Exhibit 10.7


 


Execution Copy


 


MANAGEMENT AGREEMENT


 


MANAGEMENT AGREEMENT (this "Agreement") made as of
this 21st day of August, 2003 by and among Bruckmann, Rosser,
Sherrill & Co., LLC, a Delaware limited liability company ("BRS"),
FS Private Investments III LLC (d/b/a Jefferies Capital Partners), a Delaware
limited liability company ("Jefferies" and, together with BRS,
the "Service Providers" and each individually, a "Service
Provider"), and Sheridan Acquisition Corp. (the "Company"),
a Delaware corporation to be merged with and into The Sheridan Group, Inc., a
Maryland corporation ("TSG").


 


W  I  T  N
E  S  S  E  T  H:


 


WHEREAS, the Company desires to retain the Service Providers to provide
business and organizational strategy, financial and investment management and
advisory services to the Company upon the terms and conditions hereinafter set
forth, and the Service Providers are willing to undertake such obligations.


 


NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties, intending to be legally bound, agree as
follows:


 


1.                                               Appointment.  The Company hereby engages the Service
Providers, and the Service Providers hereby agree, upon the terms and subject
to the conditions set forth herein, to provide certain services to the Company
as described in Section 3 hereof.


 


2.                                               Term.  The term of this Agreement (the "Term")
shall be for an initial term expiring ten years after the date hereof.  Such term shall be renewed automatically for
additional one-year terms thereafter unless the Service Providers or the
Company shall give notice in writing within 90 days before the expiration of
the initial term or any one-year renewal thereof of its desire to terminate
this Agreement.  The provisions of Section
6 and such other provisions of this Agreement as the context so requires shall
survive the termination of this Agreement.


 


3.                                               Duties
of the Service Providers.  The
Service Providers shall provide the Company with business and organizational
strategy, financial and investment management and advisory services, as the
Company may reasonably request from time to time, as well as investment banking
and financial advisory services in connection with the closing of the
transactions under the Stock Purchase Agreement dated August 21, 2003 (the
"Purchase Agreement") by and among the Company, TSG and the
shareholders, optionholders and warrantholders of TSG (collectively, the "Services").


 


The Company will use the Services of the Service Providers and the
Service Providers will make themselves available for the performance of the
Services upon reasonable notice.  The
Service Providers will perform the Services at the times and places reasonably
requested by the Company to meet its needs and requirements, taking into
account other engagements that the Service Providers may have.


 

















 


3.1.                                  Exclusions
from Services.  Notwithstanding
anything in the foregoing to the contrary, the following services are
specifically excluded from the definition of "Services":


 


(i)                                           Independent
Accounting Services.  Accounting
services rendered to the Company or the Service Providers by an independent
accounting firm or accountant (i.e., an accountant who is not an employee of
the Service Providers);


 


(ii)                                      Legal
Services.  Legal services rendered
to the Company or the Service Providers by an independent law firm or attorney
(i.e., an attorney who is not an employee of the Service Providers);


 


(iii)                                 Transaction
Services.  Except in connection with
the Purchase Agreement, Services rendered in connection with any transaction
(including, without limitation, any merger, acquisition, recapitalization,
divestiture or financing) in which the Company or any of its subsidiaries or
affiliates may be, or may consider becoming, involved ("Transaction
Services"); it being understood that before the Company or any of its
subsidiaries or affiliates engages any person or entity to provide any
Transaction Services, BRS and Jefferies shall be first approached and shall
have a 30 day period during which they may decide (upon the mutual agreement of
the Service Providers) to perform (either jointly or severally), for an
additional fee to be established at such time, any such Transaction Services;
and


 


(iv)                                    Independent
Actuarial Services.  Actuarial
services rendered to the Company or the Service Providers by an independent
actuarial firm or actuary (i.e., an actuary who is not an employee of the
Service Providers).


