MORRISON & FOERSTER LLP 1290 Avenue of the Americas New York, New York 10104 Telephone: (212)

468-8000 Facsimile: (212) 468-7900 Brett H. Miller Lorenzo Marinuzzi Jordan A. Wishnew Counsel for the Official Committee of Unsecured Creditors of Innkeepers USA Trust, et al. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re Innkeepers USA Trust, et al., Debtors. ) ) ) ) ) ) ) Chapter 11 10-13800 (SCC) Jointly Administered

RESPONSE OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO MIDLAND LOAN SERVICES, INC.'S OBJECTION TO THE APPLICATION PURSUANT TO SECTIONS 327(a), 328(a), AND 1103 OF THE BANKRUPTCY CODE AUTHORIZING THE RETENTION AND EMPLOYMENT OF JEFFERIES & COMPANY, INC. AS THE FINANCIAL ADVISOR AND INVESTMENT BANKER TO THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS NUNC PRO TUNC TO JULY 30, 2010 The Official Committee of Unsecured Creditors (the Committee) of Innkeepers USA Trust and certain of its direct and indirect subsidiaries in the above-captioned chapter 11 cases, as debtors and debtors in possession (collectively, the Debtors), hereby submits this response (the Response) to Midland Loan Services, Inc.s (Midland) Objection To The Application (the Application) Pursuant To Sections 327(a), 328(a), And 1103 Of The Bankruptcy Code Authorizing The Retention And Employment Of Jefferies & Company, Inc. (Jefferies) As The Financial Advisor And Investment Banker To The Official Committee Of Unsecured Creditors

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Nunc Pro Tunc To July 30, 2010 [Dkt. No. 478] (the Objection).1 In support of the Response and in further support of the Application, the Committee respectfully represents and alleges as follows: PRELIMINARY STATEMENT The United States Trustee for the Southern District of New York (the UST) appointed the Committee at the outset of these cases, as required by Section 1102(a) of the Bankruptcy Code. The Committee is a fiduciary for the Debtors unsecured creditors. As is customary in Chapter 11 cases of this size and complexity, the Committee seeks to retain an independent financial advisor, which the Committee believes is both reasonable and necessary to assist with the discharge of its fiduciary duties. In the Objection, Midland continues its efforts to diminish the role of the Committee in these cases. Midland first argues that the Committee represents a universe of creditors consisting of only $6.6 million in trade claims. To be generous, that is simply incorrect. The Committee represents the interests of all unsecured creditors, whether they are holders of the more than $13.15 million in scheduled unsecured claims, or instead hold currently unliquidated litigation claims, contingent contract rejection damage claims, unsecured mezzanine debt claims, or the substantial deficiency claims under the Debtors securitized debt facilities. These claims, in the aggregate, could exceed $500 million. Ironically, Midlands own motion to break the Debtors plan exclusivity2 advocates a reorganization strategy that would allow the Debtors secured creditors to foreclose on their hotel properties, requiring the Debtors to reject all of their major
1

Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Objection or the Application, as applicable. See Midland Loan Services, Inc.s Motion To Terminate Exclusivity, filed August 30, 2010 [Dkt. No. 348] (the Midland Exclusivity Motion) (attaching as Exhibit A thereto Five Mile Capital Partners LLCs (Five Mile) Binding Commitment for the Acquisition of Innkeepers USA Trust (the Five Mile Term Sheet), which sets forth terms of a proposed plan of reorganization to be financed by Five Mile).
2

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executory contracts (i.e., franchise and servicing agreements) and giving rise to additional significant unsecured claims. Midland next suggests that the Committee serves no purpose in this bankruptcy case. Wrong again. As Midland knows, the Committee is investigating the liens and claims of the Debtors secured creditors, as well as the 2007 leveraged buyout through which the Debtors secured debt increased by nearly $1 billion (the 2007 Transaction). The trust for which Midland acts as special servicer, LB-UBS Commercial Mortgage Trust 2007-C6, took an assignment of a portion of those very same leveraged buyout loans. While the Committee understands Midlands possible motivations could be to frustrate this investigation, the Committee is determined to continue, and Jefferies continued assistance in the task is necessary. Midland also suggests, without providing any supporting evidence, that the proposed terms of Jefferies retention are inappropriate despite the fact that they are customary in this jurisdiction and conform to standards that have been vetted by the UST. The proposed amount and terms of Jefferies compensation and the scope of the indemnity to be provided to Jefferies by the Debtors are customary and at market rates for similar services provided in comparable representations. Moreover, any actual claim for indemnification that might be brought by

Jefferies is subject to review and approval by the Court for reasonableness, as set forth in the proposed order approving the Application (the Proposed Order). Finally, notwithstanding Midlands unsupported allegations, Jefferies is a disinterested party in these cases and does not have any conflict of interest that precludes it from being retained by the Committee. Finally, Midland also objects to Jefferies retention on the grounds that Midland has not consented to the surcharge of its collateral for the payment of Jefferies fees. Nothing in the

