James H.M. Sprayregen, P.C. Paul M. Basta Jennifer L.

Marines KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York 10022-4611 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 and Anup Sathy, P.C. (admitted pro hac vice) Marc J. Carmel (admitted pro hac vice) KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois 60654-3406 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al.,1 Debtors. ) ) ) ) ) ) ) Chapter 11 Case No. 10-13800 (SCC) Jointly Administered

DEBTORS OBJECTION TO MOTION OF AD HOC COMMITTEE OF PREFERRED SHAREHOLDERS FOR ORDER DIRECTING APPOINTMENT OF EXAMINER PURSUANT TO SECTION 1104(c)(1)-(2) OF THE BANKRUPTCY CODE1
1

The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtors federal tax identification number, are: GP AC Sublessee LLC (5992); Grand Prix Addison (RI) LLC (3740); Grand Prix Addison (SS) LLC (3656); Grand Prix Albany LLC (3654); Grand Prix Altamonte LLC (3653); Grand Prix Anaheim Orange Lessee LLC (5925); Grand Prix Arlington LLC (3651); Grand Prix Atlanta (Peachtree Corners) LLC (3650); Grand Prix Atlanta LLC (3649); Grand Prix Atlantic City LLC (3648); Grand Prix Bellevue LLC (3645); Grand Prix Belmont LLC (3643); Grand Prix Binghamton LLC (3642); Grand Prix Bothell LLC (3641); Grand Prix Bulfinch LLC (3639); Grand Prix Campbell / San Jose LLC (3638); Grand Prix Cherry Hill LLC (3634); Grand Prix Chicago LLC (3633); Grand Prix Columbia LLC (3631); Grand Prix Denver LLC (3630); Grand Prix East Lansing LLC (3741); Grand Prix El Segundo LLC (3707); Grand Prix Englewood / Denver South LLC (3701); Grand Prix Fixed Lessee LLC (9979); Grand Prix Floating Lessee LLC (4290); Grand Prix Fremont LLC (3703); Grand Prix Ft. Lauderdale LLC (3705); Grand Prix Ft. Wayne LLC (3704); Grand Prix Gaithersburg LLC (3709); Grand Prix General Lessee LLC (9182); Grand Prix Germantown LLC (3711); Grand Prix Grand (continued on next page)

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Innkeepers USA Trust (Innkeepers) and certain of its affiliates, as debtors and debtors in possession (collectively, the Debtors), hereby submit this objection (this Objection) to the Motion of Ad Hoc Committee of Preferred Shareholders for Order Directing Appointment of Examiner Pursuant to Section 1104(c)(1)-(2) of the Bankruptcy Code [Docket No. 179] (the Examiner Motion) filed by an ad hoc committee of preferred shareholders (the Preferred Shareholder Committee).2 In support of this Objection, the Debtors respectfully state as follows: Preliminary Statement The Court should deny the Examiner Motion. Nothing in the Bankruptcy Code mandates appointment of an examiner, especially here when the debt threshold set forth in the statute is not satisfied and the Examiner Motion is brought by an out of the money constituency who seeks to

Rapids LLC (3713); Grand Prix Harrisburg LLC (3716); Grand Prix Holdings LLC (9317); Grand Prix Horsham LLC (3728); Grand Prix IHM, Inc. (7254); Grand Prix Indianapolis LLC (3719); Grand Prix Islandia LLC (3720); Grand Prix Las Colinas LLC (3722); Grand Prix Lexington LLC (3725); Grand Prix Livonia LLC (3730); Grand Prix Lombard LLC (3696); Grand Prix Louisville (RI) LLC (3700); Grand Prix Lynnwood LLC (3702); Grand Prix Mezz Borrower Fixed, LLC (0252); Grand Prix Mezz Borrower Floating, LLC (5924); Grand Prix Mezz Borrower Floating 2, LLC (9972); Grand Prix Mezz Borrower Term LLC (4285); Grand Prix Montvale LLC (3706); Grand Prix Morristown LLC (3738); Grand Prix Mountain View LLC (3737); Grand Prix Mt. Laurel LLC (3735); Grand Prix Naples LLC (3734); Grand Prix Ontario Lessee LLC (9976); Grand Prix Ontario LLC (3733); Grand Prix Portland LLC (3732); Grand Prix Richmond (Northwest) LLC (3731); Grand Prix Richmond LLC (3729); Grand Prix RIGG Lessee LLC (4960); Grand Prix RIMV Lessee LLC (4287); Grand Prix Rockville LLC (2496); Grand Prix Saddle River LLC (3726); Grand Prix San Jose LLC (3724); Grand Prix San Mateo LLC (3723); Grand Prix Schaumburg LLC (3721); Grand Prix Shelton LLC (3718); Grand Prix Sili I LLC (3714); Grand Prix Sili II LLC (3712); Grand Prix Term Lessee LLC (9180); Grand Prix Troy (Central) LLC (9061); Grand Prix Troy (SE) LLC (9062); Grand Prix Tukwila LLC (9063); Grand Prix West Palm Beach LLC (9065); Grand Prix Westchester LLC (3694); Grand Prix Willow Grove LLC (3697); Grand Prix Windsor LLC (3698); Grand Prix Woburn LLC (3699); Innkeepers Financial Corporation (0715); Innkeepers USA Limited Partnership (3956); Innkeepers USA Trust (3554); KPA HI Ontario LLC (6939); KPA HS Anaheim, LLC (0302); KPA Leaseco Holding Inc. (2887); KPA Leaseco, Inc. (7426); KPA RIGG, LLC (6706); KPA RIMV, LLC (6804); KPA San Antonio, LLC (1251); KPA Tysons Corner RI, LLC (1327); KPA Washington DC, LLC (1164); KPA/GP Ft. Walton LLC (3743); KPA/GP Louisville (HI) LLC (3744); KPA/GP Valencia LLC (9816). The location of the Debtors corporate headquarters and the service address for their affiliates is: c/o Innkeepers USA, 340 Royal Poinciana Way, Suite 306, Palm Beach, Florida 33480.
2

The Preferred Shareholder Committee purports to represent holders of approximately 24.0% of Innkeepers USA Trusts 8.0% Series C Cumulative Preferred Shares and is comprised of Brencourt Advisors, LLC, Esopus Creek Advisors, LLC, and Plainfield Special Situations Master Fund II Limited. See Examiner Motion at p. 2.

