Document:

exv10w2

 

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) dated and effective as of April 3, 2006 (the
“Effective Date”) is by and between US Dataworks, Inc., a Nevada corporation (the
“Company”), and Terry E. Stepanik (“Stepanik”). In consideration of the mutual covenants
and promises contained herein, the parties agree as follows.

     WHEREAS, the Company deems it essential that it have the advantage of the services of Stepanik
and desires to enter into a continuing agreement of employment with him, and to provide Stepanik
with compensation, including stock options.

ARTICLE 1

GENERAL PROVISIONS

     Section 1.1 Employment. The Company hereby employs Stepanik, and Stepanik accepts
such employment by the Company upon the terms and conditions hereof.

     Section 1.2 Term. Subject to earlier termination as specifically set forth herein,
the initial term of this Agreement shall be commencing on the Effective Date and continuing until
April 3, 2008 (the “Term”). The Term shall be extended automatically without further action by
either party for successive one (1) year terms (each extension expiring on the anniversary of April
2), unless either party shall have served not less than ninety (90) days prior written notice upon
the other party that this Agreement shall terminate.

     Section 1.3 Termination. Stepanik’s employment and this Agreement shall terminate
upon the earliest to occur of any of the following events (the actual date of such termination
being referred to herein as the “Termination Date”):

     (a) Pursuant to Section 1.2.

     (b) In the event of Stepanik’s death or disability as set forth in Section 3.7.

     (c) Termination of Stepanik’s employment by the Company for cause without any prior notice
(except as specifically set forth below), upon the occurrence of any of the following events (each
of which shall constitute “Cause”):

          (i) any embezzlement or wrongful diversion of funds of the Company or any affiliate of the
Company by Stepanik;

          (ii) gross malfeasance by Stepanik in the conduct of Stepanik’s duties;

          (iii) breach of this Agreement or any of the Company’s written policies and, if such breach is
capable of being cured, as determined by the Board of Directors of the Company (the “Board of
Directors”), failure of Stepanik to cure such breach after notice and reasonable opportunity to
cure such breach;

          (iv) gross neglect by Stepanik in carrying out Stepanik’s duties; or

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          (v) willful violation by Stepanik of any applicable federal or state securities laws or
regulations.

     (d) Termination of Stepanik’s employment by the Company at any time without Cause.

     (e) Termination by Stepanik of his employment at any time.

     Section 1.4 Termination Obligations: Return of Company Property. Upon termination of
this Agreement, Stepanik shall promptly return all Company property.

ARTICLE 2

POSITION AND DUTIES; OTHER BUSINESS ACTIVITIES

     Section 2.1 Position. Stepanik shall be employed as President, Payment Products
Division and Vice Chairman. Stepanik shall report directly to the Chief Executive Officer of the
Company.

     Section 2.2 Duties: Full Attention to Business. The primary focus of Stepanik’s
employment is to develop and execute strategies for the organic revenue growth of the Company
through the Payment Products Division. Stepanik shall be directly responsible for the supervision
and management of the Company’s Payment Products Division, and shall perform such services for the
Company that reasonably serve the purpose of this Agreement and/or meet the needs of the Company,
and that are consistent with the position Stepanik holds. Stepanik will be responsible for all
sales efforts, new product definition, product management, analysis of competition, and personally
managing the relationship of selected large strategic accounts. Stepanik shall devote his full
business time, energies, interest, abilities, and productive efforts to the business of the
Company. Except as may be approved by the Company’s Board of Directors, Stepanik shall not render
any consulting services to others for compensation and, in addition, shall not engage in any
activity which conflicts or interferes with his performance of duties hereunder. Notwithstanding
the provisions of this Section 2.2, Stepanik may, with the prior written consent of the Board of
Directors, engage in civic, charitable, or educational activities, provided that such service and
activities do not, individually or in the aggregate, interfere with the performance of Stepanik’s
duties under the Agreement.

     Section 2.3 Covenant Not To Compete During Term. During the Term, Stepanik shall
comply in all respects with the Company’s written policies with respect to conflicts of interest.
Except as may be approved by the Company’s Board of Directors, Stepanik shall not engage in or be
interested, directly or indirectly, in any business or operation competitive with the Company. For
the purpose of this paragraph, Stepanik shall be deemed to be interested in a business or operation
which is competitive with the Company if Stepanik is a holder of five percent (5%) or more of the
issued and outstanding ownership interests in such business or operation, or serves as a director,
officer, employee, agent, partner, individual proprietor, lender, consultant, or independent
contractor of such business or operation.

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     Section 2.4 Non-Disclosure of Confidential Information. Stepanik acknowledges that in
connection with his employment by the Company or its affiliates, he has and may acquire or learn
“Confidential Information” of the Company by virtue of a relationship of trust and confidence
between Stepanik and the Company. Stepanik warrants and agrees that during the Term he shall not
disclose to anyone (other than to officers of the Company or to such other persons as such officers
may designate), or use, except in the course of his employment with the Company or its affiliates,
any Confidential Information acquired by him in the course of or in connection with his employment.
As used herein, the term “Confidential Information” shall include, but not be limited to: all
information of any type or kind, whether or not reduced to a writing and whether or not conceived,
originated, discovered or developed in whole or in part by Stepanik, which is directly related to
the Company, its operations, policies, agreements with third parties, its financial affairs and
related matters, including business plans, strategic planning information, product information,
purchase and sales information and terms, supplier negotiation points, styles and strategies,
contents and terms of contracts between the Company and suppliers, advertisers, vendors, contact
persons, terms of supplier and/or vendor contracts or particular transactions, potential supplies
and/or vendors, or other related data; marketing information such as but not limited to, prior,
ongoing or proposed marketing programs, presentations, or agreements by or on behalf of the
Company, pricing information, customer bonus programs, marketing tests and/or results of marketing
efforts, computer files, lists and reports, manuals and memos pertaining to the business of the
Company, lists or compilations of vendor and/or supplier names, addresses, phone numbers,
requirements and descriptions, contract information sheets, compensation requirements or terms,
benefits, policies, and any other financial information whether about the Company, entities related
or affiliated with the Company or other key information pertaining to the business of the Company,
including but not limited to all information which is not generally available to or known in the
information services industry (or is available only as a result of an unauthorized disclosure) and
is treated by the Company as “Confidential Information” during the term of this Agreement,
regardless of whether or not such Information is a “trade secret” as otherwise defined by
applicable law unless such information is in the public domain.