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Application or the Proposed Order compromises Midlands right to object to the payment of fees. The Objection should be overruled, and the Application approved so that the Committee can continue to fulfill its fiduciary duty to maximize the value of the Debtors estates for the benefit of all unsecured creditors in these cases. BACKGROUND 1. On July 19, 2010 (the Petition Date), each of the Debtors filed with the Court a

voluntary petition for relief under Chapter 11 of the Bankruptcy Code, commencing the above captioned Chapter 11 cases. 2. On July 28, 2010, the UST appointed the five (5) member Committee3 pursuant to

section 1102(a)(1) of the Bankruptcy Code. [Dkt. No. 82]. 3. On July 30, 2010, the Committee selected Jefferies as financial advisor and

investment banker to the Committee. 4. On September 9, 2010, the Committee filed the Application seeking authorization

to retain and employ Jefferies as its financial advisor and investment banker. [Dkt. No. 422]. 5. On September 23, 2010, Midland filed the Objection, together with the

Declaration of Ronald F. Greenspan in Support of (1) Midland Loan Services, Inc.s Objection to the Application Pursuant to Sections 327(a), 328(a), and 1103 of the Bankruptcy Code Authorizing the Retention and Employment of Jefferies & Company, Inc. as the Financial Advisor and Investment Banker to the Official Committee of Unsecured Creditors Nunc Pro Tunc to July 30, 2010 and (2) Objection by Midland Loan Services, Inc. to the Motion of Ad Hoc Committee of Preferred Shareholders for Order Directing Appointment of Statutory Committee
The members of the Committee are: (i) JMC Global, (ii) PDQ Consulting, Inc., (iii) Triangle Renovations USA, (iv) American Hotel Register Company, and (v) The Eric Ryan Corporation.
3

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of Preferred Shareholders Pursuant to Bankruptcy Code Section 1102(a)(2) (the Greenspan Declaration). [Dkt. No. 479]. 6. On that same date, certain property level lenders filed the Joinder of Wells Fargo

Bank, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-c1 and U.S. Bank National Association, as Successor to LaSalle Bank N.A., Formerly Known as LaSalle National Bank, as Trustee for the Registered Holders of ML-CFC Commercial Mortgage Trust 2006-4, Commercial Mortgage Pass-Through Certificates, Series 2006-4 to Midland Loan Services Inc.s Objection to the Application Pursuant to Sections 327(a), 328(a), and 1103 of the Bankruptcy Code and Bankruptcy Rules 2014 and 2016 for Entry of an Order Authorizing the Retention and Employment of Jefferies & Company, Inc. as the Financial Advisor and Investment Banker to the Official Committee of Unsecured Creditors Nunc Pro Tunc to July 30, 2010. [Dkt. No. 474]. 7. On September 27, 2010, Midland substituted the Greenspan Declaration with the

Declaration of Chris Dochat in Support of (1) Midland Loan Services, Inc.s Objection to the Application Pursuant to Sections 327(a), 328(a), and 1103 of the Bankruptcy Code Authorizing the Retention and Employment of Jefferies & Company, Inc. as the Financial Advisor and Investment Banker to the Official Committee of Unsecured Creditors Nunc Pro Tunc to July 30, 2010 and (2) Objection by Midland Loan Services, Inc. to the 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) (the Dochat Decl.). [Dkt No. 507].

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ARGUMENT A. Jefferies Retention Is Necessary to the Committees Performance of Its Fiduciary Duties 8. Section 1102(a)(1) of the Bankruptcy Code requires the appointment of an

unsecured creditors committee.4 The members of a committee have a fiduciary duty to their constituents and are obligated to exercise those powers as necessary to protect the interests of those constituents. See, e.g., In re Caldor, Inc., 193 B.R. 165, 169 (Bankr. S.D.N.Y. 1996). Section 1103(a) of the Bankruptcy Code authorizes an official committee to employ professionals in furtherance of its fiduciary duty, subject to court approval. Pursuant to Section 1103(a) and the Application, the Committee seeks to retain Jefferies as its financial advisor and investment banker in these cases. Jefferies expertise and advice are sought by the Committee in order to perform a variety of services, as set forth in detail in the Application. Application, 12. The assistance to be provided by Jefferies is particularly necessary here because the Debtors cases are large, complex, and highly contested, and the individual Committee members have relatively little experience with these types of proceedings. Prohibiting the Committee from utilizing the advice and experience Jefferies can provide would hamper the Committees ability to competently fulfill its fiduciary duties. Such a result is clearly contrary to the requirement that an unsecured creditors committee be appointed, a requirement that evidences the legislative belief that the creditors committee plays an important and necessary role in the Chapter 11 process. B. The Terms of Jefferies Proposed Retention Are Reasonable 9. Despite the obvious necessity that the Committee be permitted to retain a

financial advisor, Midland makes a number of specious arguments designed to distract the Court
The exceptions to this requirement, such as the one contained in section 1102(a)(3) of the Bankruptcy Code (excusing the committee requirement for cause in the case of a small business debtor), are not applicable here.
4