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examine primarily plan confirmation issues that will already be subject to close investigation and scrutiny as part of that process. Taken in its proper context, the Examiner Motion constitutes nothing more than: (a) a transparent attempt by a collection of equity holders to obtain value from the Debtors creditors, who have priority as to all of the value in these estates, and (b) a back-up plan to shift the litigation expenses of a well-represented and sophisticated group of interest holders to the Debtors estates in the event that the United States Trustee denies the Preferred Shareholder Committees request to appoint an official equity committee. Section 1104(c) of title 11 of the United States Code (the Bankruptcy Code) provides two independent grounds upon which a party in interest may move for the appointment of an examiner. Specifically, the statute provides that the court shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate . . . if either: (i) the court, in its discretion, decides that such appointment is in the interests of the estate and all of its stakeholders; or (ii) the debtors fixed, liquidated, unsecured debts (other than for goods, services, taxes or owing to an insider) exceed $5 million. 11 U.S.C. 1104(c). Recognizing that it has a weak case (at best) for appointment of an examiner pursuant to section 1104(c)(1) because it would not benefit the estates to incur additional costs to perform investigative work already being performed by other constituents, the Preferred Shareholder Committee attempts to argue that this Court lacks discretion to deny the Examiner Motion because the plain language of [section 1104(c)] requires the appointment of an examiner when the unsecured debt threshold of section 1104(c)(2) has been met regardless of whether there exists any appropriate subjects for an examiner to investigate. Examiner Motion at 31. However, section 1104(c)(2) of the Bankruptcy Code does not mandate the appointment of an examiner in these chapter 11 cases (the Chapter 11 Cases) for two reasons.

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First, the Debtors fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes do not exceed the statutory $5 million threshold. Despite the Preferred Shareholder Committees assertion that it is reasonable to assume that the Debtors calculations show purported deficiency claims in excess of $5 million (there are 92 Debtors after all), Examiner Motion at 31, the value of any such deficiency claims remains, at this point, unliquidated and not fixed and will remain so until the Court has made a valuation finding with respect to the assets collateralizing the Debtors various secured debt obligations. Moreover, certain (or all) secured lenders may elect to have their entire claim treated as secured pursuant to section 1111(b) of the Bankruptcy Code, in which case no unsecured deficiency debt would exist. Second, contrary to statements in the Examiner Motion, the plain language of section 1104(c) of title 11 of the United States Code (the Bankruptcy Code) requires an examiner only to the extent appropriate, and the legislative history of section 1104(c) suggests that the Court has discretion in the appointment of an examiner.3 Under the present circumstances, the appointment of an examiner is neither necessary nor appropriate, and the attendant costs, expenses, and delay far outweigh the benefit. These costs will already be incurred as part of the plan process, and the appointment of an examiner will not eliminate these costs; it will multiply them. The same reasons why there currently is no appropriate investigation for a court-

appointed examiner to perform also explain why the Preferred Shareholder Committee cannot justify appointment of an examiner pursuant to section 1104(c)(1).

See House Report No. 95-595, 95th Cong., 1st Sess 402 (1977) ([T]he standards for the appointment of an examiner are the same as those for the appointment of a trustee; the protection must be needed, and the costs and expenses must not be disproportionately high.).

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Indeed, the issues identified by the Preferred Shareholder Committee as requiring investigation already have been or will be thoroughly explored and analyzed by the Debtors and other parties in interest. Therefore, the appointment of an examiner to research the same issues would be wasteful. As set forth in the Cook Declaration, the Debtors and their advisors, in concert with the Debtors largest secured creditor, Midland Loan Services, Inc. (Midland), and the Official Committee of Unsecured Creditors (the Committee), have spent and will spend hundreds of hours: reviewing the events leading up to the filing of these Chapter 11 Cases; seeking, conducting, and reviewing discovery in connection with the formulation of the Plan Support Agreement dated as of July 17, 2010 by and between Lehman ALI Inc. (Lehman) and the Debtors (the PSA)4 and related transactions; and reviewing and analyzing issues related to the purpose and necessity of the Debtors proposed postpetition financing and use of cash collateral.5 Appointment of an examiner to conduct an investigation duplicative of these collective efforts would merely constitute an unnecessary drain on the Debtors resources and, accordingly, is not appropriate. Further, a significant portion of the so-called subjects for investigation set forth in the Examiner Motion involve the valuation of the Debtors assets (and how the value of the Debtors assets can be maximized in these Chapter 11 Cases) and other issues directly related to plan confirmation. Valuation of the Debtors properties is undoubtedly an important issue in these

Pursuant to the Debtors Motion for an Order (A) Authorizing the Debtors to Assume the Plan Support Agreement and (B) Granting Related Relief [Docket No. 18] (the PSA Motion), the Debtors are seeking the Courts authority to assume the PSA. A copy of the PSA is attached as Exhibit B to the PSA Motion and a copy of the plan term sheet (the Plan Term Sheet) is attached to the PSA as Exhibit A thereto. See Declaration of Nathan J. Cook, Chief Financial Officer of the Debtors, in Support of the Debtors Objection to Motion of Ad Hoc Committee of Preferred Shareholders for Order Directing Appointment of Examiner Pursuant to Section 1104(c)(1)-(2) of the Bankruptcy Code, filed contemporaneously herewith (the Cook Declaration), at 5.

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Chapter 11 Cases; however, the Preferred Shareholder Committee (as well as other parties in interest) will have ample opportunity to pursue appropriate discovery, prosecute appropriate objections challenging valuation (as well as object to plan confirmation on other grounds), and present competing valuation testimony. Appointment of an examiner is not appropriate to address plan issues where the Preferred Shareholder Committee and all other parties in interest will have a full and fair opportunity to ensure the Debtors compliance with all applicable plan confirmation requirements in accordance with section 1129 of the Bankruptcy Code. Accordingly, and as described more fully below and in the Cook Declaration, the Debtors respectfully submit that the Examiner Motion should be denied in its entirety. Alternatively, if the Court is inclined to grant the Preferred Shareholder Committees request, the role of the examiner and the scope of the examination should be narrowly defined to avoid excessive cost and delay, and the examiners fees and expenses should be capped to preserve the estates assets. Further, the Preferred Shareholders Committee may request an examiner at a later date, including after completion of the confirmation process if that process does not result in confirmation, if the circumstances so warrant. Argument I. This Court Should Not Appoint An Examiner Under Section 1104(c)(2). 1. Section 1104(c)(2) contains two independent prongs that must be satisfied before

a court can appoint an examiner. First, a debtors fixed, liquidated, unsecured debts, other than debts for goods, services, taxes, or owing to an insider, must exceed a threshold of $5 million. Second, there must be an appropriate investigation for the examiner to conduct. Neither prong is satisfied here.

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A. 2.

The $5 Million Threshold Is Not Satisfied. Section 1104(c)(2) provides that the Court shall appoint an examiner to conduct

such investigation of the debtor as is appropriate . . . if . . . the debtors fixed, liquidated, unsecured debts, other than debts for goods, services, taxes, or owing to an insider, exceed $5,000,000. 11 U.S.C. 1104(c)(2). Therefore, under the plain language of the statute, the party moving for the appointment of an examiner must, at a minimum, aggregate the fixed and liquidated unsecured debts (other than for goods, services, taxes, or owing to an insider) and demonstrate that the sum thereof is greater than $5 million. 3. The amount of qualifying unsecured debt in these Chapter 11 Cases does not See Cook Declaration at 4. The Preferred

exceed the statutory $5 million threshold.

