THIS NOTE AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES STATUTES
OR REGULATIONS, AND MAY NOT BE TRANSFERRED OR SOLD UNLESS (i) A REGISTRATION
STATEMENT UNDER SUCH ACT IS THEN IN EFFECT WITH RESPECT THERETO, (ii) A WRITTEN
OPINION FROM COUNSEL FOR THE ISSUER OR OTHER COUNSEL FOR THE HOLDER REASONABLY
ACCEPTABLE TO THE ISSUER HAS BEEN OBTAINED TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED OR (iii) A “NO ACTION” LETTER OR ITS THEN EQUIVALENT
HAS BEEN ISSUED BY THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION WITH
RESPECT TO SUCH TRANSFER OR SALE.
 
STEELCLOUD, INC.

SECOND
CONSOLIDATED, AMENDED AND RESTATED
PROMISSORY NOTE

THIS SECOND CONSOLIDATED, AMENDED AND RESTATED PROMISSORY NOTE (this “Second
Amended and Restated Note”) is made and entered into as of September 10, 2010,
intending to be effective for all purposes as of the 2nd day of July, 2010, by
and between STEELCLOUD, INC., a Virginia corporation (hereinafter referred to as
the “Company” or “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), which
amount was subsequently increased to Three Hundred Thousand and 00/100 Dollars
($300,000.00) (together with all amendments, modifications, substitutions,
extensions or renewals thereof hereinafter referred to as "Note 1"); 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

WHEREAS,  Borrower has requested that Lender extend the maturity  date and
modify certain of the terms of Note 1 and Note 2; and

WHEREAS, Lender is willing to extend the maturity date and modify certain of the
terms of Note 1 and Note 2 on the condition that Borrower agree to pay Lender a
modification fee in the amount of $50,000.00 (the “Modification Fee”) which
shall be added to the principal balance evidenced by Note 1 and Note 2 and
repaid in accordance with the terms of this Second Amended and Restated Note;
and
 
 
 

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WHEREAS, pursuant to the terms of that certain First Amended and Restated
Exchange Agreement dated as of September 10, 2010, by and between the Company
and the Lender, the Lender exchanged 2,500,000 shares of the Company’s Common
Stock for 90,000 shares of the Company’s Series A Preferred Stock and a Note in
the original principal amount of $70,000 (the “Exchange Note”); and

WHEREAS, Borrower and Lender wish to consolidate the aggregate outstanding
principal balance evidenced by Note 1, Note 2, the Exchange Note, and the
Modification Fee to form a single consolidated debt obligation evidencing a
principal indebtedness in the amount of Five Hundred Seventy Thousand and 00/100
Dollars ($570,000.00) and Borrower and Lender also wish to modify, extend and
restate in their entirety Note 1, Note 2, the Exchange Note, and the terms for
repayment of the Modification Fee, as herein consolidated, upon the terms and
conditions set forth herein.

NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) in hand paid
by each of the parties to the other, and in consideration of the mutual
covenants and agreements herein contained, the parties hereto, for themselves
and their respective successors and assigns, hereby agree that the terms
of  Note 1, Note 2 and the Modification Fee are hereby consolidated, amended and
restated in their entirety as follows:

PROMISSORY NOTE

$570,000
July 2, 2010

 
STEELCLOUD, INC., a Virginia corporation (the “Company”), for value received,
hereby promises to pay to the order of CALEDONIA CAPITAL CORPORATION,  a
Delaware corporation (the “Holder”), or its registered assigns, at 19441 Golf
Vista Plaza, Suite 360, Leesburg, VA  20176, the principal amount of FIVE
HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS ($570,000) on July 2, 2013 (the
“Maturity Date”), with interest thereon at a rate of 12% per annum, until
paid.   Payments of principal, premium, if any, and interest hereon shall be
made in lawful money of the United States of America, and such payments shall be
overdue for purposes hereof if not made on the scheduled date of payment
therefor, without giving effect to any applicable grace period.  Accrued
interest in arrears shall be payable on July 31, 2010 and on the last day of
each month thereafter, and on the first to occur of the conversion of the
outstanding balance of this Second Amended and Restated Note as contemplated by
Section 2 hereof, the Maturity Date, and the acceleration of this Second Amended
and Restated Note.  Interest payable on this Second Amended and Restated Note
shall be calculated on the basis of a year of 360 days consisting of twelve
30-day months.  If the date for any payment of principal is extended (whether by
operation of this Second Amended and Restated Note, any provision of law or
otherwise), interest shall be payable for such extended time at the rates
provided herein.  Whenever any payment hereunder shall be stated to be due on a
day other than a business day, such payment shall be due on the next succeeding
business day.    If the Company shall fail to pay on the due date therefor,
whether on the Maturity Date, by acceleration or otherwise, any principal owing
under this Second Amended and Restated Note, then interest shall accrue on such
unpaid principal from the due date to the date on which such principal is paid
in full at a rate per annum equal to eighteen percent (18%) (the “Default
Rate”).  Interest calculated at the Default Rate shall be due and payable upon
demand by the Lender.
 
