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As filed with the Securities and Exchange Commission on December 21, 2007

Registration No. 333-          



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


Dollar General Corporation
(Exact name of registrant as specified in its charter)


Tennessee
(State of Incorporation)
  5331
(Primary Standard Institute
Classification Code Number)
  61-0502302
(I.R.S. Employer Identification No.)



100 Mission Ridge
Goodlettsville, Tennessee 37072
(615) 855-4000

(Address, including zip code, and telephone number, including area
code, of registrants' principal executive offices)

Susan S. Lanigan
Executive Vice President, General Counsel
Dollar General Corporation
100 Mission Ridge
Goodlettsville, Tennessee 37072
(615) 855-4000

(Name, address, including zip code, and telephone number, including
area code, of agent for service)

With copies to:
Joseph H. Kaufman Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017-3954
(212) 455-2000
  Gary Brown Esq.
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
Commerce Center Suite 1000
211 Commerce Street
Nashville, Tennessee 37201
(615) 726-5763

Approximate date of commencement of proposed exchange offer:
As soon as practicable after this Registration Statement is declared effective.

        If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box.     o

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o


CALCULATION OF REGISTRATION FEE


Title of Each Class of Securities to be Registered
  Amount to be
Registered

  Proposed Maximum
Offering Price per Note

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration
Fee


10.625% Senior Notes due 2015   $1,175,000,000   100%   $1,175,000,000   $36,072.50

11.875%/12.625% Senior Subordinated Toggle Notes due 2017   $725,000,000   100%   $725,000,000   $22,257.50

Guarantees of 10.625% Senior Notes due 2015(2)   N/A(3)   N/A(3)   N/A(3)   N/A(3)

Guarantees of 11.875%/12.625% Senior Subordinated Toggle Notes due 2017(2)   N/A(3)   N/A(3)   N/A(3)   N/A(3)

(1)
Estimated solely for the purpose of calculating the registration fee under Rule 457(f) of the Securities Act of 1933, as amended (the "Securities Act").

(2)
See inside facing page for registrant guarantors.

(3)
Pursuant to Rule 457(n) under the Securities Act, no separate filing fee is required for the guarantees.

         The registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.





TABLE OF REGISTRANT GUARANTORS

Exact Name of Registrant as
Specified in its Charter
(or Other Organizational
Document)

  State or Other
Jurisdiction of
Incorporation
or Organization

  I.R.S.
Employer
Identification
Number
(IF NONE
WRITE N/A)

  Address, Including
Zip Code, of
Registrant's
Principal Executive
Offices

  Telephone Number, Including Area Code, of Registrant's Principal Executive Offices
DC Financial, LLC   Tennessee   N/A   100 Mission Ridge,
Goodlettsville, TN 37072
  615-855-4000

DG Logistics, LLC

 

Tennessee

 

62-1805098

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

DG Promotions, Inc.

 

Tennessee

 

62-1792083

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

DG Retail, LLC

 

Tennessee

 

36-4577242

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

DG Transportation, Inc.

 

Tennessee

 

37-1517488

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

DGC Properties LLC

 

Delaware

 

36-4498859

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

DGC Properties of Kentucky LLC

 

Delaware

 

37-1432210

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

Dolgencorp of New York, Inc.

 

Kentucky

 

62-1829863

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

Dolgencorp of Texas, Inc.

 

Kentucky

 

61-1193136

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

Dolgencorp, Inc.

 

Kentucky

 

61-0852764

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

Dollar General Investment, Inc.

 

Delaware

 

48-1268966

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

Dollar General Merchandising, Inc.

 

Tennessee

 

82-0577749

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

Dollar General Partners

 

Kentucky

 

61-1193137

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

South Boston FF&E, LLC

 

Delaware

 

26-0411224

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

South Boston Holdings, Inc.

 

Delaware

 

20-5220571

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

Sun-Dollar, L.P.

 

California

 

95-4629930

 

100 Mission Ridge,
Goodlettsville, TN 37072

 

615-855-4000

The information in this prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion Dated December 21, 2007

GRAPHIC

Dollar General Corporation

Offer to Exchange
All Outstanding
10.625% Senior Notes due 2015
($1,175,000,000 principal amount outstanding)
and All Outstanding 11.875%/12.625% Senior Subordinated Toggle Notes due 2017
($725,000,000 principal amount outstanding)
for
10.625% Senior Notes due 2015
and 11.875%/12.625% Senior Subordinated Toggle Notes due 2017
which have been
registered under the Securities Act of 1933


The Exchange Offer:
  We will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradable.
  You may withdraw tenders of outstanding notes at any time prior to the expiration date of the exchange offer.
  The exchange offer expires at 5:00 p.m., New York City time, on                         , 2008, unless extended. We do not currently intend to extend the expiration date.
  The exchange of outstanding notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes.
  We will not receive any proceeds from the exchange offer.

The Exchange Notes:
  We are offering exchange notes to satisfy certain of our obligations under the registration rights agreement entered into in connection with the private offering of the outstanding notes.
  The terms of the exchange notes are substantially identical to the outstanding notes, except that the exchange notes will be freely tradeable.
Resales of the Exchange Notes:
  The exchange notes may be sold in the over-the-counter-market, in negotiated transactions or through a combination of such methods. We do not plan to list the exchange notes on a national market.

         See "Risk Factors" beginning on page 21 for a discussion of certain risks that you should consider before participating in the exchange offer.

        You may not offer or sell any untendered outstanding notes unless the outstanding notes are registered or exempt from registration under, or are offered or sold in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register the outstanding notes under the Securities Act of 1933.

        Each broker-dealer that receives exchange notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of those exchange notes. The letter of transmittal states that by so acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes where the broker-dealer acquired such outstanding notes as a result of market-making or other trading activities.

        We have agreed that, for a period of 180 days after the consummation of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution."

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the exchange notes to be distributed in the exchange offer or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                        , 2008.



Table of Contents

 
  Page
Summary   1
Risk Factors   21
Statements Regarding Forward-Looking Information   34
The Transactions   35
Ownership and Corporate Structure   38
Use of Proceeds   39
Capitalization   40
Unaudited Pro Forma Condensed Consolidated Financial Information   41
Selected Historical Consolidated Financial and Other Data   46
Ratio of Earnings to Fixed Charges   48
Management's Discussion and Analysis of Results of Operations and Financial Condition   49
Business   76
Management   86
Certain Relationships and Related Party Transactions   125
Security Ownership of Certain Beneficial Owners and Management   132
Description of Other Indebtedness   134
The Exchange Offer   138
Description of Senior Notes   148
Description of Senior Subordinated Notes   207
Registration Rights   271
Book-Entry Settlement and Clearance   273
United States Federal Income Tax Consequences of the Exchange Offer   276
Certain ERISA Considerations   277
Plan of Distribution   278
Legal Matters   279
Experts   279
Available Information   279
Index to Financial Statements   F-1

         We have not authorized any dealer, salesperson or other person to give any information or represent anything to you other than the information contained in this prospectus. You must not rely on unauthorized information or representations.

         This prospectus does not offer to sell nor ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who cannot legally be offered the securities. The information in this prospectus is current only as of the date on its cover and may change after that date.

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MARKET AND INDUSTRY DATA

        We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research as well as from industry publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these publications, studies and surveys is reliable, we have not independently verified industry, market and competitive position data from third-party sources. While we believe our internal business research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source.

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SUMMARY

         This summary highlights information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before participating in the exchange offer. You should carefully read this summary together with the entire prospectus, including the information presented under the section entitled "Risk Factors."

         Unless the context otherwise requires, references in this prospectus to "Dollar General," "we," "our," "us" and "the Company" refer to Dollar General Corporation and its consolidated subsidiaries, both before and after the Transactions (as defined below), and references to the "Issuer" refer to Buck Acquisition Corp. ("Buck"), prior to its merger into Dollar General Corporation (the "Merger") and, thereafter, to Dollar General Corporation. Financial information identified in this prospectus as "pro forma" gives effect to the consummation of the Transactions. This prospectus contains references to years 2007, 2006, 2005, 2004, 2003 and 2002, which represent fiscal years ending or ended February 1, 2008, February 2, 2007, February 3, 2006, January 28, 2005, January 30, 2004 and January 31, 2003, respectively, unless the context otherwise requires.


Our Company

        We are the largest discount retailer in the United States by number of stores, with 8,204 stores located in 35 states, primarily in the southern, southwestern, midwestern and eastern United States, as of November 2, 2007. We serve a broad customer base and offer a focused assortment of everyday items, including basic consumable merchandise and other home, apparel and seasonal products. A majority of our products are priced at $10 or less and approximately 30% of our products are priced at $1 or less. In 2006, our average customer purchase was $9.31.

        We offer a compelling value proposition for our customers based on convenient store locations, easy in and out shopping and highly competitive prices. We believe our combination of value and convenience distinguishes us from other discount, convenience and drugstore retailers, who typically focus on either value or convenience. Our business model is focused on strong and sustainable sales growth, attractive margins and limited maintenance capital expenditure and working capital needs, which result in significant operational cash flows (before interest).

        We have expanded rapidly in recent years, increasing our total number of stores from 5,540 as of February 1, 2002 to 8,229 as of February 2, 2007 (representing an 8.2% compound annual growth rate, or CAGR). Over the same period, we grew our net sales from $5.3 billion to $9.2 billion (representing an 11.5% CAGR), driven by growth in number of stores as well as a five-year average same store sales growth of 3.7%. For the 39 week period ended November 2, 2007, we generated net sales of $6.9 billion, an increase of 4.8% over the prior year period, including a same store sales increase of 2.8%. We have temporarily decelerated our new store growth rate to enable us to focus on improving the performance of existing stores, including remodeling or relocating a number of stores to improve productivity and enhance the shopping experience for our customers.

Stores

        The traditional Dollar General® store has, on average, approximately 6,900 square feet of selling space and generally serves customers who live within five miles of the store. Of our 8,204 stores as of November 2, 2007, more than half serve communities with populations of 20,000 or less. We believe that our target customers prefer the convenience of a small, neighborhood store with a focused merchandise assortment at value prices.

        We aggressively manage our overhead cost structure and typically seek to locate stores in neighborhoods where rental and operating costs are relatively low. Our stores typically have low fixed costs, with lean staffing of usually two to three employees in the store at any time. In 2005 and 2006, we implemented "EZstore™", our initiative designed to improve inventory flow from our distribution

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centers, or DCs, to consumers. EZstore has allowed us to reallocate store labor hours to more customer-focused activities, improving the work content in our stores.

        We also attempt to control operating costs by implementing new technology when feasible, including improvements in recent years to our store labor scheduling and store replenishment systems in addition to other improvements to our supply chain and warehousing systems.

Merchandise

        Our merchandise strategy combines a low-cost operating structure with a focused assortment of products that allows us to offer our customers a compelling value proposition, consisting of quality merchandise at competitive prices. We believe our merchandising strategy generates frequent repeat customer purchases and our focused merchandise assortment encourages customers to shop at Dollar General stores for their everyday household needs. We separate our merchandise into the following four categories for reporting purposes: highly consumable, seasonal, home products and basic clothing. Highly consumable consists of packaged food, candy, snacks and refrigerated products, health and beauty aids, home cleaning supplies and pet supplies; seasonal consists of seasonal and other holiday-related items, toys, stationery and hardware; and home products consists of housewares and domestics.

        We maintain approximately 4,900 core stock-keeping units, or SKUs, per store and an additional 8,000 non-core SKUs that get rotated in and out of the store over the course of a typical year. The percentage of net sales of each of our four categories of merchandise for the periods indicated below was as follows:

 
  2006
  2005
  2004
 
Highly consumable   65.7 % 65.3 % 63.0 %
Seasonal   16.4 % 15.7 % 16.5 %
Home products   10.0 % 10.6 % 11.5 %
Basic clothing   7.9 % 8.4 % 9.0 %

        Our home products and seasonal categories typically account for the highest gross profit margin, and the highly consumable category typically accounts for the lowest gross profit margin.

        We purchase our merchandise from a wide variety of suppliers. Approximately 11% of our purchases in 2006 were from The Procter & Gamble Company. Our next largest supplier accounted for approximately 5% of our purchases in 2006. We directly imported approximately 9% of our purchases at cost in 2006.

Customers

        We serve the basic consumable, household, apparel and seasonal needs of customers, primarily in rural and small markets. According to AC Nielsen's 2006 Homescan® data, in 2006 approximately 41% of our customers had household gross income of less than $30,000 per year. We are also increasingly focused on serving higher income customers and estimate that, in 2006, approximately 38% of our customers were from households with $30,000 to $70,000 of annual income. Our merchandising and operating strategies are primarily designed to meet the needs of these consumers. Approximately 21% of our customers were from households with annual income greater than $70,000.

Recent Strategic Initiatives

        In 2006, we launched strategic initiatives aimed at improving our merchandising and real estate strategies, which we refer to collectively as "Project Alpha." Project Alpha was based upon a comprehensive analysis of the performance of each of our stores and the impact of our inventory model on our ability to effectively serve our customers.

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        Our merchandising initiative is meant to move away from our traditional inventory packaway model, where unsold inventory items were stored on-site and returned to the sales floor to be sold the next year, year after year, until the items were eventually sold, damaged or discarded. Our initiative is an attempt to better meet our customers' needs and to ensure an appealing, fresh merchandise selection. With few exceptions, we plan to eliminate, through end-of-season and other markdowns, existing seasonal, home products and basic clothing packaway merchandise by the end of fiscal 2007. With the exception of certain holiday seasonal and winter apparel items, substantially all of the inventory targeted by this initiative had been sold or eliminated as of November 2, 2007. In addition, beginning in fiscal 2007, we have started selling virtually all current-year non-replenishable merchandise by taking end-of-season markdowns, allowing for increased levels of newer, current-season merchandise. We believe this strategy change will enhance the appearance of our stores and will positively impact customer satisfaction as well as the store employees' ability to manage stores, ultimately resulting in higher sales, increased gross profit margins, lower employee turnover, and decreased inventory shrink and damages. We also expect that this improved inventory management will result in more appropriate per store inventory levels. We expect to increase our sales mix of merchandise categories with higher gross profit margin items, such as home products, basic clothing and seasonal merchandise (which were the primary elements of packaway inventory), as we become increasingly able to improve our merchandise assortments and stock our stores with more current inventory.

        In 2006, we also initiated a new store layout that we believe will further drive sales growth and margin enhancement through an improved merchandising mix. The new layout was launched in a test mode in early 2006, was improved during the year, and became our standard new and remodeled store format by the end of 2006. As a result of the opening of new stores and the re-formatting of a limited number of existing stores, there were 817 stores operating in this new format as of November 2, 2007. The results have been encouraging, as we have seen additional sales from these new and remodeled stores, including an increased mix of higher margin goods. Additionally, improved merchandise adjacencies and wider, more open aisles have enhanced the overall guest shopping experience.

        We also initiated significant improvements to our real estate practices beginning in 2006. We are fully integrating the functions of site selection, lease renewals, relocations, remodels and store closings and have defined and are implementing rigorous analytical processes for decision-making in those areas. We continue to analyze our real estate performance and to look for ways to further refine and improve our practices. As a first step in our initiative to revitalize our store base, we performed a comprehensive real estate review resulting in the identification of approximately 400 underperforming stores all of which we closed by the end of our second fiscal quarter of 2007. Additionally, in connection with the Transactions (as defined below), management approved a plan to close an additional 60 stores prior to February 1, 2008. These closings are in addition to stores that are typically closed in the normal course of business, which over the last 10 years constituted approximately 1% to 2% of our store base per year. We do not currently expect any additional closures beyond those to be closed in the normal course of business; although, as part of our ongoing real estate practices, we will continue to evaluate our store base for underperforming stores. We have also temporarily decelerated our new store growth rate to enable us to focus on improving the performance of existing stores, including remodeling or relocating a number of stores to improve productivity and enhance the shopping experience for our customers.


Our Industry

        We compete in the deep discount segment of the U.S. retail industry. Excluding supercenters (e.g., Wal-Mart), this segment generates approximately $43 billion in sales per year and grew at a 10.2% CAGR between 2000 and 2005. Our competitors are both traditional "dollar stores", as well as other retailers offering discounted items or convenience (e.g., Walgreens and CVS). The "dollar store" sector differentiates itself from other forms of retailing in the deep discount segment by offering consistently low prices in a convenient, small-store format. Unlike other formats that have suffered with the rise of

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Wal-Mart and other discount supercenters, the "dollar store" sector has grown despite the presence of the discount supercenters.

        We believe it is our substantial convenience advantage, at prices comparable to those of supercenters, that allows Dollar General to compete so effectively. As such, Dollar General stores have performed well in the presence of increased competition from Wal-Mart and drugstores. Based on a sample of markets that had relatively high concentrations of Wal-Mart stores, Dollar General stores typically have a higher net sales per square foot and operating profit compared to its stores in markets with lower concentrations of Wal-Mart stores. Similarly, Dollar General stores in a sample of markets that had relatively high concentrations of CVS stores are more productive on net sales per square foot and operating profit bases while maintaining similar operating margins.

        We believe that there is considerable room for growth in the "dollar store" sector. According to AC Nielsen and Retail Forward, "dollar stores" have been able to increase their penetration across all income brackets in the last 6 years. Though traditional "dollar stores" have high customer penetration, the sector as a whole accounts for only approximately 1.4% of total consumer product goods spending, which we believe leaves ample room for growth. Our merchandising initiatives are aimed at increasing our stores' share of customer spending.


Our Competitive Strengths

        Market Leader in an Attractive Sector with a Growing Customer Base.     We are the largest discount retailer in the U.S. by number of stores, with 8,204 stores in 35 states as of November 2, 2007. We are the largest player in the U.S. deep discount segment with a nearly 21% market share, almost 1.5 times that of our nearest competitor. We believe we are well positioned to further increase our market share as we continue to execute our business strategy and implement our operational initiatives. Our target customers include the approximately 70% of U.S. individuals who earn less than $50,000 per year. According to Nielsen Media Research, in 2006, approximately 65% of households shopped at least once at a discount store (up from 59% in 2001).

        Consistent Sales Growth and Strong Cash Flow Generation.     For over 15 consecutive years, Dollar General has experienced positive annual same store sales growth. Nearly two-thirds of our net sales come from the sale of consumable products, which are less susceptible to economic pressures (such as increased fuel costs and unemployment), with the remaining one-third comprised mainly of basic clothing, seasonal and home products, which are subject to little trend or fashion risk. We have a low cost operating model with attractive margins, low capital expenditures (approximately 2% of net sales for the 39 weeks ended November 2, 2007) and low working capital needs, resulting in significant cash flow generation (before interest).

        Differentiated Value Proposition.     Our ability to deliver highly competitive prices in a convenient location and shopping format provides our customers with a compelling shopping experience and distinguishes us from other discount retailers, as well as convenience and drugstore retailers.

        Compelling Unit Economics.     The traditional Dollar General store size, design and location requires minimal initial investment and low maintenance capital expenditures, which, when combined with strong average unit volumes, or AUV, provides for a quick recovery of store start-up costs. In fiscal 2006, our traditional stores that were open for the entire period had an AUV of $1,115,477 and an average investment in inventory and fixtures of approximately $250,000. The ability of our stores to generate strong cash flows with minimal investment results in a short payback period.

        Efficient Supply Chain.     We believe our distribution network is an integral component of our efforts to reduce transportation expenses and effectively support our growth. In recent years, we have made significant investments in technological improvements and upgrades, which have increased our efficiency and capacity to support store growth.

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        Experienced and Motivated Management Team.     Over the past two years, we have strengthened our management team with the hiring of David Beré, our President, Chief Operating Officer and Interim Chief Executive Officer, and Beryl Buley, our Division President, Merchandising, Marketing & Supply Chain, and we have replaced a majority of our senior merchandising and real estate teams. Our leadership team has significant experience and is balanced between industry and Dollar General veterans. In connection with the Transactions, we entered into agreements with certain members of management (the "Senior Management Participants") pursuant to which they elected to invest in Dollar General in an aggregate amount of approximately $10.4 million, including $3.2 million in rollover equity. See "The Transactions."


Our Business Strategy

        Our mission is "Serving Others." To carry out this mission, we have developed a business strategy of providing our customers with a focused assortment of attractively priced merchandise in a convenient, small-store format. We believe this strategy will expand our leadership position within the deep discount segment of the U.S. retail industry while increasing our profitability and maximizing our cash flows.

        Continue to Deliver Value to Our Customers.     Our ability to deliver highly competitive prices in a convenient shopping format provides our customers with a compelling shopping experience and distinguishes us from other discount retailers, as well as convenience and drugstore retailers. We plan to continue to improve on this value proposition to our customers by implementing operational improvements as described herein that will further enhance our business model.

        Drive Financial Performance through Operating Improvements.     After a period of rapid store growth in the mid to late 1990s and early 2000s and the transition from a close-out retailer, we are now increasingly focused on growing profitability and in the early stages of implementing certain targeted retail practices which are expected to have a substantial impact on our gross profit margins, sales productivity and capital efficiency. We expect to expand on these efforts by:

5


        Pursue Measured Store Growth.     While our operational initiatives are focused on increasing our store productivity and profitability and decreasing near term store openings, we believe there are significant opportunities for additional longer term store growth within our existing footprint as well as in new markets. Given our customer demographics and current market penetration, we expect a majority of our new stores to be opened within our existing markets, taking advantage of our local brand awareness while maximizing operating efficiencies.


        We were founded in 1939 as J.L. Turner and Son, Wholesale. We opened our first dollar store in 1955, when we were first incorporated as a Kentucky corporation under the name J.L. Turner & Son, Inc. We changed our name to Dollar General Corporation in 1968 and reincorporated as a Tennessee corporation in 1998. Our principal executive offices are located at 100 Mission Ridge, Goodlettsville, Tennessee 37072, and our telephone number is (615) 855-4000. Our website address is www.dollargeneral.com . The information on our website is not part of this prospectus.

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Summary of the Terms of The Exchange Offer

         On July 6, 2007, we completed the private offering of the outstanding notes. In this prospectus, the term "outstanding notes" refers to the 10.625% Senior Notes due 2015 and the 11.875%/12.625% Senior Subordinated Toggle Notes due 2017 all issued in the private offering. The term "exchange notes" refers to the 10.625% Senior Notes due 2015 and the 11.875%/12.625% Senior Subordinated Toggle Notes due 2017, all as offered by this prospectus and registered under the Securities Act of 1933, as amended (the "Securities Act"). The term "notes" refers to both the outstanding notes and the exchange notes.

General   In connection with the private offering, we entered into a registration rights agreement with Goldman, Sachs & Co., Citigroup Global Markets, Inc., Lehman Brothers Inc. and Wachovia Capital Markets, LLC, (collectively, the "Initial Purchasers"), the Initial Purchasers of the outstanding notes, in which we and the guarantors agreed, among other things, to use our reasonable best efforts to complete the exchange offer for the outstanding notes within 270 days after the date of issuance of the outstanding notes.
    You are entitled to exchange in the exchange offer your outstanding notes for exchange notes, which are identical in all material respects to the outstanding notes except:
      the exchange notes have been registered under the Securities Act;
      the exchange notes are not entitled to any registration rights which are applicable to the outstanding notes under the registration rights agreement; and
      certain additional interest rate provisions are no longer applicable.
The exchange offer   We are offering to exchange up to:
      $1,175,000,000 in principal amount of 10.625% Senior Notes due 2015, which have been registered under the Securities Act, for any and all outstanding Senior Notes due 2015.
      $725,000,000 in principal amount of 11.875%/12.625% Senior Subordinated Toggle Notes due 2017, which have been registered under the Securities Act, for any and all outstanding Senior Subordinated Toggle Notes due 2017.
    You may only exchange outstanding notes in denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.
    Subject to the satisfaction or waiver of specified conditions, we will exchange the exchange notes for all respective outstanding notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer. We will cause the exchange to be effected promptly after the expiration of the exchange offer.
         

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Resale:   Based on interpretations by the staff of the Securities and Exchange Commission, or the "SEC", set forth in no-action letters issued to third parties referred to below, we believe that you may resell or otherwise transfer exchange notes issued in the exchange offer without complying with the registration and prospectus delivery requirements of the Securities Act, if:
    (1)   you are acquiring the exchange notes in the ordinary course of your business;
    (2)   you do not have an arrangement or understanding with any person to participate in a distribution of the exchange notes;
    (3)   you are not an "affiliate" of the Issuer within the meaning of Rule 405 under the Securities Act; and
    (4)   you are not engaged in, and do not intend to engage in, a distribution of the exchange notes.
    If you are not acquiring the exchange notes in the ordinary course of your business, or if you are engaging in, intend to engage in, or have any arrangement or understanding with any person to participate in, a distribution of the exchange notes, or if you are an affiliate of Dollar General, then:
    (1)   you cannot rely on the position of the staff of the SEC enunciated in Morgan Stanley & Co., Inc. (available June 5, 1991), Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the SEC's letter to Shearman & Sterling dated July 2, 1993, or similar no- action letters; and
    (2)   in the absence of an exception from the position of the SEC stated in (1) above, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale or other transfer of the exchange notes.
    If you are a broker-dealer and receive exchange notes for your own account in exchange for outstanding notes that you acquired as a result of market-making or other trading activities, you must acknowledge that you will deliver a prospectus, as required by law, in connection with any resale or other transfer of the exchange notes that you receive in the exchange offer. See "Plan of Distribution."
Expiration date   The exchange offer will expire at 5:00 p.m., New York City time, on            , 2008, unless extended by us. We do not currently intend to extend the expiration date of the exchange offer.
Withdrawal   You may withdraw the tender of your outstanding notes at any time prior to the expiration date of the exchange offer. We will return to you any of your outstanding notes that are not accepted for any reason for exchange, without expense to you, promptly after the expiration or termination of the exchange offer.
         

8


Interest on the exchange notes and the outstanding notes   Each exchange note will bear interest at the rate per annum set forth on the cover page of this prospectus from the most recent date on which interest has been paid on the outstanding notes. The interest on the notes is payable on January 15 and July 15 of each year, beginning on January 15, 2008. No interest will be paid on outstanding notes following their acceptance for exchange.
Conditions to the exchange offer   The exchange offer is subject to customary conditions, which we may assert or waive. See "The Exchange Offer—Conditions to the exchange offer."
Procedures for tendering outstanding notes   If you wish to participate in the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a facsimile of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must then mail or otherwise deliver the letter of transmittal, or a facsimile of the letter of transmittal, together with the outstanding notes and any other required documents, to the exchange agent at the address set forth on the cover page of the letter of transmittal. If you hold outstanding notes through The Depository Trust Company, or "DTC", and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program procedures of DTC.
    Signing, or agreeing to be bound by, the letter of transmittal, represents to us that, among other things:
    (1)   you are acquiring the exchange notes in the ordinary course of your business;
    (2)   you do not have an arrangement or understanding with any person to participate in a distribution of the exchange notes;
    (3)   you are not an "affiliate" of the Issuer within the meaning of Rule 405 under the Securities Act; and
    (4)   you are not engaged in, and do not intend to engage in, a distribution of the exchange notes.
    If you are a broker-dealer and receive exchange notes for your own account in exchange for outstanding notes that you acquired as a result of market-making or other trading activities, you must represent to us that you will deliver a prospectus, as required by law, in connection with any resale or other transfer of such exchange notes.
    If you are not acquiring the exchange notes in the ordinary course of your business, or if you are engaged in, or intend to engage in, or have an arrangement or understanding with any person to participate in, a distribution of the exchange notes, or if you are an affiliate of the Issuer, then you cannot rely on the positions and interpretations of the staff of the SEC and
         

9


    you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale or other transfer of the exchange notes.
Special procedures for beneficial owners   If you are a beneficial owner of outstanding notes that are held in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender those outstanding notes in the exchange offer, you should promptly instruct such person to tender those outstanding notes on your behalf.
Guaranteed delivery procedures   If you wish to tender your outstanding notes and they are not immediately available or you cannot deliver them, the letter of transmittal or any other documents required by the letter of transmittal or you cannot comply with the DTC procedures for book-entry transfer prior to the expiration date, then you must tender your outstanding notes according to the guaranteed delivery procedures described under "The Exchange Offer—Guaranteed delivery procedures."
Effect on holders of outstanding notes   In connection with the sale of the outstanding notes, we entered into a registration rights agreement with the Initial Purchasers of the outstanding notes. By making the exchange offer, we will have fulfilled a covenant under that agreement and will not be obligated to pay additional interest as described in that agreement. If you do not tender your outstanding notes in the exchange offer, you will continue to be entitled to all the rights and limitations applicable to the outstanding notes as set forth in the applicable indenture, except we will not have any further obligation to you to register outstanding notes under the registration rights agreement, and we will not be obligated to pay additional interest as described in that agreement. See "Registration Rights."
    To the extent that outstanding notes are tendered and accepted in the exchange offer, the trading market for outstanding notes could be adversely affected.
Consequences of failure to
exchange
  All untendered outstanding notes will continue to be subject to the restrictions on transfer set forth in the outstanding notes and in the applicable indenture. In general, the outstanding notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register the outstanding notes under the Securities Act.
Material income tax considerations   The exchange of outstanding notes for exchange notes in the exchange offer will not be a taxable event for United States
         

10


    federal income tax purposes. See "United States Federal Income Tax Consequences of the Exchange Offer."
Use of proceeds   We will not receive any cash proceeds from the issuance of exchange notes in the exchange offer.
Exchange agent   Wells Fargo Bank, National Association, whose address and telephone number are set forth in the section captioned "The Exchange Offer—Exchange agent" of this prospectus, is the exchange agent for the exchange offer.


Risk Factors

        Investing in the notes involves substantial risk. You should consider carefully all of the information set forth in this prospectus prior to exchanging your outstanding notes. In particular, we urge you to review the factors set forth under the heading "Risk Factors."

11



Summary of the Terms of the Exchange Notes

         The summary below, which is not intended to be complete, describes the principal terms of the exchange notes. Certain of the terms and conditions summarized below are subject to important limitations and exceptions. The "Description of Senior Notes" and "Description of Senior Subordinated Notes" sections of this prospectus contain more detailed descriptions of the terms and conditions of the outstanding notes and exchange notes. The exchange notes will have terms identical in all material respects to the outstanding notes, except that the exchange notes will not contain terms with respect to transfer restrictions, registration rights and additional interest for failure to observe certain obligations in the registration rights agreement.

Issuer   Dollar General.
Securities   $1.9 billion in aggregate principal amount of notes, consisting of:
      $1.175 billion in aggregate principal amount of 10.625% senior notes due 2015; and
      $725.0 million in aggregate principal amount of 11.875% /12.625% senior subordinated notes due 2017.
Maturity Dates   The senior notes will mature on July 15, 2015.
    The senior subordinated notes will mature on July 15, 2017.
Interest Payment Dates   Interest on the notes will be payable on January 15 and July 15 of each year, beginning on January 15, 2008.
Interest Rates and Forms of Payment   The senior notes will bear interest at a rate of 10.625% per annum.
    Cash interest on the senior subordinated notes will accrue at a rate of 11.875% per annum, and PIK Interest will accrue at a rate of 12.625% per annum. The initial interest payment on the senior subordinated notes will be payable in cash. For any interest period commencing on or after January 15, 2008 through July 15, 2011 we may elect to pay interest on the senior subordinated notes (i) in cash; (ii) by increasing the principal amount of the senior subordinated notes or by issuing new senior subordinated notes ("PIK Notes") (such increase or issuance, "PIK Interest") or (iii) by paying interest on half of the principal amount of the senior subordinated notes in cash and half in PIK Interest. If we elect to pay PIK Interest, we will increase the principal amount of the senior subordinated notes or issue PIK Notes, in each case, in an amount equal to the amount of PIK Interest for the applicable interest payment period (rounded up to the nearest $1,000 in the case of global notes and to the nearest whole dollar in the case of senior subordinated notes in certificated form) to holders of the senior subordinated notes on the relevant record date. The senior subordinated notes will bear interest on the increased principal amount thereof from and after the applicable interest payment date on which a payment of PIK Interest is made. We must elect the form of interest payment with respect to each interest period no later than 30 days before the beginning of the applicable interest period. In the absence of such an election or proper notification of such
         

12


    election to the trustee, interest will be payable in accordance with the last election made for the previous interest period.
Original Issue Discount   We will have the option to pay interest on the senior subordinated notes in cash interest or PIK Interest for any interest payment period after the initial interest payment through July 15, 2011. For U.S. federal income tax purposes, the existence of this option means that none of the interest payments on the senior subordinated notes will be qualified stated interest even if we never exercise the option to pay PIK Interest. Consequently, the senior subordinated notes will be treated as issued with original issue discount, and U.S. holders will be required to include the original issue discount in gross income on a constant yield to maturity basis, regardless of whether interest is paid currently in cash. For more information, see "United States Federal Income Tax Consequences of the Exchange Offer."
Security   None. The notes will be unsecured obligations of the Issuer and the subsidiary guarantors.
Guarantees   The senior notes will be unconditionally guaranteed, jointly and severally, on an unsecured senior basis, and the senior subordinated notes will be unconditionally guaranteed, jointly and severally, on an unsecured senior subordinated basis, in each case, by each of our wholly owned subsidiaries that has guaranteed our New Credit Facilities (as defined below).
    Our non-guarantor subsidiaries accounted for approximately $107.4 million of net revenues and approximately $20.5 million of net income, in each case, for 2006 and approximately $243.0 million of total assets and approximately $187.0 million of total liabilities, in each case, as of February 2, 2007. Included in these net revenues, net income, total assets and total liabilities balances are certain intercompany balances that are eliminated in consolidation.
Ranking   The outstanding senior notes are and the exchange senior notes will be our senior unsecured obligations and will:
      rank senior in right of payment to our existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the senior notes, including the senior subordinated notes;
      rank equally in right of payment to all of our existing and future senior debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the senior notes; and
      be effectively subordinated to all of our existing and future secured debt (including obligations under the New Credit Facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of each of our subsidiaries that is not a guarantor of the senior notes.
         

