10000005665

Non-Evidentiary Hearing Date: March 28, 2012 at 10:00 a.m.
(ET)
Reply Deadline: March 9, 2012 at 4:00 p.m. (ET)

Lenard M. Parkins (NY Bar No. 4579124)
John D. Penn (NY Bar No. 4847208)
Mark Elmore (admitted pro hac vice)
HAYNES AND BOONE, LLP
30 Rockefeller Plaza, 26
th
Floor
New York, New York 10112
Telephone: (212) 659-7300
Facsimile: (212) 918-8989

Attorneys for Five Mile Capital Real Estate Advisors LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

In re: ) Chapter 11
)
INNKEEPERS USA TRUST, et al., ) Case No. 10-13800 (SCC)
)
Debtors. ) Jointly Administered
)

DOCUMENT APPENDIX IN SUPPORT OF RESPONSE OF
FIVE MILE CAPITAL REAL ESTATE ADVISORS, LLC TO
THE DEBTORS OBJECTION TO GUARANTY CLAIM ASSERTED BY MIDLAND
LOAN SERVICES, INC. AGAINST GRAND PRIX HOLDINGS LLC

This Document Appendix regarding Five Mile Capital Real Estate Advisors LLCs
Response to the Debtors Objection to Guaranty Claim Asserted by Midland Loan Services, Inc.
Against Grand Prix Holdings LLC. is filed for the Courts convenience. The documents filed
with this Document Appendix do not include the attachments that were filed with respect to the
pleadings included herein. Additionally, the documents are referred to using their defined
term titles in the Response.

D-203936 Page 1 of 2
10-13800-scc Doc 2309 Filed 02/24/12 Entered 02/24/12 16:07:17 Main Document
Pg 1 of 2
DOCUMENT APPENDIX
1. Declaration of Scott Leitman
2. Declaration of Mark Elmore
3. Color Organizational Chart
4. Interim Cash Collateral Order
5. Final Cash Collateral Order
6. Bar Date Order
7. Omnibus Reply
8. Limited Disclosure Statement Objection
9. Motion in Limine
10. Pre-Trial Brief
Dated: February 24, 2012
New York, New York


/s/ John D. Penn
Lenard M. Parkins (NY Bar #4579124)
th
Floor
Telephone No.: (212) 659-7300
Facsimile No.: (212) 884-8211

- and

John D. Penn (NY Bar # 4847208)
Haynes and Boone, LLP
201 Main Street, Suite 2200
Fort Worth, Texas 76102
Telephone No.: (817) 347-6610
Facsimile No.: (817) 348-2300

Attorneys for Five Mile Capital
Real Estate Advisors LLC
F-2039326_1.DOC

D-203936 Page 2 of 2
Pg 2 of 2
EXHIBIT 1

10-13800-scc Doc 2309-1 Filed 02/24/12 Entered 02/24/12 16:07:17 Exhibit 1
Pg 1 of 20

Declaration of Five Mile re Authenticity of Guaranty(2036586_4).DOC 1
th
Floor
Telephone: (212) 659-7300
Facsimile: (212) 918-8989


)
In re: ) Chapter 11
)
)
)

DECLARATION OF SCOTT LEITMAN
I, Scott Leitman, declare as follows:
1. I am over eighteen (18) years of age, and I am mentally competent to make this
Declaration. I have personal knowledge of the matters stated in this Declaration, except where
this Declaration reflects that a statement is made upon information and belief. If called upon to
testify, I could competently testify to the matters stated in this Declaration.
2. I am a Managing Director with Five Mile Capital Partners LLC, which is the sole
member of Five Mile Capital Real Estate Advisors LLC (Five Mile).
3. Five Mile currently serves as the special servicer for that certain secured loan, in
the amount of not less than $675,000,000 (the New Fixed Rate Mortgage Loan) owed by
certain of the above-captioned Debtors as provided for under the Debtors Plans of
Reorganization to Chapter 11 of the Bankruptcy Code (with Modifications to the Fixed/Floating
Plan) dated October 19, 2011 (the Plan). In its capacity as special servicer, Five Mile is
Pg 2 of 20
2
asserting a claim against Grand Prix Holdings LLC arising under that certain that certain
guaranty executed as of June 29, 2007 by Grand Prix Holdings LLC for the benefit of Lehman
ALI Inc. (the Guaranty) with respect to that certain secured loan made to certain of the Debtors
pursuant to that certain loan agreement dated as of June 29, 2007 in the amount of not less than
$825,402,542.
4. I am a custodian of the records for Five Mile with respect to the New Fixed Rate
Mortgage Loan. The Guaranty is included in these records. These records are kept by Five Mile
in the regular course of business, and it was the regular course of business of Five Mile for an
employee or representative of Five Mile with knowledge of the act, event, condition, opinion, or
diagnosis recorded to make the record or to transmit information thereof to be included in such
record; and the record was made at or near the time or reasonably soon thereafter. The Guaranty
(attached hereto as Exhibit A) is an exact duplicate of the original.
5. The Guaranty is at issue in both the Midland Loan Services Motion For An Order
Determining Its Guaranty Claim Against Grand Prix Holdings LLC To Be Allowed In Full
1
and
the Debtors Objection to Guaranty Claim Asserted by Midland Loan Services, Inc. Against
Grand Prix Holdings LLC.
2

6. As stated in the Declaration of Mark J. Elmore filed contemporaneously herewith,
the Debtors have previously been provided with a copy of the Guaranty.

1
Docket No. 1482.
2
Docket No. 1867.
Pg 3 of 20
Pg 4 of 20
Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that the foregoing
statements are true and correct.
Dated: Februaryol'/ , 2012
New York, New York
By: Scott tm
Title: Managing Director with Five Mile Capital
Partners LLC, the sole member of Five Mile
Capital Real Estate Advisors LLC
3
Pg 5 of 20
(Fixed Portfolio)
GUARANTY
THIS GUARANTY (this "Guaranty") is executed as of this 29th day of June,
2007 by GRAND PRIX HOLDINGS LLC, a Delaware limited liability company, having an
address at c/o Apollo Investment Corporation, 9 West sih Street, New York, New York 10019
("Guarantor"), for the benefit of LEHMAN ALI INC., having an address at 399 Park Avenue,
New York, New York 10022 ("Lender").
WHEREAS, pursuant to that certain Loan Agreement, of even date herewith
between EACH OF THE PERSONS SET FORTH IN SCHEDULE I ATTACHED HERETO,
each a Delaware limited liability company (each individually and collectively, as the context
requires, "Borrower") and Lender (as the same may hereinafter be amended, modified, restated,
renewed or replaced the "Loan Agreement"), Lender made a Loan (as defined in the Loan
Agreement) to Borrower which Loan is evidenced by the Note (as defined in the Loan
Agreement), secured by, among other things, the Security Instruments (as defined in the Loan
Agreement);
WHEREAS, Lender is not willing to make the Loan, or otherwise extend credit,
to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of
the Guaranteed Obligations (as herein defined); and
WHEREAS, Guarantor is the owner of a direct or indirect interest in Borrower,
and Guarantor will directly benefit from Lender's making the Loan to Borrower.
NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower
and to extend such additional credit as Lender may from time to time agree to extend under the
Loan Documents, and for other good and valuable consideration, the receipt and legal
sufficiency ofwhich are hereby acknowledged, the parties do hereby agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
1.1 Guaranty of Obligation. Guarantor hereby irrevocably and
unconditionally guarantees to Lender and its successors and assigns the payment and
performance of the Guaranteed Obligations as and when the same shall be due and payable,
whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby
irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed
Obligations as a primary obligor.
13678904.3.BUSINESS
Exhibit "A"
Pg 6 of 20
1.2 Definition of Guaranteed Obligations. As used herein, the term
"Guaranteed Obligations" means the obligations or liabilities of Borrower to Lender for which
Borrower shall be liable pursuant to Section 9.4(b) and (c) of the Loan Agreement.
Notwithstanding anything to the contrary in any of the Loan Documents, (i)
Lender shall not be deemed to have waived any right which Lender may have under Section
506(a), 506(b ), 1111 (b) or any other provisions of the U.S. Bankruptcy Code to file a claim in
any bankruptcy proceeding of Borrower for the full amount of the Debt or to require that all
collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan
Documents.
1.3 Nature of Guarantv. This Guaranty is an irrevocable, absolute,
continuing guaranty of payment and performance and not a guaranty of collection. This
Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to
any Guaranteed Obligations arising or created after any attempted revocation by Guarantor and
after (if Guarantor is a natural person) Guarantor's death (in which event this Guaranty shall be
binding upon Guarantor's estate and Guarantor's legal representatives and heirs). The fact that
at any time or from time to time the Guaranteed Obligations may be increased or reduced shall
not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed
Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note
and shall not be discharged by the assignment or negotiation of all or part of the Note.
1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed
Obligations and the liabilities and obligations of Guarantor to Lender hereunder sh3.1l not be
reduced, discharged or released because or by reason of any existing or future offset, claim or
defense of Borrower or any other party against Lender or against payment of the Guaranteed
Obligations, whether such offset, claim or defense arises in connection with the Guaranteed
Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.
1.5 Payment By Guarantor. If all or any part of the Guaranteed Obligations
shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise,
Guarantor shall, within five (5) Business Days of demand by Lender and without presentment,
protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity,
notice of acceleration of the maturity or any other notice whatsoever, pay in lawful money of
the United States of America, the amount due on the Guaranteed Obligations to Lender at
Lender's address as set forth herein. Such demand(s) may be made at any time coincident with
or after the time for payment of all or part of the Guaranteed Obligations and may be made from
time to time with respect to the same or different items of Guaranteed Obligations. Such
demand shall be deemed made, given and received in accordance with the notice provisions
hereof.
1.6 No Duty To Pursue Others. It shall not be necessary for Lender (and
Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to
enforce the obligations of Guarantor hereunder, first to (i) institute suit or exhaust its remedies
against Borrower or others liable on the Loan or the Guaranteed Obligations or any other
person, (ii) enforce Lender's rights against any collateral which shall ever have been given to
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secure the Loan, (iii) enforce Lender's rights against any other guarantors of the Guaranteed
Obligations, (iv) join Borrower or any others liable on the Guaranteed Obligations in any action
seeking to enforce this Guaranty, (v) exhaust any remedies available to Lender against any
collateral which shall ever have been given to secure the Loan, or (vi) resort to any other means
of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate
damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.
1.7 Waivers. Guarantor agrees to the provisions of the Loan Documents and
hereby waives notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance
of this Guaranty, (iii) any amendment or extension of the Note, the Security Instrument, the
Loan Agreement or of any other Loan Documents, (iv) the execution and delivery by Borrower
and Lender of any other loan or credit agreement or of Borrower's execution and delivery of
any promissory notes or other documents arising under the Loan Documents or in connection
with the Property, (v) the occurrence of any breach by Borrower or an Event of Default, (vi)
Lender's transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or
foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the
Guaranteed Obligations, (viii) protest, proof of non-payment or default by Borrower, or (ix) any
other action at any time taken or omitted by Lender and, generally, all demands and notices of
every kind in connection with this Guaranty, the Loan Documents, any documents or
agreements evidencing, securing or relating to any of the Guaranteed Obligations and the
obligations hereby guaranteed.
1.8 Payment of Expenses. In the event that Guarantor should breach or fail
to timely perform any provisions of this Guaranty, Guarantor shall, within five (5) Business
Days of demand by Lender, pay Lender all costs and expenses (inciadi,ng court costs and
reasonable attorneys' fees) actually incurred by Lender in the enforcement hereof or the
preservation of Lender's rights hereunder. The covenant contained in this Section shall survive
the payment and performance of the Guaranteed Obligations until the expiration of any
applicable statute oflimitations.
1.9 Effect of Bankruptcy. In the event that pursuant to any insolvency,
bankruptcy, reorganization, receivership or other debtor relief law or any judgment, order or
decision thereunder, Lender must rescind or restore any payment or any part thereof received by
Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or
discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect
and this Guaranty shall remain in full force and effect. It is the intention of Borrower and
Guarantor that Guarantor's obligations hereunder shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such performance. In addition, if
at any time any payment of principal, interest or any other amount payable by Borrower under
any Loan Document, is rescinded or must be restored or returned upon the insolvency,
bankruptcy or reorganization of Borrower or otherwise, Guarantor's obligations hereunder with
respect to such payment shall be fully reinstated as though such payment has been due but not
made.
1.10 Waiver of Subrogation, Reimbursement and Contribution.
Notwithstanding anything to the contrary contained in this Guaranty, until the Debt is paid in
full, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and
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Pg 8 of 20
all tights it may now or hereafter have under any agreement, at law or in equity (including,
without limitation, any law subrogating Guarantor to the tights of Lender), to assert any claim
against or seek contribution, indemnification or any other form of reimbursement from
Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for
any payment made by Guarantor under or in connection with this Guaranty or otherwise.
1.11 Borrower. The term "Borrower" as used herein shall include any new or
successor corporation, association, partnership (general or limited), limited liability company
joint venture, trust or other individual or organization formed as a result of any merger,
reorganization, sale, transfer, devise, gift or bequest of or by Borrower, provided that nothing
herein shall be deemed to permit any such merger, reorganization, sale, transfer, assignment,
devise, gift or bequest of or by Borrower other than in accordance with the terms of the Loan
Agreement.
1.12 Termination. This Guaranty and the obligations of Guarantor hereunder
shall automatically terminate upon the payment in full of the Loan; provided, however, that the
Guarantor shall remain liable for any Guarantied Obligations to Lender, including, but not
limited to, the Environmental Indemnity, that by their terms survive payment in full of the Loan.
In addition, upon compliance with the applicable requirements in Section 5.2.10 of the Loan
Agreement, this Guaranty and the obligations of Guarantor hereunder shall terminate as more
fully set forth in the Loan Agreement.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following and agrees that
Guarantor's obligations under this Guaranty shall not be released, diminished, impaired, reduced
or adversely affected by any of the following and waives any common law, equitable, statutory
or other tights (including without limitation rights to notice) relating to Guarantor's obligations
hereunder which Guarantor might otherwise have as a result of or in connection with any of the
following:
2.1 Modifications. Any renewal, extension, increase, modification, alteration
or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Security
Instruments, the Loan Agreement, the other Loan Documents or any other document,
instrument, contract or understanding between Borrower and Lender or any other parties
pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any
such action.
2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise
that might be granted or given by Lender to Borrower or any Guarantor.
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Pg 9 of 20
2.3 Condition of Borrower or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of
Borrower, Guarantor or any other party at any time liable for the payment of all or part of the
Guaranteed Obligations; or any dissolution of Borrower or Guarantor or any sale, lease or
transfer of any or all of the assets of Borrower or Guarantor or any changes in the shareholders,
partners or members of Borrower or Guarantor; or any reorganization of Borrower or
Guarantor.
2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or
unenforceability of all or any part of the Guaranteed Obligations or any document or agreement
executed in connection with the Guaranteed Obligations for any reason whatsoever, including
without limitation the fact that (i) the Guaranteed Obligations or any part thereof exceeds the
amount permitted by law, (ii) the act of creating the Guaranteed Obligations or any part thereof
is ultra (iii) the officers or representatives executing the Note, the Security Instruments,
the Loan Agreement or the other Loan Documents or otherwise creating the Guaranteed
Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable
usury laws, (v) Borrower has valid defenses, claims or offsets (whether at law, in equity or by
agreement) which render the Guaranteed Obligations wholly or partially uncollectible from
Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the
execution, delivery and performance of any document or instrument representing part of the
Guaranteed Obligations or executed in connection with the Guaranteed Obligations or given to
secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable,
or (vii) the Note, the Security Instruments, the Loan Agreement or any of the other Loan
Documents have been forged or otherwise are irregular or not genuine or authentic, it being
agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other
person be found not liable on the Guaranteed Obligations or any part thereof for any reason.
2.5 Release of Obligors. Any full or partial release of the liability of
Borrower on the Guaranteed Obligations or any part thereof, or of any co-guarantors, or any
other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly
and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations,
or any part thereof (except for the express release in writing by Lender of any or all of
Guarantor's obligations under this Guaranty), it being recognized, acknowledged and agreed by
Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without
assistance or support of any other party, and Guarantor has not been induced to enter into this
Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties
will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other
parties to pay or perform the Guaranteed Obligations.
2.6 Other Collateral. The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed
Obligations.
2. 7 Release of Collateral. Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment (including, without limitation, negligent, willful,
unreasonable or unjustifiable impairment) of any collateral, property or security at any time
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existing in connection with, or assuring or secunng payment of, all or any part of the
Guaranteed Obligations.
2.8 Care and Diligence. Other than as a result of Lender's gross negligence,
fraud or willful misconduct, the failure of Lender or any other party to exercise diligence or
reasonable care in the preservation, protection, enforcement, sale or other handling or treatment
of all or any part of any collateral, property or security, including, but not limited to, any
neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the
collection of any of the Guaranteed Obligations or (ii) to foreclose, or initiate any action to
foreclose, or, once commenced, prosecute to completion any action to foreclose upon any
security therefor, or (iii) to take or prosecute any action in connection with any instrument or
agreement evidencing or securing all or any part of the Guaranteed Obligations.
2.9 Unenforceability. The fact that any collateral, security, security interest
or lien contemplated or intended to be given, created or granted as security for the repayment of
the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or
shall prove to be unenforceable or subordinate to any other security interest or lien, it being
recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance
on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of
any ofthe collateral for the Guaranteed Obligations.
2.10 Offset. The Note, the Guaranteed Obligations and the liabilities and
obligations of Guarantor to Lender h e r ~ u n d e r shall not be reduced, discharged or released
because of or by reason of any existing or future right of offset, claim or defense of Borrower
against Lender, or any other party, or against payment of the Guaranteed Obligations, whether
such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or
the transactions creating the Guaranteed Obligations) or otherwise.
2.11 Merger. The reorganization, merger or consolidation of Borrower into or
with any other Person.
2.12 Preference. Any payment by Borrower to Lender is held to constitute a
preference under bankruptcy laws or for any reason Lender is required to refund such payment
or pay such amount to Borrower or someone else.
2.13 Other Actions Taken or Omitted. Any other action taken or omitted to
be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and
collateral therefor, whether or not such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the
terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall
be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence,
cireumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated,
and whether or not otherwise or particularly described herein, which obligation shall be deemed
satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into the Loan Documents and extend credit to
Borrower, Guarantor represents and warrants to Lender as follows:
3.1 Benefit. Guarantor is an Affiliate of Borrower, is the owner of a direct or
indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from
the making of this Guaranty with respect to the Guaranteed Obligations.
3.2 Familiarity and Reliance. Guarantor is. familiar with, and has
independently reviewed books and records regarding, the financial condition of the Borrower
and is familiar with the value of any and all collateral intended to be created as security for the
payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such
financial condition or the collateral as an inducement to enter into this Guaranty.
3.3 No Representation By Lender. Neither Lender nor any other party has
made any representation, warranty or statement to Guarantor in order to induce Guarantor to
execute this Guaranty.
3.4 Guarantor's Financial Condition. As of the date hereof, and after
giving etiect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is and
will be solvent and has and will have assets which, fairly valued, exceed its obligations,
liabilities (including contingent liabilities) and debts, and has and will have property and assets
sufficient to satisfy and repay its obligations and liabilities.
3.5 Legality. The execution, delivery and performance by Guarantor of this
Guaranty and the consummation of the transactions contemplated hereunder do not and will not
contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is
subject or constitute a default (or an event which with notice or lapse of time or both would
constitute a default) under, or result in the breach of, any indenture, mortgage, charge, lien, or
any contract, agreement or other instrument to which Guarantor is a party or which may be
applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is
enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to the enforcement of creditors' rights.
3.6 Survival. All representations and warranties made by Guarantor herein
shall survive the execution hereof.
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ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
4.1 Subordination of All Guarantor Claims. As used herein, the term
"Guarantor Claims" shall mean all debts and liabilities of Borrower to Guarantor, whether
such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations
of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or
otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract,
open account, or otherwise, and irrespective of the person or persons in whose favor such debts
or liabilities may, at their inception, have been, or may hereafter be created, or the manner in
which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall
include, without limitation, all rights and claims of Guarantor against Borrower (arising as a
result of subrogation or otherwise) as a result of Guarantor's payment of all or a portion of the
Guaranteed Obligations. After the occurrence of an Event of Default or the occurrence of an
event which would, with the giving of notice or the passage of time, or both, constitute an Event
of Default, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any
other party any amount upon the Guarantor Claims.
4.2 Claims in Bankruptcv. In the event of receivership, bankruptcy,
reorganization, arrangement, debtor's relief, or other insolvency proceedings involving
Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as
to establish its rights hereunder and receive directly. from the receiver, trustee or other court
custodian dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for
application against the Guaranteed Obligations, any dividend or payment which is otherwise
payable to Guarantor and which, as between Borrower and Guarantor, shall constitute a credit
against the Guarantor Claims, then, upon payment to Lender in full of the Guaranteed
Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such
payments to Lender on the Guarantor Claims have contributed toward the liquidation of the
Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the
Guaranteed Obligations which would have been unpaid if Lender had not received dividends or
payments upon the Guarantor Claims.
4.3 Payments Held in Trust. In the event that, notwithstanding anything to
the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or
distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender
an amount equal to the amount of all funds, payments, claims or distributions so received, and
agrees that it shall have absolutely no dominion over the amount of such funds, payments,
claims or distributions so received except to pay them promptly to Lender, and Guarantor
covenants promptly to pay the same to Lender.
4.4 Liens Subordinate. Guarantor agrees that any liens, security interests,
judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the
Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests,
judgment liens, charges or other encumbrances upon Borrower's assets securing payment ofthe
Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or
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Pg 13 of 20
Lender presently exist or are hereafter created or attached. Without the prior written consent of
Lender, Guarantor shall not (i) exercise or enforce any creditor's right it may have against
Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or
proceedings (judicial or otherwise, including without limitation the commencement of, or
joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding)
to enforce any liens, mortgage, deeds of trust, security interests, collateral rights, judgments or
other encumbrances on assets of Borrower.
ARTICLEV
MISCELLANEOUS
5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of
Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise of any other right.
The rights of Lender hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to departure therefrom,
shall be effective unless in writing and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other instances without such
notice or demand.
5.Z Notices. Any notice, de!nand, statement, request or consent made
hereunder shall be made in accordance with Section 10.6 of the Loan Agreement. The
addresses of the Guarantor is as follows:
If to Guarantor:
with a copy to:
with a copy to:
Grand Prix Holdings LLC
c/o Apollo L'lvestment Corporation
9 West 57th Street
Attention: Aaron N. Sack
Facsimile No.: 212.513.3443
Apollo Investment Corporation
9 West sih Street
Attention: Justin M. Korval
Innkeepers USA
340 Royal Poinciana Way
Suite 306
Palm Beach, FL 33480
Attention: Dennis Craven & Mark Murphy
-9-
Pg 14 of 20
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
Attention: Neil L. Rock, Esq.
5.3 Governing Law. (a) THIS GUARANTY WAS NEGOTIATED IN THE
STATE OF NEW YORK, AND MADE BY GUARANTOR AND ACCEPTED BY
INDEMNITEE IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE
NOTE SECURED HEREBY WERE DISBURSED FROM THE STATE OF NEW YORK,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO
THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY,
AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS GUARANTY AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES
OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, GUARANTOR
AND LENDER EACH HEREBY UNCONDITIONALLY AND IRREVOCABLY
W AlVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER
JURISDICTION GOVERNS THIS GUARANTY AND THE NOTE, AND THIS
GUARANTY AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST
LENDER OR GUARANTOR ARISING OUT OF OR RELATING TO THIS
GUARANTY MAY AT LENDER'S OPTION BE INSTITUTED IN ANY FEDERAL OR
STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK,
PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS
LAW, AND GUARANTOR AND LENDER EACH W AlVES ANY OBJECTIONS
WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR
FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND
GUARANTOR AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.
GUARANTOR DOES HEREBY DESIGNATE AND APPOINT:
CT Corporation
111 Eighth A venue
AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW
-10-
Pg 15 of 20
YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID
AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED
OR DELIVERED TO GUARANTOR IN THE MANNER PROVIDED HEREIN SHALL
BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON
GUARANTOR IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF
NEW YORK. GUARANTOR (I) SHALL GIVE PROMPT NOTICE TO LENDER OF
ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY
AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE
AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH
SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON
AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY
DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO
HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT
LEAVING A SUCCESSOR.
5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term of this
Guaranty, such provision shall be fully severable and this Guaranty shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this
Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or by its severance
from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would he
cm'itrary to the basic understandings and intentions of the parti<$ as expressed herein.
5.5 Amendments. This Guaranty may be amended 0nly by an instrument in
writing executed by the party or an authorized representative of the party against whom such
amendment is sought to be enforced.
5.6 Parties Bound; Assignment; Joint and Several. This Guaranty shall be
binding upon and inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not, without the prior
written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If
Guarantor consists of more than one person or party, the obligations and liabilities of each such
person or party shall be joint and several.
5.7 Headings. Section headings are for convenience of reference only and
shall in no way affect the interpretation of this Guaranty.
5.8 Recitals. The recital and introductory paragraphs hereof are a part hereof,
form a basis for this Guaranty and shall be considered prima facie evidence of the facts and
documents referred to therein.
5.9 Counterparts. To facilitate execution, this Guaranty may be executed in
as many counterparts as may be convenient or required. It shall not be necessary that the
signature of, or on behalf of, each party, or that the signature of all persons required to bind any
party, appear on each counterpart. All counterparts shall collectively constitute a single
instrument It shall not be necessary in making proof ofthis Guaranty to produce or account for
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Pg 16 of 20
more than a single counterpart containing the respective signatures of, or on behalf of, each of
the parties hereto. Any signature page to any counterpart may be detached from such
counterpart without impairing the legal effect of the signatures thereon and thereafter attached
to another counterpart identical thereto except having attached to it additional signature pages.
5.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness
owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty,
such liability shall not be in any manner impaired or affected hereby and the rights of Lender
hereunder shall be cumulative of any and all other rights that Lender may ever have against
Guarantor. The exercise by Lender of any right or remedy hereunder or under any other
instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of
any other right or remedy.
5.11 Other Defined Terms. Any capitalized term utilized herein shall have
the meaning as specified in the Loan Agreement, unless such term is otherwise specifically
defined herein.
5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE
AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO
GUARANTOR'S GUARANTY OF THE GUARANTEED OBLIGATIONS AND
SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS
INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE
EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE. OF
DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE
USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN
GUARANTOR AND LENDER.
5.13 Waiver of Right To Trial By Jury. GUARANTOR AND BY ITS
ACCEPTANCE HEREOF, LENDER, EACH HEREBY AGREES NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND W AlVES
ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH
RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS
GUARANTY OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN
CONNECTION HEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND BY ITS
ACCEPTANCE HEREOF, LENDER, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT
TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND
GUARANTOR ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS
WAIVER BY THE OrnER.
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Pg 17 of 20
5.14 Reinstatement in Certain Circumstances. If at any time any payment of
the principal of or interest under the Note or any other amount payable by the Borrower under
the Loan Documents is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization ofthe Borrower or otherwise, Guarantor's obligations
hereunder with respect to such payment shall be reinstated as though such payment has been
due but not made at such time.
[NO FURTHER TEXT ON THIS PAGE]
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Pg 18 of 20
This Guaranty is EXECUTED as of the day and year first above written.
GUARANTOR:
GRAND PRIX HOLDINGS LLC, a elaware limited
liability company
By:
[Signature Page to the Fixed Portfolio Guaranty]
Pg 19 of 20
SCHEDULE I
BORROWER
Grand Prix Belmont LLC
Grand Prix Campbell/San Jose LLC
Grand Prix El Segundo LLC
Grand Prix Fremont LLC
Grand Prix Mountain View LLC
Grand Prix San Jose LLC
Grand Prix San Mateo LLC
Grand Prix Sili I LLC
Grand Prix Sili II LLC
Grand Prix Denver LLC
Grand Prix Englewood/Denver South LLC
Grand Prix Shelton LLC
Grand Prix Windsor LLC
Grand Prix Altamonte LLC
Grand Prix Ft. Lauderdale LLC
Grand Prix Naples LLC
Grand Prix Atlanta LLC
Grand Prix Atlanta (Peachtree Comers) LLC
Grand Prix Lombard LLC
Grand Prix Chicago LLC
Grand Prix Schaumburg LLC
Grand Prix Westchester LLC
Grand Prix Lexington LLC
Grand Prix Louisville (RI) LLC
Grand Prix Columbia LLC
Grand Prix Gaithersburg LLC
Grand Prix Germantown LLC
Grand Prix Portland LLC
Grand Prix Livonia LLC
Grand Prix Cherry Hill LLC
Grand Prix Mt. Laurel LLC
Grand Prix Saddle River LLC
Grand Prix Islandia LLC
Grand Prix Binghamton LLC
Grand Prix Horsham LLC
Grand Prix Willow Grove LLC
Grand Prix Addison (RI) LLC
Grand Prix Arlington LLC
Grand Prix Las Colinas LLC
Grand Prix Richmond LLC
Grand Prix Richmond (Northwest) LLC
S-1
Pg 20 of 20
Grand Prix Bellevue LLC
Grand Prix Bothell LLC
Grand Prix Lynnwood LLC
Grand Prix Tukwila LLC
13678904.3. BUSINESSS-2
EXHIBIT 2

Pg 1 of 20
Pg 2 of 20
30 Rockefeller Plaza, 26th Floor
Telephone: (212) 659-7300
Facsimile: (212) 918-8989
In re:
INNKEEPERS USA TRUST, et al.,
Debtors.
)
) Chapter 11
)
) Case No. 10-13800 (SCC)
)
) Joint Administration Requested
_________________________________ )
DECLARATION OF MARK J. ELMORE
Mark J. Elmore declares the following under penalty of perjury:
1. I am over eighteen (18) years of age, and I am mentally competent to make this
Declaration. I have personal knowledge of the matters stated in this Declaration, except where
this Declaration reflects that a statement is made upon information and belief. If called upon to
testify, I could competently testify to the matters stated in this Declaration.
2. I am counsel with the law firm of Haynes and Boone, LLP ("Haynes and
Boone"). I am admitted to practice law in the state of Texas as well as in the United States
District Courts for the Southern, Eastern, Western, and Northern Districts of Texas and the
United States Court of Appeals for the Fifth Circuit. I have also been admitted pro hac vice to
practice before this Court in the above-captioned cases (the "Cases").
3. Haynes and Boone was counsel for Midland Loan Services, Inc. in the Cases.
The document attached hereto as Exhibit A is a true and correct copy of that certain guaranty
Declaration of Elmore re Authenticity of Guaranty(2036567 _ 2) (4).DOC Page
Pg 3 of 20
dated June 29, 2007 between Grand Prix Holdings LLC and Lehman ALI Inc. (the "Guaranty")
as it was produced to the above-captioned debtors by Midland Loan Services, Inc. on August 17,
2010 with bates numbers MLS-00013452 through MLS-00013467.
4. Upon information and belief, the Guaranty is a true and correct copy of the
guaranty that is at issue in both the Midland Loan Services' Motion For An Order Determining
Its Guaranty Claim Against Grand Prix Holdings LLC To Be Allowed In Full
1
and the Debtors'
Objection to Guaranty Claim Asserted by Midland Loan Services, Inc. Against Grand Prix
Holdings LLC.
2
Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that the foregoing
statements are true and correct.
Dated: February 21, 2012
Dallas, Texas
1
Docket No. 1482.
2
Docket No. 1867.
By: dJ2U2
I - Name: Mark J. Elmore, Esq.
Title: Counsel
Declaration of Elmore re Authenticity of Guaranty(203 6567 _2) ( 4 ).DOC Page

Exhibit A
Pg 4 of 20
.
Pg 5 of 20
(Fixed Portfolio)
GUAJMNTY
THIS GUARANTY (this "Guarantv") is executed as of this 29th day of June,
2007 by GRI\.._"ND PB..IX HOLDINGS LLC, a Delaware limited liability company, having an
address at c/o Apollo Investment Corporation, 9 West 57th Street, New York, New York 10019
("Guarantor''), for the benefit of LEHMAN ALI INC., having an address at 399 Park Avenue,
New York, New York 10022 ("Lender").
WHEREAS, pursuant to that certain Loan Agreement, of even date herewith
between. EACH OF THE PERSONS SRT FORTH IN SCHEDULE J ATTACHED HERETO,
each .a Delaware limited liability company (each individually a.lJ.d collectively, as the context
requires, "Borrower") and Lender (as the same may hereinafter be amended, modified, restated,
renewed or replaced the "Loan Agreement"), Lender made a Loan (as defined in the Loan
Agreement) to Borrower which Loan is evidenced by the Note (as defined in the Loan
Agreement), secured by, among other things, the Security Instruments (as defmed in the Loan
Agreement);
VlHEREAS, Lender is not willing to make the Loan, or otherwise extend credit,
to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of
the Guaranteed Obligations (as herein defined); and
WHEREAS, Guarantor is the owner of a direct or indirect interest in Borrower,
and Guarantor will directly benefit from Lender's making the Loan to Borrower.
NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower
and to extend such additional credit as Lender may from time to time agree to extend !lllder the
Loan Documents, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
1.1 Guaranty of Obligation. Guarantor hereby irrevocably and
unconditionally guarantees to Lender and its successors and assigns the payment and
performance of the Guaranteed Obligations as and when the same shall be due and payable,
whether by lap.se of time, by acceleration of maturity or otherwise,
irrevocably and !lllconditionally covenants and agrees that it is liable
Obligations as a primary obligor.
!3678904.3.BUSINESS
Confidential
Guarantor hereby
for the C1uaranteed
M LS-000 13452
.
Pg 6 of 20
1.2 Definition of Guaranteed Obligations. As used herein, the term
"Guaranteed Obligations" means the obligations or liabilities of Borrower to Lender for which
Borrower shall be liable pursuant to Section 9 .4(b) and (c) of the Loan Agreement.
l'Jot'.vithstanding anyt..hing to the contra..ry in any of the Loan Docu.T..ents, (i)
Lender shall not be deemed to have waived any right which Lender may have under Section
506(a), 506(b), llll(b) or any other provisions of the U.S. Bankruptcy Code to file a claim in
any bankruptcy proceeding of Borrower for the full amount of the Debt or to require that all
collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan
Documents.
1.3 Nature of Guarantv. This Guaranty is an irrevocable, absolute,
continuing guaranty of payment and performance and not a guaranty of collection. This
Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to
a11y Guaranteed Obligations arising or created after any attempted revocation by Guarantor and
after (if Guarantor is a nat1rral person) Guara..11tor' s death (in \v:P..ich event this Guaranty be
binding upon Guarantor's estate and Guarantor's legal representatives and heirs). The fact that
at any time or from time to time the Guaranteed Obligations may be increased or reduced shall
not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed
Obligations. This Guaranty may be enforced by Lender and any subsequent holder ofthe Note
and shall not be discharged by the assignment or negotiation of all or pmt of the Note.
1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed
Obligations and the liabilities and obligations of Guarantor to Lender hereunder shall not be
reduced, discharged or released because or by reason of any existing or future offset, claim or
defense of Borrower or a..ny other party against Lender or .agai11st payment of the Guaranteed
Obligations, \Vhether such offset, claim or defense a..-rises in coru1ection \Vith t."lJ.e Guaranteed
Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.
1.5 Payment By Guarantor. If all or any part of the Guaranteed Obligations
shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise,
Guarantor shaH, within five (5) Business Days of demand by Lender and without presentment,
protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity,"
notice of acceleration of the maturity or any other notice whatsoever, pay in lawful money of
the United States of America, the mnount due on the Guaranteed Obligations to Lender at
Lender's address as set forth herein. Such demand(s) may be made at any time coincident with
or after the time for paymrnt of all or part of the Obligations and may be made from
time to time respect to the sarne or different items of Guaranteed Obligations. Such
demand shall be deemed made, given and received in accordance with the notice provisions
hereof.
1.6 No Duty To Pursue Others. It shall not be necessary for Lender (and
Guarantor hereby waives any rights which uuarantor may have to require Lender), in order to
enforce the obligations of Guarantor hereunder, first to (i) institute suit or exhaust its remedies
against Borrower or others liable on the Loan or the Guaranteed Obligations or any other
person, (ii) enforce Lender's rights against any collateral which shall ever have been given to
-2-
Confidential M LS-000 13453
.
Pg 7 of 20
secure the Loan, (iii) enforce Lender's rights against any other guarantors of the Guaranteed
Obligations, (iv) join Borrower or any others liable on the Guaranteed Obligations in any action
seeking to enforce this Guaranty, (v) exhaust any remedies available to Lender against any
collateral which shall ever have been given to secure the Loan, or (vi) resort to any other means
of obtaining paytuent of the Guaranteed Obligations. Lender shall not be required to mitigate
damages or take any other action to reduce, coliect or enforce the Guaranteed Obligations.
1.7 Waivers. Guarantor agrees to the provisions of the Loan Documents and
hereby waives notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance
of this Guaranty, (iii) any amendment or extension of the Note, the Security Instrument, the
Loan Agreement or of any other Loan Documents, (iv) the execution and delivery by Borrower
and Lender of any other loan or credit agreement or of Borrower's execution and delivery of
any promissory notes or other documents arising under the Loan Documents or in connection
with the Property, (v) the occurrence of any breach by Borrower or an Event of Default, (vi)
Lender's transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or
foreclosure (or posting or advertiiuJ.g for sale or foreclosure) of any collateral for the
Guaranteed Obligations, (viii) protest, proof of non-payment or default by Borrower, or (ix) any
other action at any time taken or omitted by Lender and, generally, all demands and notices of
every kind in connection with this Guaranty, the Loan Documents, any documents or
agreements evidencing, securing or relating to any of the Guaranteed Obligations and the
obligations hereby guaranteed.
1.8 Pavment of Exuenses. In the event that Guarantor should breach or fail
to timely perform any provisions of this Guaranty, Guarantor shall, within five (5) Business
Days of demand by Lender, pay Lender all costs and expenses (including court costs and
reasonable attorneys' fees) actually incurred by Lender in the enforcement hereof or the
preservation of Lender's rights hereunder. The-covena.LJ.t contained in this Section shall survive
ihe payment and performance
applicable statute oflimitations.
of the Guaranteed Obligations until the expirdhon of any
1.9 Effect of Bankruptcy. In the event that pursuant to any insolvency,
bankruptcy, reorganization, receivership or other debtor relief law or any judgment, order or
decision thereunder, Lender must rescind or restore any payment or any part thereof received by
Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or
discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect
and this Guaranty shall remain in full force and effect. It is the intention of Borrower and
Guarantor that Guarantor's obligations hereunder shall not be discharged except by Guarantor's
performruice of such obligations and then only to the extent of such performance. In addition, if
at any tirne any payment of pnncipal, interest or any other amount payable by Borrower under
any Loan Document, is rescinded or must be restored or returned upon the insolvency,
bankruptcy or reorganization of Borrower or otherwise, Guarantor's obligations hereunder with
respect to such payment shall be fully reinstated as though such payment has been due but not
made.
1.10 Waiver of Subrogation, Reimbursement and Contribution.
Notwithstanding anything to the contrary contained in this Guaranty, until the Debt is paid in
full, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and
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.
Pg 8 of 20
all rights it may now or hereafter have under any agreement, at law or in equity (including,
without limitation, any law subrogating Guarantor to the rights of Lender), to assert any claim
against or seek contribution, indemnification or any other form of reimbursement from
Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for
an.y payment made by Guarantor under or in connection \-Vith tl'js Guara..'"lty or othenvise.
1.11 Borrower. The term "Borrower" as used herein shall include any new or
successor corporation, association, partnership (general or limited), limited liability company
joint venture, trust or other individual or organization formed as a result of any merger,
reorganization, sale, transfer, devise, gift or bequest of or by Borrower, provided that nothing
herein shall be deemed to permit any such merger, reorganization, sale, transfer, assignment,
devise, gift or bequest of or by Borrower other than in accordance with the terms of the Loan
Agreement.
1.12 Termination. This Guaranty and the obligations of Guarantor hereunder
shall automatically teuuinate upon the payment in fl!ll of th.e Loa..11; provided, however, that the
Guarantor &"'J.all remai.9J. liable for a..'l}y Guarantied Obligations to Lender, including, but not
limited to, the Environmental Indemnity, that by their terms survive payment in full of the Loan.
In addition, upon compliance with the applicable requirements in Section 5.2.10 of the Loan
Agreement, this Guaranty and the obligations of Guarantor hereunder shall terminate as more
fully set forth in the Loan Agreement.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following and agrees that
Guarantor's obligations under this Guaranty shall not be released, diminished, impaired, reduced
or adversely affected by any of the following and waives any common law, equitable, statutory
or other rights (including without limitation rights to notice) relating to Guarantor's obligations
hereunder which Guarantor might otherwise have as a result of or in connection with any of the
following:
2.1 Modifications. Any renewal, extension, increase, modification, alteration
or rea.-rrangement of all or any pa..rt of llJ.e Guaranteed Obligations, the Note, t..lJ.e Secu...rity
Instru..-nents, the L o ~ ~ Agreement, th.e other Loan Docu..""n.ents or any other docu..'*Ilent,
instrument, contract or understanding between Borrower and Lender or any other parties
pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any
such action.
2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise
that might be granted or given by Lender to Borrower or any Guarantor.
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.
Pg 9 of 20
2.3 Condition of Borrower or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of
Borrower, Guarantor or any other party at any time liable for the payment of all or part of the
Guaranteed Obligations; or any dissolution of Borrower or Guarantor or any sale, lease or
transfer of any or all of the assets of Borrower or Guarantor or any changes in the
partners or members of Borrower or Guarantor; or any reorganization of Borrower or
Guarantor.
2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or
unenforceability of all or any part of the Guaranteed Obligations or any document or agreement
executed in connection with the Guaranteed Obligations for any reason whatsoever, including
without limitation the fact that (i) the Guaranteed Obligations or any part thereof exceeds the
amount permitted by law, (ii) the act of creating the Guaranteed Obligations or any part thereof
is ultra vires, (iii) the officers or representatives executing the Note, the Security Instruments,
the Loan Agreement or the other Loan Documents or otherwise creating the Guaranteed
Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable
usury laws, (v) Borrower has valid defenses, claims or offsets (whether at law, in equity or by
agreement) which render the Guaranteed Obligations wholly or partially uncollectible from
Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the
execution, delivery and performance of any document or instrument representing part of the
Guaranteed Obligations or executed in connection with the Guaranteed Obligations or given to
secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable,
or (vii) the Note, the Security Instruments, the Loan Agreement or any of the other Loan
Documents have been forged or otherwise are irregular or not genuine or authentic, it being
agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other
person be found not liable on the Guaranteed Obligations or any part thereof for any reason.
Ketease oi Obiigors. Any fuii or partial release of the liability of
Borrower on the Guaranteed Obligations or any part thereof, or of any co-guarantors, or any
other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly
and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations,
or any part thereof (except for the express release in writing by Lender of any or all of
Guarantor's obligations under this Guaranty), it being recognized, acknowledged and agreed by
Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without
assistance or support of any other party, and Guarantor has not been induced to enter into this
Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties
will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other
parties to pay or perform the Guaranteed Obligations.
2.6 Other Collateral. The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed
Obligations.
2. 7 Release of Collateral. Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment (including, without limitation, negligent, willful,
unreasonable or unjustifiable impairment) of any collateral, property or security at any time
-5-
.
Pg 10 of 20
extstmg in connection with, or assunng or secunng payment of, all or any part of the
Guaranteed Obligations.
2.8 Care and Diligence. Other than as a result of Lender's gross negligence,
fraud or \Villfill n1isconduct, the failure of Lender or any other pa..rty to exercise diligence or
reasonable care in the preservation, protection,. enforcement, sale or other handling or treatment
of all or any part of any collateral, property or security, including, but not limited to, any
neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the
collection of any of the Guaranteed Obligations or (ii) to foreclose, or initiate any action to
foreclose, or, once commenced, prosecute to completion any action to foreclose upon any
security therefor, or (iii) to take or prosecute any action in connection with any instrument or
agreement evidencing or securing all or any part of the Guaranteed Obligations.
2.9 Unenforceability. The fact that any collateral, security, security interest
or lien contemplated or intended to be given, created or granted as security for the repayment of
the Guaranteed Obligations, or any pa..rt thereof, s!1al! not be properly perfected or created, or
shall prove to be unenforceable or subordinate to a.LJ.Y other security interest or lien, it being
recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance
on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of
any of the collateral for the Guaranteed Obligations.
2.10 Offset. The Note, the Guaranteed Obligations and the liabilities and
obligations of Guarantor to Lender hereunder shall not be reduced, discharged or released
because of or by reason of any existing or future right of offset, claim or defense of Borrower
against Lender, or any other party, or against payment of the Guaranteed Obligations, whether
such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or
the transactions creating the Guaranteed Obligations) or othenvise.
2.11 Merger. The reorganization, merger or consolidation of Borrower into or
with any other Person.
2.12 Preference. Any payment by Borrower to Lender is held to constitute a
preference under bankruptcy laws or for any reason Lender is required to refund such payment
or pay such amount to Borrower or someone else.
2.13 Other Actions Taken or Omitted. Any other action taken or omitted to
be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and
collateral therefor, whether or not such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the
terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall
be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated,
and whether or not otherwise or particularly described herein, which obligation shall be deemed
satisfied oniy upon the full and final payment and satisfaction of the Guaranteed Obligations.
-6-
.
Pg 11 of 20
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into t..lJ.e Loan Docu..-rnents a.11d extend credit to
Borrower, Guarantor represents and warrants to Lender as follows:
3.1 Benefit. Guarantor is an Affiliate of Borrower, is the owner of a direct or
indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from
the making of this Guaranty with respect to the Guaranteed Obligations.
3.2 Familiarity and Reliance. Guarantor is familiar with, and has
independently reviewed books and records regarding, the financial condition of the Borrower
and is familiar with the value of any and all collateral intended to be created as security for the
payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such
financial condition or the collateral as an inducement to enter into this Guaranty.
3.3 No Representation By Lender. Neither Lender nor any other party has
made any representation, warranty or statement to Guarantor in order to induce Guarantor to
execute frJs G11aranty.
3.4 Guarantor's Financial Condition. As of the date hereof, and after
giving etiect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is and
will be solvent and has and will have assets which, fairly valued, exceed its obligations,
liabilities (including contingent liabilities) and debts, and has and will have property and assets
sufficient to satisfy and repay its obligations and liabilities.
3.5 Legality. The execution, delivery and performance by Guarantor of this
Guaranty and the consummation of the transactions contemplated hereunder do not and will not
contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is
subject or constitute a default (or a.11 event wPich with. notice or lapse of time or botlJ. \ould
constitute a default) u..11.der, or result in t . ~ e breach of, any indenture, mortgage, charge, lien, or
any contract, agreement or other instrument to which Guarantor is a party or which may be
applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is
enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to the enforcement of creditors' rights.
3.6 Survival. All representations and warranties made by Guarantor herein
shall survive the execution hereof.
-7-
.
Pg 12 of 20
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
4.1 Subordination of All Guarantor Claims. P . : ~ . s used herein, the term
"Guarantor Claims" shall mean all debts and liabilities of Borrower to Guarantor, whether
such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations
of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or
otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract,
open account, or otherwise, and irrespective of the person or persons in whose favor such debts
or liabilities may, at their inception, have been, or may hereafter be created, or the manner in
which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall
include, without limitation, all rights and claims of Guarantor against Borrower (arising as a
result of subrogation or otherwise) as a result of Guarantor's payment of all or a portion of the
Guaranteed Obligations. After the occurrence of an Event of Default or the occurrence of an
event which would, with the giving of notice or the passage of tin1e, or both, constitute an Event
of Default, Guarantor shaH not receive or coiiect, direciiy or indireciiy, from Borrower or any
other party any amount upon the Guarantor Claims.
4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
reorganization, arrangement, debtor's relief, or other insolvency proceedings involving
Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as
to establish its rights hereunder and receive directly from the receiver, trustee or other court
custodian dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for
application against the Guaranteed Obligations, any dividend or payment which is otherwise
payable to Guarantor and whi_ch, as bet-ween Bonower and Guarantor, shall constitute a G-redit
against the Guarantor Claims, then, upon payment to Lender in fuii of the Guaranteed
Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such
payments to Lender on the Guarantor Claims have contributed toward the liquidation of the
Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the
Guaranteed Obligations which would have been unpaid if Lender had not received dividends or
payments upon the Guarantor Claims.
4.3 Payments Held in Trust. In the event that, notwithstanding anything to
the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or
distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender
ali wuount equal to the amount of all ftl11ds, pay111ents, claiuts or distributions so received, and
agrees that it shall have absolutely no dominion over the amount of such funds, payments,
claims or distributions so received except to pay them promptly to Lender, and Guarantor
covenants promptly to pay the same to Lender.
4.4 Liens Subordinate. Guarantor agrees that any liens, security interests,
Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests,
Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or
-8-
.
Pg 13 of 20
Lender presently exist or are hereafter created or attached. Without the prior written consent of
Lender, Guarantor shall not (i) exercise or enforce any creditor's right it may have against
Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or
proceedings Gudicial or otherwise, including without limitation the commencement of, or
joinder in, any liquidation, bank ..n1ptcy, reatTangeruent, debtor's relief or insolvency proceeding)
to enforce any liens, mortgage, deeds of trust, security interests, coliateral rights, judgments or
other encumbrances on assets of Borrower.
ARTICLEV
1\ITSCELLAL .... .JEOUS
5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of
Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise of any other right.
The rights of Lender hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to departure therefrom,
shall be effective unless in writing and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other instances without such
notice or d e m a . . ~ d .
5.Z Notices. Any notice, dt:anand, statement, request or consent made
hereunder shall be made in accordance with Section 10.6 of the Loan Agreement. The
addresses of the Guarantor is as follows:
If to Guarantor:
withacopyto:
with a copy to:
Confidential
Grand Prix Holdings LLC
c/o Apollo Investment Corporation
9 West 57th Street
Attention: Aaron N. Sack
Apollo Investment Corporation
9 West 57th Street
NewYork,NewYork 10019
Attention: Justin M. Korval
Innkeepers USA
340 Royal Poinciana Way
Suite 306
Pah"TT Beach, FL 33480
Attention: DenrJs Craven & tvfark tvfwphy
-9-
M LS-000 13460
.
Pg 14 of 20
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
Attention: NeilL. Rock, Esq.
Facsinlile }Jo.: 917.777.3787
5.3 Governing Law. (a) THIS GUARANTY WAS NEGOTIATED IN THE
STATE OF NEW YORK, AND MADE BY GUARANTOR AND ACCEPTED BY
INDEMNITEE IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE
NOTE SECURED HEREBY WERE DISBURSED FROM THE STATE OF NEW YORK,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO
THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY,
AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND
THIS THE OBLIGATIONS APJSING
SHALL BE BY, CONSTRUED IN
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES
OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, GUARANTOR
AND LENDER EACH HEREBY UNCONDITIONALLY AND IRREVOCABLY
W AlVES ANY CLAIM TO ASSERT THAT THE LAW OF. ANY OTHER
JURISDICTION GOVERNS THIS GUARANTY AND THE NO'l'E, AND THIS
GUARANTY AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK TO
SECTION 5-1401 OF THE NEW YORK OBLIGATIOr_,s LA "'r
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST
LENDER OR GUARANTOR ARISING OUT OF OR RELATING TO THIS
GUARANTY MAY AT LENDER'S OPTION BE INSTITUTED IN ANY FEDERAL OR
STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK,
PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS
LAW, AND GUARANTOR AND LENDER EACH WAIVES ANY OBJECTIONS
WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR
FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND
GUARANTOR AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE
JlJRISDICTIOr-i OF A1\!""i SUCH COURT IN A.J.""n.i SlJIT, ACTION OR PROCEEDING.
GUARAl'iTOR DOES HEREBY DESIGNATE Al'iD APPOINT:
CT Corporation
Ill Eighth Avenue
AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW
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Confidential MLS-00013461
.
Pg 15 of 20
YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID
AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED
OR DELIVERED TO GUARANTOR IN THE MANNER PROVIDED HEREIN SHALL
BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON
GUARAil\iTOR ll'i At'"'i SUCH SIJIT, ACTION OR IN THE STATE OF
NEW YORK. (i) SHALL GiVE PROMPT NOTICE TO LENDER OF
ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY
AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE
AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH
SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON
AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY
DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO
HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT
LEAVING A SUCCESSOR.
5.4 Invalid Provisions. If any provision of tftis Guaranty is held to be illegal,
invano, or unenforceable under present or future laws effective during the term of this
Guaranty, such provision shall be fully severable and this Guaranty shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this
Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or by its severance
from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would he
colitrary to the basic understandings and intentions of the parties as expressed herein.
5.5 Amendments. This Guaranty may be amended rmly by an instrument in
writing executed by the party or an authorized representative of the party against whom such
runendinent is sought to be enforced.
5.6 Parties Bound; Assignment; Joint and Several. This Guaranty shall be
binding upon and inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not, without the prior
written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If
Guarantor consists of more than one person or party, the obligations and liabilities of each such
person or party shall be joint and several.
5. 7 Headings. Section headings are for convenience of reference only and
shall in no way affect the interpretation of this Guaranty.
5.8 Recitals. The recital and introductory paragraphs hereof are a pa..rt hereof,
form a basis for this Guaranty and shall be considered prima facie evidence of the facts and
documents referred to therein.
5.9 Counterparts. To facilitate execution, this Guaranty may be executed in
as many counterparts as may be convenient or required. It shaH not be necessary that the
signature of, or on behalf of, each party, or that the signature of all persons required to bind any
party, appear on each counterpart. All counterparts shall collectively constitute a single
instrument. It shall not be necessary in making proof of this Guaranty to produce or account for
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.
Pg 16 of 20
more than a single counterpart containing the respective signatures of, or on behalf ot; each of
the parties hereto. Any signature page to any counterpart may be detached from such
counterpart without impairing the legal effect of the signatures thereon and thereafter attached
to another counterpart identical thereto except having attached to it additional signature pages.
5.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness
owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty,
such liability shall not be in any manner impaired or affected hereby and the rights of Lender
hereunder shall be cumulative of any and all other rights that Lender may ever have against
Guarantor. The exercise by Lender of any right or remedy hereunder or under any other
instrument. or at law or in equity. shall not preclude the concurrent or subsequent exercise of
any other right or remedy.
5.11 Other Defined Terms. Any capitalized tenn utilized herein shall have
the meaning as specified in the Loan Agreement, unless such term is otherwise specifically
defined herein.
5.12 Entirety. TIDS GUARANTY EMBODIES THE FINAL, ENTIRE
AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO
GUARANTOR'S GUARANTY OF THE GUARANTEED OBLIGATIONS AND
SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS
INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE
EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF
DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF
TRADE NO OF PRIOR,
CONTEMPORANEOUS OR ORAL AGREEMENTS OR
DISCUSSIONS OR OTHER EXTRINSIC E\'lDENCE OF ANY NATURE SHALL BE
USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN
GUARANTOR AND LENDER
5.13 Waiver of Right To Trial By Jurv. GUARANTOR AND BY ITS
ACCEPTANCE HEREOF, LENDER, EACH HEREBY AGREES NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND W AlVES
ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH
RIG-HT SHALL NO'\V OR EXIST \YITH TO THIS
OR CLAir,.t, OR OTHER ACTIOt-l ARISTI"{G It{
CONNECTION HEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND BY ITS
ACCEPTANCE HEREOF, LENDER, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT
TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND
GUARANTOR ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS
WAIVER BY THE OTHER
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.
Pg 17 of 20
5.14 Reinstatement in Certain Circumstances. If at any time any payment of
the principal of or interest under the Note or any other amount payable by the Borrower under
the Loan Documents is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, Guarantor's obligations
hereunder with respect to such payurent shall be reinstated as though such payruent has been
due but not made at such time.
[NO FURTHER TEXT ON THIS PAGE]
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.
Pg 18 of 20
This Guaranty is EXECUTED as of the day and year first above written.
GUARANTOR:
GRAN_ D PRIX H. OLDINGS LLC, a ~ e l a w a r e limited
liability company //
- "'- - / / //
I
[Signature Page to the Fixed Portfolio Guaranty]
.
Pg 19 of 20
SCHEDULE I
BORROWER
Gran.d Prix BeL111ont LLC
Grand Prix Campbell/San Jose LLC
Grand Prix El Segundo LLC
Grand Prix Fremont LLC
Grand Prix Mountain View LLC
Grand Prix San Jose LLC
Grand Prix San Mateo LLC
Grand Prix Sili I LLC
Grand Prix Sili II LLC
Grand Prix Denver LLC
Grand Prix Englewood/Denver South LLC
Grand Prix Shelton LLC
Grand Prix \Vindsor LLC
Grand Prix Altamonte LLC
Grand Prix Ft. Lauderdale LLC
Grand Prix Naples LLC
Grand Prix Atlanta LLC
Grand Prix Atlanta (Peachtree Corners) LLC
Grand Prix Lombard LLC
Gtand Prix Chicago LLC
GTand Prix Schaumburg LLC
Grand Prix Westchester LLC
Grand Prix Lexington LLC
Grand Prix Louisviiie (Rl) LLC
Grand Prix Columbia LLC
Grand Prix Gaithersburg LLC
Grand Prix Germantown LLC
Grand Prix Portland LLC
Grand Prix Livonia LLC
Grand Prix Cherry Hill LLC
Grand Prix Mt. Laurel LLC
Grand Prix Saddle River LLC
Grand Prix Islandia LLC
Grand Prix Binghamton LLC
Grand Prix Horsham LLC
Grand Prix Willow Grove LLC
Grand Prix Addison (RI) LLC
Grand Prix Arlington LLC
Gra..nd Prix Las Co!inas LLC
Gra.."tld Prix Ricla..mond LLC
Grand Prix Richmond (Northwest) LLC
Confidential
S-1
M LS-000 13466
.
Pg 20 of 20
Grand Prix Bellevue LLC
Grand Prix Bothell LLC
Grand Prix Lynnwood LLC
Grand Prix Tuk-wila LLC
13678904.3. BUSINESSS-2
EXHIBIT 3

Pg 1 of 2
Pg 2 of 2
D Financing Pool
Fee Owner/Ground Lessee Borrower
Lessees of Properties from Fee Owners/Ground Lessees
D Mezzanine Borrower
Guarantor
General Notes
All entities are Delaware entities unless other.-vise noted.
Collateral
45 Hotels
Sp. Servicer- Midland
Collateral
Equity in Fee Owner/Ground
Lessees
$238mm Floating Rate Lehman
Senior Mortgage Loan
~
20 Hotels
Admin. Agent- Trimont
$21.3mm Anaheim Lehman
Mezzanine Loan
Collateral
Equity in Fee Owner of Hilton
Suites in Anaheim, CA
Sp. Servicer- CW Capital
$13.7mm Anaheim CMBS
Senior Mortgage Loan
Collateral
Hilton Suiles in Anaheim, CA
Sp. Servicer- CW Capital
Draft- Subject to Revision
Not Admissible in Any Proceeding
$35.0mm Capmark $37.6mm Capmark
CMBS Mortgage CMBS Mortgage
Loan Loan
Collateral Collateral
Hilton in Ontario, CA Residence Inn in
Garden Grove, CA
Sp. Servicer- C III
Sp. Servicer- LNR
Partners
Innkeepers USA
Trust
(Maryland REIT)
Limited Partnership
(Virginia limited
$47.4mm Capmark
CMBS Mortgage
Loan
Collateral
Residence Inn in San
Diego, CA
Sp. Servicer- LNR
Partners
$25.6mm Merrill $25.2mm Merrill
Lynch CMBS Lynch CMBS
Mortgage Loan Mortgage Loan
Collateral Collateral
Ooubletree in Residence Inn in
Washington D.C. Tyson's Comer
(Vienna), VA
Sp. Servicer- LNR
Partners Sp. Servicer- LNR
Partners
1. Guarantor of Capital Expenditure obligations under the $825 Fixed Rate CMBS Pool
$24.2mm Merrill
Lynch CMBS
Mortgage Loan
Collateral
Homewood Suites in
San Antonio, TX
Sp. Servicer- LNR
Partners
2. Guarantor of (i) Non-Recourse Carve Out Obligations under all Loan Pools, (ii) Capital
Expenditures under the Anaheim HS Mortgage Loan and (iii) Payment and Performance
under the Anaheim HS Mezzanine Loan
3. Operating Tenant for all hotels in the $825 Fixed Rate CMBS Pool
4. Operating Tenant for all hotels in the Floating Rate Pool
5. Operating Tenant for the Anaheim HS Loans
6. Operating Tenant for the Ontario Mortgage Loan
7. Operating Tenant for the Garden Grove Mortgage Loan
8. Operating Tenant for the Mission Valley Mortgage Loan
9. Operating Tenant for the Washington DC, Tysons Corner and San Antonio Mortgage Loans
KPA Leaseco, Inc.
Grand Prix IHM Inc.
EXHIBIT 4

Pg 1 of 60

K&E 16933766.23
)
In re: ) Chapter 11
)
1
) Case No. 10-13800 (SCC)
)
)

INTERIM ORDER (A) AUTHORIZING THE DEBTORS TO (i) USE THE ADEQUATE
PROTECTION PARTIES CASH COLLATERAL AND (ii) PROVIDE ADEQUATE
PROTECTION TO THE ADEQUATE PROTECTION PARTIES PURSUANT TO 11
U.S.C. 361, 362, AND 363, AND (B) SCHEDULING A FINAL HEARING PURSUANT
TO BANKRUPTCY RULE 4001(b)
Upon the motion (the Motion)
2
of the above-captioned debtors (collectively, the
Debtors) for the entry of an order (the Order) (a) authorizing the Debtors to (i) use the Cash
Collateral (as defined below) of the Adequate Protection Parties (as defined below) pursuant to

