SEPARATION AND RELEASE AGREEMENT

This SEPARATION AND RELEASE AGREEMENT (this “Agreement”) is made and entered
into by and between US Dataworks, Inc., a Nevada corporation (the “Company”),
and Mario H. Villarreal (“Employee”) on the date set forth on the signature page
below.  The Company and Employee are sometimes referred to collectively herein
as the “Parties” and individually as a “Party.”

WITNESSETH:

WHEREAS, Employee was employed by the Company as its President and Chief
Operating Officer;

WHEREAS, Employee is also a member of the Board of Directors (the “Board”) as a
Class III Director;

WHEREAS, the employment relationship between the Employee and the Company has
been terminated effective as of December 28, 2011 (the “Employment Termination
Date”) by mutual agreement of the Parties;

WHEREAS, in connection with such termination of employment, Employees wishes to
formally resign from his position on the Board as a Class III Director; and

WHEREAS, it is the desire of the Company and Employee that they enter into a
written agreement in order to confirm and establish their respective rights,
duties, and obligations, to resolve any and all claims and differences that may
exist or that in the future may arise, and for Employee to release the Company
from any and all claims or other matters as set forth herein.

NOW, THEREFORE, for and in consideration of the foregoing premises and the
consideration more fully set forth hereinafter, and intending to be legally
bound hereby, the Parties mutually agree as follows:

1.     COMPANY REFERENCES.  All references used herein to the “Company” shall
refer to US Dataworks, Inc. and its subsidiaries and affiliates and the
successors of the Company and their subsidiaries and affiliates.  The term
“Company” shall also refer to Employer Flexible HR, Inc. (“EFHR”) and its
subsidiaries and affiliates and the successors of EFHR and their subsidiaries
and affiliates.  It is further agreed that EFHR shall be deemed a third party
beneficiary of this Agreement and shall be entitled to enforce the provisions
hereof as is necessary to protect the interests of EFHR to the same extent as
the Company.

2.     TERMINATION OF EMPLOYMENT; RESIGNATION FROM BOARD AND OFFICES.  Effective
as of the Employment Termination Date, the employment relationship between
Employee and the Company shall terminate and cease and neither Party shall have
any further rights or obligations with respect to or arising from such
employment relationship except as provided herein.  Effective as of the
Employment Termination Date, Employee hereby resigns from his position on the
Board as a Class III Director and resigns from any and all other offices and
other official positions that Employee may hold with the Company.
 
 
1

--------------------------------------------------------------------------------

 
 
3.     SEVERANCE BENEFITS.  Provided that the Severance Condition (defined
below) is met at the time of each of the payments contemplated by this Section
3, the Company will pay to Employee an amount equal to four months of his annual
base salary in effect as of the Employment Termination Date for a total of
$66,666.67 (the “Severance Payment”).  The Severance Payment will be paid evenly
over the period from December 29, 2011 through April 28, 2012 and will be made
in accordance with the Company’s existing payroll practices (i.e., on the 15th
and last day of each month) with the last payment being made on or before April
30, 2012.  The Severance Payment will be subject to withholdings for payroll
taxes and other appropriate withholdings.  US Dataworks, Inc. will be
responsible for funding the severance payment due under this Section 3, which
may be processed through EFHR.  In no event will EFHR be held responsible by the
Employee for any failure of the Company to make such severance payment or any
other payments hereunder.  As used herein, the term “Severance Condition” means
that the Executive shall be in full compliance with all of his obligations under
this Agreement.

4.     STOCK OPTIONS.  Employee acknowledges and agrees that, as of the
Employment Termination Date, Employee holds the following stock options, all of
which are fully vested and exercisable as of the Employment Termination Date
(the “Employee Options”): (i) options to purchase 641,363 shares of the
Company’s common stock at an exercise price of $0.55 per share and (ii) options
to purchase 290,000 shares of the Company’s common stock at an exercise price of
$1.49 per share.  The Parties further acknowledge and agree that the Employee
Options will be governed by the stock option plan and granting instruments
pursuant to which the Employee Options were granted, which governing documents
provide, among other things, that if the Employee Options are not exercised
within 90 days after the Employment Termination Date, they will be deemed
forfeited and cancelled.

