eBay (NASDAQ: EBAY) closed at $22.70. EBAY is scheduled to report Q3 EPS after the market close on October 21. EBAY November call option implied volatility closed at 38, puts at 45, January is at 35, puts at 43; verses its 26-week average of 43, according to Track Data, suggesting non-directional price movement

Brocade (NASDAQ: BRCD) is recently trading at $8.30 in pre-open trading, above its close of $7.65. BRCD has put itself up for sale according to the Wall Street Journal. BRCD is data storage and networking firm. BRCD October option implied volatility is at 55, January is at 53; near its 26-week average of 56, according to Track Data, suggesting non-directional price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Minyanville Professor Sean Udall dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

The Brocade Communications (NASDAQ: BRCD) deal is interesting for a couple reasons. First of all -- hey it's a deal. So yes, deals can still get done, even in this market.

Second, and more importantly, BRCD is paying $3 billion or almost exactly three times the cash and investments on Foundry Networks' (NASDAQ: FDRY) books. So in essence, 1/3 of the deal price is being funded by the liquidity of Foundry Networks balance sheet. Looking at the technology landscape, there are a whole bunch of companies that look like FDRY from a balance sheet perspective.

Also, this deal highlights the fact that even in a market full of angst, companies do look forward to see what business trends they want to exploit. My take is BRCD is seeing it wants a bigger part of the bandwidth pie going forward and the two companies may have complementary technology to help extend their current reach.

Foundry Networks, Inc. (NASDAQ: FDRY), which builds networking technologies, went public in 1999. With the Internet surge, the stock price went over $200.

Of course, that was a temporary thing. Since then, Foundry's shareholders have suffered.

However, this week they got some cheery news. Foundry agreed to sell out to Brocade (NASDAQ: BRCD). The deal comes to about $2.91 billion in a combination of cash and stock.

Essentially, the deal blends some key technologies. While Brocade has a strong footprint in fiber channel systems, Foundry is a top player in switches and 10-gigabit Ethernet offerings.

If anything, it's a necessary step to deal with the intensely competitive environment, especially against the mighty Cisco (NASDAQ: CSCO).

No doubt, Brocade has demonstrated success with M&A, such as with its acquisition of McData. However, networking deals can be tricky. After all, Brocade operates primarily on an OEM basis whereas Foundry has a large direct sales force.

There is some financial risk too as Brocade needs to borrow about $1.4 billion.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Ex-Brocade (NASDAQ: BRCD) CEO Gregory L. Reyes Jr. has been sentenced to 21 months in prison with a $15 million fine for orchestrating a scheme to backdate stock options at the company, illegitimately shifting wealth from the company's owners to its executives.

Judge Charles R. Breyer of Federal District Court in San Francisco, who sentenced Mr. Reyes, said that his efforts to obstruct justice had led to the stiff penalty: "This offense is about honesty. Every time Gregory Reyes falsified documents, repeatedly, over a three-year period, he was lying. That is the core of the defendant's criminal conduct."

Reyes was the first executive to be tried on criminal charges related to options backdating, and he was convicted onten counts of securities fraud.

According to the New York Times, Reyes cried while speaking to the judge before the sentencing: "I'm sorry," Mr. Reyes said, between sips of water and long pauses to compose himself. "There is much that I regret, and if I could turn back the clock, I would."

Is he really remorseful? He'll remain free without bail until a federal appeals court hears his case. If he's so full of remorse, why doesn't he just go to jail for a few months and skip the appeal?

It's good to see that law enforcement is cracking down on at least a few executives who think public companies should be used as their own personal honey pots. Now we need to see boards of directors hold their executives to higher standards too.

MOST NOTEWORTHY: Athenahealth, Brocade Communications Systems, Royal Bank of Scotland and Human Genome were today's noteworthy initiations:

• Caris initiated shares of Athenahealth (NASDAQ: ATHN) with an Average rating and $26 target, as they believe an unachievable growth rate is priced into shares at current levels.
• Brocade Communications Systems (NASDAQ: BRCD) was initiated with a Neutral rating at UBS.
  
• Royal Bank of Scotland (NYSE: RBS) was initiated with an Underweight rating at Lehmen.
  