1
The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtors federal tax identification number, are:
GP AC Sublessee LLC (5992); Grand Prix Addison (RI) LLC (3740); Grand Prix Addison (SS) LLC (3656); Grand Prix
Albany LLC (3654); Grand Prix Altamonte LLC (3653); Grand Prix Anaheim Orange Lessee LLC (5925); Grand Prix
Arlington LLC (3651); Grand Prix Atlanta (Peachtree Corners) LLC (3650); Grand Prix Atlanta LLC (3649); Grand Prix
Atlantic City LLC (3648); Grand Prix Bellevue LLC (3645); Grand Prix Belmont LLC (3643); Grand Prix Binghamton LLC
(3642); Grand Prix Bothell LLC (3641); Grand Prix Bulfinch LLC (3639); Grand Prix Campbell / San Jose LLC (3638);
Grand Prix Cherry Hill LLC (3634); Grand Prix Chicago LLC (3633); Grand Prix Columbia LLC (3631); Grand Prix Denver
LLC (3630); Grand Prix East Lansing LLC (3741); Grand Prix El Segundo LLC (3707); Grand Prix Englewood / Denver
South LLC (3701); Grand Prix Fixed Lessee LLC (9979); Grand Prix Floating Lessee LLC (4290); Grand Prix Fremont LLC
(3703); Grand Prix Ft. Lauderdale LLC (3705); Grand Prix Ft. Wayne LLC (3704); Grand Prix Gaithersburg LLC (3709);
Grand Prix General Lessee LLC (9182); Grand Prix Germantown LLC (3711); Grand Prix Grand Rapids LLC (3713); Grand
Prix Harrisburg LLC (3716); Grand Prix Holdings LLC (9317); Grand Prix Horsham LLC (3728); Grand Prix IHM, Inc.
(7254); Grand Prix Indianapolis LLC (3719); Grand Prix Islandia LLC (3720); Grand Prix Las Colinas LLC (3722); Grand
Prix Lexington LLC (3725); Grand Prix Livonia LLC (3730); Grand Prix Lombard LLC (3696); Grand Prix Louisville (RI)
LLC (3700); Grand Prix Lynnwood LLC (3702); Grand Prix Mezz Borrower Fixed, LLC (0252); Grand Prix Mezz Borrower
Floating, LLC (5924); Grand Prix Mezz Borrower Floating 2, LLC (9972); Grand Prix Mezz Borrower Term LLC (4285);
Grand Prix Montvale LLC (3706); Grand Prix Morristown LLC (3738); Grand Prix Mountain View LLC (3737); Grand Prix
Mt. Laurel LLC (3735); Grand Prix Naples LLC (3734); Grand Prix Ontario Lessee LLC (9976); Grand Prix Ontario LLC
(3733); Grand Prix Portland LLC (3732); Grand Prix Richmond (Northwest) LLC (3731); Grand Prix Richmond LLC (3729);
Grand Prix RIGG Lessee LLC (4960); Grand Prix RIMV Lessee LLC (4287); Grand Prix Rockville LLC (2496); Grand Prix
Saddle River LLC (3726); Grand Prix San Jose LLC (3724); Grand Prix San Mateo LLC (3723); Grand Prix Schaumburg LLC
(3721); Grand Prix Shelton LLC (3718); Grand Prix Sili I LLC (3714); Grand Prix Sili II LLC (3712); Grand Prix Term
Lessee LLC (9180); Grand Prix Troy (Central) LLC (9061); Grand Prix Troy (SE) LLC (9062); Grand Prix Tukwila LLC
(9063); Grand Prix West Palm Beach LLC (9065); Grand Prix Westchester LLC (3694); Grand Prix Willow Grove LLC
(3697); Grand Prix Windsor LLC (3698); Grand Prix Woburn LLC (3699); Innkeepers Financial Corporation (0715);
Innkeepers USA Limited Partnership (3956); Innkeepers USA Trust (3554); KPA HI Ontario LLC (6939); KPA HS Anaheim,
LLC (0302); KPA Leaseco Holding Inc. (2887); KPA Leaseco, Inc. (7426); KPA RIGG, LLC (6706); KPA RIMV, LLC
(6804); KPA San Antonio, LLC (1251); KPA Tysons Corner RI, LLC (1327); KPA Washington DC, LLC (1164); KPA/GP Ft.
Walton LLC (3743); KPA/GP Louisville (HI) LLC (3744); KPA/GP Valencia LLC (9816). The location of the Debtors
corporate headquarters and the service address for their affiliates is: c/o Innkeepers USA, 340 Royal Poinciana Way, Suite
306, Palm Beach, Florida 33480.
2
Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Motion.
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sections 361 and 363 of Title 11, United States Code, 11 U.S.C. 101 et seq. (as amended, the
Bankruptcy Code) and (ii) provide adequate protection to the Adequate Protection Parties
with respect to diminution in the value of the Adequate Protection Parties interests in the
Prepetition Collateral (as defined below), whether from the use of the Cash Collateral, the use,
sale, lease, or other diminution in value of the Prepetition Collateral other than the Cash
Collateral, or the imposition of the automatic stay pursuant to section 362(a) of the Bankruptcy
Code, pursuant to sections 361, 362, 363, 503(b), and 507 of the Bankruptcy Code; and (b)
requesting that a final hearing (the Final Hearing) be scheduled, and that notice procedures in
respect of the Final Hearing be established by the Court, to consider entry of a final order (the
Final Order) authorizing on a final basis the Debtors continued use of the Cash Collateral;
and upon the Declaration of Dennis Craven, Chief Financial Officer of Innkeepers USA Trust, in
Support of First Day Motions and Applications, it appearing that the relief requested is in the
best interests of the Debtors estates, their creditors and other parties in interest; the Court having
jurisdiction to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 157
and 1334; consideration of the Motion and the relief requested therein being a core proceeding
pursuant to 28 U.S.C. 157(b); venue being proper before the Court pursuant to 28 U.S.C.
1408 and 1409; notice of the Motion having been adequate and appropriate under the
circumstances; and all objections, if any, to the entry of this Order having been withdrawn,
resolved or overruled by the Court; and after due deliberation and sufficient cause appearing
therefor,
IT IS HEREBY FOUND THAT:

A. Commencement. On the date the Motion was filed (the Petition Date), each of
the Debtors filed a petition with the Court under chapter 11 of the Bankruptcy Code
(collectively, the Chapter 11 Cases). The Debtors are operating their businesses and
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managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code. No request for the appointment of a trustee or examiner has been made in the
Chapter 11 Cases, and no committees have been appointed or designated. Concurrently with the
filing of this Motion, the Debtors have requested procedural consolidation and joint
administration of the Chapter 11 Cases.
B. Jurisdiction; Core Proceeding. The Court has jurisdiction over this matter
pursuant to 28 U.S.C. 157 and 1334. This matter is a core proceeding within the meaning of
28 U.S.C. 157(b)(2). Venue is proper pursuant to 28 U.S.C. 1408 and 1409.
C. Prepetition Capital Structure. Without prejudice to the rights of non-debtor
parties in interest as set forth in paragraph 12 below (and subject thereto):
(1) Fixed Rate Loan. (i) The Debtors listed on Schedule 1 hereto
(collectively, the Fixed Rate Debtors) acknowledge and agree that they are party to that
certain Loan Agreement, dated as of June 29, 2007 (as amended, restated, replaced,
supplemented or otherwise modified from time to time, and together with such supporting and
ancillary documents thereto, the Fixed Rate Mortgage Loan Agreement), among the Fixed
Rate Debtors, as borrowers thereunder, Grand Prix Fixed Lessee LLC, as operating lessee, Grand
Prix Holdings, LLC, as guarantor, and Lehman ALI, Inc., as the original lender thereunder (the
Fixed Rate Lender). The Fixed Rate Mortgage Loan Agreement provides for loans to the
Fixed Rate Debtors in the aggregate principal amount of $825,402,542 (the Fixed Rate
Mortgage Loan Obligations). The Fixed Rate Mortgage Loan Agreement is evidenced by a
certain Replacement Promissory Note A-1 (Fixed Rate Note A-1) and a certain Replacement
Promissory Note A-2 (Fixed Rate Note A-2), each in the principal amount of $412,701,271
and each dated as of August 9, 2007.
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(ii) The Fixed Rate Mortgage Loan Agreement, together with Fixed
Rate Note A-1 and Fixed Rate Note A-2 and all documents executed and delivered in
connection therewith have been sold, assigned and transferred into the commercial
mortgage-backed security (CMBS) market. The Fixed Rate Mortgage Loan
Obligations related to the Fixed Rate Note A-1 and all documents executed and delivered
in connection therewith are part of a mortgage loan pool knows as LB-UBS Commercial
Mortgage Trust 2007-C6, for which LaSalle Bank, National Association (LaSalle) is
trustee, and Midland Loan Services, Inc. (Midland) serves as special servicer (the
Fixed Rate Representative). The other half of the Fixed Rate Mortgage Loan
in connection therewith are part of a mortgage loan pool known as LB-UBS Commercial
Mortgage Trust 2007-C7, for which LaSalle is trustee. The Fixed Rate Representative is
also the special servicer for the Fixed Rate A-2 Note.
(iii) The Fixed Rate Debtors acknowledge and agree that, pursuant to
the Mortgage (or Deed of Trust or Deed to Secure Debt, as applicable) and Security
Agreement, dated as of June 29, 2007 executed by each Fixed Rate Debtor in connection
with the Fixed Rate Mortgage Loan Agreement (and, together with the Fixed Rate
Mortgage Loan Agreement and all other loan documents executed in connection
therewith prior to the Petition Date, collectively, the Fixed Rate Loan Documents),
the Fixed Rate Debtors granted to the Fixed Rate Lender valid, cross-collateralized and
cross-defaulted first priority liens, mortgages, deeds of trust and security interests
(collectively, the Fixed Rate Mortgages) on forty-five (45) hotel properties (the
Fixed Rate Mortgaged Properties) and in certain of their other assets and property,
including, but not limited to, all rents and other cash generated by the Fixed Rate
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Debtors hotel and business operations with respect to the Fixed Rate Mortgaged
Properties, as more fully set forth in the Fixed Rate Loan Documents (together with the
Fixed Rate Mortgaged Properties, the Fixed Rate Collateral) as collateral security for
payment and performance when due of the Fixed Rate Mortgage Loan Obligations.
(iv) The Fixed Rate Debtors further acknowledge and agree that the
Fixed Rate Collateral includes cash collateral within the meaning of section 363(a) of the
Bankruptcy Code (the Fixed Rate Cash Collateral).
(v) The Fixed Rate Debtors further acknowledge and agree that (a) the
Fixed Rate Mortgage Loan Obligations are valid, binding, and enforceable obligations of
the Fixed Rate Debtors in accordance with the terms set forth in the Fixed Rate Mortgage
Loan Documents, and (b) the Fixed Rate Mortgage and other liens and security interests
granted to the Fixed Rate Lender with respect to the Fixed Rate Collateral, as security for
the Fixed Rate Mortgage Loan Obligations are valid, perfected and enforceable liens,
mortgages, deeds of trust, and security interests in accordance with the terms set forth in
the Fixed Rate Mortgage Loan Documents.
(2) Floating Rate Loan. (i) The Debtors listed on Schedule 2 hereto
(collectively, the Floating Rate Debtors) acknowledge and agree that they are party to that
ancillary documents thereto, the Floating Rate Mortgage Loan Agreement), among the
Floating Rate Debtors, as borrowers thereunder, Grand Prix Wichita LLC, Grand Prix
Tallahassee LLC and Grand Prix Columbus LLC, as borrowers thereunder who were released
from their obligations under the Floating Rate Mortgage Loan Agreement in accordance with the
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terms and conditions of the Floating Rate Mortgage Loan Agreement (the Released
Borrowers), Grand Prix Floating Lessee LLC, as operating lessee, Grand Prix Holdings, LLC,
as guarantor and Lehman ALI, Inc., as the lender thereunder (the Floating Rate Lender). The
Floating Rate Mortgage Loan Agreement provides for a loan to the Floating Rate Debtors in the
original principal amount of $250,000,000 million (the Floating Rate Mortgage Loan
Obligations). The Floating Rate Mortgage Loan Agreement is evidenced by a certain
Promissory Note, dated as of June 29, 2007, by the Floating Rate Debtors and the Released
Borrowers for the benefit of the Floating Rate Lender.
(ii) The Floating Rate Mortgage Loan Agreement was not, as of the
Petition Date, sold into the CMBS market.
(iii) The Floating Rate Debtors acknowledge and agree that, pursuant to
Agreement, dated as of June 29, 2007, executed by each Floating Rate Debtor in
connection with the Floating Rate Mortgage Loan Agreement (and, together with the
Floating Rate Loan Agreement, the Floating Rate Mortgages and all other loan
documents executed in connection therewith prior to the Petition Date, collectively, the
Floating Rate Loan Senior Documents), the Floating Rate Debtors have granted to
the Floating Rate Lender an absolute assignment of rents and leases with respect to the
applicable hotel properties, subject to a revocable license to the applicable borrower, as
well as cross-collateralized and cross-defaulted first priority liens, mortgages, deeds of
trust, deeds to secure debt and security interests (collectively, the Floating Rate
Mortgages) on twenty (20) hotel properties (the Floating Rate Mortgaged
Properties) and in certain of their other assets and properties, including, but not limited
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to, cash generated by the Floating Rate Debtors hotel and business operations, as more
fully set forth in the Floating Rate Loan Documents (together with the Floating Rate
Mortgaged Properties, the Floating Rate Collateral) as collateral security for payment
and performance when due of the Floating Rate Mortgage Loan Obligations.
(iv) The Floating Rate Debtors further acknowledge and agree that the
Floating Rate Collateral includes rents and proceeds within the meaning of section 552(b)
of the Bankruptcy Code and cash collateral within the meaning of section 363(a) of the
Bankruptcy Code (the Floating Rate Cash Collateral).
(v) The Floating Rate Debtors further acknowledge and agree that (a)
the Floating Rate Mortgage Loan Obligations are valid, binding, and enforceable
obligations of the Floating Rate Debtors in accordance with the terms set forth in the
Floating Rate Loan Senior Documents, (b) the Floating Rate Mortgages and other liens
and security interests granted to the Floating Rate Lender with respect to the Floating
Rate Collateral, as security for the Floating Rate Loan Obligations are valid, perfected,
and enforceable liens, mortgages, deeds of trust, deeds to secure debt, and security
interests in accordance with the terms set forth in the Floating Rate Loan Senior
Documents, and (c) subject to paragraph 20 of this Order, that the Floating Rate Debtors
do not have any claims or causes of action against the Floating Rate Lender under any
legal or equitable theory, including Avoidance Actions (as defined below).
(vi) The Floating Rate Debtors further acknowledge and agree that
certain non-monetary events of default occurred under the Floating Rate Loan Senior
Documents prior to the Petition Date; that the Floating Rate Lender delivered notices of
such events of default to the Floating Rate Debtors on May 19, 2010, based on such non-
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monetary events of defaults; that as a result thereof, the revocable license to use rents was
automatically revoked and the Floating Rate Lender exercised control over rents and the
Lockbox Account (as defined in the Floating Rate Loan Agreement); that a monetary
event of default occurred when the Floating Rate Debtors failed to pay the total principal
amount due under the Floating Rate Loan Agreement on the maturity date; and that the
Floating Rate Lenders delivered a notice of such monetary default to the Floating Rate
Debtors on July 9, 2010.
(3) Anaheim Loan. (i) The Debtors listed on Schedule 3 hereto (collectively,
the Anaheim Debtors) acknowledge and agree that they are party to that certain Deed of
Trust, dated as of June 14, 2005 (the Anaheim Mortgage Loan Agreement) among the
Anaheim Debtors, as borrower and guarantors, as applicable, thereunder, and GMAC
Commercial Mortgage Bank, as original lender thereunder (the Anaheim Lender). The
Anaheim Mortgage Loan Agreement provides for loans for the benefit of the Anaheim Debtors
in the aggregate principal amount of $13.7 million (the Anaheim Mortgage Loan
Obligations). Pursuant to Loan Assumption, Affirmation and Modification Agreements, dated
as of October 4, 2006 and June 29, 2007, certain of the Anaheim Debtors became liable for
certain of Anaheim Mortgage Loan Obligations.
(ii) The Anaheim Mortgage Loan Agreement was sold into the CMBS
market and is part of a mortgage loan pool known as Credit Suisse First Boston Mortgage
Security Corp., Commercial Mortgage Pass-Through Certificates, Series 2005-C5, for
which Wells Fargo Bank, N.A. (Wells Fargo) is trustee, Capmark Finance Inc., as
successor to GMAC Commercial Mortgage Corporation, serves as master servicer, and
CW Capital Asset Management, LLC serves as special servicer.
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(iii) The Anaheim Debtors acknowledge and agree that, pursuant to the
Deed of Trust, Leasehold Deed of Trust, Assignment of Leases and Profits, Security
Agreement and Fixture Filing, dated as of June 14, 2005, executed by the Anaheim
Debtors in connection with the Anaheim Mortgage Loan Agreement (and, together with
the Anaheim Mortgage Loan Agreement and all other loan documents executed in
connection therewith prior to the Petition Date, collectively, the Anaheim Loan
Documents), the Anaheim Debtors have granted to the Anaheim Lender a security
interest in certain of their assets and property to the extent and as more fully set forth in
the Anaheim Loan Documents (collectively, the Anaheim Collateral) as collateral
security for payment and performance when due of the Anaheim Mortgage Loan
Obligations.
(iv) The Anaheim Debtors further acknowledge and agree that the
Anaheim Collateral includes cash collateral within the meaning of section 363(a) of the
Bankruptcy Code (the Anaheim Cash Collateral).
(v) The Anaheim Debtors further acknowledge and agree that (a) the
Anaheim Mortgage Loan Obligations are valid, binding, and enforceable obligations of
the Anaheim Debtors in accordance with the terms set forth in the Anaheim Loan
Documents, and (b) the liens and security interest granted to the Anaheim Lenders, or any
of them, as security for the Anaheim Mortgage Loan Obligations are valid, perfected, and
enforceable liens and security interests in accordance with the terms set forth in the
Anaheim Loan Documents.
(4) Capmark $47.4 Million Loan (Mission Valley). (i) The Debtors listed on
Schedule 4 hereto (collectively, the Capmark Mission Valley Debtors) acknowledge and
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agree that they are party to that certain Deed of Trust Note, dated as of October 4, 2006 (the
Capmark Mission Valley Loan Agreement), among the Capmark Mission Valley Debtors,
as borrower and guarantors, as applicable, thereunder, and Capmark Bank, as the original lender
thereunder (the Capmark Mission Valley Lender). The Capmark Mission Valley Loan
Agreement provides for loans to the Capmark Mission Valley Debtors in the aggregate principal
amount of $47.4 million (the Capmark Mission Valley Loan Obligations). Pursuant to that
certain Loan Assumption, Affirmation and Modification Agreement, dated as of June 29, 2007,
certain of the Capmark Valley Debtors became liable for certain of the Capmark Mission Valley
Loan Obligations.
(ii) The Capmark Mission Valley Loan Agreement was sold into the
CMBS market and is part of a mortgage pool known as Credit Suisse First Boston
Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series
2007-C1, for which Wells Fargo is trustee, Capmark Finance serves as master servicer,
and LNR Partners, LLC, a Florida limited liability company, successor by statutory
conversion to LNR Partners, Inc. a Florida corporation (LNR Partners) serves as
special servicer.
(iii) The Capmark Mission Valley Debtors acknowledge and agree that,
pursuant to the Deed of Trust, Leasehold Deed of Trust, Assignment of Leases and
Profits, Security Agreement and Fixture Filing, dated as of October 4, 2006, executed by
the Capmark Mission Valley Debtors in connection with the Capmark Mission Valley
Loan Agreement (and with the Capmark Mission Valley Loan Agreement and all other
loan documents executed in connection therewith prior to the Petition Date, collectively,
the Capmark Mission Valley Loan Documents), the Capmark Mission Valley
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Debtors have granted to the Capmark Mission Valley Lender a security interest in certain
of their assets and property to the extent and as more fully set forth in the Capmark
Mission Valley Loan Documents (collectively, the Capmark Mission Valley
Collateral) as collateral security for payment and performance when due of the
Capmark Mission Valley Loan Obligations.
(iv) The Capmark Mission Valley Debtors further acknowledge and
agree that the Capmark Mission Valley Collateral includes cash collateral within the
meaning of section 363(a) of the Bankruptcy Code (the Capmark Mission Valley Cash
Collateral).
(v) The Capmark Mission Valley Debtors further acknowledge and
agree that (a) the Capmark Mission Valley Loan Obligations are valid, binding, and
enforceable obligations of the Capmark Mission Valley Debtors in accordance with the
terms set forth in the Capmark Mission Valley Loan Documents, and (b) the liens and
security interest granted to the Capmark Mission Valley Lenders, or any of them, as
security for the Capmark Mission Valley Loan Obligations are valid, perfected, and
Capmark Mission Valley Loan Documents.
(5) Capmark $37.6 Million Loan (Garden Grove). (i) The Debtors listed on
Schedule 5 hereto (collectively, the Capmark Garden Grove Debtors) acknowledge and
Capmark Garden Grove Loan Agreement), among the Capmark Garden Grove Debtors, as
borrower and guarantors, as applicable, thereunder, and Capmark Bank, as the original lender
thereunder (the Capmark Garden Grove Lender). The Capmark Garden Grove Loan
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Agreement provides for loans to the Capmark Garden Grove Debtors in the aggregate principal
amount of $37.6 million (the Capmark Garden Grove Loan Obligations). Pursuant to that
certain of the Capmark Garden Grove Debtors became liable for certain of the Capmark Garden
Grove Loan Obligations.
(ii) The Capmark Garden Grove Loan Agreement was sold into the
Mortgage Corp., Commercial Mortgage Pass-Through Certificates, Series 2007-C1, for
which Wells Fargo is trustee, Capmark Finance serves as master servicer, and Midland
serves as special servicer.
(iii) The Capmark Garden Grove Debtors acknowledge and agree that,
the Capmark Garden Grove Debtors in connection with the Capmark Garden Grove Loan
Agreement (and with the Capmark Garden Grove Loan Agreement and all other loan
Capmark Garden Grove Loan Documents), the Capmark Garden Grove Debtors
have granted to the Capmark Garden Grove Lender a security interest in certain of their
assets and property to the extent and as more fully set forth in the Capmark Garden Grove
Loan Documents (collectively, the Capmark Garden Grove Collateral) as collateral
security for payment and performance when due of the Capmark Garden Grove Loan
Obligations.
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(iv) The Capmark Garden Grove Debtors further acknowledge and
agree that the Capmark Garden Grove Collateral includes cash collateral within the
meaning of section 363(a) of the Bankruptcy Code (the Capmark Garden Grove Cash
Collateral).
(v) The Capmark Garden Grove Debtors further acknowledge and
agree that (a) the Capmark Garden Grove Loan Obligations are valid, binding, and
enforceable obligations of the Capmark Garden Grove Debtors in accordance with the
terms set forth in the Capmark Garden Grove Loan Documents, and (b) the liens and
security interest granted to the Capmark Garden Grove Lenders, or any of them, as
security for the Capmark Garden Grove Loan Obligations are valid, perfected, and
Capmark Garden Grove Loan Documents.
(6) Capmark $35.0 Million Loan (Ontario). (i) The Debtors listed on Schedule
6 hereto (collectively, the Capmark Ontario Debtors and, together with the Capmark
Mission Valley Debtors and the Capmark Garden Grove Debtors, the Capmark Debtors)
acknowledge and agree that they are party to that certain Deed of Trust Note, dated as of October
4, 2006 (the Capmark Ontario Loan Agreement), among the Capmark Ontario Debtors, as
thereunder (the Capmark Ontario Lender and, together with the Capmark Mission Valley
Lender and the Capmark Garden Grove Lender, the Capmark Lenders). The Capmark
Ontario Loan Agreement provides for loans to the Capmark Ontario Debtors in the aggregate
principal amount of $35.0 million (the Capmark Ontario Loan Obligations). Pursuant to
that certain Loan Assumption, Affirmation and Modification Agreement, dated as of June 29,
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2007, certain of the Capmark Ontario Debtors became liable for certain of the Capmark Ontario
Loan Obligations.
(ii) The Capmark Ontario Loan Agreement was sold into the CMBS
market and is part of a mortgage pool known as Credit Suisse First Boston Mortgage
Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2007-C1, for
(iii) The Capmark Ontario Debtors acknowledge and agree that,
the Capmark Ontario Debtors in connection with the Capmark Ontario Loan Agreement
(and with the Capmark Ontario Loan Agreement and all other loan documents executed
in connection therewith prior to the Petition Date, collectively, the Capmark Ontario
Loan Documents and, together with the Capmark Mission Valley Loan Documents and
the Capmark Garden Grove Loan Documents, the Capmark Loan Documents), the
Capmark Ontario Debtors have granted to the Capmark Ontario Lender a security interest
in certain of their assets and property to the extent and as more fully set forth in the
Capmark Ontario Loan Documents (collectively, the Capmark Ontario Collateral
and, together with the Capmark Mission Valley Collateral and the Capmark Garden
Grove Collateral, the Capmark Collateral) as collateral security for payment and
performance when due of the Capmark Ontario Loan Obligations thereunder.
(iv) The Capmark Ontario Debtors further acknowledge and agree that
the Capmark Ontario Collateral includes cash collateral within the meaning of section
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363(a) of the Bankruptcy Code (together with the Capmark Mission Valley Cash
Collateral and the Capmark Garden Grove Cash Collateral, the Capmark Cash
Collateral).
(v) The Capmark Ontario Debtors further acknowledge and agree that
(a) the Capmark Ontario Loan Obligations are valid, binding, and enforceable obligations
of the Capmark Ontario Debtors in accordance with the terms set forth in the Capmark
Ontario Loan Documents, and (b) the liens and security interest granted to the Capmark
Ontario Lenders, or any of them, as security for the Capmark Ontario Loan Obligations
are valid, perfected, and enforceable liens and security interests in accordance with the
terms set forth in the Capmark Ontario Loan Documents.
(7) Merrill $25.6 Million Loan (Washington D.C.). (i) The Debtors listed on
Schedule 7 hereto (collectively, the Merrill Washington D.C. Debtors) acknowledge and
agree that they are party to that certain Loan Agreement, dated as of September 21, 2006 (the
Merrill Washington D.C. Loan Agreement), among the Merrill Washington D.C. Debtors,
as borrower and guarantors, as applicable, thereunder, and Merrill Lynch Mortgage Lending,
Inc., as the original lender thereunder (the Merrill Washington D.C. Lender). The Merrill
Washington D.C. Loan Agreement provides for loans to the Merrill Washington D.C. Debtors in
the aggregate principal amount of $25.6 million (the Merrill Washington D.C. Loan
Obligations).
(ii) The Merrill Washington D.C. Loan Agreement was sold into the
CMBS market and is part of a mortgage pool known as ML-CFC Commercial Mortgage
Trust 2006-4, for which U.S. Bank, N.A. (U.S. Bank) is trustee, Wells Fargo serves as
master servicer, and LNR serves as special servicer.
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(iii) The Merrill Washington D.C. Debtors acknowledge and agree that,
pursuant to the Fee and Leasehold Deed of Trust and Security Agreement, dated as of
September 21, 2006 and executed by the Merrill Washington D.C. Debtors in connection
with the Merrill Washington D.C. Loan Agreement (the Merrill Washington D.C.
Mortgage and, together with the Merrill Washington D.C. Loan Agreement and all
other loan documents executed in connection therewith prior to the Petition Date,
collectively, the Merrill Washington D.C. Loan Documents), the Merrill Washington
D.C. Debtors have granted to the Merrill Washington D.C. Lender a security interest in
certain of their assets and property to the extent and as more fully set forth in the Merrill
Washington D.C. Loan Documents (collectively, the Merrill Washington D.C.
Collateral) as collateral security for payment and performance when due of the Merrill
Washington D.C. Loan Obligations.
(iv) The Merrill Washington D.C. Debtors further acknowledge and
agree that the $25.6 Million Merrill Collateral includes cash collateral within the meaning
of section 363(a) of the Bankruptcy Code (the Merrill Washington D.C. Cash
Collateral).
(v) The Merrill Washington D.C. Debtors further acknowledge and
agree that (a) the Merrill Washington D.C. Loan Obligations are valid, binding, and
enforceable obligations of the Merrill Washington D.C. Debtors in accordance with the
terms set forth in the Merrill Washington D.C. Loan Documents, and (b) the liens and
security interest granted to the Merrill Washington D.C. Lenders, or any of them, as
security for the Merrill Washington D.C. Loan Obligations are valid, perfected, and
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Merrill Washington D.C. Loan Documents.
(8) Merrill $25.2 Million Loan (Tysons Corner). (i) The Debtors listed on
Schedule 8 hereto (collectively, the Merrill Tysons Corner Debtors) acknowledge and agree
that they are party to that certain Loan Agreement, dated as of September 19, 2006 (the Merrill
Tysons Corner Loan Agreement), among the Merrill Tysons Corner Debtors, as borrower and
guarantors, as applicable, thereunder, and Merrill Lynch Mortgage Lending, Inc., as the original
lender thereunder (the Merrill Tysons Corner Lender). The Merrill Tysons Corner Loan
Agreement provides for loans to the Merrill Tysons Corner Debtors in the aggregate principal
amount of $25.2 million (the Merrill Tysons Corner Loan Obligations).
(ii) The Merrill Tysons Corner Loan Agreement was sold into the
CMBS market and is part of a mortgage pool known as ML-CFC 2006-4, for which U.S.
Bank is trustee, Wells Fargo serves as master servicer, and LNR Partners serves as
special servicer.
(iii) The Merrill Tysons Corner Debtors acknowledge and agree that,
pursuant to the Deed of Trust and Security Agreement, dated as of September 19, 2006
and executed by the Merrill Tysons Corner Debtors in connection with the Merrill
Tysons Corner Loan Agreement (the Merrill Tysons Corner Mortgage and together
with the Merrill Tysons Corner Loan Agreement and all other loan documents executed
in connection therewith prior to the Petition Date, collectively, the Merrill Tysons
Corner Loan Documents), the Merrill Tysons Corner Debtors have granted to the
Merrill Tysons Corner Lender a security interest in certain of their assets and property to
the extent and as more fully set forth in the Merrill Tysons Corner Loan Documents
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(collectively, the Merrill Tysons Corner Collateral) as collateral security for
payment and performance when due of the Merrill Tysons Corner Loan Obligations.
(iv) The Merrill Tysons Corner Debtors further acknowledge and agree
that the $25.2 Million Merrill Collateral includes cash collateral within the meaning of
section 363(a) of the Bankruptcy Code (the Merrill Tysons Corner Cash Collateral).
(v) The Merrill Tysons Corner Debtors further acknowledge and agree
for such Consenting Lenders benefit (but subject to paragraph 12 below), that (a) the
Merrill Tysons Corner Loan Obligations are valid, binding, and enforceable obligations
of the Merrill Tysons Corner Debtors in accordance with the terms set forth in the Merrill
Tysons Corner Loan Documents, and (b) the liens and security interest granted to the
Merrill Tysons Corner Lenders, or any of them, as security for the Merrill Tysons Corner
Loan Obligations are valid, perfected, and enforceable liens and security interests in
accordance with the terms set forth in the Merrill Tysons Corner Loan Documents.
(9) Merrill $24.2 Million Loan (San Antonio). (i) The Debtors listed on
Schedule 9 hereto (collectively, the Merrill San Antonio Debtors and, together with the
Merrill Washington D.C. Debtors and the Merrill Tysons Corner Debtors, the Merrill
Debtors) acknowledge and agree that they are party to that certain Loan Agreement dated as of
September 19, 2006, (the Merrill San Antonio Loan Agreement) among the Merrill San
Antonio Debtors, as borrower and guarantors, as applicable, thereunder, and Merrill Lynch
Mortgage Lending, Inc., as the original lender thereunder (the Merrill San Antonio Lender
and, together with the Merrill Washington D.C. Lender and the Merrill Tysons Corner Lender,
the Merrill Lenders). The Merrill San Antonio Loan Agreement provides for loans to the
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Merrill Borrowers in the aggregate principal amount of $24.2 million (the Merrill San Antonio
Loan Obligations).
(ii) The Merrill San Antonio Loan Agreement was securitized and
sold into the CMBS market and is part of a mortgage pool known as ML-CFC 2006-4,
for which U.S. Bank is trustee, Wells Fargo serves as master servicer, and LNR Partners
(iii) The Merrill San Antonio Debtors acknowledge and agree that,
and executed by the Merrill San Antonio Debtors in connection with the Merrill San
Antonio Loan Agreement (the Merrill San Antonio Mortgage and together with the
Merrill San Antonio Loan Agreement and all other loan documents executed in
connection therewith prior to the Petition Date, collectively, the Merrill San Antonio
Loan Documents and, together with Merrill Washington D.C. Loan Documents and the
Merrill Tysons Corner Loan Documents, the Merrill Loan Documents and, together
with the Fixed Rate Loan Documents, the Floating Rate Loan Documents, the Anaheim
Loan Documents and the Capmark Loan Documents, the Loan Documents), the
Merrill San Antonio Debtors have granted to the Merrill San Antonio Lender a security
the Merrill San Antonio Loan Documents (collectively, the Merrill San Antonio
Collateral and, together with the Merrill Tysons Corner Collateral and Merrill
Washington D.C. Collateral, the Merrill Collateral and, together with the Fixed Rate
Collateral, the Floating Rate Collateral, the Anaheim Collateral and the Capmark
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Collateral, the Prepetition Collateral) as collateral security for payment and
performance when due of the Merrill San Antonio Loan Obligations.
(iv) The Merrill San Antonio Debtors further acknowledge and agree
that the Merrill San Antonio Collateral includes cash collateral within the meaning of
section 363(a) of the Bankruptcy Code (together with the Merrill Washington D.C. Cash
Collateral and the Merrill Tysons Corner Cash Collateral, the Merrill Cash Collateral
and, together with the Fixed Rate Cash Collateral, the Floating Rate Cash Collateral, the
Anaheim Cash Collateral and the Capmark Cash Collateral, the Cash Collateral).
(v) The Merrill San Antonio Debtors further acknowledge and agree
that (a) the Merrill San Antonio Loan Obligations are valid, binding, and enforceable
obligations of the Merrill San Antonio Debtors in accordance with the terms set forth in
the Merrill San Antonio Loan Documents, and (b) the liens and security interest granted
to the Merrill San Antonio Lenders, or any of them, as security for the Merrill San
Antonio Loan Obligations are valid, perfected, and enforceable liens and security
interests in accordance with the terms set forth in the Merrill San Antonio Loan
Documents.
The term: (a) Tranche of Debt shall mean, as the context requires, the Fixed Rate
Obligations, the Floating Rate Loan Obligations, the Anaheim Loan Obligations, the applicable
Capmark Loan Obligations, and the applicable Merrill Loan Obligations (each, a Loan
Obligation and, together, the Loan Obligations); (b) applicable Debtors shall mean,
collectively, the Debtors with obligations arising under a Tranche of Debt; (c) Adequate
Protection Party or applicable Adequate Protection Party shall mean the Representative
and each secured party who is party to the Loan Documents within a Tranche of Debt and who
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has been granted a lien in cash constituting Cash Collateral; (d) applicable Loan Documents
shall mean the Loan Documents relating to the applicable Tranche of Debt; (e) applicable
Capmark Loan Obligations shall refer to the obligations relating to the specific loans and
obligations identified in paragraphs 4, 5, and 6 hereof, respectively, and not to all three such
loans and obligations collectively; and (e) applicable Merrill Loan Obligations shall refer to
the obligations relating to the specific loans and obligations identified in paragraphs 7, 8, and 9
hereof, respectively, and not to all three such loans and obligations collectively.
D. Cause Shown. Good cause has been shown for the entry of this Order. The
Debtors do not have sufficient available sources of working capital and financing to carry on the
operation of their businesses without use of Cash Collateral. Among other things, entry of this
Order will minimize disruption of the Debtors businesses and operations and permit them to
make payroll and other operating expenses, including, without limitation, to honor their
obligations under their agreements with the management companies for their hotels, maintain
business relationships with their vendors, and retain customer and vendor confidence by
demonstrating an ability to maintain normal operations. The use of the Cash Collateral will,
therefore, help preserve and maintain the going concern value of the Debtors and their estates,
and will enhance the prospects for a successful reorganization of the Debtors under Chapter 11
of the Bankruptcy Code.
E. Notice. Notice of the Preliminary Hearing and the relief requested in the Motion
has been given to: (i) the Office of the United States Trustee for the Southern District of New
York (the U.S. Trustee); (ii) the entities listed on the Consolidated List of Creditors Holding
the 50 Largest Unsecured Claims filed pursuant to Bankruptcy Rule 1007(d); (iii) counsel to
each of the Fixed Rate Lender, Floating Rate Lender, Anaheim Lenders, Capmark Lenders and
Merrill Lenders, to the extent known, and, as applicable, each of the lenders Representatives;
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(iv) the Internal Revenue Service; (v) the Securities and Exchange Commission; (vi) the
Debtors Franchisors; (vii) the Office of the Attorney General in all of the states in which the
Debtors operate; (viii) any applicable state public utilities commissions required to receive notice
under the Bankruptcy Rules or Local Rules; and (viii) each of the Debtors credit card processing
companies. In view of the urgency of the relief requested, such notice of the Preliminary
Hearing complies with sections 102(1) and 363 of the Bankruptcy Code, Bankruptcy Rules 2002
and 4001(b), and Local Bankruptcy Rule 4001-2.
F. Fair and Reasonable. Based on the record presented to the Court at the
Preliminary Hearing and the consent of the Representative for each Tranche of Debt, the terms of
the Debtors use of the Cash Collateral appear to be fair and reasonable, and to reflect the
Debtors and their respective managers and directors exercise of prudent business judgment
consistent with their fiduciary duties.
G. Rule 4001. The Debtors have requested immediate entry of this Order pursuant to
Bankruptcy Rule 4001(b)(2). The permission granted herein to use the Cash Collateral is
necessary to avoid immediate and irreparable harm to the Debtors. This Court concludes that
entry of this Order is in the best interest of the Debtors estates and creditors.
Based upon the foregoing findings and conclusions, and upon the record made before this
Court at the Preliminary Hearing, and good and sufficient cause appearing therefor;
IT IS HEREBY ORDERED that:
1. Motion Disposition. The Motion is GRANTED in its entirety on an interim basis.
All objections to the relief sought herein or the entry of this Order that have not been withdrawn
or resolved are overruled on their merits.
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2. Effect. Notwithstanding any provision of the Bankruptcy Code or the Bankruptcy
Rules to the contrary, this Order shall take effect immediately upon entry nunc pro tunc to the
Petition Date and shall remain in effect as to all of the Debtors until the occurrence and
continuation of a Termination Event (as defined below) at which point the effectiveness of this
Order shall terminate only as to the Cash Collateral of the relevant Debtors as to whom such
Termination Event applies (such period being referred the Cash Collateral Period). The
Debtors expressly reserve their rights to seek continued use of Cash Collateral after the
expiration of the Cash Collateral Period on the terms set forth herein or on modified terms. The
termination of the Cash Collateral Period for any Debtor or group of Debtors shall not serve, in
and of itself, as a termination of the Cash Collateral Period for any other Debtor.
3. Modifications. If any or all of the provisions of this Order are hereafter modified,
vacated, reversed, or stayed by an order of the Court or another court, such stay, modification,
reversal, or vacation shall not affect the validity, perfection, priority, allowability, or
enforceability of any lien, security interest, claims, priority, payments, or protection authorized
for the benefit of any of the Adequate Protection Parties hereunder that is granted or attaches
prior to the effective date of such stay, modification, reversal, or vacation, and any use of the
Cash Collateral by the Debtors pursuant to this Order prior to the effective date of such
modification, stay, reversal, or vacation shall be governed in all respects by the original
provisions of this Order.
4. No Prejudice. This Order is without prejudice (i) to the rights of each of the
Fixed Rate Representative, the Floating Rate Lender, the Anaheim Lender, the Capmark Mission
Valley Lender, the Capmark Garden Grove Lender, the Capmark Ontario Lender, the Merrill
Washington D.C. Lender, the Merrill Tysons Corner Lender, the Merrill San Antonio Lender,
and applicable special servicers (each, a Representative) at any time to seek a modification of
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this Order, or a different cash collateral order, including a request for additional or other
adequate protection or the termination of the applicable Debtors right to use Cash Collateral,
after notice and hearing, including a hearing noticed on an emergency basis; and (ii) to the rights
of the Debtors at any time to seek modification and/or extension of the Order, including an
increased use of Cash Collateral and a modification of adequate protection, or a different order,
after notice and hearing, including a hearing noticed on an emergency basis.
5. Use of Cash Collateral. Each Debtor is hereby authorized to use Cash Collateral
during such applicable Debtors Cash Collateral Period, in accordance with, and subject to the
conditions and limitations set forth in, this Order and in the Cash Management Motion and
related order. In addition, the Floating Rate Debtors are hereby authorized and directed to, and
shall, use Cash Collateral of the Floating Rate Lender to pay any commitment and closing fees
under the Floating Rate PIP DIP (as defined below) on the closing date thereof and to the extent
approved by an order of the Court, to the extent such approval is required.
6. Adequate Protection for Use of Cash Collateral. As adequate protection for, and
to the extent of, any diminution in the value of any Adequate Protection Partys interest in the
Prepetition Collateral securing obligations owing to it during the Cash Collateral Period resulting
from (x) the use of its Cash Collateral pursuant to section 363(c) of the Bankruptcy Code, (y) the
use, sale, lease, or other diminution in value of its Prepetition Collateral (other than the Cash
Collateral) pursuant to section 363(c) of the Bankruptcy Code, or (z) the imposition of the
automatic stay pursuant to section 362(a) of the Bankruptcy Code (collectively, the Adequate
Protection Obligations), and effective as of the Petition Date, without the necessity of the
execution by the Debtors of mortgages, security agreements, pledge agreements, financing
statements, or otherwise:
a. Representatives Expense Reimbursement.
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(i) The Debtors shall pay or reimburse, subject to the provisions set
forth in paragraph 6(f) hereof, following submission of reasonably detailed
invoices or statements (redacted as may be necessary to preserve
privilege), the reasonable, documented out-of-pocket fees and expenses of
attorneys and other professional advisors retained by the Representatives
in connection with matters relating to this Order and to the obligations
hereunder, and the plan support agreement among the Floating Rate
Lender and the Floating Rate Debtors. The foregoing obligations shall be
referred to herein as the Representatives Expense Reimbursement.
(ii) Each professional referred to in paragraph 6(a)(i) hereof, shall
submit copies of its professional fee invoices or statements, to respective
counsel to the applicable Debtor, the U.S. Trustee, and any official
committee appointed in the Chapter 11 Cases (each, a Committee).
Such invoices may be redacted only to the extent necessary to delete any
information subject to the attorney-client privilege, any information
constituting attorney work product, or any other confidential or proprietary
information, and the provision of such invoices shall not constitute any
waiver of the attorney-client privilege or of any benefits of the attorney
work product doctrine. The Debtors, the U.S. Trustee, and any Committee
may object to the reasonableness of the fees and expenses included in any
such professional fee invoices. If an objection to a professionals invoice
is filed and served on such professional within 10 days from the date of
receipt by such objecting party of the relevant invoice, the Debtors only
shall be required to pay the undisputed amount of the applicable invoice, if
any, and any such objection shall be resolved by the agreement of the
objecting party, the Debtors, and the affected professional or by the Court,
with the payment, if any, of the disputed amount only occurring after such
resolution. For the avoidance of doubt, professionals retained by the
Representatives shall not be required to file any interim or final fee
applications or summaries of fees with respect thereto in connection with
the Representatives Expense Reimbursement provided for herein.
b. Adequate Protection Liens.
(i) To the extent of any Adequate Protection Obligations arising under
any Tranche of Debt, the applicable Adequate Protection Party shall
receive, and hereby is granted, a perfected replacement lien and security
interest in and valid, binding, enforceable and perfected liens (the
Adequate Protection Liens) on all of the applicable Debtors rights in,
to, and under all present and after-acquired property and assets of the like-
kind or type that would constitute Prepetition Collateral of such Adequate
Protection Party in accordance with the applicable Loan Documents of
any nature whatsoever whether real or personal, tangible or intangible,
wherever located, including, without limitation, all cash and Cash
Collateral and any investment of such cash and Cash Collateral, goods,
cash-in-advance deposits, contracts, causes of action, general intangibles,
accounts receivable, and other rights to payment, whether arising before or
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after the Petition Date, chattel paper, documents, instruments, interests in
leaseholds, real properties, plants, machinery, equipment, patents,
copyrights, trademarks, trade names or other intellectual property,
licenses, insurance proceeds, and tort claims, and any and all of the
proceeds, products, offspring, rents and profits thereof, rights under letters
of credit, capital stock and other equity or ownership interests held by the
Debtors, including equity interests in subsidiaries and all other investment
property, and the proceeds of all of the foregoing, whether in existence on
the Petition Date or thereafter created, acquired, or arising and wherever
located (all such property, other than the Prepetition Collateral in
existence immediately prior to the Petition Date, being collectively
referred to as, the Postpetition Collateral), which liens and security
interests shall be subject only to (A) the Carve Out, (B) liens granted in
respect of Permitted DIPs (as defined below), and (C) all valid,
enforceable and non-avoidable liens and security interests in the
applicable Prepetition Collateral that were perfected prior to the Petition
Date (or perfected thereafter to the extent permitted by section 546(c) of
the Bankruptcy Code), which are not subject to avoidance, disallowance,
or subordination pursuant to the Bankruptcy Code or applicable non-
bankruptcy law and which are senior to the applicable Adequate
Protection Partys liens in such Prepetition Collateral as of the Petition
Date (the Prior Liens). The Postpetition Collateral in favor of any
Adequate Protection Party shall not include any claims and causes of
action under section 544, 545, 547, 548, 549, or 550 of the Bankruptcy
Code (collectively, the Avoidance Actions), but shall include the
proceeds of Avoidance Actions recovered by the applicable Debtor to the
extent the Court includes such provision in the Final Order, subject to the
limitations set forth herein or in the Final Order. To the extent applicable,
all Adequate Protection Liens shall be subject to terms and conditions of
any intercreditor agreements. For the avoidance of doubt, such Adequate
Protection Liens granted hereunder shall be deemed to be effective and
perfected as of the Petition Date and without the necessity of the execution
by the Debtors of mortgages, security agreements, pledge agreements,
financing statements, or other agreements.
(ii) The Adequate Protection Liens shall be enforceable against the
applicable Debtors, their estates and any successors thereto, including,
without limitation, any trustee or other estate representative appointed in
the Chapter 11 Cases, or any case under chapter 7 of the Bankruptcy Code
upon the conversion of any of the Chapter 11 Cases, or in any other
proceedings superseding or related to any of the foregoing (collectively,
the Successor Cases).
(iii) The Adequate Protection Liens shall be deemed legal, valid,
binding, enforceable, and perfected liens, not subject to subordination,
impairment, or avoidance, for all purposes in the Chapter 11 Cases and
any Successor Cases or upon the dismissal of any of the Chapter 11 Cases
or Successor Cases.
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c. Adequate Protection 507(b) Claims. As further adequate
protection for any Adequate Protection Obligations, the applicable
Adequate Protection Party shall have an administrative expense claim
against the Debtors with obligations arising under the applicable Tranche
of Debt under section 507(b) of the Bankruptcy Code with priority over all
other administrative expense claims and unsecured claims against such
Debtors, now existing or hereafter arising, of any kind whatsoever
(collectively, the 507(b) Claims), subject in each case to the Carve Out,
and to any superpriority claim in favor of Permitted DIPs.
d. Reporting.
(i) The Debtors have delivered to the Representatives a 13-week
forecast of cash receipts and disbursements (a 13-Week Forecast), a
copy of which is attached hereto as Schedule 10. The Debtors shall
deliver to the Representatives: (A) except as provided in clause (C),
below, on the first day of each calendar month (unless such day is not a
business day in which case the required delivery date shall be the next
succeeding business day) a revised 13-Week Forecast for the 13-week
period from the last Saturday of the prior calendar month (each such
revised forecast, for the period of its applicability, to be referred to herein
as the Forecast); (B) except as provided in clause (C) below, on the last
day of each calendar month (unless such day is not a business day in
which case the required delivery date shall be the next succeeding
business day), a report showing in reasonable detail a comparison of actual
receipts and disbursements for the period from the last date included in
last such report through and including the last Saturday of the prior
calendar month against the receipts and disbursements projected in the
Forecast for such period (the Variance Report); and (C) with respect to
the first Forecast and Variance Report following the Petition Date, (1) the
Forecast shall be due on the first day of the calendar month (unless such
day is not a business day in which case the required delivery date shall be
the next succeeding business day), that is at least 30 days from the Petition
Date, and (2) the Variance Report shall be delivered on the last day of the
calendar month (unless such day is not a business day in which case the
required delivery date shall be the next succeeding business day), that is at
least 60 days from the Petition Date, and shall set forth the required
comparison from the Petition Date through the last Saturday of the
calendar month that is at least 30 days prior to the date when such report is
required to be delivered. Together with each Forecast delivered to the
Representatives, promptly following request therefor, the Debtors also
shall deliver to the Representatives material back-up details relative to the
components of such Forecast. Thereafter, promptly following request, the
Debtors shall make themselves reasonably available to discuss such
Forecast and the details thereof. To the extent of any unresolved issues
between the Representatives and the Debtors, such parties shall have the
right to apply to the Court for resolution.
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(ii) The Debtors also shall provide to each Representative month-end
profit and loss statements for each individual hotel property (not
consolidated by Tranche of Debt) within 30 days of the end of the month
(or, if the 30th day is not a business day, the next succeeding business
day), which shall include year-to-year results, comparisons with same
period in the immediately preceding year, and key operating metrics
consisting of occupancy, so-called ADR and so-called REVPAR. The
Debtors also shall provide on a monthly basis, at the same time as they
provide the month-end statements referred to in the first sentence of this
paragraph (ii), the so-called STR report for each property.
e. Cumulative Forecast Variance. Until the entry of the Final Order,
the Debtors agree that, as reported in any Variance Report delivered
pursuant to paragraph 6(d)(i) of this Order, (x) during each 4-week
cumulative period as tested from the last Sunday of such period, the
Debtors shall not use Cash Collateral to the extent such use would exceed,
for such period, 110% of cash disbursements (excluding those
disbursements on account of Professional Fees and any Representatives
Expense Reimbursement) contemplated to be made by such Debtors
during such 4-week period in the applicable Forecast, and (y) during each
13-week cumulative period as tested from the last Sunday of such period,
the Debtors shall not use Cash Collateral to the extent such use would
exceed, for such cumulative period, 106.5% of cash disbursements
(excluding those disbursements on account of Professional Fees and any
Representatives Expense Reimbursement) contemplated to be made by
such Debtors during such 13-week cumulative period in the applicable
Forecast. To the extent that there is a variance, positive or negative
(expressed as a percentage), of receipts in any one month period as
compared to the receipts for the same period forecasted in the applicable
Forecast with respect to any Hotel Operating Expense (as defined below),
then the variance from budget permitted pursuant to the preceding
sentence on account of such Hotel Operating Expense shall be adjusted by
such percentage. Hotel Operating Expense means any of the
following line items listed on the applicable Forecast: (i) payroll and
related; (ii) franchise taxes; (iii) utility costs; (iv) third party management
and related fees; (v) all other expenses; and (vi) occupancy/sales tax.
f. Cash Use Covenant; True-Ups. (i) In the ordinary course of
operations and consistent with practices in place prior to the Petition Date,
the Debtors shall consolidate all cash in a master account owned by one or
more Debtors.
3
Such consolidated cash shall be applied as follows:
1) first, given the timing of cash receipts versus certain
disbursements, to establish or increase, as the case may be, an
expense reserve in amounts and at times reasonably determined by

