This document is an appendix of evidence submitted in a bankruptcy case involving Innkeepers USA Trust. It includes a plan support agreement between Innkeepers and Lehman ALI Inc. regarding a restructuring of Innkeepers' debt obligations. The appendix contains 22 exhibits, including the plan support agreement, deposition transcripts, term sheets, and documents related to the proposed restructuring transaction. The evidence is being submitted in support of an objection to Innkeepers' motion to assume the plan support agreement.
/Debtors Motion for Entry of Interim and Final Orders Pursuant to 11 U.S.C. Sections 105, 361, 362, 363 and 507, Rules 2002, 4001, 9014 of the Federal Rules of Bankruptcy Procedure for an Order (1) Authorizing Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay, and (IV) Scheduling a Final Hearing filed by Albert Togut on behalf of Dewey & LeBoeuf LLP. (Attachments: # (1) Pleading Declaration of Jonathan A. Mitchell In Support of Debtors Motion# (2) Exhibit 1: Proposed Interim Order# (3) Exhibit A: Budget)
This document is an appendix of evidence submitted in a bankruptcy case involving Innkeepers USA Trust. It includes a plan support agreement between Innkeepers and Lehman ALI Inc. regarding a restructuring of Innkeepers' debt obligations. The appendix contains 22 exhibits, including the plan support agreement, deposition transcripts, term sheets, and documents related to the proposed restructuring transaction. The evidence is being submitted in support of an objection to Innkeepers' motion to assume the plan support agreement.
This document is an appendix of evidence submitted in a bankruptcy case involving Innkeepers USA Trust. It includes a plan support agreement between Innkeepers and Lehman ALI Inc. regarding a restructuring of Innkeepers' debt obligations. The appendix contains 22 exhibits, including the plan support agreement, deposition transcripts, term sheets, and documents related to the proposed restructuring transaction. The evidence is being submitted in support of an objection to Innkeepers' motion to assume the plan support agreement.
This document is an appendix of evidence submitted in a bankruptcy case involving Innkeepers USA Trust. It includes a plan support agreement between Innkeepers and Lehman ALI Inc. regarding a restructuring of Innkeepers' debt obligations. The appendix contains 22 exhibits, including the plan support agreement, deposition transcripts, term sheets, and documents related to the proposed restructuring transaction. The evidence is being submitted in support of an objection to Innkeepers' motion to assume the plan support agreement.
1221 Avenue of the Americas, 26th Floor New York, New York 10020 Telephone: (212) 659-7300 Facsimile: (212) 884-8211 Lenard M. Parkins (NY Bar # 4579124) John D. Penn (NY Bar # 4847208 and admitted pro hac vice) Trevor Hoffmann (NY Bar # 4067229) Mark Elmore (admitted pro hac vice)
Attorneys for Midland Loan Services, Inc.
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 ) APPENDIX OF EVIDENCE IN SUPPORT OF OBJECTION OF MIDLAND LOAN SERVICES, INC. TO DEBTORS MOTION FOR AN ORDER (A) AUTHORIZING THE DEBTORS TO ASSUME THE PLAN SUPPORT AGREEMENT AND (B) GRANTING RELATED RELIEF
TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE:
Midland Loan Services, Inc. hereby submits this Appendix of Evidence in Support of Objection of Midland Loan Services, Inc. to Debtors Motion for an Order (A) Authorizing the Debtors to Assume the Plan Support Agreement and (B) Granting Related Relief. 1885661_1.DOC Page 2 of 3 INDEX
Exhibit No. Document Title/Description Bates Range 1 Plan Support Agreement (Innkeepers) APP-00001- 00068 2 Motion of Lehman Commercial Paper Inc. Pursuant to Section 363 of the Bankruptcy Code for Authority to (i) Consent to its Non-Debtor Affiliate Lehman ALI Inc. (a) Entry Into Plan Support Agreement related to the Restructuring of Innkeepers USA Trust; and (b) Consummation of the Transactions Set Forth in the Plan Term Sheet; and (ii) Provide Funds to Solar Finance Inc., a Non-Debtor Affiliate, to Provide Debtor-In-Possession Financing APP-00069 - 00158 3 Notice of Filing of Supplemental Exhibit to Motion of Lehman Commercial Paper Inc. Pursuant to Section 363 of the Bankruptcy Code for Authority to (i) Consent to its Non-Debtor Affiliate Lehman ALI Inc. (a) Entry Into Plan Support Agreement related to the Restructuring of Innkeepers USA Trust; and (b) Consummation of the Transactions Set Forth in the Plan Term Sheet; and (ii) Provide Funds to Solar Finance Inc., a Non-Debtor Affiliate, to Provide Debtor-In- Possession Financing APP-00159 - 00167 4 Amended Declaration of Dennis Craven, Chief Financial Officer of Innkeepers USA Trust, in Support of First-Day Pleadings APP-00168 - 00205 5 Deposition Transcript of Schuyler Hewes, taken August 18, 2010 APP-00206 - 00311 6 Deposition Transcript of Marc A. Beilinson, taken August 12, 2010 APP-00312 - 00405 7 Deposition Transcript of Michael Lascher, taken August 19, 2010 APP-00406 - 00470 8 Form 10-Q: Apollo Investment Corporation (June 30, 2010) APP-00471 - 00552 9 Project Tavern (Lehman Discussion Materials) dated April 22, 2010 APP-00553 - 00568 10 Project Tavern (Midland Discussion Materials) dated April 28, 2010 APP-00569 - 00583 11 Handwritten notes APP-00584 - 00594 12 Draft Term Sheet of Proposed Restructuring (July 8, 2010) APP-00595 - 00608 13 Email from Glatt to Beilinson dated July 7, 2010 APP-00609 - 00626 14 Letter from Marriott to Original Lender dated June 29, 2007 APP-00627 - 00636 15 Email from Greer to Glatt dated July 14, 2010 APP-00637 - 00638 16 Email from Beilinson to Lascher dated July 18, 2010 APP-00639 17 Binding Commitment by Five Mile for the Acquisition of Innkeepers USA Trust APP-00640 - 00649 18 Email from Beilinson to Lascher dated July 17, 2010 APP-00650 - 00651 19 Email from Greer to Zelter dated July 17, 2010 APP-00652 - 00664 20 Term Sheet Alternative A - Illustrative Terms of Proposed Restructuring June 29, 2010 APP-00665 - 00668 21 Illustrative Terms of Proposed Restructuring - May [25], 2010 APP-00669 - 00679 22 Innkeepers Org Chart APP-00680
1885661_1.DOC Page 3 of 3 Respectfully submitted this 23rd day of August, 2010.
/s/ John D. Penn HAYNES AND BOONE, LLP 1221 Avenue of the Americas, 26th Floor New York, New York 10020 Telephone: (212) 659-7300 Facsimile: (212) 884-8211 Lenard M. Parkins (NY Bar# 4579124) John D. Penn (NY Bar # 4847208 and admitted pro hac vice) Trevor Hoffmann (NY Bar# 4067229) Mark Elmore (admitted pro hac vice) ATTORNEYS FOR MIDLAND LOAN SERVICES, INC.
EXECUTION COPY PLAN SUPPORT AGREEMENT This PLAN SUPPORT AGREEMENT (this "Agreement") is made and entered into as of July 17, 2010, by and among (i) Innkeepers USA Trust, a Maryland real estate investment trust ("Innkeepers" and collectively with its subsidiaries, the "Company" or the "Debtors"), including each obligor under the Floating Rate Debt (defined below) and (ii) Lehman ALI Inc., a Delaware corporation ("Lehman"), as mortgage lender. The Company and Lehman are sometimes collectively referred to herein as the "Parties" and individually as a "Party." The following exhibits are attached hereto and incorporated herein: Exhibit A Plan Term Sheet Exhibit B Marriott Agreement Exhibit C Floating Rate DIP Loan Term Sheet Exhibit D Fixed Rate DIP Loan Term Sheet Exhibit E Cash Collateral Order Exhibit F Form of Joinder Exhibit G Floating Rate Franchise Agreements Capitalized terms not defined in this introduction or in the recitals to this Agreement shall have the meanings assigned thereto in Section 1 hereof RECITALS WHEREAS, the Company is a borrower, and has obligations, under that certain mortgage loan agreement (the "Floating Rate Debt Agreement"), dated as of June 29, 2007, to Lehman and the parties thereto, as lenders; WHEREAS, the Parties, with the assistance of their legal and financial advisors, have engaged in good faith negotiations with the objective of reaching an agreement with regard to the conversion of the Floating Rate Debt into significantly all of the equity of the reorganized Company, on substantially the terms and conditions set forth in the Plan Term Sheet attached hereto as Exhibit A (the "Transaction"); WHEREAS, it is anticipated and a fundamental assumption and requirement of this Agreement, that the Transaction will be effectuated through a prearranged plan of reorganization (the "Plan") in chapter 11 bankruptcy cases under chapter 11 of title 11 of the United States Code 11 U.S.C. 101-1532 (the "Bankruptcy Code") filed by the Company (the "Chapter 11 Cases") in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court presiding over the Chapter 11 Cases and not the Lehman Bankruptcy Cases, the "Bankruptcy Court"); 15818454.2 APP-00001 EXHIBIT 1 WHEREAS, the Company shall use its commercially reasonable efforts to obtain Bankruptcy Court approval and confirmation of the Plan in accordance with the Bankruptcy Code, on terms consistent in all respects with this Agreement; WHEREAS, Innkeepers has determined that the Transaction is advisable and in the best interests of its creditors and equity holders; WHEREAS, entry into this Agreement is within the sound business judgment of Innkeepers and is in furtherance oflnnkeepers' directors' and officers' fiduciary duties; WHEREAS, this Agreement sets forth the terms and conditions of the Parties' respective obligations hereunder. WHEREAS, Lehman Brothers Holding, Inc. and certain of its affiliates have commenced chapter 11 cases in the Southern District of New York (the "Lehman Bankruptcy Cases"). NOW, THEREFORE, in consideration of the foregoing, the promises and mutual covenants, conditions and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows: Section 1. Definitions. "Business Day" shall mean any day, other than a Saturday, Sunday, or a legal holiday, as defined in Rule 9006(a) of the Federal Rules of Bankruptcy Procedure. "Confirmation Date" shall mean the date of entry by the Bankruptcy Court of the Confirmation Order. "Confirmation Order" shall have the meaning set forth in Section 6(a)(vi) hereof "Disclosure Statement" shall mean the disclosure statement related to the Plan to be filed in the Chapter 11 Cases, which shall be in such form and substance as is reasonably satisfactory to Lehman and with any changes or modifications required by the Bankruptcy Court. "Effective Date" shall have the meaning set forth in Section 10 hereof "Fiduciary Out" shall have the meaning set forth in Section 24 hereof "Firm Alternative Transaction" shall have the meaning set forth in Section 24 hereof "Fixed Rate Franchise Agreements" shall mean those certain Residence Inn by Marriott Relicensing Franchise Agreements, between Marriott and Grand Prix Fixed Lessee LLC, a Delaware limited liability company, dated as of June 29, 2007. 2 APP-00002 "Fixed Rate Collateral" shall mean the forty-five ( 45) properties securing the Fixed Rate Debt. "Fixed Rate Debt" shall mean the Company's obligations under that certain mortgage loan agreement, dated as of June 29, 2007, among Lehman and the affiliates of the Company parties thereto collateralized by the Fixed Rate Collateral. "Fixed Rate DIP Facility" shall mean a senior secured super-priority debtor-in- possession credit facility in conformity with the Fixed Rate DIP Loan Term Sheet. "Fixed Rate DIP Loan Term Sheet" shall mean the Fixed Rate DIP Loan Term Sheet attached to this Agreement as Exhibit D. "Floating Rate Collateral" shall mean the twenty (20) properties securing the Floating Rate Debt. "Floating Rate Debt" shall mean the Company's obligations under that certain mortgage loan agreement, dated as of June 29, 2007, among Lehman and the affiliates of the Company parties thereto, collateralized by the Floating Rate Collateral. "Floating Rate DIP Facility" shall mean a senior secured super-priority debtor- in-possession credit facility in conformity with the Floating Rate DIP Loan Term Sheet. "Floating Rate DIP Loan Term Sheet" shall mean the Floating Rate DIP Loan Term Sheet attached to this Agreement as Exhibit C. "Floating Rate Franchise Agreements" shall mean those agreements set forth on Exhibit G attached hereto. "Franchise Agreements" shall mean collectively the Fixed Rate Franchise Agreements, the Floating Rate Franchise Agreements and the LNR Franchise Agreements. "Lehman Shares" shall mean shares of the New Equity representing 100% of the issued and outstanding New Equity, subject to dilution by the Management Equity Incentive Program (as defined in the Plan Term Sheet) that will be distributed to Lehman pursuant to the Plan. "LNR Franchise Agreements" shall mean those certain Residence Inn by Marriott Relicensing Franchise Agreements, between Marriott and Grand Prix General Lessee LLC, and Marriott and Grand Prix RIMY Lessee LLC, respectively, dated as of June 29, 2007. "Marriott" shall mean Marriott International, Inc., a Maryland corporation. "Marriott Agreement" shall mean the Marriott Agreement attached to this Agreement as Exhibit B. 3 APP-00003 "Milestones Covenant" shall mean the covenant by the Company not to take any action, and not to solicit, encourage or support any action by a third party, seeking to amend, annul, modify, or extend the Plan Milestones. "New Equity" shall mean the new shares of common stock to be issued by Innkeepers under the Plan. "New Equity Sale Transaction" shall have the meaning set forth in Section 6(b) hereof "New Funding" shall mean funding incurred by Innkeepers in the amount of no less than $75 million, plus such additional amounts in form and substance as may be determined by the parties. "Petition Date" shall mean the date on which the Company shall have commenced the Chapter 11 Cases in the Bankruptcy Court. "PIP Work" shall mean the construction labor and materials necessary to satisfy Marriott or any other applicable franchisor that each of the requirements of each of the PIPs has been satisfied, as identified and approved by Lehman. "PIP'' shall mean the Property Improvement Plans included within and made a part of the Franchise Agreements covering certain of the hotel properties owned by the Borrower, which Property Improvement Plans shall have been approved by Marriott or any other applicable franchisor, and shall have been received and reasonably approved by Lehman, unless such Property Improvement Plans have been previously approved by Lehman in accordance with the terms and conditions of the Floating Rate Debt. "Plan" shall mean a prearranged chapter 11 plan of reorganization for the Company consistent in all respects with the terms and conditions contained in the Plan Term Sheet. "Plan Effective Date" shall mean the effective date of the Plan. "Plan Milestones" shall have the meaning set forth in Section 6 hereof "Plan Related Documents" shall mean the Plan and all documents required to effectuate the Plan or the Transaction, including, but not limited to, all documents and agreements contemplated by the Plan Term Sheet and, to the extent not included in the above, (a) the Disclosure Statement, (b) the materials related to the Solicitation, (c) the proposed Confirmation Order and (d) any other documents or agreements filed with the Bankruptcy Court by Innkeepers or at the Company's direction that are necessary to implement the Plan, including any appendices, amendments, modifications, supplements, exhibits and schedules relating to the Plan or the Disclosure Statement. All Plan Related Documents shall be in form and substance reasonably acceptable to Lehman and materially consistent in all respects with this Agreement, the Plan and the Transaction. "Plan Term Sheet" shall mean the term sheet attached hereto as Exhibit A 4 APP-00004 "Pro Forma Capital Structure" shall mean the capital structure of the reorganized Company following the consummation of the Plan as set forth in the Plan Term Sheet. "Solicitation" shall mean the solicitation of votes in respect of the Plan in the Chapter 11 Cases. "Termination Date" shall mean the date on which this Agreement is terminated in its entirety pursuant to Section 6 hereof "Termination Event" shall have the meaning set forth in Section 6 hereof "Transfer" shall have the meaning set forth in Section 30 hereof Section 2. Approval of the Plan Term Sheet and Related Agreements. (a) The Parties severally acknowledge and agree that (i) the terms and conditions set forth in the Plan Term Sheet, the Marriott Agreement, the Floating Rate DIP Loan Term Sheet, the Fixed Rate DIP Loan Term Sheet and the Cash Collateral Order are acceptable in all respects to the Parties and their respective counsel and (ii) the Plan Related Documents shall contain terms and conditions consistent in all material respects with those set forth in the Plan Term Sheet, the Marriott Agreement, the Floating Rate DIP Loan Term Sheet and the Fixed Rate DIP Loan Term Sheet. Section 3. Bankruptcy Process for Innkeepers. The Company hereby agrees to use commercially reasonable efforts to obtain approval of this Agreement and confirmation and consummation of the Plan as soon as reasonably practicable on terms consistent in all respects with the Plan Term Sheet and this Agreement, and each Party shall use their commercially reasonable efforts to support confirmation and consummation of the Plan; provided, however, that the Company and Lehman, may from time to time agree in writing to further extend any time period or deadline set forth herein as provided in this Agreement. Section 4. Support of the Transaction; Additional Covenants. From the Effective Date of the Agreement until the occurrence of a Termination Event (as defined herein), and subject to the conditions set forth in this Agreement, the Company and Lehman, as applicable, agree and covenant that: (a) Prior to the Termination Date, no Party will: (i) object to confirmation of the Plan or object to or otherwise commence any proceeding to oppose, alter, delay or impede or take any other action, directly or indirectly, to interfere with entry of one or more orders approving the Plan or other Plan Related Documents; (ii) directly or indirectly seek, solicit, negotiate, vote for, consent to, support or participate in the formulation of any plan of reorganization or other restructuring other than the Plan; 5 APP-00005 (iii) directly or indirectly seek, solicit, negotiate, support or engage in any discussions regarding any chapter 11 plan other than the Plan; (iv) object to the Solicitation or support any such objection by a third party; or (v) take any other action not required by law that is inconsistent with, or that would materially delay, the confirmation or consummation of the Plan or that is otherwise inconsistent with this Agreement. (b) Unless the Termination Date has occurred, (i) so long as its vote has been solicited in a manner sufficient to comply with the requirements of sections 1125 and 1126 of the Bankruptcy Code, including but not limited to its receipt of the Disclosure Statement, Lehman agrees to (A) vote (or cause the voting of) its Claims arising from the Floating Rate Debt to accept the Plan by delivering its duly executed and completed ballot accepting the Plan on a timely basis following the commencement of the Solicitation and agrees that the solicitation period may be as short as five (5) Business Days; provided, however, that such vote shall be immediately revoked and deemed void ab initio upon termination of this Agreement pursuant to the terms hereof; and (B) not change or withdraw (or cause to be changed or withdrawn) such vote and (ii) Lehman consents to the treatment of the Floating Rate Debt as set forth in the Plan Term Sheet and the Plan. The Company hereby agrees that in the event this Agreement terminates by its terms, the Company shall not challenge or otherwise object to (i) the revocation of Lehman's vote pursuant to this section or (ii) any action by Lehman to confirm the revocation or cancellation of its vote. (c) Nothing in this Agreement shall be construed to (i) prohibit any Party from appearing as a party-in-interest in any matter to be adjudicated in the Chapter 11 Cases so long as such appearance and the positions advocated in connection therewith are not inconsistent with this Agreement and the Transaction and are not for the purpose of and could not reasonably be expected to have the effect of, hindering, delaying or preventing the confirmation of the Plan or consummation of the Transaction pursuant to the Plan and (ii) require Lehman to file any pleadings or take any other action in support of the Plan that would require it to hire and pay for counsel to represent it unless the Company agrees to pay the fees and expenses of such counsel. Section 5. Further Agreements. (b) Additional Transaction Matters. The Company hereby agrees (i) to use its reasonable best efforts to prepare or cause the preparation of the Plan and the other Plan Related Documents, (ii) to take all reasonably necessary and appropriate actions to achieve confirmation and consummation of the Plan and the Transaction contemplated therein, and (iii) that it shall provide to Lehman draft copies of all pleadings and other documents (including all "first day" and any other motions, applications and other pleadings and documents, as well as all exhibits, supplements and related orders) it intends to file in connection with the Chapter 11 Cases with the Bankruptcy Court, or any other court, as soon as is reasonably practicable before such documents are filed with such court, all of which documents (a) shall be in form and substance reasonably acceptable to Lehman prior to any such proposed filing and (b) shall be consistent in all respects with the Plan Term Sheet. 6 APP-00006 (c) Approvals. Each Party agrees to use its commercially reasonable efforts to (i) obtain Bankruptcy Court approval of this Agreement, confirmation of the Plan by the Bankruptcy Court and consummate the Transaction pursuant to the Plan and all other actions contemplated under the Plan Related Documents related thereto, (ii) take any and all necessary and appropriate actions in furtherance of the Transaction and the other actions contemplated under this Agreement, the Plan Term Sheet and the Plan Related Documents, (iii) obtain any and all required regulatory approvals and material third-party approvals for the Transaction and (iv) not take any actions inconsistent with this Agreement, the Plan Term Sheet or other Plan Related Documents. Neither Party shall, directly or indirectly, seek, solicit, negotiate, support or engage in any discussions relating to or enter into any agreements relating to, any restructuring, plan of reorganization, dissolution, winding up, liquidation, reorganization, merger, transaction, sale or disposition (or all or substantially all of their assets or equity) other than as set forth in the Plan Term Sheet and the Plan, nor shall either Party solicit or direct any person or entity, including, without limitation, any member of any of the Parties' board of directors or, as to the Company, any holder of equity in the Company, to undertake any of the foregoing; provided, however, that the Parties may agree to modifications to the Plan Related Documents as provided herein. (d) Professionals. The Company shall pay all reasonable professional fees and expenses incurred by Lehman in connection with the Transaction. In connection therewith, prior to the Petition Date, the Company shall pay all reasonable fees and expenses owing to Lehman as invoiced by counsel for Lehman on the date hereof (e) Compliance With Agreements. The Company shall comply, including to the extent authorized by an order of the Bankruptcy Court, after the Petition Date and through the Plan Effective Date, with the terms and conditions of the Floating Rate Debt Agreement, as such may have been modified by the existing waiver agreements in place as of the date hereof, including the payment of all interest, fees and expenses owing thereunder, provided, however, that after the Petition Date, (i) the Company shall not be in default under the foregoing agreement for purposes of this Agreement as a result of the filing of the Chapter 11 Cases and (ii) the Company shall not be required to pay interest, fees and expenses absent entry of an order of the Bankruptcy Court permitting such payment or upon consummation of the Plan to the extent authorized by an order of the Bankruptcy Court. (f) Automatic Stay Relief For the avoidance of doubt, the Parties hereby waive any requirement under section 362 of the Bankruptcy Code to lift the automatic stay thereunder solely for purposes of providing any notices, elections, or waivers under this Agreement (and agree not to object to any non-breaching Party seeking, if necessary, to lift such automatic stay solely in connection with the giving of any such notice, election, or waiver). Nothing in this Agreement shall preclude Lehman from delivering any notice of default, waiver, or election to the Company at any time. Section 6. Termination of this Agreement. Upon the occurrence of any of the following events (each, a "Termination Event"), this Agreement shall automatically terminate on the first calendar day immediately following one (1) Business Day after the date of such Termination Event, unless (a) Lehman, in its sole discretion, provides the Company with a written waiver of any such Termination Event in this Section 6 within one (1) Business Day from 7 APP-00007 the date of such Termination Event or (b) Lehman and the Company, in their respective sole discretion, provide the other party with a written waiver of Termination Events in Section 6(r) and._()_ within one (1) Business Day from the date of such Termination Event: (a) Failure to meet any of the following milestones (each a "Plan Milestone" and together, the "Plan Milestones"): (i) Motion to assume this Agreement filed by the Company on the Petition Date; (ii) Order entered authorizing the assumption of this Agreement no later than 45 days after the Petition Date; (iii) Orders entered on a final (and not interim) basis authorizing the Fixed Rate DIP Facility, Floating Rate DIP Facility, the use of Lehman's cash collateral and the use of the cash collateral securing the Fixed Rate Debt consistent with the terms set forth in the Plan Term Sheet no later than 45 days after the Petition Date; (iv) Disclosure Statement and Plan consistent with the terms set forth in the Plan Term Sheet filed no later than 45 days after the Petition Date; (v) Disclosure Statement consistent with the terms set forth in the Plan Term Sheet approved by the Bankruptcy Court no later than 120 days after the Petition Date; (vi) Lehman and the Company shall have reached mutual agreement no later than 120 days after the Petition Date on the terms of a sale process upon the occurrence of the Termination Event set forth in Section 6(a)(vii) or 6(a)(viii) below; (vii) Order confirming the Plan consistent with the terms set forth in the Plan Term Sheet entered by the Bankruptcy Court no later than 240 days after the Petition Date; and (viii) Occurrence of the Plan Effective Date no later than 270 days after the Petition Date; (b) Lehman has not executed definitive agreements with respect to the sale of 50% of the Lehman Shares for a purchase price of at least $107.5 million (the "New Equity Sale Transaction") no later than 45 days after the Petition Date; (c) Lehman has not consummated the New Equity Sale Transaction no later than 270 days after the Petition Date; (d) The entry by the Bankruptcy Court of an interim order authorizing the use of Lehman's cash collateral in form and substance not acceptable to Lehman; (e) The entry of any order of the Bankruptcy Court granting relief from the automatic stay (i) to permit any exercise of remedies by the lenders or special servicer under the 8 APP-00008 Fixed Rate Debt, the Other Secured Debt or the Mezzanine Debt (as each such term is defined in the Plan Term Sheet) other than limited relief solely to permit the delivery of default notices under the terms of the Fixed Rate Debt, the Other Secured Debt or the Mezzanine Debt and (ii) to permit termination of any Franchise Agreement with Marriott or any other hotel brand other than those Franchise Agreements listed in the Marriott Schedule attached as Exhibit E to the Plan Term Sheet; (f) The filing by the Company of 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; (g) (i) The filing by the Company of any motion or other request for relief seeking an extension of the Plan Milestones or any alteration of the remedies upon termination set forth herein without the express written consent of Lehman in its sole discretion; (ii) the filing by the Company of any pleading supporting any motion from any other party to obtain such extension or alteration; (iii) the failure of the Company to oppose any motion from any other party to obtain such extension; or (iv) the violation by the Company of the Milestones Covenant; (h) The entry of an order by the Bankruptcy Court (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 Company; (i) The withdrawal, amendment or modification by the Company of, or the filing by the Company of a pleading seeking to amend or modify, the Plan or this Agreement, which withdrawal, amendment, modification or pleading is materially inconsistent with the terms set forth in the Plan Term Sheet or the Plan or is materially adverse to Lehman, in each case in a manner not reasonably acceptable to Lehman, or if the Company files any motion or pleading with the Bankruptcy Court that is inconsistent in any material respect with the terms set forth in the Plan Term Sheet or the Plan (in each case with such amendments and modifications as have been effected in accordance with the terms set forth in the Plan Term Sheet) and such motion or pleading has not been withdrawn within three (3) Business Days; G) The filing of any motion to approve a Disclosure Statement or Plan by the Company that incorporates a Pro Forma Capital Structure or any other terms inconsistent with the terms and conditions set forth Plan Term Sheet; (k) The granting by the Bankruptcy Court of relief that is inconsistent with the terms set forth in the Plan Term Sheet or the Plan in any material respect (in each case with such amendments and modifications as have been effected in accordance with the terms set forth in the Plan Term Sheet); 9 APP-00009 (1) The issuance by any governmental authority, including the Bankruptcy Court or any other regulatory authority or court of competent jurisdiction, of any ruling, determination or order making illegal or otherwise restricting, preventing or enjoining the consummation of a material portion of the Transaction, including an order denying confirmation of the Plan and such ruling, determination or order has not been vacated or reversed within five ( 5) Business Days of issuance; (m) The occurrence and continuation of a default under the Fixed Rate DIP Facility, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; (n) The occurrence and continuation of a default under the Floating Rate DIP Facility, including those set forth on Exhibit B to the Plan Term Sheet, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; ( o) The occurrence and continuation of a default in connection with the Company's use of Lehman's cash collateral, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; and (p) The occurrence after execution of this Agreement of (i) a change that has a material adverse effect on the use, value or condition of the Company, its assets or the legal or financial status or business operations of the Company or (ii) a material disruption or material adverse change in the financial, real estate, banking or capital markets; ( q) Lehman has determined, in its sole discretion, after completion of its tax due diligence, that the Transaction cannot be structured in a manner acceptable to Lehman, which determination shall be made no later than 45 days after the Petition Date; (r) The material breach by any Party of any of their undertakings, representations, warranties or covenants set forth in this Agreement; and (s) All Parties agree in writing to terminate this Agreement. The foregoing Termination Events are intended solely for the benefit of the Parties to this Agreement; provided that no Party may seek to terminate this Agreement based upon a material breach or a failure of a condition (if any) in this Agreement arising out of its own actions or omissions. Section 7. Default Notices. The Company shall furnish to Lehman prompt written notice of any Termination Event as soon as it becomes aware that the Termination Event will occur, specifying the nature and extent thereof and the corrective action, if any, taken or proposed to be taken with respect thereto. Section 8. Effect of Termination. Upon occurrence of a Termination Event, this Agreement shall be of no further force and effect and each Party hereto shall be released from its commitments, undertaking, and agreements under or related to this Agreement except (i) to the extent provided in Section 13 of this Agreement and (ii) with respect to the remedies set forth in Sections 8(a) and 8.