 


4.                                               Powers
of the Service Providers.  So that
they may properly perform their duties hereunder, the Service Providers shall,
subject to Section 7 hereof, have the authority to do all things necessary and
proper to carry out the duties set forth in Section 3.


 


5.                                               Compensation
and Reimbursement for Services.


 


(a)                                         As
consideration payable to the Service Providers or any of their affiliates for
providing the Services to the Company, the Company shall pay to the Service
Providers fees as follows:


 


(1)                                       for
the Services in connection with the closing of the Purchase Agreement (the
"Closing Fee"), $1.0 million to BRS and $1.0 million to Jefferies;
such amounts to be payable on the date hereof; and


 


(2)                                       (A)                                     for
the Services for the period commencing on the date hereof and ending on
December 31st of the current fiscal year of the Company (the "Interim
Period"), an amount (the "Interim Period Fee") equal
to the greater of:  (1) the product of
$500,000 and a fraction, the numerator of which shall be the number of days in
the Interim Period and the denominator of which shall be 365, or (2) 2.0% of
the EBITDA of the Company (as hereinafter defined) for the Interim Period; such
amount to be payable on the date hereof (such payment on the date hereof, if
based on subclause (A)(2), to be calculated based on the projected EBITDA of
the Company for the Interim Period).  As
used herein, "EBITDA" of the Company, for any period, shall
mean the net income attributable to continuing operations of the


 


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Company and its subsidiaries on a consolidated basis for such period
adjusted to add thereto (to the extent deducted for purposes of determining
such net income for such period), (i) interest expense, (ii) income tax
expense, (iii) depreciation and amortization expense, (iv) losses which are
either extraordinary or are unusual and non-recurring, (v) any write-down of
goodwill or other intangible assets or other non-cash charges that reduced net
income for such period, (vi) any expenses for Management Fees hereunder, (vii)
any loss on the disposal of property or equipment and (viii) any fair value
adjustment to any interest rate collar expense;


 


(B)                                     for the Services
for each fiscal year commencing after the date hereof, an amount (the "Annual
Fee" and, with the Interim Period Fee and the Closing Fee,
collectively, the "Management Fees") equal to the greater
of:  (1) $500,000 or (2) 2.0% of the
EBITDA of the Company for such fiscal year; such amount to be payable in
advance in two installments on the third day of each January and July (a "Fee
Payment Date") of each such fiscal year, commencing on January 3rd
of the fiscal year immediately subsequent to the Interim Period (each such
installment to be the greater of:  (x)
$250,000 or (y) 2.0% of the EBITDA of the Company projected for the six-month
period commencing on the Fee Payment Date);


 


(C)                                     Both the Interim
Period Fee and the Annual Fee shall be paid 50% to BRS and 50% to Jefferies;
and


 


(D)                                    the amount of each
such payment or installment under subclause (A) or subclause (B) is to be
estimated (for purposes of payment on the date hereof or on any Fee Payment
Date, as the case may be) based on a current budget of the Company to be
approved by the Board of Directors of the Company; however, the actual amount
owed with respect to the Interim Period or any full fiscal year shall be
finally determined on or before the earlier of (1) the 60th day
following the end of the Interim Period or each such fiscal year or (2) the 15th
day following the preparation of the audited financial statements of the
Company for the Interim Period or such fiscal year (as the case may be); and if
the actual amount determined to be owed for the Interim Period or any such full
fiscal year differs from the amount of the Interim Period Fee or the Annual Fee
theretofore paid (or accrued) with respect to the Interim Period or such fiscal
year, (x) any additional amount owed to the Service Providers shall be promptly
paid to the Service Providers (or, if the current payment of the Interim Period
Fee or the Annual Fee is then prohibited as hereinafter provided, shall be
accrued as the date hereof in the case of the Interim Period Fee or, in the
case of an Annual Fee, as of January 3rd of the fiscal year with
respect to which the final determination has been made), and (y) any amount
theretofore paid by the Company in excess of the finally determined Interim
Period Fee or Annual Fee for such fiscal year to be credited against the amount
of the Annual Fee payable on the next Fee Payment Date (or, if the current
payment of the Interim Period Fee or the Annual Fee was prohibited as
hereinafter provided, an adjustment in the accrual therefor shall be
appropriately made).