3
For the avoidance of doubt, nothing contained in this Order shall constitute a substantive
consolidation of the Debtors estates.
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the Debtors for the purpose of ensuring sufficient cash on-hand to
pay accrued expenses of the type contemplated by an applicable
Forecast but which expenses are expected to become payable
during a period other than the period when cash in excess of then-
payable expenses has been generated, in an amount at any time
outstanding not to exceed $2,000,000;
2) second, to the extent of any excess, to pay property level
costs and expenses of the hotels and the Operating Lessees,
including the costs and expenses identified in the applicable
Forecast as Maintenance/emergency CAPEX;
3) third, to the extent of any excess, to pay corporate overhead
charges and expenses of Innkeepers USA Trust and the other
Debtors;
4) fourth, to the extent of any excess, to pay any Professional
Fees (to the extent permitted by the Court to be paid at such time),
as well as the Representatives Expense Reimbursement;
5) fifth, to the extent of any excess, to pay amounts then
owing on account of any Permitted DIPs to the extent then
payable, but only to the extent such fees and expenses are not
payable from the proceeds of such Permitted DIPs; and
6) sixth, to the extent of any excess, to repay any
intercompany loans incurred pursuant to or as a result of the
provisions set forth in Paragraph 6(f)(v).
(ii) The Debtors shall provide to each Representative a so-called flash
report commencing in August, 2010, (x) on the 15th of each calendar
month (or, if such day is not a business day, then on the next succeeding
business day), detailing cash disbursements for the Debtors for the period
from the 16th through and including the last day of the immediately prior
month (except for the report due on August 15, 2010, only for the period
from the Petition Date through and including July 31, 2010), and (y) on
the 30th of each calendar month (or, if such day is not a business day, then
on the next succeeding business day), detailing cash disbursements for the
Debtors for the period from the first day through and including the 15th
day of such month, and, in each case, including information, to the extent
then determined by the Debtors, their anticipated allocation of all or any
portion of the cash disbursements made during such period, on a Tranche
of Debt by Tranche of Debt basis, and the approximated amount of cash
disbursements not yet allocated (it being understood that the Debtors
proposed allocation shall not constitute the Debtors final allocation
(which shall only be included in an Application Report (as defined below),
but only their good faith application based upon information then available
to the Debtors). At any time following the Debtors delivery of any flash
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report, any Representative may, following a reasonable request, seek from
the Debtors reasonable information in order to determine, based upon a
sampling of such information, the basis for certain of the Debtors
proposed allocations (it being understood that such requests, if any,
relative to the information contained in flash reports only, shall not be
reasonable to the extent they seek from the Debtors all or substantially all
of the Debtors invoices and similar information used in determining the
proposed allocation). To the extent of any dispute as the contents of any
flash report, the parties shall have the right to apply to the Court for
expedited resolution.
(iii) Within 45 days (or, if the 45th day is not a business day, the next
succeeding business day) after the end of each calendar month, the
Debtors shall provide to each Representative a report for such month, on a
Tranche of Debt by Tranche of Debt basis, as to the application of the cash
in accordance with the waterfall set forth in paragraph 6(f)(i) hereof (the
Application Report), with such Application Report to be based upon
(x) the Cash Collateral generated by the applicable Debtors within a
Tranche of Debt, plus or minus, as the case may be, the amount deemed
loaned or borrowed, as applicable, by the applicable Debtors (to the extent
set forth in paragraph 6(f)(iv) hereof), (y) in the case of all of the waterfall
items other than third and, with respect to Professional Fees, fourth, in
accordance with the amounts actually applicable to the applicable Debtors,
and (z) in the case of waterfall items third and, with respect to
Professional Fees, fourth, in accordance with the Allocation Percentages
(as defined below). Amounts actually applied in accordance with the
waterfall set forth in paragraph 6(f)(i) hereof shall be deemed to have been
applied for the benefit of the Debtors within a Tranche of Debt in
accordance with the Application Report. Each Representative shall have
the right to audit and challenge any Application Report upon the serving
of notice of such challenge (a Challenge Notice) (within 10 days
following receipt of such report) on the Debtors, counsel for the Debtors,
and counsel for any Committee and the other Representatives. Any such
Challenge Notice shall be reasonably detailed as to the nature and basis for
the challenge. Promptly following receipt of a Challenge Notice, the
parties shall endeavor in good faith to resolve any disputes and, failing a
resolution, shall have the right to apply to the Court for resolution after no
less than 15 days after the service of a Challenge Notice. Upon a
resolution, a revised Application Report (if any) shall be distributed to the
Representatives (and, for the avoidance of doubt, such revised report shall
not be subject to a challenge period).
(iv) If the Application Report demonstrates that the Cash Collateral
generated by the Debtors within a Tranche of Debt exceeded the amount
of cash deemed to have been applied in accordance with the waterfall set
forth in paragraph 6(f)(i) hereof, then such excess amount shall be paid to
the applicable Representatives for the benefit of the applicable Adequate
Protection Parties on account of the financial obligations within the
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applicable Tranche of Debt consisting of interest and principal owing to
the applicable Adequate Protection Parties under the applicable Loan
Documents.
(v) If the Application Report demonstrates that the Cash Collateral
generated by the Debtors (in such case, the Borrower Debtors) within a
Tranche of Debt was less than the amount of cash deemed to have been
applied in accordance with the waterfall set forth in paragraph 6(f)(i)
hereof, then such shortfall amount shall be deemed to be a loan from one
or more Debtors (the Lender Debtors), in the amount as may be set
forth in the Application Report, to the Borrower Debtors, and such loan
shall be, and is hereby, secured on a super-priority basis in accordance
with sections 364(c)(2) and (d) of the Bankruptcy Code by senior secured
and priming liens on and security interests in all the Borrower Debtors
property, and the obligations of the Borrower Debtors to pay such shortfall
amounts shall constitute, in accordance with section 364(c)(1) of the
Bankruptcy Code, a super-priority administrative expense claim having
priority over any or all administrative expenses of the kind specified in,
among other sections, sections 105, 326, 330, 331, 503(b), 506(c), 507(a)
and 726 of the Bankruptcy Code; provided, however, that (A) such loans
shall be allocated, in accordance with the Allocation Percentage, among
the Debtors without a shortfall, and (B) all interest, liens, and claims on
account of such loans shall be junior in right of payment only to all
interests, liens and claims of Permitted DIPs and the Carve Out.
(vi) Notwithstanding anything to the contrary set forth in an
Application Report, or otherwise in this Order, all payments to a
Representative or an Adequate Protection Party will be made by the
Debtors, and, to the extent accepted by an Adequate Protection Party,
accepted, subject to recharacterization, refund, disgorgement, or other
treatment as may be necessary to give effect to the Application Report at
such time, or otherwise, and as may be determined by the Court, and all
parties reserve their rights with respect thereto.
(vii) The term Allocation Percentages shall mean the percentage
determined by multiplying (x) earnings before interest, taxes, depreciation,
and amortization (EBITDA) earned in connection with each Tranche of
Debt (or, in the case of intercompany loans, with respect to each Tranche
of Debt deemed a lender) that as a percentage of total EBITDA for such
period by (y) the total amount of corporate overhead charges and expenses
of Innkeepers USA Trust and the other Debtors, as well as Professional
Fees (to the extent permitted by the Court to be paid at such time) paid
during such time.
g. Right to Inspect and Audit. In accordance with the applicable
Loan Documents, the Debtors shall permit each Representative (through
its officers, senior employees, or agents, including but not limited to
professionals retained in connection with these cases) to inspect the
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applicable Prepetition Collateral during business hours upon reasonable
advance notice. In addition, the Debtors shall allow each Representative
to periodically inspect and audit the books, records and account statements
of the applicable Debtors in order to confirm the applicable Debtors
compliance with this Order and any budget approved in connection with a
Permitted DIP.
h. Right to Credit Bid. The Adequate Protection Parties shall have
the right to credit bid their claims to the fullest extent permitted by law in
connection with any sale, auction or other disposition, including but not
limited to, in connection with any plan of reorganization or liquidation, of
the applicable Prepetition Collateral pursuant to 11 U.S.C. 363(k).
Notwithstanding anything herein to the contrary, no Adequate Protection Party shall be
entitled to adequate protection (and no Adequate Protection Obligations shall arise) with respect
to any diminution in value of such Adequate Protection Partys interest in its Prepetition
Collateral resulting from any successful Avoidance Action against, or Avoidance Action
proceeds recovered from, such Adequate Protection Party, or from or as a result of the payment
of any costs, fees or expenses included as part of adequate protection hereunder.
7. Carve Out. (a) As used in this Order, Carve Out means: (i) unpaid fees of the
Clerk of the Court and the U.S. Trustee pursuant to 28 U.S.C. 1930(a); (ii) in the event of a
conversion of the Chapter 11 Cases to cases under chapter 7 of the Bankruptcy Code, fees and
expenses incurred by any trustee and any professionals retained by such trustee, in an aggregate
amount not exceeding $75,000; (iii) to the extent allowed at any time, whether by interim order,
procedural order or otherwise, all unpaid fees and expenses (the Professional Fees), incurred
by persons or firms retained by the Debtors pursuant to section 327, 328 or 363 of the
Bankruptcy Code and any Committee appointed pursuant to section 1103 of the Bankruptcy
Code (the Professional Persons), at any time before or on the first business day following
delivery of a Carve Out Trigger Notice (as defined below), whether allowed by the Court prior to
or after delivery of a Carve Out Trigger Notice; and (iv) after the first business day following
delivery of the Carve Out Trigger Notice, to the extent allowed at any time, whether by interim
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order, procedural order or otherwise, the payment of Professional Fees of Professional Persons in
an aggregate amount not to exceed $5,500,000. The Carve Out shall be senior to the
Replacement Liens, the 507(b) Claims, and any other adequate protection, liens or claims
securing the obligations arising under or in connection with the Loan Documents. For purposes
of calculating the amount of Professional Fees permitted to be paid to a Professional Person as
part of the Carve Out under subsection (iv) of this paragraph 7, such amount shall be net of all
prepetition retainers held by such Professional Person.
(b) As used herein, Carve Out Trigger Notice means a Termination Notice
(as defined below) delivered by a Representative on any business day (or, if such day of
delivery is not a business day, the next succeeding business day), which notice has been
preceded by Termination Notices delivered in connection with each Tranche of Debt,
and, as a result of the most recently delivered Termination Notice, all Tranches of Debt
shall have become subject to continuing Termination Events.
(c) For the avoidance of doubt, the obligation to pay Professional Fees shall
be allocated as among the Debtors in accordance with the Allocation Percentage.
8. Modification of Automatic Stay. The automatic stay under section 362(a) of the
Bankruptcy Code is hereby modified as necessary to effectuate all of the terms and provision of
this Order, including, without limitation, to: (a) permit the Debtors to grant the Adequate
Protection Liens and the 507(b) Claims; (b) permit the Debtors and the Adequate Protection
Parties to perform such acts as the Adequate Protection Parties may reasonably request the
applicable Debtors to take to assure the perfection and priority of the liens granted herein; and (c)
authorize the applicable Debtors to make, and the applicable Adequate Protection Parties to
receive and retain in accordance with the terms of the applicable Loan Documents, payments on
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account of fees and expenses in accordance with the terms of this Order; provided, however, any
stay relief with respect to the exercise of remedies shall be in accordance with paragraph 11
below or as otherwise ordered by the Court.
9. Perfection of Adequate Protection Liens. This Order shall be sufficient and
conclusive evidence of the validity, perfection, and priority of the Adequate Protection Liens,
without the necessity of filing or recording any mortgage, deed of trust, financing statement, or
other instrument or document that may otherwise be required under the law or regulation of any
jurisdiction or the taking of any other action (including, for the avoidance of doubt, entering into
any deposit account control agreement) to validate or perfect (in accordance with applicable non-
bankruptcy law) the Adequate Protection Liens, or to entitle the Adequate Protection Parties to
the priorities granted herein. The applicable Debtors are authorized to execute and deliver
promptly to the applicable Adequate Protection Parties or their Representative, as applicable, all
such financing statements, mortgages, deeds of trust, notices, and other documents as the
applicable Adequate Protection Party may reasonably request. Each of the Adequate Protection
Parties or their Representative, as applicable, may file a photocopy of this Order as a financing
statement, mortgage, deed of trust, notice of lien or similar instrument evidencing the liens and
security interests provided for herein, with any filing or recording office or with any registry of
deeds or similar office, in addition to or in lieu of such financing statement, mortgage, deed of
trust, notice of lien, or similar instrument.
10. Termination Events. (a) The rights of the Debtors under a Tranche of Debt (but
not the rights of any Debtors under any other Tranche of Debt) to use Cash Collateral relating to
such Tranche of Debt shall terminate upon the business day immediately following written
notice (a Termination Notice) delivered to (i) the applicable Debtors, (ii) counsel to the
Debtors, (iii) the U.S. Trustee, (iv) counsel to each Committee, and (v) counsel to each
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Representative, indicating that one of the events listed below has occurred and is continuing with
respect to such applicable Debtors (each, a Termination Event):
i. This Order shall (I) not have become a final order within 45 days of the
Petition Date or (II) prior to becoming a final order or otherwise replaced
or superseded, at any time cease to be in full force and effect, or shall have
been vacated, reversed or stayed, or modified or amended in a manner that
is materially adverse to the applicable Adequate Protection Party (taken as
a whole) without such partys (or its Representatives) consent;
ii. The Debtors under such Tranche of Debt shall fail to timely make
payments required to be made by them pursuant to the terms of this Order
within five (5) business days from when such payment is due;
iii. The Debtors under such Tranche of Debt shall breach any of the covenants
or agreements contained in this Order (other than a payment obligation)
applicable to them and such breach shall continue unremedied for more
than ten (10) business days following notice of such breach;
iv. The Debtors shall make any misrepresentation of a fact that is materially
adverse to the Debtors (taken as a whole) to any of the Representatives or
their agents about the financial conditions of the Debtors, the nature,
extent, or location of the applicable Prepetition Collateral, or the
disposition or use of any of the Postpetition Collateral, including the Cash
Collateral;
v. The Debtors under such Tranche of Debt shall permit any superpriority
claim (other than the Carve Out) or shall grant any other lien or security
interest (including any other adequate protection lien), that in either case is
senior or equal to the claims and liens (including the adequate protection
claims and liens) of the applicable Adequate Protection Party, except
superpriority claims and liens senior to the Adequate Protection Liens and
507(b) Claim relating to one or more debtor-in-possession financing
facilities approved by the Court and provided to some or all of the Debtors
(the Permitted DIPs); provided, however, that with respect to the Fixed
Rate Debtors, a Permitted DIP shall only mean that certain debtor in
possession financing arrangement provided by Five Mile Capital Partners
LLC, and its successors and assigns, approved solely for the purposes set
forth therein (the Fixed Rate PIP DIP), and shall mean no other debtor
in possession financing arrangement; provided, further, that, with respect
to the Floating Rate Debtors, a Permitted DIP shall only mean that certain
debtor-in-possession financing arrangement provided by Lehman ALI Inc.
(or an affiliate), and its successors and assigns, approved solely for the
purposes set forth therein (the Floating Rate PIP DIP), and shall mean
no other debtor-in-possession financing arrangement;
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vi. Any lien or security interest granted or created under the applicable Loan
Documents shall be asserted by any Debtor not to be a valid and perfected
lien on or security interest in any of the applicable Postpetition Collateral,
with the priority required by the applicable Loan Documents; provided,
however, that the immediate foregoing shall not apply with respect to any
liens granted under the Permitted DIPs;
vii. Other than payments authorized by the Court and that are (I) approved by
the Representative of such Tranche of Debt, (II) in respect of accrued
payroll and related expenses as of the Petition Date, (III) in respect of
general unsecured creditors, in each case to the extent authorized by one
or more first day orders or other orders of the Court (including this
Order) to the extent previously provided to the applicable Representative,
or (IV) on account of Professional Fees, the Debtors under such Tranche
of Debt shall make any payment (whether by way of adequate protection
or otherwise) of principal or interest or otherwise on account of any
prepetition indebtedness or payables (including without limitation,
reclamation claims);
viii. Lender Debtors under such Tranche of Debt have caused to be loaned to
Borrower Debtors an aggregate amount of more than $2,000,000 at any
one time outstanding.
ix. With respect to such Tranche of Debt, one or more franchisors have
terminated franchise agreements relating to hotels owned by the Debtors
under such Tranche of Debt;
x. With respect to such Tranche of Debt, the Court shall enter an order
granting relief from the automatic stay to the holder or holders of any
security interest to permit foreclosure (or the granting of a deed in lieu of
foreclosure or the like) on a hotel constituting Prepetition Collateral and
such order shall not be subject to timely appeal;
xi. There shall have occurred and be continuing one or more events of default
under the Fixed Rate PIP DIP or the Floating Rate PIP DIP that,
individually or in the aggregate, cause or permit the lenders thereunder to
cause, the obligations under the Fixed Rate PIP DIP or the Floating Rate
PIP DIP, as the case may be, to become immediately due and payable;
xii. The Debtors under such Tranche of Debt shall use Cash Collateral arising
under such tranche for a purpose not permitted hereunder unless such non-
permitted use was inadvertent, and was not in an amount in excess of
$25,000; provided, that, notwithstanding the immediate foregoing, the use
of Cash Collateral not permitted hereunder occurring more than five (5)
times shall constitute a Termination Event unless such amounts have been
repaid or reallocated, as the case may be;
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xiii. The Bankruptcy Court shall enter an order granting relief from the
automatic stay to permit any exercise of remedies by the lenders or special
servicer under a Tranche of Debt other than limited relief solely to permit
the delivery of default notices under the terms of the applicable Loan
Documents;
xiv. The Debtors shall file any motion or other request for relief seeking to (i)
dismiss any of the Chapter 11 Cases, (ii) convert any of the Chapter 11
Cases to a case under chapter 7 of the Bankruptcy Code, or (iii) appoint a
trustee or an examiner with expanded powers pursuant to section 1104 of
the Bankruptcy Code in any of the Chapter 11 Cases; or
xv. The Bankruptcy Court shall enter an order (i) dismissing any of the
Chapter 11 Cases, (ii) converting any of the Chapter 11 Cases to a case
under chapter 7 of the Bankruptcy Code, (iii) appointing a trustee or an
examiner with expanded powers pursuant to section 1104 of the
Bankruptcy Code in any of the Chapter 11 Cases, or (iv) making a finding
of fraud, dishonesty or misconduct by any officer or director of the
Company, regarding or relating to the Debtors;
xvi. There shall have occurred, after the entry of this Order, (i) a change that
has a material adverse effect on the use, value or condition of the Debtors,
their assets or the legal or financial status or business operations, in each
case taken as a whole, or (ii) a material disruption or material adverse
change in the financial, real estate, banking or capital markets; or
xvii. For the benefit of the Floating Rate Lenders only, and not for the benefit
of any other Adequate Protection Party, prior to the entry of the Final
Order, the Floating Rate Debtors breach any of their material obligations
arising in connection with the proposed restructuring of the Floating Rate
Obligations; provided, however, that the Floating Rate Lenders shall have
given three (3) business days' prior written notice setting forth in
reasonable detail such material breach; provided, further, that any such
notice shall not violate or be deemed to violate the automatic stay in the
Debtors' Chapter 11 Cases.
xviii. The Fixed Rate Lender or the Floating Rate Lenders shall have terminated
the applicable Debtors use of Cash Collateral.
(b) Notwithstanding anything to the contrary herein, no Termination Event
with respect to the Debtors under a Tranche of Debt shall be deemed to constitute a
Termination Event with respect to the Debtors under any other Tranche of Debt (it
being agreed that the foregoing shall not limit the applicability of any termination
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K&E 16933766.23
events or defaults arising under any Permitted DIP to the extent such Permitted DIP
may relate to property in more than one Tranche of Debt).
11. Rights and Remedies Upon Termination Event. (a) Immediately upon the
occurrence and during the continuation of a Termination Event with respect to a Tranche of
Debt, unless waived by a writing signed by the applicable Adequate Protection Party (or its
Representative), the applicable Adequate Protection Parties (or their Representative, as
applicable) may declare a termination, reduction, or restriction of the ability of the applicable
Debtors to use Cash Collateral on the consensual basis provided in this Order, except for the use
of Cash Collateral provided in clause (b) of this paragraph 11 (any such declaration, shall be
referred to herein as a Termination Declaration). The Termination Declaration shall be
given (a Termination Notice) by facsimile (or other electronic means) to lead counsel to the
Debtors, counsel to each Committee, and the U.S. Trustee (the date such Termination
Declaration is given pursuant to a Termination Notice shall be referred to herein as the
Termination Declaration Date). On the Termination Declaration Date, the applicable
Debtors right to use Cash Collateral on the basis provided in this Order shall automatically
cease, except as provided in clause (b) of this paragraph 11. During the five (5) business days
after the Termination Declaration Date (the Remedies Notice Period), the applicable Debtors
and/or a Committee shall be entitled to seek an emergency hearing with the Court seeking a
determination of whether a Termination Event has occurred and/or any other appropriate relief
related to continued use of Cash Collateral on a non-consensual basis, with the rights and
objections of all relevant parties reserved with respect thereto. Unless the Court determines
otherwise during the Remedies Notice Period, after the Remedies Notice Period, the applicable
Debtors shall no longer have the right to use Cash Collateral.
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(b) The applicable Debtors may continue to use Cash Collateral (i) for the
payment of any unpaid postpetition administrative expenses so long as such expenses
were actually incurred prior to the last day of the Remedies Notice Period, (ii) to meet
payroll obligations and to pay expenses critical and immediately necessary to the
preservation of the applicable Debtors and their estates incurred during the Remedies
Notice Period, and (iii) to satisfy any payment obligation senior to the obligations owed
to the Adequate Protection Parties (including Professional Fees but, with respect to such
fees, to the extent of the Carve Out).
12. Limitations on Cash Collateral and the Carve Out. The Cash Collateral under an
applicable Tranche of Debt and Professional Fees payable from such Cash Collateral may not be
used (without the prior written consent of the applicable Representative): (a) in connection with,
or to finance in any way, any action, suit, arbitration, proceeding, application, motion, or other
litigation of any type (or the preparation of any such action, suit, arbitration, proceeding,
application, motion, or other litigation) (i) against the applicable Adequate Protection Parties
seeking relief that would (A) assert, commence, or prosecute any Avoidance Actions against the
applicable Adequate Protection Parties, (B) permit the applicable Debtors to prepare or prosecute
an objection to, contest in any manner, or raise any defense to, the validity, extent, amount (other
than entitlement to postpetition interest), perfection, priority, or enforceability of any of the
rights and obligations of the applicable Adequate Protection Parties, or (C) permit the Debtors to
pay for any services rendered by the professionals retained by the Debtors in connection with the
assertion of or joinder in any claim, counterclaim, action, proceeding, application, motion,
objection, defense, or other contested matter, the purpose of which is to seek, or the result of
which would be to obtain, any order, judgment, determination, declaration, or similar relief that
would otherwise be prohibited pursuant to this paragraph 12, or (ii) invalidating, setting aside,
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avoiding, or subordinating, in whole or in part, the applicable Loan Documents or any payments
made thereunder; (b) to sell, lease, transfer, or otherwise dispose of Collateral without the prior
written consent of the applicable Adequate Protection Parties unless in the ordinary course of
business, contemplated by the Forecast, or otherwise ordered by the Court; or (c) to pay pre-
Petition Date indebtedness unless ordered by the Court. Notwithstanding the foregoing, the Cash
Collateral and the Carve Out may be used by any Committee to investigate the Loan Obligations
and the Prepetition Collateral and/or a potential Challenge (as defined below); provided that no
more than $150,000 in the aggregate may be spent from Cash Collateral on such investigations.
13. Challenge to Prepetition Claims. Upon entry of this Order and subject to the
Challenge, (i) the Loan Obligations of the Adequate Protection Parties shall constitute secured
claims against the applicable Debtors and, together with any payments on account thereof, shall
not be subject to subordination, avoidance, or objection by the Debtors or any party as to
validity, enforceability, priority, or avoidability of the security for such claims and payments
made on account thereof, and (ii) the liens and security interests of the Adequate Protection
Parties shall be deemed to be valid, perfected, enforceable, and not subject to avoidance,
subordination, or objection by the Debtors or any party as to validity, enforceability, or priority.
Notwithstanding the foregoing, such determination of the validity, perfection, enforceability, and
unavoidability of such liens and security interests, and any payments made on account thereof, is
without prejudice to the rights of any Committee to investigate and challenge any such liens or
security interests of the Adequate Protection Parties, or to assert any other claims or causes of
action, at law or in equity against any of the Adequate Protection Parties (a Challenge);
provided, that any such Challenge not made by commencement of an adversary proceeding
pursuant to Federal Rule of Bankruptcy Procedure 7001 (an Adversary Proceeding) and
served no later than 60 days after the entry of the Final Order Date or 60 days following the
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K&E 16933766.23
formation of the Committee, whichever is later (the Challenge Period), shall be forever
barred. Despite the initiation of any such Adversary Proceeding asserting a Challenge, the
Adequate Protection Parties liens, security interests, and any payments made on account thereof,
shall be presumed to be valid and entitled to the benefit of this Order pending the entry of a final
non-appealable judgment and order in favor of the party in interest with respect to such
Challenge. If no such Adversary Proceeding is properly and timely filed and served by such
date, the liens and security interests of, and payments made on account thereof to, the Adequate
Protection Parties shall not be subject to any other or further Challenge and shall be determined
to have been, as of the Petition Date, valid, binding, perfected, enforceable, unavoidable, and
having the priority asserted, and the Debtors, their estates and creditors, and any trustee in a
Successor Case shall be bound by Debtors acknowledgments, stipulations, and agreements set
forth in this Order. The Challenge Period may be extended for an authorized party by agreement
between the applicable Lenders or their Representative and such authorized party without further
order of the Court.
14. Availability of Collateral; Direction to Financial Institutions and Credit Card
Processing Companies. (a) None of the Adequate Protection Parties shall take any action during
the Cash Collateral Period to seize or take control over any of the Cash Collateral or the Debtors
other property, nor shall they impose freezes of assets or seek to exercise any alleged right of
setoff or recoupment, or exercise any other right or remedy against the Prepetition Collateral or
the Postpetition Collateral, including Cash Collateral, during the Cash Collateral Period. The
Adequate Protection parties are hereby directed to release (and, to the extent applicable, direct
any third party to release) all Cash Collateral.
(b) Each of the credit card processing companies also are directed not to take,
or cease continuing to take, any action during the Cash Collateral Period that is in the
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K&E 16933766.23
nature of a seizure, taking of control, freezing, or exercising of any right of netting,
setoff, or recoupment, or exercising any other right or remedy against the Prepetition
Collateral or the Postpetition Collateral, including Cash Collateral, during the Cash
Collateral Period. For the avoidance of doubt, the Debtors credit card processing
companies shall cease the practice of netting from sums otherwise payable to the Debtors
the amount of fees and other charges (excluding valid chargebacks) asserted by such
companies unless and until such amounts are overdue and remain unpaid by the Debtors.
15. Prepetition Subordination Agreements. All parties rights with respect to any
subordination or intercreditor agreements (if applicable) with respect to any Debtor are not
affected by the entry of this Order.
16. Section 506(c) Claims. Upon entry of the Final Order, 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.
17. No Liability to Third Parties. In not objecting to the Debtors use of Cash
Collateral under the terms set forth herein or in taking any other actions related to this Interim
Order, the applicable Representative (i) shall have no liability to any third party and shall not be
deemed to be in control of the operations of any Debtors or to be acting as a controlling
person, responsible person or owner or operator with respect to the operation or
management of any Debtors (as such term, or any similar terms, are used in the Internal Revenue
Code, the United States Comprehensive Environmental Response, Compensation and Liability
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K&E 16933766.23
Act, as amended, or any similar Federal or state statute), and (ii) shall not owe any fiduciary duty
to the Debtors, their creditors or their estates and shall not constitute or be deemed to constitute a
joint venture or partnership with any Debtor.
18. No Marshaling/Application of Proceeds. Upon entry of the Final Order and to the
extent provided for therein, neither the Adequate Protection Parties nor the Prepetition Collateral
shall be subject to the equitable doctrine of marshaling nor any other similar doctrine with
respect to any of the Prepetition Collateral, as the case may be, and proceeds shall be received
and applied in accordance with this Interim Order notwithstanding any other agreement or
provision to the contrary.
19. Section 552(b). Upon entry of the Final Order and to the extent provided for
therein, the Adequate Protection Parties shall each be entitled to all of the rights and benefits of
section 552(b) of the Bankruptcy Code, and the equities of the case exception under section
552(b) of the Bankruptcy Code shall not apply to any of the Adequate Protection Parties with
respect to proceeds, product, offspring or profits of any of the Prepetition Collateral; provided,
however, that the Debtors shall not be permitted to assert the equities of the case exception
under section 552(b) of the Bankruptcy Code against any of the Adequate Protection Parties
from and after entry of this Order until entry of the Final Order.
20. Rights Preserved. Notwithstanding anything herein to the contrary, the entry of
this Order is without prejudice to, and does not constitute a waiver of, expressly or implicitly: (a)
the applicable Representatives and Debtors right to seek any other or supplemental relief
relating to the matters set forth in this Order, including the right to seek additional adequate
protection (without prejudice to any other persons right to object to or otherwise oppose such
additional adequate protection); (b) any rights of the applicable Representative or Debtors with
respect to any plan of reorganization or liquidation filed in these Chapter 11 Cases; or (c) any of
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K&E 16933766.23
the rights of the applicable Representative or the Debtors (except in the case of the succeeding
clause (i)) under the Bankruptcy Code or under non-bankruptcy law, including, without
limitation, the right to (i) request modification of the automatic stay of section 362 of the
Bankruptcy Code, (ii) request dismissal of any of the Chapter 11 Cases or a Successor Case,
conversion of any of the Cases to cases under chapter 7, or appointment of a chapter 11 trustee or
examiner with expanded powers, or (iii) propose, subject to the provisions of section 1121 of the
Bankruptcy Code, a chapter 11 plan or plans. This Interim Order shall not be deemed to be an
amendment or modification to the applicable Loan Documents, and shall not be deemed to have
in any way modified the scope, nature, extent, or amount of the Prepetition Collateral, prepetition
liens, prepetition claims, prepetition interests, or prepetition rights held by, granted, or purported
to be granted ,to Adequate Protection Parties. Furthermore, nothing contained in this Order shall
be treated as a final adjudication or as an admission by any Adequate Protection Party or
Representative, or the Debtors (except as otherwise expressly set forth in this Order) regarding
the truth, accuracy or completeness of any fact or the applicability or strength of any legal or
equitable claim, theory or defense and each Adequate Protection Party or their respective
Representatives shall have standing to assert, and shall not be precluded or estopped from
asserting, any challenge to any factual representation set forth herein or from asserting any legal
or equitable claim, theory or defense against the Debtors or their estates including that rents are
not property of the estate and do not constitute cash collateral. All of the parties subject hereto
reserve all of their rights and defenses with respect to any of the foregoing.
21. Section 507(b) Reservation. Nothing herein shall impair or modify the
application of section 507(b) of the Bankruptcy Code in the event that the adequate protection
provided to the Representatives hereunder is insufficient to compensate for any diminution in
value of their respective Prepetition Collateral during the Chapter 11 Cases or any Successor
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K&E 16933766.23
Cases. Nothing contained herein shall be deemed a finding by the Court, or an
acknowledgement by any of the Representatives, that the adequate protection granted herein
does in fact adequately protect the Adequate Protection Parties against any diminution in value
of their respective interest in the Prepetition Collateral.
22. No Lien Alteration. The receipt by the Debtors of any Cash Collateral or other
proceeds of Collateral shall not, and shall not be deemed to, affect, alter, or otherwise modify the
validity, priority or perfection of any liens in and/or claims against such Cash Collateral or other
proceeds and such liens and claims shall continue to exist in and against such Cash Collateral or
other proceeds in the possession of the Debtors, in each case with the same validity, priority and
perfection as existed immediately prior to such receipt by the Debtors; it being agreed that
nothing in this paragraph shall limit the Debtors use of Cash Collateral otherwise permitted
hereunder.
23. Proofs of Claim. The Representatives will not be required to file proofs of claim
in any of the Chapter 11 Cases or Successor Cases for the claims relating to their respective Loan
Obligations. Any order entered by the Court in relation to the establishment of a bar date for any
claim (including, without limitation, administrative claims) in any Chapter 11 Cases or Successor
Cases shall not apply to the Representatives.
24. Good Faith. The Representatives have acted in good faith in connection with this
Interim Order and their reliance on this Order is in good faith.
25. Binding Effect. The provisions of this Order shall be binding upon and inure to
the benefit of the Adequate Protection Parties, the Debtors, and their respective successors and
assigns, including any trustee or other fiduciary hereafter appointed in the Chapter 11 Cases or
any Successor Cases as a legal representative of the Debtors or the Debtors estates.
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K&E 16933766.23
26. Survival. Subject to the express reservations set forth in this Order, the Debtors
stipulations set forth in this Order shall survive the Termination Date and/or entry of any order:
(a) confirming any plan of reorganization in any of the Chapter 11 Cases unless and to the extent
that the applicable confirmation order or confirmed plan of reorganization expressly provides
otherwise and such confirmation order has become a final order and the effective date has
occurred under such confirmed plan of reorganization; (b) converting any of the Chapter 11
Cases to a case under chapter 7 of the Bankruptcy Code; (c) dismissing any of the Chapter 11
Cases or any Successor Cases; or (d) pursuant to which this Court abstains from hearing any of
the Chapter 11 Cases or Successor Cases. Upon entry of the Final Order, to the extent set forth
therein, the terms and provisions of the Final Order, including the claims, liens, security interest,
and other protections granted to the Adequate Protection Parties pursuant to such order, shall
continue in the Chapter 11 Cases, in any Successor Cases, or following dismissal of the Chapter
11 Cases or any Successor Cases, and shall maintain their priority, validity, and perfection as
provided by such order until the Adequate Protection Obligations (if any) have been satisfied in
accordance with the Bankruptcy Code.
27. Immediate Effect. This Order shall constitute findings of fact and conclusions of
law and shall take effect and be fully enforceable immediately upon execution hereof. The
fourteen (14) day stay provisions of Bankruptcy Rule 6004(h) are waived and shall not apply to
this Order.
28. Notice. The Debtors shall, within three (3) business days of entry of this Order,
mail copies of a notice of the entry of this Order, together with a copy of this Order and a copy of
the Motion, to the parties having been given notice of the Preliminary Hearing, to any party
which has filed prior to such date a request for notices with this Court and to counsel for any
statutory committee appointed pursuant to section 1102 of the Bankruptcy Code. The notice of
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K&E 16933766.23
entry of this Order shall state that (a) any party in interest objecting to the use of the Cash
Collateral and/or entry of the Final Order shall file written objections with the United States
Court Clerk for the Southern District of New York no later than 5:00 p.m. prevailing Eastern
Time on the business day immediately following fourteen (14) days after the date of entry of this
Order, and objections shall be served so that the same are received on or before such date by: (i)
Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York 10022, Attention: Paul M.
Basta (paul.basta@kirkland.com) and Leonard Klingbaum (leonard.klingbaum@kirkland.com),
and Kirkland & Ellis LLP, 300 North LaSalle, Chicago, Illinois 60654, Attention: Anup Sathy,
P.C. (anup.sathy@kirkland.com) and Marc Carmel (marc.carmel@kirkland.com), counsel to the
Debtors; (ii) the Office of the United States Trustee for the Southern District of New York, 33
Whitehall Street, 21
st
Floor, New York, New York 10004; (iii) Haynes and Boone, LLP, 1221
Avenue of the Americas, 26
th
Floor, New York, New York 10020, Attention: Lawrence Mittman
(lawrence.mittman@haynesboone.com) and Lenard Parkins (lenard.parkins@haynesboone.com),
counsel to the Fixed Rate Representative; (iv) Arnold & Porter LLC, 555 Twelfth Street, NW,
Washington, D.C. 20004-1206, Attention Marc A. Daniel, Esq. (marc.daniel@aporter.com),
counsel to Five Mile Capital Partners LLC; (v) Dechert LLP, 1095 Avenue of the Americas,
New York, New York 10036, Attention: Michael J. Sage (michael.sage@dechert.com) and Brian
E. Greer (brian.greer@dechert.com), counsel to Lehman ALI, Inc.; (vi) Duane Morris LLP, One
Market Plaza, Spear Tower, Suite 2200, San Francisco, California 94105-1127, Attention: Phillip
Wang, Esq. (pwang@duanemorris.com), counsel to LNR Partners, Inc. and Merril Lynch; and
(v) Perkins Coie LLP, 1888 Century Park E. Suite 1700, Los Angeles, CA 90067-1721,
Attention: Mark Birnbaum (mbirnbaum@perkinscoie.com) and Beth Understahl
(BUnderstahl@perkinscoie.com), counsel to CWCapital Performing Loan Management CMBS
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K&E 16933766.23
and Centerline; and (b) a Final Hearing to consider entry of the Final Order shall be held on
August 12, 2010 at 2:00 p.m. prevailing Eastern Time.

Dated: July 20, 2010
New York, New York

/s/Shelley C. Chapman___________
United States Bankruptcy Judge

Pg 49 of 60

K&E 16933766.23
SCHEDULE 1

1. Grand Prix Ft. Lauderdale LLC
2. Grand Prix Addison (RI) LLC
3. Grand Prix Altamonte LLC
4. Grand Prix Arlington LLC
5. Grand Prix Atlanta LLC
6. Grand Prix Atlanta (Peachtree Corners) LLC
7. Grand Prix Bellevue LLC
8. Grand Prix Binghamton LLC
9. Grand Prix Bothell LLC
10. Grand Prix Campbell/San Jose LLC
11. Grand Prix Cherry Hill LLC
12. Grand Prix Chicago LLC
13. Grand Prix Denver LLC
14. Grand Prix Englewood/Denver South LLC
15. Grand Prix Fremont LLC
16. Grand Prix Gaithersburg LLC
17. Grand Prix Lexington LLC
18. Grand Prix Livonia LLC
19. Grand Prix Louisville (RI) LLC
20. Grand Prix Lynnwood LLC
21. Grand Prix Mountain View LLC
22. Grand Prix Portland LLC
23. Grand Prix Richmond LLC
24. Grand Prix Richmond (Northwest) LLC
25. Grand Prix Saddle River LLC
26. Grand Prix San Jose LLC
27. Grand Prix San Mateo LLC
28. Grand Prix Shelton LLC
29. Grand Prix Sili I LLC
30. Grand Prix Sili II LLC
31. Grand Prix Tukwila LLC
32. Grand Prix Windsor LLC
33. Grand Prix Horsham LLC
34. Grand Prix Columbia LLC
35. Grand Prix Germantown LLC
36. Grand Prix Islandia LLC
37. Grand Prix Lombard LLC
38. Grand Prix Naples LLC
39. Grand Prix Schaumberg LLC
40. Grand Prix Westchester LLC
41. Grand Prix Willow Grove LLC
42. Grand Prix Belmont LLC
43. Grand Prix El Segundo LLC
44. Grand Prix Las Colinas LLC
45. Grand Prix Mt. Laurel LLC
46. Grand Prix Fixed Lessee LLC
Pg 50 of 60

K&E 16933766.23
SCHEDULE 2

1. KPA/GP Valencia LLC
2. Grand Prix West Palm Beach LLC
3. KPA/GP Ft. Walton Beach LLC
4. Grand Prix Ft. Wayne LLC
5. Grand Prix Indianapolis LLC
6. KPA/GP Louisville (HI) LLC
7. Grand Prix Bulfinch LLC
8. Grand Prix Woburn LLC
9. Grand Prix Rockville LLC
10. Grand Prix East Lansing LLC
11. Grand Prix Grand Rapids LLC
12. Grand Prix Troy (Central) LLC
13. Grand Prix Troy (SE) LLC
14. Grand Prix Atlantic City LLC
15. Grand Prix Montvale LLC
16. Grand Prix Morristown LLC
17. Grand Prix Albany LLC
18. Grand Prix Addison (SS) LLC
19. Grand Prix Harrisburg LLC
20. Grand Prix Ontario LLC
21. Grand Prix Floating Lessee, LLC
Pg 51 of 60

K&E 16933766.23
SCHEDULE 3
1. KPA HS Anaheim LLC
2. Grand Prix Anaheim Orange Lessee LLC
Pg 52 of 60

K&E 16933766.23
SCHEDULE 4

1. KPA RIMV LLC
2. Grand Prix RIMV Lessee LLC

Pg 53 of 60

K&E 16933766.23
SCHEDULE 5

1. KPA RIGG LLC
2. Grand Prix RIGG Lessee LLC
Pg 54 of 60

K&E 16933766.23
SCHEDULE 6

1. KPA HI Ontario LLC
2. Grand Prix Ontario Lessee LLC
Pg 55 of 60

K&E 16933766.23
SCHEDULE 7
4

1. KPA Washington DC DT LLC
2. Grand Prix General Lessee LLC

4
For each of the Loan Documents relating to the Merrill Debtors, the operating tenant,
Grand Prix General Lessee LLC, did not execute the applicable loan agreement,
mortgage or assignment of leases or rents. Such entity only executed the cash
management agreement and a subordination and attornment agreement.
Pg 56 of 60

K&E 16933766.23
SCHEDULE 8
5

1. KPA Tysons Corner RI LLC

5
Pg 57 of 60

K&E 16933766.23
SCHEDULE 9
6

1. KPA San Antonio HS LLC

6
Pg 58 of 60

K&E 16933766.23
SCHEDULE 10

13-Week Forecast Attached

Pg 59 of 60
InnkeepersUSATrust CashCollateralBudget
CashFlowForecast
($'sin000's)
Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast
Weekending 7/24/2010 7/31/2010 8/7/2010 8/14/2010 8/21/2010 8/28/2010 9/4/2010 9/11/2010 9/18/2010 9/25/2010 10/2/2010 10/9/2010 10/16/2010 Total
Week: 1 2 3 4 5 6 7 8 9 10 11 12 13 13Weeks
Revenueandtaxreceipts 7,035 $ 6,977 $ 6,550 $ 6,470 $ 6,403 $ 6,255 $ 5,507 $ 5,229 $ 6,408 $ 6,414 $ 6,073 $ 6,525 $ 6,331 $ 82,178 $
Propertylevel
Payrollandrelated 2,300 $ $ 2,372 $ $ 2,334 $ $ 2,305 $ $ 2,278 $ $ 2,336 $ $ 2,376 $ 16,302 $
Franchisefees 78 1,203 93 1,652 92 3,117
Utilitycosts 388 386 393 390 392 386 366 351 398 396 396 413 406 5,061
Thirdpartymanagement&relatedfees 679 656 1,335
Allotherexpenses 250 156 95 1,488 1,265 1,257 1,174 1,437 1,201 1,226 1,131 1,259 11,938
Totalpropertylevel 2,688 $ 637 $ 2,921 $ 563 $ 4,893 $ 2,855 $ 4,020 $ 1,524 $ 4,112 $ 3,904 $ 4,050 $ 1,544 $ 4,041 $ 37,753 $
Rent,TaxesandInsurance
Groundrent $ 18 $ $ $ $ 18 $ $ $ $ 18 $ $ $ $ 55 $
Propertytaxes 823 97 653 111 1,947 96 3,726
Franchisetaxes
Occupancy/salestaxes 801 1,232 123 1,476 861 117 1,401 817 135 6,961
Insurancepayments 336 166 166 668
TotalRent,TaxesandInsurance 801 $ 2,408 $ $ 123 $ 1,572 $ 1,698 $ $ 111 $ 117 $ 3,532 $ 817 $ 96 $ 135 $ 11,411 $
CapitalExpendituresandInitiatives
Maintenance/emergencyCAPEX(c) 96 $ 95 $ 89 $ 88 $ 87 $ 85 $ 75 $ 71 $ 87 $ 87 $ 83 $ 89 $ 86 $ 1,121 $
PIPRenovationsPaid
PIPRenovationsFundedfromescrow
CycleRenovations
TotalCapitalExpendituresandInitiatives 96 $ 95 $ 89 $ 88 $ 87 $ 85 $ 75 $ 71 $ 87 $ 87 $ 83 $ 89 $ 86 $ 1,121 $
CorporateOverhead
Payrollandrelated 150 $ $ 145 $ $ 145 $ $ 145 $ $ 145 $ $ 145 $ $ 145 $ 1,020 $
Allotheroverhead 115 144 114 43 165 63 189 53 115 63 43 1,105
TotalCorporateOverhead 150 $ $ 260 $ 144 $ 259 $ 43 $ 310 $ 63 $ 334 $ 53 $ 260 $ 63 $ 188 $ 2,125 $
OtherDisbursements
Utilitydeposits(d) $ $ 674 $ $ $ $ $ $ $ $ $ $ $ 674 $
Vendordeposits(e) 2,073 2,073
DIPfeesandinterest 1,060 85 85 85 85 1,402
TotalOtherDisbursements $ 2,073 $ 674 $ $ $ $ $ $ 1,060 $ 85 $ 85 $ 85 $ 85 $ 4,149 $
Professionalfees(f) 5,424 $ $ $ 2,232 $ $ 7,656 $
TotalDisbursements 3,734 $ 5,214 $ 3,945 $ 918 $ 6,811 $ 4,681 $ 4,406 $ 1,770 $ 11,134 $ 7,662 $ 5,296 $ 4,109 $ 4,535 $ 64,214 $
Beginningcashbalance 5,000 $ 8,301 $ 10,064 $ 12,669 $ 18,221 $ 17,813 $ 19,387 $ 20,488 $ 23,947 $ 9,157 $ 7,909 $ 8,687 $ 11,104 $ 5,000 $
Netcashflow 3,301 1,763 2,605 5,552 (409) 1,574 1,101 3,459 (4,726) (1,248) 778 2,417 1,796 17,964
CashBalancebeforeExcessCashDistribution 8,301 10,064 12,669 18,221 17,813 19,387 20,488 23,947 19,221 7,909 8,687 11,104 12,900 22,964
GrossExcessCashtoDistribute (10,064) (19,387)
Less:ExpenseReserve 11,487
DistributionofExcessCash(g) (10,064) (7,900) (17,964)
Endingcashbalance 8,301 $ 10,064 $ 12,669 $ 18,221 $ 17,813 $ 19,387 $ 20,488 $ 23,947 $ 9,157 $ 7,909 $ 8,687 $ 11,104 $ 5,000 $ 5,000 $
DIP
OutstandingDIPBalance $ $ $ $ $ $ $ $ 65,000 $ 65,000 $ 65,000 $ 65,000 $ 65,000 $
InterestrateonDIP 6.75% 6.75% 6.75% 6.75% 6.75%
Notes:
a)OperatingexpensesarehighlycorrelativetooccupancylevelsatthehotelpropertiesandtotheextentthatoccupancylevelsvaryfromtheCompany'sforecast,expenselevelswillvaryaswell.
b)OtheroperatingexpensesshowcurrentpaymentsforAetnaclaims,worker'scompensationclaims,andhealthinsurancepremiumsforthefirstfourweeks.Afterthat,paymentsreflectpostpetitionpayments.
c)MaintenanceCAPEXestimatedat1.5%ofrevenuetorepresentnonPIPspendingforemergencies.
d)Utilitydepositsbasedonanestimatedtwoweeksspendingusingtheaverageoflastthreemonthsweeklypayments.
e)Vendordepositsbasedon1monthofdepositsneededbasedonestimated40%ofweeklyoperatingexpenses(25%ofweeklyisF&Bplus15%other).
f)Professionalfeesassumenofeesarepaidforthefirst60days,andthenpaymentsarebasedon80%ofestimatedcostswithacatchupinweek9.
g)Excesscashflowpaidout45daysaftertheendofeverymonth,beginningonday75.
Pg 60 of 60
EXHIBIT 5

Pg 1 of 60

K&E 17460541.10
)
In re: ) Chapter 11
)
1
) Case No. 10-13800 (SCC)
)
)

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
Upon the motion (the Motion)
2
of the above-captioned debtors (collectively, the
Debtors) for the entry of an interim order (the Interim Order) and a final order (this
Order) (a) authorizing the Debtors to (i) use the Cash Collateral (as defined below) of the

1
The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtors federal tax identification number, are:
GP AC Sublessee LLC (5992); Grand Prix Addison (RI) LLC (3740); Grand Prix Addison (SS) LLC (3656); Grand Prix
Albany LLC (3654); Grand Prix Altamonte LLC (3653); Grand Prix Anaheim Orange Lessee LLC (5925); Grand Prix
Arlington LLC (3651); Grand Prix Atlanta (Peachtree Corners) LLC (3650); Grand Prix Atlanta LLC (3649); Grand Prix
Atlantic City LLC (3648); Grand Prix Bellevue LLC (3645); Grand Prix Belmont LLC (3643); Grand Prix Binghamton LLC
(3642); Grand Prix Bothell LLC (3641); Grand Prix Bulfinch LLC (3639); Grand Prix Campbell / San Jose LLC (3638);
Grand Prix Cherry Hill LLC (3634); Grand Prix Chicago LLC (3633); Grand Prix Columbia LLC (3631); Grand Prix Denver
LLC (3630); Grand Prix East Lansing LLC (3741); Grand Prix El Segundo LLC (3707); Grand Prix Englewood / Denver
South LLC (3701); Grand Prix Fixed Lessee LLC (9979); Grand Prix Floating Lessee LLC (4290); Grand Prix Fremont LLC
(3703); Grand Prix Ft. Lauderdale LLC (3705); Grand Prix Ft. Wayne LLC (3704); Grand Prix Gaithersburg LLC (3709);
Grand Prix General Lessee LLC (9182); Grand Prix Germantown LLC (3711); Grand Prix Grand 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
2
Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Motion.
Pg 2 of 60

2
K&E 17460541.10
Adequate Protection Parties (as defined below) pursuant to sections 361 and 363 of Title 11,
United States Code, 11 U.S.C. 101 et seq. (as amended, the Bankruptcy Code) and (ii)
provide adequate protection to the Adequate Protection Parties with respect to diminution in the
value of the Adequate Protection Parties interests in the Prepetition Collateral (as defined
below), whether from the use of the Cash Collateral, the use, sale, lease, or other diminution in
value of the Prepetition Collateral other than the Cash Collateral, or the imposition of the
automatic stay pursuant to section 362(a) of the Bankruptcy Code, pursuant to sections 361, 362,
363, 503(b), and 507 of the Bankruptcy Code; and (b) requesting the final hearing (the Final
Hearing) be scheduled, and that notice procedures in respect of the Preliminary Hearing (as
defined herein) and the Final Hearing be established by the Court, to consider entry of this Order
authorizing on a final basis the Debtors continued use of the Cash Collateral; and upon the
Declaration of Dennis Craven, Chief Financial Officer of Innkeepers USA Trust, in Support of
First Day Motions and Applications; it appearing that the relief requested is in the best interests
of the Debtors estates, their creditors and other parties in interest; the Court having jurisdiction
to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 157 and 1334;
consideration of the Motion and the relief requested therein being a core proceeding pursuant to
28 U.S.C. 157(b); venue being proper before the Court pursuant to 28 U.S.C. 1408 and
1409; notice of the Motion having been adequate and appropriate under the circumstances; and
all objections, if any, to the entry of this Order having been withdrawn or overruled by the Court
or resolved as set forth herein; and after due deliberation and sufficient cause appearing therefor,
IT IS HEREBY FOUND THAT:

A. Commencement. On the date the Motion was filed (the Petition Date), each of
the Debtors filed a petition with the Court under chapter 11 of the Bankruptcy Code
(collectively, the Chapter 11 Cases). The Debtors are operating their businesses and
Pg 3 of 60

3
K&E 17460541.10
managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code. No request for the appointment of a trustee has been made in the Chapter 11
Cases. The Debtors Chapter 11 Cases have been procedurally consolidated and are being
jointly administered.
B. On July 20, 2010, the Court held a preliminary hearing (the Preliminary
Hearing) and, upon the pleadings, testimony, and record in connection therewith, entered the
Interim Order. The Interim Order was modified pursuant to the Order Setting Final Hearing
Date for Cash Collateral and Deadline to File Objections Thereto [Docket No. 72] (the Final
Hearing Date Order) entered by the Court on July 22, 2010, pursuant to which, among other
things, the date for the Final Hearing was established. The Court having set August 23, 2010, as
the objection deadline to the relief requested in the Motion on a final basis.
C. On July 28, 2010, the Office of the United States Trustee for the Southern District
of New York (the U.S. Trustee) appointed certain unsecured creditors to serve on the Official
Committee of Unsecured Creditors of the Debtors (the Committee).
D. Jurisdiction; Core Proceeding. The Court has jurisdiction over this matter
pursuant to 28 U.S.C. 157 and 1334. This matter is a core proceeding within the meaning of
28 U.S.C. 157(b)(2). Venue is proper pursuant to 28 U.S.C. 1408 and 1409.
E. Prepetition Capital Structure. Without prejudice to the rights of non-Debtor
parties in interest as set forth in paragraph 12 below (and subject thereto):
(collectively, the Fixed Rate Debtors) acknowledge and agree that they are party to that
Pg 4 of 60

4
K&E 17460541.10
ancillary documents thereto, the Fixed Rate Mortgage Loan Agreement), among the Fixed
Rate Debtors, as borrowers thereunder, Grand Prix Fixed Lessee LLC, as operating lessee, Grand
Prix Holdings, LLC, as guarantor, and Lehman ALI Inc., as the original lender thereunder (the
Fixed Rate Lender). The Fixed Rate Mortgage Loan Agreement provides for loans to the
Fixed Rate Debtors in the aggregate principal amount of $825,402,542 (the Fixed Rate
Mortgage Loan Obligations). The Fixed Rate Mortgage Loan Agreement is evidenced by a
certain Replacement Promissory Note A-1 (Fixed Rate Note A-1) and a certain Replacement
Promissory Note A-2 (Fixed Rate Note A-2), each in the principal amount of $412,701,271
and each dated as of August 9, 2007.
(ii) The Fixed Rate Mortgage Loan Agreement, together with Fixed
Rate Note A-1 and Fixed Rate Note A-2 and all documents executed and delivered in
connection therewith have been sold, assigned and transferred into the commercial
mortgage-backed security (CMBS) market. The Fixed Rate Mortgage Loan
in connection therewith are part of a mortgage loan pool knows as LB-UBS Commercial
Mortgage Trust 2007-C6, for which LaSalle Bank, National Association (LaSalle) is
trustee, and Midland Loan Services, Inc. (Midland) serves as special servicer (the
Fixed Rate Representative). The other half of the Fixed Rate Mortgage Loan
in connection therewith are part of a mortgage loan pool known as LB-UBS Commercial
Mortgage Trust 2007-C7, for which LaSalle is trustee. The Fixed Rate Representative is
also the special servicer for the Fixed Rate A-2 Note.
Pg 5 of 60

5
K&E 17460541.10
(iii) The Fixed Rate Debtors acknowledge and agree that, pursuant to
Agreement, dated as of June 29, 2007, executed by each Fixed Rate Debtor in connection
with the Fixed Rate Mortgage Loan Agreement (and, together with the Fixed Rate
Mortgage Loan Agreement and all other loan documents executed in connection
therewith prior to the Petition Date, collectively, the Fixed Rate Loan Documents),
the Fixed Rate Debtors granted to the Fixed Rate Lender valid, cross-collateralized and
cross-defaulted first priority liens, mortgages, deeds of trust and security interests
(collectively, the Fixed Rate Mortgages) on forty-five (45) hotel properties (the
Fixed Rate Mortgaged Properties) and in certain of their other assets and property,
including, but not limited to, all rents and other cash generated by the Fixed Rate
Debtors hotel and business operations with respect to the Fixed Rate Mortgaged
Properties, as more fully set forth in the Fixed Rate Loan Documents (together with the
Fixed Rate Mortgaged Properties, the Fixed Rate Collateral) as collateral security for
payment and performance when due of the Fixed Rate Mortgage Loan Obligations.
(iv) The Fixed Rate Debtors further acknowledge and agree that the
Fixed Rate Collateral includes cash collateral within the meaning of section 363(a) of the
Bankruptcy Code (the Fixed Rate Cash Collateral).
(v) The Fixed Rate Debtors further acknowledge and agree that (a) the
Fixed Rate Mortgage Loan Obligations are valid, binding, and enforceable obligations of
the Fixed Rate Debtors in accordance with the terms set forth in the Fixed Rate Mortgage
Loan Documents, and (b) the Fixed Rate Mortgage and other liens and security interests
granted to the Fixed Rate Lender with respect to the Fixed Rate Collateral, as security for
Pg 6 of 60

6
K&E 17460541.10
the Fixed Rate Mortgage Loan Obligations are valid, perfected and enforceable liens,
mortgages, deeds of trust, and security interests in accordance with the terms set forth in
the Fixed Rate Mortgage Loan Documents.
(2) Floating Rate Loan. (i) The Debtors listed on Schedule 2 hereto
(collectively, the Floating Rate Debtors) acknowledge and agree that they are party to that
ancillary documents thereto, the Floating Rate Mortgage Loan Agreement), among the
Floating Rate Debtors, as borrowers thereunder, Grand Prix Wichita LLC, Grand Prix
Tallahassee LLC and Grand Prix Columbus LLC, as borrowers thereunder who were released
from their obligations under the Floating Rate Mortgage Loan Agreement in accordance with the
terms and conditions of the Floating Rate Mortgage Loan Agreement (the Released
Borrowers), Grand Prix Floating Lessee LLC, as operating lessee, Grand Prix Holdings, LLC,
as guarantor, and Lehman ALI Inc., as the lender thereunder (the Floating Rate Lender). The
Floating Rate Mortgage Loan Agreement provides for a loan to the Floating Rate Debtors in the
original principal amount of $250,000,000 (the Floating Rate Mortgage Loan Obligations).
The Floating Rate Mortgage Loan Agreement is evidenced by a certain Promissory Note, dated
as of June 29, 2007, by the Floating Rate Debtors and the Released Borrowers for the benefit of
the Floating Rate Lender.
(ii) The Floating Rate Mortgage Loan Agreement was not, as of the
Petition Date, sold into the CMBS market.
(iii) The Floating Rate Debtors acknowledge and agree that, pursuant to
Pg 7 of 60

7
K&E 17460541.10
Agreement, dated as of June 29, 2007, executed by each Floating Rate Debtor in
connection with the Floating Rate Mortgage Loan Agreement (and, together with the
Floating Rate Loan Agreement, the Floating Rate Mortgages and all other loan
Floating Rate Loan Senior Documents), the Floating Rate Debtors have granted to
the Floating Rate Lender an absolute assignment of rents and leases with respect to the
applicable hotel properties, subject to a revocable license to the applicable borrower, as
well as cross-collateralized and cross-defaulted first priority liens, mortgages, deeds of
trust, deeds to secure debt and security interests (collectively, the Floating Rate
Mortgages) on twenty (20) hotel properties (the Floating Rate Mortgaged
Properties) and in certain of their other assets and properties, including, but not limited
to, cash generated by the Floating Rate Debtors hotel and business operations, as more
fully set forth in the Floating Rate Loan Documents (together with the Floating Rate
Mortgaged Properties, the Floating Rate Collateral) as collateral security for payment
and performance when due of the Floating Rate Mortgage Loan Obligations.
(iv) The Floating Rate Debtors further acknowledge and agree that the
Floating Rate Collateral includes rents and proceeds within the meaning of section 552(b)
of the Bankruptcy Code and cash collateral within the meaning of section 363(a) of the
Bankruptcy Code (the Floating Rate Cash Collateral).
(v) The Floating Rate Debtors further acknowledge and agree that (a)
the Floating Rate Mortgage Loan Obligations are valid, binding, and enforceable
obligations of the Floating Rate Debtors in accordance with the terms set forth in the
Floating Rate Loan Senior Documents, (b) the Floating Rate Mortgages and other liens
Pg 8 of 60

8
K&E 17460541.10
and security interests granted to the Floating Rate Lender with respect to the Floating
Rate Collateral, as security for the Floating Rate Loan Obligations are valid, perfected,
and enforceable liens, mortgages, deeds of trust, deeds to secure debt, and security
interests in accordance with the terms set forth in the Floating Rate Loan Senior
Documents, and (c) subject to paragraph 20 of this Order, that the Floating Rate Debtors
do not have any claims or causes of action against the Floating Rate Lender under any
legal or equitable theory, including Avoidance Actions (as defined below).
(vi) The Floating Rate Debtors further acknowledge and agree that
certain non-monetary events of default occurred under the Floating Rate Loan Senior
Documents prior to the Petition Date; that the Floating Rate Lender delivered notices of
such events of default to the Floating Rate Debtors on May 19, 2010, based on such non-
monetary events of defaults; that as a result thereof, the revocable license to use rents was
automatically revoked and the Floating Rate Lender exercised control over rents and the
Lockbox Account (as defined in the Floating Rate Loan Agreement); that a monetary
event of default occurred when the Floating Rate Debtors failed to pay the total principal
amount due under the Floating Rate Loan Agreement on the maturity date; and that the
Floating Rate Lenders delivered a notice of such monetary default to the Floating Rate
Debtors on July 9, 2010.
(3) Anaheim Loan. (i) The Debtors listed on Schedule 3 hereto (collectively,
the Anaheim Debtors) acknowledge and agree that they are party to that certain Deed of
Trust, dated as of June 14, 2005 (the Anaheim Mortgage Loan Agreement), among the
Anaheim Debtors, as borrower and guarantors, as applicable, thereunder, and GMAC
Commercial Mortgage Bank, as original lender thereunder (the Anaheim Lender). The
Pg 9 of 60

9
K&E 17460541.10
Anaheim Mortgage Loan Agreement provides for loans for the benefit of the Anaheim Debtors
in the aggregate principal amount of $13.7 million (the Anaheim Mortgage Loan
Obligations). Pursuant to Loan Assumption, Affirmation and Modification Agreements, dated
as of October 4, 2006 and June 29, 2007, certain of the Anaheim Debtors became liable for
certain of Anaheim Mortgage Loan Obligations.
(ii) The Anaheim Mortgage Loan Agreement was sold into the CMBS
market and is part of a mortgage loan pool known as Credit Suisse First Boston Mortgage
Security Corp., Commercial Mortgage Pass-Through Certificates, Series 2005-C5, for
which Wells Fargo Bank, N.A. (Wells Fargo) is trustee, Capmark Finance Inc., as
successor to GMAC Commercial Mortgage Corporation, serves as master servicer, and
CW Capital Asset Management, LLC serves as special servicer.
(iii) The Anaheim Debtors acknowledge and agree that, pursuant to the
Deed of Trust, Leasehold Deed of Trust, Assignment of Leases and Profits, Security
Agreement and Fixture Filing, dated as of June 14, 2005, executed by the Anaheim
Debtors in connection with the Anaheim Mortgage Loan Agreement (and, together with
the Anaheim Mortgage Loan Agreement and all other loan documents executed in
connection therewith prior to the Petition Date, collectively, the Anaheim Loan
Documents), the Anaheim Debtors have granted to the Anaheim Lender a security
the Anaheim Loan Documents (collectively, the Anaheim Collateral) as collateral
security for payment and performance when due of the Anaheim Mortgage Loan
Obligations.
Pg 10 of 60

10
K&E 17460541.10
(iv) The Anaheim Debtors further acknowledge and agree that the
Anaheim Collateral includes cash collateral within the meaning of section 363(a) of the
Bankruptcy Code (the Anaheim Cash Collateral).
(v) The Anaheim Debtors further acknowledge and agree that (a) the
Anaheim Mortgage Loan Obligations are valid, binding, and enforceable obligations of
the Anaheim Debtors in accordance with the terms set forth in the Anaheim Loan
Documents, and (b) the liens and security interest granted to the Anaheim Lenders, or any
of them, as security for the Anaheim Mortgage Loan Obligations are valid, perfected, and
Anaheim Loan Documents.
(4) Capmark $47.4 Million Loan (Mission Valley). (i) The Debtors listed on
Schedule 4 hereto (collectively, the Capmark Mission Valley Debtors) acknowledge and
Capmark Mission Valley Loan Agreement), among the Capmark Mission Valley Debtors,
as borrower and guarantors, as applicable, thereunder, and Capmark Bank, as the original lender
thereunder (the Capmark Mission Valley Lender). The Capmark Mission Valley Loan
Agreement provides for loans to the Capmark Mission Valley Debtors in the aggregate principal
amount of $47.4 million (the Capmark Mission Valley Loan Obligations). Pursuant to that
certain of the Capmark Valley Debtors became liable for certain of the Capmark Mission Valley
Loan Obligations.
(ii) The Capmark Mission Valley Loan Agreement was sold into the
Pg 11 of 60