(hl below: 10 APP-00010 (a) Upon the occurrence of any of the Termination Events set forth in Section @through...()_ hereof, Lehman may terminate this Agreement and the use of its cash collateral. (b) As long as this Agreement has not otherwise been terminated, (x) upon the occurrence of a Termination Event set forth in Section 6(a)(vii) or 6(a)(viii); (y) if a trustee is appointed for the Chapter 11 Cases of all of those Debtors obligated under the Floating Rate Debt, Fixed Rate Debt, Mezzanine Debt, and Other Secured Debt, or (z) if the Company files a motion to dismiss all of the Chapter 11 Cases for those Debtors obligated under the Floating Rate Debt, Fixed Rate Debt, Mezzanine Debt, and Other Secured Debt, the Company shall, immediately upon the occurrence of such Termination Event, elect one of the following remedies, provided, however, that if the Company fails to make such election within one day after the occurrence of the applicable Termination Event, Lehman shall have the right to elect either option: (i) The Company will be deemed to have consented to the modification of the automatic stay to permit Lehman to exercise any and all remedies with respect to the Floating Rate Collateral, the automatic stay shall be so modified and no further Bankruptcy Court approval shall be required; or (ii) The Company will sell the Floating Rate Collateral pursuant to section 363 of the Bankruptcy Code, subject to the following conditions, which shall be incorporated into any order approving this Agreement: (i) the sale procedures shall be agreed upon no later than 120 days after the Petition Date; (ii) Lehman shall have the right to credit bid the Floating Rate Debt; (iii) if sale proceeds are not paid to Lehman within 60 days of the Termination Event, title to the Floating Rate Collateral shall be conveyed to Lehman free and clear of all liens, claims and encumbrances; (iv) the 60-day period shall not be extended and the Company waives its right to seek any extension such period. Section 9. Good Faith Cooperation; Further Assurances; Transaction Documents. The Parties shall cooperate with each other in good faith and shall coordinate their activities (to the extent practicable) in respect of all matters concerning the implementation and consummation of the Transaction. Furthermore, each of the Parties shall take such action (including executing and delivering any other agreements and making and filing any required regulatory filings) as may be reasonably necessary to carry out the purposes and intent of this Agreement. Each Party hereby covenants and agrees (a) to negotiate in good faith the Plan Related Documents, each of which shall (i) contain the same economic terms as and other terms consistent in all material respects with, the terms set forth in the Plan Term Sheet, (ii) be in form and substance acceptable in all respects to each of the Company and Lehman and (iii) be consistent with this Agreement in all material respects and (b) to execute the Plan Related Documents subject to the terms of this Agreement (to the extent such Party is a party thereto). Section 10. Representations and Warranties. Each Party hereby represents and warrants to the other Parties that the following statements are true, correct and complete as of the date hereof and as of the date of any amendment of this Agreement approved by such Party: 11 APP-00011 (t) No Conflicts. To the Parties' actual knowledge, the execution, delivery and performance by such Party of this Agreement does not and shall not (i) violate (A) any provision of law, rule or regulation applicable to it or any of its subsidiaries or (B) its charter or bylaws (or other similar governing documents) or those of any of its subsidiaries or (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation to which it or any of its subsidiaries is a party. (u) Governmental Consents. The execution, delivery and performance by such Party of this Agreement does not and shall not require any registration or filing with, consent or approval of or notice to or other action to, with or by, any Federal, state or governmental authority or regulatory body other than the Bankruptcy Court. (v) Binding Obligation. This Agreement is the legally valid and binding obligation of such Party, enforceable against it, and its officers, directors and agents, in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability or a ruling of the Bankruptcy Court. Section 11. Effectiveness. This Agreement shall become effective and binding on each Party upon (i) the payment of all reasonable fees and expenses owing to Lehman as invoiced by counsel for Lehman on the date hereof and (ii) the receipt by Lehman of signature pages executed by the Company, including each obligor under the Floating Rate Debt (the "Effective Date"); provided, however, that this Agreement shall not become binding on Lehman unless and until (a) the Marriott Agreement, in the form attached hereto as Exhibit B, have been executed by all relevant parties thereto, (b) the bankruptcy court presiding over the Lehman Bankruptcy Cases enters an order approving this Agreement, which approval (x) Lehman shall seek as soon as practicable after the Petition Date (by a motion and order in substance subject to the Company's reasonable consent), (y) shall be an order in form and substance reasonably acceptable to Innkeepers and materially consistent in all respects with this Agreement, and (z) shall include provisions that provide, among other things, that: (i) the Agreement is approved without condition or delay, including approval for Lehman to comply with each provision of the Agreement and (ii) the automatic stay in the Lehman Bankruptcy Cases is modified to permit any Party to take any or all of the actions permitted by the Agreement; provided, further, however, that if such if such order approving this Agreement is not entered in the Lehman Bankruptcy Cases by August 27, 2010, the Company has the right to terminate this Agreement upon one (1) Business Day's written notice by the Company. Delivery by telecopier or electronic mail of an executed counterpart of a signature page to this Agreement shall be effective as delivery of an original executed counterpart hereof Section 12. GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY CONFLICT OF LAWS PROVISIONS WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ANY LEGAL ACTION, SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ANY MATTER UNDER OR ARISING OUT OF OR IN 12 APP-00012 CONNECTION WITH THIS AGREEMENT OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RENDERED IN ANY SUCH ACTION, SUIT OR PROCEEDING, MAY BE BROUGHT IN ANY FEDERAL COURT IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY ACCEPTS AND SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF EACH SUCH COURT, GENERALLY AND UNCONDITIONALLY, WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING. NOTWITHSTANDING THE FOREGOING CONSENT TO JURISDICTION, UPON THE COMMENCEMENT OF THE CHAPTER 11 CASES, EACH OF THE PARTIES AGREES THAT THE BANKRUPTCY COURT PRESIDING OVER THE CHAPTER 11 CASES AND NOT THE BANKRUPTCY COURT PRESIDING OVER THE LEHMAN BANKRUPTCY CASES SHALL HAVE EXCLUSIVE JURISDICTION WITH RESPECT TO ANY MATTER UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREIN; PROVIDED, HOWEVER, THE BANKRUPTCY COURT PRESIDING OVER THE LEHMAN BANKRUPTCY CASES SHALL HAVE EXCLUSIVE JURISDICTION TO DETERMINE WHETHER TO APPROVE LEHMAN'S ENTRY INTO THIS AGREEMENT. THE PARTIES WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE BETWEEN THE PARTIES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. Section 13. Specific Performance; Exclusive Remedy. Each Party hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other Parties to sustain damages for which such Parties would not have an adequate remedy at law for money damages, and therefore each Party hereto agrees that in the event of any such breach the other Parties shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive relief, without the necessity of securing or posting a bond or other security in connection with such remedy. Notwithstanding anything to the contrary set forth above, the Parties also agree that the remedy of specific performance shall be the exclusive remedy of the Parties under this Agreement in the event of a breach of this Agreement by another Party hereto. Section 14. Survival. Notwithstanding the termination of this Agreement in accordance with its terms, the agreements and obligations of the Parties in Sections 7 (effect of termination), ll (governing law), 12 (specific performance), .U (survival), 12. (successors and assigns), l_ (no third party beneficiaries, 21 (reservation of rights), 22 (publicity), 24 (fiduciary duties), 25 (indemnification), and 26 (continued banking practices) hereof shall survive such termination and shall continue in full force and effect for the benefit of the Parties hereto in accordance with the terms hereof Section 15. Headings. The headings of the sections, paragraphs and subsections of this Agreement are inserted for convenience only and shall not affect the interpretation hereof Section 16. Successors and Assigns; Severability; Several Obligations. This Agreement is intended to bind and inure to the benefit of the Parties and their respective permitted successors, assigns, heirs, executors, estates, administrators and representatives. The invalidity or unenforceability at any time of any provision hereof in any jurisdiction shall not 13 APP-00013 affect or diminish in any way the continuing validity and enforceability of the remammg provisions hereof or the continuing validity and enforceability of such provision in any other jurisdiction. The agreements, representations and obligations of the Parties under this Agreement are, in all respects, several and not joint. Section 17. No Third Party Beneficiaries. Unless otherwise expressly stated herein, this Agreement shall be solely for the benefit of the Parties and no other person or entity shall be a third party beneficiary hereof. Section 18. Entire Agreement. This Agreement constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior agreements (oral and written) and all other prior negotiations, but shall not supersede either of the Plans or the other Plan Related Documents. Section 19. Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Section 20. Notices. All demands, notices, requests, consents and other communications under this Agreement shall be in writing, sent contemporaneously to all of the Parties (unless otherwise stated in the Agreement) and deemed given when delivered, if delivered by hand or upon confirmation of transmission, if delivered by email and facsimile, during standard business hours (from 8:00A.M. to 6:00P.M. at the place of receipt) at the addresses and facsimile numbers set forth below: If to the Company: Innkeepers USA Trust 340 Royal Poinciana Way, Suite 306 Palm Beach, Florida 33480 Attn: Marc Beilinson Telephone: (561) 835-1800 Facsimile: (561) 835-0457 email: MBeilinson@BeilinsonPartners.com with a copy to Kirkland & Ellis LLP 60 1 Lexington A venue New York, NY 10022-4611 Attn: James H.M. Sprayregen Paul M. Basta Jennifer L. Marines Telephone: (212) 446-4800 Facsimile: (212) 446-4900 14 APP-00014 email: j sprayregen@kirkland.com pbasta@kirkland. com j marines@kirkland. com and Kirkland & Ellis LLP 300 North LaSalle Chicago, IL 60654-3406 Attn: Anup Sathy Marc J. Carmel Telephone: (312) 862-2000 Facsimile: (312) 862-2200 email: asathy@kirkland.com mcarmel@kirkland.com If to Lehman: Lehman ALI Inc. 1271 Avenue of the Americas New York, NY 10020 Attn: Michael Lascher Susanne Frey email: mi chael.lascher@lamcollc. com susanne.frey@lehmanholdings.com with a copy to Dechert LLP 1095 Avenue of the Americas New York, NY 10036 Attn: Michael J. Sage Brian E. Greer Telephone: (212) 698-3500 Facsimile: (212) 698-3599 email: michael. sage@dechert. com brian. greer@dechert. com Section 21. Rule of Interpretation; Calculation of Time Period. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the Parties hereto. None of the Parties hereto shall have any term or provision construed against such Party solely by reason of such Party having drafted the same. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is not a Business Day, the period in question shall end on the next succeeding Business Day. 15 APP-00015 Section 22. Reservation of Rights. Nothing herein shall be deemed an admission of any kind. If the transactions contemplated herein are not consummated or this Agreement is terminated for any reason, the Parties fully reserve any and all of their rights. Pursuant to Rule 408 of the Federal Rule of Evidence, any applicable state rules of evidence and any other applicable law, foreign or domestic, this Agreement and all negotiations relating thereto shall not be admissible into evidence in any proceeding other than a proceeding to enforce its terms. Section 23. Publicity; Confidentiality. The Parties understand and acknowledge that, until publicly disclosed as herein contemplated, the terms of this Agreement and the exhibits hereto are confidential information, and the Parties agree to keep such information confidential and not use it for any purpose except as contemplated hereby or as reasonably necessary in the Chapter 11 Cases. Section 24. Representation by Counsel. Each Party acknowledges that it has had the opportunity to be represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would provide any Party with a defense to the enforcement of the terms of this Agreement against such Party based upon lack of legal counsel shall have no application and is expressly waived. Section 25. Fiduciary Duties. (a) Notwithstanding anything to the contrary herein, at any time prior to the Confirmation Date, the Company or any directors or officers of the Company, in such person's capacity as a director or officer of the Company, shall be entitled to take any action, or to refrain from taking any action, including a decision to terminate this Agreement, that such person determines in good faith, after consultation with counsel, is consistent with its or their fiduciary obligations under applicable law (the "Fiduciary Out"). (b) At the time this Agreement is entered into, the Company acknowledges and agrees that the Plan Milestones and any remedies in respect thereof set forth in this Agreement constitute the sound business judgment of the Company that comports with the fiduciary duties ofthe Company's officers and directors. (c) The Company agrees that the Fiduciary Out shall not apply, and may not be used, to annul, modify, amend, or otherwise alter any of the Plan Milestones or any of the remedies in respect thereof; provided, however, that if the Company secures a binding and firm written commitment with respect to an alternative transaction that will provide Lehman with a higher and better recovery than the recovery proposed under the Plan (a "Firm Alternative Transaction"), the Company shall provide Lehman with at least ten (1 0) Business Days to determine whether Lehman will consent to such Firm Alternative Transaction. If Lehman does not consent to such Firm Alternative Transaction, the Company may only exercise the Fiduciary Out after it has obtained an order from the Bankruptcy Court authorizing the Company to exercise the Fiduciary Out in accordance with the terms hereof The Company agrees that in determining whether a Firm Alternative Transaction is "higher and better," all factors must be considered including contingencies, conditionality, legal and financial execution risk, economics and Lehman's opinion as to whether such Firm Alternative Transaction is "higher and better." 16 APP-00016 Section 26. Indemnification. The Company hereby agrees to indemnify and hold Lehman and its officers, directors, partners, agents, employees, advisors, and successors and assigns, harmless from and against any and all claims, actions, suits, liabilities and judgments, and costs and expenses directly related thereto (including reasonable costs of defense on an as- incurred basis), arising by reason of or resulting from Lehman's execution of this Agreement and performance of its obligations hereunder, but expressly excluding any liability, cost or expense arising from or related to the fraudulent or willful misconduct of Lehman. Section 27. Continued Banking Practices. Notwithstanding anything herein to the contrary, Lehman and its affiliates, may accept deposits from, lend money to and generally engage in any kind of banking, investment banking, trust or other business with or provide debt financing, equity capital or other services (including financial advisory services) to the Company or any affiliate of the Company or any other person, including, but not limited to, any person proposing or entering into a transaction related to or involving the Company or any affiliate thereof Section 28. Acknowledgement. This Agreement and the Transactions are the product of negotiations among the Parties, together with their respective representatives. This Agreement is not, and shall not be deemed to be, a solicitation of votes for the acceptance of the Plan or any plan of reorganization for the purposes of sections 1125 and 1126 of the Bankruptcy Code or otherwise. Lehman's vote(s) will not be solicited until it has received the Disclosure Statement and any other required materials related to the Solicitation. In addition, this Agreement does not constitute an offer to issue or sell securities to any person, or the solicitation of an offer to acquire or buy securities, in any jurisdiction where such offer or solicitation would be unlawful. Section 29. No Waiver. The failure of any Party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity or to insist upon compliance by any other Party hereto with its obligations hereunder and any custom or practice or the Parties at variance with the terms hereof, shall not constitute a waiver by such Party of its right to exercise any such right, power or remedy or to demand such compliance. Section 30. Modification. This Agreement may only be modified, altered, amended, or supplemented by an agreement in writing signed by the Company and Lehman. Section 31. Transfers. Lehman agrees that until the earlier to occur of (x) termination of this Agreement in accordance with Section 6 and (y) the occurrence of the Plan Effective Date, it shall not sell, transfer, pledge, assign or otherwise hypothecate any of the Floating Rate Debt or any option thereon or any right or interest (voting or otherwise) therein (any such transfer, pledge, assignment, hypothecation or option being referred to as a "Transfer"), unless such Transfer is subject to, and the transferee thereof agrees in writing for the benefit of the Parties to be bound by all of the terms of this Agreement by executing and delivering to the Parties a joinder in the form attached hereto as Exhibit E upon no less than five (5) days written notice to the Company. Any Transfer that is made in violation of the immediately preceding sentence shall be null and void ab initio, and the Company shall have the right to enforce the voiding of such transfer. In the event that any Transfer is not fully consummated for any reason, 17 APP-00017 Lehman shall remain bound by the terms of this Agreement. After a Transfer, the Company has the right to terminate this Agreement upon one (1) day's written notice by the Company. Notwithstanding the foregoing, if Lehman notifies the Company of a potential Transfer, the Company shall advise Lehman within five business days if it will exercise its termination right with respect to such Transfer. [Signature Page Follows] ***** THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 18 APP-00018 IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered this Agreement as of the date first above written. By signing below, each party acknowledges its agreement to the foregoing. LEHMAN ALI, INC. [SIGNATURE PAGE TO PLAN SUPPORT AGREEMENT] APP-00019 INNKEEPERS USA TRUST
Name: Marc Beilinson Title: Chief Restructuring Officer Date: July_, 2010 [SIGNATURE PAGE TO PLAN SUPPORT AGREEMENT] 15818454.2 EXECUTION COPY APP-00020 GRAND PRIX HOLDINGS LLC By:
Name: Marc Murphy Title: General Counsel, Secreta Date: July 11_, 2010 ON BEHALF OF ALL THE DEBTOR ENTITIES LISTED ON ANNEX A
Title: General Counsel, Secretary Date: July ll, 2010 I I APP-00021 AnnexA Debtor Entities 1 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 I San Jose LLC (3638) Grand Prix Cherry Hill LLC (3634) Grand Prix Chicago LLC (3633) The Debtors Entities are listed with the last four digits of each Debtor Entities' federal tax identification number. APP-00022 Grand Prix Columbia LLC (3631) Grand Prix Denver LLC (3630) Grand Prix East Lansing LLC (3 7 41) Grand Prix El Segundo LLC (3707) Grand Prix Englewood I 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 (3 713) Grand Prix Harrisburg LLC (3 716) 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 (3 725) Grand Prix Livonia LLC (3730) APP-00023 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) APP-00024 Grand Prix San Mateo LLC (3723) Grand Prix Schaumburg LLC (3 721) Grand Prix Shelton LLC (3 718) 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) KPA HI Ontario LLC (6939) KPA HS Anaheim, LLC (0302) KP A Leaseco Holding Inc. (2887) KPA Leaseco, Inc. (7426) KPA RIGG, LLC (6706) KP A RIMV, LLC ( 6804) APP-00025 KPA San Antonio, LLC (1251) KPA Tysons Comer RI, LLC (1327) KPA Washington DC, LLC (1164) KPA/GP Ft. Walton LLC (3743) KPA/GP Louisville (HI) LLC (3744) KP A/GP Valencia LLC (9816) APP-00026 EXHIBIT A Plan Term Sheet APP-00027 Term Sheet Illustrative Terms of Proposed Restructuring July 17, 2010 The following are the proposed principal terms of a restructuring transaction between Lehman ALI Inc. ("Lehman"), as mortgage lender, and Innkeepers USA Trust ("Innkeepers" and, collectively with its subsidiaries, the "Company"). 1 The transaction (the "Transaction") contemplates a conversion of the Company's obligations under that certain mortgage loan agreement, dated as of June 29, 2007, among Lehman and the affiliates of the Company parties thereto (the "Floating Rate Debt"), collateralized by 20 of the Company's properties (the "Floating Rate Collateral") into all the equity of the reorganized Company (as set forth herein). The Transaction would be effectuated through a prearranged plan of reorganization (the "Plan") in chapter 11 bankruptcy cases filed by Innkeepers and certain of its subsidiaries (the "Chapter 11 Cases") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). This term sheet has been prepared for discussion purposes only and is non- binding, but shall serve as the basis for further negotiations regarding a definitive agreement. The terms discussed herein constitute an integrated offer, are not divisible except as described herein, and are subject to the terms and conditions hereof This term sheet is provided in confidence and may be distributed only with the express written consent of Lehman and the Company, as applicable. This term sheet does not include a description of all of the terms, conditions and other provisions that are to be contained in the definitive documentation governing such matters, which remain subject to discussion and negotiation to the extent not inconsistent with the specific matters set forth herein. This term sheet is proffered in the nature of a settlement proposal in furtherance of settlement discussions, and is intended to be entitled to the protections of Rule 408 of the Federal Rules of Evidence and any other applicable statutes or doctrines protecting the use or disclosure of confidential information and information exchanged in the context of settlement discussions, and shall not be treated as an admission regarding the truth, accuracy or completeness of any fact or the applicability or strength of any legal theory. Lehman's entry into any definitive transaction on the terms set forth in this term sheet, or otherwise, are subject to approval of the United States Bankruptcy Court administering the chapter 11 case of Lehman Brothers Holdings Inc. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY SECURITIES OF THE COMPANY OR A SOLICITATION OF ACCEPTANCES OF A CHAPTER 11 PLAN. ANY SUCH OFFER OR This term sheet is not being provided on behalf of SASCO 2008-C2, LLC (the "Mezzanine Lender") in connection with the mezzanine loan with respect to the collateral securing the Floating Rate Debt or the mezzanine loan with respect to the Anaheim property (the "Mezzanine Debt"). Lehman does not make any representations with respect to the Mezzanine Lender. 15798647.8 APP-00028 SOLICITATION SHALL COMPLY WITH ALL APPLICABLE SECURITIES LAWS, IF ANY, AND/OR PROVISIONS OF THE BANKRUPTCY CODE. Terms: Treatment of Claims and Eguitv Interests Under the Plan: Floating Rate Debt Lehman will receive, in full and final satisfaction of its secured mortgage claims in respect of the Floating Rate Debt, 100% of the issued and outstanding new shares of common stock issued by Innkeepers (the "New Equity"), subject to dilution by the Management Equity Incentive Program (as defined below) and New Equity distributions, if any, for other Plan uses, as agreed by the parties hereto. Mezzanine Debt The Mezzanine Debt will be deemed cancelled, and the Mezzanine Lender will not retain any property or interest on account of such debt under the Plan. The Mezzanine Lender will be deemed to vote against the Plan. No action by the Mezzanine Lender will be required under this Term Sheet or any definitive documentation with respect to the terms set herein. Fixed Rate Debt Holders of the claims against the Company for its obligations under that certain mortgage loan agreement, dated as of June 29, 2007, among Lehman and the affiliates of the Company parties thereto (the "Fixed Rate Debt") collateralized by 45 of the Company's properties (the "Fixed Rate Collateral") will receive, in full and final satisfaction of their claims in respect of such debt, new mortgage notes secured by mortgages on the Fixed Rate Collateral either (a) in an aggregate face amount not to exceed $550 million; or (b) if such holders make an election for application of section 1111 (b )(2) of the Bankruptcy Code, in the amount of the aggregate amount of such holders' Fixed Rate Debt, with a present value of the new mortgage notes not to exceed $550 million. The terms of the new Fixed Rate Debt notes and any security interests to be granted in connection therewith are subject to approval, in form and substance, by Lehman and the Company. Other Secured Holders of claims against the Company for its obligations under those Debt certain secured mortgage loan agreements, not including the Floating Rate Debt or the Fixed Rate Debt (the "Other Secured Debt"), collateralized by seven of the Company's properties, not including the Floating Rate Collateral or the Fixed Rate Collateral (the "Other Secured Debt Collateral"), will receive, in full and final satisfaction of their claims in respect of such debt, new mortgage notes secured by liens on the respective holder's Other Secured Debt Collateral 2 15798647.8 APP-00029 ("Other Secured Debt New Mortgage Notes") either (a) in an aggregate face amount not to exceed $150 million; or (b) if a holder of Other Secured Debt claims makes an election for application of section 1111 (b )(2) of the Bankruptcy Code, in the amount of the aggregate amount of such holder's claims, with present value of such Other Secured Debt New Mortgage Note equaling the value of the collateral securing such holder's claims, provided, however, that the aggregate present value of all Other Secured Debt New Mortgage Notes issued pursuant to (a) and (b) herein shall not exceed $150 million. The terms of the Other Secured Debt New Mortgage Notes are subject to approval, in form and substance, by Lehman and the Company. Debt allocation among the Other Secured Debt Collateral and identification of any Other Secured Debt Collateral that should be removed from the Company's portfolio shall be agreed among the parties hereto. General Unsecured "General Unsecured Claim" shall mean any unsecured claim against Claims any of the Debtors that is not: (a) an Administrative Claim; (b) a Priority Claim (tax or otherwise); (c) an intercompany claim; or (d) a section 51 O(b) claim, if any. If a class of General Unsecured Claims votes to accept the Plan and affirmatively release Lehman and its affiliates from all claims and causes of action relating to the Company and/or the Floating Rate Debt, then holders of such General Unsecured Claims shall receive a pro rata distribution of cash in the amount of $500,000. Intercompany Intercompany claims shall not be entitled to receive any distribution Claims under the Plan on account of such claims and shall be deemed to have voted against the Plan. Such claims will be reinstated, extinguished or cancelled as appropriate in the judgment of Lehman and the Company to effectuate the Transaction contemplated by the Plan. Section 51 O(b) Claims subject to subordination pursuant to section 51 O(b) of the Claims Bankruptcy Code shall not receive any recovery under the Plan and shall be deemed to have voted against the Plan. Deficiency Claims Unsecured deficiency claims of holders of Floating Rate Debt, Fixed Rate Debt and Other Secured Debt shall not receive any recovery under the Plan or otherwise without the consent of Lehman and the Company, and, if not receiving any recovery, shall be deemed to have voted against the Plan. Administrative Allowed administrative claims shall be paid in cash in the ordinary 3 15798647.8 APP-00030 Claims course of business or upon the effective date of the Plan (the "Effective Date"), unless the holders of such Administrative Claims agree to different treatment. Priority Claims Allowed priority claims shall be paid in cash on the Effective Date; provided, that on the Effective Date Lehman and the Company may determine to defer priority tax claims in accordance with the Bankruptcy Code. Existing Equity On the Effective Date, all prepetition common and preferred shares of Innkeepers will be cancelled, and holders of such interests will not retain any property on account of such interests under the Plan. To the extent Lehman and the Company determine that the Company's existing corporate structure would be the most tax efficient for Lehman and the Company on the Effective Date, the prepetition equity interests of each of Innkeepers' subsidiaries will be deemed reissued in accordance with the Company's prepetition corporate structure on terms mutually acceptable to the parties hereto. If Lehman and the Company determine that a different structure would be more beneficial to Lehman and the Company on the Effective Date, the Plan shall provide for such structure, on terms mutually acceptable to the parties hereto. 