Longform

Hypercom Confidential

Page 2 of 9

George Wallner had a lot on his mind as human resources director Murphy excused himself and returned to his car to await his boss. It was a crucial juncture in the 20-year history of the company, which had started in Australia on a shoestring in the late 1970s and had grown into a dynamo.

Just three days hence, on Monday, October 27, 1997, Wallner and company planned to promote Hypercom's upcoming initial public offering of stock at a meeting of prospective Phoenix investors. The Wallners were to retain majority control of the company, but hoped to sell more than $100 million in stock. If things went as planned, the IPO would be one of the nation's largest that year.

Why would George Wallner spend part of his Friday at the home of a low-level employee?

"I was very concerned about how she was feeling," Wallner testified at a hearing on October 27, 1999. ". . . I felt that, as chairman, I should see what the actual situation was personally. I said [to Smith], 'Look, there are some very serious allegations here. If they are true, I am willing to go all the way to make sure that whoever is guilty is dealt with accordingly.' [She] was to be out of the influence of Mr. Gonzalez, out of the work area controlled by Mr. Gonzalez, and [the company would ensure] the safety and future of her children. She also expressed a very strong desire not to have things stirred up -- she wanted the whole affair to be forgotten. . . . She further commented that she felt very afraid of Mr. Gonzalez and she wanted protection.

"She repeatedly said that her main concern was the future of her children. I sympathized with her. . . . I said right at the outset that there is no way we would consider giving you cash. She repeatedly said she wanted to stay with the company. She wanted to work in an area where nobody knew anything about the affair, about the relationship with Mr. Gonzalez."

Smith faced Wallner with trepidation. She knew he and Jairo Gonzalez were good friends as well as colleagues, and that they coown a 53-foot sailboat, The Atlantica.

Her recollection of the meeting is similar to Wallner's: "Our conversation was if I wanted to press charges against him. He told me that [Gonzalez] had a problem. He appreciated my loyalty, and that he would make sure that Jairo got the help that he needed, and that he would make sure that it won't reoccur. . . . This was not to go outside this house."

Smith then still went by her married name of Muzzarelli. She was enmeshed in a protracted divorce from her husband, John, from whom she'd been separated since August 1996. Her two sons were all she had, she told Wallner.



Hypercom's boss told Smith he'd pay for her sons' college educations when the time came. He assured her that John Murphy's investigation would get to the bottom of things.

The month after the meeting at Smith's home was momentous for all concerned. Hypercom went public on November 14, and soon sold out its shares -- worth $125.7 million. Less than a week later, Smith and Wallner inked an agreement that was supposed to stay confidential.

It promised that Hypercom would "take appropriate steps to see that any prior inappropriate conduct [by Jairo Gonzalez] not recur and that Ms. [Smith] be free of any retaliation for having participated in the company's investigation of this matter."

The company also promised to pay off Smith's mortgage -- $89,000 -- and her divorce attorney's fees of $7,000. It gave her a $2,500 bonus. It promised to transfer her out of the international unit and "into a new, appropriate position within the Company."



Most important to Smith, however, was the following clause:

"Pay the reasonable costs incurred in providing a college education for Ms. [Smith's] two children."

That sounded great to Smith. Both of her children suffer from attention deficit disorder, and are likely to need special tutoring if they want to make it to college.

In return, Smith promised not to tell anyone -- and that meant anyone -- about her agreement.

She says she stuck to her end of the bargain for almost a year. Then, in September 1998 -- after, she says, she became aware that others at Hypercom knew of her secret deal -- she did discuss it, first with an attorney, then with her family.

Finally, she went public with a lawsuit.

The lawsuit lists Hypercom, Jairo Gonzalez and John Murphy as defendants. Her complaint and Hypercom's countersuit are being heard by Superior Court Judge Edward Burke.

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Paul Rubin
Contact: Paul Rubin