 


Notwithstanding the foregoing, the Company shall not be required to
make any current payment of the Interim Period Fee or the Annual Fee if and for
so long as the Company is prohibited from paying any portion of the Interim
Period Fee or the Annual Fee due to restrictive covenants contained in the
[Revolving Credit Agreement, of even date herewith (the "Revolving
Credit


 


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Agreement"), by and among the Company and
Fleet National Bank, a national banking association, as agent and
administrative agent for itself and such other lending institutions listed on
Schedule I thereto, as the foregoing may be amended, modified or supplemented,
from time to time]; provided that the Interim Period Fee or
the Annual Fee shall continue to accrue with interest calculated at the rate of
12% per annum (computed on the basis of a 360-day year and the actual number of
days elapsed in any year) (the "Applicable Rate"), and
compounded as of each Fee Payment Date if not paid, and shall become payable
immediately upon the earlier of:


 


(i)                                           the
Company being no longer prohibited under the [Revolving Credit Agreement] from
making the payment currently of the Interim Period Fee or the Annual Fee and
interest thereon (including, without limitation, any portion thereof which has
accrued and remains unpaid);


 


(ii)                                      the
occurrence of any payment acceleration, prior to scheduled maturity date, of
the obligations of the Company under the [Revolving Credit Agreement];


 


(iii)                                 the
payment in full of all outstanding obligations of the Company under the
[Revolving Credit Agreement];


 


(iv)                                    the
occurrence of any [Insolvency Event] (as defined in the [Revolving Credit
Agreement])  with respect to the
Company;


 


(v)                                         the
end of the Term; or


 


(vi)                                    any
Change of Control (as defined in the[Revolving Credit Agreement]).


 


Also, interest shall accrue (and shall compound as aforesaid) and be
payable by the Company on the Interim Period Fee or the Annual Fee, until paid,
if and to the extent that the Interim Period Fee or the Annual Fee is not paid
for any other reason after the date hereof.


 


(b)                                        In
addition to the payments required under Section 5(a) above, the Company
shall, at the direction of the Service Providers, pay directly or reimburse
each Service Provider for Out-of-Pocket Expenses (as hereinafter defined).  For purposes of this Agreement, the term
"Out-of-Pocket Expenses" shall mean the reasonable amounts
incurred by each Service Provider and/or their personnel in connection with the
Services including, without limitation, (i) fees and disbursements of any
independent professionals and organizations, including, without limitation,
independent auditors and outside legal counsel, investment bankers or other
financial advisors or consultants, (ii) costs of any outside services of
independent contractors such as financial printers, couriers, business
publications or similar services and (iii) transportation, per diem, telephone
calls, entertainment and all other reasonable expenses actually incurred by
each Service Provider in rendering the Services.  All direct payments and reimbursements for Out-of-Pocket Expenses
shall be made promptly upon or as soon as practicable after presentation by
each Service Provider to the Company of a statement in connection therewith.


 