     Section 2.5 No Solicitation of Company’s Employees. Stepanik specifically agrees that
during the Term and for a period of one (1) year after his termination of employment with the
Company, Stepanik shall not, directly or indirectly, either for himself or for any other person,
firm, corporation, or legal entity, solicit any individual, then employed by the Company to leave
the employment of the Company with the exception of Michael Stepanik.

     Section 2.6 Ownership of Work Product and Ideas. Any discoveries, inventions,
patents, materials, licenses and ideas applicable to the industry or relating to Stepanik’s
services for the Company or its affiliates, whether or not patentable or copyrightable, created by
Stepanik during his employment by the Company or its affiliates (“Work Product”) and all business
opportunities within the industry (“Opportunities”) introduced to Stepanik by the Company or its
affiliates will be owned by the Company, and Stepanik will have no personal interest in such,
except to the extent that the Company allows Stepanik to invest or participate in or have other
rights to such Work Product or Opportunities. Stepanik will, in such connection, promptly disclose
any such Work Product and Opportunities to the Company and, upon request of the Company, will
assign to the Company all right in such Work Product and Opportunities.

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ARTICLE 3

COMPENSATION; BENEFITS

     Section 3.1 Salary. The Company shall pay Stepanik seven thousand nine hundred
sixteen Dollars and sixty seven cents ($7,916.67) on a semi-monthly basis, for an annualized base
salary (“Base Salary”) of One Hundred Ninety Dollars ($190,000). Beginning with the first
anniversary of the Effective Date and for each subsequent year of employment (or any portion of any
such year), Stepanik shall be entitled to a Base Salary review by the Company to determine if any
increase to Base Salary is warranted as a result of performance.

     Section 3.2 Bonus. The primary focus of Stepanik’s employment is to increase the
Payment Products Division revenue. As an incentive to achieving this end, a cash bonus, paid
quarterly, equal to four percent (4%) of the revenue increase, if any, determined by comparing the
Top-line Revenues for the prior fiscal year’s quarter against the Top-line Revenues for the current
fiscal quarter (“Revenue Growth Bonus”) shall be paid to Stepanik within thirty (30) days of the
Company’s fiscal quarter’s end. In the event that the Company’s cash position at the end of any
fiscal quarter is such that the Company, in good faith, determines that it will not have sufficient
cash to fund its business operations for the next three successive fiscal quarters, then, in lieu
of an all cash Revenue Growth Bonus, Stepanik will, at his option, receive a Revenue Growth Bonus
payable as follows: (i) cash in any portion Stepanik chooses, up to but not exceeding fifty percent
(50%) of the Revenue Growth Bonus amount, and (ii) the remaining balance of the Revenue Growth
Bonus shall be payable in shares of restricted common stock equal to one hundred ten percent (110%)
of the non-cash balance of the Revenue Growth Bonus granted at the date of the current 10-q or 10-k
filing. If the cash payment is not made, it will be accrued at a 10% interest rate. For the purpose
of this Agreement, “Top-line Revenues” shall mean all revenues recognized by the Company during the
fiscal year in accordance with generally accepted accounting principles (GAAP) and as reported in
the Company’s SEC Forms 10-q and 10-k. In the event Stepanik is paid a Revenue Growth Bonus and
the Top-line Revenues for the fiscal quarter in question are subsequently adjusted (such adjustment
being made in accordance with GAAP and reported as an amendment to the corresponding SEC Form 10-q
or 10-k as such) then, as a result: (i) if the Revenue Growth Bonus is determined to have been
underpaid, any resulting increase in cumulative bonuses due will be promptly paid on the next
succeeding payroll processing date; conversely, (ii) if the Revenue Growth Bonus is determined to
have been overpaid (either by accounting adjustment or negative Top-line Revenues for the
subsequent fiscal quarter) any Revenue Growth Bonus previously paid and determined (in accordance
with GAAP) to have been overpaid, shall be offset against any subsequent Revenue Growth Bonus
earned during the Term of this Agreement. In no case will the bonus earned exceed four percent (4%)
of the increase of the Top-line Revenue for the fiscal year. Upon termination of this Agreement,
any offset to be made against future Revenue Growth Bonuses shall be deemed non-recoverable.

     Section 3.3 FY2006 Bonus. In recognition for the Stepanik’s part in securing a major
contract, the Company will pay Stepanik forty eight thousand one hundred twenty five dollars
($48,125) at the effective date of this agreement and the remaining forty eight thousand one
hundred twenty five dollars ($48,125) in twenty four (24) installments, semi-monthly, in the

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amount of two thousand and five dollars and twenty one cents ($2,005.21) for his successful
efforts in securing this sale.