Shareholder Committees attempt to satisfy this prong fails because the only qualifying debts identified in the Examiner Motion are the purported unsecured deficiency claims held by the Debtors secured lenders. Tellingly, the Preferred Shareholder Committee does not actually quantify the amount of such unsecured debts (because it cannot), but instead asserts that it is reasonable to assume that under the Debtors calculations showing that the secured lenders are undersecured, there must be purported deficiency claims in excess of $5 million (there are 92 Debtors after all) for purposes of Bankruptcy Code section 1104(c)(2).6 Examiner Motion at 31. The statute does not contain a provision for estimating the amount of qualifying debts to satisfy the $5 million threshold or otherwise permit a movant to satisfy that requirement with assumptions. On the contrary, the inclusion of the terms fixed and liquidated to describe the

The Preferred Shareholder Committee simultaneously disputes that there are deficiency claims in the Examiner Motion by alleging that the Debtors breached fiduciary duties by agreeing to a plan term sheet that will deprive preferred shareholders of residual equity value in certain Debtor and non-Debtor subsidiaries.

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debts to be tallied does not leave any room for conjecture, no matter how reasonable the Preferred Shareholder Committee thinks it might be. 4. The secured lenders deficiency claims cannot, at this point, be used to satisfy the

section 1104(c)(2) threshold for two reasons. First, they are currently unliquidated and will remain unliquidated until the confirmation hearing. See, e.g., In re Sneijder, 407 B.R. 46, 54-55 (Bankr. S.D.N.Y. 2009); In re Planes, Inc., 48 B.R. 698, 703 (Bankr. M.D. Ga. 1985) (describing deficiency claims as contingent, unliquidated claims). Second, any such deficiency claims are not fixed, but instead are contingent, because there is no guarantee that there will be any such unsecured debt owed by any Debtor in the future. See In re American Eagle Mfg., Inc., 231 B.R. 320, 330 (B.A.P. 9th Cir. 1999) (affirming bankruptcy courts refusal to include an undetermined deficiency claim in connection with voting on trustee). For example, the secured lenders may elect to have their entire claim treated as secured pursuant to section 1111(b) of the Bankruptcy Code, in which case there would not be any unsecured deficiency debt. Therefore, the Preferred Shareholder Committee cannot make the simple showing required under section 1104(c)(2). B. 5. There Is No Appropriate Investigation To Conduct. Assuming, arguendo, that the Preferred Shareholder Committee could

successfully show that the $5 million statutory threshold is satisfied in these Chapter 11 Cases, this Court should nevertheless deny the Examiner Motion because there is no appropriate investigation that can be performed by an examiner. Although section 1104(c) has been read by some courts in a manner that appears to mandate the appointment of an examiner if the statutory debt threshold of section 1104(c)(2) has been met, the plain language of the statute does not support this interpretation. Notably, the portion of section 1104(c) oft-quoted to support the notion that appointment of an examiner is mandatorythe court shall order the appointment of an examineris immediately followed by the phrase to conduct such an investigation of the 8
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debtor that is appropriate. 11 U.S.C. 1104(c)(2) (emphasis added). It follows that the existence of an investigation of the debtor that is appropriate is a precondition that must be satisfied before the court has any obligation to appoint an examiner. See In re Bradlees Stores, Inc., 209 B.R. 36, 39-40 (Bankr. S.D.N.Y. 1997) (holding that appointment of an examiner was not mandatory when its proposed duties were inappropriate); In re Schepps Food Stores, Inc., 148 B.R. 27, 31 (S.D. Tex. 1992) (denying appointment of examiner under the section 1104(c)(2) standard where the request was a tactic to prevent confirmation, rather than to investigate bad faith allegations.); In re WorldCom, Inc., Case No. 02-13533 (Bankr. S.D.N.Y. May 16, 2003) Memorandum Decision and Order at 24 [Docket No. 5923]7 (holding that section 1104(c) provides [the court] with broad discretion in refusing to appoint a second examiner to cover new areas of inquiry where such appointment would cause the Debtors to incur substantial and unnecessary expenses detrimental to the interests of creditors and other parties in interest). 6. A growing number of courts in other jurisdictions have interpreted section

1104(c)(2) as requiring that there be an appropriate examination to be performed by an independent third party (in addition to showing that the statutory $5 million threshold has been satisfied) before approving appointment of examiners. See In re Spansion, Inc., 426 B.R. 114 (Bankr. D. Del. 2010) (I find no sound purpose in appointing an examiner, only to significantly limit the examiners role when there exists insufficient basis for an investigation.); see also 5/12/10 Hrg Tr. 170:16-20, In re Visteon Corp., Case No. 09-11786 (CSS) (Bankr. D. Del. May 12, 2010) (denying the appointment of an examiner and noting I dont think its true, and I think

Because of the voluminous nature of the unpublished opinions, orders, and hearing transcripts cited in this Objection, they are not attached. Copies of these materials are available on request of the Debtors counsel.

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it would be an absurd result to find that in every case where the financial criteria is met and a party-in-interest asks, the Court must appoint an examiner. There has to be an appropriate investigation that needs to be done.); 10/31/07 Hrg Tr. at 76:11-12, In re Am. Home Mortgage Holdings, Inc., Case No. 07-11047 (KJC) (Bankr. D. Del. Oct. 31, 2007) (recognizing that meeting the $5 million financial threshold was only one part of the inquiry and that the other piece of the puzzle is that there has to be an investigation to perform thats appropriate) (emphasis added). After all, if there is no investigation of the debtor that is appropriate, it would be absurd to go through the exercise of appointing an examiner with all of its attendant costs, whether to conduct an inappropriate investigation (which plainly contravenes the courts statutory mandate) or to conduct no investigation at all (which would be a patently incongruous result). See, e.g., Spansion, 426 B.R. at 114 (To appoint an examiner with no meaningful duties strikes me as a wasteful exercise, a result that could not have been intended by Congress.). 7. While the Debtors acknowledge that the District Court in In re Loral Space and

Commcns, Ltd., 2004 WL 2979785 (S.D.N.Y. Dec. 23, 2004), held that appointment was, in fact, mandatory upon the $5 million threshold being exceeded, see also In re Revco D.S., Inc., 898 F.2d 498, 500-01 (6th Cir. 1990) (holding that appointment of examiner is mandatory in view of the phrase the court shall order); In re UAL Corp., 307 B.R. 80, 86 (Bankr. N.D. Ill. 2004) (same), no published opinions in the Second Circuit have cited the unpublished Loral decision with approval. And the lack of published decisions in this circuit on this issue has a good explanationthe Loral courts reasoning produces the undesirable result of requiring the

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appointment of an examiner in any chapter 11 case with $5 million of qualifying debt as soon as any party requests one.8 8. To the extent the Court is inclined to follow those courts that have interpreted

section 1104(c)(2) as unconditionally requiring the appointment of an examiner based solely upon whether the $5 million statutory threshold has been exceeded, this Court should appoint an examiner with no duties at this time.9 This is consistent with rulings of other courts that have found it mandatory to appoint an examiner under section 1104(c)(2) even where there is no appropriate investigation for the examiner to pursue at the time of the request. See In re Asarco, LLC, Case No. 05-21207 (Bankr. S.D. Tex. Mar. 4, 2008) [Docket No. 7081] (order appointing an examiner, denying the scope of the investigation proposed in the motion, and further providing that the examiner shall not have any current duties); see also In re Erickson Retirement Communities, LLC, 425 B.R. 312 (Bankr. N.D. Tex. 2010) (noting that to the extent standing and waiver issues did not support the denial of examiner request, the court would appoint an examiner with no duties due to the fact that there was no useful purposes for an examiner even though the $5 million statutory threshold was exceeded). 9. There is no appropriate investigation for an examiner to conduct because the

requested topics of an examiner investigation are either (a) already the subjects of (or will be the
8