13


    Similarly, the senior note guarantees will be senior unsecured obligations of the guarantors and will:
      rank senior in right of payment to all of the applicable guarantor's existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the senior notes, including the applicable guarantor's guarantee under the senior subordinated notes;
      rank equally in right of payment to all of the applicable guarantor's existing and future senior debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the senior notes; and
      be effectively subordinated in right of payment to all of the applicable guarantor's existing and future secured debt (including the applicable guarantor's guarantee under the New Credit Facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of any subsidiary of a guarantor if that subsidiary is not also a guarantor of the senior notes.
    The outstanding senior subordinated notes are and the exchange senior subordinated notes will be our unsecured senior subordinated obligations and will:
      be subordinated in right of payment to our existing and future senior debt, including our New Credit Facilities and the senior notes;
      rank equally in right of payment to all of our existing and future senior subordinated debt and other obligations that are not, by the terms of the senior subordinated notes, expressly made senior;
      be effectively subordinated to all of our existing and future secured debt (including obligations under our New Credit Facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of any subsidiaries that do not guarantee the senior subordinated notes; and
      rank senior in right of payment to all of our future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the senior subordinated notes.
    Similarly, the senior subordinated note guarantees will be unsecured senior subordinated obligations of the guarantors and will:
      be subordinated in right of payment to all of the applicable guarantor's existing and future senior debt, including such guarantor's guarantee under our New Credit Facilities and the senior notes;
      rank equal in right of payment to all of the applicable guarantor's future senior subordinated debt and other
         

14


        obligations that are not, by the terms of the senior subordinated notes, expressly made senior;
      be effectively subordinated to all of the applicable guarantor's existing and future secured debt (including such guarantor's guarantee under our New Credit Facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of any subsidiary of a guarantor if that subsidiary is not also a guarantor of the senior subordinated notes; and
      rank senior in right of payment to all of the applicable guarantor's future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the guarantees of the senior subordinated notes.
    As of November 2, 2007, (1) the notes and related guarantees rank effectively junior to approximately $2,602.0 million of senior secured indebtedness and $30.4 million of payment obligations relating to capital lease and financing obligations and other indebtedness, (2) the senior notes and related guarantees rank senior to the $725.0 million of senior subordinated notes, (3) the senior subordinated notes and related guarantees rank junior to the senior notes, and (4) we had an additional $710.5 million of unutilized capacity under our new senior secured asset-based revolving credit facility.
Optional Redemption   We may redeem some or all of the senior notes at any time on or after July 15, 2011 and we may redeem some or all of the senior subordinated notes at any time on or after July 15, 2012, in each case at the redemption prices set forth in this prospectus.
    We may redeem some or all of the senior notes prior to July 15, 2011 and some or all of the senior subordinated notes prior to July 15, 2012, in each case at a price equal to 100% of the principal amount of the notes redeemed plus the applicable "make-whole" premium as described in this prospectus.
    On or before July 15, 2010, we may also redeem up to 35% of the senior notes and 35% of the senior subordinated notes, in each case, at the redemption prices set forth in this prospectus, using the proceeds of certain equity offerings.
Mandatory Principal Redemption   If the senior subordinated notes would otherwise constitute "applicable high yield discount obligations" within the meaning of Section 163(i)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), at the end of each accrual period ending after the fifth anniversary of the senior subordinated notes' issuance (each "AHYDO redemption date"), we will be required to redeem for cash a portion of each senior subordinated note then outstanding equal to the "Mandatory Principal Redemption Amount" (such
         

15


    redemption, a "Mandatory Principal Redemption"). The redemption price for the portion of each senior subordinated note redeemed pursuant to a Mandatory Principal Redemption will be 100% of the principal amount of such portion plus any accrued interest thereon on the date of redemption. The "Mandatory Principal Redemption Amount" means, as of each AHYDO redemption date, the excess, if any, of (a) the aggregate amount of accrued and unpaid interest and all accrued and unpaid "original issue discount" (as defined in Section 1273(a)(1) of the Code) with respect to the senior subordinated notes, over (b) an amount equal to the product of (i) the "issue price" (as defined in Sections 1273(b) and 1274(a) of the Code) of the senior subordinated notes multiplied by (ii) the "yield to maturity" (as defined in the Treasury Regulation Section 1.1272-1(b)(1)(i)) of the senior subordinated notes. No partial redemption or repurchase of the senior subordinated notes prior to any AHYDO redemption date pursuant to any other provision of the indenture governing the senior subordinated notes will alter the Issuer's obligation to make the Mandatory Principal Redemption with respect to any senior subordinated notes that remain outstanding on any AHYDO redemption date.
Change of Control
and Asset Sales
  If we sell certain assets under certain circumstances, or experience certain change of control events, each holder of senior notes or senior subordinated notes, as applicable, may require us to purchase all or a portion of its notes at the purchase prices set forth in this prospectus, plus accrued and unpaid interest and special interest, if any, to the purchase date. See "Description of Senior Notes—Repurchase at the Option of Holders" and "Description of Senior Subordinated Notes—Repurchase at the Option of Holders." Our New Credit Facilities or other agreements may restrict us from repurchasing any of the notes, including any purchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors—Risks Related to the Notes—We may not have the ability to raise the funds necessary to finance the change of control offer required by the indentures governing the notes."
Certain Covenants   The indentures governing the notes restrict our ability and the ability of our restricted subsidiaries to, among other things:
      incur additional indebtedness, issue disqualified stock or issue certain preferred stock;
      pay dividends and make certain distributions, investments and other restricted payments;
      create certain liens or encumbrances;
      sell assets;
      enter into transactions with affiliates;
         

16


      limit the ability of restricted subsidiaries to make payments to us;
      merge, consolidate, sell or otherwise dispose of all or substantially all of our assets; and
      designate our subsidiaries as unrestricted subsidiaries.
    These covenants are subject to important exceptions and qualifications described under the headings "Description of Senior Notes" and "Description of Senior Subordinated Notes."
Use of Proceeds   We will not receive any cash proceeds from the issuance of the exchange notes in the exchange offer. See "Use of Proceeds."

17



Summary Historical and Pro Forma Consolidated Financial and Other Data

        Set forth below is summary historical consolidated financial and other data and summary unaudited pro forma consolidated financial and other data of Dollar General, at the dates and for the periods indicated. The summary historical statement of operations data and statement of cash flows data for the periods ended February 2, 2007, February 3, 2006 and January 28, 2005 and balance sheet data as of February 2, 2007 and February 3, 2006, have been derived from our historical audited consolidated financial statements included elsewhere in this prospectus. The data should be used in conjunction with the consolidated financial statements, related notes, and other financial information included herein.

        The summary historical statement of operations data and statement of cash flows data for the 39-week periods ended November 3, 2006, the period from February 3, 2007 through July 6, 2007 (Predecessor) and the period from July 7, 2007 through November 2, 2007 (Successor), and balance sheet data as of November 2, 2007, have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. This summary unaudited financial data presented has been prepared on a consistent basis with our audited consolidated financial statements, except for the adoption of FIN 48, effective February 3, 2007, the adoption of SFAS 123(R), effective February 4, 2006 and the change in basis of accounting as a result of the Merger effective July 7, 2007. Due to the significance of the Transactions that occurred in 2007, the 2007 Successor financial information may not be comparable to that of previous periods presented in the accompanying table. In the opinion of management, such unaudited financial data reflects all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any future period.

        The summary unaudited pro forma consolidated financial and other data as of and for the fiscal year ended February 2, 2007 and the 39-week period ended November 2, 2007 have been prepared to give effect to the Transactions in the manner described under "Unaudited Pro Forma Condensed Consolidated Financial Information" and the notes thereto as if they had occurred on February 4, 2006 and February 3, 2007, respectively, in the case of the summary unaudited pro forma condensed consolidated statement of operations and other data. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The summary unaudited pro forma consolidated financial and other data are for informational purposes only and do not purport to represent what our results of operations, balance sheet data or other financial information actually would have been if the Transactions had occurred at any date, and such data do not purport to project the results of operations for any future period.

        The summary historical and pro forma consolidated financial and other data should be read in conjunction with "The Transactions," "Unaudited Pro Forma Condensed Consolidated Financial Information," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

18


 
  Historical
  Pro Forma
 
 
  Predecessor
  Successor
   
   
 
 
  Fiscal Year Ended
   
  February 3,
2007
through
July 6,
2007(2)

  July 7,
2007
through
November 2,
2007(3)

   
   
 
 
  39 Weeks
Ended
November 3,
2006(2)

   
  39 Weeks
Ended
November 2,
2007

 
 
  January 28,
2005

  February 3,
2006(1)

  February 2,
2007(2)

  Fiscal Year
Ended February 2,
2007

 
 
  (in millions, except operating data)

 
Statement Of Operations Data:                                                  
  Net sales   $ 7,660.9   $ 8,582.2   $ 9,169.8   $ 6,615.8   $ 3,923.8   $ 3,011.9   $ 9,169.8   $ 6,935.7  
  Cost of goods sold     5,397.7     6,117.4     6,801.6     4,893.6     2,852.2     2,180.4     6,803.1     5,033.3  
   
 
 
 
 
 
 
 
 
  Gross profit     2,263.2     2,464.8     2,368.2     1,722.3     1,071.6     831.5     2,366.7     1,902.4  
  Selling, general and administrative expense     1,706.2     1,903.0     2,119.9     1,557.1     960.9     770.6     2,180.9     1,757.0  
  Transaction and related costs                     101.4     1.2         1.2  
   
 
 
 
 
 
 
 
 
  Operating profit     557.0     561.9     248.3     165.2     9.2     59.7     185.8     144.2  
  Interest income     (6.6 )   (9.0 )   (7.0 )   (4.8 )   (5.0 )   (2.4 )   (7.0 )   (7.5 )
  Interest expense     28.8     26.2     34.9     27.0     10.3     148.5     436.9     332.3  
  Loss on interest rate swaps                         2.0         2.0  
  Loss on debt retirement                         6.2         6.2  
   
 
 
 
 
 
 
 
 
  Income (loss) before income taxes     534.8     544.6     220.4     143.0     4.0     (94.6 )   (244.1 )   (188.8 )
  Income tax expense (benefit)     190.6     194.5     82.4     55.1     12.0     (34.4 )   (88.0 )   (75.5 )
   
 
 
 
 
 
 
 
 
  Net income (loss)   $ 344.2   $ 350.2   $ 137.9   $ 87.9   $ (8.0 ) $ (60.2 ) $ (156.1 ) $ (113.3 )
   
 
 
 
 
 
 
 
 
Statement of Cash Flows Data:                                                  
Net cash provided by (used in):                                                  
  Operating activities   $ 391.5   $ 555.5   $ 405.4   $ 19.8   $ 201.9   $ (33.8 )            
  Investing activities     (259.2 )   (264.4 )   (282.0 )   (239.4 )   (66.9 )   (6,815.3 )            
  Financing activities     (245.4 )   (323.3 )   (134.7 )   109.9     25.3     6,939.6              
  Total capital expenditures     (288.3 )   (284.1 )   (261.5 )   (221.0 )   (56.2 )   (44.7 )            
    New stores     (80.7 )   (93.6 )   (62.6 )   (44.4 )   (28.7 )   (17.7 )            
    Existing stores and other     (207.6 )   (190.5 )   (198.9 )   (176.6 )   (27.5 )   (27.0 )            
Other Financial and Operating Data:                                                  
Same store sales growth     3.2 %   2.2 %   3.3 %   2.3 %   2.6 %   3.3 %            
Number of stores (at period end)     7,320     7,929     8,229     8,251     8,205     8,204              
Selling square feet in thousands (at period end)     50,015     54,753     57,299     57,305     57,379     58,207              
Net sales per square foot(4)   $ 159.6   $ 159.8   $ 162.6   $ 163.3   $ 163.9   $ 165.4              
Highly consumable sales     63.0 %   65.3 %   65.7 %   67.8 %   66.7 %   69.3 %            
Seasonal sales     16.5 %   15.7 %   16.4 %   14.7 %   15.4 %   13.6 %            
Home products sales     11.5 %   10.6 %   10.0 %   9.6 %   9.2 %   8.7 %            
Basic clothing sales     9.0 %   8.4 %   7.9 %   7.9 %   8.7 %   8.4 %            
Rent expense   $ 268.8   $ 312.3   $ 343.9   $ 253.9   $ 149.0   $ 116.8              
Balance Sheet Data (at period end):                                                  
Cash and cash equivalents and short-term investments   $ 275.8   $ 209.5   $ 219.2   $ 120.3         $ 115.9              
Total assets     2,841.0     2,980.3     3,040.5     3,206.3           8,931.7              
Total debt     271.3     278.7     270.0     503.8           4,509.8              
Total shareholders' equity     1,684.5     1,720.8     1,745.7     1,702.9           2,685.5              

19


 
  Historical
  Pro Forma
 
 
  Predecessor
  Successor
   
   
 
 
  Fiscal Year Ended
  39
Weeks
Ended
November 3,
2006(2)

  February 3,
2007
through
July 6,
2007(2)

  July 7,
2007
through
November 2,
2007(3)

   
  39
Weeks
Ended
November 2,
2007

 
Ratios of earnings to fixed charges(5)

  January 31,
2003

  January 30,
2004

  January 28,
2005

  February 3,
2006(1)

  February 2,
2007(2)

  Fiscal Year
Ended February 2,
2007

 
Actual   4.9x   5.6x   5.6x   5.3x   2.5x   2.0x   1.1x   (7 )        
Pro forma(6)                                   2.5x   (8 )

(1)
The fiscal year ended February 3, 2006 was comprised of 53 weeks.

(2)
Includes the effects of certain strategic merchandising and real estate initiatives as further described in "Management's Discussion and Analysis of Results of Operations and Financial Condition."

(3)
Includes the results of Buck for the period prior to the merger with and into Dollar General Corporation from March 6, 2007 (its formation) through July 6, 2007 and the post-merger results of Dollar General Corporation for the period from July 7, 2007 through November 2, 2007.

(4)
For the 39 week periods ended November 3, 2006 and November 2, 2007, net sales per square foot was calculated based on the last four quarters' sales divided by average quarterly selling area. For the fiscal year ended February 3, 2006, net sales per square foot was calculated based on 52 weeks' sales.

(5)
For purposes of computing the ratio of earnings to fixed charges, (a) earnings consist of net income (loss) before income taxes plus fixed charges less capitalized expenses related to indebtedness (amortization expense for capitalized interest is not significant) and (b) fixed charges consist of all interest expense (whether expensed or capitalized), amortization of debt issue costs and discounts related to indebtedness, and a portion of rent expense representative of interest factored therein.

(6)
To give effect to the increase in interest expense resulting from the portion of the notes proceeds used to retire the $198.3 million of our 8 5 / 8 % unsecured notes due June 15, 2010, as if such transactions had occurred at the beginning of the periods presented.

(7)
For the period from July 7, 2007 through November 2, 2007, fixed charges exceeded earnings by $94.6 million.

(8)
For the 39 weeks ended November 2, 2007, pro forma fixed charges exceeded earnings by $91.4 million.

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RISK FACTORS

         You should carefully consider the risk factors set forth below as well as the other information contained in this prospectus before participating in the exchange offer. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. However, the risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations. In such a case, the trading price of the exchange notes could decline or we may not be able to make payments of principal and interest on the exchange notes, and you may lose all or part of your original investment.


Risks Related to the Exchange Offer

If you do not exchange your outstanding notes in the exchange offer, the transfer restrictions currently applicable to your outstanding notes will remain in force and the market price of your outstanding notes could decline.

        If you do not exchange your outstanding notes for exchange notes in the exchange offer, then you will continue to be subject to the transfer restrictions on the outstanding notes as set forth in the offering memorandum distributed in connection with the private offering of the outstanding notes. In general, the outstanding notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the outstanding notes under the Securities Act. You should refer to "Summary—Summary of the Terms of the Exchange Offer" and "The Exchange Offer" for information about how to tender your outstanding notes.

        The tender of outstanding notes under the exchange offer will reduce the principal amount of each series of the outstanding notes, which may have an adverse effect upon, and increase the volatility of, the market prices of the outstanding notes due to reduction in liquidity.

Your ability to transfer the notes may be limited by the absence of an active trading market, and there is no assurance that any active trading market will develop for the notes.

        We do not intend to apply for listing of the exchange notes on a securities exchange or on any automated dealer quotation system. The exchange notes are a new issue of securities for which there is no established public market. The initial purchasers in the private offering of the outstanding notes have advised us that they intend to make a market in the exchange notes as permitted by applicable laws and regulations; however, the initial purchasers are not obligated to make a market in any of the exchanges notes, and they may discontinue their market-making activities at any time without notice. In addition, such market making activity may be limited during the pendency of the exchange offer. Therefore, an active market for any of the exchange notes may not develop or, if developed, it may not continue. Historically, the market for non investment-grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the exchange notes. The market, if any, for any of the exchange notes may not be free from similar disruptions, and any such disruptions may adversely affect the prices at which you may sell your exchange notes. In addition, subsequent to their initial issuance, the exchange notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar notes, our performance and other factors.

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Risks Related to Our Indebtedness

The fact that we are substantially leveraged could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the notes.

        We are highly leveraged. As of November 2, 2007, our total indebtedness was approximately $4.5 billion, including the notes. We also had an additional $710.5 million available for borrowing under our new senior secured asset-based revolving credit facility at that date. The following chart shows our level of indebtedness and certain other information as of November 2, 2007 after giving effect to the Transactions.

 
  As of
November 2, 2007

 
  (Dollars in millions)

Senior secured asset-based revolving credit facility(1)   $ 302.0
Senior secured term loan facility(2)     2,300.0
Senior notes, net of discount     1,152.4
Senior subordinated notes     725.0
Other existing debt(3)     30.4
   
Total   $ 4,509.8
   

(1)
Upon the closing of the Merger, we entered into a $1.125 billion senior secured asset-based revolving credit facility with a six-year maturity, of which $350.0 million is available for letters of credit. This facility consists of Tranche A Loans and Tranche A-1 Loans. All loans under the facility shall be made as Tranche A-1 Loans until such time as all commitments under the Tranche A-1 Loans have been funded or there is no further availability under the Tranche A-1 Loans, at which point loans under the facility shall be made as Tranche A Loans. Any payments made on the principal amount of the loans outstanding will first be applied to all the Tranche A Loans outstanding before any amount will be applied to the Tranche A-1 Loans. As of November 2, 2007, we had $302.0 million in borrowings outstanding under our new senior secured asset-based revolving credit facility. See "Description of Other Indebtedness."

(2)
Upon the closing of the Merger, we entered into a new $2.3 billion senior secured term loan facility with a seven-year maturity, the full amount of which was borrowed on the closing date. See "Description of Other Indebtedness."

(3)
Consists of financing and capital lease obligations and other debt instruments. See "Capitalization."

        Our high level of debt could have important consequences for you, including:

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        In addition, the borrowings under our New Credit Facilities bear interest at variable rates and other debt we incur could likewise be variable-rate debt. If market interest rates increase, variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow. While we have and may in the future enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer complete protection from this risk. We and our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in our New Credit Facilities and the indentures governing the notes. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify. Our pro forma cash interest expense for the year ended February 2, 2007 was $421.3 million. At November 2, 2007, we had $302.0 million of debt under our senior asset-based revolving secured credit facility in addition to $2.3 billion of debt under our senior secured term loan facility, which are based on a floating rate index. A 1% increase in these floating rates would increase our annual interest expense by approximately $34.4 million assuming all available amounts under our New Credit Facilities were drawn.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

        Our New Credit Facilities and the indentures governing the notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries' ability to, among other things:

        A breach of any of these covenants could result in a default under the agreement governing such indebtedness. Upon our failure to maintain compliance with these covenants, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit thereunder. If the lenders under such indebtedness accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay those borrowings, as well as our other indebtedness, including the notes. We have pledged a significant portion of our assets as collateral under the New Credit Facilities. If we were unable to repay those amounts, the lenders under our New Credit Facilities could proceed against the collateral granted to them to secure that indebtedness. Additional borrowings under the senior secured asset-based revolving credit facility will, if excess availability under such facility is less than a certain amount, be subject to the satisfaction of a specified financial ratio. Our ability to meet this financial ratio can be affected by events beyond our control, and we cannot assure you that we will meet this ratio and other covenants.

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Risks Related to Our Business

General economic factors may adversely affect our financial performance.

        General economic conditions in one or more of the markets we serve may adversely affect our financial performance. A general slowdown in the economy, higher interest rates, higher fuel and other energy costs, inflation, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws, tightening of the credit markets, and other economic factors could adversely affect consumer demand for the products we sell, change our sales mix of products to one with a lower average gross profit and result in slower inventory turnover and greater markdowns on inventory. Higher interest rates, higher commodities rates, higher fuel and other energy costs, transportation costs, inflation, higher costs of labor, insurance and healthcare, foreign exchange rate fluctuations, higher tax rates and other changes in tax laws, changes in other laws and regulations and other economic factors increase our cost of sales and operating, selling, general and administrative expenses, and otherwise adversely affect the operations and operating results of our stores.

Our plans depend significantly on initiatives designed to improve the efficiencies, costs and effectiveness of our operations, and failure to achieve or sustain these plans could affect our performance adversely.

        We have had, and expect to continue to have, initiatives (such as those relating to marketing, advertising, merchandising, promotions and real estate) in various stages of testing, evaluation, and implementation, upon which we expect to rely to improve our results of operations and financial condition. These initiatives are inherently risky and uncertain, even when tested successfully, in their application to our business in general. It is possible that successful testing can result partially from resources and attention that cannot be duplicated in broader implementation. Testing and general implementation also can be affected by other risk factors described herein that reduce the results expected. Successful systemwide implementation relies on consistency of training, stability of workforce, ease of execution, and the absence of offsetting factors that can influence results adversely. Failure to achieve successful implementation of our initiatives or the cost of these initiatives exceeding management's estimates could adversely affect our results of operations and financial condition. See the discussion of the initiatives in "Management's Discussion and Analysis of Results of Operations and Financial Condition."

Because our business is moderately seasonal, with the highest portion of sales occurring during the fourth quarter, adverse events during the fourth quarter could materially affect our financial statements as a whole.

        We generally recognize a significant portion of our net sales and operating income during the Christmas selling season, which occurs in the fourth quarter of our fiscal year. In anticipation of this holiday, we purchase substantial amounts of seasonal inventory and hire many temporary employees. A seasonal merchandise inventory imbalance could result if for any reason our net sales during the Christmas selling season were to fall below either seasonal norms or expectations. If for any reason our fourth quarter results were substantially below expectations, our financial performance and operating results could be adversely affected by unanticipated markdowns, especially in seasonal merchandise. Lower than anticipated sales in the Christmas selling season would also negatively affect our ability to absorb the increased seasonal labor costs.

We face intense competition that could limit our growth opportunities and adversely impact our financial performance.

        The retail business is highly competitive. We operate in the discount retail merchandise business, which is highly competitive with respect to price, store location, merchandise quality, assortment and

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presentation, in-stock consistency, and customer service. This competitive environment subjects us to the risk of adverse impact to our financial performance because of the lower prices, and thus the lower margins, required to maintain our competitive position. Also, companies operating in the discount retail merchandise sector (due to customer demographics and other factors) have limited ability to increase prices in response to increased costs (including vendor price increases). This limitation may adversely affect our margins and financial performance. We compete for customers, employees, store sites, products and services and in other important aspects of our business with many other local, regional and national retailers. We compete with retailers operating discount, mass merchandise, drug, convenience, variety and specialty stores, supermarkets and supercenter-type stores. Certain of our competitors have greater financial, distribution, marketing and other resources than we do. These other competitors compete in a variety of ways, including aggressive promotional activities, merchandise selection and availability, services offered to customers, location, store hours, in-store amenities and price. If we fail to respond effectively to competitive pressures and changes in the retail markets, it could adversely affect our financial performance. See "Business—Our Industry and—Competition" for additional discussion of our competitive situation.

        Although the retail industry as a whole is highly fragmented, certain segments of the retail industry have recently undergone and continue to undergo some consolidation, which can significantly alter the competitive dynamics of the retail marketplace. This consolidation may result in competitors with greatly improved financial resources, improved access to merchandise, greater market penetration and other improvements in their competitive positions. These business combinations could result in the provision of a wider variety of products and services at competitive prices by these consolidated companies, which could adversely affect our financial performance. Competition for customers has intensified in recent years as larger competitors have moved into, or increased their presence in, our geographic markets. We remain vulnerable to the marketing power and high level of consumer recognition of these larger competitors and to the risk that these competitors or others could venture into the "dollar store" industry in a significant way. Generally, we expect an increase in competition.

Natural disasters, unusually adverse weather conditions, pandemic outbreaks, boycotts and geo-political events could adversely affect our financial performance.

        The occurrence of one or more natural disasters, such as hurricanes and earthquakes, unusually adverse weather conditions, pandemic outbreaks, boycotts and geo-political events, such as civil unrest in countries in which our suppliers are located and acts of terrorism, or similar disruptions could adversely affect our operations and financial performance. These events could result in physical damage to one or more of our properties, increases in fuel (or other energy) prices, the temporary or permanent closure of one or more of our stores or distribution centers, delays in opening new stores, the temporary lack of an adequate work force in a market, the temporary or long-term disruption in the supply of products from some local and overseas suppliers, the temporary disruption in the transport of goods from overseas, delay in the delivery of goods to our distribution centers or stores, the temporary reduction in the availability of products in our stores and disruption to our information systems. These events also can have indirect consequences such as increases in the costs of insurance following a destructive hurricane season. These factors could otherwise disrupt and adversely affect our operations and financial performance.

Risks associated with the domestic and foreign suppliers from whom our products are sourced could adversely affect our financial performance.

        The products we sell are sourced from a wide variety of domestic and international suppliers. Approximately 11% of our purchases in 2006 were from The Procter & Gamble Company. Our next largest supplier accounted for approximately 5% of our purchases in 2006. We directly imported approximately 9% of our purchases at cost in 2006, but many of our domestic vendors directly import

25



their products or components of their products. Political and economic instability in the countries in which foreign suppliers are located, the financial instability of suppliers, suppliers' failure to meet our supplier standards, labor problems experienced by our suppliers, the availability of raw materials to suppliers, merchandise quality or safety issues, currency exchange rates, transport availability and cost, inflation, and other factors relating to the suppliers and the countries in which they are located or from which they import are beyond our control. In addition, the United States' foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. Disruptions due to labor stoppages, strikes or slowdowns, or other disruptions, involving our vendors or the transportation and handling industries also may negatively affect our ability to receive merchandise and thus may negatively affect sales. These and other factors affecting our suppliers and our access to products could adversely affect our financial performance. In addition, our ability to obtain indemnification from foreign suppliers may be hindered by the manufacturers' lack of understanding of U.S. product liability or other laws, which may make it more likely that we may be required to respond to claims or complaints from customers as if we were the manufacturer of the products. As we increase our imports of merchandise from foreign vendors, the risks associated with foreign imports will increase.

We are dependent on attracting and retaining qualified employees while also controlling labor costs.

        Our future performance depends on our ability to attract, retain and motivate qualified employees. Many of these employees are in entry-level or part-time positions with historically high rates of turnover. Availability of personnel varies widely from location to location. Our ability to meet our labor needs generally, including our ability to find qualified personnel to fill positions that become vacant at our existing stores and distribution centers, while controlling our labor costs, is subject to numerous external factors, including the level of competition for such personnel in a given market, the availability of a sufficient number of qualified persons in the work force of the markets in which we are located, unemployment levels within those markets, prevailing wage rates and changes in minimum wage laws, changing demographics, health and other insurance costs and changes in employment legislation. Increased turnover also can have significant indirect costs, including more recruiting and training needs, store disruptions due to management changeover and potential delays in new store openings or adverse customer reactions to inadequate customer service levels due to personnel shortages. Competition for qualified employees exerts upward pressure on wages paid to attract such personnel. In addition, to the extent a significant portion of our employee base unionizes, or attempts to unionize, our labor costs could increase. Our ability to pass along those costs is constrained.

        Also, our stores are decentralized and are managed through a network of geographically dispersed management personnel. Our inability to effectively and efficiently operate our stores, including the ability to control losses resulting from inventory and cash shrinkage, may negatively affect our sales and/or operating margins.

Our planned future growth will be impeded, which would adversely affect sales, if we cannot open new stores on schedule or if we close a number of stores materially in excess of anticipated levels.

        Our growth is dependent on both increases in sales in existing stores and the ability to open new stores. Our ability to timely open new stores and to expand into additional market areas depends in part on the following factors: the availability of attractive store locations; the absence of occupancy delays; the ability to negotiate favorable lease terms; the ability to hire and train new personnel, especially store managers; the ability to identify customer demand in different geographic areas; general economic conditions; and the availability of sufficient funds for expansion. In addition, many of these factors affect our ability to successfully relocate stores. Many of these factors are beyond our control. In addition, our substantial debt, particularly combined with the recent tightening of the credit markets,

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has made it more difficult for our real estate developers to obtain loans for our build-to-suit stores and to locate investors for those properties after they have been developed. If this trend continues, it could materially adversely impact our ability to open build-to-suit stores in desirable locations.

        Delays or failures in opening new stores, or achieving lower than expected sales in new stores, or drawing a greater than expected proportion of sales in new stores from existing stores, could materially adversely affect our growth. In addition, we may not anticipate all of the challenges imposed by the expansion of our operations and, as a result, may not meet our targets for opening new stores or expanding profitably.

        Some of our new stores may be located in areas where we have little or no meaningful experience. Those markets may have different competitive conditions, market conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our new stores to be less successful than stores in our existing markets.

        Some of our new stores will be located in areas where we have existing units. Although we have experience in these markets, increasing the number of locations in these markets may cause us to over-saturate markets and temporarily or permanently divert customers and sales from our existing stores, thereby adversely affecting our overall financial performance.

We are dependent upon the smooth functioning of our distribution network, the capacity of our distribution centers, and the timely receipt of inventory.

        We rely upon the ability to replenish depleted inventory through deliveries to our distribution centers from vendors and from the distribution centers to our stores by various means of transportation, including shipments by sea and truck. Labor shortages in the transportation industry and/or labor inefficiencies associated with certain "driver hours of service" regulations adopted by the Federal Motor Carriers Safety Administration could negatively affect transportation costs. In addition, long-term disruptions to the national and international transportation infrastructure that lead to delays or interruptions of service would adversely affect our business.

The efficient operation of our business is heavily dependent upon our information systems.

        We depend on a variety of information technology systems for the efficient functioning of our business. We rely on certain software vendors to maintain and periodically upgrade many of these systems so that they can continue to support our business. The software programs supporting many of our systems were licensed to us by independent software developers. The inability of these developers or us to continue to maintain and upgrade these information systems and software programs would disrupt or reduce the efficiency of our operations if we were unable to convert to alternate systems in an efficient and timely manner. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. We also rely heavily on our information technology staff. If we cannot meet our staffing needs in this area, we may not be able to fulfill our technology initiatives while continuing to provide maintenance on existing systems.

We are subject to governmental regulations, procedures and requirements. A significant change in, or noncompliance with, these regulations could have a material adverse effect on our financial performance.

        Our business is subject to numerous federal, state and local regulations. Changes in these regulations, particularly those governing the sale of products, may require extensive system and operating changes that may be difficult to implement and could increase our cost of doing business. Untimely compliance or noncompliance with applicable regulations or untimely or incomplete execution

27



of a required product recall can result in the imposition of penalties, including loss of licenses or significant fines or monetary penalties, in addition to reputational damage.

Our current insurance program may expose us to unexpected costs and negatively affect our financial performance.

        Historically, our insurance coverage has reflected deductibles, self-insured retentions, limits of liability and similar provisions that we believe are prudent based on the dispersion of our operations. However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime and some natural disasters. If we incur these losses, our business could suffer. Certain material events may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases. To offset negative insurance market trends, we may elect to self-insure, accept higher deductibles or reduce the amount of coverage in response to these market changes. In addition, we self-insure a significant portion of expected losses under our workers' compensation, automobile liability, general liability and group health insurance programs. Unanticipated changes in any applicable actuarial assumptions and management estimates underlying our recorded liabilities for these losses, including expected increases in medical and indemnity costs, could result in materially different amounts of expense than expected under these programs, which could have a material adverse effect on our financial condition and results of operations. Although we continue to maintain property insurance for catastrophic events, we are effectively self-insured for losses up to the amount of our deductibles. If we experience a greater number of these losses than we anticipate, our financial performance could be adversely affected.

Litigation may adversely affect our business, financial condition and results of operations.

        Our business is subject to the risk of litigation by employees, consumers, suppliers, shareholders, government agencies, or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to these lawsuits may remain unknown for substantial periods of time. In addition, certain of these lawsuits, if decided adversely to us or settled by us, may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operation are required. The cost to defend future litigation may be significant. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations. See "Business—Legal Proceedings" for further details regarding certain of these pending matters.

        In addition, from time to time, third parties may claim that our trademarks or product offerings infringe upon their proprietary rights. Any such claim, whether or not it has merit, could be time-consuming and distracting for executive management, result in costly litigation, cause changes to our private label offerings or delays in introducing new private label offerings, or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, results of operations and financial condition.


Risks Related to the Notes

         We may not be able to generate sufficient cash to service all of our indebtedness, including the notes, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

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        Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may be unable to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the notes.

        If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness, including the notes. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our senior secured credit agreement and the indentures governing the notes will restrict our ability to dispose of assets and use the proceeds from such disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

Repayment of our debt, including each series of notes, is dependent on cash flow generated by our subsidiaries and their ability to make distributions to us.

        Our subsidiaries own a significant portion of our assets and conduct a significant portion of our operations. Accordingly, repayment of our indebtedness, including each series of notes, is dependent, to a significant extent, on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of the notes, our subsidiaries do not have any obligation to pay amounts due on the notes or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the notes. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the indentures governing the notes will limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the notes.

U.S. Holders will be required to pay U.S. federal income tax on any PIK Interest received on the senior subordinated notes.

        We have the option to pay interest on the senior subordinated notes in cash interest or PIK Interest. For U.S. federal income tax purposes, the existence of this option means that none of the interest payments on the notes will be qualified stated interest even if we never exercise the option to pay PIK Interest. Consequently, the senior subordinated notes will be treated as issued at a discount, and U.S. holders will be required to include original issue discount in gross income for U.S. federal income tax purposes in advance of the receipt of cash payments on such notes. See "Description of Senior Subordinated Notes—Principal, Maturity and Interest" and "United States Federal Income Tax Consequences of the Exchange Offer."

Claims of noteholders will be structurally subordinated to the claims of creditors of our non-guarantor subsidiaries.

        The notes will not be guaranteed by all of our subsidiaries. For example, our subsidiaries that do not guarantee the New Credit Facilities will not guarantee the notes. Accordingly, claims of holders of the notes will be structurally subordinate to the claims of creditors of these non-guarantor subsidiaries, including trade creditors. All obligations of our non-guarantor subsidiaries will have to be satisfied

29



before any of the assets of such subsidiaries would be available for distribution, upon a liquidation or otherwise, to us or a guarantor of the notes.

        Our non-guarantor subsidiaries accounted for approximately $107.4 million of net revenues and approximately $20.5 million of net income, in each case, for 2006 and approximately $243.0 million of total assets, and approximately $187.0 million, of total liabilities, in each case as of February 2, 2007. Included in these net revenues, net income, total assets and total liabilities balances are certain intercompany balances that are eliminated in consolidation.

Your right to receive payments on each series of notes is effectively junior to those lenders who have a security interest in our assets.

        Our obligations under the outstanding notes and the exchange notes and our guarantors' obligations under their guarantees of the notes are unsecured, but our obligations under our New Credit Facilities and each guarantor's obligations under its respective guarantee of the New Credit Facilities are secured by a security interest in substantially all of our domestic tangible and intangible assets, including the stock of most of our wholly owned U.S. subsidiaries, and a portion of the assets and a portion of the stock of certain of our non-U.S. subsidiaries. If we are declared bankrupt or insolvent, or if we default under our New Credit Facilities, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of the notes, even if an event of default exists under the indentures governing the notes at such time. Furthermore, if the lenders foreclose and sell the pledged equity interests in any subsidiary guarantor under the notes, then that guarantor will be released from its guarantee of the notes automatically and immediately upon such sale. In any such event, because the notes will not be secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which your claims could be satisfied or, if any assets remained, they might be insufficient to satisfy your claims fully. See "Description of Other Indebtedness."

        As of November 2, 2007, we had $2.6 billion of senior secured indebtedness, comprised of financing and capital lease obligations, other debt instruments and indebtedness under our New Credit Facilities, not including unused capacity of $710.5 million under our revolving asset-based credit facility, subject to borrowing base availability. The indentures governing the notes will permit us and our restricted subsidiaries to incur substantial additional indebtedness in the future, including senior secured indebtedness.

Your right to receive payments on the senior subordinated notes will be junior to our existing and future senior indebtedness, including borrowings under our New Credit Facilities and the senior notes.

        The senior subordinated notes and the related guarantees will be contractually subordinated to all of our current and future senior indebtedness (other than trade payables), including our borrowings under our New Credit Facilities and the senior notes, and all of our and the guarantors' future borrowings (other than trade payables), except any future indebtedness that expressly provides that it ranks equal with, or subordinated in right of payment to, the senior subordinated notes and the related guarantees. As a result of such subordination, in the event of the bankruptcy, liquidation or dissolution of us or any subsidiary guarantor, our assets or the assets of the applicable subsidiary guarantor would be available to pay obligations under the senior subordinated notes and our other senior subordinated obligations only after all payments had been made on our senior indebtedness or the senior indebtedness of the applicable subsidiary guarantor. Sufficient assets may not remain after all of these payments have been made to make any payments on the senior subordinated notes and our other senior subordinated obligations, including payments of interest when due. In addition, all payments on the senior subordinated notes and the related guarantees will be blocked in the event of a payment

30



default on senior debt and may be blocked for up to 179 of 360 consecutive days in the event of certain non-payment defaults on senior debt.

        In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the guarantors, holders of the senior subordinated notes will participate with trade creditors and all other holders of our and the guarantors' subordinated indebtedness in the assets remaining after we and the guarantors have repaid all of our senior debt. However, because the indenture governing the senior subordinated notes requires that amounts otherwise payable to holders of the senior subordinated notes in a bankruptcy or similar proceeding be paid to holders of senior debt instead, holders of the senior subordinated notes may receive less, ratably, than holders of trade payables in any such proceeding. In any of these cases, we and the guarantors may not have sufficient funds to pay all of our creditors and holders of senior subordinated notes may receive less, ratably, than the holders of our senior debt.

