James H.M. Sprayregen, P.C. Paul M.

Basta 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 STATUTORY COMMITTEE OF EQUITY SECURITY HOLDERS PURSUANT TO SECTION 1102(a)(2) OF THE BANKRUPTCY CODE1

The list of Debtors in these Chapter 11 Cases along with the last four digits of each Debtors federal tax identification number can be found by visiting the Debtors restructuring website at www.omnimgt.com/innkeepers or by contacting Omni Management Group, LLC at Innkeepers USA Trust c/o Omni Management Group, LLC, 16161 Ventura Boulevard, Suite C, PMB 606, Encino, California 91436. 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.

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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 Statutory Committee of Equity Security Holders Pursuant to Section 1102(a)(2) of the Bankruptcy Code [Docket No. 435] (the Equity Committee Motion) filed by an ad hoc committee of preferred shareholders (the Preferred Shareholder Group).2 In support of this Objection, the Debtors respectfully state as follows: Preliminary Statement Although the Debtors intend to work constructively with the Preferred Shareholder Group, there is no basis for the appointment of an official equity committee. Section 1102(a)(2) of the Bankruptcy Code permits a bankruptcy court, in its discretion, to appoint an official committee of equity security holders if necessary to assure adequate representation of . . . equity security holders. 11 U.S.C. 1102(a)(2) (emphasis added). As many courts have noted, appointment of an official equity committee is an extraordinary remedy that should only be granted in rare situations. See, e.g., In re Charter Commcns, Inc., No. 09-11435 (JMP), Hrg Tr. at 48:7-9 (Bankr. S.D.N.Y. June 17, 2009) (denying motion to appoint an official equity committee, noting that such appointment under applicable precedent is the exception and not the rule); In re Dana Corp., 344 B.R. 35, 38 (Bankr. S.D.N.Y. 2006); In re Spansion, Inc., 421 B.R. 151, 156 (Bankr. D. Del. 2009).3 To obtain the extraordinary remedy of appointment of an
2

The Preferred Shareholder Group purports to represent holders of approximately 24.0% of Innkeepers USA Trusts 8.0% Series C Cumulative Preferred Shares (the Preferred C Shares) and is comprised of Brencourt Advisors, LLC, Esopus Creek Advisors, LLC, and Plainfield Special Situations Master Fund II Limited (all holders of the Preferred C Shares, the Preferred C Shareholders). See Equity Committee Motion at p. 2 fn. 1. Because of the voluminous nature of the transcript cited herein, it is not attached to the Objection. Copies of the transcript are available on request of the Debtors counsel.

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additional official committee here, the Preferred Shareholder Group must demonstrate that (i) there is a substantial likelihood that [the Preferred C Shareholders] will receive a meaningful distribution in the case under a strict application of the absolute priority rule, and (ii) [the Preferred C Shareholders] are unable to represent their interests in the bankruptcy case without an official committee. In re Williams Commncns Group, Inc., 281 B.R. 216, 223 (Bankr. S.D.N.Y. 2002) (emphasis added). The Preferred Shareholder Group does not argue that secured lenders in either tranche of pooled mortgage debt are oversecured and will be unlikely to demonstrate that any of the Debtors seven hotel properties with individual mortgages (or the hotel property in which the Debtors maintain a joint venture interest) are worth more than their applicable funded debt obligations. This is consistent with the Debtors first day disclosures that, as of the Petition Date, their assets had an aggregate book value of $1.5 billion compared with aggregate liabilities of approximately $1.52 billion.4 See Craven Declaration (as defined herein) at Ex. E.

Accordingly, there is much less than a substantial likelihood of Preferred C Shareholders receiving a meaningful recovery in these chapter 11 cases. Moreover, the valuation information contained in the Declaration of Anders J. Maxwell in Support of Motion of Ad Hoc Committee of Preferred Shareholders for Order Directing Appointment of Statutory Committee of Preferred Shareholders Pursuant to Bankruptcy Code Section 1102(a)(2) [Docket No. 485] (the Maxwell Declaration), which was filed the evening of September 23 (less than one day before the deadline to object to the Equity Committee Motion), is insufficient to satisfy the Preferred Shareholder Groups burden to demonstrate that they will likely receive a meaningful return.
4

Moreover, there is no question that the market value of the Debtors hotel properties has declined at a far greater rate than the accumulated depreciation deducted from the Debtors stated book values of their hotel properties.