     Section 3.4  Paid Vacation. Stepanik shall be entitled to be paid vacation time under
the Company’s policies applicable to other senior executives of the Company’s policies, but in no
event shall Stepanik be eligible for less than four (4) weeks of paid time off per calendar year.

     Section 3.5 Stock Options.

     (a) Subject to approval of the Compensation Committee of the Board of Directors, which such
grant shall be made as promptly hereafter as practicable, the Company will grant to Stepanik an
option to purchase five hundred fifty thousand (550,000) shares of common stock of the Company
under the Plan, which shall be intended to qualify as an incentive stock option to the maximum
extent permitted under Section 422 of the Internal Revenue Code of 1986, as amended. The option
shall be subject to the terms and conditions of the Plan and an option agreement to be entered into
between the Company and Stepanik, in a form approved by the Compensation Committee of the Board of
Directors which option agreement shall provide that such option shall have a ten (10) year term
(subject to earlier termination in connection with termination of employment). All such options
will have the exercise price per share equal to the fair market value of the Company’s common stock
as of the date of grant.

     (b) The option shall vest and become exercisable, subject to continued employment as follows:

          (i) one hundred fifty thousand (150,000) shares of common stock shall vest on April 3, 2006;

          (ii) two hundred thousand (200,000) shares of common stock shall vest on April 3, 2007,

          (iii) two hundred thousand (200,000) shares of common stock shall vest on April 3, 2008, and,

          (iv) in each case to become fully vested and exercisable upon a Change in Control as defined
in the Plan (a “Change in Control”).

     (c) Stepanik shall be eligible to receive additional grants of options pursuant to the Plan in
the sole discretion of the Compensation Committee of the Board of Directors.

     Section 3.6 Other Benefits. During the Term, Stepanik shall be entitled to
participate in present and future employee benefit plans which are available to the Company’s
employees, subject to eligibility requirements thereunder.

     Section 3.7 Disability or Death. If the Board of Directors determines, on the basis
of professional medical advice, that Stepanik has become unable to substantially perform his duties
under this Agreement due to illness or mental or physical disability with reasonable accommodation,
and that such failure or inability has continued or is reasonably expected to continue for any
consecutive six-month period, the Company shall have the option to terminate

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this Agreement by giving written notice to Stepanik thereof and the basis therefor at least thirty (30) days prior to
the effective date of termination. This Agreement shall also terminate immediately upon Stepanik’s
death. If Stepanik’s employment with the Company is terminated pursuant to this Section 3.7, the
Company shall pay Stepanik the salary, bonuses, and commissions which are earned but unpaid as of
the date of termination.

     Section 3.8 Severance.

     (a) If the Company terminates Stepanik’s employment other than for Cause pursuant to Section
1.3(d), other than by reason of death or Disability pursuant to Section 3.7, or if Stepanik resigns
within ten (10) days following a material reduction in his duties (as per Section 2.2) or material
reduction of compensation within six (6) months following a Change in Control then subject to
Stepanik’s continuing obligations under Section 2.4 and Section 2.5 and in consideration of the
execution, delivery and effectiveness of a general release of claims in a standard form approved by
the Company, the Company shall pay to Stepanik a lump sum of two (2) times Stepanik’s current Base
Salary in cash, any Revenue Growth Bonus (calculated on a trailing twelve month (TTM) year-to-year
basis) and shall vest one hundred percent (100%) of Stepanik’s then remaining unvested portion of
the Stock Options granted in accordance with this Agreement, in addition to other amounts payable
from qualified plans, nonqualified retirement plans, and deferred compensation plans, which amounts
shall be paid in accordance with the terms of such plans, any unpaid FY2006 bonus accrued but
unpaid (Section 3.3), within fifteen (15) days after the date of termination (or, if later, upon
the effectiveness of the general release following any applicable revocation period).

     (b) If the Company terminates Stepanik’s employment for Cause, or if Stepanik resigns, then
Stepanik shall only be entitled to be paid his accrued, unpaid Base Salary through the effective
date of his termination of employment, any Revenue Growth Bonus (calculated on a trailing twelve
month year-to-year basis), any unpaid FY2006 bonus accrued but unpaid (Section 3.3), and his
entitlement to other amounts payable from qualified plans, nonqualified retirement plans, and
deferred compensation plans shall be determined in accordance with the terms of such plans.

     (c) No severance benefits shall be provided pursuant to this Section 3.8 if Stepanik’s
employment is terminated by reason of expiration or non-renewal of this Agreement in accordance
with Section 1.2. with the exception of any earned Revenue Growth Bonus or any unpaid FY2006 bonus.

     Section 3.9 Excess Parachute Payments.

     (a) If there is a “Change in Control” of the Company within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the “Code”), a portion of the benefits to which
Stepanik is entitled under this Agreement could be characterized as “excess
parachute payments” within the meaning of Section 280G of the Code. The parties hereto
acknowledge that the protections set forth in this Section 3.9 are important, and it is agreed that
Stepanik should not have to bear the full burden of the excise tax that might be levied under
Section 4999 of the Code or any similar provision of federal, state of local law, in the event that
any portion of the benefits payable to Stepanik pursuant to this Agreement or the other incentive

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plans of the Company are treated as an excess parachute payment. The parties, therefore, have
agreed as set forth in this Section 3.9.