11
K&E 17460541.10
Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series
2007-C1, for which Wells Fargo is trustee, Capmark Finance serves as master servicer,
and LNR Partners, LLC, a Florida limited liability company, successor by statutory
conversion to LNR Partners, LLC a Florida corporation (LNR Partners) serves as
special servicer.
(iii) The Capmark Mission Valley Debtors acknowledge and agree that,
the Capmark Mission Valley Debtors in connection with the Capmark Mission Valley
Loan Agreement (and with the Capmark Mission Valley Loan Agreement and all other
loan documents executed in connection therewith prior to the Petition Date, collectively,
the Capmark Mission Valley Loan Documents), the Capmark Mission Valley
Debtors have granted to the Capmark Mission Valley Lender a first priority security
the Capmark Mission Valley Loan Documents (collectively, the Capmark Mission
Valley Collateral) as collateral security for payment and performance when due of the
Capmark Mission Valley Loan Obligations.
(iv) The Capmark Mission Valley Debtors further acknowledge and
agree that the Capmark Mission Valley Collateral includes cash collateral within the
meaning of section 363(a) of the Bankruptcy Code (the Capmark Mission Valley Cash
Collateral).
(v) The Capmark Mission Valley Debtors further acknowledge and
agree that (a) the Capmark Mission Valley Loan Obligations are valid, binding, and
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enforceable obligations of the Capmark Mission Valley Debtors in accordance with the
terms set forth in the Capmark Mission Valley Loan Documents, and (b) the liens and
security interest granted to the Capmark Mission Valley Lenders, or any of them, as
security for the Capmark Mission Valley Loan Obligations are valid, perfected, and
Capmark Mission Valley Loan Documents.
(5) Capmark $37.6 Million Loan (Garden Grove). (i) The Debtors listed on
Schedule 5 hereto (collectively, the Capmark Garden Grove Debtors) acknowledge and
Capmark Garden Grove Loan Agreement), among the Capmark Garden Grove Debtors, as
thereunder (the Capmark Garden Grove Lender). The Capmark Garden Grove Loan
Agreement provides for loans to the Capmark Garden Grove Debtors in the aggregate principal
amount of $37.6 million (the Capmark Garden Grove Loan Obligations). Pursuant to that
certain of the Capmark Garden Grove Debtors became liable for certain of the Capmark Garden
Grove Loan Obligations.
(ii) The Capmark Garden Grove Loan Agreement was sold into the
Mortgage Corp., Commercial Mortgage Pass-Through Certificates, Series 2007-C1, for
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(iii) The Capmark Garden Grove Debtors acknowledge and agree that,
the Capmark Garden Grove Debtors in connection with the Capmark Garden Grove Loan
Agreement (and with the Capmark Garden Grove Loan Agreement and all other loan
Capmark Garden Grove Loan Documents), the Capmark Garden Grove Debtors
have granted to the Capmark Garden Grove Lender a security interest in certain of their
assets and property to the extent and as more fully set forth in the Capmark Garden Grove
Loan Documents (collectively, the Capmark Garden Grove Collateral) as collateral
security for payment and performance when due of the Capmark Garden Grove Loan
Obligations.
(iv) The Capmark Garden Grove Debtors further acknowledge and
agree that the Capmark Garden Grove Collateral includes cash collateral within the
meaning of section 363(a) of the Bankruptcy Code (the Capmark Garden Grove Cash
Collateral).
(v) The Capmark Garden Grove Debtors further acknowledge and
agree that (a) the Capmark Garden Grove Loan Obligations are valid, binding, and
enforceable obligations of the Capmark Garden Grove Debtors in accordance with the
terms set forth in the Capmark Garden Grove Loan Documents, and (b) the liens and
security interest granted to the Capmark Garden Grove Lenders, or any of them, as
security for the Capmark Garden Grove Loan Obligations are valid, perfected, and
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Capmark Garden Grove Loan Documents.
(6) Capmark $35.0 Million Loan (Ontario). (i) The Debtors listed on Schedule
6 hereto (collectively, the Capmark Ontario Debtors and, together with the Capmark
Mission Valley Debtors and the Capmark Garden Grove Debtors, the Capmark Debtors)
acknowledge and agree that they are party to that certain Deed of Trust Note, dated as of October
4, 2006 (the Capmark Ontario Loan Agreement), among the Capmark Ontario Debtors, as
thereunder (the Capmark Ontario Lender and, together with the Capmark Mission Valley
Lender and the Capmark Garden Grove Lender, the Capmark Lenders). The Capmark
Ontario Loan Agreement provides for loans to the Capmark Ontario Debtors in the aggregate
principal amount of $35.0 million (the Capmark Ontario Loan Obligations). Pursuant to
that certain Loan Assumption, Affirmation and Modification Agreement, dated as of June 29,
2007, certain of the Capmark Ontario Debtors became liable for certain of the Capmark Ontario
Loan Obligations.
(ii) The Capmark Ontario Loan Agreement was sold into the CMBS
market and is part of a mortgage pool known as Credit Suisse First Boston Mortgage
Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2007-C1, for
which Wells Fargo is trustee, Capmark Finance serves as master servicer, and LNR
Partners serves as special servicer.
(iii) The Capmark Ontario Debtors acknowledge and agree that,
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the Capmark Ontario Debtors in connection with the Capmark Ontario Loan Agreement
(and with the Capmark Ontario Loan Agreement and all other loan documents executed
in connection therewith prior to the Petition Date, collectively, the Capmark Ontario
Loan Documents and, together with the Capmark Mission Valley Loan Documents and
the Capmark Garden Grove Loan Documents, the Capmark Loan Documents), the
Capmark Ontario Debtors have granted to the Capmark Ontario Lender a first priority
security interest in certain of their assets and property to the extent and as more fully set
forth in the Capmark Ontario Loan Documents (collectively, the Capmark Ontario
Collateral and, together with the Capmark Mission Valley Collateral and the Capmark
Garden Grove Collateral, the Capmark Collateral) as collateral security for payment
and performance when due of the Capmark Ontario Loan Obligations thereunder.
(iv) The Capmark Ontario Debtors further acknowledge and agree that
the Capmark Ontario Collateral includes cash collateral within the meaning of section
363(a) of the Bankruptcy Code (together with the Capmark Mission Valley Cash
Collateral and the Capmark Garden Grove Cash Collateral, the Capmark Cash
Collateral).
(v) The Capmark Ontario Debtors further acknowledge and agree that
(a) the Capmark Ontario Loan Obligations are valid, binding, and enforceable obligations
of the Capmark Ontario Debtors in accordance with the terms set forth in the Capmark
Ontario Loan Documents, and (b) the liens and security interest granted to the Capmark
Ontario Lenders, or any of them, as security for the Capmark Ontario Loan Obligations
are valid, perfected, and enforceable liens and security interests in accordance with the
terms set forth in the Capmark Ontario Loan Documents.
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(7) Merrill $25.6 Million Loan (Washington D.C.). (i) The Debtors listed on
Schedule 7 hereto (collectively, the Merrill Washington D.C. Debtors) acknowledge and
agree that they are party to that certain Loan Agreement, dated as of September 21, 2006 (the
Merrill Washington D.C. Loan Agreement), among the Merrill Washington D.C. Debtors,
as borrower and guarantors, as applicable, thereunder, and Merrill Lynch Mortgage Lending,
Inc., as the original lender thereunder (the Merrill Washington D.C. Lender). The Merrill
Washington D.C. Loan Agreement provides for loans to the Merrill Washington D.C. Debtors in
the aggregate principal amount of $25.6 million (the Merrill Washington D.C. Loan
Obligations).
(ii) The Merrill Washington D.C. Loan Agreement was sold into the
CMBS market and is part of a mortgage pool known as ML-CFC Commercial Mortgage
Trust 2006-4, for which U.S. Bank, N.A. (U.S. Bank) is trustee, Wells Fargo serves as
master servicer, and LNR serves as special servicer.
(iii) The Merrill Washington D.C. Debtors acknowledge and agree that,
pursuant to the Fee and Leasehold Deed of Trust and Security Agreement, dated as of
September 21, 2006 and executed by the Merrill Washington D.C. Debtors in connection
with the Merrill Washington D.C. Loan Agreement (the Merrill Washington D.C.
Mortgage and, together with the Merrill Washington D.C. Loan Agreement and all
other loan documents executed in connection therewith prior to the Petition Date,
collectively, the Merrill Washington D.C. Loan Documents), the Merrill Washington
D.C. Debtors have granted to the Merrill Washington D.C. Lender a first priority security
the Merrill Washington D.C. Loan Documents (collectively, the Merrill Washington
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D.C. Collateral) as collateral security for payment and performance when due of the
Merrill Washington D.C. Loan Obligations.
(iv) The Merrill Washington D.C. Debtors further acknowledge and
agree that the $25.6 Million Merrill Collateral includes cash collateral within the meaning
of section 363(a) of the Bankruptcy Code (the Merrill Washington D.C. Cash
Collateral).
(v) The Merrill Washington D.C. Debtors further acknowledge and
agree that (a) the Merrill Washington D.C. Loan Obligations are valid, binding, and
enforceable obligations of the Merrill Washington D.C. Debtors in accordance with the
terms set forth in the Merrill Washington D.C. Loan Documents, and (b) the liens and
security interest granted to the Merrill Washington D.C. Lenders, or any of them, as
security for the Merrill Washington D.C. Loan Obligations are valid, perfected, and
Merrill Washington D.C. Loan Documents.
(8) Merrill $25.2 Million Loan (Tysons Corner). (i) The Debtors listed on
Schedule 8 hereto (collectively, the Merrill Tysons Corner Debtors) acknowledge and agree
that they are party to that certain Loan Agreement, dated as of September 19, 2006 (the Merrill
Tysons Corner Loan Agreement), among the Merrill Tysons Corner Debtors, as borrower and
guarantors, as applicable, thereunder, and Merrill Lynch Mortgage Lending, Inc., as the original
lender thereunder (the Merrill Tysons Corner Lender). The Merrill Tysons Corner Loan
Agreement provides for loans to the Merrill Tysons Corner Debtors in the aggregate principal
amount of $25.2 million (the Merrill Tysons Corner Loan Obligations).
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(ii) The Merrill Tysons Corner Loan Agreement was sold into the
CMBS market and is part of a mortgage pool known as ML-CFC 2006-4, for which U.S.
Bank is trustee, Wells Fargo serves as master servicer, and LNR Partners serves as
special servicer.
(iii) The Merrill Tysons Corner Debtors acknowledge and agree that,
and executed by the Merrill Tysons Corner Debtors in connection with the Merrill
Tysons Corner Loan Agreement (the Merrill Tysons Corner Mortgage and together
with the Merrill Tysons Corner Loan Agreement and all other loan documents executed
in connection therewith prior to the Petition Date, collectively, the Merrill Tysons
Corner Loan Documents), the Merrill Tysons Corner Debtors have granted to the
Merrill Tysons Corner Lender a security interest in certain of their assets and property to
the extent and as more fully set forth in the Merrill Tysons Corner Loan Documents
(collectively, the Merrill Tysons Corner Collateral) as collateral security for
payment and performance when due of the Merrill Tysons Corner Loan Obligations.
(iv) The Merrill Tysons Corner Debtors further acknowledge and agree
that the $25.2 Million Merrill Collateral includes cash collateral within the meaning of
section 363(a) of the Bankruptcy Code (the Merrill Tysons Corner Cash Collateral).
(v) The Merrill Tysons Corner Debtors further acknowledge and agree
that (a) the Merrill Tysons Corner Loan Obligations are valid, binding, and enforceable
obligations of the Merrill Tysons Corner Debtors in accordance with the terms set forth in
the Merrill Tysons Corner Loan Documents, and (b) the liens and security interest
granted to the Merrill Tysons Corner Lenders, or any of them, as security for the Merrill
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Tysons Corner Loan Obligations are valid, perfected, and enforceable liens and security
interests in accordance with the terms set forth in the Merrill Tysons Corner Loan
Documents.
(9) Merrill $24.2 Million Loan (San Antonio). (i) The Debtors listed on
Schedule 9 hereto (collectively, the Merrill San Antonio Debtors and, together with the
Merrill Washington D.C. Debtors and the Merrill Tysons Corner Debtors, the Merrill
Debtors) acknowledge and agree that they are party to that certain Loan Agreement dated as of
September 19, 2006 (the Merrill San Antonio Loan Agreement), among the Merrill San
Antonio Debtors, as borrower and guarantors, as applicable, thereunder, and Merrill Lynch
Mortgage Lending, Inc., as the original lender thereunder (the Merrill San Antonio Lender
and, together with the Merrill Washington D.C. Lender and the Merrill Tysons Corner Lender,
the Merrill Lenders). The Merrill San Antonio Loan Agreement provides for loans to the
Merrill Borrowers in the aggregate principal amount of $24.2 million (the Merrill San Antonio
Loan Obligations).
(ii) The Merrill San Antonio Loan Agreement was securitized and
sold into the CMBS market and is part of a mortgage pool known as ML-CFC 2006-4,
for which U.S. Bank is trustee, Wells Fargo serves as master servicer, and LNR Partners
(iii) The Merrill San Antonio Debtors acknowledge and agree that,
and executed by the Merrill San Antonio Debtors in connection with the Merrill San
Antonio Loan Agreement (the Merrill San Antonio Mortgage and together with the
Merrill San Antonio Loan Agreement and all other loan documents executed in
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connection therewith prior to the Petition Date, collectively, the Merrill San Antonio
Loan Documents and, together with Merrill Washington D.C. Loan Documents and the
Merrill Tysons Corner Loan Documents, the Merrill Loan Documents and, together
with the Fixed Rate Loan Documents, the Floating Rate Loan Documents, the Anaheim
Loan Documents, and the Capmark Loan Documents, the Loan Documents), the
Merrill San Antonio Debtors have granted to the Merrill San Antonio Lender a security
the Merrill San Antonio Loan Documents (collectively, the Merrill San Antonio
Collateral and, together with the Merrill Tysons Corner Collateral and Merrill
Washington D.C. Collateral, the Merrill Collateral and, together with the Fixed Rate
Collateral, the Floating Rate Collateral, the Anaheim Collateral, and the Capmark
Collateral, the Prepetition Collateral) as collateral security for payment and
performance when due of the Merrill San Antonio Loan Obligations.
(iv) The Merrill San Antonio Debtors further acknowledge and agree
that the Merrill San Antonio Collateral includes cash collateral within the meaning of
section 363(a) of the Bankruptcy Code (together with the Merrill Washington D.C. Cash
Collateral and the Merrill Tysons Corner Cash Collateral, the Merrill Cash Collateral
and, together with the Fixed Rate Cash Collateral, the Floating Rate Cash Collateral, the
Anaheim Cash Collateral, and the Capmark Cash Collateral, the Cash Collateral).
(v) The Merrill San Antonio Debtors further acknowledge and agree
that (a) the Merrill San Antonio Loan Obligations are valid, binding, and enforceable
obligations of the Merrill San Antonio Debtors in accordance with the terms set forth in
the Merrill San Antonio Loan Documents, and (b) the liens and security interest granted
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to the Merrill San Antonio Lenders, or any of them, as security for the Merrill San
Antonio Loan Obligations are valid, perfected, and enforceable liens and security
interests in accordance with the terms set forth in the Merrill San Antonio Loan
Documents.
The term: (a) Tranche of Debt shall mean, as the context requires, the Fixed Rate
Obligations, the Floating Rate Loan Obligations, the Anaheim Loan Obligations, the applicable
Capmark Loan Obligations, and the applicable Merrill Loan Obligations (each, a Loan
Obligation and, together, the Loan Obligations); (b) applicable Debtors shall mean,
collectively, the Debtors with obligations arising under a Tranche of Debt; (c) Adequate
Protection Party or applicable Adequate Protection Party shall mean the Representative
and each secured party who is party to, or holder of, the Loan Documents within a Tranche of
Debt and who has been granted a lien in cash constituting Cash Collateral; (d) applicable Loan
Documents shall mean the Loan Documents relating to the applicable Tranche of Debt; (e)
applicable Capmark Loan Obligations shall refer to the obligations relating to the specific
loans and obligations identified in paragraphs 4, 5, and 6 hereof, respectively, and not to all three
such loans and obligations collectively; and (e) applicable Merrill Loan Obligations shall
refer to the obligations relating to the specific loans and obligations identified in paragraphs 7, 8,
and 9 hereof, respectively, and not to all three such loans and obligations collectively.
F. Cause Shown. Good cause has been shown for the entry of this Order. The
Debtors do not have sufficient available sources of working capital and financing to carry on the
operation of their businesses without use of Cash Collateral. Among other things, entry of this
Order will continue to minimize disruption of the Debtors businesses and operations and permit
them to continue to make payroll and other operating expenses, including, without limitation, to
honor their obligations under their agreements with the management companies for their hotels,
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maintain business relationships with their vendors, and retain customer and vendor confidence
by demonstrating an ability to maintain normal operations. The continued use of the Cash
Collateral will, therefore, help preserve and maintain the going concern value of the Debtors and
their estates, and will enhance the prospects for a successful reorganization of the Debtors under
Chapter 11 of the Bankruptcy Code.
G. Notice. Notice of the Final Hearing (the date of which was modified in
accordance with the Final Hearing Date Order) has been given, in accordance with the
requirement of the Interim Order including and to: (i) the Office of the United States Trustee for
the Southern District of New York (the U.S. Trustee); (ii) the entities listed on the
Consolidated List of Creditors Holding the 50 Largest Unsecured Claims filed pursuant to
Bankruptcy Rule 1007(d); (iii) counsel to each of the Fixed Rate Lender, Floating Rate Lender,
Anaheim Lenders, Capmark Lenders, and Merrill Lenders, to the extent known, and, as
applicable, each of the lenders Representatives; (iv) the Internal Revenue Service; (v) the
Securities and Exchange Commission; (vi) the Debtors Franchisors; (vii) the Office of the
Attorney General in all of the states in which the Debtors operate; (viii) any applicable state
public utilities commissions required to receive notice under the Bankruptcy Rules or Local
Rules; and (viii) each of the Debtors credit card processing companies. Such notice of the Final
Hearing complies with sections 102(1) and 363 of the Bankruptcy Code, Bankruptcy Rules 2002
and 4001(b), and Local Bankruptcy Rule 4001-2.
H. Fair and Reasonable; Best Interests. Based on the record presented to the Court at
the Preliminary Hearing and at the Final Hearing, and the consent of the Representative for each
Tranche of Debt on the terms set forth herein, the terms of the Debtors use of the Cash
Collateral appear to be fair and reasonable, and to reflect the Debtors and their respective
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managers and directors exercise of prudent business judgment consistent with their fiduciary
duties. This Court concludes that entry of this Order is in the best interest of the Debtors estates
and creditors.
I. Special Servicers. The Debtors acknowledge and agree that each of the special
servicers identified above (and any successor thereto appointed pursuant to the applicable
pooling and servicing agreement) is authorized, as and to the extent provided for in the
applicable pooling and servicing agreement, to appear in these Chapter 11 Cases to the extent of
the applicable Adequate Protection Party may appear, but such acknowledgement and agreement
does not, and shall not be deemed to, confer on such parties rights not otherwise available to
such parties.
Based upon the foregoing findings and conclusions, and upon the record made before this
Court at the Preliminary Hearing and the Final Hearing, and good and sufficient cause appearing
therefor;
IT IS HEREBY ORDERED that:
1. Motion Disposition. The Motion is GRANTED in its entirety on a final basis.
All objections to the relief sought herein or the entry of this Order that have not been withdrawn
or resolved as set forth herein are overruled on their merits.
2. Effect. Notwithstanding any provision of the Bankruptcy Code or the Bankruptcy
Rules to the contrary, this Order shall take effect immediately upon entry nunc pro tunc to the
Petition Date, supplements the Interim Order (provided that any inconsistencies or conflicts
between the Interim Order and this Order shall be resolved based upon the terms and provision
of this Order), and shall remain in effect as to all of the Debtors until the occurrence and
continuation of a Termination Event (as defined below) at which point the effectiveness of this
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Order shall terminate only as to the use of Cash Collateral of the relevant Debtors as to whom
such Termination Event applies (such period being referred the Cash Collateral Period). The
Debtors expressly reserve their rights to seek continued use of Cash Collateral after the
expiration of the Cash Collateral Period on the terms set forth herein or on modified terms. The
termination of the Cash Collateral Period for any Debtor or group of Debtors shall not serve, in
and of itself, as a termination of the Cash Collateral Period for any other Debtor.
3. Modifications. If any or all of the provisions of this Order are hereafter modified,
vacated, reversed, or stayed by an order of the Court or another court, such stay, modification,
reversal, or vacation shall not affect the validity, perfection, priority, allowability, or
enforceability of any lien, security interest, claims, priority, payments, or protection authorized
for the benefit of any of the Adequate Protection Parties hereunder that is granted or attaches
prior to the effective date of such stay, modification, reversal, or vacation, and any use of the
Cash Collateral by the Debtors pursuant to this Order prior to the effective date of such
modification, stay, reversal, or vacation shall be governed in all respects by the original
provisions of this Order.
4. No Prejudice. This Order is without prejudice (i) to the rights of each of the
Fixed Rate Representative, the Floating Rate Lender, the Anaheim Lender, the Capmark Mission
Valley Lender, the Capmark Garden Grove Lender, the Capmark Ontario Lender, the Merrill
Washington D.C. Lender, the Merrill Tysons Corner Lender, the Merrill San Antonio Lender,
and the applicable special servicers (each, a Representative) at any time to seek a
modification of this Order, or a different cash collateral order, including a request for additional
or other adequate protection or the termination of the applicable Debtors right to use Cash
Collateral, after notice and hearing, including a hearing noticed on an emergency basis; and (ii)
to the rights of the Debtors at any time to seek modification and/or extension of the Order,
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including an increased use of Cash Collateral and a modification of adequate protection, or a
different order, after notice and hearing, including a hearing noticed on an emergency basis.
5. Use of Cash Collateral. Each Debtor is hereby authorized to continue to use Cash
Collateral during such applicable Debtors Cash Collateral Period, in accordance with, and
subject to the conditions and limitations set forth in, this Order and in the Cash Management
Motion and related orders. In addition, the Floating Rate Debtors are hereby authorized and
directed to, and shall, use Cash Collateral of the Floating Rate Lender to pay any commitment
and closing fees under the Floating Rate PIP DIP (as defined below) on the closing date thereof
and to the extent approved by an order of the Court, to the extent such approval is required.
6. Adequate Protection for Use of Cash Collateral. As adequate protection for, and
to the extent of, any diminution in the value of any Adequate Protection Partys interest in the
Prepetition Collateral securing obligations owing to it during the Cash Collateral Period resulting
from (x) the use of its Cash Collateral pursuant to section 363(c) of the Bankruptcy Code, (y) the
use, sale, lease, or other diminution in value of its Prepetition Collateral (other than the Cash
Collateral) pursuant to section 363(c) of the Bankruptcy Code, or (z) the imposition of the
automatic stay pursuant to section 362(a) of the Bankruptcy Code (collectively, the Adequate
Protection Obligations), and effective as of the Petition Date, without the necessity of the
execution by the Debtors of mortgages, security agreements, pledge agreements, financing
statements, or otherwise:
a. Representatives Expense Reimbursement.
(i) The Debtors shall pay or reimburse, subject to the provisions set forth in
paragraph 6(f) hereof, following submission of reasonably detailed
invoices or statements (redacted as may be necessary to preserve
privilege), the reasonable, documented out-of-pocket fees and expenses
(whether incurred pre-petition or post-petition) of attorneys, appraisers,
and other professional advisors or experts retained by, or on behalf of, the
Representatives (including special servicers) in connection with matters
relating to this Order, and to these Chapter 11 Cases. The foregoing
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obligations shall be collectively referred to herein as the
Representatives Expense Reimbursement.
(ii) Each professional referred to in paragraph 6(a)(i) hereof, shall submit
copies of its professional fee invoices or statements to respective counsel
to the applicable Debtors, the U.S. Trustee, and the Committee. Such
invoices may be redacted only to the extent reasonably necessary to delete
any information subject to the attorney-client privilege, any information
constituting attorney work product, or any other confidential or proprietary
information, and the provision of such invoices shall not constitute any
waiver of the attorney-client privilege or of any benefits of the attorney
work product doctrine. The Debtors, the U.S. Trustee, and any Committee
may object to the reasonableness of the fees and expenses included in any
such professional fee invoices by providing notice of such objection to the
appropriate professional and to counsel for the Debtors and the
Committee. The parties will work in good faith to resolve the objection
within ten (10) days of the date of the objection. If the parties cannot
resolve such objection within such time period, the Debtors, the U.S.
Trustee or the Committee may file a request with the Court seeking
resolution. The Debtors only shall be required to pay the undisputed
amount of the applicable invoice, if any, unless the parties resolve, or the
Court orders, otherwise. For the avoidance of doubt, professionals
retained by the Representatives shall not be required to file any interim or
final fee applications or summaries of fees with respect thereto in
connection with the Representatives Expense Reimbursement provided
for herein.
b. Adequate Protection Liens.
(i) To the extent of any Adequate Protection Obligations arising under any
Tranche of Debt, the applicable Adequate Protection Party shall receive,
and hereby is granted, a perfected replacement lien and security interest in
and valid, binding, enforceable and perfected liens (the Adequate
Protection Liens) on all of the applicable Debtors (x) rights in deposits
of Cash Collateral in the Master Account (as defined below), not to exceed
the lesser of (a) the amount, if any, of Adequate Protection Obligations at
such time owing to such Adequate Protection Party, and (b) the amount of
Cash Collateral transferred from such Debtor to the Master Account less
amounts applied for the benefit of such Debtor (and such Debtor's estate)
including, without limitation, on account of expenses of these Chapter 11
Cases as allocated in accordance with the terms of this Order, and (y)
rights in, to, and under all present and after-acquired property and assets of
the like-kind or type that would constitute Prepetition Collateral of such
Adequate Protection Party in accordance with the applicable Loan
Documents of any nature whatsoever whether real or personal, tangible or
intangible, wherever located, including, without limitation, all cash and
Cash Collateral and any investment of such cash and Cash Collateral,
goods, cash-in-advance deposits, contracts, causes of action, general
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intangibles, accounts receivable, and other rights to payment, whether
arising before or after the Petition Date, chattel paper, documents,
instruments, interests in leaseholds, real properties, plants, machinery,
equipment, patents, copyrights, trademarks, trade names or other
intellectual property, licenses, insurance proceeds, and tort claims, and any
and all of the proceeds, products, offspring, rents, and profits thereof,
rights under letters of credit, capital stock, and other equity or ownership
interests held by any of the Debtors, including equity interests in
subsidiaries and all other investment property, and the proceeds of all of
the foregoing, whether in existence on the Petition Date or thereafter
created, acquired, or arising and wherever located (all such property, other
than the Prepetition Collateral in existence immediately prior to the
Petition Date, being collectively referred to as the Postpetition
Collateral), which liens and security interests shall be subject only to (A)
the Carve Out, (B) liens granted in respect of Permitted DIPs (as defined
below), and (C) all valid, enforceable, and non-avoidable liens and
security interests in the applicable Prepetition Collateral that were
perfected prior to the Petition Date (or perfected thereafter to the extent
permitted by section 546(c) of the Bankruptcy Code), which are not
subject to avoidance, disallowance, or subordination pursuant to the
Bankruptcy Code or applicable non-bankruptcy law and which are senior
to the applicable Adequate Protection Partys liens in such Prepetition
Collateral as of the Petition Date (the Prior Liens). The Postpetition
Collateral in favor of any Adequate Protection Party shall not include any
claims and causes of action under section 544, 545, 547, 548, 549, or 550
of the Bankruptcy Code (collectively, the Avoidance Actions) or the
proceeds therefrom, except to the extent that such Avoidance Action
would seek to avoid a transfer of Cash Collateral or other Prepetition
Collateral which was subject to the lien or security interest of such
Adequate Protection Party, and the proceeds therefrom. To the extent
applicable, all Adequate Protection Liens shall be subject to terms and
conditions of any intercreditor agreements. For the avoidance of doubt,
such Adequate Protection Liens granted hereunder shall be deemed to be
effective and perfected as of the Petition Date and without the necessity of
the execution by the Debtors of mortgages, security agreements, pledge
agreements, financing statements, or other agreements.
(ii) The Adequate Protection Liens shall be enforceable against the applicable
Debtors, their estates and any successors thereto, including, without
limitation, any trustee or other estate representative appointed in the
Chapter 11 Cases, or any case under chapter 7 of the Bankruptcy Code
upon the conversion of any of the Chapter 11 Cases, or in any other
proceedings superseding or related to any of the foregoing (collectively,
the Successor Cases).
(iii) The Adequate Protection Liens shall be deemed legal, valid, binding,
enforceable, and perfected liens, not subject to subordination, impairment,
or avoidance, for all purposes in the Chapter 11 Cases and any Successor
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Cases or upon the dismissal of any of the Chapter 11 Cases or Successor
Cases.
c. Adequate Protection 507(b) Claims. As further adequate protection for
any Adequate Protection Obligations, the applicable Adequate Protection
Party shall have an administrative expense claim against the Debtors with
obligations arising under the applicable Tranche of Debt under section
507(b) of the Bankruptcy Code with priority over all other administrative
expense claims and unsecured claims against such Debtors, now existing
or hereafter arising, of any kind whatsoever (collectively, the 507(b)
Claims), subject in each case to the Carve Out, and to any superpriority
claim in favor of Permitted DIPs. Notwithstanding anything to the
contrary in this Order, neither Avoidance Actions nor the proceeds
therefrom shall be available for the payment of any 507(b) Claims or other
super-priority administrative claims asserted by the Adequate Protection
Parties.
d. Reporting.
(i) The Debtors have delivered to the Representatives a 13-week forecast of
cash receipts and disbursements (a 13-Week Forecast), a copy of which
is attached hereto as Schedule 10. The Debtors shall deliver to the
Representatives: (A) except as provided in clause (C) below, on the first
day of each calendar month (unless such day is not a business day in
business day) a revised 13-Week Forecast for the 13-week period from the
last Saturday of the prior calendar month (each such revised forecast, for
the period of its applicability, to be referred to herein as the Forecast);
(B) except as provided in clause (C) below, on the last day of each
calendar month (unless such day is not a business day in which case the
required delivery date shall be the next succeeding business day), a report
showing in reasonable detail a comparison of actual receipts and
disbursements for the period from the last date included in last such report
through and including the last Saturday of the prior calendar month
against the receipts and disbursements projected in the Forecast for such
period (the Variance Report); and (C) with respect to the first Forecast
and Variance Report following the Petition Date, (1) the Forecast shall be
due on September 1, 2010, (2) the Variance Report shall be delivered on
the last day of the calendar month (unless such day is not a business day in
business day), that is at least 60 days from the Petition Date, and shall set
forth the required comparison from the Petition Date through the last
Saturday of the calendar month that is at least 30 days prior to the date
when such report is required to be delivered. Together with each Forecast
delivered to the Representatives, promptly following request therefor, the
Debtors also shall deliver to the Representatives material back-up details
relative to the components of such Forecast. Thereafter, promptly
following request, the Debtors shall make themselves reasonably available
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to discuss such Forecast and the details thereof. To the extent of any
unresolved issues between the Representatives and the Debtors, such
parties shall have the right to apply to the Court for resolution.
(ii) The Debtors also shall provide to each Representative month-end profit
and loss statements for each individual hotel property (not consolidated by
Tranche of Debt) within 30 days of the end of the month (or, if the 30th
day is not a business day, the next succeeding business day), which shall
include year-to-year results, comparisons with same period in the
immediately preceding year, and key operating metrics consisting of
occupancy, so-called ADR and so-called REVPAR. The Debtors also
shall provide on a monthly basis, at the same time as they provide the
month-end statements referred to in the first sentence of this paragraph
(ii), the so-called STR report for each property.
(iii) The Debtors also shall provide to the Representatives appointed in
connection with any properties securing any of the obligations under the
Fixed Rate PIP DIP (as defined below) copies of the reports and
information (but not any certifications as may be required) provided by
such Debtors to the lenders under the Fixed Rate PIP DIP pursuant to
Sections 5.01(e) and 5.03(b), (c), (d), (e), (f), and (g) thereof.
e. Cumulative Forecast Variance. The Debtors agree that, as reported in any
Variance Report delivered pursuant to paragraph 6(d)(i) of this Order, (x)
during each 4-week cumulative period as tested from the last Sunday of
such period, the Debtors shall not use Cash Collateral to the extent such
use would exceed, for such period, 110% of cash disbursements
(excluding those disbursements on account of Professional Fees and any
Representatives Expense Reimbursement) contemplated to be made by
such Debtors during such 4-week period in the applicable Forecast, and
(y) during each 13-week cumulative period as tested from the last Sunday
of such period, the Debtors shall not use Cash Collateral to the extent such
use would exceed, for such cumulative period, 106.5% of cash
disbursements (excluding those disbursements on account of Professional
Fees and any Representatives Expense Reimbursement) contemplated to
be made by such Debtors during such 13-week cumulative period in the
applicable Forecast. To the extent that there is a variance, positive or
negative (expressed as a percentage), of receipts in any one month period
as compared to the receipts for the same period forecasted in the
applicable Forecast with respect to any Hotel Operating Expense (as
defined below), then the variance from budget permitted pursuant to the
preceding sentence on account of such Hotel Operating Expense shall be
adjusted by such percentage. Hotel Operating Expense means any of
the following line items listed on the applicable Forecast: (i) payroll and
related; (ii) franchise taxes; (iii) franchise fees, (iv) utility costs; (v) third
party management and related fees; (vi) occupancy/sales tax; and (vii) all
other expense categories.
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f. Cash Use Covenant; True-Ups. (i) In the ordinary course of operations
and consistent with practices in place prior to the Petition Date, the
Debtors shall consolidate all cash in a master account (the Master
Account) owned by one or more Debtors.
3
Such consolidated cash shall
be applied as follows:
1) first, given the timing of cash receipts versus certain
disbursements, to establish or increase, as the case may be, an
expense reserve in amounts (at no time to exceed $4,500,000) and
at times reasonably determined by the Debtors for the purpose of
ensuring sufficient cash on-hand to pay accrued expenses of the
type contemplated by an applicable Forecast but which expenses
are expected to become payable during a period other than the
period when cash in excess of then-payable expenses has been
generated;
2) second, to the extent of any excess, to pay property level costs and
expenses of the hotels and the Operating Lessees, including the
costs and expenses identified in the applicable Forecast as
Maintenance/emergency CAPEX;
3) third, to the extent of any excess, to pay corporate overhead
charges and expenses of Innkeepers USA Trust and the other
Debtors;
4) fourth, to the extent of any excess, to pay any Professional Fees (to
the extent permitted by the Court to be paid at such time), as well
as the Representatives Expense Reimbursement;
5) fifth, to the extent of any excess, to pay amounts then owing on
account of any Permitted DIPs to the extent then payable, but only
to the extent such fees and expenses are not payable from the
proceeds of such Permitted DIPs; and
6) sixth, to the extent of any excess, to repay any Intercompany Loans
(as defined below) and any interest thereon.
(ii) The Debtors shall provide to each Representative a so-called flash report
(x) on the 15th of each calendar month (or, if such day is not a business
day, then on the next succeeding business day), detailing cash receipts and
disbursements for the Debtors for the period from the 16th through and
including the last day of the immediately prior month, and (y) on or prior
to the last business day of each calendar month, detailing cash receipts and
disbursements for the Debtors for the period from the first day through and
including the 15th day of such month, and, in each case, including

3
For the avoidance of doubt, nothing contained in this Order shall constitute a substantive
consolidation of the Debtors estates.
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information, to the extent then determined by the Debtors, their anticipated
allocation of all or any portion of the cash disbursements made during
such period, on a Tranche of Debt by Tranche of Debt basis, and the
approximated amount of cash receipts and disbursements not yet allocated
(it being understood that the Debtors proposed allocation shall not
constitute the Debtors final allocation (which shall only be included in an
Application Report (as defined below), but only their good faith
application based upon information then available to the Debtors). At any
time following the Debtors delivery of any flash report, any
Representative may, following a reasonable request, seek from the
Debtors reasonable information in order to determine, based upon a
sampling of such information, the basis for certain of the Debtors
proposed allocations (it being understood that such requests, if any,
relative to the information contained in flash reports only, shall not be
reasonable to the extent they seek from the Debtors all or substantially all
of the Debtors invoices and similar information used in determining the
proposed allocation). To the extent of any dispute as the contents of any
flash report the parties shall have the right to apply to the Court for
expedited resolution; provided, however, that any challenge to
Professional Fees shall be made in accordance with any order (the
Professionals Compensation Order) of the Court setting procedures
for the interim and final compensation of professionals retained by the
Debtors and the Committee.
(iii) Within 45 days (or, if the 45th day is not a business day, the next
succeeding business day) after the end of each calendar month, the
Debtors shall provide to each Representative a report for such month, on a
Tranche of Debt by Tranche of Debt basis, as to the application of the cash
in accordance with the waterfall set forth in paragraph 6(f)(i) hereof (the
Application Report), with such Application Report to be based upon
(x) the Cash Collateral generated by the applicable Debtors within a
Tranche of Debt, plus or minus, as the case may be, the amount deemed
loaned or borrowed, as applicable, by the applicable Debtors (to the extent
set forth in paragraph 6(f)(iv) hereof), (y) in the case of all of the waterfall
items other than third and, with respect to Professional Fees, fourth, in
accordance with the amounts actually applicable to the applicable Debtors,
and (z) in the case of waterfall items third, with respect to Professional
Fees, fourth, and with respect to costs, fees, and expenses in respect of
the Fixed Rate PIP DIP, fifth, in accordance with the Allocation
Percentages (as defined below). Amounts actually applied in accordance
with the waterfall set forth in paragraph 6(f)(i) hereof shall be deemed to
have been applied for the benefit of the Debtors within a Tranche of Debt
in accordance with the Application Report. Each Representative shall
have the right to audit and challenge any Application Report upon the
serving of notice of such challenge (a Challenge Notice) (within 10
days following receipt of such report) on the Debtors, counsel for the
Debtors, and counsel for any Committee and the other Representatives.
Any such Challenge Notice shall be reasonably detailed as to the nature
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and basis for the challenge and, as to Professional fees, the challenge may
only be as to allocation (it being understood that the Professionals
Compensation Order shall govern any other challenge to any fees).
Promptly following receipt of a Challenge Notice, the parties shall
endeavor in good faith to resolve any disputes and, failing a resolution,
shall have the right to apply to the Court for resolution after no less than
15 days after the service of a Challenge Notice. Upon a resolution, a
revised Application Report (if any) shall be distributed to the
Representatives (and, for the avoidance of doubt, such revised report shall
not be subject to a challenge period).
(iv) If the Application Report demonstrates that the Cash Collateral generated
by the Debtors within a Tranche of Debt exceeded the amount of cash
deemed to have been applied in accordance with the waterfall set forth in
paragraph 6(f)(i) hereof, then such excess amount shall be paid to the
applicable Representatives for the benefit of the applicable Adequate
Protection Parties as a prepayment of the financial obligations within the
applicable Tranche of Debt consisting of interest and principal owing to
the applicable Adequate Protection Parties under the applicable Loan
Documents.
(v) If the Application Report demonstrates that the Cash Collateral generated
by the Debtors (in such case, the Borrower Debtors) within a Tranche
of Debt was less than the amount of cash deemed to have been applied in
accordance with the waterfall set forth in paragraph 6(f)(i) hereof, then
such shortfall amount shall be deemed to be a loan (an Intercompany
Loan) from one or more Debtors (the Lender Debtors), in the amount
as may be set forth in the Application Report, to the Borrower Debtors,
and such Intercompany Loan shall be, and is hereby, secured on a super-
priority basis in accordance with sections 364(c)(2) and (d) of the
Bankruptcy Code by senior secured and priming liens on and security
interests in all the Borrower Debtors property, and the obligations of the
Borrower Debtors repay such loan, and the related obligations specified
below, shall constitute, in accordance with section 364(c)(1) of the
Bankruptcy Code, a super-priority administrative expense claim having
priority over any or all administrative expenses of the kind specified in,
among other sections, sections 105, 326, 330, 331, 503(b), 506(c), 507(a),
and 726 of the Bankruptcy Code. Each Intercompany Loan shall accrue
interest at a per annum rate equal to 7.00%, which amount shall accrue
from the date when such loan is deemed to have been made, to, but not
including, the date of repayment thereof. In determining which Debtors
shall be Lender Debtors, and the share of the Intercompany Loans being
made by each of the Lender Debtors the Debtors shall allocate the
aggregate amount of all Intercompany Loans then deemed extended by
each Lender Debtor based upon such Lender Debtors Allocation
Percentage, to each of the Borrower Debtors on a pro rata basis. All
interest, liens, and claims on account of Intercompany Loans shall be
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junior in right of payment only to all interests, liens and claims of
Permitted DIPs and the Carve Out.
(vi) Notwithstanding anything to the contrary set forth in an Application
Report, or otherwise in this Order, all payments to a Representative or an
Adequate Protection Party will be made by the Debtors, and, to the extent
accepted by an Adequate Protection Party, accepted, subject to
recharacterization, refund, disgorgement, or other treatment as may be
necessary to give effect to the Application Report at such time, or
otherwise, and as may be determined by the Court, and all parties reserve
their rights with respect thereto.
(vii) The term Allocation Percentages shall mean the percentage determined
by multiplying (x) earnings before interest, taxes, depreciation, and
amortization (EBITDA) earned in connection with each Tranche of
Debt (or, in the case of Intercompany Loans, with respect to each Tranche
of Debt for which such applicable Debtors are deemed Lender Debtors)
expressed as a percentage of total EBITDA for such period by (y) the total
amount of corporate overhead charges and expenses of Innkeepers USA
Trust and the other Debtors, as well as Professional Fees (to the extent
permitted by the Court to be paid at such time) paid during such time. The
term Allocation Percentages also shall mean, solely in respect of the
allocation of costs, fees, and expenses in respect of the Fixed Rate PIP
DIP as among the Debtors obligated thereunder, the percentage
determined by multiplying (x) the aggregate principal amount permitted to
be borrowed by the borrowers within a tranche under the Fixed Rate PIP
DIP, expressed as a percentage of the total principal amount permitted to
be borrowed by all of the borrowers under the Fixed Rate PIP DIP, by (y)
the total amount of costs, fees, and expenses paid pursuant to the
requirements of the Fixed Rate PIP DIP during such time.
g. Right to Inspect and Audit. In accordance with the applicable Loan
Documents, the Debtors shall permit each Representative (through its
officers, senior employees, or agents, including, but not limited to,
professionals retained in connection with these Chapter 11 Cases) to
inspect the applicable Prepetition Collateral during business hours upon
reasonable advance notice. In addition, the Debtors shall allow each
Representative to periodically inspect and audit the books, records, and
account statements of the applicable Debtors in order to confirm the
applicable Debtors compliance with this Order and any budget approved
in connection with a Permitted DIP.
h. Right to Credit Bid. The Adequate Protection Parties shall have the right
to credit bid their claims to the fullest extent permitted by law in
connection with any sale, auction or other disposition, including but not
limited to, in connection with any plan of reorganization or liquidation, of
the applicable Prepetition Collateral pursuant to 11 U.S.C. 363(k),
1123, and 1129.
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i. Reporting to TriMont Real Estate Advisors, Inc. The Debtors shall
provide copies of all reports provided pursuant to paragraphs 6(d)(i),
(d)(ii), (e), (f)(ii), and (f)(iii) of this Order, to the extent relating to the
Floating Rate Debtors and the Anaheim Debtors, to TriMont Real Estate
Advisors, Inc., as and when provided to the applicable Representative.
Notwithstanding anything herein to the contrary, no Adequate Protection Party shall be
entitled to adequate protection (and no Adequate Protection Obligations shall arise) with respect
to any diminution in value of such Adequate Protection Partys interest in its Prepetition
Collateral resulting from any successful Avoidance Action against, or Avoidance Action
proceeds recovered from, such Adequate Protection Party, or from or as a result of the payment
of any costs, fees, or expenses included as part of adequate protection hereunder.
7. Carve Out. (a) As used in this Order, Carve Out means: (i) unpaid fees of the
Clerk of the Court and the U.S. Trustee pursuant to 28 U.S.C. 1930(a); (ii) in the event of a
conversion of the Chapter 11 Cases to cases under chapter 7 of the Bankruptcy Code, fees and
expenses incurred by any trustee and any professionals retained by such trustee, in an aggregate
amount not exceeding $75,000; (iii) to the extent allowed at any time, whether by interim order,
procedural order or otherwise, all unpaid fees and expenses (the Professional Fees), incurred
by persons or firms retained by the Debtors pursuant to section 327, 328 or 363 of the
Bankruptcy Code and any Committee appointed pursuant to section 1103 of the Bankruptcy
Code (the Professional Persons), at any time before or on the first business day following
delivery of a Carve Out Trigger Notice (as defined below), whether allowed by the Court prior to
or after delivery of a Carve Out Trigger Notice; (iv) after the first business day following
delivery of the Carve Out Trigger Notice, to the extent allowed at any time, whether by interim
order, procedural order or otherwise, the payment of Professional Fees of Professional Persons in
an aggregate amount not to exceed $5,500,000; and (v) the expenses of members of the
Committee incurred in the performance of the duties of the Committee (excluding third-party
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counsel expenses of individual members of the Committee). The Carve Out shall be senior to
the Replacement Liens, the 507(b) Claims, and any other adequate protection, liens or claims
securing the obligations arising under or in connection with the Loan Documents. For purposes
of calculating the amount of Professional Fees permitted to be paid to a Professional Person as
part of the Carve Out under subsection (iv) of this paragraph 7, such amount shall be net of all
prepetition retainers held by such Professional Person.
(b) As used herein, Carve Out Trigger Notice means a Termination Notice
(as defined below) delivered by a Representative on any business day (or, if such day of
delivery is not a business day, the next succeeding business day), which notice has been
preceded by Termination Notices delivered in connection with each Tranche of Debt,
and, as a result of the most recently delivered Termination Notice, all Tranches of Debt
shall have become subject to continuing Termination Events.
(c) For the avoidance of doubt, the obligation to pay Professional Fees shall
be allocated as among the Debtors in accordance with the Allocation Percentage.
8. Modification of Automatic Stay. The automatic stay under section 362(a) of the
Bankruptcy Code is hereby modified as necessary to effectuate all of the terms and provision of
this Order, including, without limitation, to: (a) permit the Debtors to grant the Adequate
Protection Liens and the 507(b) Claims; (b) permit the Debtors and the Adequate Protection
Parties to perform such acts as the Adequate Protection Parties may reasonably request the
applicable Debtors to take to assure the perfection and priority of the liens granted herein; and (c)
authorize the applicable Debtors to make, and the applicable Adequate Protection Parties to
receive and retain in accordance with the terms of the applicable Loan Documents, payments on
account of fees and expenses in accordance with the terms of this Order; provided, however, any
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stay relief with respect to the exercise of remedies shall be in accordance with paragraph 11
below or as otherwise ordered by the Court.
9. Perfection of Adequate Protection Liens. This Order shall be sufficient and
conclusive evidence of the validity, perfection, and priority of the Adequate Protection Liens,
without the necessity of filing or recording any mortgage, deed of trust, financing statement, or
other instrument or document that may otherwise be required under the law or regulation of any
jurisdiction or the taking of any other action (including, for the avoidance of doubt, entering into
any deposit account control agreement) to validate or perfect (in accordance with applicable non-
bankruptcy law) the Adequate Protection Liens, or to entitle the Adequate Protection Parties to
the priorities granted herein. The applicable Debtors are authorized to execute and deliver
promptly to the applicable Adequate Protection Parties or their Representative, as applicable, all
such financing statements, mortgages, deeds of trust, notices, and other documents as the
applicable Adequate Protection Party may reasonably request. Each of the Adequate Protection
Parties or their Representative, as applicable, may file a photocopy of this Order as a financing
statement, mortgage, deed of trust, notice of lien, or similar instrument evidencing the liens and
security interests provided for herein, with any filing or recording office or with any registry of
deeds or similar office, in addition to or in lieu of such financing statement, mortgage, deed of
trust, notice of lien, or similar instrument.
10. Termination Events. (a) The rights of the Debtors under a Tranche of Debt (but
not the rights of any Debtors under any other Tranche of Debt) to use Cash Collateral relating to
such Tranche of Debt shall terminate upon the business day immediately following written
notice (a Termination Notice) delivered to (i) the applicable Debtors, (ii) counsel to the
Debtors, (iii) the U.S. Trustee, (iv) counsel to the Committee, and (v) counsel to each
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Representative, indicating that one of the events listed below has occurred and is continuing with
respect to such applicable Debtors (each, a Termination Event):
i. [Reserved];
ii. The Debtors under such Tranche of Debt shall fail to timely make
payments required to be made by them pursuant to the terms of this Order
within five (5) business days from when such payment is due;
iii. The Debtors under such Tranche of Debt shall breach any of the covenants
or agreements contained in this Order (other than a payment obligation)
applicable to them and such breach shall continue unremedied for more
than ten (10) business days following notice of such breach;
iv. The Debtors shall make any misrepresentation of a fact that is materially
adverse to the Debtors (taken as a whole) to any of the Representatives or
their agents about the financial conditions of the Debtors, the nature,
extent, or location of the applicable Prepetition Collateral, or the
disposition or use of any of the Postpetition Collateral, including the Cash
Collateral;
v. The Debtors under such Tranche of Debt shall permit any superpriority
claim (other than the Carve Out) or shall grant any other lien or security
interest (including any other adequate protection lien), that in either case is
senior or equal to the claims and liens (including the adequate protection
claims and liens) of the applicable Adequate Protection Party, except
superpriority claims and liens senior to the Adequate Protection Liens and
507(b) Claim relating to one or more debtor-in-possession financing
facilities approved by the Court and provided to some or all of the Debtors
(the Permitted DIPs); provided, however, that with respect to the Fixed
Rate Debtors, a Permitted DIP shall only mean that certain debtor in
possession financing arrangement provided by Five Mile Capital II
Pooling International LLC or an affiliate thereof, and its successors and
assigns, approved solely for the purposes set forth therein (the Fixed
Rate PIP DIP), and shall mean no other debtor in possession financing
arrangement; provided, further, that, with respect to the Floating Rate
Debtors, a Permitted DIP shall only mean that certain debtor-in-possession
financing arrangement provided by Solar Finance Inc. or an affiliate
thereof, and its successors and assigns, approved solely for the purposes
set forth therein (the Floating Rate PIP DIP), and shall mean no other
debtor-in-possession financing arrangement; provided, further, that with
respect to the Capmark Mission Valley Debtors, a Permitted DIP shall
mean only the Tranche B Facility (and related obligations) under, and as
defined in, the Fixed Rate PIP DIP (or any other debtor-in-possession
facility consented to by LNR Partners (or its successor or assign)), and
that with respect to the Merrill Tysons Corner Debtor, a Permitted DIP
shall mean only the Tranche C Facility (and related obligations) under,
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and as defined in, the Fixed Rate PIP DIP (or any other debtor-in-
possession facility consented to by LNR Partners (or its successor or
assign));
vi. Any lien or security interest granted or created under the applicable Loan
Documents shall be asserted by any Debtor not to be a valid and perfected
lien on or security interest in any of the applicable Postpetition Collateral,
with the priority required by the applicable Loan Documents; provided,
however, that the immediate foregoing shall not apply with respect to any
liens granted under the Permitted DIPs;
vii. Other than payments authorized by the Court and that are (I) approved by
the Representative of such Tranche of Debt, (II) in respect of accrued
payroll and related expenses as of the Petition Date, (III) in respect of
general unsecured creditors, in each case to the extent authorized by one
or more first day orders or other orders of the Court (including this
Order) to the extent previously provided to the applicable Representative,
or (IV) on account of Professional Fees, the Debtors under such Tranche
of Debt shall make any payment (whether by way of adequate protection
or otherwise) of principal or interest or otherwise on account of any
prepetition indebtedness or payables (including without limitation,
reclamation claims);
viii. Lender Debtors under such Tranche of Debt have caused to be loaned to
Borrower Debtors an aggregate amount of more than $2,000,000 at any
one time outstanding;
ix. With respect to such Tranche of Debt, one or more franchisors have
terminated franchise agreements relating to hotels owned by the Debtors
under such Tranche of Debt;
x. With respect to such Tranche of Debt, the Court shall enter an order
granting relief from the automatic stay to the holder or holders of any
security interest to permit foreclosure (or the granting of a deed in lieu of
foreclosure or the like) on a hotel constituting Prepetition Collateral and
such order shall not be subject to timely appeal;
xi. There shall have occurred and be continuing one or more events of default
under the Fixed Rate PIP DIP or the Floating Rate PIP DIP that,
individually or in the aggregate, cause or permit the lenders thereunder to
cause the obligations under the Fixed Rate PIP DIP or the Floating Rate
PIP DIP, as the case may be, to become immediately due and payable;
xii. The Debtors under such Tranche of Debt shall use Cash Collateral arising
under such tranche for a purpose not permitted hereunder unless such non-
permitted use was inadvertent, and was not in an amount in excess of
$25,000; provided, that, notwithstanding the immediate foregoing, the use
of Cash Collateral not permitted hereunder occurring more than five (5)
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times shall constitute a Termination Event unless such amounts have been
repaid or reallocated, as the case may be;
xiii. The Bankruptcy Court shall enter an order granting relief from the
automatic stay to permit any exercise of remedies by the lenders or special
servicer under a Tranche of Debt other than limited relief solely to permit
the delivery of default notices under the terms of the applicable Loan
Documents;
xiv. The Debtors shall file any motion or other request for relief seeking to (i)
dismiss any of the Chapter 11 Cases, (ii) convert any of the Chapter 11
Cases to a case under chapter 7 of the Bankruptcy Code, or (iii) appoint a
trustee or an examiner with expanded powers pursuant to section 1104 of
the Bankruptcy Code in any of the Chapter 11 Cases;
xv. The Bankruptcy Court shall enter an order (i) dismissing any of the
Chapter 11 Cases, (ii) converting any of the Chapter 11 Cases to a case
under chapter 7 of the Bankruptcy Code, (iii) appointing a trustee or an
examiner with expanded powers pursuant to section 1104 of the
Bankruptcy Code in any of the Chapter 11 Cases, or (iv) making a finding
of fraud, dishonesty or misconduct by any officer or director of Innkeepers
USA Trust, regarding or relating to the Debtors;
xvi. There shall have occurred, after the entry of this Order, a change that has a
material adverse effect on the use, value or condition of the Debtors, their
assets or the legal or financial status or business operations, in each case
taken as a whole; or
xvii. The Fixed Rate Lender or the Floating Rate Lenders shall have terminated
the applicable Debtors use of Cash Collateral.
(b) Notwithstanding anything to the contrary herein, no Termination Event
with respect to the Debtors under a Tranche of Debt shall be deemed to constitute a
Termination Event with respect to the Debtors under any other Tranche of Debt (it
being agreed that the foregoing shall not limit the applicability of any termination
events or defaults arising under any Permitted DIP to the extent such Permitted DIP
may relate to property in more than one Tranche of Debt).
11. Rights and Remedies Upon Termination Event. (a) Immediately upon the
occurrence and during the continuation of a Termination Event with respect to a Tranche of
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Debt, unless waived by a writing signed by the applicable Adequate Protection Party (or its
Representative), the applicable Adequate Protection Parties (or their Representative, as
applicable) may declare a termination, reduction, or restriction of the ability of the applicable
Debtors to use Cash Collateral on the consensual basis provided in this Order, except for the use
of Cash Collateral provided in clause (b) of this paragraph 11 (any such declaration, shall be
referred to herein as a Termination Declaration), and may be declared in conjunction with or
as part of any Termination Notice. The Termination Declaration shall be given (a Termination
Notice) by facsimile (or other electronic means) to lead counsel to the Debtors, counsel to the
Committee, and the U.S. Trustee (the date such Termination Declaration is given pursuant to a
Termination Notice shall be referred to herein as the Termination Declaration Date). On the
Termination Declaration Date, the applicable Debtors right to use Cash Collateral on the basis
provided in this Order shall automatically cease, except as provided in clause (b) of this
paragraph 11. During the five (5) business days after the Termination Declaration Date (the
Remedies Notice Period), the applicable Debtors and/or the Committee shall be entitled to
seek an emergency hearing with the Court seeking a determination of whether a Termination
Event has occurred and/or any other appropriate relief related to continued use of Cash Collateral
on a non-consensual basis, with the rights and objections of all relevant parties reserved with
respect thereto. Unless the Court determines otherwise during the Remedies Notice Period, after
the Remedies Notice Period, the applicable Debtors shall no longer have the right to use Cash
Collateral.
(b) The applicable Debtors may continue to use Cash Collateral (i) for the
payment of any unpaid postpetition administrative expenses subject to the applicable
terms and conditions of this Order, so long as such expenses were actually incurred prior
to the last day of the Remedies Notice Period, (ii) to meet payroll obligations and to pay
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K&E 17460541.10
expenses critical and immediately necessary to the preservation of the applicable Debtors
and their estates incurred during the Remedies Notice Period, and (iii) to satisfy any
payment obligation senior to the obligations owed to the Adequate Protection Parties
(including Professional Fees but, with respect to such fees, to the extent of the Carve
Out).
12. Limitations on Cash Collateral and the Carve Out. The Cash Collateral under an
applicable Tranche of Debt and Professional Fees payable from such Cash Collateral may not be
used (without the prior written consent of the applicable Representative): (a) in connection with,
or to finance in any way, any action, suit, arbitration, proceeding, application, motion, or other
litigation of any type (or the preparation of any such action, suit, arbitration, proceeding,
application, motion, or other litigation) (i) against the applicable Adequate Protection Parties
seeking relief that would (A) assert, commence, or prosecute any Avoidance Actions against the
applicable Adequate Protection Parties, (B) permit the applicable Debtors to prepare or prosecute
an objection to, contest in any manner, or raise any defense to, the validity, extent, amount (other
than entitlement to postpetition interest), perfection, priority, or enforceability of any of the
rights and obligations of the applicable Adequate Protection Parties, or (C) permit the Debtors to
pay for any services rendered by the professionals retained by the Debtors in connection with the
assertion of or joinder in any claim, counterclaim, action, proceeding, application, motion,
objection, defense, or other contested matter, the purpose of which is to seek, or the result of
which would be to obtain, any order, judgment, determination, declaration, or similar relief that
would otherwise be prohibited pursuant to this paragraph 12, or (ii) invalidating, setting aside,
avoiding, or subordinating, in whole or in part, the applicable Loan Documents or any payments
made thereunder; (b) to sell, lease, transfer, or otherwise dispose of Collateral without the prior
written consent of the applicable Adequate Protection Parties unless in the ordinary course of
Pg 42 of 60

42
K&E 17460541.10
business, contemplated by the Forecast, or otherwise ordered by the Court; or (c) to pay pre-
Petition Date indebtedness unless ordered by the Court. Notwithstanding the foregoing, the Cash
Collateral and the Carve Out may be used by the Committee to investigate the Loan Obligations
and the Prepetition Collateral and/or a potential Challenge (as defined below); provided that no
more than $150,000 in the aggregate may be spent from Cash Collateral on such investigations.
13. Challenge to Prepetition Claims. Upon entry of the Interim Order and subject to
the Challenge, (i) the Loan Obligations of the Adequate Protection Parties constituted secured
claims against the applicable Debtors and, together with any payments on account thereof, were
not be subject to subordination, avoidance, or objection by the Debtors or any party as to
validity, enforceability, priority, or avoidability of the security for such claims and payments
made on account thereof, and (ii) the liens and security interests of the Adequate Protection
Parties were deemed to be valid, perfected, enforceable, and not subject to avoidance,
subordination, or objection by the Debtors or any party as to validity, enforceability, or priority.
Notwithstanding the foregoing, such determination of the validity, perfection, enforceability, and
unavoidability of such liens and security interests, and any payments made on account thereof, is
without prejudice to the rights of the Committee to investigate and challenge any such liens or
security interests of the Adequate Protection Parties, or to assert any other claims or causes of
action, at law or in equity against any of the Adequate Protection Parties (a Challenge);
provided, that any such Challenge not made by commencement of an adversary proceeding
pursuant to Federal Rule of Bankruptcy Procedure 7001 (an Adversary Proceeding) and
served no later than November 30, 2010 (the Challenge Period), shall be forever barred.
Despite the initiation of any such Adversary Proceeding asserting a Challenge, the Adequate
Protection Parties liens, security interests, and any payments made on account thereof, shall be
presumed to be valid and entitled to the benefit of this Order pending the entry of a final non-
Pg 43 of 60

43
K&E 17460541.10
appealable judgment and order in favor of the party in interest with respect to such Challenge. If
no such Adversary Proceeding is properly and timely filed and served by such date, the liens and
security interests of, and payments made on account thereof to, the Adequate Protection Parties
shall not be subject to any other or further Challenge and shall be determined to have been, as of
the Petition Date, valid, binding, perfected, enforceable, unavoidable, and having the priority
asserted, and the Debtors, their estates and creditors, and any trustee in a Successor Case shall be
bound by Debtors acknowledgments, stipulations, and agreements set forth in this Order. The
Challenge Period may be extended for an authorized party by agreement between the applicable
Lenders or their Representative and such authorized party without further order of the Court.
14. Availability of Collateral; Direction to Financial Institutions and Credit Card
Processing Companies. (a) None of the Adequate Protection Parties shall take any action during
the Cash Collateral Period to seize or take control over any of the Cash Collateral or the Debtors
other property, nor shall they impose freezes of assets or seek to exercise any alleged right of
setoff or recoupment, or exercise any other right or remedy against the Prepetition Collateral or
the Postpetition Collateral, including Cash Collateral, during the Cash Collateral Period. The
Adequate Protection parties are hereby directed to release (and, to the extent applicable, direct
any third party to release) all Cash Collateral.
(b) Each of the credit card processing companies also are directed not to take,
or cease continuing to take, any action during the Cash Collateral Period that is in the
nature of a seizure, taking of control, freezing, or exercising of any right of netting,
setoff, or recoupment, or exercising any other right or remedy against the Prepetition
Collateral or the Postpetition Collateral, including Cash Collateral, during the Cash
Collateral Period. For the avoidance of doubt, the Debtors credit card processing
companies shall cease the practice of netting from sums otherwise payable to the Debtors
Pg 44 of 60

44
K&E 17460541.10
the amount of fees and other charges (excluding valid chargebacks) asserted by such
companies unless and until such amounts are overdue and remain unpaid by the Debtors.
15. Prepetition Subordination Agreements. All parties rights with respect to any
subordination or intercreditor agreements (if applicable) with respect to any Debtor are not
affected by the entry of this Order.
16. Section 506(c) Claims. 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.
17. No Liability to Third Parties. In not objecting to the Debtors use of Cash
Collateral under the terms set forth herein or in taking any other actions related to this Order, the
applicable Representative (i) shall have no liability to any third party and shall not be deemed to
be in control of the operations of any Debtors or to be acting as a controlling person,
responsible person or owner or operator with respect to the operation or management of any
Debtors (as such term, or any similar terms, are used in the Internal Revenue Code, the United
States Comprehensive Environmental Response, Compensation and Liability Act, as amended,
or any similar Federal or state statute), and (ii) shall not owe any fiduciary duty to the Debtors,
their creditors, or their estates and shall not constitute or be deemed to constitute a joint venture
or partnership with any Debtor.
18. No Marshaling/Application of Proceeds. Neither the Adequate Protection Parties
nor the Prepetition Collateral shall be subject to the equitable doctrine of marshaling nor any
other similar doctrine with respect to any of the Prepetition Collateral, as the case may be, and
Pg 45 of 60

45
K&E 17460541.10
proceeds shall be received and applied in accordance with this Order notwithstanding any other
agreement or provision to the contrary.
19. Section 552(b). The Adequate Protection Parties shall each be entitled to all of
the rights and benefits of section 552(b) of the Bankruptcy Code, and the equities of the case
exception under section 552(b) of the Bankruptcy Code shall not apply to any of the Adequate
Protection Parties with respect to proceeds, product, offspring or profits of any of the Prepetition
Collateral.
20. Rights Preserved. Notwithstanding anything herein to the contrary, the entry of
this Order is without prejudice to, and does not constitute a waiver of, expressly or implicitly: (a)
the applicable Representatives and Debtors right to seek any other or supplemental relief
relating to the matters set forth in this Order, including the right to seek additional adequate
protection (without prejudice to any other persons right to object to or otherwise oppose such
additional adequate protection); (b) any rights of the applicable Representative or Debtors with
respect to any plan of reorganization or liquidation filed in these Chapter 11 Cases; or (c) any of
the rights of the applicable Representative or the Debtors (except in the case of the succeeding
clause (i)) under the Bankruptcy Code or under non-bankruptcy law, including, without
limitation, the right to (i) request modification of the automatic stay of section 362 of the
Bankruptcy Code, (ii) request dismissal of any of the Chapter 11 Cases or a Successor Case,
conversion of any of the Cases to cases under chapter 7, or appointment of a chapter 11 trustee or
examiner with expanded powers, or (iii) propose, subject to the provisions of section 1121 of the
Bankruptcy Code, a chapter 11 plan or plans. This Order shall not be deemed to be an
amendment or modification to the applicable Loan Documents, and shall not be deemed to have
in any way modified the scope, nature, extent, or amount of the Prepetition Collateral, prepetition
liens, prepetition claims, prepetition interests, or prepetition rights held by, granted, or purported
Pg 46 of 60

46
K&E 17460541.10
to be granted, to Adequate Protection Parties. Furthermore, nothing contained in this Order shall
be treated as a final adjudication or as an admission by any Adequate Protection Party or
Representative, or the Debtors (with respect to the Debtors, except as otherwise expressly set
forth in this Order) regarding the truth, accuracy, or completeness of any fact or the applicability
or strength of any legal or equitable claim, theory, or defense and each Adequate Protection
Party or their respective Representatives shall have standing to assert, and shall not be precluded
or estopped from asserting, any challenge to any factual representation set forth herein or from
asserting any legal or equitable claim, theory, or defense against the Debtors or their estates
including that rents are not property of the estate and do not constitute cash collateral. All of the
parties subject hereto reserve all of their rights and defenses with respect to any of the foregoing.
21. Section 507(b) Reservation. Nothing herein shall impair or modify the
application of section 507(b) of the Bankruptcy Code in the event that the adequate protection
provided to the Representatives hereunder is insufficient to compensate for any diminution in
value of their respective Prepetition Collateral during the Chapter 11 Cases or any Successor
Cases. Nothing contained herein shall be deemed a finding by the Court, or an
acknowledgement by any of the Representatives, that the adequate protection granted herein
does in fact adequately protect the Adequate Protection Parties against any diminution in value
of their respective interest in the Prepetition Collateral.
22. No Lien Alteration. The receipt by the Debtors of any Cash Collateral or other
proceeds of Collateral shall not, and shall not be deemed to, affect, alter, or otherwise modify the
validity, priority, or perfection of any liens in and/or claims against such Cash Collateral or other
proceeds and such liens and claims shall continue to exist in and against such Cash Collateral or
other proceeds in the possession of the Debtors, in each case with the same validity, priority, and
perfection as existed immediately prior to such receipt by the Debtors; it being agreed that
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47
K&E 17460541.10
nothing in this paragraph shall limit the Debtors use of Cash Collateral otherwise permitted
hereunder.
23. Proofs of Claim. The Representatives will not be required to file proofs of claim
in any of the Chapter 11 Cases or Successor Cases for the claims relating to their respective Loan
Obligations. Any order entered by the Court in relation to the establishment of a bar date for any
claim (including, without limitation, administrative claims) in any Chapter 11 Cases or Successor
Cases shall not apply to the Representatives.
24. Good Faith. The Representatives have acted in good faith in connection with this
Order and their reliance on this Order is in good faith.
25. Binding Effect. The provisions of this Order shall be binding upon and inure to
the benefit of the Adequate Protection Parties, the Debtors, and their respective successors and
assigns, including any trustee or other fiduciary hereafter appointed in the Chapter 11 Cases or
any Successor Cases as a legal representative of the Debtors or the Debtors estates.
26. Survival. Subject to the express reservations set forth in this Order, the Debtors
stipulations set forth in this Order shall survive the Termination Date and/or entry of any order:
(a) confirming any plan of reorganization in any of the Chapter 11 Cases unless and to the extent
that the applicable confirmation order or confirmed plan of reorganization expressly provides
otherwise and such confirmation order has become a final order and the effective date has
occurred under such confirmed plan of reorganization; (b) converting any of the Chapter 11
Cases to a case under chapter 7 of the Bankruptcy Code; (c) dismissing any of the Chapter 11
Cases or any Successor Cases; or (d) pursuant to which this Court abstains from hearing any of
the Chapter 11 Cases or Successor Cases. The terms and provisions of this Order, including the
claims, liens, security interest, and other protections granted to the Adequate Protection Parties
pursuant to such order, shall continue in the Chapter 11 Cases, in any Successor Cases, or
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48
K&E 17460541.10
following dismissal of the Chapter 11 Cases or any Successor Cases, and shall maintain their
priority, validity, and perfection as provided by such order until the Adequate Protection
Obligations (if any) have been satisfied in accordance with the Bankruptcy Code.
27. Immediate Effect. This Order shall constitute findings of fact and conclusions of
law and shall take effect and be fully enforceable immediately upon execution hereof.