Importantly, a bankruptcy court is not bound by a decision of a single district judge in a multi-judge district. See Barnett v. Jamesway Corp. (In re Jamesway Corp.), 235 B.R. 329, 337 n. 1 (Bankr. S.D.N.Y. 1999 (We find that where the bankruptcy court sits in a multi-judge district, it is not bound by principles of stare decisis by the decision of a district court in that district.); In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Meyerson & Casey, 160 B.R. 882, 898 (Bankr. S.D.N.Y. 1993) (A bankruptcy judge, like a district court judge, is free to reexamine an issue despite the existence of a prior decision of another judge in the same district unless, by chance or otherwise, all judges in his or her district have ruled consistently on the same issue, or the Circuit or Supreme Court has so held.). As a result of the qualifying language that is appropriate, even those courts holding that appointment of an examiner is mandatory once the $5 million threshold is met have recognized a bankruptcy courts broad discretion to direct the examiners investigation, including its nature, extent, and duration. See Revco, 898 F.2d at 501.

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subjects of) separate contested matters in which numerous parties in interest are involved rendering an examiner unnecessary, (b) being investigated by other parties in interest, (c) issues more appropriately addressed in the context of plan confirmation, or (d) the product of nothing more than bare and unsubstantiated allegations that rely on mischaracterizations or misstatements regarding the Debtors Chapter 11 Cases. A table summarizing why an examiner investigation is not appropriate for each of the Preferred Shareholder Committees requested topics is set forth on the following page:

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Preferred Shareholder Committee Requested Examiner Investigation Topic (see Examiner Motion at 33) Prepetition acts and omissions from and after July 1, 2009 in respect of the Debtors officers and directors, and the officers and directors of the Debtors other direct and indirect subsidiaries impacting their respective fiduciary duties of care, loyalty, and good faith to preferred shareholders Postpetition acts and omissions from and after July 19, 2010 in respect of Innkeepers officers and directors, and the officers and directors of Innkeepers other direct and indirect subsidiaries impacting their respective fiduciary duties of care, loyalty, and good faith to preferred shareholders Whether Apollo caused the Company to take any steps to advantage Apollo at the expense of other creditors and preferred shareholders The communications and negotiations that led to the Debtors proposed Plan Support Agreement

Why Examiners Investigation is Inappropriate

Already being investigated (see Objection at I.B.2) Bare and unsubstantiated allegations premised on mischaracterizations (see Objection at I.B.4)

Already being investigated (see Objection at I.B.2) Bare and unsubstantiated allegations premised on mischaracterizations (see Objection at I.B.4)

Already being investigated (see Objection at I.B.2) Bare and unsubstantiated allegations premised on mischaracterizations (see Objection at I.B.4) Subject of separate contested matter (see Objection at I.B.1) Already being investigated (see Objection at I.B.2) Bare and unsubstantiated allegations premised on mischaracterizations (see Objection at I.B.4) Bare and unsubstantiated allegations premised on mischaracterizations (see Objection at I.B.4) Can be raised at confirmation Subject of separate contested matter (see Objection at I.B.1) Bare and unsubstantiated allegations premised on mischaracterizations (see Objection at I.B.4) Bare and unsubstantiated allegations premised on mischaracterizations (see Objection at I.B.4) Can be raised at confirmation Committee and other parties in interests are investigating (see Objection at I.B.2) Already being investigated (see Objection at I.B.2) Bare and unsubstantiated allegations premised on mischaracterizations (see Objection at I.B.4) Already being investigated (see Objection at I.B.2) Issue for confirmation (see Objection at I.B.3) Already being investigated (see Objection at I.B.2) Issue for confirmation (see Objection at I.B.3)

Whether and how the Company and Apollo created self-imposed emergencies by causing properties not encumbered by Lehmans mortgage to default unnecessarily The purpose and necessity of debtor-in-possession (DIP) financing on all the hotels, especially the DIP collateralized on the equity of the Residence Inn San Diego and the Residence Inn Tysons Exploration of the Companys franchising relationship with Marriott, and whether the Company entered into franchise agreements with Marriott merely to fulfill a guarantee by Apollo Whether Apollos 2007 purchase of the Company constitutes a fraudulent conveyance The nature and extent of the relationships between Lehman and Apollo How value can be maximized for preferred shareholders and unsecured claimholders Valuation of Debtors, including, but not limited to, the March 31, 2010 valuation referenced in Apollos Form 10K filed on May 26, 2010, and any valuation of the Debtors that Lehman may have performed in connection with its own chapter 11 cases

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1. 10.

Certain Topics of the Requested Examiner Investigation Already Are Part of Separate Contested Matters.

The request to appoint an examiner should be denied because the subjects of the

requested examination are already being addressed as part of pending contested matters or will be addressed as part of future contested matters. The Preferred Shareholder Committee can participate in these processes to the extent it wishes to do so. Indeed, the Preferred Shareholder Committee already has participated in depositions of the Debtors Chief Restructuring Officer and a representative of Apollo Investment Corporation (AIC). Therefore, the costs of the requested examiner would be for duplicative or unnecessary work that would be borne by the Debtors estates, and, thus, the appointment of the requested examiner is not warranted. Further, a number of the issues that the Preferred Shareholder Committee proposes that an examiner should investigate will be addressed by this Court at the hearing on September 1, 2010, e.g., the proposed debtor-in-possession financings and the assumption of the PSA. Appointing an

examiner to investigate these issues that will be decided at the September 1 hearing cannot be determined to be appropriate. 11. The Committee, Midland (the special servicer under the Debtors $825 million

fixed rate mortgage loan), and the Debtors other secured lenders are already engaged in a prolific process of analyzing the issues related to the development of the PSA. Specifically, Midland has requested broad written discovery concerning the PSA, and Midland and other secured lenders as well as the Preferred Shareholder Committee have participated in depositions of the Debtors and AIC regarding the development and negotiation thereof. The Debtors also have been forthcoming in responding to requests for documents and other informal discovery requests made by these parties. See Cook Declaration at 6.

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12.

