DEWEY & LEBOEUF LLP 1301 Avenue of the Americas New York, New York 10019 Telephone: 212.259.

8000 Facsimile: 212.259.6333 Martin J. Bienenstock, Esq. Irena M. Goldstein, Esq. Timothy Q. Karcher, Esq. Attorneys for Ad Hoc Committee of Preferred Shareholders UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al., Debtors. INNKEEPERS USA TRUST, et al., Movants, -againstAD HOC COMMITTEE OF PREFERRED SHAREHOLDERS Respondents.

x ) ) ) ) ) )
X

Chapter 11 Case No. Case No. 10 13800 (SCC) (Jointly Administered)

) ) ) ) ) ) ) ) ) ) x

OBJECTION OF AD HOC COMMITTEE OF PREFERRED SHAREHOLDERS TO DEBTORS MOTION FOR ENTRY OF ORDER PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE (I) APPROVING DEBTORS UNDERTAKING TO COMPENSATE FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP AS COUNSEL TO INDEPENDENT COMMITTEE OF BOARD OF TRUSTEES OF INNKEEPERS USA TRUST AND AUTHORIZING PAYMENT OF SUCH COMPENSATION BY DEBTORS AND (II) AUTHORIZING DEBTORS TO COMPENSATE MEMBERS OF INDEPENDENT COMMITTEE

NY3 3068069.4

TO THE HONORABLE SHELLEY C. CHAPMAN UNITED STATES BANKRUPTCY JUDGE: The Ad Hoc Committee of Preferred Shareholders (the Ad Hoc Committee)1 in the above-captioned chapter 11 cases of Innkeepers USA Trust (Innkeepers or the Company), its parent corporation Grand Prix Holdings, LLC (Grand Prix) and their direct and indirect title 11 debtor subsidiaries (collectively with Innkeepers and Grand Prix, the Debtors),2 objects to the Debtors motion (the Motion) for entry of an order pursuant to

The following holders of approximately 22.0% of Innkeepers 8.0% Series C Cumulative Preferred Shares comprise the Ad Hoc Committee: Brencourt Advisors, LLC; Esopus Creek Advisors, LLC; and Plainfield Special Situations Master Fund II Limited. The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtors federal tax identification number, are: GP AC Sublessee LLC (5992); Grand Prix Addison (RI) LLC (3740); Grand Prix Addison (SS) LLC (3656); Grand Prix Albany LLC (3654); Grand Prix Altamonte LLC (3653); Grand Prix Anaheim Orange Lessee LLC (5925); Grand Prix Arlington LLC (3651); Grand Prix Atlanta (Peachtree Corners) LLC (3650); Grand Prix Atlanta LLC (3649); Grand Prix Atlantic City LLC (3648); Grand Prix Bellevue LLC (3645); Grand Prix Belmont LLC (3643); Grand Prix Binghamton LLC (3642); Grand Prix Bothell LLC (3641); Grand Prix Bulfinch LLC (3639); Grand Prix Campbell / San Jose LLC (3638); Grand Prix Cherry Hill LLC (3634); Grand Prix Chicago LLC (3633); Grand Prix Columbia LLC (3631); Grand Prix Denver LLC (3630); Grand Prix East Lansing LLC (3741); Grand Prix El Segundo LLC (3707); Grand Prix Englewood / Denver South LLC (3701); Grand Prix Fixed Lessee LLC (9979); Grand Prix Floating Lessee LLC (4290); Grand Prix Fremont LLC (3703); Grand Prix Ft. Lauderdale LLC (3705); Grand Prix Ft. Wayne LLC (3704); Grand Prix Gaithersburg LLC (3709); Grand Prix General Lessee LLC (9182); Grand Prix Germantown LLC (3711); Grand Prix Grand Rapids LLC (3713); Grand Prix Harrisburg LLC (3716); Grand Prix Holdings LLC (9317); Grand Prix Horsham LLC (3728); Grand Prix IHM, Inc. (7254); Grand Prix Indianapolis LLC (3719); Grand Prix Islandia LLC (3720); Grand Prix Las Colinas LLC (3722); Grand Prix Lexington LLC (3725); Grand Prix Livonia LLC (3730); Grand Prix Lombard LLC (3696); Grand Prix Louisville (RI) LLC (3700); Grand Prix Lynnwood LLC (3702); Grand Prix Mezz Borrower Fixed, LLC (0252); Grand Prix Mezz Borrower Floating, LLC (5924); Grand Prix Mezz Borrower Floating 2, LLC (9972); Grand Prix Mezz Borrower Term LLC (4285); Grand Prix Montvale LLC (3706); Grand Prix Morristown LLC (3738); Grand Prix Mountain View LLC (3737); Grand Prix Mt. Laurel LLC (3735); Grand Prix Naples LLC (3734); Grand Prix Ontario Lessee LLC (9976); Grand Prix Ontario LLC (3733); Grand Prix Portland LLC (3732); Grand Prix Richmond (Northwest) LLC (3731); Grand Prix Richmond LLC (3729); Grand Prix RIGG Lessee LLC (4960); Grand Prix RIMV Lessee LLC (4287); Grand Prix Rockville LLC (2496); Grand Prix Saddle River LLC (3726); Grand Prix San Jose LLC (3724); Grand Prix San Mateo LLC (3723); Grand Prix Schaumburg LLC (3721); Grand Prix Shelton LLC (3718); Grand Prix Sili I LLC (3714); Grand Prix Sili II LLC (3712); Grand Prix Term Lessee LLC (9180); Grand Prix Troy (Central) LLC (9061); Grand Prix Troy (SE) LLC (9062); Grand Prix Tukwila LLC (9063); Grand Prix West Palm Beach LLC (9065); Grand Prix Westchester LLC (3694); Grand Prix Willow Grove LLC (3697); Grand Prix Windsor LLC (3698); Grand Prix Woburn LLC (3699); Innkeepers Financial Corporation (0715); Innkeepers USA Limited Partnership (3956); Innkeepers USA Trust (3554); KPA HI Ontario LLC (6939); KPA HS Anaheim, LLC (0302); KPA Leaseco Holding Inc. (2887); KPA Leaseco, Inc. (7426); KPA RIGG, LLC (6706); KPA RIMV, LLC (6804); KPA San Antonio, LLC (1251); KPA Tysons Corner RI, LLC (1327); KPA Washington DC, LLC (1164); KPA/GP Ft. Walton LLC (3743); KPA/GP Louisville (HI) LLC (3744); KPA/GP Valencia LLC (9816). The location of the Debtors corporate headquarters and the service address for their affiliates is: c/o Innkeepers USA, 340 Royal Poinciana Way, Suite 306, Palm Beach, Florida 33480.

