Lee S. Attanasio Hearing Date: September 1, 2010 at 8:30 a.m.

SIDLEY AUSTIN LLP

787 Seventh Avenue
New York, New York 10019
(212) 839-5300
Counsel for Appaloosa Investment L.P. I

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re : Chapter 11
:
Innkeepers USA Trust, et al., : Case No. 10-13800 (SCC)
:
Debtors. : Jointly Administered
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APPALOOSA INVESTMENT L.P. IS OBJECTION TO: (I) DEBTORS MOTION FOR
THE ENTRY OF INTERIM AND FINAL ORDERS (A) AUTHORIZING THE
DEBTORS TO (I) USE THE ADEQUATE PROTECTION PARTIES CASH
COLLATERAL AND (II) PROVIDE ADEQUATE PROTECTION TO THE
ADEQUATE PROTECTION PARTIES PURSUANT TO 11 U.S.C. SEC. 361, 362, AND
363, (B) TO THE EXTENT APPROVED IN THE FINAL ORDER, GRANTING
SENIOR SECURED, PRIMING LIENS ON CERTAIN POSTPETITION
INTERCOMPANY CLAIMS, (C) TO THE EXTENT APPROVED IN THE FINAL
ORDER, GRANTING ADMINISTRATIVE PRIORITY STATUS TO CERTAIN
POSTPETITION INTERCOMPANY CLAIMS, AND (D) SCHEDULING A FINAL
HEARING PURSUANT TO BANKRUPTCY RULE 4001(B); AND (II) DEBTORS
MOTION FOR AN ORDER (A) AUTHORIZING THE DEBTORS TO ASSUME
THE PLAN SUPPORT AGREEMENT AND (B) GRANTING RELATED RELIEF
Appaloosa Investment L.P. I (Appaloosa), a party in interest in these cases,
objects to certain relief requested by the debtors and debtors in possession in the above-captioned
cases (the Debtors) in the following motions: (i) Debtors Motion for the Entry of Interim and
Final Orders (A) Authorizing the Debtors to (I) Use the Adequate Protection Parties Cash
Collateral and (II) Provide Adequate Protection to the Adequate Protection Parties Pursuant to 11
U.S.C. Sec. 361, 362, and 363, (B) to the Extent Approved in the Final Order, Granting Senior
Secured, Priming Liens on Certain Postpetition Intercompany Claims, (C) to the Extent
Approved in the Final Order, Granting Administrative Priority Status to Certain Postpetition

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Intercompany Claims, and (D) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001(b)
[Docket No. 13] (the Cash Collateral Motion); and (ii) Debtors Motion for an Order (A)
Authorizing the Debtors to Assume the Plan Support Agreement and (B) Granting Related Relief
[Docket No. 15] (the PSA Motion and together with the Cash Collateral Motion, the
Motions). As grounds, Appaloosa respectfully states as follows:
INTRODUCTION
1. These cases have just begun. At this juncture, the Debtors need two things to
ensure their continued stability and to preserve the value of these estates. First, the Debtors need
access to cash claimed by their lenders as collateral in order to operate their businesses in the
ordinary course. Second, in order to satisfy their property improvement programs or PIP
obligations and maintain their flags, they require the financing contemplated by the two
debtor-in-possession facilities that were prenegotiated before these cases filed (collectively, the
DIPs).
1
On these points, all parties in interest agree.
2. The Debtors prepetition and postpetition lenders have a big incentive to permit
the Debtors to use their cash claimed as collateral and to move forward with the DIPs. They, like
everyone else, know that absent this consent and new financing, collateral values would plummet
to their detriment. Midland Loan Services, Inc. and Five Mile Capital Partners LLC,
2
the
prepetition and postpetition lenders to the 45 Fixed Rate Debtors have indicated their willingness
to consent, with appropriate protections, to the Debtors use of cash and to extending new credit

1
Neither the DIP facilities nor the Debtors agreement with Marriot International, Inc. (the Marriott
Agreement) is linked to any plan of reorganization. Appaloosa does not object to the Debtors entry into
the Marriot Agreement, nor to approval of the DIPs.
2
Midland Loan Services, Inc. (Midland) is the special servicer to the CMBS trusts which hold the Fixed
Rate Mortgage (as defined below). An affiliate of Five Mile Capital Partners LLC is providing a DIP to the
Debtors who are borrowers under the Fixed Rate Mortgage (the Fixed Rate Debtors).

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to protect their prior investments with no extraneous requirements. Despite current protestations
to the contrary, Lehman ALI, Inc. (Lehman), who has $220 million of its creditors money
invested in Innkeepers, will do the same.
3
,
4
Common sense and their business judgment require
it. See Motion of Lehman Commercial Paper Inc. Pursuant to Section 363 of the Bankruptcy
Code for Authority to (I) Consent to its Non-Debtor Affiliate Lehman ALI Inc. (A) Entry Into
Plan Support Agreement Related to the Restructuring of Innkeepers USA Trust; and (B)
Consummation of the Transactions 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 [Lehman
Docket No. 10465] at p. 38 (Marriotts entry into the Marriott Agreement, pursuant to which it
has agreed to forbear from exercising its potential rights to terminate its franchise agreements is
conditioned on, among other things, Innkeepers securing debtor-in-possession financing and
completing the property improvement work plan. The proposed DIP Facilities, in turn, are
conditioned on Marriotts willingness to support the proposed transaction and to forbear from
de-flagging substantially all of Innkeepers properties in accordance with the Marriott
Agreement.).

3
Indeed, in the recent deposition of Michael Lascher, the Lehman employee who was principally responsible
for negotiating the Innkeepers restructuring on behalf of Lehman, Mr. Lascher stated, [A]s long as there
were funds available, whether it be from a DIP or cash flow, in order to do the PIP work, we [Lehman]
wouldnt stand in the way of their [the Debtors] doing that. Transcript of Deposition of Michael
Lascher Held on Aug. 19, 2010 (Lascher Dep. Tr.) (excepts attached as Exhibit A), 24:16-20.
4
If Lehman will not proceed with the DIP, which is highly doubtful (especially given that the DIP Lehman is
providing is essentially a roll-up that doesnt require Lehman to commit new capital), there is no evidence
that another party would not provide the Floating Rate Debtors (defined below) with debtor-in-possession
financing. As set forth in the Debtors motion to approve Lehmans DIP, as of the Petition Date, the
Debtors had not yet shopped the DIPs. 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(d)(1), and 364(e) of the Bankruptcy Code [Docket No. 23]
at 20.

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3. By this objection, Appaloosa seeks to separate what is critical to the preservation
of these estates from what is tactical, controversial and contentious. To be clear, as long as it is
done in good faith and consistent with their fiduciary duties, the Debtors may propose any plan
they want and may select any plan sponsor as a suitor. That plan will either survive the rigors of
the chapter 11 process or it wont. If it doesnt, however, it shouldnt be so inexplicably linked
to the Debtors lifeline that it risks the Debtors very foundation. For the interests of all, the
Debtors should be free to proceed with their plan process without both arms tied behind their
backs.
4. The Debtors have failed to demonstrate how their proposed plan support
agreement (the PSA) will promote a successful reorganization. By seeking to assume the
PSA, as opposed to just filing a plan (even the same plan as is contemplated by the PSA) on the
timetable currently proposed (i.e., on or before September 2, 2010; the day after this hearing), the
Debtors are gambling the welfare of these estates on the plan being ultimately approved by this
Court. This is a problem.
5. While Appaloosa does not believe the restructuring transaction proposed by the
PSA can ultimately be confirmed under the requirements of section 1129 of title 11 of the United
States Code (the Bankruptcy Code), that is not an issue for today. Today, the Debtors cannot
demonstrate an adequate business justification for agreeing that:
Lehman can terminate the use of its cash collateral upon any PSA
termination event without further court approval. See PSA 8(a).
Lehman can force a sale under section 363 of the Bankruptcy Code of its
collateral upon certain PSA termination events, or foreclose on its
collateral without further need for court approval upon certain termination
events. See PSA 8(b).
Lehman can terminate the PSA if, among other things, a material adverse
change in financial markets occurs (whether or not it affects the Debtors),
or Lehman determines after completion of its tax due diligence that the