Dated: September 2, 2010
New York, New York

/s/Shelley C. Chapman________________
United States Bankruptcy Judge

Pg 49 of 60

K&E 17460541.10
SCHEDULE 1

1. Grand Prix Ft. Lauderdale LLC
2. Grand Prix Addison (RI) LLC
3. Grand Prix Altamonte LLC
4. Grand Prix Arlington LLC
5. Grand Prix Atlanta LLC
6. Grand Prix Atlanta (Peachtree Corners) LLC
7. Grand Prix Bellevue LLC
8. Grand Prix Binghamton LLC
9. Grand Prix Bothell LLC
10. Grand Prix Campbell/San Jose LLC
11. Grand Prix Cherry Hill LLC
12. Grand Prix Chicago LLC
13. Grand Prix Denver LLC
14. Grand Prix Englewood/Denver South LLC
15. Grand Prix Fremont LLC
16. Grand Prix Gaithersburg LLC
17. Grand Prix Lexington LLC
18. Grand Prix Livonia LLC
19. Grand Prix Louisville (RI) LLC
20. Grand Prix Lynnwood LLC
21. Grand Prix Mountain View LLC
22. Grand Prix Portland LLC
23. Grand Prix Richmond LLC
24. Grand Prix Richmond (Northwest) LLC
25. Grand Prix Saddle River LLC
26. Grand Prix San Jose LLC
27. Grand Prix San Mateo LLC
28. Grand Prix Shelton LLC
29. Grand Prix Sili I LLC
30. Grand Prix Sili II LLC
31. Grand Prix Tukwila LLC
32. Grand Prix Windsor LLC
33. Grand Prix Horsham LLC
34. Grand Prix Columbia LLC
35. Grand Prix Germantown LLC
36. Grand Prix Islandia LLC
37. Grand Prix Lombard LLC
38. Grand Prix Naples LLC
39. Grand Prix Schaumberg LLC
40. Grand Prix Westchester LLC
41. Grand Prix Willow Grove LLC
42. Grand Prix Belmont LLC
43. Grand Prix El Segundo LLC
44. Grand Prix Las Colinas LLC
45. Grand Prix Mt. Laurel LLC
46. Grand Prix Fixed Lessee LLC
Pg 50 of 60

K&E 17460541.10
SCHEDULE 2

1. KPA/GP Valencia LLC
2. Grand Prix West Palm Beach LLC
3. KPA/GP Ft. Walton Beach LLC
4. Grand Prix Ft. Wayne LLC
5. Grand Prix Indianapolis LLC
6. KPA/GP Louisville (HI) LLC
7. Grand Prix Bulfinch LLC
8. Grand Prix Woburn LLC
9. Grand Prix Rockville LLC
10. Grand Prix East Lansing LLC
11. Grand Prix Grand Rapids LLC
12. Grand Prix Troy (Central) LLC
13. Grand Prix Troy (SE) LLC
14. Grand Prix Atlantic City LLC
15. Grand Prix Montvale LLC
16. Grand Prix Morristown LLC
17. Grand Prix Albany LLC
18. Grand Prix Addison (SS) LLC
19. Grand Prix Harrisburg LLC
20. Grand Prix Ontario LLC
21. Grand Prix Floating Lessee, LLC
Pg 51 of 60

K&E 17460541.10
SCHEDULE 3
1. KPA HS Anaheim LLC
2. Grand Prix Anaheim Orange Lessee LLC
Pg 52 of 60

K&E 17460541.10
SCHEDULE 4

1. KPA RIMV LLC
2. Grand Prix RIMV Lessee LLC

Pg 53 of 60

K&E 17460541.10
SCHEDULE 5

1. KPA RIGG LLC
2. Grand Prix RIGG Lessee LLC
Pg 54 of 60

K&E 17460541.10
SCHEDULE 6

1. KPA HI Ontario LLC
2. Grand Prix Ontario Lessee LLC
Pg 55 of 60

K&E 17460541.10
SCHEDULE 7
4

1. KPA Washington DC DT LLC

4
mortgage, or assignment of leases or rents. Such entity only executed the cash
Pg 56 of 60

K&E 17460541.10
SCHEDULE 8
5

1. KPA Tysons Corner RI LLC

5
Pg 57 of 60

K&E 17460541.10
SCHEDULE 9
6

1. KPA San Antonio HS LLC

6
Pg 58 of 60

K&E 17460541.10
SCHEDULE 10

13-Week Forecast Attached

Pg 59 of 60
InnkeepersUSATrust
13WeekCashForecastasof9/1/10
($'sin000's)
Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast
Weekending 9/4/2010 9/11/2010 9/18/2010 9/25/2010 10/2/2010 10/9/2010 10/16/2010 10/23/2010 10/30/2010 11/6/2010 11/13/2010 11/20/2010 11/27/2010 Total
Week: 1 2 3 4 5 6 7 8 9 10 11 12 13 13Weeks
Revenueandtaxreceipts 5,844 $ 5,303 $ 6,273 $ 6,361 $ 6,270 $ 6,584 $ 6,410 $ 6,401 $ 6,169 $ 5,898 $ 5,797 $ 5,675 $ 4,352 $ 77,338 $
Propertylevel
Payrollandrelated 2,414 $ $ 2,273 $ $ 2,344 $ $ 2,378 $ $ 2,339 $ $ 2,275 $ $ 2,154 $ 16,177 $
Franchisefees 93 552 1,652 92 1,496 108 1,607 5,599
Utilitycosts 483 457 405 495 506 416 407 409 398 337 340 335 284 5,271
Thirdpartymanagement&relatedfees 756 604 645 2,005
Allotherexpenses 1,807 1,046 1,306 1,068 1,735 1,028 1,064 1,198 1,090 1,656 1,099 1,189 1,032 16,318
Totalpropertylevel 4,798 $ 2,055 $ 3,985 $ 3,970 $ 4,676 $ 1,444 $ 3,849 $ 2,211 $ 5,323 $ 2,101 $ 3,714 $ 1,523 $ 5,723 $ 45,371 $
Rent,TaxesandInsurance
Groundrent $ $ $ 18 $ $ $ $ $ 18 $ $ $ $ 18 $ 55 $
Propertytaxes 260 120 37 1,182 114 1,276 299 396 3,684
Franchisetaxes
Occupancy/salestaxes 200 200 125 1,498 874 137 1,639 956 1,394 930 7,952
Insurancepayments 166 166 336 668
TotalRent,TaxesandInsurance 460 $ 320 $ 161 $ 2,865 $ 874 $ 114 $ 137 $ 2,915 $ 1,141 $ 299 $ $ 1,790 $ 1,284 $ 12,359 $
CapitalExpendituresandInitiatives
Maintenance/emergencyCAPEX 130 $ 122 $ 136 $ 137 $ 136 $ 90 $ 87 $ 87 $ 84 $ 80 $ 79 $ 77 $ 59 $ 1,305 $
PIPRenovationsPaid
PIPRenovationsFundedfromescrow
CycleRenovations
TotalCapitalExpendituresandInitiatives 130 $ 122 $ 136 $ 137 $ 136 $ 90 $ 87 $ 87 $ 84 $ 80 $ 79 $ 77 $ 59 $ 1,305 $
CorporateOverhead
Payrollandrelated 145 $ $ 145 $ $ 145 $ $ 145 $ $ 145 $ $ 145 $ $ 145 $ 1,015 $
Allotheroverhead 123 70 125 131 123 70 125 113 43 135 43 118 173 1,390
TotalCorporateOverhead 268 $ 70 $ 270 $ 131 $ 268 $ 70 $ 270 $ 113 $ 188 $ 135 $ 188 $ 118 $ 318 $ 2,405 $
OtherDisbursements
Utilitydeposits 293 $ $ $ $ $ $ $ $ $ $ $ $ $ 293 $
Vendordeposits 250 250 250 250 1,000
DIPfeesandinterest 839 76 76 76 76 76 76 76 76 76 76 76 1,680
TotalOtherDisbursements 543 $ 1,089 $ 326 $ 326 $ 76 $ 76 $ 76 $ 76 $ 76 $ 76 $ 76 $ 76 $ 76 $ 2,973 $
Professionalfees 4,249 2,305 $ 1,988 $ $ $ $ 2,180 $ 1,268 $ $ 11,990 $
TotalDisbursements 6,198 $ 3,656 $ 9,127 $ 7,429 $ 6,030 $ 4,099 $ 6,408 $ 5,403 $ 6,811 $ 2,692 $ 6,237 $ 4,853 $ 7,460 $ 76,404 $
Beginningcashbalance 21,249 $ 20,896 $ 22,542 $ 13,071 $ 12,002 $ 12,243 $ 14,728 $ 4,951 $ 5,949 $ 5,307 $ 8,513 $ 8,074 $ 8,896 $ 17,829 $
Netcashflow (354) 1,646 (2,855) (1,069) 241 2,485 2 998 (642) 3,206 (440) 822 (3,108) 934
CashBalancebeforeExcessCashDistribution 20,896 22,542 19,687 12,002 12,243 14,728 14,730 5,949 5,307 8,513 8,074 8,896 5,788 18,763
CashFlowforDistributionPeriod (8,816) (12,079) 2,037 (18,859)
Less:ExpenseReserveIncrease(Decrease) 2,200 2,300 (2,037) 2,463
DistributionofExcessCash (6,616) (9,779) (16,396)
Endingcashbalance 20,896 $ 22,542 $ 13,071 $ 12,002 $ 12,243 $ 14,728 $ 4,951 $ 5,949 $ 5,307 $ 8,513 $ 8,074 $ 8,896 $ 5,788 $ 2,368 $
DIP
OutstandingDIPBalance 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $ 56,199 $
InterestrateonDIP 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
ExpenseReserveBalance
Beginning 2,200 2,200 2,200 2,200 4,500 4,500 4,500 4,500 4,500 2,463
Increase 2,200 2,300
Decrease (2,037)
EndingBalance 2,200 2,200 2,200 2,200 4,500 4,500 4,500 4,500 4,500 2,463 2,463
Notes:
1)OntarioHiltonisnotincludedintheanalysis
Pg 60 of 60
EXHIBIT 6

Pg 1 of 9

K&E 17716736
)
In re: ) Chapter 11
)
1
) Case No. 10-13800 (SCC)
)
)

ORDER ESTABLISHING DEADLINES AND PROCEDURES FOR FILING PROOFS
OF CLAIM AND APPROVING THE FORM AND MANNER OF NOTICE THEREOF
1

1
The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtors federal tax identification
number, are: GP AC Sublessee LLC (5992); Grand Prix Addison (RI) LLC (3740); Grand Prix Addison (SS)
LLC (3656); Grand Prix Albany LLC (3654); Grand Prix Altamonte LLC (3653); Grand Prix Anaheim Orange
Lessee LLC (5925); Grand Prix Arlington LLC (3651); Grand Prix Atlanta (Peachtree Corners) LLC (3650);
Grand Prix Atlanta LLC (3649); Grand Prix Atlantic City LLC (3648); Grand Prix Bellevue LLC (3645); Grand
Prix Belmont LLC (3643); Grand Prix Binghamton LLC (3642); Grand Prix Bothell LLC (3641); Grand Prix
Bulfinch LLC (3639); Grand Prix Campbell / San Jose LLC (3638); Grand Prix Cherry Hill LLC (3634); Grand
Prix Chicago LLC (3633); Grand Prix Columbia LLC (3631); Grand Prix Denver LLC (3630); Grand Prix East
Lansing LLC (3741); Grand Prix El Segundo LLC (3707); Grand Prix Englewood / Denver South LLC (3701);
Grand Prix Fixed Lessee LLC (9979); Grand Prix Floating Lessee LLC (4290); Grand Prix Fremont LLC
(3703); Grand Prix Ft. Lauderdale LLC (3705); Grand Prix Ft. Wayne LLC (3704); Grand Prix Gaithersburg
LLC (3709); Grand Prix General Lessee LLC (9182); Grand Prix Germantown LLC (3711); Grand Prix Grand
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 Floating 2, LLC (9972); Grand Prix Mezz Borrower Fixed, LLC (0252);
Grand Prix Mezz Borrower Floating, LLC (5924); 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.
Pg 2 of 9

2
K&E 17716736
Upon the Application (the Application)
2
of the Debtors, as debtors and debtors
in possession, for the entry of an order (this Order) (a) establishing deadlines and procedures
for creditors to file proofs of claim in the Chapter 11 Cases, (b) approving the form and manner
of notice thereof, and (c) granting such other relief as is just and proper, all as more fully set
forth in the Application; it appearing that the relief requested is in the best interests of the
Debtors estates, their creditors, and other parties in interest; the Court having jurisdiction to
consider the Application and the relief requested therein pursuant to 28 U.S.C. 157 and 1334;
consideration of the Application and the relief requested therein being a core proceeding
pursuant to 28 U.S.C. 157(b); venue being proper before this court pursuant to 28 U.S.C.
1408 and 1409; notice of the Application having been adequate and appropriate under the
circumstances; and after due deliberation and sufficient cause appearing therefor, it is HEREBY
ORDERED THAT:
1. The Application is granted to the extent provided herein.
2. Except as otherwise provided herein, all persons (as defined in section 101(41) of
the Bankruptcy Code) and entities (as defined in section 101(15) of the Bankruptcy Code),
including, without limitation, individuals, partnerships, corporations, joint ventures, and trusts,
(such persons and entities, collectively, the Entities and each, an Entity) holding or wishing
to assert a claim (as defined in section 101(5) of the Bankruptcy Code) against any of the
Debtors that arose prior to July 19, 2010 (the Petition Date), including any claim arising under
section 503(b)(9) of the Bankruptcy Code (each a Claim, and collectively, the Claims),
shall file proof of such Claim in writing so that it is actually received on or before
October 29, 2010 (the General Bar Date), which date is no less than 35 days after service of

2
All capitalized terms used but otherwise not defined herein shall have the meanings set forth in the Application.
Pg 3 of 9

3
K&E 17716736
the Bar Date Notice (as defined below), by Omni Management Group, LLC (the Notice and
Claims Agent) or the Clerk of the Bankruptcy Court for the Southern District of New York (the
Clerk) in accordance with this Order, or be barred from doing so.
3. Notwithstanding any other provision of this Order, all governmental units (as
defined in section 101(27) of the Bankruptcy Code) holding or wishing to assert a Claim against
any of the Debtors that arose prior to the Petition Date, shall file proof of such Claim in writing
so that it is actually received on or before January 18, 2011 (the Governmental Unit Bar
Date), which date is no less than 180 days after the Petition Date, by the Notice and Claims
Agent or the Clerk in accordance with this Order, or be barred from doing so.
4. Except as otherwise set forth in any order authorizing rejection of an executory
contract or unexpired lease, all Entities holding or wishing to assert a Claim relating to the
Debtors rejection of an executory contract or unexpired lease shall file proof of such Claim in
writing so that it is actually received on or before 30 days after the date of the entry of any order
authorizing the rejection of such contract or lease (the Rejection Claim Bar Date) by the
Notice and Claims Agent or the Clerk in accordance with this Order, or be barred from doing so.
5. If the Debtors amend or supplement their Schedules subsequent to the date hereof,
the Debtors shall give notice of any amendment or supplement to Entities holding Claims
directly affected thereby, and such Entities holding or wishing to assert a Claim against any of
the Debtors that arose prior to the Petition Date, shall file proof of such Claim in writing so that
it is actually received on or before 30 days from the date of service of such notice (the
Amended Schedule Bar Date and, together with the General Bar Date, the Governmental
Unit Bar Date, and the Rejection Claim Bar Date, the Bar Dates), by the Notice and Claims
Agent or the Clerk in accordance with this Order, or be barred from doing so.
Pg 4 of 9

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K&E 17716736
6. The following procedures for the filing of proofs of Claim asserting Claims
against any of the Debtors in the Chapter 11 Cases shall apply:
a. Proofs of Claim must: (i) include an original signature, as copies of proofs
of Claim or proofs of Claim sent by facsimile or electronic mail will not
be accepted; (ii) include supporting documentation (if voluminous, a
summary must be attached) or an explanation as to why documentation is
not available; (iii) set forth with specificity the factual and legal basis for
the alleged Claim; (iv) be in the English language; and (v) be denominated
in United States currency;
b. Any proof of Claim asserting a Section 503(b)(9) Claim must also:
(i) include the value of the goods delivered to and received by the Debtors
within 20 days before the Petition Date; (ii) include supporting
documentation identifying the particular invoices for which the
Section 503(b)(9) Claim is being asserted; and (iii) include documentation
of any reclamation demand made to the Debtors under section 546(c) of
the Bankruptcy Code (if applicable);
c. Entities who wish to receive proof of receipt of their proofs of Claim from
the Notice and Claims Agent or the Clerk must also include with their
proof of Claim a copy of their proof of Claim and a self-addressed,
stamped envelope;
d. Each original proof of Claim, including supporting documentation, must
either be filed in person or via courier service, overnight delivery, or first
class U.S. mail so as to be actually received on or before the applicable
Bar Date in accordance with the procedures set forth herein by either
(i) the Notice and Claims Agent at Innkeepers USA Trust, c/o
Omni Management Group, LLC, 16161 Ventura Boulevard, Suite C,
PMB 606, Encino, California 91436-2068, or (ii) the Clerk at Office of the
Clerk of the Bankruptcy Court, One Bowling Green, Room 534,
New York, New York 10004-1408; and
e. Proofs of Claim will be deemed filed only when received by the Notice
and Claims Agent or the Clerk in accordance with the procedures set forth
herein.
7. Entities asserting Claims against more than one Debtor shall be required to file a
separate proof of Claim with respect to each such Debtor. If more than one Debtor is listed on a
proof of Claim, the Debtors shall use reasonable efforts to determine the appropriate Debtor
against which the Claim should be properly asserted and shall treat the Claim as asserted against
Pg 5 of 9

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K&E 17716736
such Debtor listed on the proof of Claim. All Entities shall identify on their proof of Claim the
holder or holders of the Claim and the particular Debtor against which their Claim is asserted and
the applicable bankruptcy case number for such Debtor.
8. Entities with the following types of Claims are not required to a file a proof of
Claim on or before the applicable Bar Dates:
a. any Claim for which a proof of Claim in a form substantially similar to
Official Bankruptcy Form No. 10 has already been filed against the
Debtors with the Notice and Claims Agent or the Clerk;
b. any Claim listed in the Debtors Schedules or any amendments thereto,
which are not (i) therein listed as contingent, unliquidated, disputed,
or any combination thereof, (ii) disputed by the Entity holding such Claim
as to nature, amount, or classification, and (iii) disputed by the Entity
holding such Claim as an obligation of the specific Debtor against which
the Claim is listed in the Schedules;
c. any Claim which heretofore has been allowed by order of the Court;
d. any Claim which has been paid in full by any of the Debtors;
e. any Claim for which specific deadlines have previously been fixed by the
Court;
f. any Claim made by any of the Debtors or any direct or indirect wholly-
owned subsidiary of any of the Debtors holding or wishing to assert a
Claim against one or more of the other Debtors;
g. any Claim allowable under section 503(b) and 507(a)(2) of the
Bankruptcy Code as an expense of administration of the Debtors estates,
with the exception of Section 503(b)(9) Claims, which Section 503(b)(9)
Claims shall be subject to the applicable Bar Dates;
h. any Claim made by any Entity holding equity securities of the Debtors
solely with respect to such Entitys ownership interest in or possession of
such equity securities; provided that any such Entities holding or wishing
to assert a Claim against any of the Debtors based on a transaction in any
of the Debtors securities, including, without limitation, Claims for
damages or rescission based on the purchase or sale of such securities,
must file a proof of such Claim on or prior to the applicable Bar Date;
provided further that the Debtors reserve all rights with respect to any such
Claims including, inter alia, to assert that such Claims are subject to
subordination pursuant to section 510(b) of the Bankruptcy Code;
Pg 6 of 9

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K&E 17716736
i. any Claim made by the Representatives relating to their respective
Loan Obligations (each, as defined in 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
Pursuant to 11 U.S.C. 361, 362, and 363 [Docket No. 402]);
j. any Claim by any current officer or director for indemnification,
contribution, or reimbursement; and
k. any Claim against any non-Debtor affiliate of the Debtors.
9. The filing of a proof of Claim shall be deemed to satisfy the procedural
requirements for the assertion of administrative priority claims under section 503(b)(9) of the
Bankruptcy Code.
3

10. Nothing in this Order shall prejudice the right of the Debtors or any other party in
interest to dispute or assert offsets or defenses to any Claim listed in the Schedules.
11. Pursuant to Bankruptcy Rule 3003(c)(2), any Entity that is required to file a proof
of Claim in the Chapter 11 Cases but that fails to do so by the applicable Bar Date shall be
forever barred, estopped, and enjoined from: (a) asserting any Claim against any of the Debtors
that such Entity has that (i) is in an amount that exceeds the amount, if any, that is set forth in the
Schedules or (ii) is of a different nature or in a different classification than is set forth in the
Schedules (any such Claim referred to as an Unscheduled Claim); and (b) voting upon, or
receiving distributions under, any chapter 11 plan in the Chapter 11 Cases in respect of an
Unscheduled Claim; and the Debtors and their property shall be forever discharged from any and
all indebtedness or liability with respect to all such Unscheduled Claims.

3
Nothing herein is intended to preclude any party from filing a request with the Court for payment of
administrative claims pursuant to section 503 of the Bankruptcy Code; provided, however, that requests for
payment of section 503(b)(9) claims will be considered timely only if they are filed by the General Bar Date, or
if applicable, the Governmental Unit Bar Date.
Pg 7 of 9

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K&E 17716736
12. The Debtors shall mail one or more proof of Claim forms (as appropriate)
substantially similar to the proof of Claim form attached to the Application as Exhibit B (the
Proof of Claim Form), which is hereby approved, indicating on the form how the Debtors
have listed such Entitys Claim in the Schedules (including whether the Claim has been
scheduled as any of contingent, unliquidated, or disputed).
13. A copy of the notice substantially in the form attached to the Application as
Exhibit C (the Bar Date Notice) is approved and shall be deemed adequate and sufficient
notice if served by first-class mail no less than 35 days prior to the General Bar Date on:
a. the U.S. Trustee;
b. counsel to the Creditors Committee;
c. all Entities that have requested notice of the proceedings in the Chapter 11
Cases pursuant to Bankruptcy Rule 2002;
d. all Entities that have filed proofs of Claim against the Debtors;
e. all known holders of potential Claims against the Debtors, including all
Entities listed in the Schedules as holding Claims;
f. the Debtors prepetition secured lenders or their counsel;
g. counsel to Apollo Investment Corporation;
h. all Entities to the Debtors franchise agreements or their counsel;
i. all Entities to executory contracts and unexpired leases with the Debtors
listed in the Schedules;
j. all Entities to litigation with the Debtors;
k. the attorneys general for each of the states in which any of the Debtors
conducts a substantial amount of its business operations; and
l. the Internal Revenue Service.
14. Pursuant to Bankruptcy Rule 2002(f), the Debtors shall publish a form of the
Bar Date Notice substantially in the form attached as Exhibit D to the Application in the national
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K&E 17716736
edition of The USA Today on one occasion no less than 28 days before the earliest Bar Date,
which publication is hereby approved and shall be deemed good, adequate, and sufficient
publication notice of the Bar Dates.
15. Entry of this Order is without prejudice to the right of the Debtors to seek further
orders of the Court fixing a date or dates by which Entities holding or wishing to assert Claims or
interests not subject to the Bar Dates established herein must file such proofs of Claim or interest
or be barred from doing so.
16. The terms and conditions of this Order shall be immediately effective and
enforceable upon its entry.
17. All time periods set forth in this Order shall be calculated in accordance with
Bankruptcy Rule 9006(a).
18. The Debtors, the Notice and Claims Agent, and the Clerk are authorized and
empowered to take such steps and perform such acts as may be necessary to implement and
effectuate the terms of this Order in accordance with the Application.
19. The Court retains jurisdiction with respect to all matters arising from or related to
the implementation of this Order.
New York, New York /s/Shelley C. Chapman
Date: September 16, 2010 United States Bankruptcy Judge

Pg 9 of 9
EXHIBIT 7

Pg 1 of 39

K&E 18499564
James H.M. Sprayregen, P.C.
Paul M. Basta
Stephen E. Hessler
Brian S. Lennon
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.
Marc J. Carmel (admitted pro hac vice)
300 North LaSalle
Chicago, Illinois 60654-3406
Telephone: (312) 862-2000
Facsimile: (312) 862-2200
Counsel to the Debtors and Debtors in Possession
)
In re: ) Chapter 11
)
1
) Case No. 10-13800 (SCC)
)
)
DEBTORS OMNIBUS REPLY IN SUPPORT OF STALKING HORSE MOTION
1

Innkeepers USA Trust and certain of its affiliates, as debtors and debtors in possession
(collectively, the Debtors), hereby submit this omnibus reply (the Reply) in support of the
Motion for Entry of an Order (I) Authorizing the Debtors to Enter into the Commitment Letter

1
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.
Pg 2 of 39

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K&E 18499564
with Five Mile Capital II Pooling REIT LLC, Lehman ALI Inc., and Midland Loan Services,
(II) Approving the New Party/Midland Commitment Between the Debtors and Midland Loan
Services, (III) Approving Bidding Procedures, (IV) Approving Bid Protections, (V) Authorizing
an Expense Reimbursement to Bidder D, and (VI) Modifying Cash Collateral Order to
Increase Expense Reserve [Docket No. 820] (the Motion). The following entities have filed
objections to the Motion: the Ad Hoc Committee of Preferred Shareholders (the
Ad Hoc Committee), LNR Securities Holdings, LLC and the ML-CFC 2006-4 and CSFB
2007-C1 Trusts (collectively, LNR), TriMont Real Estate Advisors, Inc. (TriMont),
Appaloosa Investment L.P. I, Palomino Fund Ltd., Thoroughbred Fund L.P., and Thoroughbred
Master Ltd. (collectively, Appaloosa),
2
CWCapital Asset Management LLC (CWC) and C-
III Asset Management LLC (C-III and, together with CWC, CWC/C-III), and the official
committee of unsecured creditors (the Creditors Committee).
3
In further support of the
Motion, the Debtors respectfully reply as follows:
4

2
The Debtors note that for the reasons set forth in the Debtors Omnibus Limited Objection to Certificateholders
Standing Requests [Docket No. 887], the Debtors dispute Appaloosa and LNRs standing to assert Objections to
the extent such Objections are raised by these parties in their role as certificateholders.
3
The following objections have been filed in response to the Motion: Limited Objection of Official Committee of
Unsecured Creditors to the Motion [Docket No. 947] (the Creditors Committee Objection); Objection of
Ad Hoc Committee of Preferred Shareholders to the Motion [Docket No. 965] (the Ad Hoc Committee
Objection); Objection of the Trusts and LNR Securities Holdings, LLC to the Motion [Docket No. 966]
(the LNR Objection); Objection of Appaloosa Investment L.P. I, Palomino Fund Ltd., Thoroughbred Fund
L.P., and Thoroughbred Master Ltd. to the Motion [Docket No. 967] (the Appaloosa Objection); CWCapital
Asset Management LLC and C-III Asset Management LLCs Limited Objection to the Motion [Docket No. 968]
(the CWC/C-III Objection); Objection of TriMont Real Estate Advisors, Inc., as Special Servicer, to the
Motion [Docket No. 969] (the TriMont Objection and, together with the Creditors Committee Objection,
the Ad Hoc Committee Objection, the LNR Objection, the Appaloosa Objection, and the CWC/C-III Objection,
the Objections and each objector, an Objector). Excluding the Creditors Committee Objection, all of the
Objections were filed under seal in accordance with the Stipulated Order Authorizing the Filing of Pleadings
with Respect to the Motion Under Seal [Docket No. 950].
Pg 3 of 39

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K&E 18499564
Introduction
4
1. Through their Motion, the Debtors presented to the Court and their various
constituencies a proposed transaction with not only a meaningful degree of consensus, including
the support of the Debtors two largest secured creditors, but also the potential to generate
additional consensus.
5
Since filing the Motion, the Debtors have worked to facilitate consensus
with their remaining key constituencies, especially those with claims or interests in the Debtors
seven hotel properties that are secured by individual mortgages (commonly referred to as the
Seven Sisters). Among other things, the Debtors have coordinated site visits and facilitated
negotiations between the parties to the Commitment Letter and the Ad Hoc Committee.
2. Global peace, however, has proven difficult to achieve. Nonetheless, the Debtors
have reached an agreement with Five Mile, Lehman, and Midland to modify the Five
Mile/Lehman Bid as follows:
6

The Debtors and Five Mile/Lehman and Midland have agreed to modify the
Commitment Letter to remove the Seven Sisters from the Five Mile/Lehman
Bid. The Five Mile/Lehman Bid will cover only the properties securing the

4
The facts and circumstances supporting this Reply are set forth in the Declaration of William Q. Derrough in
Support of the Motion [Docket No. 821] (the Derrough Declaration), the Supplemental Declaration of
William Q. Derrough in Support of the Motion [Docket No. 916] (the Supplemental Derrough
Declaration), the Second Supplemental Declaration of William Q. Derrough in Support of the Motion, filed
contemporaneously herewith (the Second Supplemental Derrough Declaration and, together with the
Derrough Declaration and the Supplemental Derrough Declaration, the Derrough Declarations), the
Declaration of Marc Beilinson in Support of the Motion, filed contemporaneously herewith (the Beilinson
Declaration), and the Declaration of Lawrence J. Ruisi in Support of the Motion, filed contemporaneously
herewith (the Ruisi Declaration). Capitalized terms used herein but not otherwise defined shall have the
meanings ascribed to such terms in the Motion.
5
See Motion at p. 4.
6
These terms will be subject to final documentation in the form of a revised Commitment Letter and revised
Bidding Procedures, which the parties have agreed to work on expeditiously in good faith. Five Mile/Lehman
has informed the Debtors that they are willing to agree to the modifications to reduce the risk of delay in these
Chapter 11 Cases and the administrative costs associated therewith and accordingly conditioned the modified
Five Mile/Lehman Bid on the hearing on the Motion commencing no later than March 9, 2011. Similarly, the
proposal to increase recoveries to unsecured creditors assumes the Creditors Committee has agreed by 11 a.m.
ET on March 7, 2011. (The Creditors Committee has indicated they may have a response as early as
tomorrow.)
Pg 4 of 39

4
K&E 18499564
Fixed Rate Loan and the Floating Rate Loan (the Fixed Rate Pool and
Floating Rate Pool, respectively).
Five Mile/Lehman will not be the stalking horse bidder for the Seven Sisters.
The Debtors will continue to market the Seven Sisters independent of the
Fixed Rate Pool and Floating Rate Pool.
Five Mile/Lehmans equity commitments and Midland's stapled financing
will remain unchanged (provided that the Sources and Uses Table annexed to
the Term Sheet will be adjusted to reflect the modified Five Mile/Lehman Bid
other than the new cash requirement of $174.1 million).
Subject to the Creditors Committee agreeing to support the modified Five
Mile/Lehman Bid, unsecured creditors with claims against the Fixed Rate
Pool Debtors and Floating Rate Pool Debtors will share in a distribution of up
to $3.75 million, but not to exceed a recovery of 65% of the face amount of
allowed general unsecured claims against such Debtors.
Apollo will contribute $375,000, all of which will be included in the amounts
distributed to unsecured creditors of the Fixed Rate Pool Debtors and Floating
Rate Pool Debtors. Apollo will retain whatever rights it may have with
respect to Debtors and property that are not covered by the modified Five
Mile/Lehman Bid.
To the extent modified bidding procedures agreed to by Five Mile/Lehman
and Midland with respect to the modified Five Mile/Lehman Bid (the
Modified Bid Procedures) are approved before the March 29, 2011
omnibus hearing, the Debtors will seek, and Five Mile/Lehman and Midland
will support, an extension of exclusivity to no later than June 30, 2011. The
Debtors reserve their rights to seek additional extensions and Five Mile/
Lehman and Midland reserve their rights to oppose such extensions or to
move to terminate exclusivity.
The Commitment Letter will be revised to include a termination event in favor
of Five Mile, Lehman, and Midland in the event the Debtors do not file a plan
encompassing the revised bid by April 8, 2011.
Nothing in the modified Five Mile/Lehman Bid will impact the rights of any
person or entity with respect to the $7.4 million in cash that is currently held
in a bank account of Debtor Innkeepers USA Limited Partnership, which is
not subject to the revised bid. No amount of the cash will be distributed under
the modified Five Mile/Lehman Bid.
Confirmation of the plan encompassing the modified Five Mile/Lehman Bid
will not be tied to the confirmation of any plan related to the Seven Sisters
Debtors and the company agrees to seek confirmation for such Debtors
accordingly.
Pg 5 of 39

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K&E 18499564
These terms will be subject to final documentation in the form of a revised
Commitment Letter, which shall be negotiated in good faith.
3. The Debtors respectfully submit that the modifications should render most, if not
all, of the Objections moot. For example, the Ad Hoc Committee has consistently stated that
preferred shareholders in these Chapter 11 Cases have three sources of value: (a) the $7.4
million in cash located in a bank account at Innkeepers USA Limited Partnership; (b) the Seven
Sisters; and (c) non-debtor KPA Raleigh LLCs 49% ownership interest in non-debtor Glenwood
Raleigh LLC. See Ad Hoc Objection, 5. With the modifications to the Five Mile/Lehman
Bid, these sources of value remain untapped.
7
With respect to the Ad Hoc Committees assertion
that the preferred shareholders are entitled to any equity value in the 65 properties comprising
the Fixed Rate Pool and Floating Rate Pool see Ad Hoc Objection, 6, there is simply no basis
on which any party can conclude at this time that any such equity value exists.
4. To the extent any Objections remain in the wake of the modifications, the Debtors
respectfully submit those Objections should be overruled. At the core of each Objection is the
desire to impose the Objectors own business judgment on the Debtors. At the core of each of
these Objections is the Objectors desire to impose their own business judgment on the Debtors.
Among other things, the Objectors argue that:
They would have run a different marketing process for a stalking horse bidder.
See, e.g., LNR Objection, 13-14.
They believe an enterprise-level restructuring is inappropriate under the
circumstances of these cases. See, e.g., Ad Hoc Committee Objection, 7-13.
They would not have agreed to certain aspects of the Bidding Procedures,
including, among other things, the Lehman Cash-Out, the 70% debt-to-
capitalization ratio (the 70% Debt-to-Cap Ratio), the bid allocation
methodology, and the bid increments. See, e.g., LNR Objection, 22-34.

7
The Debtors sought to have all parties associated with the Commitment Letter waive rights to the $7.4 million
as an additional concession. The Debtors were unsuccessful but understand that such a waiver would not have
resolved any additional objections to the Motion, including those of the Ad Hoc Committee.
Pg 6 of 39

6
K&E 18499564
They would not have agreed to the Bid Protections, including the Break-Up Fee
and Expense Reimbursement. See, e.g., Appaloosa Objection, 18-21.
They would not have agreed to the Bidder D Expense Reimbursement. See, e.g.,
TriMont Objection, 68-70.
Given the complexities of these Chapter 11 Cases, it is to be expected that reasonable minds
differ as to the optimal process for arriving at a value-maximizing transaction. The Debtors are
attempting to restructure nine secured mortgage loans (many of which are further complicated by
subsequent sale into the tumultuous CMBS market), two mezzanine loans, multiple series of
preferred shares, and the claims of unsecured creditorseach with their own (often divergent)
interests. But so long as the Debtors continue to manage their businesses and maintain the
exclusive right to file a plan of reorganization, the responsibility of selecting a plan sponsor
stalking horse falls squarely on the Debtors shouldersand the governing law is clear that the
stalking horse decision should be judged in terms of the reasonableness of the Debtors business
judgment. In the seven weeks since filing the Motion, the Debtors have continued to evaluate
the Five Mile/Lehman Bid through two distinct lensesthe Debtors continued marketing
process and the extensive discovery conducted in connection with the hearing on the Motion
and the Debtors continue to believe that, especially given the recent modifications, the Debtors
pursuit of the Five Mile/Lehman Bid (as modified) and the other relief requested in the Motion is
a sound exercise of business judgment.
5. In addition to challenging the Debtors business judgment, the Objectors argue the
Motion should be denied because the Commitment Letter amounts to a sub rosa plan meant to
deprive parties of their rights to object to the confirmation of the Debtors plan. But the
Commitment Letter (as it will be amended) is only a starting point, and the transactions
contemplated therein will only be effectuated (if at all) after the Debtors have filed and obtained
approval of a disclosure statement and after the Court has confirmed a plan of reorganization. At
Pg 7 of 39

7
K&E 18499564
this stage, the Debtors are only seeking authority to enter into a binding agreement that locks in a
baseline bid. All parties retain whatever rights they may have to object to any disclosure
statement and plan filed in connection with the Five Mile/Lehman Bid (or other Successful Bid).
6. Similarly, many of the Objections, including those related to substantive
consolidation, the appropriateness of the releases contemplated by the Term Sheet, and the
allocation of recoveries to creditors are premature. In any event, none of the Objectors have
raised issues that would render a plan that encompasses the modified Five Mile/Lehman Bid
patently unconfirmable. As such, the Court should not entertain plan-related objections until the
appropriate time.
7. For these reasons and the reasons set forth in the Motion, the declarations filed in
support thereof, and below, the Debtors respectfully request that the Court authorize the Debtors
to enter into the revised Five Mile/Lehman Bid and approve the other relief requested in the
Motion.
Supplemental Background Information
8
8. Since filing the Motion more than seven weeks ago, the Debtors and their
advisors have actively continued their marketing process to subject the Five Mile/Lehman Bid to
a thorough market test and attract overbids.
9
Among other efforts:
The Debtors financial advisors, Moelis & Company LLC (Moelis) compiled a list
of more than 200 potential buyers.
10

Moelis made contact with 200 of these parties and sent teasers to approximately 120
parties.
11

8
The Debtors provided a thorough summary of the Five Mile/Lehman Bid and their efforts to obtain that bid in
the Motion.
9
See Second Supplemental Derrough Decl. at 5-11.
10
Id. at 9.
11
Id.
Pg 8 of 39

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K&E 18499564
The Debtors have executed over 30 non-disclosure agreements and have responded to
detailed diligence requests from approximately 30 potential investors.
12
(As of the
date hereof, approximately 55 potential buyers have told Moelis that they are not
interested in pursuing a transactions with the Debtors, either on an enterprise or non-
enterprise basis.)
Moelis has also reached out to nine potential financing sources, four of which have
executed non-disclosure agreements.
13

The Debtors circulated a more detailed and updated process letter (the Follow-
Up Process Letter) to potential bidders, which reiterated that, in addition to superior
enterprise-based transactions, the Debtors are willing to consider all value-
maximizing restructuring proposals, including those for pools of assets or individual
assets.
14
To be clear, the Follow-Up Process letter was in no way a change of course,
as certain of the Objectors suggest. The Debtors have always been willing to
consider proposals of all kinds and the marketplace was well aware of that fact.
15

In addition, the Debtors issued a press release on January 24, 2011, announcing the
Five Mile/Lehman Bid and the related Motion.
16
The press release was published by
a number of media outlets, including The Wall Street Journal and Bloomberg, and
described and further highlighted the Debtors continued pursuit and consideration of
all value-maximizing proposals, including non-enterprise based proposals.
From January 24-January 26, 2011, representatives of Moelis attended the American
Lodging Investment Summit Conference in San Diego, California (the ALIS
Conference) to promote or generate potential investor interest. At the ALIS
Conference, Moelis representatives engaged with numerous potential buyers to
discuss the investment opportunity in acquiring the Debtors enterprise or their

12
Id.
13
Id.
14
See Notice of Filing of Process Letter [Docket No. 856]; Supplemental Derrough Decl. at 8.

16
See Supplemental Derrough Decl. at 9. In addition, the press release is attached as Exhibit C to the
Supplemental Derrough Declaration.
Redacted
Pg 9 of 39

9
K&E 18499564
individual assets. In addition to seven scheduled meetings with prospective investors,
Moelis conducted several ad hoc discussions with potentially interested parties during
the ALIS Conference.
17

9. Due in large part to these efforts, the Debtors have received six competing bid
proposals, including the following:
On January 12, 2011 (just prior to the filing of the Motion), the Debtors received a
proposal from the Ad Hoc Committee for the Seven Sisters that proposed
reinstatement of the loans securing each of the seven hotels.
18

10. The submission of these multiple bids, and their varying structures
is clear evidence there was no
confusion in the market as to the Debtors desire to receive bids of all kinds (despite certain
Objectors statements suggesting otherwise).
11. To date, the Debtors have produced almost 4,000 documents containing 35,000
pages to the Objectors. And Five Mile, Lehman, Midland, and the Objectors have produced
nearly 10,000 documents containing almost 220,000 pages to the Debtors. During the two-week

17
Id. at 12.

19
See Second Supplemental Derrough Decl. at 9.
20
Id. at 23.
21
Id. at 22.
Redacted
Redacted
Redacted
Pg 10 of 39

10
K&E 18499564
period beginning on February 14, 2011, 12 potential witnesses were deposed, including, among
others, Larry Ruisi (a member of the Board and the Independent Committee), Schuyler Hewes
(another Board member), Marc Beilinson (the Debtors chief restructuring officer), William Q.
Derrough of Moelis, the Debtors financial advisor, the financial advisors for each of Five Mile,
Lehman, Midland, and LNR, and an expert witness proffered by TriMont.
12. In the midst of this litigation preparation, Lehman (with the consent of Five Mile
and Midland) sent the Debtors two letters proposing possible modifications to the Five
Mile/Lehman Bid. On February 15, 2011, Lehman sent the first letter to the Debtors (the
First Modification Letter) proposing certain modifications. See Second Supplemental
Derrough Decl. 17. On February 21, 2011, counsel for the Debtors responded to the First
Modification Letter and made it clear they had no intention of eliminating any of the hard-fought
concessions already obtained for the benefit of the constituents, as the Debtors were actively
focused on building, not undermining, consensus.
22
The Debtors reiterated their requests to
Lehman and Five Mile to continue to engage the Ad Hoc Committee in constructive negotiations
regarding the Seven Sisters.
23
(The Debtors had previously made several similar requests to the
Ad Hoc Committee.)
13. On February 22, 2011, Lehman sent a second letter to the Debtors (the
Second Modification Letter) revising their proposed modifications. See id. 20. The First
and Second Modification Letters led to discussions with the Board and Independent Committee,
including at a meeting of the Board on March 2, 2011, and further negotiations with Five
Mile/Lehman. Ultimately, the Debtors, at the direction of the Board and Independent

22
Id.
23
Id.
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Committee, agreed with Five Mile/Lehman and Midland on the modifications to the Five
Mile/Lehman Bid described in paragraph 2 above.
14. Again, the Debtors believe these modifications resolve a number (or all) of the
issues raised in the Objections and improve the potential for a consensual plan process.
Improved Recovery for Seven Sisters
15. Certain of the Objectors suggest the Debtors deliberately ignored any equity value
the Seven Sisters may have in negotiating the terms of the Five Mile/Lehman Bid and essentially
consented to Five Mile/Lehman gaining control of the Seven Sisters without providing fair
consideration through the Five Mile/Lehman Bid. As an initial matter, the modifications to the
Commitment Letter and the Bidding Procedures render such Objections moot. Regardless, this
allegation in the Objections is simply not true, as evidenced by the additional value delivered to
the Seven Sisters from Five Miles initial November 24, 2010 proposal (the November Five
Mile Proposal) to the Commitment Letter and Term Sheet. Specifically, the proposed
distributions to the Seven Sisters evolved as follows through the Debtors process:
With respect to the Residence Inn Mission Valley, the distribution to LNR, as special
servicer for the Residence Inn Mission Valley Mortgage Loan, increased from $39.1
million in the November Five Mile Proposal to $47.2 million in the Five
Mile/Lehman Bid. This distributionin the form of a new noteamounts to full
payment of principal.
With respect to the Residence Inn Tysons Corner, the distribution to LNR, as special
servicer for the Residence Inn Tysons Corner Mortgage Loan, increased from $20.8
million in the November Five Mile Proposal to $25.1 million in the Five
Mile/Lehman Bid. This distributionin the form of a new noteamounts to full
payment of principal.
With respect to the Hilton Homewood Suites San Antonio, the distribution to LNR, as
special servicer under the Hilton Homewood Suites San Antonio Mortgage Loan,
increased from $20.0 million in the November Five Mile Proposal to $24.1 million in
the Five Mile/Lehman Bid. This distributionin the form of a new noteamounts
to full payment of principal.
Pg 12 of 39

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With respect to the Hilton Doubletree Washington D.C., the distribution to LNR, as
special servicer for the Hilton Doubletree Washington D.C. Mortgage Loan,
increased from $21.1 million in the November Five Mile Proposal to $25.5 million in
the Five Mile/Lehman Bid. This distributionin the form of a new noteamounts
to full payment of principal.
With respect to the Anaheim Hilton, the distribution to CWCapital, as special servicer
for the Anaheim Hilton Mortgage Loan, remained constant at $13.0 million in both
the November Five Mile Proposal and the Five Mile/Lehman Bid.
With respect to the Residence Inn Anaheim (Garden Grove) (Garden Grove), the
distribution to LNR, as special servicer for the Residence Inn Anaheim (Garden
Grove) Mortgage Loan, remained constant at $25.3 million in both the November
Five Mile Proposal and the Five Mile/Lehman Bid.
With respect to the Hilton Ontario, the distribution to C-III, as special servicer for the
Hilton Ontario Mortgage Loan, remained constant at $8.0 million in both the
November Five Mile Proposal to $8.0 million in the Five Mile/Lehman Bid.
16. The Debtors also worked to achieve consensus with C-III regarding the treatment
of the mortgage securing the Hilton Ontario under the Five Mile/Lehman Bid. Since early in the
Debtors Chapter 11 Cases, the Debtors and their advisors have been in discussions with counsel
to C-III, the special servicer for the Hilton Ontario, regarding a number of matters concerning the
Hilton Ontario, including the fact that the Hilton Ontario was in receivership prior to the Petition
Date. As part of those discussions, the Debtors have agreed that the property manager for the
Hilton Ontario that was retained to manage the property as part of the receivership can remain
the property manager throughout the Chapter 11 Cases (subject to the Debtors rights to
terminate that relationship, if appropriate). The arrangement has also allowed the property
manager to maintain control of the cash held as of the Petition Date as well as the cash generated
by the Hilton Ontario during the Chapter 11 Cases. As C-III is aware, this arrangement has
resulted in the property manager chosen by C-III preparing all of the necessary financial
information and retaining all of the cash generated by the Hilton Ontario, less the distributions
Pg 13 of 39

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K&E 18499564
that have been made to operate the hotel; the cash generated by the Hilton Ontario remains in the
control of the property manager and does not flow to the Debtors master concentration accounts.
17. The Commitment Letter already made clear that the Debtors would have the
ability to remove the Hilton Ontario property from the plan without resulting in any termination
of the Commitment Letter. See, e.g., Commitment Letter, Termination Events (including carve-
outs to the Termination Events, where necessary, for the Chapter 11 case[s] of...KPA HI
Ontario, LLC, which is the legal entity that owns the Hilton Ontario). To that end, the Debtors
and their advisors have communicated to counsel to C-III that C-III can opt-out of the
treatment described in the Commitment Letter and, instead, receive control and ownership of its
collateral as part of the plan upon its effective date. To date, counsel to C-III has not provided a
formal response to the Debtors proposal.
Reply
I. The Debtors Decision to Pursue the Five Mile/Lehman Bid Is Subject To the
Business Judgment Standard.
18. Section 363(b)(1) provides, in relevant part, that [t]he trustee, after notice and a
hearing, may use, sell, or lease, other than in the ordinary course of business, property of the
estate. 11 U.S.C. 363(b)(1). Section 363(b) does not specify a standard for determining when
it is appropriate for a court to authorize the use, sale, or lease of property of the estate. However,
the United States Court of Appeals for the Second Circuit has required that the authorization of
such use, sale, or lease of property of the estate, not in the ordinary course of business, must be
based upon the sound business judgment of the debtor. See Official Comm. of Unsecured
Creditors of LTV Aerospace and Defense Co. v. LTV Corp. (In re Chateaugay Corp.), 973 F.2d
141, 143 (2d Cir. 1992); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722
F.2d 1063, 1070 (2d Cir. 1983) (requiring some articulated business justification to approve
Pg 14 of 39

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the use, sale, or lease of property outside the ordinary course of business). In that regard,
[w]here the debtor articulates a reasonable basis for its business decisions (as distinct from a
decision made arbitrarily or capriciously), courts will generally not entertain objections to the
debtors conduct. Comm. of Asbestos-Related Litigants and/or Creditors v. Johns-Manville
Corp. (In re Johns-Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986).
19. When applying the business judgment rule, courts give great deference to the
substance of the directors decision and will not invalidate the decision, will not examine its
reasonableness, and will not substitute its views for those of the board if the latters decision can
be attributed to any rational business purpose. In re Global Crossing Ltd., 295 B.R. 726, 744
(Bankr. S.D.N.Y. 2003) (citing Paramount Commcns Inc. v. QVC Network Inc., 637 A.2d 34,
45 n.17 (Del. 1994). Of course, reasonable minds can (and often do) differ as to the appropriate
course of action in chapter 11 cases. However, such disagreement is insufficient to support the
denial of the Motion.
24
Instead, the business judgment standard requires that the Objectors
demonstrate the Debtors business judgments were not attributable to rational business
purposes.
25
The Objectors cannot and do not make such a showing. Rather, as demonstrated in
the Motion, the Derrough Declarations, the Beilinson Declaration, the Ruisi Declaration, and the
depositions of the Debtors management, advisors, and board members, the business judgments
made by the Debtors in connection with the stalking horse process and the Motion have all been

24
See In re Weaver Oil Co., Inc., No. 08-40379, 2008 WL 8202063, at *3 (Bankr. N.D. Fla. 2008) (holding that a
debtor need not have overwhelmingly persuasive evidence of its business judgmentonly that the evidence not
be so unreasonable that it could not be based on sound business judgmentbecause reasonable minds can
differ).
25
See In re Global Crossing, 295 B.R. at 744-45 (holding that the debtors board of directorsfaced with
uncertainties no matter which option they chosesatisfied the business judgment standard in making their
decision by being mindful of their duties, employing the right standard, soliciting the input of their advisors, and
making their decision based on a lengthy consideration of the relevant facts and options).
Pg 15 of 39

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made based on extensive (and appropriate) consideration of the relevant facts and options and for
rational business purposes.
26

II. The Decision To Pursue The Five Mile/Lehman Bid Is A Sound Exercise Of The
Debtors Business Judgment.
20. The Debtors believe that the many benefits afforded by the modified Five
Mile/Lehman Bid make it an attractive option for the Debtors and their estates. Those benefits
include the following:
The Five Mile/Lehman Bid (as modified) has the highest implied enterprise value of
all received bids and the highest value for both the Fixed Rate Loan and the Floating
Rate Loan;
The Five Mile/Lehman Bid provides baseline recoveries for all the constituents
participating in the deal and an opportunity for additional recovery pursuant to the
Overbid Allocation;
The Five Mile/Lehman Bid has a lower execution risk in that it is supported by
secured creditors holding more than $1 billion of the approximately $1.29 billion in
prepetition secured debt and holding mortgages on 64 of the Debtors 71 hotels;
Five Mile, Lehman, and Midland have already completed their due diligence;
Five Mile and Lehman are well-qualified investors with extensive knowledge of the
Debtors business given their position in the Debtors capital structure, including their
status as debtor-in-possession lenders;
The Five Mile/Lehman Bid offers the prospect of a reorganized enterprise with a de-
leveraged capital structure, significantly improved liquidity, and controlling equity
holders with familiarity of the Debtors business;
In connection with the Five Mile/Lehman Bid, Midlandthe Debtors largest secured
creditorhas agreed to provide stapled financing in the amount of $622.5 million
to bidders that maintain a debt-to-capitalization ratio of no more than 70%, and a
willingness to increase the amount of financing provided certain leverage ratios are
preserved;
Midland has also agreed that, pursuant to the Midland/New Party Commitment, prior
to the Auction, it will support alternative restructuring transactions that are on the
same or better terms under certain circumstances;

26
See Derrough Dep. 177:15-20, 272:15-25, 273:2-22, Feb. 14, 2011; Beilinson Dep. 29:3-25, 30:2-31:4, Feb. 16,
2011; Ruisi Dep. at 40:21-41:19, 46:2-6, 49:19-50:5, 52:8-15, Feb. 15, 2011.
Pg 16 of 39

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As modified, the Five Mile/Lehman Bid allows the Debtors the flexibility to consider
individual restructuring proposals with respect to each of the Seven Sisters;
The Five Mile/Lehman Bid contains a broad fiduciary out provision that allows the
Debtors the flexibility to explore and pursue alternative transactions at any time; and
The Five Mile/Lehman Bid has been subjected to a thorough market test since it was
filed, and will be subject to an additional 45-day marketing period, as well as
Overbids at an Auction.
See Derrough Decl. at 43-52; Second Supplemental Derrough Decl. at 26-30.
A. The Best Evidence Of The Appropriateness Of The Debtors Decision To
Pursue The Five Mile/Lehman Bid Is The Marketing Process.
21. Perhaps the best evidence of the soundness of the Debtors business judgment in
entering into the Commitment Letter are the results of the Debtors robust marketing process,
which began almost six months ago. See In re G.S. Distribution, Inc., Case No. 05-14576
(Bankr. S.D.N.Y. Oct. 20. 2005) (holding that a sale lacks reasonable business judgment when a
debtor conducts a hasty business analysis and marketing process); see also In re Cloverleaf
Enterprises, Inc. Case No. 09-20056 (Bankr. D. Md. Apr. 2, 2010) (holding that a sale lacks
reasonable business judgment when a debtor conducts an exclusive marketing process); In re
Gulf Coast Oil Corp., 404 B.R. at 424 (The principal justification for 363(b) sales is that
aggressive marketing in an active marketing assures that the estate will receive maximum
benefit.).
22. The Debtors have run a process carefully designed to secure the best stalking
horse bid possible and submit that proposal to a vigorous market test to ensure it is the best
available. As described in detail in the Derrough Declarations, the Debtors first identified five
potential stalking horse candidates. The Debtors, in consultation with Moelis, made a
determination it would be more efficient to start with a smaller group and then approach a larger
Pg 17 of 39

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group with a fully baked baseline bid that the Debtors believed reflected the market value of
the Debtors various properties.
23. The Debtors selected the initial five stalking horse candidates based on their
(a) availability of funds; (b) breadth and depth of experience within the lodging sector;
(c) familiarity with the bankruptcy process; and (d) ability to execute due diligence in a timely
manner.
27
By focusing on this group of stalking horse candidates initially, Moelis and the
Debtors were able to concentrate their efforts on facilitating the stalking horse candidates
development of the strongest restructuring proposals possible. These intensive efforts included,
among other things, facilitating over 120 site visits by the stalking horse candidates and over 25
diligence calls with sales, general, and/or regional managers of the Debtors hotels.
28
In
addition, Moelis held numerous conference calls with the stalking horse candidates to exchange
views, to solicit feedback, and to facilitate the formulation of offers.
29
This level of focus and
dedication on behalf of the Debtors management, advisors, and employees would not have been
possible if the universe of initial stalking horse candidates expanded in the way requested by the
Objectors.
30
In addition, as stated by Mr. Derrough at his deposition, by focusing on a smaller
number of potential stalking horses, the Debtors were able to encourage participation by ensuring
that, to serve as the stalking horse, each potential bidder would not have to outbid a daunting
number of competitors.
31

27
See Derrough Decl. at 8.
28
Id. at 11.
29
Id.
30

31

Redacted
Redacted
Pg 18 of 39

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24. As a result of this concentrated initial process conducted at the direction of the
Board and after consideration of all relevant factors, four of the five stalking horse candidates
submitted stalking horse proposals, each of which contemplated an enterprise-level
restructuring.
32
Following the receipt of these proposals, the Debtors engaged in extensive
negotiations with Bidder D and Five Mile/Lehman (the two stalking horse candidates that had
submitted the most attractive of the initial proposals).
33

Five Mile/Lehman submitted its revised
proposal, which increased the value originally proposed in Five Mile/Lehmans initial proposal
by more than $40 million and garnered the support of Midland, the Debtors largest secured
creditor.
36
In total, after Five Mile submitted its initial proposal in August 2010, the Debtors
successfully negotiated three subsequent proposals from Five Mile or Five Mile/Lehman and
were able to generate an additional approximately $100 million in enterprise value.
25. Shortly before filing the Motion, the Debtors followed through with their long-
stated plan of expanding the scope of their marketing efforts to include over 200 potential
investors. Through the Follow-Up Process Letter, the Debtors reiterated to the market that they
would consider any and all proposals and provided an update regarding the adjournment of the

32
33
Id. at 13, 17, 22, 24-26, 30, 32, and 38.
34
Id. at 15-17, 20.
35
See Ruisi Decl. at 38-44.
36
Id. at 24-28, 30-32, 35, 38-39.
Redacted
Pg 19 of 39

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hearing on the Motion and extended pre-hearing marketing period.
37
Certain of the Objectors,
including LNR, mischaracterize the Debtors Follow-Up Process Letter as a change in process or
as a revised strategy. But the fact of the matter is that nothing changed. As counsel for the
Debtors stated on the record almost four months ago at the November 12, 2010 hearing to
consider the Debtors exclusive period to file a plan:
[A]ny proposal or proposals that will maximize value will be
considered. Moelis is the sole banker conducting the restructuring
process but constituents are encouraged to forward to Moelis and
the debtors any party that may be interested in bidding on the
entire enterprise, the fixed rate pool, the floating rate pool, or other
properties.
See 11/10/10 Hrg Tr. at 19:7-13. The suggestion by certain Objectors that the Debtors have
somehow changed course is simply not supported by the record.
26. The Debtors have now been in contact with nearly 200 of the identified potential
investors and have evaluated the six new proposals received (and described above).

the messaging that Moelis has received from other potential bidders
throughout the process, proves that the Five Mile/Lehman Bid is the best available stalking horse
proposal for the Debtors at this point in time.
27. Moreover, these proposals (as well as Moeliss experience throughout the
process) demonstrates that no confusion exists in the marketplace as to the Debtors marketing
process or willingness to accept bids for less than the entire enterprise. Further, as described in
the Second Supplemental Derrough Declaration, discussions between the Debtors financial
advisors and potential bidders shed further light on the success of the marketing process.
38

37
See Supplemental Derrough Decl. at 8.
38
Redacted
Pg 20 of 39

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28. Notably, assuming the Court approves the Bidding Procedures, there will be
another approximately 45 days, during which the Debtors will continue to aggressively solicit
overbids. In total, potential bidders will have had approximately 90 days notice from the date of
the filing of the Motion to submit bids. Compared to most chapter 11 sale processes, this amount
of time should be more than adequate to market the company fully.
39

29. With an initial focused search for a stalking horse, a subsequent 45-day period
prior to the hearing, and yet another 45-day marketing period to come, the Debtors respectfully
submit that the marketing process evidences the Debtors sound business judgment in selecting
the Five Mile/Lehman Bid.
30. In addition, the Board and the Independent Committee have been intimately
involved throughout the stalking horse selection process. There were at least 18 meetings of the
full Board or Independent Committee during the approximately three-month period between
September 20, 2010 and December 23, 2010. This does not include the innumerable informal
conversations between the Board and Independent Committee and the Debtors management and
advisors. In connection with these meetings and conversations, the Board and Independent
Committee were provided with extensive information and detail regarding the stalking horse

39
See In re Verified Identity Pass, Inc., Case No. 09-17086 (SMB) (Bankr. S.D.N.Y. Dec. 23, 2009) [Docket No.
33] (approving 35-day marketing period); In re AmericanWest Bancorporation, Case No. 10-6097 (PCW)
(Bankr. E.D. Wash., Nov. 3, 2010) [Docket No. 64] (approving 26-day marketing period); In re Foamex Int'l
Inc., Case No. 09-10560 (JKC) (Bankr. D. Del. Apr. 9, 2009) [Docket No. 305] (approving 35-day marketing
period); In re Extended Stay, Case No. 09-13764 (JMP) (Bankr. S.D.N.Y. Apr. 23, 2010) [Docket No. 975]
(approving 24-day marketing period); In re Finlay Enters., Inc., Case No. 09-14873 (JMP) (Bankr. S.D.N.Y.
Aug. 20, 2009) [Docket No. 120] (approving 28-day marketing period).
Because of the voluminous nature of the orders cited in this footnote and in paragraph 47 below and the
deposition transcripts cited throughout this Reply, they are not attached to the Motion. Copies of these orders,
transcripts, and any unreported decisions cited herein are available on request of the Debtors counsel.
Pg 21 of 39

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K&E 18499564
proposals received by the Debtors and performed their own analysis based on the information
received.
40

B. It Is A Sound Exercise Of The Debtors Business Judgment To Pursue The
Transaction Contemplated By The Five Mile/Lehman Bid.
31. Throughout these Chapter 11 Cases, the Objectors have continuously taken issue
with the Debtors preference for an enterprise-level restructuring. The Debtors respectfully
submit that the decision to pursue an enterprise-level restructuring is supported by an articulated
business justification.
41
The Debtors based their decision to focus initially on pursuing an
enterprise-level restructuring proposal on a conclusion by the Board after considerable
deliberation and input from the Debtors advisors and the Independent Committee.
42
In deciding
to focus on an enterprise-level reorganization, the Board considered, among other things: (a) the
relatively lower cost of capital given the Debtors size and the diversity of their assets; (b) the
ability to take advantage of tax and cost of capital benefits of the public REIT status of a
reorganized enterprise; (c) economies of scale for corporate and management functions; and (d)
operational and management benefits of brand and geographic diversity. An enterprise-level
restructuring provides significant benefits due to the integration of the Debtors business across
important business functions.
43
For example, senior management sits at parent-level entities,
where, among other things, it manages consolidated aspects of the Debtor-entities, plans short-
and long-term financing, maintains franchiser affiliations that reflect longstanding relationships

40
See Ruisi Decl. at 51-52.
41

42
43
Redacted
Pg 22 of 39

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K&E 18499564
and the significant number and strong locations of many of the Debtors hotels, arranges
property management contracts, and plans for and implements property improvement programs
and other capital projects throughout the enterprise.
44

32. Despite the Debtors continued belief that an enterprise-level transaction will
maximize value for the Debtors estates, they continue to encourage any and all transactions,
regardless of structureand have expressed clearly to the marketplace, both in conversations
with interested parties as well as in the Follow-Up Process Letter,
45
that any and all bids are
welcome. To that end, the Debtors negotiated the modifications to the Five Mile/Lehman Bid
that are described above. Moreover, to the extent the Debtors receive a proposal that maximizes
value but is not enterprise-based or is otherwise inconsistent with the Five Mile/Lehman Bid, the
fiduciary out contained in the Bidding Procedures provides the Debtors with the flexibility to
pursue such a proposal.
46

C. It Is An Appropriate Exercise Of The Debtors Business Judgment To Seek
To Implement The Bidding Procedures.
33. The Debtors also submit that seeking approval of the Bidding Procedures is
appropriate. As an initial matter, there is no basis for the Objectors assertions that the Bidding
Procedures are designed to confuse the market or chill bidding.

