitted by or on behalf
of the indemnified party or any officer, director, or controlling Person of such
indemnified party and shall survive the transfer of securities.

 
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(e)          If the indemnification provided for in this Section 6 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or action referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other hand in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations; provided that the maximum amount of liability in respect of such
contribution shall be limited, in the case of each seller of Investor
Registrable Securities, to an amount equal to the net proceeds actually received
by such seller from the sale of Investor Registrable Securities effected
pursuant to such registration.  The relative fault of the indemnifying party and
of the 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 party and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
 
7.           Participation in Underwritten Registrations.  No Person may
participate in any underwritten registration hereunder unless such Person (i)
agrees to sell such Person’s securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents reasonably required under the terms of such underwriting
arrangements; provided that no holder of Investor Registrable Securities
included in any underwritten registration shall be required to make any
representations or warranties to the Company or the underwriters (other than
representations and warranties regarding such holder and such holder’s intended
method of distribution) or to undertake any indemnification obligations to the
Company or the underwriters with respect thereto, except as otherwise provided
in Section 6 hereof.
 
8.           Definitions.
 
(a)          “Common Stock” means the Company’s $0.001 par value common stock.
 
(b)          “Investor Registrable Securities” means, (i) the shares of Common
Stock issuable upon conversion of the Preferred Shares, the shares of Common
Stock issuable upon the exercise of the Warrants (all as defined in the
Preferred Stock and Warrant Purchase Agreement), and the shares of Common Stock
issuable upon conversion of the Note (as defined in the Note Purchase
Agreement), (ii) the shares of Common Stock issuable upon conversion of the
Preferred Shares issued to Caledonia pursuant to the Exchange Agreement and the
shares of Common Stock issuable upon conversion of the Caledonia Note, and (iii)
shares of Common Stock issued or issuable with respect to the securities
referred to in clauses (i) or (ii) above by way of dividend, distribution, split
or combination of securities, or any recapitalization, merger, consolidation or
other reorganization.  As to any particular Investor Registrable Securities,
such securities shall cease to be Investor Registrable Securities when they (A)
have been distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public through a broker, dealer, or market maker
in compliance with Rule 144 under the Securities Act (or any similar rule then
in force), (B) have been effectively registered under a registration statement
including, without limitation, a registration statement on Form S-8 (or any
successor form), or (C) have been repurchased by the Company.  For purposes of
this Agreement, a Person shall be deemed to be a holder of Investor Registrable
Securities whenever such Person has the right to acquire such Investor
Registrable Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.

 
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(c)          “Person” means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, an investment fund, any other business
entity and a governmental entity or any department, agency or political
subdivision thereof.
 
(d)          “Securities Act” means the Securities Act of 1933, as amended, or
any successor federal law then in force, together with all rules and regulations
promulgated thereunder.
 
(e)          “Securities Exchange Act” means the Securities Exchange Act of
1934, as amended, or any successor federal law then in force, together with all
rules and regulations promulgated thereunder.
 
9.           Miscellaneous.
 
(a)          No Inconsistent Agreements; Entire Agreement.  The Company will not
enter into any agreement with respect to its securities that is inconsistent
with or violates the rights granted to the holders of Investor Registrable
Securities in this Agreement.  This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, that may have related to the subject matter hereof in any way.
 
(b)          Adjustments Affecting Investor Registrable Securities.  The Company
shall not take any action, or permit any change to occur, with respect to its
securities that would adversely affect the ability of the holders of Investor
Registrable Securities to include such Investor Registrable Securities in a
registration undertaken pursuant to this Agreement or that would adversely
affect the marketability of such Investor Registrable Securities in any such
registration (including effecting a share or unit split or a combination of
shares or units).
 
(c)          Remedies.  Any Person having rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages caused by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by
law.  The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that, in
addition to any other rights and remedies existing in its favor, any party shall
be entitled to specific performance and/or other injunctive relief from any
court of law or equity of competent jurisdiction (without posting any bond or
other security) in order to enforce or prevent violation of the provisions of
this Agreement.
 
(d)          Amendments and Waivers.  Except as otherwise provided herein, no
modification, amendment, or waiver of any provision of this Agreement shall be
effective against the Company or the holders of Investor Registrable Securities
unless such modification, amendment, or waiver is approved in writing by the
Company, Clipper and Caledonia.  No failure by any party to insist upon the
strict performance of any covenant, duty, agreement, or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or any other covenant, duty,
agreement, or condition.

 
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(e)           Successors and Assigns.  All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.  In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
holders of Investor Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Investor Registrable Securities.  The
Company may not assign any of its rights or obligations under this Agreement
without the prior written consent of the Investors.  Each Investor may assign
all or any part of its rights and obligations hereunder.
 
(f)           Severability.  Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
 
(g)           Counterparts.  This Agreement may be executed simultaneously in
two or more counterparts (including by means of facsimile), each of which shall
be deemed an original, and all of which taken together shall constitute one and
the same Agreement.
 
(h)           Descriptive Headings; Interpretation.  The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement.
 
(i)           Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
WITHOUT GIVING ANY EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
 
(j)           Notices.  All notices hereunder shall be in writing and shall be
deemed to have been given at the time when hand delivered, when received if sent
by facsimile or by same day or overnight recognized commercial courier service,
or three (3) days after being mailed by certified mail, addressed to the address
below stated of the party to which notice is given, or to such changed address
as such party may have fixed by notice:
 
To the Company:

SteelCloud, Inc.
20110 Ashbrook Place, Suite 130
Ashburn, Virginia 20147
Attn: Brian H. Hajost

 
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with a copy to:

Fettmann, Tolchin & Majors, PC
10509 Judicial Drive
Suite 300
Fairfax, VA 22030
Fax: 703-385-9893
Attn: Edward J. Tolchin, Esq.

To Clipper:

Clipper Investors LLC
1095 Fisher Lane
Winnetka, Illinois 60093
Attn: Kenneth A. Merlau

with a copy to:

Ungaretti & Harris LLP
70 West Madison, Suite 3500
Chicago, Illinois 60602
Attn:  Michael W. Black

To Caledonia:

Caledonia Capital Corporation
19441 Golf Vista Plaza, Suite 360
Leesburg, VA  20176,
Attn: Edward Murchie

with a copy to:

Grossberg,Yochelson, Fox & Beyda, LLP
2000 L Street, NW, Suite 675
Washington, DC 20036
Attn: Linton W. Hengerer

provided, however, that any notice of change of address shall be effective only
upon receipt
 
(k)           No Strict Construction.  The parties hereto have participated
jointly in the negotiation and drafting of this Agreement.  In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
 
[signature page follows]

 
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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first above written.

 
STEELCLOUD, INC.
       
By:
  /s/ Brian H. Hajost
 
Name:  Brian H. Hajost
 
Its:   President & CEO
     
CLIPPER INVESTORS LLC
       
By:
  /s/ Kenneth A. Merlau
 
Name:  Kenneth A. Merlau
 
Its:   President & CEO
       
CALEDONIA CAPITAL CORPORATION
       
By:
  /s/ Edward M. Murchie
 
Name:  Edward M. Murchie
 
Its:   President

 
Signature Page to Registration Rights Agreement
 
 

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