5.     WELFARE BENEFIT PLAN CONTRIBUTIONS AND ACCRUALS.  After the Employment
Termination Date, the Company shall not be obligated to continue, pay for, or
provide Employee’s health, dental, disability, life insurance and any other
"welfare benefits" (as such term is defined under Section 3(1) of ERISA) or
fringe benefits or perquisites; provided, however, that the Employee will be
eligible for COBRA benefits as are available to the employees of the Company
generally.
 
 
2

--------------------------------------------------------------------------------

 
 
6.     RELEASE AND WAIVER OF CLAIMS BY EMPLOYEE.  For good and valuable
consideration, including the Company’s agreements contained herein, the Employee
hereby releases, discharges and forever acquits the Company, its affiliates and
the past, present and future stockholders, members, partners, directors,
managers, officers, employees, agents, attorneys, heirs, legal representatives,
successors and assigns of the foregoing, in their personal and representative
capacities (collectively, the “Company Parties” or singularly, a “Company
Party”), from liability for, and hereby waives, any and all claims, damages,
punitive damages, attorneys’ fees and causes of action of any and every kind,
whether in contract or in tort, known or unknown, matured or unmatured, at law
or in equity, including, but not limited to, any and all claims for breach of
contract, breach of fiduciary duty, torts, intentional torts, negligence, gross
negligence and claims arising under or by virtue of any state or federal statute
or constitution, for all actions and/or inactions by the Company occurring on or
before the date this Agreement is executed and delivered by the Employee,
including, but not limited to, all matters related to Employee’s employment with
the Company on or prior to the date of this Agreement, including without
limitation any alleged violation through the date of this Agreement of (i) the
Age Discrimination in Employment Act of 1967, as amended; (ii) Title VII of the
Civil Rights Act of 1964, as amended; (iii) the Civil Rights Act of 1991, as
amended; (iv) Section 1981 through 1988, and Section 2000 et seq., of Title 42
of the United States Code, as amended; (v) the Employee Retirement Income
Security Act of 1974, as amended; (vi) the Immigration Reform Control Act, as
amended; (vii) the Americans with Disabilities Act of 1990, as amended; (viii)
the Fair Labor Standards Act, as amended; (ix) the Occupational Safety and
Health Act, as amended; (x) the Worker Adjustment and Retraining Notification
Act of 1988; (xi) the Sarbanes-Oxley Act of 2002, as amended; (xii) the Equal
Pay Act, as amended; (xiii) the National Labor Relations Act, as amended; (xiv)
the Family and Medical Leave Act, as amended; (xv) the Older Workers Benefit
Protection Act, as amended; (xvi) the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended; (xvii) the Health Insurance and Portability
Accountability Act of 1996, as amended; (xviii) 29 U.S.C. Section 201 et seq.;
(xix) 29 U.S.C. Section 206; (xx) 29 U.S.C. Section 1001, et. seq.; (xxi) the
Texas Health and Safety Code, (xxii) the Texas Payday Act, (xxiii) the Texas
Commission on Human Rights Act, (xxiv) the Texas Labor Code (including but not
limited to Chapters 21, 61 and 451thereof), (xxv) any other state or federal
employment or civil rights act or provision of law, and any and all claims for
severance pay or benefits under any compensation or employee benefit plan,
program, policy, contract or other arrangement; (xxvi) any other state
anti-discrimination law; (xxvii) any other state wage and hour law; (xxviii) any
other local, state or federal law, regulation, or ordinance; and/or (xxix) any
public policy, contract, tort, or common law claim (collectively, the “Released
Claims”). The Released Claims shall also include (i) any allegation for costs,
fees, or other expenses including attorneys’ fees incurred in these matters;
(ii) any and all rights, benefits, or claims the Employee may have under any
employment contract, incentive compensation plan, or stock option plan with any
Company Party, or to any ownership interest in any Company Party; and (iii) any
claim for compensation or benefits of any kind.  The foregoing release is not
intended to indicate that any such claims exist or that, if they do exist, they
are meritorious.  Rather, the Employee is simply agreeing that, in exchange for
the consideration recited in the first sentence of this paragraph, any and all
potential claims of this nature that the Employee may have against the Company
Parties, regardless of whether they actually exist, are expressly settled,
compromised and waived.  By signing this Agreement, the Employee is bound by
it.  Anyone who succeeds to the Employee’s rights and responsibilities, such as
heirs or the executor of the Employee’s estate, is also bound by this
Agreement.  The foregoing release also applies to any claims brought by any
person or agency or class action under which the Employee may have a right or
benefit.  THE FOREGOING RELEASE INCLUDES MATTERS ATTRIBUTABLE TO THE SOLE OR
PARTIAL NEGLIGENCE (WHETHER GROSS OR SIMPLE) OR OTHER FAULT, INCLUDING STRICT
LIABILITY, OF ANY OF THE COMPANY PARTIES.
 