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from the true purpose of their Objection. First, Midland suggests that the amount of unsecured claims asserted against the Debtors is so low that the compensation to be paid to Jefferies in the course of its representation of the constituents holding those claims is unreasonable. This argument contains several flaws: (a) it drastically underestimates the amount of unsecured claims; (b) it disregards the fact that the terms of Jefferies retention, including the amount of compensation to be paid to Jefferies and the indemnification provisions, are market; and (c) it misconstrues provisions designed to ensure that Jefferies will only be eligible to receive a Transaction Fee to the extent its services actually contribute to maximizing the recoveries of unsecured creditors. 1. Midland Underestimates the Amount of Unsecured Claims 10. Midland asserts that the trade debt owed by the Debtors is less than $6.6 million.5

Objection, 2; Dochat Decl., 3. Putting aside the fact that the unsecured claims are not limited to trade debt, a review of the Debtors Schedules of Assets and Liabilities (the Schedules) reveals that the actual amount of unsecured debt is closer to $13.15 million, when contingent, unliquidated, and disputed unsecured claims are included. Szlezinger Decl., 9. Further, as set forth in the Declaration of Leon Szlezinger in Support of the Response of the Official Committee of Unsecured Creditors to Midland Loan Services, Inc.s Objection to the Application Pursuant to Sections 327(a), 328(a), and 1103 of the Bankruptcy Code Authorizing the Retention and Employment of Jefferies & Company, Inc. as Financial Advisor and Investment Banker to the Official Committee of Unsecured Creditors Nunc Pro Tunc July 30, 2010 (the Szlezinger Decl.), attached hereto as Exhibit A, Jefferies believes that the Schedules under-report the
5

This figure at least demonstrates an increase from the less than $2 million in trade claims Midland asserted were outstanding in its Limited Motion To Reconsider 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, filed on September 16, 2010. [Dkt. No. 441].

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amount of existing valid claims, because, among other things, they state the value of certain pending litigation claims to be zero. Szlezinger Decl., 10. In addition, there could be

significant mezzanine claims, potentially in excess of $140 million. Szlezinger Decl., 11. These claims are further augmented when potential deficiency claims are considered. Jefferies has estimated potential deficiency claims totaling $369.4 million based on the balance of the debt not covered by the notes proposed to be issued under the Five Mile Term Sheet. Szlezinger Decl., 12. 11. Midlands low-ball claims estimation is particularly striking in light of the fact

that Midland is simultaneously pursuing a course of action that could dramatically increase the amount of unsecured claims. Midland, with the support of the trustees for certain property level lenders, has sought to terminate the Debtors plan exclusivity in order to file a plan that would allow property level lenders to take back their collateral.6 If the property level lenders were to take control of their respective collateral, the Debtors would no longer be the operating franchisees under the applicable franchise agreements. This would result in their effective termination, giving rise to substantial rejection damages. Based on Jefferies preliminary review of the Marriott franchise agreements, they believe that rejection damages with respect to those agreements alone could total in excess of $50 million. Szlezinger Decl., 13. In a scenario where all franchise agreements are rejected, the total rejection damages claims could be materially higher. It is disingenuous and short-sighted for Midland to object to the retention by the Committee of professionals on the grounds that there are not enough unsecured claims to
6

See Midland Loan Services, Inc.s Motion to Terminate Exclusivity [Dkt. No. 348]; Motion of Wells Fargo Bank, N.A. (Wells Fargo), as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-C1 and U.S. Bank National Association, as Trustee for the Registered Holders of ML-CFC Commercial Mortgage Trust 2006-4, Commercial Mortgage Pass-Through Certificates, Series 2006-4 to Terminate Exclusivity and Joinder to Midland Loan Services, Inc.s Motion to Terminate Exclusivity [Dkt. No. 437], 7 (seeking termination of exclusivity to permit the Property Level Lenders to file their own plan or plans with respect to the Property Level Debtors).

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justify the professionals fees, while Midland simultaneously pursues a course of action that, if Midland is successful, may dramatically increase the amount of such claims. 2. The Terms of Jefferies Retention Are Market 12. As set forth in the Application, the proposed fee structure is reasonable and based

on the customary compensation charged by Jefferies and comparably skilled practitioners in Chapter 11 cases of similar size and complexity. The engagement, as memorialized in the Engagement Letter, is common within the restructuring industry and reflects what is considered to be market both in and out of chapter 11 proceedings, in each case, in light of Jefferies experience in reorganizations and the scope of work to be performed pursuant to its retention. See Szlezinger Decl., 3-4 (discussing compensation received in comparable restructuring representations). 13. Midland asserts that the indemnification provisions discussed in the Application However, the Indemnity is based on indemnification

(the Indemnity) are overly broad.

provisions that have been vetted by the UST and are standard in chapter 11 proceedings in this District. As noted in the Application, the Indemnity is comparable to those generally obtained by financial advisory and investment banking firms of similar stature to Jefferies for comparable engagements. Szlezinger Decl., 5. In fact, the Indemnity is substantially similar to the

indemnification provisions provided to the financial advisors retained by an official creditors committee in cases where Midlands counsel has served as counsel to the creditors committee. See, e.g., Order Pursuant to Sections 328(a) and 1103(a) of the Bankruptcy Code and Bankruptcy Rule 2014 for Authorization to Retain and Employ Miller Buckfire & Co., LLC as Investment Banker and Financial Advisor for the Official Committee of Unsecured Creditors