Further, the costs of an examiner would be paid for with the secured lenders cash

collateral, in effect requiring them to pay for the same work twice. 13. The Preferred Shareholder Committees request for an investigation of the

purpose and necessity of debtor-in-possession financing on all the hotels, especially the DIP Financing collateralized by the equity of the Residence Inn San Diego and the Residence Inn Tysons Corner similarly will be part of a contested matter. Further, the Preferred Shareholder Committees assertions demonstrate a lack of understanding regarding the use and necessity of the debtor-in-possession financing facilities contemplated by the PSA (collectively, the DIP Financing), especially the facility provided by Five Mile Capital II Pooling International LLC (the Five Mile DIP Financing).10 See Examiner Motion at 17-18. First, the Examiner Motion does not appreciate that these hotels in San Diego and Tysons Corner are already encumbered by substantial secured mortgage loans of approximately $47.4 million and $25.2 million, respectively. See Amended Declaration of Dennis Craven, Chief Financial

Officer of Innkeepers USA Trust, in Support of First-Day Pleadings [Docket No. 33] (the First Day Declaration) at 13, 17. Until it is established that the values of these hotels exceed the amount of these sizeable loans, these hotels cannot yield equity to preferred shareholders as contended. See Examiner Motion at 18. Further, the Preferred Shareholder Committee seems to be unaware that proceeds of the Five Mile DIP Financing will be used, in part, to fund the
10

See Debtors Motion for the Entry of an Order Authorizing the Debtors to Obtain Postpetition Financing From an Affiliate of Lehman ALI Inc. On a Priming Basis Pursuant to Sections 364(c)(1), 364(c)(2), 364(c)(3), and 364(e) of the Bankruptcy Code [Docket No. 23]; Debtors Motion for the Entry of an Order Authorizing the Debtors to Obtain Postpetition Financing From Five Mile Capital Partners On a Priming Basis Pursuant to Sections 364(c)(1), 364(c)(2), 364(c)(3), and 364(e) of the Bankruptcy Code [Docket No. 24] (the Five Mile DIP Motion); Supplement to the Debtors Motion for the Entry of an Order Authorizing the Debtors to Obtain Postpetition Financing From an Affiliate of Lehman ALI Inc. On a Priming Basis Pursuant to Sections 364(c)(1), 364(c)(2), 364(c)(3), and 364(e) of the Bankruptcy Code [Docket No. 200]; Supplement to the Debtors' Motion for the Entry of an Order Authorizing the Debtors to Obtain Postpetition Financing from Five Mile Capital Partners on a Priming Basis Pursuant to Sections 364(c)(1), 364(c)(2), 364(c)(3), and 364(e) of the Bankruptcy Code [Docket No. 201] (the Five Mile DIP Supplement).

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Debtors property improvement plan (PIP) obligations with respect to the purportedly solvent hotels the Preferred Shareholder Committee specifically identifies in the Examiner Motion. Even a cursory review of the Five Mile DIP Motion makes clear that the Debtors hotels in San Diego and Tysons Corner are pledged under the Five Mile DIP Financing because those properties are receiving a direct benefit thereunder. See Five Mile DIP Motion at 5, 25, 31, 44, and 46; see also Five Mile DIP Supplement at 2. Moreover, the priming liens to be granted on these two hotels only secure the funds advanced to complete the PIP obligations on each hotel, i.e., there is no cross-collateralization with respect to funds advanced to other hotels under the Five Mile DIP Financing. 14. The Preferred Shareholder Committee also questions the propriety of the DIP

Financing given that [AIC] is separately liable for the improvements pursuant to a written guaranty. See Examiner Motion at 3, 33. However, the Examiner Motion fails to address the fact that if AIC is actually liable for anything on account of those guarantees (a contention that is currently being litigated in another forum), that AIC is liable only to the Debtors secured lendersand not to the Debtorsto pay for the cost of completing the PIPs. In light of the fact that any recovery to any party will only result in the event that there is a settlement or judgment regarding the extent of AICs obligations (which the Debtors do not expect will happen at any point soon), the Debtors, decided, in the exercise of their business judgment, that they can ill afford to wait for the dust to settle on that litigation to complete the PIPs. Under the terms of various franchise agreements and the Adequate Assurance Agreement with Marriott International, Inc. (Marriott), the Debtors must ensure that the PIPs are completed promptly or else put at risk their ability to continue using the widely recognized and trusted brand names adorning their hotels, threatening the viability of the Debtors businesses as a going concern. See

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First Day Declaration at 52-57. Notably, Marriott has been vigilant in protecting its rights in these Chapter 11 Cases. The Debtors failure to perform their obligations under the PIPs would likely result in Marriott filing motions to lift the automatic stay to terminate the relevant franchise agreements or some other exercise of rights that could significantly impair the value of the Debtors estates.11 15. As the record in these Chapter 11 Cases demonstrates (and as will be further

shown at the September 1, 2010 hearing to the extent necessary), the Debtors entry into the DIP Financing is a reasonable and necessary exercise of their business judgment given that the proceeds of the DIP Financing will provide the Debtors with sufficient liquidity to complete the PIPs and certain other capital expenditures in connection with certain key franchise agreements. To the extent that the Preferred Shareholder Committee still believes the DIP Financing is improper, their remedy is to participate in the discovery process, object to the proposed DIP Financing, and demonstrate their case at the September 1 hearing. 2. 16. The Topics of the Requested Examiner Investigation Will Be Thoroughly Investigated by Other Parties.

Furthermore, the Examiner Motion should be denied because certain of the

subjects of the requested investigation currently are being addressed by other parties, including the Committee. The Committee has filed a motion seeking the authority to issue subpoenas and

11

As the Court is aware, on August 4, 2010, Marriott filed a motion requesting that the Court modify the automatic stay to enable Marriott to de-identify a hotel against which Marriott alleges defaults of PIP and quality assurance obligations. See, e.g., Marriott International, Inc. Motion for Limited Modification of the Automatic Stay to Complete De-Identification of a Single Hotel in Accordance with the Prepetition Termination of the Franchise Agreement Which Is Effective on August 30, 2010 [Docket No. 131]. The Debtors dispute the allegations and object to the relief requested therein. Nonetheless, Marriotts filing suggests what the Debtors may be forced to address if the PIPs are not addressed in accordance with the Adequate Assurance Agreement between the Debtors and Marriott.

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document requests to the Debtors, AIC, and certain of the Debtors prepetition lenders.12 Issues that the Examiner Motion seeks an examiner to investigate, including the 2007 leveraged buyout, are subsumed within the content of the Committees requested discovery requests. 17. In addition, the Preferred Shareholder Committees interests are aligned with

those of Midland and the other lenders alleging, among other things, that the Debtors are understating the value of their assets and businesses. Significantly, the Examiner Motion does not contain any allegation that the Committee and Midland would be unable to investigate and adequately represent the interests of the Debtors preferred shareholders in connection with the issues identified therein. Midland, the Debtors largest creditor, has shown itself to be highly vigilant in protecting its interests in these Chapter 11 Cases and obviously will seek to obtain the highest valuation of the collateral securing its loans as part of the confirmation process.13 Midlands efforts to demonstrate to the Courts satisfaction that the value of its collateral exceeds the Debtors liabilities to Midland (and the efforts of other secured creditors regarding their respective collateral), if successful, will inure to the benefit of the Debtors other financial stakeholders, including those represented by the Preferred Shareholder Committee.