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section 363 of the Bankruptcy Code (i) approving Debtors undertaking to compensate Fried, Frank, Harris, Shriver & Jacobson LLP (Fried Frank) as counsel to the independent trustees (the Independents) of the Board of Trustees (the Board) of Innkeepers USA Trust and authorizing payment of such compensation by Debtors, and (ii) authorizing Debtors to compensate the Independents, dated October 20, 2010 [Docket No. 587]. In support of its Objection, the Ad Hoc Committee respectfully represents: OBJECTION A. The Relief Requested in the Motion is Illegal and Inappropriate for Multiple, Independent Reasons 1. Without any Basis in Fact or Law, The Relief would Illegally Authorize

the Independents to Work for Creditors of Allegedly Insolvent Indirect Subsidiaries at the Expense of Preferred Shareholders. Significantly, the Debtors cannot dispute: a. b. c. The Independents are trustees of Innkeepers, the debtor that issued the preferred shares owned by members of the Ad Hoc Committee. Substantive consolidation of the Debtors has neither been requested nor ordered in these chapter 11 cases. The preferred shareholders may obtain value from at least three sources: (i) a corporate account at Bank of America with a cash balance of approximately $7.4 million as of the petition date (see Schedule B-2 of Innkeepers USA LPs schedules of assets and liabilities), which bank account (now escrowed) is owned by an entity that did not incur any mortgage or trade debt, (ii) the seven (7) assets held by subsidiaries that are not subject to blanket mortgages, and (iii) the non-debtor KPA Raleigh JV. Innkeepers contended at the outset of and throughout this case that the other sixty-five (65) properties owned by its indirect subsidiaries are subject to two blanket mortgages leaving no equity for Innkeepers, because each collateral pool was worth tens to hundreds of millions less than its blanket mortgage. See Project Tavern Lehman Discussion Materials, prepared by Moelis & Company on April 22, 2010; Project Tavern Midland Discussion Materials, prepared by Moelis & Company on April 28, 2010; see also Debtors Objection to Statutory Preferred 3
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d.