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Effective as of April 14, 2009, In re Idearc, Inc., et al., Bankr. N.D. Tex. (June 26, 2009), attached hereto as Exhibit B.7 14. In the instant case, any claim for indemnification by Jefferies is subject to review

and approval by the Court. Specifically, the proposed order granting the Application provides: All requests by Indemnified Persons for the payment of indemnification pursuant to the Engagement Letter shall be made by means of an application to the Court and shall be subject to review by the Court to ensure that payment of such indemnity conforms to the terms of the Engagement Letter and is reasonable under the circumstances of the litigation or settlement in respect of which indemnity is sought . . . . This provision should be sufficient to allay any legitimate concerns regarding the scope or reasonableness of the Indemnity. 3. The Proposed Fee Structure Ensures Benefit to Unsecured Creditors 15. The Objection disregards elements of the proposed fee structure that are designed

to ensure that Jefferies will only be eligible to receive a Transaction Fee to the extent its services actually contribute to maximizing the recoveries of unsecured creditors. These provisions

include (a) the crediting against the Transaction Fee of 50% of the Monthly Fees beginning after the first six months of the case and (b) the conditioning of the Transaction Fee upon the confirmation of a plan of reorganization or sale of the assets of the Debtors where such plan or sale, as applicable, is supported by the Committee. The crediting provision that Midland ignores in the Objection incentivizes Jefferies to facilitate an efficient restructuring process that will result in lower overall professionals fees. The provision that prevents the request for a

If anything, the indemnity provisions approved in the Idearc case are even broader than those contained in the Proposed Order, as they do not expressly exclude indemnification in the case of the financial advisors bad-faith, self-dealing or breach of fiduciary duty. In addition, although they provide that the Court is to review any application for indemnification, they do not contain the language in the Proposed Order that such review will be conducted to ensure that payment of such indemnity conforms to the terms of the Engagement Letter and is reasonable under the circumstances of the litigation or settlement in respect of which indemnity is sought.

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Transaction Fee if a plan is confirmed or a sale is consummated over the objection of the Committee further incentivizes Jefferies to work with all constituencies towards a plan that will be acceptable to the Committee and in the best interests of unsecured creditors.8 Midland actually argues that the latter provision could work to the detriment of the Committee by leading Jefferies to improperly encourage the Committee to support a plan of reorganization solely to earn the Transaction Fee. Objection, 11. The idea that Jefferies would encourage acceptance of a plan that is contrary to the best interests of unsecured creditors solely to obtain the Transaction Fee is offensive. C. Jefferies Does Not Have a Conflict of Interest 16. Midland wrongly alleges that Jefferies role as a market maker in the securities of

both Lehman and Apollo and its other relationships with these parties gives rise to conflicts of interest that preclude it from being retained by the Committee pursuant to Section 1103(b) of the Bankruptcy Code. These allegations misconstrue the requirements of the Bankruptcy Code. Section 1103(b) of the Bankruptcy Code provides, An attorney or accountant employed to represent a committee appointed under section 1102 of this title may not, while employed by such committee, represent any other entity having an adverse interest in connection with the case. (emphasis added). By its own terms, this provision does not prohibit simultaneous representation of both the committee and the holder of the adverse interest, so long as the professional represents the holder of the adverse interest in matters unrelated to the case. As a practical matter, many financial advisors that also provide investment banking services are market makers in some capacity. This role is not sufficient to constitute representation of the other entity, particularly with respect to that entitys involvement in the bankruptcy cases.
Midland objected that the language of this provision was ambiguous; a revised form of the Proposed Order resolving this ambiguity will be provided to the Court.
8

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Jefferies connections with Lehman and Apollo, including their role as a market maker in those parties securities, are unrelated to the Debtors cases, and thus do not preclude Jefferies retention in these cases. Declaration of Leon Szlezinger in Connection with the Retention of Jefferies & Company, Inc. as Financial Advisor for the Official Committee of Unsecured Creditors Nunc Pro Tunc to July 30, 2010 (the Original Szlezinger Decl.), at 13, attached as Exhibit B to the Application; Szlezinger Decl., 6-8. 17. Moreover, such relationships do not constitute interests that are materially adverse

to those of the Committee. The Bankruptcy Code does not define adverse interest, which has been left to the development of case law. Whether an entity represented by the professional holds an adverse interest in connection with a case is determined on a case by case basis. Generally speaking, an adverse interest is one where the economic interest of the person represented by the professional is in conflict with or could come into conflict with the interests of the constituency represented by the professional or jeopardize the professionals integrity. Representation of the other entity should not: (a) prevent the professional from vigorous

representation of the committee; (b) interfere with the professionals undivided loyalty; (c) imperil the confidentiality of information or strategy confided by the committee to the professional; or (d) cause the professional to act in a manner different than the professional otherwise would. See, e.g., In re Leslie Fay Cos., 175 B.R. 525 (Bankr. S.D.N.Y. 1994). None of those circumstances is applicable here. Original Szlezinger Decl., 10, 13, 16; Szlezinger Decl., 7. Accordingly, Jefferies is a disinterested person in these cases and does not have any conflicts of interest that preclude it from being retained by the Committee.

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D.