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Prior to the hearing, the Debtors intend to file a declaration in support of this Objection, which will respond to the Maxwell Declaration more fully. Additionally, the Preferred Shareholder Group cannot demonstrate that the appointment of an official committee of equity holders is necessary to ensure that Preferred C Shareholders are adequately represented in these chapter 11 cases. In fact, the Preferred Shareholder Group has demonstrated that it is fully capable of retaining well-respected and experienced restructuring counsel and actively participating in these chapter 11 cases without official committee status. To date, the Preferred Shareholder Group has: (a) made a number of formal and informal requests to the United States Trustee for the Southern District of New York (the U.S. Trustee) for the appointment of an official committee of Preferred C Shareholders (which requests were correctly denied);5 (b) filed a motion requesting that the Court appoint an examiner [Docket No. 179]; (c) filed an objection to the Debtors motion to assume the Plan Support Agreement (the PSA) [Docket No. 269]; (d) participated in discovery on the motion to assume the PSA and played a significant role during the September 1, 2010 hearing on that motion; (e) met with the Debtors and their advisors on September 15, 2010 to discuss the Debtors path towards a consensual restructuring; and (f) filed the Equity Committee Motion. The only circumstance that would change if the Preferred C Shareholders had their own official committee is that the Preferred Shareholder Groups attorneys fees and expenses (and potentially those of a financial
5

[A]lthough review of the U.S. Trustees determination [to not appoint an official equity committee] is de novo, due consideration should be given to the views of the U.S. Trustee. In re Oneida Ltd., No. 06-10489 (ALG), 2006 WL 1288576, at *1 (Bankr. S.D.N.Y. May 4, 2006). Notably, in addition to denying the Preferred Shareholder Groups earlier requests to appoint an official equity committee, the U.S. Trustee has filed its own objection to the Equity Committee Motion. See Objection of the United States Trustee to Motion of Ad Hoc Committee of Preferred Shareholders for an Order Direction the Appointment of an Equity Committee [Docket No. 453]. In its objection, the U.S. Trustee argues, among other things, that the Court should not grant the Equity Committee Motion because the Preferred Shareholder Group has not fully complied with the disclosure requirements of Federal Rule of Bankruptcy Procedure 2019(a). See id. at pp. 6-7. The Debtors agree with the U.S. Trustee on this point, as well as the other points raised in the U.S. Trustees objection.

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advisor as well) would be borne up front by the Debtors estates instead of by the Preferred Shareholder Groups members.6 Importantly, even without their own official committee, the Preferred C Shareholders will not be left on the outside of these chapter 11 cases looking in. The Bankruptcy Code permits any party in interest to be heard on any issue in a chapter 11 case (see 11 U.S.C. 1109(b)), and, as described herein, the Preferred Shareholder Group has exercised those rights since the Petition Date. Accordingly, nothing prevents one or more Preferred C Shareholders from retaining legal counsel, appearing before this Court in these chapter 11 cases, and negotiating with the Debtors on the terms of a restructuring plan, as the Preferred Shareholder Group has done thus far. Since approval of the PSA was denied, the Debtors are meeting with all constituents, including the Preferred Shareholder Group, to achieve greater transparency with the goal of formulating a plan with as much consensus as possible. The Debtors believe that the Preferred Shareholder Group will constructively contribute to these chapter 11 cases, and the Debtors intend to work with them (and others) in developing and negotiating a comprehensive restructuring of the Debtors business. But the Preferred Shareholder Group has not met its burden to warrant appointment of an official committee.

Nothing precludes the Preferred Shareholder Group from seeking payment of fees and expenses of its advisors if and when its efforts result in a substantial contribution to the estate[s]. Williams, 281 B.R. at 224 (citing 11 U.S.C. 503(b)(3)(D)).