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transaction contemplated by the PSA cannot be structured in a manner
acceptable to Lehman, when such events could lead to the termination of
the use of Lehmans cash collateral. See PSA 6(p) and 6(q).
The Debtors will not discuss any other restructuring options with any
other parties, or potentially lose the use of Lehmans cash collateral. See
PSA 5(c) and 6(r).
The Debtors will only exercise a fiduciary out if they receive a binding
written commitment of an alternate transaction that will provide Lehman
with a higher and better recovery. See PSA 25(c).
6. The Debtors have not and cannot demonstrate that the PSA will hasten their
emergence from chapter 11. To the contrary, it has spurred extensive discovery requests and a
motion for an examiner. And unlike most plan support agreements, the PSA doesnt lock-up a
critical mass of creditors. Here, the Debtors have signed up only one of the creditors needed to
complete a comprehensive restructuring. And that support comes at a great price. It risks the
loss of Lehmans cash collateral an unconscionable hammer held over the heads of all parties
in interest in these cases.
5
It prohibits the Debtors from negotiating with the numerous
constituents who will be required to vote on their respective Debtors chapter 11 plan and
requires the Debtors to shelve their fiduciary duties. For what? Absent the PSA, virtually
nothing prevents the Debtors, Lehman and Apollo from filing their exact same plan on the exact
same timetable.
STANDING
7. As a preferred shareholder of Innkeepers USA Trust, Appaloosa is a party in
interest in these cases under section 1109 of the Bankruptcy Code. As such, Appaloosa has

5
Even the Debtors were troubled, on the eve of filing, by the prospect of giving Lehman the right to
terminate cash collateral, although they acquiesced in the end. As recent discovery has revealed, as late as
the day before their petitions were filed, the Debtors expressed to Lehman that they were [n]ot inclined to
give Lehman the right to terminate cash collateral based on a breach of the PSA because it would give
potential opponents a real hook to challenge the deal. See Exhibit 6 to Lascher Dep. Tr. (attached hereto
as Exhibit B); Lascher Dep. Tr. (Exh, A), at 53:22 - 54:12.

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standing to bring this objection. In addition to owning a modest amount of preferred shares,
Appaloosa has hundreds of millions of dollars invested in the Fixed Rate Mortgage (defined
below) which is serviced by Midland as special servicer. While this interest is not direct and, in
and of itself, arguably might not afford Appaloosa standing, disclosure of these investments is
important to explain the significant weight of Appaloosas interest in seeing that the Debtors
successfully restructure. Put simply, Appaloosa has a lot of skin in the game.
8. The purpose of the party in interest standing requirement under section 1109 of
the Bankruptcy Code, which provides that any party in interest . . . may raise and may appear
and be heard on any issue . . ., is to ensure that those parties with a significant stake in the
outcome of a bankruptcy case, or whose interests are being compromised, are heard on matters
important to the outcome of a case. See In re Stone Barn Manhattan LLC, 405 B.R. 68, 74
(Bankr. S.D.N.Y. 2009) (The basic test under section 1109(b) is whether the prospective party
in interest has a sufficient stake in the outcome of the proceeding so as to require representation.
It is generally understood that a pecuniary interest directly affected by the bankruptcy proceeding
provides standing under 1109(b).) (internal citations and quotations omitted). Thus,
Appaloosa meets the requirement for technical standing, but also has a significant economic
stake in the successful outcome of these cases.
BACKGROUND
9. These cases were filed on July 19, 2010 (the Petition Date). The Debtors own
and operate a portfolio of 72 upscale and mid-priced extended-stay and select-service hotels
located in 20 states across the United States. See Amended Declaration of Dennis Craven, Chief
Financial Officer of Innkeepers USA Trust, In Support of First-Day Pleadings [Docket No. 33]
(the Innkeepers Declaration) 6.

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10. As of the Petition Date, the Debtors had incurred approximately $1.29 billion of
secured debt, consisting of (a) a securitized mortgage loan in the face amount of $825 million
(the Fixed Rate Mortgage), collateralized by 45 of the Debtors hotel properties and divided
into two CMBS pools, each of which is serviced by Midland as special servicer, (b) a floating
rate senior mortgage loan in the face amount of $250 million (the Floating Rate Mortgage,
the borrowers under such loan the Floating Rate Debtors) for which Lehman is the sole
lender, collateralized by 20 hotel properties, plus a junior mezzanine loan in the face amount of
$118 million secured by the equity interests in the entities that own those 20 hotels, and (c) seven
additional secured mortgage loans (the Individual Mortgages) ranging in amounts from
approximately $24 to $48 million, each secured by individual properties, with one additional
mezzanine loan related to one of the Individual Mortgages. See Innkeepers Declaration 8, 25-
37. The Floating Rate Mortgage, Fixed Rate Mortgage, and Individual Mortgages are each
secured by distinct hotel properties, and such mortgages are the liabilities of distinct debtors,
such that the borrowers under the Floating Rate Mortgage, the Fixed Rate Mortgage and the
Individual Mortgages do not overlap. See Innkeepers Declaration 24-37. In 2007, Apollo
Investment Corporation (Apollo) acquired the membership interests of debtor Grand Prix
Holdings LLC, the direct or indirect parent of all of the Debtors. See Innkeepers Declaration
8, 23. However, Debtor Innkeepers USA Trust has approximately 5.8 million shares of
outstanding publicly traded preferred stock, and there are two other series of preferred stock
issued by the Debtors that are not held by Apollo. See Innkeepers Declaration 38-40.
11. On the Petition Date, the Debtors moved for approval of two separate debtor-in-
possession financing facilities, consisting of (a) an approximately $50.75 million facility
provided by an affiliate of Five Mile Capital Partners LLC, which will be secured by the 45

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properties securing the Fixed Rate Mortgages and two of the properties securing the Individual
Mortgages, and (b) an approximately $17.5 million term facility funded by an affiliate of
Lehman, secured by the properties securing the Floating Rate Mortgages (the Lehman DIP).
See 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] pp. 5-10.
12. The Debtors also filed a motion to obtain this Courts approval to enter into the
PSA with Lehman. Other than the Debtors, the only party to the PSA is Lehman. The PSA and
its attached term sheet (the Plan Term Sheet)
6
outline proposed terms for the Debtors
restructuring (the Proposed Restructuring), which includes the distribution of 100% of the
new equity of reorganized Innkeepers (the New Equity) to Lehman in full and final
satisfaction of the Floating Rate Mortgage and a drastic reduction of the Fixed Rate Mortgage
and the Individual Mortgages. See PSA Motion 8. Lehman has then entered into an agreement
to sell half of the New Equity back to Apollo. See Motion of Lehman Commercial Paper Inc.
Pursuant to Section 363 of the Bankruptcy Code for Authority to (I) Consent to its Non-Debtor
Affiliate Lehman ALI Inc. (A) Entry Into Plan Support Agreement Related to the Restructuring of
Innkeepers USA Trust; and (B) Consummation of the Transactions 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 [Lehman Docket No. 10465].
13. The PSA prohibits the Debtors from negotiating, supporting, or engaging in any
discussions relating to any alternate chapter 11 plan or other transaction. See PSA 5(c) and

6
The Plan Term Sheet is attached as Exhibit A to the PSA, which in turn is attached to the PSA Motion as
Exhibit B.

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Plan Term Sheet p. 5. If the Debtors were to engage in discussions regarding an alternate
transaction, they could lose the use of Lehmans cash collateral. See PSA 6(r) and 8(a).
ARGUMENT
A. Entry Into the PSA Does Not Satisfy the Requirements of Section 365.
14. In order to justify their entry into the PSA, the Debtors must show that such entry
is supported by their sound business judgment, which judgment must be exercised fairly, and
without prejudice to parties in interest. See In re Natl Oil Company, 80 B.R. 525, 526 (Bankr.
D. Colo. 1987) (in explaining the requirement for court approval of a debtors decision to assume
or reject a contract, the court noted that such requirement operates as a safeguard to protect
against a unilateral decision by the debtor that could be prejudicial to the creditors); In re
Grayhall Resources, Inc., 63 B.R. 382, 384 (Bankr. D. Colo. 1986) (debtor may assume contracts
under section 365 where assumption represents a sound business judgment on the part of the
Debtor and will not be prejudicial to the interest of the creditors); see also Trak Auto Corp. v.
Ramco-Gershenson, Inc. (In re Trak Auto Corp.), 2002 WL 32129975, at *2 (Bankr. E.D. Va.
Jan. 9, 2002) (when reviewing a section 365 motion, bankruptcy court must evaluate debtors
business judgment by considering the impact of the debtors decision on a variety of parties as
well as the impact on the debtors estate). As discussed below, due to a multitude of
extraordinary provisions in the PSA, the Debtors have not adequately justified their entry into the
PSA.
i. The Debtors Have Not Adequately
Justified the Need for the PSA.
15. The PSA does not provide the Debtors with the votes needed to confirm an
enterprise-wide reorganization and, as demonstrated by the events of the last few weeks, will not
spare these estates costly and contentious litigation. While there are a total of 92 Debtors, all of