Shareholders Committee Motion, dated September 24, 2010 [Docket No. 497] (hereinafter, the Debtors Statutory Preferred Shareholders Committee Objection), at 6 ([T]here 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. . .). e. By their Motion, the Debtors now request that the Court authorize the retention of a law firm to represent the Independents in formulating or selecting an overall restructuring proposal for all seventy-two (72) properties to recommend to the Board of Innkeepers. According to the Debtors, sixty-five (65) of the seventy-two (72) properties constitute an insolvent black hole from the viewpoint of Innkeepers and its preferred shareholders. The Motion provides no basis whatsoever on which the Court can determine that expenditures of resources by Innkeepers and of time and effort by its trustees, will pay for itself and produce value for the preferred shareholders. If Innkeepers requested permission to invest in properties from which it could obtain no value, the Court would deny the request in a heartbeat. The Motion is no different than that request based on the Debtors contentions. There is no business justification pursuant to Bankruptcy Code section 363(b) as required by Committee of Equity Security Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983) ([T]here must be some articulated business justification. . . for using, selling or leasing property out of the ordinary course of business before the bankruptcy judge may order such disposition under section 363(b) [of the Bankruptcy Code].). In substance, the Debtors are treating these cases as if they were substantively consolidated, to the detriment of the preferred shareholders. Therefore, the Motion fails to state a claim for the relief it requests.

f.

g.

h. 2.

There is No Basis in Fact or Law for Trustees to Become Managers and to

Retain Attorneys to Perform and/or Duplicate Functions of the Debtors and the Debtors Attorneys, Especially for Direct and Indirect Subsidiaries. According to the Motion, Fried Frank will assist the Independents in (a) conducting a preliminary analysis of all indications of interest or proposals received (including the Five Mile proposal to Midland) relating to, among other 4
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things, sponsorship of a chapter 11 plan and (b) making a recommendation with respect thereto to the Board. See Motion at 3. Nowhere do the Debtors explain how a law firm is needed to help the Independents evaluate business proposals. If the real chore is to determine whether business proposals are also confirmable plans, why isnt Kirkland & Ellis LLP (Kirkland) doing that? The Debtors have already retained Kirkland and Moelis & Company (Moelis) to perform these very same tasks. See Order Authorizing The Retention and Employment of Kirkland & Ellis LLP as Attorneys for the Debtors and Debtors in Possession Nunc Pro Tunc to the Petition Date, dated August 12, 2010 [Docket No. 191]; Order Authorizing And Approving The Retention and Employment of Moelis & Company LLC as Financial Advisor and Investment Banker to the Debtors, Nunc Pro Tunc to the Petition Date, dated August 12, 2010 [Docket No. 193]. The Debtors motion for an order approving its retention of Kirkland (the Kirkland Retention Application) provides that Kirkland, among other things, shall: a. advise the Debtors with respect to their powers and duties as debtors in possession in the continued management and operation of the Debtors business and properties; advise the Debtors on the conduct of the Chapter 11 Cases3, including all of the legal and administrative requirements of operating in chapter 11; attend meetings and negotiate with the representatives of creditors and other parties in interest; prosecute actions on the Debtors behalf, defend any action commenced against the Debtors and represent the Debtors interests in negotiations concerning litigation in which the Debtors are involved, including objections to claims filed against the Debtors estates; prepare pleadings in connection with the Chapter 11 Cases, including motions, applications, answers, orders, reports, and

b.

c. d.

e.

Capitalized terms used but not otherwise defined in paragraph 2 will have the meanings ascribed to such terms in the Kirkland Retention Application.

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papers necessary or otherwise beneficial to the administration of the Debtors estates; f. g. h. i. j. represent the Debtors in connection with obtaining postpetition financing; advise the Debtors in connection with any potential sale of assets; appear before the Court and any appellate courts to represent the interests of the Debtors estates before those courts; advise the Debtors regarding tax matters; assist the Debtors in obtaining approval of a disclosure statement and confirmation of a chapter 11 plan and all documents related thereto; and perform all other necessary legal services for the Debtors in connection with the prosecution of the Chapter 11 Cases, including: (i) analyzing the Debtors leases and contracts and the assumptions, rejections, or assignments thereof; (ii) analyzing the validity of liens against the Debtors; and (iii) advising the Debtors on corporate and litigation matters.

k.