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Argument I. The Equity Committee Motion Should Be Denied Because the Preferred Shareholder Group Has Not Shown a Substantial Likelihood that Its Members Will Receive a Meaningful Distribution in these Chapter 11 Cases. The Preferred Shareholder Group must demonstrate that there will [likely] be a substantial return for equity to justify appointing an official committee to represent their interests. In re Natl R.V. Holdings, Inc., 390 B.R. 690, 696 (Bankr. C.D. Cal. 2008) (emphasis added).7 The Preferred Shareholder Group asserts what it alleges are two solid reasons why equity [value for Preferred C Shareholders] exists here: the value of controlling up to seventytwo (72) fully encumbered hotels, and the equity in up to seven (7) hotel properties and a joint venture interest. Equity Committee Motion at 27. However, neither reason is sufficient to carry the Preferred Shareholder Groups burden. The Preferred Shareholder Groups assertion that Preferred C Shareholders are likely to receive a distribution of residual equity value from certain of the Debtors solvent hotel properties is incorrect. The parties in this case generally agree (and the Preferred Shareholder Group does not attempt to argue otherwise) that there is no distributable equity value from any of the Debtors 45 hotel properties securing $825 million worth of fixed rate mortgage debt or the 20 hotel properties securing $220 million worth of floating rate mortgage debt (plus an additional $121 million of mezzanine debt secured by equity interests in the Debtor-entities that own those 20 hotel properties). Instead, the Preferred Shareholder Group attempts to create the impression that the Debtors other seven hotels (plus the Debtors joint venture interest in another hotel

See also Williams, 281 B.R. at 223 ([Official equity] committees should not be appointed unless equity holders establish that . . . there is a substantial likelihood that they will receive a meaningful distribution in the case under a strict application of the absolute priority rule.); Spansion, 421 B.R. at 163 (The Ad Hoc Equity Committee has the burden of proving a substantial likelihood that equity security holders will receive a [meaningful] distribution from the Debtors.).

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project), each of which secures its own individual indebtedness, will yield substantial residual equity value for shareholders by defining the Debtor-entities owning such hotels as Unencumbered Debtors. See Equity Committee Motion at 2(C). However, for any value from these seven encumbered Debtors (as well as the encumbered non-Debtor joint venture project) to reach Preferred C Shareholders, it must first be used to satisfy a number of obligations. As an initial matter, the market value of any particular hotel fee owner Debtor must exceed the amount of its secured debt obligations. As demonstrated below, the seven hotel properties with individual mortgage obligations are encumbered by approximately $230 million in secured debt, in the aggregate, all of which is senior in priority to equity interests in Innkeepers, the indirect parent of the entities owning these properties:8 Hilton Suites (Anaheim, California). This hotel property is pledged as collateral under the $13.7 million Anaheim Mortgage Loan. In addition, the equity interests of the fee owner of such hotel-property are pledged as collateral under the $21.3 million Anaheim Mezzanine Loan. See Amended Declaration of Dennis Craven, Chief Financial Officer of Innkeepers USA Trust, in Support of First Day Pleadings [Docket No. 33] (the Craven Declaration) at 29-30. Residence Inn (San Diego, California). This hotel property is pledged as collateral under the $47.4 million Capmark Mission Valley CMBS Mortgage Loan. Id. at 32. Residence Inn (Garden Grove, California). This hotel property is pledged as collateral under the $37.6 million Capmark Garden Grove CMBS Mortgage Loan. Id. at 33. Hilton (Ontario, California). This hotel property is pledged as collateral under the $35.0 million Capmark Ontario CMBS Mortgage Loan. Id. at 34.

Indeed, the Debtors have stipulated, acknowledged, and agreed that all of the applicable liens and securities interests granted to the mortgage lenders under each of the loans referenced above are valid, perfected, and enforceable liens and security interests. See Final Order 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. 361, 362, and 363 [Docket No. 402], C, pp. 5-20.

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Double Tree Guest Suites (Washington, D.C.). This hotel property is pledged as collateral under the $25.6 million Merrill Lynch Washington D.C. CMBS Mortgage Loan. Id. at 35. Residence Inn (Vienna, Virginia). This hotel property is pledged as collateral under the $25.2 million Merrill Lynch Tysons Corner CMBS Mortgage Loan. Id. at 36. Homewood Suites (San Antonio, Texas). This hotel property is pledged as collateral under the $24.2 million Merrill Lynch San Antonio CMBS Mortgage Loan. Id. at 37.