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whom have signed the PSA, Lehman is the creditor of only 20 of the Debtors. There is no basis
for substantive consolidation in this case. There are separate asset pools, and separate lenders for
the Floating Rate Mortgage, the Fixed Rate Mortgage and the Individual Mortgages, with no
cross-collateralization. See Innkeepers Declaration 24-37. Accordingly, the Debtors must
secure at least one accepting class of impaired claims for each of the Debtors in order to confirm
a plan of reorganization in each of the 92 cases. 11 U.S.C. 1129(a)(10). The PSA, which
comes with a hefty price, does not help accomplish that.
16. The PSA is not necessary to stabilize the Debtors businesses. As long as the two
critical components, cash collateral and the DIPs, remain available as they should,
irrespective of what happens to the PSA these cases will not be at risk of being a free fall
bankruptcy. As a result, the Debtors have never been able to articulate a valid justification for
entering into the PSA.
ii. The Termination Events and the Restrictions on the Debtors
Ability to Negotiate With Other Parties in Interest Are
Imprudent and Not Supported by Business Judgment.
17. Because the Debtors have coupled the PSA with their use of Lehmans cash
collateral, the real question is not whether the termination events in the PSA (the Termination
Events) are reasonable for a PSA, but whether they are reasonable termination events for the
use of cash collateral.
18. The many Termination Events are more fully set forth in Section 6 of the PSA,
but they include:
Certain plan milestones (the Plan Milestones) including the confirmation of a
plan consistent with the Plan Term Sheet by 240 days after the Petition Date; See
PSA 6(a);
Lehman having executed definitive documentation with respect to the sale of 50%
of the equity in the reorganized Debtors by no later than September 2, 2010; See
PSA 6(b);

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Lehman having consummated the sale of 50% of the equity by no later than 270
days after the Petition Date; See PSA 6(c);
The entry of any order of this Court granting relief from the automatic stay (i) to
permit any exercise of remedies by the lenders or special servicer under the Fixed
Rate Mortgage, the Individual Mortgages or certain other debt, other than limited
relief solely to permit the delivery of default notices under the terms of the
applicable credit agreements; or (ii) to permit termination of any franchise
agreement; See PSA 6(e);
The filing by the Debtors of any motion or other request for relief seeking to
(i) dismiss any of these cases, (ii) convert any of these cases to a case under
chapter 7 of the Bankruptcy Code or (iii) appoint a trustee or an examiner with
expanded powers pursuant to section 1104 of the Bankruptcy Code in any of these
cases; See PSA 6(f);
The filing by the Debtors of a request to extend any of the Plan Milestones or to
alter any of the remedies available upon termination of the PSA, or the failure of
the Debtors to oppose any motion from any other party to obtain such extension;
See PSA 6(g);
The entry of an order by this Court (i) dismissing any of these cases,
(ii) converting any of these cases into a case under chapter 7 of the Bankruptcy
Code, (iii) appointing a trustee or an examiner with expanded powers pursuant to
section 1104 of the Bankruptcy Code in any of the cases, or (iv) making a finding
of fraud, dishonesty or misconduct by any office or director of the Debtors,
regarding or relating to the Debtors; See PSA 6(h);
The withdrawal, amendment or modification by the Debtors of, or the filing by
the Debtors of a pleading seeking to amend or modify, the plan proposed under
the PSA, or the PSA, which withdrawal, amendment, modification or pleading is
materially inconsistent with the terms set form in the Plan Term Sheet or the
related plan or is materially adverse to Lehman; See PSA 6(i);
The filing of any motion to approve a disclosure statement or plan by the Debtors
that incorporates a pro forma capital structure or any terms inconsistent with the
terms and conditions set for the in the Plan Term Sheet; See PSA 6(j);
The granting by this Court of relief that is inconsistent with the terms set forth in
the Plan Term Sheet, or the related plan, in any material respect; See PSA 6(k);
The issuance by any governmental authority, including the Bankruptcy Court or
any other regulatory authority or court of competent jurisdiction, of any ruling,
determination or order making illegal or otherwise restricting, preventing or
enjoining the consummation of a material portion of the Proposed Restructuring,
including an order denying confirmation of the plan and such ruling,

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determination or order has not been vacated or reversed within five (5) business
days; See PSA 6(l);
The occurrence and continuation of a default under either of the DIPs; See PSA
6(m) & 6(n);
The occurrence and continuation of a default in connection with the use of
Lehmans cash collateral; See PSA 6(o);
The occurrence of a material disruption or material adverse change in the
financial, real estate, banking or capital markets (regardless of its affect on the
Debtors); See PSA 6(p);
Lehman having determined by September 2, 2010, in its sole discretion, after
completion of its tax due diligence, that the transaction contemplated by the Plan
Term Sheet cannot be structured in a manner acceptable to Lehman; See PSA
6(q); and
The material breach by any party of any of their undertakings, representations,
warranties or covenants set forth in the PSA. See PSA 6(r).
19. Further, Section 5(c) of the PSA provides that neither Lehman nor the Debtors:
shall, directly or indirectly, seek, solicit, negotiate, support or
engage in any discussions relating to or enter into any agreements
relating to, any restructuring, plan of reorganization, dissolution,
winding up, liquidation, reorganization, merger, transaction, sale or
disposition (or [sic] all or substantially all of their assets or equity)
other than as set forth in the Plan Term Sheet and the Plan, nor
shall either Party solicit or direct any person or entity, including,
without limitation, any member of any of the Parties board of
directors or, as to the Company, any holder of equity in the
Company, to undertake any of the foregoing . . .
See PSA 5(c) (emphasis added) (capitalized terms as defined in the PSA). This provision,
when combined with the Termination Event in Section 6(r) of the PSA, will allow Lehman to
terminate the use of its cash collateral if the Debtors even discuss an alternate restructuring with
other parties in interest.
20. As discussed above, the Debtors need to recruit many additional votes in order to
confirm their proposed enterprise-wide transaction. But since they cannot propose any alternate
restructuring without triggering a Termination Event, the only way they could confirm a plan for

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each of the Debtors would be to convince voting classes at each of the remaining 72 Debtors to
sign on to this restructuring, all without the option of negotiating with such constituencies.
21. If the Termination Events merely triggered the loss of Lehmans support for the
Proposed Restructuring, Appaloosa would not object to the PSA, as Lehman may condition its
support of a plan on any terms that it wishes. However, when such Termination Events and
restrictions also trigger a termination of the use of cash collateral, and in certain events, a lifting
of the automatic stay and allow for foreclosure by Lehman on its collateral, in each case, without
further order of this Court, they cannot be sustained.
22. The termination of the use of Lehmans cash collateral is a serious threat, which,
if it occurred, would harm all parties in interest, not just the Floating Rate Debtors and their
creditors. Such cash collateral termination will leave the other secured creditors in these cases to
fund not only all business operations, but also these reorganization cases. This is particularly
true since the Cash Collateral Order (defined below) does not contemplate compartmentalizing
the cash of each Debtor or asset pool, but instead utilizes a consolidated cash management
system with hindsight reconciliation of each Debtors cash. Transcript of Hearing Held on July
20, 2010 (7/20/10 Hrg Tr.) (excerpts cited herein attached as Exhibit C), at 72:1-22, 94:23-
95:15.
23. By definition, the multitude of Termination Events render Lehmans support of
the Proposed Restructuring highly contingent. In fact, the Honorable Judge James Peck, the
Bankruptcy Court judge presiding over Lehmans chapter 11 cases, recently cited the highly
contingent nature of Lehmans support for the Proposed Restructuring as one of the reasons that
the Court was willing to authorize Lehman to enter into the PSA. See In re Lehman Brothers
Holdings Inc., et al., Case No. 08-13555 (JMP), Transcript of Hearing Held on Aug. 18, 2010

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(excerpts attached as Exhibit D) at 113:8-12 ([This transaction] is, instead, approval of an
agreement which is highly contingent and subject, ultimately, to the judgment of my colleague,
Judge Chapman, as well as to the vagaries of the Innkeepers bankruptcy case itself, the future
course of which is unpredictable.).
7
Given these outs, the Debtors cannot forgo the ability to
negotiate with every other creditor, and make any breach of its PSA an opportunity for Lehman
to do significant harm to these estates. While Lehman can walk from the deal with impunity at
many different turns, if the Debtors were to walk, they and their estates and creditors could be
irreparably harmed.
iii. Fiduciaries Cannot Elect Not to Fulfill Their Duties.
24. The fiduciary out provisions of Section 25 of the PSA (the Fiduciary Out) are
impermissible. Section 25(c) of the PSA provides that:
The Company agrees that the Fiduciary Out shall not apply, and
may not be used, to annul, modify, amend, or otherwise alter any
of the Plan Milestones or any of the remedies in respect thereof;
provided, however, that if the Company secures a binding and firm
written commitment with respect to an alternative transaction that
will provide Lehman with a higher and better recovery than the
recovery proposed under the Plan (a Firm Alternative
Transaction), the Company shall provide Lehman with at least
ten (10) Business Days to determine whether Lehman will consent
to such Firm Alternative Transaction. If Lehman does not consent
to such Firm Alternative Transaction, the Company may only
exercise the Fiduciary Out after it has obtained an order from the
Bankruptcy Court authorizing the Company to exercise the
Fiduciary Out in accordance with the terms hereof.
See PSA 25(c) (capitalized terms as defined in the PSA).
25. At least 72 of the 92 Debtors cannot agree to this provision and fulfill their
fiduciary duties. It is undisputed that each of the Debtors owes fiduciary duties to its own

7
Appaloosa holds a significant claim in the bankruptcy case of Lehman Commercial Paper Inc., and
appeared in that case to oppose approval of Lehmans entry into the PSA and its sale of proposed
recoveries from these cases to Apollo.