See Debtors Application for the Entry of an Order Authorizing the Retention and Employment of Kirkland & Ellis LLP as Attorneys for the Debtors and the Debtors in Possession NUNC PRO TUNC to the Petition Date, dated July 19, 2010 [Docket No. 20], at 5-6. 3. By the same token, the Debtors motion for an order approving its

retention of Moelis (the Moelis Retention Application) provides that Moelis, among other things, shall: a. undertake, in consultation with members of management of the Debtors, a comprehensive business and financial analysis of the Debtors; evaluate the Debtors debt capacity and assist in the determination of an appropriate capital structure for the Debtors; as deemed desirable by the Debtors, identify, initiate, review, negotiate, and evaluate any Restructuring Transaction4, and, if

b. c.
4

Capitalized terms used but not otherwise defined in paragraph 3 will have the meanings ascribed to such terms in the Moelis Retention Application.

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directed, develop and evaluate alternative proposals for a Restructuring Transaction; d. e. assist the Debtors in developing strategies to effectuate any Restructuring Transaction; advise and assist the Debtors in the course of their negotiation of any Restructuring Transaction and participate in such negotiations, as requested; evaluate indications of interest and proposals regarding any Restructuring Transaction from current or potential lenders, equity investors, or strategic partners; determine and evaluate the risks and benefits of considering, initiating, and consummating any Restructuring Transaction; determine values or ranges of values (as appropriate) for the Debtors and any securities that the Debtors offer or propose to offer in connection with a Restructuring Transaction; be available at the Debtors request to meet with Debtors management, board of directors/trustees/managers, creditor groups, equity holders, any official committees appointed in the Chapter 11 Cases to discuss any Restructuring Transaction and provide such parties with information about the Debtors assets, properties, or businesses as may be appropriate and acceptable to the Debtors, subject to customary business confidentiality agreements in form and substance approved by the Debtors; assist the Debtors in the development, preparation, and distribution of selected information, documents, and other materials to facilitate the consummation of any Restructuring Transaction; if requested by the Debtors, participate in hearings before this Court and provide relevant testimony; and such other financial advisory and investment banking services as my be agreed upon by Moelis and the Debtors, and that is within the scope of the Engagement Letter.

f.

g. h.

i.

j.

k. l.

See Debtors Application for the Entry of an Order Authorizing the Retention and Employment of Moelis & Company LLC as Financial Advisor and Investment Banker to the Debtors NUNC PRO TUNC to the Petition Date, dated July 19, 2010 [Docket No. 21], at 7-8.

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4.

Notably, the Motion does not provide that the duties of Kirkland and

Moelis will be curtailed and their fees will be reduced once the Independents and Fried Frank undertake functions the Debtors professionals were retained to carry out. It appears that cost and expense only matter to the Debtors when fairness to preferred shareholders is at issue. The Debtors cite no authority to assign management functions to trustees and to retain additional professionals to represent trustees performing management functions. There is no basis, and the Debtors cite none, to take trustees of Innkeepers and to have them perform management functions for direct and indirect subsidiaries of Innkeepers. Indeed, this undermines the fiduciary duties of the Independents to the preferred shareholders and provides them conflicting duties to constituencies of direct and indirect subsidiaries. The following summarizes the applicable corporate law5 with respect to governance issues in a parent-subsidiary context that remains conspicuously absent from the Debtors Motion: (i) The duty of a subsidiary to act for the best interests of its parent is so clear and strong that the directors of the parent have a duty to stop the subsidiary from acting in its own interests if the subsidiarys action would be adverse to the parent corporation and its shareholders. Grace Brothers v. UniHolding Corp., C.A. No. 17612, 2000 Del. Ch. LEXIS 101 (Del. Ch. July 12, 2000). It is by no means a novel concept of corporate law that a whollyowned subsidiary functions to benefit its parent. n. 31 (n. 31 E.g., Stenberg v. ONeil, Del. Supr., 550 A.2d 1105, 1124 (1988); Anadarko Petroleum Corp. v. Panhandle Eastern Corp., Del. Supr., 545 A.2d 1171, 1174 (1988)). To the extent that members of the parent board are on the subsidiary board or have knowledge of proposed action at the subsidiary level that is detrimental to the parent, they have a fiduciary duty, as part of their management responsibilities, to act in the best interests of the parent and its

(ii)

Notably, the Ad Hoc Committee has found no Maryland decisions at odds with the principles articulated by the Delaware courts which are routinely followed across the country. Indeed, in ruling that directors and officers of Maryland corporations (including real estate investment trusts) owe common law fiduciary duties directly to the corporations shareholders, the Maryland Court of Appeals emphasized the respect properly accorded Delaware decisions on corporate law ordinarily in [its] jurisprudence. See Shenker v. Laureate Education, Inc., 983 A.2d 408, 420 n. 14 (Md. 2009) (quoting Werbowsky v. Collomb, 766 A.2d 123, 143 (Md. 2001)).