12

See Motion of the Official Committee of Unsecured Creditors of Innkeepers USA Trust, et al. for an Order Permitting the Committee to Conduct Rule 2004 Discovery of Innkeepers USA Trust et al. and Other Parties [Docket No. 222]. See, e.g., Midland Loan Services, Inc.s, Special Servicer for the Fixed Rate Trustee, Objection to (1) the Motion (A) Authorizing the Debtors to (i) Use the Adequate Protection Parties Cash Collateral And (ii) Providing Adequate Protection Pursuant to 11 U.S.C. Sections 361, 362, And 363 and (B) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001(b) and (2) Motion for Entry o an Order Authorizing the Continued Use of (I) Existing Cash Management System, as Modified Herein, (II) Existing Bank Accounts, (III) Existing Business Forms, and (IV) Certain Existing Investment Guidelines [Docket No. 36]; Objection to Application for the Entry of an Order Authorizing the Retention and Employment of Moelis & Company LLC as Financial Advisor and Investment Banker to the Debtors Nunc Pro Tunc to the Petition Date [Docket No. 134]; Amended Objection to Debtors Motion for the Entry of Interim and Final Orders Authorizing, but not Directing, the Debtors to Continue to Honor Certain Prepetition Obligations Incurred Pursuant to Hotel Management and Shared Services Agreements [Docket No. 137].

13

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18.

Because the Preferred Shareholder Committees requested examiner would

merely duplicate the work already being performed by the Committee, Midland, and other parties (and would come at the considerable expense of the Debtors estates and their stakeholders), the appointment of an examiner is not warranted. See In re Sletteland, 260 B.R. 657, 672 (Bankr S.D.N.Y. 2001) (examiner not warranted where it appears official committee can appropriately perform investigation); In re Royster Co., 145 B.R. 88, 91 (Bankr. M.D. Fla. 1992 (examiner not warranted because committee can ensure that appropriate investigation will be conducted); In re Table Talk, Inc., 22 B.R. 706, 713-14 (Bankr. D. Mass.) (I cannot see how it is in the best interests of creditors to place another functionary in this case when no one has satisfactorily explained what an examiner could do that present functionaries could not do.); see also In re Adelphia Commcns Corp., 336 B.R. 610, 646 n. 61 (Bankr. S.D.N.Y. 2006) (appointment of an examiner should not cause prejudicial delay, unnecessary expense or otherwise be undesirable). 19. If the Preferred Shareholder Committee wishes to duplicate the efforts that have

been and will continue to be undertaken by Midland (which have been joined by other secured lenders) and the Committee, nothing is preventing it from doing so. But appointing and

compensating an examiner, as well as professionals that the examiner would likely seek to retain, to investigate the same questions is not a worthwhile endeavor for the Debtors estates to fund. 3. Allegations Regarding the Valuation of the Debtors Various Interests in Hotel Properties and de facto Substantive Consolidation Are Classic Confirmation Litigation Issues and Are Thus Inappropriate Subjects for an Examiners Investigation.

20.

This Court should not appoint an examiner to delve into the Preferred Shareholder

Committees baseless assertions involving the valuation of certain of the Debtors assets, including, among other things, whether the purported existence of residual equity value in certain 19
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of the Debtors and non-Debtor subsidiaries would permit the Preferred Shareholder Committee members to fare better in a chapter 7 liquidation than they will under the terms of the chapter 11 plan contemplated under the PSA (or whatever other chapter 11 plan the Debtors propose). These are classic confirmation matters on which the Court will undoubtedly make extensive findings following an evidentiary hearing. See, e.g., 11 U.S.C. 1129(a)(7). If approved, the Preferred Shareholder Committees requested appointment of an examiner to investigate these matters would only serve to further its narrow litigation agenda with respect to these plan confirmation issues, and this Court should, therefore, deny it. See, e.g., WorldCom, Docket No. 5923 at 24 (declining to appoint examiner to look into issues that were more appropriately raised in the context of the confirmation process.); Bradlees, 209 B.R. 36 (denying motion to appoint examiner and noting that motion was nothing more than a litigation/negotiation tactic); see also Spansion, 426 B.R. at 128 (denying appointment of examiner where the record did not provide sufficient evidence of conduct that would make an investigation of the Debtors appropriate, but rather reveal[ed] deep and heated differences of opinion about the value of the Debtor companies); In re Visteon Corp., Case No. 09-11786 (CSS) (Bankr. D. Del. May 12, 2010) [Docket No. 3159] (denying appointment of examiner where proposed investigation related primarily to confirmation issues); 10/24/2007 Hrg Tr. at 73:17-19, In re Calpine Corp., Case No. 05-60200 (BRL) [Docket No. 6467] (Bankr. S.D.N.Y. 2005) (refusing to appoint examiner, noting that request smacks more of litigation leverage than the protection of the unrepresented public as the statute intended). 21. While valuation and other arguments raised in the Examiner Motione.g.,

whether the plan constitutes an impermissible substantive consolidation (Examiner Motion at 4, 12) or new value plan (Examiner Motion at 4-6) or whether a release by the Debtors of

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claims against Lehman is appropriate (Examiner Motion at 22)are confirmation issues, in the event the Debtors seek confirmation of the plan contemplated by the PSA, the Debtors will nonetheless prevail on the issues raised by these arguments and otherwise demonstrate the confirmability of such a plan, including for the following reasons: ValuationAt the appropriate time, the Debtors will present evidence and testimony establishing their analyses of their assets prepared by the Debtors and their advisors. The Debtors and their advisors presently believe that the valuations as contemplated by the PSA are reasonable in light of preliminary projections prepared by the Debtors management, initial analyses of comparable companies, and the outlook for the Debtors industry, all of which information will be presented by the Debtors (and subject to challenge by parties in interest) as part of the confirmation process. Substantive ConsolidationAny request for substantive consolidation of any of the Debtors, of course, will be accompanied by a requisite showing. The plan contemplated by the PSA, however, does not require substantive consolidation to consummate, and the effect of the distributions under the plan contemplated by the PSA is not a de facto substantive consolidation. Further, contrary to the assertion in the Examiner Motion, each of the Debtors properties is encumbered by significant mortgage debt (whether owed to Lehman or other lenders).14 New ValueAIC is not receiving any property under the plan contemplated by the PSA. AICs potential acquisition of interests in the reorganized Debtors from Lehman would not be under the plan, nor a condition to the plan, and would be the result of an agreement that the Debtors are not party to and did not negotiate. Accordingly, the plan contemplated by the PSA is not an impermissible new value plan.15 Release of LehmanUnder section 1123 of the Bankruptcy Code, a chapter 11 plan may provide for the settlement or adjustment of any claim or interest

14 15

See First Day Declaration at p. 16 (corporate and capital structure chart) and 26-37. See, e.g., In re World Health Alternatives, Inc., 344 B.R. 291, 297-98 (Bankr. D. Del. 2006) (overruling United States trustees objection on absolute priority grounds to a settlement that sought to pay general unsecured creditors before paying priority tax creditors in full, holding that the absolute priority rule [is] not implicated here because the settlement does not arise in the context of a plan of reorganization); In re OCA, Inc., 357 B.R. 72, 87 (Bankr. E.D. La. 2006) (Although this court agrees with the proposition that a creditor receiving a distribution from an estate may do whatever it likes with the [consideration] it receives after distribution, the court finds it troublesome when the creditor purports to share with other creditors or equity, over the objection of an intermediate class, through the mechanism of a plan in a Chapter 11 that this court is called upon to confirm.) (emphasis added).