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creditors, including both their secured and unsecured creditors. In re Enron Corp., 2003 WL
1889040, at *8 (Bankr. S.D.N.Y. Apr. 17, 2003) ([T]he duty of the trustee or debtor-in-
possession is to gather estate assets for pro rata distribution to all creditors. As such it has a
fiduciary duty to all creditors and must seek to protect the interests of all creditors collectively.)
(internal citations omitted) (emphasis added); In re Ngan Gung Rest., 254 B.R. 566, 570 (Bankr.
S.D.N.Y. 2000) (A trustee also owes a fiduciary duty to each creditor of the estate. As such, he
has a duty to treat all creditors fairly) (internal citations and quotes omitted) (emphasis
added); In re Centennial Textiles, Inc., 227 B.R. 606, 612 (Bankr. S.D.N.Y. 1998) (A debtor in
possession owes the same fiduciary duty as a trustee to the creditors and the estate . . . . As
fiduciaries, the debtor in possession and its managers are obligated to treat all parties to the case
fairly, maximize the value of the estate, and protect and conserve the debtors property.)
(internal citations and quotes omitted); In re Whitney Place Partners, 147 B.R. 619, 620-21
(N.D.Ga.1992) (In a Chapter 11 case, the debtor in possession has a fiduciary duty to act not in
its own best interest, but rather in the best interest of the entire estate, including secured and
unsecured creditors.).
26. It is well established that an agreement that involves committing a breach of
fiduciary duty is illegal and unenforceable on the grounds of public policy. See RESTATEMENT
(SECOND) OF CONTRACTS 193 (2010) (A promise by a fiduciary to violate his fiduciary duty
or a promise that tends to induce such a violation is unenforceable on grounds of public
policy.); Kessler v. Jefferson Storage Corp., 125 F.2d 108, 110 (6th Cir. 1941) ([W]here the
object or tendency of a contract is to constitute a breach of duty on the part of one who stands in
a confidential or fiduciary relation, it is illegal and void, as tending to be, or being, a fraud on
third persons.). Bankruptcy courts honor this principle by refusing to approve or enforce

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agreements which would result in a violation of the debtor in possessions fiduciary duties to the
estate. See In re U. S. Lines, Inc., 103 B.R. 427, 431 n.1 (Bankr. S.D.N.Y. 1989) (refusing to
enforce an agreement by a debtor in possession to abstain from objecting to fee applications
because [a] promise by a fiduciary tending to violate his fiduciary duty is unenforceable on
grounds of public policy.); In re Tenney Vill. Co., Inc., 104 B.R. 562, 569 (Bankr. D.N.H.
1989) (refusing to approve DIP facility on the basis that the execution of the Financing
Agreement violates the Debtors fiduciary obligations to the estate).
27. Even if this provision could somehow be justified for the 20 Debtors who count
Lehman as one of their creditors, 72 other Debtors cannot be allowed to forsake their duties to
their separate creditors in order to placate a single secured creditor of an affiliate. Even if a duty
could be bought (it cant), here, 72 Debtors are receiving no consideration for Lehmans
support. Such Debtors are procuring their own financing, using their own cash and facing a
highly contested valuation fight to determine if the Floating Rate Mortgage pool is claiming a
disproportionate amount of their enterprise value.
28. The Debtors have not articulated a sufficient business justification for entry into
the PSA and accordingly, this Court should deny the PSA Motion.
B. The Debtors Cannot Justify the Restrictions on
Their Use of Cash Collateral on the Terms in the Cash Collateral Order.
i. The Debtors Authority to Use Cash
Collateral Should Not Be Conditioned on
the Success of the Proposed Restructuring.
29. The Debtors and Lehman seek to bind parties to a plan of reorganization through
a cash collateral order. As both the proposed cash collateral order (the Cash Collateral
Order) and the PSA provide that the Debtors use of cash collateral will terminate if the
Proposed Restructuring as set forth in the PSA does not proceed as planned, this gives Lehman

- 17 -
the ability to do an end run around the chapter 11 process if the Proposed Restructuring is not
accomplished. See Cash Collateral Order, at 10(a)(xvii) (providing that a Termination Event
shall occur following applicable notice if the Floating Rate Debtors breach any of their material
obligations arising in connection with the proposed restructuring of the Floating Rate
Obligations); PSA, at 8(a) (Lehman may terminate use of its cash collateral upon occurrence
of any termination event, including the Debtors failure to meet certain plan milestones).
30. As the Debtors have acknowledged, Use of the Cash Collateral is of the
utmost importance to the preservation and maintenance of the value of the Debtors and essential
to the continued operations of the Debtors and the restructuring. Cash Collateral Motion, at
26. Termination of the use of cash collateral would bring the Debtors business to an
immediate halt and have disastrous consequences for the Debtors reputation, their business,
their ability to attract future customers, and their estates and creditors.
8
Id. By conditioning
such a critical function to the success or failure of the Proposed Restructuring, the Debtors have
essentially fashioned an agreement with Lehman that ties the Debtors fortunes, and
consequently the fortunes of all of their stakeholders, on a single plan formulated by and for the
benefit of Lehman and Apollo.
9


8
Notably, the debtor-in-possession financing being provided in these cases may only be used for PIP work
and other renovations, and cannot be used for ordinary course business expenses, making cash collateral the
only source of funds to operate the Debtors on a day-to-day basis. See Lehman DIP Term Sheet, at 4; Five
Mile DIP Term Sheet, at 5.
9
Although staged as a Lehman sponsored restructuring, recent discovery has confirmed that much of this
restructuring is being driven by Apollo. The earliest versions of the PSA contemplated Apollo as a direct
signatory and Michael Lascher of Lehman recently testified that Lehman has only and will only consider
selling its interest in Innkeepers to Apollo. Lascher Dep. Tr. (Exh. A), at 71:20-72:8, 106:13-20, 127:2-7.
For tactical reasons, these cases are being styled as a collaboration among the Debtors and Lehman, which
are wholly separate from the third party transactions that may take place between Lehman and other
parties. As will be explored later in these cases, this is an artifice.

- 18 -
31. As articulated by the Second Circuit, any agreement authorizing the use of cash
collateral under 363(c)(2) must be approved by the bankruptcy court, which must satisfy
itself that the agreement complies with the Code. In re Blackwood Assocs., L.P., 153 F.3d 61,
67 (2d Cir. 1998). The primary purpose of this review is to protect stakeholders who were not
parties to the agreement. Id. at 67-68 ([T]here is seldom any need to protect the parties to the
agreement, who may be deemed to have waived their rights to the extent the agreement does not
comply with the Code.) (quoting 9 Lawrence P. King, et al., COLLIER ON BANKRUPTCY (15th
ed. rev. 1998), 4001.07[4]).
32. Sections 363(c)(2) and (e) of the Bankruptcy Code authorize a debtor in
possession to use cash collateral if the secured party consents or the court authorizes such use
after concluding that the creditors interests in the cash collateral are adequately protected. See
Blackwood Assocs., 153 F.3d at 67; In re Vienna Park Props., 976 F.2d 106, 114 (2d Cir. 1992).
33. The Cash Collateral Order and PSA should be amended to eliminate Lehmans
ability to terminate the use of its cash collateral based on a breach of the Debtors obligations
under the PSA or in connection with the Proposed Restructuring. Otherwise, waiver of the
Debtors right under the proposed Cash Collateral Order would be tantamount to presenting the
Debtors stakeholders with an ultimatum: support the Proposed Restructuring or watch the
Debtors value quickly and certainly erode along with any hope for restructuring.
34. Courts will refuse to approve terms in an agreement with secured creditors or
other constituents that would unduly restrict the Debtors, bias the course of the chapter 11
process or prejudice other stakeholders. See, e.g., In re Tenney Vill., 104 B.R. 562, 568 (Bankr.
D.N.H. 1989) (denying debtor authority to enter into financing agreement that provided stay
relief to permit secured creditors foreclosure without further court order upon termination events