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stockholders. Grace Brothers v. UniHolding Corp., C.A. No. 17612, 2000 Del. Ch. LEXIS 101 at *40 (Del. Ch. July 12, 2000). (iii) It is settled law that: (1) a parent does not owe a fiduciary duty to its wholly owned subsidiary, and (2) in a parent and whollyowned subsidiary context, the directors of the subsidiary are obligated only to manage the affairs of the subsidiary in the best interests of the parent and its shareholders. Shaev v. Wyty, C.A. No. 15559, 1998 Del. Ch. LEXIS 2, at *7 (Del. Ch. Jan. 6, 1998)(quoting Anadarko Petroleum Corp. v. Panhandle Eastern Corp., Del. Supr., 545 A.2d 1171, 1174 (1988)).

5.

Judicial Estoppel Bars the Debtors from the Relief they Request. When a

litigant asserts a position in court and prevails, the litigant is judicially estopped from asserting an inconsistent position for another purpose. See DeRosa v. Natl Envelope Corp. 595 F.3d 99, 103 (2d Cir. 2010) (citing New Hampshire v. Maine, 532 U.S. 742, 749, (2001)) (Where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him.); see also Peralta v. Vasquez, 467 F.3d 98, 105 (2d Cir. 2006) (citing Bates v. Long Island R.R., 997 F.2d 1028, 1038 (2d Cir.1993)) (In order for judicial estoppel to be invoked, (1) the party against whom it is asserted must have advanced an inconsistent position in a prior proceeding, and (2) the inconsistent position must have been adopted by the court in some matter.). 6. In opposition to the Ad Hoc Committees motions for a statutory equity

committee and an examiner, the Debtors successfully argued that there were insufficient funds, which argument was a material component of the Courts determinations to sustain the Debtors positions. See September 30 Transcript at p. 124, lines 17-20 ([T]he appointment of an official committee would simply bring myriad additional administrative costs to cases which already have an extremely high professional run rate.); see also p. 125, lines 4-8 (Even without an 9
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equity committee, it appears that administrative expenses in these cases will likely consume most, if not all, of any value in excess of the secured debt against the [individual hotel properties not subject. to the two blanket mortgages].). The Debtors fail to explain why they can afford to pay a new set of professionals after crying poverty when objecting to the formation of a statutory equity committee (see Debtors Statutory Preferred Shareholders Committee Objection at 7 (for any value from [the seven hotels not subject to the two blanket mortgages] to reach Preferred C Shareholders, it must first be used to satisfy a number of obligations)), or why it is fair that the Independents, who after all, agreed to the plan support agreement expressly extinguishing preferred shareholders, are separately represented on the estates dime and can consume monies otherwise payable to the preferred shareholders. 7. Under the Independents watch and approval, the Board approved and

authorized Debtors managements decision to enter into a plan support agreement with Lehman ALI Inc. (Lehman) to extinguish preferred shares while benefitting the Debtors common shareholder, Apollo Investment Corporation (Apollo), through a side deal between Apollo and Lehman. The Court already determined the evidence did not show the duty of care was carried out. See Transcript of September 1, 2010 Proceedings at 420, lines 5-7 (the Court could not conclude that the debtors exercised due care in electing to move forward with the . . . plan term sheet and the proposed valuation implied therein.). It would be the reverse of fairness for the Debtors to pay millions of dollars of estate funds to provide professionals for the Independents who did not carry out their duty of care, particularly when the Debtors can instead use their remaining cash for the victims of such breaches the preferred shareholders. 8. The Court Should Not be Fooled by the Debtors Self-Serving Status

Report. Form over substance describes the Debtors actions. After the Court denied the