Midland Retains the Right to Object to the Surcharge of Its Collateral 18. Midland also objects to the Application on the grounds that Jefferies fees will be

paid from Midlands collateral. This disregards the fact that Midland retains the right to object to the surcharge of its collateral pursuant to section 506(c) of the Bankruptcy Code, and nothing in the Application or the Proposed Order compromises that right. Specifically, the Final Order Authorizing the Debtors to (i) Use the Adequate Protection Parties' Cash Collateral and (ii) Provide Adequate Protection to the Adequate Protection Parties, entered by the Court on September 2, 2010 [Dkt. No. 402], provides: No costs or expenses of administration which have been or may be incurred in the Chapter 11 Cases at any time shall be charged against any of the Adequate Protection Parties or any of their respective claims or the Prepetition Collateral pursuant to sections 105 or 506(c) of the Bankruptcy Code, or otherwise, without the prior written consent of the applicable Representative, and no such consent shall be implied from any other action, inaction, or acquiescence by the applicable Representative or its agents.

CONCLUSION WHEREFORE, for all of the foregoing reasons, the Committee respectfully requests that this Court enter an order denying the Objection, approving the relief requested in the Application, and granting such additional relief as is just and proper.

[Remainder of page intentionally left blank]

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Dated: September 28, 2010 New York, New York

Respectfully submitted, /s/ Lorenzo Marinuzzi MORRISON & FOERSTER LLP Brett H. Miller Lorenzo Marinuzzi Jordan A. Wishnew 1290 Avenue of the Americas New York, NY 10104 Telephone: (212) 468-8000 Facsimile: (212) 468-7900 Counsel for the Official Committee of Unsecured Creditors of Innkeepers USA Trust, et al.

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EXHIBIT A

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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -------------------------------------- x : : In re: : : Chapter 11 : INNKEEPERS USA TRUST, et al., : Case No. 10-13800 (SCC) : : (Jointly Administered) Debtors. -------------------------------------- x

DECLARATION OF LEON SZLEZINGER IN SUPPORT OF THE RESPONSE OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO MIDLAND LOAN SERVICES, INC.'S OBJECTION TO THE APPLICATION PURSUANT TO SECTIONS 327(a), 328(a), AND 1103 OF THE BANKRUPTCY CODE AUTHORIZING THE RETENTION AND EMPLOYMENT OF JEFFERIES & COMPANY, INC. AS THE FINANCIAL ADVISOR AND INVESTMENT BANKER TO THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS NUNC PRO TUNC TO JULY 30, 2010 I, Leon Szlezinger, hereby declare under penalty of perjury under the laws of the United States of America that, to the best of my knowledge and belief, and after reasonable inquiry, the following is true and correct: 1. I am a Managing Director of Jefferies & Company, Inc. (Jefferies), an

investment banking firm with its principal office located at 520 Madison Avenue, New York, NY 10022 and with offices located worldwide. I am duly authorized to make and submit this Declaration1 on behalf of Jefferies in accordance with section 1103(b) of title 11 of the United States Code, 11 U.S.C. 101-1532 (as amended, the Bankruptcy Code) and Rules 2014 and 5002 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), in further support

Unless otherwise defined, capitalized terms and phrases not otherwise defined herein shall have the meanings ascribed to such terms in the Application.

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of the Application of the Official Committee of Unsecured Creditors (the Committee) of Innkeepers USA Trust and its affiliated debtors and debtors in possession (the Debtors), for an Order, pursuant to 11 U.S.C. 327(a), 328(a) and 1103, Fed. R. Bankr. P. 2014 and 5002, and Local Bankruptcy Rule 2014-1, authorizing the employment and retention of Jefferies as financial advisors to the Committee (the Application). 2. Unless otherwise stated in this Declaration, I have personal knowledge of

the facts set forth herein and, if called as a witness, I would testify thereto.2 A. The Terms of Jefferies Proposed Compensation Are Reasonable and at Market Rates 3. The proposed terms of Jefferies engagement, as set forth in the

Engagement Letter, are common within the restructuring industry and reflect what is considered to be market both in and out of chapter 11 proceedings, in each case, in light of Jefferies experience in reorganizations and the scope of work to be performed pursuant to its retention. 4. By way of comparison, a selection of cases over the last twelve months in

which bankruptcy courts in both this district and others authorized fees of investment banking firms retained by official committees of unsecured creditors where the unsecured liabilities totaled up to $500 million shows that monthly fees have ranged from $75,000 to $200,000 with additional transaction fees of up to $1,500,000, with various mechanisms for crediting. Jefferies fee structure in this case is within this range. A detailed chart comparing the compensation in the selected cases is attached hereto as Appendix 1. 5. Further, as noted in the Application, the Indemnity is comparable to those

generally obtained by financial advisory and investment banking firms of similar stature to Jefferies for comparable engagements.
Certain of the disclosures set forth herein relate to matters within the knowledge of other employees at Jefferies and are based on information provided by them.
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B.