- 19 -
including the confirmation of a plan over the secured creditors objection or any other party in
interest taking any action against the lender on the basis that the overall effect of the agreement
would disarm the debtor of all weapons usable against it for the bankruptcy estates benefit,
place the Debtor in bondage working for the Bank, seize control of the reins of reorganization,
and steal a march on other creditors in numerous ways. The Financing Agreement would pervert
the reorganizational process from one designed to accommodate all classes of creditors and
equity interests to one specially crafted for the benefit of the Bank and the Debtors principals
who guaranteed its debt.); In re Ames Dept. Stores, Inc., 115 B.R. 34, 37, 40-41 (Bankr.
S.D.N.Y. 1990) (acknowledging, in the context of approving DIP financing only after
overreaching terms benefiting secured creditor were deleted, that courts have focused their
attention on proposed terms that would tilt the conduct of the bankruptcy case; prejudice, at an
early stage, the powers and rights that the Bankruptcy Code confers for the benefit of all
creditors; or leverage the chapter 11 process by preventing motions by parties-in-interest from
being decided on their merits.).
35. The Debtors are seeking to use the other Adequate Protection Parties (as defined
in the Cash Collateral Order) cash collateral without their consent based on the provision of
adequate protection in the form of expense reimbursements, adequate protection liens, section
507(b) claims, the Cash Use Covenant and other concessions. See Cash Collateral Motion at
23, 29-30. Since this very same adequate protection package is being provided to Lehman,
the Debtors have already argued that Lehmans interests in its cash collateral will be adequately
protected regardless of whether it consents or not. Indeed, the Cash Collateral Motion and
Interim Cash Collateral Order both assert that the adequate protection package serves as
adequate protection for Lehman as well as the other Adequate Protection Parties. See Cash

- 20 -
Collateral Motion, at 32 (In light of the foregoing, the Debtors submit that the Proposed
Adequate Protection obligations are necessary and appropriate under the circumstances of the
Chapter 11 Cases to ensure the Debtors are able to continue to using Cash Collateral [which
includes Lehmans cash collateral].); Interim Cash Collateral Order, at 6 (As adequate
protection for, and to the extent of, any diminution in the value of any Adequate Protection
Partys [which includes Lehman] interest in the Prepetition Collateral [which includes Lehmans
cash collateral].). Presumably Lehman would agree since its approval of the first day
motions, including the adequate protection package in the Cash Collateral Motion, is required
under the PSA. PSA, at 5(b).
36. Since Lehman will be adequately protected under the Cash Collateral Order in
any event, no link to a plan should be approved.
ii. Cash Collateral Should Not Be Used to Finance
Activities That Do Not Benefit the Estates.
37. Appaloosa further objects to the Cash Collateral Order to the extent that it
proposes to reimburse expenses of the Representatives (as defined therein) that do not benefit the
estate. A debtors use of cash collateral must be exercised on the basis of its sound business
judgment toward the goal of maximizing the Debtors estates for the benefit of the Debtors
creditors to whom the debtor owes fiduciary duties. In re JTR Corp., 958 F.2d 602, 604 (4th
Cir. 1992); In re Enron Corp., 335 B.R. 22, 28 (S.D.N.Y. 2005) (court must, in considering a
request to approve use of estate property under Section 363(b), expressly find a good business
reason to grant such application, act[ing] to further the diverse interests of the debtor, creditors
and equity holders.) (citing In re Lionel Corp., 722 F.2d 1063, 1071 (2d Cir. 1983)).
38. Under the Cash Collateral Order, the Debtors propose to provide adequate
protection by, among other things, paying or reimbursing the fees and expenses of the

- 21 -
Representatives attorneys and other professional advisors in connection with matters relating to
this Order and to the obligations hereunder, and the plan support agreement among the Floating
Rate Lender and the Floating Rate Debtors. Cash Collateral Order, at 6(a)(i). As an initial
matter, it is inappropriate to include these professional fees as adequate protection since the
Debtors have not established that the underlying loan documents would provide for such
reimbursement. See 11 U.S.C. 506(b) (To the extent that an allowed secured claim is secured
by property the value of which . . . is greater than the amount of such claim, there shall be
allowed to the holder of such claim any reasonable fees, costs, or charges provided for under
the agreement or State statute under which such claim arose.) (emphasis added). Further,
Appaloosa submits that, to the extent these professional services are rendered to terminate or
oppose the Debtors use of cash collateral based on the Debtors seeking to negotiate a
restructuring other than the Proposed Restructuring, reimbursement of such services would be
contrary to the best interests of these estates.


CONCLUSION
Appaloosa is not objecting to the Debtors use of cash collateral (as long as its use
is not conditioned upon the Proposed Restructuring), it is not objecting to the Debtors entry into
the DIPs, and Appaloosa is certainly not objecting at this stage to a plan that has yet to be filed.
However, Appaloosa is objecting to the Debtors attempt to bind themselves to an unnecessary
agreement which has not been shown to benefit these estates. For the foregoing reasons,
Appaloosa respectfully requests that this Court deny the Debtors request for authorization to
(a) enter into the PSA, and (b) to condition the use of cash collateral as described above.
Dated: New York, New York
August 23, 2010

/s/ Lee S. Attanasio
Lee S. Attanasio
SIDLEY AUSTIN LLP
787 Seventh Avenue
New York, New York 10019
(212) 839-5300

Counsel for Appaloosa Investment L.P. I

NY1 7379580v.2
EXHIBIT A
--------------- -
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------*
In re: Chapter 11
INNKEEPERS USA TRUST, et al., CASE NO.
Debtors. 10-13800 (SCC)
-----------------------------*
Deposition of MICHAEL LASCHER,
called as a witness for examination,
held at the offices of Dechert LLP, 1095
Avenue of the Americas, New York, New
York, on Thursday, the 19th day of
August 2010, commencing at 12:18 p.m.,
before Jennifer Ocampo-Guzman, a
Certified Livenote Reporter and Notary
Public of the State of New York.
JOB NO. 19803
1
22 24
1 Lascher 1 Lascher
2 the commercial real estate area at Lehman and 2 PIPs. You understand what a PIP is?
3 oversee what we did. 3 A. Yes.
4 Q. Did you report to this person with 4 Q. The PIPs, that Lehman would view
5 respect to these negotiations concerning the 5 that as satisfying the guaranty that Apollo
6 PSA? 6 had entered into. Is that basically what was
7 A. Yes. 7 being discussed?
8 Q. And before this e-mail was sent out , 8 A. No.
9 by counsel for Lehman, was that discussed 1
0
9 Q. Okay. Well, tell me what was being
0 with Alvarez & Marsal? Did you have discussed in the context ofthis paragraph?
1 discussions with Alvarez & Marsal? Ill A. What was being discussed is that if
2 MR. O'BRIEN: You mean the top ]12 Apollo was able to come to some agreement
3 e-mail in Exhibit 2? 13 with its lender, meaning Midland, on the
4 MR. SOLOMON: Yes, the top e-mail. fl-4 guaranty, that I wouldn't get in the way.
5 A. No. b.. 5 Meaning Lehman wouldn't stand in their way or
6 Q. What did you --when did you have 6 object to that happening, and that as long as
7 discussions with Alvarez & Marsal in the 0. 7 there were funds available, whether it be
B context of seeking approval to enter into the from a DIP or cash flow, in order to do the
9 PSA?
1
9 PIP work, \Ve wouldn't stand in the way of
0 A. Well, Nancy Shanik works within our j2 0 their doing that either.
1 real estate group and is, you know, p 1 Q. Now, in your recollection during
2 day-to-day a part of what we do, so she was j2 2 the various iterations of documents that were
3 aware of the ongoing discussions. She just j2 3 exchanged by the various parties, and we will
4 wasn't on every phone call or e-mail, so, you p4 look at them in particular in a while--
___ ____
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po