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belonging to the debtor or to the estate. 11 U.S.C. 1123(b)(3)(A). In reviewing such releases, courts frequently use the standards for approval of a settlement under Rule 9019 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules).16 Under Bankruptcy Rule 9019, the Court may approve a settlement so long as it does not fall[] below the lowest point in the range of reasonableness[.]17 The Debtors will demonstrate that the proposed release, upon which entry of the PSA was conditioned, satisfies this standard and is a reasonable exercise of their sound business judgment. Among other reasons, the Debtors do not believe that they have any valuable claims against Lehman that arise from negligence (any claims against Lehman based on gross negligence or willful misconduct would not be released) and submit that, even if claims were arguably available, any litigation costs associated therewith and the likelihood of recovery would militate against pursuing them. Other Confirmation IssuesThe Debtors will demonstrate that any proposed plan satisfies all of the standards set forth in section 1129, including the requirement of good faith under section 1129(a)(3).

22.

The Preferred Shareholder Committee will have its day in court at a confirmation

hearing on any plan the Debtors put forth and should not be permitted to extract value for its members through an examiner funded by the estates limited resources, particularly to address confirmation issues prematurely. 4. The Preferred Shareholder Committees Allegations of Tricks and Shenanigans in Support of the Examiner Motion Are Based On Misleading Statements and/or Mischaracterizations of Certain Events Surrounding the Chapter 11 Cases.

23.

The Preferred Shareholder Committees unfounded allegations of impropriety and

breaches of fiduciary duties by the Debtors management do not warrant the appointment of an

16

See e.g., In re Bally Total Fitness of Greater N.Y., Inc., 2007 WL 2779438, at *12 (Bankr. S.D.N.Y. Sept. 17, 2007) (To the extent that a release or other provision in the Plan constitutes a compromise of a controversy, this Confirmation Order shall constitute an order under Bankruptcy Rule 9019 approving such compromise.); In re Spiegel Inc., 2005 WL 1278094, at *11 (Bankr. S.D.N.Y. May 25, 2005) (approving releases pursuant to section 1123(b)(3) and Bankruptcy Rule 9019(a)). Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599, 608 (2d Cir. 1983), cert. denied, 464 U.S. 822 (1983) (citing Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972)).

17

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examiner.18 The Debtors management have fulfilled, and will continue to fulfill, their fiduciary duties to the estates (and, as a result, to their constituents), and the Preferred Shareholder Committees allegations to the contrary should be disregarded. The Preferred Shareholder

Committees baseless contentions largely stem from an incomplete and erroneous understanding of the history of the PSA negotiations and the terms of the PSA themselves (as demonstrated by the numerous misstatements and mischaracterizations in the Examiner Motion). See, e.g.,

Examiner Motion at 11 (wrongly implying that AIC is receiving a distribution on account of its equity interests as discussed in 25 herein); Examiner Motion at 15, n. 5 (incorrectly stating that the Debtors scampered to file an amended declaration after Midland objected to certain of the Debtors first day motions as discussed in 26 herein); Examiner Motion at n. 10 (falsely claiming that AIC had unilateral control over the timing of the filing of the Chapter 11 Cases as discussed in 28 herein). Furthermore, as explained above, any issues involving the PSA are not appropriate for an examiners investigation because: (a) assumption of the PSA is already the subject of a separate contested matter upon which appropriately tailored responses to discovery have been provided to many parties, including the Preferred Shareholder Committee; (b) assumption of the PSA will be decided at the September 1 hearing, rendering any examiners investigation beyond such date moot; and (c) issues concerning the term sheet of the plan contemplated therein will be raised, if necessary, as part of the plan confirmation process. 24. As set forth in the PSA Motion, after a thorough examination and analysis of the

relevant legal and factual issues, the Debtors decided to enter into the PSA because it provides

18

See In re GliaTech, Inc., 305 B.R. 832, 836 (Bankr. N.D. Ohio 2004) (A request to appoint an examiner must be substantiated with factual support; refusing to appoint an examiner in the circumstances presented); In re Lenihan. 4 B.R. 209, 210-12 (Bankr. R.I. 1980) (allegations of fraud and theft by debtor, unsupported by evidence, did not justify appointment of examiner); In re Bel Air Associates, 4 B.R. 168, 173-74 (Bankr. W.D. Okla. 1980) (mere naked allegations, without supporting evidence, did not justify appointing examiner).

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the best means of maximizing the value of the Debtors estates. See PSA Motion at 7, 18-19, 23. Further, the PSA contains a fiduciary out that permits the Debtors and their directors and officers to take any action that is consistent with their fiduciary obligations under applicable law, including pursuit of a more attractive restructuring alternative than the one contemplated by the PSA.19 The terms of the PSA were the product of hard-fought negotiations, which were led by the Debtors Chief Restructuring Officer, and entry into the PSA was authorized by the Debtors independent board of directors after appropriately considering various alternatives. See Cook Declaration at 7. Like many of the other issues raised in the Examiner Motion, the Preferred Shareholder Committee is free to object to, and litigate, the Debtors ability to assume the PSA. However, it should not be able to further deplete scarce estate resources to fund those activities. 25. Nor are the Preferred Shareholder Committees allegations that AIC engineered

a prearranged scheme to ensure that it retained equity in the Reorganized Debtors correct. Under the terms of the Plan Term Sheet, all of the Debtors equity holders, including AIC, will receive nothing. Other than the eligible participants in the Debtors contemplated post-

emergence management equity incentive program, the PSA contemplates that only Lehman would receive equity in the reorganized Debtors in exchange for agreeing to cancel all of its prepetition debt claims.20 The possibility that AIC may end up owning approximately 50% of

19

See Section 25(a) of the PSA, which provides that: Notwithstanding anything to the contrary herein, at any time prior to the Confirmation Date (as defined in the Plan Support Agreement, the Debtors or any directors or officers of the Debtors, in such persons capacity as a director or officer of the Debtors, shall be entitled to take any action, or to refrain from taking any action, including a decision to terminate the Plan Support Agreement, that such person determines in good faith, after consultation with counsel, is consistent with its or their fiduciary obligations under applicable law. The fact that Lehman is receiving 100% of the equity in the reorganized Debtors (subject to dilution on account of the equity to be distributed to management) under the plan contemplated by the PSA is not further evidence of the Debtors tricks and shenanigans as the Preferred Shareholder Committee will undoubtedly attempt to argue. Rather, it was a function of the facts that: (a) the Debtors debts to Lehman were the only non-CMBS mortgage debt; and (b) none of the CMBS trust entities are permitted to voluntarily accept equity in exchange for debt without losing their tax-advantaged structure. These are among the reasons the Debtors contemplated a (continued on next page)