10
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Debtors motion for approval of their plan support agreement, the Debtors organized meetings with their various constituents, including the Ad Hoc Committee, and then filed with this Court a self-congratulatory status report on their efforts. See Debtors Status Report, dated September 29, 2010 [Docket No. 528]. At the meeting, the Debtors representatives provided no substantive information whatsoever and did not engage in any discussion of potential reorganizations. No progress on any front was made. The Ad Hoc Committee left the meeting wondering why it was called. The Ad Hoc Committee knows now the meeting was for show to enable the Debtors to file their status report. Indeed, Innkeepers minutes of its board of trustees meeting on September 20, 2010 provides that Mr. Scheler of Fried Frank discussed the filing of the status report including a report on the Companys meetings with its key stakeholders and parties in interest See Minutes from Meeting of Independent Trustees of the Board of Trustees of Innkeepers USA Trust, dated September 20, 2010, at 2 (attached hereto as Exhibit A). The next the Ad Hoc Committee heard from the Debtors intentions was on an October 20, 2010 conference call during which the Debtors unilaterally announced they were commencing a process to solicit bids from parties for all the Debtors assets rather than the assets individually or by loan portfolio. See Declaration of William Q. Derrough in Support of Debtors Motion for Entry of an Order Extending the Exclusive Periods During Which Only the Debtors May File a Chapter 11 Plan and Solicit Acceptances Thereof and Omnibus Objection to Motions to Terminate Exclusivity, dated October 27, 2010 [Docket No. 611], at 5-7. 9. This is the worst possible outcome for the preferred shareholders who

want their seven (7) properties and do not want to fight about value allocation in a larger bid. As the Debtors are well aware, no constituent on the call was happy with the Debtors announcement which demonstrates, yet again, that the Debtors may have been asking their

11
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constituencies for input on their next steps, but only for show. The Ad Hoc Committee requested a meeting with the Independents to discuss the progress of the bankruptcy cases (see copy of letter to the Independents attached hereto as Exhibit B) but were rebuffed by the Debtors counsel (see copy of letter from Kirkland attached hereto as Exhibit C). Notably, these Independents who want, at the preferred shareholders expense, to take on roles that management normally fulfills, will not even meet with preferred shareholders to whom they owe fiduciary duties. 10. The Motion Circumvents Bankruptcy Code sections 327, 328, 329, 330,

and 331. Attorneys representing a title 11 debtor must follow scrupulously all the Bankruptcy Code sections listed above. Here, the Debtors ask that Fried Frank follow none of them. In these cases, the checks and balances built into the Bankruptcy Code to promote fairness and sunshine have been to date denied to the preferred shareholders who were not granted a statutory committee to protect them going forward or an examiner to identify causes of action that may benefit them and the Debtors estates. Clearly, the Debtors actions are consistent with the view that when the Court denied the Ad Hoc Committees two motions that would have protected the rights of preferred shareholders, the Debtors were emboldened that they could ignore the preferred shareholders rights to monies and property while spending their money on Fried Frank without even following the bankruptcy law. The Ad Hoc Committee submits that it would be the reverse of Congressional intent and the Bankruptcy Codes requirements to allow the foregoing statutory provisions to be rendered void by having trustees assume business functions and retain a law firm that would be required to satisfy all those provisions if the firm rendered the same services for the debtor. Notably, the Declaration of Bonnie Steingart, a member of Fried Frank (the Steingart Declaration), buries in a footnote that Apollo has accounted for less than

12
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0.035% of Fried Franks annual income for the twelve month period ending September 30, 2010. See Steingart Declaration at 6, footnote 4. The relief requested does not promote fairness or the appearance of fairness. 11. Finally, the Debtors also request authority to make increased payments to

the Independents. The last thing that will benefit the preferred shareholders is to pay their money to Independents who started the case by approving the extinguishment of all preferred shares. Significantly, the Debtors have never come forward to show how the $7.4 million in cash, the value of the seven (7) properties not part of the blanket mortgage collateral pools, and the non-debtor joint venture interest should not redound to the preferred shareholders. Rather, the Debtors have specialized in obscuring the facts and alluding to unliquidated potential guaranty claims. See Debtors Statutory Preferred Shareholders Committee Objection at 8-10. The Independents, having demonstrated their intent to extinguish preferred shareholders to whom they owe fiduciary duties, should not be allowed to spend money that could otherwise be distributed to preferred shareholders. [Remainder of Page Left Intentionally Blank]

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CONCLUSION WHEREFORE the Ad Hoc Committee requests the Court deny the Debtors Motion and grant the Ad Hoc Committee of Preferred Shareholders such other and further relief as is just. Dated: New York, NY November 3, 2010 DEWEY & LEBOEUF LLP

/s/ Martin J. Bienenstock Martin J. Bienenstock, Esq. Irena M. Goldstein, Esq. Timothy Q. Karcher, Esq. 1301 Avenue of the Americas New York, New York 10019 Telephone: 212.259.8000 Facsimile: 212.259.6333 Attorneys for Ad Hoc Committee of Preferred Shareholders