4 15798647.8 APP-00031 Means of Bankruptcy All material pleadings filed by the Company in connection with the Pleadings Chapter 11 Cases, including all first-day motions, shall be in form and substance reasonably acceptable to Lehman. DIP Financing DIP financing to be provided in two separate facilities: (a) a DIP facility provided in an amount equal to $50.75 million, which is necessary to complete certain Marriott property improvement plan ("PIP") requirements for (i) certain of those hotels collateralizing the Fixed Rate Debt; (ii) the hotel collateralizing that certain mortgage loan, dated as of October 4, 2006, by and between KPA RIMY, LLC and Capmark Bank (the "Residence Inn in San Diego"); and (iii) the hotel collateralizing that certain mortgage loan, dated as of September 19, 2006, by and between KPA Tysons Corner RI, LLC and Merrill Lynch Mortgage Lending, Inc. (the "Residence Inn in Tyson's Corner"), secured by senior, priming liens on the Fixed Rate Collateral, the Residence Inn in San Diego, and the Residence Inn in Tyson's Corner on terms acceptable to Lehman, as substantially set forth on Exhibit A (the "Fixed Rate DIP Facility"). On the Effective Date of the Plan, all amounts outstanding under the Fixed Rate DIP Facility shall be repaid from the Exit Funding (as defined below). (b) a DIP facility provided by Lehman or any of its affiliates in an amount up to approximately $17.5 million, secured by senior, priming liens on the Floating Rate Collateral on terms to be agreed between the Company and Lehman as substantially set forth on Exhibit B (the "Floating Rate DIP Facility"). On the Effective Date of the Plan which is consistent with the terms hereof, all claims outstanding under the Floating Rate DIP Facility shall be extinguished; provided, however, if, and to the extent, any claim or cause of action is brought by, or on behalf of, the Company or its estates related to the Floating Rate Debt against Lehman or any of its affiliates is allowed by final order or part of a judgment of a court of competent jurisdiction (the "Claims or Causes of Actions"), then the claims arising under the Floating Rate DIP Facility shall be, at Lehman's election either (i) repaid on the Effective Date of the Plan in an amount equal to any allowed Claim or Cause of Action, up to the amount outstanding under the Floating Rate DIP Facility, or (ii) set off against the Claims or Causes of Action, up to the amount outstanding under the Floating Rate DIP Facility. Use of Cash In addition to providing the Floating Rate DIP Facility, Lehman will consent to the use of its cash collateral pursuant to the terms of the 5 15798647.8 APP-00032 Collateral Exit Funding New Equity Conditions Precedent to Lehman's Obligations Under PSA 15798647.8 cash collateral order attached hereto as Exhibit C. The Company shall not take any action, and shall not solicit, encourage or support any action by a third party, seeking to amend, modify or extend the Plan Milestones (as defined below) (the foregoing provision is hereinafter referred to as the "Milestones Covenant"). The Company's use ofLehman's cash collateral will terminate immediately upon the receipt of notice of a Termination Event (as defined below). Innkeepers will secure additional funding of no less than $75 million, plus such additional amounts in form and substance as may be determined by the parties hereto ("Exit Funding"). Prior to any Exit Funding, the reorganized Company shall deliver a comprehensive PIP and cycle renovation budget, which budget shall be (a) prepared with the assistance of, and validated by, a third party expert and (b) acceptable in all respects to the parties hereto (the "Budget"). Such Budget shall be updated annually or more frequently as may be requested by any party hereto. The Plan shall provide that the issuance of the New Equity and any subsequent transfer of New Equity by Lehman prior to the Effective Date will be exempt from (a) securities laws in accordance with section 1145 of the Bankruptcy Code and (b) transfer taxes in accordance with section 1146 of the Bankruptcy Code. The Transaction will become binding on Lehman when Lehman and the Company execute a plan support agreement (the "PSA") that incorporates the Transaction as set forth herein, including: Receipt by Lehman of a Plan term sheet incorporating the terms set forth herein and otherwise in form and substance acceptable to Lehman; Agreement reached with Marriott in the form attached hereto as Exhibit D; Innkeepers and each of its wholly owned subsidiaries, including each obligor under the Floating Rate Debt, shall be a signatory to the PSA; and Bankruptcy Court approval in the chapter 11 bankruptcy proceedings of Lehman Brothers Holdings Inc. 6 APP-00033 Termination Upon the occurrence of any of the following events (each, a Events Under PSA "Termination Event"), the PSA and the use of Lehman's cash and Use of Cash collateral shall automatically terminate on the first calendar day Collateral immediately following one (1) business day after the date of such Termination Event, unless (a) Lehman, in its sole discretion, provides the Company with a written waiver of any such Termination Event within one (1) business day from the date of such Termination Event or (b) Lehman and the Company, in their respective sole discretion, provide the other party with a written waiver of Termination Events R and S within one (1) business day from the date of such Termination Event: A. Failure to meet any of the following milestones (the "Plan Milestones"): (i) Motion to assume the PSA filed on the petition date; (ii) Order entered authorizing the assumption of the PSA no later than 45 days after the petition date; (iii) Orders entered on a final (and not interim) basis authorizing the Fixed Rate DIP Facility, Floating Rate DIP Facility, the use ofLehman's cash collateral and the use of the cash collateral securing the Fixed Rate Debt consistent with the terms hereof no later than 45 days after the petition date; (iv) Disclosure statement and Plan consistent with the terms hereof filed no later than 45 days after the petition date; (v) Disclosure statement consistent with the terms hereof approved by the Bankruptcy Court no later than 120 days after the petition date; (vi) Lehman and the Company shall have reached mutual agreement no later than 120 days after the petition date on the terms of a sale process upon the occurrence of Termination Event A( vii) or A( viii) below; (vii) Order confirming a Plan consistent with the terms hereof entered no later than 240 days after the petition date; and (viii) Effective Date of the Plan no later than 270 days after the petition date. B. Lehman has not executed definitive agreements with respect to the sale of 50% of the New Equity for a 7 15798647.8 APP-00034 15798647.8 purchase price of at least $107.5 million (the "New Equity Sale Transaction") by 45 days after the petition date; C. Lehman has not consummated the New Equity Sale Transaction by 270 days after the petition date; D. The entry by the Bankruptcy Court of an interim order authorizing the use ofLehman's cash collateral in form and substance not acceptable to Lehman; E. The entry of any order of the Bankruptcy Court granting relief from the automatic stay (i) to permit any exercise of remedies by the lenders or special servicer under the Fixed Rate Debt, Other Secured Debt or Mezzanine Debt other than limited relief solely to permit the delivery of default notices under the terms of the Fixed Rate Debt, Other Secured Debt or Mezzanine Debt and (ii) to permit termination of any franchise agreement with Marriott or any other hotel brand; F. The filing by the Company of 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; G. (i) The filing by the Company of any motion or other request for relief seeking an extension of the Plan Milestones or any alteration of the remedies upon termination set forth herein without the express written consent of Lehman in its sole discretion; (ii) the filing by the Company of any pleading supporting any motion from any other party to obtain such extension or alteration; (iii) the failure of the Company to oppose any motion from any other party to obtain such extension before the objection deadline of such motion; or (iv) the violation by the Company of the Milestones Covenant; H. The entry of an order by the Bankruptcy Court (i) dismissing any ofthe 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 8 APP-00035 15798647.8 (iv) making a finding of fraud, dishonesty or misconduct by any officer or director of the Company, regarding or relating to the Company; I. The withdrawal, amendment or modification by the Company of, or the filing by the Company of a pleading seeking to amend or modify, the Plan or PSA, which withdrawal, amendment, modification or pleading is materially inconsistent with the terms hereof or the Plan or is materially adverse to Lehman, in each case in a manner not reasonably acceptable to Lehman, or if the Company files any motion or pleading with the Bankruptcy Court that is inconsistent in any material respect with the terms hereof or the Plan (in each case with such amendments and modifications as have been effected in accordance with the terms hereof) and such motion or pleading has not been withdrawn within three (3) business days after Lehman provides written notice to the Company; J. The filing of any motion to approve a disclosure statement or Plan by the Company that incorporates a Pro Forma Capital Structure or any other terms inconsistent with the terms and conditions set forth herein; K. The granting by the Bankruptcy Court of relief that is inconsistent with the terms hereof or the Plan in any material respect (in each case with such amendments and modifications as have been effected in accordance with the terms hereof); L. The issuance by any governmental authority, including the Bankruptcy Court or any other regulatory authority or court of competent jurisdiction, of any ruling, determination or order making illegal or otherwise restricting, preventing or enjoining the consummation of a material portion of the Transaction, including an order denying confirmation of the Plan and such ruling, determination or order has not been vacated or reversed within ten (10) business days of issuance; M. The occurrence and continuation of a default under the Fixed Rate DIP Facility, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; N. The occurrence and continuation of a default under the Floating Rate DIP Facility, including those set forth on 9 APP-00036 15798647.8 Exhibit B, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; 0. The occurrence and continuation of a default in connection with the Company's use ofLehman's cash collateral, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; and P. The occurrence after execution of the P SA of (i) a change that has a material adverse effect on the use, value or condition of the Company, its assets or the legal or financial status or business operations of the Company or (ii) a material disruption or material adverse change in the financial, real estate, banking or capital markets; Q. Lehman has determined, in its sole discretion, after completion of its tax due diligence, that the Transaction cannot be structured in a manner acceptable to Lehman, which determination shall be made no later than 45 days after the petition date; R. The material breach by any Party of any of their undertakings, representations, warranties or covenants set forth in the PSA; and S. All parties agree in writing to terminate the PSA. 10 APP-00037 Remedies Upon Upon the occurrence of any of Termination Events A through S, Termination Lehman may terminate the PSA and use of cash collateral. As long as the PSA has not otherwise been terminated, (a) upon the occurrence of Termination Event A( vii) or A( viii); (b) if a trustee is appointed for the Chapter 11 Cases of all of those debtors obligated under the Floating Rate Debt, Fixed Rate Debt, Mezzanine Debt, and Other Secured Debt; or (c) if the Company files a motion to dismiss all of the Chapter 11 Cases for those debtors obligated under the Floating Rate Debt, Fixed Rate Debt, Mezzanine Debt, and Other Secured Debt, the Company shall, immediately upon the occurrence of such Termination Event, elect one of the following remedies, provided, however, that if the Company fails to make such election within one day after the occurrence of the applicable Termination Event, Lehman shall have the right to elect either option: (a) The Company will be deemed to have consented to the modification of the automatic stay to permit Lehman to exercise any and all remedies with respect to the Floating Rate Collateral, the automatic stay shall be so modified and no further court approval shall be required; or (b) The Company will sell the Floating Rate Collateral pursuant to section 363 of the Bankruptcy Code, subject to the following conditions, which shall be incorporated into any order approving the PSA: (i) the sale procedures shall be agreed upon no later than 120 days after the petition date; (ii) Lehman shall have the right to credit bid the Floating Rate Debt; (iii) if sale proceeds are not paid to Lehman within 60 days of the Termination Event, title to the Floating Rate Collateral shall be conveyed to Lehman free and clear of all liens, claims and encumbrances; (iv) the 60-day period shall not be extended and the Company waives its right to seek any extension of such period. Bankruptcy Court The Company shall, on or immediately after the commencement of Approval of PSA the Chapter 11 Cases, file a motion seeking authorization to assume the PSA. The order approving the PSA shall include provisions that the Company (i) shall not seek an extension of the Plan Milestones or any alteration of the remedies upon termination set forth herein without the express written consent of Lehman in its sole discretion, (ii) shall not support any motion from any other party to obtain such extension or alteration; and (iii) will oppose any motion from any 11 15798647.8 APP-00038 Pro Forma Capital Structure Governance Management Equity Incentive Program REIT Status Property Manager Releases 15798647.8 other party to obtain such extension or alteration by the objection deadline of such motion. Following the consummation of the Transaction, the reorganized Company will have, after repayment of the Fixed Rate DIP Facility, (a) funds sufficient to perform Marriott capital expenditures and brand standard work and (b) cash on hand sufficient to operate the business ofthe Company, and such amounts in (a) and (b) above shall be acceptable to Lehman and the Company and be capitalized as follows: Fixed Rate Debt: present value less than or equal to $550 million Other Secured Debt: present value less than or equal to $150 million Exit Funding: At least $75 million, plus such additional amounts in form and substance as may be determined by the parties hereto. Except as set forth above, on the Effective Date, the Company shall not have any debts or liens encumbering the Company's assets, except for permitted liens agreed to by Lehman and the Company. Prior to the Effective Date, Lehman will determine the requisite number of directors, all of whom will be nominated by Lehman, and voting requirements shall be in form and substance acceptable to Lehman. The Plan shall provide for a management equity incentive program (the "Management Equity Incentive Program") in form and substance acceptable to Lehman and the Company providing for a reserve of up to 3% of the New Equity to be allocated to management under the Management Equity Incentive Program as approved by the board of directors of the reorganized Company. Lehman and the Company shall, after the Effective Date, determine whether to maintain Innkeepers' status as a real estate investment trust. Prior to the Effective Date of the Plan, Lehman and the Company shall designate a manager for the reorganized Company's properties. If Island Hospitality Management, Inc. ("Island") is not selected as the manager, the Company will use its reasonable best efforts to effectuate an orderly transition to the replacement manager. The Plan shall include a full discharge and release of liability by the Company, other than a release of the obligations set forth herein, in 12 APP-00039 favor of (a) the Company and each of its subsidiaries, (b) Lehman, and (c) each of their respective principals, employees, affiliates, subsidiaries, members, shareholders, agents, officers, directors, and professionals from: (i) any and all claims and causes of action arising prior to the Effective Date and (ii) any and all claims arising from the actions taken or not taken in good faith in connection with the Transaction. Professional Fees The Company shall pay the professional fees and expenses incurred by Lehman in connection with the Transaction. 13 15798647.8 APP-00040 EXHIBIT A Fixed Rate DIP Facility [Attached as Exhibit D to the Plan Support Agreement] APP-00041 EXHIBITB Floating Rate DIP Facility [Attached as Exhibit C to the Plan Support Agreement] APP-00042 EXHIBIT C Cash Collateral Agreement [Attached as Exhibit E to the Plan Support Agreement] APP-00043 EXHIBITD Marriott Agreement [Attached as Exhibit B to the Plan Support Agreement] APP-00044 EXHIBITB Marriott Agreement APP-00045 CONFIDENTIAL SETTLEMENT MATERIALS SUBJECT TO FRE 408 EXECUTION COPY AGREEMENT FOR ADEQUATE ASSURANCE OF COMPLETION OF CERTAIN PIPS AND ASSUMPTION OF AGREEMENTS This AGREEMENT FOR ADEQUATE ASSURANCE OF FUTURE COMPLETION OF CERTAIN PIPs AND ASSUMPTION OF AGREEMENTS (this "Agreement") is made and entered into as of June 25, 2010, by and among (i) Innkeepers USA Trust, a Maryland real estate investment trust, and all of its direct and indirect subsidiaries and affiliates that may or will constitute one of the debtors in Innkeeper's voluntary reorganization cases, identified on Exhibit 1 hereto (collectively, the "Company"), and (ii) Marriott International, Inc., a Delaware corporation (with its affiliates, "Marriott"). The Company and Marriott are sometimes collectively referred to herein as the "Parties" and individually as a "Party." RECITALS WHEREAS, the Company owns forty-four (44) hotels operating under brands owned by Marriott (collectively, the "Marriott Hotels"); WHEREAS, the Marriott Hotels operate subject to franchise and related agreements between Marriott and the Company (collectively, the "Franchise Agreements"); WHEREAS, Marriott has served default and termination notices (collectively, "Default Letters") upon the Company with respect to twenty-three (23) Marriott Hotels (collectively, the "Marriott Defaulted Hotels") purporting to terminate their respective Franchise Agreements for, among other things, the failure to complete the property improvement plans ("PIPs"); WHEREAS, Marriott has represented that it intends to serve a Default Letter with respect to an additional Marriott Hotel; WHEREAS, the Company and Marriott have entered into that certain Forbearance and Agreement to Maintain the Status Quo, dated June 11, 2010, pursuant to which Marriott agreed to, among other things, forbear from exercising its rights at law or in equity, set forth in the Default Letters, solely with respect to the Continuing Defaults (as defined therein) under the Franchise Agreements described in the Default Letters, from June 14, 2010 until the earlier of June 28, 2010 or the filing of a Chapter 11 Case; WHEREAS, the Company may (a) file voluntary reorganization cases (collectively, a "Chapter 11 Case") under chapter 11 of title 11 of the United States Code 11 U.S.C. 101-1532 (the "Bankruptcy Code") in the United States Bankruptcy Court (the "Bankruptcy Court"); and (b) file and use good faith reasonable best efforts to obtain approval and confirmation of a plan of reorganization (the "Plan"), which shall be in form and substance not inconsistent with this Agreement; WHEREAS, the Company has represented that it will complete the PIPs for certain Marriott Defaulted Hotels in accordance with this Agreement and secure the financing necessary to do so; W02-EAST:7DAD1 \200318792.3 -1- APP-00046 WHEREAS, the Parties, with the assistance of their legal and financing advisors, have engaged in negotiations with the objective of reaching an agreement with regard to the Marriott Hotels set forth on Schedule A and Schedule B and the treatment of the Franchise Agreements and Marriott's claims thereunder (collectively, the "Claims"), pursuant to the terms and conditions set forth in this Agreement; WHEREAS, the Company has received certain Acceptable Financing Commitments (as defined herein) predicated on the filing of a Chapter 11 Case, which are attached hereto as Exhibit 2; WHEREAS, the Company and Marriott have reviewed, or have had the opportunity to review, this Agreement with the assistance of their respective legal and financial advisors of their own choosing; and WHEREAS, this Agreement sets forth the terms and conditions of the Parties' respective obligations hereunder. NOW, THEREFORE, in consideration of the promises and mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows: Section 1. Acceptable Financing Commitment. For purposes of this Agreement, an "Acceptable Financing Commitment" means one or more commitments: (a) for at least $45M to complete, on the schedule attached hereto as Schedule A (which includes three separate phases of PIP completion, "Phase 1," "Phase 2," and "Phase 3"), the PIPs for the Marriott Defaulted Hotels; (b) on terms that are no less favorable to the Company than market terms negotiated at arm's-length; (c) not conditioned on obtaining voting or any control rights with respect to the Plan, other than on reasonable and customary debtor-in-possession repayment terms and priority; (d) which terms shall indicate that the sole purpose of the commitment is to complete the PIPs for the Marriott Defaulted Hotels; (e) which may prime existing liens, pursuant to section 364(d) of the Bankruptcy Code; and (f) which will be fully funded upon closing of an Acceptable Financing Commitment after Bankruptcy Court approval (collectively, an "Acceptable Financing Commitment"). Marriott acknowledges and agrees that the financing commitments memorialized in the term sheets attached hereto as Exhibit 2, if consummated, would each constitute an Acceptable Financing Commitment. (a) If the Company files a Chapter 11 Case, the Company shall (i) substantially contemporaneously with such filing, file a motion with the Bankruptcy Court seeking authority, pursuant to section 364 of the Bankruptcy Code, to obtain an Acceptable Financing Commitment (the "DIP Motion") and (ii) seek to have the Bankruptcy Court approve the Acceptable Financing Commitment within sixty (60) days thereafter. The Company shall in good faith use its reasonable best efforts to obtain Bankruptcy Court approval of an Acceptable Financing Commitment within the time periods specified herein and confirmation of a Plan consistent with the terms of this Agreement. (b) If the Bankruptcy Court approves an Acceptable Financing Commitment within sixty (60) days after filing a Chapter 11 Case, the Company shall commence, perform, W02-EAST:7DAD1 \200318792.3 -2- APP-00047 and fully complete the PIPs in accordance with Schedule A. The Parties agree that time is of the essence with respect to the commencement, performance, and completion of the PIPs. (c) The Company represents and warrants that it has the requisite power and authority to execute and deliver this Agreement, to perform its obligations under this Agreement and any and all other agreements, documents or instruments to be executed and/or delivered in connection herewith and to consummate the transactions contemplated herein and therein. Section 2. Post-filing Forbearance Period. During the period commencing on the filing of a Chapter 11 Case, and ending upon the termination of this Agreement in accordance with Section 6 hereof (the "Post-filing Forbearance Period"), with respect to the Marriott Defaulted Hotels listed on Schedule A, Marriott shall, subject to Section 3 and Section 6 hereof, (a) forbear from exercising any and all of its remedies under the Franchise Agreements that arise out of or in connection with the Default Letters, (b) forbear from seeking relief from the automatic stay to exercise any and all of its remedies under the Franchise Agreements that arise out of or in connection with the Default Letters, and (c) permit the Franchise Agreements for the Marriott Defaulted Hotels listed on Schedule A to be assumed in accordance with Section 4 hereof. Section 3. Relief from Automatic Stay Upon Default. Notwithstanding any other Section of this Agreement, at any time after Bankruptcy Court approval of an Acceptable Financing Commitment, in the event that the Company does not satisfy in all material respects the obligations to be performed with respect to a particular Marriott Defaulted Hotel identified on Schedule A, on or before the applicable milestone dates provided therein, Marriott may seek relief from stay or such other relief as may be just and proper with respect to such Marriott Defaulted Hotel and related Franchise Agreement, and the Company agrees that (a) it shall not contest either directly or indirectly, or cause another to contest, a motion, application or request by Marriott for relief from the automatic stay to, inter alia, enforce its rights and remedies under the Franchise Agreement for such Marriott Defaulted Hotel, and (b) it shall deem the Post-filing Forbearance Period with respect to such Marriott Defaulted Hotel terminated. In the event the Company fails to complete, in accordance with Schedule A, all of the PIPs under the Franchise Agreements for the Marriott Defaulted Hotel listed under Phase 1, plus the Sili II hotel in Phase 2, Marriott may, in its discretion, serve a notice of default and sixty (60) notice to cure which shall require the Company to complete all PIPs for the Marriott Defaulted Hotels under Phase 1, plus the Sili II hotel under Phase 2 within the sixty (60) day cure period. If the cure by the Company referenced in the previous sentence is not completed within sixty (60) days, then Marriott shall be entitled to seek relief from stay for all Marriott Defaulted Hotels, except those which have already been assumed, and the Company shall be deemed to consent to such relief, and Marriott shall retain any and all of its rights to damages under the relevant Franchise Agreements. Section 4. Assumption of Franchise Agreements. As set forth herein, Marriott shall have the right to consent to the assumption and assignment of any and all Franchise Agreements, including the Franchise Agreements for the Marriott Defaulted Hotels. Immediately upon completion and written approval by Marriott of completion of a PIP for a Marriott Defaulted Hotel in accordance with Schedule A, the Company shall seek to assume the applicable Franchise Agreements. For the avoidance of doubt, assumptions will be on a rolling basis as W02-EAST:7DAD1 \200318792.3 -3- APP-00048 PIPs are completed and approved, and Marriott's consent to assumption shall be deemed given if, with respect to a particular Marriott Defaulted Hotel, Marriott determines in its reasonable business judgment that the Company has completed the respective PIP in accordance with Schedule A and the terms of the applicable Franchise Agreement, provided that Marriott shall retain its rights under 11 U.S.C. 365. With respect to the PIPs on Schedule A for which the Company is in compliance as of the time the Company files a disclosure statement in the Chapter 11 Case, the Company shall assume all such Franchise Agreements listed on Schedule A (except as otherwise assumed in accordance with this Section 4) and Marriott will consent to the Company's assumption of the Franchise Agreements listed on Schedule A. In addition, as of the time the Company files a disclosure statement in the Chapter 11 Case, the Company shall assume all other Franchise Agreements for the Marriott Hotels not listed on Schedule A (the "Marriott Non-Defaulted Hotels"), which shall be set forth on Schedule B, and Marriott will consent to the Company's assumption of the Franchise Agreements for the Marriott Non-Defaulted Hotels, provided that Marriott shall retain its rights under 11 U.S.C. 365 for such Franchise Agreements. For the sake of clarity, Company's obligation to complete the PIPs for the Marriott Hotels in accordance with the respective Franchise Agreements shall survive confirmation of the Plan. Section 5. Resolution of Claims. If the Company files a Chapter 11 Case, the Company shall cause the Plan to provide that Marriott's Claims shall either be treated as (a) unimpaired or (b) impaired only to the extent and in a manner as consensually agreed upon by Marriott in its sole discretion; provided that Marriott may have claims in the Chapter 11 Case that remain unpaid even if the PIPs for all Marriott Defaulted Hotels are completed and approved and all of the relevant Franchise Agreements are assumed. Marriott will not forbear from filing and pursuing such claims in the Chapter 11 Case. Marriott acknowledges and agrees, subject to review and consideration of any proposed Plan, that it will not vote to reject or otherwise object to, impede, directly or indirectly, or take any action that would unreasonably delay confirmation or consummation of the Plan, unless such Plan contains terms that are inconsistent with the terms of this Agreement and the Franchise Agreements. Marriott represents that it has not conducted an inspection or audit to determine if additional defaults exist as of the date of this Agreement, but to the best of its knowledge, it is not aware of any outstanding defaults other than the Continuing Defaults; provided, however, that Marriott does not waive its rights with respect to any default in existence that Marriott later becomes aware of or could have known upon a reasonable inspection or audit. Section 6. Termination of this Agreement. (a) Termination Events. The term "Termination Event," wherever used in this Agreement, means any of the following events (whatever the reason for such Termination Event and whether it is voluntary or involuntary): (i) The Company fails to file the DIP Motion with the Bankruptcy Court contemporaneously with the filing of a Chapter 11 Case. (ii) An Acceptable Financing Commitment is not approved by the Bankruptcy Court within sixty (60) days of filing a Chapter 11 Case. W02-EAST:7DAD1 \200318792.3 -4- APP-00049 (iii) Termination of an Acceptable Financing Commitment, unless the Company can establish to Marriott's sole satisfaction that the Company has sufficient funds available for completion of the PIPs in accordance with Schedule A, and such funds are held in escrow pending completion of all PIPs. (iv) The Company fails to complete one or more PIPs in accordance with Schedule A. (v) All Parties agree in writing to terminate this Agreement. The foregoing Termination Events are intended solely for the benefit of the Parties to this Agreement; provided that no Party may seek to terminate this Agreement based upon a material breach or a failure of a condition (if any) in this Agreement arising out of its own actions or omissions. A Termination Event shall be effective on the fifth (5th) business day following written notice and failure to cure a Termination Event occurring under Section 6(a)(i), (iii), or (iv). Termination shall be effective immediately following written notice of a Termination Event occurring under occurring under Section 6(a)(ii), or if the Parties agree to Termination under Section 6(a)(v). (b) Effect of Termination. Upon a Termination Event occurring under Section 6(a)(i), (ii), (iii), or (v), this Agreement shall be of no further force and effect, subject to Section 6(c), and each Party hereto shall be released from its commitments, undertakings, and agreements under or related to this Agreement from the effective date of the Termination Event forward. Upon a Termination Event occurring under Section 6(iv), this Agreement shall be terminated solely with respect to the Marriott Defaulted Hotel for which the PIP or PIPs have not been completed. (c) Survival. The rights, duties and obligations of Marriott and the Company that by the express language of the Franchise Agreements and this Agreement survive termination shall remain in full force and effect and survive the termination of this Agreement. Without limiting the foregoing, in the event that either Marriott or the Company terminates this Agreement or the Post-filing Forbearance Period terminates in accordance with Section 3 or Section 6 hereof, Marriott's and the Company's rights and obligations under Sections 3, 6 and 7 (excluding 7(c)), shall survive termination of this Agreement. Section 7. Miscellaneous. (a) Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflict of laws of the State of New York. By its execution and delivery of this Agreement, each of the Parties hereto hereby irrevocably and unconditionally agrees for itself that any legal action, suit, or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit, or proceeding, shall be brought in a federal court of competent jurisdiction in the United States District Court for the Southern District of New York. By execution and delivery of this Agreement, each of the Parties hereto hereby irrevocably accepts and submits to the nonexclusive jurisdiction of such W02-EAST:7DAD1 \200318792.3 -5- APP-00050 court, generally and unconditionally, with respect to any such action, suit, or proceeding. Notwithstanding the foregoing consent to jurisdiction, upon the commencement of the Chapter 11 Cases, each of the Parties hereto hereby agrees that the Bankruptcy Court shall have exclusive jurisdiction over all matters arising out of or in connection with this Agreement. (b) No Waiver of Participation and Preservation of Rights. This Agreement is part of a proposed settlement of disputes among the Parties. Without limiting the foregoing sentence in any way, if the transactions contemplated by this Agreement or otherwise set forth in any plan of reorganization are not consummated as provided herein, if a Termination Event occurs, or if this Agreement is otherwise terminated for any reason, the Parties each fully reserve