 
3

--------------------------------------------------------------------------------

 
 
The Employee affirms that he has not filed, caused to be filed, and presently is
not a party to, any claim, complaint, or action against the Company in any forum
or form.  The Employee further affirms that he has been paid and/or has received
all leave (paid or unpaid), compensation, wages, bonuses, commissions, and/or
benefits to which he may be entitled and that no other leave (paid or unpaid),
compensation, wages, bonuses, commissions, and/or benefits are due to him.  The
Employee furthermore affirms that he has no known workplace injuries or
occupational diseases and has been provided and/or has not been denied any leave
requested under the Family and Medical Leave Act of 1993.  The Employee agrees
not to bring or join any lawsuit against any of the Company Parties in any court
relating to any of the Released Claims.  The Employee represents that he has not
brought or joined any lawsuit or filed any charge or claim against any of the
Company Parties in any court or before any government agency and has made no
assignment of any rights the Employee has asserted or may have against any of
the Company Parties to any person or entity, in each case, with respect to any
Released Claims.  If the Employee brings or joins any lawsuit against any of the
Company Parties in any court (except as necessary to protect the Employee’s
rights under this Agreement or with respect to the Employee’s entry into this
release) relating to any of the Released Claims, and the Employee is the
prevailing party in such lawsuit, the Employee shall be obligated to return to
the Company all amounts paid to the Employee under this Agreement, to the extent
permitted under applicable law and ordered by the court.  Further, if the
Employee violates the covenant not to sue set forth in this paragraph, the
Employee shall be required to pay all costs and expenses (including the
reasonable fees of counsel, related disbursements of counsel and court costs)
incurred by any Company Party to defend such lawsuit or other claim.

By executing and delivering this Agreement, the Employee acknowledges that:

 
(a)
The Employee has carefully read this Agreement;

 
(b)
The Employee has been afforded adequate opportunity to consider this Agreement
before executing and delivering it to the Company;

 
(c)
The Employee has been and hereby is advised in writing that the Employee may at
his option, discuss this Agreement with an attorney of his choice and that the
Employee has had adequate opportunity to do so; and

 
(d)
The Employee fully understands the final and binding effect of this Agreement;
the only promises made to the Employee to sign this Agreement are those stated
herein; and the Employee is signing this Agreement voluntarily and of the
Employee’s own free will, and that the Employee understands and agrees to each
of the terms of this Agreement.

7.     COOPERATION AND INDEMNIFICATION.  Employee agrees to make himself freely
available to cooperate in the defense and in the preparation of the legal
response to any matter covered thereunder.  Employee agrees to cooperate to the
fullest extent of his abilities with Company and, if requested by Company to do
so, with any attorney, expert or other person Company may designate, in the
investigation, defense and resolution of any threatened or asserted litigation,
claim, potential claim, or investigation initiated by or involving the Company,
including, without limitation, truthfully testifying on behalf of Company in
connection with any such investigation or proceeding.
 
 
4

--------------------------------------------------------------------------------

 
 
8.    NON-ADMISSION OF LIABILITY.  This Agreement shall not constitute or be
construed as an admission by the Company or any other person or entity of any
liability to, or the validity of, any claim by the Employee.  Employee
acknowledges and agrees that he has been treated in a fair and lawful manner,
and it is agreed between the Parties that nothing herein is intended or shall be
construed as an admission of fault or liability by the Company or its directors,
officers, employees, agents, successors and assigns.