 
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1.           General.
 
1.1.           Assignment.  This Second Amended and Restated Note and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Company by the Holder or its agent or attorney upon surrender of this Second
Amended and Restated Note together with the Assignment Form attached hereto as
Exhibit A, properly endorsed.
 
1.2.           Certain Waivers.  The parties hereto hereby waive presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance or enforcement of this Second Amended and
Restated Note.
 
1.3.           Governing Law.  This Second Amended and Restated Note shall be
construed in accordance with and governed by the domestic substantive laws of
the Commonwealth of Virginia without giving effect to any choice of law or
conflicts of law provision or rule that would cause the application of domestic
substantive laws of any other jurisdiction.
 
1.4.           Notices.  Unless otherwise specifically provided herein, all
notices and service of any process shall be in writing, addressed to the
respective party at the address set forth below and may be personally served,
faxed or sent by overnight courier service or United States mail and shall be
deemed to have been given: (a) if delivered in person, when delivered; (b) if
delivered by telecopy, on the date of transmission if confirmed and if
transmitted on a business day before 4:00 p.m. (Eastern time) or, if not, on the
next succeeding business day; (c) if delivered by overnight courier, two days
after delivery to such courier properly addressed; or (d) if by U.S. mail, four
business days after depositing in the United States mail, with postage prepaid
and properly addressed.  The parties hereto may change the address at which they
are to receive notices and the fax number at which they are to receive fax
copies hereunder, by notice, in writing, in the foregoing manner given to the
other:
 
If to Borrower: 
SteelCloud, Inc.

20110 Ashbrook Place, Suite 130
Ashburn, VA  20171
Attn: Brian Hajost
Fax No. 703-435-8494

If to Lender: 
Caledonia Capital Corporation

19441 Golf Vista Plaza
 Suite 360, Leesburg, VA  20176,
Attn: Edward Murchie
Fax No. _______________________

 
1.5.           Replacement.  Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Second Amended
and Restated Note and, in the case of any such loss, theft or destruction of
this Second Amended and Restated Note, upon receipt of an indemnity reasonably
satisfactory to the Company or, in the case of any such mutilation, upon the
surrender and cancellation of this Second Amended and Restated Note, the
Company, at its expense, shall execute and deliver, in lieu thereof, a new Note
of like tenor and dated the date of such lost, stolen, destroyed or mutilated
Note, and following such execution and delivery this Second Amended and Restated
Note shall not be deemed to be an outstanding note.
 
 
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1.6.           Amendment.  Any term of this Second Amended and Restated Note may
be amended only with the written consent of the Company and the holder.
 
2.
Lender’s Conversion Option.

 
2.1           Conversion of Note.   The Lender shall have the right at any time
and from time to time to convert all, or any part, of the outstanding balance
due under this Second Amended and Restated Note into shares of Common Stock of
the Company 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 the Company (“Conversion
Notice”) of such intent at least five (5) days prior to such conversion and
specify the portion of the outstanding principal balance of this Second Amended
and Restated Note to be so converted. No fractional shares of the Company's
Common Stock shall be issued upon conversion of this Second Amended and Restated
Note. In lieu of the Company issuing any fractional shares to Lender upon the
conversion of this Second Amended and Restated Note, 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 Investor a certificate or certificates
for the number of full shares of Common Stock issuable upon such conversion and
pay any outstanding interest accrued under this Second Amended and Restated
Note, (b) the principal balance of this Second Amended and Restated Note shall
be reduced by the amount so converted, and (c) upon conversion of all of the
outstanding principal balance due under this Second Amended and Restated Note,
the Lender shall concurrently surrender this Second Amended and Restated Note,
marked paid, at the principal office of the Company.  Upon conversion of all of
the outstanding principal balance due under this Second Amended and Restated
Note, and payment of any accrued and outstanding interest thereon, the Company
shall be forever released from all its obligations and liabilities under this
Second Amended and Restated Note. Anything contained in this Second Amended and
Restated Note to the contrary notwithstanding, this Note may not be prepaid
without the Company providing the Investor not less than thirty (30) days prior
written notice of such prepayment and the Investor shall not be required to
accept any prepayment of this Second Amended and Restated Note if following
receipt of such written notice the Investor has delivered a Conversion Notice to
the Company.
 