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Exhibit A (September 20, 2010 Board Minutes)

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MEETING OF INDEPENDENT TRUSTEES OF THE BOARD OF TRUSTEES OF INNKEEPERS USA TRUST SEPTEMBER 20, 2010 A meeting of the independent trustees (the "Independent Trustees") of the Board of Trustees ("Board") of Innkeepers USA Trust (the "Company"), pursuant to proper notice duly given, was convened at 8:00 a.m. EST on Monday, September 20, 2010 at the offices of Kirkland & Ellis LLP ("K&E"), 601 Lexington Avenue, New York, New York, 10022. Present and attending throughout the meeting were Independent Trustees Frederick J. Kleisner, Lawrence J. Ruisi, and Bernard L. Zuroff. Also present by invitation were James H.M. Sprayregen, Anup Sathy, Paul Basta, and Jennifer Marines ofK&E; Brad Eric Scheler, Bonnie Steingart, and Matthew Roose of Fried Frank Harris Shriver & Jacobson LLP; William Derrough, Zul Jamal, and Steve Moore ofMoelis & Company, LLC ("Moelis"); Marc Beilinson, Chief Restructuring Officer of the Company, Timothy Walker, Chief Executive Officer of the Company, Nathan Cook, ChiefFinancial Officer of the Company, and Mark A. Murphy, General Counsel and Secretary of the Company. The meeting was called to order.

Redacted

Redacted

The Independent Trustees and the Company's management and advisors then discussed the recent meetings and communications with the Company's key stakeholders and parties in interest, including: Five Mile Capital Partners (a holder of certain of the fixed rate debt, an affiliate of one of the Company's debtor in possession financing lenders, and a potential plan of reorganization proponent) ("Five Mile"), Lehman (lender under the Company's floating rate mortgage loan and an affiliate of one of the Comp.any's debtor in possession financing lenders), Midland Loan Services, Inc. (special servicer for the Company's fixed rate mortgage loan) and the special servicers under each of the Company's mortgage and mezzanine loans, the ad hoc committee of the Company's Series C preferred shareholders (the "Preferred Shareholders Group"), and the official committee of unsecured creditors appointed in the chapter 11 cases. The concerns of each of the constituencies expressed during the meetings and the impact of the meetings on the Company's restructuring efforts were discussed.

Redacted

HIGHLY CONFIDENTIAL

INN -AHCPS00000048

Redacted

Redacted IMr. Scheler and the Independent Trustees then discussed the filing of a status report with the bankruptcy court regarding the actions taken by the Company since the September 1 hearing, including a report on the Company's meetings with its key stakeholders and parties in interest, as well as a discussion of the proposed restructuring process and other developments. Mr. Kleisner represented that he is chief executive officer and a director of Morgans Hotel Group and that Morgans Hotel Group does not intend to pursue or invest in the Company's assets.

Redacted

Mr. Scheler and the Independent Trustees then discussed the importance of the Independent Trustees continuing to work actively with the Company's management and advisors and that regular updates would be provided. The meeting was then adjourned.

~114-,~

General Counsel and Secretary

HIGHLY CONFIDENTIAL

INN-AHCPS00000049

Exhibit B (Ad Hoc Committee Letter to Independents)

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PLAINFIELD ASSET MANAGEMENT LLC

333 Ludlow Street Stamford, CT 06902

Tel 203 302-1 700 Fax 203 302-1779 www.pfam.com

October 20, 2010 Fred Kleisner Lawrence Ruisi Bernard Zuroff c/o Fried Frank One New York Plaza New York, NY 10004 Attn.: Brad Scheler, Esq. Bonnie Steingart, Esq. Re:

In re Innkeepers USA Trust, Chapter 11 Case No. 10-13800 (Jointly Administered) (SCC)

Dear Sirs: I am writing on behalf of funds managed by Plainfield Asset Management LLC, Esopus Creek Advisors LLC and Brencourt Advisors which constitute the Ad Hoc Committee of Preferred Shareholders (the "Committee") in the bankruptcy of Innkeepers USA Trust (the "Company"). Investment funds managed by the Committee own 1,286,381 shares of Series C Preferred Stock of the Company, representing 22% of the outstanding Series C. The members of the Committee would like to meet with you, preferably this week or next, to discuss the progress of the bankruptcy. The Committee understands that your preference is for us to communicate through the Company's professionals. Putting aside that we would always prefer to have a direct principalsto-principals conversation and are doing all we can to minimize (already exorbitant) professional costs, we feel strongly that the circumstances of this case compel a meeting between us. We of course all know that Judge Chapman found the Company's first effort at a plan of reorganization to be one in which the Debtors lacked due care and "have not shown that they acted in good faith." She sharply criticized the Company's conduct.