9.    NO DISPARAGEMENT.  Employee agrees that he will not disparage, harm or
embarrass the Company or its directors, officers, employees, agents or
successors; provided however, that Employee shall retain the right to discuss
information concerning the duties and responsibilities of his former employment
with prospective employers; and provided further, that Employee fully retains
the right to inform his legal counsel of all matters concerning  his former
employment and the termination thereof if said information is communicated as a
matter of confidential attorney-client privilege.  Employee shall not make any
statements, whether regarded as true or not, which would have the effect of
causing any existing or prospective lenders, purchasers, creditors, customers,
suppliers, employees or other persons or entities to question the financial
condition, integrity, reputation, character or quality of the Company, or its
management, employees, and affiliates.  Employee shall not at any time make any
voluntary statement of any kind, or make any untrue statement while under any
compulsory legal process, which is calculated to, or which foreseeably will,
damage the business or reputation of the Company or its affiliates, or the past
or present directors, officers or employees of any of them.

10.  CONFIDENTIAL INFORMATION.

(a)  Employee agrees that he shall not, without the express written consent of
the Chief Executive Officer of the Company, directly or indirectly communicate
or divulge to, or make available to, or use for his own benefit or for the
benefit of, any competitor or any other person or entity, any of the Company’s
trade secrets, proprietary data, proprietary technology, commercial information
or other confidential information (hereafter collectively referred to as
“confidential information”), which confidential information was communicated to
or otherwise learned or acquired by Employee during his employment relationship
with the Company, except that Employee may disclose confidential information
only to the extent that disclosure is required (i) at the Company’s written
direction or (ii) by a court or other governmental agency of competent
jurisdiction. As long as such matters remain confidential information, Employee
shall not use such confidential information in any way or in any capacity other
than as expressly consented to by the Chief Executive Officer of the
Company.  The provisions of this Section 10 are in addition to any other prior
confidentiality and/or similar agreements between the Company and the Employee
designed to protect the Company in any way.

(b)  Such confidential information includes, but is not limited to, personnel
information, ideas, discoveries, designs, inventions, improvements, trade
secrets, know-how, manufacturing processes, design specifications, writings and
other works of authorship, computer programs, patent information, coding and
programming data, software development plans, software design documents and
information, other intellectual property data, financial information, accounting
information, marketing plans, customer lists and data, business plans or methods
and the like, that relate in any manner to the actual or anticipated business of
the Company.
 
 
5

--------------------------------------------------------------------------------

 
 
(c)  Employee agrees that all records, drawings, data, samples, models,
correspondence, manuals, notes, reports, notebooks, proposals, and any other
documents concerning the Company's customers or products or other technical or
business information used by the Company and any other tangible materials or
copies or extracts of tangible materials regarding the Company's operations or
business, received by Employee during his employment with the Company are, and
shall be, the property of the Company exclusively.  Employee agrees to
immediately return to the Company all of the material mentioned above, including
writing notes, memoranda or notes taken by Employee and all tangible materials,
including, without limitation, correspondence, drawings, blueprints, letters,
notebooks, reports, flow-charts, computer programs and data proposals. No copies
will be made by Employee, or retained by Employee, of any such confidential
information, whether or not developed by Employee.

(d)  Employee agrees that he shall engage in no act which is intended, or may
reasonably be expected, to harm the reputation, business, prospects, or
operations of the Company.

(e)  The Parties agree that any and all inventions, ideas, concepts, works of
art, writings and all other work product conceived, created or developed by
Employee, either solely or jointly with others, in the course or as a result of
or during his employment with the Company (“Work Products”), is proprietary to
Company and constitutes confidential information subject to this Agreement.  The
Parties further agree that Company is the sole owner of all such Work
Products.  Employee further agrees (i) that, to the extent not already
transferred to the Company, he hereby transfers and assigns to the Company all
Work Products and all patent rights, copyrights and other intellectual property
rights thereunder and (ii) to execute and deliver any and all instruments of
transfer and other documents that the Company reasonably requests to effect the
foregoing.