any and all of their respective rights, remedies, claims, and interests. (c) Reimbursement of Fees. The Company shall remit payment of $20,000 each month to Marriott, such payment representing the cost of Marriott having to dedicate an employee to auditing and overseeing completion of the PIPs and expediting review of all stages of PIP compliance. The Company shall reimburse Marriott for all reasonable, documented out-of-pocket attorneys' fees and expenses incurred by Marriott in connection with this Agreement and the defaults under the Franchise Agreement within thirty (30) days of invoice. (d) Notices. All demands, notices, requests, consents, and communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or by courier service, messenger, electronic mail, facsimile, telecopy, or if duly deposited in the mails, by certified or registered mail, postage prepaid-return receipt requested, and shall be deemed to have been duly given or made: (i) upon delivery, if delivered personally or by courier service, or messenger, in each case with record of receipt; (ii) upon transmission with confirmed delivery, if sent by facsimile or telecopy; or (iii) when received after being sent by certified or registered mail, postage pre-paid, return receipt requested, to the following addresses, or such other addresses as may be furnished hereafter by notice in writing, to the following Parties: If to the Company: Innkeepers USA Trust 340 Royal Poinciana Way Suite 306 Palm Beach, Florida 33480 Attention: Marc Beilinson Facsimile: (561) 835-0457 E-mail address: mbeilinson@ beilinsonpartners.com And Innkeepers USA Trust 340 Royal Poinciana Way Suite 306 Palm Beach, Florida 33480 Attention: Mark Murphy Facsimile: (561) 835-0457 W02-EAST:7DAD1 \200318792.3 -6- APP-00051 E-mail address: mmurphy@innkeepersusa.com with copies (which shall not constitute notice) to: Kirkland & Ellis, LLP 300 North LaSalle Street Chicago, lllinois 60654 Attention: Anup Sathy, P.C. Gary E. Axelrod, P.C. Facsimile: (312) 862-2200 E-mail address: anup.sathy@kirkland.com gary.axelrod@ kirkland.com And Kirkland & Ellis, LLP 601 Lexington A venue New York, New York 10022 Attention: Paul M. Basta Facsimile: (212) 446-4900 E-mail address: paul.basta@kirkland.com If to Marriott: Marriott International, Inc. 10400 Fernwood Road Bethesda, Maryland 20817 Facsimile: Attention: Mark Forseth E-mail address: mark.forseth@marriott.com with a copy (which shall not constitute notice) to: Sheppard Mullin Richter & Hampton, LLP 30 Rockefeller Plaza, 24th Floor New York, New York 10112 Attention: Carren Shulman David D'Amour Facsimile: (212) 653-8701 E-mail address: cshulman@ sheppardmullin.com ddamour@ sheppardmullin.com (e) Complete Agreement. This Agreement constitutes the full and complete understanding and agreement among the Parties with regard to the subject matter hereof and W02-EAST:7DAD1 \200318792.3 -7- APP-00052 supersedes all prior agreements, understandings, or representations by or among the Parties, written or oral, which may have related to the subject matter hereof in any way. (f) Interpretation of this Agreement. This Agreement is the product of negotiation by and among the Parties. Any Party enforcing or interpreting this Agreement shall interpret in a neutral manner. There shall be no presumption concerning whether to interpret this Agreement for or against any Party by reason of that Party having drafted this Agreement, or any portion thereof, or caused it or any portion thereof to be drafted. (g) Headings. The headings of the paragraphs and subparagraphs of this Agreement are inserted for convenience only and shall not affect the interpretation hereof. (h) Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the Parties and their respective permitted successors and assigns provided, however, that nothing contained in this paragraph shall be deemed to permit sales, assignments, or transfers that would otherwise not be in accordance with this Agreement or the Franchise Agreements, and nothing herein waives any such restrictions or requirement that Marriott approve all franchisees. (i) Several, Not Joint, Obligations. The agreements, representations, and obligations of the Parties under this Agreement are, in all respects, several and not joint. U) Remedies Cumulative. All rights, powers, and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any right, power, or remedy thereof by any Party shall not preclude the simultaneous or later exercise of any other such right, power, or remedy by such Party. (k) No Waiver. The failure of any Party hereto to exercise any right, power, or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other Party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such Party of its right to exercise any such or other right, power, or remedy or to demand such compliance. (1) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Delivery of an executed signature page of this Agreement by facsimile or email shall be as effective as delivery of a manually executed signature page of this Agreement. (m) Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction, and any such prohibited or unenforceable provision shall be deemed reformed and construed so that it will be valid, legal, and enforceable and not prohibited to the maximum extent permitted by applicable law; provided, however, that in the event Sections 3, 4, or 6 shall be invalidated, this Agreement shall be deemed null and void and of no further force and effect. W02-EAST:7DAD1 \200318792.3 -8- APP-00053 (n) No Third-Party Beneficiaries. Unless expressly stated herein, this Agreement shall be solely for the benefit of the Parties, and no other person or entity shall be a third party beneficiary hereof. ( o) Settlement Discussions. This Agreement and the transactions contemplated thereby are part of a proposed settlement of a dispute among the Parties. Nothing herein shall be deemed an admission of any kind. Pursuant to Federal Rule of Evidence 408 and any applicable state rules of evidence, this Agreement and all negotiations relating thereto shall not be admissible into evidence in any proceeding other than a proceeding to enforce the terms of this Agreement. (p) Consideration. It is hereby acknowledged by the Parties hereto that, other than the agreements, covenants, representations, and warranties set forth herein, no consideration shall be due or paid to Marriott for its entry into this Agreement. (q) Representation by Counsel. Each Party acknowledges that it has reviewed, or has had the opportunity to review, this Agreement with the assistance of their respective legal and financial advisors of their own choosing, and that it has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would provide any party with a defense to the enforcement of the terms of this Agreement against such party shall have no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effectuate the intent of the Parties. [Signature Page Follows] W02-EAST:7DAD1 \200318792.3 -9- APP-00054 IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered this Agreement as of the date first above written. By signing below, each party acknowledges its agreement to the foregoing. MARRIOTT INTERNATIONAL, INC. INNKEEPERS USA 'TRUST By: ________________________ _ Name: Marc Beilinson Title: Chief Restructuring Officer Date: June 25, 2010 W02-EAST:7DAD I \200318792.3 -10- APP-00055 IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered this Agreement as of the date first above written. By signing below, each party acknowledges its agreement to the foregoing. MARRIOTT INTERNATIONAL, INC. By: ________________________ __ Name: Karl J. Grover Title: Vice President, Franchising Date: June 25, 2010 INNKEEPERS USA TRUST By: .dlcue ~ .. Name: Marc Beilinson Title: Chief Restructuring Officer Date: June 25, 2010 W02-EAST:7DAD I \200318792.3 -1 0- APP-00056 SCHEDULEA 1 Completion Schedule 1. Obtain an Acceptable Financing Commitment and receive funding therefrom no later than sixty (60) days after filing a Chapter 11 Case in an amount sufficient to fully complete the PIPS for all twenty-three (23) Defaulted Marriott Hotels. 2. Place orders for furniture, fixtures and equipment ("FF &E") required to complete the PIPs for the Phase 1 hotels no later than thirty (30) days after Bankruptcy Court approval of an Acceptable Financing Commitment (the "Phase 1 Order Deadline"). 3. Place orders for FF&E required to complete the PIPs for the Phase 2 hotels no later than ninety (90) days after the Phase 1 Order Deadline (the "Phase 2 Order Deadline"). 4. Place orders for FF&E required to complete the PIPs for the Phase 3 hotels no later than ninety (90) days after the Phase 2 Order Deadline (the "Phase 3 Order Deadline"). 5. Commence work on the PIPs for the Phase 1 hotels no later than one hundred twenty (120) days after the Phase 1 Order Deadline (the "Phase 1 Commencement Deadline"). 6. Commence work on the PIPs for the Phase 2 hotels no later than one hundred twenty (120) days after the Phase 2 Order Deadline (the "Phase 2 Commencement Deadline"). 7. Commence work on the PIPs for the Phase 3 hotels no later than one hundred twenty (120) days after the Phase 3 Order Deadline (the "Phase 3 Commencement Deadline"). 8. Complete work on the PIPs for the Phase 1 hotels no later than ninety (90) days after the Phase 1 Commencement Deadline; with the exception of Sunnyvale Silicon Valley I, CA, San Diego Mission Valley, CA, and Saddle River, NJ, which must be completed no later than one hundred twenty (120) days after the Phase 1 Commencement Deadline. 9. Complete work on the PIPs for the Phase 2 hotels no later than ninety (90) days after the Phase 2 Commencement Deadline; with the exception of Sunnyvale Silicon Valley II, CA, which must be completed no later than one hundred twenty (120) days after the Phase 1 Commencement Deadline. 1 o. Complete work on the PIPs for the Phase 3 hotels no later than ninety (90) days after the Phase 3 Commencement Deadline. The Company shall not be in default of this Agreement for failure to complete the PIPs in accordance with this Schedule A if, and to the extent that, the default or delay is caused, directly or indirectly, by (a) fire, explosion, or other casualty, or condemnation; (b) storm, earthquake, hurricane, tornado, drought, flood, or other act of God; (c) war, act of terrorism, sabotage, bombing, insurrection, rebellion, revolution, riot, or other civil commotion or unrest; (d) epidemics, quarantine restrictions, or other public health restrictions or advisories; (e) strikes or lockouts or other labor interruptions; (f) disruption to local, national, or international transport services; (g) embargoes, resulting in a lack of materials, water, power, or telephone transmissions necessary for the development and construction of the PIPs in accordance with the terms of this Agreement; and (h) failure of any applicable governmental authority to issue any material entitlements, or the suspension, termination, or revocation of any material entitlements, required for the completion of the PIPs in accordance with the terms of this Agreement, provided that none of the above may be the result of or caused by the action or inaction of the Company. APP-00057 Company shall not deviate from this schedule without the express written consent of Marriott. The PIPs for all twenty-three (23) Marriott Defaulted Hotels must be completed no later than November 20, 2011. PHASE 1 Designated Hotels 1. Sunnyvale Silicon Valley I, CA 2. San Diego Mission Valley, CA 3. Tysons Corner Mall, VA 4. San Francisco/San Mateo, CA 5. Saddle River, NJ 6. Palo Alto Mountain View, CA 7. Portland Scarborough, ME 8. Ontario Airport, CA PHASE2 Designated Hotels 9. Sunnyvale Silicon Valley II, CA 10. Harrisburg, Hershey, PA 11. Binghamton, NY 12. San Jose Campbell, CA 13. Detroit Troy Madison, MI 14. Louisville East, KY 15. Denver Tech Center, CO 16. Lexington North, KY PHASE3 Designated Hotels 17. Orlando Altamonte Springs, FL 18. Denver Downtown, CO 19. Fremont Silicon Valley, CA 20. Shelton Fairfield County, CT 21. Cherry Hill/Philadelphia, NJ 22. Hartford/Windsor, CT 23. Richmond West End, VA APP-00058 SCHEDULER No. Marriott Hotel 1. Anaheim-Resort Area/Garden Grove- Residence Inn 2. Arlington - Residence Inn 3. Atlanta Downtown - Residence Inn 4. Atlanta Peachtree Corners - Residence Inn 5. Atlantic City - Courtyard 6. Chicago O'Hare/Rosemont - Residence Inn 7. Dallas Addison - Residence Inn 8. Detroit Livonia - Residence Inn 9. Fort Lauderdale-North/Cypress Creek- Courtyard 10. Ft. Wayne - Residence Inn 11. Gaithersburg- Residence Inn 12. New York/Montvale - Courtyard 13. New York/Morristown - Residence Inn 14. Philadelphia Horsham - TownePlace Suites 15. Richmond Northwest - Residence Inn 16. San Jose South- Residence Inn APP-00059 17. Seattle Bellevue - Residence Inn 18. Seattle-North/Lynnwood Everett- Residence Inn 19. Seattle-Northeast/Bothell- Residence Inn 20. Seattle-South/Tukwila - Residence Inn APP-00060 EXHIBIT 1 Debtor Entities APP-00061 No. Debtor Entities 1. GP AC Sublessee LLC (5992) 2. Grand Prix Addison (RI) LLC (3740) 3. Grand Prix Addison (SS) LLC (3656) 4. Grand Prix Albany LLC (3654) 5. Grand Prix Altamonte LLC (3653) 6. Grand Prix Anaheim Orange Lessee LLC (5925) 7. Grand Prix Arlington LLC (3 651) 8. Grand Prix Atlanta (Peachtree Comers) LLC (3650) 9. Grand Prix Atlanta LLC (3649) 10. Grand Prix Atlantic City LLC (3648) 11. Grand Prix Bellevue LLC (3645) 12. Grand Prix Belmont LLC (3643) 13. Grand Prix Binghamton LLC (3642) 14. Grand Prix Bothell LLC (3641) 15. Grand Prix Bulfinch LLC (3639) 16. Grand Prix Campbell I San Jose LLC (3638) 17. Grand Prix Cherry Hill LLC (3634) 18. Grand Prix Chicago LLC (3633) 19. Grand Prix Columbia LLC (3631) 20. Grand Prix Denver LLC (3630) 21. Grand Prix East Lansing LLC (3 7 41) K&E 17357041.1 APP-00062 22. Grand Prix El Segundo LLC (3707) 23. Grand Prix Englewood I Denver South LLC (3701) 24. Grand Prix Fixed Lessee LLC (9979) 25. Grand Prix Floating Lessee LLC (4290) 26. Grand Prix Fremont LLC (3703) 27. Grand Prix Ft. Lauderdale LLC (3705) 28. Grand Prix Ft. Wayne LLC (3704) 29. Grand Prix Gaithersburg LLC (3709) 30. Grand Prix General Lessee LLC (9182) 31. Grand Prix Germantown LLC (3 711) 32. Grand Prix Grand Rapids LLC (3713) 33. Grand Prix Harrisburg LLC (3716) 34. Grand Prix Holdings LLC (9317) 35. Grand Prix Horsham LLC (3728) 36. Grand Prix IHM, Inc. (7254) 37. Grand Prix Indianapolis LLC (3719) 38. Grand Prix Islandia LLC (3720) 39. Grand Prix Las Colinas LLC (3722) 40. Grand Prix Lexington LLC (3 725) 41. Grand Prix Livonia LLC (3730) 42. Grand Prix Lombard LLC (3696) 43. Grand Prix Louisville (RI) LLC (3700) 2 APP-00063 44. Grand Prix Lynnwood LLC (3702) 45. Grand Prix Mezz Borrower Fixed, LLC (0252) 46. Grand Prix Mezz Borrower Floating, LLC (5924) 47. Grand Prix Mezz Borrower Floating 2, LLC (9972) 48. Grand Prix Mezz Borrower Term LLC (4285) 49. Grand Prix Montvale LLC (3706) 50. Grand Prix Morristown LLC (3738) 51. Grand Prix Mountain View LLC (3737) 52. Grand Prix Mt. Laurel LLC (3 73 5) 53. Grand Prix Naples LLC (3734) 54. Grand Prix Ontario Lessee LLC (9976) 55. Grand Prix Ontario LLC (3733) 56. Grand Prix Portland LLC (3732) 57. Grand Prix Richmond (Northwest) LLC (3731) 58. Grand Prix Richmond LLC (3729) 59. Grand Prix RIGG Lessee LLC ( 4960) 60. Grand Prix RIMY Lessee LLC ( 4287) 61. Grand Prix Rockville LLC (2496) 62. Grand Prix Saddle River LLC (3726) 63. Grand Prix San Jose LLC (3724) 64. Grand Prix San Mateo LLC (3723) 65. Grand Prix Schaumburg LLC (3 721) 3 APP-00064 66. Grand Prix Shelton LLC (3718) 67. Grand Prix Sili I LLC (3714) 68. Grand Prix Sili II LLC (3712) 69. Grand Prix Term Lessee LLC (9180) 70. Grand Prix Troy (Central) LLC (9061) 71. Grand Prix Troy (SE) LLC (9062) 72. Grand Prix Tukwila LLC (9063) 73. Grand Prix West Palm Beach LLC (9065) 74. Grand Prix Westchester LLC (3694) 75. Grand Prix Willow Grove LLC (3697) 76. Grand Prix Windsor LLC (3698) 77. Grand Prix Woburn LLC (3699) 78. Innkeepers Financial Corporation (0715) 79. Innkeepers USA Limited Partnership (3956) 80. Innkeepers USA Trust (3554) 81. KPA HI Ontario LLC (6939) 82. KPA HS Anaheim, LLC (0302) 83. KP A Leaseco Holding Inc. (2887) 84. KPA Leaseco, Inc. (7426) 85. KPARIGG, LLC (6706) 86. KPA RIMY, LLC (6804) 87. KPA San Antonio, LLC (1251) 4 APP-00065 88. KPA Tysons Comer RI, LLC (1327) 89. KPA Washington DC, LLC (1164) 90. KPA/GP Ft. Walton LLC (3743) 91. KPA/GP Louisville (HI) LLC (3744) 92. KP A/GP Valencia LLC (9816) 5 APP-00066 EXHIBIT2 Acceptable Financing Commitments APP-00067 EXHIBIT2 Acceptable Financing Commitments [Attached as Exhibits C and D to the Plan Support Agreement] APP-00068 Hearing Date and Time: August 18,2010 at 10:00 a.m. (Prevailing Eastern Time) Objection Date and Time: August 11, 2010 at 4:00p.m. (Prevailing Eastern Time) WElL, GOTSHAL & MANGES LLP 700 Louisiana Street, Suite 1600 Houston, Texas 77002 Telephone: (713) 546-5000 Facsimile: (713) 224-9511 Alfredo R. Perez Attorneys for Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -------------------------------------------------------------------X In re LEHMAN BROTHERS HOLDINGS INC., et al., Debtors. -------------------------------------------------------------------X Chapter 11 Case No. 08-13555 (JMP) (Jointly Administered) NOTICE OF MOTION OF LEHMAN COMMERCIAL PAPER INC. PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE FOR AUTHORITY TO (I) CONSENT TO ITS NON-DEBTOR AFFILIATE LEHMAN ALI INC. (A) ENTRY INTO PLAN SUPPORT AGREEMENT RELATED TO THE RESTRUCTURING OF INNKEEPERS USA TRUST; AND (B) CONSUMMATION OF THE TRANSACTIONS SET FORTH IN THE PLAN TERM SHEET; AND (II) PROVIDE FUNDS TO SOLAR FINANCE INC., A NON-DEBTOR AFFILIATE, TO PROVIDE DEBTOR-IN-POSSESSION FINANCING PLEASE TAKE NOTICE that a hearing on the annexed motion (the "Motion") of Lehman Commercial Paper Inc. ("LCPI"), and its affiliated debtors in the above-referenced chapter 11 cases, as debtors and debtors in possession (together, the "Debtors") for an order pursuant to section 363 of title 11 of the United States Code (the "Bankruptcy Code") for authority to (i) consent to its non-Debtor affiliate Lehman ALI Inc. (a) entry into plan support agreement related to the restructuring of Innkeepers USA Trust, and (b) consummation of the transactions set forth in the Plan Term Sheet (as US ACTIVE\43446016\20\58399.0008 APP-00069 EXHIBIT 2 defined in the Motion); and (ii) provide funds to Solar Finance Inc., a non-Debtor affiliate, to provide debtor-in-possession financing, will be held before the Honorable James M. Peck, United States Bankruptcy Judge, at the United States Bankruptcy Court, Alexander Hamilton Customs House, Courtroom 601, One Bowling Green, New York, New York 10004 (the "Bankruptcy Court"), on August 18,2010 at 10:00 a.m. (prevailing Eastern Time) (the "Hearing"). PLEASE TAKE FURTHER NOTICE that objections, if any, to the Motion shall be in writing, shall conform to the Bankruptcy Rules and the Local Rules of the Bankruptcy Court for the Southern District ofNew York, shall set forth the name of the objecting party, the basis for the objection and the specific grounds thereof, shall be filed with the Bankruptcy Court electronically in accordance with General Order M-242 (which can be found at www.nysb.uscourts.gov) by registered users of the Bankruptcy Court's case filing system and by all other parties in interest, on a 3.5 inch disk, preferably in Portable Document Format (PDF), WordPerfect, or any other Windows- based word processing format (with two hard copies delivered directly to Chambers), and shall be served upon: (i) the chambers of the Honorable James M. Peck, One Bowling Green, New York, New York 10004, Courtroom 601; (ii) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, Attn: Alfredo R. Perez, Esq., counsel to the Debtors; (iii) the Office of the United States Trustee for the Southern District ofNew York, 33 Whitehall Street, 21st Floor, New York, New York 10004, Attn: Andy Velez- Rivera, Esq., Paul Schwartzberg, Esq., Brian Masumoto, Esq., Linda Riffkin, Esq., and Tracy Hope Davis; Esq., (iv) Milbank, Tweed, Hadley & McCloy LLP, 1 Chase Manhattan Plaza, New York, New York 10005, Attn: Dennis F. Dunne, Esq., Dennis US ACTIVE\43446016\20\58399.0008 2 APP-00070 O'Donnell, Esq., and Evan Fleck, Esq., counsel to the official committee of unsecured creditors appointed in these cases, and (v) all parties who have requested notice in these chapter 11 cases, so as to be so filed and received by no later than August 11, 2010 at 4:00p.m. (prevailing Eastern Time) (the "Objection Deadline"). PLEASE TAKE FURTHER NOTICE that if an objection to the Motion is not received by the Objection Deadline, the relief requested shall be deemed unopposed, and the Bankruptcy Court may enter an order granting the relief sought without a hearing. PLEASE TAKE FURTHER NOTICE that objecting parties are required to attend the Hearing, and failure to appear may result in relief being granted or denied upon default. Dated: July 27, 2010 Houston, Texas US ACTIVE\43446016\20\58399.0008 /s/ Alfredo R. Perez Alfredo R. Perez WElL, GOTSHAL & MANGES LLP 700 Louisiana Street, Suite 1600 Houston, Texas 77002 Telephone: (713) 546-5000 Facsimile: (713) 224-9511 Attorneys for Debtors and Debtors in Possession 3 APP-00071 Hearing Date and Time: August 18,2010 at 10:00 a.m. (Prevailing Eastern Time) Objection Date and Time: August 11, 2010 at 4:00p.m. (Prevailing Eastern Time) WElL, GOTSHAL & MANGES LLP 700 Louisiana Street, Suite 1600 Houston, Texas 77002 Telephone: (713) 546-5000 Facsimile: (713) 224-9511 Alfredo R. Perez Attorneys for Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------------X In re LEHMAN BROTHERS HOLDINGS INC., et al., Debtors. ------------------------------------------------------------------X Chapter 11 Case No. 08-13555 (JMP) (Jointly Administered) MOTION OF LEHMAN COMMERCIAL PAPER INC. PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE FOR AUTHORITY TO (I) CONSENT TO ITS NON-DEBTOR AFFILIATE LEHMAN ALI INC. (A) ENTRY INTO PLAN SUPPORT AGREEMENT RELATED TO THE RESTRUCTURING OF INNKEEPERS USA TRUST; AND (B) CONSUMMATION OF THE TRANSACTIONS SET FORTH IN THE PLAN TERM SHEET; AND (II) PROVIDE FUNDS TO SOLAR FINANCE INC., A NON-DEBTOR AFFILIATE, TO PROVIDE DEBTOR-IN-POSSESSION FINANCING TO THE HONORABLE JAMES M. PECK UNITED STATES BANKRUPTCY JUDGE: Lehman Commercial Paper Inc. ("LCPI"), as debtor and debtor in possession (together with its affiliated debtors in the above-referenced chapter 11 cases, the "Debtors" and, collectively with their non-debtor affiliates, "Lehman"), moves for authority to (i) consent to Lehman ALI Inc.'s ("ALI"), a non-Debtor affiliate ofLCPI, (a) entry into a plan support agreement, attached hereto as Exhibit A (the "Plan Support Agreement"), related to the proposed restructuring of Innkeepers USA Trust (together US ACTIVE\43446016\20\58399.0008 APP-00072 with its affiliates, "Innkeepers") 1 ; and (b) consummation of the transactions consistent with the plan term sheet, attached to the Plan Support Agreement and attached hereto as Exhibit B (the "Plan Term Sheet"); including the subsequent sale of 50% of the equity of the reorganized Innkeepers for a price not less than $107.5 million, and (ii) provide funds to Solar Finance Inc. ("Solar"), a non-Debtor affiliate, for the purposes of extending debtor-in-possession financing to Innkeepers, and respectfully represents: Introduction 1. In June 2007, ALI originated a $367,658,725 financing (the "Financing") with Innkeepers. The Financing was bifurcated into a $250,000,000 floating-rate first mortgage loan (the "Mortgage Loan") 2 and a $117,658,725 floating-rate mezzanine loan (the "Mezzanine Loan" and, together with the Mortgage Loan, the "Loans"). 3 ALI remains as the lender under the Mortgage Loan, with a current balance of approximately $220.2 million (plus late fees and any other charges payable under the Mortgage Loan Agreement). The Mortgage Loan represents a potential significant source of recovery for creditors of the Debtors. 1 On July 19, 2010, Innkeepers USA Trust and certain of its affiliates filed for chapter 11 protection in the United States Bankruptcy Court for the Southern District of New York. The chapter 11 case is pending under case number 10-13800 before the Honorable Shelley C. Chapman. As part of its "first day" pleadings, Innkeepers filed Debtors' Motion for an Order (A) Authorizing the Debtors to Assume the Plan Support Agreement and (B) Granting Related Relief[Docket No. 15]. The Innkeepers' pleading is more than 225 pages long. For purposes of this Motion, only the material agreements and/or documents are attached. 2 The Mortgage Loan is evidenced by, inter alia, that certain Loan Agreement, dated as of June 29, 2007 (as amended, restated or otherwise modified from time to time, the "Mortgage Loan Agreement"). 3 The Mezzanine Loan is currently held by SASCO 2008-C2 LLC (the "Mezzanine Lender"). The Debtors do not make any representations with respect to the Mezzanine Lender and are not requesting any approval with respect to the Mezzanine Lender. US ACTIVE\43446016\20\58399.0008 5 APP-00073 2. As Innkeepers' financial situation has become more dire recently, this Mortgage Loan has received a significant amount of attention by the Debtors, and, over the previous several months, the Debtors and their legal and financial advisors have been focusing on how to maximize recovery on this asset. 3. Beginning in April2010, Innkeepers and ALI engaged in numerous good faith and arms' -length negotiations to outline a potential restructuring of Innkeepers that would maximize ALI's recovery on the Mortgage Loan. In conjunction with these discussions, the Debtors have worked closely with their legal and financial advisors to determine which alternatives the Debtors should pursue, which included, among others, seeking to foreclose on the collateral securing the Mortgage Loan, seeking the appointment of one or more receivers to manage the hotel properties that serve as collateral, and seeking to lift the automatic stay in a potential Innkeepers' bankruptcy to pursue rights and remedies. In considering these alternatives, the Debtors' analysis included economic and non-economic factors, including the expected recovery, the costs to pursue each alternative, the timing of potential recoveries, and the likelihood of being able to achieve value through each alternative. Additionally, the Debtors considered the potential impact on the hotel properties serving as collateral and hotel franchise agreements. Ultimately, after extensive negotiations with Innkeepers and its legal and financial advisors, the Debtors determined that the transactions described in this Motion represent the best alternative for the Debtors to maximize value of the Mortgage Loan. Relief Requested 4. By this Motion, pursuant to section 363 of chapter 11 of the United States Code ("the Bankruptcy Code"), LCPI seeks authority (a) to consent to ALI US ACTIVE\43446016\20\58399.0008 6 APP-00074 entering into the Plan Support Agreement relating to the proposed restructuring of Innkeepers under chapter 11 of the Bankruptcy Code, (b) for ALI to consummate the transactions consistent with the Plan Term Sheet which outlines the proposed restructuring of Innkeepers and contemplates the conversion of ALI's secured debt into all of the equity in a reorganized Innkeepers and, by means of a separate agreement with Apollo Investment Corporation ("Apollo"), the sale of 50% of that equity for not less than $107.5 million, and (c) to loan up to approximately $17.5 million of funds previously paid by ALI to LCPI to LCPI's non-Debtor affiliate, Solar, for the purposes of Solar extending a DIP Facility (as defined herein), which is necessary to fund improvements on the properties. One of the key provisions of the Plan Support Agreement allows ALI to terminate its obligations under the Plan Support Agreement after a specified period of time and cause Innkeepers to sell or allow ALI to foreclose on the properties subject to the Mortgage Loan. 5. Although this Motion seeks relief related to non-Debtor ALI, such relief is required pursuant to the Order Pursuant to Section 363 of the Bankruptcy Code and Bankruptcy Rule 6004 Authorizing the Transfer of Loans from Variable Funding Trust 2007-1 to Non-Debtor Affiliates [Docket No. 9025], entered by this Court on May 13, 2010 (the "Transfer Order"). As set forth in the Transfer Order, LCPI was authorized to transfer mortgage loans in the possession ofVFT 2007 (as defined below) to any non- Debtor affiliate subject to certain conditions. Among other things, the Transfer Order required that any non-Debtor affiliate transferee "obtain all consents and approvals from the Creditors' Committee and the Court that LCPI would otherwise have been required to obtain had LCPI been the owner of such [transferred loan] ... " Transfer Order at p. 3. US ACTIVE\43446016\20\58399.0008 7 APP-00075 Jurisdiction 6. This Court has subject matter jurisdiction to consider and determine this matter pursuant to 28 U.S. C. 1334. This is a core proceeding pursuant to 28 U.S.C 157(b). The statutory basis for the relief requested herein is section 363(b) of the Bankruptcy Code. Background 7. Commencing on September 15, 2008, and periodically thereafter (as applicable, the "Commencement Date"), the Debtors commenced with this Court voluntary cases under chapter 11 of the Bankruptcy Code. The Debtors' chapter 11 cases have been consolidated for procedural purposes only and are being jointly administered pursuant to Rule 1015(b) of the Federal Rules ofBankruptcy Procedure. The Debtors are authorized to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 8. On September 17, 2008, the United States Trustee for the Southern District ofNew York (the "U.S. Trustee") appointed the statutory committee of unsecured creditors pursuant to section 1102 of the Bankruptcy Code (the "Creditors' Committee"). 9. On September 19, 2008, a proceeding was commenced under the Securities Investor Protection Act of 1970 ("SIP A") with respect to Lehman Brothers Inc. ("LBI"). A trustee appointed under SIP A is administering LBI' s estate. 10. On January 19, 2009, the U.S. Trustee appointed Anton R. Valukas as examiner in the above-captioned chapter 11 cases (the "Examiner") and by order, dated January 20, 2009 [Docket No. 2583], the Court approved the U.S. Trustee's US ACTIVE\43446016\20\58399.0008 8 APP-00076 appointment of the Examiner. The Examiner issued a report of his investigation pursuant to section 1106 of the Bankruptcy Code on March 11, 2010 [Docket No. 7531]. 11. On April 14, 2010, the Debtors filed a revised joint chapter 11 plan and disclosure statement [Docket No. 8330 and 8332]. Lehman's Business 12. Prior to the events leading up to these chapter 11 cases, Lehman was the fourth largest investment bank in the United States. For more than 150 years, Lehman had been a leader in the global financial markets by serving the financial needs of corporations, governmental units, institutional clients and individuals worldwide. 13. Additional information regarding the Debtors' businesses, capital structures, and the circumstances leading to the commencement of these chapter 11 cases is contained in the Affidavit oflan T. Lowitt Pursuant to Rule 1007-2 of the Local Bankruptcy Rules for the Southern District of New York in Support of First-Day Motions and Applications, filed on September 15, 2008 [Docket No.2]. Innkeepers 14. In June 2007, ALI originated the Financing to fund a portion of the approximately $1.8 billion acquisition of all the outstanding shares oflnnkeepers by Apollo. At that time, Innkeepers held 76 hotel properties. 15. The Mortgage Loan currently is secured by 20 hotel properties in total (the "Collateral Portfolio"), the majority of which are branded extended stay or limited service hotels, including five Residence Inns (Marriott), three Hampton Inns (Hilton), and two Courtyards by Marriott (Marriott). The Mezzanine Loan is secured by pledges of the equity of the entities holding the 20 hotel properties. The current balance US ACTIVE\43446016\20\58399.0008 9 APP-00077 of the Mezzanine Loan is approximately $134.3 million (plus late fees and any other charges payable under the documents evidencing the Mezzanine Loan). 