In addition, the Debtors interest in the Genwood Raleigh LLC joint venture (Genwood) is encumbered by a $32 million mortgage loan held by CSE Mortgage LLC (the Genwood Loan). These obligations must be paid in full (with interest and fees) before any remaining value can flow to the Debtor-entities between the property-level Debtors and the Debtor in which the Preferred C Shareholders have interests. Not only must each of these funded debt obligations be satisfied, but all administrative claims and unsecured claims against each applicable Debtor must be paid in full, with interest, before Preferred C Shareholders are permitted to recover any excess value.9 To the extent that any residual equity value exists from any of these hotel properties after the applicable Debtor has paid all secured, administrative priority, and unsecured claims in full, such value would flow up to Innkeepers USA Limited Partnership (Innkeepers USA LP). As shown on Schedule B-2 of Innkeepers USA LPs schedules of assets and liabilities, which is attached hereto as Exhibit A, Innkeepers USA LP also has a corporate account at Bank of
9

In National R.V. Holdings, Inc., 390 B.R. 690 (Bankr. C.D. Cal.), the bankruptcy court declined to appoint an official equity committee and found that the movants could not demonstrate that they would have a significant recovery even though scheduled assets of over $50 million significantly exceeded scheduled liabilities of approximately $10 million, noting that: (a) scheduled property was valued at book and not market value; (b) significant numbers of unsecured priority and nonpriority claims listed in debtors schedules (89 and 20, respectively) were contingent, unliquidated, and disputed; and (c) the debtors estimated significant administrative claims ($7 million) against the estates. In these chapter 11 cases: (x) the Debtors schedules of assets and liabilities list the Debtors various hotel and other assets at book value and have not been marked to market; (y) the Debtors schedules show a significant number of contingent, unliquidated, and/or disputed claims that are currently scheduled without an assigned value but may be significant upon becoming fixed and liquidated; and (z) the Debtors administrative claims may be significant.

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America with a cash balance of approximately $7.4 million as of the Petition Date. See Ex. A, Schedule B-2. However, Innkeepers USA LP has a number of obligations that must first be satisfied before any value, equity or otherwise, would be distributed up the Debtors corporate structure. The following graphical depiction of the relevant part of the Debtors corporate structure describes in greater detail the following discussion of how value, if any, would be distributed from Innkeepers USA LP to the Preferred C Shareholders.

Debtor Entity Grand Prix Holdings LLC

Absolute Priority Waterfall

Claims in order of priority, including administrative claims, priority claims, and general unsecured claims Equity 12 % Series A Cumulative Preferred Stock Held by Grand Prix Holdings LLC and certain of Innkeepers officers Approximately $108 million total liquidation preference ($75 million principal plus $33 million accrued dividends) 8% Series C Cumulative Preferred Stock (the Preferred C Shares) Held by Preferred C Shareholders Approximately $162 million total liquidation preference ($145 million principal plus $17 million accrued and unpaid dividends) Common Stock is owned by Grand Prix Holdings LLC

Innkeepers USA Trust (Innkeepers)

Innkeepers Financial Corporation (IFC)

Claims in order of priority, including administrative claims, priority claims, and general unsecured claims Equity All of the equity interests in IFC are held by Innkeepers

Claims in order of priority, including administrative claims, priority claims, and general unsecured claims Equity Class C Preferred Limited Partnership Units Held by IFC, which is entitled to receive the first $270 million of value as a liquidation preference Class D Preferred Limited Partnership Units Subordinate to Class C Preferred Limited Partnership Units (i.e., Class C Preferred Limited Partnership Units liquidation preference must be paid in full before Class D Preferred Limited Partnership Units can receive any distribution) Approximately $1.7 million liquidation preference Common Limited Partnership Units are owned by IFC

Innkeepers USA Limited Partnership (Innkeepers USA LP)