     (b) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that
any payment or distribution (including income recognized by Stepanik upon the early vesting of
restricted property or upon the exercise of options whose exercise date has been accelerated) by
the Company or any other Person to or for the benefit of Stepanik (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section 3.9, (a “Payment”) would be
subject to the excise tax imposed by Section 4999 of the Code or any similar provision of any
federal, state or local law or any interest or penalties are incurred by Stepanik with respect to
such excise tax (such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the “Excise Tax”), then the Company shall pay an additional payment,
not to exceed the amount of Stepanik’s then current Base Salary in the aggregate (a “Gross-Up
Payment”), in an amount such that after payment by Stepanik of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up
Payment, Stepanik retains an amount of the Gross-Up Payment equal to fifty percent (50%) of the
Excise Tax imposed on the Payments. Stepanik will bear the cost of the remaining fifty percent
(50%) until the aggregate Gross-Up Payments from the Company have reached the amount of Stepanik’s
then current Base Salary, and will thereafter bear all additional taxes, interest or penalties.

     (c) In the event of any dispute as to the applicability or amount of any Gross-Up Payment, all
determinations required to be made under this Section 3.9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by the independent public accounting firm regularly
employed by the Company (the “Accounting Firm”) which shall provide detailed supporting
calculations both to the Company and to Stepanik within fifteen (15) business days after the
receipt of notice from Stepanik that there has been a Payment, or such earlier time as is requested
by the Company. All fees and expenses of the Accounting Firm will be borne by the Company. If the
Accounting Firm determines that no Excise Tax is payable by Stepanik, it shall furnish Stepanik
with a written statement that failure to report the Excise Tax on Stepanik’s applicable federal
income tax return would not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding on the Company and Stepanik unless and until
a final determination is received from the Internal Revenue Service indicating a contrary result.
As a result of uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments may
not have been made by the Company that should have been made (“Underpayment”), consistent with the
calculations required to be made hereunder. If Stepanik thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Stepanik,
consistent with the maximum limitation stated in this Section 3.9. In the event it is determined
by the Accounting Firm that the Gross Payments previously made by the Company exceeded the
limitations stated in this Section 3.9, upon written notice from the Company, accompanied by a

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copy of the Accounting Firm’s calculation of same, the amount of such overpayment shall be promptly paid
by Stepanik to the Company.

ARTICLE 4

MISCELLANEOUS PROVISIONS

     Section 4.1 Entire Agreement. This Agreement contains the entire Agreement between
the Parties and supersedes all prior oral and written Agreements, understandings, commitments, or
practices between the Parties with respect to the subject matter hereof. Other than as expressly
set forth herein, Stepanik and the Company acknowledge and represent that there are no other
promises, terms, conditions or representations (verbal or written) regarding any matter relevant
hereto. No supplement, modification, or amendment of any term, provision or condition of this
Agreement shall be binding or enforceable unless evidenced in writing and executed by the parties.
The provisions of Sections 2.4, 2.5, and 2.6 shall survive termination of this Agreement.

     Section 4.2 Applicable Law. This Agreement shall be governed exclusively by and
construed in accordance with the laws of the State of Texas, notwithstanding choice of law
provisions thereof; and the venue of any litigation commenced hereunder shall be Houston, Texas.

     Section 4.3 Injunctive Relief. Stepanik acknowledges that his services are of a
special, unique, unusual, extraordinary and intellectual character, which gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in damages in an action at
law. If he should breach this Agreement, in addition to its rights and remedies under general law,
the Company shall be entitled to seek equitable relief by way of injunction or otherwise.

     Section 4.4 Partial Invalidity. If the application of any provision of this
Agreement, or any section, subsection, subdivision, sentence, clause, phrase, word or portion of
this Agreement should be held invalid or unenforceable, the remaining provisions thereof shall not
be affected thereby, but shall continue to be given full force and effect as if the invalid or
unenforceable provision had not been included herein.

     Section 4.5 Notices. Notices given under this Agreement shall be given by registered
or certified mail, postage prepaid, return receipt requested, or by personal delivery to the
respective addresses of the parties. Notices to Stepanik shall be sent to 5301 Hollister Road,
Suite 250, Houston, Texas 77040, Attn: Terry E. Stepanik. Notices to the Company shall be sent to
5301 Hollister Road, Suite 250, Houston, Texas 77040, Attn: Chief Executive Officer. A mailed
first-class notice shall be deemed given two (2) business days after deposit with U.S. Postal
Service.

     Section 4.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one and the same
instrument.

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     Section 4.7 Assignment. This Agreement may not be assigned or encumbered in any way
by Stepanik. The Company may assign this Agreement to any successor (whether by merger,
consolidation, or purchase of the Company’s stock) to all or a controlling interest in the
Company’s business, in which case this Agreement shall be binding upon and inure to the benefit of
such successor(s) and assign(s).

     Section 4.8 Limitation on Waiver. A waiver of any term, provision, or condition of
this Agreement shall not be deemed to be, or constitute a waiver of any other term, provision or
condition herein, whether or not similar. No waiver shall be binding unless in writing and signed
by the waiving party.

     Section 4.9 Attorney’s Fees. In the event that any proceeding is commenced involving
the interpretation or enforcement of the provisions of this Agreement, the Party prevailing in such
proceeding shall be entitled to recover its reasonable costs and attorneys’ fees.

     Section 4.10 Taxes. All payments made pursuant to the provisions of this Agreement
shall be subject to the withholding of applicable taxes.

     Section 4.11 Not for the Benefit of Creditors or Third Parties. The provisions of
this Agreement are intended only for the regulation of relations among the parties. This Agreement
is not intended for the benefit of creditors of the parties or other third parties and no rights
are granted to creditors of the parties or other third parties under this Agreement.

     IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	US DATAWORKS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Charles E. Ramey
 

	 	 
	 

	 	Name
	 	     Charles E. Ramey	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Terry E. Stepanik	 	 
	 	 	 	 	 
	 	 	Terry E. Stepanik	 	 

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EXHIBIT 10.3

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) dated and effective as of April 3, 2006 (the
“Effective Date”) is by and between US Dataworks, Inc., a Nevada corporation (the
“Company”), and Mario Villarreal (“Villarreal”). In consideration of the mutual covenants
and promises contained herein, the parties agree as follows.

     WHEREAS, the Company deems it essential that it have the advantage of the services of
Villarreal and desires to enter into a continuing agreement of employment with him, and to provide
Villarreal with compensation, including stock options.

ARTICLE 1

GENERAL PROVISIONS

     Section 1.1 Employment. The Company hereby employs Villarreal, and Villarreal accepts
such employment by the Company upon the terms and conditions hereof.

     Section 1.2 Term. Subject to earlier termination as specifically set forth herein,
the initial term of this Agreement shall be commencing on the Effective Date and continuing until
April 3, 2008 (the “Term”). The Term shall be extended automatically without further action by
either party for successive one (1) year terms (each extension expiring on the anniversary of April
2), unless either party shall have served not less than ninety (90) days prior written notice upon
the other party that this Agreement shall terminate.

     Section 1.3 Termination. Villarreal’s employment and this Agreement shall terminate
upon the earliest to occur of any of the following events (the actual date of such termination
being referred to herein as the “Termination Date”):

     (a) Pursuant to Section 1.2.

     (b) In the event of Villarreal’s death or disability as set forth in Section 3.7.

     (c) Termination of Villarreal’s employment by the Company for cause without any prior notice
(except as specifically set forth below), upon the occurrence of any of the following events (each
of which shall constitute “Cause”):

          (i) any embezzlement or wrongful diversion of funds of the Company or any affiliate of the
Company by Villarreal;

          (ii) gross malfeasance by Villarreal in the conduct of Villarreal’s duties;

          (iii) breach of this Agreement or any of the Company’s written policies and, if such breach is
capable of being cured, as determined by the Board of Directors of the Company (the “Board of
Directors”), failure of Villarreal to cure such breach after notice and reasonable opportunity to
cure such breach;

          (iv) gross neglect by Villarreal in carrying out Villarreal’s duties; or

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          (v) willful violation by Villarreal of any applicable federal or state securities laws or
regulations.

     (d) Termination of Villarreal’s employment by the Company at any time without Cause.

     (e) Termination by Villarreal of his employment at any time.

     Section 1.4 Termination Obligations: Return of Company Property. Upon termination of
this Agreement, Villarreal shall promptly return all Company property. Likewise, the Company will
promptly pay any monies due and payable in accordance with the terms of this Agreement and with
other policies and procedures of the Company.

ARTICLE 2

POSITION AND DUTIES; OTHER BUSINESS ACTIVITIES

     Section 2.1 Position. Villarreal shall be employed as Executive Vice President and
Chief Technical Officer of the Company. Villarreal shall report directly to the Chief Executive
Officer of the Company.

     Section 2.2 Duties: Full Attention to Business. The primary focus of Villarreal’s
employment is to develop and execute strategies for the delivery and installation of products in
support of the revenue growth of the Company through the Payment Products Division. Villarreal
shall be directly responsible for the supervision and management of the Company’s technology
roadmap, the Company’s information technology strategy, and the development and support of all the
Company’s products and shall perform such services for the Company that reasonably serve the
purpose of this Agreement and/or meet the needs of the Company, and that are consistent with the
position Villarreal holds. Villarreal shall devote his full business time, energies, interest,
abilities, and productive efforts to the business of the Company. Except as may be approved by the
Company’s Board of Directors, Villarreal shall not render any consulting services to others for
compensation and, in addition, shall not engage in any activity which conflicts or interferes with
his performance of duties hereunder. Notwithstanding the provisions of this Section 2.2,
Villarreal may, with the prior written consent of the Board of Directors, engage in civic,
charitable, or educational activities, provided that such service and activities do not,
individually or in the aggregate, interfere with the performance of Villarreal’s duties under the
Agreement.

     Section 2.3 Covenant Not To Compete During Term. During the Term, Villarreal shall
comply in all respects with the Company’s written policies with respect to conflicts of interest.
Except as may be approved by the Company’s Board of Directors, Villarreal shall not engage in or be
interested, directly or indirectly, in any business or operation competitive with the Company. For
the purpose of this paragraph, Villarreal shall be deemed to be interested in a business or
operation which is competitive with the Company if Villarreal is a holder of five percent (5%) or
more of the issued and outstanding ownership interests in such business or operation, or serves as
a director, officer, employee, agent, partner, individual proprietor, lender, consultant, or
independent contractor of such business or operation.