16. Throughout the second half of 2008 and during 2009, net operating income from the Collateral Portfolio declined. Prior to Innkeepers' chapter 11 cases, the franchise agreements for three of the "Residence Inn" hotels in the Collateral Portfolio with Marriott terminated by their terms. Additionally, in March and May 2010, four additional hotels in the Collateral Portfolio received notices of default from Marriott due to the failure of Innkeepers to complete certain property improvement plan work at the hotels ("PIPs"). There were similar issues with certain of the other properties held by Innkeepers. These factors, coupled with the high amount of outstanding debt on Innkeepers' entire portfolio, similar net operating income declines across Innkeepers other hotels and payment defaults on all of Innkeepers' debt obligations have led to the need for Innkeepers to file for chapter 11 relief 17. After evaluating all of its strategic options and extensive negotiations with Innkeepers, the Debtors agreed to convert their debt into substantially all of the equity in the reorganized Innkeepers, which the Debtors believe will maximize recovery of their Mortgage Loan. Additionally, the Debtors agreed to provide DIP financing to address the PIPs and certain other necessary capital expenditure for the hotels securing the Mortgage Loan. 18. In order to minimize their downside exposure, ALI entered into separate arrangements with Apollo to sell 50% of the equity it receives under the Innkeepers' chapter 11 plan to it for $107.5 million. The Debtors further negotiated a provision in the Plan Term Sheet that provides that if the Debtors are unable to find a US ACTIVE\43446016\20\58399.0008 10 APP-00078 purchaser for such 50% of the equity they receive under Innkeepers' chapter 11 plan for at least $107.5 million, the Debtors can (but are not required to) terminate the Plan Support Agreement. Finally, if the restructuring is not finalized within the time periods set forth in the Plan Support Agreement, the Plan Support Agreement provides that the Collateral Portfolio will be sold to a third-party, transferred to ALI, or ALI will be allowed to foreclose, all as more fully set forth below. LCPI's Interest in the Mortgage Loan 19. On November 30, 2007, Variable Funding Trust 2007-1 ("VFT 2007"), a Delaware statutory trust, entered into a Note Purchase Agreement pursuant to which VFT 2007 issued notes (the "VFT 2007 Notes") collateralized by certain mortgage loans (the "VFT Loans") which were sold and assigned by LCPI to VFT 2007. The Mortgage Loan, which, upon information and belief, had been repo'd from ALI to LCPI, was included in the VFT Loans. 20. On February 23, 2010, this Court entered an order (the "Prepayment Order") 4 authorizing LCPI to prepay, in full, the VFT 2007 Notes, and on March 19, 2010, LCPI transferred cash to VFT 2007 in an amount sufficient to payoff the outstanding amount of the VFT 2007 Notes. The Prepayment Order did not specify whether the VFT Loans were to remain in VFT 2007 or be transferred to LCPI or any other entities. As a result, on May 13, 2010, this Court entered the Transfer Order, which authorized LCPI to cause the transfer of the VFT Loans to any non-Debtor affiliate, provided that (i) such non-Debtor affiliate provides LCPI with a note in the amount of the 4 The Order Pursuant to Section 363 of the Bankruptcy Code and Bankruptcy Rule 6004 Authorizing Debtor to Prepay Notes Issued by Variable Funding Trusts, dated February 23, 2010 [Docket No. 7220]. US ACTIVE\43446016\20\58399.0008 11 APP-00079 outstanding balance of each such transferred VFT Loan (the "Note") with payment terms reflecting the payment terms of the applicable VFT Loan, and (ii) such non-Debtor affiliate provides LCPI with a pledge of the transferred VFT Loan for which control rights will attach upon non-payment of the Note by such non-Debtor affiliate. 21. The Transfer Order further requires that "any non-Debtor affiliate to which a [VFT Loan] is transferred shall be required to obtain all consents and approvals from the Creditors' Committee and the Court that LCPI would otherwise have been required to obtain had LCPI been the owner of such [VFT Loan] .... " Transfer Order at p. 3. Pursuant to the Transfer Order, and subject to the requirements thereof, the Mortgage Loan was transferred to ALI, which currently holds the Mortgage Loan. Therefore, as required by the Transfer Order, ALI (through LCPI) must obtain Creditors' Committee and Court approval prior to entering into the Plan Support Agreement, as, pursuant thereto and detailed below, ALI will, inter alia, consent to the exchange of the Mortgage Loan for equity in reorganized Innkeepers. 22. Further, on June 24, 2010, ALI and LCPI entered into that certain (i) Intercompany Promissory Note, dated as of June 24, 2010, by ALI for the benefit of LCPI (the "Intercompany Note") and (ii) Intercompany Collateral Agreement, dated as of June 24, 2010, by and between ALI and LCPI (the "Intercompany Collateral Agreement" and together with the Intercompany Note, the "Intercompany Loan Documents"), pursuant to which ALI pledged to LCPI ALI's interest in the Mortgage Loan. US ACTIVE\43446016\20\58399.0008 12 APP-00080 The Plan Support Agreement and Plan Term Sheet 5 23. Beginning in April2010, Innkeepers and ALI engaged in numerous good faith and arms' -length negotiations to outline a potential restructuring of Innkeepers that would maximize ALI's recovery on the Mortgage Loan. Following these negotiations ALI and Innkeepers agreed to the terms of the restructuring embodied in the Plan Term Sheet, which will be effectuated through a plan of reorganization in Innkeepers' chapter 11 case. 24. Specifically, with respect to ALI, the Plan Term Sheet contains, among other provisions, the following terms: (a) Conversion of Debt to Equity: ALI receiving, in full and final satisfaction of its approximately $220.2 million secured claim with respect to the Mortgage Loan, 100% of the new shares of common stock issued by reorganized Innkeepers pursuant to its chapter 11 plan (the "New Equity"), subject to dilution by a management equity incentive program; (b) Releases: Customary, consensual releases of liability by Innkeepers in favor of ALI and its affiliates, including LCPI, and, among others, its respective principals, employees, agents, officers, directors, and professionals under the Plan; (c) Milestones: Upon the failure to meet one or more of certain delineated milestones, including, inter alia, the failure by Innkeepers (i) to secure an order confirming a plan of reorganization consistent with the terms of the Plan Support Agreement no later than 240 days from the commencement of the Innkeepers Chapter 11 Case, or (ii) to go effective on such plan of reorganization no later than 270 days from the commencement of the Innkeepers Chapter 11 Case, the Plan Support Agreement shall terminate upon one business day's notice; and 5 The descriptions and discussions of the Plan Support Agreement and the Plan Term Sheet contained herein are summary in nature. In the event of any inconsistency between the terms of any of those documents and their descriptions contained herein, the terms of the actual documents will control. US ACTIVE\43446016\20\58399.0008 13 APP-00081 (d) Remedies Upon Termination - Upon the occurrence of any Termination Event (as defined in the Plan Support Agreement), Lehman may terminate the Plan Support Agreement and Innkeepers' use of its cash collateral. Upon the occurrence of certain Termination Events related to the timing of confirmation or the effective date of the plan, Innkeepers shall immediately elect one of the following remedies or, if Innkeepers does not make the election within one day, the Debtors will be allowed to elect: 1. Innkeepers will be deemed to have consented to the modification of the automatic stay to permit ALI to exercise any and all remedies with respect to its collateral without any need for further Bankruptcy Court approval; 2. Innkeepers will sell ALI's collateral pursuant to section 363 of the Bankruptcy Code, provided that (i) the sale procedures shall be agreed upon no later than 120 days after Innkeepers files for chapter 11; (ii) Lehman shall have the right to credit bid the Floating Rate Debt; (iii) if sale proceeds are not paid to Lehman within 60 days of the Termination Event, title to the Floating Rate Collateral shall be conveyed to Lehman free and clear of all liens, claims, and encumbrances; and (iv) the 60-day period shall not be extended and Innkeepers waives its right to seek any extension of such period. 25. As means of implementation, the Plan Support Agreement contemplates, among other things: (a) all material pleadings filed by Innkeepers during the Innkeepers Bankruptcy, including so-called "first day" pleadings, being in form and substance reasonably acceptable to ALI; (b) entry into two proposed postpetition debtor-in-possession financing facilities (each a "DIP Facility" and, collectively, the "DIP Facilities"), consisting of the (a) approximately $50.75 million DIP Facility provided by Five Mile Capital Partners LLC, which proceeds will be used primarily to perform property improvement programs on certain hotels securing the Debtors' obligations under the Fixed Rate Debt, the Residence Inn in San Diego, and the Residence Inn in Tyson's Comer (each as defined in the Plan Support Agreement); and (b) approximately $17.5 million DIP Facility provided by an affiliate of Lehman, which will be used to perform PIPs and certain other investments on US ACTIVE\43446016\20\58399.0008 14 APP-00082 certain hotels securing the Debtors' obligations under the Floating Rate Mortgage Loan Agreement; (c) consensual use of ALI's cash collateral, and use of all other secured lenders' cash collateral, on terms and conditions acceptable to ALI and subject to the milestones set forth in the Plan Term Sheet; (d) Innkeepers securing additional funding of no less than $75 million to finance its exit from chapter 11; and (e) this Bankruptcy Court having jurisdiction to hear and decide this Motion; the Bankruptcy Court presiding over Innkeepers' Chapter 11 Case shall have exclusive jurisdiction with respect to any matter under or arising out of or in connection with the Plan Support Agreement or the transactions contemplated therein. 26. As set forth above, the Plan Term Sheet provides the framework for a chapter 11 plan of reorganization pursuant to which ALI will receive 100% (subject to dilution for a management incentive program) of the New Equity in exchange for the Mortgage Loan. ALI's willingness to enter into the Plan Support Agreement is conditioned on its ability to mitigate its risk by selling a portion of the New Equity. To that end, ALI has reached an agreement with Apollo (the "AIC Agreement") to sell a 50% stake in its New Equity distribution for not less than $107.5 million, which will be effectuated after Innkeepers' plan becomes effective. Although the AIC Agreement can be terminated by ALI or Apollo under certain circumstances subject to a date certain, ALI is not required to consummate the transactions in the Plan Support Agreement unless it is able to sell 50% of its New Equity to Apollo or another third-party for a price of no less than $107.5 million. The Solar DIP Term Financing 27. Pursuant to the terms of the Mortgage Loan Agreement, ALI held certain reserves and escrows, including reserves for the performance of the PIPs and US ACTIVE\43446016\20\58399.0008 15 APP-00083 certain other investments for the hotels securing Innkeepers' obligations under the Mortgage Loan. On May 19, 2010, events of default occurred under the Mortgage Loan Agreement, which events of default allowed ALI to apply the reserves and escrows held by ALI to the principal balance of the Mortgage Loan. On or about July 16, 2010, ALI applied substantially all of the reserves and escrows to the principal balance of the Mortgage Loan, which amounts shall be paid by ALI to LCPI pursuant to the Intercompany Loan Documents. Such amounts shall then be lent to Solar to fund the Solar DIP Facility (as defined herein). 28. Innkeepers entered into an agreement with Marriott related to the PIPs at the hotels securing the Mortgage Loan as well as certain of its other hotels. This agreement with Marriott provides that subject to certain conditions, including the funding of the PIPs, Marriott will forbear from exercising its potential rights to terminate its franchise agreements. This agreement is important to maintain the value of the Collateral Portfolio. Therefore, the restructuring contemplates the provision by Solar of a DIP Facility up to approximately $17.5 million to Innkeepers. These funds will be used by Innkeepers for PIPs and other necessary capital investments in the Collateral Portfolio. As Solar does not have the necessary funds to provide the DIP Facility, LCPI now wishes to advance certain of the funds paid by ALI to LCPI as set forth in paragraph 25 hereof to Solar in order to fund the DIP Facility. 29. The key terms of the DIP Facility to be provided by Solar are summarized herein as follows: 6 6 Any capitalized term used but not defined in the below summary shall have the meaning ascribed to such term in the DIP Term Sheet, attached hereto as Exhibit C. US ACTIVE\43446016\20\58399.0008 16 APP-00084 (a) DIP Facility: A term facility of up to $17.5 million (the "Solar DIP Facility"), allocated to the Collateral Portfolio securing the Financing, shall be extended to the Borrower pursuant to the terms and provisions of a DIP loan agreement (the "DIP Loan Agreement"). The loan funded by the Solar under the Solar DIP Facility is referred to herein as the "Solar DIP Loan." (b) Material Terms: A Closing Fee of 0.5% and a Commitment Fee equal to 1.0%, each of the amounts committed in connection with the Solar DIP Facility shall be paid by the Borrower (as defined in the DIP Term Sheet) to Solar on the closing date of the Solar DIP Facility and shall be fully earned and non-refundable on such date. Interest on the Solar DIP Loan shall be paid monthly in arrears, accruing at a per annum floating rate equal to the sum of the 30- day LIBOR (subject to a floor of 2.0%) plus 5.0% (the "Non- Default Interest Rate"). (c) Maturity Date: 360 days from the closing of the DIP Facility. (d) Recovery: If a plan consistent with the Plan Term Sheet is confirmed and goes effective, the Debtors agreed to waive the right to a recovery under the Solar DIP Loan except under certain circumstances. (e) Termination Date: The earliest to occur of: (a) acceleration by Solar of the obligations under the Solar DIP Loan due to the occurrence and continuation of an Event of Default (as defined in the DIP Term Sheet) with respect to the Solar DIP Loan; (b) the acceleration of the obligations under any other debtor-in- possession financing provided to Innkeepers due to the occurrence and continuation of an event of default under such financings; (c) the effective date of any plan in the bankruptcy proceeding that provides for payment in full in cash of all obligations owing under the Solar DIP Facility or is otherwise acceptable to Solar; (d) the date that is the closing date of any sale of all or substantially all of any Borrower's assets that constitute collateral for the Solar DIP Facility; (e) the entry of an order by the Bankruptcy Court granting relief from the automatic stay permitting foreclosure of any assets of any Borrower constituting collateral with respect to the DIP Facility in excess of$1,000,000 in the aggregate; or (f) the entry of an order of dismissal or conversion of the Chapter 11 Cases with respect to all of the Borrowers with respect to the Solar DIP Facility. US ACTIVE\43446016\20\58399.0008 17 APP-00085 (f) Additional Terms: The Debtors shall seek an order by the Bankruptcy Court, which the Debtors are seeking by this Motion, that includes provisions that (a) the Plan Support Agreement is approved without condition or delay, including approval for the Debtors to comply with each provision of the Plan Support Agreement and (b) the automatic stay in the Debtors' chapter 11 cases is modified to permit any party to the Plan Support Agreement to take any or all actions permitted by the Plan Support Agreement. 30. The above summaries set forth the current material terms of the Plan Term Sheet and Solar DIP Facility. Although LCPI anticipates that the Innkeepers restructuring will be on terms similar to those set forth above, because this comprehensive restructuring requires the agreement of a large number of entities and approval in the Innkeepers' Chapter 11 case, it is possible that certain of the terms of the restructuring will be different than those set forth herein. As such, ALI and LCPI require the flexibility to enter into a Plan Support Agreement that contemplates a restructuring according to modified terms, and submits that allowing ALI and LCPI the flexibility to do so, subject to the consent of the Creditors' Committee, is in the best interests ofLCPI and its estate. The AIC Stock Purchase Agreement 31. As set forth above, before confirmation by the Innkeepers Bankruptcy Court oflnnkeepers' plan of reorganization pursuant to the terms of the Plan Term Sheet, ALI and Apollo will enter into a stock purchase agreement (the "AIC SPA") whereby ALI will agree to sell Apollo, and Apollo, subject to the terms therein, will agree to purchase from ALI the right to receive 50% of the New Equity that ALI receives in connection with the consummation of the plan in exchange for cash in an amount equal to $107.5 million. On July 16, 2010, ALI and Apollo entered into a letter agreement (the US ACTIVE\43446016\20\58399.0008 18 APP-00086 "Letter Agreement") evidencing this transaction. The key terms of the transaction with Apollo are set forth on the AIC Term Sheet, which is attached hereto as Exhibit D. 32. As set forth above, ALI is not required to consummate any of the transactions set forth in the Plan Support Agreement or the Plan Term Sheet unless ALI enters into an agreement with Apollo or another third party which provides for the sale of 50% of the New Equity ALI receives under Innkeepers' chapter 11 plan for a purchase price of not less than $107.5 million. ALI's Entry into the Plan Support Agreement, Consummation of the Transactions Contemplated by the Plan Term Sheet and the AIC Agreement, and LCPI's Provision of Fund for Solar's DIP Financing Is in the Best Interests of LCPI and its Creditors 33. ALI's entry into the Plan Support Agreement, and LCPI's consent to such, is in the best interest of LCPI, its creditors and all parties in interest, is an exercise of the sound business judgment of both ALI and LCPI, and should be approved by this Court. Section 363(b)(1) of the Bankruptcy Code provides that "It]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property ofthe estate." Id. 363(b)(1). When considering a transaction outside the ordinary course of business, courts in the Second Circuit, and others, require that such transaction be based upon the sound business judgment of the debtor. Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983); accord In re Chateaugay Corp., 973 F.2d 141, 143 (2d Cir. 1992); In re Martin, 91 F.3d 389, 395 (3d Cir. 1996) (citing Fulton State Bank v. Schipper (In Re Schipper), 933 F.2d 513, 515 (7th Cir. 1991)); Institutional Creditors ofCont'l Airlines, Inc. v. Cont'l Airlines, Inc. (In re Cont'l Airlines, Inc.), 780 F.2d 1223, 1226 (5th Cir. 1986). US ACTIVE\43446016\20\58399.0008 19 APP-00087 34. It is generally understood that "[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 debtor's conduct." In re Johns-Manville Corp., 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986). If a valid business justification exists, there is a strong presumption that "the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company." In reIntegrated Res., Inc., 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985)), appeal dismissed, 3 F.3d 49 (2d Cir. 1993). The burden of rebutting this presumption falls to parties opposing the proposed exercise of a debtor's business judgment. Id. (citing Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)). 35. The Plan Term Sheet and Plan Support Agreement are the result of extensive, good-faith, and arms' -length negotiations between ALI/LCPI and Innkeepers, and their respective counsel and financial advisors. The Debtors and their financial advisors believe that these transactions will maximize ALI's recovery on the Mortgage Loan. 36. ALI has determined that the transactions contemplated by the Plan Support Agreement, including the conversion of its debt to equity under a pre-arranged plan of reorganization followed by the sale of half of the New Equity to Apollo or a third- party will provide it with a better recovery than it would likely obtain by restructuring its debt in a "free fall" bankruptcy. Furthermore, the Plan Support Agreement allows for a quicker and less costly restructuring of Innkeepers and enables ALI to mitigate its risk by receiving significant up front cash. If Innkeepers is unable to consummate the plan, the US ACTIVE\43446016\20\58399.0008 20 APP-00088 milestones provided for in the Plan Support Agreement will enable ALI to liquidate its collateral in a structured sale or foreclosure. 37. The provision of up to approximately $17.5 million by LCPI to Solar so that Solar can extend the Solar DIP Facility to Innkeepers is a necessary aspect of the transaction, and benefits LCPI by improving the value of the collateral which is currently securing the Mortgage Loan (in which LCPI holds a secured interest). Without this commitment for funds, Marriott's obligation to forebear will cease and it may seek to exercise its rights with respect to certain hotels in the Collateral Portfolio, a value- destroying result for the Debtors. Furthermore, the funds being provided by LCPI are funds that were paid by ALI to LCPI from escrows and reserves that ALI held related to Innkeepers' debt obligations. As such, the provision of the funds to Solar is in the best interest of LCPI and its estate and creditors. 38. The agreement between ALI and Innkeepers set forth in the Plan Support Agreement and Plan Term Sheet is one of several mutually-dependant, global agreements among Innkeepers and its key constituents. For example, Marriott's entry into the Marriott Agreement, pursuant to which it has agreed to forbear from exercising its potential rights to terminate its franchise agreements is conditioned on, among other things, Innkeepers securing debtor-in-possession financing and completing the property improvement work plan. The proposed DIP Facilities, in tum, are conditioned on Marriott's willingness to support the proposed transaction and to forbear from "de- flagging" substantially all oflnnkeepers' properties provided that the property improvement plan work is completed by Innkeepers in accordance with the Marriott Agreement. Taken together, these agreements have positioned Innkeepers to accomplish US ACTIVE\43446016\20\58399.0008 21 APP-00089 a necessary balance-sheet restructuring that will preserve and maximize Innkeepers' value for the benefit of all parties. If these agreements were to unravel, it could result in a protracted non-consensual restructuring of Innkeepers which could severely deplete the asset value and impair the recovery on the Mortgage Loan. 39. Based on the foregoing, LCPI respectfully submits that the determination that ALI enter into the Plan Support Agreement and consummate the transactions set forth in the Plan Term Sheet, the AIC Agreement (or a sale of 50% of the New Equity to a third-party for a purchase price of not less than $107.5 million), and LCPI's provision of up to approximately $17.5 million to Solar was an exercise of sound business judgment. Reservation of Rights 40. The Debtors request that nothing contained herein be deemed to be a waiver or the relinquishment of any rights, claims, interests, obligations, benefits, or remedies ofLCPI, or any of the Debtors or their non-debtor affiliates except as otherwise expressly provided in this Motion, that any of the Debtors or non-debtor affiliates may have or choose to assert on behalf of their respective estates under any provision of the Bankruptcy Code or any applicable non-bankruptcy law, including against each other or third parties. Additionally, the parties seek authorization to execute such further documentation necessary to reflect this reservation of rights. Notice 41. The Debtors have served notice of this Motion in accordance with the procedures set forth in the second amended order entered on June 17, 2010 governing case management and administrative procedures for these cases [Docket No. 9635] on (i) US ACTIVE\43446016\20\58399.0008 22 APP-00090 the U.S. Trustee; (ii) the attorneys for the Creditors' Committee; (iii) the Securities and Exchange Commission; (iv) the Internal Revenue Service; (v) the United States Attorney for the Southern District of New York; (vi) the attorneys for ALI; (vii) the attorneys for Innkeepers; (viii) the attorneys for Apollo; and (ix) all parties who have requested notice in these chapter 11 cases. The Debtors submit that no other or further notice need be provided. 42. No previous request for the relief sought herein has been made by the Debtors to this or any other court. US ACTIVE\43446016\20\58399.0008 23 APP-00091 WHEREFORE the Debtors respectfully request that the Court grant the relief requested herein and such other and further relief as is just. Dated: July 27, 2010 Houston, Texas US ACTIVE\43446016\20\58399.0008 /s/ Alfredo R. Perez Alfredo R. Perez W eil, Gotshal & Manges LLP 700 Louisiana, Suite 1600 Houston, TX 77002 Telephone: (713) 546-5040 Facsimile: (713) 224-9511 Attorneys for Debtors and Debtors in Possession 24 APP-00092 Exhibit A (The Plan Support Agreement) US ACTIVE\43446016\20\58399.0008 APP-00093 EXECUTION COPY PLAN SUPPORT AGREEMENT This PLAN SUPPORT AGREEMENT (this "Agreement") is made and entered into as of July 17, 2010, by and among (i) Innkeepers USA Trust, a Maryland real estate investment trust ("Innkeepers" and collectively with its subsidiaries, the "Company" or the "Debtors"), including each obligor under the Floating Rate Debt (defined below) and (ii) Lehman ALI Inc., a Delaware corporation ("Lehman"), as mortgage lender. The Company and Lehman are sometimes collectively referred to herein as the "Parties" and individually as a "Party." The following exhibits are attached hereto and incorporated herein: Exhibit A Plan Term Sheet Exhibit B Marriott Agreement Exhibit C Floating Rate DIP Loan Term Sheet Exhibit D Fixed Rate DIP Loan Term Sheet Exhibit E Cash Collateral Order Exhibit F Form of Joinder Exhibit G Floating Rate Franchise Agreements Capitalized terms not defined in this introduction or in the recitals to this Agreement shall have the meanings assigned thereto in Section 1 hereof RECITALS WHEREAS, the Company is a borrower, and has obligations, under that certain mortgage loan agreement (the "Floating Rate Debt Agreement"), dated as of June 29, 2007, to Lehman and the parties thereto, as lenders; WHEREAS, the Parties, with the assistance of their legal and financial advisors, have engaged in good faith negotiations with the objective of reaching an agreement with regard to the conversion of the Floating Rate Debt into significantly all of the equity of the reorganized Company, on substantially the terms and conditions set forth in the Plan Term Sheet attached hereto as Exhibit A (the "Transaction"); WHEREAS, it is anticipated and a fundamental assumption and requirement of this Agreement, that the Transaction will be effectuated through a prearranged plan of reorganization (the "Plan") in chapter 11 bankruptcy cases under chapter 11 of title 11 of the United States Code 11 U.S.C. 101-1532 (the "Bankruptcy Code") filed by the Company (the "Chapter 11 Cases") in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court presiding over the Chapter 11 Cases and not the Lehman Bankruptcy Cases, the "Bankruptcy Court"); 15818454.2 APP-00094 WHEREAS, the Company shall use its commercially reasonable efforts to obtain Bankruptcy Court approval and confirmation of the Plan in accordance with the Bankruptcy Code, on terms consistent in all respects with this Agreement; WHEREAS, Innkeepers has determined that the Transaction is advisable and in the best interests of its creditors and equity holders; WHEREAS, entry into this Agreement is within the sound business judgment of Innkeepers and is in furtherance oflnnkeepers' directors' and officers' fiduciary duties; WHEREAS, this Agreement sets forth the terms and conditions of the Parties' respective obligations hereunder. WHEREAS, Lehman Brothers Holding, Inc. and certain of its affiliates have commenced chapter 11 cases in the Southern District of New York (the "Lehman Bankruptcy Cases"). NOW, THEREFORE, in consideration of the foregoing, the promises and mutual covenants, conditions and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows: Section 1. Definitions. "Business Day" shall mean any day, other than a Saturday, Sunday, or a legal holiday, as defined in Rule 9006(a) of the Federal Rules of Bankruptcy Procedure. "Confirmation Date" shall mean the date of entry by the Bankruptcy Court of the Confirmation Order. "Confirmation Order" shall have the meaning set forth in Section 6(a)(vi) hereof "Disclosure Statement" shall mean the disclosure statement related to the Plan to be filed in the Chapter 11 Cases, which shall be in such form and substance as is reasonably satisfactory to Lehman and with any changes or modifications required by the Bankruptcy Court. "Effective Date" shall have the meaning set forth in Section 10 hereof "Fiduciary Out" shall have the meaning set forth in Section 24 hereof "Firm Alternative Transaction" shall have the meaning set forth in Section 24 hereof "Fixed Rate Franchise Agreements" shall mean those certain Residence Inn by Marriott Relicensing Franchise Agreements, between Marriott and Grand Prix Fixed Lessee LLC, a Delaware limited liability company, dated as of June 29, 2007. 