44
See generally Amended Declaration of Dennis Craven, Chief Financial Officer of Innkeepers USA Trust, in
Support of First Day Pleadings [Docket No. 33, as supplemented by Docket No. 516].
45
See Notice of Filing of Process Letter, Attachment at 3 (To be clear, the Company can and will continue
to fully consider other value-maximizing restructuring proposals it may receive before or after the
Hearing, including proposals for superior enterprise-based transactions, asset pools, or individual assets.
As such, we encourage you to submit and we will consider enterprise and non-enterprise-level bids that
maximize value, including proposals for pools and individual assets.) (emphasis in original).
46
See Bidding Procedures at 12 (Upon the determination by the Debtors directors, trustees, or members, as
applicable, and upon advice of counsel, no term or provision of the Term Sheet or the Commitment Letter shall
prevent, amend, alter, or reduce the Debtors ability to exercise their fiduciary duties under applicable law.).
Redacted
Pg 23 of 39

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34. Moreover, the Bidding Procedures are appropriate and tailored to facilitate
competitive bids and were in no way created arbitrarily or capriciously. See In re Johns-
Manville Corp., 60 B.R. at 616. Indeed, as an initial matter, they were heavily negotiated.
Given the circumstances of these Chapter 11 Cases, the Debtors insisted the Five Mile/Lehman
Bid be subjected to a competitive process, and the Debtors fought hard to secure agreements
from Lehman and Midland, in their capacity as creditors, to support overbids from entities other
than Five Mile. Lehman and Midlands agreement to support overbids came at a price.
Specifically, Lehman and Midland would not agree to support any overbid that is not based on
the capital structure contemplated by the Five Mile/Lehman Bid, does not incorporate the
Lehman cash-treatment provision, or provides for more than a 70% debt-to-capitalization ratio.
Given the benefits of the Five Mile/Lehman Bid, including its ability to foster consensus, the
Debtors agreed to allow Lehman and Midland to condition their support for Overbids. And, at
the same time, the Debtors fought hard for the flexibility to consider and pursue bids that do not
satisfy these conditions, despite knowing they may not have the support of their two largest
secured creditors if they were to pursue such a bid.
35. To be clear, the Debtors welcome bids from all potential investors whether
enterprise or not and whether they are based on the Five Mile/Lehman Bid or not. With value
maximization in mind, the Debtors have publicly stated in open court, in the Follow-Up Process
Letter, and in the Press Release that the Debtors are encouraging and considering all types of
offers. To the extent the Debtors receive a non-qualifying bid that is less than enterprise-wide
but provides greater value to the estates or otherwise greater value to their constituents than the
Qualified Bids, the Debtors have expressly reserved the right to exercise their fiduciary duties
and take necessary action, including exiting the Commitment Letter, re-designing the Auction
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procedures, or abandoning the Auction procedures entirely, all as appropriate under the
circumstances to ensure value maximization.
36. The Objectors raise arguments with respect to certain other aspects of the Bidding
Procedures that the Debtors believe should be overruled as follows:
Limits on Substantial Contribution Claims/Expense Reimbursement. Certain of the
Objectors argue that the Bidding Procedures should not limit potential bidders rights
to request expense reimbursement or assert substantial contribution administrative
expense claims in these cases. The Debtors disagree. The Debtors have fostered an
open and transparent plan process by openly marketing the company to
approximately 200 parties. The Debtors cannot, however, allow this process to result
in additional and uncapped administrative claims that must be borne by the Debtors
estates.
Midland Consultation Rights. LNR argues that Midlands consultation rights with
respect to competing bids are inappropriate. The Debtors disagree. Midland is
entitled to consultation rights as a result of its willingness to allow other bidders to
use its stapled financing. The acceptance of a bid by the Debtors is subject to the
Debtors sole discretion after consulting with Midland.
Back-Up Bidder Provisions. TriMont argues that the back-up bidder provisions are
onerous. The Debtors disagree. The back-up bidder provisions are consistent with
similar terms in other bidding procedures approved by this Court and constitute a
reasonable balancing of the Debtors desire to avoid the delay and expense of having
to run a second Auction process. See, e.g., In re Mount Vernon Monetary
Management Corp., Case No. 10-23053 (Bankr. S.D.N.Y. Dec. 6, 2010) [Docket No.
373]; In re RathGibson, Inc., Case No. 09-12452 (Bankr. D. Del. Mar. 26, 2010)
[Docket No. 627]; In re Chemtura Corp., Case No. 09-11233 (Bankr. S.D.N.Y. Jan.
14, 2010) [Docket No. 1761]; In re Robbins Bros. Corp., Case No. 09-10708 (Bankr.
D. Del. Mar. 27, 2009) [Docket No. 137].
Overbid Increments. TriMont argues that the overbid increment is too high. The
Debtors disagree. The proposed overbid increment is appropriate considering the
Debtors complex capital structure. Notably, the $15 million initial overbid
incorporates payment of the Bid Protections so the Debtors estates are not harmed by
any such overbid and the subsequent $5 million overbid increment is reasonable in
relation to the implied enterprise value from the modified Five Mile/Lehman Bid.
Deposit Requirements. Appaloosa argues that bidding will be chilled by allowing
Five Mile/Lehman to cover the $20 million deposit requirement by pledging their
recoveries on account of the debtor-in-possession financing but requiring other parties
to provide a cash deposit. But for purposes of the deposit, Five Mile and Lehmans
pledge of recoveries is only to the extent the debtor-in-possession financing facilities
have been funded to the Debtors. In this manner, cash already has been provided to
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K&E 18499564
the Debtors and competing bidders should have to supply a similar amount of cash
that the Debtors could recover from in the event of certain breaches by the competing
bidder.
D. The Debtors Agreement To Pay The Bid Protections Is a Valid Exercise Of
Their Business Judgment.
37. The Debtors also submit that the Bid Protections are reasonable under the
circumstances. The Bid Protections, which consist of a $7 million Break-Up Fee and up to
$3 million in Expense Reimbursement, are a relatively modest price to pay in exchange for a
firm commitment to fund the Five Mile/Lehman Bid. This firm commitment is critical,
especially given the continued volatility present in todays real estate market. There is simply no
guarantee that the value of the Debtors properties will increase from the values implied by the
Five Mile/Lehman Bid. Five Mile/Lehman has agreed to assume such risk by allowing the Five
Mile/Lehman Bid to be subjected to a continued marketing process and, thus, the Bid Protections
are more than warranted, regardless of any preexisting involvement in the Debtors capital
structure.
47

38. As to be expected, these concessions did not come free of charge. The Debtors
and their advisors weighed the costs of the Bid Protections against the benefits of obtaining a
$348.2 million commitment to either purchase equity or convert debt to equity and the more than
$1 billion floor enterprise value of the Five Mile/Lehman Bid. The Debtors also considered
whether the Five Mile/Lehman Bid could attract additional, higher, and better bidseffectively
permitting the Break-up Fee to pay for itself (and, as described in the Second Supplemental

47

Redacted
Pg 26 of 39

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K&E 18499564
Derrough Declaration, the Debtors advisors have received strong indication that it can and
will).
48
In addition, as described below and in the Motion, the Debtors advisors believe the Bid
Protections are comparable to similar fees approved in other restructuring transactions.
49

Following this analysis, the Debtors and their advisors determined the Bid Protections were a
reasonable means of securing value for their constituencies.
50
Moreover, Midlandwhich
stands to bear the brunt of the Bid Protections cost in that they would be allocated
approximately 70% of the Overbid proceeds otherwise earmarked to cover the Bid Protections
consents to the payment of the Bid Protections.
39. It is well-settled in this District that break-up fees should be approved when
(a) the relationship between the parties is not tainted by self-dealing, (b) the fee does not hamper
bidding, and (c) the amount of the fee is reasonable in relation to the size of the transaction.
Official Comm. of Subordinated Bondholders v. Integrated Resources, Inc. (In re Integrated
Resources, Inc.), 147 B.R. 650, 657 (S.D.N.Y. 1992), appeal dismissed, 3 F.4d 49 (2d Cir.
1993). In this case, each prong of the Integrated Resources test is met. First, no self-dealing
has occurred between the Debtors and Five Mile, Lehman, or Midland. Second, the Debtors do
not believe that the Break-Up Fee will hamper bidding. Third, the Break-up Fee and Expense
Reimbursement together represent approximately 2.9% of Five Mile/Lehmans $348.2 million

48
See Second Supplemental Derrough Decl. at 13.
49

50

Redacted
Pg 27 of 39

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K&E 18499564
commitment to either purchase equity or convert debt to equity.
51
Break-up fees that equate to
approximately 3% of the overall equity/debt-conversion commitment are widely regarded as
reasonable. The Debtors believe in their reasonable business judgment that the amount of the
Break-Up Fee is appropriate, customary, and, in fact, de minimis in comparison to the immense
benefit the Debtors receive by having a stalking horse bid in place.
40. Integrated Resources also acknowledges the downside risk that accompanies
allowing parties to challenge agreements to pay break-up fees outside appropriate consideration
of the debtors commercial judgment. Ifa prospective bidder knows that courts prevent the
debtor from paying a break-up fee, then it is more likely to abandon its bid, or, even worse, never
to explore a bid in the first place. Id. at 663. Thus, [bidder] protections are granted when a
bidder provides a floor for bidding by expending resources to conduct due diligence and
allowing its bid to be shopped around for a higher offer. In re Metaldyne Corp., 409 B.R. 661,
670 (Bankr. S.D.N.Y. 2009). This standard is satisfied here.
41. The terms of the Five Mile/Lehman Bidincluding the Break-Up Fee and
Expense Reimbursementare the result of hard-fought negotiation by the Debtors and their
advisors, and were subject to rigorous scrutiny by the Debtors management, advisors, Board,
and Independent Committee for many weeks.
52
Five Mile/Lehman originally requested
substantial bid protections and the Debtors were successful in reducing them substantially. But
Five Mile/Lehman made clear that they would go no lower, and that the Bid Protections were a

51
52

Redacted
Pg 28 of 39

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K&E 18499564
necessary inducement to their agreement to act as stalking horse bidder.
53
And the Debtors were
understandably and justifiably unwilling to risk losing the substantial benefit of locking in a
substantial baseline value for the Debtors assets. The Bid Protections lock in a committed
stalking horse bid while permitting the Debtors to continue seeking higher and betters bids
through the Auction process. [I]t is plausible to believe that an initial bid, ordinarily or perhaps
even always, will provide a benefit to an estate because it will establish a floor price for the
assets to be sold. In re Reliant Energy Channelview LP, 594 F.3d 200, 207 (3d. Cir. 2010).
42. As to the Objectors assertions that it is somehow improper to allow Lehman to
receive a portion of the Break-Up Fee and Expense Reimbursement, the allocation of the Bid
Protections between Five Mile and Lehman is subject to an agreement between those two parties.
Even if Lehman, as a major creditor, is already involved in the Debtors Chapter 11 Cases, the
Debtors believe payment of a break-up fee to Lehman is warranted because Lehman has no
affirmative obligation to submit a stalking horse bid or agree to support competing bids.
54

43. In sum, the Debtors believe that Five Mile and Lehman should be entitled to the
Break-Up Fee in their capacity as bona fide bidders who have made the best offer for the
Debtors assets, established a floor price for the assets, and continue to encourage competitive
bidding by submitting their bid to the overbid process.

53

54

Redacted
Pg 29 of 39

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E. The Agreement To Pay The Midland Settlement Payment Is A Valid
Exercise Of Their Business Judgment.
44. The Commitment Letter contemplates inclusion of the Midland Release in a plan
of reorganization, pursuant to which Midland will release its claims against Apollo, including
those related to the Apollo Guaranty.
55
Pursuant to the Commitment Letter, Five Mile/Lehman
will direct the reorganized Debtors to make a payment to Midland of $3 million (the Midland
Settlement Payment) as settlement of Midlands claims against Apollo with respect to the
Apollo Guaranty.
45. The Midland Settlement Payment benefits the Debtors estates in several ways.
First, while Midland alone holds the Apollo Guaranty, litigation over liability, if any, under that
instrument already has been extensive and is likely to involve the Debtors and potentially other
parties in interest in expensive and time-consuming litigation. Avoiding involvement in such
matters is a tangible benefit to these estates. Second, the Midland Settlement Payment is part of
the consideration to be received by Midland as part of its support for the Five Mile/Lehman bid.
See Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095,
109899 (2d Cir. 1993) (holding that a Courts analysis of business judgment should focus on
whether the action would benefit the estate).
56

55
As the Court is aware, in connection with the original Five Mile/Lehman enterprise-level bid, Apollo had
previously agreed to waive certain recoveries in furtherance of a global settlement.. Given that the modified
Five Mile/Lehman Bid no longer covers all of the Debtors, all parties, including Apollo and Series C Preferred
Shareholders, retain their rights with respect claims and interests against the Debtors not subject to the modified
bid.
56

Redacted
Pg 30 of 39

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K&E 18499564
F. The Debtors Agreement To Reimburse Bidder Ds Expenses (In Connection
With Bidder Ds Initial Proposal) Is A Valid Exercise Of Their Business
Judgment.
46. The Debtors respectfully submit that the Bidder D Expense Reimbursement is
justified under the circumstances and is being made for a rational business purpose. See In re
Global Crossing, 295 B.R. at 744. As described in the Derrough Declaration, the Debtors spent
considerable time negotiating definitive stalking horse documentation with Bidder D prior to
receiving the Five Mile/Lehman Bid.
57
Bidder Ds participation in the stalking horse process
generated significant value for the Debtors estates by motivating Five Mile/Lehman to increase
the value of their bid by more than $40 million.
58
Bidder D should be appropriately reimbursed
for the cost of its value-generating participation in the stalking horse selection process in
November and December 2010.
59
Further, the Debtors remain hopeful that Bidder D will submit
an Overbid at the Auction and believe that reimbursing the fees Bidder D incurred in pursuing its
stalking horse bid increases that likelihood.
60
Given the relatively modest amount of the
requested expense reimbursement for Bidder D, the Debtors respectfully submit it is a valid
exercise of business judgment.
47. Expense reimbursements for prospective lenders and plan sponsors like Bidder D
are commonly approved in this and other districts as a reasonable exercise of a debtors business
judgment. See, e.g., In re Tronox Inc., No. 09-10156 (ALG) (Bankr. S.D.N.Y. Nov. 10, 2009)
[Docket No. 870] (authorizing debtors to reimburse due diligence expenses incurred by

57
58
Id.
59

60

Redacted
Pg 31 of 39

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K&E 18499564
prospective lenders in connection with financing); In re Movie Gallery, Inc., No. 07-33849
(Bankr. E.D. Va. Dec. 4, 2007) [Docket No.1097] (authorizing debtors to pay fees and expenses
of backstop party for proposed rights offering); In re Sea Containers Ltd., No. 06-11156 (Bankr.
D. Del. Nov. 20, 2007) [Docket No. 1206] (authorizing debtors to pay diligence-related fees and
expenses of prospective exit lenders up to $1.5 million); In re Tower Auto., Inc., No. 05-10578
(ALG) (Bankr. S.D.N.Y. Dec. 21, 2006) [Docket No. 1883] (authorizing debtors to pay
$1.0 million in diligence fees to prospective new-money equity investors and to potential
replacement DIP lenders); In re Tower Auto., Inc., No. 05-10578 (Bankr. S.D.N.Y. Oct. 25,
2006) (ALG) [Docket No. 1814] (authorizing debtors to pay up to $1.0 million in diligence fees
to prospective new-money equity investors); In re Meridian Auto. Sys.-Composite Operations,
Inc., No. 05-11168 (Bankr. D. Del. June 13, 2006) [Docket No. 1155] (authorizing debtors to
pay diligence related fees and expenses of prospective exit lenders up to $600,000); In re Pliant
Corp., No. 06-10001 (Bankr. D. Del. May 5, 2006) [Docket No. 666] (authorizing debtors to pay
up to $500,000 in work fees and to provide a $700,000 deposit for expenses to prospective exit
lenders).
G. The Debtors Entry Into The New Party/Midland Commitment Is A Valid
Exercise Of Their Business Judgment.
48. The Debtors continue to believe it is a valid exercise of their business judgment to
enter into and seek approval of an agreement that locks Midland in to supporting, as well as
providing the Midland Financing to, replacement stalking horse bidders under certain
circumstances. The New Party/Midland Commitment locks in Midlands agreement, in certain
specified circumstances, to support alternative restructuring transactions that are on the same or
better terms as contained in the Five Mile-Midland Agreement.
61
Specifically, to the extent the

61
The Debtors are not aware of any Objection to the Debtors entry into the Midland/New Party Commitment.
Pg 32 of 39

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K&E 18499564
Five Mile/Lehman Bid is terminated because of a breach prior to the Auction, if the terms and
conditions in the New Party/Midland Commitment are met, Midland will support and provide the
Midland Financing to a replacement stalking horse bidder selected by the Debtors. The Debtors
believe the New Party/Midland Commitment will make the prospect of overbidding a more
attractive option to potential bidders and, in turn, maximize value for the benefit of the Debtors
estates. As such, the Debtors respectfully submit entry into the New Party/Midland Commitment
is an appropriate use of the Debtors business judgment. See In re Global Crossing 295 B.R.
726, 744 n. 58 ([T]he Court does not believe that it is appropriate for a bankruptcy court to
substitute its own business judgment for that of the [d]ebtors and their advisors, so long as they
have satisfied the requirements articulated in the caselaw.).
H. Modifying The Cash Collateral Order Is a Valid Exercise Of The Debtors
Business Judgment.
49. The Debtors proposed amendment to the Final Cash Collateral Order to increase
the Expense Reserve from $4.5 million to $18.5 million to provide the Debtors with the
flexibility to satisfy certain closing and emergence costs, including potential success fees, is
appropriate.
62
See, e.g., In re First NLC Fin. Servs., LLC, No. 08-10632 [D.E. #232] (Bankr.
S.D. Fla. Feb. 28, 2008) ([t]he use of Cash Collateral and adequate protection arrangements
authorized hereunder have been negotiated in good faith and at arms length, and the terms of
such Cash Collateral use and adequate protection arrangements are fair and reasonable under the
circumstances [and] reflect the Debtors exercise of prudent business judgment). The Debtors
carefully negotiated the increase in the Expense Reserve with Five Mile, Lehman, and Midland,
and the Debtors anticipate that the Expense Reserve will be funded largely with excess cash

62

Redacted
Pg 33 of 39

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K&E 18499564
generated by the properties securing the Fixed Rate Loan (for which Midland is the special
servicer) and the Floating Rate Mortgage Loan (on account of which Lehman holds its claims).
While the Objectors allege the increase is an improper surcharge of the lenders collateral, the
Court will recall that this issue was litigated and decided in the context of the Debtors use of
Cash Collateral.
63
Such use does not constitute an improper surcharge of any lenders collateral.
All of the Debtors constituencies, including the Objectors, stand to benefit from the increase in
the Expense Reserve, which will be used to fund the closing of a transaction that maximizes
value to the benefit of all constituencies. See Gen. Elec. Credit Corp. v. Levin & Weintraub (In
re Flagstaff Foodservice Corp.), 739 F.2d 73 (2d Cir. 1984) (holding that a secured creditors
collateral c be surcharged, as long as there is a direct benefit to the secured creditor).
III. The Objectors Allegations That The Debtors Or The Board Have Breached
Fiduciary Duties In Pursuing The Motion Are Without Merit.
50. In making the decision to proceed with the Motion, the Debtors are attempting to
maximize value for the benefit of the constituencies of each of the Debtors. The Board generally
had three restructuring courses of action to consider: (a) pursue an enterprise-level restructuring;
(b) break up and sell their assets on a piecemeal basis; or (c) liquidate their assets. For the
reasons set forth above, the Debtors chose to focus their initial efforts on obtaining a proposal for
an enterprise-level restructuring based on the reasonable belief that doing so would maximize
value of the estates as a whole (while making clear to the marketplace that any and all bids are
welcomed).

63
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,
entered on September 2, 2010 [Docket No. 402, as amended by Docket No. 539] (the Final Cash Collateral
Order); see also, e.g., Objection of C-III Asset Management LLC [Docket No. 254]; Objection of Wells Fargo
Bank, N.A. [Docket No. 255]; Objection of CWCapital Asset Management LLC [Docket No. 257]; Objection of
Appaloosa Investment L.P. I [Docket No. 279]; Debtors Omnibus Reply in Support of the Debtors Cash
Collateral Motion, Cash Management Motion, Lehman DIP Motion, and Five Mile DIP Motion, and in
Response to Objections Thereto [Docket No. 337].
Pg 34 of 39

34
K&E 18499564
51. Certain of the Objectors, including the Ad Hoc Committee, alleged that the Board
and the Debtors officers breached their fiduciary duties in pursuing the Five Mile/Lehman Bid.
The Debtors dispute those allegations. While it is, of course, true that the Board owes duties to
its preferred shareholders, the Board cannot ignore the impact of its decisions on the Debtors
enterprise and their other constituencies.
64
Nevertheless, recognizing the dissatisfaction of the
Ad Hoc Committee with the Five Mile/Lehman Bid, and in an attempt to foster consensus, the
Debtors worked hard after filing the Motion to facilitate a global deal that the Ad Hoc
Committee would find agreeable. Specifically, the Debtors arranged site visits for the financial
advisors to the Ad Hoc Committee between February 8 and 17, 2011, facilitated discussions in
early February 2011 between members of the Ad Hoc Committee and the principals of Five Mile
and Lehman regarding a potential resolution, and facilitated discussions between the members of
the Ad Hoc Committee and other potential bidders to explore the possibility of working together
to submit a bid.
52. Despite these efforts, the Debtors were unable to reach consensus with the Ad
Hoc Committee and certain of the other Objectors. In any event, the Debtors submit that the
modifications to the Five Mile/Lehman Bid should appease the Objectors for the reasons stated
above.
IV. The Commitment Letter Does Not Constitute A Sub Rosa Plan.
53. Certain Objectors argue the Commitment Letter is an impermissible sub rosa
plan. It is not. Sub rosa plans are transactions that dictate the terms of any future plan of

64
See e.g., In re Adelphia Commns Corp., 327 B.R. 143, 154-55 (Bankr. S.D.N.Y. 2005) (approving a four-way
joint settlement on account of, among other things, appropriate consideration of the good of the enterprise as a
whole and finding that [a]ny suggestion that the Boards actions were a breach of fiduciary duty would be
frivolous); see also In re Gen. Growth Props., Inc., 409 B.R. 43, 63 (Bankr. S.D.N.Y. 2009) (holding that a
judgment on an issue as sensitive and fact-specific as whether to file a Chapter 11 petition can be based in good
faith on consideration of the interests of the group as well as the interests of the individual debtor).
Pg 35 of 39

35
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reorganization, constrain parties in exercising their confirmation rights, and/or seek to allocate
the distribution of proceeds from a transaction to creditors without otherwise requiring the
satisfaction of the disclosure and confirmation standards of chapter 11 of the Bankruptcy Code.
See, e.g., In re General Motors Corp., 407 B.R. 463, 495 (Bankr. S.D.N.Y. 2009); see also
Motorola, Inc. v. Official Comm. of Unsecured Creditors, (In re Iridium Operating LLC), 478
F.3d 452, 461 (2d Cir. 2007) ([T]he reason sub rosa plans are prohibited is based on a fear that
a debtor-in-possession will enter into transactions that will, in effect, short circuit the
requirements of [C]hapter 11 for confirmation of a reorganization plan.). The Commitment
Letter embodies none of those traits.
54. The Commitment Letter is only a starting pointa bid selected in the Debtors
reasonable business judgment as the stalking horse to be subjected to an additional 45-day
marketing period and a hopefully spirited Auction intended to maximize value. The Debtors
have deliberately structured their process to encourage the emergence of an Overbid that renders
the bid contained in the Commitment Letter obsolete. Regardless, in no way are the Debtors
seeking to constrain any party from exercising their confirmation rights or to otherwise
circumvent the Chapter 11 process. The Debtors will file and seek approval of a disclosure
statement and solicit votes on a plan of reorganization in accordance with Bankruptcy Code
requirements.
55. This Court recently overruled an objection by a junior lender in In re Boston
Generating that argued the sale transaction in those cases was a sub rosa plan. 440 B.R. 302,
341 (Bankr. S.D.N.Y. 2010) (Here, the proposed sale of the Debtors assets is not a sub rosa
plan of reorganization. The Debtors assets are simply being sold; the First Lien Lenders will
receive most of the proceeds in accordance with their lien priority; and remaining consideration
Pg 36 of 39

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K&E 18499564
will be subsequently distributed under a plan. As the Court has held, the proposed Sale
Transaction has a proper business justification and is not calculated to evade the plan
confirmation process.). To suggest that Boston Generating stands for the proposition that a
transaction is an improper sub rosa plan when it goes beyond merely directing distribution of
sale proceeds in accordance with their lien priority; and remaining consideration [to] be
subsequently distributed under a plan.as the LNR Objection doesis, in the Debtors
respectful opinion, an overstatement.
56. Consistent with the Boston Generating holding, the Commitment Letter has a
proper business justificationto secure a baseline bid for a restructuring that will result in a
significant de-leveraging of the Debtorsand is not calculated to evade the plan confirmation
process. In fact, all plan protections remain intact. At the appropriate times, parties in interest
will have the opportunity to raise whatever arguments they may have to the adequacy of any
disclosure statement and/or the confirmability of any plan.
V. Plan Objections Are Premature At This Time.
57. The Objections raise a litany of arguments that need not be addressed at this
juncture of the Debtors restructuring process and are more appropriately considered in
connection with a hearing on the adequacy of a disclosure statement or confirmation of a
reorganization plan. The Debtors are keenly aware of the likelihood of a dispute over the
valuation of certain of their assets. The Objectors should not be able to short circuit the Debtors
restructuring process with unsupported (and self-serving) assertions of insufficient or
misallocated value. The remainder of the Debtors marketing and auction process will dictate
the true value of the Debtors assets, and the Debtors will conduct a comprehensive valuation
analysis in advance of confirmation. The confirmation hearing will provide a suitable forum for
the Objectors to defend their independent valuations and convince the Court that a treatment
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contemplated by an approved disclosure statement and filed plan is insufficient. See, e.g., In re
Keisler, No. 08-43321, 2009 WL 1851413, *5 (Bankr. E.D. Tenn. 2009) (questions concerning
the valuation of the Debtors assets and amount of a lenders secured claim are strictly
confirmation issues). But now is not the time.
58. Likewise, the issues raised regarding substantive consolidation and allocation of
overbids are unquestionably premature. These issues will only come to bear when (and if) the
Debtors seek approval of a filed disclosure statement and plan. Indeed, the disclosure statement
and plan that the Debtors currently are finalizing with Five Mile, Lehman, and Midland does not
contemplate substantive consolidation. The assertion by the Objectors that the Motion should be
denied because the Objectors think it is premised on substantive consolidation is premature and a
red herring and, therefore, should be ignored.
59. Finally, the Motion does not seek approval of the releases described in the
Commitment Letter. The Commitment Letter merely provides an outline for the structure of the
releases to be incorporated into a plan that embodies the terms of the Five Mile/Lehman Bid.
The Debtors will provide the Court and other parties in interest with ample opportunity to review
any filed plan of reorganization and the releases included therein. As noted by this Court and
others, the consideration of plan releases generally is among issues that can and should be
raised at confirmation. Hrg Tr. 164:6-9, In re NR Liquidation III Co. (f/k/a Neff Corp.), Case
No. 10-12610 (Bankr. S.D.N.Y. July 12, 2010); see also, Hrg Tr. 126:10-19, In re Chemtura
Corp., Case No. 09-11233 (Bankr. S.D.N.Y. July 21, 2010) (courts have developed a pretty
traditional way of handling objections to the breadth of releases, which is for objectors to
reserve the right to address at confirmation).
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K&E 18499564
Conclusion
For the foregoing reasons and those stated in the Motion, the Derrough Declarations, the
Beilinson Declaration, and the Ruisi Declaration, the Debtors respectfully request that this Court
overrule the Objections and grant the relief requested in the Motion.
New York, New York /s/ Brian S. Lennon
Dated: March 5, 2011 James H.M. Sprayregen, P.C.
Paul M. Basta
Stephen E. Hessler
Brian S. Lennon
Telephone: (212) 446-4800
Facsimile: (212) 446-4900

and

Anup Sathy, P.C.
Marc J. Carmel (admitted pro hac vice)
300 North LaSalle Street
Chicago, Illinois 60654-3406
Telephone: (312) 862-2000
Facsimile: (312) 862-2200

Counsel to the Debtors
and Debtors in Possession

Pg 39 of 39
EXHIBIT 8

Pg 1 of 13
d-1958667v.5
30 Rockefeller Plaza, 26th Floor
Telephone: (212) 659-7300
Facsimile: (212) 884-8211
Lenard M. Parkins (NY Bar # 4579124)
Mark J. Elmore (admitted pro hac vice)
Attorneys for Midland Loan Services,
a division of PNC Bank, N.A.

)
In re: ) Chapter 11
)
)
)

MIDLAND LOAN SERVICES LIMITED OBJECTION TO THE DISCLOSURE
STATEMENT FOR THE DEBTORS PLANS OF REORGANIZATION PURSUANT TO
CHAPTER 11 OF THE BANKRUPTCY CODE

Midland Loan Services, a division of PNC Bank, N.A., as special servicer for the
Debtors Fixed Rate Mortgage Loan (Midland),
1
by its undersigned attorneys, respectfully
submits this limited objection (the Objection) to the Disclosure Statement for the Debtors

1
Midland pursuant to the Servicing Agreement services and administers that certain secured loan
in the amount of not less than $825,402,542 plus interest, costs and fees (the Fixed Rate Mortgage
Loan) owed by certain of the Debtors. The Fixed Rate Mortgage Loan was made pursuant to that certain
loan agreement dated as of June 29, 2007 (as amended, the Fixed Rate Mortgage Loan Agreement), and
is evidenced by (i) a certain Replacement Note A-1 and (ii) a certain Replacement Note A-2, each dated
as of August 9, 2007, and each in the original principal amount of $412,701,271. Replacement Note A-1
was assigned to LaSalle Bank National Association as trustee for the holders of the LB-UBS Commercial
Mortgage Trust 2007-C6. Bank of America, N.A. was the successor-in-interest to LaSalle Bank National
Association and U.S. Bank, National Association is the successor-in-interest to Bank of America, N.A.
(the Fixed Rate Trustee). Replacement Note A-1 is currently held by the Fixed Rate Trustee.
Replacement Note A-2 was assigned to and is currently held by the trustee for the holders of the LB-UBS
Commercial Mortgage Trust 2007-C7.
Pg 2 of 13
- 2 -
Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code and in support of
thereof, respectfully states as follows:
2

INTRODUCTION
1. After reaching agreed upon bidding procedures with its two largest creditors,
obtaining a Bidding Procedures Order entered on March 11, 2011, and concluding a successful
auction pursuant thereto, the Debtors latest efforts jeopardize that progress.
3
Midland supports
the agreement embodied in the Commitment Letter (with its attachments) and the outcome of the
auction. Nothing contained in this Objection seeks to undue the results of the Auction; Midland
simply seeks to redress the infirmities in the Debtors Plans (as filed). Midlands willingness to
extend stapled financing in connection with the auction was conditioned upon the strict
adherence to the express terms of the Commitment Letter by the Debtors with respect to any
filed plan, which terms include the preservation of Midlands guaranty against Grand Prix
Holdings LLC. The Plans (as defined below), as filed on May 9, 2011, do not reflect that heavily
negotiated agreement embodied in the Commitment Letter. Many of the defects in the current
Plans had their genesis in the plans filed on April 8, 2011 and share the common flaw that each
was filed with full knowledge of Midlands opposition and lack of consent. What should have
been consensual, is instead contested.
2. Perhaps most disturbing is that the proposed Fixed/Floating Debtor and
Remaining Debtor Plans, as filed, strip Midland of its guaranty against Holdings thereby making
these plans unconfirmable on their face. The effect of such a disenfranchisement of Midlands
rights with respect to its guaranty against Holdings provides for millions of dollars to be
potentially distributed to Apollo Investment Corporation (Apollo) in violation of the

2
Terms not defined herein shall have the meaning given to them in the Plans and Disclosure Statement.

3
A copy of the Bidding Procedures Order is attached hereto as Exhibit A.
Pg 3 of 13
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Bankruptcy Codes absolute priority rule. The Debtors protestations to the contrary
notwithstanding, the Debtors actions indicate a continuing desire to take proceeds from creditors
and push them toward Apollo. Midland objects to the Debtors actions as embodied in the Plans.
BACKGROUND
3. On July 19, 2010 (the Petition Date), each of the Debtors filed a petition with
this Court under chapter 11 of the Bankruptcy Code. The Debtors are operating their businesses
and managing their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of
the Bankruptcy Code. On July 28, 2010, the United States Trustee for the Southern District of
New York appointed the official committee of unsecured creditors.
4. On March 11, 2011, the Bankruptcy Court entered the Bidding Procedures Order,
approving the Debtors entry into the Amended and Restated Binding Commitment Agreement
Regarding the Acquisition and Restructuring of Certain Subsidiaries of Innkeepers USA Trust
(the Commitment Letter), according to which the Debtors were authorized to conduct an
auction for the Debtors assets.
5. On May 2, 2011, the Debtors commenced the auction for the Fixed/Floating
Properties with competitive bidding between Five Mile/Lehman and Cerberus/Chatham. The
Debtors closed the auction for the Fixed/Floating Properties after Cerberus/Chatham submitted a
bid valued at $1.118.7 billion.
6. On May 9, 2011 at 8:44 a.m., the Debtors filed their Disclosure Statement for the
Debtors Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (the
Disclosure Statement) (Docket No. 1208) and at 8:52 a.m. the Debtors Plans of
Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (the Plans) (Docket No. 1210)
Pg 4 of 13
- 4 -
The Debtors have filed the Disclosure Statement and Plans in violation of the Commitment
Letter and Bidding Procedures Order.
4

7. The Disclosure Statement and the Plans were filed without Midland having a
reasonable opportunity to review, comment and approve their form and content as required by
the Commitment Letter and approved by the Bidding Procedures Order. In fact, drafts were first
circulated to the parties at approximately 1:15 a.m. (Eastern) on May 9, 2011 with too little
time to review, provide comments and then confirm that changes had been made. Such an effort
to avoid the parties to the Commitment Letter demonstrates the Debtors lack of sincerity with
respect to their obligations under the Commitment Letter and the Bidding Procedures Order.
8. This is unfortunate since Midland and Lehman ALI met with counsel for the
Debtors and Cerberus on Tuesday, May 3, 2011 to provide preliminary comments to an early
draft of an amended plan. Midland remained ready, willing and able to review and provide
comments upon revised drafts of the documents thereafter, including over the past weekend.
Instead of allowing a reasonable time to review and comment on a revised version of the
Disclosure Statement and the Plans, the Debtors circulated revised drafts overnight and filed
these same versions at the beginning of the business day on May 9, 2011 a mere seven hours
later. Moreover, Midland has repeatedly provided suggested language to the Debtors that would
resolve Midlands objections to the Disclosure Statement. Midlands suggestions have been
summarily rejected.
9. The robust, economic results of the auction process for the Fixed/Floating
properties vindicate Midlands efforts for a market test, and as stated Midland supports the

4
The Plans are comprised collectively of four separate and distinct plans of reorganization: the
Fixed/Floating Debtor Plan, the Anaheim Plan, the Ontario Plan and the Remaining Debtor Plan. For
purposes of this Objection, Midland will refer collectively to the Plans unless specifically noted
otherwise.
Pg 5 of 13
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auctions outcome. However, the Debtors failure to meaningfully engage Midland before filing
the Disclosure Statement and the Plan forces Midland to file this Objection to protect its rights
and interests in these bankruptcy cases.
OBJECTIONS AND ARGUMENT IN SUPPORT THEREOF
10. Midland objects to the Disclosure Statement because it describes plans of
reorganization that violate the express terms of the Commitment Letter and Bidding Procedures
Order and are patently not confirmable as a matter of law. Additionally, with the Debtors
decision to file the Disclosure Statement and Plans on the eve of the Disclosure Statement
Hearing, insufficient time has been provided to determine if the Disclosure Statement contains
adequate information for it to be approved under 11 U.S.C. 1125.
11. Courts have consistently held that the disapproval of a disclosure statement is
appropriate where it describes a plan of reorganization that is fatally flawed and therefore
unconfirmable. See In re Quigley, 377 B.R. 110, 115-116 (Bankr. S.D.N.Y. 2007) (stating [i]f
the plan is patently unconfirmable on its face, the application to approve the disclosure statement
must be denied.); see also In re 266 Wash. Assocs., 141 B.R. 275, 288 (Bankr. S.D.N.Y. 1992)
(holding that [a] disclosure statement will not be approved where, as here, it describes a plan
which is fatally flawed and thus incapable of confirmation.). Refusing to consider a disclosure
statement describing a patently unconfirmable plan is appropriate because undertaking the
burden and expense of plan distribution and vote solicitation is unwise and inappropriate if the
proposed plan could never be legally confirmed. In re Phoenix Petroleum Co., 278 B.R. 385,
394 (Bankr. E.D. Pa. 2001) (internal citations omitted).
A. Disclosure Statement and the Fixed/Floating and Remaining Debtor Plans Violate the
Commitment Letter and Bid Procedures Order and Are Patently Unconfirmable
Pg 6 of 13
- 6 -
12. The agreement embodied in the Commitment Letter addresses the treatment of the
Fixed Rate Mortgage Loan with respect to only the Fixed/Floating Debtors.
5
See Exhibit A,
Commitment Letter, Term Sheet at Treatment of Fixed Rate Mortgage Loan. Additionally,
Midlands agreement to provide a general release with respect to certain Releasing Parties
under the Fixed/Floating Plan was limited to the Fixed/Floating Debtors and such release did not
include Holdings. See Exhibit A, Commitment Letter, Term Sheet at Releases. Finally,
Midland expressly reserved its rights, claims and interest against the non-Fixed/Floating Debtors.
See Commitment Letter, Term Sheet at Releases (Additionally, the Releasing Parties reserve
all of their respective rights, claims, and interests with respect to the Excluded Debtors and all
assets of the Excluded Debtors.).
13. Notwithstanding these express provisions in the Commitment Letter, the
Disclosure Statement and the Fixed/Floating and Remaining Debtor Plans provide for a non-
consensual release of Midlands guaranty claim against Holdings. See Plan at Article VIII.E, p.
60 (The Fixed/Floating Releasing Parties encompasses all of the Debtors, including Holdings,
and is not limited to only the Fixed/Floating Debtors.). Midland has advised the Debtors on
multiple occasions that Midland has not agreed to waive its guaranty claim and release Holdings,
and no operative document exists that supports the Debtors position.
14. The Commitment Letter amends and supersedes a prior version, which
predecessor version involved all of the Debtors not just the Fixed/Floating Debtors. The
predecessor version provided for all of the value to remain in an integrated transaction thereby
preventing any value from flowing outside of the parties to that document. This concept was
superseded in the operative Commitment Letter when the Seven Sisters and the Remaining
Debtors were specifically removed. The release of Holdings was eliminated at the same time.

5
The Fixed/Floating Debtors do not include Grand Prix Holdings LLC (Holdings).
Pg 7 of 13
- 7 -
The Commitment Letter was amended and includes an integration clause making it abundantly
clear that the predecessor version, which included a release of Holdings, is no longer in effect.
15. Midland is the successor beneficiary under that certain Guaranty by Grand Prix
Holdings LLC for the benefit of Lehman ALI Inc. executed as of June 29, 2007 (the
Guaranty). Under the Guaranty, Holdings guaranteed the payment and performance of the
borrowers obligations under the Fixed Rate Mortgage Loan. Accordingly, Midland has a valid
unsecured claim against Holdings. Holdings guaranty obligation to Midland has been
acknowledged beyond question since the entry of the Final Cash Collateral Order (Docket No.
402, pp. 4 & 5), which included the following Court findings:
(collectively, the Fixed Rate Debtors) acknowledge and agree that they are
party to that certain Loan Agreement, dated as of June 29, 2007 (as amended,
restated, replaced, supplemented or otherwise modified from time to time, and
together with such supporting and ancillary documents thereto, the Fixed
Rate Mortgage Loan Agreement), among the Fixed Rate Debtors, as
borrowers thereunder, Grand Prix Fixed Lessee LLC, as operating lessee,
Grand Prix Holdings, LLC, as guarantor, and Lehman ALI Inc., as the original
lender thereunder (the Fixed Rate Lender).
6

16. Midlands deficiency claim against Holdings will be approximately $100 million,
which represents the approximate remaining amounts due under the Fixed Rate Mortgage Loan
after the plan contemplated in the auction is implemented, and Midlands claim against Holdings
is allowable in that amount. Midlands claim against Holdings is significant in these cases
because Holdings is the owner of substantially all of the Class A Preferred Shares of Innkeepers
USA Trust and under the Plans, value will flow to Holdings that can be captured by Midland.

6
The Challenge Period for any party (including the Creditors Committee) to challenge the Courts
findings regarding the Fixed Rate Mortgage Loan has expired and the Courts findings regarding the same
are now final.

Pg 8 of 13
- 8 -
See Amended Declaration of Dennis Craven, Docket No. 33, 23 and 38).
7
Based on the
information reflected on p. 15 of the Disclosure Statement, it appears that the estimated
distribution to Holdings based on the Series A Preferred shares is between $8.1 million and $3.7
million (being either 7.0% or 3.2% of the estimated interests of $115,812,294). The complete
disenfranchisement of Midlands guaranty claim and any recovery therefrom is patently
improper. For ease of reference, Holdings ownership of Class A Preferred Shares and the
resulting surplus flow is shown in the chart attached hereto as Exhibit B.
17. This structure effectively places Holdings creditors (including Midland) with the
same priority as the Ad Hoc Committee of Preferred Shareholders and compels Holdings to
obtain recoveries for the benefit of its creditors or risk breaching its fiduciary duties. It also
violates the absolute priority rule. Instead, the Fixed/Floating and Remaining Debtor Plans
eliminate Holdings obligations to Midland by stripping the Guaranty without compensation
through elimination of any recovery for a deficiency claim or guaranty claim.
18. Through the claims objection and resolution process, the Bankruptcy Code
provides for procedures and protocols for the Debtors to dispute claims. Further, the
Fixed/Floating Debtor and the Remaining Debtor Plans already contemplate a claims resolution
process. No reason exists to ignore these processes currently contemplated and instead
unilaterally deprive Midland of its guaranty claim.
B. The Disclosure Statement Describes a Plan that Violates the Absolute Priority Rule
19. The Debtors unilateral and uncompensated elimination of Midlands guaranty
claim against Holdings, with absolutely no consideration in exchange therefor, has opened the

7
The statement on p. 41 of the original Disclosure Statement that Apollo owns 100% of the
common equity interests in Debtor Grand Prix Holdings, LLC and the majority of the Innkeepers USA
Trust Series A Preferred Interests is apparently incorrect and is refuted by other statements in that
Disclosure Statement (see pp. 18 & 22).

Pg 9 of 13
- 9 -
door for funds to flow to Apollo, as the equity owner of Holdings, instead of being distributed to
Holdings creditors, including Midland on its guaranty claim. Any proposed distribution scheme
under the Remaining Debtor Plan that would result in an equity holder of Holdings receiving
value before Midlands unsecured claim against Holdings is paid in full clearly violates the
absolute priority rule. See 11 U.S.C. 1129(b)(2)(B)(ii). The Debtors cannot proceed with the
fatally flawed Remaining Debtor Plan because it is unconfirmable due to that plans violation of
the absolute priority rule.
C. The Debtors Plans are Not Confirmable Under 11 U.S.C. 1129(a)(4)
20. None of the Debtors Plans satisfy Bankruptcy Code section 1129(a)(4). In order
to confirm a plan of reorganization the Debtors must satisfy all the conditions of 11 U.S.C.
1129. Bankruptcy Code Section 1129(a)(4) requires that certain professional fees and expenses
to be paid by a plan proponent be subject to court review and approval.
8
Courts have held that
satisfaction of 1129(a)(4) occurs when the plan provides for court review and approval of
professional fees prior to the plans date of effectiveness. See In re S. Canaan Cellular
Investments, Inc., 427 B.R. 44, 83-84 (Bankr. E.D.Pa. 2010) (stating [w]here a plan provides for
court review of professional fees to be paid by the plan proponent for services rendered prior to
the effective date of the plan, then the requirements of section 1129(a)(4) are met.) (emphasis
added); see also In re Allegheny International, Inc., 134 B.R. 814, 818 (Bankr. W.D.Pa. 1991).
In fact, this Court recently confirmed a plan involving the Debtors counsel that required court

8
Any payment made or to be made by the proponent, by the debtor, or by a person issuing
securities or acquiring property under the plan, for services or for costs and expenses in or in connection
with the case, or in connection with the plan and incident to the case, has been approved by, or is subject
to the approval of, the court as reasonable. 11 U.S.C. 1129(a)(4).

Pg 10 of 13
- 10 -
supervision of professional fees and expenses through the effective date of the plan.
9
Why in
this case are the Debtors so stridently avoiding this requirement to file fee applications?
Further, the Plans improperly attempt to circumvent the limits for funding of professional fees
from cash collateral as reflected in the Commitment Letter and the Cash Collateral Orders, as
amended.
21. The Debtors Plans fail to require the Courts approval of fees and expenses
through the Effective Date. The Debtors Plans only require this Courts approval of
professional fees and expenses through the Confirmation Date and thereafter, professionals fees
and expenses are paid in the ordinary course of business without supervision. This fails to
satisfy section 1129(a)(4) and therefore renders the Plans fatally flawed.
D. Insufficient Time has been Provided to Determine if the Disclosure Statement Contains
Adequate Information Required for Approval

22. Because the Debtors waited till the eve of the May 10, 2011 Disclosure Statement
Hearing before filing the Disclosure Statement and the Plans, Midland has not had sufficient
time to conduct a comprehensive review to insure that the Disclosure Statement contains
adequate information as required by 11 U.S.C. 1125. As such, Midland reserves its rights to
assert additional objections to the Disclosure Statement and Plans.

9
See Section II(B)(4) of the Third Amended Joint Plan Pursuant to Chapter 11 of the Bankruptcy
Code dated September 20, 2010 of In re Neff Corp., et. al. case no. 10-12610 (SCC) (Neff Corp. Docket
No. 443) that states: Except as otherwise specifically provided in the Plan, on and after the Effective
Date, the Debtors or Purchaser, as applicable, shall, in the ordinary course of business and without any
further notice to or action, order, or approval of the Bankruptcy Court, pay in Cash the reasonable legal,
professional, or other fees and expenses related to implementation and Consummation of the Plan
incurred by the Debtors or Purchaser, as applicable. Upon the Effective Date, any requirement that
Professionals comply with sections 327 through 331 and 1103 of the Bankruptcy Code or the Interim
Compensation Order in seeking retention or compensation for services rendered after such date shall
terminate, and the Purchaser may employ an pay any Professional in the ordinary course of business
without any further notice to or action, order, or approval of the Bankruptcy Court. (emphasis added).
Pg 11 of 13
- 11 -
WHEREFORE, Midland requests that the Court enter an order (i) denying approval of
the Disclosure Statement and (ii) granting Midland such other and further relief to which it is
entitled.
Dated: May 9, 2011
New York, New York


/s/ John D. Penn
Lenard M. Parkins (NY Bar #4579124)
th
Floor
Telephone No.: (212) 659-7300
Facsimile No.: (212) 884-8211

- and

Haynes and Boone, LLP
201 Main Street, Suite 2200
Fort Worth, Texas 76102
Telephone No.: (817) 347-6610
Facsimile No.: (817) 348-2300

Pg 12 of 13

EXHIBIT A
Pg 13 of 13
EXHIBIT 9

Pg 1 of 19

)
In re: ) Chapter 11
)
)
Debtors.
1
) Jointly Administered
)


Plaintiffs,
v.

CERBERUS SERIES FOUR HOLDINGS, LLC,
CHATHAM LODGING TRUST,
INK ACQUISITION LLC, and
INK ACQUISITION II LLC,
Defendants.

)
) Adversary Proceeding
) Case No. 11-02557
)
)
)
)
)
)
)
)
)

PLAINTIFFS MOTION IN LIMINE TO EXCLUDE THE
EXPERT TESTIMONY OF ERIC TALLEY AND ROBERT MANZO

1
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 on 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.
Pg 2 of 19
1

The Plaintiffs respectfully submit this Motion to Exclude the Expert Testimony of Eric
Talley and Robert Manzo. Rather than confronting the facts of this case by focusing on what the
binding and irrevocable Commitment Letter and Term Sheet do and do not provide, the
Defendants have proffered these witnesses to offer expert testimony regarding the custom-and-
usage of material adverse effect provisions and liquidated-damages provisions in different
agreements from different dealsin an attempt to sway the Courts interpretation of this
contract.
The problem for the Defendants, however, is that well-established precedent strongly
disfavors the use of custom-and-usage evidence as a general matter, and squarely prohibits the
use of expert testimony on questions of law such as how a contract should be construed. Indeed,
the Defendants effort to have experts opine on the alleged custom-and-practice of drafting deal
agreements is particularly improper, because this case is about a restructuring deal that falls
squarely within a U.S. Bankruptcy Courts unquestioned expertise: interpreting contracts like this
one (particularly an agreement that is so integral to the Chapter 11 process) is exactly what the
Court does every day as part of its legal function. For the reasons explained in more detail
below, the Court should exclude these expert witnesses so that the trial can focus on the words in
this contractnot on the alleged custom-and-usage of how the Defendants might wish they had
worded the deal.
BACKGROUND
As the parties approach trial in this Adversary Proceeding, both sides have proffered
economic experts to opine on whether the financial characteristics of the Fixed/Floating Debtors
have changedjust as one would expect in a material adverse effect case. Similarly, the
Plaintiffs have proffered a lodging-industry expert whose quantitative analysis shows that the
Pg 3 of 19
2

prospects of the Fixed/Floating Debtors 64 hotels remain brightunderscoring that the
Defendants do not and cannot establish an MAE.
For their part, however, the Defendants have sought to introduce two additional experts
to opine on the custom and usage of MAE provisions and liquidated-damages clauses in other
deals, to suggest how the Court should read and interpret the contract here:
Eric Talleya Berkeley law professor who has never drafted or negotiated an MAE
because he has never practiced lawseeks to opine on the nature and purpose of
MAE provisions generally, and then claims that the MAE provision here is buyer
friendly based on his views about industry custom and usage. Professor Talleys
opinions literally consist of nothing more than counting the number of words and
phrases in other MAEs from other contracts, comparing those counts to the MAE
provision here, and then adding the gloss of his qualitative impressionsnone of
which begins to satisfy threshold requirements of validity and reliability under
Daubert. Professor Talley cannot point to any court that has qualified him as an
expert on the purpose, scope, or interpretation of MAE provisions, or accepted the
data and methodology he used in this casefor good reason.
Robert Manzo is an accountant whose restructuring experience does not include
actually drafting liquidated-damages provisions or integration clauses, because he is
not and has never been a practicing attorney. The Defendants have nonetheless hired
Mr. Manzo as a custom-and-usage expert to say that the existence of a limitation on
remedies in the Commitment Letter can be inferredeven though the Defendants
themselves were the ones who affirmatively struck a liquidated-damages clause
during the drafting of the contract. As Mr. Manzo admits, however, there is no
governing custom and usage on this score because every transaction is different,
and these questions of contractual interpretation are really up to the Court.
Discovery has confirmed that this really is what the opinions in Professor Talleys and
Mr. Manzos expert reports are about, and that no court has ever accepted them as experts in the
way that the Defendants seek to use them here. At bottom, allowing these witnesses to testify as
experts to affect how the Court interprets the contract at issue would be unprecedented,
especially in a case about a bankruptcy deal being heard by a U.S. Bankruptcy Court. The
Plaintiffs respectfully submit that this expert testimony must be excluded under settled federal
law.
Pg 4 of 19
3

ARGUMENT
Three settled evidentiary rules squarely preclude the admission of Professor Talleys and
Mr. Manzos testimony. First, expert testimony that expresses a legal conclusion is
inadmissible. See, e.g., In re IPO Sec. Litig., 174 F. Supp. 2d 61, 63-64 (S.D.N.Y. 2001) (The
rule prohibiting experts from providing their legal opinions or conclusions is so well-established
that it is often deemed a basic premise or assumption of evidence lawa kind of axiomatic
principle. (quotation omitted)); F.H. Krear & Co. v. Nineteen Named Trs., 810 F.2d 1250, 1258
(2d Cir. 1987) (holding that district court properly precluded attorney from testifying that
contracts were unenforceable for lack of essential terms because [i]t is not for witnesses to
instruct the jury as to applicable principles of law, but for the judge (citation omitted)); see also
Burkhart v. Washington Metro. Area Transit Auth., 112 F.3d 1207, 1213 (D.C. Cir. 1997) (Each
courtroom comes equipped with a legal expert, called a judge, and it is his or her province
alone to instruct the jury on the relevant legal standards.). The point here is simple: although a
qualified expert may provide an opinion to help a jury or a judge understand [] particular
fact[s], the expert may not opine on questions of law by veiling them under the guise of their
claimed expertise. In re IPO, 174 F. Supp. 2d at 64.
Second, under New York law, a court may not consider extrinsic evidence to vary,
contradict, supplement, or explain the terms of an unambiguous and integrated contract. See,
e.g., W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642-43 (N.Y. 1990) ([E]xtrinsic
and parol evidence is not admissible to create an ambiguity in a written agreement which is
complete and clear and unambiguous upon its face. (citation omitted)); Muze, Inc. v. Digital
On-Demand, Inc., 123 F. Supp. 2d 118, 128 n.9 (S.D.N.Y. 2000). That is equally true for
evidence of custom and usage. See, e.g., In re W. Union Tel. Co., 299 N.Y. 177, 184 (1949)
(stating that evidence of custom and usage is not permitted for the purpose of contradicting the
Pg 5 of 19
4

agreements which the parties have made); Gordon & Breach Sci. Publishers, Inc. v. N.Y. Sys.
Exch., Inc., 267 A.D.2d 52, 52 (N.Y. App. Div. 1999); Salzman v. Bowyer Prods., Inc.,
42 A.D.2d 531, 531 (N.Y. App. Div. 1973) ([P]roof of general custom and usage may not be
interposed to alter, vary or contradict clear and unambiguous contractual provisions.); S.N.J.
Rail Grp., LLC v. Lumbermens Mut. Cas. Co., No. 06-4946, 2007 WL 2609894, at *1 (S.D.N.Y.
Sept. 5, 2007). Because the terms of the May 16, 2011 Commitment Letter and Term Sheet are
complete and unambiguous, evidence of the alleged custom and practice used to draft or evaluate
different contracts from different deals involving different parties is inadmissible. See generally
Pl.s Pre-Trial Brief [Dkt. No. 59].
Third, a witness may not opine as an expert on any topic unless the experts qualifications
and opinions satisfy the rigorous gate-keeping requirements in Federal Rule of Evidence 702 and
the Supreme Courts trilogy of cases interpreting that rule. See Fed. R. Evid. 702; Daubert v.
Merrell Dow Pharms., Inc., 509 U.S. 579 (1993); Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997);
Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999).
2
This means that the party presenting
expert testimony must satisfy three separate and independent criteria:
The witness must be qualified as an expert by knowledge, skill, experience, training,
or education. Fed. R. Evid. 702.
The witnesss testimony must assist the trier of fact to understand or determine a
question of factthrough testimony that is actually relevant to (meaning it fits) the
issues in dispute. Id.; Daubert, 509 U.S. at 591 (Expert testimony which does not
relate to any issue in the case is not relevant and, ergo, non-helpful.).
The witnesss testimony must be reliable, in that it is based upon sufficient facts or
data and is the product of reliable principles and methods that were applied

2
Rule 702 states: If scientific, technical, or other specialized knowledge will assist the trier of fact to understand
the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience,
training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based
upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the
witness has applied the principles and methods reliably to the facts of the case.
Pg 6 of 19
5

reliably to the facts of the case. Fed. R. Evid. 702; Kumho Tire, 526 U.S. at 149;
Joiner, 522 U.S. at 146 (Nothing in either Daubert or the Federal Rules of Evidence
requires a district court to admit opinion evidence that is connected to existing data
only by the ipse dixit of the expert.).
The relevance and reliability requirements apply to all expert testimony, including in
U.S. Bankruptcy Courts. See Kumho Tire, 526 U.S. at 147 (holding that the trial judges special
obligation to confirm relevance and reliability under Rule 702 applies to all expert
testimony); In re Worldcom, Inc., 371 B.R. 33, 41 (Bankr. S.D.N.Y. 2007) (excluding expert
under Rule 702 and Daubert because experts survey research and other data were unreliable).
Here, Professor Talleys and Mr. Manzos opinion testimony violates all of these
threshold legal principles, and thus their testimony should be excluded.
3

I. ERIC TALLEYS TESTIMONY IS NOT ADMISSIBLE.
The Defendants proposed use of a Berkeley law professor to opine on the nature and
purpose of MAEs and to assert that this MAE provision is buyer friendly should be rejected.
As a threshold matter, Professor Talleys opinion about the nature and purpose of
MAEs has no relevance to the case: this is not a case about why companies include MAEs in
corporate transactions generally, or even about why there is an MAE provision here. The
question is whether this MAE provision has been triggered, which is a question of law for the
Court.
Talleys opinion that the MAE provision is buyer-friendly, and that macroeconomic
events are presumptively included in MAEs unless expressly excluded, fares even worse. (See

3
Both sides financial/economic expertsProfessor Zmijewski for the Debtors and Professor Fischel for the
Defendantsrefer to the MAE provision as background in their reports, to explain why they performed the
computations that they did. None of that background (by either sides financial/economic expert) resembles
what the Defendants seek to do with Professor Talley and Mr. Manzo, whose very purpose is to present custom-
and-usage evidence to influence the Courts construction of the MAE provision (Talley) and its assessment of
whether a liquidated damages provision should be inferred to be part of this deal (Manzo).
Pg 7 of 19
6

Talley Report 45-47.
4
) Talleys methodology consisted only of counting the number of words
and phrases in other MAEs from other contracts, comparing those counts to the MAE provision
here, and adding his qualitative impression from a totality of interviews with practitioners and
academics (none of which he conducted specifically for this case). (See Talley Dep. 119:11-17,
143:17-144:5, attached as Exhibit A.) Here is how he explained it during his deposition:
Talleys Quantitative Methodology
Q. Does your quantitative assessment for your report in this case consist of
anything other than the numerical count of MAE clauses and provisions
by category and the numerical count of word frequency as described in
paragraphs 39 and 44 of your report?
A. Not to my knowledge.
(Id. at 138:8-14).

Talleys Qualitative Methodology
Q. You are drawing upon, as you put it, a Impression from a totality of
interviews over the years; right?
MR. SWARTZ: Objection.
A. Yes.
Q. You yourself have never worked on an M&A transaction as [a] practicing
lawyer; fair?
A. Thats correct.
(Id. at 131:24-135:16.)
Not surprisingly, Professor Talley concedes that no court or tribunal has ever qualified
him as an expert on the scope, interpretation, or purpose of an MAE provision (id. at 14:4-17),
and he is not aware of any court that has accepted the data and methodology he employed in his
report (id. at 95:9-13 (Q. Certainly no court has ever accepted you as an expert to apply your
methodology of word counts to resolve a material adverse effect dispute; correct? A. Correct.)).
No court has ever permitted Professor Talley to apply his qualitative impressions about an
MAE provision and a numerical count of its words and phrases to influence how a court
construes or considers such a clause in an acquisition dispute. This Court should not be the first.