Jefferies Is a Disinterested Person and Does Not Have Any Conflicts of Interest that Would Prevent It from Being Retained by the Committee 6. As set forth in the Application, Jefferies reaffirms that it is a disinterested

person in these cases and does not have an interest materially adverse to the interest of the estates or any class of creditors or equity security holders, by reason of any direct or indirect relationship, connection with, or interest in, the Debtors or for any other reason. 7. Specifically, with respect to its role as a market maker in the securities

of Lehman and Apollo, Jefferies is a global investment banking firm with broad activities covering trading in equities, convertible securities and corporate bonds in addition to its investment banking and financial advisory practice. With more than 80,000 customer accounts around the world, it is possible that one of its clients or a counterparty to a security transaction may hold a claim or otherwise is a party-in-interest in the Chapter 11 Cases. Furthermore, as a major market maker in equity securities as well as a major trader of corporate bonds and convertible securities, Jefferies regularly enters into securities transactions with other registered broker-dealers as a part of its daily activities. Some of these counter-parties may be creditors of the Debtors. Jefferies believes none of these business relationships constitute interests materially adverse to the Debtors estates herein in matters upon which Jefferies is to be employed, and none are in connection with these cases. 8. Jefferies will not, during its engagement in these cases, trade in any

securities of the Debtors for or on its own account, and any such trading on account of Jefferies customers will be conducted only at clients direction, with Jefferies acting solely as such clients agent.

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C.

There Are Substantial Unsecured Claims Against the Debtors Estates 9. Based on our review of the Debtors Schedules of Assets and Liabilities

(the Schedules), the actual amount of scheduled unsecured debt is approximately $13.15 million, when contingent, unliquidated, and disputed unsecured claims are included. 10. The Schedules under-report the amount of existing valid claims, because,

among other things, the value of certain pending litigation claims is listed as zero. Based on our preliminary analysis, we estimate that the litigation claims will total at least $640,000. 11. The potential claims of the mezzanine lenders are also not included in the

Schedules. These claims could exceed $140 million. 12. We have estimated potential deficiency claims totaling $369.4 million,

based on the balance of the debt not covered by the notes proposed to be issued under the Five Mile Term Sheet. 13. The Schedules also do not account for potential rejection damage claims.

If the property level lenders are allowed to foreclose on their collateral, the rejection damage claims resulting from the termination of the related franchise agreements would be substantial. With respect to the Debtors 44 Marriott properties, our calculations indicate that such rejection damages could exceed $50 million. 14. Taking each of these estimates into account, the aggregate amount of

unsecured claims could exceed $500 million. In a scenario where all franchise agreements are rejected, the total claims could be materially higher. 15. The foregoing constitutes the statement of Jefferies pursuant to

Bankruptcy Rule 2014(a).

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In accordance with 28 U.S.C. 1746, I declare under penalty of perjury that the foregoing is true and correct.

Executed: September 28, 2010 JEFFERIES & COMPANY, INC. /s/ Leon Szlezinger Leon Szlezinger Managing Director Jefferies & Company, Inc. 520 Madison Avenue, 7th Floor New York, New York 10022

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APPENDIX 1

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Innkeepers USA Trust Fee Comparables - Investment Banking Services

UCC Advisory Fees Analysis - Estimated Unsecured Liabilities Up to $500 Million LTM September 2010 ($ Thousands, unless otherwise indicated)
Estimated Liabilities ($ millions) Estimated Unsecured Claims ($ millions)

UCC Advisor
Average Monthly Fee ($)
(1)

Petition Date

District

Company Name

UCC Advisor

Monthly Crediting 100% crediting after $ twelve months

Transaction Fee % of Liabilities % of Unsecured Claims

Hypothetical 12 Month Fee % of Liabilities % of Unsecured Claims

11/23/2009

District of Delaware

The Majestic Star Casino, LLC

GLC Advisors & Co. LLC

771.1

268.3

150.0

1,500.0

0.19%

0.56%

3,300.0

0.43%

1.23%

1/4/2010

District of Delaware

International Aluminum Corp.

(2)

Chanin Capital Partners

216.9

50.8

125.0

NA

500.0

0.23%

0.98%

2,000.0

0.92%

3.94%

1/20/2010

District of Delaware

Atrium Corporation (3)

FTI Consulting Inc.

655.9

278.3

181.3

100% crediting after three months

750.0

0.11%

0.27%

1,350.0

0.21%

0.49%

2/2/2010

Eastern District of Virginia

Movie Gallery

(4)

FTI Consulting Inc.

850.0

59.3

125.0

NA

1,000.0

0.12%

1.69%

2,500.0

0.29%

4.22%

2/3/2010

District of Delaware

Spheris Inc. (5)

Houlihan Lokey Howard & Zukin Capital, Inc.

210.9

135.1

175.0

100% of first two monthly fees

1,000.0

0.47%

0.74%

2,800.0

1.33%

2.07%

3/10/2010

Southern District of New York

EnviroSolutions of NYC LLC

(6)

Chanin Capital Partners

289.0

53.7

100.0

NA

300.0

0.10%

0.56%

700.0

0.24%

1.30%

6/10/2010

District of Delaware

NEC Holdings Corp.