2 APP-00095 "Fixed Rate Collateral" shall mean the forty-five ( 45) properties securing the Fixed Rate Debt. "Fixed Rate Debt" shall mean the Company's obligations under that certain mortgage loan agreement, dated as of June 29, 2007, among Lehman and the affiliates of the Company parties thereto collateralized by the Fixed Rate Collateral. "Fixed Rate DIP Facility" shall mean a senior secured super-priority debtor-in- possession credit facility in conformity with the Fixed Rate DIP Loan Term Sheet. "Fixed Rate DIP Loan Term Sheet" shall mean the Fixed Rate DIP Loan Term Sheet attached to this Agreement as Exhibit D. "Floating Rate Collateral" shall mean the twenty (20) properties securing the Floating Rate Debt. "Floating Rate Debt" shall mean the Company's obligations under that certain mortgage loan agreement, dated as of June 29, 2007, among Lehman and the affiliates of the Company parties thereto, collateralized by the Floating Rate Collateral. "Floating Rate DIP Facility" shall mean a senior secured super-priority debtor- in-possession credit facility in conformity with the Floating Rate DIP Loan Term Sheet. "Floating Rate DIP Loan Term Sheet" shall mean the Floating Rate DIP Loan Term Sheet attached to this Agreement as Exhibit C. "Floating Rate Franchise Agreements" shall mean those agreements set forth on Exhibit G attached hereto. "Franchise Agreements" shall mean collectively the Fixed Rate Franchise Agreements, the Floating Rate Franchise Agreements and the LNR Franchise Agreements. "Lehman Shares" shall mean shares of the New Equity representing 100% of the issued and outstanding New Equity, subject to dilution by the Management Equity Incentive Program (as defined in the Plan Term Sheet) that will be distributed to Lehman pursuant to the Plan. "LNR Franchise Agreements" shall mean those certain Residence Inn by Marriott Relicensing Franchise Agreements, between Marriott and Grand Prix General Lessee LLC, and Marriott and Grand Prix RIMY Lessee LLC, respectively, dated as of June 29, 2007. "Marriott" shall mean Marriott International, Inc., a Maryland corporation. "Marriott Agreement" shall mean the Marriott Agreement attached to this Agreement as Exhibit B. 3 APP-00096 "Milestones Covenant" shall mean the covenant by the Company not to take any action, and not to solicit, encourage or support any action by a third party, seeking to amend, annul, modify, or extend the Plan Milestones. "New Equity" shall mean the new shares of common stock to be issued by Innkeepers under the Plan. "New Equity Sale Transaction" shall have the meaning set forth in Section 6(b) hereof "New Funding" shall mean funding incurred by Innkeepers in the amount of no less than $75 million, plus such additional amounts in form and substance as may be determined by the parties. "Petition Date" shall mean the date on which the Company shall have commenced the Chapter 11 Cases in the Bankruptcy Court. "PIP Work" shall mean the construction labor and materials necessary to satisfy Marriott or any other applicable franchisor that each of the requirements of each of the PIPs has been satisfied, as identified and approved by Lehman. "PIP'' shall mean the Property Improvement Plans included within and made a part of the Franchise Agreements covering certain of the hotel properties owned by the Borrower, which Property Improvement Plans shall have been approved by Marriott or any other applicable franchisor, and shall have been received and reasonably approved by Lehman, unless such Property Improvement Plans have been previously approved by Lehman in accordance with the terms and conditions of the Floating Rate Debt. "Plan" shall mean a prearranged chapter 11 plan of reorganization for the Company consistent in all respects with the terms and conditions contained in the Plan Term Sheet. "Plan Effective Date" shall mean the effective date of the Plan. "Plan Milestones" shall have the meaning set forth in Section 6 hereof "Plan Related Documents" shall mean the Plan and all documents required to effectuate the Plan or the Transaction, including, but not limited to, all documents and agreements contemplated by the Plan Term Sheet and, to the extent not included in the above, (a) the Disclosure Statement, (b) the materials related to the Solicitation, (c) the proposed Confirmation Order and (d) any other documents or agreements filed with the Bankruptcy Court by Innkeepers or at the Company's direction that are necessary to implement the Plan, including any appendices, amendments, modifications, supplements, exhibits and schedules relating to the Plan or the Disclosure Statement. All Plan Related Documents shall be in form and substance reasonably acceptable to Lehman and materially consistent in all respects with this Agreement, the Plan and the Transaction. "Plan Term Sheet" shall mean the term sheet attached hereto as Exhibit A 4 APP-00097 "Pro Forma Capital Structure" shall mean the capital structure of the reorganized Company following the consummation of the Plan as set forth in the Plan Term Sheet. "Solicitation" shall mean the solicitation of votes in respect of the Plan in the Chapter 11 Cases. "Termination Date" shall mean the date on which this Agreement is terminated in its entirety pursuant to Section 6 hereof "Termination Event" shall have the meaning set forth in Section 6 hereof "Transfer" shall have the meaning set forth in Section 30 hereof Section 2. Approval of the Plan Term Sheet and Related Agreements. (a) The Parties severally acknowledge and agree that (i) the terms and conditions set forth in the Plan Term Sheet, the Marriott Agreement, the Floating Rate DIP Loan Term Sheet, the Fixed Rate DIP Loan Term Sheet and the Cash Collateral Order are acceptable in all respects to the Parties and their respective counsel and (ii) the Plan Related Documents shall contain terms and conditions consistent in all material respects with those set forth in the Plan Term Sheet, the Marriott Agreement, the Floating Rate DIP Loan Term Sheet and the Fixed Rate DIP Loan Term Sheet. Section 3. Bankruptcy Process for Innkeepers. The Company hereby agrees to use commercially reasonable efforts to obtain approval of this Agreement and confirmation and consummation of the Plan as soon as reasonably practicable on terms consistent in all respects with the Plan Term Sheet and this Agreement, and each Party shall use their commercially reasonable efforts to support confirmation and consummation of the Plan; provided, however, that the Company and Lehman, may from time to time agree in writing to further extend any time period or deadline set forth herein as provided in this Agreement. Section 4. Support of the Transaction; Additional Covenants. From the Effective Date of the Agreement until the occurrence of a Termination Event (as defined herein), and subject to the conditions set forth in this Agreement, the Company and Lehman, as applicable, agree and covenant that: (a) Prior to the Termination Date, no Party will: (i) object to confirmation of the Plan or object to or otherwise commence any proceeding to oppose, alter, delay or impede or take any other action, directly or indirectly, to interfere with entry of one or more orders approving the Plan or other Plan Related Documents; (ii) directly or indirectly seek, solicit, negotiate, vote for, consent to, support or participate in the formulation of any plan of reorganization or other restructuring other than the Plan; 5 APP-00098 (iii) directly or indirectly seek, solicit, negotiate, support or engage in any discussions regarding any chapter 11 plan other than the Plan; (iv) object to the Solicitation or support any such objection by a third party; or (v) take any other action not required by law that is inconsistent with, or that would materially delay, the confirmation or consummation of the Plan or that is otherwise inconsistent with this Agreement. (b) Unless the Termination Date has occurred, (i) so long as its vote has been solicited in a manner sufficient to comply with the requirements of sections 1125 and 1126 of the Bankruptcy Code, including but not limited to its receipt of the Disclosure Statement, Lehman agrees to (A) vote (or cause the voting of) its Claims arising from the Floating Rate Debt to accept the Plan by delivering its duly executed and completed ballot accepting the Plan on a timely basis following the commencement of the Solicitation and agrees that the solicitation period may be as short as five (5) Business Days; provided, however, that such vote shall be immediately revoked and deemed void ab initio upon termination of this Agreement pursuant to the terms hereof; and (B) not change or withdraw (or cause to be changed or withdrawn) such vote and (ii) Lehman consents to the treatment of the Floating Rate Debt as set forth in the Plan Term Sheet and the Plan. The Company hereby agrees that in the event this Agreement terminates by its terms, the Company shall not challenge or otherwise object to (i) the revocation of Lehman's vote pursuant to this section or (ii) any action by Lehman to confirm the revocation or cancellation of its vote. (c) Nothing in this Agreement shall be construed to (i) prohibit any Party from appearing as a party-in-interest in any matter to be adjudicated in the Chapter 11 Cases so long as such appearance and the positions advocated in connection therewith are not inconsistent with this Agreement and the Transaction and are not for the purpose of and could not reasonably be expected to have the effect of, hindering, delaying or preventing the confirmation of the Plan or consummation of the Transaction pursuant to the Plan and (ii) require Lehman to file any pleadings or take any other action in support of the Plan that would require it to hire and pay for counsel to represent it unless the Company agrees to pay the fees and expenses of such counsel. Section 5. Further Agreements. (b) Additional Transaction Matters. The Company hereby agrees (i) to use its reasonable best efforts to prepare or cause the preparation of the Plan and the other Plan Related Documents, (ii) to take all reasonably necessary and appropriate actions to achieve confirmation and consummation of the Plan and the Transaction contemplated therein, and (iii) that it shall provide to Lehman draft copies of all pleadings and other documents (including all "first day" and any other motions, applications and other pleadings and documents, as well as all exhibits, supplements and related orders) it intends to file in connection with the Chapter 11 Cases with the Bankruptcy Court, or any other court, as soon as is reasonably practicable before such documents are filed with such court, all of which documents (a) shall be in form and substance reasonably acceptable to Lehman prior to any such proposed filing and (b) shall be consistent in all respects with the Plan Term Sheet. 6 APP-00099 (c) Approvals. Each Party agrees to use its commercially reasonable efforts to (i) obtain Bankruptcy Court approval of this Agreement, confirmation of the Plan by the Bankruptcy Court and consummate the Transaction pursuant to the Plan and all other actions contemplated under the Plan Related Documents related thereto, (ii) take any and all necessary and appropriate actions in furtherance of the Transaction and the other actions contemplated under this Agreement, the Plan Term Sheet and the Plan Related Documents, (iii) obtain any and all required regulatory approvals and material third-party approvals for the Transaction and (iv) not take any actions inconsistent with this Agreement, the Plan Term Sheet or other Plan Related Documents. Neither Party shall, directly or indirectly, seek, solicit, negotiate, support or engage in any discussions relating to or enter into any agreements relating to, any restructuring, plan of reorganization, dissolution, winding up, liquidation, reorganization, merger, transaction, sale or disposition (or all or substantially all of their assets or equity) other than as set forth in the Plan Term Sheet and the Plan, nor shall either Party solicit or direct any person or entity, including, without limitation, any member of any of the Parties' board of directors or, as to the Company, any holder of equity in the Company, to undertake any of the foregoing; provided, however, that the Parties may agree to modifications to the Plan Related Documents as provided herein. (d) Professionals. The Company shall pay all reasonable professional fees and expenses incurred by Lehman in connection with the Transaction. In connection therewith, prior to the Petition Date, the Company shall pay all reasonable fees and expenses owing to Lehman as invoiced by counsel for Lehman on the date hereof (e) Compliance With Agreements. The Company shall comply, including to the extent authorized by an order of the Bankruptcy Court, after the Petition Date and through the Plan Effective Date, with the terms and conditions of the Floating Rate Debt Agreement, as such may have been modified by the existing waiver agreements in place as of the date hereof, including the payment of all interest, fees and expenses owing thereunder, provided, however, that after the Petition Date, (i) the Company shall not be in default under the foregoing agreement for purposes of this Agreement as a result of the filing of the Chapter 11 Cases and (ii) the Company shall not be required to pay interest, fees and expenses absent entry of an order of the Bankruptcy Court permitting such payment or upon consummation of the Plan to the extent authorized by an order of the Bankruptcy Court. (f) Automatic Stay Relief For the avoidance of doubt, the Parties hereby waive any requirement under section 362 of the Bankruptcy Code to lift the automatic stay thereunder solely for purposes of providing any notices, elections, or waivers under this Agreement (and agree not to object to any non-breaching Party seeking, if necessary, to lift such automatic stay solely in connection with the giving of any such notice, election, or waiver). Nothing in this Agreement shall preclude Lehman from delivering any notice of default, waiver, or election to the Company at any time. Section 6. Termination of this Agreement. Upon the occurrence of any of the following events (each, a "Termination Event"), this Agreement shall automatically terminate on the first calendar day immediately following one (1) Business Day after the date of such Termination Event, unless (a) Lehman, in its sole discretion, provides the Company with a written waiver of any such Termination Event in this Section 6 within one (1) Business Day from 7 APP-00100 the date of such Termination Event or (b) Lehman and the Company, in their respective sole discretion, provide the other party with a written waiver of Termination Events in Section 6(r) and__()_ within one (1) Business Day from the date of such Termination Event: (a) Failure to meet any of the following milestones (each a "Plan Milestone" and together, the "Plan Milestones"): (i) Motion to assume this Agreement filed by the Company on the Petition Date; (ii) Order entered authorizing the assumption of this Agreement no later than 45 days after the Petition Date; (iii) Orders entered on a final (and not interim) basis authorizing the Fixed Rate DIP Facility, Floating Rate DIP Facility, the use of Lehman's cash collateral and the use of the cash collateral securing the Fixed Rate Debt consistent with the terms set forth in the Plan Term Sheet no later than 45 days after the Petition Date; (iv) Disclosure Statement and Plan consistent with the terms set forth in the Plan Term Sheet filed no later than 45 days after the Petition Date; (v) Disclosure Statement consistent with the terms set forth in the Plan Term Sheet approved by the Bankruptcy Court no later than 120 days after the Petition Date; (vi) Lehman and the Company shall have reached mutual agreement no later than 120 days after the Petition Date on the terms of a sale process upon the occurrence of the Termination Event set forth in Section 6(a)(vii) or 6(a)(viii) below; (vii) Order confirming the Plan consistent with the terms set forth in the Plan Term Sheet entered by the Bankruptcy Court no later than 240 days after the Petition Date; and (viii) Occurrence of the Plan Effective Date no later than 270 days after the Petition Date; (b) Lehman has not executed definitive agreements with respect to the sale of 50% of the Lehman Shares for a purchase price of at least $107.5 million (the "New Equity Sale Transaction") no later than 45 days after the Petition Date; (c) Lehman has not consummated the New Equity Sale Transaction no later than 270 days after the Petition Date; (d) The entry by the Bankruptcy Court of an interim order authorizing the use of Lehman's cash collateral in form and substance not acceptable to Lehman; (e) The entry of any order of the Bankruptcy Court granting relief from the automatic stay (i) to permit any exercise of remedies by the lenders or special servicer under the 8 APP-00101 Fixed Rate Debt, the Other Secured Debt or the Mezzanine Debt (as each such term is defined in the Plan Term Sheet) other than limited relief solely to permit the delivery of default notices under the terms of the Fixed Rate Debt, the Other Secured Debt or the Mezzanine Debt and (ii) to permit termination of any Franchise Agreement with Marriott or any other hotel brand other than those Franchise Agreements listed in the Marriott Schedule attached as Exhibit E to the Plan Term Sheet; (f) The filing by the Company of 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; (g) (i) The filing by the Company of any motion or other request for relief seeking an extension of the Plan Milestones or any alteration of the remedies upon termination set forth herein without the express written consent of Lehman in its sole discretion; (ii) the filing by the Company of any pleading supporting any motion from any other party to obtain such extension or alteration; (iii) the failure of the Company to oppose any motion from any other party to obtain such extension; or (iv) the violation by the Company of the Milestones Covenant; (h) The entry of an order by the Bankruptcy Court (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 Company; (i) The withdrawal, amendment or modification by the Company of, or the filing by the Company of a pleading seeking to amend or modify, the Plan or this Agreement, which withdrawal, amendment, modification or pleading is materially inconsistent with the terms set forth in the Plan Term Sheet or the Plan or is materially adverse to Lehman, in each case in a manner not reasonably acceptable to Lehman, or if the Company files any motion or pleading with the Bankruptcy Court that is inconsistent in any material respect with the terms set forth in the Plan Term Sheet or the Plan (in each case with such amendments and modifications as have been effected in accordance with the terms set forth in the Plan Term Sheet) and such motion or pleading has not been withdrawn within three (3) Business Days; G) The filing of any motion to approve a Disclosure Statement or Plan by the Company that incorporates a Pro Forma Capital Structure or any other terms inconsistent with the terms and conditions set forth Plan Term Sheet; (k) The granting by the Bankruptcy Court of relief that is inconsistent with the terms set forth in the Plan Term Sheet or the Plan in any material respect (in each case with such amendments and modifications as have been effected in accordance with the terms set forth in the Plan Term Sheet); 9 APP-00102 (1) The issuance by any governmental authority, including the Bankruptcy Court or any other regulatory authority or court of competent jurisdiction, of any ruling, determination or order making illegal or otherwise restricting, preventing or enjoining the consummation of a material portion of the Transaction, including an order denying confirmation of the Plan and such ruling, determination or order has not been vacated or reversed within five ( 5) Business Days of issuance; (m) The occurrence and continuation of a default under the Fixed Rate DIP Facility, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; (n) The occurrence and continuation of a default under the Floating Rate DIP Facility, including those set forth on Exhibit B to the Plan Term Sheet, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; ( o) The occurrence and continuation of a default in connection with the Company's use of Lehman's cash collateral, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; and (p) The occurrence after execution of this Agreement of (i) a change that has a material adverse effect on the use, value or condition of the Company, its assets or the legal or financial status or business operations of the Company or (ii) a material disruption or material adverse change in the financial, real estate, banking or capital markets; ( q) Lehman has determined, in its sole discretion, after completion of its tax due diligence, that the Transaction cannot be structured in a manner acceptable to Lehman, which determination shall be made no later than 45 days after the Petition Date; (r) The material breach by any Party of any of their undertakings, representations, warranties or covenants set forth in this Agreement; and (s) All Parties agree in writing to terminate this Agreement. The foregoing Termination Events are intended solely for the benefit of the Parties to this Agreement; provided that no Party may seek to terminate this Agreement based upon a material breach or a failure of a condition (if any) in this Agreement arising out of its own actions or omissions. Section 7. Default Notices. The Company shall furnish to Lehman prompt written notice of any Termination Event as soon as it becomes aware that the Termination Event will occur, specifying the nature and extent thereof and the corrective action, if any, taken or proposed to be taken with respect thereto. Section 8. Effect of Termination. Upon occurrence of a Termination Event, this Agreement shall be of no further force and effect and each Party hereto shall be released from its commitments, undertaking, and agreements under or related to this Agreement except (i) to the extent provided in Section 13 of this Agreement and (ii) with respect to the remedies set forth in Sections 8(a) and 8.(hl below: 10 APP-00103 (a) Upon the occurrence of any of the Termination Events set forth in Section @through___()_ hereof, Lehman may terminate this Agreement and the use of its cash collateral. (b) As long as this Agreement has not otherwise been terminated, (x) upon the occurrence of a Termination Event set forth in Section 6(a)(vii) or 6(a)(viii); (y) if a trustee is appointed for the Chapter 11 Cases of all of those Debtors obligated under the Floating Rate Debt, Fixed Rate Debt, Mezzanine Debt, and Other Secured Debt, or (z) if the Company files a motion to dismiss all of the Chapter 11 Cases for those Debtors obligated under the Floating Rate Debt, Fixed Rate Debt, Mezzanine Debt, and Other Secured Debt, the Company shall, immediately upon the occurrence of such Termination Event, elect one of the following remedies, provided, however, that if the Company fails to make such election within one day after the occurrence of the applicable Termination Event, Lehman shall have the right to elect either option: (i) The Company will be deemed to have consented to the modification of the automatic stay to permit Lehman to exercise any and all remedies with respect to the Floating Rate Collateral, the automatic stay shall be so modified and no further Bankruptcy Court approval shall be required; or (ii) The Company will sell the Floating Rate Collateral pursuant to section 363 of the Bankruptcy Code, subject to the following conditions, which shall be incorporated into any order approving this Agreement: (i) the sale procedures shall be agreed upon no later than 120 days after the Petition Date; (ii) Lehman shall have the right to credit bid the Floating Rate Debt; (iii) if sale proceeds are not paid to Lehman within 60 days of the Termination Event, title to the Floating Rate Collateral shall be conveyed to Lehman free and clear of all liens, claims and encumbrances; (iv) the 60-day period shall not be extended and the Company waives its right to seek any extension such period. Section 9. Good Faith Cooperation; Further Assurances; Transaction Documents. The Parties shall cooperate with each other in good faith and shall coordinate their activities (to the extent practicable) in respect of all matters concerning the implementation and consummation of the Transaction. Furthermore, each of the Parties shall take such action (including executing and delivering any other agreements and making and filing any required regulatory filings) as may be reasonably necessary to carry out the purposes and intent of this Agreement. Each Party hereby covenants and agrees (a) to negotiate in good faith the Plan Related Documents, each of which shall (i) contain the same economic terms as and other terms consistent in all material respects with, the terms set forth in the Plan Term Sheet, (ii) be in form and substance acceptable in all respects to each of the Company and Lehman and (iii) be consistent with this Agreement in all material respects and (b) to execute the Plan Related Documents subject to the terms of this Agreement (to the extent such Party is a party thereto). Section 10. Representations and Warranties. Each Party hereby represents and warrants to the other Parties that the following statements are true, correct and complete as of the date hereof and as of the date of any amendment of this Agreement approved by such Party: 11 APP-00104 (t) No Conflicts. To the Parties' actual knowledge, the execution, delivery and performance by such Party of this Agreement does not and shall not (i) violate (A) any provision of law, rule or regulation applicable to it or any of its subsidiaries or (B) its charter or bylaws (or other similar governing documents) or those of any of its subsidiaries or (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation to which it or any of its subsidiaries is a party. (u) Governmental Consents. The execution, delivery and performance by such Party of this Agreement does not and shall not require any registration or filing with, consent or approval of or notice to or other action to, with or by, any Federal, state or governmental authority or regulatory body other than the Bankruptcy Court. (v) Binding Obligation. This Agreement is the legally valid and binding obligation of such Party, enforceable against it, and its officers, directors and agents, in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability or a ruling of the Bankruptcy Court. Section 11. Effectiveness. This Agreement shall become effective and binding on each Party upon (i) the payment of all reasonable fees and expenses owing to Lehman as invoiced by counsel for Lehman on the date hereof and (ii) the receipt by Lehman of signature pages executed by the Company, including each obligor under the Floating Rate Debt (the "Effective Date"); provided, however, that this Agreement shall not become binding on Lehman unless and until (a) the Marriott Agreement, in the form attached hereto as Exhibit B, have been executed by all relevant parties thereto, (b) the bankruptcy court presiding over the Lehman Bankruptcy Cases enters an order approving this Agreement, which approval (x) Lehman shall seek as soon as practicable after the Petition Date (by a motion and order in substance subject to the Company's reasonable consent), (y) shall be an order in form and substance reasonably acceptable to Innkeepers and materially consistent in all respects with this Agreement, and (z) shall include provisions that provide, among other things, that: (i) the Agreement is approved without condition or delay, including approval for Lehman to comply with each provision of the Agreement and (ii) the automatic stay in the Lehman Bankruptcy Cases is modified to permit any Party to take any or all of the actions permitted by the Agreement; provided, further, however, that if such if such order approving this Agreement is not entered in the Lehman Bankruptcy Cases by August 27, 2010, the Company has the right to terminate this Agreement upon one (1) Business Day's written notice by the Company. Delivery by telecopier or electronic mail of an executed counterpart of a signature page to this Agreement shall be effective as delivery of an original executed counterpart hereof Section 12. GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY CONFLICT OF LAWS PROVISIONS WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ANY LEGAL ACTION, SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ANY MATTER UNDER OR ARISING OUT OF OR IN 12 APP-00105 CONNECTION WITH THIS AGREEMENT OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RENDERED IN ANY SUCH ACTION, SUIT OR PROCEEDING, MAY BE BROUGHT IN ANY FEDERAL COURT IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY ACCEPTS AND SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF EACH SUCH COURT, GENERALLY AND UNCONDITIONALLY, WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING. NOTWITHSTANDING THE FOREGOING CONSENT TO JURISDICTION, UPON THE COMMENCEMENT OF THE CHAPTER 11 CASES, EACH OF THE PARTIES AGREES THAT THE BANKRUPTCY COURT PRESIDING OVER THE CHAPTER 11 CASES AND NOT THE BANKRUPTCY COURT PRESIDING OVER THE LEHMAN BANKRUPTCY CASES SHALL HAVE EXCLUSIVE JURISDICTION WITH RESPECT TO ANY MATTER UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREIN; PROVIDED, HOWEVER, THE BANKRUPTCY COURT PRESIDING OVER THE LEHMAN BANKRUPTCY CASES SHALL HAVE EXCLUSIVE JURISDICTION TO DETERMINE WHETHER TO APPROVE LEHMAN'S ENTRY INTO THIS AGREEMENT. THE PARTIES WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE BETWEEN THE PARTIES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. Section 13. Specific Performance; Exclusive Remedy. Each Party hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other Parties to sustain damages for which such Parties would not have an adequate remedy at law for money damages, and therefore each Party hereto agrees that in the event of any such breach the other Parties shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive relief, without the necessity of securing or posting a bond or other security in connection with such remedy. Notwithstanding anything to the contrary set forth above, the Parties also agree that the remedy of specific performance shall be the exclusive remedy of the Parties under this Agreement in the event of a breach of this Agreement by another Party hereto. Section 14. Survival. Notwithstanding the termination of this Agreement in accordance with its terms, the agreements and obligations of the Parties in Sections 7 (effect of termination), ll (governing law), 12 (specific performance), .U (survival), 12. (successors and assigns), 1.. (no third party beneficiaries, 21 (reservation of rights), 22 (publicity), 24 (fiduciary duties), 25 (indemnification), and 26 (continued banking practices) hereof shall survive such termination and shall continue in full force and effect for the benefit of the Parties hereto in accordance with the terms hereof Section 15. Headings. The headings of the sections, paragraphs and subsections of this Agreement are inserted for convenience only and shall not affect the interpretation hereof Section 16. Successors and Assigns; Severability; Several Obligations. This Agreement is intended to bind and inure to the benefit of the Parties and their respective permitted successors, assigns, heirs, executors, estates, administrators and representatives. The invalidity or unenforceability at any time of any provision hereof in any jurisdiction shall not 13 APP-00106 affect or diminish in any way the continuing validity and enforceability of the remammg provisions hereof or the continuing validity and enforceability of such provision in any other jurisdiction. The agreements, representations and obligations of the Parties under this Agreement are, in all respects, several and not joint. Section 17. No Third Party Beneficiaries. Unless otherwise expressly stated herein, this Agreement shall be solely for the benefit of the Parties and no other person or entity shall be a third party beneficiary hereof. Section 18. Entire Agreement. This Agreement constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior agreements (oral and written) and all other prior negotiations, but shall not supersede either of the Plans or the other Plan Related Documents. Section 19. Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Section 20. Notices. All demands, notices, requests, consents and other communications under this Agreement shall be in writing, sent contemporaneously to all of the Parties (unless otherwise stated in the Agreement) and deemed given when delivered, if delivered by hand or upon confirmation of transmission, if delivered by email and facsimile, during standard business hours (from 8:00A.M. to 6:00P.M. at the place of receipt) at the addresses and facsimile numbers set forth below: If to the Company: Innkeepers USA Trust 340 Royal Poinciana Way, Suite 306 Palm Beach, Florida 33480 Attn: Marc Beilinson Telephone: (561) 835-1800 Facsimile: (561) 835-0457 email: MBeilinson@BeilinsonPartners.com with a copy to Kirkland & Ellis LLP 60 1 Lexington A venue New York, NY 10022-4611 Attn: James H.M. Sprayregen Paul M. Basta Jennifer L. Marines Telephone: (212) 446-4800 Facsimile: (212) 446-4900 14 APP-00107 email: j sprayregen@kirkland.com pbasta@kirkland. com j marines@kirkland. com and Kirkland & Ellis LLP 300 North LaSalle Chicago, IL 60654-3406 Attn: Anup Sathy Marc J. Carmel Telephone: (312) 862-2000 Facsimile: (312) 862-2200 email: asathy@kirkland.com mcarmel@kirkland.com If to Lehman: Lehman ALI Inc. 1271 Avenue of the Americas New York, NY 10020 Attn: Michael Lascher Susanne Frey email: mi chael.lascher@lamcoll c. com susanne.frey@lehmanholdings.com with a copy to Dechert LLP 1095 Avenue of the Americas New York, NY 10036 Attn: Michael J. Sage Brian E. Greer Telephone: (212) 698-3500 Facsimile: (212) 698-3599 email: michael. sage@dechert. com brian. greer@dechert. com Section 21. Rule of Interpretation; Calculation of Time Period. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the Parties hereto. None of the Parties hereto shall have any term or provision construed against such Party solely by reason of such Party having drafted the same. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is not a Business Day, the period in question shall end on the next succeeding Business Day. 15 APP-00108 Section 22. Reservation of Rights. Nothing herein shall be deemed an admission of any kind. If the transactions contemplated herein are not consummated or this Agreement is terminated for any reason, the Parties fully reserve any and all of their rights. Pursuant to Rule 408 of the Federal Rule of Evidence, any applicable state rules of evidence and any other applicable law, foreign or domestic, this Agreement and all negotiations relating thereto shall not be admissible into evidence in any proceeding other than a proceeding to enforce its terms. Section 23. Publicity; Confidentiality. The Parties understand and acknowledge that, until publicly disclosed as herein contemplated, the terms of this Agreement and the exhibits hereto are confidential information, and the Parties agree to keep such information confidential and not use it for any purpose except as contemplated hereby or as reasonably necessary in the Chapter 11 Cases. Section 24. Representation by Counsel. Each Party acknowledges that it has had the opportunity to be represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would provide any Party with a defense to the enforcement of the terms of this Agreement against such Party based upon lack of legal counsel shall have no application and is expressly waived. Section 25. Fiduciary Duties. (a) Notwithstanding anything to the contrary herein, at any time prior to the Confirmation Date, the Company or any directors or officers of the Company, in such person's capacity as a director or officer of the Company, shall be entitled to take any action, or to refrain from taking any action, including a decision to terminate this Agreement, that such person determines in good faith, after consultation with counsel, is consistent with its or their fiduciary obligations under applicable law (the "Fiduciary Out"). (b) At the time this Agreement is entered into, the Company acknowledges and agrees that the Plan Milestones and any remedies in respect thereof set forth in this Agreement constitute the sound business judgment of the Company that comports with the fiduciary duties ofthe Company's officers and directors. (c) The Company agrees that the Fiduciary Out shall not apply, and may not be used, to annul, modify, amend, or otherwise alter any of the Plan Milestones or any of the remedies in respect thereof; provided, however, that if the Company secures a binding and firm written commitment with respect to an alternative transaction that will provide Lehman with a higher and better recovery than the recovery proposed under the Plan (a "Firm Alternative Transaction"), the Company shall provide Lehman with at least ten (1 0) Business Days to determine whether Lehman will consent to such Firm Alternative Transaction. If Lehman does not consent to such Firm Alternative Transaction, the Company may only exercise the Fiduciary Out after it has obtained an order from the Bankruptcy Court authorizing the Company to exercise the Fiduciary Out in accordance with the terms hereof The Company agrees that in determining whether a Firm Alternative Transaction is "higher and better," all factors must be considered including contingencies, conditionality, legal and financial execution risk, economics and Lehman's opinion as to whether such Firm Alternative Transaction is "higher and better." 16 APP-00109 Section 26. Indemnification. The Company hereby agrees to indemnify and hold Lehman and its officers, directors, partners, agents, employees, advisors, and successors and assigns, harmless from and against any and all claims, actions, suits, liabilities and judgments, and costs and expenses directly related thereto (including reasonable costs of defense on an as- incurred basis), arising by reason of or resulting from Lehman's execution of this Agreement and performance of its obligations hereunder, but expressly excluding any liability, cost or expense arising from or related to the fraudulent or willful misconduct of Lehman. Section 27. Continued Banking Practices. Notwithstanding anything herein to the contrary, Lehman and its affiliates, may accept deposits from, lend money to and generally engage in any kind of banking, investment banking, trust or other business with or provide debt financing, equity capital or other services (including financial advisory services) to the Company or any affiliate of the Company or any other person, including, but not limited to, any person proposing or entering into a transaction related to or involving the Company or any affiliate thereof Section 28. Acknowledgement. This Agreement and the Transactions are the product of negotiations among the Parties, together with their respective representatives. This Agreement is not, and shall not be deemed to be, a solicitation of votes for the acceptance of the Plan or any plan of reorganization for the purposes of sections 1125 and 1126 of the Bankruptcy Code or otherwise. Lehman's vote(s) will not be solicited until it has received the Disclosure Statement and any other required materials related to the Solicitation. In addition, this Agreement does not constitute an offer to issue or sell securities to any person, or the solicitation of an offer to acquire or buy securities, in any jurisdiction where such offer or solicitation would be unlawful. Section 29. No Waiver. The failure of any Party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity or to insist upon compliance by any other Party hereto with its obligations hereunder and any custom or practice or the Parties at variance with the terms hereof, shall not constitute a waiver by such Party of its right to exercise any such right, power or remedy or to demand such compliance. Section 30. Modification. This Agreement may only be modified, altered, amended, or supplemented by an agreement in writing signed by the Company and Lehman. Section 31. Transfers. Lehman agrees that until the earlier to occur of (x) termination of this Agreement in accordance with Section 6 and (y) the occurrence of the Plan Effective Date, it shall not sell, transfer, pledge, assign or otherwise hypothecate any of the Floating Rate Debt or any option thereon or any right or interest (voting or otherwise) therein (any such transfer, pledge, assignment, hypothecation or option being referred to as a "Transfer"), unless such Transfer is subject to, and the transferee thereof agrees in writing for the benefit of the Parties to be bound by all of the terms of this Agreement by executing and delivering to the Parties a joinder in the form attached hereto as Exhibit E upon no less than five (5) days written notice to the Company. Any Transfer that is made in violation of the immediately preceding sentence shall be null and void ab initio, and the Company shall have the right to enforce the voiding of such transfer. In the event that any Transfer is not fully consummated for any reason, 17 APP-00110 Lehman shall remain bound by the terms of this Agreement. After a Transfer, the Company has the right to terminate this Agreement upon one (1) day's written notice by the Company. Notwithstanding the foregoing, if Lehman notifies the Company of a potential Transfer, the Company shall advise Lehman within five business days if it will exercise its termination right with respect to such Transfer. [Signature Page Follows] ***** THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 18 APP-00111 IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered this Agreement as of the date first above written. By signing below, each party acknowledges its agreement to the foregoing. LEHMAN ALI, INC. [SIGNATURE PAGE TO PLAN SUPPORT AGREEMENT] APP-00112 INNKEEPERS USA TRUST
Name: Marc Beilinson Title: Chief Restructuring Officer Date: July 1.], 2010 [SIGNATURE PAGE TO PLAN SUPPORT AGREEMENT] 15818454.2 EXECUTION COPY APP-00113 GRAND PRIX HOLDINGS LLC By:
Name: Marc Murphy Title: General Counsel, Secreta Date: July 11_, 2010 ON BEHALF OF ALL THE DEBTOR ENTITIES LISTED ON ANNEX A
Title: General Counsel, Secretary Date: July ll, 2010 I I APP-00114 Exhibit B (The Plan Term Sheet) US ACTIVE\43446016\20\58399.0008 APP-00115 Term Sheet Illustrative Terms of Proposed Restructuring July 17, 2010 The following are the proposed principal terms of a restructuring transaction between Lehman ALI Inc. ("Lehman"), as mortgage lender, and Innkeepers USA Trust ("Innkeepers" and, collectively with its subsidiaries, the "Company"). 1 The transaction (the "Transaction") contemplates a conversion of the Company's obligations under that certain mortgage loan agreement, dated as of June 29, 2007, among Lehman and the affiliates of the Company parties thereto (the "Floating Rate Debt"), collateralized by 20 of the Company's properties (the "Floating Rate Collateral") into all the equity ofthe reorganized Company (as set forth herein). The Transaction would be effectuated through a prearranged plan of reorganization (the "Plan") in chapter 11 bankruptcy cases filed by Innkeepers and certain of its subsidiaries (the "Chapter 11 Cases") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). This term sheet has been prepared for discussion purposes only and is non- binding, but shall serve as the basis for further negotiations regarding a definitive agreement. The terms discussed herein constitute an integrated offer, are not divisible except as described herein, and are subject to the terms and conditions hereof This term sheet is provided in confidence and may be distributed only with the express written consent of Lehman and the Company, as applicable. This term sheet does not include a description of all of the terms, conditions and other provisions that are to be contained in the definitive documentation governing such matters, which remain subject to discussion and negotiation to the extent not inconsistent with the specific matters set forth herein. This term sheet is proffered in the nature of a settlement proposal in furtherance of settlement discussions, and is intended to be entitled to the protections of Rule 408 of the Federal Rules of Evidence and any other applicable statutes or doctrines protecting the use or disclosure of confidential information and information exchanged in the context of settlement discussions, and shall not be treated as an admission regarding the truth, accuracy or completeness of any fact or the applicability or strength of any legal theory. Lehman's entry into any definitive transaction on the terms set forth in this term sheet, or otherwise, are subject to approval of the United States Bankruptcy Court administering the chapter 11 case of Lehman Brothers Holdings Inc. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY SECURITIES OF THE COMPANY OR A SOLICITATION OF ACCEPTANCES OF A CHAPTER 11 PLAN. ANY SUCH OFFER OR This term sheet is not being provided on behalf of SASCO 2008-C2, LLC (the "Mezzanine Lender") in connection with the mezzanine loan with respect to the collateral securing the Floating Rate Debt or the mezzanine loan with respect to the Anaheim property (the "Mezzanine Debt"). Lehman does not make any representations with respect to the Mezzanine Lender. 15798647.8 APP-00116 SOLICITATION SHALL COMPLY WITH ALL APPLICABLE SECURITIES LAWS, IF ANY, AND/OR PROVISIONS OF THE BANKRUPTCY CODE. Terms: Treatment of Claims and Eguitv Interests Under the Plan: Floating Rate Debt Lehman will receive, in full and final satisfaction of its secured mortgage claims in respect of the Floating Rate Debt, 100% of the issued and outstanding new shares of common stock issued by Innkeepers (the "New Equity"), subject to dilution by the Management Equity Incentive Program (as defined below) and New Equity distributions, if any, for other Plan uses, as agreed by the parties hereto. Mezzanine Debt The Mezzanine Debt will be deemed cancelled, and the Mezzanine Lender will not retain any property or interest on account of such debt under the Plan. The Mezzanine Lender will be deemed to vote against the Plan. No action by the Mezzanine Lender will be required under this Term Sheet or any definitive documentation with respect to the terms set herein. Fixed Rate Debt Holders of the claims against the Company for its obligations under that certain mortgage loan agreement, dated as of June 29, 2007, among Lehman and the affiliates of the Company parties thereto (the "Fixed Rate Debt") collateralized by 45 of the Company's properties (the "Fixed Rate Collateral") will receive, in full and final satisfaction of their claims in respect of such debt, new mortgage notes secured by mortgages on the Fixed Rate Collateral either (a) in an aggregate face amount not to exceed $550 million; or (b) if such holders make an election for application of section 1111 (b )(2) of the Bankruptcy Code, in the amount of the aggregate amount of such holders' Fixed Rate Debt, with a present value of the new mortgage notes not to exceed $550 million. The terms of the new Fixed Rate Debt notes and any security interests to be granted in connection therewith are subject to approval, in form and substance, by Lehman and the Company. Other Secured Holders of claims against the Company for its obligations under those Debt certain secured mortgage loan agreements, not including the Floating Rate Debt or the Fixed Rate Debt (the "Other Secured Debt"), collateralized by seven of the Company's properties, not including the Floating Rate Collateral or the Fixed Rate Collateral (the "Other Secured Debt Collateral"), will receive, in full and final satisfaction of their claims in respect of such debt, new mortgage notes secured by liens on the respective holder's Other Secured Debt Collateral 2 15798647.8 APP-00117 ("Other Secured Debt New Mortgage Notes") either (a) in an aggregate face amount not to exceed $150 million; or (b) if a holder of Other Secured Debt claims makes an election for application of section 1111 (b )(2) of the Bankruptcy Code, in the amount of the aggregate amount of such holder's claims, with present value of such Other Secured Debt New Mortgage Note equaling the value of the collateral securing such holder's claims, provided, however, that the aggregate present value of all Other Secured Debt New Mortgage Notes issued pursuant to (a) and (b) herein shall not exceed $150 million. The terms of the Other Secured Debt New Mortgage Notes are subject to approval, in form and substance, by Lehman and the Company. Debt allocation among the Other Secured Debt Collateral and identification of any Other Secured Debt Collateral that should be removed from the Company's portfolio shall be agreed among the parties hereto. General Unsecured "General Unsecured Claim" shall mean any unsecured claim against Claims any of the Debtors that is not: (a) an Administrative Claim; (b) a Priority Claim (tax or otherwise); (c) an intercompany claim; or (d) a section 51 O(b) claim, if any. If a class of General Unsecured Claims votes to accept the Plan and affirmatively release Lehman and its affiliates from all claims and causes of action relating to the Company and/or the Floating Rate Debt, then holders of such General Unsecured Claims shall receive a pro rata distribution of cash in the amount of $500,000. Intercompany Intercompany claims shall not be entitled to receive any distribution Claims under the Plan on account of such claims and shall be deemed to have voted against the Plan. Such claims will be reinstated, extinguished or cancelled as appropriate in the judgment of Lehman and the Company to effectuate the Transaction contemplated by the Plan. Section 51 O(b) Claims subject to subordination pursuant to section 51 O(b) of the Claims Bankruptcy Code shall not receive any recovery under the Plan and shall be deemed to have voted against the Plan. Deficiency Claims Unsecured deficiency claims of holders of Floating Rate Debt, Fixed Rate Debt and Other Secured Debt shall not receive any recovery under the Plan or otherwise without the consent of Lehman and the Company, and, if not receiving any recovery, shall be deemed to have voted against the Plan. Administrative Allowed administrative claims shall be paid in cash in the ordinary 3 15798647.8 APP-00118 Claims course of business or upon the effective date of the Plan (the "Effective Date"), unless the holders of such Administrative Claims agree to different treatment. Priority Claims Allowed priority claims shall be paid in cash on the Effective Date; provided, that on the Effective Date Lehman and the Company may determine to defer priority tax claims in accordance with the Bankruptcy Code. Existing Equity On the Effective Date, all prepetition common and preferred shares of Innkeepers will be cancelled, and holders of such interests will not retain any property on account of such interests under the Plan. To the extent Lehman and the Company determine that the Company's existing corporate structure would be the most tax efficient for Lehman and the Company on the Effective Date, the prepetition equity interests of each of Innkeepers' subsidiaries will be deemed reissued in accordance with the Company's prepetition corporate structure on terms mutually acceptable to the parties hereto. If Lehman and the Company determine that a different structure would be more beneficial to Lehman and the Company on the Effective Date, the Plan shall provide for such structure, on terms mutually acceptable to the parties hereto. 4 15798647.8 APP-00119 Means of Bankruptcy All material pleadings filed by the Company in connection with the Pleadings Chapter 11 Cases, including all first-day motions, shall be in form and substance reasonably acceptable to Lehman. DIP Financing DIP financing to be provided in two separate facilities: (a) a DIP facility provided in an amount equal to $50.75 million, which is necessary to complete certain Marriott property improvement plan ("PIP") requirements for (i) certain of those hotels collateralizing the Fixed Rate Debt; (ii) the hotel collateralizing that certain mortgage loan, dated as of October 4, 2006, by and between KPA RIMY, LLC and Capmark Bank (the "Residence Inn in San Diego"); and (iii) the hotel collateralizing that certain mortgage loan, dated as of September 19, 2006, by and between KPA Tysons Corner RI, LLC and Merrill Lynch Mortgage Lending, Inc. (the "Residence Inn in Tyson's Corner"), secured by senior, priming liens on the Fixed Rate Collateral, the Residence Inn in San Diego, and the Residence Inn in Tyson's Corner on terms acceptable to Lehman, as substantially set forth on Exhibit A (the "Fixed Rate DIP Facility"). On the Effective Date of the Plan, all amounts outstanding under the Fixed Rate DIP Facility shall be repaid from the Exit Funding (as defined below). (b) a DIP facility provided by Lehman or any of its affiliates in an amount up to approximately $17.5 million, secured by senior, priming liens on the Floating Rate Collateral on terms to be agreed between the Company and Lehman as substantially set forth on Exhibit B (the "Floating Rate DIP Facility"). On the Effective Date of the Plan which is consistent with the terms hereof, all claims outstanding under the Floating Rate DIP Facility shall be extinguished; provided, however, if, and to the extent, any claim or cause of action is brought by, or on behalf of, the Company or its estates related to the Floating Rate Debt against Lehman or any of its affiliates is allowed by final order or part of a judgment of a court of competent jurisdiction (the "Claims or Causes of Actions"), then the claims arising under the Floating Rate DIP Facility shall be, at Lehman's election either (i) repaid on the Effective Date of the Plan in an amount equal to any allowed Claim or Cause of Action, up to the amount outstanding under the Floating Rate DIP Facility, or (ii) set off against the Claims or Causes of Action, up to the amount outstanding under the Floating Rate DIP Facility. Use of Cash In addition to providing the Floating Rate DIP Facility, Lehman will consent to the use of its cash collateral pursuant to the terms of the 5 15798647.8 APP-00120 Collateral Exit Funding New Equity Conditions Precedent to Lehman's Obligations Under PSA 15798647.8 cash collateral order attached hereto as Exhibit C. The Company shall not take any action, and shall not solicit, encourage or support any action by a third party, seeking to amend, modify or extend the Plan Milestones (as defined below) (the foregoing provision is hereinafter referred to as the "Milestones Covenant"). The Company's use ofLehman's cash collateral will terminate immediately upon the receipt of notice of a Termination Event (as defined below). Innkeepers will secure additional funding of no less than $75 million, plus such additional amounts in form and substance as may be determined by the parties hereto ("Exit Funding"). Prior to any Exit Funding, the reorganized Company shall deliver a comprehensive PIP and cycle renovation budget, which budget shall be (a) prepared with the assistance of, and validated by, a third party expert and (b) acceptable in all respects to the parties hereto (the "Budget"). Such Budget shall be updated annually or more frequently as may be requested by any party hereto. The Plan shall provide that the issuance of the New Equity and any subsequent transfer of New Equity by Lehman prior to the Effective Date will be exempt from (a) securities laws in accordance with section 1145 of the Bankruptcy Code and (b) transfer taxes in accordance with section 1146 of the Bankruptcy Code. The Transaction will become binding on Lehman when Lehman and the Company execute a plan support agreement (the "PSA") that incorporates the Transaction as set forth herein, including: Receipt by Lehman of a Plan term sheet incorporating the terms set forth herein and otherwise in form and substance acceptable to Lehman; Agreement reached with Marriott in the form attached hereto as Exhibit D; Innkeepers and each of its wholly owned subsidiaries, including each obligor under the Floating Rate Debt, shall be a signatory to the PSA; and Bankruptcy Court approval in the chapter 11 bankruptcy proceedings of Lehman Brothers Holdings Inc. 6 APP-00121 Termination Upon the occurrence of any of the following events (each, a Events Under PSA "Termination Event"), the PSA and the use of Lehman's cash and Use of Cash collateral shall automatically terminate on the first calendar day Collateral immediately following one (1) business day after the date of such Termination Event, unless (a) Lehman, in its sole discretion, provides the Company with a written waiver of any such Termination Event within one (1) business day from the date of such Termination Event or (b) Lehman and the Company, in their respective sole discretion, provide the other party with a written waiver of Termination Events R and S within one (1) business day from the date of such Termination Event: A. Failure to meet any of the following milestones (the "Plan Milestones"): (i) Motion to assume the PSA filed on the petition date; (ii) Order entered authorizing the assumption of the PSA no later than 45 days after the petition date; (iii) Orders entered on a final (and not interim) basis authorizing the Fixed Rate DIP Facility, Floating Rate DIP Facility, the use ofLehman's cash collateral and the use of the cash collateral securing the Fixed Rate Debt consistent with the terms hereof no later than 45 days after the petition date; (iv) Disclosure statement and Plan consistent with the terms hereof filed no later than 45 days after the petition date; (v) Disclosure statement consistent with the terms hereof approved by the Bankruptcy Court no later than 120 days after the petition date; (vi) Lehman and the Company shall have reached mutual agreement no later than 120 days after the petition date on the terms of a sale process upon the occurrence of Termination Event A( vii) or A( viii) below; (vii) Order confirming a Plan consistent with the terms hereof entered no later than 240 days after the petition date; and (viii) Effective Date of the Plan no later than 270 days after the petition date. B. Lehman has not executed definitive agreements with respect to the sale of 50% of the New Equity for a 7 15798647.8 APP-00122 15798647.8 purchase price of at least $107.5 million (the "New Equity Sale Transaction") by 45 days after the petition date; C. Lehman has not consummated the New Equity Sale Transaction by 270 days after the petition date; D. The entry by the Bankruptcy Court of an interim order authorizing the use ofLehman's cash collateral in form and substance not acceptable to Lehman; E. The entry of any order of the Bankruptcy Court granting relief from the automatic stay (i) to permit any exercise of remedies by the lenders or special servicer under the Fixed Rate Debt, Other Secured Debt or Mezzanine Debt other than limited relief solely to permit the delivery of default notices under the terms of the Fixed Rate Debt, Other Secured Debt or Mezzanine Debt and (ii) to permit termination of any franchise agreement with Marriott or any other hotel brand; F. The filing by the Company of 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; G. (i) The filing by the Company of any motion or other request for relief seeking an extension of the Plan Milestones or any alteration of the remedies upon termination set forth herein without the express written consent of Lehman in its sole discretion; (ii) the filing by the Company of any pleading supporting any motion from any other party to obtain such extension or alteration; (iii) the failure of the Company to oppose any motion from any other party to obtain such extension before the objection deadline of such motion; or (iv) the violation by the Company of the Milestones Covenant; H. The entry of an order by the Bankruptcy Court (i) dismissing any ofthe 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 8 APP-00123 15798647.8 (iv) making a finding of fraud, dishonesty or misconduct by any officer or director of the Company, regarding or relating to the Company; I. The withdrawal, amendment or modification by the Company of, or the filing by the Company of a pleading seeking to amend or modify, the Plan or PSA, which withdrawal, amendment, modification or pleading is materially inconsistent with the terms hereof or the Plan or is materially adverse to Lehman, in each case in a manner not reasonably acceptable to Lehman, or if the Company files any motion or pleading with the Bankruptcy Court that is inconsistent in any material respect with the terms hereof or the Plan (in each case with such amendments and modifications as have been effected in accordance with the terms hereof) and such motion or pleading has not been withdrawn within three (3) business days after Lehman provides written notice to the Company; J. The filing of any motion to approve a disclosure statement or Plan by the Company that incorporates a Pro Forma Capital Structure or any other terms inconsistent with the terms and conditions set forth herein; K. The granting by the Bankruptcy Court of relief that is inconsistent with the terms hereof or the Plan in any material respect (in each case with such amendments and modifications as have been effected in accordance with the terms hereof); L. The issuance by any governmental authority, including the Bankruptcy Court or any other regulatory authority or court of competent jurisdiction, of any ruling, determination or order making illegal or otherwise restricting, preventing or enjoining the consummation of a material portion of the Transaction, including an order denying confirmation of the Plan and such ruling, determination or order has not been vacated or reversed within ten (10) business days of issuance; M. The occurrence and continuation of a default under the Fixed Rate DIP Facility, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; N. The occurrence and continuation of a default under the Floating Rate DIP Facility, including those set forth on 9 APP-00124 15798647.8 Exhibit B, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; 0. The occurrence and continuation of a default in connection with the Company's use ofLehman's cash collateral, provided that a cure of such default before the expiration of the notice period shall be a cure of such default hereunder; and P. The occurrence after execution of the P SA of (i) a change that has a material adverse effect on the use, value or condition of the Company, its assets or the legal or financial status or business operations of the Company or (ii) a material disruption or material adverse change in the financial, real estate, banking or capital markets; Q. Lehman has determined, in its sole discretion, after completion of its tax due diligence, that the Transaction cannot be structured in a manner acceptable to Lehman, which determination shall be made no later than 45 days after the petition date; R. The material breach by any Party of any of their undertakings, representations, warranties or covenants set forth in the PSA; and S. All parties agree in writing to terminate the PSA. 10 APP-00125 Remedies Upon Upon the occurrence of any of Termination Events A through S, Termination Lehman may terminate the PSA and use of cash collateral. As long as the PSA has not otherwise been terminated, (a) upon the occurrence of Termination Event A( vii) or A( viii); (b) if a trustee is appointed for the Chapter 11 Cases of all of those debtors obligated under the Floating Rate Debt, Fixed Rate Debt, Mezzanine Debt, and Other Secured Debt; or (c) if the Company files a motion to dismiss all of the Chapter 11 Cases for those debtors obligated under the Floating Rate Debt, Fixed Rate Debt, Mezzanine Debt, and Other Secured Debt, the Company shall, immediately upon the occurrence of such Termination Event, elect one of the following remedies, provided, however, that if the Company fails to make such election within one day after the occurrence of the applicable Termination Event, Lehman shall have the right to elect either option: (a) The Company will be deemed to have consented to the modification of the automatic stay to permit Lehman to exercise any and all remedies with respect to the Floating Rate Collateral, the automatic stay shall be so modified and no further court approval shall be required; or (b) The Company will sell the Floating Rate Collateral pursuant to section 363 of the Bankruptcy Code, subject to the following conditions, which shall be incorporated into any order approving the PSA: (i) the sale procedures shall be agreed upon no later than 120 days after the petition date; (ii) Lehman shall have the right to credit bid the Floating Rate Debt; (iii) if sale proceeds are not paid to Lehman within 60 days of the Termination Event, title to the Floating Rate Collateral shall be conveyed to Lehman free and clear of all liens, claims and encumbrances; (iv) the 60-day period shall not be extended and the Company waives its right to seek any extension of such period. Bankruptcy Court The Company shall, on or immediately after the commencement of Approval of PSA the Chapter 11 Cases, file a motion seeking authorization to assume the PSA. The order approving the PSA shall include provisions that the Company (i) shall not seek an extension of the Plan Milestones or any alteration of the remedies upon termination set forth herein without the express written consent of Lehman in its sole discretion, (ii) shall not support any motion from any other party to obtain such extension or alteration; and (iii) will oppose any motion from any 11 15798647.8 APP-00126 Pro Forma Capital Structure Governance Management Equity Incentive Program REIT Status Property Manager Releases 15798647.8 other party to obtain such extension or alteration by the objection deadline of such motion. Following the consummation of the Transaction, the reorganized Company will have, after repayment of the Fixed Rate DIP Facility, (a) funds sufficient to perform Marriott capital expenditures and brand standard work and (b) cash on hand sufficient to operate the business ofthe Company, and such amounts in (a) and (b) above shall be acceptable to Lehman and the Company and be capitalized as follows: Fixed Rate Debt: present value less than or equal to $550 million Other Secured Debt: present value less than or equal to $150 million Exit Funding: At least $75 million, plus such additional amounts in form and substance as may be determined by the parties hereto. Except as set forth above, on the Effective Date, the Company shall not have any debts or liens encumbering the Company's assets, except for permitted liens agreed to by Lehman and the Company. Prior to the Effective Date, Lehman will determine the requisite number of directors, all of whom will be nominated by Lehman, and voting requirements shall be in form and substance acceptable to Lehman. The Plan shall provide for a management equity incentive program (the "Management Equity Incentive Program") in form and substance acceptable to Lehman and the Company providing for a reserve of up to 3% of the New Equity to be allocated to management under the Management Equity Incentive Program as approved by the board of directors of the reorganized Company. Lehman and the Company shall, after the Effective Date, determine whether to maintain Innkeepers' status as a real estate investment trust. Prior to the Effective Date of the Plan, Lehman and the Company shall designate a manager for the reorganized Company's properties. If Island Hospitality Management, Inc. ("Island") is not selected as the manager, the Company will use its reasonable best efforts to effectuate an orderly transition to the replacement manager. The Plan shall include a full discharge and release of liability by the Company, other than a release of the obligations set forth herein, in 12 APP-00127 favor of (a) the Company and each of its subsidiaries, (b) Lehman, and (c) each of their respective principals, employees, affiliates, subsidiaries, members, shareholders, agents, officers, directors, and professionals from: (i) any and all claims and causes of action arising prior to the Effective Date and (ii) any and all claims arising from the actions taken or not taken in good faith in connection with the Transaction. Professional Fees The Company shall pay the professional fees and expenses incurred by Lehman in connection with the Transaction. 