4
The Talley and Manzo Expert Reports were attached as Exhibits 33 and 32, respectively, to Defendants
Pre-Trial Brief.
Pg 8 of 19
7

A. Professor Talleys Opinion That The MAE Provision In The May 16, 2011
Commitment Letter Is Buyer Friendly Is An Inadmissible Legal
Conclusion.
As an initial matter, Professor Talleys opinions about whether the MAE provision is
buyer friendly and whether presumptions apply to its interpretation are squarely questions of
law. This Courtnot an expertmust determine the scope and meaning of the MAE provision
by interpreting the plain language of the provision and considering the applicable law. See, e.g.,
F.H. Krear, 810 F.2d at 1258 (holding that the district court properly precluded the attorney from
testifying that contracts were unenforceable for lack of essential terms). It is not Professor
Talleys place to step into that rolefor which this Court needs no expert assistance.
While Professor Talley claims to recognize that interpreting the MAE provision in this
case is ultimately something for the court, (Talley Dep. 27:5-10), that is exactly the role that he
seeks to play through his report, by opining that the MAE provision allows much greater
latitude for a buyers termination right than does a MAC/MAE that turns solely on hard, current
indicia, (Talley Report 31), and that it provides a low threshold for triggering a MAC/MAE,
requiring a degree of confidence that falls far short of that contained in most other MAC/MAEs,
(id. 32). These assertions (and others like them) are nothing more than legal opinions that
Professor Talley cannot offer at trial. And while he tried to re-characterize his opinions at the
end of his deposition by sayingon questioning from the Defendants who retained himthat
his views reflect an economic interpretation of the MAE provision, he admitted that the only
economic computations in his report consisted of counting the number and frequency of words
and phrases across different MAEs. His testimony about the purported breadth of the MAE
provision in the Commitment Letter and Term Sheet therefore should be excluded.
Pg 9 of 19
8

B. Professor Talleys Opinion Testimony Regarding The Custom And Usage
of MAC Provisions Is Inadmissible.
While Professor Talley also asserts that his opinions are admissible from a custom-and-
usage perspective, his deposition testimony shows why that, too, is incorrect. (Talley Dep.
8:14-18, 204:15-24.) As an initial matter, he admits that there is no uniform standard in place for
structuring MAE provisions:
Q. You say the usual custom and usage is to have exclusionary phrases
instead of affirmative phrases in market MAEs; is that right?
A. Thats my understanding, yes.
Q. Youre not saying that parties are required to structure MAEs that way,
they can do it with affirmative clauses instead of exclusionary clauses if
they want to; correct?
A. If they so chose, they could do that.
Q. In fact youve seen other examples of agreements that do it that way rather
than just using exclusionary clauses; correct?
A. There is lots of variation on both affirmative provisions and exclusionary
language.
(Talley Dep. 210:2-20 (emphasis added).) This proves the point: it goes without saying that
there cannot be a uniform custom for drafting MAEs if they are actually marked by lots of
variationand New York law squarely precludes custom-and-usage evidence unless the
claimed custom-and-practice is fixed and invariable. See, e.g., British Intl Ins. Co. v. Seguros
La Republica, S.A., 342 F.3d 78, 84 (2d Cir. 2003) (The trade usage must be so well settled, so
uniformly acted upon, and so long continued as to raise a fair presumption that it was known to
both contracting parties and that they contracted in reference thereto. (quotation omitted)); see
also id. (explaining that the proponent of custom-and-usage evidence must establish that the
customs existence was so notorious that [the parties] should have been aware of it.).
In any event, Professor Talley cannot offer custom-and-usage testimony to explain the
terms of the May 16 Commitment Letter and Term Sheet unless their terms are ambiguous.
See, e.g., W.W.W. Assocs., 566 N.E.2d at 642-43; Salzman, 42 A.D.2d at 531 ([P]roof of general
Pg 10 of 19
9

custom and usage may not be interposed to alter, vary or contradict clear and unambiguous
contractual provisions.). For this reason, Professor Talleys assertion that it is conventional
practice to allocate economic, market, and industry risks through a carve out rather than an
affirmative MAC/MAE is barred as a matter of law. (See Talley Report 34.) This Court can
and should apply the plain terms of the contract to the facts of this case, consistent with
applicable law. Professor Talley cannot tell the Court how to construe the contract by veiling
legal opinions or interpretative presumptions under the guise of custom and usage.
C. Professor Talleys Opinion Testimony Is Inadmissible Under Rule 702.
Finally, Professor Talleys opinion testimony should be excluded because it does not
satisfy the relevance and reliability requirements of Rule 702 and Daubert. These shortcomings
in his proffered testimony are explained in turn below.
1. Professor Talleys Testimony Would Not Assist The Trier Of Fact Because
It Does Not Fit This Case.
As explained in Daubert, Rule 702s mandate that expert testimony assist the trier of
fact is primarily a question of relevance. See Daubert, 509 U.S. at 591 (Expert testimony
which does not relate to any issue in the case is not relevant and, ergo, non-helpful.). As an
initial matter, Professor Talleys first opinion about the nature and purpose of MAEs is
irrelevant to the issues in this case, and his second opinion about what he claims to be the
buyer-friendly nature of this MAE provision is likewise inadmissible because the law prohibits
custom-and-usage testimony (even from an expert) to opine on the meaning of a contract with
complete and unambiguous terms.
Although Professor Talleys academic research seeks to offer predictive models about
the presence or absence of MAE provisions and carve-outs, there is no need to predict the
elements of the MAE provision in this case because its terms are plainly before the Court.
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(Talley Dep. 27:23-28:2.) The central question is whether the MAE provision has been
triggered, and Talley expressly disclaims any opinions on that point:
Q. Does your first opinion tell us anything about whether the MAE clause in
this case has been satisfied so as to permit termination?
A. This is not what I was asked to opine on.
Q. And it is not what youre opining on; correct?
A. Thats correct.
* * *
Q. And youd agree that your views about the breadth or narrowness of the
MAE clause does not tell us whether an MAE has occurred; correct?
A. I dont know whether one has occurred or not. Thats not part of what I
was asked to render an opinion on.
(Talley Dep. 24:17-25:2, 26:11-18 (emphasis added).) Professor Talleys opinions do not assist
the trier of fact (here, this Court) to to determine a fact in issue given that they do notand
were not meant toanswer the question at hand.
2. Professor Talleys Testimony Is Unreliable.
Moreover, while Professor Talley asserts that he applied both a qualitative and a
quantitative methodology to reach his opinions, neither method passes muster under Daubert.
Talleys qualitative methodology is limited to applying the gloss of his impressions
regarding the scope of the MAE in this caseno more and no less. And that impression is
based solely on unstructured interviews he conducted to gain background knowledge for a
law review article he wrote several years ago. (See, e.g., Talley Dep. 120:7-10.) He did not
conduct any interviews as part of his analysis in this case (id. at 144:6-9), and he has no
first-hand knowledge about drafting or negotiating MAEs because he has never practiced law.
Even if Professor Talleys impressions from his career in academia were relevant to the
question at hand, [a]n anecdotal account of one experts experience, however extensive or
impressive the numbers it encompasses, does not by itself equate to a methodology, let alone one
Pg 12 of 19
11

generally accepted by the relevant professional community. Berk v. St. Vincents Hosp. & Med.
Ctr., 380 F. Supp. 2d 334, 354 (S.D.N.Y. 2005).
Professor Talleys quantitative methodology fares no better, because he admits that the
data he relied on for his expert report consists solely of the following:
Talley considered other MAEs from other acquisition agreements reached only during
2007 and 2008. (See Talley Dep. 69:4-7.) Professor Talley did not collect the
sample, and the law firm that did so has warned that its process was not technically
scientific. (Id. 73:18-74:6 (emphasis added).) Professor Talleys nascent efforts to
test the representativeness of the sampling are still in progress. (Id. 142:10-20.)
An unidentified team of attorneys hand-coded these agreements to identify the
presence or absence of different categories of MAE language. Talley admits that
hand-coded data raises concerns generally about internal reliability because it relies
on the subjective judgment of the individual coder. (Id. 85:10-22.)
The coding protocol also focused only on the contractual definition of each MAE,
even though other parts of a contract (e.g., closing conditions) might govern when an
MAE is or is not deemed to occur. (Id. 84:19-85:9.)
The protocol also assigned equal weight to each aspect of an MAE provision: one
broad clause would carry less weight than two narrow clauseseven though the
effect of the provisions might have been quite the opposite. (Id. 81:17-82:19.)
Professor Talley himself demonstrated the problems with his approach during his
deposition. His report (like his articles) purports to quote the MAE language from Hexion v.
Huntsman in its entirety (Talley Report 24)describing it as a typical provision before
claiming that the MAE provision in this case is unusually broad (see id. 43 (The [Innkeepers]
MAC/MAE invoking reasonable expectations language is also relatively rare). When
confronted with the Hexion v. Huntsman acquisition agreement during his deposition, however,
Talley admitted that he failed to quote additional language that broadened the scope of the clause
in that caseand is similar to the language in this caseeven though the Hexion court still
found no MAE occurred:
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12

Q. So your Expert Report in this case provides to the court what you say is
the MAC/MAE from that deal reproduced in its entirety below.
Right?
A. That is the definition of the MAC/MAE in that deal.
MR. CHEUNG: Object to the form.
* * *
Q. To the extent you offer the expert opinion that reasonable expectations
language is relatively rare you dont reveal in the text of your report that
Hexion versus Huntsman had reasonable expectations as well; do you?
MR. CHEUNG: Objection.
A. I dont reveal one way or the other, right.
Q. Indeed Hexion versus Huntsman was a case that found no MAE occurred;
right?
A. Thats correct.
(Talley Dep. 163:25-165:12; id. at 162:12-21 (If you wanted to know whether a deal agreement
had reasonable expectations language relating to an MAE, you would want to consider the
language we showed you from page A-47 of the Hexion/Huntsman agreement; right? A. I think
you might well, yes. Q. You wouldnt want to exclude it; would you? A. No. Not necessarily at
all.).)
All of this illustrates what Professor Talley admits to be the problems inherent in using a
hand-coded data set. (Id. at 154:14-20 (Q. Would the hand coders who developed the 528
agreement data set look at anything beyond the paragraph quoted on page 6 when analyzing the
Hexion versus Huntsman deal? A. I dont believe they would look beyond the provision that
was presented to them for coding purposes.).) It also explains why no court has ever accepted
the use of the data and methodology that he seeks to employ here. These defects require the
exclusion of Talleys opinions under Rule 702 and Daubert.
II. ROBERT MANZOS TESTIMONY IS NOT ADMISSIBLE.
While Mr. Manzo certainly has experience as a financial advisor on transactions
involving troubled assets, the opinion for which the Defendants seek to offer him is
inadmissibleand far outside his expertise. Defendants have offered Mr. Manzo as a custom-
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13

and-usage expert to say that a limitation on remedies should be inferred to be part of this deal,
because he says that the absence of a liquidated-damages provision would be a material term that
restructuring professionals generally would have flagged when evaluating competing bids.
The problem for the Defendants, however, is that the custom and practice of how
restructuring professionals evaluate competing bids and their liquidated-damages provisions in
other deals is not a relevant issue in this case. Even if there were a usual practice on that score,
this case centers on the terms of the specific contract that these parties signed, and Mr. Manzo
cannot offer custom-and-usage testimony to vary what the contract does and does not say. It is
undisputed that the Commitment Letter and Term Sheet do not contain a liquidated-damages
provision or other limitation on remedies. It is undisputed that the contract contains an
integration clause that does not incorporate the Bidding Procedures Order by reference. And the
question whether a liquidated-damages provision can nonetheless be inferred to be part of the
contract presents what is exclusively a question of law for the Court.
Under these circumstances, Mr. Manzos testimony is improper for several reasons.
First, whether the Commitment Letter and Term Sheet contain a limitation on remedieseither
expressly or via incorporation by referenceis a question of law for the Court to decide.
Mr. Manzos lay opinion on that question will not assist this Court. Second, neither the
Defendants nor Mr. Manzo contends that the contract is ambiguous, and therefore any custom-
and-usage testimony is wholly irrelevant as a matter of law. Third, even if there were an
ambiguity (which the Defendants do not even allege), Mr. Manzos approach fails the
overarching requirements of Rule 702 and Daubertespecially because he admits that every
transaction is different, which means there is no uniform custom and usage on which he can
properly opine.
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A. Mr. Manzos Opinion That The May 16, 2011 Commitment Letter
Incorporates A Liquidated-Damages Provision By Reference Is An
Inadmissible Legal Conclusion.
As a threshold matter, Mr. Manzos opinion is inadmissible because federal courts have
long made clear that expert opinions may not embody legal conclusions. In re IPO, 174 F. Supp.
2d at 63-64. Although Mr. Manzos report purports to be based on the custom and practice of
restructuring professionals in assessing liquidated-damages provisions, Mr. Manzos deposition
made clear that his opinion is really a legal conclusion about whether the Bidding Procedures
Order was incorporated into the Commitment Letter by reference:
To me reading [the Commitment Letter] with the reference that I
saw to the Bidding Procedures and when I go to that Section 8 [of
the Bidding Procedures], the terms liquidated damages are in there.
Again from a business point of view, not having been involved at
the table it appeared to me that was incorporated by reference.
(Manzo Dep. 140:4-11, attached as Exhibit B.)
The key point here is that the interpretation of legal documents and the assessment of
how they fit together present classic questions of law for the Courtincluding, in this case,
whether one binding agreement incorporates language from another document that the parties did
not integrate. Indeed, even Mr. Manzo admits that the question of incorporation-by-reference
certainly [] is a legal question. (Manzo Dep. 130:21-22.) Regardless of Mr. Manzos financial
expertise in working with troubled companies, the Defendants cannot use him as a vehicle to
advocate legal conclusions about the available remedies in this case.
Indeed, the Defendants proposed use of Mr. Manzo also violates the threshold rule that
custom-and-usage testimony first requires that a contract be ambiguous. Under New York law, a
court may not consider extrinsic evidence to vary, contradict, add to, or explain the terms of an
unambiguous and integrated contractand that rule fully applies to custom-and-usage testimony
as well. See Salzman, 42 A.D.2d at 531; W.W.W. Assocs., 566 N.E.2d at 642-43.
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Here, the Defendants do not identify a single ambiguity in the contract, their Pre-Trial
Brief admits that the contract is unambiguous, and Mr. Manzo likewise agreed during his
deposition. (Manzo Dep. 180-81.) Under these circumstances, the use of Mr. Manzos custom-
and-usage testimony is inadmissible as a matter of law.
B. Mr. Manzos Opinion Testimony Is Inadmissible Under Daubert.
In addition, Mr. Manzos opinion fails to satisfy the threshold requirements for expert
testimony under Rule 702 and Daubert. Expert opinion is admissible only where it employs a
valid and reliable methodology to reach a conclusion that will assist the trier of fact to
understand or determine a question of fact. Fed. R. Evid. 702; Daubert, 509 U.S. at 591. The
Defendants cannot begin to make that rigorous showing.
First, Mr. Manzo admits that he did not apply any particular method of analysis to reach
the opinion he seeks to offer. Despite his view that restructuring professionals would have
evaluated the presence or absence of a liquidated damages provision, he admits that he did not
speak to any financial restructuring professionals in this matter (Manzo Dep. 54:21-25), and
thus ha[s] no knowledge of how [the Debtors] evaluated the competing bids in this case (id.
at 146:5-6). Nor did he review any documents or materials about the other deals that he uses to
opine about custom and usage, or speak with other restructuring professionals in order to form
his opinions. (Id. at 54:2-5, 17-20 (Q. You didnt review any documents or materials regarding
those sales transactions to form your opinion here today, right? A. That is correct.); id.
at 54:17-20 (Q. Did you discuss the custom and practice of restructuring professionals with
anyone in reaching your opinion in your report? A. No.).) With all due respect to Mr. Manzos
financial expertise, the approach used here not only fails to employ a reliable methodologyit
uses no real methodology at all.
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16

Second, Mr. Manzo admits that he cannot point to any universal custom and practice that
fits the issues in this case. Daubert, 509 U.S. at 591 (Expert testimony which does not relate
to any issue in the case is not relevant and, ergo, non-helpful.). Again, the question of how
restructuring professionals evaluate the presence or absence of liquidated-damages provisions
has no relevance to whether this contract has such a provision, because any alleged custom or
practice cannot trump the terms of what the contract does or does not say. Nor can Mr. Manzo
really point to any universal custom and practice on this score:
Mr. Manzo agrees that without having discussions with any practitioners, I wouldnt
know whether they would or wouldnt have a similar view. (Manzo Dep. 62:15-17.)
He agrees that every transaction is different and every negotiation is different.
(Id. at 36:5-11.)
He cannot say that all restructuring professionals would evaluate the elimination of a
liquidated damages provision the same: Potentially, potentially, potentially not.
(Id. at 144:12-13.)
Custom-and-usage evidence applies only to a practice that is so general, notorious, universal
and well established that knowledge of it will be presumed. See Richard A. Lord, 12 Williston
on Contracts 35:15 (4th ed. 2007); British Intl, 342 F.3d at 84. Mr. Manzo concedes that his
view about how restructuring professionals might evaluate the liquidated-damages provisions in
competing bids does not meet this standardhe wouldnt know whether they would or
wouldnt have a similar viewall of which renders his opinion irrelevant and inadmissible
under Daubert.
Third, the Defendants cannot argue that Mr. Manzos testimony is necessary to assist the
trier of fact in deciding the range of remedies available for the Defendants breach. Fed. R.
Evid. 702. After all, this is not a case before a jury unfamiliar with restructuring agreements: it
will be heard by a U.S. Bankruptcy Court with its own specialized experience and expertise from
interpreting such agreements each and every day. (Manzo Dep. 70:25-71:3 (Q. Mr. Manzo, do
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17

you know the judge here? A. I know Judge Chapmans name, yes.); id. at 71:10-14 (Q. But
you understand that Judge Chapman is a restructuring professional or was [a] restructuring
practitioner before she became a bankruptcy judge; right? A. I am aware of that.).)
Mr. Manzos opinions are simply the type of legal arguments offered by the lawyers in this case.
Even if the Defendants could overcome Mr. Manzos lack of a methodology in forming his
opinionand his admission that there actually is no universal custom and practice supporting his
viewnothing about his opinion touches on matters that are beyond the Courts own ability to
assess. See Burkhart, 112 F.3d at 1213 (D.C. Cir. 1997) (Each courtroom comes equipped with
a legal expert, called a judge.).
CONCLUSION
For the foregoing reasons, the Court should exclude the expert testimony of Eric Talley
and Robert Manzo.
Dated: October 9, 2011 /s/ Daniel T. Donovan . .
Anup Sathy
Brian S. Lennon
Telephone: (212) 446-4800
Facsimile: (212) 446-4900

and

Daniel T. Donovan (admitted pro hac vice)
Edwin John U (admitted pro hac vice)
Judson D. Brown (admitted pro hac vice)
655 Fifteen Street, N.W.
Washington, DC 20005-5793
Telephone: (202) 879-5000
Facsimile: (202) 879-5200