        As of November 2, 2007, the senior subordinated notes and the related guarantees are subordinated to $3.785 billion of senior debt, $2.632 billion of which is secured debt, and up to $710.5 million is available for borrowing as additional senior secured debt under our New Credit Facilities, subject to borrowing base availability.

If we default on our obligations to pay our indebtedness, we may not be able to make payments on the notes.

        Any default under the agreements governing our indebtedness, including a default under the senior secured credit agreements, that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could prevent us from paying principal, premium, if any, and interest on the notes and substantially decrease the market value of the notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our indebtedness (including covenants in our New Credit Facilities and the indentures under which the outstanding notes were, and the exchange notes will be, issued), we could be in default under the terms of the agreements governing such indebtedness, including our senior secured credit agreements and the indentures under which the outstanding notes were, and the exchange notes will be issued. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under our New Credit Facilities could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our New Credit Facilities to avoid being in default. If we breach our covenants under our New Credit Facilities and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our senior secured credit agreements, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.

We may not have the ability to raise the funds necessary to finance the change of control offer required by the indentures governing the notes.

        Upon the occurrence of a "change of control," as defined in the indentures governing the notes, we must offer to buy back the notes at a price equal to 101% of the principal amount, together with any accrued and unpaid interest, if any, to the date of the repurchase. Our failure to purchase, or give notice of purchase of, the senior notes or the senior subordinated notes, as applicable, would be a default under each of the indentures governing the notes, which would also be a default under our New Credit Facilities.

31



        If a change of control occurs, it is possible that we may not have sufficient assets at the time of the change of control to make the required repurchase of notes or to satisfy all obligations under our New Credit Facilities and the indentures under which the outstanding notes were, and the exchange notes will be, issued. In order to satisfy our obligations, we could seek to refinance the indebtedness under our New Credit Facilities and the indentures or obtain a waiver from the lenders or you as a holder of notes. We cannot assure you that we would be able to obtain a waiver or refinance our indebtedness on terms acceptable to us, if at all.

The lenders under our New Credit Facilities have the discretion to release the guarantors under the senior secured credit agreements in a variety of circumstances, which will cause those guarantors to be released from their guarantees of the notes.

        While any obligations under our New Credit Facilities remain outstanding, any guarantee of the notes may be released without action by, or consent of, any holder of the notes or the trustee under the indentures governing the notes, at the discretion of lenders under our New Credit Facilities, if such guarantor is no longer a guarantor of obligations under our New Credit Facilities or any other indebtedness. See "Description of Senior Notes—Guarantees" and "Description of Senior Subordinated Notes—Guarantees." The lenders under our New Credit Facilities have the discretion to release the guarantees under our New Credit Facilities in a variety of circumstances. You will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior to claims of noteholders.

Federal and state fraudulent transfer laws may permit a court to void the guarantees, and, if that occurs, you may not receive any payments on the notes.

        Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the notes and the incurrence of the guarantees. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, the notes or guarantees could be voided as a fraudulent transfer or conveyance if (1) we or any of the guarantors, as applicable, issued the notes or incurred the guarantees with the intent of hindering, delaying or defrauding creditors or (2) we or any of the guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for either issuing the notes or incurring the guarantees and, in the case of (2) only, one of the following is also true at the time thereof:

        If a court were to find that the issuance of the notes or the incurrence of the guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under the notes or such guarantee or further subordinate the notes or such guarantee to presently existing and future indebtedness of ours or of the related guarantor, or require the holders of the notes to repay any amounts received with respect to such guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on the notes. Further, the voidance of the

32



notes could result in an event of default with respect to our and our subsidiaries' other debt that could result in acceleration of such debt.

        As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied. A debtor will generally not be considered to have received value in connection with a debt offering if the debtor uses the proceeds of that offering to make a dividend payment or otherwise retire or redeem equity securities issued by the debtor.

        We cannot be certain as to the standards a court would use to determine whether or not we or the guarantors were solvent at the relevant time or, regardless of the standard that a court uses, that the issuance of the guarantees would not be further subordinated to our or any of our guarantors' other debt.

Our Investors control us and may have conflicts of interest with us or you now or in the future.

        KKR, GS Capital Partners VI Fund, L.P. and affiliated funds (affiliates of Goldman, Sachs & Co.), Citi Private Equity, Wellington Management Company, LLP, CPP Investment Board (USRE II) Inc., and other equity co-investors (collectively, the "Investors") indirectly own a substantial portion of our capital stock through their investment in Buck Holdings, L.P. ("Parent"). As a result, the Investors have control over our decisions to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of shareholders regardless of whether noteholders believe that any such transactions are in their own best interests. For example, the Investors could cause us to make acquisitions that increase the amount of indebtedness that is secured or that is senior to the notes or to sell assets, which may impair our ability to make payments under the notes.

        Additionally, the Investors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. The Investors may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as the Investors, or other funds controlled by or associated with the Investors, continue to indirectly own a significant amount of the outstanding shares of our common stock, even if such amount is less than 50%, the Investors will continue to be able to strongly influence or effectively control our decisions.

33



STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

        This prospectus contains "forward-looking statements" within the meaning of the federal securities laws, which involve risks and uncertainties. You can identify forward-looking statements because they are not solely statements of historical fact or they contain words such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or similar expressions that concern our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. All forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations ("cautionary statements") are disclosed under "Risk Factors" and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

        We caution you that the important factors referenced above may not contain all of the material factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

34



THE TRANSACTIONS

        On March 11, 2007, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Parent and Buck. Parent is and Buck was (prior to the Merger) controlled by investment funds affiliated with KKR. On July 6, 2007, we consummated a merger of Buck with and into Dollar General, with Dollar General surviving the Merger as a subsidiary of Parent. Pursuant to the Merger Agreement, the former holders of our common stock received $22.00 per share, or approximately $6.9 billion. The Merger consideration was funded through the use of our available cash, cash equity contributions from the Investors, equity contributions of certain members of our management and the debt financings discussed below. Our outstanding common stock is now owned by Parent and certain members of management. Our common stock is no longer registered with the Securities and Exchange Commission ("SEC") and is no longer traded on a national securities exchange.

        The following transactions occurred in conjunction with the Merger:

35


        The offering of the notes, the initial borrowings under our New Credit Facilities, the equity investment by the Investors in Parent, the equity investment in Dollar General by the Management Participants, the Merger, the Tender Offer, the replacement of certain credit facilities and of certain letters of credit, the payment of related fees and expenses and other related transactions are collectively referred to in this prospectus as the "Transactions."

        The sources and uses of the funds for the Transactions are shown in the table below.

 
  Amount
   
  Amount
 
  (Dollars in
millions)

   
  (Dollars in
millions)

Sources of Funds:         Uses of Funds:      
New Credit Facilities:         Purchase price   $ 7,024.9
  Revolving asset-based credit facility(1)   $ 432.3   Rollover equity(5)     3.2
  Term loan facility(2)     2,300.0   Refinance existing indebtedness(6)     215.6
Senior notes, net of discount     1,151.8   Other retained indebtedness(3)     66.7
Senior subordinated notes     725.0   Fees and expenses(7)     287.0
Other retained indebtedness(3)     66.7          
Equity contribution(4)     2,767.0          
Rollover equity(5)     3.2          
Excess cash on hand     151.4          
   
     
  Total Sources   $ 7,597.4        Total Uses   $ 7,597.4
   
     

(1)
Upon the closing of the Merger, we entered into a $1.125 billion senior secured asset-based revolving credit facility with a six-year maturity, of which $350.0 million is available for letters of credit, subject to borrowing base limitations. This facility consists of Tranche A Loans and Tranche A-1 Loans. All loans under the facility shall be made as Tranche A-1 Loans until such time as all commitments under the Tranche A-1 Loans have been funded or there is no further availability under the Tranche A-1 Loans, at which point loans under the facility shall be made as Tranche A Loans. Any payments made on the principal amount of the loans outstanding will first be applied to all the Tranche A Loans outstanding before any amount will be applied to the Tranche A-1

36


(2)
Upon the closing of the Merger, we entered into a $2.3 billion senior secured term loan facility with a seven-year maturity, the full amount of which was borrowed on the closing date. This facility consists of two tranches, one of which is a "first-loss" tranche, which, in certain circumstances, will be subordinated in right of payment to the other tranche. See "Description of Other Indebtedness".

(3)
Consists of certain financing and capital lease obligations and other debt instruments. See "Capitalization".

(4)
Represents the cash equity investment of approximately $2.767 billion made in Parent and Parent's general partner by the Investors.

(5)
Represents approximately $3.2 million invested directly in Dollar General by the Senior Management Participants, in the form of a rollover of their existing equity interests in Dollar General to equity interests in Dollar General following the Merger or through cash investments in Dollar General. In addition, following the Merger we offered certain other employees a similar opportunity to participate in our common equity.

(6)
We repurchased $198.3 million in aggregate principal amount of the 2010 Notes at the closing of the Tender Offer substantially concurrently with the closing of the Merger. 2010 Notes not repurchased pursuant to the Tender Offer remained outstanding. Includes expenses and a premium (a portion of which includes a consent payment) of $17.3 million.

(7)
Reflects our fees, expenses and other costs associated with the Transactions. Such fees and expenses include placement and other financing fees, advisory fees, transaction fees paid to affiliates of certain of the Investors, and other transaction costs and professional fees. See "Certain Relationships and Related Party Transactions."

37



OWNERSHIP AND CORPORATE STRUCTURE

        The diagram below sets forth our corporate structure following consummation of the Transactions. All of our issued and outstanding capital stock is held by Parent and the Management Participants. Parent is managed by its general partner, Buck Holdings, LLC, a Delaware limited liability company, which is currently controlled by investment funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (the "Sponsor"). Following consummation of the Transactions, the Investors own approximately 96.5% of the issued and outstanding common stock of Dollar General through their investment in Parent (with certain co-investors holding limited partnership interests in Parent and certain co-investors and the Sponsor holding a general partnership interest in Parent through their control of Buck Holdings, LLC) and the remaining approximately 3.5% is held directly by the Management Participants, in each case on a fully diluted basis. See "The Transactions" and "Security Ownership of Certain Beneficial Owners and Management." This structure was achieved through a series of equity contributions that occurred in connection with the Merger. Parent, Buck Holdings, LLC and Buck were formed for the purpose of consummating the Transactions. We continue to own the same operating assets following consummation of the Transactions.

GRAPHIC


(1)
Represents the cash equity investments of approximately $2.767 billion made in Parent by the Investors.

(2)
Represents approximately $10.4 million invested directly in Dollar General by the Management Participants, either in the form of a rollover of their existing equity interests in Dollar General to equity interests in Dollar General following the Merger or through cash investments in Dollar General.

(3)
In connection with the Merger, we entered into (i) a $1.125 billion senior secured asset-based revolving credit facility with a six-year maturity; and (ii) a $2.3 billion senior secured term loan facility with a seven-year maturity, $2.3 billion of which was borrowed on the closing date (collectively, the "New Credit Facilities"). As of November 2, 2007, we had $302.0 million in borrowings outstanding under our new senior secured asset-based revolving credit facility and $2.3 billion of borrowings outstanding under our new senior secured term loan facility.

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USE OF PROCEEDS

        The exchange offer is intended to satisfy our obligations under the registration rights agreement that we entered into in connection with the private offering of the outstanding notes. We will not receive any cash proceeds from the issuance of the exchange notes in the exchange offer. As consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange a like principal amount of outstanding notes, the terms of which are identical in all material respects to the exchange notes, except that the exchange notes will not contain terms with respect to transfer restrictions or additional interest upon a failure to fulfill certain of our obligations under the registration rights agreements. The outstanding notes that are surrendered in exchange for the exchange notes will be retired and cancelled and cannot be reissued. As a result, the issuance of the exchange notes will not result in any change to our capitalization.

39



CAPITALIZATION

        The following table sets forth our capitalization as of November 2, 2007. The information in this table should be read in conjunction with "The Transactions," "Unaudited Pro Forma Condensed Consolidated Financial Information," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the financial statements and notes thereto included elsewhere in this prospectus.

 
  As of November 2, 2007
(unaudited)

 
  (in millions)

Cash and cash equivalents   $ 90.5
   

Debt:

 

 

 
  New Credit Facilities:      
    Revolving asset-based credit facility (1)   $ 302.0
    Term loan facility (2)     2,300.0
  Senior notes, net of discount     1,152.4
  Senior subordinated notes     725.0
  Tax increment financing due February 2035     14.5
  Capital lease obligations and other     15.9
   
Total debt     4,509.8
   
Equity     2,685.5
   
  Total capitalization   $ 7,195.3
   

(1)
Upon the closing of the Merger, we entered into a $1.125 billion senior secured asset-based revolving credit facility with a six-year maturity, of which $350.0 million is available for letters of credit, subject to borrowing base limitations. This facility consists of Tranche A Loans and Tranche A-1 Loans. All loans under the facility shall be made as Tranche A-1 Loans until such time as all commitments under the Tranche A-1 Loans have been funded or there is no further availability under the Tranche A-1 Loans, at which point loans under the facility shall be made as Tranche A Loans. Any payments made on the principal amount of the loans outstanding will first be applied to all the Tranche A Loans outstanding before any amount will be applied to the Tranche A-1 Loans. As of November 2, 2007, we had $302.0 million in borrowings outstanding under our new senior secured asset-based revolving credit facility. See "Description of Other Indebtedness."

(2)
Upon the closing of the Merger, we entered into a new $2.3 billion senior secured term loan facility with a seven-year maturity, the full amount of which was borrowed on the closing date. This facility consists of two tranches, one of which is a "first-loss" tranche, which, in certain circumstances, will be subordinated in right of payment to the other tranche thereof. See "Description of Other Indebtedness."

40



UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

        The following unaudited pro forma condensed consolidated statements of operations have been developed by applying pro forma adjustments to our historical consolidated statements of operations. We were acquired on July 6, 2007 through a merger accounted for as a reverse acquisition. Although we continued as the same legal entity after the merger, the accompanying unaudited pro forma condensed consolidated financial information is presented for the "Predecessor" and "Successor" relating to the periods preceding and succeeding the merger, respectively. As a result of the Transactions, we applied purchase accounting standards and a new basis of accounting effective July 7, 2007. The unaudited pro forma condensed consolidated statements of operations for the year ended February 2, 2007 and the 39 weeks ended November 2, 2007 give effect to the Transactions as if they had occurred on February 4, 2006 and February 3, 2007, respectively. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with these unaudited pro forma condensed consolidated financial statements.

        The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma condensed consolidated financial information is presented for informational purposes only. The unaudited pro forma condensed consolidated financial information does not purport to represent what our results of operations would have been had the Transactions actually occurred on the dates indicated, and they do not purport to project our results of operations or financial condition for any future period. The unaudited pro forma condensed consolidated statements of operations should be read in conjunction with the information contained in "The Transactions," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus. All pro forma adjustments and their underlying assumptions are described more fully in the notes to our unaudited pro forma condensed consolidated statements of operations.

41



UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)

 
  Fiscal Year Ended
February 2, 2007

 
 
  Predecessor
  Adjustments
  Pro Forma
 
Net sales   $ 9,169,822   $   $ 9,169,822  
Cost of goods sold     6,801,617     1,532   (a)   6,803,149  
   
 
 
 
Gross profit     2,368,205     (1,532 )   2,366,673  
Selling, general and administrative     2,119,929     61,016   (b)   2,180,945  
   
 
 
 
Operating profit     248,276     (62,548 )   185,728  
Interest income     (7,002 )       (7,002 )
Interest expense     34,915     401,987   (d)   436,902  
   
 
 
 
Income (loss) before income taxes     220,363     (464,535 )   (244,172 )
Provision (benefit) for income taxes     82,420     (170,404 )(e)   (87,984 )
   
 
 
 
Net income (loss)   $ 137,943   $ (294,131 ) $ (156,188 )
   
 
 
 

See notes to unaudited pro forma condensed consolidated statements of operations.

42



UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)

 
  39 Weeks Ended
November 2, 2007

 
 
  Successor
  Predecessor
  Adjustments
  Pro Forma
 
Net sales   $ 3,011,920   $ 3,923,753   $   $ 6,935,673  
Cost of goods sold     2,180,397     2,852,178     695   (a)   5,033,270  
   
 
 
 
 
Gross profit     831,523     1,071,575     (695 )   1,902,403  
Selling, general and administrative     770,603     960,930     25,461   (b)   1,756,994  
Transaction and related costs     1,242     101,397     (101,397 )(c)   1,242  
   
 
 
 
 
Operating profit     59,678     9,248     75,241     144,167  
Interest income     (2,421 )   (5,046 )       (7,467 )
Interest expense     148,477     10,299     173,502   (d)   332,278  
Loss on interest rate swaps     2,045             2,045  
Loss on debt retirement     6,187             6,187  
   
 
 
 
 
Income (loss) before income taxes     (94,610 )   3,995     (98,261 )   (188,876 )
Provision (benefit) for income taxes     (34,403 )   11,993     (53,139 )(e)   (75,549 )
   
 
 
 
 
Pro forma loss before non-recurring charges(c)   $ (60,207 ) $ (7,998 ) $ (45,122 ) $ (113,327 )
   
 
 
 
 

See notes to unaudited pro forma condensed consolidated statements of operations.

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(a) Represents the estimated impact on cost of goods sold of the adjustment to fair value of the property and equipment at our distribution centers.

(b) Primarily represents depreciation and amortization of the fair value adjustments related to tangible and intangible long-lived assets. Identifiable intangible assets with a determinable life have been amortized on a straight-line basis in the unaudited pro forma consolidated statements of operations over a period ranging from 2 to 17.5 years. The primary fair value adjustments (on which the pro forma adjustments are based) were to leasehold interests ($186 million), property and equipment ($69 million) and internally developed software ($12 million). These unaudited pro forma condensed consolidated financial statements reflect a preliminary allocation to tangible assets, liabilities, goodwill and other intangible assets. The final purchase price allocation may result in a different allocation for tangible and intangible assets than that presented in these unaudited pro forma condensed consolidated financial statements. An increase or decrease in the amount of purchase price allocated to amortizable assets would impact the amount of annual depreciation and amortization expense. This adjustment also includes annual management fees of $5.0 million that will be payable to affiliates of certain of the Investors subsequent to the closing of the Transactions (which fee shall be increased by 5% for each succeeding year during the term of the agreement).

(c) Represents $101.4 million of charges that are non-recurring in nature and directly attributable to the Transactions. Such charges are comprised of $39.4 million of stock compensation expense from the acceleration of unvested stock options, restricted stock and restricted stock units as required by the Transactions and $62.0 million of transaction costs we incurred that were expensed as one-time charges upon the close of the Transactions. Such adjustments do not include any adjustments to reflect the effects of our new stock based compensation plan.

(d) Reflects pro forma interest expense resulting from our new capital structure as follows:

 
  Predecessor
 
 
  Fiscal Year Ended
February 2,
2007

  Period Ended
July 6,
2007

 
Revolving credit facility(1)   $ 21.4   $ 8.9  
Term loan facilities(2)     177.8     74.1  
Notes(3)     210.9     87.9  
Letter of credit fees(4)     1.7     0.7  
Bank commitment fees(5)     2.3     1.0  
Other existing debt obligations(6)     7.2     3.0  
   
 
 

Total cash interest expense

 

 

421.3

 

 

175.6

 
Amortization of capitalized debt issuance costs and debt discount(7)     9.8     4.1  
Amortization of discounted liabilities(8)     8.5     3.5  
Other(9)     (2.7 )   0.6  
   
 
 
Total pro forma interest expense     436.9     183.8  
Less historical interest expense     (34.9 )   (10.3 )
   
 
 
Net adjustment to interest expense   $ 402.0   $ 173.5  
   
 
 

(1)
The $1.125 billion revolving credit facilities are expected to carry an interest rate of 3-month LIBOR of 5.32% plus 1.50% for tranche A loans and 3-month LIBOR of 5.32% plus 2.25% for tranche A-1 loans. Reflects assumed borrowings of $175.0 million under tranche A and

44


(2)
Reflects interest on the $2.3 billion term loan facility at a rate of LIBOR plus 2.75%. To hedge against interest rate risk, we have entered into a swap agreement with respect to a $2.0 billion notional amount for 4.93%. This swap agreement became effective as a result of the acquisition on July 31, 2007 and will amortize on a quarterly basis until maturity at July 31, 2012. The unhedged portion of the facility is reflected at an interest rate of LIBOR of 5.32% plus 2.75%.

(3)
Reflects interest on the senior notes and senior subordinated notes at the interest rates set forth on the cover of this prospectus. Assumes the cash interest payment option has been elected with respect to all of the senior subordinated notes.

(4)
Represents fees on balances of trade letters of credit of $141.2 million at 0.75% and standby letters of credit of $40.7 million at 1.50%.

(5)
Represents commitment fees of 0.375% on the $612.1 million unutilized balance of the revolving credit facility at July 6, 2007. Outstanding letters of credit noted in (4) above reduce the availability under the revolving credit facility.

(6)
Represents historical interest expense on other existing indebtedness.

(7)
Represents debt issuance costs associated with the new bank facilities amortized using the effective interest method over 6 years for the revolving facility, 7 years for the term loan facility, 8 years for the new senior notes, 10 years for the new senior subordinated notes and 8 years for other capitalized debt issuance costs. Also includes the amortization of debt discount of the senior notes.

(8)
Represents interest expense on long-term liabilities which were discounted as a result of the business combinations.

(9)
Represents an adjustment to historical interest expense to reflect the effect of the adoption of current accounting standards for income taxes (see note (e)), offset by capitalized interest expense.

(e) Represents the tax effect of the pro forma adjustments, calculated at effective rates of 54.1% for the 39-week period ended November 2, 2007 and 36.7% for the fiscal year ended February 2, 2007. The effective tax rate, a benefit, applied to the pro forma changes for the 39 week period ended November 2, 2007, reflects the pro forma elimination of non-deductible transaction costs from income before taxes. The pro forma income tax expense for the year ended February 2, 2007 has been adjusted to reflect changes required by FIN 48 as if FIN 48 had been adopted as of the beginning of the year.

45



SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

        The following table sets forth selected historical consolidated financial and other data of Dollar General Corporation as of the dates and for the periods indicated. The selected historical statement of operations data and statement of cash flows data for the fiscal years ended January 28, 2005, February 3, 2006 and February 2, 2007, and balance sheet data as of February 3, 2006 and February 2, 2007, have been derived from our historical audited consolidated financial statements included elsewhere in this prospectus. The selected historical statement of operations data and statement of cash flows data for the fiscal years ended January 31, 2003 and January 30, 2004 and balance sheet data as of January 31, 2003, January 30, 2004 and January 28, 2005, presented in this table have been derived from audited consolidated financial statements not included in this prospectus.

        The selected historical statement of operations data and statement of cash flows data for the 39-week period ended November 3, 2006, the period from February 3, 2007 through July 6, 2007 (Predecessor) and the period from July 7, 2007 through November 2, 2007 (Successor), and balance sheet data as of November 2, 2007, have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The selected unaudited financial data presented have been prepared on a consistent basis with our audited consolidated financial statements, except for the adoption of FIN 48 effective February 3, 2007, and the adoption of SFAS 123(R) effective February 4, 2006 and the change in basis of accounting as a result of the Merger effective July 7, 2007. Due to the significance of the Transactions that occurred in 2007, the 2007 Successor financial information may not be comparable to that of previous periods presented in the accompanying table. In the opinion of management, such unaudited financial data reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any future period.

        The selected historical consolidated financial and other data set forth below should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.

46


 
  Predecessor
   
 
 
  Successor
 
 
  Fiscal Year Ended
   
  February 3,
2007
through
July 6,
2007(2)

 
 
  39
Weeks Ended
November 3,
2006(2)

  July 7,
2007 through
November 2,
2007(3)

 
 
  January 31,
2003

  January 30,
2004

  January 28,
2005

  February 3,
2006(1)

  February 2,
2007(2)

 
Statement Of Operations Data:                                                  
  Net sales   $ 6,100.4   $ 6,872.0   $ 7,660.9   $ 8,582.2   $ 9,169.8   $ 6,615.8   $ 3,923.8   $ 3,011.9  
  Cost of goods sold     4,376.1     4,853.9     5,397.7     6,117.4     6,801.6     4,893.6     2,852.2     2,180.4  
   
 
 
 
 
 
 
 
 
  Gross profit     1,724.3     2,018.1     2,263.2     2,464.8     2,368.2     1,722.3     1,071.6     831.5  
  Selling, general and administrative(4)     1,271.3     1,510.1     1,706.2     1,903.0     2,119.9     1,557.1     960.9     770.6  
  Transaction and related costs                             101.4     1.2  
  Operating profit     453.0     508.0     557.0     561.9     248.3     165.2     9.2     59.7  
  Interest income     (4.3 )   (4.1 )   (6.6 )   (9.0 )   (7.0 )   (4.8 )   (5.0 )   (2.4 )
  Interest expense     46.9     35.6     28.8     26.2     34.9     27.0     10.3     148.5  
  Loss on interest rate swaps                                 2.0  
  Loss on debt retirement                                 6.2  
   
 
 
 
 
 
 
 
 
  Income (loss) before taxes     410.3     476.5     534.8     544.6     220.4     143.0     4.0     (94.6 )
  Income tax expense (benefit)     148.0     177.5     190.6     194.5     82.4     55.1     12.0     (34.4 )
   
 
 
 
 
 
 
 
 
  Net income (loss)   $ 262.4   $ 299.0   $ 344.2   $ 350.2   $ 137.9   $ 87.9   $ (8.0 ) $ (60.2 )
   
 
 
 
 
 
 
 
 
Statement of Cash Flows Data:                                                  
Net cash provided by (used in):                                                  
  Operating activities   $ 422.3   $ 514.1   $ 391.5   $ 555.5   $ 405.4   $ 19.8   $ 201.9   $ (33.8 )
  Investing activities     (133.4 )   (256.7 )   (259.2 )   (264.4 )   (282.0 )   (239.4 )   (66.9 )   (6.815.3 )
  Financing activities     (440.4 )   (43.3 )   (245.4 )   (323.3 )   (134.7 )   109.9     25.3     6,939.6  
  Total capital expenditures     (133.9 )   (140.1 )   (288.3 )   (284.1 )   (261.5 )   (221.0 )   (56.2 )   (44.7 )
    New stores     (48.2 )   (59.6 )   (80.7 )   (93.6 )   (62.6 )   (44.4 )   (28.7 )   (17.7 )
    Existing stores and other     (85.7 )   (80.5 )   (207.6 )   (190.5 )   (198.9 )   (176.6 )   (27.5 )   (27.0 )
Other Financial and Operating Data:                                                  
  Same store sales growth     5.7 %   4.0 %   3.2 %   2.2 %   3.3 %   2.3 %   2.6 %   3.3 %
  Number of stores (at period end)     6,113     6,700     7,320     7,929     8,229     8,251     8,205     8,204  
  Selling square feet (in thousands at period end)     41,201     45,354     50,015     54,753     57,299     57,305     57,379     58,207  
  Net sales per square foot(5)   $ 154.0   $ 157.5   $ 159.6   $ 159.8   $ 162.6   $ 163.3   $ 163.9   $ 165.4  
  Highly consumable sales     60.2 %   61.2 %   63.0 %   65.3 %   65.7 %   67.8 %   66.7 %   69.3 %
  Seasonal sales     16.3 %   16.8 %   16.5 %   15.7 %   16.4 %   14.7 %   15.4 %   13.6 %
  Home products sales     13.3 %   12.5 %   11.5 %   10.6 %   10.0 %   9.6 %   9.2 %   8.7 %
  Basic clothing sales     10.2 %   9.5 %   9.0 %   8.4 %   7.9 %   7.9 %   8.7 %   8.4 %
  Rent expense   $ 203.1   $ 232.0   $ 268.8   $ 312.3   $ 343.9   $ 253.9   $ 149.0   $ 116.8  
Balance Sheet Data (at period end):                                                  
  Cash and cash equivalents and short-term investments   $ 121.3   $ 414.6   $ 275.8   $ 209.5   $ 219.2   $ 120.3         $ 115.9  
  Total assets     2,333.2     2,621.1     2,841.0     2,980.3     3,040.5     3,206.3           8,931.7  
  Total debt     346.5     282.0     271.3     278.7     270.0     503.8           4,509.8  
  Total shareholders' equity     1,288.1     1,554.3     1,684.5     1,720.8     1,745.7     1,702.9           2,685.5  

(1)
The fiscal year ended February 3, 2006 was comprised of 53 weeks.

(2)
Includes the effects of certain strategic merchandising and real estate initiatives as further described in "Management's Discussion and Analysis of Results of Operations and Financial Condition."

(3)
Includes the results of Buck for the period prior to the merger with and into Dollar General Corporation from March 6, 2007 (its formation) through July 6, 2007 and the post-merger results of Dollar General Corporation for the period from July 7, 2007 through November 2, 2007.

(4)
Penalty expense of $10 million in fiscal 2003 and $29.5 million in litigation settlement proceeds in fiscal 2002 are included in SG&A.

(5)
For the 39-week periods ended November 3, 2006 and November 2, 2007, net sales per square foot was calculated based on last four quarters' sales divided by average quarterly selling area. For the fiscal year ended February 3, 2006, net sales per square foot was calculated based on 52 weeks' sales.

47



RATIO OF EARNINGS TO FIXED CHARGES

        The following table sets forth the ratio of our earnings to our fixed charges for the periods indicated.

 
  Historical
  Pro Forma
 
 
  Predecessor
  Successor
   
   
 
 
  Fiscal Year Ended
  39
Weeks
Ended
November 3,
2006

  February 3,
2007
through
July 6,
2007

  July 7,
2007
through
November 2,
2007

   
  39
Weeks
Ended
November 2,
2007

 
Ratios of earnings to fixed charges(1)

  January 31,
2003

  January 30,
2004

  January 28,
2005

  February 3,
2006(1)

  February 2,
2007(2)

  Fiscal Year
Ended February 2,
2007

 
Actual   4.9x   5.6x   5.6x   5.3x   2.5x   2.0x   1.1x   (3 )        
Pro forma(2)                                   2.5x   (4 )

(1)
For purposes of computing the ratio of earnings to fixed charges, (a) earnings consist of net income (loss) before income taxes plus fixed charges less capitalized expenses related to indebtedness (amortization expense for capitalized interest is not significant) and (b) fixed charges consist of all interest expense (whether expensed or capitalized), amortization of debt issue costs and discounts related to indebtedness, and a portion of rent expense representative of interest factored therein.

(2)
To give effect to the increase in interest expense resulting from the portion of the notes proceeds used to retire the $198.3 million of our 8 5 / 8 % unsecured notes due June 15, 2010, as if such transactions had occurred at the beginning of the periods presented.

(3)
For the period from July 7, 2007 through November 2, 2007, fixed charges exceeded earnings by $94.6 million.

(4)
For the 39 weeks ended November 2, 2007, pro forma fixed charges exceeded earnings by $91.4 million.

48



MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

         The following discussion and analysis of our financial condition and results of operations covers periods prior to and following the closing of the Transactions. The discussion and analysis of historical periods prior to the closing of the Transactions does not reflect the significant impact that the Transactions have had and will have on us, including significantly increased leverage and liquidity requirements.

         You should read the following discussion of our results of operations and financial condition with the "Unaudited Pro Forma Condensed Consolidated Financial Information," "Selected Historical Consolidated Financial and Other Data" and the audited and unaudited historical consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of this prospectus. Actual results may differ materially from those contained in any forward-looking statements.

General

        Purpose of Discussion.     We intend for this discussion to provide the reader with information that will assist in understanding our company and the critical economic factors that affect our company. In addition, we hope to help the reader understand our financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements.

        Accounting Periods.     We follow the concept of a 52-53 week fiscal year that ends on the Friday nearest to January 31. The following text contains references to years 2007, 2006, 2005 and 2004, which represent fiscal years ending or ended February 1, 2008, February 2, 2007, February 3, 2006 and January 28, 2005, respectively. Fiscal year 2007 will be and fiscal years 2006 and 2004 were each 52-week accounting periods, while fiscal 2005 was a 53-week accounting period, which affects the comparability of certain amounts in the consolidated financial statements included elsewhere in this prospectus and financial ratios between 2005 and the other fiscal years reflected herein. As discussed below, we completed a merger transaction on July 6, 2007. The 2007 39-week period presented includes the 22-week Predecessor period of Dollar General Corporation through July 6, 2007 reflecting the historical basis of accounting, and a year-to-date Successor period, reflecting the impact of the business combination and associated purchase price allocation of the merger of Dollar General Corporation and Buck Acquisition Corp. ("Buck"), from July 7, 2007 to November 2, 2007. For comparison purposes, the discussion of results of operations below for the interim 39-week periods is generally based on the mathematical combination of the Successor and Predecessor periods for the 39-week period ended November 2, 2007 compared to the Predecessor 39-week period ended November 3, 2006, which we believe provides a meaningful understanding of the underlying business. Transactions relating to or resulting from the Merger are discussed separately. The combined results do not reflect the actual results we would have achieved absent the Merger and should not be considered indicative of future results of operations.

        The Merger.     On March 11, 2007, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Parent and Buck. Parent is and Buck was prior to the Merger controlled by investment funds affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR"). On July 6, 2007, we consummated a merger (the "Merger") of Buck with and into Dollar General, with Dollar General surviving the Merger as a subsidiary of Parent. Pursuant to the Merger Agreement, the former holders of our common stock received $22.00 per share, or approximately $6.9 billion. In addition, fees and expenses related to the Merger and the related financing transactions totaling $102.6 million, principally consisting of investment banking fees, management fees, legal fees and stock compensation expense ($39.4 million) are reflected in the 2007 results of operations. Capitalized debt issuance costs related to

49



the Merger totaled $86.8 million. The Merger consideration was funded through the use of our available cash, cash equity contributions from the Investors, equity contributions of certain members of our management and the debt financings discussed below. As a result of the Merger, our outstanding common stock is owned by Parent and certain members of management. Our common stock is no longer registered with the Securities and Exchange Commission ("SEC") and is no longer traded on a national securities exchange.

        The following transactions occurred in conjunction with the Merger:

50


Executive Overview

        We are the largest discount retailer in the United States by number of stores, with approximately 8,200 stores located in 35 states, primarily in the southern, southwestern, midwestern and eastern United States. We serve a broad customer base and offer a focused assortment of everyday items, including basic consumable merchandise and other home, apparel and seasonal products. A majority of our products are priced at $10 or less and approximately 30% of our products are priced at $1 or less. We offer a compelling value proposition for our customers based on convenient store locations, easy in and out shopping and highly competitive prices. We believe our combination of value and convenience distinguishes us from other discount, convenience and drugstore retailers, who typically focus on either value or convenience.

        The nature of our business is moderately seasonal. Primarily because of sales of holiday-related merchandise, sales in the fourth quarter have historically been higher than sales achieved in each of the first three quarters of the fiscal year. Expenses and, to a greater extent, operating income vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods.

        For the 39 weeks ended November 2, 2007, we had a net loss of $68.2 million compared to net income of $87.9 million for the 39 weeks ended November 2, 2006. In summary, net sales increased by $319.8 million in the 2007 period, or 4.8%, aided by new stores and a same store net sales increase of 2.8%, our gross profit increased $180.8 million, or 10.5%, resulting in a 141 basis point increase in gross profit as compared to the prior year period. The increase in gross profit was offset by an increase in selling, general and administrative ("SG&A") expenses of $174.5 million, or 143 basis points as compared to the prior year period. In addition, the current year period included $102.6 million of transaction related expenses and a $131.8 million increase in interest expense resulting from long-term debt incurred to finance the merger. See detailed discussions below for additional comments on financial performance in the current year period as compared with the prior year period.