p2
p3
p
p5
23
Lascher 1
fluid, you know, a fluid discussion with her. 2
Q. So it's your testimony, let me 3
clear it up before we move on, that you 4
didn't authorize this e-mail to be sent by 5
Dechert before it was sent, did you? 6
A. I think I told you I don't-- I 7
don't really remember. I don't think so. B
Q. I'm sorry. I didn't mean to talk 9
over you. It's my fault. 10
A. It's okay. h 1
Q. But you agree that this !12
represented, at least on this date, Lehman's '13
position with respect to the transaction on
1
14
these points, correct? i15
A. Yeah, I would say it's likely he !16
did. !17
MR. O'BRIEN: I think he testified
he wasn't sure about one or more bullet
points to be accurate.
Q. Now, this guaranty language,
generally the concept, as I understand it,
and tell me if I'm correct, was that if the
DIP financing being provided by Five Mile
'
paid for the project improvement plan or the [2 5
Lascher
Q. -- do you recall testimony that
Apollo limiting or coming off its guaranty
had come up time and time again in
negotiations as reflected in the various
documents?
A. I remember that it--
MR. EHRLICH: Objection to the
form.
A. I remember that it came up, yes.
Q. And were you involved in those
discussions of that point with Apollo in the
context of negotiations that led up to the
signing of the PSA and the Apollo Lehman term
sheets?
A. I'm sorry, say that again.
Q. Were you invoh:ed personally in the
discussions regarding that point?
A. The point of?
MR. O'BRIEN: Which point?
Q. The point of Apollo getting off its
guaranty liability?
MR. EHRLICH: Objection to the
fonn.
A I was involved in discussions about
7 (Pages 22 to 25)
DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585
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Lase her 1
Q. And that was important to Lehman? 2
Was it important to Lehman, that the company, 3
the debtors pursue the plan as defined in 4
this agreement and no other plan? 5
A. I never really thought about it 6
that way. I mean this was the plan that we 7
were pursuing. 8
Q. But I take it, you, Lehman, wanted 9
the company to pursue that plan exclusively, 0
correct? 1
MR. O'BRIE:"J: Asked and answered. 2
A. I never -- I never thought that 3
they would do otherwise. 4
Q. Okay. 5
MR. PARKINS: Give me one second.
'
6
We're looking for an exhibit.
~ ~ MR. O'BRJEN: Sure.
(Exhibit Lascher-6, E-malls, Bates
I
~ 9
No. LEH-ALI 005676, marked for bo
identification, this date.) ln
Q. I've handed you what's been marked 22
Exhibit 6. 23
'
A. Yes. 24
Q. It is a single piece of piece with 25
--- t
51!
I
Lascher
I
1
a Lehman Bates stamp number 5676, which has 2
two e-m ails on it. Do you see that there? 3
A. Yes, I do. 4
Q. Let's start with the bottom part of 5
the page, looks like an e-mail from you to 6
Mr. Beilin son. Do you see that? 7
A. Yes, I do.
8
Q. Subject one more decision? 9
A. Uh-huh.
0
Q. The e-mail states, can you lin 1
with giving me the ability to terminate cash
~ 2
collateral if you, quote, breach your 3
obligations to Lehman in connection with the 4
restructuring, quote. l5
A. Right.
fl-6
Q. Question mark.
p
A. Uh-huh.
~ 8
Q. What did you mean by the word
'
p
"restructuring" when )'OU sent this?
8o
i
A. Basically the PSA. 21
Q. I'm sorry, I didn't hear you. 122
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A. Basically what we were doing under
23
'
the PSA.
24
Okay. And this was sent Saturday,
i
Q.
p5
Lascher
July 17, and I see here a reply from
Mr. Beilinson on Sunday, July 18?
A. Correct.
Q. And the e-mail was sent back to
you. Do you recall receiving this e-mail?
A. Yes.
52
Q. Mr. Beilinson's e-mail says not
inclined. I understand it's only a word, but
it gives Midland a real hook and I'm filing
the motion to assume on day one and already
reviewing the plan.
Did you understand that to mean
he's already reviewing the plan of
reorganization?
A. I didn't really --
MR. O'BRIEN: Objection.
A. I didn't really understand what he
meant.
Q. I won't be amending our deal
without your consent. I am trusting that you
won't terminate AIC in first 45 days. Four
dots. Please do the same with me on this
issue for this short period of time.
Do you see that?
-- --- -- ---------
Lascher
A. Yes.
Q. Did you have discussions with
53
Mr. Beilinson regarding his reply e-mail?
A. Yes, I did.
Q. Did the discussions take place on
Sunday, July 18th?
A. Yeah, they must have.
Q. The filing occurred on Monday,
July 19th, correct?
A. Rlght.
Q. So the discussions took place
before the filing in any event?
A. Yes.
Q. Sometime after this e-mail and the
filing, correct?
A. Yes.
Q. Did you call Mr. Beilinson to
respond to his e-mail?
A. I don't remember but I know we
ended up talking about it.
Q. And what did -- and what did you
talk to him about?
A. That we were letting them use cash
collateral on an interim basis assuming that
14 (Pages 50 to 53)
DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue- Ste 2803, New York, NY IOI23 (212)705-8585
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Lascher 1
they were, you know, moving ahead with trying 2
to get our plan done and that if they did 3
something that was contrary to that, I 4
to be able to tenn in ate the interim cash 5
collateral.
Q. The e-mail from Mr. Beilinson says
not inclined. Do you see that?
A. Yes.
Q. In fact, Innkeepers agreed to that
provision, didn't they?
A. I believe that's right.
Q. Look with me at Exhibit 5, tbe
PSA --
A. Okay.
Q. -- I banded you before.
A. Uh-huh.
Q. I take it you're pretty familiar
with this document, correct?
A. I'm very familiar with the terms
included in the document. I'm more familiar
with the tenn sheet than the -- but yeah.
Q. Look with me at, it's Section 6,
which is called "Termination of this
6
7
B
9
0
1
12
13
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5 Agreement"?
1---
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Lascher
A. Okay.
Q. Were you involved in negotiating
this section as well as other sections of
this agreement?
A. Yes.
Q. Look with me then on page 10 of
this document, I think it's section 6(r).
A. Okay.

55
Q. (r) reads: "The material breach by
any Party of any of their undertakings,
representations, warranties or covenants set
forth this Agreement." Did I read it
correctly?
A. Yes.
Q. Go with me to section 4 on page 5
of this document, if you would.
A. Section 4 you said?
Q. Section 4, yes, on page 5, and it
carries over to page 6.
A. Okay.
Q. Section 4 is entitled "Support of
the Transaction; Additional Covenants"?
A. Yes.
Q. Take a moment to read that, would
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2o
;01
!22
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Lascher
you, section 4.
A. All of section 4?
Q. Yes.
A. Okay. Well, I've read (a), do you
want me to read (b) and (c) too?
Q. Sorry?
A. I've read 4(a). Do you want me to
read (b) and (c) as weJI?
Q. No, (a) is fine.
A. Okay.
56
Q. Now, this provision embodies
certainly --1 think your testimony was a few
minutes ago that you wanted the company to
perform under this agreement or you wanted
the right to terminate cash collateral from
Lehman's side, correct?
A. Yes.
MR. O'BRIEN: Objection.
Q. So going back to your e-mail we've
referenced on Exhibit 6, please, the bottom
part ofthat?
A. Yes.
Q. The company agreed with you because
it's embodied in the PSA that you would have
57
Lascher
that right if they breached their obligation
in connection with the restructuring then,
correct?
MR. O'BRIEN: Objection.
A. I don't think this is about cash
collateral, that the e-mail is about cash
collateral and this is about the plan support
agreement.
MR. O'BRIEN: Len, to the extent
you are asking him for a legal opinion,
it's an inappropriate question. J mean
you want to ask him about a specific
discussion --
MR. PARKINS: I'm asking whether he
believes this satisfied the request he
made of Mr. Beilinson in his e-mail.
MR. O'BRIEN: I object. It calls
for a legal opinion from this witness.
Q. Were you satisfied that this
document satisfied your request from
Mr. Beilinson?
MR. O'BRIEN: Same objection.
A. I'm not really -- I'm not really
sure. I think this is about cash --the
15 (Pages 54 to 57)
DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585
70
1 Lase her
1
2 Q.
And how often did you have
2
3
discussions between the prior meeting and the
3
4 April22nd meeting?
4
5 A.
I talked to him pretty regularly.
5
6
but I don't-- but, you know, how many times
6
7 in that week or so period, I don't really
7
8 remember.
8
9 Q.
Did you begin talking to him pretty
9
0
regularly because- after the prior meeting
0
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11 or was it before the prior meeting?
Ill
12 A.
I had spoken to him -- I mean the
12
13 conversations became much more regular again
,13
14 after the prior meeting.
:14
15 Q. Saved me a question. Okay.
l1s
6
And did you discuss the anticipated