Morgan Joseph

239.6

89.0

75.0

NA

0.00%

0.00%

900.0

0.38%

1.01%

Mean Median

$133.0 $125.0

$721.4 $750.0

0.18% 0.12%

0.69% 0.56%

$1,935.7 $2,000.0

0.54% 0.38%

2.04% 1.30%

7/19/2010

Southern District of New York

Innkeepers USA Trust

Jefferies & Company

1,500.0

525.5

(7)

125.0

50% of monthly fees in excess of $750

750.0

0.05%

0.14%

1,875.0

0.13%

0.36%

(1) Represents the average monthly fee over the first twelve months of retention. Does not include any applicable crediting of monthly fees. (2) Chanin is also entitled to a fee equal to 1% of the proceeds of a creditor sponsored rights offering. Court deferred Chanin Capital Partners' application for a $500,000 success fee upon the consummation of the restructuring. (3) FTI will receive a monthly fee of $200,000 for the first three months, $175,000 thereafter. Limit of $850,000 on monthly fees and transaction fee limited to $750,000 with 100% crediting of any monthly fees earned after three months. Transaction fee not payable if the Debtors confirm the Stand-Alone Alternative as defined by the Debtor. FTI compensation limited to $1.35 million. (4) Transaction fee to be paid subject to approval from the Committee of Unsecured Creditors. (5) Court stipulated that if the restructuring was consummated through a sale, that is not in excess of the stalking horse bid, 100% of monthly fees would be credited against the transaction fee. The transaction fee is payable upon confirmation of a chapter 11 plan or liquidation. No provision that the outcome must be acceptable to the Committee of Unsecured Creditors. Monthly fee shown includes $25,000 monthly retainer for healthcare technology operational due diligence billed as out-of-pocket expenses that is not subject to crediting. (6) Court approved the retention of Chanin Capital Partners for a four month period. (7) Unsecured claims before estimated rejection claims. Total with rejection claims could be materially higher.

Page 1

EXHIBIT B

ny-942551 v10

U.S. BANKRUPTCY COURT NORTHERN DISTRICT OF TEXAS

ENTERED
TAWANA C. MARSHALL, CLERK THE DATE OF ENTRY IS ON THE COURT'S DOCKET

The following constitutes the ruling of the court and has the force and effect therein described.

Signed June 26, 2009

United States Bankruptcy Judge

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION IN RE: IDEARC, INC., et al., Debtors. Case No. 09-31828 (BJH) (Chapter 11) (Jointly Administered)

ORDER PURSUANT TO SECTIONS 328(a) AND 1103(a) OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 2014 FOR AUTHORIZATION TO RETAIN AND EMPLOY MILLER BUCKFIRE & CO., LLC AS INVESTMENT BANKER AND FINANCIAL ADVISOR FOR THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS EFFECTIVE AS OF APRIL 14, 2009 Upon consideration of the application, dated May 15, 2009 (the Application)1, of the Official Committee of Unsecured Creditors of Idearc, Inc., et al. (the Committee) pursuant to

All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Application.

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0}2<)&:

0931828090626000000000008

({

sections 328(a) and 1103(a) of title 11 of the United States Code (the Bankruptcy Code) and Rule 2014 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), for authorization to retain and employ Miller Buckfire & Co., LLC (Miller Buckfire) for the purpose of providing investment banking and financial advisory services to the Committee in accordance with the terms of the Engagement Letter; and upon the Affidavit of Lloyd A. Sprung of Miller Buckfire (the Sprung Affidavit), which were attached to the Application; IT IS HEREBY FOUND THAT: A. This Court has jurisdiction to consider the Application and the relief requested

therein pursuant to 28 U.S.C. 157 and 1334; and consideration of the Application and the relief requested therein being a core proceeding pursuant to 28 U.S.C. 157(b); and venue being proper before this Court pursuant to 28 U.S.C. 1408 and 1409; B. Due and proper notice of the Application has been provided to the parties listed

therein, and no other or further notice is required; C. The Court is satisfied that Miller Buckfire is a disinterested person as such term

is defined under section 101(14), as modified by section 1107(b), of the Bankruptcy Code; D. The Debtors, the Senior Lenders, the Committee, the United States Trustee (the

U.S. Trustee) and Miller Buckfire have agreed that the terms of Miller Buckfires engagement should be amended as set forth in this Order; and E. The Court has determined that the relief requested in the Application as modified

by this Order is in the best interests of the Committee and all parties in interest; and the Court having determined that the legal and factual bases set forth in the Application establish just cause for the relief granted herein; and upon all of the proceedings had before the Court; and after due deliberation and sufficient cause appearing therefor,

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IT IS HEREBY ORDERED THAT: 1. 2. The Application is GRANTED as set forth herein. The Committee is authorized and empowered, pursuant to sections 328(a) and

1103(a) of the Bankruptcy Code and Bankruptcy Rule 2014, to retain and employ Miller Buckfire as investment banker and financial advisor as of April 14, 2009 on the terms set forth in the Engagement Letter, as modified by this Order, and to pay fees to Miller Buckfire on the terms and at the times specified in the Engagement Letter as modified by this Order. 3. Notwithstanding anything to the contrary in the Engagement Letter, (a) Paragraph 2(a) of the Engagement Letter is amended and restated in its entirety as follows: A monthly financial advisory fee of $175,000 (the "Monthly Advisory Fee"), which shall be due and paid by the Company commencing on April 14, 2009 and thereafter on each monthly anniversary thereof during the term of this engagement; provided that the Monthly Advisory Fees due and paid under this subparagraph 2(a) shall be credited against any Transaction Fee payable to Miller Buckfire pursuant to subparagraph 2(b) hereof as follows: (i) 100% of each Monthly Advisory Fee paid in respect of the six months commencing on April 14, 2009 and (ii) 50% of each Monthly Advisory Fee paid in respect of the period commencing on October 14, 2009. (b) 4. Paragraph 2(b) of the Engagement Letter is amended to provide that the Transaction Fee shall be $3,975,000.