        For 2006, we reported net income of $137.9 million compared to net income of $350.2 million for 2005. Net sales for 2006 increased by 6.8% over the prior year, aided by new stores and a same store net sales increase of 3.3% (based on the comparable 52-week period). The extra week in 2005 accounted for net sales of approximately $162.9 million. Our gross profit margin was 25.8% in 2006 compared to 28.7% in 2005, primarily due to increased markdowns and expenses associated with our 2006 strategic initiatives as further discussed below under "Results of Operations." Operating expenses, as a percentage of net sales, were 23.1% in 2006 compared to 22.2% in 2005, resulting from charges directly related to the strategic store closings and a $29.9 million increase in advertising expenses, a portion of which can be attributed to the inventory liquidation and store closing initiatives. Additionally, administrative salaries, incentive bonuses and related payroll taxes (excluding benefits) increased by $25.0 million resulting from the approval of a $9.6 million discretionary bonus to approximately 7,000 administrative and distribution center employees and the addition of executives and staff to support our strategic efforts, particularly in merchandising and real estate. Partially offsetting these amounts were insurance proceeds of $13.0 million received during 2006 related to losses we experienced due to Hurricane Katrina.

51



        We have made significant progress in our efforts, first announced in November 2006, to minimize the amount of merchandise in our stores that we carry over to subsequent periods ("packaway") as a part of Project Alpha. We identified the targeted packaway inventories in 2006 and launched programs to sell-through this inventory, eliminating over half of the targeted merchandise by the end of fiscal 2006. As of November 2, 2007 with the exception of certain holiday seasonal merchandise and winter apparel that we expect to sell in the fourth quarter, substantially all of the packaway inventory had been sold. In 2007 we have also taken end-of-season markdown on current merchandise and going forward, we plan to sell virtually all current-year non-replenishable merchandise by taking end-of-season markdowns to permit increased levels of newer, current-season merchandise in the future.

        In November 2006, we also announced the second element of Project Alpha—significant changes to our real estate strategy, including our intention to close, by the end of fiscal 2007, approximately 400 stores that do not meet our revised real estate criteria. For the 39 weeks ended November 2, 2007, we opened 323 new stores, closed 348 stores and, remodeled or relocated 214 stores. The majority of these new, remodeled and relocated stores are in our new "racetrack" store layout.

        In addition to the strategic initiatives discussed above, we are now increasingly focused on generating increased cash flows and improving profitability and we are in the early stages of implementing certain targeted retail practices which are expected to positively impact our gross profit, sales productivity and capital efficiency, including:


Results of Operations

        The following table contains results of operations data for the 39-week period ended November 3, 2006 (Predecessor), compared to the combined 39-week period ended November 2, 2007, comprised of

52



the total of the Successor and Predecessor periods as disclosed elsewhere in this document. Dollar and percentage variances are based on the comparable 39-week periods:

 
   
   
  2007 vs 2006
 
 
  39 Weeks
Ended
November 2,
2007(a)

  39 Weeks
Ended
November 3,
2006

 
(amounts in millions)

  Amount change
  %
change

 
Net sales by category:                        
  Highly consumable   $ 4,701.4   $ 4,482.7   $ 218.7   4.9 %
    % of net sales     67.79 %   67.76 %          
  Seasonal     1,013.4     970.7     42.7   4.4 %
    % of net sales     14.61 %   14.67 %          
  Home products     626.2     638.4     (12.3 ) (1.9 )%
    % of net sales     9.03 %   9.65 %          
  Basic clothing     594.8     524.1     70.7   13.5 %
    % of net sales     8.58 %   7.92 %          
   
 
 
 
 
  Net sales     6,935.7     6,615.8     319.8   4.8 %
Cost of goods sold     5,032.6     4,893.6     139.0   2.8 %
  % of net sales     72.56 %   73.97 %          
   
 
 
 
 
Gross profit     1,903.1     1,722.3     180.8   10.5 %
  % of net sales     27.44 %   26.03 %          
Selling, general and administrative     1,731.5     1,557.1     174.5   11.2 %
  % of net sales     24.97 %   23.54 %          
Transaction and related costs     102.6         102.6    
  % of net sales     1.48 %              
   
 
 
 
 
Operating profit     68.9     165.2     (96.3 ) (58.3 )%
  % of net sales     0.99 %   2.50 %          
Interest income     (7.5 )   (4.8 )   (2.7 ) 55.8 %
  % of net sales     (0.11 )%   (0.07 )%          
Interest expense     158.8     27.0     131.8   487.5 %
  % of net sales     2.29 %   0.41 %          
Loss on interest rate swaps     2.0         2.0    
  % of net sales     0.03 %              
Loss on debt retirement     6.2         6.2    
  % of net sales     0.09 %              
   
 
 
 
 
Income (loss) before income taxes     (90.6 )   143.0     (233.6 )  
  % of net sales     (1.31 )%   2.16 %          
Income tax expense (benefit)     (22.4 )   55.1     (77.5 )  
  % of net sales     (0.32 )%   0.83 %          
   
 
 
 
 
Net income (loss)   $ (68.2 ) $ 87.9   $ (156.1 )  
    % of net sales     (0.98 )%   1.33 %          
   
 
 
 
 

(a)
The 39 weeks ended November 2, 2007 represents the mathematical combination of the Predecessor through July 6, 2007 and Successor from July 7, 2007 through November 2, 2007 as included in the condensed consolidated financial statements. These results also include the operations of Buck for the period prior to the Merger from March 6, 2007 (Buck's date of formation) through July 6, 2007 (primarily the change in fair value of interest rate swaps.) This presentation does not comply with generally accepted accounting principles, but we believe this combination provides a meaningful method of comparison.

        Net Sales.     For the 39-week period ended November 2, 2007, we had net sales of $6.94 billion, an increase of $319.8 million, or 4.8%, compared to net sales of $6.62 billion for the 2006 period. This increase included a same-store sales increase of 2.8% for the 2007 period compared to the 2006 period,

53


which accounted for approximately $176.6 million of the increase in sales. Same store net sales were positively impacted by an increase in the average dollar value of transactions during the period, partially offset by a slight decrease in the number of same store transactions.

        We monitor our sales internally by the four major categories noted above: highly consumable, seasonal, home products and basic clothing. Generally, over the past several years, sales in the highly consumable category have become a greater percentage of our overall sales mix while the sales of home products and basic clothing have declined as a percentage of net sales, which has had a negative impact on our gross profit, as a percentage of sales. We believe the shift has been caused in part by changes in customers' needs and also by our efforts to attract and retain customers by broadening our consumable products offering and including more recognizable brands. Because of the impact of sales mix on gross profit, we continually review our merchandise mix and strive to adjust it when appropriate.

        Gross Profit.     For the 2007 period, our gross profit increased by approximately $180.8 million and our gross profit as a percentage of sales increased to 27.4% from 26.0% in the 2006 period, which included Alpha-related below-cost markdowns of $71.2 million (or 1.1% as a percentage of sales). The remainder of the increase in the 2007 period resulted from various factors, including higher purchase markups, partially offset by higher shrink and higher markdowns, including markdowns incurred to eliminate our inventory packaway strategy. We are on schedule to achieve our plans with regard to the sale of existing packaway inventories by the end of fiscal 2007, and we intend to continue our initiative to sell virtually all current-year non-replenishable merchandise by taking end-of-season markdowns to permit increased levels of newer, current-season merchandise in the future.

        SG&A Expense.     For the 2007 period, SG&A increased by $174.5 million, to 25.0% of sales from 23.5% of sales in the 2006 period. SG&A includes approximately $54.3 million in the 2007 period relating to expenses incurred in connection with eliminating packaway inventories and closing the remaining stores identified in our November 2006 strategic review, including lease contract termination costs, incremental labor and advertising, repairs, fixed asset disposals and third-party contractors. In addition, SG&A in the 2007 period includes amortization of $13.4 million resulting from the capitalization of below market leases in the asset revaluation, $12.3 million of accrued employee incentive compensation expense (none in the 2006 period) resulting from meeting certain financial targets to date, and approximately $12.0 million relating to the probable loss associated with the restructuring of leases related to certain of our distribution centers. SG&A in the 2006 period was net of insurance proceeds of $13.0 million received during the period for business interruption insurance coverage relating to Hurricane Katrina, partially offset by an $8.0 million impairment charge relating to the strategic store closings. Excluding the impact of amortization, store closing and distribution center related expenses, incentive compensation and the Hurricane Katrina related insurance proceeds, SG&A as a percentage of sales was essentially flat.

        Transaction and Related Costs.     The $102.6 million of expenses recorded in the 2007 period reflect $63.2 million of expenses related to the Merger, such as investment banking and legal fees, as well as $39.4 million of compensation expense related to stock options, restricted stock and restricted stock units.

        Interest Income.     Interest income increased by approximately $2.7 million in the 2007 period as compared to the 2006 period due to higher average levels of cash and short-term investments on hand during the period.

        Interest Expense.     Interest expense increased by $131.8 million in the 2007 period, primarily in the 17-week Successor period, as compared to the 2006 period due to interest on long-term obligations incurred to finance the Merger. See further discussion under "Liquidity and Capital Resources" below.

54



        Loss on Debt Retirement.     During the 2007 period, we recorded $6.2 million in expenses related to consent fees and other costs associated with a tender offer for our 2010 Notes. Approximately 99% of the 2010 Notes were retired as a result of the tender offer.

        Loss on Interest Rate Swaps.     During the 2007 period, we recorded an unrealized loss of $3.7 million related to the change in the fair value of interest swaps prior to designating such swaps as cash flow hedges. This loss was offset by earnings of $1.7 million under the contractual provisions of the swap agreements.

        Income Taxes.     The effective income tax rates for the 2007 and 2006 periods were 24.7% and 38.6%, respectively. The tax rate for the 2007 period, a benefit, is lower than that of the 2006 period due principally to non-deductible expenses incurred in association with the Merger.

    Fiscal Years Ended February 2, 2007, February 3, 2006 and January 28, 2005

        The following discussion of our financial performance is based on the consolidated financial statements included elsewhere in this prospectus. The following table contains results of operations data for the 2006, 2005 and 2004 fiscal years, and the dollar and percentage variances among those years.

 
   
   
   
  2006 vs. 2005
  2005 vs. 2004
 
 
  2006(a)
  2005(b)
  2004
  $ change
  % change
  $ change
  % change
 
 
  (dollars in millions)

 
Net Sales by category:                                        
Highly consumable   $ 6,022.0   $ 5,606.5   $ 4,825.1   $ 415.5   7.4 % $ 781.4   16.2 %
% of net sales     65.67 %   65.33 %   62.98 %                    
Seasonal     1,510.0     1,348.8     1,264.0     161.2   12.0     84.8   6.7  
% of net sales     16.47 %   15.72 %   16.50 %                    
Home products     914.4     907.8     879.5     6.5   0.7     28.4   3.2  
% of net sales     9.97 %   10.58 %   11.48 %                    
Basic clothing     723.5     719.2     692.4     4.3   0.6     26.8   3.9  
% of net sales     7.89 %   8.38 %   9.04 %                    
   
 
 
 
 
 
 
 
Net sales   $ 9,169.8   $ 8,582.2   $ 7,660.9   $ 587.6   6.8 % $ 921.3   12.0 %
Cost of goods sold     6,801.6     6,117.4     5,397.7     684.2   11.2     719.7   13.3  
% of net sales     74.17 %   71.28 %   70.46 %                    
   
 
 
 
 
 
 
 
Gross profit     2,368.2     2,464.8     2,263.2     (96.6 ) (3.9 )   201.6   8.9  
% of net sales     25.83 %   28.72 %   29.54 %                    
SG&A expenses     2,119.9     1,903.0     1,706.2     217.0   11.4     196.7   11.5  
% of net sales     23.12 %   22.17 %   22.27 %                    
   
 
 
 
 
 
 
 
Operating profit     248.3     561.9     557.0     (313.6 ) (55.8 )   4.9   0.9  
% of net sales     2.71 %   6.55 %   7.27 %                    
Interest income     (7.0 )   (9.0 )   (6.6 )   2.0   (22.2 )   (2.4 ) 36.9  
% of net sales     (0.08 )%   (0.10 )%   (0.09 )%                    
Interest expense     34.9     26.2     28.8     8.7   33.1     (2.6 ) (8.9 )
% of net sales     0.38 %   0.31 %   0.38 %                    
   
 
 
 
 
 
 
 
Income before income taxes     220.4     544.6     534.8     (324.3 ) (59.5 )   9.9   1.8  
% of net sales     2.40 %   6.35 %   6.98 %                    
Income taxes     82.4     194.5     190.6     (112.1 ) (57.6 )   3.9   2.1  
% of net sales     0.90 %   2.27 %   2.49 %                    
   
 
 
 
 
 
 
 
Net income   $ 137.9   $ 350.2   $ 344.2   $ (212.2 ) (60.6 )% $ 6.0   1.7 %
% of net sales     1.50 %   4.08 %   4.49 %                    
   
 
 
 
 
 
 
 

(a)
Includes the impacts of certain strategic initiatives as more fully described in the "Executive Overview" above.

(b)
The 2005 fiscal year was comprised of 53 weeks.

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        Net Sales.     Increases in 2006 net sales resulted primarily from opening additional stores, including 300 net new stores in 2006, and a same store net sales increase of 3.3% for 2006 compared to 2005. Same store net sales increases are calculated based on the comparable calendar weeks in the prior year. Accordingly, the same store net sales percentages discussed herein exclude sales from the 53rd week of 2005 as there was no comparable week in 2006 or 2004. The increase in same store net sales accounted for $265.4 million of the increase in net sales, while stores opened since the beginning of 2006 were the primary contributors to the remaining $322.2 million net sales increase during 2006. The increase in same store net sales is primarily attributable to an increase in average customer purchase. We also believe that our strategic merchandising and real estate initiatives had a positive impact on 2006 net sales.

        By merchandise category, our net sales increase in 2006 compared to 2005 was primarily attributable to the highly consumable category, which increased by $415.5 million, or 7.4%. An increase in net sales of seasonal merchandise of $161.2 million, or 12.0%, also contributed to overall net sales growth. We believe that our increased sales were supported by additions to our product offerings and increased promotional activities, including the use of advertising circulars and clearance activities.

        Increases in 2005 net sales resulted primarily from opening additional stores, including 609 net new stores in 2005, and a same store net sales increase of 2.2% for 2005 compared to 2004. The increase in same store net sales accounted for $164.5 million of the increase in net sales. Stores opened since the beginning of 2004, as well as the $162.9 million impact of the 53rd week of sales in 2005 for all stores, were the primary contributors to the remaining $756.8 million net sales increase during 2005. The increase in same store net sales was primarily attributable to an increase in average customer purchase.

        Gross Profit.     The gross profit margin decline in 2006 as compared with 2005 was due primarily to a significant increase in markdown activity as a percentage of net sales, including below-cost markdowns, as a result of our inventory liquidation and store closing initiatives. While we believe these initiatives had a positive impact on net sales, they had a negative impact on our gross profit margin in 2006. In total, our gross margin rate declined by 289 basis points to 25.8% in 2006 compared to 28.7% in 2005. Significantly impacting our gross profit margin, as a result of the related effect on cost of goods sold, were total markdowns of $279.1 million at cost taken during 2006, compared with total markdowns of $106.5 million at cost taken in 2005. The 2006 markdowns reflect $179.9 million at cost taken during the fourth quarter of 2006 compared to $39.0 million of markdowns at cost taken during the fourth quarter of 2005. The fourth quarter 2006 change in merchandising strategy also resulted in our ending inventory being valued lower than under our historical practices, as ending inventory on-hand as of February 2, 2007 reflects the immediate impact of the markdowns at the time such markdowns were taken. Markdowns which were expected to reduce inventory below cost were considered in our lower of cost or market estimate and recorded at such time as the utility of the underlying inventory was deemed to be impaired. During the third quarter of fiscal 2006, we recorded a lower of cost or market inventory impairment estimate related to the initiatives discussed above, and this estimate was revised slightly in the fourth quarter such that the impact for fiscal 2006 was $70.2 million, which reduced 2006 gross profit by a corresponding amount. Markdowns which are not below cost impact our gross profit in the period in which such markdowns are taken. A portion of the total markdowns taken during the fourth quarter were related to the inventory included in our lower of cost or market estimate, thereby reducing our estimated reserve for such inventory as of the end of fiscal 2006 to $49.2 million. Other factors included, but were not limited to: a decrease in the markups on purchases, primarily attributable to purchases of highly consumable products (including nationally branded products, which generally have lower average markups) and an increase in our shrink rate.

        Our gross profit margin declined by 82 basis points in 2005 as compared with 2004 due to a number of factors, including but not limited to: lower net sales (as a percentage of total net sales) in

56



our seasonal, home products and basic clothing categories, which have higher than average markups; an increase in markdowns as a percentage of net sales primarily as a result of our initiative to reduce per-store inventory; higher transportation expenses, primarily attributable to increased fuel costs; an increase in our shrink rate; and an estimated $5.2 million reduction resulting from the expansion of the number of departments utilized for the gross profit calculation from 10 to 23, as further described below under "Critical Accounting Policies and Estimates." These factors were partially offset by higher average mark-ups on our beginning inventory in 2005 as compared with 2004.

        In 2006, 2005 and 2004, we experienced inventory shrinkage, stated as a percentage of net sales, of 3.40%, 3.22% and 3.05%, respectively.

        SG&A Expense.     The increase in SG&A expense as a percentage of net sales in 2006 as compared with 2005 was due to a number of factors, including but not limited to increases in the following expense categories: impairment charges on leasehold improvements and store fixtures totaling $9.4 million, including $8.0 million related to the planned closings of approximately 400 underperforming stores, 128 of which closed in 2006 and the remainder of which closed in 2007, as further discussed above in the "Executive Overview"; lease contract terminations totaling $5.7 million related to these stores; higher store occupancy costs (increased 12.1%) due to higher average monthly rentals associated with our leased store locations; higher debit and credit card fees (increased 40.6%) due to the increased customer usage of debit cards and the acceptance of VISA credit and check cards at all locations; higher administrative labor costs (increased 29.9%) primarily related to additions to our executive team, particularly in merchandising and real estate, and the expensing of stock options; higher advertising costs (increased 198.3%) related primarily to the distribution of several advertising circulars in 2006 and to promotional activities related to the inventory clearance and store closing activities discussed above; and higher incentive compensation primarily related to a $9.6 million discretionary bonus authorized by the Board of Directors for 2006. These increases were partially offset by insurance proceeds of $13.0 million received during 2006 related to losses incurred due to Hurricane Katrina, and depreciation and amortization expenses that remained relatively constant in fiscal 2006 as compared to fiscal 2005.

        The decrease in SG&A expense as a percentage of net sales in 2005 as compared with 2004 was due to a number of factors, including but not limited to the following expense categories that either declined or increased less than the 12.0% increase in net sales: employee incentive compensation expense (decreased 37.8%), based upon our fiscal 2005 financial performance; professional fees (decreased 32.3%), primarily due to the reduction of consulting fees associated with the EZstore project and 2004 fees associated with our initial Sarbanes-Oxley compliance effort; and employee health benefits (decreased 10.0%), due in part to a downward revision in claim lag assumptions based upon review and recommendation by our outside actuary and decreased claims costs as a percentage of net sales. Partially offsetting these reductions in SG&A expense were current year increases in store occupancy costs (increased 17.6%), primarily due to rising average monthly rentals associated with our leased store locations, and store utilities costs (increased 22.7%), primarily related to increased electricity and gas expense.

        Interest Income.     The decline in interest income in 2006 compared to 2005 was due primarily to the acquisition of the entity which held legal title to our South Boston distribution center in June 2006 and the related elimination of the notes receivable which represented debt issued by this entity from which we formerly leased the South Boston distribution center. The increase in interest income in 2005 compared to 2004 was due primarily to earnings on short-term investments due to increased interest rates on these investments.

        Interest Expense.     The increase in interest expense in 2006 was primarily attributable to increased interest expense of $6.5 million under our former revolving credit facility, primarily due to increased borrowings; an increase in tax-related interest of $4.1 million, principally due to the non-recurrence in

57



2006 of a 2005 reduction in accrued interest related to contingent tax liabilities, partially offset by a reduction in interest expense associated with the elimination of the financing obligation associated with the June 2006 acquisition of the entity which held legal title to the South Boston distribution center as discussed above. The decrease in interest expense in 2005 is primarily attributable to a reduction in tax-related interest expense of $1.4 million, principally due to the reversal of interest accruals pertaining to certain income tax related contingencies that were resolved during 2005. We had variable-rate debt of $14.5 million as of February 2, 2007 and February 3, 2006. The remainder of our outstanding indebtedness at February 2, 2007 and February 3, 2006 was fixed rate debt.

        Income Taxes.     The effective income tax rates for 2006, 2005 and 2004 were 37.4%, 35.7% and 35.6%, respectively.

        The 2006 income tax rate was higher than the 2005 rate by 1.7%. Factors contributing to this increase include additional expense of approximately $0.9 million related to the adoption of a new tax system in the State of Texas, which resulted in the elimination of certain deferred tax assets that had been recorded in prior years; an increase of approximately $0.9 million in expense related to our current year tax liability under the revised State of Texas tax system; a reduction in the contingent income tax reserve due to the resolution of contingent liabilities that was $2.0 million less than the decrease that occurred in 2005; an increase in the deferred tax valuation allowance of approximately $3.2 million related to state income tax credits; and an increase of $2.6 million related to a benefit recognized in 2005 resulting from an internal restructuring. Offsetting these rate increases was a reduction in the income tax rate related to federal income tax credits. Due to the reduction in our 2006 income before tax, a small increase in the amount of federal income tax credits earned yielded a much larger percentage reduction in the income tax rate for 2006 versus 2005.

        While the 2005 and 2004 rates were similar overall, the rates contained offsetting differences. Factors causing the 2005 tax rate to increase when compared to the 2004 tax rate include a reduction in federal jobs credits of approximately $1.0 million, additional net foreign income tax expense of approximately $0.8 million and a decrease in the contingent income tax reserve due to resolution of contingent liabilities that was $3.6 million less than the decrease that occurred in 2004. Factors causing the 2005 tax rate to decrease when compared to the 2004 tax rate include the recognition of state tax credits of approximately $2.3 million related to the construction of our Indiana distribution center and a benefit of approximately $2.6 million related to an internal restructuring that was completed during 2005. The overall effect of these items increased the 2005 effective tax rate by approximately 0.8%.

Effects of Inflation

        We believe that inflation and/or deflation had a minimal impact on our overall operations during the fiscal years 2006, 2005 and 2004, and the interim periods of fiscal 2007.

Liquidity and Capital Resources

        Current Financial Condition / Recent Developments.     At November 2, 2007, we had total debt (including the current portion of long-term obligations) of $4,509.8 million and cash and cash equivalents of $90.5 million. Our net debt position increased significantly during the first 39 weeks of 2007 due to the financings that occurred in conjunction with the Merger. We also had an additional $710.5 million available for borrowing under our new senior secured asset-based revolving credit facility at that date. Our liquidity needs are significant, primarily due to our debt service and other obligations.

        Management believes our cash flow from operations and existing cash balances, combined with availability under the New Credit Facilities (defined and described below), will provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for a period that includes the next twelve months.

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        Inventory Management.     Our inventory balance represented approximately 47% of our total assets exclusive of goodwill and other intangible assets as of November 2, 2007. Our proficiency in managing our inventory balances can have a significant impact on our cash flows from operations during a given period or fiscal year. In addition, inventory purchases can be somewhat seasonal in nature, such as the purchase of warm-weather or Christmas-related merchandise. Inventory turns, calculated on a rolling annualized basis using balances from each quarter, were 4.6 times for the period ended November 2, 2007 compared to 4.1 times for the period ended November 3, 2006 (a 53-week period).

        Legal actions and claims.     As described in Note 7 to the Condensed Consolidated Financial Statements, we are involved in a number of legal actions and claims, some of which could potentially result in material cash payments. Adverse developments in those actions could materially and adversely affect our liquidity. We also have certain income tax-related contingencies as more fully described below under "Critical Accounting Policies and Estimates." Future negative developments could have a material adverse effect on our liquidity.

        Considerations regarding distribution center leases.     The Merger and certain of the related financing transactions may be interpreted as giving rise to certain trigger events (which may include events of default) under our three distribution center leases. In that event, our additional cost of acquiring the underlying land and building assets could approximate $112 million. At this time, we do not believe such issues would result in the purchase of these distribution centers; however, the payments associated with such an outcome would have a negative impact on our liquidity. To minimize the uncertainty associated with such possible interpretations, we are negotiating the restructuring of these leases and the related underlying debt. We have concluded that a probable loss exists in connection with the restructurings and have recorded associated SG&A expenses in the Successor financial statements for the year-to-date period ended November 2, 2007 totaling $12.0 million. The ultimate resolution of these negotiations may result in changes in the amounts of such losses, which changes may be material.

        Credit ratings.     On June 12, 2007 Standard & Poor's revised our long-term debt rating to B, and left our long-term debt ratings on negative watch. Moody's revised our long-term debt rating to B3 with a stable outlook. These current ratings are considered non-investment grade. Our current credit ratings, as well as future rating agency actions, could (1) negatively impact our ability to obtain financings to finance our operations on satisfactory terms; (2) have the effect of increasing our financing costs; and (3) have the effect of increasing our insurance premiums and collateral requirements necessary for our self-insured programs.

        Our debt includes a six-year $1.125 billion senior secured asset-based revolving credit facility. This facility consists of Tranche A and Tranche A-1 Loans. The Tranche A-1 Loans will be funded first until all commitments under the Tranche A-1 loans have been funded and paid off last until after all Tranche A Loans have been paid. As of November 2, 2007, we had $302.0 million in borrowings outstanding under our senior asset-based revolving credit facility. Our availability was also reduced by $68.8 million of standby letters of credit and $43.7 million of commercial letters of credit. In addition, we have a seven year $2.3 billion senior secured term loan facility. This facility consists of two tranches, one of which is a "first-loss" tranche, which, in certain circumstances, will be subordinated in right of payment to the other tranche. See "Description of Other Indebtedness." We also issued $1,175.0 million of eight-year 10.625% senior notes and $725 million of 11.875%/12.625% senior subordinated toggle notes due 2017. See "Description of Notes."

Cash flows

        The discussion of the cash flows from operating, investing and financing activities included below is generally based on the 39-week periods ended November 2, 2007 and November 3, 2006, which we believe provides a more meaningful understanding of our liquidity and capital resources for the time periods presented.

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        Cash flows from operating activities.     Among the most significant components of the change in cash flows from operating activities in the 39 weeks ended November 2, 2007 as compared to the 39 weeks ended November 3, 2006 were changes in inventory balances, which increased by approximately 4% overall during the 39 weeks ended November 2, 2007 compared to a 14% overall increase during the 39 weeks ended November 3, 2006. Significant changes in inventory levels occurred in the highly consumable category, which increased by $24.8 million, or 4%, in the 39 weeks ended November 2, 2007 as compared to a $66.8 million, or 11%, increase in the 39 weeks ended November 3, 2006; the seasonal category, which increased by $11.4 million, or 3%, in the 39 weeks ended November 2, 2007 as compared to a $129.0 million, or 37%, increase in the 39 weeks ended November 3, 2006; and the home products category, which declined by $14.4 million, or 9%, in the 39 weeks ended November 2, 2007 as compared to a $11.5 million, or 6%, increase in the 39 weeks ended November 3, 2006; all of which were partially offset by the basic clothing category, which increased by $32.0 million, or 14%, in the 39 weeks ended November 2, 2007 as compared to $5.6 million, or 2%, decrease in the 39 weeks ended November 3, 2006. The decline in net income, as described in more detail above, and which includes $102.6 million of Transaction and related costs in the 2007 period, partially offset other increases in cash flows from operating activities in the 2007 period as compared to the 2006 period. The decline in net income was a principal factor in the reduction in income taxes paid in the 2007 period as compared to the 2006 period. Also offsetting the decline in net income were changes in accrued expenses in the 2007 period as compared to the 2006 period which increased primarily due to accrued interest, the accrued loss in connection with ongoing negotiations to restructure our DC leases as discussed above, and accruals for lease liabilities on closed stores as discussed above.

        Cash flows from operating activities for 2006 compared to 2005 declined by $150.1 million. The most significant component of the decline in cash flows from operating activities in 2006 as compared to 2005 was the reduction in net income, as described in detail under "Results of Operations" above. Partially offsetting this decline are certain noncash charges included in net income, including below-cost markdowns on inventory balances and property and equipment impairment charges totaling $78.1 million, and a $13.8 million increase in noncash depreciation and amortization charges in 2006 as compared to 2005. In addition, the reduction in 2006 year end inventory balances reflect the effect of below-cost markdowns and our efforts to sell through excess inventories, as compared with increases in 2005 and 2004. Seasonal inventory levels increased by 2% in 2006 as compared to a 10% increase in 2005, home products inventory levels declined by 25% in 2006 as compared to a 2% increase in 2005, while basic clothing inventory levels declined by 21% in 2006 as compared to a 5% decline in 2005. Total merchandise inventories at the end of 2006 were $1.43 billion compared to $1.47 billion at the end of 2005, a 2.9% decrease overall, and a 6.4% decrease on a per store basis, reflecting both our focus on liquidating packaway merchandise and the effect of below-cost markdowns.

        Cash flows from operating activities for 2005 compared to 2004 increased by $164.0 million. The most significant component of the increase in cash flows from operating activities in the 2005 period as compared to the 2004 period was the change in inventory balances. Seasonal inventory levels increased by 10% in 2005 as compared to a 22% increase in 2004, home products inventory levels increased by 2% in 2005 as compared to a 16% increase in 2004, while basic clothing inventory levels declined by 5% in 2005 as compared to a 21% increase in 2004. Total merchandise inventories at the end of 2005 were $1.47 billion compared to $1.38 billion at the end of 2004, a 7.1% increase overall, but a 1% decrease on a per store basis, reflecting our 2005 focus on lowering our per store inventory levels.

        Cash flows from investing activities.     The Merger, as discussed in more detail above, required cash payments of approximately $6.7 billion, net of cash acquired of $350 million. Significant components of property and equipment purchases in the 39 weeks ended November 2, 2007 included the following approximate amounts: $40 million for new stores; $35 million for improvements, upgrades, remodels and relocations of existing stores; $17 million for distribution and transportation-related capital

60



expenditures; and $5 million for systems-related capital projects. During the 39 weeks ended November 2, 2007, we opened 323 new stores and remodeled or relocated 214 stores.

        Significant components of our property and equipment purchases in the 39 weeks ended November 3, 2006 included the following approximate amounts: $49 million for the EZstore project (an initiative designed to improve inventory flow from distribution centers to consumers); $45 million for new stores; $60 million for distribution and transportation-related capital expenditures (primarily related to our distribution center in Marion, Indiana); and $30 million for capital projects in existing stores. During the 39 weeks ended November 3, 2006, we opened 408 new stores.

        Net sales of short-term investments of $14.3 million and purchases of long-term investments of $21.4 million during the 39 weeks ended November 21, 2007, and net sales of short-term investments of $0.1 million and purchases of long-term investments of $21.5 million, during the 39 weeks ended November 3, 2006 primarily relate to our captive insurance subsidiary.

        Capital expenditures for the 2007 fiscal year are projected to be approximately $150 million to $180 million. We anticipate funding our 2007 capital requirements with cash flows from operations and our New Credit Facilities, if necessary. Significant components of the 2007 capital plan include leasehold improvements and fixtures and equipment for approximately 360 new stores, continued investment in our existing store base, plans for remodeling and relocating approximately 300 stores, and additional investments in our supply chain. We plan to undertake these expenditures in order to improve our infrastructure and provide support for our anticipated growth.

        Cash flows used in investing activities totaling $282.0 million in 2006 were primarily related to capital expenditures and, to a lesser degree, purchases of long-term investments. Significant components of our property and equipment purchases in 2006 included the following approximate amounts: $66 million for distribution and transportation-related capital expenditures (including approximately $30 million related to our distribution center in Marion, Indiana which opened in 2006); $66 million for new stores; $50 million for the EZstore project; and $38 million for capital projects in existing stores. During 2006 we opened 537 new stores and remodeled or relocated 64 stores.

        Purchases and sales of short-term investments in 2006, which equaled net sales of $1.9 million, reflect our investment activities in tax-exempt auction rate securities as well as investing activities of our captive insurance subsidiary. Purchases of long-term investments are related to the captive insurance subsidiary.

        Significant components of our purchases of property and equipment in 2005 included the following approximate amounts: $102 million for distribution and transportation-related capital expenditures; $96 million for new stores; $47 million related to the EZstore project; $18 million for certain fixtures in existing stores; and $15 million for various systems-related capital projects. During 2005, we opened 734 new stores and relocated or remodeled 82 stores. Distribution and transportation expenditures in 2005 included costs associated with the construction of our new distribution centers in South Carolina and Indiana.

        Net sales of short-term investments in 2005 of $34.1 million primarily reflect our investment activities in tax-exempt auction rate securities. Purchases of long-term investments are related to our captive insurance subsidiary.

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        Cash flows used in investing activities of $259.2 million in 2004 were also primarily related to capital expenditures. Significant components of our purchases of property and equipment in 2004 included the following approximate amounts: $101 million for distribution and transportation-related capital expenditures; $82 million for new stores; $26 million for certain fixtures in existing stores; $26 million for various systems-related capital projects; and $23 million for coolers in existing stores, which allow the stores to carry refrigerated products. During 2004, we opened 722 new stores and relocated or remodeled 80 stores. Distribution and transportation expenditures in 2004 included costs associated with the construction of our new distribution center in South Carolina as well as costs associated with the expansion of the Ardmore, Oklahoma and South Boston, Virginia distribution centers.

        Net sales of short-term investments in 2004 of $25.8 million primarily reflect our investment activities in tax-exempt auction rate securities.

        Cash flows from financing activities.     To finance the Merger, we issued long-term debt of approximately $4.2 billion and issued common stock in the amount of approximately $2.8 billion. As discussed above, we completed a cash tender offer for our 2010 Notes. Approximately 99% of the 2010 Notes were validly tendered resulting in repayments of long-term debt in the amount of $210.3 million. We had borrowings, net of repayments, of $302.0 million under our new asset-based revolving credit facility in the 39 weeks ended November 2, 2007 compared to borrowings, net of repayments, of $232.3 million during the 39 weeks ended November 3, 2006 under our previous revolving credit facility. We repurchased approximately 4.5 million shares of our common stock during the 39 weeks ended November 3, 2006 at a total cost of $79.9 million. We paid cash dividends of $15.7 million and $46.9 million on outstanding common stock during the 39 weeks ended November 3, 2006 and November 2, 2007, respectively. These uses of cash were offset by proceeds from the exercise of stock options of $41.5 million and $13.9 million, respectively, during the 39 weeks ended November 2, 2007, and November 3, 2006 respectively.

        Cash flows used in financing activities during 2006 included the repurchase of approximately 4.5 million shares of our common stock at a total cost of $79.9 million, cash dividends paid of $62.5 million on our outstanding common stock, and $14.1 million to reduce our outstanding capital lease and financing obligations. These uses of cash were partially offset by proceeds from the exercise of stock options during 2006 of $19.9 million.

        During 2005, we repurchased approximately 15.0 million shares of our common stock at a total cost of $297.6 million, paid cash dividends of $56.2 million on our outstanding common stock, and expended $14.3 million to reduce our outstanding capital lease and financing obligations. Also in 2005, we received proceeds of $14.5 million from the issuance of a tax increment financing in conjunction with the construction of our new distribution center in Indiana and proceeds from the exercise of stock options of $29.4 million.

        During 2004, we repurchased approximately 11.0 million shares of our common stock at a total cost of $209.3 million, paid cash dividends of $52.7 million on our outstanding common stock and expended $16.4 million to reduce our outstanding capital lease and financing obligations. These uses of cash were partially offset by proceeds from the exercise of stock options during 2004 of $34.1 million.

        The borrowings and repayments under the revolving credit agreement in 2006, 2005 and 2004 were primarily a result of activity associated with periodic cash needs.