The Committee is not aiming to pile on your original plan which we sincerely hope is dead and buried; indeed our one and only aim is to participate in a negotiation with all the Company's constituents to reach a successful, consensual plan. Given the history of this case and the fact that we have the most to lose (namely everything) from any sort of deal that fails to allocate to preferred shareholders the values of the hotels not subject to blanket mortgages and the value of controlling fully encumbered properties subject to blanket mortgages, we're sure you can understand why we would like the opportunity to meet with the individuals who have a fiduciary duty to act in our interests. We do not know how you can do so if you do not find out from us what we consider an optimal reorganization. The Committee's goals for a meeting are quite straightforward. We have spent many hours analyzing the historical and forecasted performance of each of the Company's hotels, and we have had discussions with numerous strategic players who have expressed serious interest in making an investment in a reorganized Company. We would like to share the fruits of this work with you in the hope that you will understand where we see value justly flowing to the preferred stock and communicate our views as to feasible chapter 11 plans. Indeed, our understanding is that your original plan was not confirmable in the first place over Midland's rejecting votes and we want to discuss plans that are actually confirmable and provide value for preferred shareholders. The members of the Committee can't see why a couple hours sitting down together in an effort to develop realistic and optimal reorganization formats for preferred shareholders would not be a good use of time. Indeed, we have fiduciary duties to our investors which we believe are best carried out by meeting with you without lawyers in between us. It would be a settlement meeting with all persons agreeing not to use anything said for any purpose in any court. We are available to meet at your earliest convenience in the New York area. Please contact me at 203-302-1751 to coordinate. We thank you in advance for your consideration and look forward to meeting with you soon. Very truly yours,

Marc Sole Partner and Deputy Portfolio Manager

Exhibit C (Kirkland Letter to Ad Hoc Committee)

17
NY3 3068069.4

KIRKLAND &.. ELLIS LLP

AND AFFILIATE.D PARTNERSHIPS

601 Lexington Avenue New York, New York 10022 Paul M Basta To Call Writer Directly: (212) 446-4750 paul.basta@kirkland.com (212) 446-4800 www.kirkland.com Facsimile: (212) 446-4900

October 25,2010
VIA EMAIL CONFIDENTIAL

Martin J. Bienenstock Dewey & Lebeouf LLP 13 0 1 Avenue of the Americas New York, NY 10019-6092 Re: In re Innkeepers USA Trust, et al., No. 10-13800 (SCC) (the "Debtors")

Dear Mr. Bienenstock: We have reviewed a copy of the letter from Marc Sole, written on behalf of the Ad Hoc Committee of Preferred Shareholders (the "Preferred Shareholders Committee") that requests a meeting with the independent committee (the "Independent Committee") of the Board of Trustees of Innkeepers USA Trust ("Innkeepers") to discuss the progress of the Debtors' bankruptcy cases. As you are aware, the Debtors are focused on facilitating a plan process that will invite participation from all of their major stakeholders (and other parties who express interest) regarding potential restructuring alternatives with the goal of proposing and consummating a consensual plan that will achieve the highest and best enterprise value for the Debtors. To that end, the Board of Innkeepers has established Moelis & Company ("Moelis") as the primary point of contact for all restructuring related financial and business inquiries and Kirkland & Ellis LLP ("K&E") as the point of contact for all restructuring related legal inquiries. In addition, the Independent Committee will be responsible for performing a preliminary analysis on any indications of interest or proposals that are ultimately submitted to the Debtors.

Chicago

Hong Kong

London

Los Angeles

Munich

Palo Alto

San Francisco

Shanghai

Washington, D.C.

KIRKLAND &.. ELLIS LLP

Martin J. Bienenstock October 25, 2010 Page2

At this time, the Debtors believe that these communications should be with Moelis and K&E. As requested by the Independent Committee, Moelis and K&E will provide a report of the meeting to the Independent Committee and the Board, as appropriate. We recognize that the Preferred Shareholders Committee is an important stakeholder, and we have every expectation that a continuous and open dialogue will assist the Debtors' efforts to reorganize successfully. Moelis will be in contact shortly to coordinate a meeting. Of course, feel free to contact me as well. Sincerely,

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Paul M. Basta cc: Bonnie Steingart