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First, Innkeepers USA LP is a guarantor under the Genwood Loan for certain nonrecourse carve-outs, environmental indemnities, and up to $5 million of any loss to the lender resulting from lease terminations under certain circumstances. Second, Innkeepers USA LPs Schedules reflect a number of general unsecured claims, including certain contingent, unliquidated, and disputed litigation claims, and federal and state priority tax claims. Third, Innkeepers USA LP may ultimately be responsible for certain administrative claims, including for certain of the Debtors allowed advisors fees and expenses, that must be paid before any value would be distributed to its general partner, Innkeepers Financial Corporation (IFC). All of the distributable value at IFC remaining after being used to satisfy any claims would then be distributed to its corporate parent, Innkeepers. Once that value is distributed to Innkeepers, it must first be used to satisfy all secured, administrative priority, and unsecured claims (plus postpetition interest) against Innkeepers. Any value remaining at this point would then be distributed pari passu to Innkeepers Preferred C Shareholders (on account of their original investment of $145 million plus approximately $17 million of accrued and unpaid dividends) and Grand Prix Holdings LLC (and certain of the Debtors officers), which holds approximately $75 million in Innkeepers 12% Series A Cumulative Preferred Stock plus approximately $33 million of accrued dividends. As a result, Preferred C Shareholders chances of receiving a meaningful distribution from the Debtors estates are less than substantially likely.10 The Preferred Shareholder Groups support for its largely unfounded assertion that the Debtors (or at least certain of the Debtors) are solvent is based on an oversimplified analysis of the financial performance of certain of the Debtors hotel properties. Specifically, the Preferred
10

Nothing contained herein is intended or should be construed as an admission of the validity of any claim or interest against the Debtors or a waiver of the Debtors rights to dispute any claim or interest. The Debtors expressly reserve their right to contest any claim or interest in accordance with applicable law.

10
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Shareholder Group references unspecified [p]ublicly available financial data from a Bloomberg webpage that purportedly shows that some of the Debtors hotel properties have a debt service coverage ratio (DSCR) of greater than 1.0 for most periods. See Equity Committee Motion at 31 & fn. 23. The Preferred Shareholder Group asserts, without any

support, that financial analysts typically interpret any rating above 1.0 as undisputed evidence of solvency. Id. The references to DSCR and other alleged indications of solvency fall short for several reasons, including because the DSCR metric focuses on a companys ability to meet its near term obligations with little regard to the effects of future obligations facing the company (including long term debt obligations). The Debtors submit that the Maxwell Declaration is similarly insufficient to provide the necessary support for the Preferred Shareholder Groups assertions of value, as will be more fully demonstrated in the Debtors declaration in support of this Objection, which will be filed prior to the hearing. The Preferred Shareholder Group also makes much of the fact that Apollo Investment Corporation (AIC) valued its $75 million investment in the Preferred A Shares at $5.28 million in its Form 10-K for the fiscal year ended March 31, 2010. See Equity Committee Motion at 38-39 & fn. 27. This, too, is unconvincing as evidence that Preferred C

Shareholders are substantially likely to enjoy a meaningful recovery. The amount that AIC valued its Preferred A Shares over three months before the Debtors entered chapter 11 is irrelevant to what the Preferred A Shares are worth today. Notably, AICs Form 10-Q for the quarter ended June 30, 2010 valued its Preferred A Shares at $0 (indicating that no recovery is likely), and the Form 10-K cited by the Preferred Shareholder Group indicates that AIC reduced the value of its Preferred A Shares from over $75.5 million in the previous fiscal year and

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reduced the value of its $175 million common equity investment in Innkeepers from $7.57 million in the previous year to zero. Finally, the Preferred Shareholder Groups citations to articles describing recent improvements in economic conditions for hotels are also unconvincing. See Equity Committee Motion at 31, 40. None of these articles specifically reference the Debtors hotel properties, and they certainly do not account for the specific issues the Debtors must address, including completion of costly PIP obligations, unsustainable financial leverage, and reduced liquidity. Ultimately, the Preferred Shareholder Groups collection of evidentiary support shows, at best, the remote possibility that not all of the Debtors (specifically, the so-called Unencumbered Debtors) are hopelessly insolvent. However, raising this possibility does not satisfy the