11.  COMPANY PROPERTY.  Employee acknowledges and agrees that on (or promptly
after) the Employment Termination Date, he has returned (or will return) to the
Company all property of the Company previously provided to his and/or otherwise
in his possession or control, including, without limitation, all laptops,
computers, cell phones, PDAs, electronic equipment, credit cards, company
vehicles, building access cards and the like.

12.   WAIVER OF AGE DISCRIMINATION CLAIMS.  Employee specifically, knowingly and
voluntarily waives any and all rights and claims arising under the Age
Discrimination in Employment Act (ADEA), which claims have arisen as of the date
this Agreement is executed by Employee.  Employee acknowledges that the
consideration set forth in Section 3 hereof includes consideration for
Executive's agreement herein to waive any and all rights and claims arising
under the ADEA.
 
 
6

--------------------------------------------------------------------------------

 
 
13.   NON-SOLICITATION.  In consideration for the severance benefits to be
provided to the Employee pursuant to the provisions of Section 3 hereof,
Employee hereby agrees that, for a period of one year from the date hereof, (i)
he shall not, directly or indirectly (including through a business that employs
Employee, or which is owned in whole or in part by Employee, or with which
Employee has some other relationship), solicit, raid, entice or otherwise induce
any employee of the Company or any of its subsidiaries to leave the employment
of the Company; (ii) he shall not, directly or indirectly (including through a
business that employs Employee, or which is owned in whole or in part by
Employee, or with which Employee has some other relationship), hire any employee
of the Company or any of its subsidiaries for a period of up to six months after
such employee has left employment with the Company; and (iii) he shall not,
directly or indirectly (including through a business that employs Employee, or
which is owned in whole or in part by Employee, or with which Employee has some
other relationship), solicit, entice or otherwise induce any customer of the
Company or any prospective customer of the Company to cease to, or choose not
to, do business with the Company.

14.  OTHER OBLIGATIONS.  Employee acknowledges and agrees that to the extent he
is subject to any ongoing obligations arising out of any prior employment or
other agreements between the Company and Employee (including any applicable
Company policies) that are intended to remain in place after the Employment
Termination Date, such obligations shall remain in full force and effect and
shall be in addition to the obligations of Employee set forth in this Agreement.

15.  SEVERABILITY.  The Parties acknowledge and agree that each provision of
this Agreement shall be enforceable independently of every other provision.
Should any provision of this Agreement be declared by a court of competent
jurisdiction to be unenforceable or invalid as drafted, it may and shall be
reformed or modified by a court to the form of an enforceable and valid
provision that achieves, to the greatest extent possible, the result intended by
the Parties in drafting and agreeing to the unenforceable and invalid provision.
In the event that a court should decline to so reform or modify such a
provision, or determine that no enforceable and valid provision can be created
to achieve the intended result, the unenforceability and invalidity of the
remaining provisions of this Agreement shall not be affected thereby and said
unenforceable or invalid provision shall be deemed not to be a part of this
Agreement and the remaining provisions hereof shall remain in full force and
effect.

16.   NO WAIVER; HEADINGS.  The Parties acknowledge and agree that the failure
of either party to enforce any provision of this Agreement shall not constitute
a waiver of that provision or of any other provision in this Agreement.  The
headings of sections as used herein are intended for reference purposes only and
shall not affect the interpretation of this Agreement.

17.   ENTIRE AGREEMENT.  The Parties acknowledge and agree that this Agreement
constitutes the complete and entire agreement between the Parties; that the
Parties have executed this Agreement based upon the express terms and provisions
set forth herein and therein; that the Parties have not relied on any
representations, oral or written, which are not set forth in this Agreement;
that no previous employment, severance or other agreement, whether oral or
written, shall have any effect on the terms and provisions of this Agreement
except as expressly provided herein; and that all such previous agreements,
except as expressly provided in this Agreement, are expressly superseded and
revoked by this Agreement.  The Employee hereby declares and represents that no
promise, inducement, or agreement not contained in this Agreement has been made
or offered to him, and that the terms hereof are contractual and not a mere
recital.
 
 
7

--------------------------------------------------------------------------------

 
 
18.   AMENDMENT.  This Agreement shall not be modified by any subsequent
agreement unless the modifying agreement (a) is in writing, (b) contains an
express provision referencing this Agreement, (c) is executed by a designated
officer of the Company, and (d) is executed by Employee.