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     Section 2.4 Non-Disclosure of Confidential Information. Villarreal acknowledges that
in connection with his employment by the Company or its affiliates, he has and may acquire or learn
“Confidential Information” of the Company by virtue of a relationship of trust and confidence
between Villarreal and the Company. Villarreal warrants and agrees that during the Term he shall
not disclose to anyone (other than to officers of the Company or to such other persons as such
officers may designate), or use, except in the course of his employment with the Company or its
affiliates, any Confidential Information acquired by him in the course of or in connection with his
employment. As used herein, the term “Confidential Information” shall include, but not be limited
to: all information of any type or kind, whether or not reduced to a writing and whether or not
conceived, originated, discovered or developed in whole or in part by Villarreal, which is directly
related to the Company, its operations, policies, agreements with third parties, its financial
affairs and related matters, including business plans, strategic planning information, product
information, purchase and sales information and terms, supplier negotiation points, styles and
strategies, contents and terms of contracts between the Company and suppliers, advertisers,
vendors, contact persons, terms of supplier and/or vendor contracts or particular transactions,
potential supplies and/or vendors, or other related data; marketing information such as but not
limited to, prior, ongoing or proposed marketing programs, presentations, or agreements by or on
behalf of the Company, pricing information, customer bonus programs, marketing tests and/or results
of marketing efforts, computer files, lists and reports, manuals and memos pertaining to the
business of the Company, lists or compilations of vendor and/or supplier names, addresses, phone
numbers, requirements and descriptions, contract information sheets, compensation requirements or
terms, benefits, policies, and any other financial information whether about the Company, entities
related or affiliated with the Company or other key information pertaining to the business of the
Company, including but not limited to all information which is not generally available to or known
in the information services industry (or is available only as a result of an unauthorized
disclosure) and is treated by the Company as “Confidential Information” during the term of this
Agreement, regardless of whether or not such Information is a “trade secret” as otherwise defined
by applicable law unless such information is in the public domain.

     Section 2.5 No Solicitation of Company’s Employees. Villarreal specifically agrees
that during the Term and for a period of one (1) year after his termination of employment with the
Company, Villarreal shall not, directly or indirectly, either for himself or for any other person,
firm, corporation, or legal entity, solicit any individual, then employed by the Company to leave
the employment of the Company.

     Section 2.6 Ownership of Work Product and Ideas. Any discoveries, inventions,
patents, materials, licenses and ideas applicable to the industry or relating to Villarreal’s
services for the Company or its affiliates, whether or not patentable or copyrightable, created by
Villarreal during his employment by the Company or its affiliates (“Work Product”) and all business
opportunities within the industry (“Opportunities”) introduced to Villarreal by the Company or its
affiliates will be owned by the Company, and Villarreal will have no personal interest in such,
except to the extent that the Company allows Villarreal to invest or participate in or have other
rights to such Work Product or Opportunities. Villarreal will, in such connection, promptly
disclose any such Work Product and Opportunities to the Company and, upon request of the Company,
will assign to the Company all right in such Work Product and Opportunities.

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ARTICLE 3

COMPENSATION; BENEFITS

     Section 3.1 Salary. The Company shall pay Villarreal seven thousand seven hundred
eight Dollars and thirty three cents ($7,708.33) on a semi-monthly basis, for an annualized base
salary (“Base Salary”) of One Hundred Eighty Five Dollars ($185,000). Beginning with the first
anniversary of the Effective Date and for each subsequent year of employment (or any portion of any
such year), Villarreal shall be entitled to a Base Salary review by the Company to determine if any
increase to Base Salary is warranted as a result of performance.

     Section 3.2 Bonus. The primary focus of Villarreal’s employment is to provide the
technical direction for the Company, to manage the timely development of new product, and to
support the increase of the Payment Products revenue with professional services support. As an
incentive to achieving these objectives, a cash bonus, paid quarterly, equal to three and one-half
percent (3.5%) of the revenue increase, if any, determined by comparing the Top-line Revenues for
the prior fiscal year’s quarter against the Top-line Revenues for the current fiscal quarter
(“Revenue Growth Bonus”) shall be paid to Villarreal within thirty (30) days of the Company’s
fiscal quarter’s end. In the event that the Company’s cash position at the end of any fiscal
quarter is such that the Company, in good faith, determines that it will not have sufficient cash
to fund its business operations for the next three successive fiscal quarters, then, in lieu of an
all cash Revenue Growth Bonus, Villarreal will, at his option, receive a Revenue Growth Bonus
payable as follows: (i) cash in any portion Villarreal chooses, up to but not exceeding fifty
percent (50%) of the Revenue Growth Bonus amount, and (ii) the remaining balance of the Revenue
Growth Bonus shall be payable in shares of restricted common stock equal to one hundred ten percent
(110%) of the non-cash balance of the Revenue Growth Bonus granted at the date of the current 10-q
or 10-k filing. If the cash payment is not made, it will be accrued at a 10% interest rate. For the
purpose of this Agreement, “Top-line Revenues” shall mean all revenues recognized by the Company
for the Payment Products Division during the fiscal year in accordance with generally accepted
accounting principles (GAAP) and as reported in the Company’s SEC Forms 10-q and 10-k. In the
event Villarreal is paid a Revenue Growth Bonus and the Top-line Revenues for the fiscal quarter in
question are subsequently adjusted (such adjustment being made in accordance with GAAP and reported
as an amendment to the corresponding SEC Form 10-q or 10-k as such) then, as a result: (i) if the
Revenue Growth Bonus is determined to have been underpaid, any resulting increase in cumulative
commissions due will be promptly paid on the next succeeding payroll processing date; conversely,
(ii) if the Revenue Growth Bonus is determined to have been overpaid (either by accounting
adjustment or negative Top-line Revenues for the subsequent fiscal quarter) any Revenue Growth
Bonus previously paid and determined (in accordance with GAAP) to have been overpaid, shall be
offset against any subsequent Revenue Growth Bonus earned during the Term of this Agreement. In no
case will the bonus earned exceed three and one-half percent (3.5%) of the increase of the Top-line
Revenue for the fiscal year. Upon termination of this Agreement, any offset to be made against
future Revenue Growth Bonuses shall be deemed non-recoverable.

