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Spectrum Stock Drops; Details on Company Emerge

October 19, 1993

NEW YORK (AP) _ Shares of Spectrum Information Technologies Corp. fell in heavy trading Tuesday amid details about the checkered past of the company that a day earlier stunned the computer and communications industries by hiring John Sculley.

Spectrum, which controls key patents for the wireless transmission of computer data, said it is focusing on the future after a series of run-ins with regulators, investors and competitors.

After leaving Apple Computer Inc. on Friday, Sculley quickly signed on as chairman and chief executive of a company he learned about just a few weeks ago.

The appointment set off a frenzy in Spectrum stock, which has gyrated since the company went public in 1990. On Monday, shares rose 46 percent on Nasdaq trading volume of more than 21 million shares. The euphoria eased Tuesday and Spectrum dropped $1.62 1/2 to $9.50 per share as nearly 16 million shares changed hands, again the most actively traded issue.

But industry executives continued wondering why Sculley, who would have been the most sought-after executive in America, picked Spectrum as the vehicle for fulfilling his vision of converging technologies.

The company has had problems before and after the arrival of a management team a year and a half ago led by president Peter Caserta, who lured Sculley:

- Spectrum last year was forced to restate claims in federal securities filings that it held more than 200 patents related to wireless data transmission. It actually had three, the company admitted, with claims for more than 200 patents. Spectrum said the mistake was unintentional.

- Spectrum earlier this year restated earnings because of accounting lapses at Computer Bay, a computer stores franchiser Spectrum acquired. That led to an unusual agreement in which Spectrum and Computer Bay agreed never to volunteer information to regulators about what occurred at Computer Bay, The New York Times reported.

- Spectrum stock was removed for trading in December 1990 from the National Association of Securities Dealers for failing to meet a $375,000 capital minimum. It was reinstated the following June after a stock issue.

- The stock has been touted regularly on a paid Los Angeles television program by Gene Morgan, a broker who owned a large block of Spectrum, underwrote the first issue of Spectrum and remains a dealer in the stock.

Morgan in 1989 was fined $7,500 by the NASD for allegedly soliciting money from investors without supplying a prospectus, failing to deposit investor funds into proper accounts and failing to meet minimum brokerage firm capital requirements.

Morgan did not appear Tuesday on his daily program, ″Charting the Market With Gene Morgan,″ and did not return a telephone call seeking comment. A Spectrum lawyer, Chris Franco, said the company is not involved with Morgan’s show.

- Microcom Inc., which is being sued by Spectrum for alleged patent infringement, claims in court papers that Spectrum used misleading information to obtain patents in 1987 after earlier patent requests by the company’s founder had been rejected twice.

″The same patent had been filed under the name of two different inventors,″ said Gregory Pearson, a senior vice president at Microcom, which makes computer modems. ″They didn’t tell the Patent Office it was already pending and had been rejected.″

Spectrum sued Microcom for patent infringement on grounds that its modems, devices that link computers via telephone, can be adapted for use on cellular networks. Franco, the Spectrum lawyer, refused to discuss pending litigation.

Spectrum has aggressively tried to enforce its patents, reaching licensing agreements with companies including American Telephone & Telegraph Co., Rockwell International Corp. and Megahertz Corp. Under the AT&T deal, the long-distance phone company could obtain a $10 million equity stake in Spectrum.

″We took a look at their patent portfolio, we felt we needed to take it seriously and that’s why we entered into a licensing agreement with them,″ said David Hardy, general counsel of Salt Lake City-based Megahertz, a modem maker.

Caserta last year asserted the company’s patents would generate revenue of more than $1 billion. He also said the company was seeking upfront fees of $1 million and royalties of $10 or more per modem from all major makers of computers and modems.

Data Race Inc., a San Antonio-based modem maker, had worked with Spectrum on cellular access modems until Spectrum earlier this year sought a licensing agreement. When Data Race balked, Spectrum sued for patent violations.

″They have patents that cover some areas but they have extended that in their own minds and their own statements,″ said Herb Hensley, Data Race’s president and CEO. ″We’d rather just not deal with them.″

Analysts said whether Spectrum gains control over wireless data transmission may depend on the courts and on where Sculley leads the company in a rapidly changing field.

″I’m baffled like everybody else,″ said Peter Bernstein of Probe Research in Cedar Knolls, N.J. He said Spectrum is ″one technological solution to an area that has multiple alternatives emerging, and the list is growing longer every day.″

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