Family Dollar (NYSE: FDO) has settled shareholder lawsuits relating to the backdating of stock options issued to executives at the company. Under the terms of the settlement, Chairman and Chief Executive Howard Levine, President and Chief Operating Officer R. James Kelly, board member George Mahoney and executive C. Martin Sowers will give up a total of 210,000 stock options.

The company will also institute corporate governance reforms including the adoption of a majority-vote policy for uncontested elections of directors and the election of two additional independent directors.

Here's what bothers me: The company will be taking a charge of $5.7 million related to the settlement, including $3.5 million to cover the attorney's fees of the shareholders who brought the lawsuits.

This is my question: Given that the company clearly had ineffective internal controls that allowed top executives to receive backdated stock options, why should the company's shareholders have to pick up the tab for the legal fees? CEO Howard Levine made more than $3.1 million last year. Since he and other executives and directors were the ones responsible for options backdating, why shouldn't they pay legal fees?

It looks like discount retailer Target Corporation (NYSE:TGT) will be losing one of its own to Family Dollar Stores Inc. (NYSE: FDO). The dollar-store retailer has announced that Wook Lee will be filling the newly created position of senior vice president of global sourcing for Family Dollar. Lee was formerly global vice president of production service at Target Corp. and will take over the reigns at Family Dollar in the areas of developing the company's sourcing strategy.

It's kind of hard to think that a senior sourcing expert inside one of the recent success stories in discount retailing (Target) would leave to join Family Dollar, but it's plausible -- and I'm sure Family Dollar paid handsomely to get Lee on board. Are the sales of dollar-type stores going to be on the rise soon? Most likely, yes. When researching retail pricing at Dollar General, Dollar Tree and Family Dollar, I'm amazed that the pricing is so low compared to even Wal-Mart's pricing structure.

I thought it might be interesting to present a comparison between the two best known dollar store operations. Both Family Dollar (NYSE:FDO) and Dollar General (NYSE:DG) are well known for their penny pinching product packed stores but in a financial sense how are these two discount chains faring within the far flung retail world and how do they compare to one another? With reckless abandon I have chosen to dive deep into the darkest reaches of the Internet to draw some insight on the dollar store world.

Dollar General, a Fortune 500 discount retailer, has been in operation since 1955 and currently operates 8,309 stores. The Dollar General website predicates the company's mission upon the statement, "Dollar General stores offer convenience and value to customers, by offering consumable basic items that are frequently used and replenished, such as food, snacks, health and beauty aids and cleaning supplies, as well as a selection of basic apparel, housewares and seasonal items at everyday low prices."

Family Dollar began operations in 1958 and is a part of the Fortune 500 Index. Currently, Family Dollar operates over 6,200 stores which are especially located to serve Family Dollar's middle to lower income target clientele. Their mission statement as presented on the Family Dollar website is a three part declaration of value: "For our customers, a compelling place to shop . . . by providing convenience and low prices. For our associates, a compelling place to work . . . by providing exceptional opportunities and rewards for achievement. For our investors, a compelling place to invest . . . by providing outstanding returns."

Both of these dollar store operations appear to make it clear that it is their intent to offer discounted retail merchandise in first class fashion. Both companies have a drive and focus which place the average American at the heart of their mission and both companies also seek to present their investors with consistently healthy returns. And the more I read about these two compact discount retailers, the more I get the message that they are far less concerned about competing with each other than they are about trimming the edges off of their mutual competitor Wal-Mart (NYSE:WMT).

Is America one big boring cliche after another? To many foreigners it is, since most of our shopping -- a very big reason for tourism anywhere -- is done at cookie-cutter chain stores. Whether it be home furnishings, consumer electronics, food or baby clothes, there is a chain store (and many different ones at that) dedicated to feeding the commerce need we have for every possible segment of living. Capitalism at its best, you might say. Or, its worst, if you're into the "experience" of shopping rather than the "task" of shopping.

For the most part, done are the days of the "mom and pop" store. The chains are everywhere, ready to sell, serve and provide anything they possibly can while collecting as much information about you as they can. Now, I'm not necessarily against chain stores; as the biggest force in the world's largest economy (at least two-thirds of it) runs from the same consumers who keep these chain stores humming night and day.

Chains like the following list are present in almost every large American city (get ready...deep breath) Bed Bath & Beyond; Linens-n-Things; Barnes & Noble and Borders; PetSmart and Petco; Circuit City and Best Buy; Lowe's and Home Depot; CVS and Walgreens; Wal-Mart, Target and Costco; Dollar General, Family Dollar and Dollar Tree. Need more? How about the Apple Store and Pottery Barn, the Gap and Ann Taylor, Banana Republic and DSW, Starbucks and McDonald's. Now that's a lot of chain stores. What would we do without all these chain stores? Probably we'd all pay higher prices while actually enjoying the shopping experience again. We might even form social attachments to our local merchants again. But, the American consumers' motto continues to be "price, price, and -- well -- price."

That's why we have chain stores.

MOST NOTEWORTHY: Verizon (VZ), Family Dollar (FDO) and Kroger (KR) top today's extensive list of downgrades.

• Verizon was downgraded to Sell from Hold at Citigroup. The firm sees greater earnings power along with a better valuation at AT&T (T), and they believe Verizon has risk to their estimates through 2008.
• Banc of America downgraded Family Dollar to Neutral from Buy. BofA cited the increasingly competitive environment for the downgrade.
• Banc of America also expects consumable pricing to come under pressure due to initiatives at Wal-Mart Stores, Inc. (NYSE:WMT), and downgraded Kroger (KR) to Sell from Neutral.

OTHER DOWNGRADES:

• Citigroup downgraded Mastercard (MA) to Sell from Hold. With Mastercard shares up over +50% the last two months, the firm recommends waiting for a 10% pullback before buying shares.
• UBS assumed coverage of Sprint-Nextel (S) and downgraded them to Neutral from Buy.
• And finally, Prudential downgraded PNC Bank (PNC) to Underweight from Neutral following the acquisition by Mercantile Bancshares (MRBK). The firm believes the acquisition negatively impacts estimates and destroys value.

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