     Section 3.3 FY2006 Bonus. In recognition for the Villarreal’s part in securing major
contracts, the Company will pay Villarreal seventy eight thousand seven hundred fifty

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dollars ($78,750) for his successful efforts in securing this sale. Payment will be made
quarterly during FY2007 as determined jointly by the Company and Villarreal. If accrued, 10%
interest will be paid on the unpaid accrual.

     Section 3.4 Paid Vacation. Villarreal shall be entitled to be paid vacation time
under the Company’s policies applicable to other senior executives of the Company’s policies, but
in no event shall Villarreal be eligible for less than four (4) weeks of paid time off per calendar
year.

     Section 3.5 Restricted Stock. Subject to approval of the Compensation Committee of
the Board of Directors, which such grant shall be made as promptly hereafter as practicable, the
Company will grant to Villarreal two hundred thousand (200,000) shares of restricted common stock
under the Company’s 2000 Stock Option Plan (the “Plan”) as amended. The grant shall be subject to
the terms and conditions of the Plan. A Restricted Share Agreement will be entered into between the
Company and Villarreal, in a form approved by the Compensation Committee of the Board of Directors.
The shares would vest twenty five thousand (25,000) shares April 3, 2006, eighty seven thousand
five hundred (87,500) shares on April 3, 2007 and eighty seven thousand five hundred (87,500)
shares on April 3, 2008.

     Section 3.6 Other Benefits. During the Term, Villarreal shall be entitled to
participate in present and future employee benefit plans which are available to the Company’s
employees, subject to eligibility requirements thereunder.

     Section 3.7 Disability or Death. If the Board of Directors determines, on the basis
of professional medical advice, that Villarreal has become unable to substantially perform his
duties under this Agreement due to illness or mental or physical disability with reasonable
accommodation, and that such failure or inability has continued or is reasonably expected to
continue for any consecutive six-month period, the Company shall have the option to terminate this
Agreement by giving written notice to Villarreal thereof and the basis therefor at least thirty
(30) days prior to the effective date of termination. This Agreement shall also terminate
immediately upon Villarreal’s death. If Villarreal’s employment with the Company is terminated
pursuant to this Section 3.7, the Company shall pay Villarreal the salary, bonuses, and commissions
which are earned but unpaid as of the date of termination.

     Section 3.8 Severance.

     (a) If the Company terminates Villarreal’s employment other than for Cause pursuant to Section
1.3(d), other than by reason of death or Disability pursuant to Section 3.7, or if Villarreal
resigns within ten (10) days following a material reduction in his duties (as per Section 2.2) or
material reduction of compensation within six (6) months following a Change in Control then subject
to Villarreal’s continuing obligations under Section 2.4 and Section 2.5 and in consideration of
the execution, delivery and effectiveness of a general release of claims in a standard form
approved by the Company, the Company shall pay to Villarreal a lump sum of two (2) times
Villarreal’s current Base Salary in cash, any Revenue Growth Bonus (calculated on a trailing twelve
month (TTM) year-to-year basis) and shall vest one hundred percent (100%) of Villarreal’s then
remaining unvested portion of the Restricted Stock granted in accordance with this Agreement, in
addition to other amounts payable from qualified plans, nonqualified

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retirement plans, and deferred compensation plans, which amounts shall be paid in accordance
with the terms of such plans, any unpaid FY2006 bonus accrued but unpaid (Section 3.3), within
fifteen (15) days after the date of termination (or, if later, upon the effectiveness of the
general release following any applicable revocation period).

     (b) If the Company terminates Villarreal’s employment for Cause, or if Villarreal resigns,
then Villarreal shall only be entitled to be paid his accrued, unpaid Base Salary through the
effective date of his termination of employment, any Revenue Growth Bonus (calculated on a trailing
twelve month year-to-year basis), any unpaid FY2006 bonus accrued but unpaid (Section 3.3), and his
entitlement to other amounts payable from qualified plans, nonqualified retirement plans, and
deferred compensation plans shall be determined in accordance with the terms of such plans.

     (c) No severance benefits shall be provided pursuant to this Section 3.8 if Villarreal’s
employment is terminated by reason of expiration or non-renewal of this Agreement in accordance
with Section 1.2. with the exception of any earned Revenue Growth Bonus or any unpaid FY2006 bonus.

     Section 3.9 Excess Parachute Payments.

     (a) If there is a “Change in Control” of the Company within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the “Code”), a portion of the benefits to which
Villarreal is entitled under this Agreement could be characterized as “excess parachute payments”
within the meaning of Section 280G of the Code. The parties hereto acknowledge that the protections
set forth in this Section 3.9 are important, and it is agreed that Villarreal should not have to
bear the full burden of the excise tax that might be levied under Section 4999 of the Code or any
similar provision of federal, state of local law, in the event that any portion of the benefits
payable to Villarreal pursuant to this Agreement or the other incentive plans of the Company are
treated as an excess parachute payment. The parties, therefore, have agreed as set forth in this
Section 3.9.