Preferred Shareholder Groups burden of proof. See Williams, 281 B.R. at 221-22 (noting that the court is not required to find that the debtor is hopelessly insolvent before declining to appoint an official equity committee). Accordingly, the Preferred Shareholder Group has not demonstrated that the Debtors have sufficient excess equity value to warrant the appointment of an official committee to represent Preferred C Shareholders in these chapter 11 cases. See Spansion, 421 B.R. at 163. II. Preferred C Shareholders Do Not Need an Official Committee to Adequately Represent Their Interests. Even if the Preferred Shareholder Group could satisfy the Court that the Preferred C Shareholders are substantially likely to receive a meaningful distribution, it must still demonstrate that Preferred C Shareholders are unable to represent their interests in the bankruptcy case without an official committee. Williams, 281 B.R. at 223; Spansion, 421 B.R. at 156. As the Williams court noted, this factor is critical because, in most cases, even those equity holders who do expect a distribution in the case can adequately represent their interest 12
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without an official committee and can seek compensation if they make a substantial contribution in the case. 281 B.R. at 223. After all, section 1102(a)(2) requires the Court to find that the appointment of an equity committee is necessary, a high standard that is far more onerous than if the statute merely provided that a committee be useful. Oneida, 2006 WL 1288576, at *1. The Preferred C Shareholders interests are adequately represented in these chapter 11 cases. The Debtors adequately represent the interests of Preferred C Shareholders because they have a fiduciary duty to maximize the value of their estates for the benefit of all stakeholders, including equity holders. The Preferred Shareholder Group does not dispute the general notion that it is expected that [a corporate debtors directors and officers] would normally represent, among other interests, the interests of equity security holders. Spansion, 421 B.R. at 163. However, the Preferred Shareholder Group argues that the Debtors are essentially incapable of serving as fiduciaries to the estates because they are beholden to AIC and Lehman as purportedly evidenced by their attempt to secure the Courts approval of the PSA. See Equity Committee Motion at 2, 4-7, 13, 18, 25, 36-38. The Debtors do not believe that the mere fact that they sought to assume the PSA demonstrates the Debtors inability to act in the best interests of their estates for the benefit of all stakeholders for all time to come. Since the Court denied the Debtors motion to assume the PSA, the PSA terminated and the Debtors are no longer pursuing the plan contemplated therein. The Debtors still believe, nonetheless, that an enterprise-level restructuring, as opposed to a piecemeal dismantling of the Debtors business, will maximize value for distribution to their stakeholders based on their respective prioritiesa belief likely shared by the Preferred Shareholder Group. To facilitate such a restructuring and to ensure that the restructuring process continues to proceed in an open

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and fair manner, the Debtors and their advisors have proceeded by seeking meaningful participation from all of the Debtors key constituents, including the Preferred C Shareholders. As noted above, the Preferred Shareholder Groups robust activity in these chapter 11 cases to date demonstrates that its interests are already adequately represented. See Spansion, 421 B.R. at 163 (Even if I were to conclude on this record that neither the Debtors, its management, nor the Creditors Committee are adequately representing the interest of the equity security holders, the Ad Hoc Equity Committee is well organized, well represented by counsel, and adequate to the task of representing its interests without official status.); Williams, 281 B.R. at 223-24 (denying motion to direct appointment of an official equity committee, noting that [t]he Movants have already demonstrated their ability to organize and participate in this case with skill and zeal through the prosecution of this motion and the opposition to the Restructuring Agreements Thus, the Movants may still be heard in this case, but not at the estates expense without a showing of substantial contribution in the case.). A. The Costs of Appointing a Statutory Committee for Preferred C Shareholders Outweigh the Benefits of Incrementally Better Representation of Their Interests.

Courts determining the propriety of appointing an official equity committee also consider whether the cost of the additional committee outweighs the concern for adequate representation. Williams, 281 B.R. at 220 (citing Albero v. Johns-Manville Corp. (In re JohnsManville Corp.), 68 B.R. 155, 163 (S.D.N.Y. 1986)). Here, the costs of such a committee would be significant. An official committee of Preferred C Shareholders will undoubtedly seek to formally retain its own legal and financial advisors, which would be compensated from the Debtors estates (and possibly from the secured lenders cash collateral). See id. (The