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        The following table summarizes our significant contractual obligations and commercial commitments as of August 3, 2007 (in thousands):

 
  Payments Due by Period
Contractual obligations

  Total
  < 1 yr
  1-3 yrs
  3-5 yrs
  > 5 yrs
Senior secured term-loan facility   $ 2,300,000   $   $ 23,000   $ 46,000   $ 2,231,000
Senior secured asset-based revolving credit facility     300,000                 300,000
10 5 / 8 % Senior Notes     1,175,000                 1,175,000
11 7 / 8 /12 5 / 8 % Senior Subordinated Notes     725,000                 725,000
8 5 / 8 % Senior Notes     1,677         1,677        
Financing and capital lease obligations     66,554     7,201     6,812     2,835     49,706
Interest(a)     3,303,044     423,335     844,432     836,843     1,198,434
Self-insurance liabilities(b)     193,079     68,966     80,616     25,841     17,656
Monitoring agreement(c)     27,212     5,021     10,808     11,383    
Operating leases(d)     1,538,721     313,012     486,599     331,551     407,559
   
 
 
 
 
  Subtotal   $ 9,630,287   $ 817,535   $ 1,453,944   $ 1,254,453   $ 6,104,355
   
 
 
 
 
 
  Commitments Expiring by Period
Commercial commitments(e)

  Total
  < 1 yr
  1-3 yrs
  3-5 yrs
  > 5 yrs
Letters of credit   $ 159,158   $ 159,158   $   $   $
Purchase obligations(f)     394,251     394,186     65        
   
 
 
 
 
  Subtotal   $ 553,409   $ 553,344   $ 65   $   $
   
 
 
 
 
Total contractual obligations and commercial commitments   $ 10,183,696   $ 1,370,879   $ 1,454,009   $ 1,254,453   $ 6,104,355
   
 
 
 
 

(a)
Represents obligations for interest payments on long-term debt, capital lease and financing obligations and includes projected interest on variable rate long-term debt based upon effective interest rates at August 3, 2007.

(b)
We retain a significant portion of the risk for our workers' compensation, employee health insurance, general liability, property loss and automobile insurance. As these obligations do not have scheduled maturities, these amounts represent undiscounted estimates based upon actuarial assumptions. Except for discounts required to be applied as part of our purchase price allocation, these amounts are reflected on an undiscounted basis in our condensed consolidated balance sheets.

(c)
We entered into a monitoring agreement, dated July 6, 2007, with affiliates of certain of the Investors pursuant to which those entities will provide management and advisory services. Such agreement has no contractual term and for purposes of this schedule is presumed to be outstanding for a period of five years.

(d)
Operating lease obligations are inclusive of amounts included in deferred rent and closed store obligations in our condensed consolidated balance sheets.

(e)
Commercial commitments include information technology license and support agreements, supplies, fixtures, letters of credit for import merchandise, and other inventory purchase obligations.

(f)
Purchase obligations include legally binding agreements for software licenses and support, supplies, fixtures, and merchandise purchases excluding such purchases subject to letters of credit.

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        In July 2005, as an inducement for the Company to select Marion, Indiana as the site for construction of a new distribution center, the Economic Development Board of Marion approved a tax increment financing in the amount of $14.5 million. The principal amount of this financing is due to be repaid during fiscal years 2015 to 2035. Pursuant to this financing, proceeds from the issuance of certain revenue bonds were loaned to the Company in connection with the construction of this distribution center. The variable interest rate on this loan is based on the weekly remarketing of the bonds, which are supported by a bank letter of credit, and ranged from 4.60% to 5.43% in 2006.

        We have generated significant cash flows from operations during recent years. We had peak borrowings under the amended credit facility of $253.4 million during 2006, $100.3 million during 2005 and $73.1 million during 2004, all of which were repaid prior to February 2, 2007, February 3, 2006, and January 28, 2005, respectively.

    New Credit Facilities

        Overview.     On July 6, 2007, in connection with the Merger, we entered into two senior secured credit agreements, each with Goldman Sachs Credit Partners L.P., Citicorp Global Markets, Inc. Lehman Brothers Inc. and Wachovia Capital Markets, LLC, each as joint lead arranger and joint bookrunner (the "New Credit Facilities"). The CIT Group/Business Credit, Inc. is administrative agent under the senior secured credit agreement for the asset-based revolving credit facility and Citicorp North America, Inc. is administrative agent under the senior secured credit agreement for the term loan facility.

        The New Credit Facilities provide senior secured financing of $3.425 billion, consisting of:

    $2.3 billion in a senior secured term loan facility; and

    a senior secured asset-based revolving credit facility of up to $1.125 billion (of which up to $350.0 million is available for letters of credit), subject to borrowing base availability.

        The term loan facility consists of two tranches, one of which is a "first-loss" tranche, which, in certain circumstances, is subordinated in right of payment to the other tranche of the term loan credit facility.

        Dollar General Corporation is the borrower under the term loan facility, the primary borrower under the asset-based credit facility and, in addition, certain subsidiaries of ours were designated as borrowers under this facility. The asset-based credit facility includes borrowing capacity available for letters of credit and for short-term borrowings referred to as swingline loans.

        The New Credit Facilities provide that we have the right at any time to request up to $325.0 million of incremental commitments under one or more incremental term loan facilities and/or asset-based revolving credit facilities. The lenders under these facilities are not under any obligation to provide any such incremental commitments and any such addition of or increase in commitments will be subject to our not exceeding certain senior secured leverage ratios and certain other customary conditions precedent. Our ability to obtain extensions of credit under these incremental commitments will also be subject to the same conditions as extensions of credit under the New Credit Facilities.

        The amount from time to time available under the senior secured asset-based credit facility (including in respect of letters of credit) shall not exceed the sum of the tranche A borrowing base and the tranche A-1 borrowing base. The tranche A borrowing base equals the sum of (i) 85% of the net orderly liquidation value of all our eligible inventory and that of each guarantor thereunder and (ii) 90% of all our accounts receivable and credit/debit card receivables and that of each guarantor thereunder, in each case, subject to a reserve equal to the principal amount of the 2010 Notes that remain outstanding at any time and other customary reserves and eligibility criteria. An additional 10% to 12% of the net orderly liquidation value of all our eligible inventory and that of each guarantor

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thereunder is made available to us in the form of a "last out" tranche in respect of which we may borrow up to a maximum amount of $125.0 million. Borrowings under the asset-based credit facility will be incurred first under the last out tranche, and no borrowings will be permitted under any other tranche until the last out tranche is fully utilized. Repayments of the senior secured asset-based revolving credit facility will be applied to the last out tranche only after all other tranches have been fully paid down.

        Interest Rate and Fees.     Borrowings under the New Credit Facilities bear interest at a rate equal to an applicable margin plus, at our option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The initial applicable margins for borrowings is (i) under the term loan facility, 2.75% with respect to LIBOR borrowings and 1.75% with respect to base-rate borrowings and (ii) under the asset-based revolving credit facility (except in the last out tranche described above), 1.50% with respect to LIBOR borrowings and 0.50% with respect to base-rate borrowings and for any last out borrowings, 2.25% with respect to LIBOR borrowings and 1.25% with respect to base-rate borrowings. The applicable margins for borrowings under the asset-based revolving credit facility (except for last out borrowings) are subject to adjustment each quarter based on average daily excess availability under the asset-based revolving credit facility.

        In addition to paying interest on outstanding principal under the New Credit Facilities, we are required to pay a commitment fee to the lenders under the asset-based revolving credit facility in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.375% per annum. The commitment fee rate will be reduced (except with regard to the last out tranche) to 0.25% per annum at any time that excess availability under the asset-based revolving credit facility is equal to or less than 50% of the aggregate commitments under the asset-based revolving credit facility. We must also pay customary letter of credit fees.

        Prepayments.     The senior secured credit agreement for the term loan facility requires us to prepay outstanding term loans, subject to certain exceptions, with:

    50% of our annual excess cash flow (as defined in the credit agreement) commencing with the fiscal year ending on or about January 31, 2008 (which percentage will be reduced to 25% and 0% if we achieve and maintain total net leverage ratios of 6.0 to 1.0 and 5.0 to 1.0, respectively);

    100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property in excess of $25.0 million in the aggregate and subject to our right to reinvest the proceeds; and

    100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the senior secured credit agreement.

        The mandatory prepayments discussed above will be applied to the term loan facility as directed by the senior secured credit agreement.

        In addition, the senior secured credit agreement for the asset-based revolving credit facility requires us to prepay the asset-based revolving credit facility, subject to certain exceptions, with:

    100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of revolving facility collateral (as defined below) in excess of $1.0 million in the aggregate and subject to our right to reinvest the proceeds; and

    to the extent such extensions of credit exceed the then current borrowing bases (as defined in the senior secured credit agreement) for the asset-based revolving credit facility.

        We may be obligated to pay a prepayment premium on the amount repaid under the term loan facility if the term loans are voluntarily repaid in whole or in part before July 6, 2009. We may

65


voluntarily repay outstanding loans under the asset-based revolving credit facility at any time without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans.

        An event of default under the senior secured credit agreements will occur upon a change of control as defined in the senior secured credit agreements governing our New Credit Facilities. Upon an event of default, indebtedness under the New Credit Facilities may be accelerated, in which case we will be required to repay all outstanding loans plus accrued and unpaid interest and all other amounts outstanding under the New Credit Facilities.

        Letters of Credit.     $350.0 million of our asset-based revolving credit facility is available for letters of credit.

        Amortization.     Beginning September 30, 2009, we are required to repay installments on the loans under the term loan credit facility in equal quarterly principal amounts in an aggregate amount per annum equal to 1% of the total funded principal amount at July 6, 2007, with the balance payable on July 6, 2014. There is no amortization under the asset-based revolving credit facility. The entire principal amounts (if any) outstanding under the asset-based revolving credit facility are due and payable in full at maturity, on July 6, 2013, on which day the commitments thereunder will terminate.

        Guarantee and Security.     All obligations under the New Credit Facilities are unconditionally guaranteed by substantially all of our existing and future domestic subsidiaries (excluding certain immaterial subsidiaries and certain subsidiaries designated by us under our senior secured credit agreements as "unrestricted subsidiaries"), referred to, collectively, as U.S. Guarantors.

        All obligations and related guarantees under the term loan facility are secured by:

    a second-priority security interest in all existing and after-acquired inventory, accounts receivable, and other assets arising from such inventory and accounts receivable, of the Company and each U.S. Guarantor (the "Revolving Facility Collateral"), subject to certain exceptions;

    a first priority security interest in, and mortgages on, substantially all of our and each U.S. Guarantor's tangible and intangible assets (other than the Revolving Facility Collateral); and

    a first-priority pledge of 100% of the capital stock held by Dollar General, or any of our domestic subsidiaries that are directly owned by us or one of the U.S. Guarantors and 65% of the voting capital stock of each of our existing and future foreign subsidiaries that are directly owned by us or one of the U.S. Guarantors.

        All obligations and related guarantees under the asset-based revolving credit facility are secured by the Revolving Facility Collateral, subject to certain exceptions.

        Certain Covenants and Events of Default.     The senior secured credit agreements contain a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to:

    incur additional indebtedness;

    sell assets;

    pay dividends and distributions or repurchase our capital stock;

    make investments or acquisitions;

    repay or repurchase subordinated indebtedness (including the senior subordinated notes) or the senior notes;

    amend material agreements governing our subordinated indebtedness (including the senior subordinated notes) or the senior notes; and

66


    change our lines of business.

        The senior secured credit agreements also contain certain customary affirmative covenants and events of default.

        At November 2, 2007, we had $302.0 million of borrowings, $43.7 million of commercial letters of credit, and $68.8 million of standby letters of credit outstanding under our asset-based revolving credit facility.

    Notes

        On July 6, 2007, Buck issued $1,175.0 million aggregate principal amount of 10.625% senior notes due 2015 (the "senior notes") which mature on July 15, 2015 pursuant to an indenture, dated as of July 6, 2007 (the "senior indenture"), and $725 million aggregate principal amount of 11.875%/12.625% senior subordinated toggle notes due 2017 (the "senior subordinated notes"), which mature on July 15, 2017, pursuant to an indenture, dated as of July 6, 2007 (the "senior subordinated indenture"). The senior notes and the senior subordinated notes are collectively referred to herein as the "notes." The senior indenture and the senior subordinated indenture are collectively referred to herein as the "indentures."

        Interest on the notes is payable on January 15 and July 15 of each year, commencing on January 15, 2008. Interest on the senior notes will be payable in cash. Cash interest on the senior subordinated notes will accrue at a rate of 11.875% per annum, and PIK interest (as that term is defined below) will accrue at a rate of 12.625% per annum. The initial interest payment on the senior subordinated notes will be payable in cash. For any interest period thereafter through July 15, 2011, we may elect to pay interest on the senior subordinated notes (i) in cash, (ii) by increasing the principal amount of the senior subordinated notes or issuing new senior subordinated notes ("PIK interest") or (iii) by paying interest on half of the principal amount of the senior subordinated notes in cash interest and half in PIK interest. After July 15, 2011, all interest on the senior subordinated notes will be payable in cash.

        The notes are fully and unconditionally guaranteed by each of the existing and future direct or indirect wholly owned domestic subsidiaries that guarantee the obligations under our New Credit Facilities.

        We may redeem some or all of the notes at any time at redemption prices described or set forth in the indentures.

        Change of Control.     Upon the occurrence of a change of control, which is defined in the indentures, each holder of the notes has the right to require us to repurchase some or all of such holder's notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.

        Covenants.     The indentures contain covenants limiting, among other things, our ability and the ability of our restricted subsidiaries to (subject to certain exceptions):

    incur additional debt, issue disqualified stock or issue certain preferred stock;

    pay dividends on or make certain distributions and other restricted payments;

    create certain liens or encumbrances;

    sell assets;

    enter into transactions with affiliates;

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    make payments to us;

    consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

    designate our subsidiaries as unrestricted subsidiaries.

        Events of Default.     The indentures also provide for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the notes to become or to be declared due and payable.

        Registration Rights Agreement.     On July 6, 2007, we entered into a registration rights agreement with respect to the notes. In the registration rights agreement, we agreed that we will use commercially reasonable efforts to register with the SEC new notes having substantially identical terms as the senior notes and new notes having substantially identical terms as the senior subordinated notes. Once registered, we will offer to exchange the new notes for each of the outstanding senior notes and the outstanding senior subordinated notes.

        We are required to use commercially reasonable efforts to cause the exchange offer to be completed or, if required, to have one or more shelf registration statements declared effective, within 270 days after the issue date of each of the notes.

        If we fail to meet this target, the annual interest rate on the applicable series of notes will increase by 0.25%. The annual interest rate on the applicable series of notes will increase by an additional 0.25% for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest rate of 1.0% per year over the applicable interest rate described above.

    Adjusted EBITDA

        Under the New Credit Facilities and the indentures, certain limitations and restrictions could occur if we are not able to satisfy and remain in compliance with specified financial ratios. Management believes the most significant of such ratios is the senior secured incurrence test under the New Credit Facilities. This test measures the ratio of the senior secured debt to Adjusted EBITDA. This ratio would need to be no greater than 4.25 to 1 to avoid such limitations and restrictions. As of November 2, 2007, this ratio was 3.7 to 1. Senior secured debt is defined as our total debt secured by liens or similar encumbrances less cash and cash equivalents. EBITDA is defined as income (loss) from continuing operations before cumulative effect of change in accounting principle plus interest and other financing costs, net, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA, further adjusted to give effect to adjustments required in calculating this covenant ratio under our New Credit Facilities. EBITDA and Adjusted EBITDA are not presentations made in accordance with GAAP, are not measures of financial performance or condition, liquidity or profitability, and should not be considered as an alternative to (1) net income, operating income or any other performance measures determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements and replacements of fixed assets.

        Our presentation of EBITDA and Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, these presentations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. We believe that the presentation of EBITDA and Adjusted EBITDA is appropriate to provide additional information about the calculation of this financial ratio in the New Credit Facilities. Adjusted EBITDA is a material component of this ratio. Specifically, non-compliance with the senior secured indebtedness

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ratio contained in our New Credit Facilities could prohibit us from being able to incur additional secured indebtedness, other than the additional funding provided for under the senior secured credit agreement and pursuant to specified exceptions, to make investments, to incur liens and to make certain restricted payments.

        The calculation of Adjusted EBITDA under the New Credit Facilities is as follows:

 
  39 Weeks Ended
  12 Months
Ended

 
(in millions)

  November 2,
2007

  November 3,
2006

  November 2,
2007

 
Net income (loss)   $ (68.2 ) $ 87.9   $ (18.1 )
Add (subtract):                    
  Interest income     (7.5 )   (4.8 )   (9.7 )
  Interest expense     158.8     27.0     166.7  
  Depreciation and amortization     170.0     149.9     220.6  
  Income taxes     (22.4 )   55.1     4.9  
   
 
 
 
EBITDA     230.7     315.1     364.4  

Adjustments:

 

 

 

 

 

 

 

 

 

 
  Transaction and related costs     102.6         102.6  
  Loss on debt retirement     6.2         6.2  
  Loss on interest rate swaps     2.1         2.1  
  Contingent loss on distribution center leases     12.0         12.0  
  Impact of markdowns related to inventory clearance activities, including LCM adjustments, net of purchase accounting adjustments     4.1     72.7     91.4  
  SG&A related to store closing and inventory clearance activities     53.8     8.7     78.2  
  Operating losses (cash) of stores to be closed     9.4     8.8     15.5  
  Hurricane Katrina insurance proceeds         (13.0 )    
  Hurricane Katrina expenses and write-offs         1.4      
  Monitoring and consulting fees to affiliates     2.8         2.8  
  Stock option and restricted stock unit expense     5.8         5.8  
  Other     0.7         1.7  
   
 
 
 
Total Adjustments     199.5     78.6     318.3  
   
 
 
 
Adjusted EBITDA   $ 430.2   $ 393.7   $ 682.7  
   
 
 
 

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Critical Accounting Policies and Estimates

        The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. In addition to the estimates presented below, there are other items within our financial statements that require estimation but are not deemed critical as defined below. We believe these estimates are reasonable and appropriate. However, if actual experience differs from the assumptions and other considerations used, the resulting changes could have a material effect on the financial statements taken as a whole.

        Management believes the following policies and estimates are critical because they involve significant judgments, assumptions, and estimates. Management has discussed the development and selection of the critical accounting estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosures presented below relating to those policies and estimates.

        Merchandise Inventories.     Merchandise inventories are stated at the lower of cost or market with cost determined using the retail last-in, first-out ("LIFO") method. Under our retail inventory method ("RIM"), the calculation of gross profit and the resulting valuation of inventories at cost are computed by applying a calculated cost-to-retail inventory ratio to the retail value of sales. The RIM is an averaging method that has been widely used in the retail industry due to its practicality. Also, it is recognized that the use of the RIM will result in valuing inventories at the lower of cost or market ("LCM") if markdowns are currently taken as a reduction of the retail value of inventories.

        Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, initial markups, markdowns, and shrinkage, which significantly impact the gross profit calculation as well as the ending inventory valuation at cost. These significant estimates, coupled with the fact that the RIM is an averaging process, can, under certain circumstances, produce distorted cost figures. Factors that can lead to distortion in the calculation of the inventory balance include:

    applying the RIM to a group of products that is not fairly uniform in terms of its cost and selling price relationship and turnover;

    applying the RIM to transactions over a period of time that include different rates of gross profit, such as those relating to seasonal merchandise;

    inaccurate estimates of inventory shrinkage between the date of the last physical inventory at a store and the financial statement date; and

    inaccurate estimates of LCM and/or LIFO reserves.

        Factors that reduce potential distortion include the use of historical experience in estimating the shrink provision, as discussed below, and the utilization of an independent statistician to assist in the LIFO sampling process and index formulation. As part of this process, we also perform an inventory-aging analysis for determining obsolete inventory. Our policy is to write down inventory to an LCM value based on various management assumptions including estimated below-cost markdowns and sales required to liquidate such aged inventory in future periods. Inventory is reviewed on a quarterly basis and adjusted as appropriate to reflect write-downs determined to be necessary.

        Factors such as slower inventory turnover due to changes in competitors' tactics, consumer preferences, consumer spending and unseasonable weather patterns, among other factors, could cause excess inventory requiring greater than estimated markdowns to entice consumer purchases, resulting in an unfavorable impact on our consolidated financial statements. Sales shortfalls due to the above factors could cause reduced purchases from vendors and associated vendor allowances that would also result in an unfavorable impact on our consolidated financial statements.

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        We calculate our shrink provision based on actual physical inventory results during the fiscal period and an accrual for estimated shrink occurring subsequent to a physical inventory through the end of the fiscal reporting period. This accrual is calculated as a percentage of sales at each retail store, at a department level, and is determined by dividing the book-to-physical inventory adjustments recorded during the previous twelve months by the related sales for the same period for each store. To the extent that subsequent physical inventories yield different results than this estimated accrual, our effective shrink rate for a given reporting period will include the impact of adjusting the estimated results to the actual results. Although we perform physical inventories in virtually all of our stores on an annual basis, the same stores do not necessarily get counted in the same reporting periods from year to year, which could impact comparability in a given reporting period.

        Goodwill and Indefinite-Lived Intangible Assets.     Under SFAS 142, "Goodwill and Other Intangible Assets", we are required to test goodwill and intangible assets with indefinite lives for impairment annually, or more frequently if impairment indicators occur. Significant judgments required in this testing process include projecting future cash flows, determining appropriate discount rates and other assumptions. Projections are based on management's best estimate given recent financial performance, market trends, strategic plans and other available information. Changes in these estimates and assumptions could materially affect the determination of fair value or impairment. Future indicators of impairment could result in an asset impairment charge.

        Purchase Accounting.     The Merger was accounted for as a reverse acquisition in accordance with the purchase accounting provisions of SFAS 141, "Business Combinations," under which our assets and liabilities have been accounted for at their estimated fair values as of the date of the Merger. The aggregate purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed, based upon a preliminary assessment of their relative fair values as of the date of the Merger. The preliminary allocation of the purchase price is subject to the finalization of certain fair values including certain assets being evaluated through appraisals, the final allocation of financing and other costs associated with the Merger, and other items. These estimates of fair values of assets, the allocation of the purchase price and other factors related to the accounting for the Merger are subject to significant judgments and the use of estimates.

        Property and Equipment.     Property and equipment are recorded at cost. We group our assets into relatively homogeneous classes and generally provide for depreciation on a straight-line basis over the estimated average useful life of each asset class, except for leasehold improvements, which are amortized over the shorter of the applicable lease term or the estimated useful life of the asset. Certain store and warehouse fixtures, when fully depreciated, are removed from the cost and related accumulated depreciation and amortization accounts. The valuation and classification of these assets and the assignment of useful depreciable lives involves significant judgments and the use of estimates.

        Impairment of Long-lived Assets.     We review the carrying value of all long-lived assets for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we review for impairment stores open more than two years for which current cash flows from operations are negative. Impairment results when the carrying value of the assets exceeds the undiscounted future cash flows over the life of the lease. Our estimate of undiscounted future cash flows over the lease term is based upon historical operations of the stores and estimates of future store profitability which encompasses many factors that are subject to variability and difficult to predict. If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset's fair value. The fair value is estimated based primarily upon future cash flows (discounted at our credit adjusted risk-free rate) or other reasonable estimates of fair market value.

        Insurance Liabilities.     We retain a significant portion of the risk for our workers' compensation, employee health insurance, general liability, property loss and automobile coverage. These costs are

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significant primarily due to the large employee base and number of stores. At the date of the Merger this liability was discounted to reflect purchase accounting. Subsequent to the Merger, provisions are made to this insurance liability on an undiscounted basis based on actual claim data and estimates of incurred but not reported claims developed using actuarial methodologies based on historical claim trends. If future claim trends deviate from recent historical patterns, we may be required to record additional expenses or expense reductions, which could be material to our future financial results.

        Contingent Liabilities—Income Taxes.     Income tax reserves are determined using the methodology established by the Financial Accounting Standards Board ("FASB") Interpretation 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement 109 ("FIN 48"). FIN 48, which we adopted as of February 3, 2007, requires companies to assess each income tax position taken using a two step process. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position. Uncertain tax positions require determinations and estimated liabilities to be made based on provisions of the tax law which may be subject to change or varying interpretation. If our determinations and estimates prove to be inaccurate, the resulting adjustments could be material to our future financial results.

        Contingent Liabilities—Legal Matters.     We are subject to legal, regulatory and other proceedings and claims. We establish liabilities as appropriate for these claims and proceedings based upon the probability and estimability of losses and to fairly present, in conjunction with the disclosures of these matters in our financial statements, management's view of our exposure. We review outstanding claims and proceedings with external counsel to assess probability and estimates of loss. We re-evaluate these assessments each quarter or as new and significant information becomes available to determine whether a liability should be established or if any existing liability should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded liability. In addition, because it is not permissible under GAAP to establish a litigation liability until the loss is both probable and estimable, in some cases there may be insufficient time to establish a liability prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement). See Note 8 to the consolidated financial statements for the year ended February 2, 2007 and Note 7 to the unaudited condensed consolidated financial statements for the period ended November 2, 2007, included in this prospectus.

        Lease Accounting and Excess Facilities.     The majority of our stores are subject to short-term leases (usually with initial or primary terms of 3 to 5 years) with multiple renewal options when available. We also have stores subject to build-to-suit arrangements with landlords, which typically carry a primary lease term of between 7 and 10 years with multiple renewal options. Approximately half of our stores have provisions for contingent rentals based upon a percentage of defined sales volume. We recognize contingent rental expense when the achievement of specified sales targets is considered probable. We recognize rent expense over the term of the lease. We record minimum rental expense on a straight-line basis over the base, non-cancelable lease term commencing on the date that we take physical possession of the property from the landlord, which normally includes a period prior to store opening to make necessary leasehold improvements and install store fixtures. When a lease contains a predetermined fixed escalation of the minimum rent, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rental expense and the amounts payable under the lease as deferred rent. We also receive tenant allowances, which we record as deferred incentive rent and amortize as a reduction to rent expense over the term of the lease. We reflect as a liability any difference between the calculated expense and the amounts actually paid. Improvements of leased properties are amortized over the shorter of the life of the applicable lease term or the estimated useful life of the asset.

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        For store closures, excluding those associated with a business combination, where a lease obligation still exists, we record the estimated future liability associated with the rental obligation on the date the store is closed in accordance with SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." Based on an overall analysis of store performance and expected trends, management periodically evaluates the need to close underperforming stores. Liabilities are established at the point of closure for the present value of any remaining operating lease obligations, net of estimated sublease income, and at the communication date for severance and other exit costs, as prescribed by SFAS 146. Key assumptions in calculating the liability include the timeframe expected to terminate lease agreements, estimates related to the sublease potential of closed locations, and estimation of other related exit costs. If actual timing and potential termination costs or realization of sublease income differ from our estimates, the resulting liabilities could vary from recorded amounts. These liabilities are reviewed periodically and adjusted when necessary.

        Share-Based Payments.     Our share-based stock option awards are valued on an individual grant basis using the Black-Scholes-Merton closed form option pricing model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the valuation of stock options, which affects compensation expense related to these options. These assumptions include the term that the options are expected to be outstanding, an estimate of the volatility of our stock price (which is based on a peer group of publicly traded companies), applicable interest rates and the dividend yield of our stock. Other factors involving judgments that affect the expensing of share-based payments include estimated forfeiture rates of share-based awards. If our estimates differ materially from actual experience, we may be required to record additional expense or reductions of expense, which could be material to our future financial results.

    Adoption of Accounting Standards

        Prior to February 4, 2006, we accounted for share-based payments using the intrinsic-value-based recognition method prescribed by Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25"). Because stock options were granted at an exercise price equal to the market value of the underlying common stock on the date of grant, employee compensation cost related to stock options generally was not reflected in our results of operations prior to the adoption of SFAS 123(R), "Share-Based Payment." The Compensation Committee of our Board of Directors took action to accelerate the vesting, effective February 3, 2006, of most of our outstanding stock options granted prior to January 24, 2006. The Compensation Committee took this action primarily to reduce non-cash compensation expense to be recorded in future periods under the provisions of SFAS 123(R). However, the Committee also believed this decision benefited employees.

        Effective February 4, 2006, we adopted SFAS 123(R) using the modified-prospective-transition method and began recognizing compensation expense for our share-based payments based on the fair value of the awards on the grant date. For the year ended February 2, 2007, the adoption of the fair value method of SFAS 123(R) resulted in additional share-based compensation expense (a component of SG&A expense) and a corresponding decrease in income before income taxes of $3.6 million, and a decrease in net income of $2.2 million.

        We estimate the fair value of stock options using the Black-Scholes-Merton option pricing model for all option grants. We estimate the expected term using a computation based on an assumption that outstanding options will be exercised approximately halfway through their contractual term, taking into consideration such factors as grant date, expiration date, weighted-average time-to-vest, actual exercises and post-vesting cancellations. We calculate volatility assumptions using actual historical changes in the market value of the stock and implied volatility based upon traded options, weighted equally. We believe that this methodology provides the best indicator of future volatility.

        We adopted the provisions of FIN 48 effective February 3, 2007. The adoption resulted in an $8.9 million decrease in retained earnings and a reclassification of certain amounts between deferred

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income taxes and other noncurrent liabilities to conform to the balance sheet presentation requirements of FIN 48. As of the date of adoption, the total reserve for uncertain tax benefits was $77.9 million. This reserve excludes the federal income tax benefit for the uncertain tax positions related to state income taxes; which is now included in deferred tax assets. As a result of the adoption of FIN 48, the reserve for interest expense related to income taxes was increased to $15.3 million and a reserve for potential penalties of $1.9 million related to uncertain income tax positions was recorded. As of the date of adoption, approximately $27.1 million of the reserve for uncertain tax positions would impact our effective income tax rate if we were to recognize the tax benefit for these positions.

        Subsequent to the adoption of FIN 48, we elected to record income tax related interest and penalties as a component of the provision for income tax expense.

        In December 2007, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 141(R), "Business Combinations." The new standard establishes the requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest (formerly minority interest) in an acquired; provides updated requirements for recognition and measurement of goodwill acquired in a business combination or a gain from a bargain purchase, and provides updated disclosure requirement to enable users of financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is not allowed. No determination has yet been made regarding the potential impact of this Statement on the Company's financial statements.

        In September 2006, the FASB issued SFAS 157, "Fair Value Measurements." SFAS 157 provides guidance for using fair value to measure assets and liabilities. The standard also requires expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances for financial assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. For non-financial assets and liabilities, the effective date has been delayed to fiscal years beginning after November 15, 2008. We currently expect to adopt SFAS 157 during our 2008 and 2009 fiscal years as appropriate. No determination has yet been made regarding the potential impact of this standard on our financial statements.

        In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115." SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. It provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. We currently plan to adopt SFAS 159 during our 2008 fiscal year. No determination has yet been made regarding the potential impact of this standard on the Company's financial statements.

Quantitative and Qualitative Disclosures About Market Risk

    Financial Risk Management

        We are exposed to market risk primarily from adverse changes in interest rates. To minimize this risk, we may periodically use financial instruments, including derivatives. As a matter of policy, we do not buy or sell financial instruments for speculative or trading purposes and all financial instrument transactions must be authorized and executed pursuant to approval by the Board of Directors. All financial instrument positions taken by us are intended to be used to reduce risk by hedging an

74


underlying economic exposure. Because of high correlation between the financial instrument and the underlying exposure being hedged, fluctuations in the value of the financial instruments are generally offset by reciprocal changes in the value of the underlying economic exposure. The financial instruments we use are straightforward instruments with liquid markets.

    Interest Rate Risk

        We are subject to interest rate market risk in connection with our long-term debt. Our principal interest rate exposure relates to outstanding amounts under our New Credit Facilities. Our New Credit Facilities provide for variable rate borrowings of up to $3,425.0 million including availability of $1,125.0 million under our senior secured asset-based revolving credit facility, subject to the borrowing base. Assuming our New Credit Facilities are fully drawn (and without giving effect to the interest rate swap described below), each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense by approximately $4.3 million per year.

        In order to mitigate the variable rate interest exposure under the New Credit Facilities, we entered into interest rate swaps with affiliates of Goldman, Sachs & Co., Lehman Brothers Inc. and Wachovia Capital Markets, LLC. Pursuant to the swaps, which became effective on July 31, 2007, we swapped three month LIBOR rates for fixed interest rates of 4.93% on a notional amount of $2,000.0 million which will amortize on a quarterly basis until maturity at July 31, 2012. At November 2, 2007, the notional amount was $1,890.0 million.

        The interest rate swaps will be accounted for in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" and SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (collectively, "SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized as either assets or liabilities at fair value. Beginning October 12, 2007, we account for the swaps as cash flow hedges and record the effective portion of changes in fair value of the swaps within accumulated other comprehensive income.

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BUSINESS

Our Company

        We are the largest discount retailer in the United States by number of stores, with 8,204 stores located in 35 states, primarily in the southern, southwestern, midwestern and eastern United States, as of November 2, 2007. We serve a broad customer base and offer a focused assortment of everyday items, including basic consumable merchandise and other home, apparel and seasonal products. A majority of our products are priced at $10 or less and approximately 30% of our products are priced at $1 or less. In 2006, our average customer purchase was $9.31.

        We offer a compelling value proposition for our customers based on convenient store locations, easy in and out shopping and highly competitive prices. We believe our combination of value and convenience distinguishes us from other discount, convenience and drugstore retailers, who typically focus on either value or convenience. Our business model is focused on strong and sustainable sales growth, attractive margins and limited maintenance capital expenditure and working capital needs, which result in significant cash flow from operation (before interest).

        We expanded rapidly in recent years, increasing our total number of stores from 5,540 as of February 1, 2002 to 8,229 as of February 2, 2007 (representing an 8.2% compound annual growth rate, or CAGR). Over the same period, we grew our net sales from $5.3 billion to $9.2 billion (representing a 11.5% CAGR), driven by growth in number of stores as well as a five-year average same store sales growth of 3.7%. For the 39 week period ended November 2, 2007, we generated net sales of $6.9 billion, an increase of 4.8% over the same period in the prior year, including a same-store sales increase of 2.8%. We have temporarily decelerated our new store growth rate to enable us to focus on improving the performance of existing stores, including remodeling or relocating a number of stores to improve productivity and enhance the shopping experience for our customers.

Stores

        The traditional Dollar General® store has, on average, approximately 6,900 square feet of selling space and generally serves customers who live within five miles of the store. Of our 8,204 stores as of November 2, 2007, more than half serve communities with populations of 20,000 or less. We believe that our target customers prefer the convenience of a small, neighborhood store with a focused merchandise assortment at value prices.

        We aggressively manage our overhead cost structure and typically seek to locate stores in neighborhoods where rental and operating costs are relatively low. Our stores typically have low fixed costs, with lean staffing of usually two to three employees in the store at any time. In 2005 and 2006, we implemented "EZstore™", our initiative designed to improve inventory flow from our distribution centers, or DCs, to consumers. EZstore has allowed us to reallocate store labor hours to more customer-focused activities, improving the work content in our stores.

        We also attempt to control operating costs by implementing new technology when feasible, including improvements in recent years to our store labor scheduling and store replenishment systems in addition to other improvements to our supply chain and warehousing systems.

Merchandise

        Our merchandise strategy combines a low-cost operating structure with a focused assortment of products that allows us to offer our customers a compelling value proposition, consisting of quality merchandise at competitive prices. We believe our merchandising strategy generates frequent repeat customer purchases and our focused merchandise assortment encourages customers to shop at Dollar General stores for their everyday household needs. We separate our merchandise into the following

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four categories for reporting purposes: highly consumable, seasonal, home products and basic clothing. Highly consumable consists of packaged food, candy, snacks and refrigerated products, health and beauty aids, home cleaning supplies and pet supplies; seasonal consists of seasonal and other holiday-related items, toys, stationery and hardware; and home products consists of housewares and domestics.

        We maintain approximately 4,900 core stock-keeping units, or SKUs, per store and an additional 8,000 non-core SKUs that get rotated in and out of the store over the course of a typical year. The percentage of net sales of each of our four categories of merchandise for the period indicated below was as follows:

 
  2006
  2005
  2004
 
Highly consumable   65.7 % 65.3 % 63.0 %
Seasonal   16.4 % 15.7 % 16.5 %
Home products   10.0 % 10.6 % 11.5 %
Basic clothing   7.9 % 8.4 % 9.0 %

        Our home products and seasonal categories typically account for the highest gross profit margin; and the highly consumable category typically accounts for the lowest gross profit margin.

        We purchase our merchandise from a wide variety of suppliers. Approximately 11% of our purchases in 2006 were from The Procter & Gamble Company. Our next largest supplier accounted for approximately 5% of our purchases in 2006. We directly imported approximately 9% of our purchases at cost in 2006.