     (b) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that
any payment or distribution (including income recognized by Villarreal upon the early vesting of
restricted property or upon the exercise of options whose exercise date has been accelerated) by
the Company or any other Person to or for the benefit of Villarreal (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section 3.9, (a “Payment”) would be
subject to the excise tax imposed by Section 4999 of the Code or any similar provision of any
federal, state or local law or any interest or penalties are incurred by Villarreal with respect to
such excise tax (such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the “Excise Tax”), then the Company shall pay an additional payment,
not to exceed the amount of Villarreal’s then current Base Salary in the aggregate (a “Gross-Up
Payment”), in an amount such that after payment by Villarreal of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the
Gross-Up Payment, Villarreal retains an amount of the Gross-Up Payment equal to fifty percent (50%)
of the Excise Tax imposed on the Payments. Villarreal will

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bear the cost of the remaining fifty percent (50%) until the aggregate Gross-Up Payments from
the Company have reached the amount of Villarreal’s then current Base Salary, and will thereafter
bear all additional taxes, interest or penalties.

     (c) In the event of any dispute as to the applicability or amount of any Gross-Up Payment, all
determinations required to be made under this Section 3.9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by the independent public accounting firm regularly
employed by the Company (the “Accounting Firm”) which shall provide detailed supporting
calculations both to the Company and to Villarreal within fifteen (15) business days after the
receipt of notice from Villarreal that there has been a Payment, or such earlier time as is
requested by the Company. All fees and expenses of the Accounting Firm will be borne by the
Company. If the Accounting Firm determines that no Excise Tax is payable by Villarreal, it shall
furnish Villarreal with a written statement that failure to report the Excise Tax on Villarreal’s
applicable federal income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding on the Company and Villarreal
unless and until a final determination is received from the Internal Revenue Service indicating a
contrary result. As a result of uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments may not have been made by the Company that should have been made (“Underpayment”),
consistent with the calculations required to be made hereunder. If Villarreal thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of Villarreal, consistent with the maximum limitation stated in this Section
3.9. In the event it is determined by the Accounting Firm that the Gross Payments previously made
by the Company exceeded the limitations stated in this Section 3.9, upon written notice from the
Company, accompanied by a copy of the Accounting Firm’s calculation of same, the amount of such
overpayment shall be promptly paid by Villarreal to the Company.

ARTICLE 4

MISCELLANEOUS PROVISIONS

     Section 4.1 Entire Agreement. This Agreement contains the entire Agreement between
the Parties and supersedes all prior oral and written Agreements, understandings, commitments, or
practices between the Parties with respect to the subject matter hereof. Other than as expressly
set forth herein, Villarreal and the Company acknowledge and represent that there are no other
promises, terms, conditions or representations (verbal or written) regarding any matter relevant
hereto. No supplement, modification, or amendment of any term, provision or condition of this
Agreement shall be binding or enforceable unless evidenced in writing and executed by the parties.
The provisions of Sections 2.4, 2.5, and 2.6 shall survive termination of this Agreement.

     Section 4.2 Applicable Law. This Agreement shall be governed exclusively by and
construed in accordance with the laws of the State of Texas, notwithstanding choice of law

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provisions thereof; and the venue of any litigation commenced hereunder shall be Houston,
Texas.

     Section 4.3 Injunctive Relief. Villarreal acknowledges that his services are of a
special, unique, unusual, extraordinary and intellectual character, which gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in damages in an action at
law. If he should breach this Agreement, in addition to its rights and remedies under general law,
the Company shall be entitled to seek equitable relief by way of injunction or otherwise.

     Section 4.4 Partial Invalidity. If the application of any provision of this
Agreement, or any section, subsection, subdivision, sentence, clause, phrase, word or portion of
this Agreement should be held invalid or unenforceable, the remaining provisions thereof shall not
be affected thereby, but shall continue to be given full force and effect as if the invalid or
unenforceable provision had not been included herein.

     Section 4.5 Notices. Notices given under this Agreement shall be given by registered
or certified mail, postage prepaid, return receipt requested, or by personal delivery to the
respective addresses of the parties. Notices to Villarreal shall be sent to 5301 Hollister Road,
Suite 250, Houston, Texas 77040, Attn: Mario Villarreal. Notices to the Company shall be sent to
5301 Hollister Road, Suite 250, Houston, Texas 77040, Attn: Chief Executive Officer. A mailed
first-class notice shall be deemed given two (2) business days after deposit with U.S. Postal
Service.

     Section 4.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one and the same
instrument.

     Section 4.7 Assignment. This Agreement may not be assigned or encumbered in any way
by Villarreal. The Company may assign this Agreement to any successor (whether by merger,
consolidation, or purchase of the Company’s stock) to all or a controlling interest in the
Company’s business, in which case this Agreement shall be binding upon and inure to the benefit of
such successor(s) and assign(s).

     Section 4.8 Limitation on Waiver. A waiver of any term, provision, or condition of
this Agreement shall not be deemed to be, or constitute a waiver of any other term, provision or
condition herein, whether or not similar. No waiver shall be binding unless in writing and signed
by the waiving party.

     Section 4.9 Attorney’s Fees. In the event that any proceeding is commenced involving
the interpretation or enforcement of the provisions of this Agreement, the Party prevailing in such
proceeding shall be entitled to recover its reasonable costs and attorneys’ fees.

     Section 4.10 Taxes. All payments made pursuant to the provisions of this Agreement
shall be subject to the withholding of applicable taxes.

     Section 4.11 Not for the Benefit of Creditors or Third Parties. The provisions of
this Agreement are intended only for the regulation of relations among the parties. This

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Agreement is not intended for the benefit of creditors of the parties or other third parties
and no rights are granted to creditors of the parties or other third parties under this Agreement.

     IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	US DATAWORKS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Charles E. Ramey
 

	 	 
	 

	 	Name
	 	     Charles E. Ramey	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Mario Villarreal	 	 
	 	 	 	 	 
	 	 	Mario Villarreal	 	 

-9-

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