20

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the equity in the reorganized Debtors, in Lehmans discretion, is not a condition of any plan that will be presented by the Debtors. Rather, Lehman conditioned its support of the PSA on its ability to find someone willing to provide an advance commitment to purchase at least 50% of the equity interests in the reorganized Debtors that Lehman would receive under the plan to reduce its exposure to market risk. To the extent that AIC ends up owning any of the postemergence equity in the reorganized Debtors, this would happen by virtue of a separate transaction between Lehman and AIC that the Debtors are not a party to and did not negotiate. Neither the Preferred Shareholder Committee nor any other party should be complaining in these Chapter 11 Cases about Lehmans agreement to dispose of what will be its own property sometime after the Debtors reorganization is completed. And any allegation that AIC is

receiving a sweetheart deal from Lehman as part of any transaction between those two parties is an issue that would have been more appropriately raised in Lehmans chapter 11 proceedings.21 26. Additionally, the Preferred Shareholder Committee incorrectly implies that the

Debtors intentionally hid the post-emergence equity sale arrangement between Lehman and AIC in the initial first day pleadings, noting that the Debtors scampered to file an amended declaration only after Midland filed objections to certain of the Debtors first day motions. See Examiner Motion at 15. As the docket for these Chapter 11 Cases makes clear, the First Day

plan that would provide their other secured lenders with new loans with principal balances that are consistent with the value of the collateral securing the obligations.
21

But see Order Pursuant to Section 363 of the Bankruptcy Code Granting Authority to LCPI to (I) Consent to Its Non-Debtor Affiliate Lehman ALI Inc.s (A) Entry Into Plan Support Agreement Related to Restructuring of Innkeepers USA Trust and (B) Consummation of the Transaction Set Forth in the Plan Term Sheet and (II) Provide Funds to Solar Finance Inc., a Non-Debtor Affiliate, to Provide Debtor-In-Possession Financing [Docket No. 10877], In re Lehman Brothers Holdings Inc., Case No. 08-13555 (JMP) (Bankr. S.D.N.Y. Aug. 18, 2010) (order overruling Appaloosa Investment L.P.s objection that sale price of equity potentially to be sold by Lehman to AIC may not be a fair price.).

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Declaration, which disclosed the Debtors awareness of the potential transaction, was filed before either of Midlands objections [Docket Nos. 36 and 38] to various first day motions. Further, the Debtors explained at the first day hearing that the particular disclosure, which the Debtors acknowledged was important and needed to be made, had been inadvertently left out of the final version but was in earlier drafts of the document, including the draft that had been sent to Midland before the Petition Date.22 27. To further bolster its unsupported accusations and create the appearance of

impropriety where none exists, the Preferred Shareholder Committee argues that AICs desire to maintain its ownership interests in the Debtors caused the Debtors to voluntarily default on certain CMBS loans prematurely and unnecessarily. See Examiner Motion at 13. However, the Debtors decision to stop making interest payments on certain CMBS mortgage loans was not to create the appearance of insolvency as alleged (without any evidentiary support whatsoever) by the Preferred Shareholder Committee. See Examiner Motion at 13. Instead, the decision was made because the Debtors determined that the continued payment of interest on what they believed to be undersecured non-recourse debt was not in the best interests of all relevant stakeholders given the Debtors need to engage in a comprehensive debt restructuring. 28. The Preferred Shareholder Committees assertion that AIC did not allow the

Debtors to commence the Chapter 11 Cases until the day it procured for itself a term sheet with Lehman entitling AIC to repurchase half of Innkeepers is yet another mischaracterization. See Examiner Motion at n. 4. The Debtors were not involved in negotiating any agreement between

22

See 7/20/2010 Hrg Tr. at 24:1-13, In re Innkeepers USA Trust, Case No. 10-13800 (SCC) (Bankr. S.D.N.Y. 2010) (We had had that disclosure in probably twenty or thirty versions of the affidavit that we were working on. We know that's important disclosure, obviously. In a draft of an affidavit that we sent to Midland last week, it included that disclosure So this is not one of these issues that people are trying to hideBut that is disclosure that we thought was importantand it needed to be made.).

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Lehman and AIC and independently made the decision when to commence the Chapter 11 Cases on the sound judgment of the Debtors and in consultation with their advisors. Moreover, the record in the Chapter 11 Cases demonstrates that the timing of the Debtors filing of the petitions was driven by the Debtors desire to appease Marriott, their most significant franchisor, after finalizing the integrated agreements with their constituents that are critical to their restructuring, i.e., the PSA with Lehman, the Adequate Assurance Agreement with Marriott, and the proposed DIP Financing agreements.23 II. This Court Should Not Appoint An Examiner Under Section 1104(c)(1). 29. Section 1104(c)(1) of the Bankruptcy Code provides that a bankruptcy court: shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor of or by current or former management of the debtor, if (1) such appointment is in the interest of creditors, any equity security holders, and other interests of the estate. 11 U.S.C. 1104(c)(1) (emphasis added). As a result of section 1104(c)(1)s use of the word and, an examiner should only be appointed under that subsection if doing so would serve the interests of all of a debtors various stakeholders. See GliaTech, 305 B.R. at 836 (holding the appointment of an examiner must be in the interests of all creditors and equity holders).

23

At the Debtors first day hearing, it was discussed that the Debtors filing was delayed due to the Debtors decision to accommodate Marriott with respect to a blip in Marriotts receipt of payment of certain outstanding fees under their franchise agreements. See 7/20/10 Hrg Tr. at 134:1215, In re Innkeepers USA Trust, 10-13800 (SCC) (counsel to Marriott stated: We had a blip. There were franchise fees due on July 15. We were told on the 16th they were getting paid. Apparently it was stuck in transit and we extended forbearance to Monday morning to get those paid.); see also Debtors Motion for Entry of an Order Authorizing the Debtors to Assume the Troy Central Franchise Agreement [Docket No. 173] (Finally, over the July 17 weekend, the Debtors agreed to delay filing their bankruptcy petitions again, at Marriotts request.).

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30.

The request in the Examiner Motion to appoint an examiner cannot be in the best

interests of the Debtors stakeholders because, as discussed above, the requested topics of an investigation are already being addressed (or will be) as part of contested matters, already are being investigated by the Committee, are issues properly heard as part of the confirmation process, or are the product of mischaracterizations. Requiring the Debtors estates to expend significant resources to fund a separate investigation by an examiner into duplicitous, premature, and baseless allegations as requested by the Preferred Shareholder Committee would simply be wasteful and inefficient. Accordingly, the appointment of an examiner is not in the best interests of all of the Debtors stakeholders as required by section 1104(c)(1). The Examiner Motion should be denied.

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WHEREFORE, the Debtors respectfully request that the Court deny the Examiner Motion in its entirety and grant such other further relief as is just and proper.

New York, New York Dated: August 23, 2010

/s/ Paul M. Basta James H.M. Sprayregen, P.C. Paul M. Basta Jennifer L. Marines KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York 10022-4611 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 and Anup Sathy, P.C. (admitted pro hac vice) Marc J. Carmel (admitted pro hac vice) KIRKLAND & ELLIS LLP 300 North LaSalle Street Chicago, Illinois 60654-3406 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 Counsel to the Debtors and Debtors in Possession

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