Customers

        We serve the basic consumable, household, apparel and seasonal needs of customers, primarily in rural and small markets. According to AC Nielsen's 2006 Homescan® data, in 2006 approximately 41% of our customers had household gross income of less than $30,000 per year. We are also increasingly focused on serving higher income customers and estimate that, in 2006, approximately 38% of our customers were from households with $30,000 to $70,000 of annual income. Our merchandising and operating strategies are primarily designed to meet the needs of these consumers. Approximately 21% of our customers were from households with annual income greater than $70,000.

Recent Strategic Initiatives

        In 2006, we launched strategic initiatives aimed at improving our merchandising and real estate strategies, which we refer to collectively as "Project Alpha." Project Alpha was based upon a comprehensive analysis of the performance of each of our stores and the impact of our inventory model on our ability to effectively serve our customers.

        Our merchandising initiative is meant to move away from our traditional inventory packaway model, where unsold inventory items were stored on-site and returned to the sales floor to be sold the next year, year after year, until the items were eventually sold, damaged or discarded. Our initiative is an attempt to better meet our customers' needs and to ensure an appealing, fresh merchandise selection. With few exceptions, we plan to eliminate through end-of-season and other markdowns existing seasonal, home products and basic clothing packaway merchandise by the end of fiscal 2007. With the exception of certain holiday seasonal and winter apparel items, substantially all of the inventory targeted by this initiative had been sold or eliminated as of November 2, 2007. In addition, in fiscal 2007, we started taking end-of-season markdowns on current-year non-replenishable merchandise, allowing for increased levels of newer, current-season merchandise. We believe this strategy change will enhance the appearance of our stores and will positively impact customer satisfaction as well as the store employees' ability to manage stores, ultimately resulting in higher sales, increased gross profit

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margins, lower employee turnover, and decreased inventory shrink and damages. We also expect that this improved inventory management will result in more appropriate per store inventory levels.

        In 2006, we also initiated a new store layout that we believe will further drive sales growth and margin enhancement through an improved merchandising mix. The new layout was launched in a test mode in early 2006, was improved during the year, and became our standard new and remodeled store format by the end of 2006. As a result of the opening of new stores and the re-formatting of a limited number of existing stores, there were 817 stores operating in this new format as of November 2, 2007. The results have been encouraging, as we have seen additional sales from these new and remodeled stores, including an increased mix of higher margin goods. Additionally, improved merchandise adjacencies and wider, more open aisles have enhanced the overall guest shopping experience.

        We also initiated significant improvements to our real estate practices beginning in 2006. We are fully integrating the functions of site selection, lease renewals, relocations, remodels and store closings and have defined and are implementing rigorous analytical processes for decision-making in those areas. We continue to analyze our real estate performance and to look for ways to further refine and improve our practices. As a first step in our initiative to revitalize our store base, we performed a comprehensive real estate review resulting in the identification of approximately 400 underperforming stores, all of which we closed before the end of our second fiscal quarter of 2007. Additionally, in connection with the Transactions, management has approved a plan to close an additional 60 stores prior to February 1, 2008. These closings are in addition to stores that are typically closed in the normal course of business, which over the last 10 years constituted approximately 1% to 2% of our store base per year. We do not currently expect any additional closures beyond those to be closed in the normal course of business; although, as part of our ongoing real estate practices, we will continue to evaluate our store base for underperforming stores. We have also decelerated our new store growth rate to enable us to focus on improving the performance of existing stores, including remodeling or relocating a number of stores to improve productivity and enhance the shopping experience for our customers. We expect that the completion of Project Alpha will result in a more productive store base.

Our Industry

        We compete in the deep discount segment of the U.S. retail industry. Excluding supercenters (e.g., Wal-Mart), this segment generates approximately $43 billion in sales per year and grew at a 10.2% CAGR between 2000 and 2005. Our competitors are both traditional "dollar stores", as well as other retailers offering discounted convenience items (e.g., Walgreens and CVS). The "dollar store" sector differentiates itself from other forms of retailing in the deep discount segment by offering consistently low prices in a convenient, small-store format. Unlike other formats that have suffered with the rise of Wal-Mart and other discount supercenters, the "dollar store" sector has grown despite the presence of the discount supercenters.

        We believe it is our substantial convenience advantage, at prices comparable to those of supercenters, that allows Dollar General to compete so effectively. As such, Dollar General stores have performed well in the presence of increased competition from Wal-Mart and drugstores. Based on a sample of markets that had relatively high concentrations of Wal-Mart stores, Dollar General stores typically had a higher net sales per square foot and operating profit compared to its stores in markets with lower concentrations of Wal-Mart Stores. Similarly, Dollar General stores in a sample of markets that had relatively high concentrations of CVS stores were more productive on net sales per square foot and operating profit bases while maintaining similar operating margins.

        We believe that there is considerable room for growth in the "dollar store" sector. According to AC Nielsen and Retail Forward, "dollar stores" have been able to increase their penetration across all income brackets in the last 6 years. Though traditional "dollar stores" have high customer penetration, the sector as a whole accounts for only approximately 1.4% of total consumer product goods spending,

78


which we believe leaves ample room for growth. Our merchandising initiatives are aimed at increasing our stores' share of customer spending.

Our Competitive Strengths

        Market Leader in an Attractive Sector with a Growing Customer Base.     We are the largest discount retailer in the U.S. by number of stores, with 8,204 stores in 35 states as of November 2, 2007. We are the largest player in the U.S. small box deep discount segment, with an approximate 21% market share, almost 1.5 times that of our nearest competitor. We believe we are well positioned to further increase our market share as we continue to execute our business strategy and implement our operational initiatives. Our target customers include the approximately 70% of U.S. individuals who earn less than $50,000 per year. According to Neilsen Media Research, in 2006, approximately 65% of households shopped at least once at a discount store (up from 59% in 2001).

        Consistent Sales Growth and Strong Cash Flow Generation.     For over 15 consecutive years, Dollar General has experienced positive annual same store sales growth. Approximately two-thirds of our net sales come from the sale of consumable products, which are less susceptible to economic pressures (such as increased fuel costs and unemployment), with the remaining one-third comprised mainly of basic clothing, seasonal and home products which are subject to little trend or fashion risk. We have a low cost operating model with attractive operating margins, low capital expenditures (approximately 2% of net sales for the 39 weeks ended November 2, 2007) and low working capital needs, resulting in generation of significant cash flow from operations (before interest).

        Differentiated Value Proposition.     Our ability to deliver highly competitive prices in a convenient location and shopping format provides our customers with a compelling shopping experience and distinguishes us from other discount retailers, as well as convenience and drugstore retailers.

        Compelling Unit Economics.     The traditional Dollar General store size, design and location requires initial capital investment and low maintenance capital expenditures, which when combined with strong average unit volumes, or AUV, provides for a quick recovery of store start-up costs. In fiscal 2006, our traditional stores that were open for the entire period had an AUV of $1,115,477 and an average investment in inventory and fixtures of approximately $250,000. The ability of our stores to generate strong cash flows with minimal investment results in a short payback period.

        Efficient Supply Chain.     We believe our distribution network is an integral component of our efforts to reduce transportation expenses and effectively support our growth. In recent years, we have made significant investments in technological improvements and upgrades which have increased our efficiency and capacity to support store growth.

        Experienced and Motivated Management Team.     Over the past two years, we have strengthened our management team with the hiring of David Beré, our President, Chief Operating Officer and Interim Chief Executive Officer, and Beryl Buley, our Division President, Merchandising, Marketing & Supply Chain, and replaced a majority of our senior merchandising and real estate teams. Our leadership team has significant experience and is balanced between industry and Dollar General veterans. In connection with the Transactions, we entered into agreements with certain members of management pursuant to which they elected to invest in Dollar General in an aggregate amount of approximately $10.4 million, including $3.2 million in rollover equity. See "The Transactions."

Our Business Strategy

        Our mission is "Serving Others." To carry out this mission, we have developed a business strategy of providing our customers with a focused assortment of attractively priced merchandise in a convenient, small-store format. We believe this strategy will expand our leadership position within the deep discount segment of the retail U.S. industry while increasing our profitability and maximizing our cash flows.

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        Continue to Deliver Value to Our Customers.     Our ability to deliver highly competitive prices in a convenient shopping format provides our customers with a compelling shopping experience and distinguishes us from other discount retailers, as well as convenience and drugstore retailers. We plan to continue to improve on this value proposition to our customers by implementing operational improvements as described herein that will further enhance our business model.

        Drive Financial Performance through Operating Improvements.     After a period of rapid store growth in the mid to late 1990s and early 2000s and the transition from a close-out retailer, we are now increasingly focused on growing profitability and in the early stages of implementing certain targeted retail practices which are expected to have a substantial impact on our gross profit margins, sales productivity and capital efficiency.

        We are in the early stages of implementing the following targeted retail practices, which we expect will positively impact our gross profit, sales productivity and capital efficiency:

        We also have specific processes designed to continue to improve the customers' experience in our stores, retain store managers and reduce inventory shrink.

        Pursue Measured Store Growth.     While our operational initiatives are focused on increasing our store productivity and profitability and decreasing near term store openings, we believe there are significant opportunities for additional longer term store growth within our existing footprint as well as in new markets. Given our customer demographics and current market penetration, we expect a majority of our new stores to be opened within our existing markets, taking advantage of our local brand awareness while maximizing operating efficiencies.

Seasonality

        Our business is modestly seasonal in nature. We expect to continue to experience seasonal fluctuations, with a larger percentage of our net sales and operating income being realized in the fourth quarter. In addition, our quarterly results can be affected by the timing of new store openings and store closings, the amount of sales contributed by new and existing stores, as well as the timing of certain holidays. We purchase substantial amounts of inventory in the third quarter and incur higher shipping costs and higher payroll costs in anticipation of the increased sales activity during the fourth quarter. In addition, we carry merchandise during our fourth quarter that we do not carry during the rest of the year, such as gift sets, holiday decorations, certain baking items, and a broader assortment of toys and candy.

        The following table reflects the seasonality of net sales, gross profit, and net income (loss) by quarter for each of the quarters of the current fiscal year as well as each of the quarters of the two most recent fiscal years. All of the quarters reflected below are comprised of 13 weeks with the

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exception of the fourth quarter of our fiscal year ended February 3, 2006, which was comprised of 14 weeks.

(in millions)

  1 st
Quarter

  2 nd
Quarter

  3 rd
Quarter

  4 th
Quarter

Year Ending February 1, 2008(a)                        
Net sales   $ 2,275.3   $ 2,347.6   $ 2,312.8      
Gross profit(b)     633.1     623.2     646.8      
Net income (loss)(b)     34.9     (70.1 )   (33.0 )    

Year Ended February 2, 2007

 

 

 

 

 

 

 

 

 

 

 

 
Net sales     2,151.4     2,251.1     2,213.4   $ 2,554.0
Gross profit(b)     584.3     611.5     526.4     646.0
Net income (loss)(b)     47.7     45.5     (5.3 )   50.1

Year Ended February 3, 2006

 

 

 

 

 

 

 

 

 

 

 

 
Net sales     1,977.8     2,066.0     2,057.9     2,480.5
Gross profit     563.3     591.5     579.0     730.9
Net income     64.9     75.6     64.4     145.3

(a)
For comparison purposes, the 2nd quarter includes the results of operations for Buck Acquisition Corp. for the period prior to its merger with and into Dollar General Corporation from March 6, 2007 (its formation) through July 7, 2007 (reflecting the change in fair value of interest rate swaps), and the 2nd quarter pre-merger and post-merger results of Dollar General Corporation for the period from May 5, 2007 through August 3, 2007. We believe this presentation provides a more meaningful understanding of the underlying business.

(b)
Results for the 3rd and 4th quarters of 2006 and the 1st, 2nd, and 3rd quarters of 2007 reflect the impact of Recent Strategic Initiatives as discussed in further detail in "Management's Discussion and Analysis of Results of Operations and Financial Condition".

The Dollar General® Store

        The typical Dollar General store is operated by a manager, an assistant manager and two or more sales clerks.

        Approximately 48% of our stores are located in strip shopping centers, 50% are in freestanding buildings and 2% are in downtown buildings. We generally have not encountered difficulty locating suitable store sites in the past, and management does not currently anticipate experiencing material difficulty in finding future suitable locations.

        Our recent store growth is summarized in the following table:

Year

  Stores at
Beginning Year

  Stores
Opened

  Stores
Closed

  Net Store
Increase
(Decrease)

  Stores at
End of Year

2004   6,700   722   102   620   7,320
2005   7,320   734   125 (a) 609   7,929
2006   7,929   537   237 (b) 300   8,229
2007 (39 weeks)   8,229   323   348 (b) (25 ) 8,204

(a)
Includes 41 stores closed as a result of hurricane damage.

(b)
Includes 128 stores in 2006 and 275 stores in 2007 closed as a result of certain recent strategic initiatives

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Employees

        As of November 2, 2007, we employed approximately 67,800 full-time and part-time employees, including divisional and regional managers, district managers, store managers, and distribution center and administrative personnel. Management believes our relationship with our employees is generally good, and we currently are not a party to any collective bargaining agreements.

Competition

        We operate in the discount retail merchandise business, which is highly competitive with respect to price, store location, merchandise quality, assortment and presentation, in-stock consistency, and customer service. We compete with discount stores and with many other retailers, including mass merchandise, grocery, drug, convenience, variety and other specialty stores. These other retail companies operate stores in many of the areas where we operate and many of them engage in extensive advertising and marketing efforts. Our direct competitors in the dollar store retail category include Family Dollar, Dollar Tree, Fred's, 99 Cents Only and various local, independent operators. Competitors from other retail categories include Wal-Mart and Walgreens, among others. Certain of our competitors have greater financial, distribution, marketing and other resources than we do.

        The dollar store category differentiates itself from other forms of retailing by offering consistently low prices in a convenient, small-store format. We believe that our prices are competitive due in part to our low cost operating structure and the relatively limited assortment of products offered. Historically, we have minimized labor by offering fewer price points and a reliance on simple merchandise presentation. We attempt to locate primarily in second-tier locations, either in small towns or in the neighborhoods of more densely populated areas where occupancy expenses are relatively low. We maintain strong purchasing power due to our leadership position in the dollar store retail category and our focused assortment of merchandise.

Trademarks

        Through our subsidiary, Dollar General Merchandising, Inc., we own marks that are registered with the United States Patent and Trademark Office including the trademarks Dollar General®, Dollar General Market®, Clover Valley®, American Value®, DG Guarantee® and the Dollar General price point designs, along with certain other trademarks. We attempt to obtain registration of our trademarks whenever practicable and to pursue vigorously any infringement of those marks. Our trademarks have various expirations dates; however, assuming that the trademarks are properly renewed, they have a perpetual duration.

Legal Proceedings

        On August 7, 2006, a lawsuit entitled Cynthia Richter, et al. v. Dolgencorp, Inc., et al. was filed in the United States District Court for the Northern District of Alabama (Case No. 7:06-cv-01537-LSC) ("Richter") in which the plaintiff alleges that she and other current and former Dollar General store managers were improperly classified as exempt executive employees under the FLSA and seeks to recover overtime pay, liquidated damages, and attorneys' fees and costs. On August 15, 2006, the Richter plaintiff filed a motion in which she asked the court to certify a nationwide class of current and former store managers. We opposed the plaintiff's motion. On March 23, 2007, the court conditionally certified a nationwide class of individuals who worked for Dollar General as store managers since August 7, 2003. The number of persons who will be included in the class has not been determined, and the court has not approved, the Notice that will be sent to the class.

        On May 30, 2007, the court stayed all proceedings in the case, including the sending of the Notice, to evaluate, among other things, an appeal in the Eleventh Circuit involving claims similar to those raised in this action. That stay has been extended through March 31, 2008. During the stay, the statute of limitations will be tolled for potential class members. At its conclusion, the Court will determine

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whether to extend the stay or to permit this action to proceed. If the Court ultimately permits Notice to issue, we will have an opportunity at the close of the discovery period to seek decertification of the class, and we expect to file such a motion.

        We believe that our store managers are and have been properly classified as exempt employees under the FLSA and that this action is not appropriate for collective action treatment. We intend to vigorously defend this action. However, at this time, it is not possible to predict whether the court will permit this action to proceed collectively, and no assurances can be given that we will be successful in the defense on the merits or otherwise. If we are not successful in our efforts to defend this action, the resolution could have a material adverse effect on our financial statements as a whole.

        On May 18, 2006, we were served with a lawsuit entitled Tammy Brickey, Becky Norman, Rose Rochow, Sandra Cogswell and Melinda Sappington v. Dolgencorp, Inc. and Dollar General Corporation (Western District of New York, Case No. 6:06-cv-06084-DGL, originally filed on February 9, 2006 and amended on May 12, 2006 ("Brickey")). The Brickey plaintiffs seek to proceed collectively under the FLSA and as a class under New York, Ohio, Maryland and North Carolina wage and hour statutes on behalf of, among others, individuals we employed as assistant store managers who claim to be owed wages (including overtime wages) under those statutes. At this time, it is not possible to predict whether the court will permit this action to proceed collectively or as a class. However, we believe that this action is not appropriate for either collective or class treatment and that our wage and hour policies and practices comply with both federal and state law. We plan to vigorously defend this action; however, no assurances can be given that we will be successful in the defense on the merits or otherwise, and, if we are not, the resolution of this action could have a material adverse effect on our financial statements as a whole.

        On March 7, 2006, a complaint was filed in the United States District Court for the Northern District of Alabama (Janet Calvert v. Dolgencorp, Inc., Case No. 2:06-cv-00465-VEH ("Calvert")), in which the plaintiff, a former store manager, alleged that she was paid less than male store managers because of her sex, in violation of the Equal Pay Act and Title VII of the Civil Rights Act of 1964, as amended ("Title VII"). On March 9, 2006, the Calvert complaint was amended to include seven additional plaintiffs, who also allege to have been paid less than males because of their sex, and to add allegations of sex discrimination in promotional opportunities and undefined terms and conditions of employment. In addition to allegations of intentional sex discrimination, the amended Calvert complaint also alleges that our employment policies and practices have a disparate impact on females. The amended Calvert complaint seeks to proceed collectively under the Equal Pay Act and as a class under Title VII, and requests back wages, injunctive and declaratory relief, liquidated damages, punitive damages and attorney's fees and costs.

        On July 9, 2007, the plaintiffs filed a motion in which they asked the court to approve the issuance of notice to a class of current and former female store managers under the Equal Pay Act. We opposed plaintiffs' motion. On November 30, 2007, the court conditionally certified a nationwide class of females under the Equal Pay Act who worked for Dollar General as store managers between November 30, 2004 and November 30, 2007. Notice is expected to issue on or before January 11, 2008, and persons to whom the Notice is sent will be required to opt into the suit on or before March 11, 2008. We will have an opportunity at the close of the discovery period to seek decertification of the Equal Pay Act class, and we expect to file such motion.

        At this time, it is not possible to predict whether the court ultimately will permit Calvert to proceed collectively under the Equal Pay Act or as a class under the Title VII. However, we believe that the case is not appropriate for class or collective treatment and that our policies and practices comply with the Equal Pay Act and Title VII. We intend to vigorously defend the action; however, no assurances can be given that we will be successful in the defense on the merits or otherwise. If we are not successful in defending the Calvert action, its resolution could have a material adverse effect on our financial statements as a whole.

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        On November 9, 2007, we were served with an action entitled Sheneica Nunn, et al. v. Dollar General Corporation, et al. (Circuit Court for Dane County, Wisconsin, Case No. 07CV4178) in which the plaintiff, on behalf of herself and a putative class of African-American applicants, alleges that our criminal background check process disparately impacts African-Americans in violation of Title VII of the Civil Rights Act of 1964, as amended, and the Wisconsin Fair Employment Act. We have removed the case to federal court, and it currently is pending in the United States District Court for the Western District of Wisconsin. At this time, it is not possible to predict whether the court will permit this action to proceed as a class under either Title VII or the Wisconsin statute. However, we believe that this action is not appropriate for class treatment and that our background check policies and practices comply with both federal and state law. We plan to vigorously defend this action; however, no assurances can be given that we will be successful in the defense on the merits or otherwise, and, if we are not, the resolution of this action could have a material adverse effect on our financial statements as a whole.

        On September 8, 2005, we received a request for information from the Environmental Protection Agency (EPA) with respect to Krazy String, a product that was offered for sale in our stores. The EPA asserted that Krazy String contained an aerosol that included an ozone depleting substance in violation of the Clean Air Act. On July 12, 2006, we agreed to an Administrative Compliance Order requiring the destruction of the Krazy String remaining in inventory. After advising us that it was considering imposing a penalty in connection with Krazy String, on February 5, 2007, the EPA proposed a penalty of approximately $800,000. We believed that amount to be excessive under applicable EPA policies. After additional discussions with the EPA on May 7, 2007, we and the EPA agreed in principle on May 31, 2007 to resolve this matter through our payment of a $155,826 penalty. We expect to finalize this settlement within the next 90 days.

        Subsequent to the announcement of the Merger Agreement, we and our directors were named in seven putative class actions alleging claims for breach of fiduciary duty arising out of our proposed sale to KKR. Each of the complaints alleged, among other things, that our directors engaged in "self-dealing" by agreeing to recommend the transaction to our shareholders and that the consideration available to our shareholders in the transaction is unfairly low. On motion of the plaintiffs, each of these cases was transferred to the Sixth Circuit Court for Davidson County, Twentieth Judicial District, at Nashville. By order dated April 26, 2007, the seven lawsuits were consolidated in the court under the caption, "In re: Dollar General," Case No. 07MD-1. On June 13, 2007, the court denied the Plaintiffs' motion for a temporary injunction to block the shareholder vote that was then held on June 21, 2007. On June 22, 2007, the Plaintiffs filed their amended complaint making claims substantially similar to those outlined above. We believe that the foregoing lawsuit is without merit and intend to defend the action vigorously; however, if we are not successful in defending such matter, its resolution could have a material adverse effect on our financial statements as a whole.

        From time to time, we are a party to various other legal actions involving claims incidental to the conduct of our business, including actions by employees, consumers, suppliers, government agencies, or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation, including under federal and state employment laws and wage and hour laws. We believe, based upon information currently available, that such other litigation and claims, both individually and in the aggregate, will be resolved without a material adverse effect on our financial statements as a whole. However, litigation involves an element of uncertainty. Future developments could cause these actions or claims to have a material adverse effect on our results of operations or financial position. In addition, certain of these lawsuits, if decided adversely to us or settled by us, may result in liability material to our financial position or may negatively affect our operating results if changes to our business operation are required.

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Properties

        As of November 2, 2007, we operated 8,204 retail stores located in 35 states as follows:

State

  Number
of Stores

  State

  Number
of Stores

Alabama   441   Nebraska   82
Arizona   48   New Jersey   22
Arkansas   224   New Mexico   42
Colorado   16   New York   222
Delaware   24   North Carolina   463
Florida   418   Ohio   461
Georgia   464   Oklahoma   271
Illinois   308   Pennsylvania   394
Indiana   299   South Carolina   313
Iowa   170   South Dakota   11
Kansas   145   Tennessee   402
Kentucky   298   Texas   976
Louisiana   323   Utah   8
Maryland   58   Vermont   1
Michigan   239   Virginia   245
Minnesota   16   West Virginia   147
Mississippi   260   Wisconsin   86
Missouri   307        

        Most of our stores are located in leased premises. Individual store leases vary as to their terms, rental provisions and expiration dates. The majority of our leases are relatively low-cost, short-term leases (usually with initial or primary terms of three to five years) often with multiple renewal options. We also have stores subject to build-to-suit arrangements with landlords, which typically carry a primary lease term of between 7 and 10 years with multiple renewal options. In recent years, an increasing percentage of our new stores have been subject to build-to-suit arrangements. In 2007, we expect approximately 70% of our new stores to be build-to-suit arrangements.

        As of November 2, 2007, we operated nine DCs, as described in the following table:

Location

  Year Opened
  Approximate
Square Footage

  Approximate
Number of
Stores Served

Scottsville, KY   1959   720,000   903
Ardmore, OK   1994   1,310,000   1,031
South Boston, VA   1997   1,250,000   790
Indianola, MS   1998   820,000   891
Fulton, MO   1999   1,150,000   1,154
Alachua, FL   2000   980,000   692
Zanesville, OH   2001   1,170,000   1,262
Jonesville, SC   2005   1,120,000   804
Marion, IN   2006   1,110,000   677

        We lease the DCs located in Oklahoma, Mississippi and Missouri and own the other six DCs. Approximately 7.25 acres of the land on which our Kentucky DC is located is subject to a ground lease. We lease additional temporary warehouse space as necessary to support our distribution needs.

        Our executive offices are located in approximately 302,000 square feet of leased space in Goodlettsville, Tennessee.

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MANAGEMENT

        As of November 2, 2007, our executive officers and directors were as follows:

Name

  Age
  Position
David L. Beré   54   Interim Chief Executive Officer, President and Chief Operating Officer; Director
David M. Tehle   51   Executive Vice President and Chief Financial Officer
Beryl J. Buley   46   Division President, Merchandising, Marketing & Supply Chain
Kathleen R. Guion   56   Division President, Store Operations & Store Development
Susan S. Lanigan   45   Executive Vice President & General Counsel
Challis M. Lowe   62   Executive Vice President, Human Resources
Anita C. Elliott   42   Senior Vice President & Controller
Wayne Gibson   48   Senior Vice President, Dollar General Market
Raj Agrawal   34   Director
Michael M. Calbert   45   Director
Adrian Jones   43   Director
Dean B. Nelson   49   Director

         Mr. Beré has served as our President and Chief Operating Officer since December 2006. He was named Interim Chief Executive Officer on July 6, 2007. He has been a member of our Board of Directors since 2002. He served from December 2003 until June 2005 as Corporate Vice President of Ralcorp Holdings, Inc. and as the President and Chief Executive Officer of Bakery Chef, Inc., a leading manufacturer of frozen bakery products that was acquired by Ralcorp Holdings in December 2003. From 1998 until the acquisition, Mr. Beré was the President and Chief Executive Officer of Bakery Chef, Inc., and also served on its Board of Directors. From 1996 to 1998, he served as President and Chief Executive Officer of McCain Foods USA, a manufacturer and marketer of frozen foods and a subsidiary of McCain Foods Limited. From 1978 to 1995, Mr. Beré worked for The Quaker Oats Company and served as President of the Breakfast Division from 1992 to 1995 and President of the Golden Grain Division from 1990 to 1992.

         Mr. Tehle joined Dollar General in June 2004 as Executive Vice President and Chief Financial Officer. He served from 1997 to June 2004 as Executive Vice President and Chief Financial Officer of Haggar Corporation, a manufacturing, marketing and retail corporation. From 1996 to 1997, he was Vice President of Finance for a division of The Stanley Works, one of the world's largest manufacturers of tools, and from 1993 to 1996, he was Vice President and Chief Financial Officer of Hat Brands, Inc., a hat manufacturer. Earlier in his career, Mr. Tehle served in a variety of financial-related roles at Ryder System, Inc. and Texas Instruments. Mr. Tehle serves as a director of Jack in the Box, Inc.

         Mr. Buley joined Dollar General in December 2005 as Division President, Merchandising, Marketing and Supply Chain. Prior to joining Dollar General, he served from April 2005 through November 2005 as Executive Vice President, Retail Operations of Mervyn's Department Store, a privately held company operating 265 department stores, where he was responsible for store operations, supply chain (including 4 distribution centers), real estate, construction, visual merchandising and interior planning, and loss prevention. From September 2003 to March 2005, Mr. Buley worked for Sears, Roebuck and Company, a multi-line retailer offering a wide array of merchandise and related services. As Sears' Executive Vice President and General Manager of Retail Store Operations, he was responsible for all store-based activities. Prior to that, he had responsibility for 8 distinct businesses

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operating in over 2,200 locations as Sears' Senior Vice President and General Merchandise Manager of the Specialty Retail Group. Prior to joining Sears, Mr. Buley spent 15 years in various positions with Kohl's Corporation, which operates a chain of specialty department stores, including Executive Vice President of Stores, responsible for store operations, and Senior Vice President of Stores.

         Ms. Guion joined Dollar General in October 2003 as Executive Vice President, Store Operations. She was named Executive Vice President, Store Operations and Store Development in February 2005, and was promoted to Division President, Store Operations and Store Development in November 2005. From 2000 until joining Dollar General, Ms. Guion served as President and Chief Executive Officer of Duke and Long Distributing Company, a convenience store chain operator and wholesale distributor of petroleum products. Prior to that time, she served as an operating partner for Devon Partners (1999-2000), where she developed operating plans and assisted in the identification of acquisition targets in the convenience store industry, and as President and Chief Operating Officer of E-Z Serve Corporation (1997-1998), an owner/operator of convenience stores, mini-marts and gas marts. From 1987 to 1997, Ms. Guion served as the Vice President and General Manager of the largest division (Chesapeake Division) of company-owned stores at 7-Eleven, Inc., a convenience store chain. Other positions held by Ms. Guion during her tenure at 7-Eleven include District Manager, Zone Manager, Operations Manager, and Division Manager (Midwest Division).

         Ms. Lanigan joined Dollar General in July 2002 as Vice President, General Counsel and Corporate Secretary. She was promoted to Senior Vice President in October 2003 and to Executive Vice President in March 2005. Prior to joining Dollar General, Ms. Lanigan served as Senior Vice President, General Counsel and Secretary at Zale Corporation, a specialty retailer of fine jewelry. During her six years with Zale, Ms. Lanigan held various positions, including Associate General Counsel. Prior to that, she held legal positions with both Turner Broadcasting System, Inc. and the law firm of Troutman Sanders LLP.

         Ms. Lowe joined Dollar General as Executive Vice President of Human Resources in September 2005. From 2000 to 2004, Ms. Lowe was Executive Vice President of Human Resources, Corporate Communications, and Public Affairs for Ryder System, Inc., a logistics and transportation services company. She was Executive Vice President of Human Resources and Administration Services for Beneficial Management Corporation, an international consumer finance company, from 1997 to 1999, and Executive Vice President of Human Resources and Communications for Heller International, a commercial finance company, from 1993 to 1997. She also served as Senior Vice President, Administrative Services, for Sanwa Business Credit Corporation from 1985 to 1993. Prior to joining Sanwa, she spent 13 years with Continental Illinois Leasing Corporation and Continental Bank, where her last position was Vice President and Division Head. Ms. Lowe serves as a director of The South Financial Group, Inc.

         Ms. Elliott joined Dollar General as Senior Vice President and Controller in August 2005. Prior to joining Dollar General, she served as Vice President and Controller of Big Lots, Inc., a closeout retailer, from May 2001 to August 2005. Overseeing a staff of 140 employees at Big Lots, she was responsible for accounting operations, financial reporting and internal audit. Prior to serving at Big Lots, she served as Vice President and Controller for Jitney-Jungle Stores of America, Inc., a grocery retailer, from April 1998 to March 2001. At Jitney-Jungle, Ms. Elliott was responsible for the accounting operations and the internal and external financial reporting functions. Prior to serving at Jitney-Jungle, she practiced public accounting for 12 years, 6 of which were with Ernst & Young LLP.

         Mr. Gibson joined Dollar General as Senior Vice President of Dollar General Market in November 2005. Prior to joining Dollar General, he assembled and led teams of investment bankers and private equity fund managers in several mid-sized business acquisition efforts from 2004 to November 2005. He also served as Senior Vice President of Global Logistics (2000-2003) and Vice President of Imports and Logistics (1998-2000) for The Home Depot, Inc., a home improvement

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retailer. He founded Gibson Associates, a management consulting firm, in 1997 and served there until 1998. Prior to that, he served in various positions at Rite Aid Corporation from 1994 to 1997, including Senior Vice President of Logistics. He also served retailers as a management consulting principal (1993-1994) and management consultant (1984-1993) at Deloitte & Touche.

         Mr. Agrawal joined KKR in 2006 and is a member of the Retail and Energy industry teams. Prior to joining KKR, he was a Vice President with Warburg Pincus, where he was involved in the execution and oversight of a number of investments in the energy sector. Mr. Agrawal's prior experience also includes Thayer Capital Partners, where he played a role in the firm's business services investments, and McKinsey & Co., where he provided strategic and M&A advice to clients in a variety of industries. He has been a member of our Board of Directors since July 2007.

         Mr. Calbert has been with KKR for eight years and during that time has been directly involved with several portfolio companies and participated in another four investments. He heads the Retail industry team. Mr. Calbert is currently on the board of directors of Toys "R" Us, Inc. and U.S. Foodservice. Mr. Calbert joined Randalls Food Markets as the Chief Financial Officer in 1994, ultimately taking the company through a transaction with KKR in June 1997. He left Randall's Food Markets after the company was sold in September 1999 and joined KKR. Mr. Calbert started his professional career as a consultant with Arthur Andersen Worldwide, where his primary focus was on the retail/consumer industry. He has been a member of our Board of Directors since July 2007.

         Mr. Jones has been with Goldman, Sachs & Co. since 1994. He is a managing director in Principal Investment Area (PIA) in New York where he focuses on healthcare and consumer-related opportunities and sits on the Global Investment Committee. Mr. Jones joined Goldman, Sachs & Co. as an associate in the Investment Banking Division and, after two years in the Communications and Media Department and mobility assignments in Equity Capital Markets and in the Executive Office of Goldman Sachs International, he joined PIA in London in 1998. He returned to New York with PIA in 2002 and became a managing director later that year. He became a partner in 2004. Mr. Jones is currently on the board of directors of Biomet, Inc., Burger King Holdings, Inc., Education Management Corporation, HealthMarkets, Inc. and Signature Hospital, LLC. He has been a member of our Board of Directors since July 2007.

         Mr. Nelson has been the Chairman of the Board (since April 2003) and was previously President and Chief Executive Officer (since October 2005 – September 2007) of PRIMEDIA Inc., a targeted media company. He has served as the Chief Executive Officer of Capstone Consulting LLC, a strategic consulting firm, since 2000. From August 1985 to February 2000, Mr. Nelson was employed by Boston Consulting Group, Inc., a strategic consulting firm, where he served as a Senior Vice President from December 1998 to February 2000 and held various other positions from August 1985 to November 1998. Mr. Nelson is a member of the Board of Directors of Sealy Corporation and Toys "R" Us, Inc. He has been a member of our Board of Directors since July 2007.

        Except for Mr. Beré, all of our directors are managers of Buck Holdings, LLC. The Second Amended and Restated Limited Liability Company Agreement of Buck Holdings requires that the members of Buck Holdings take all necessary action to ensure that the persons who serve as managers of Buck Holdings also serve on the Board of Directors of Dollar General. In addition, Mr. Beré's employment agreement provides that he will continue to serve as a member of our Board as long as he remains our Interim Chief Executive Officer.

        Our Audit Committee is composed of Messrs. Calbert and Agrawal. Although not formally considered by our Board because our securities are not registered or traded on any national securities exchange, we do not believe that any of our directors would be considered independent for either Board or Audit Committee purposes based upon the listing standards of the New York Stock Exchange (the "NYSE") on which our common stock was listed prior to the Merger. We believe none of our directors would be considered independent because of their relationships with certain affiliates of the

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funds and other entities that hold significant interests in Buck Holdings, which owns over 96.5% of our outstanding common stock on a fully diluted basis, and other relationships with us, all as described more fully under "Certain Relationships and Related Party Transactions."

DIRECTOR COMPENSATION

        The following table and text discuss the compensation of those persons who served as a member of our Board of Directors during all or a portion of 2006 other than David A. Perdue, our former Chairman and Chief Executive Officer, whose compensation is discussed under "Executive Compensation" and who received no additional compensation for his service as a Board member.