19.  CONSULTATION WITH LEGAL COUNSEL.  Employee acknowledges and agrees that he
has been provided a reasonable time to review this Agreement with legal counsel
and to consider the terms and provisions of this Agreement.  Both Parties
acknowledge and agree that they are voluntarily entering into this Agreement,
after consultation with their legal counsel if so desired, and after full
disclosure of all the facts and circumstances surrounding the execution of this
Agreement and its legal effect.

20.   BINDING EFFECT.  This Agreement shall inure to the benefit of the Company
(as defined in Section 1 hereof), and to its successors and assigns, and to the
persons released hereunder pursuant to Section 6 hereof.  This Agreement shall
inure to the benefit of Employee and his heirs, executors and personal
representatives.  This Agreement is personal to Employee, and Employee may not
assign, delegate or otherwise transfer any of his rights, duties or obligations
hereunder without the prior written consent of the Chief Executive Officer of
the Company, and any attempt to do so without such prior written consent shall
be deemed void and of no force and effect.

21.   NOTICES.  Notices provided for in this Agreement shall be in writing and
shall be deemed to have been duly received (a) when delivered in person or sent
by facsimile transmission, (b) on the first business day after it is sent by air
express overnight courier service, or (c) on the fourth business day following
deposit in the United States mail, registered or certified mail, return receipt
requested, postage prepaid and addressed, to the following address, as
applicable:

(1)
If to the Company, addressed to:
     
US Dataworks, Inc.
 
One Sugar Creek Center Blvd.; 5th Floor
 
Houston, Texas 77478
 
Attn: Chief Executive Officer
 
Fax: 281-504-8101

(2)
If to Employee, addressed to:
         
Mario H. Villarreal
   
 
   
 
   
 
    Fax:
 
 

 
 
8

--------------------------------------------------------------------------------

 
 
Or to such other address as either Party may have furnished to the other Party
in writing in accordance with this Section 21.

22.  EMPLOYEE ACKNOWLEDGMENT/NO STRICT CONSTRUCTION.  The Employee represents to
Company that he is knowledgeable and sophisticated as to business matters,
including the subject matter of this Agreement, that he has read this Agreement
and that he understands its terms and conditions.  The Parties agree that the
language used in this Agreement shall be deemed to be the language chosen by
them to express their mutual intent, and no rule of strict construction shall be
applied against either Party.  Employee also represents that he is free to enter
into this Agreement. Employee acknowledges that he has had the opportunity to
consult with counsel of his choice, independent of the Company’s counsel,
regarding the terms and conditions of this Agreement.

23.   GOVERNING LAW.  The laws of the State of Texas, without regard to its
conflicts of law provisions, shall govern the enforceability, interpretation and
legal effect of this Agreement.

24.   COUNTERPARTS.  This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Facsimile signatures shall be enforceable.

25.   TRANSITION ASSISTANCE.  For a period not to extend beyond January 31,
2012, Employee agrees to assist the Company in the transition of his duties and
customer accounts as is reasonably requested by the Company.

STATEMENT BY EMPLOYEE: THE COMPANY HAS ADVISED ME IN WRITING TO CONSULT WITH AN
ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT.  I HAVE CAREFULLY READ AND FULLY
UNDERSTAND THE PROVISIONS OF THIS AGREEMENT AND HAVE HAD SUFFICIENT TIME AND
OPPORTUNITY TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR
TO EXECUTING THIS AGREEMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS TERMS.  I
UNDERSTAND THAT MY RIGHTS UNDER THIS AGREEMENT ARE CONTINGENT ON MY SIGNATURE
BELOW.

[SIGNATURE PAGE FOLLOWS]
 
 
9

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date set
forth below.

 
US DATAWORKS, INC.
         
By:
/s/ Charles E. Ramey
     
Charles E. Ramey, Chief Executive Officer
         
EMPLOYEE:
         
/s/ Mario H. Villarreal
   
Mario H. Villarreal
          Date: 12/29/2011      

 
 
10

--------------------------------------------------------------------------------