17 presentation that was provided to you on
17
18
April22nd with Mr. Beilinson prior to the
18
19 actual date of the meeting?
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0 A
We talked about the fact that there po
1 was going to be a presentation at this i21
22 April22nd meeting and about the fact that I
23 thought at the prior meeting there would have p3
24 been, you know, some kmd of presentation 4
2 5 that there wasn't 5
--- -
71
1 Lascher 1
2 Q. There wasn't a handout?
2
3 A Right
3
4 Q.
And he assured you there would be a
4
5 handout at the April 22nd meeting?
5
6 A. Yes.
6
7 Q.
Now at the April 22nd meeting,
7
8 where did that take place?
8
9 A. That was at Kirkland's office.
I
9
10 Q.
And from Lehman, other than you,
110
1 who else was there for that meeting?
p
l2 A. Susanne Frey, Sam Gleason, and I
!:
13 believe Nancy Shanik had to dial in.
14 Q. And from Innkeepers?
15 A. Mark Beilinson, definitely Mark
5
16 Murphy, I think Dennis Craven as well.
'
6
17 Q. And from Apollo?
il7
18 A
I think both Schuyler and Justin 118
9 were there.
ll9
0 Q. As we look at page 13 here--
!;
1 A. Uh-huh.
2 Q. -it says, "Parent Equity,
3 Lehman/Investor," Apollo was intended to be
4 the investor; isn't that correct, in your
:24
5 understanding?
l25
72
Lascher
A. Yes.
Q. Did you ever go to a meeting with
Innkeepers regarding this structure -
A. Uh-huh.
Q. --where someone other than Apollo
was intended to be the investor?
A. No.
Q, So it is correct that from the
beginning ofthese negotiations, Apollo was
to be the investor?
MR. O'BRIEN: Objection.
A. Yes.
Q. Look with me on page 12, if you
would, sir.
A. Okay.
Q. Page 12 is entitled, "Illustrative
Valuation Ranges.''
Do you see that?
A. Yes.
Q. Did you have discussions with
Innkeepers or anyone from Moelis regarding
these numbers that were handed out to you on
the 22nd at that meeting?
A. I mean they talked us through the . __ _
Lascher
whole book.
Q. Did they explain to you the genesis
ofthe various numbers that appear on page
12?
A. What do you mean by that?
Q. Did they tell you where the numbers
came from, how they got to these numbers?
A. Yes.
Q. And who did that part of the
presentation?
A. I don't really remember.
Q. Well, what-- did the Innkeepers
side of the presentation tell you how they
got to these numbers?
A. How they got to these --
Q. Illustrative value numbers, Jet's
73
take the first line, the illustrative value
numbers for the Lehman hotels and the other
columns that are there?
A. I mean I don't remember the exact
conversation, but they took us through. you
know, cash flow projections for 2010, 2011,
assumptions they were making on, you know,
PIP work and other cap ex that needed to be
19 (Pages 70 to 73)
DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue- Ste 2803, New York, NY IOI23 (212)705-8585
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106'
Lascher 1
Q. In fact, I think in the court 2
filings in the Lehman case it was the 3
company's position that they wanted to lay 4
off some of the risk, 50 percent of the risk, 5
correct? 6
A. It was Lehman's position? 7
Q. Yes. 8
A. Yes. 9
Q. Was that the position of Lehman at to
this time? 1
A. Yes. 2
Q. Did Lehman have anybody else that 3
was intending to sell to but Apollo at this 4
time? !'5
A. The equity at -- 6
Q. Yes. 7
A. -- at emerging from bankruptcy? 8
Q. Yes. 9
A. No. 2o
MR. PARKINS: Give me a moment, p 1
P
lease. b2

MR. O'BRIEN: Sure.
(Exhibit Lascher-13, E-mail dated
'5
Lascher
Tenns of Proposed Restructuring, June
17, 1010," Bates Nos. LEH-ALI 004791
through LEH-ALI 004803, marked for
identification, this date.)
107
Q. I'm handing you what's been marked
as Exhibit 13.
A. Yes.
Q. This is a document with Lehman
Bates stamp numbers 4791 through 4803.
A. Yes.
Q. The first page ofthis exhibit is
an e-mail from Mr. Brian Greer at Dechert-
A. Yes.
Q. -to Mr. Zeiter at Apollo and a
number of other people cc'd, correct?
A. Yes.
Q. And you received this document,
didn't you?
A. Yes.
Q. Okay. Do you remember receiving
this document?
A. No. I don't remember specifically
receiving it.
Q. This document is dated June 17,
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0
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r2
3
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7



b5
108
Lascher
2010, approximately 30 days before the filing
of the Innkeepers bankruptcy, correct?
A. No. Innkeepers filed in July.
Q. I said 30 days before Innkeepers
filed bankruptcy.
A. Yes.
Q. About 30 days.
A. Yes.
Q. Look with me on page 4 of this
document.
A. Okay.
Q. "Use of Cash Collateral."
A. Yes.
Q. The third bullet of page 4 that
flows over to the next page.
A. Right.
Q. "Company's use of Lehman's cash
collateral shall be limited to use for the
benefit of the floating rate collateral."
A. Correct.
Q. That's Lehman's collateral,
correct?
A. Yes.
Q. That was the proposal that Lehman
- -- - ------------ -
Lascher
made?
A. Yes.
Q. Going on to the-- down on page 5
the "AIC Purchase of New Equity."
A. Uh-huh.
Q. This provides that Apollo will
acquire for cash an amount equal to
109
$117 million of equity, which is SO percent
of the Lehman shares, correct?
A. That's right.
Q. It also provides later on in that
box that there shall be a $70 million senior
secured debt made available by Apollo as an
equity contribution. Do you see that?
A. (Witness reading document.)
Q. I'm sorry, I read that wrong.
There will be $75 million of new debt less
the amount of the AIC equity contribution
defined as the new debt.
A. Right, I see that.
Q. And that's to be provided by
Apollo, correct?
A. Yes.
Q. And if we turn the page to page 6,
28 (Pages 106 to 109)
DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585
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B
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po
p1
p2
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Lascher
50 percent of your stock, Lehman stock, if it
got it all, still at this time to Apollo?
A. Yes. We were still planning on
selling half of it whether we were settled on
at that point selling it to Apollo or not?
Q. Weren't you about to sign a term
sheet with Apollo on or about this date to
sell the stock to Apollo, contemplate a sale
of stock to Apollo?
A. I'm just saying in terms of the
time continuum I can't remember where we were
in our thinking on June 23rd --or 29th or
23rd, whatever.
Q. You were negotiating at this time,
though, a term sheet with Apollo to sell this
50 percent of the stock to Apollo, correct?
MR. O'BRIEN: Do you mean at or
around June 29th?
MR. PARKINS: Yes.
A. I'm just telling you, I can't
remember in terms of the time continuum when
we started doing that, but yes, at some point
we settled on we were going to seH it to
Apollo.

127
Lascher
Q. Okay. Did you ever have
discussions with anybody else about a
specific term sheet where Lehman would sell
50 percent ofthe stock to anybody else other
than to Apollo?
A. No.
Q. Okay.
(Exhibit Lascher-16, E-mail dated
7/7/10 with attachment, Bates Nos. AIC
00000127 through AIC 00000144, marked
for identification, this date.)
Q. Mr. Lascher, I've handed you what
has been marked as Exhibit 16.
A. Yes.
Q. These documents were produced by
Apollo. They have AIC numbers, Bates stamp
numbers 127 through 144.
A. Yes.
Q. The first page of this document has
two e-m ails on it. The earlier-- the
earlier dated e-mail and time is an e-mail
from Mr. Alan Kornberg at Paul Weiss to a
group of people, lawyers, both at Dechert and
at Kirkland and the second was an e-mail from
1
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!10
"ll
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il3
114
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0
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Lascher
Mr. Glatt at Apollo to Mr. Beilinson.
Do you see that?
A. Yes.
Q. Did you ever see they e-mail
before?
A I don't remember seeing it.
128
Q. Go with me to the documents behind
the e-mail.
A. Okay.
Q. If you look with me at pages 128,
the Bates stamp numbers 128 through 133 --
A. Yep.
Q. --I see there a document marked
Term Sheet, Lehman/AIC. Do you see that?
A. Right.
Q. Have you ever seen this term sheet
before?
A I think so.
Q. Okay. This term sheet has at the
top right, doesn't it, the initials of Paul
Weiss law firm, draft 7/6/10, correct?
A. Yes.
24
25
Q. And this document from the Paul
who provides--_
1
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jll
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il3
1_4
Q5