Counsel to Plaintiffs

Pg 19 of 19
EXHIBIT 10

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REDACTED PURSUANT TO AMENDED
STIPULATED PROTECTIVE ORDER [DE 34)
In re:
Debtors.
1
)
) Chapter 11
)
) Case No. 10-13800 (SCC)
)
) Jointly Administered
__________________________________ )
Plaintiffs,
V.
CERBERUS SERIES FOUR HOLDINGS, LLC,
CHATHAM LODGING TRUST,
INK ACQUISITION LLC, and
INK ACQUISITION II LLC,
Defendants.
)
) Adversary Proceeding
) Case No. 11-02557
)
)
)
)
)
)
)
)
--------------------)
PLAINTIFFS' PRE-TRIAL BRIEF
1
The list of Debtors in these Chapter II Cases along with the last four digits of each Debtor's federal tax
identification number can be found on 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
CONTAINS ATTORNEYS' EYES ONLY
MATERIAL PURSUANT To PROTECTIVE ORDER
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STIPULATED PROTECTIVE ORDER [DE 34]
Table of Contents
PRELIMINARY STATEMENT ....................................................................................................... !
BACKGROUND ............................................................................................................................... 6
A. Innkeepers and the Fixed/Floating Hotels ................................................................. 6
1. Innkeepers' Business ..................................................................................... 6
2. The Stalking Horse Process ........................................................................... 7
B. Cerberus and Chatham Actively Sought to Acquire Innkeepers' Hotels .................. 8
1. Cerberus' and Chatham's Eagerness to Acquire the Fixed/Floating
Hotels ............................................................................................................. 8
2. Cerberus and Chatham Conduct Substantial Due Diligence ....................... 10
3. Cerberus and Chatham Calculate Their Anticipated Returns On
Investment .................................................................................................... 11
4. Cerberus/Chatham's Initial Overbid and Proposed Changes to the
Stalking Horse Bid ....................................................................................... 12
5. Cerberus and Chatham Aggressively Bid for the Fixed/Floating Hotels
at Auction ..................................................................................................... 13
6. Cerberus and Chatham Celebrate Their Victory .......................................... 14
7. Post-Auction Negotiations Led to Execution of the Commitment Letter
with Cerberus and Chatham ......................................................................... 16
8. Innkeepers and Cerberus/Chatham Execute the Binding and
Irrevocable Commitment Letter.. ................................................................. 17
9. Innkeepers Proceeds with Plan Approval Process ....................................... 19
C. Cerberus Continues to Monitor Its Expected Rate of Return .................................. 19
D. Chatham Remains Bullish as the Targeted Closing Approached ............................ 20
E. Chatham Closes on its Acquisition of the Five Sisters ............................................ 23
F. Cerberus and Chatham Want to Close Quickly-Targeting August 5, 2011 .......... 24
G. Cerberus Vetoes the Closing at the 11th Hour.. ....................................................... 26
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H. Chatham Remains Bullish Even After The Aborted Closing And
Termination .............................................................................................................. 27
I. Discovery Reveals Cerberus' and Chatham's True Intentions ................................ 30
ARGUMENT ................................................................................................................................... 34
I. DEFENDANTS BREACHED THEIR OBLIGATIONS UNDER THE
COMMITMENT LETTER .................................................................................................. 34
A. The Fixed/Floating Hotels, Taken as a Whole, Have Remained Stable
Since the Parties Signed the Commitment Letter .................................................... 35
1. Actual Performance Has Not Materially Changed ...................................... 37
2. Expected Performance Has Not Materially Changed .................................. 38
3. Cerberus and Chatham Do Not Dispute That the Fixed/Floating
Hotels' Performance Taken as A Whole Remains Strong .......................... .41
B. Cerberus' and Chatham's MAE Theory Is Untenable as a Matter of Law
or Fact ...................................................................................................................... 42
II. THE COMMITMENT LETTER DOES NOT LIMIT INNKEEPERS' REMEDIES ........ .46
A. The Commitment Letter Is A Fully Integrated Agreement That Does Not
Limit Innkeepers' Remedies .................................................................................... 47
B. The Commitment Letter Does Not Incorporate the Bidding Procedures ............... .49
C. The Commitment Letter Is Not Ambiguous, And Thus Extrinsic Evidence
Cannot Be Used To Vary Or Add To Its Terms ...................................................... 52
D. Even if Properly Considered, The Extrinsic Evidence Shows That The
Parties Did Not Agree To A Limitation On Remedies ............................................ 54
E. The Bidding Procedures No Longer Applied After The Parties Executed
The Commitment Letter ........................................................................................... 57
III. THE COURT SHOULD ORDER SPECIFIC PERFORMANCE OF THE
COMMITMENT LETTER .................................................................................................. 62
A. This Court Should Order Specific Performance Under Section 1142(b) of
the Bankruptcy Code ................................................................................................ 63
B. Specific Performance Is An Appropriate Remedy In This Case Even Apart
From Section 1142 .................................................................................................. 64
IV. IN THE ALTERNATIVE, INNKEEPERS IS ENTITLED TO MONEY DAMAGES ...... 67
11
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Table of Authorities
Page(s)
Cases
Alba v. Kauftnann,
27 A.D.3d 816 (N.Y. Sup. Ct. App. Div. 2006) ....................................................................... 65
Aristocrat Leisure Ltd. v. Deutsche Bank Trust Co. Americas,
618 F. Supp. 2d 280 (S.D.N.Y. 2009) ...................................................................................... 67
Bear Stearns Cos. v. Jardine Strategic Holdings, Ltd.,
No. 003173111987, 1990 N.Y. Misc. LEXIS 770 (N.Y. Sup. Ct. June 13, 1990) .............. 40, 43
Crow & Sutton Assocs., Inc. v. Welliver McGuire, Inc.,
32 A.D.3d 651 (N.Y. Sup. Ct. App. Div. 2006) ....................................................................... 48
DDS Partners, LCC v. Celenza,
6 A.D.3d 347 (N.Y. Sup. Ct. App. Div. 2004) ......................................................................... 53
Edge Group WAICCS LLC v. The Sapir Group LLC,
705 F. Supp. 2d 304 (S.D.N.Y. 2010) ...................................................................................... 66
Frontier Oil v. Holly Corp.,
Case No. Civ. A 20502,2005 WL 1039027 (Del. Ch. Apr. 29, 2005) ..................................... 36
Hexion Specialty Chems, Inc. v. Hunstman Corp.,
965 A.2d 715 (Del. Ch. 2008) ................................................................................ 35, 36, 40,41
In re Aerovox,
281 B.R. 419 (Bankr. D. Mass. 2002) ...................................................................................... 67
In re Chateaugay Corp.,
201 B.R. 48 (Bankr. S.D.N.Y. 1996) ........................................................................................ 63
In re Delphi Corp.,
No. 05-4481,2008 WL 3486615 (Bankr. S.D.N.Y. Aug. 11, 2008) .................................. 63, 64
In re Food Mgm 't Group, LLC,
No. 04-22880,2007 WL 4352225 (Bankr. S.D.N.Y. Dec. 10, 2007) ...................................... 49
In re IBP, Inc. Shareholders Litig.,
789 A.2d 14 (Del. Ch. 2001) ............................................................................................. passim
In re Riverside Nursing Home,
137 B.R. 134 (Bankr. S.D.N.Y. 1992) ...................................................................................... 64
lll
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Jarecki v. Shung Moo Louie,
745 N.E.2d 1006 (N.Y. 2001) ................................................................................................... 48
Lockheed Martin Corp. v. Retail Holdings, NV,
639 F.3d 63 (2d Cir. 2011) ....................................................................................................... 53
Millgard Corp. v. E.E. Cruz/Fronier-Kemper
No. 99 Civ. 2952, 2003 WL 22741664 (S.D.N.Y. Nov. 18, 2003) .................................... 54, 57
Mitchell v. Leahey,
289 A.D.2d 1002 (N.Y. Sup. Ct. App. Div. 2001) ................................................................... 54
Montefiore Med. Ctr. v. Crest Plaza LLC,
889 N.Y.S.2d 506 (Sup. Ct. 2009) ............................................................................................ 47
Muze, Inc. v. Digital On-Demand, Inc.,
123 F. Supp. 2d 118 (S.D.N.Y. 2000) ................................................................................ 48, 52
Quantum Chern. Corp. v. Reliance Grp., Inc.,
180 A.D.2d 548 (N.Y. Sup. Ct. App. Div. 1992) ..................................................................... 54
Ryan v. Corbett,
52 A.D.3d 1270 (N.Y. Sup. Ct. App. Div. 2008) ..................................................................... 68
Schron v. Grunstein,
917 N.Y.S.2d 820 (Sup. Ct. 2011) ............................................................................................ 57
Terminal Cent., Inc. v. Henry Modell & Co., Inc.,
212 A.D.2d 213 (N.Y. Sup. Ct. App. Div. 1995) ......................................................... 48, 50, 52
Terwilliger v. Terwilliger,
206 F.3d 240 (2d Cir. 2000) ............................................................................................... 47, 50
Tractebel Engergy Marketing, Ins. v. AEP Power Marketing, Inc.,
487 F.3d 89 (2d Cir. 2007) ....................................................................................................... 67
Trade Co. Ltd. v. FleetBoston Fin. Corp.,
No. 03 Civ. 10254, 2007 WL 1288592 (S.D.N.Y. May 1, 2007) ............................................. 49
W W W Assocs., Inc. v. Giancontieri,
566 N.E.2d 639 (N.Y. 1990) ............................................................................................... 47, 53
Statutes
11 U.S.C. 1142(b) .................................................................................................... 64, 65, 66, 68
lV
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PRELIMINARY STATEMENT
For several months, Cerberus and Chatham actively sought to acquire Innkeepers' 64
Fixed/Floating hotels out of bankruptcy. Cerberus partnered with Chatham, a public lodging
company operated by Innkeepers' founder and former CEO; Cerberus and Chatham conducted
substantial due diligence of the hotels; and Cerberus and Chatham projected future cash flows
and their rates of returns. Cerberus and Chatham believed this was an attractive investment that
would generate substantial returns. Accordingly, Cerberus and Chatham aggressively bid at the
auction to acquire these assets, overbidding themselves by $16 million to close out the auction.
After the auction, Cerberus and Chatham negotiated additional lock-up provisions with
Innkeepers to make sure no other party would acquire these hotels, resulting in a fully integrated
Commitment Letter. In the Commitment Letter, Cerberus and Chatham agreed that it was a
"binding and irrevocable commitment" to acquire the hotels and that there were no financing or
due diligence outs. And after signing the Commitment Letter on May 16, 2011, they pushed, and
Innkeepers arranged, for an early closing on August 5, 2011.
After all the approvals were signed and the closing process had begun, Cerberus suddenly
stopped the closing. In the interim, Cerberus unsuccessfully attempted to renegotiate the price of
the deal. Less than two weeks later, Cerberus and Chatham purported to terminate their
"irrevocable and binding commitment" due to an alleged material adverse effect (or "MAE") on
Innkeepers' hotels taken as whole.
The fatal problem for Cerberus and Chatham, however, is that Innkeepers is stable and
has not suffered a MAE. It is undisputed that, since signing the Commitment Letter on May 16,
Innkeepers' hotels as a whole have performed at or near budget. Moreover, these hotels'
brightest days are ahead of them. The lodging cycle is on the upswing and revenue per available
room (or RevPAR)-a key metric in the lodging industry-for these extended stay hotels is
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growing at a healthy clip. And the Fixed/Floating hotels are even better situated than most of
their peers. The Fixed/Floating hotels are premium branded select service hotels primarily in
Top 25 markets with attractive built-in financing. Moreover, many of these hotels have been
fully renovated and upgraded during this bankruptcy. Simply put, Cerberus and Chatham cannot
come close to carrying the "heavy burden" the law places upon them to prove that the
Fixed/Floating hotels, as a whole, have incurred any MAE.
The Defendants' bases for the alleged MAE are unsupported in law and untethered to the
language of the MAE provision in the Commitment Letter. Cerberus and Chatham now claim
that the S&P downgrade of U.S. sovereign debt and the decline in REIT equity prices has caused
a material adverse effect. The problem with this claim, however, is that it is not tied to the
performance or prospects of the Fixed/Floating hotels, as a whole-the standard articulated in
the Commitment Letter. Discovery has shown that Cerberus stopped the closing and Cerberus
and Chatham subsequently terminated the Commitment Letter, not because there was a MAE on
these hotels, but instead to renegotiate the price of the deal.
Indeed, at the same time that Cerberus and Chatham terminated the Commitment Letter,
Jeffrey Fisher, the CEO of Chatham and Cerberus' joint venture partner, was touting the quality
and bullish prospects of the extended stay sector, Chatham's extended stay hotels (which are like
Innkeepers'), and the Fixed/Floating hotels. Mr. Fisher is the person who Cerberus describes as
"know[ing] Innkeepers better than" anyone. Here is what Mr. Fisher was saying:
"[A ]s of last night, August 8, we were exactly on forecast for all the hotels that we own.
. . . [W]e don't see any effect of what's happening in the financial markets at the hotel
level.. .. [W]e are bullish, we remain bullish." (PX 7 at 6.)
On August 11, Chatham reported to the Securities and Exchange Commission: "We
believe 2011 and beyond will offer attractive growth for the industry and for Chatham."
(PX 28 at INN-CER00003890.)
2
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On August 17, Fisher reported to shareholders that: "With the joint venture, we are able
to participate in an off balance sheet, higher leveraged investment in hotels that we
understand better than anyone, hotels we believe will generate strong returns for our
shareholders .... " (PX 14 at INN-CER00003986.)
Defendants' internal communications confirm that Cerberus and Chatham invoked the
MAE provision of the Commitment Letter to renegotiate the price of the deal. REDACTED
Court. A MAE clause, however, is not a guaranty of a buyer's desired rate of return. Nor is it a
tool to extract additional profits from a debtor.
In short, Cerberus and Chatham cannot prove that the Fixed/Floating hotels, as a whole,
incurred a material adverse effect. To the contrary, the evidence overwhelmingly shows that
Innkeepers performance has been stable since the signing of the Commitment Letter and its
future is even brighter-especially as it comes out of bankruptcy with renovated hotels with
built-in financing in the early stages of a lodging up-cycle. Cerberus' and Chatham's
termination of the Commitment Letter on the basis of a contrived MAE claim is a breach of the
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Commitment Letter, the Confirmation Order and Plan of Reorganization that was approved by
this Court. And Cerberus and Chatham should now be forced to pay for that breach.
Importantly, Innkeepers' contractual remedies for Cerberus' and Chatham's breach of the
Commitment Letter are in no way limited. The Commitment Letter and Term Sheet on their face
do not contain any limitation on available remedies. In fact, Cerberus and Chatham deleted a
limitation on remedies provision during the drafting of their proposed commitment letter. And
there can be no dispute here that the Commitment Letter and Term Sheet (and their attachments)
constitute the complete and entire agreement among the parties. The Entire Agreement clause in
paragraph 15 of the Commitment Letter makes that fact abundantly clear:
Entire Agreement. This Amended and Restated Commitment Letter and the
Amended and Restated Term Sheet, together with the Appendices and Exhibits
thereto, represent the entire understanding and agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings among the parties hereto, both
written and oral, with respect to the subject matter hereof. (emphasis added).
As a fully integrated agreement, the Commitment Letter, the Term Sheet, and the
attached exhibits and appendices embody the complete terms of the agreement between
Cerberus/Chatham and Innkeepers. And looking within the four comers of that agreement, as
New York law requires, leads to only one conclusion: the parties did not restrict Innkeepers'
remedies in the event of breach.
Unable to point to any language in the Commitment Letter that imposes a limitation on
available remedies, Defendants try to argue that the Commitment Letter somehow incorporates
the Bidding Procedures by reference. (See Cerberus Answer at 3.) But Cerberus' and
Chatham's attempt to rely on oblique references to certain provisions of the Bidding Procedures
falls woefully short of satisfying the well-established standard under New York law for
incorporation by reference.
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Moreover, the parties' bargaining history shows that Cerberus and Chatham were well
aware that the Bidding Procedures no longer applied after the execution of the Commitment
Letter. In negotiating the terms of the Commitment Letter, Cerberus and Chatham and
Innkeepers agreed to certain terms that either directly conflict with or substantially modify those
in the Bidding Procedures. For example, the Bidding Procedures expressly prohibit any Bid
from including any "break-up fee, expense reimbursement, or similar type of payment." (PX 88
at 6.) Yet Cerberus/Chatham and Innkeepers agreed to and included in the Term Sheet a $12
million break-up fee and a $3 million expense reimbursement. Additionally, the Bidding
Procedures and the Five Mile/Lehman Commitment Letter contained a broad fiduciary-out
provision that granted Innkeepers wide discretion to terminate the deal to pursue a more
favorable transaction. Cerberus/Chatham and Innkeepers, however, negotiated a new fiduciary-
out provision that imposed greater restrictions on Innkeepers' ability to terminate in favor of
alternative transactions. By continuing to negotiate over various deal terms, and by explicitly
including those terms in the Term Sheet, Cerberus and Chatham affirmed their understanding
that it was the Commitment Letter, the Term Sheet, and their attachments that reflected the
entirety of the parties' agreement.
If there could be any doubt regarding Cerberus' and Chatham's plain understanding of
the nature and status of the Bidding Procedures, it was surely erased when Cerberus and
Chatham REDACTED
But on Cerberus' and Chatham's
reasoning, including that provision was entirely unnecessary-because the liquidated damages
clause was already spelled out in the Bidding Procedures that allegedly continued to bind the
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parties. In short, Cerberus' and Chatham's REDACTED
arguments in this case are nothing more than post hoc attempts to rewrite the terms of the
parties' agreement to include a limitation on which they did not agree.
Accordingly, Innkeepers seeks to hold Cerberus and Chatham to their "binding and
irrevocable" agreement and seeks specific performance or, in the alternative, money damages in
an amount to be proved at trial.
BACKGROUND
A. Innkeepers and the Fixed/Floating Hotels
1. Innkeepers' Business
Innkeepers' primary business is to serve business travelers, employees on temporary
work assignments or enrolled in training programs, and individuals engaged in corporate
relocations. The majority of the Innkeepers' hotels consist of extended stay hotels, offering
limited services and longer-term accommodations than traditional full service hotels.
Innkeepers was founded in 1994 by Jeffrey Fisher, the current Chief Executive Officer of
Defendant Chatham Lodging Trust ("Chatham"). Prior to founding Chatham, Mr. Fisher served
as Chairman, Chief Executive Officer, and president of Innkeepers for thirteen years, until he
sold the business in 2007. After selling Innkeepers, Mr. Fisher continued to manage Innkeepers'
hotels through his role as Chief Executive Officer of Island Hospitality Management ("Island"),
a company he founded in 1986 and of which he currently owns 90%. Island has managed all but
two of the Debtors' hotels since at least 2004. As manager oflnnkeepers' hotels, Mr. Fisher and
Island perform all necessary operational and management functions, including budgeting and
forecasting hotel performance.
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2. The Stalking Horse Process
In September 2010, Innkeepers began a marketing process to lead the company out of
bankruptcy. As part of this effort, Innkeepers' management and advisors contacted more than
200 potential investors and plan sponsors in an effort to find a buyer for the company.
In December 2010, Innkeepers negotiated a deal with Five Mile Capital Partners LLC
and Lehman ALI, Inc. (collectively, "Five Mile/Lehman") for Five Mile/Lehman to serve as the
stalking horse in a continuing marketing process for Innkeepers' hotels. Notably, during these
negotiations, Lehman proposed the inclusion of a so-called "market MAE" provision that would
allow Five Mile/Lehman to terminate the deal upon "[t]he occurrence of any material adverse
condition, change in or material disruption of conditions in the financial, banking, capital or
hospitality markets and extended stay lodging sector that would reasonably impair the viability
or success of the Transaction with such Termination Event." (PX 47 at INN-CER00061982.)
Innkeepers did not agree to that term, nor to any other that gave a plan sponsor a termination
right based on general market activity or industry conditions. Therefore, the proposed provision
was deleted, never to return. (PX 48 at INN-CER00062040.) Innkeepers did agree at that time
to include in the Five Mile/Lehman Commitment Letter a provision that would cap damages in
the event of Five Mile/Lehman's breach at $20 million. (PX 48 at INN-CER00062027; PX 49
at INN-CER00062079.) As explained below, however, Cerberus and Chatham chose to delete
that provision months later during the negotiation of the Cerberus/Chatham Commitment Letter.
Innkeepers and Five Mile/Lehman subsequently revised their agreement to remove seven
hotel properties not subject to blanket mortgages (commonly referred to as the "Seven Sisters").
On March 9, 2011, the parties executed an Amended and Restated Binding Commitment
Agreement Between Five Mile/Lehman and Innkeepers reflecting these modifications (the "Five
Mile/Lehman Commitment Letter"). (PX 52. I.) On March II, 201I, the Court entered an order
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approving the Company's procedures for the solicitation of bids for, and subsequent auction of,
the Fixed/Floating hotels (the "Bidding Procedures").
B. Cerberus and Chatham Actively Sought to Acquire Innkeepers' Hotels
1. Cerberus' and Chatham's Eagerness to Acquire the Fixed/Floating Hotels
By March 2011, both Chatham and Cerberus were eager to acquire the Fixed/Floating
hotels, which they viewed as attractive assets. Chatham was interested in these hotels because
they fit Chatham's investment thesis, i.e., to purchase undervalued selective service upscale
extended-stay hotels in markets with high barriers to entry. (See PX 24 at 3.) Chatham already
owned and operated extended stay hotels that were fundamentally the same type of assets as
Innkeepers' hotels and was looking to invest in more of the same for additional profits and
economies of scale. REDACTED
And,
not surprisingly, Mr. Fisher wanted to make sure his management company, Island, continued to
manage these hotels after the sale.
2
Cerberus was just as eager. Cerberus is a preeminent investor in distressed companies
that had approximately $23 billion under management at the time it signed the Commitment
Letter. Cerberus' investment thesis for the acquisition noted that REDACTED
2
In addition to Mr. Fisher's deep roots with Innkeepers and his continuing management role as the CEO of Island,
Chatham's CFO, Dennis Craven, was also Innkeepers' CFO until after Innkeepers filed for bankruptcy-and was a
"first day" witness in Innkeepers' bankruptcy. Moreover, Island's current President is Tim Walker, the former CEO
of Innkeepers.
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REDACTED
REDACTED
And it recognized the benefits of
partnering with Mr. Fisher and Chatham, REDACTED
On March 23, 2011, Cerberus and Chatham entered into an initial joint venture
agreement to acquire the 64 Fixed/Floating hotels. (PX 178.) Under the terms of the agreement
REDACTED
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REDACTED
Given Mr. Fisher's intimate knowledge of the Innkeepers portfolio, the parties
agreed that Chatham would be the manager of the joint venture, and that Mr. Fisher's Island
would serve as the property manager. (Jd.) Separately, Chatham continued to explore with
Innkeepers an acquisition of a subset of the "Seven Sisters."
2. Cerberus and Chatham Conduct Substantial Due Diligence
Cerberus and Chatham were assisted by multiple advisors in their drive to acquire the
Fixed/Floating hotels. Both were represented by nationally-renowned law firms. In addition to
having Chatham's deep knowledge of these specific hotels and the extended stay industry,
Cerberus retained Ernst & Young ("E&Y") to perform due diligence services. (PX 298.) E&Y
was tasked, among other things, REDACTED
Assisted by their advisors, Cerberus and Chatham conducted extensive due diligence on
the Fixed/Floating hotels. For example, for each of the Fixed/Floating hotels, E& Y:
R
E
D
A
c
T
Innkeepers provided Cerberus and Chatham access to a comprehensive electronic data room with detailed
information regarding the Debtors' business and finances. This was on top of any information at Mr. Fisher's or
Island's fingertips as the manger of the properties. The data room included, among other information, detailed
property level profit and loss reports, cash forecasts and the Debtors' 2011 operating model and projections.
REDACTED (PX 294 at CE
0000293.)
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R
E
D
A
(PX 141 at 4-5.)
In addition, E& Y and Cerberus/Chatham conducted extensive REDACTED
(!d. at 5.). Cerberus and Chatham representatives, including Mr. Fisher and
Cerberus Managing Director Tom Wagner and Vice-President Stephen Pozatek, REDACTED
E& Y also performed a comprehensive, 600-page,REDACTED
(PX
141 at 6; PX 297; PX 311.)
3. Cerberus and Chatham Calculate Their Anticipated Returns On Investment
Armed with their extensive due diligence, Cerberus and Chatham projected their
expected rates of return on their investment prior to bidding on the Fixed/Floating hotels. On
April 21, 2011, Cerberus Managing Directors Tom Wagner and Stephen Pozatek sent REDAC
TED
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REDACTED
Chatham likewise modeled its expected rate of retum.REDACTED
4. Cerberus/Chatham's Initial Overbid and Proposed Changes to the Stalking Horse
Bid
On April 25, 2011, Cerberus and Chatham submitted their initial bid of $978.7 million to
purchase the 64 Fixed/Floating hotels. When submitting their bid, Cerberus and Chatham also
submitted a blackline which highlighted the changes in the terms of their initial bid from the
terms of the Five/Mile Lehman stalking horse bid. (PX 54.) Importantly,REDACTED
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REDACTED
Innkeepers agreed to removal of the liquidated damages provision. REDACTED
Notwithstanding their other changes (or attempted
changes), Cerberus and Chatham left unchanged the MAE provision that was included in the
Five Mile/Lehman Commitment Letter and which had been specifically negotiated to exclude a
"market MAE," and was instead limited to material adverse effects on "[Innkeepers] taken as a
whole." (PX 54 at INN-CER00033742; PX 60 at INN-CER00057305.)
5. Cerberus and Chatham Aggressively Bid for the Fixed/Floating Hotels at Auction
On May 2-3, 2011, Innkeepers proceeded with an auction for the Fixed/Floating hotels
(the "Auction"). The Auction began at 11 :00 in the morning and continued until after midnight.
(See PX 46.) There were only two bidders: Five Mile/Lehman and Cerberus/Chatham. There
were multiple rounds of competitive bidding between the two bidders, and Cerberus/Chatham
aggressively outbid Five Mile/Lehman in each round of bidding, often submitting twice the
minimum overbid amount in an attempt to best Five Mile/Lehman. (!d.)
By approximately 8:00p.m., Cerberus/Chatham submitted their tenth topping bid in the
amount of $1,103,700,000, outbidding Five Mile/Lehman's last bid by $10 million. (Id. at
31:19-16.) However, at 11:35 p.m.-12 hours after the Auction began-Cerberus/Chatham
overbid their own pending (and highest) bid by approximately $16 million, bidding
$1,119,700,000, plus additional recoveries for unsecured creditors. (Id. at 32:18-33:22.) This
bid, like their prior bids, was made "on the terms and conditions set forth in" Cerberus' and
Chatham's initial overbid documents, i.e., the very draft commitment letter which deleted any
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reference to liquidated damages or limitation of remedies in the event of a breach.
4
(!d. at 20:6-
10; see also id. at 32:14-17.) This bid, however, was conditioned on closing the Auction and
declaring Cerberus/Chatham the successful bidder if Five Mile/Lehman did not submit a topping
bid by 12:15 a.m. (!d. at 32:25-33:2.) Five Mile/Lehman did not submit another bid. Therefore,
at 12:15 a.m., Cerberus and Chatham were declared the winners ofthe Auction with a winning
bid valued at approximately $1.124 billion. Their bid was $26 million higher than the next
highest bidder, REDACTED
All told, the post-stalking horse marketing
and auction process yielded approximately $154 million in value over and above the proposal
reflected in the March Five Mile/Lehman Commitment Letter.
6. Cerberus and Chatham Celebrate Their Victory
Cerberus and Chatham were thrilled to win the Auction. In an email at 12:51 a.m on
May 3, just thirty minutes after the Auction closed, Ron Kravit, Senior Managing Directo:rRED
ACT
ED
4
To be sure, all parties at the Auction were aware that Five Mile/Lehman and Cerberus/Chatham were bidding
based on the terms contained in their own draft commitment letters and the bidding focused only on the economics
of each bid:
MR. SA THY: Unless somebody wants to bid a different set of terms, I think it's fair to assume that both
parties are bidding using the Midland financing and on the terms that they have submitted to the debtors. Is
that fair for both sides, Adam?
MR. HARRIS: Fine with us.
MR. SCHIFF: That is acceptable.
MR. SA THY: Then we will focus on the economics.
(PX 46 at 30:24-31 :6.)
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!d.
REDACTED
Mr. Pozatek was similarly pleased with the victory, REDACTED
In a joint press release following the Auction, Tim Price, managing director at Cerberus,
said: "Our ability to work with Innkeepers founder and former CEO Jeff Fisher, now CEO at
Chatham, is great news for the company and for its employees. No one knows Innkeepers better
than Jeff, and we are excited about the company's future prospects with a new capital structure
in place." (PX 113.) Mr. Fisher expressed similar enthusiasm on behalf of Chatham: "We are
excited to acquire these premium-branded select-service hotels early in the recovery of the
lodging industry. With a new capital structure in place, a committed partner in Cerberus and
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strong franchisor affiliation, our joint venture IS well positioned to create value for our
Shareholders and Cerberus." (!d.) On May 9, Chatham issued another press release trumpeting
the acquisition as "truly transformative" for Chatham. (PX 20 at INN-CER0006244.)
7. Post-Auction Negotiations Led to Execution of the Commitment Letter with
Cerberus and Chatham
After the Auction closed, Innkeepers and Cerberus/Chatham continued to negotiate the
specific terms of the commitment letter that would govern their acquisition of the Fixed/Floating
hotels. In doing so, Innkeepers and Cerberus/Chatham chose to depart from the Bidding
Procedures by contract in several ways.
First, the parties substantially changed the fiduciary out provlSlon. Cerberus and
Chatham requested and negotiated with Innkeepers a fiduciary out provision more protective of
Cerberus and Chatham than the fiduciary out included in the Bidding Procedures. The fiduciary
out in the Bidding Procedures permitted Innkeepers to exercise its fiduciary out at any time and
without any limitations. (See PX 88 at 15, ~ 11.) After the Auction, Cerberus and Chatham
negotiated a more restrictive fiduciary out that would preclude Innkeepers from exercising its
fiduciary out except to pursue an "Alternative Restructuring Transaction" that, among other
things:
had an implied enterprise value that IS $30 million or more than Cerberus and
Chatham's winning bid; and,
included sufficient cash to pay Cerberus and Chatham's termination fee and expense
reimbursement (as well as negotiated payments to Midland and Lehman).
(PX 4 at 12, ~ 34; PX 1, Term Sheet at 6.) Cerberus and Chatham negotiated for this term of the
Commitment Letter, which plainly superseded the terms of the Bidding Procedures.
Second, the parties negotiated a break-up fee and expense reimbursement provision. The
Bidding Procedures provided that "no Bid shall contain a right to request or entitlement to any
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commitment payment, break-up fee, expense reimbursement, or similar type of payment" and
required that each bidder "shall bear its own fees and expenses." (PX 88 at 6 (emphasis added).)
Contrary to these express prohibitions, Cerberus and Chatham negotiated a termination fee of
$12 million and an expense reimbursement of $3 million in the event that Innkeepers exercised
the (newly negotiated) fiduciary out. (PX 1, Term Sheet at 6; see also PX 4 at 11-12, ~ 33.)
Cerberus and Chatham negotiated for this term of the Commitment Letter, which plainly
superseded the terms of the Bidding Procedures.
Neither Cerberus nor Chatham proposed any limitation on remedies in the event of their
breach. This made sense. Cerberus and Chatham had deleted any reference to limitations on
remedies in their initial bid and, at this time, they were in a rush to close and wanted to prevent
other bidders from being able to take away the substantial profits that they expected to reap from
the deal.
8. Innkeepers and Cerberus/Chatham Execute the Binding and Irrevocable
Commitment Letter
On May 16, 2011, Innkeepers executed the Commitment Letter with Cerberus, Chatham,
INK I, and INK II setting forth the terms pursuant to which Cerberus and Chatham committed to
purchase the 64 Fixed/Floating hotels.
5
Along with the Term Sheet accompanying it, the
Commitment Letter constituted a "binding and irrevocable commitment to provide equity
capital ... for the restructuring of the debt and equity of' Innkeepers and represented "the entire
understanding and agreement among the parties" related to the acquisition of the Fixed/Floating
hotels. (PX 1, Commitment Letter at 1 (emphasis added); id. at 5.)
5
INK I and INK II are entities established by Defendants to hold equity in the reorganized company. They are
signatories to the Commitment Letter and named Defendants in this action.
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The Commitment Letter was as close to an "as is" deal as possible. It contained no seller
representations or warranties, no covenants for projected EBITDA, and no required leverage
ratios. In addition, Cerberus and Chatham pledged that "[t]here are no due diligence or financing
contingencies of any kind in connection with the Commitment, other than the availability of the
Midland Financing." (!d. at 1.) The Commitment Letter further provided that Cerberus and
Chatham had "obtained all necessary internal authorizations or approvals for the submission,
execution, delivery and closing" of the transaction. (!d. at 4.) Cerberus and Chatham also
committed to "take all reasonably necessary and appropriate actions to support and achieve
confirmation and consummation" and "not take any actions (either by affirmative action or
omission) . . . that would materially delay the confirmation or consummation of the
Fixed/Floating Plan or the Transaction." (PX 1, Term Sheet at 5-6.)
The Term Sheet accompanying the Commitment Letter specified the limited
circumstances under which Cerberus and Chatham could terminate the Commitment Letter,
including upon the "occurrence of any condition, change or development that could reasonably
be expected to have a material adverse effect on the business, assets, liabilities (actual or
contingent), or operations, condition (financial or otherwise) or prospects of the Fixed/Floating
Debtors taken as a whole." (!d., Term Sheet at 7.) Neither the Commitment Letter nor Term
Sheet included a "market MAE" provision. And importantly, the Commitment Letter, governed
by New York law, included an "Entire Agreement" clause whereby Cerberus and Chatham and
Innkeepers expressly agreed that the Commitment Letter, "together with the Appendices and
Exhibits thereto, represent the entire understanding and agreement among the parties hereto with
respect to the subject matter hereof and super[s]edes all prior and contemporaneous
agreements and understandings among the parties hereto, both written and oral, with respect
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to the subject matter hereof." (PX 1, Commitment Letter at 5 (emphasis added).) Although the
attached and thereby incorporated Appendices and Exhibits to the Commitment Letter included
numerous documents, neither the Bidding Procedures nor Bidding Procedures Order was
attached.
9. Innkeepers Proceeds with Plan Approval Process
After the parties reached agreement on the terms of the Commitment Letter, Innkeepers
turned its attention to resolving as many open issues in the chapter 11 cases as possible, and
moving towards plan confirmation. This included-but was by no means limited to--
(i) negotiating an agreement with the Ad Hoc Committee of Preferred Shareholders for it to
support confirmation of the Plan; (ii) filing a list of 497 contracts or leases to be assumed and
sending notices of proposed cure amounts to the counterparties to those contracts or leases; and
(iii) accelerating its efforts to reconcile the more than 2,200 claims (totaling more than $1.4
billion) against the Fixed/Floating hotels. And, ultimately, Innkeepers was able to resolve all
open objections to the Plan and proceeded to request confirmation on an uncontested basis. The
Court acknowledged: "I appreciate the fact that you worked as hard as you did to achieve what
now truly is global peace because this morning at 6 o'clock in the morning, there wasn't global
peace and I think that's very important predicate for some of the unique provisions of this plan."
(Disclosure Statement Hr'g Tr. 47-48 (6/23/2011).)
C. Cerberus Continues to Monitor Its Expected Rate of Return
In the months following the auction, Cerberus closely monitored the Fixed/Floating
hotels REDACTED
'
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REDACTED
D. Chatham Remains Bullish as the Targeted Closing Approached
In the months following the auction, Chatham shared Cerberus' continued optimism
about both the acquisition of the Fixed/Floating hotels and the extended stay hotel market
generally. On June 8, Mr. Fisher and Chatham CFO (and the former Innkeepers CFO), Dennis
Craven, presented at the National Association of Real Estate Investment Trusts' ("NAREIT")
"REITWeek" conference in New York. Discussing Cerberus' and Chatham's joint purchase of
the Fixed/Floating hotels, the Chatham presentation touted Chatham's focus "on acquiring
Premium Branded Select Service Hotels," and explained that this is a "Favorable Environment to
Acquire Select Service Hotels . . . [because] Lodging industry Rev PAR growth of 3 5. 0% [is]
projected over the next four years" and that Premium Branded Select Services Hotels have
"[h ]igher Rev Par and market share than other select service hotels" and "[h ]igher margins/lower
cost." (PX 9 at 6, 15.)
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According to a June 24 Business Week Article, "Fisher said Chatham was drawn to the
Innkeepers properties because they are in strong markets: the Northeast, the mid-Atlantic and
California. As the economic recovery proceeds, the values of the hotels will rise, Fisher said.
'The Innkeepers deal just looked great to us, and in fact we think is going to add a lot of value
over time,' he said." (PX 10.) Cerberus Managing Director Tom Wagner congratulated Mr.
Fisher on his interview saying, REDACTED
On June 29, 2011, the Court entered an order confirming all four joint plans submitted by
Innkeepers, including the Fixed/Floating Plan, the foundation of which is the transaction
contemplated by the Commitment Letter. In a press release issued that same day, Mr. Fisher
described the acquisition of the Fixed/Floating hotels as a transaction that "can produce
shareholder value precisely because the portfolio of hotels we are acquiring aligns with our
investment and growth strategies." (PX 11 at 2.) Commenting on the state of the market, Mr.
Fisher stated that "the hospitality industry is forecast to continue to improve in 2011 and 2012
based on economic growth, lack of new supply growth and increased business travel spending."
(!d. at 1.) He further noted that "[a]nother key factor in evaluating this deal ... is that the vast
majority of the premium-branded properties in this portfolio were renovated in the past three
years." (Id. at 3.)
Mr. Fisher reiterated many of these same points in an analyst call the following day. He
again touted the "low cost basis for such a strong portfolio of assets that we either bought or built
during the 14 years that we owned Innkeepers." (PX 24 at 3.) He noted that the price paid by
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the joint venture "represent[ ed] an approximately 30% discount to the peak valuation and well
below replacement cost." (!d. (emphasis added).) And he further explained that one of the
reasons the acquisition of the Fixed/Floating hotels constituted a major growth opportunity was
because "the vast majority of the major branded properties in this portfolio [were] fully
renovated in the past three years. This is a nuance of the bankruptcy that is, I think, very
important to consider." (!d. at 4.) Mr. Fisher continued "[i]t's really unusual, based on our
experience, to be able to acquire a portfolio of assets that have been substantially renovated
with fresh money on the sellers['] back." (!d. (emphasis added).)
Chatham took the same positive position again and again in its certified public filings
with the Securities and Exchange Commission. Chatham's July 5, 2011 8-K reported that "[t]he
hospitality industry is forecast to continue to improve in 2011 and 2012 based on economic
growth, lack of new supply growth and increased business travel spending." (PX 11 at INN-
CER00062412.) It identified numerous "[s]pecifics of the [Cerberus/Chatham] joint-venture
transaction that align with Chatham's hotel acquisition strategy," including a focus on
purchasing undervalued properties, select-service hotels with a lower cost structure than that of
full-service hotels, premium-branded hotels that demand higher rates and enjoy higher
occupancy than do non-branded hotels, and lodging assets in major coast locations. (!d. at INN-
CER00062413-14.)
Indeed, the overwhelming majority of the 64 Fixed/Floating hotels match each of these
criteria. In his excitement to capitalize on the deal, Mr. Fisher said that: "Another key factor in
evaluating this deal . . . is that the vast majority of the premium-branded properties in this
portfolio were renovated in the past three years. This means we will have little-to-no revenue
displacement due to rooms being unavailable during renovations." (!d. at INN-CER00062414.)
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He went on: "This deal is happening at the right time and with the right partner. Our industry
saw a 17 percent decline in revenue per available room (RevPAR) between 2007 and 2009. With
the ongoing recovery in RevPAR, coupled with our success gaining market share, we believe
there is significant upside to go." (!d. at INN-CER00062416.)
Days later, on July 12, Mr. Fisher gave an interview with Lodging Hospitality in which
he explained Chatham's focus on select-service hotels as opposed to the full-service and luxury
properties targeted by most other REITs. "We see value where we've been operating for almost
30 years since I built my first Hampton Inn," Fisher said. (PX 12 at INN-CER00062106.) "We
think somewhat contrarian, and believe select-service hotels provide a more stable cash flow
component because of a lower cost structure. When things turn bad, these hotels don't do as
badly as full-service hotels." (!d. (emphasis added).) After reading the interview, Cerberus' Mr.
Wagner emailed Mr. Fisher, REDACTED
E. Chatham Closes on its Acquisition of the Five Sisters
In addition to winning the auction for the Fixed/Floating hotels with Cerberus, Chatham
also won the auction for the "Five Sisters" which consisted of five Innkeepers hotels which have
a total of 764 rooms. (PX 24 at 2.) Like the Fixed/Floating hotels, the Five Sisters are primarily
extended-stay hotels that were operated by Island, Mr. Fisher's management company.
On July 14, 2011, after the Auction and after confirmation, Chatham closed on its
acquisition of Five Sisters for $195 million. Four days later, on July 18, Chatham filed an 8-K
with the SEC, attaching a press release about the transaction. In it, Chatham predicted that
"[b ]ased on our previous operating experience with these properties, we know these assets well
and expect great results from them." (PX 13 at INN-CER00062403.)
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F. Cerberus and Chatham Want to Close Quickly-Targeting August 5, 2011
The Commitment Letter required that the parties close by September 14, 2011. Cerberus
and Chatham (along with Innkeepers), however, wanted to close the transaction sooner.
Accordingly, the parties (and others involved) accelerated their efforts to prepare for a closing
more than five weeks earlier than required under the Commitment Letter-by Friday, August 5,
2011.
On July 15, 2011-three weeks out from the parties' target closing date-Mr. Wagner
and Mr. Pozatek prepared a memorandum REDACTED
Three days before the targeted closing date, on August 2, during a hearing, counsel for
Cerberus' counsel represented to the Court that "[w]e obviously want to get this deal closed, and
want to get it closed this week." (PX 64 at 4 3: 1 0-11.)
On August, 4, 2011-one day before the planned closing ofthe acquisition-Mr. Wagner
and Mr. Pozatek presented REDACTED
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REDACTED
REDACTED
By August 5, 2011 the parties were finalizing their Flow of Funds Memorandum, had
obtained necessary approvals, and prepared wiring instructions. (PX 63; PX 69.) In fact,
REDACTED
Both sides were moving toward closing. All the necessary documents had been executed
for delivery and the closing process was underway. Wiring instructions were provided to the
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wmng agent. (PX 67.) And at 11:13 a.m. ET, REDACTED
G. Cerberus Vetoes the Closing at the 11th Hour
Then, without warning, Innkeepers learned upon being copied at 2:32 p.m. ET on an e-
mail REDACTED
Cerberus offered no explanation for its
decision to "postpone" the closing. Discovery has since shown, however, that on the very day of
closing, REDACTED
Unaware of Cerberus' decision, Innkeepers continued to reach out to Cerberus and
Chatham in the following days. On August 6, Innkeepers' representatives requested a telephone
conference to discuss next steps for closing. REDACTED
Under
the terms of the Commitment Letter, Cerberus and Chatham were not required to close until
September 14. (PX 1, Term Sheet at 9.) Therefore, representatives of Innkeepers advised
Cerberus and Chatham that they would change their previously scheduled vacation and travel
schedules to be available to close the following week.
On a status update call on August 9, Cerberus suggested for the first time that it was
exploring whether conditions in the equity markets (including the recent S&P credit downgrade
of U.S. debt) resulted in a "material adverse effect" that would qualifY as a Termination Event.
The following day, Cerberus inquired if Innkeepers would consider a price adjustment under the
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Commitment Letter. Innkeepers responded that it had a binding and irrevocable agreement and
that it would not consider renegotiating the transaction.
Because Cerberus and Chatham had until September 14 to close, Innkeepers waited for
news from Cerberus, Chatham or their lawyers. After the close of business on Friday, August
19, 2011, the Company and Midland and their respective counsel received a facsimile from
Cerberus, signed by all Defendants, stating that "due to the occurrence of a 'Termination Event'
as defined, with respect to the Innkeepers Commitment Letter, in the sixth bullet under
'Termination' in the Amended and Restated Term Sheet," the Fixed/Floating Plan Sponsors were
terminating the Commitment Letter. (PX 6 at INN-CER00001522).) The sixth bullet is the
"material adverse effect" provision in the Commitment Letter. The Termination Letter did not
identifY any material adverse event, condition or effect. The Termination Letter provided no
factual explanation whatsoever for Cerberus' and Chatham's assertion.
H. Chatham Remains Bullish Even After The Aborted Closing And Termination
Even, as Cerberus was refusing to close based on an alleged material adverse event,
Chatham continued to tout both the performance and prospects of the Fixed/Floating hotels and
Chatham's other hotels in the same extended stay lodging industry. Three days after the aborted
closing, on August 8, Chatham publicly reported increases in key financing metrics, including
RevPAR, EBITDA, ADR, and operating margins. (PX 14 at INN-CER00003985-86.)
Moreover, Mr. Fisher touted the excellent future returns he expected from Chatham's
joint acquisition ofthe Fixed/Floating Hotels:
To be able to round trip this investment at a significant discount to both
replacement cost and the value we sold at in 2007 means we will be able to
generate excellent returns for our shareholders and our partner. . .. With the
joint venture [with Cerberus to purchase the Fixed/Floating Properties], we are
able to participate in an off balance sheet, higher leveraged investment in hotels
that we understand better than anyone, hotels we believe will generate strong
returns for our shareholders.
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(!d. at INN-CER00003986 (emphasis added).)
Four days after Cerberus and Chatham walked away from the closing table, on August 9,
Chatham held an earnings conference call with investors. During that call, Mr. Fisher touted the
positive growth prospects for Chatham: "[A]s we move forward into the fourth quarter and
beyond our internal growth should be strong," Mr. Fisher said. (PX 7 at 3.) At the time Mr.
Fisher made these statements, he already knew that REIT stock prices had dropped generally,
and his own REIT's stock priced had dropped 29% since the signing of the Commitment Letter.
With full knowledge of the REIT price variability, Mr. Fisher explained that "[w]e don't see any
effect of what's happening in the financial markets at the hotel level" and "we are bullish, we
remain bullish." (!d. at 6, 9 (emphasis added).) Asked by an analyst "if the recent economic
uncertainty gives you any [pause] regarding [Chatham's] outlook," Mr. Fisher replied with an
emphatic no:
[A ]s of last night, August 8, we were exactly on forecast for all the hotels that we
own. . . . I spent plenty of time yesterday just going through with our operators,
hotel by hotel, market by market, looking at the August forecast, looking frankly
at some early September forecast numbers. We just don't see it and I'm sure
you'd hear that from other hotel companies as well. We don't see any effect of
what's happening in the financial markets at the hotel level.
(!d. at 5, 6 (emphasis added).) During the same call, Mr. Craven affirmed Mr. Fisher's
statements and expressed a positive view for lodging industry prospects generally: "[W]e
believe [we are] in a great spot to take advantage of what we hope is a logging [sic] up cycle and
we are in the beginning stages of that." (!d. at 4.)
Chatham's optimism continued. Six days after Cerberus and Chatham walked away from
the closing table, on August 11, Chatham reported in its 1 0-Q: "We believe 2011 and beyond
will offer attractive growth for the industry and for Chatham." (PX 28 at INN-CER00003890.)
In that same 1 0-Q, Chatham affirmed that it was "not aware of any material trends or
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uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material
impact on either the capital resources or the revenues or income to be derived from the
acquisition and operation of properties, loans and other permitted investments" other than
those identified in the "Risk Factors" section of its most recent 10-K. (Id. at INN-CER00003895
(emphasis added).)
Chatham's optimism remained so strong that, approximately one week later (on August
17), it closed on a new mortgage loan, secured by the 124-room Residence Inn by Marriott
located in New Rochelle, New York. (PX 15 at INN-CER00062295.) Mr. Craven described the
10-year, 5.75 fixed-rate loan as "historically attractive pricing and at a value which amounts to
approximately 75 percent of what we purchased this hotel for less than a year ago." (Jd
(emphasis added).) Chatham's refinancing at "historically attractive pricing" directly conflicts
with the Defendants' newly crafted argument that the credit markets are effectively closed to real
estate companies.
On the same day, approximately two weeks after walking away from the closing table,
Mr. Fisher continued to tout Chatham's expected return on the 64 Fixed/Floating hotels in
certified SEC filings. Specifically, Mr. Fisher proclaimed that "Chatham expects to close on the
acquisition of an approximate 9 percent interest in a joint venture for $37 million with affiliates
of Cerberus Capital Management, L.P. in the next couple of weeks .... [and] Chatham expects to
earn returns above its 9 percent interest." (PX 14 at INN-CER00062272-73.) In describing
Chatham's recent purchase of the Five Sisters in July 2011 and its expected closing on the
Fixed/Floating hotels, Mr. Fisher again touted his knowledge of these assets and industry, the
discounted price tag on the deal, and his enthusiasm for the long-term prospects of the hotels:
We know this portfolio inside and out, having bought or built and sold these
properties once already ... To be able to round-trip this investment at a
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significant discount to both replacement cost and the value we sold at in 2007
means we will be able to generate excellent returns for our shareholders and
our partner . ...
. . . With the joint venture, we are able to participate in an off balance sheet,
higher leveraged investment in hotels that we understand better than anyone,
hotels we believe will generate strong returns for our shareholders . . . .
Additionally, we believe the potential to acquire hotels from the joint venture will
provide meaningful growth to the company.
(!d. at INN-CER00062273 (emphasis added).)
REDACTED
Later that same day, Cerberus and Chatham sent their "joint"
Termination Letter.
I. Discovery Reveals Cerberus' and Chatham's True Intentions
For weeks after Cerberus "vetoed" the August 5 closing and after Cerberus and Chatham
issued the Termination Letter on August 19, they refused to state their bases for declaring a
purported MAE. Even after litigation commenced, Cerberus and Chatham initially refused to
identify the alleged MAE. They twice declined the Court's invitation on August 31 to "take
away some of the mystery" and explain "what the MAC [material adverse condition] is,"
(8/31/2011 Hr'g Tr. at 23:1-2; see also id. at 20:13-16.), and also refused to answer two
interrogatories asking them to identify the alleged MAE and state facts supporting their claim.
(See, e.g., Cerberus Resp. & Objs. to Pis.' Interrogs. Nos. 1 & 2 (Sept. 9, 2011 ), attached as
Exhibit B.) Cerberus and Chatham eventually responded to Innkeepers' request that they at least
identify their bases for terminating a $1.1 billion transaction. In their supplemental responses to
Innkeepers' interrogatories, Cerberus and Chatham claimed that the purported MAE was tied to
"unforeseeable" "economic developments":
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Such events include: ( l) U.S. economic conditions dciCrioratcd significamly: (2) reduced U.S
GDP projections; (3) widespread reports of a possible "double dip" recession; (4) a 30-40%
decline in the equity market value of comparable lodging operators; (5) Standard & Poor's
("S&P") downgrade of the United States' credit rating; (6) expectations regarding
lodging prospects; (7) analysts revising their revenue forecasl:'l for the lodging sector
down substantially; (8) expectations bout disruptions in hotel asset sales; and (9) severe
tightening in the capital markets. making financing more expensive.
(PX 112 at 6-7; see also Chatham Supp. Resp. & Objs. to Pls.' Interrog. No. 1 (Sept. 22, 2011),
attached as Exhibit C.)
Cerberus' and Chatham's own internal documents, however, tell a far different story than
their lawyer and expert-generated interrogatory responses. Rather, discovery has shown that
these so-called "unforeseeable" "economic developments" are nothing more than a pretext to
renegotiate the price. Cerberus and Chatham calculated that they could extract a substantial
price reduction from debtors in a chapter 11 proceeding, not simply by walking away from the
"irrevocable" commitment, but by declaring a MAE.
Just before terminating, Cerberus identified its options m an internal presentation,
observing that:
R
E
D
A
c
T
E
D
(PX 354 at CE 0302835.) Despite Cerberus' internal recognition that Innkeepers' business
remained strong, it opted to declare a MAE in order to force a renegotiation.
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Cerberus executives openly discussed this strategy. REDACTED
REDACTED
(PX 160.)
Chatham also understood the Defendants' motive was to attempt to re-price the deal. On
REDACTED
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REDACTED
Moreover, discovery has made clear that the purpose of Cerberus's and Chatham's
attempted renegotiation was not merely to maintain the same return they originally expected in
light of some unforeseen change in the Fixed/Floating hotels, or even market conditions
generally.
Rather REDACTED
'
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(PX 78.) REDACTED
, which Cerberus and Chatham then removed from
the May 16, 2011 Commitment Letter. This is telling in that, according to Cerberus, the notion
that the Bidding Procedures' liquidated damages provision does not apply "was raised for the
very first time in the Complaint." (Cerberus Answer at 3.) But the Complaint was filed on
August 29-six days after the August 23 rebid. REDACTED
Undeterred and still wanting the Fixed/Floating hotels, REDACTED
Simply put, smce Cerberus "vetoed" the closing of the transaction, Cerberus and
Chatham devised a plan to renegotiate a better deal. REDACTED
As a result, Cerberus and Chatham declared a MAE on
August 19 to extract higher returns and profits. The declaration of a MAE was thus nothing
more than a means to apply more leverage on the Company and its constituents. The problem
for the Defendants, however, is that this is not the law: the opportunity to exploit the delicate
balance of a nearly consummated plan of reorganization out of the desire to strike a better deal
does not, and cannot, give rise to a MAE.
ARGUMENT
I. DEFENDANTS BREACHED THEIR OBLIGATIONS UNDER THE
COMMITMENT LETTER
There has been no MAE. Indeed, it is undisputed that the actual performance of the
Fixed/Floating hotels, taken as a whole, has been stable since the parties signed the Commitment
Letter and is still stable to this day, even in light of the alleged macroeconomic factors identified
by Defendants. The projected future performance of the Fixed/Floating hotels, taken as a whole,
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similarly remains strong. In fact, Cerberus' and Chatham's experts do not even address the
performance of the very hotels that purportedly suffered a MAE. Nor could they in light of the
unequivocal bullishness and optimism expressed by Mr. Fisher, Chatham's chief executive, and
Cerberus' own admission in the days leading up to the Defendants' termination that Innkeepers'
business remained "strong."
Instead, Cerberus, Chatham and their experts use the pretext of alleged "economic
developments" as cover to renegotiate their "binding and irrevocable" commitment. But
Defendants' theory attempts to squeeze a square peg into a round hole. Putting aside the fact that
Cerberus and Chatham come nowhere close to demonstrating there has been an unforeseen
material adverse change in macroeconomic conditions since signing the Commitment Letter,
their argument ignores the plain language of the MAE provision in this case, that a "market
MAE" provision was expressly rejected by Innkeepers in negotiations, and the weight of case
law demonstrating that a MAE provision does not grant a contracting party the option to
terminate based on the whims of the stock market or its desire for a certain rate of return.
A. The Fixed/Floating Hotels, Taken as a Whole, Have Remained Stable Since the
Parties Signed the Commitment Letter
As the parties seeking to avoid their obligations under the Commitment Letter based on
the alleged occurrence of a MAE, Cerberus and Chatham bear the burden of proof. See Hexion
Specialty Chems, Inc. v. Hunstman Corp., 965 A.2d 715, 739-40 (Del. Ch. 2008); In re IBP, Inc.
Shareholders Litig., 789 A.2d 14, 53 (Del. Ch. 2001). In IBP, applying New York law, then-
Vice Chancellor Strine of the Delaware Chancery Court explained that "a New York court would
be inclined toward the view that a buyer ought to have to make a strong showing to invoke a
Material Adverse Effect exception to its obligation to close." In re IBP, 789 A.2d at 68. The
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same court recently affirmed that a "buyer faces a heavy burden when it attempts to invoke a
material adverse effect clause in order to avoid its obligation to close." Hexion, 965 A.2d at 738.
Moreover, MAE provisions are narrowly construed to cover only unknown and
unforeseeable events that impact the core of a business in a fundamental way, i.e., MAEs are not
a vehicle of convenience for a buyer to renegotiate after the fact. See id., 965 A.2d at 739-40.
Rather, MAE provisions are merely "a backstop protecting the acquiror from the occurrence of
unknown events that substantially threaten the overall earnings potential of the target in a
durationally-significant manner." In re IBP, 789 A.2d at 68; see also Frontier Oil v. Holly
Corp., Case No. Civ. A 20502, 2005 WL 1039027, at *34 (Del. Ch. Apr. 29, 2005) (adopting In
re IBP).
When evaluating whether there has been a MAE, the caselaw teaches that context
matters. In re IBP, 789 A.2d at 67. Here, the context is a portfolio of 64 hotels being acquired
out of bankruptcy by two sophisticated purchasers that prevailed at a competitive auction with
knowledge of the market risks involved in such a purchase. The Commitment Letter signed by
the Defendants on May 16, 2011 was, for all intents and purposes, an "as is" deal. It did not
contain any representations, warranties, affirmative covenants, due diligence contingencies, or
financing contingencies (other than the availability of the Midland Financing). The Commitment
Letter was then presented to, and approved by, the Bankruptcy Court in connection with its
confirmation of a Plan that was predicated upon the successful sale of the Fixed/Floating hotels
and resulting distributions to creditors.
The Commitment Letter also laid out the specific MAE provision agreed to by the
parties. That provision allowed Cerberus and Chatham to terminate the acquisition only upon:
The occurrence of any condition, change or development that could reasonably be
expected to have a material adverse effect on the business, assets, liabilities
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(actual or contingent), or operations, condition (financial or otherwise) or
prospects of the Fixed/Floating Debtors taken as a whole.
(PX 1, Term Sheet at 7.) Thus, by its plain terms, any alleged MAE must have a material impact
on the 64 Fixed/Floating hotels taken as a whole. As the evidence will show, Cerberus and
Chatham cannot come close to meeting the heavy burdens the law places on them.
1. Actual Performance Has Not Materially Changed
The 64 Fixed/Floating hotels are still operating as they were on May 16, 2011. They still
carry the same premium flags they carried on May 16, 2011. They still have the same attractive
financing available as they did on May 16, 2011. Moreover, actual performance of the hotels has
been stable since May 16, 2011.
Judged against their historical EBITDA performance, the Fixed/Floating hotels have not
experienced an adverse change-let alone a material one-in their recent financial performance.
(Expert Report of Mark E. Zmijewski, Ph.D ("Zmijewski Report") at 13 (9/27/2011), attached as
Exhibit D.) In the second quarter of2011, the Fixed/Floating hotels experienced a positive 0.2%
increase in EBITDA relative to the corresponding quarter of the prior year. (ld. at 12-13.)
Similarly, EBITDA for the three-month period from May-July 2011 is virtually unchanged
relative to the corresponding period in the prior year. (!d.)
Moreover, the 64 Fixed/Floating hotels have, on average, out-performed their
competitors as measured by Rev PAR. (Am. Export Report of of John B. Corgel, Ph.D ("Corgel
Report") at 4 (9/28/2011), attached as Exhibit E.) Indeed, these 64 hotels achieved 122% of their
competitors' RevPAR during the trailing twelve month period ending July 2011. (ld.) This
achievement reflects the strength of both the brand affiliations associated with these hotels, and
each individual hotel's management. (ld.)
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Tellingly, Cerberus' and Chatham's purported experts do not even address the
performance of the very hotels they opine suffered a MAE. However, no expert analysis of
Innkeepers' performance is even necessary in light of Defendants' own admissions. For
example, REDACTED
In short, the Fixed/Floating hotels have been operating, as a whole, consistent with their
historical performance and above their peers. These metrics confirm that far from experiencing a
"durationally-significant," material adverse change, the Fixed/Floating hotels' performance
remained fundamentally the same between the Commitment Date and the Termination Date. See
In re IBP, 789 A.2d at 68.
2. Expected Performance Has Not Materially Changed
Likewise, there has not been any material adverse change to the Fixed/Floating hotels'
expected future performance or prospects. To the contrary, the forward-looking lodging metrics
for the 64 Fixed/Floating hotels taken as a whole, demonstrate that their expected performance
remains positive and materially unchanged. REDACTED
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REDACTED
. Similarly,
a five-year market-specific forecast for the Fixed/Floating hotels in five key lodging metrics
(supply, demand, OCC, ADR, and RevPAR) that was conducted in September 2011 (after
Defendants declared a MAE) remains materially the same as a forecast conducted in June (before
Defendants declared a MAE). (Corgel Report at 14-15.)
The Defendants' "experts" (none of whom have any expertise in the lodging industry) do
not dispute that the projected performance of the extended stay lodging industry as a whole is
positive. PKF Hospitality Research ("PKF"), which the Defendants' expert Mr. Fischel relies
upon in his report and which Cerberus repeatedly cited in its due diligence, forecasts that lodging
demand will continue to outpace lodging supply in the coming year, thereby boosting the
likelihood of increased occupancy rates (OCC). (!d. at 8-9.) PKF currently forecasts RevPAR
for all U.S. hotels is currently forecast to rise 7.2 percent in 2011, which is even higher than the
6.9 percent growth rate PKF forecasted in June. (!d. at 10.) Further, Smith Travel Research
("STR") reported actual performance data for August and the first three weeks of September for
the lodging industry as a whole: those results support PKF's conclusion that the outlook for the
lodging industry as a whole remains favorable, despite macroeconomic events in the news since
the Commitment Date. (!d. at 11-12.) Innkeepers' CRO confirms this assessment, testifying that
the "hotel industry is in the beginning stages of an incredible up-cycle." (9/30/11 Dep. of
Beilinson Dep. at 36:4-19, attached as Exhibit F.)
To see just how far from a material adverse event the Fixed/Floating hotels are, one need
only look at other circumstances where courts have refused to find a material adverse event. In
IBP, which featured a MAE (like the one here), that included no enumerated carve-outs or
exclusions, the Court rejected Tyson's claim that IBP suffered a material adverse effect,
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notwithstanding a 64% drop in first quarter earnings compared to the same quarter the prior
year and the likelihood that IBP was facing "a tough few years in the fresh meats business." ld.
at 69. Despite the steep, short-term decline and the dim road ahead (neither of which is present
here with respect to the Fixed/Floating hotels), the Court focused on IBP's overall, long-term
financial performance. ld. at 69-70. Similarly, in Bear Stearns Cos. v. Jardine Strategic
Holdings, Ltd., No. 0031731/1987, 1990 N.Y. Misc. LEXIS 770 (N.Y. Sup. Ct. June 13, 1990),
the court held that a tender offeror who agreed to purchase 20 percent of Bear Stearns could not
rely on a MAE clause that allowed it to "terminate ... [if] any change shall have occurred or
been threatened [to occur]" (id. at *4) to avoid a contract as a matter of law, even where in the
period between signing and closing, Bear Steams suffered: a $100 million loss as a result of
Black Monday; a $48 million quarterly loss, (its first in history); and a decline in net profits.
ld. at *13, 14 n.6).
Other courts have reached similar conclusions. In Frontier Oil, the court, evaluating a
MAE provision that, like here, included the term "prospects," found that although class action
lawsuits asserting hundreds of millions of dollars in claims could be "catastrophic" to Frontier,
any such impact was too uncertain to conclude it could have a material adverse effect on the
company's "prospects." ld. at *33-36. In Hexion, the Delaware Chancery Court likewise
rejected a buyer's attempt to terminate a merger based an alleged MAE where Hunstman's first-
half 2008 EBITDA was down nearly 20% year-over-year from its first-half 2007 EBITDA, and
its second-half 2007 EBITDA was 22% below projections presented to bidders, including
Hexion. Jd. at 740. This was notwithstanding the fact that to support its allegation that there had
been a MAE, Hexion presented evidence that the combined companies would be insolvent as a
result of the transaction. Id. at 726-27.
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The holdings of all these cases are consistent with the notion that "a buyer faces a heavy
burden when it attempts to invoke a material adverse effect clause." ld. at 738. It is not,
therefore, surprising that "Delaware courts have never found a material adverse effect to have
occurred in the context of a merger agreement. This is not a coincidence." Jd.
3. Cerberus and Chatham Do Not Dispute That the Fixed/Floating Hotels'
Performance Taken as A Whole Remains Strong
Cerberus and Chatham point to no data or metric by which one can even come close to
concluding that there has been a "material adverse effect" on these 64 hotels taken as a whole.
Nor do they dispute the accuracy of Innkeepers' (or Island's) projections showing no such
material adverse effect-despite submitting three separate "expert" reports in this matter.
This, of course, is not surprising given Defendants' own public, and private, optimistic
statements in the months and weeks leading up to their tactical declaration of a MAE and
beyond. For example, Chatham's Mr. Fisher told his shareholders three days after the aborted
closing on August 5 that:
We know this portfolio inside and out, having bought or built and sold these
properties once already .... To be able to round-trip this investment at a
significant discount to both replacement cost and the value we sold at in 2007
means we will be able to generate excellent returns for our shareholders and our
partner.
(PX 14 at INN-CER00003986.) The following day, August 9, when asked if the recent
economic uncertainty gave him any pause regarding Chatham's outlook, Mr. Fisher responded:
We just don't see it and I'm sure you'd hear that from other hotel companies as
well. We don't see any effect of what's happening in the financial markets at the
hotel level .... [W]e are bullish, we remain bullish.
(PX 7 at 6, 9.) And on August 17-just two days before declaring a MAE-Mr. Fisher predicted
in Chatham's certified 8-K that:
Chatham expects to close on the acquisition of an approximate 9 percent interest
in joint venture for $37 million with affiliates of Cerberus Capital Management,
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L.P. in the next couple of weeks .... [and] Chatham expects to earn returns above
its 9 percent interest.
(PX 14 at INN-CER00062272-73.)
Cerberus' internal documents similarly reveal that on August 4 it was Cerberus' viewRE
DA
CT
ED
B. Cerberus' and Chatham's MAE Theory Is Untenable as a Matter of Law or Fact
On August 5, Cerberus "vetoed" the parties' closing in order to pursue a renegotiation
strategy. Rather than simply walking away and refusing to close, however, Cerberus and
Chatham went further-they declared a MAE. This applies pressure on Innkeepers and its
constituents to renegotiate, and scares off potentially competing acquirers.
Absent any basis to claim that the performance and prospects of the 64 Fixed/Floating
hotels taken as a whole has waned, much less materially and adversely changed, Cerberus and
Chatham instead charted a new course: they point to general macroeconomic events occurring
since the signing of the Commitment Letter and claim that these events give rise to a MAE. In
essence, Cerberus and Chatham and their experts, contend that slower U.S. GDP growth and
other factors untethered to the Fixed/Floating hotels' performance constitute a MAE.
Defendants' novel theory, however, is contrary to the established law which dictates that
MAE provisions are merely "a backstop protecting the acquiror from the occurrence of unknown
events that substantially threaten the overall earnings potential of the target in a durationally-
significant manner." IBP, 789 A.2d at 68; see also Frontier Oil, 2005 WL 1039027, at *34
(adopting In re IBP). Defendants' theory also runs afoul of the principal that a MAE can only be
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triggered by unknown, unforeseeable events. See IBP, 789 A.2d at 68; Bear Stearns, 1990 N.Y.
Misc. LEXIS 770, at * 17 -* 18.
Chatham's CEO, Mr. Fisher, admits that each of the so-called "unforeseeable"
developments that the Defendants cite as the basis for the MAE was in fact known before
Chatham signed the Commitment Letter on May 16, including the risk that the performance and
value of the Innkeepers' (and Chatham's) hotels could be impacted by "volatility in the national
economy," "economic conditions generally" and the "availability of debt and equity capital,"
among other grounds. (Fisher Dep. at 327, 341-42 [rough].) In other words, they were not
"unforeseeable" at all.
Moreover, Defendants' theory is at odds with the facts of the case at hand. Specifically,
neither the Commitment Letter nor Term Sheet includes a market MAE provision. During the
negotiations that led to the Five Mile/Lehman Commitment Letter, Five Mile/Lehman
specifically requested, and Innkeepers rejected, the inclusion of a market MAE termination that
would trigger upon "[t]he occurrence of any material adverse condition, change in or material
disruption of conditions in the financial, banking, capital or hospitality markets and extended
stay lodging sector that would reasonably impair the viability or success of the Transaction with
such Termination Event." (PX 47 at INN-CER 61982.) Likewise, the MAE provision is not a
due diligence out, particularly where, as here, the Defendants specifically waived any due
diligence contingencies in the Commitment Letter. Nor is the MAE provision a guarantee of
Cerberus' expected rate of return or, as Cerberus' "expert" suggests, a guarantee of "Cerberus's
business plan ... [or its] .. ability to accomplish [] planned asset sales at reasonable prices."
(Report ofDaniel Fischel ("Fischel Report") at 16 (9/27/2011).)
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But even if one were to ignore the express terms of the MAE clause here and look at the
selective macroeconomic headlines Defendants cite, Defendants' theory still does not hold water.
For example, Defendants' stated bases for claiming a material adverse effect based on events
between May 16 and August 19 include: U.S. economic conditions deteriorated; reduced U.S
GDP projections; widespread reports of a possible "double dip" recession; and Standard &
Poor's ("S&P") downgrade of the United States' credit rating. (Cerberus Supp. Resp. & Objs. to
Pls.' Interrog. No. 1 (Sept. 21, 2011), attached as Exhibit H; Chatham Supp. Resp. & Objs. to
Pls.' Interrog. No. 1 (Sept. 22, 2011 ), attached as Exhibit C.) Putting aside the fact that the
Defendants do not link these events to the Fixed/Floating hotels taken as a whole as required by
the MAE provision, each of these alleged bases were recognized and foreseeable at the time the
parties executed the Commitment Letter. For example:
On April 18, 2011 Standard and Poor's changed its long-term outlook for U.S.
sovereign debt from stable to negative, and warned that "there is a material risk that
U.S. policymakers might not reach an agreement on how to address medium- and
long-term budgetary challenges by 2013; if an agreement is not reached and
meaningful implementation is not [begun] by then, this would in our view render the
U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns." (PX 62
at 2.)
On May 4, 2011, the New York Times noted: "A range of experts, including the
Federal Reserve chairman, Ben S. Bernanke; former Treasury officials from both
political parties; and economists from across the ideological spectrum, warn that
missing payments would be catastrophic .... [E]ven if markets do remain calm, the
cost of a standoff will rise sharply when Treasury exhausts its current measures
around Aug. 2." (PX 296 (quotations omitted).)
On May 15, 2011, The Wall Street Journal reported: "Treasury Secretary Timothy
Geithner warned in a letter to Congress that failure to raise the $14.294 trillion debt
ceiling would drive up interest rates, push down household wealth, put more pressure
on federal entitlement programs and cause a double-dip recession." (PX 307.)
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Because the risk of slower growth in the macroeconomy is present in any business transaction
and was plainly foreseeable at the time the Commitment Letter was signed, the Defendants'
newly crafted MAE arguments are simply untenable.
Nor can the Defendants rely on the decline in the stock market values of REITs or
comparable companies as "evidence" of a MAE. Stock market values have long been
recognized to be inaccurate indicators of the underlying financial condition or future prospects
for lodging industry assets. ( Corgel Report at 18-19.) The decline in stock market values of
REIT' s reflects nothing more than the reality that market participants desire a higher rate of
return for a given level of risk; it is not an indication that the underlying value (much less actual
performance) of the company has decreased. (!d.) Mr. Fisher himself recognized that the share
price of stock market REITs is not a reliable indicator of performance or prospects of the
underlying assets. Following a drop in Chatham's share price the week of August 8, Fisher
denied any impact on Chatham's hotels: "We just don't see it, and I'm sure you hear that from
other hotel companies as well, we don't see any effect of what's happening in the financial
markets at the hotel level. ... [W]e are bullish, we remain bullish." (PX 7 at 6l
Simply put, the alleged bases for a MAE articulated by Defendants are nothing more than
window-dressing meant to obscure Defendants' true motives-to negotiate a lower price at the
expense of a company (and its constituents) in bankruptcy. Cerberus' "vetoed" the parties'
August 5 closing at the last moment, just days after Innkeepers was left without a backup bidder,
6
The same fatal flaws sink Defendants' argument that a MAE resulted from "severe tightening in the capital
markets, making financing more expensive." (Cerberus Resp. & Objs. to Pis.' lnterrogs. Nos. I & 2 (Sept. 9,
2011 ).) As an initial matter, this argument is at odds with the fact that Chatham obtained "historically attractive"
financing for one of its hotels just two days before the alleged MAE. Moreover, had the Defendants completed the
transaction contemplated by the Commitment Letter, the Fixed/Floating hotels would have had their financing needs
met. The cost of the Midland financing-which Defendants described as "attractive" in their internal documents-
has not changed and remained available for closing.
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and three days after counsel for Cerberus informed the Court that we "want to close this week."
However, declaring a MAE was merely, as Cerberus' executives acknowledge, part of their
strategy to renegotiate the price of the deal because, according to Cerberus, REDACTED
(Feinberg Dep. at 84:9-18.) The
problem for Cerberus and Chatham is that they entered a "binding and irrevocable" agreement
with Innkeepers and its constituents who are entitled to the benefit of their bargain. It is for just
this reason that courts find that this type of post-hoc rationalization governs against finding a
MAE. See In re IBP, 789 A.2d at 65.
7
II. THE COMMITMENT LETTER DOES NOT LIMIT INNKEEPERS' REMEDIES
Recognizing the fatal flaws in their MAE claim, Cerberus and Chatham spend the bulk of
their responsive pleadings arguing that this Court should imply a limit on Innkeepers' remedies.
(See, e.g., Cerberus Answer at 1-4.) Although the Commitment Letter and Term Sheet do not
contain any limitation on available remedies, Cerberus and Chatham nonetheless attempt to
sweep one in by pointing to a liquidated damages clause found in the Bidding Procedures.
Further, Cerberus and Chatham argue this Court should imply a limitation on remedies even
though a limitation on remedies provision was deleted from the Commitment Letter during
negotiations. To put this in perspective, Cerberus and Chatham argue it was the intent of the
parties to include a liquidated damages provision that they themselves deleted from an early draft
7
These very same actions also constitute a breach of the covenant of good faith and fair dealing that are implied in
every contract under New York law. See 511 W 232nd Owners C01p. v. Jennifer Realty Co., 98 N.Y.2d 144, 153
(2002) ("In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance ...
[which] embraces a pledge that 'neither party shall do anything which will have the effect of destroying or injuring
the right of the other party to receive the fruits of the contract'.") (citations omitted).
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of their Commitment Letter. That makes no sense and there is no basis in law to include such an
extra-contractual provision as a part of the parties' agreement.
A. The Commitment Letter Is A Fully Integrated Agreement That Does Not Limit
Innkeepers' Remedies
"A familiar and eminently sensible proposition of law is that, when parties set down their
agreement in a clear, complete document, their writing should as a rule be enforced according to
its terms." WWW Assocs., Inc. v. Giancontieri, 566 N.E.2d 639,642 (N.Y. 1990); Terwilliger
v. Terwilliger, 206 F.3d 240, 245 (2d Cir. 2000) ("Under New York Law, a written contract is to
be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal
language they have employed."). There can be no dispute here that the Commitment Letter and
Term Sheet (and their attachments) constitute the complete and entire agreement among the
parties. The "Entire Agreement" clause in paragraph 15 of the Commitment Letter makes that
fact abundantly clear:
Entire Agreement. This Amended and Restated Commitment Letter and the
Amended and Restated Term Sheet, together with the Appendices and Exhibits
thereto, represent the entire understanding and agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings among the parties hereto, both
written and oral, with respect to the subject matter hereof. (emphasis added).
8
New York law strictly enforces integration and merger clauses such as the "Entire Agreement"
clause here. See, e.g., Montefiore Med. Ctr. v. Crest Plaza LLC, 889 N.Y.S.2d 506, at *12 (Sup.
Ct. 2009) ("New York courts strictly enforce such merger clauses."). And the presence of an
8
Although the integration clause contained in paragraph fifteen of the Binding Commitment Letter is alone
sufficient to express the parties' intent to create a fully integrated agreement, other provisions of the Binding
Commitment Letter confirm that it represented the entire agreement and understanding among the parties. For
example, Cerberus and Chatham represented in the Binding Commitment Letter that they (i) possessed financing to
fund the transaction and were waiting on no financing contingencies (PX 1, Binding Commitment Letter ~ ~ 3-4);
had obtained all approvals or authorizations to execute the transaction (id. ~ 8); and had completed all due diligence
(id. ~ 3).
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integration clause "evinc[es] the parties' intent that the agreement is to be considered a
completely integrated writing" and "bar[s] the introduction of extrinsic evidence to alter, vary or
contradict the terms of the writing." Jarecki v. Shung Moo Louie, 745 N.E.2d 1006, 1009 (N.Y.
2001) (quotations omitted); Muze, Inc. v. Digital On-Demand, Inc., 123 F. Supp. 2d 118, 128 n.9
(S.D.N.Y. 2000) ("[I]f a contract is an unambiguous and integrated writing, a court may not
consider extrinsic evidence to vary, contradict, add to, or explain its terms.")
Significantly, although Cerberus and Chatham attached certain "Appendices and
Exhibits" to the Commitment Letter that they expressly made a part of the parties' agreement
through the Entire Agreement clause in paragraph 15, they did not include the Bidding
Procedures among those attachments. (See PX 1, Exhibits A-H.) As a fully integrated
agreement, the Commitment Letter, the Term Sheet, and the attached exhibits and appendices
embody the complete terms of the agreement between Cerberus and Chatham and Innkeepers.
And looking within the four comers of that agreement leads to only one conclusion: the parties
did not restrict their remedies in the event of breach. Well-established New York law provides
that a limitation on remedies will not be implied and that it must be "clearly, explicitly and
unambiguously expressed in a contract." Terminal Cent., Inc. v. Henry Modell & Co., Inc., 212
A.D.2d 213, 218-19 (N.Y. Sup. Ct. App. Div. 1995); see also Crow & Sutton Assocs., Inc. v.
Welliver McGuire, Inc., 32 A.D.3d 651, 651 (N.Y. Sup. Ct. App. Div. 2006) ("A provision
purporting to limit damages must be clear to be enforceable."). Here, however, there is no
provision in the Commitment Letter, the Term Sheet, or any of the attached exhibits or
appendices that even purports to limit Innkeepers remedies in the event of breach, much less one
that does so "clearly, explicitly and unambiguously." Terminal Cent., 212 A.D.2d at 218; see
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also In re Food Mgm 't Group, LLC, No. 04-22880, 2007 WL 4352225, at *4 (Bankr. S.D.N.Y.
Dec. 10, 2007) ("A liquidated damages provision may not be implied and must be agreed to.").
B. The Commitment Letter Does Not Incorporate the Bidding Procedures
Unable to point to any plain language in the Commitment Letter that imposes a limitation
on available remedies, Defendants try to argue that the Commitment Letter somehow
incorporates the Bidding Procedures by reference. (See Cerberus Answer at 3.) But Cerberus'
and Chatham's attempt to rely on oblique references to the Bidding Procedures falls woefully
short of satisfying the well-established standard under New York law for incorporation by
reference, particularly when they deleted the liquidated damages provision from the
Commitment Letter in the first place.
Under New York law, extrinsic documents or terms are deemed incorporated by
reference "only when the agreement specifically references and sufficiently describes the
document to be incorporated such that the latter may be identified beyond all reasonable doubt"
and when "it [is] clear that the parties to the agreement had knowledge of and assented to the
incorporated terms." Sea Trade Co. Ltd. v. FleetBoston Fin. Corp., No. 03 Civ. 10254,2007 WL
1288592, at *4 (S.D.N.Y. May 1, 2007) (holding that general references to Bank's "rules" and
"regulations" were insufficient to incorporate Bank's Terms of Conditions) (quotation marks
omitted; emphasis in original). There is no provision of the Commitment Letter or Term Sheet
that can fairly be said to satisfy this rigorous standard with respect to the Bidding Procedures.
To begin, the terms of the Commitment Letter clearly show that the parties knew how to
incorporate a document by reference when they wanted to, and that they did not include the
Bidding Procedures among those incorporated documents. For example, the preamble to the
Commitment Letter states that "[t]he specific elements of [Defendants'] Commitment are set
forth in this Amended and Restated Commitment Letter, the Amended and Restated Term Sheet
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and the other Investment Documents." (PX 1 at 2; see also id. at 1 ("This Amended and
Restated Commitment Letter, together with the Amended and Restated Term Sheet, the other
Exhibits hereto and the other documents submitted herewith, constitute our Investment
Documents and Bid.").) And the Entire Agreement clause states plainly that only the "Amended
and Restated Commitment Letter, ... the Amended and Restated Term Sheet, ... and [the]
Appendices and Exhibits thereto" comprise the parties' agreement. (PX 1 ,-r 15.)
Cerberus/Chatham and Innkeepers thus clearly set forth those documents that embodied the
terms of their agreement, and they just as clearly did not include the Bidding Procedures.
Implicitly conceding that the Commitment Letter cannot fairly be read to expressly
incorporate the Bidding Procedures, Cerberus and Chatham instead argue that certain references
to the Bidding Procedures outside of the Entire Agreement provision, are sufficient to show that
the parties intended "beyond all reasonable doubt" to incorporate the Bidding Procedures. Sea
Trade Co., 2007 WL 1288592, at *4 (quotation marks and emphasis omitted). For example,
Cerberus and Chatham lean heavily on section 6 of the Commitment Letter which states: "In
accordance with the Bidding Procedures Order, [Cerberus and Chatham] have deposited cash in
an amount equal to $20 million (the "Deposit") to [the escrow agent]." That language cannot
fairly be read to incorporate the Bidding Procedures, especially when the parties had a specific
and explicit procedure to incorporate documents into the Commitment Letter. (See PX 1 at 1-2,
,-r 15; Term Sheet at 6.) Moreover, paragraph 6 ofthe Commitment Letter makes no reference at
all to the liquidated damages clause, much less the kind of "explicit[] and unambiguous[]"
indication that is required to impose a limitation on remedies. Terminal Cent., 212 A.D.2d at
219. Instead, it is only an acknowledgement of an act already taken that was a precondition of
even submitting a bid (much less the winning bid) for the sponsorship of Innkeepers'
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reorganization. (See PX 88 at 4.) On its face, the "in accordance with" language does not create
or describe any substantive rights or obligations. Cerberus' and Chatham's acknowledgment that
they had previously made the required deposit simply says nothing about whether the parties also
agreed to a limitation on remedies as part of their subsequently negotiated and fully integrated
agreement.
For similar reasons, there is no merit to Cerberus' and Chatham's suggestion that
paragraph 16 of the Commitment Letter somehow evinces an intent to incorporate the liquidated
damages clause into the parties' fully integrated agreement. (See, e.g., Cerberus Answer;
Cerberus Supp. Resp. & Objs. to Pls.' Interrogs. at 19, attached as Exhibit H.) Paragraph 16
provides that "[n]otwithstanding the termination of this Amended and Restated Commitment
Letter in accordance with its terms," paragraph 6 of the Commitment Letter "shall survive such
termination and shall continue in full force and effect." (PX 1 ~ 16 (emphasis added).) This
provision is just an acknowledgement that there was, in fact, a deposit and that if the
Commitment Letter is terminated that deposit must be disposed of (which would be done
according to the terms of the Escrow Agreement governing that deposit). The provision does not
purport to limit or describe the parties' remedies in the event of a wrongful breach.
If anything, the Term Sheet's reference to the escrow agreement only confirms that the
parties did not agree to any limitation on remedies. The escrow agreement specifically provides
REDACTED
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In short, none of these provisiOns comes even close to "clearly, explicitly and
unambiguously" limiting Innkeepers' remedies in the event of breach of the Commitment Letter.
Terminal Cent., 212 A.D.2d at 219. Indeed, underscoring the flaws in Cerberus' and Chatham's
incorporation-by-reference theory, other provisions of the Commitment Letter demonstrate that
the parties knew how to-and did-express an unambiguous intent to incorporate other specific
deal terms included in extrinsic documents. Most notably, the Term Sheet explicitly
incorporates the bid-protection measures approved in this Court's May 19, 2011 Order: "The
Plan Sponsors [Cerberus and Chatham] and New HoldCo shall be entitled to the protections
contained in the order . . . approving the adequacy of the Disclosure Statement" and making
certain other approvals. (PX 1, Term Sheet at 6.) If the parties had intended to also incorporate
the liquidated damages clause into their agreement, they would have included similar language
stating that Cerberus and Chatham were "entitled to the protections contained in" the Bidding
Procedures. They did not. Cerberus' and Chatham's failure to request this type of express and
unequivocal language, and the parties' failure to include such language, only confirms that no
limitation on remedies was intended.
C. The Commitment Letter Is Not Ambiguous, And Thus Extrinsic Evidence Cannot
Be Used To Vary Or Add To Its Terms
Given the absence of any language in the Commitment Letter that purports to directly, or
by incorporation, limit Innkeepers' remedies in the event of breach, Cerberus' and Chatham's
real argument is that this Court should rely on extrinsic evidence to modify the terms of the
parties' agreement. It is well established, however, that "extrinsic evidence is admissible
notwithstanding an integration clause only when used in aid of resolving ambiguities in the
contract." Muze, Inc., 123 F. Supp. 2d at 128 n.9. (emphasis added); id. ("[I]f a contract is an
unambiguous and integrated writing, a court may not consider extrinsic evidence to vary,
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contradict, add to, or explain its terms."). There is no ambiguity in need of resolution in this
case.
"[T]he language of a contract is ambiguous if it is capable of more than one meaning
when viewed objectively by a reasonably intelligent person who has examined the context of the
entire integrated agreement." Lockheed Martin Corp. v. Retail Holdings, NV, 639 F.3d 63, 69
(2d Cir. 2011) The Commitment Letter and the Term Sheet, however, simply leave no room for
reasonable disagreement about whether those documents impose a limitation on remedies:
neither contains a liquidated damages clause or any other provision purporting to restrict the
availability of remedies in the event of breach.
The only way Cerberus and Chatham even argues ambiguity is by pointing to the terms
of the Bidding Procedures-a document that, as explained, was not made part of the agreement
between Defendants and Innkeepers. But, as the New York Court of Appeals has emphasized,
"extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement
which is complete and clear and unambiguous upon its face." W W W Assocs., 566 N.E.2d at
642. Indeed, any analysis that "begins with consideration of extrinsic evidence of what the
parties meant, instead of looking first to what they said and reaching extrinsic evidence only
when required to do so because of some identified ambiguity, unnecessarily denigrates the
contract and unsettles the law." !d. (reversing lower court decision that considered extrinsic
evidence because, inter alia, "before looking to evidence of what was in the parties' minds, a
court must give due weight to what was in their contract"); see also, e.g., DDS Partners, LCC v.
Celenza, 6 A.D.3d 347, 349 (N.Y. Sup. Ct. App. Div. 2004) (holding that lower court "erred in
relying on extrinsic evidence ... to create an ambiguity in a written agreement which is complete
and clear and unambiguous upon its face") (quotations omitted); Mitchell v. Leahey, 289 A.D.2d
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1 002, 1 003 (N.Y. Sup. Ct. App. Div. 2001) (holding that lower court erred in considering
extrinsic evidence where contract was unambiguous). This Court should thus reject Cerberus'
and Chatham's attempt to use the Bidding Procedures to inject ambiguity into an otherwise
unambiguous agreement.
9
A finding of ambiguity is particularly unjustified in this case given that the Commitment
Letter and Term Sheet were negotiated and agreed to by sophisticated parties represented by able
counsel. The normal presumption that "a deliberately prepared and executed written instrument
manifests the true intention of the parties" applies with "even greater force when the instrument
is between sophisticated, counseled businessmen." Quantum Chern. Corp. v. Reliance Grp., Inc.,
180 A.D.2d 548, 548-49 (N.Y. Sup. Ct. App. Div. 1992); Millgard Corp., 2003 WL 22741664,
at *8 ("[W]here contracts are drafted by skilled attorneys, courts are required to treat the written
contract as giving expression to the intentions of the parties ... [and] [t]he omission of [terms] ...
must be understood as a conscious decision not to include such terms."). Such commercially
experienced parties as Cerberus and Chatham surely would have included a liquidated damages
clause in the Commitment Letter or Term Sheet if they had intended to impose such a limitation
on remedies.
D. Even if Properly Considered, The Extrinsic Evidence Shows That The Parties Did
Not Agree To A Limitation On Remedies
Even if it were permissible to consult extrinsic evidence in this case, that evidence shows
conclusively that the parties did not agree to limit Innkeepers' remedies in the event of a breach
by Cerberus and Chatham.
9
Just as New York Jaw does not permit parties to use extrinsic evidence to create an ambiguity in an otherwise clear
agreement, it also does authorize parties to rely on a purported omission in arguing ambiguity. See, e.g., Millgard
Corp. v. E.E. Cruz/Fronier-Kemper, No. 99 Civ. 2952, 2003 WL 22741664, at *3 (S.D.N.Y. Nov. 18, 2003)
("[U]nder New York law, the omission of terms in a contract does not create ambiguity."). Thus any argument by
Defendants that the omission of a liquidated damages provision in the Commitment Letter somehow creates
ambiguity is foreclosed as a matter oflaw.
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STIPULATED PROTECTIVE ORDER (DE 34)
Cerberus and Chatham cannot avoid the one piece of extrinsic evidence that completely
undermines their arguments: It was Cerberus and Chatham themselves that deleted a liquidated-
damages clause from the draft Commitment Letter they submitted to Innkeepers. In submitting a
bid for the sponsorship and funding of the Fixed/Floating Plan, each bidder was required to
submit "a marked copy of the [Five Mile/Lehman] Commitment Letter and Term Sheet that
reflects all changes proposed by the Competing Bidder." (PX 88 at 5.) The Five Mile/Lehman
Commitment Letter included a limitation on remedies that provided: "In the event that a Plan
Sponsor breaches this Amended Commitment Letter and fails to close the Transaction ... the
Company's sole remedy at law and in equity against the Plan Sponsors shall be receipt and
retention of the deposit ... as liquidated damages." (PX 52.1 ,-r 7.) When they submitted their
marked up version of the Five Mile/Lehman Commitment Letter and Term Sheet, Cerberus and
Chatham had deleted that language from the Commitment Letter, thus indicating that they were
REDACTED
In
other words, Cerberus and Chatham are attempting to resurrect a contractual term that they
themselves removed from the parties' agreement.
In addition to explicitly removing the liquidated-damages clause, Cerberus and Chatham
also specifically agreed to include-and in fact added-the Entire Agreement clause in the
Commitment Letter. In Cerberus' and Chatham's first proposed markup of the Commitment
Letter and Term Sheet they proposed deleting the Entire Agreement clause from the Five
Mile/Lehman Commitment Letter. (PX 54 at INN-CER 33946.) Two days later, Innkeepers
forwarded to Cerberus and Chatham comments from Midland, in which Midland questioned
Cerberus' and Chatham's deletion of the Entire Agreement clause and stated that it "should be
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added back with a deletion to any reference to the Lehman/Five Mile Commitment." (PX 59 at
INN-CER 36764.) Cerberus and Chatham subsequently submitted a revised version of their
proposed Commitment Letter and Term Sheet that reinserted the Entire Agreement clause as it
appears in the final agreement. (PX 60 at INN-CER 57332.) Having affirmatively added the
Entire Agreement clause to the Commitment Letter, Cerberus and Chatham cannot deny that
they knew and intended for the Commitment Letter, the Term Sheet, and their attached exhibits
and appendices to constitute a fully integrated agreement embodying all of the terms to which
the parties agreed.
Although Cerberus and Chatham cannot dispute that they themselves deleted the
liquidated-damages provision from (and added the Entire Agreement to) the Commitment Letter,
they nonetheless argue that this Court should ignore that fact because Innkeepers somehow did
not do enough to acknowledge it. Specifically, Cerberus and Chatham fault Innkeepers for not
mentioning their deletion of the liquidated damages clause "at the auction, in the disclosure
statement, or at any hearing" (Cerberus Answer at 4), and for not highlighting the absence of the
liquidated-damages clause in comparing the bids proposed by Five Mile/Lehman and
Cerberus/Chatham. (See Expert Report of Robert Manzo ("Manzo Report") at 20 (9/27/2011).)
But there is nothing in New York law or common sense to support the proposition that Cerberus
and Chatham can avoid the consequences of their own decision to delete a contract term by
arguing that the parties did not make a big enough deal about it. It is undisputed that Cerberus
and Chatham removed the liquidated damages clause and that Innkeepers accepted that proposed
change by not objecting to it and leaving the language as proposed in the final contract. With
both parties in agreement, Innkeepers was under no obligation to discuss the issue. That is
especially true in this context, where one would naturally expect the parties to remain focused on
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those terms that are relevant to the completion of a transaction, not on those that are triggered
when a party reneges on a deal at the eleventh hour.
The bottom-line is this: if commercially sophisticated parties (represented by counsel)
such as Cerberus and Chatham had intended to make the liquidated-damages clause of the
Bidding Procedures part of their agreement, they could easily have accomplished that purpose by
drafting the Commitment Letter to include that provision. See, e.g, Schron v. Grunstein, 917
N.Y.S.2d 820, 826 (Sup. Ct. 2011); Millgard Corp, 2003 WL 22741664, at *8 ("[W]here
contracts are drafted by skilled attorneys, courts are required to treat the written contract as
giving expression to the intentions of the parties."). REDACTED
In contrast to these other bidders, Cerberus and Chatham
not only declined to include a liquidated damages provision in the Commitment Letter, they
specifically deleted any reference to liquidated damages. It is hard to see what more the parties
could have done to express their intent not to be subject to any limitation on remedies in the
event of breach.
E. The Bidding Procedures No Longer Applied After The Parties Executed The
Commitment Letter
A persistent refrain in Cerberus' and Chatham's pleadings to date is that they did not
need to include a liquidated damages clause in the Commitment Letter because that clause was
already spelled out in the Bidding Procedures, and the Bidding Procedures, according to
Cerberus and Chatham, continued to govern the parties' relationship even after they had
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executed the Commitment Letter with the "Entire Agreement" provision. That argument is not
only wrong as a legal matter, but it attempts to rewrite the bargaining history between the parties.
Cerberus' and Chatham's argument reflects a fundamental misunderstanding of the
purpose and nature of the Bidding Procedures. The Bidding Procedures described the terms that
governed the auction and the submission of bids. (See, e.g., PX 88 at 3 ("[T]he Bankruptcy
Court ... approved the following procedures (the "Bidding Procedures"), pursuant to which the
Debtors will continue to solicit such Bids, including Qualified Bids, from Competing
Bidders.").) Once the auction was over, however, Cerberus and Chatham were required to and
did "execute and agree to the Commitment Letter, the Term Sheet, and other related documents,
each as modified to incorporate the results of the Fixed/Floating Auction." (PX 88 at 12.) This
Court then approved the Commitment Letter in its May 19, 2011 Order, by authorizing
Innkeepers to "enter into the Commitment Letter and all other documents related thereto ... and
to take all actions necessary to perform their obligations thereunder and consummate the
transactions contemplated thereby." (PX 4 ~ 30.)
From that point forward, the Commitment Letter, Term Sheet, and their attachments
identified the exclusive terms governing the relationship between the parties. The Bidding
Procedures no longer applied. That is precisely why the other bidders for the Fixed/Floating
hotels included a liquidated damages clause in their proposed commitment letters,
notwithstanding the fact that such a clause was also mentioned in section 8 of the Bidding
Procedures. (See PX 315; PX 52.1; PX 55.) And it is presumably why the July 29, 2011
Confirmation Order Court referred to the Commitment Letter-not the Bidding Procedures-as
the controlling document. (See PX 5 ~ 140 ("This Confirmation Order, the Plan, the
Commitment Letter, and all other documents related thereto, reflecting the terms of the
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Fixed/Floating Successful Bid, shall be binding in all respects."); id. ~ 227 (identifying
Commitment Letter as among documents "approved in their entirety and, ... shall be in full force
and effect and valid, binding and enforceable in accordance with their terms without the need for
any further notice or action."); see also ~ ~ 137-38.) There is simply no merit to Cerberus' and
Chatham's argument that the Bidding Procedures continued to apply after the parties had
executed the Commitment Letter.
This same reasoning shows why it is simply irrelevant for present purposes that the
Auction was "conducted subject to and in accordance with the Bidding Procedures Order" and
that Defendants' bid was "submitted in accordance with the Bidding Procedures Order."
(Cerberus Answer at 4.) No one in this case disputes that the Bidding Procedures existed. But
once a successful bid was chosen and the parties executed a new contract (with the liquidated
damages provision deleted and other provisions in conflict with the Bidding Procedures
included) that "represent[ ed] the entire understanding and agreement among the parties," (PX 1
~ 15), the Bidding Procedures no longer applied, and the parties' relationship was governed by
the terms of the contract into which they entered and which this Court approved. And even at
the Auction itself, it was agreed that "both parties [we ]re bidding ... on the terms that they have
submitted to the debtors." (PX 46 at 30:24-31:5.)
The parties' bargaining history further shows that Cerberus and Chatham were well
aware that the Bidding Procedures would not apply once the Commitment Letter was executed
and approved by this Court. In negotiating the terms of the Commitment Letter, Cerberus and
Chatham sought and Innkeepers agreed to certain terms that either directly conflict with or
substantially modify those in the Bidding Procedures. For example, the Bidding Procedures
expressly prohibited any Bid from including any "break-up fee, expense reimbursement, or
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similar type of payment." (PX 88 at 6.) Yet Cerberus/Chatham and Innkeepers agreed to and
included in the Term Sheet-via an express incorporation by reference of this Court's May 19,
2011 Order-a $12 million break-up fee and a $3 million expense reimbursement. (See PX 1,
Term Sheet at 6; PX 4 ~ 33.)
Additionally, the Bidding Procedures and the Five Mile/Lehman Commitment Letter
contained a broad fiduciary-out provision that granted Innkeepers wide discretion to terminate
the deal to pursue a more favorable transaction. (See PX 88 at 15.) Defendants and Innkeepers,
however, negotiated over a new fiduciary-out provision for several days, and ultimately included
in the Term Sheet a fiduciary-out provision that imposes greater restrictions on Innkeepers'
ability to terminate in favor of alternative transactions. (See PX 1, Term Sheet at 6; PX 4 ~ 34.)
By continuing to negotiate over various deal terms, and by explicitly including those terms in the
Term Sheet, Cerberus and Chatham affirmed their understanding that it was the Commitment
Letter, the Term Sheet, and their attachments that reflected the entirety of the parties' agreement.
In addition to including terms that are substantially different from those in the Bidding
Procedures, the Commitment Letter also includes provisions that do nothing more than reiterate
terms contained in the Bidding Procedures-provisions it would have been entirely unnecessary
to include if, as Cerberus and Chatham claim, the Bidding Procedures continued to apply. For
example, in the Commitment Letter the parties agreed to submit to the exclusive jurisdiction of
this Court to resolve any disputes and to waive all rights to a jury trial. (PX 1 ~ 11.) But the
Bidding Procedures, under Defendants' logic, already imposed those requirements and thus
would be unnecessary to restate in the Commitment Letter. (See PX 88 at 6.) Similarly,
although the Bidding Procedures specifically describe the cash requirements to which each bid
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was required to commit (PX 88 at 8), the Term Sheet restates all of those requirements. (PX 1,
Term Sheet at 4-5.)
If there could be any doubt regarding Cerberus' and Chatham's plain understanding of
the nature and status of the Bidding Procedures, it was surely erased whe:tfEDACTED
Cerberus and Chatham
allege in their Answer that Innkeepers did not raise the absence of a limitation on remedies until
Innkeepers filed its Complaint in this case-which occurred six days after Cerberus and
Chatham submitted their revised bid. (See Ceberus Answer at 3 ("Plaintiffs' newly contrived
position that the Defendants do not enjoy the benefits of ... the liquidated damages provision ...
was raised for the very first time in the Complaint.").) In short, REDACTED
that their arguments in this case are nothing more
than post hoc attempts to rewrite the terms of the parties' agreement to include a limitation on
which they did not agree.
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III. THE COURT SHOULD ORDER SPECIFIC PERFORMANCE OF THE
COMMITMENT LETTER
If ever there were a case for specific performance, this is it. Section 1142(b) of the
Bankruptcy Code expressly affords this Court discretion to order the enforcement of the
Commitment Letter to ensure compliance with the terms of the confirmed reorganization plan.
Exercising that discretion is particularly appropriate here where breach of an underlying
agreement has upset the rights and expectations of parties in interest in these chapter 11 cases,
imperils the viability of countless negotiated settlements, and threatens to derail the overall
progress (including the hard-won "global peace") of these chapter 11 cases.
Specific performance would also be a practicable remedy in this case, given that the
parties were within hours of closing on August 5, 2011, Innkeepers stands ready and willing to
undertake the final steps necessary to close the transaction, and Cerberus and Chatham have
conceded the feasibility of specific performance REDACTED
Finally, Innkeepers is unlikely
to have an adequate remedy at law because of the possible disruption to the bankruptcy plan
caused by Defendants' breach and the difficulty in calculating a precise damages award on these
facts.
Given the plain terms and equitable nature of Section 1142(b ), countless number of
entities affected by Cerberus' and Chatham's failure to honor their commitments, Cerberus' and
Chatham's continued willingness to acquire the Fixed/Floating hotels, and the potential issues in
calculating an adequate damages award, specific performance is the appropriate remedy in this
case.
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A. This Court Should Order Specific Performance Under Section 1142(b) of the
Bankruptcy Code
Cerberus and Chatham always knew specific performance was a potential remedy
because they agreed to be Plan Sponsors. This was not merely a standalone Section 363 sale of
certain hotel properties, with the distribution of proceeds to be determined later. The Bankruptcy
Code provides for specific performance in circumstances such as these, where a plan sponsor's
breach of an underlying agreement poses a danger to the stability of the entire plan of
reorganization. Section 1142(b) of the Code authorizes the Court to "direct the debtor and any
other necessary party to execute or deliver . . . any instrument required to effect a transfer of
property dealt with by a confirmed plan, and to perform any other act ... that is necessary for the
consummation of the plan." 11 U.S.C. 1142(b). By enacting Section 1142(b), Congress
determined that "enforcement of a Chapter 11 plan and related agreements ... should be by
specific performance absent some clear reason to the contrary." In re Delphi Corp., No. 05-
4481,2008 WL 3486615, at *23 (Bankr. S.D.N.Y. Aug. 11, 2008).
"Moreover, Congress "did not require bankruptcy courts to weigh the adequacy of money
damages before directing specific performance under Section 1142." Id. "[I]n light of the
multiple third parties with interests in [a] Chapter 11 plan and the complexity of those parties'
coming together through the confirmation process, computing damages would be a decidedly
more complex, impractical and inferior remedy for such a breach." Id. Congress thus
"direct[ ed] the specific performance of a bankruptcy plan and transactions integrated into or
under that plan." Id.; see also In re Chateaugay Corp., 201 B.R. 48, 66 (Bankr. S.D.N.Y. 1996)
("The clear intent of Section 1142(b) of the Bankruptcy Code is to assure that the terms and
provisions of a confirmed chapter 11 plan are carried out until the plan is completed and a final
decree is entered closing the case."); In re Riverside Nursing Home, 137 B.R. 134
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(Bankr. S.D.N.Y. 1992) ("Subsection (b) of 1142 expressly authorizes the court to direct a
recalcitrant debtor or other party to perform acts necessary to consummate the plan.").
Thus, without regard to the adequacy or inadequacy of money damages, Section 1142(b)
directs that specific performance of the Commitment Letter should be granted in this case.
Cerberus' and Chatham's agreement to purchase the Fixed/Floating hotels was an integral part of
Innkeeper's consensual plan of reorganization, which involved direct and indirect participation
by countless third-party stakeholders in various capacities. For example, Innkeepers undertook
an extensive claims reconciliation process through which it resolved a substantial number of
claims. These creditors took into account the treatment their claims received in the
Fixed/Floating Plan. Further, on June 29, 2011, this Court confirmed the Fixed/Floating Plan.
The plan provided for numerous distributions, releases, and other benefits to those stakeholders,
and reflected many carefully crafted compromises and agreements that had been exhaustively
negotiated and ultimately approved by this Court.
This is, in other words, precisely the situation for which Section 1142(b) was intended to
provide relief: when a plan sponsor's breach threatens to undermine the finality of a confirmed
plan in this manner, placing at risk the rights and expectations of the many third parties that have
participated in the Chapter 11 process, Congress has directed that specific performance is the
appropriate remedy. See In re Delphi, 2008 WL 3486615, at *23.
B. Specific Performance Is An Appropriate Remedy In This Case Even Apart From
Section 1142
Even if Congress had not expressed a legislative preference for specific performance in
this context, specific performance of the Commitment Letter would nonetheless be warranted.
To justify an award of specific performance under New York law, a plaintiff must first establish
that it "substantially performed [its] contractual obligations," that it was "ready, willing and able
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to fulfill [its] remaining obligations," and that the defendant was "able but unwilling" to fulfill its
obligations. Alba v. Kaufmann, 27 A.D.3d 816, 818 (N.Y. Sup. Ct. App. Div. 2006). There can
be little doubt that those facts are true in this case, and thus that specific performance is an
entirely practicable remedy.
Prior to Cerberus' and Chatham's purported termination of the Commitment Letter, the
parties were minutes away from closing the sale of the Fixed/Floating hotels. Cerberus had
obtained all necessary authorizations from senior management, (PX 116), and had represented to
this Court at an August 2, 2011 hearing that the parties "want[ ed] to get this deal closed, and
want[ed] to get it closed this week." (PX 64 at 43:10-11.) On the proposed August 5 closing
date, all necessary documents had been finalized and executed, the necessary wire transfers had
been prepared, and the parties were about to close. (See, e.g., PX 70; PX 68.) It can thus hardly
be disputed that the only event that prevented the parties from closing on August 5 was
Cerberus' and Chatham's last-minute decision that they were unwilling to fulfill their
obligations. See Alba, 27 A.D.3d at 818.
Both Cerberus/Chatham and Innkeepers have also continued to demonstrate a strong
willingness and ability to consummate a transaction for the sale of the Fixed/Floating hotels.
Innkeepers remains willing to perform its obligations under the Commitment Letter. Cerberus
and Chatham, moreover, clearly still wish to acquire the Fixed/Floating hotels: after purporting
to terminate the Commitment Letter,REDACTED
Cerberus and Chatham have implicitly conceded that specific performance
is a practicable remedy that would not force the parties into an undesired transaction. See In re
IBP, 789 A.2d at 83 (finding that there was "no doubt that a remedy of specific performance
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Pg 72 of 75
[was] practicable" in light of the terminating-acquirer's "admi[ssion] that the combination still
make strategic sense" and that it was "still interested in purchasing [the target]"). REDACTED
Unlike Section 1142(b) of the Code, which is an independent basis to order specific
performance, New York common law requires a plaintiff seeking specific performance to
establish that "the invocation of the court's powers in equity is justified by the absence of an
adequate remedy at law." Edge Group WAICCS LLC v. The Sapir Group LLC, 705 F. Supp. 2d
304, 312 (S.D.N.Y. 2010). The absence of an adequate remedy at law turns on "the difficulty of
proving damages with reasonable certainty." !d. at 313 (quotation marks omitted). Where it is
too difficult or speculative to calculate damages, there exists a "substantial risk that an award of
money damages will either exceed or fall short of the promisee's actual loss" and thus an award
of specific performance is appropriate. !d. (quotation marks omitted). Courts "look to the
specific circumstances of the case to determine whether there is a sufficiently reliable means of
measuring" damages, and courts have "broad discretion" to award specific performance. !d. at
313-14.
The potential difficulty of accurately calculating money damages in this case counsels
strongly in favor of awarding specific performance. It will be difficult to accurately value the
short and long-term damages caused by the need to confirm a new plan. Although a new plan
might include similar distributions, releases, and third-party benefits, they very well could be "in
a different mix with different provisions and in different proportions." In re Delphi Corp., 2008
WL 3486615, at *16-17 (finding a right to specific performance where "there would be
substantial uncertainty in valuating this integrated transaction against some subsequent Chapter
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11 plan and its related transactions"); see also In re Aerovox, 281 B.R. 419, 426 (Bankr. D.
Mass. 2002) (granting specific performance because, inter alia, "money damages . . . will not
fully alleviate harm to [the Debtor's] creditors and the estate"). As a result, any damages award
poses a "substantial risk" of falling well short of providing adequate compensation to Innkeepers.
See Edge Group, 705 F. Supp. 2d at 313; see also Zmijewski R e p o r t ~ 53.
IV. IN THE ALTERNATIVE, INNKEEPERS IS ENTITLED TO MONEY DAMAGES
REDACTED
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REDACTED
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Dated: October 3, 2011
69
Is/ Daniel T. Donovan
Anup Sathy
Brian S. Lennon
601 Lexington A venue
Telephone: (212) 446-4800
Facsimile: (212) 446-4900
and
Daniel T. Donovan (admitted pro hac vice)
Patrick M. Bryan (admitted pro hac vice)
Jeffrey G. Landis (admitted pro hac vice)
655 Fifteen Street, N.W.
Washington, DC 20005-5793
Telephone: (202) 879-5000
Facsimile: (202) 879-5200
Counsel to Plaintiffs

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Non-Evidentiary Hearing Date: March 28, 2012 at 10:00 a.m.

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