Miller Buckfire shall apply for compensation and reimbursement in accordance

with the procedures set forth in sections 330 and 331 of the Bankruptcy Code, and subject to the approval of this Court and the procedures set forth in the Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals (the Compensation Procedures Order), the Bankruptcy Code, the Bankruptcy Rules, the Local Rules of the United States Bankruptcy Court for the Northern District of Texas (the Local Bankruptcy Rules), and the further orders of this Court; provided, however, that Miller Buckfire and its professionals:

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(a) shall only be required to maintain time records for services rendered postpetition in one half (.5) hour increments; and (b) shall not be required to provide or conform to any schedule of hourly rates. 5. Notwithstanding the prior paragraph, the fees payable to Miller Buckfire pursuant

to the Engagement Letter as modified by this Order shall be subject to review pursuant to the standards set forth in section 328(a) of the Bankruptcy Code and shall not be subject to the standards set forth in section 330 of the Bankruptcy Code; provided, however, that on an objection filed by the U.S. Trustee, this Court and the U.S. Trustee shall have the right to object to the Transaction Fee payable under the Engagement Letter after the conclusion of the engagement on the following bases: (i) the nature, extent and value of the services, or (ii) such fees are excessive when compared to the fees paid to other comparable investment banking and financial advisory firms in other Chapter 11 cases involving comparable services, or (iii) Miller Buckfire fails to provide the services it agreed to provide in the Engagement Letter; 6. The Indemnification Provisions of the Engagement Letter are approved, subject to

the following modifications: (a) Subject to the provisions of subparagraphs (c) and (d) below, the Debtors are authorized to indemnify, and shall indemnify, Miller Buckfire, in accordance with the Engagement Letter, for any claim arising from, related to or in connection with their performance of the services described in the Engagement Letter; Miller Buckfire shall not be entitled to indemnification, contribution or reimbursement pursuant to the Engagement Letter for services other than the services provided under the Engagement Letter, unless such services and the indemnification, contribution or reimbursement therefore are approved by the Court; Notwithstanding anything to the contrary in the Engagement Letter, the Debtors shall have no obligation to indemnify any person, or provide contribution or reimbursement to any person, for any claim or expense that is either (i) judicially determined (the determination having become final) to have arisen primarily from that persons gross negligence or willful
Page 4 of 6

(b)

(c)

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misconduct or (ii) for a contractual dispute in which the Committee alleges breach of Miller Buckfires obligations under the Engagement Letter or (iii) settled prior to a judicial determination as to that persons gross negligence or willful misconduct, but determined by this Court, after notice and a hearing, to be a claim or expense for which that person should not receive indemnity, contribution, or reimbursement under the terms of the Engagement Letter as modified by this Order; and (d) If, before the entry of an order closing these chapter 11 cases, Miller Buckfire believes that it is entitled to the payment of any amounts by the Debtors on account of the Debtors indemnification, contribution and/or reimbursement obligations under the Engagement Letter (as modified by this Order), including without limitation the advancement of defense costs, Miller Buckfire must file an application before this Court, and the Debtors may not pay any such amounts before the entry of an order by this Court approving the payment. This subparagraph (d) is intended only to specify the period of time under which the court shall have jurisdiction over any request for fees and expenses for indemnification, contribution or reimbursement, and not a provision limiting the duration of the Debtors obligation to indemnify Miller Buckfire.

7.

This Court will retain jurisdiction to construe and enforce the terms of the

Application, the Engagement Letter, and this Order. 8. To the extent that there may be any inconsistency between the terms of the

Application, the Engagement Letter, and this Order, the terms of this Order shall govern. 9. Notice of the Application as provided herein and therein shall be deemed good

and sufficient notice of the Application. 10. To the extent that any affiliates of the Debtors commence chapter 11 cases which

are jointly administered with these chapter 11 cases, the retention and employment of Miller Buckfire and other provisions of this Order shall apply to such debtors and their respective estates. 11. The fees and expenses Miller Buckfire incurs in performance of the services

outlined in the Engagement Letter are to be treated as an administrative expense of the Debtors estates pursuant to Section 503(b) of the Bankruptcy Code.

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12.

This is a final Order pursuant to 28. U.S.C. 158 and shall be effective

immediately upon entry. # # # END OF ORDER # # #

Submitted by: Trey A. Monsour Texas Bar No. 14277200 Frances A. Smith Texas Bar No. 24033084 HAYNES AND BOONE, LLP 2323 Victory Avenue, Suite 700 Dallas, TX 75219 Telephone: (214) 651-5000 Facsimile: (214) 651-5940 Co-Counsel for the Official Committee of Unsecured Creditors

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