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6.                                               Indemnification.  The Company will indemnify and hold harmless
each of the Service Providers and their officers, directors, principals,
partners, members, employees, agents, representatives and affiliates (each
being an "Indemnified Party") from and against any and all
losses, claims, actions, damages and liabilities, joint or several, to which
such Indemnified Party may become subject under any applicable federal or state
law, made by any third party or otherwise, relating to or arising out of the
Services or other matters referred to in or contemplated by this Agreement or
the engagement of such Indemnified Party pursuant to, and the performance by
such Indemnified Party, of the Services or other matters referred to or
contemplated by this Agreement, and the Company will reimburse any Indemnified
Party for all costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or threatening
claim, or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party thereto. 
The Company will not be liable under the foregoing indemnification
provision to the extent that any loss, claim, damage, liability, cost or
expense is determined by a court, in a final judgment from which no further
appeal may be taken, to have resulted solely from the gross negligence or
willful misconduct of such Indemnified Party. 
The reimbursement and indemnity obligations of the Company under this Section
6 shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any affiliate of the Service
Providers and the stockholders, officers, directors, principals, partners,
members, employees, agents, representatives, affiliates and controlling persons
(if any), as the case may be, of the Service Providers and any such affiliate
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Service Providers, any
such affiliate and any such person.  The
provisions of this Section 6 shall survive the termination of this
Agreement.


 


7.                                               Independent
Contractors.  Nothing herein shall
be construed to create a joint venture or partnership between the parties
hereto or an employee/employer relationship. 
The Service Providers shall be independent contractors pursuant to this
Agreement.  Neither party hereto shall
have any express or implied right or authority to assume or create any
obligations on behalf of or in the name of the other party or to bind the other
party to any contract, agreement or undertaking with any third party.  Nothing in this Agreement shall be deemed or
construed to enlarge the fiduciary duties and responsibilities, if any, of the
Service Providers or any of their affiliates, officers, directors, partners,
employees or agents, including without limitation in any of their respective
capacities as stockholder or directors of the Company.


 


8.                                               Notices.  Any notice or other communications required
or permitted to be given hereunder shall be in writing and delivered by hand or
mailed by registered or certified mail, return receipt requested, or by
telecopier to the party to whom it is to be given at its address set forth
herein, or to such other address as the party shall have specified by notice
similarly given and the mailing date shall be deemed the date from which all
time periods pertaining to a date of notice shall run.


 


(i)                                           If
to the Company, to it at:


Sheridan Acquisition Corp.


 


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11311 McCormick Road

Suite 260

Hunt Valley, MD  21031-1437

Attention:  John A. Saxton


Telephone:                 410-785-7277


Fax:                                                             410-785-7217


 


(ii)                                      If
to BRS, to it at:


 


Bruckman, Rosser, Sherrill & Co., Inc.

126 East 56th Street

New York, NY 10022

Attention:  Paul Kaminski


Telephone:                 212-521-3700


Fax:                                                             212
521-3799


 


with a copy to:


 


Dechert LLP

4000 Bell Atlantic Tower

1717 Arch Street

Philadelphia, PA  19103

Attention:                     Carmen
J. Romano


David S. Denious


Telephone:                 215-994-4000


Fax:                                                             215-994-2222


 


(iii)                                 If
to Jefferies, to it at:


 


Jefferies Capital Partners

520 Madison Avenue

8th Floor

New York, NY 10022

Attention:  James Luikart


Telephone:                 212-284-1700


Fax:                                                             212-284-1717


 


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with a copy to:


 


Dechert LLP

4000 Bell Atlantic Tower

1717 Arch Street

Philadelphia, PA  19103


Attention:                     Carmen J. Romano


David S. Denious


Telephone:                 215-994-4000


Fax:                                                             215-994-2222


 


9.                                               Assignment.  This Agreement shall inure to the benefit of
and be binding upon the parties and their successors and assigns.  Upon the merger of the Company with and into
TSG, TSG, as the surviving corporation of such merger, shall succeed to all of
the Company's obligations and rights hereunder.  However, neither this Agreement nor any of the rights of the parties
hereunder may otherwise be transferred or assigned by any party hereto, except
that (i) if the Company shall merge or consolidate with or into, or sell or
otherwise transfer substantially all its assets to, another corporation which
assumes the Company's obligations under this Agreement, the Company may assign
its rights hereunder to that corporation, (ii) Jefferies may assign its rights
and obligations hereunder to any other person or entity controlled, directly or
indirectly, by Brian P. Friedman and/or James L. Luikart and (iii) BRS may assign
its rights and obligations hereunder to any other person or entity controlled,
directly or indirectly, by Bruce Bruckmann, Harold O. Rosser II, Stephen C.
Sherrill, Thomas J. Baldwin, and/or Paul Kaminski.  Any attempted transfer or assignment in violation of this Section
9 shall be void.