l7
iJ-B


b

p4

129
Lascher
if you look with me on Bates stamp number
128, this is the first page of that. Do you
have it?
A. Yes.
Q. --the seller of stock is going to
be Lehman and the acquirer is going to be
Apollo, correct?
MR. O'BRIEN: Under this term
sheet.
MR. PARKINS: Under the tenn sheet,
correct, that's what the term sheet
provides.
A. It says after confirmation Lehman
will agree to sell AIC the right to receive
half the equity in the company.
Q. Right. Going on to the next page,
Bates stamp number 129, "Distribution of
Innkeepers Equity" provides 48.5 percent to
Lehman, 48.5 to Apollo, correct1
A. Right.
Q. Conditions precedent-- I'm
sorry-- "Conditions to Execution of Stock
Purchase Agreement," that paragraph starts
out, the execution of the Stock Purchase
33 (Pages 126 to 129)
DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585
EXHIBITB
From:
Sent:
To:
Subject:
mbeilinson@beilinsonpartners.com
Sunday, July 18, 2010 12:44 PM (GMT)
Lascher, Michael <michael.lascher@lamcollc.com>
Re: One More Decision
Not inclined. I understand its only a word but it gives midland a real hook and I'm filing the motion to assume on day one and already
reviewing the plan. I won't be amending our deal without yam consent I'm trusting that you won't terminate AIC in first 45
days .... please do the same with me on this issue for this short period of time
Dinner was really fim last night
------Original Message-----
From: Lascher, Michael
To: Marc
Subject: Fw: One More Decision
Sent: Jul 18,2010 7:55AM
Good morning. Did you think about this?
Originru Message -----
From: Lascher. :Michael
To: 'mbeilinson@beilinsonpartners.com' <mbeilinson@beilinsonpartners.com>
Sent: Sat Jul 17 17:50:25 2010
Subject One More Decision
Can you live with giving me the ability to terminate cash collateral if you "breach your obligations to Lehman in connection with the

Just say yes and I promise I won't ask you for anything else. Until tomorrow ...
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CONFIDENTIAL
LEH-ALI 005676
EXHIBIT C
Page 1
2 UNITED STATES BANKRUPTCY COURT
3 SOUTHERN DISTRICT OF NEW YORK
4 Case No. 10-13800-SCC
5 -X
6 In the Matter of:
7
8 INNKEEPERS USA TRUST, et al.,
9
10 Debtors.
11
12
-x
13
14 United States Bankruptcy Court
15 One Bowling Green
16 New York, New York
17
18 July 20, 2010
19 11:11 AM
20
21 BEFORE:
2 2 HON. SHELLEY C. CHAPMAN
23 U.S. BANKRUPTCY JUDGE
24
25
212-267-6868
VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
INNKEEPERS USA TRUST, ET AL.
Page 72
1 Q. Okay. Let's turn now to the proposed cash collateral
2 reporting the company proposes, and that's at pages 3 and 4.
3 Can you summarize for the Court, and then we can walk
4 through the three different reporting, really, mechanisms we
5 propose?
6 A. Sure. We've essentially proposed three things, one of
7 which is a rolling thirteen-week consolidated cash flow
8 forecast.
9 The second item is what we term a flash report which is a
10 report which is intended to be provided to all constituency,
11 all lenders or servicers on a twice monthly basis to actually
12 provide to them actual disbursements on a retroactive basis
13 after the cash has been disbursed.
14 And then thirdly, forty-five days after a period end -- a
15 calendar period end, we would provide to them a full
16 reconciliation of receipts and disbursements with a
17 determination of net available cash that, subject to a couple
18 of things, one being an expense reserve for upcoming
19 expenditures that we know are coming or certain other items
20 that we know that will influence the hotel operations on a go-
21 forward basis, after that expense reserve we would provide that
22 net excess cash to the lenders.
23 Q. Okay. Let's -- on the rolling thirteen-week, on the cash
24 basis, is that on a consolidated or hotel by hotel basis?
25 A. Consolidated basis.
212-267-6868
VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
INNKEEPERS USA TRUST, ET AL.
Page 94
1 MR. DONOVAN: Your Honor, objection. I think this again
2 calls for whether or not Lehman would need to come to Your
3 Honor in order to kind of execute on it.
4 THE COURT: Well I think he's positing that Lehman gets
5 the approval or somehow does it, that we
1
re at the moment where
6 the company can no longer use Lehrnan
1
s cash collateral.
7 MR. PARKINS: Your Honor?
8 THE COURT: That's what I think he is getting at.
9 MR. PARKINS: Let me explain, if I may. The PSA if
10 approved by Your Honor would provide for this.
11 THE COURT: I understand.
12 MR. PARKINS: So I am asking, assuming we get there and it
13 was approved by Your Honor, and it happened, how would Midland
14 know how much --
15 THE COURT: All right. But you're also talking about
16 something that by its terms cannot occur before we have the
17 final hearing.
18 MR. PARKINS: Absolutely, Your Honor.
19 THE COURT: All right.
20 MR. PARKINS: Absolutely.
21 Q. How would that happen?
22 A. How would what happen?
23 Q. Well, how would Midland know how much cash is going to be
24 used to subsidize other borrowers?
25 A. That would be used to subsidize other borrowers?
212-267-6868
VERITEXT REPORTING COMPANY
www.veritext.com
516-608-2400
INNKEEPERS USA TRUST, ET AL.
Page 95
1 Q. Yes, if Lehman terminated its use of cash collateral?
2 A. Well the reporting would still be the same.
3 Q. So the answer is it wouldn't know how to -- it wouldn't be
4 able to identify it immediately; is that correct?
5 A. Not immediately.
6 Q. So let me see. So what you want to do is take the Midland
7 cash collateral that's being presently used through this
8 lockbox, scramble the egg and consolidate it. And any event
9 any of these events happen down the road, not be able to
10 unscramble the egg very quickly; is that true?
11 A. Very quickly? I am not sure what the definition of very
12 quickly is again.
13 Q. I would like to know where my cash is tomorrow, says
14 Midland. Would I be able to know what it is?
15 A. Tomorrow? No.
16 MR. PARKINS: Okay. I pass the witness, Your Honor.
17 THE COURT: All right. Any redirect?
18 MR. DONOVAN: Just briefly, Your Honor.
19 REDIRECT EXAMINATION
20 BY MR. DONOVAN:
21 Q. Mr. Craven, during this lockbox period, when you had to
22 fund an expense and Midland hadn't paid it yet, whose fund
23 could you use?
24 A. We used funds from our consolidated cash position.
25
212-267-6868
VERITEXT REPORTING COMPANY
www.veritext.com 5 I 6-608-2400
EXHIBITD
Page 1
1
2 UNITED STATES BANKRUPTCY COURT
3 SOUTHERN DISTRICT OF NEW YORK
4 Case No. 08-13555 (JMP)
5 Case No. 08-01420 (JMP) (SIPA)
6 -X
7 In the Matter of:
8 LEHMAN BROTHERS HOLDINGS INC., et al.,
9 Debtors.
10 -X
11 In the Matter of:
12 LEHMAN BROTHERS INC.,
13 Debtor.
14 -X
15
16
u.s. Bankruptcy Court
17 One Bowling Green
18 New York, New York
19
20 August 18, 2010
21 10:01 AM
22
23 BEFORE:
24 HON. JAMES M. PECK
25 U.S. BANKRUPTCY JUDGE
212-267-6868
VERITEXT REPORTING COMPANY
www. veri text. com 516-608-2400
LBID, et al; LBI
Page 113
1 only a transaction which is reasonable in the business judgment
2 of Lehman Commercial Paper but is one that is so highly
3 contingent that it is difficult to apply the case law standards
4 that have been cited by Ms. Strickland in her opposition to
5 this motion. This is a 363 transaction; of that there is no
6 doubt. But it is not a sale of substantially all of the assets
7 of Lehman Commercial Paper, nor does it come close to that.
8
Indeed, it is barely a sale at all. It is, instead, approval
9 of an agreement which is highly contingent and subject,
10 ultimately, to the judgment of my colleague, Judge Chapman, as
11 well as to the vagaries of the Innkeepers bankruptcy case
12 itself, the future course of which is unpredictable.
13 Whether or not this is the best deal that could have
14 been arrived at in the context of what amounts to a pre-
15 negotiated filing of a bankruptcy case that includes elements
16 that I don't know about and frankly -- I have enough on my own
17 docket -- I don't choose to know about unless I need to, this
18 is a transaction that I accept represents a reasonable collar
19 around the recoveries for Lehman in respect of its loans made
20 in the Innkeepers bankruptcy. Whether or not that turns out to
21
22
23
24
25
be a 107.5 million dollar outcome or some other outcome, I
don't know, the fact that Lehman retains the ability to
transfer in its sole discretion the mortgage loans that are at
issue here is a source of additional comfort to the Court.
212-267-6868
And with all respect to the argument that has been
VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400