appointment of equity committee raises cost concerns because it is closely followed by the applications to retain attorneys and accountants.). Because a meaningful recovery for Preferred 14
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C Shareholders under the absolute priority rule is highly unlikely, and Preferred C Shareholders interests are currently more than adequately represented in these proceedings to date, the costs to the estates of another statutory committee weigh heavily against appointing one. See Natl R.V. Holdings, 390 B.R. at 698-99.11 Conclusion The Debtors fully expect to build on their recent discussions with the Preferred Shareholder Group to make progress towards a consensual restructuring that maximizes value for all of the Debtors major stakeholders. The Debtors have provided the Preferred Shareholder Group with a significant amount of additional information and expect to further facilitate the continued involvement of the Preferred C Shareholders in these chapter 11 cases. However, the Preferred Shareholder Group has not met its burden of demonstrating: (a) that there is a substantial likelihood that the Preferred C Shareholders would receive a meaningful recovery in a reorganization of the Debtors enterprise; or (b) that the Preferred C Shareholders are incapable of representing their interests in these chapter 11 cases without an official committee. Accordingly, this Court should follow the lead of the U.S. Trustee and decline the Preferred Shareholder Groups request that it direct the appointment of an official committee of Preferred C Shareholders.

11

See also In re Northwestern Corp., Case No. 03-12872 (CGC), 2004 WL 1077913, at *2-3 (Bankr. D. Del. May 13, 2004) (noting that where the chances of a recovery by equity holders are slim, it is not in the best interests of the estate or its constituents to shift the cost of [a] valuation dispute from the [Preferred Shareholder Group] to the estate); In re Wang Labs., Inc., 149 B.R. 1, 3 (Bankr. D. Mass. 1992).

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WHEREFORE, the Debtors respectfully request that the Court deny the Equity Committee Motion and grant such other relief as is just and proper. New York, New York Dated: September 24, 2010 /s/ Paul M. Basta James H.M. Sprayregen, P.C. Paul M. Basta 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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EXHIBIT A

Innkeepers USA Limited Partnership Case No. 10-13794 Schedule B-2: Checking, Savings or Other Financial Accounts, Certificates of Deposit or Shares in Banks, Savings and Loan, Thrift, Building and Loan, and Homestead Associations, or Credit Unions, Brokerage Houses, or Cooperatives. 7/19/10 Balance $ 6,809.29 $ 7,374,907.91 $ 10,357.18

Bank Bank of America Bank of America Trimont

Account No. XXXXXXXX 0768 XXXXXX 9490 XXXXXX 2071

Trimont $

XXXXXX 8202 *

Trimont

XXXXXX 8202 *

Account Title Grand Prix Acquisition Trust Innkeepers USA Limited Partnership Required Repairs - 001 - Trimont Real Estate Advisors, Inc SIBServicer For Wachovia Bank As Servicer For The Holder Of The Sasco 2008-C2 Notes And The Related Preferred Interest Escrow Account Ground Rent Reserve 004 - Lehman Brothers Holdings Inc. As Debtor In Possession Combined Required Repairs Reserve - 003 - Lehman Brothers Holdings Inc. As Debtor In Possession Combined Escrow And Reserve Account $ $ $ 369,039.31 -

Trimont

XXXXXX 8202 *

Trimont

XXXXXX 8202 *

Trimont

XXXXXX 8202 *

Tax Escrow - Lehman Brothers Holdings Inc. As Debtor In Possession Combined Escrow And Reserve Account FF&E - 002 - Lehman Brothers Holdings Inc. As Debtor In Possession Combined Escrow And Reserve Account Capital Improvement (Pip) - 001 - Lehman Brothers Holdings Inc. As Debtor In Possession Combined Escrow And Reserve Account

Wachovia Wells Fargo

XXXXX 2226 XXXXXX 9458

892,359.19 296.37 8,653,769.25

Replacement Reserve Loan $ Grand Prix Holding, LLC Pledge Cash Management Account Fbo $ Metlife, Trimont Real Estate Advisors As Servicer Grand Total - Accounts $

* The bank accounts located at Trimont with account numbers ending in 8202 shown on Schedule B-2 are subject to the control and security interest of Lehman as a result of certain terms of the Floating Rate Mortgage Loan Agreement. The Debtors do not have the authority to direct disbursements out of such accounts. Amounts shown are based upon the best information available to the Debtors. Due to limited information received by the Debtor on these accounts, a complete reconciliation cannot be performed as the date of the most recent bank statement received by the Debtor is dated April 30, 2010.

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