Fiscal 2006 Director Compensation

Name

  Fees
Earned or
Paid in
Cash
($)(1)

  Stock
Awards
($)(2)(3)(4)

  Option
Awards
($)(5)

  Non-Equity
Incentive Plan
Compensation
($)

  Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(6)

  All Other
Compensation
($)

  Total
($)

David L. Beré   48,750   84,149         162,359 (7) 295,258
Dennis C. Bottorff   86,750   84,149           170,899
Barbara L. Bowles   81,750   84,149           165,899
James L. Clayton(8)   13,125   34,163         15,382 (9) 62,670
Reginald D. Dickson   57,500   84,149           141,649
E. Gordon Gee   61,250   84,149           145,399
Barbara M. Knuckles   56,375   84,149           140,524
J. Neal Purcell   59,375   84,149           143,524
James D. Robbins   79,500   84,149           163,649
Richard E. Thornburgh(10)   35,625   30,268           65,893
David M. Wilds   81,875   84,149           166,024

(1)
Messrs. Purcell and Thornburgh deferred payments of their director fees under our Deferred Compensation Plan for Non-Employee Directors. Cash amounts deferred during 2006 were as follows: Mr. Purcell ($59,375); and Mr. Thornburgh ($34,375). As a result of the Merger, all accounts held in Deferred Compensation Plan for Non-Employee Directors were distributed. The amount noted in this column for Mr. Wilds includes a $1,250 per diem payment for work as Presiding Director with our Strategic Planning Committee. The amounts noted in this column also include the following per diem amounts for all directors who were not members of the Finance Committee but who were requested to attend a meeting of that Committee to discuss our 2006 budget: Mr. Beré ($1,250); Mr. Clayton ($625); Mr. Dickson ($625); Ms. Knuckles ($625); and Mr. Purcell ($625).

(2)
The amounts set forth in this column represent restricted stock units ("RSUs") granted during 2006 and previous fiscal years under the 1998 Stock Incentive Plan. Each RSU represented the right to receive upon vesting one share of Dollar General common stock. The amounts listed are equal to the compensation cost recognized during fiscal 2006 for financial statement purposes in accordance with Statement of Financial Accounting Standards 123R ("SFAS 123R"), except no assumptions for forfeitures were included. Additional information related to the calculation of the compensation cost is set forth in Note 10 of the annual consolidated financial statements included in this prospectus. As a result of the Merger, all outstanding RSU awards vested and, therefore, all compensation expense associated with such awards was recognized in 2007 in accordance with SFAS 123(R).

(3)
Each of the directors, other than Mr. Clayton, received 4,600 RSUs during 2006 under the 1998 Stock Incentive Plan. The aggregate grant date fair value computed in accordance with SFAS 123R for the RSUs granted to the directors during 2006 is as follows: Mr. Beré ($74,980); Mr. Bottorff ($74,980); Ms. Bowles ($74,980); Mr. Dickson ($74,980); Mr. Gee ($74,980); Ms. Knuckles ($74,980); Mr. Purcell ($74,980); Mr. Robbins ($74,980); Mr. Thornburgh ($60,536); and Mr. Wilds ($74,980).

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(4)
The number of RSUs held by the directors under the 1998 Stock Incentive Plan at February 2, 2007 was as follows: Mr. Beré (13,800); Mr. Bottorff (13,800); Ms. Bowles (13,800); Mr. Clayton (9,200); Mr. Dickson (13,800); Mr. Gee (13,800); Ms. Knuckles (13,800); Mr. Purcell (13,800); Mr. Robbins (13,800); Mr. Thornburgh (4,600); and Mr. Wilds (13,800). Dividend equivalents on the RSUs were credited to the director's RSU account in accordance with the terms of the 1998 Stock Incentive Plan. As a result of the Merger, all outstanding RSU awards granted to directors vested and have been settled in cash.

(5)
No compensation expense was recorded for 2006 for options awarded to directors under the 1998 Stock Incentive Plan because no options were granted to directors during 2006 and all previously awarded options had previously vested. The number of options held by the directors under the 1998 Stock Incentive Plan at February 2, 2007 was as follows: Mr. Beré (9,444); Mr. Bottorff (16,876); Ms. Bowles (12,780); Mr. Clayton (16,876); Mr. Dickson (16,876); Mr. Gee (15,938); Ms. Knuckles (11,150); Mr. Robbins (9,345); and Mr. Wilds (16,876). The number of options held by the directors under the 1995 Outside Directors Stock Option Plan at February 2, 2007 was as follows: Mr. Bottorff (6,423); Mr. Clayton (12,280); Mr. Dickson (12,280); Ms. Knuckles (6,692); and Mr. Wilds (12,280). As a result of the Merger, all outstanding stock options granted to directors have been settled in cash.

(6)
We did not provide above market or preferential earnings on deferred compensation.

(7)
Mr. Beré became an employee on December 4, 2006 and received the following 2006 compensation related to his employment:

Name and Principal Position

  Salary
($)

  All Other Compensation
($)(b)

  Total
($)

David L. Beré, President and
Chief Operating Officer
(a)
  114,426   47,933   162,359

      (a)
      Mr. Beré was subsequently appointed Interim Chief Executive Officer on July 6, 2007.

      (b)
      "All Other Compensation" includes $157 for premiums paid under our life insurance program; $2,917 for our match contributions to the Compensation Deferral Plan; $2,242 for the reimbursement of taxes related to relocation; and $42,617 which represents the incremental cost of providing certain perquisites, including $41,235 relating to relocation, as well as other amounts, which individually did not equal the greater of $25,000 or 10% of total perquisites, for sporting event tickets, a holiday gift of a Sony E-Reader, and golf charges in connection with our annual strategic planning meeting.

(8)
Mr. Clayton retired from our Board of Directors on May 31, 2006.

(9)
Represents the cost of a trip to a resort for Mr. Clayton and his spouse as a retirement gift upon Mr. Clayton's retirement from our Board of Directors.

(10)
Mr. Thornburgh was appointed to our Board of Directors on July 24, 2006.


Narrative to Fiscal 2006 Director Compensation Table

        In 2006, we used a combination of cash and stock-based incentive compensation to attract and retain qualified Board candidates. Any director who also was a Dollar General employee did not receive any separate compensation for Board service, except for Mr. Beré who received compensation for his service as an officer.

        Cash Compensation.     For 2006, we paid non-employee directors an annual cash retainer (payable in quarterly installments) and meeting attendance fees as set forth below. We also paid in quarterly

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installments the following additional annual retainers to each committee chairman and to the Presiding Director.

 
  Other Annual Retainers
  In-Person Meeting Attendance Fees
   
Annual
Cash
Retainer

  Audit
Committee
Chairman

  Other
Committee
Chairman

  Presiding
Director

  Board
Meeting

  Audit
Committee
Meeting

  Other
Committee
Meeting

  Telephonic
Meeting
Attendance
Fee

$ 35,000   $ 20,000   $ 10,000   $ 15,000   $ 1,250   $ 1,500   $ 1,250   $ 625

        We reimbursed directors for certain fees and expenses incurred in connection with continuing education seminars and travel expenses related to Dollar General meeting attendance or requested appearances. We allowed directors to travel on the Dollar General airplane for those purposes.

        Currently, as approved by our Board subsequent to the Merger, cash fees paid to our non-employee directors consist solely of a $40,000 annual retainer fee, payable quarterly in advance, along with the expense reimbursements discussed above. As in 2006, any director who also is a Dollar General employee does not receive any separate compensation for Board service.

        Equity Compensation.     In 2006, we granted 4,600 RSUs to each non-employee director pursuant to our 1998 Stock Incentive Plan. All non-employee directors other than Messrs. Thornburgh and Clayton received the 2006 annual grant on May 31, 2006. Mr. Thornburgh received his 2006 annual grant on July 24, 2006 upon his appointment to our Board. Mr. Clayton did not receive an annual grant for 2006 due to his retirement in May 2006.

        We credited dividend equivalents to the director's RSU account as additional RSUs in accordance with the terms of our 1998 Stock Incentive Plan whenever we declared a dividend other than a stock dividend on our common stock. Directors did not have voting rights with respect to RSUs until the underlying shares of common stock were issued.

        RSUs generally vested one year after the grant date if the director was still serving on our Board. We did not, however, make payment on the vested units until the director ceased to be a member of our Board. Under the terms of the 1998 Stock Incentive Plan, vesting of the RSUs accelerated upon termination of a director's Board service due to death, disability or normal retirement or upon a change-in-control of Dollar General or in the discretion of our Compensation Committee upon a potential change-in-control. The Merger constituted a change-in-control under our 1998 Stock Incentive Plan. Accordingly, all outstanding RSUs vested and were settled in cash in the Merger.

        Prior to June 2, 2003, we also annually granted non-qualified stock options to our non-employee directors under certain stock incentive plans. All of those options have since fully vested and, pursuant to the Merger, were settled in cash.

        We currently no longer make equity grants to our non-employee directors as part of director compensation.

        Stock Ownership Guidelines.     In 2006, as a publicly held company, we required each director to own at least 13,000 shares or share units of our common stock within three years of joining our Board. RSUs and stock options counted towards that requirement. However, because we are now a privately held company, we no longer maintain those stock ownership guidelines.

        Deferred Compensation Program for Non-Employee Directors.     Prior to the Merger, non-employee directors could defer up to 100% of eligible compensation paid by us to them pursuant to a voluntary nonqualified compensation deferral plan known as the Deferred Compensation Plan for Non-Employee Directors. Eligible compensation included the annual retainer(s), meeting fees, and any per diem compensation for special assignments earned by a director for service to the Board or one of its committees. We credited the deferred compensation to a liability account, which was then invested at

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the director's option in one or more accounts that mirrored the performance of funds selected by our Compensation Committee or its delegate (the "Mutual Fund Options") or that mirrored the performance of our common stock (the "Common Stock Option").

        All deferred compensation pursuant to the Deferred Compensation Plan for Non-Employee Directors was immediately due and payable as a result of the Merger, which constituted a change-in-control of Dollar General under the terms of that Plan.

        Our Board elected to terminate the Deferred Compensation Plan for Non-Employee Directors effective as of December 31, 2007.

EXECUTIVE COMPENSATION

        Throughout this prospectus, we refer to the individuals who served as our Chief Executive Officer and Chief Financial Officer during 2006, as well as the other individuals included in the Summary Compensation Table, as our "named executive officers" (or "NEOs").


Compensation Discussion and Analysis

Oversight of Executive Compensation

        Prior to the Merger, our Board of Directors had a standing Compensation Committee that assisted the Board in discharging its responsibilities relating to the compensation of executive officers (including the NEOs). The Committee operated pursuant to a written Charter adopted by the Board and was responsible for recommending our CEO's compensation to the independent directors of our Board who retained sole authority to approve or ratify that compensation. The Committee had the authority to approve the compensation of all other executive officers (including all other NEOs).

        At least three directors served on the Committee, all of whom were "independent directors", as defined in our Corporate Governance Principles in effect prior to the Merger, "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act and "outside directors" within the meaning of Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended. In 2006, the Committee members were Messrs. Bottorff, Dickson and Gee. Mr. Beré served as a Committee member until his appointment as our President and Chief Operating Officer on November 28, 2006, at which time he immediately resigned from all Board committees. As part of a restructuring of all Board committee memberships, Mr. Bottorff replaced Mr. Gee as a member and Chairman of the Committee on November 27, 2006. Mr. Gee was reappointed to the Committee on January 5, 2007 to fill the vacancy created by Mr. Beré's resignation and to help provide continuity with the Committee's prior work. All 2006 compensation decisions were made by this prior Committee. All 2007 compensation decisions made prior to the Merger were made by this prior Committee in consultation with KKR.

        The Compensation Committee met 9 times during 2006. The Compensation Committee was given the opportunity at each regularly scheduled meeting to meet in private session without the presence of management. In addition, the Compensation Committee was given the opportunity at each quarterly meeting and at any other relevant meeting to meet in separate private sessions with each of the compensation consultant, the EVP of Human Resources and the General Counsel.

        We currently no longer have a Compensation Committee. Rather, the Executive Committee of the Board has been authorized to makes decisions regarding the compensation of our executive officers. As of November 2, 2007, the Executive Committee consisted of Messrs. Calbert and Jones. However, to date since the Merger, our Board has made all executive compensation decisions.

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Use of Outside Advisors in Determining Executive Compensation

        The Compensation Committee had the sole authority to select, retain and terminate any consulting firm engaged to assist in the evaluation of NEO compensation, and to approve that firm's fees and other retention terms. The Compensation Committee also had the authority to conduct or authorize studies and investigations into any matters within the scope of its responsibilities and to retain outside advisors for any reason.

        In April 2004, the Compensation Committee selected Hewitt Associates as its compensation consultant after a thorough Committee-led interview process. Hewitt reported directly to the Compensation Committee and had the authority and the ability to contact Committee members directly. Hewitt also provided and continues to provide consulting services to our human resources group, both with respect to the work our management does in connection with NEO compensation (as described in greater detail below under "Management's Role in Determining or Recommending Executive Compensation") and in general employee compensation and benefits matters. Neither the Compensation Committee nor Hewitt believed that providing these services undermined in any way the independence of the advice or information provided to the Committee.

        In 2006, the Compensation Committee approved a written letter of agreement with Hewitt. This agreement described the general terms of Hewitt's working relationship with management and the Compensation Committee. In particular, Hewitt performs executive compensation services as requested from time to time by management or, prior to the Merger, the Compensation Committee. The agreement sets forth a wide range of potential work that Hewitt may be requested to perform, including competitive market pay analysis, support with regard to relevant legal, regulatory and/or accounting considerations impacting compensation programs, assistance with market data, trends, and competitive practices, preparation for and attendance at selected management, Committee or Board meetings and other miscellaneous work as requested.

        As discussed above, we currently no longer have a Compensation Committee and, subsequent to the Merger, the Executive Committee was given the authority to determine NEO compensation. While the letter of agreement with Hewitt remains in effect, the Executive Committee has the authority to retain any outside advisors it deems appropriate and to approve the fees and expenses of those advisors.

Management's Role in Determining or Recommending Executive Compensation

        Management assists Hewitt Associates in gathering and preliminarily analyzing relevant competitive data and identifying and preliminarily evaluating various compensation alternatives. The CEO and the EVP and VP of Human Resources regularly attend and participate in meetings where executive compensation is discussed in order to provide their own viewpoints or to assist Hewitt in making relevant presentations. The CEO participated fully with the Compensation Committee in assessing NEO performance and in making recommendations on the level of compensation for each pay component. None of these persons attended the Compensation Committee's private sessions or the Committee's private session with Hewitt (unless the Committee requested a joint private session with Hewitt and select members of management), and the CEO was not present for any vote concerning his own compensation.

        While the input of Dollar General management is valued and welcomed, all executive compensation decisions ultimately are made by Board or Committee members with the goal of managing executive compensation in the best interests of Dollar General and our shareholders.

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Executive Compensation Philosophy and Objectives

        The goals of our executive compensation strategy are to attract, retain and motivate persons with superior ability, to reward outstanding performance, and to align the long-term interests of our officers with those of our shareholders. Our material compensation principles applicable to NEOs include the following:


Use of Market Benchmarking Data in Determining Executive Compensation

        Our compensation philosophy recognizes the need to pay compensation that is competitive with the external talent market for senior executives in order to attract and retain NEOs who we believe will enhance our overall long-term business results. We believe the primary talent market for NEO positions is retail companies with revenues and product lines similar to ours. For both 2006 and 2007, the Compensation Committee directed Hewitt to provide compensation data on total and individual elements of compensation from its proprietary salary survey database as well as from the proxy statements of selected retail companies that met this criteria. We refer to this combined group as the market comparator group. We believe these companies compete with us for NEO level talent and have executive positions that are similar in breadth, complexity and scope of responsibility to those of our NEOs. The 2006 market comparator group was AutoZone, Barnes & Noble, BJ's Wholesale Club, Circuit City, Dillard's, Family Dollar, Foot Locker, Kohl's, Limited Brands, Long Drug Stores, Nordstrom, OfficeMax, Office Depot, RadioShack, Staples, TJX Companies, J.C. Penney, The Gap, Federated Department Stores, Blockbuster, Big Lots, Ross Stores, PetSmart, Retail Ventures and Payless ShoeSource. The 2007 market comparator group was modified to remove Barnes & Noble, Big Lots, BJ's Wholesale Club, Circuit City, Dillards, Foot Locker, Payless ShoeSource, PetSmart, Retail Ventures, and the TJX Companies. Advance Auto Parts, The Pantry, and SuperValue Inc were added. These changes to the comparator group were made as part of a routine review based on the availability of data, company size and product lines and comparability of business models.

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        Hewitt was also asked to provide information from all other general industry companies for certain positions that are less specific to the retail industry and to serve as additional reference points in assessing the appropriateness of the compensation levels of all NEO level positions.

        The market comparator group does not include all of the companies that are included in the S&P 500 General Merchandise Store Index because we believed that many of these companies are too large or too small to provide an appropriate comparison and that it is more appropriate to compare compensation of our NEOs with that of executives in companies that are more comparable in size in terms of revenue.

NEO Compensation Targets Relative to the Competitive Market

        The Compensation Committee believed that the median of the competitive market was the appropriate target for an NEO's total compensation. However, the target for each of the components of compensation relative to the competitive market varied. In determining each NEO's specific compensation in 2006 and 2007, the Compensation Committee started with the competitive median then considered any unique job responsibilities of each NEO, the importance of that role to us, and our specialized niche in the retail sector. The Compensation Committee, working with Hewitt, tried to fairly account for these unique circumstances not reflected in the market benchmarking data by adjusting that compensation element based on a variety of factors, including the NEO's prior experience, length of service, compensation history and performance, and the relation of the NEO's compensation to other executives and NEOs. Further, competition for talent of a specific NEO position may occasionally require total compensation, or any component of total compensation, to vary from the target.

Elements of NEO Compensation

        We provide compensation in the form of base salary, short-term incentives, long-term incentives, benefits and perquisites. As described in more detail below, the Compensation Committee believed that each of these elements was a necessary component of an NEO's overall compensation package and were consistent components of compensation programs at competing companies. Prior to the Merger, the Compensation Committee reviewed base salary, short-term incentives, and long-term incentives at least annually and other elements periodically when material changes were considered. These reviews included evaluating the relationship of each element to the competitive market, the appropriate mix of each element in determining total compensation and the role of each element in addressing the philosophy described above.

        Base Salary.     Base salary generally assists in fulfilling the recruiting and retention functions of our compensation principles by reflecting the responsibilities of the position, the experience and contribution of the individual, and the salaries for comparable positions in the competitive marketplace. The Compensation Committee believed that we would be unable to attract or retain quality NEOs in the absence of competitive base salary. For this reason, base salary constitutes a significant portion of an NEO's total compensation. The base salary element also assists in fulfilling the pay for performance role of our compensation philosophy because NEOs are not eligible for any base salary increase or annual incentive payment unless they perform satisfactorily against their previously established individual performance goals.

        In determining each NEO's base salary, the Compensation Committee reviewed the benchmarking data provided by Hewitt, as described above, to determine comparable salaries for the position in the market. The Compensation Committee assessed the comparability of the duties and responsibilities of the position to those of the market positions and adjusted the median compensation value of the benchmark position up or down accordingly. The Compensation Committee then reviewed the NEO's experience level and performance, the relationship of the NEO's salary to that of the other NEOs, and

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any other appropriate factor, such as when the NEO was hired or promoted and the relationship of the NEO's salary to that of the other NEOs and executives. The Summary Compensation Table contained in this prospectus shows the amount of base salary earned by each NEO in 2006.

        Individual performance goals were established each year for the CEO by the Compensation Committee and for the other NEOs by the CEO. In 2006, individual goals were based on the areas of our business for which the NEO was responsible, as well as overarching Dollar General goals and initiatives, including measures regarding our growth (revenue, total sales, same store sales, new stores, etc.), market share, merchandising and marketing strategies, shrink improvement, inventory management, distribution and capacity management, new concept development, leadership development, succession planning, diversity, employee benefits, turnover reduction and retention strategies, workplace improvements, customer satisfaction, technology improvements, internal controls, legal and regulatory compliance, and expense control.

        The Compensation Committee approved the following 2006 base salary adjustments:

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        The 2007 individual performance goals for the NEOs were substantially similar to those set for 2006. In addition, the process for determining 2007 base salary adjustments was substantially similar to that followed with respect to 2006 base salary determinations. However, due to certain covenants contained in the Merger Agreement, the Compensation Committee also was bound by limitations imposed by KKR. Accordingly, each NEO received a 3% 2007 base salary increase.

        Short-Term Incentive Plan.     Our short-term incentive plan, called Teamshare, serves to motivate NEOs and all participants to achieve certain financial goals that are established at the start of the fiscal year. Our NEOs may not receive a Teamshare payout unless they perform satisfactorily against their individual performance goals, even if our financial goals are attained. Accordingly, Teamshare fulfills an important part of our pay for performance philosophy, while at the same time aligning the interests of our NEOs with those of our shareholders. It also provides compensation opportunities for our NEOs that are consistent with the compensation opportunities prevalent in the market comparator group and general industry, thus helping to meet the recruiting and retention objectives of our compensation philosophy discussed above.

        Teamshare authorizes the payment of cash bonuses based on our actual performance measured against established business and/or financial performance measures. Within 90 days of the start of each fiscal year, the Board or relevant committee thereof determines who will participate in Teamshare and the performance goal or goals applicable to each chosen performance measure, the relative weight of each performance measure if more than one is selected, and each participant's target bonus percentage. No participant can receive a bonus under the plan in excess of $2.5 million for any fiscal year. No bonus can be paid under the plan unless and until the Board or a relevant committee thereof certifies in writing that the previously established performance goals have been satisfied. The Board or a relevant committee thereof may reduce or eliminate any bonus in its discretion despite achievement of the performance goal but may not increase the amount of bonus payable to an NEO under Teamshare. The plan does not limit the ability to make discretionary payments or awards outside of Teamshare.

        For 2006, the Compensation Committee selected net income as the sole performance measure for determining payouts under the plan because it believed that net income directly reflected several important business results, such as performance against sales, margin and expense targets and indirectly measures asset (or inventory level) controls. Also, many of the companies in our market comparator group used net income as one of their measures of performance for bonus determinations.

        The net income result needed to achieve a Teamshare target payout ($376,895,000) was set to equal our Board-approved annual financial objective. The Compensation Committee then established the threshold performance level at $1 greater than the previous year's actual net income result, or approximately 93% of target net income ($350,154,733), and the maximum performance level at 110% of the 2006 net income target ($414,584,500). The threshold was set so that no Teamshare bonus would be earned unless our 2006 net income at least equaled our 2005 net income.

        The Compensation Committee determined the amount of each NEO's payout target based on benchmarking information provided by Hewitt regarding competitive target incentives of comparable positions in the market comparator group and general industry. The Compensation Committee also set the amounts of the threshold and maximum payout levels for performances below and above the target levels respectively, with payouts prorated between threshold and maximum levels in relation to net income results. For 2006, Hewitt advised that the typical practice in the market comparator group and general industry was to set the target payout percentage at twice that of the threshold payout percentage and the maximum payout percentage at twice that of the target. In order to adopt this more typical and competitive structure, the Compensation Committee set the maximum potential payout levels for NEOs other than Mr. Perdue (see below) at 130% of base salary for 2006 as opposed to 100% of base salary for 2005. As a result, the Teamshare payout range for the NEOs other than

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Mr. Perdue (see below) was set at the following base salary percentages: 32.5% (threshold), 65% (target), and 130% (maximum).

        Hewitt advised that Mr. Perdue's 2005 Teamshare target payout level was low in relation to the market comparator group and general industry and that a target payout level of 100% of base salary was more typical. As a result, the Compensation Committee recommended, and the independent directors approved, Mr. Perdue's 2006 payout levels at the following percentages of base salary: 50% (threshold), 100% (target), and 200% (maximum).

        For 2006, eligibility to receive a payout under Teamshare was determined based on the following objective and subjective criteria: (a) the individual's achievement of a satisfactory performance rating when evaluated against his or her annually established performance objectives; and (b) our achievement of net income goals established by the Compensation Committee at the beginning of 2006.

        As discussed above, each NEO's 2006 performance was deemed to be satisfactory. Accordingly, each NEO was eligible to receive a Teamshare award. However, because we did not meet our 2006 net income threshold goal, NEOs did not receive any Teamshare payouts.

        Nonetheless, over the course of the year it became clear that the Teamshare net income goal was no longer a relevant measure of management's success because of the impact of the critical strategic initiatives begun during the year, including changes to our merchandising markdown strategy; changes to the real estate site selection strategy resulting in slowing the growth in store openings in favor of improved site quality; changing sourcing and packaway strategies; and closing a significant number of stores in underperforming locations. After extensive discussion and analysis, and with the agreement of the full Board of Directors, the Compensation Committee determined that a discretionary bonus payout should be authorized outside of the annual Teamshare bonus plan. This discretionary bonus was made to recognize the significant restructuring and strategic efforts made by employees over the course of the year, to align the 2006 short-term performance incentive more closely to the revitalization strategy, to reward critical employees for their accomplishments towards implementation of that revised strategy, and to motivate and retain the NEOs and employees who were integral to the strategy's continued successful execution.

        After approving the discretionary bonus to substantially all employees who would otherwise have been eligible to participate in Teamshare, the Compensation Committee awarded each NEO, except the CEO (see "Compensation for Mr. Perdue") a 2006 discretionary bonus equal to the threshold amount that would have been paid under the Teamshare plan. These amounts are reflected in the "Bonus" column of the Summary Compensation Table set forth in this prospectus.

        The Compensation Committee also decided to re-evaluate the use of net income as the sole performance measure for 2007. The Compensation Committee planned to consider additional measures used by our competitor companies and which can be tied to accomplishing the milestones in the strategic initiatives that are underway. However, before this decision could be made, we announced our intended sale to KKR and agreed to consult with KKR on significant changes to certain of our normal business practices. KKR requested, and the Compensation Committee agreed, to adopt earnings before interest, taxes, depreciation and amortization (EBITDA), calculated in a similar manner to the definition contained in the indenture relating to the senior notes, as the sole performance measure for the 2007 Teamshare plan. The actual threshold, target and maximum amounts were set in consultation with KKR.

        We do not intend to publicly disclose the specific EBITDA performance targets for the 2007 short-term incentive plan, as they reflect competitive, sensitive information regarding our budget. However, we consider our budget to be challenging, and we have set these targets at levels designed to be generally consistent with the level of difficulty of achievement associated with prior year performance-based awards. While designed to be attainable, we believe target performance levels will require strong performance and execution which in our view provides an incentive firmly aligned with shareholder interests.

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        Long-Term Incentive Program.     Long-term incentives are a critical part of the overall compensation package, motivating executives to focus on achieving success for shareholders over the long-term. These incentives thus assist in achieving a balance between short-term and long-term goals and in aligning our NEOs' and shareholders' interests. We deliver our long-term incentives in the form of equity grants and structure them in such a way as to recognize increases or decreases in the stock price. Prior to the Merger, the Compensation Committee targeted a certain economic value to be delivered through the long-term incentives, but the NEO only realized that targeted value if our stock price increased. Lesser increases or no increase in stock price resulted in the NEOs receiving less than targeted value, while greater stock price increases resulted in the NEOs receiving above target value. Long-term incentives are also included in most compensation packages of the market comparator group as well as most other general industry companies, furthering our program's recruiting and retention objectives.

        The Compensation Committee relied on the competitive compensation information from the market comparator group provided by Hewitt Associates to establish long-term incentive target dollar amounts for each NEO position. The Compensation Committee, with Hewitt's assistance, then determined the form in which the long-term compensation value should be delivered. These decisions were typically made at the Compensation Committee's March/April meeting when the Committee also reviewed compensation benchmarking and other relevant information and evaluated the performance of our NEOs.

        Prior to the Merger, it was our practice to establish the exercise price of options as the closing market price on the grant date. We typically released our annual earnings and other financial results shortly after this meeting. However, the grants were made prior to that release for the reasons stated above, regardless of whether the earnings release was favorable or unfavorable. In accordance with our usual practice, the 2007 annual equity grants were made at the March Committee meeting, except for grants to officers at the level of Executive Vice President or above which were made several days following that meeting after receiving the input and approval of KKR per the terms of the Merger Agreement.

        As a result of the competitive data provided by Hewitt in 2006 and in the past, the Compensation Committee was aware that our prior long-term incentive economic values have been well below those of the competitive market. While considering what long-term incentive awards to grant in 2006, the Compensation Committee decided that these values should be increased to be closer to the market in order to help retain our NEOs, many of whom were relatively new. In considering ways to increase these values, the Compensation Committee considered granting performance-based RSUs in addition to the time-vested stock options and RSUs which have recently comprised the long-term component of NEO compensation. After studying this approach, however, the Compensation Committee decided not to incorporate performance-based RSUs into the 2006 long-term incentive component due to the difficulty inherent in setting goals three years into the future for a company undergoing transformation and implementing significant strategic change. In making this decision, the Compensation Committee was able to draw upon its specific observations of other companies that implemented performance-based plans and the resulting demotivating impact caused by goals set three years into the future that could not be adjusted to recognize significant changes in the business or in the external environment without losing the tax deductibility of the incentive payments.

        At its March 2006 meeting, the Compensation Committee instead decided to increase the long-term compensation value for NEOs by approximately 20-25% by increasing the economic value delivered by time-vested stock options and RSUs. Even with this increase in value, long-term compensation for our NEOs continued to be below the comparative market median. At the same time, the Compensation Committee also decided to change the allocation from the previous 80%/20% (stock options/RSUs) to 70%/30% (stock options/RSUs), which, according to Hewitt, more closely aligned with market practice. The actual grant date fair value of the 2006 stock option and RSU awards and

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the number of options and shares awarded during 2006 to NEOs, are presented in the Grants of Plan-Based Awards Table set forth in this prospectus.

        At its January 2007 meeting, the Compensation Committee decided to further adjust the relationship of options and RSUs to reflect a 50%/50% allocation of the economic value for long-term incentive grants made in 2007. This decision was based in part on the limited availability of shares for use as options under the current shareholder-approved option program and in part to position us for transitioning to a new compensation strategy that will be more effective in retaining key employees.

        In connection with the Merger, outstanding stock options, restricted stock and RSUs became fully vested immediately prior to the closing of the Merger and were settled in cash, canceled or, in limited circumstances, exchanged for new options of Dollar General, as described below. Unless exchanged for new options, each NEO received an amount in cash, without interest and less applicable withholding taxes, equal to $22.00 less the exercise price of each option. Additionally, each restricted stock and RSU holder received $22.00 in cash, without interest and less applicable withholding taxes. Certain stock options held by our management were exchanged for new options to purchase common stock in Dollar General (the "Rollover Options"). The exercise price of the Rollover Options and the number of shares of common stock of Dollar General underlying the Rollover Options were adjusted as a result of the Merger. The Rollover Options otherwise continue under the terms of the equity plans under which they were issued.

        On July 6, 2007, our Board approved and adopted the 2007 Stock Incentive Plan for Key Employees (the "Plan"). The Plan provides for the granting of stock options, stock appreciation rights, and other stock-based awards or dividend equivalent rights to key employees, directors, consultants or other persons having a service relationship with us, our subsidiaries and certain of our affiliates. For certain designated employees including NEOs, the Board required a personal financial investment in the Company in order to be eligible to receive a stock option grant. That investment could be made in the form of cash, rollover of common stock and/or rollover of in-the-money options issued prior to the Merger. In exchange for this investment, we issued shares of common stock and/or in-the-money Rollover Options (see above).

        Since each NEO met the personal investment requirement, on July 6, 2007, the Board approved grants to Mr. Tehle, Mr. Buley, Ms. Guion and Ms. Lowe of non-qualified options to purchase 1,100,000 shares, 875,000 shares, 875,000 shares, and 675,000 shares, respectively of our common stock pursuant to the terms of the Plan. The options are divided so that half are time-vested options and half are EBITDA-based performance vested options, as described further below. The options have an exercise price equivalent to $5.00 per share, which was the fair market value on the grant date.

        The time-vested options vest and become exercisable ratably over a five-year period solely based upon continued employment over that time period.

        The EBITDA-based performance vested options are eligible to vest and become exercisable ratably only if we achieve certain annual EBITDA-based performance targets, as determined in good faith by the Board. Those options also vest and become exercisable on a "catch up" basis if, at the end of fiscal years 2008, 2009, 2010, 2011 or 2012, the applicable cumulative EBITDA-based target is achieved in respect of any such completed fiscal year. We do not intend to publicly disclose the specific EBITDA performance targets for these options as they reflect competitive, sensitive information regarding our budget. However, we consider our budget to be challenging, and we have set these targets at levels designed to be generally consistent with the level of difficulty of achievement associated with prior year performance-based awards. While designed to be attainable, we believe target performance levels will require strong performance and execution which in our view provides an incentive firmly aligned with shareholder interests.

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        The combination of time and performance based vesting of these awards is designed to compensate executives for long-term commitment to us, while motivating sustained increases in our financial performance.

        Benefits and Perquisites.     We provide benefits and limited perquisites to NEOs for retention and recruiting purposes, to promote tax efficiency for the NEOs, and to replace benefit opportunities lost due to regulatory limits. We also provide NEOs with these benefits and perquisites as additional forms of compensation that are believed to be consistent and competitive with benefits and perquisites provided to similar positions in the market comparator group and general industry. The Compensation Committee believed these benefits and perquisites are consistent with the compensation objectives described above as they help to attract and retain NEOs. In addition to certain benefits offered to NEOs on the same terms that are offered to the salaried employee population (such as our 401(k) match and health and welfare plans), we provide NEOs the benefits and perquisites specified below.

        We offer to certain key employees (including our NEOs), the Compensation Deferral Plan (the "CDP") and the defined contribution Supplemental Executive Retirement Plan (the "SERP" and together with the CDP, the "CDP/SERP Plan"). During his tenure with Dollar General, Mr. Perdue, was eligible to participate in the CDP but not the SERP due to his participation in an individual defined benefit SERP. Mr. Perdue's SERP was provided as part of Mr. Perdue's inducement package to join Dollar General in 2003, and was one of the components necessary at that time in attracting him as our CEO. In addition, in January 2006 our Board approved the establishment of a grantor trust to hold certain assets in connection with Mr. Perdue's SERP in the event of a change in control. The Compensation Committee also deemed it appropriate in accordance with competitive practice to reimburse Mr. Perdue for certain legal fees that he incurred as a result of the establishment of this grantor trust. These fees are reported in the "All Other Compensation" column of the Summary Compensation Table set forth in this prospectus. We discuss in detail the CDP/SERP Plan, Mr. Perdue's SERP and the grantor trust after the Nonqualified Deferred Compensation Table and the Pension Benefits Table, respectively, set forth in this prospectus.

        We provide each NEO with a life insurance benefit equal to 2.5 times his or her base salary to a maximum of $3,000,000. We pay the premiums and gross up the NEO's income to pay the tax cost of this benefit. We also provide NEOs with a disability insurance benefit that provides income replacement of 60% of base salary to a maximum monthly benefit of $20,000 ($25,000 for the CEO). We pay the cost of this benefit and gross up the NEO's income to pay the tax cost of this benefit to the extent necessary to replace benefit level caps in the group plan applicable to all salaried employees.

        Each NEO may choose either a leased automobile or a fixed monthly automobile allowance. All NEOs except Ms. Lowe chose the automobile allowance option in 2006 and 2007. Ms. Lowe chose the lease option under which we provide her with a company-leased automobile and pay for her gasoline, repairs, service, and insurance and provide a gross-up payment to pay the tax cost of the imputed income. The incremental costs we incurred related to these benefits in 2006 are reported in the "All Other Compensation" column of the Summary Compensation Table set forth in this prospectus.

        We also provide a relocation assistance program to NEOs similar to that offered to certain other employees. The significant differences from the relocation assistance provided to other employees are as follows:

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        Mr. Buley's relocation to Tennessee was completed in 2006 and the costs we incurred are reported in the "All Other Compensation" column of the Summary Compensation Table set forth in this prospectus.

        As an exception to the normal NEO relocation benefit, the Compensation Committee approved a one-time payment, which was subsequently grossed up to pay the tax cost of the benefit, to Ms. Lowe for miscellaneous expenses she incurred in her relocation to Tennessee. These expenses were in lieu of normal home sale assistance and personal goods shipping costs that Ms. Lowe did not incur in her relocation. The Compensation Committee believed that, based on the experience of moving other executives, had Ms. Lowe incurred these normal relocation costs, they would have been significantly in excess of this exception payment. The amount of the costs we incurred and the gross up are reported in the "All Other Compensation" column of the Summary Compensation Table set forth in this prospectus.

        The Compensation Committee also approved an exception payment to Ms. Guion to gross up the tax cost of relocation expenses she incurred that could not be deducted from her 2006 tax return, since her move to Tennessee did not occur until after the period in which these expenses could have been deducted. The amount of the costs we incurred and the gross up payment is reported in the "All Other Compensation" column of the Summary Compensation Table set forth in this prospectus.