2.2           Reservation of Shares.  From and after the date hereof, the
Company shall reserve and keep available for issuance (i) such number of its
authorized but unissued shares of its Common Stock as will be sufficient to
permit the conversion in full of this Second Amended and Restated Note into
Common Stock, and in each case in accordance with this Agreement and the terms
of this Note.  All shares of Common Stock that are so issuable shall, when
issued upon conversion or exercise, be duly and validly issued and fully paid
and non-assessable.  If at any time the number of authorized but unissued shares
of Common Stock shall be insufficient to effect the conversion or exercise of
all the outstanding balance of this Second Amended and Restated Note, the
Company shall take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
 
 
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2.3           Registration Rights.  The Lender shall be entitled to the rights
and benefits as a holder of Investor Registrable Securities under that certain
Registration Rights Agreement of even date herewith between and among Borrower,
Lender and Clipper Investors LLC. 
 
3.           Events of Default And Remedies.  Any one of the following
occurrences shall constitute an “Event of Default” under this Note:
 
3.1           The failure by Borrower to make payment of principal and/or
interest due under this Note as and when the same becomes due and payable in
accordance with the terms hereof;
 
3.2           Borrower fails to pay or perform any obligation or covenant under
the Security Agreement.
 
3.3           If any proceeding is commenced by or against (unless dismissed
within forty-five (45) calendar days) Borrower under any provision of the United
States Bankruptcy Code or under any other state or federal bankruptcy or
insolvency law, assignments for the benefit of creditors, formal or informal or
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement or other similar relief is commenced by
Borrower;
 
3.4           If all or a substantial portion of Borrower’s assets become
subject to writ of attachment, writ of execution or any other lien, and such
writ or lien is not released within twenty (20) calendar days;
 
Upon the occurrence of any Event of Default, (i) the entire unpaid principal
amount of this Note, and any unpaid interest then accrued thereon, and any other
amounts owing under or evidenced by this Note, shall, without notice or demand
of any kind by Lender to Borrower or any other person, immediately become due
and payable in full; and (ii) Lender shall have and may exercise any and all
rights and remedies available at law or in equity and also any and all rights
and remedies as may otherwise be available to Lender.  Notwithstanding anything
to the contrary herein, Lender’s exercise of its remedies hereunder is subject
to the provisions of that certain Intercreditor Agreement by and among Clipper
Investors LLC, Lender and the Company.
 
No act of omission or commission by Lender, including specifically any failure
to exercise any right, remedy or recourse, shall be deemed to be a waiver or
release of the same, such waiver or release to be effected only through a
written document executed by Lender and then only to the extent specifically
recited therein.  A waiver or release with reference to any one event shall not
be construed as continuing, as a bar to, or as a waiver or release of, any
subsequent right, remedy or recourse as to a subsequent event.
 
 
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IN WITNESS WHEREOF, the Company has executed this Second Amended and Restated
Note as of the date first above written.
 

  BORROWER:           STEELCLOUD, INC.          
 
By:
/s/ Brian H. Hajost       Name: Brian H. Hajost        Title: President & CEO  

 
 

  LENDER:           CALEDONIA CAPITAL CORPORATION          
 
By:
/s/ Edward M. Murchie
     
Edward M. Murchie, President
 

 
 
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EXHIBIT A

ASSIGNMENT FORM
 
(To assign the foregoing Note, execute
this form and supply the required information.)
 
FOR VALUE RECEIVED, the foregoing Note and all rights evidenced thereby are
hereby assigned to
 

_______________________________________________ whose address is
 
_______________________________________________________________

_______________________________________________________________
 
Dated:  ______________, _______
 
Holder’s Name:                          _______________________
 
Signature of Holder
or Authorized Signatory:          _______________________
 
Title (if applicable):                    _______________________
 
Holder’s Address:                     _______________________
 
 
Signature Guaranteed:  ___________________________________________
 
NOTE:  The signature to this Assignment Form must correspond with the name as it
appears on the face of the Note, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Note.
 
 
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