• JP Morgan resumed coverage of Human Genome Sciences (NASDAQ: HGSI) with a Neutral rating.

OTHER INITIATIONS:

• Lazard resumed coverage of Zoran (NASDAQ: ZRAN) with a Hold rating and Sigma Designs (NASDAQ: SIGM) with a Buy rating.
  
• Stifel initiated Tortoise Energy Capital (NYSE: TYY) with a Buy rating and $32 target.
  
• HSBC initiated DSG International (OTC: DSITY) with an Overweight rating.

MOST NOTEWORTHY: GameStop (GME), Brocade (BRCD), Tween Brands (TWB), Plantronics (PLT) and Arcelor Mittal (MT) were today's more notable upgrades:

• First Albany sees upside potential in GameStop (NYSE: GME) through 2008 and upgraded shares to Strong Buy from Buy.

• JMP Securities upgraded Brocade (NASDAQ: BRCD) to Market Outperform from Market Perform on valuation.

• Tween Brands (NYSE: TWB) was upgraded to Buy from Sell on valuation at Matrix USA.

• JMP Securities' checks indicate Altec Lansing's im600 iPod docking station/FM radio is selling better than expected, and upgraded shares of Plantronics (NYSE: PLT) to Market Outperform from Market Perform.

• Merrill upgraded shares of Arcelor Mittal (NYSE: MT) to Buy from Neutral to reflect the company's inclusion in the Euro Stoxx 50 Index in September as well as the positive global carbon steel environment...

OTHER UPGRADES:

• Pepsi Bottling (NYSE: PBG) was upgraded to Overweight from Neutral at HSBC.

• Morgan Stanley raised RF Micro Devices (NASDAQ: RFMD) to Equal Weight from Underweight.

• Matrix upgraded Barr Pharmaceuticals (NYSE: BRL) to Buy from Hold.

• Jefferies upgraded Advanced Medical (NYSE: EYE) to Hold from Underperform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: The Wet Seal (WTSLA), Brocade Communications Systems(BRCD), IAC/InteractiveCorp (IACI), CME Group (CME) and Rogers Communications (RCI) were today's noteworthy initiations:

• Merriman believes the turnaround at Arden B is well underway and both it and the Wet Seal chains have tremendous opportunities for long-term growth, initiating The Wet Seal (NASDAQ: WTSLA) with a Buy rating.

• Pacific Growth is positive on Brocade's (NASDAQ: BRCD) diversification into new products and services, starting shares with a Buy rating.

• Banc of America initiated shares of InterActiveCorp (NASDAQ: IACI) with a Neutral rating.

• William Blair believes the newly-formed CME Group (NYSE: CME) has an even more dominant competitive position within the growing futures exchange industry, reinstating shares with an Outperform rating.

• JP Morgan said Canada is an attractive wireless market and that Rogers Communications (NYSE: RCI) is well positioned, starting shares with an Overweight rating...

OTHER INITIATIONS:

• Deutsche Bank initiated Waters Corp (NYSE: WAT) with a Hold rating.

• Goldman started Infinera Corp (NASDAQ: INFN) with an Equal Weight.

• Kaufman reinstated Savvis (NASDAQ: SVVS) with a Hold.

• Pacific Growth initiated Network Appliance (NASDAQ: NTAP) with a Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Brocade (NASDAQ: BRCD) has agreed to settle its options back-dating issues with the SEC by paying a fine of $7 million. With over a hundred companies still working out accounting problems and, in some cases, SEC problems with back-dating, the settlement may open the door to these issues to move toward resolution.

As The Wall Street Journal pointed out [subscription required], the SEC had to debate several tough questions before coming to an initial decision about how to handle all of the companies involved in the practice: "Were shareholders actually hurt by the backdating of options, by the revelation of potential wrongdoing or by being deceived about how executives were compensated??

Investors were hurt. For one, when executives exercise options, the company is paid the amount of the strike price. If that price has been lowered, the company receives less money. Public companies are also supposed to account for options as an expense. Changing options grant dates can lead to restatements of financial reports, which does not inspire investor confidence.