        We also provide to each NEO other minor perquisites such as the opportunity to take an annual physical exam at our expense of up to $1,000, occasional tickets to certain sporting or other entertainment events, a holiday gift, and golf or spa events in connection with our strategic planning meeting. In addition, we believe that our officers' participation on non-profit boards and in community events serves as a positive reflection upon Dollar General and a great example of corporate leadership. Therefore, we support nonprofit organizations for which our officers actively serve as a board or committee member with a maximum total contribution for all charities for which they serve to equal no more than $5,000.

Compensation for Mr. Perdue

        As with the other NEOs, Mr. Perdue's compensation reflected an emphasis on achieving both short and long-term performance results. A substantial portion of his compensation was tied directly to our overall financial performance as well as to non-financial measures, including those derived from our mission statement.

        In March 2006, the Compensation Committee reviewed Mr. Perdue's performance against his previously established 2005 performance goals to determine his eligibility for a base salary increase. Those goals included measures relating to improvements in certain financial metrics (earnings per share, total sales growth, same store sales growth, operating margins, return on invested capital, free cash flow, inventory turns and return on assets), leadership development and succession, strategic planning, our growth, new concept development, distribution and capacity management, inventory management, shrink improvement, workplace improvements, turnover reduction and retention strategies, third party relationships (vendors, analysts, rating agencies, media), corporate governance and ethics, legal matters and internal controls. The Compensation Committee determined that under Mr. Perdue's leadership, Dollar General continued to remain true to each component of its mission of "Serving Others". Because the Compensation Committee was satisfied with Mr. Perdue's performance, Mr. Perdue was eligible in 2006 for both a salary increase and participation in the Teamshare plan to the extent that we achieved our net income goals.

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        However, in anticipation of Mr. Perdue's employment contract expiration on March 31, 2007, in light of the plan to update all officer contracts effective April 1, 2006, in recognition of his performance and in order to send Mr. Perdue a clear and early message of the Board's intent to retain him, the Compensation Committee initiated discussions with Mr. Perdue concerning an early renewal or extension of his contract. These discussions culminated in the Board's September 18, 2006 approval of an extension of Mr. Perdue's employment contract from March 31, 2007 to March 31, 2008. The details of the extended contract are described under "Employment Agreements with NEOs".

        As a result, the Compensation Committee postponed a decision regarding Mr. Perdue's base salary and long-term incentive compensation at the regular executive compensation review session in March 2006. Rather, the Compensation Committee decided to include those decisions in the negotiation process relating to the contract extension.

        As described above, the net income performance level required to qualify for a minimum incentive payout was not met, and Mr. Perdue did not receive a Teamshare payout for 2006. The Compensation Committee considered whether Mr. Perdue should receive a discretionary bonus similar to the discretionary bonuses paid to other NEOs, giving particular weight to Mr. Perdue's request that he not receive a discretionary bonus in 2006. Accordingly, the Compensation Committee recommended that Mr. Perdue not receive a discretionary bonus, and the independent directors of the Board concurred.

        Mr. Perdue resigned from Dollar General effective July 6, 2007. We agreed to treat this resignation as being for "good reason" as defined in his employment agreement. Mr. Perdue executed a release and became entitled to certain severance payments and benefits which are triggered by a resignation for good reason under his employment agreement, subject to Mr. Perdue's continued compliance with certain terms of the employment agreement (including certain restrictive covenants set forth therein). He will also be entitled to payments under his SERP and the CDP. For more information, please see "Potential Payments Upon Termination or Change-In-Control" below.

Employment Agreements with NEOs

        The Compensation Committee authorized an employment contract with Mr. Perdue upon his hire in April 2003. Thereafter, beginning in 2004, the Compensation Committee began offering employment contracts to all officers including the other NEOs because it believed, based on benchmarking data, it was a common protection offered to NEOs at other comparable companies and because contracts were needed to lock-in members of a new management team to execute changes necessary to meet strategic objectives. The Compensation Committee also wanted to give standard protections to the NEOs as well as to Dollar General from a competitive standpoint should the NEO decide to leave our employ. In April 2006, the Compensation Committee approved revisions to each NEO's contract (other than Mr. Perdue) as follows:

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        In September 2006, the Compensation Committee also agreed to extend Mr. Perdue's contract to March 31, 2008 and approved certain other revisions to that contract. During the negotiations, the Compensation Committee relied on the assistance of Hewitt Associates for advice and competitive compensation information to ensure that the contract extension was in the best interests of Dollar General and our shareholders. The Compensation Committee also received internal and external legal advice on various technical matters relating to the contract extension and in documenting its terms. The terms of the contract extension included:


Severance and Change-in-Control Agreements

        As noted above, our NEOs entered into employment agreements with us, which agreements provide, among other things, for each NEO's rights upon a termination of employment. We believe that reasonable and appropriate severance and change-in-control benefits are appropriate to protect the employee against circumstances over which they have no control and as consideration for the promises of non-compete, non-solicit and non-interference that we require in our employment agreements. Furthermore, we believe change-in-control severance payments align executive and shareholder interests by enabling NEOs to evaluate a transaction in the best interests of our shareholders and our other constituents without undue concern over whether the transaction may jeopardize the NEO's own employment. In the case of a change-in-control, all equity awards outstanding prior to the Merger and all CDP/SERP Plan benefits are fully vested under a single trigger, but termination benefits have a double trigger that requires both a change-in-control and a loss of employment within two years after the event under various termination circumstances. Under our newly adopted equity Plan, (i) all time options will vest and become immediately exercisable as to 100% of the shares of common stock

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subject to such options immediately prior to a change in control and (ii) all performance options will vest and become immediately exercisable as to 100% of the shares of common stock subject to such options immediately prior to a change in control if as a result of the change of control, (x) investment funds affiliated with the Sponsor achieve a specified internal rate of return on 100% of their aggregate investment, directly or indirectly, in our equity securities (the "Sponsor Shares") and (y) the investment funds affiliated with the Sponsor earn a specified return on 100% of the Sponsor Shares; provided, however, that in the event that a change in control occurs wherein more than 50% but less than 100% of our common stock or our other voting securities or the common stock or other voting securities of Buck Holdings, L.P. is sold or otherwise disposed of, then, the performance options will become vested up to the same percentage of Sponsor Shares on which such investment funds earn a specified return and achieves a specified internal rate of return.

        A table detailing the compensation and benefit payments that would be made to our NEOs had their employment terminated due to the occurrence of one of various events as of February 2, 2007 is presented under "Potential Payments upon Termination or Change-in-Control" in this prospectus. The Merger constituted a change-in-control for purposes of our plans and arrangements.

Deductibility of NEO Compensation

        Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1 million paid in any fiscal year to an NEO that is not performance-based compensation. We believe that compensation paid in 2006 associated with stock options under our 1998 Stock Incentive Plan would generally be fully deductible for federal income tax purposes. However, in certain situations (such as time-vested RSUs and the discretionary bonus payment) the Compensation Committee approved compensation that did not meet these requirements in order to ensure competitive levels of total compensation for our NEOs. Section 162(m) was not a consideration with respect to 2007 compensation as our common stock is no longer publicly traded.

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Summary Compensation Table
Fiscal 2006

        The following table summarizes compensation paid to or earned by our NEOs for fiscal 2006. None of our NEOs earned any non-equity incentive plan compensation in fiscal 2006.

Name and Principal Position

  Year
  Salary
($)(1)

  Bonus
($)(2)

  Stock
Awards
($)(3)

  Option
Awards
($)(4)(5)

  Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(6)

  All Other
Compensation
($)

  Total
($)

David A. Perdue,
Chairman & Chief Executive Officer*
  2006   1,037,540     1,472,904   87,582   677,541 (7) 151,448 (8) 3,427,015
David M. Tehle,
Executive Vice President & Chief Financial Officer
  2006   580,022   188,500   235,247   194,127     121,126 (9) 1,319,022
Beryl J. Buley,
Division President, Merchandising, Marketing & Supply Chain
  2006   575,022   186,875   183,223   180,669     273,801 (10) 1,399,590
Kathleen R. Guion,
Division President, Store Operations & Store Development
  2006   500,019   162,500   206,455   154,982     151,971 (11) 1,175,927
Challis M. Lowe,
Executive Vice President, Human Resources
  2006   404,182   133,250   130,813   117,933     174,322 (12) 960,500

*
Mr. Perdue resigned effective July 6, 2007.

(1)
All NEOs deferred a portion of their salaries under the CDP, which is included in the Nonqualified Deferred Compensation Table. Each NEO also contributed a portion of his or her salary to our 401(k) Plan.

(2)
We paid a one-time discretionary bonus to these NEOs for fiscal 2006.

(3)
Represents the expense associated with all outstanding awards of restricted stock and RSUs for which we recorded compensation expense during the fiscal year on a straight-line basis over the restriction period based on the market price of the underlying stock on the grant date. Each RSU represented the right to receive upon vesting one share of Dollar General common stock. We credited dividend equivalents to the RSU accounts as additional RSUs at the same rate as dividends paid to all of our shareholders. There were no forfeitures of restricted stock or RSUs held by the NEO during fiscal 2006. For more information regarding the assumptions used in the valuation of these awards, see Note 10 of the annual consolidated financial statements in this prospectus. As a result of the Merger, all outstanding RSU awards vested and, therefore, all compensation expense associated with such awards was recognized in 2007 in accordance with SFAS 123(R).

(4)
Represents the expense associated with all outstanding, unvested, non-qualified stock options for which we recognized compensation expense during fiscal 2006. Each option represented the right to purchase upon vesting and for the exercise price one share of Dollar General common stock. Option awards granted prior to February 4, 2006 were valued on the applicable grant date under the fair value method of SFAS 123 and under the fair value method of SFAS 123(R) for grants awarded after February 4, 2006 using the Black-Scholes option pricing model with the following assumptions:

 
  April 2,
2003

  March 15,
2005

  September 1,
2005

  January 24,
2006

  March 16,
2006

 
Expected dividend yield     .90 %   .85 %   .85 %   1.0 %   .82 %
Expected stock price volatility     37.6 %   27.4 %   25.9 %   24.7 %   28.7 %
Risk-free interest rate     2.04 %   4.25 %   3.71 %   4.31 %   4.7 %
Expected life of options (years)     3.0     5.0     5.0     4.5     5.7  
Exercise price   $ 12.68   $ 22.35   $ 18.51   $ 16.94   $ 17.54  
Stock price on date of grant   $ 12.68   $ 22.35   $ 18.51   $ 16.94   $ 17.54  

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(5)
There were no forfeitures of options held by NEOs during fiscal 2006. For more information regarding the assumptions used in the valuation of these awards, see Note 10 of the annual consolidated financial statements in this prospectus. As a result of the Merger, all outstanding options vested and, therefore, all compensation expense associated with such awards was recognized in 2007 in accordance with SFAS 123(R).

(6)
We do not provide above market or preferential earnings on deferred compensation.

(7)
Represents the change in the actuarial present value of the accumulated benefit under Mr. Perdue's SERP from February 4, 2006 to February 2, 2007.

(8)
Includes $31,429 for premiums paid under our life insurance program, $7,406 for premiums paid under our disability insurance programs, $40,460 for our match contributions to the CDP, $11,417 for our match contributions to the 401(k) Plan, $29,575 for the reimbursement of taxes related to life and disability insurance premiums, and $31,161 which represents the incremental cost of providing certain perquisites, including $21,000 for an annual automobile allowance and other amounts, which individually did not equal the greater of $25,000 or 10% of total perquisites, for reimbursement of legal fees in connection with Mr. Perdue's SERP, tickets to sporting and other entertainment events, golf fees, and spa charges in connection with our annual strategic planning meeting. In addition, Mr. Perdue's spouse accompanied him on various business trips on our airplane which did not result in any incremental cost to us.

(9)
Includes $12,716 for premiums paid under our life insurance program, $2,699 for premiums paid under our disability insurance programs, $43,502 for our contributions to the SERP, $18,001 for our match contributions to the CDP, $11,000 for our match contributions to the 401(k) Plan, $10,587 for the reimbursement of taxes related to life and disability insurance premiums, and $22,621 which represents the incremental cost of providing certain perquisites, including $21,000 for an annual automobile allowance and other amounts, which individually did not equal the greater of $25,000 or 10% of total perquisites, for tickets to sporting and other entertainment events, a holiday gift of a Sony E-Reader, and spa charges in connection with our annual strategic planning meeting.

(10)
Includes $2,033 for premiums paid under our life insurance program, $1,507 for premiums paid under our disability insurance programs, $34,285 for our contributions to the SERP, $26,355 for our match contributions to the CDP, $2,396 for our match contributions to the 401(k) Plan, $1,423 for the reimbursement of taxes related to life and disability insurance premiums, $17,083 for the reimbursement of taxes related to relocation, and $188,719 which represents the incremental cost of providing certain perquisites, including $165,715 for amounts associated with relocation, $21,000 for an annual automobile allowance, and other amounts, which individually did not equal the greater of $25,000 or 10% of total perquisites, for tickets to sporting events, a holiday gift of a Sony E-Reader, golf charges in connection with our annual strategic planning meeting, and a medical physical examination. The aggregate incremental cost related to Mr. Buley's relocation amounts was calculated as follows: $102,075 due to the loss on resale and related expenses of selling his prior home, $6,536 due to lease cancellation fees, $14,985 for temporary living expenses, and $42,119 due to acquisition and moving costs in connection with his new home.

(11)
Includes $7,175 for premiums paid under our life insurance program, $3,333 for premiums paid under our disability insurance program, $22,501 for our contributions to the SERP, $14,001 for our match contributions to the CDP, $10,833 for our match contributions to the 401(k) Plan, $8,810 for the reimbursement of taxes related to life and disability insurance premiums, $15,172 for the reimbursement of taxes related to relocation, and $70,146 which represents the incremental cost of providing certain perquisites, including $42,188 for amounts associated with relocation, $21,000 for an annual automobile allowance and other amounts, which individually did not equal the greater of $25,000 or 10% of total perquisites, for tickets to sporting events, a holiday gift of a Sony

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(12)
Includes $1,449 for premiums paid under our life insurance program, $4,289 for premiums paid under our disability insurance program, $39,236 for our contributions to the SERP, $13,376 for our match contributions to the CDP, $6,834 for our match contributions to the 401(k) Plan, $6,728 for the reimbursement of taxes related to life and disability insurance premiums, $17,704 for the reimbursement of taxes related to relocation, $5,519 for reimbursement of taxes related to the personal use of a company-leased automobile, and $79,187 which represents the incremental cost of providing certain perquisites, including $49,230 for amounts associated with relocation, $23,072 for personal use of a company-leased vehicle, and other amounts, which individually did not equal the greater of $25,000 or 10% of total perquisites, for tickets to entertainment events, a holiday gift of a Sony E-Reader, spa charges in connection with our annual strategic planning meeting, a medical physical examination, and a directed donation to a charity pursuant to the program discussed under "Compensation Discussion & Analysis". The aggregate incremental cost related to Ms. Lowe's relocation amounts was calculated as follows: $40,000 as a miscellaneous cash allowance in lieu of moving household goods and $9,230 due to acquisition and moving costs in connection with her new home.


Grants of Plan-Based Awards During Fiscal 2006

        The table below sets forth information regarding grants of plan-based awards to our NEOs during fiscal 2006. There are no estimated possible payouts under equity incentive plan awards for fiscal 2006.

 
   
   
   
   
  All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(2)

  All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(2)

   
   
 
   
  Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)
  Exercise
or Base
Price of
Option
Awards
($/Sh)

  Grant
Date Fair
Value of
Stock and
Option
Awards
($)

Name

  Grant
Date

  Threshold
($)

  Target
($)

  Maximum
($)

David A. Perdue       550,000   1,100,000   2,200,000        
    9/18/06         365,000       5,204,900
David M. Tehle       188,500   377,000   754,000        
    3/16/06           69,900   17.54   411,739
    3/16/06         10,600       185,924
Beryl J. Buley       186,875   373,750   747,500        
    3/16/06           55,800   17.54   328,684
    3/16/06         8,400       147,336
Kathleen R. Guion       162,500   325,000   650,000        
    3/16/06           55,800   17.54   328,684
    3/16/06         8,400       147,336
Challis M. Lowe       133,250   266,500   533,000        
    3/16/06           50,000   17.54   294,520
    3/16/06         7,600       133,304

(1)
Represents possible threshold, target, and maximum payout levels for grants made under the Teamshare plan established under our Annual Incentive Plan. No amounts under this plan were earned by the NEOs in fiscal 2006.

(2)
Stock awards were grants of RSUs and option awards were grants of non-qualified stock options, all made pursuant to our 1998 Stock Incentive Plan.


Outstanding Equity Awards at 2006 Fiscal Year-End

        The table below sets forth information regarding outstanding equity awards held by our NEOs at the 2006 fiscal year-end. At that time, there were no securities underlying unexercised unearned options

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and no unearned shares, units or other rights that had not vested with respect to any equity incentive plan award. In connection with the Merger, outstanding stock options, restricted stock and RSUs became fully vested immediately prior to the closing of the Merger and were settled in cash, canceled or, in limited circumstances, exchanged for new options of Dollar General, as described below. Unless exchanged for new options, each NEO received an amount in cash, without interest and less applicable withholding taxes, equal to $22.00 less the exercise price of each option. Additionally, each restricted stock and RSU holder received $22.00 in cash, without interest and less applicable withholding taxes. Certain stock options held by our management were exchanged for new options to purchase common stock in Dollar General (the "Rollover Options"). The exercise price of the Rollover Options and the number of shares of common stock of Dollar General underlying the Rollover Options were adjusted as a result of the Merger. The Rollover Options otherwise continue under the terms of the equity plans under which they were issued.

 
  Option Awards
   
   
 
  Stock Awards
 
  Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

  Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable

   
   
Name

  Option
Exercise
Price
($)

  Option
Expiration
Date

  Number of Shares
or Units of Stock
That Have Not
Vested
(#)(1)

  Market Value of
Shares or Units of
Stock That Have
Not Vested
($)(2)


David A. Perdue

 

1,000,000

  (3)



 

12.68

 

4/2/2013

 


475,581


  (4)


8,194,261

David M. Tehle

 


15,750
52,600
62,800


  (6)
  (7)
  (8)

69,900
47,250



  (5)
  (6)



17.54
22.35
18.83
18.75

 

3/16/2016
3/15/2015
8/24/2014
8/9/2014

 





22,427





  (9)





386,417

Beryl J. Buley

 


25,000


  (10)

55,800
75,000

  (5)
  (10)

17.54
16.94

 

3/16/2016
1/24/2016

 



25,530



  (11)



439,882

Kathleen R. Guion

 


12,575
42,000
62,800


  (6)
  (7)
  (12)

55,800
37,725



  (5)
  (6)



17.54
22.35
18.83
20.63

 

3/16/2016
3/15/2015
8/24/2014
12/2/2013

 





18,964





  (13)





326,750

Challis M. Lowe

 


10,500


  (14)

50,000
31,500

  (5)
  (14)

17.54
18.51

 

3/16/2016
9/1/2015

 



18,016



  (15)



310,416

(1)
Includes the number of unvested shares underlying the dividend equivalent units credited to RSU accounts.

(2)
Based on the closing price of Dollar General's common stock on February 2, 2007 ($17.23).

(3)
These options became exercisable in three installments on April 2, 2004, April 2, 2005 and April 2, 2006.

(4)
Includes 31,546 shares of restricted stock that had been scheduled to vest in two equal installments on April 2, 2007 and April 2, 2008; 75,000 RSUs that had been scheduled to vest ratably in three installments on March 16, 2007, March 16, 2008 and March 16, 2009; and 365,000 RSUs that had

109


(5)
These options became or were scheduled to become exercisable ratably in installments of 25% on March 16, 2007, March 16, 2008, March 16, 2009 and March 16, 2010.

(6)
These options became or were scheduled to become exercisable ratably in installments of 25% on March 15, 2006, March 15, 2007, March 15, 2008 and March 15, 2009.

(7)
These options became exercisable in installments of 25% on August 24, 2005 and 75% on February 3, 2006.

(8)
These options became exercisable in installments of 25% on August 9, 2005 and 75% on February 3, 2006.

(9)
Includes 5,000 shares of restricted stock that had been scheduled to vest on August 9, 2007; 2,200 RSUs that had been scheduled to vest on August 24, 2007; 4,333 RSUs that had been scheduled to vest ratably in two installments on March 15, 2007 and March 15, 2008; and 10,600 RSUs that had been scheduled to vest ratably in three installments on March 16, 2007, March 16, 2008 and March 16, 2009.

(10)
These options became or were scheduled to become exercisable ratably in installments of 25% on January 24, 2007, January 24, 2008, January 24, 2009 and January 24, 2010.

(11)
Includes 16,800 RSUs that had been scheduled to vest in two equal installments on January 24, 2008 and January 24, 2009; and 8,400 RSUs that had been scheduled to vest in three equal installments on March 16, 2007, March 16, 2008 and March 16, 2009.

(12)
These options became exercisable in installments of 25% on December 2, 2004 and December 2, 2005 and 50% on February 3, 2006.

(13)
Includes 6,733 RSUs that had been scheduled to vest on August 24, 2007; 3,466 RSUs that had been scheduled to vest ratably in two installments on March 15, 2007 and March 15, 2008; and 8,400 RSUs that had been scheduled to vest ratably in three installments on March 16, 2007, March 16, 2008 and March 16, 2009.

(14)
These options became or were scheduled to become exercisable in installments of 25% on September 1, 2006, September 1, 2007, September 1, 2008 and September 1, 2009.

(15)
Includes 10,133 RSUs that were scheduled to vest ratably in two installments on September 1, 2007 and September 1, 2008; and 7,600 RSUs that were scheduled to vest ratably in three installments on March 16, 2007, March 16, 2008 and March 16, 2009.

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Option Exercises and Stock Vested During Fiscal 2006

        The table below provides information regarding the value realized by our NEOs upon the exercise of stock options and the vesting of stock awards during fiscal 2006.

 
  Option Awards
  Stock Awards
Name

  Number of Shares
Acquired on Exercise
(#)

  Value Realized
on Exercise
($)

  Number of Shares
Acquired on Vesting
(#)(1)

  Value Realized
on Vesting
($)(2)

David A. Perdue       41,000   721,183
David M. Tehle       9,430   133,206
Beryl J. Buley       8,510   146,199
Kathleen R. Guion       8,616   116,305
Challis M. Lowe       5,125   64,631

(1)
Includes the number of shares underlying dividend equivalents that vested in conjunction with the vesting of the related RSUs.

(2)
The value realized is based on the closing market price of the underlying stock on the applicable vesting dates.


Pension Benefits
Fiscal 2006

        We provided retirement benefits to Mr. Perdue under an unfunded, non-qualified defined benefit pension plan, or SERP. As a result of the Merger, which constituted a Change in Control under the terms of the SERP and the grantor trust agreement, and Mr. Perdue's subsequent resignation, Mr. Perdue became 100% vested in his SERP account and the actuarial equivalent of the lump sum value of Mr. Perdue's accrued benefit was funded to the grantor trust. The table below shows the present value as of February 2, 2007 of accumulated benefits payable to Mr. Perdue, including the number of years of credited service earned by him as of that date, under his SERP. The material terms of Mr. Perdue's SERP are discussed following the table.

Name

  Plan Name
  Number of Years
Credited Service
(#)(1)

  Present
Value of
Accumulated Benefit
($)(2)

  Payments During
Last Fiscal Year
($)

David A. Perdue   Supplemental Executive Retirement Plan for David A. Perdue   6   1,848,238  

(1)
Mr. Perdue joined Dollar General on April 2, 2003 and had three actual years of employment service as of February 2, 2007. Mr. Perdue received two years of credited service for vesting and benefit accrual purposes for each of these years of employment.

(2)
Represented the actuarial present value as of February 2, 2007 of the benefit computed as of the same pension plan measurement date, discount rate, and lump sum interest rate used for financial statement reporting purposes. No pre-retirement decrements were assumed. The benefit was calculated assuming Mr. Perdue retired at age 60, the earliest age he could retire without a penalty for early commencement. The actuarial present value of the additional three years of credited service earned under the two-for-one crediting agreement for Mr. Perdue's first three years of employment was $924,199.

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        Mr. Perdue's SERP provided an annual normal retirement benefit equal to 25% of "final average compensation" upon retirement on or after his "normal retirement date", payable as a joint and 50% spouse annuity assuming the spouse is the same age as Mr. Perdue. Mr. Perdue could elect to receive his benefit as a lump sum or any annuity form that is the actuarial equivalent of the normal retirement benefit.

        Mr. Perdue's benefit was based on early retirement eligibility after 10 years of credited service, with benefits prorated based on actual credited service divided by 15 if Mr. Perdue retired with less than 15 years of credited service. The benefit was reduced 5% for each year or portion thereof that Mr. Perdue retired before age 60.

        Since Mr. Perdue resigned for good reason within 2 years of a change-in-control (as defined in the SERP), he is entitled to a benefit based on his years of credited service earned at the time of termination plus 5 additional years of credited service, subject to the SERP maximum of 15 years. The total years of credited service used to calculate Mr. Perdue's benefit was 14. Mr. Perdue's base salary and "applicable annual bonus" were deemed to be paid during the 5 additional years of credited service for the purpose of calculating his "final average compensation".

        Mr. Perdue's SERP account will be paid following a 6 month deferral in payment as required by tax law and subject to his providing a release of claims against us as required in his employment agreement.

        "Applicable annual bonus" is the greater of the actual bonus paid for the immediately preceding fiscal year or the target annual bonus for the current fiscal year.

        "Final average compensation" is calculated as Mr. Perdue's base salary plus his incentive "Teamshare" bonus earned in a fiscal year for the highest 3 consecutive fiscal years of credited service out of the last 10 preceding retirement or termination of employment. For the purpose of his benefit calculation, Mr. Perdue's final average compensation was $2,266,000.

        For the purpose of calculating Mr. Perdue's accumulated benefit, "normal retirement date" is the first of the month coincident with or next following the later of the date Mr. Perdue attains age 60 or is credited with 15 years of credited service.

        We have established a grantor trust that provides for assets in connection with Mr. Perdue's SERP to be placed in the trust upon a change-in-control (as defined in the grantor trust) of Dollar General. The trust's assets are subject to the claims of Dollar General's creditors. The trust also provides for a distribution to Mr. Perdue to pay certain taxes in the event he is taxed in connection with the funding of the trust and to apply interest at the rate of 6% per annum in the event payment is delayed due to Section 409A of Code. As a result of the Merger, and since the payment was determined to be subject to 409A delay, a deposit of $6,208,962 was made to the trust representing the lump sum and interest value of Mr. Perdue's benefit. This will be paid to Mr. Perdue on January 7, 2008.


Nonqualified Deferred Compensation
Fiscal 2006

        As discussed above, we offer a CDP/SERP Plan to certain key employees, including the NEOs. Mr. Perdue was not eligible to participate in the SERP portion of the CDP/SERP Plan due to his participation in his individualized SERP discussed under "Pension Benefits" above. Information

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regarding the NEOs' participation in the CDP/SERP Plan is included in the following table. The material terms of the CDP/SERP Plan are described after the table.

Name

  Executive
Contributions in
Last FY
($)(1)

  Registrant
Contributions in
Last FY
($)(2)

  Aggregate
Earnings in
Last FY
($)

  Aggregate
Withdrawals/
Distributions
($)

  Aggregate
Balance
at Last
FYE
($)

 
David A. Perdue   51,877   40,460   27,685     342,013 (3)
David M. Tehle   40,602   61,503   13,636     208,014 (4)
Beryl J. Buley   28,751   60,640   7,476     101,659 (5)
Kathleen R. Guion   25,001   36,502   17,294     189,459 (6)
Challis M. Lowe   38,885   52,611   4,583     100,591  

(1)
Reported as "Salary" in the Summary Compensation Table.

(2)
Reported as "All Other Compensation" in the Summary Compensation Table.

(3)
Includes the following amounts reported in the Summary Compensation Table in the proxy statement for the fiscal years indicated: $94,670 in 2005; $84,253 in 2004; and $7,500 in 2003.

(4)
Includes the following amounts reported in the Summary Compensation Table in the proxy statement for the fiscal years indicated: $84,387 in 2005; and $3,333 in 2004.

(5)
Includes $4,792 reported in the Summary Compensation Table in the proxy statement for fiscal 2005.

(6)
Includes the following amounts reported in the Summary Compensation Table in the proxy statement for the fiscal years indicated: $43,168 in 2005; and $57,689 in 2004.

        Pursuant to the CDP, participants may annually elect to defer up to 65% of base salary and up to 100% of bonus pay. Participants make deferral elections in November of each year for amounts to be earned in the following year. We currently match base pay deferrals at a rate of 100%, up to 5% of annual salary, with annual salary offset by the amount of match-eligible salary deferred into the 401(k) plan. All participants are 100% vested in all compensation and matching deferrals and earnings on those deferrals.

        Pursuant to the SERP, we make an annual contribution equal to a certain percentage of a participant's annual salary and bonus to all participants who are actively employed in an eligible job grade on January 1 and continue to be employed as of December 31 of a given year. The contribution percentage is based on age, years of service and job grade. The 2006 contribution percentage for each eligible NEO was 7.5% (Mr. Tehle); 4.5% (Mr. Buley); 4.5% (Ms. Guion); and 7.5% (Ms. Lowe). As a result of the Merger which constituted a "change in control" under the CDP/SERP Plan, all previously unvested SERP amounts vested on July 6, 2007. For newly eligible SERP participants after July 6, 2007, SERP amounts vest at the earlier of the participant's attainment of age 50 or the participant's being credited with 10 or more "years of service", or upon termination of employment due to death or "total and permanent disability" or upon a "change in control," all as defined in the CDP/SERP Plan.

        The amounts deferred or contributed to the CDP/SERP Plan are credited to a liability account, which is then invested at the participant's option in either an account that mirrors the performance of a fund or funds selected by the Compensation Committee or its delegate (the "Mutual Fund Options") or, prior to the Merger, in an account that mirrors the performance of our common stock (the "Common Stock Option"). A participant who ceases employment when he is credited with at least 10 years of service or after he has reached age 50 and whose CDP account balance or SERP account balance exceeds $25,000 may elect for that account balance to be paid in cash by (a) lump sum, (b) monthly installments over a 5, 10 or 15-year period or (c) a combination of lump sum and

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installments. Otherwise, payment is made in a lump sum. The vested amount will be payable at the time designated by the Plan upon the participant's termination of employment or retirement. A participant's CDP/SERP benefit normally is payable in the following February if he or she ceases employment during the first 6 months of a calendar year or is payable in the following August if he or she ceases employment during the last 6 months of a calendar year. However, participants may elect to receive an in-service lump sum distribution of vested amounts credited to the CDP account, provided that the date of distribution is no sooner than 5 years after the end of the year in which amounts are deferred. In addition, a participant who is actively employed may request to receive an "unforeseeable emergency hardship" in-service lump sum distribution of vested amounts credited to his CDP account. Account balances deemed to be invested in the Mutual Fund Options are payable in cash and, prior to the Merger, account balances deemed to be invested in the Common Stock Option were payable in shares of Dollar General common stock and cash in lieu of fractional shares.

        As a result of the Merger, the CDP/SERP Plan liabilities were fully funded into an irrevocable rabbi trust. All account balances deemed to be invested in the Common Stock Option were liquidated at a value of $22.00 per share and the proceeds were mapped to an existing Mutual Fund Option within the Plan.


Potential Payments upon Termination or Change-in-Control

        The tables below reflect potential payments to each of our NEOs in various termination and change-in-control scenarios based on compensation, benefit and equity levels in effect on February 2, 2007. The amounts shown assume that the termination was effective as of February 2, 2007. For stock valuations, we have assumed that the price per share is the closing market price of our stock on February 2, 2007 ($17.23). The amounts shown are merely estimates. We cannot determine the actual amounts to be paid until the time of the NEO's service termination. The discussion below regarding Mr. Perdue explains the amounts set forth in the accompanying table under all termination scenarios. However, Mr. Perdue's employment actually terminated effective July 6, 2007. We agreed to treat this resignation as being for "good reason" as defined in his employment agreement. In addition, the Merger constituted a change-in-control for purposes of our plans and other arrangements with our NEOs.

Payments Regardless of Manner of Termination

        Regardless of the termination scenario, the NEO (other than Mr. Perdue) will receive any earned but unpaid base salary through the service termination date, along with any other benefits owed under any of our plans or agreements covering the officer as governed by the terms of that plan or agreement. These benefits include vested amounts in the CDP/SERP Plan discussed after the Nonqualified Deferred Compensation Table in this prospectus.

        Regardless of the manner in which Mr. Perdue's employment terminates, but subject to any 6-month delay in payment required for tax law purposes, he will receive a lump sum payment equal to any earned but unpaid base salary through his service termination date, any accrued expenses and vacation pay and, unless he elected a different payout in a prior deferral election, any compensation previously deferred along with accrued interest and earnings. This payment will be made in accordance with our normal payroll cycle and procedures and in due course, rather than in a lump sum, in the event Mr. Perdue is terminated for cause as discussed under "Payments Upon Involuntary Termination" below. He also will receive timely payment or provision of any other accrued amounts or benefits required to be paid or provided or which he is eligible to receive under any of our plans, practices or agreements. These benefits include amounts payable pursuant to his SERP described after the Pension Benefits table in this prospectus and his CDP benefit discussed above after the Nonqualified Deferred Compensation Table.

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        The tables below exclude any amounts payable to the NEO to the extent that they are available generally to all salaried employees and do not discriminate in favor of our executive officers.

        Mr. Perdue will forfeit any unpaid amounts he otherwise would be entitled to receive upon termination of his employment if he breaches any provision of his employment agreement, including breach of any business protection provisions. These business protection provisions include the following obligations:

Payments Upon Termination Due to Retirement

        In the event of retirement, in addition to the items identified under "Payments Regardless of Manner of Termination" above, all unvested equity grants will be forfeited, vested stock options generally may be exercised for 3 years from the service termination date unless the options expire earlier, and vested RSUs will settle in due course. To be entitled to the extended option exercise period, the retirement must occur on or after the NEO reaches the age of 65 or, with our express consent, prior to age 65 in accordance with any applicable early retirement policy then in effect or as may be approved by our Compensation Committee. The enhancement of Mr. Perdue's SERP benefit upon retirement is discussed above following the Pension Benefits Table.

Payments Upon Termination Due to Death or Disability

        In the event of death or disability, in addition to the items identified under "Payments Regardless of Manner of Termination" above:

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        For purposes of the NEOs' employment agreements and Mr. Perdue's SERP, "disability" means the employee must be disabled for purposes of our long-term disability insurance plan or, if no plan is in effect or if that plan is not applicable, the employee's inability to perform the functions of his or her regular duties and responsibilities. For purposes of the CDP/SERP Plan, disability means total and permanent disability for purposes of entitlement to Social Security disability benefits.

Payments Upon Voluntary Termination

        The payments to be made to an NEO upon voluntary termination vary depending upon whether the NEO resigns with or without "good reason" or after our failure to offer to renew, extend or replace the NEO's employment agreement under certain circumstances. For purposes of each NEO, "good reason" means (as more fully described in the applicable employment agreement):

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        In addition to the reasons identified above, for purposes of each NEO other than Mr. Perdue "good reason" means (as more fully described in the applicable employment agreement):

        In addition to the reasons identified above applicable to all NEOs, for purposes of Mr. Perdue "good reason" means (as more fully described in his employment agreement):

        For NEOs other than Mr. Perdue, no event will constitute "good reason" if we cure the claimed event within 30 days after receiving notice from the NEO. For Mr. Perdue, no event will constitute "good reason" unless he notifies our Board within 90 days of the occurrence of the circumstance he believes constitutes good reason or if we cure the claimed event (other than the failure of a successor to assume his agreement) within 30 days of that notice.

        Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement.     In the event the NEO resigns with good reason or within 60 days of our failure to offer to renew, extend or replace the NEO's employment agreement before, at or within 60 days after the end of the agreement's term (unless we enter into a mutually acceptable severance arrangement or, in the case of an NEO other than Mr. Perdue, the resignation is a result of the NEO's voluntary retirement or termination or, in the case of Mr. Perdue, the resignation is the result of his voluntary retirement at or after age 62), in addition to the items identified under "Payments Regardless of Manner of Termination" a