 


10.                                      Permissible
Activities.  Nothing herein shall in
any way preclude the Service Providers or their affiliates or their respective
officers, directors and partners from engaging in any business activities or
from performing services for its or their own account or for the account of
others, including, without limitation, companies which may be in competition
with the business conducted by the Company.


 


11.                                      General.  No amendment or waiver of any provision of
this Agreement, or consent to any departure by any party from any such
provision, shall in any event be effective unless the same shall be in writing
and signed by each of the parties to this Agreement and then such amendment,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.  The
waiver of any party of any breach of this Agreement shall not operate or be
construed to be a waiver of any subsequent breach.


 


12.                                      Entire
Agreement.  This Agreement contains the
entire agreement between the parties hereto and supersedes all prior agreements
and understandings, oral and written, among the parties hereto with respect to
the subject matter hereof.


 


13.                                      Section
Headings; Counterparts.  The section
headings contained herein are included for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.  The Agreement may be executed in two
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


 


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14.                                      Applicable
Law.  This agreement and the rights
and obligations of the parties hereunder shall be governed by, and construed
and interpreted in accordance with, the internal laws of the State of New York,
without giving effect to the conflict of laws principals thereof.  Each of the parties hereto hereby
irrevocably submits to the exclusive jurisdiction of any Federal court sitting
in the Southern District of New York over any suit, action or proceeding
arising out of or relating to this agreement. 
Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted or not prohibited by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding brought in such a court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient
forum.  Each of the parties hereto
hereby irrevocably consents to the service of process in any suit, action or
proceeding by sending the same by certified mail, return receipt requested or
by overnight courier service, to the address of such party set forth in Section
8 or in the records of the Company.  EACH PARTY
HERETO WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION BROUGHT
HEREUNDER OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY.


 


15.                                      Severability.  Any section, subsection, clause, sentence,
provision, subparagraph or paragraph of this Agreement held by a court of
competent jurisdiction to be invalid, illegal or ineffective shall not impair,
invalidate or nullify the remainder of this Agreement, but the effect thereof
shall be such section, subsection, clause, sentence, provision, subparagraph or
paragraph so held to be invalid, illegal or ineffective.


 


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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.


 


	
  BRUCKMANN, ROSSER, SHERRILL & CO., LLC

  
	
   

  
	
  By:

  	
  /s/ Thomas Baldwin

  	
   

  
	
          Name: Thomas Baldwin

  
	
          Title:   Managing Director

  
	
   

  
	
  FS PRIVATE INVESTMENTS III, LLC

  
	
   

  
	
  By:

  	
  /s/ James Luikart

  	
   

  
	
          Name: James Luikart

  
	
          Title:   Executive Vice President

  
	
   

  
	
   

  
	
  SHERIDAN ACQUISITION CORP.

  
	
   

  
	
  By:

  	
   /s/ J. Rice Edmonds

  	
   

  
	
          Name: J. Rice Edmonds

  
	
          Title    Vice President

  



 


*     *     *


 


The undersigned, as the surviving corporation in the merger of the
undersigned and Sheridan Acquisition Corp., hereby acknowledges that as a
result of such merger it has succeeded to all the rights and obligations of
Sheridan Acquisition Corp. under the foregoing Agreement.


 


	
  THE SHERIDAN GROUP, INC.

  
	
   

  
	
  By:

  	
  /s/ John A. Saxton

  	
   

  
	
          Name: John A. Saxton

  
	
          Title:   President and Chief Executive Officer

  



 


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