And, perhaps most important, there is the matter of the time and cost to board for examining options issues. It is not only a distraction, it is a cost. So, it is not simply a question of deception. There is a very real cost to options back-dating.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MAJOR PAPERS:

• Brocade Communications Systems Inc (NASDAQ: BRCD) will pay a $7M penalty to settle allegations that it issued stock option grants improperly, according to the Wall Street Journal.
• The Wall Street Journal reported that The Coca-Cola Company (NYSE: KO) and Cargrill have joined together to market Rebiana, a new calorie-free natural sweetener.
• The Financial Times reported that Morgan Stanley (NYSE: MS) is set to acquire Australia's Investa Property Group for A$4.7B in cash, a move that will boost its real estate presence in the Asia-Pacific region.
• Barron's Online's "Weekday Trader" reported that tech stocks could see a "meltup" this summer and those worth evaluating for a possible purchase may include Ciena Corporation (NASDAQ: CIEN) and Alcatel-Lucent ADS (NYSE: ALU).
• According to SEC data, Orbis Management Investment crossed the 10% ownership threshold of Cheniere Energy Inc (AMEX: LNG) on May 10 and purchased another 112,516 shares on the open market for $4.05M, Barron's Online's "Inside Scoop" column reported.

OTHER PAPERS:

• The Australian Financial Review reported that ABC Learning Centres may look to the U.S. for its next large acquisition. Operators in the space include Bright Horizons Family Solutions Inc (NASDAQ: BFAM).

MOST NOTEWORTHY: General Electric Co (GE), Brocade Communications Systems Inc (BRCD) and Netease.com Inc ADS (NTES) rounded out today's more notable upgrades:

• UBS upgraded General Electric Co (NYSE: GE) to Buy from Neutral with a $14 target based on valuation and expectations for strong earnings in its gas turbine business.

• Brocade Communications Systems Inc (NASDAQ: BRCD) was upgraded by Goldman Sachs to Buy from Neutral with an $11 target to reflect the cost savings associated with the McData acquisition. Bear Stearns also upgraded Brocade to Outperform from Peer Perform following its Q1 report and $200 buyback; Raymond James upgraded shares to Outperform from Market Perform.

• Deutsche Bank upgraded Netease.com Inc ADS (NASDAQ: NTES) to Hold from Sell with a $23 target following the company's Q4 report.

OTHER UPGRADES:

• Credit Suisse upgraded Reuters Group ADS (NASDAQ: RTRSY) to Outperform from Neutral citing the company's favorable outlook.

• Citigroup upgraded Moody's Corp (NYSE: MCO) to Buy from Hold with a $77 target as they believe weakness surrounding the company's quarter has created a buying opportunity.

• William Blair upgraded Career Education Corp (NASDAQ: CECO) to Market Perform from Underperform.

• BWS Financial upgraded shares of CuraGen Corp (NASDAQ: CRGN) to Strong Buy from Buy with an $8 target following its recent sell-off. The firm believes the concerns that CuraGen will not be able to sell its 454 Life Science stake are baseless.

• Caris upgraded Marvell Technology Group (NASDAQ: MRVL) to Above Average from Average following its solid quarter as they believe Marvell has worked through the excess inventory in storage and wireless LAN. Needham also upgraded Marvell Tech to Buy from Hold with a $26 target following its Q4 results.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Dell (DELL) and Brocade (BRCD) topped today's modest-sized upgrade list.

• Needham upgraded Dell, Inc. (NASDAQ:DELL) to Buy from Hold with a $35 target, citing the PC maker's preliminary third quarter results that suggest a turning point in margins. Bear Stearns upgraded Dell to Outperform from Peer Perform on the news.
• Brocade Communications Systems, Inc. (NASDAQ:BRCD) was upgraded by Needham to Buy from Hold and a $10.50 target; The firm is positive on the data storage networker's outlook and execution following their strong forth-quarter report.

OTHER UPGRADES:

• Deere & Co. (NYSE:DE) was upgraded to Outperform from Market Perform at Wachovia based on the belief the equipment maker's 2007 guidance is conservative.
• Rudolph Technologies, Inc. (NASDAQ:RTEC) was upgraded to Buy from Sell at Matrix USA, citing valuation.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).