13 15798647.8 APP-00128 US ACTIVE\43446016\20\58399.0008 Exhibit C (DIP Term Sheet) APP-00129 Summary of Indicative Terms and Conditions Proposed $17,498,095.52 Senior Secured Super-Priority Debtor-in-Possession Credit Facility (this "Term Sheet") This Term Sheet is not a commitment to provide the financing described below. This Term Sheet is not meant to be, and should not be construed as, a commitment by DIP Lender (defined below) or any of its affiliates to extend credit or enter into efforts in order to extend credit. Moreover, it does not attempt to describe all terms and conditions that would pertain to the DIP Facility (defined below), and its terms do not suggest the specific phrasing of documentation clauses. The proposed terms and conditions summarized herein represent the conditions pursuant to which the DIP Lender proposes to enter into a $17,498,095.52 Senior Secured Super-Priority Debtor-in-Possession Credit Facility (the "DIP Facility") with the Borrower (defined below). Reference is made to those certain mortgage loans in the original principal amount of $250,000,000 (the "Existing Loan") made by Lehman ALI Inc. to the Borrower (as defined below) and the Released Borrowers (as defined below) pursuant to a certain Loan Agreement dated as of June 29, 2007, among the Borrower, the Released Borrowers and Lehman ALI Inc. (as amended, the "Existing Loan Agreement"). The terms, covenants, conditions and provisions which are applicable as of the date of this Term Sheet to the Existing Loan are set forth in the Existing Loan Agreement and the other loan documents entered into in connection therewith. The collateral for the Existing Loan is referred to herein as the "Pre-Petition Collateral." As of the date of this Term Sheet, Borrower (as defined below) is a party to the Existing Loan Agreement. Borrower: Released Borrowers: DIP Facility: 15742757.15.BUSINESS Collectively, the borrowers set forth on the List of Borrowers attached hereto, which borrowers (individually and collectively, as the context may require, the "Borrower") shall be jointly and severally liable for the obligations under the DIP Facility (as defined below). Collectively, the borrowers set forth on the List of Released Borrowers attached hereto, which borrowers (collectively, the "Released Borrowers") were previously released from their obligations under the Existing Loan Agreement in accordance with the terms and conditions of the Existing Loan Agreement. After entry of the Final Order, a term facility of up to $17,498,095.52 allocated to 20 properties (the "Lehman Properties") securing the Existing Loan (the "DIP Facility") shall be extended to the Borrower pursuant to the terms and provisions of a DIP loan agreement (the "DIP APP-00130 Closing Date: DIP Lender: Carve-Out: Fees: Maturity Date: Termination Date: 15742757.15.BUSINESS Loan Agreement"). The loan funded by the DIP Lender under the DIP Facility is referred to herein as the "DIP Loan." The date of the effectiveness of the DIP Facility and the funding by the DIP Lender of the first advance under the DIP Facility to the Borrower. Solar Finance Inc. There shall be no carve-out of any nature whatsoever for professional fees or expenses of the Borrower or any estate professionals. Since the DIP Facility is intended to solely provide funds for the Marriott PIP Work, the Other Franchise PIP Work and the Cycle Renovations, the professional fees and expenses incurred by the Borrower and other estate professionals shall be dealt with in connection with the cash collateral order(s) entered by the Bankruptcy Court. A Closing Fee of 0.5% of the amount committed in connection with the DIP Facility shall be paid by the Borrower to the DIP Lender on the closing date of the DIP Facility and shall be fully earned and non-refundable on such date. The Borrower shall not incur or pay any success fee, transaction fee or financing fee of any kind or character in connection with or in respect of obtaining the issuance and/or funding of the DIP Facility (except for the Closing Fee and Commitment Fee). A Commitment Fee equal to 1.0% of the amount committed in connection with the DIP Facility shall be paid by the Borrower to the DIP Lender on the closing date of the DIP Facility and shall be fully earned and non- refundable on such date. The cash collateral order(s) approved by the Bankruptcy Court shall provide that the Closing Fee and the Commitment Fee shall be paid immediately upon the approval of the DIP Facility by the Bankruptcy Court and the closing of the DIP Facility. 360 days from the Closing Date. The earliest to occur of: (a) acceleration by the DIP Lender of the obligations under the DIP Loan due to the occurrence 2 APP-00131 Non-Default Interest Rate and Payment Terms: Default Interest Rate: Loan Payments: l5742757.15.BUSINESS and continuation of an Event of Default with respect to the DIP Loan (i.e., which Event of Default has not otherwise been cured or waived in writing by the DIP Lender); (b) the acceleration of the obligations under any other debtor-in- possession financing provided to the Debtors due to the occurrence and continuation of an event of default under such financings; (c) the effective date of any plan in the bankruptcy proceeding that provides for payment in full in cash of all obligations owing under the DIP Facility or is otherwise acceptable to the DIP Lender; (d) the date that is the closing date of any sale of all or substantially all of any Borrower's assets that constitute collateral for the DIP Facility; (e) the entry of an order by the Bankruptcy Court granting relief from the automatic stay permitting foreclosure of any assets of any Borrower constituting collateral with respect to the DIP Facility in excess of $1,000,000 in the aggregate (each, a "Release from Stay"); or (f) the entry of an order of dismissal or conversion of the Chapter 11 Cases with respect to all of the Borrowers with respect to the DIP Facility. Interest on the DIP Loan shall be paid monthly in arrears, accruing at a per annum floating rate equal to the sum of the 30-day LIBOR (subject to a floor of 2.0%) (LIBOR being defined and determined by DIP Lender in a manner as is customary for facilities similar to the DIP Facility) plus the applicable Spread (as defined below) (the "Non- Default Interest Rate"). All interest shall be computed on the basis of a 360-day year for the actual number of days elapsed. "Spread'' means 5.00%. Effective immediately upon the occurrence and applying during the continuance of any Event of Default (after giving effect to any applicable grace and cure periods with respect thereto), unless and until such Event of Default is waived in writing by the DIP Lender, interest shall accrue on the DIP Loan at a rate that is 3% per annum in excess of the applicable Non-Default Interest Rate. All unpaid obligations, including, without limitation, principal and interest on the DIP Facility and any fees and expenses incurred thereon, shall be due and payable in full in cash on the earlier to occur of (i) the Maturity Date and (ii) the Termination Date. 3 APP-00132 Mandatory Prepayments: Use of Proceeds: Cash Management: 15742757.15.BUSINESS Upon the receipt by (or on behalf of) any Borrower of insurance proceeds or a condemnation award in excess of $25,000 following a casualty or condemnation event with respect to any assets of such Borrower constituting collateral for the DIP Facility (subject to the use thereof for restoration as is permitted in the DIP Loan Agreement), 100% of any net cash proceeds from such insurance shall be paid to the DIP Lender on the date that such net cash proceeds are received by or on behalf of such Borrower or such subsidiary in the following order of priority: first, to accrued and unpaid interest under the DIP Facility, second, to all other amounts then due to DIP Lender under the DIP Facility, and third, to outstanding principal under the DIP Facility until the DIP Facility is paid in full. Proceeds of the DIP Facility shall be used solely for (1) the Marriott PIP Work in accordance with the PIP Budget, (2) the Other Franchise PIP Work in accordance with the PIP Budget and (3) the Cycle Renovations in accordance with the Cycle Renovations Budget and shall include the following payments: (a) amounts to pay the financing fees owed to the DIP Lender in accordance with the DIP Facility, (b) amounts up to a maximum principal amount of $5,448,771.01 to fund post-petition Marriott PIP Work in accordance with the PIP Budget, (c) amounts up to a maximum principal amount of $7,949,324.51 to fund post- petition Other Franchise PIP Work in accordance with the PIP Budget, and (d) amounts up to a maximum principal amount of $4,100,000.00 to fund post-petition Cycle Renovations in accordance with the Cycle Renovations Budget. The Borrower shall use a segregated cash management system that segregates proceeds of the DIP Facility from cash generated by the Borrower without commingling cash collateral from any other affiliates and such cash management system must be acceptable to the DIP Lender. Additionally, (i) all funds advanced under the DIP Facility shall be held in a segregated disbursement account controlled by the DIP Lender (the "Controlled Disbursement Account') and (ii) disbursements from the Controlled Disbursement Account for the Marriott PIP Work, the Other Franchise PIP Work and the Cycle Renovations shall be made in accordance with the disbursement provisions of the Existing Loan Agreement with regard to the disbursements from the Required Capital Improvements Account (as defined in the Existing Loan 4 APP-00133 Priority Claim: Collateral Security: 15742757.15.BUSINESS Agreement). On the Closing Date, the DIP Lender shall advance $5,448,771.01 to fund the post-petition Marriott PIP Work in accordance with the PIP Budget, which funds shall be held in the Controlled Disbursement Account. The DIP Lender shall make advances to fund (i) the post- petition Other Franchise PIP Work in accordance with the PIP Budget and (ii) the post-petition Cycle Renovations in accordance with the Cycle Renovations Budget provided that the following conditions with respect to each advance for the Other Franchise PIP Work and Cycle Renovations, respectively, under the DIP Facility have been satisfied: (a) no Event of Default shall have occurred, (b) all previous advances made by the DIP Lender with respect to the Other Franchise PIP Work or the Cycle Renovations, as applicable, shall have been fully disbursed to Borrower and Borrower shall have fully expended such amounts in accordance with the PIP Budget or the Cycle Renovations Budget, respectively, (c) Borrower shall have submitted a written request to the DIP Lender for such advance at least thirty (30) days prior to the date on which Borrower requests that such advance be funded to the Controlled Disbursement Account, which request shall set forth in reasonable detail the Other Franchise PIP Work or Cycle Renovations, as applicable, to be paid in accordance with the PIP Budget or the Cycle Renovations Budget, respectively, (d) the amount of the advance requested by Borrower pursuant to the Other Franchise PIP Budget or the Cycle Renovations Budget, as applicable, shall not exceed the remaining unfunded commitment by the DIP Lender under the DIP Facility with respect to the Other Franchise Work or the Cycle Renovations, respectively and (e) Borrower shall have otherwise satisfied all conditions necessary for funds to be disbursed from the Controlled Disbursement Account pursuant to the DIP Facility. Amounts owed by the Borrower to the DIP Lender pursuant to the DIP Facility, including all accrued interest, fees, costs and expenses, shall constitute, in accordance with Section 364( c )(1) of the Bankruptcy Code, a super- priority administrative 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), 507(b) and 726 ofthe Bankruptcy Code. Without any limitation whatsoever, the DIP Facility, including accrued interest, principal, costs and expenses, shall be secured on a super-priority basis in accordance 5 APP-00134 Lien Validation and Perfection: DIP Facility Documentation: 15742757.15.BUSINESS with sections 364( c )(2) and (d) of the Bankruptcy Code by first priority, senior secured and priming liens on and security interests in (i) all of the Borrower's real property (including the improvements thereon and all furniture, fixtures and equipment used in connection therewith) and the proceeds thereof that secure the Existing Loan, subject only to prepetition liens and other permitted liens to be agreed in the DIP Loan Agreement (the "Permiued Liens"), (ii) the Controlled Disbursement Account, the amounts on deposit from time to time therein and the proceeds thereof, and (iii) all chapter 5 causes of action that relate to the Lehman Properties. All liens authorized and granted pursuant to the DIP Facility shall be deemed effective and perfected as of the Petition Date, and no further notice or act will be required to effect such perfection. The DIP Facility shall be subject to the negotiation, execution and delivery of a definitive DIP Loan Agreement, an account control agreement relating to the Controlled Disbursement Account and related loan documents and other supporting instruments and agreements (collectively, the "DIP Facility Documentation") embodying the terms set forth herein mutually acceptable to the Borrower and DIP Lender. Entering into mortgages and other security documents and filings (and obtaining policies of mortgagee title insurance reasonably acceptable to the DIP Lender) shall not be a condition precedent to the Closing Date; provided that, following the occurrence of the Closing Date, the DIP Lender (at the sole cost and expense of Borrower) may require that some or all of the Borrowers enter into mortgages and other security documents and filings (and execute and deliver customary affidavits to the applicable title companies in order to permit the issuance of policies of mortgagee title insurance and customary endorsements thereto reasonably acceptable to the DIP Lender) which the DIP Lender deems reasonably necessary for the continued perfection of the DIP Lender's security interests under the DIP Facility. Notwithstanding the foregoing, the DIP Lender may record and/or file the Final Order in the land records and/or in such other places as may be determined by DIP Lender (although the same shall not be a condition precedent to the Closing Date, all costs and expenses incurred by the DIP Lender in connection with such 6 APP-00135 Fees and Expenses: Audits and Appraisals: Conditions Precedent: 15742757 .IS .BUSINESS recordation and/or filing of the Final Order shall be borne exclusively by the Borrower). Borrower will pay (i) all documented fees and out-of- pocket expenses of one counsel and financial advisor for the DIP Lender relating to the DIP Facility and the administration and interpretation of the DIP Facility, (ii) all documented out-of-pocket due-diligence expenses of the DIP Lender in connection with the DIP Facility, including but not limited to environmental and tax due diligence, duplication expenses, consultation, travel and attendance at court hearings, and inspections of the Lehman Properties in connection with disbursements from the Controlled Disbursement Account and (iii) other documented out-of- pocket fees and expenses of the DIP Lender in connection with the DIP Facility, in each case, whether or not the DIP Facility is consummated (other than as a result of the DIP Lender failure or refusal to consummate the DIP Facility on the terms set forth herein). The Borrower shall allow the DIP Lender (through its officers, senior employees, or agents and advisors) from time to time at the Borrower's expense to periodically inspect and audit the books, records and account statements of the Borrower in order to confirm the Borrower's compliance with the PIP Budget and the Cycle Renovations Budget and the terms and provisions of the DIP Facility Documentation (including, without limitation, in order to verify that funds are being used in accordance with the PIP Budget and the Cycle Renovations Budget); provided that, to the extent that the Termination Date shall not have occurred and there shall exist no Event of Default (or event which would constitute an Event of Default or cause the Termination Date to occur with the giving of notice or lapse of time), any such inspections and audits shall ( x) be conducted only if the DIP Lender deems it reasonably necessary, and (y) occur during normal business hours and upon reasonable notice to the Borrower. The closing of the DIP Facility shall be subject to the DIP Facility Documentation and the Final Order each being acceptable to the DIP Lender. The closing of the DIP Facility shall also be subject to the condition that no Termination Event or Event of Default shall have occurred and shall be continuing and such other conditions precedent customary and appropriate for 7 APP-00136 15742757J5.BUSINESS financings of this type, including, but not limited to, (a) satisfaction of all conditions to be set forth in the DIP Facility Documentation, (b) delivery of (i) the PIP Budget and the Cycle Renovations Budget in form and substance satisfactory to the DIP Lender (after consultation with its advisors), each of which shall include the items set forth in the "Use of Proceeds" section of the Term Sheet and shall be acceptable to the applicable franchisors, (ii) the Adequate Assurance Agreement (including with respect to the timeline and performance milestones for completion of the Marriott PIP Work) in form and substance satisfactory to the DIP Lender after consultant with its advisors (it being understood and agreed that the draft Adequate Assurances Agreement provided to the DIP Lender on July 14, 2010 is satisfactory to the DIP Lender), (iii) a thirteen (13)-week cash flow projection and (iv) such other financial information with respect to the Borrower delivered (or required to be delivered) to Lehman ALI Inc. in its capacity as lender under the Existing Loan (collectively, the "Required Financial Information"), (c) delivery of updated title searches, lien searches and updated so-called "phase 1" environmental reports (and if recommended by the DIP Lender's environmental consultant or otherwise obtained at the closing of the Existing Loan, delivery of new or updated so-called "phase 2" environmental reports), which updated title searches, lien searches and updated "phase 1" (and, if applicable, updated or new "phase 2") environmental reports are, in each case, acceptable to DIP Lender, (d) entry of a Final Order approving the DIP Facility, its senior, first priority, priming liens, super-priority status and all liens securing the DIP Facility and containing such other orders and findings as DIP Lender may reasonably request which Final Order shall not have been modified or amended without approval of the same, and shall not have been reversed or stayed pending appeal, in form and substance satisfactory to the same, (e) the payment of all fees and expenses in accordance with the caption "Fees and Expenses" above, (f) there shall have occurred no material adverse change in the applicable Borrower(s) financial condition, results of operations or properties (which for the avoidance of doubt shall mean all of the Borrowers and properties applicable to the DIP Facility) constituting collateral under the DIP Facility (other than the commencement of the Chapter 11 Case or otherwise in connection therewith) since the date of this Term Sheet that in the reasonable judgment of the DIP 8 APP-00137 Affirmative and Negative Covenants: l5742757.15.BUSINESS Lender have or would reasonably be expected to have a material adverse effect on the rights and remedies of the DIP Lender or on the ability of the Borrower to perform its respective obligations to them, (g) the representations and warranties contained in the DIP Facility Documentation shall be true and correct in all material respects (except to the extent that any such representations and warranties relate to an earlier date, in which case they shall be true and correct as of such earlier date), (h) the DIP Lender shall have received bankruptcy court approval in the bankruptcy case of Lehman Commercial Paper Inc. to enter into the DIP Facility and (i) the DIP Lender shall have received the approval of the Official Committee of Unsecured Creditors in the bankruptcy case of Lehman Commercial Paper Inc. to enter into the DIP Facility (which approval the DIP Lender will seek to obtain as soon as practicable). Affirmative and negative covenants similar to the type contained in the Existing Loan Agreement (and the other loan documents entered into in connection therewith) to the extent such covenants are customarily included in debtor- in-possession financing agreements, including, but not limited to, (a) delivery to the DIP Lender, on a weekly basis, of a rolling 13 week cash flow projections (together with a comparison of actual payments to budgeted line items for the prior weekly period) of the debtors under the Chapter 11 Case, (b) restrictions on sales of goods and services out of the ordinary course of business (including that all sales, including sales of any hotel properties, shall be on an arm's-length basis to bona fide third-party purchasers and shall be acceptable to the DIP Lender), (c) delivery of the Required Financial Information, (d) use of proceeds solely in accordance with the PIP Budget and the Cycle Renovations Budget, (e) performance and completion by the Borrower of the Marriott PIP Work and the Other Franchise PIP Work in accordance with the PIP Budget and the Adequate Assurance Agreement (including the timeline for the Marriott PIP Work set forth therein) and the performance and completion by the Borrower of the Cycle Renovations in accordance with the Cycle Renovations Budget, (f) unless such action has otherwise been approved by the DIP Lender, no Borrower shall (or shall attempt or seek Bankruptcy Court approval to) modify or terminate a franchise agreement or enter into a new franchise agreement upon any hotel that constitutes collateral for the DIP Facility, (g) unless such action has 9 APP-00138 Representations and Warranties: Remedies: l5742757.15.BUSINESS otherwise been approved by the DIP Lender, no Borrower shall (or shall attempt or seek Bankruptcy Court approval to) modify or enter into a new PIP with respect to any hotel that constitutes collateral for the DIP Facility, (h) unless such action has otherwise been approved by the DIP Lender, no Borrower shall (or shall attempt or seek Bankruptcy Court approval to) modify or enter into a new Cycle Renovation with respect to any hotel that constitutes collateral for the DIP Facility, (i) unless such action has otherwise been approved by the DIP Lender, no Borrower shall (or shall attempt or seek Bankruptcy Court approval to) modify, terminate or replace the Adequate Assurance Agreement (provided that the Adequate Assurance Agreement may be extended for a period not to exceed 60 days without such approval by the DIP Lender provided that the Adequate Assurance Agreement is not otherwise modified in connection with such extension) and G) Borrower shall use commercially reasonable efforts to deliver to the DIP Lender so-called "comfort letters" in form and substance reasonably acceptable to the DIP Lender from franchisors (which "comfort letters" shall provide, among other things, that such franchisors will recognize the performance by DIP Lender of the obligations of the Borrower thereunder, including completion of the Marriott PIP Work, the Other Franchise PIP Work and the Cycle Renovations, and that such franchisors will otherwise accept the cure by DIP Lender of defaults by the Borrower thereunder). The documentation for the DIP Facility shall contain representations and warranties similar to the type contained in the Existing Loan Agreements, but modified to include those customary in the context of the proposed DIP Facility. Upon the Termination Date or the occurrence of an Event of Default, the DIP Lender shall have customary remedies, including, without limitation, (i) the right to realize on all Collateral securing the DIP Facility and the right to exercise any remedy available under the DIP Facility and applicable law (including, without limitation, the right (but not the obligation) to complete the Marriott PIP Work, the Other Franchise PIP Work and the Cycle Renovations and to apply any of the proceeds of the DIP Facility on account thereof) and (ii) any remedies (but not the termination or related events themselves) set forth in any cash collateral order entered by the Bankruptcy Court in the event that 10 APP-00139 Right to Credit Bid: Events of Default: 15742757.15.BUSINESS there is an event of default under such cash collateral order, without the necessity of obtaining any further relief or order from the Bankruptcy Court. Automatic Section 362 relief from the stay in favor of the DIP Lender shall be embodied in any order approving the DIP Facility; provided, that DIP Lender shall provide the Borrower with 5 days prior notice of its intent to lift the stay, with a copy of such notice to counsel for the Committee. Upon entry of a Final Order approving the DIP Facility, the DIP Lender shall have the right to credit-bid the amount of claims of the DIP Facility during a sale of all or substantially all assets of the Borrowers and their debtor affiliates in the chapter 11 cases (collectively, the "Debtors") which assets constitute collateral for the DIP Facility, including without limitation, a sale occurring pursuant to Section 363 of the Bankruptcy Code or included as part of any restructuring plan subject to confirmation under Section 1129(b)(2)(A)(iii) of the Bankruptcy Code. Events of Default limited to the following: The Chapter 11 Case shall be converted to cases under Chapter 7 of the Bankruptcy Code or be dismissed. Filing or support of a proposed plan of reorganization by any Borrower or any affiliate of the Borrower that does not provide for the payment in full and in cash of such Borrower's obligations outstanding under the DIP Facility on the effective date of such plan of reorganization, unless otherwise consented to by the DIP Lender. Entry of a final order confirming a plan of reorganization that does not require repayment in full in cash of the DIP Facility as of the effective date of the plan, unless otherwise consented to by the DIP Lender. Appointment of a trustee under Section 1104 of the Bankruptcy Code. Other than at the request of the DIP Lender, the appointment of an examiner with enlarged powers (powers beyond those set forth in Section 1106(a)(3) and ( 4) of the Bankruptcy Code) under Section 11 06(b) of the Bankruptcy Code. 11 APP-00140 15742757.15.BUSINESS Entry of a final order by the Bankruptcy Court amending, supplementing, staying, vacating or otherwise modifying the DIP Facility. Any attempt by any Borrower to obtain, or if any other party in interest obtains, an order of the Bankruptcy Court or other judgment, and the effect of such order or judgment is to, invalidate, reduce or otherwise impair the DIP Lender's claims or collateral security under the DIP Facility (including the filing of any motion by any Borrower to (i) obtain financing from any person or entity other than the DIP Lender (x) under Section 364(d) of the Bankruptcy Code, (y) under Section 364(c) of the Bankruptcy Code or (z) with respect to the existence of any charge, in each case which is or which is claimed to be senior to or pari passu with the super- priority of the claims or charges of the DIP Lender (in each of cases (x), (y) and (z), other than with respect to financing used, in whole or part, to repay in full the DIP Loan) or (ii) except for the Permitted Liens, grant or suffer to exist any other lien or charge upon or affecting the collateral for the DIP Loan), or to subject the DIP Lender's collateral under the DIP Facility to any surcharge pursuant to Section 506( c) of the Bankruptcy Code. Marriott or the other applicable franchisor terminates the franchise agreement (or otherwise has the right to so terminate such franchise agreement and has taken affirmative steps in such regard (including but not limited to proper delivery of notice of intent to terminate)) upon any hotel owned by any Borrower constituting collateral with respect to the DIP Facility. Any Borrower supports a request of any party in interest to surcharge collateral of the Pre-Petition Collateral or Post-Petition Collateral that constitutes collateral with respect to the DIP Facility, for any expense. Expenditure of any DIP Loan proceeds in a manner or upon a property or project for which it had not been approved; provided that, with respect to any expenditure in violation of the foregoing which was inadvertent and does not exceed $25,000, the Borrower shall have the right to cure the same (but on not more 12 APP-00141 15742757.15.BUSINESS than one occasion per calendar month) within five (5) business days following any such expenditure. Any Borrower shall apply for an order substituting any assets for all or any portion of the Post-Petition Collateral that constitutes collateral with respect to the DIP Facility, except as provided in the instruments evidencing and governing the Existing Loan Agreements and DIP Facility. Failure to make all payments under the DIP Facility when due. Failure to pay any undisputed, material post-petition taxes or indebtedness. Any Cycle Renovations Variance beyond the Cycle Renovations Budget with respect to any property. "Cycle Renovations Variance" means costs and expenses for completing specific Cycle Renovations at the Lehman Properties owned by Grand Prix Bulfinch LLC and KP A/GP Louisville (HI) LLC as of any date of determination, which costs and expenses exceed the line item for such Cycle Renovations set forth in the Cycle Renovations Budget for such hotel property as of such date (either on an actual spend or on a projected basis). Any Variance with respect to any hotel property constituting collateral for the DIP Facility; provided that, any such Variance that does not exceed 1 0% on a line-item basis shall not constitute an Event of Default hereunder so long as (a) with respect to the PIP Property Group that includes such hotel property, the Borrower has not, in the aggregate, spent more (and is not, in the aggregate, projected to spend more) in respect of completing the Marriott PIP Work and/or the Other Franchise PIP Work with respect to all hotel properties in such PIP Property Group than the amount, in the aggregate, budgeted therefor in the PIP Budgets for such hotel properties and (b) such Variance is fully compensated for by a combination of (i) applying the remaining unallocated portion of the contingency line item set forth in the PIP Budget for such hotel property (but in no event to exceed an amount thereof equal to the Maximum Contingency Amount), (ii) reallocating 13 APP-00142 15742757.15.BUSINESS any unused portion of the PIP Budget for any of the other hotel properties in such hotel property's PIP Property Group for which the Marriott PIP Work and/or the Other Franchise PIP Work has been fully completed and accepted by the applicable franchisor (i.e., not subject to "punch-list" items) in accordance with the applicable franchise agreement and the Adequate Assurance Agreement and approved by the DIP Lender pursuant to the terms and conditions of the DIP Facility and for which complete and final invoices have been submitted by the applicable contractors and fully paid, and (iii) identified and documented savings from budgeted amounts to complete the Marriott PIP Work and/or the Other Franchise PIP Work for any hotel property in such hotel property's PIP Property Group. "Maximum Contingency Amount" means, with respect to any hotel property as of any date of determination, the percentage of the Marriott PIP Work or Other Franchise PIP Work, as applicable, with respect to such hotel property which has been completed as of such date multiplied by the remaining unallocated portion of the contingency line item set forth in the PIP Budget for such hotel property. "PIP Property Group" means, with respect to any hotel property, such hotel property together with one or more other hotel properties (but in no event to exceed 3 such hotel properties in the aggregate) with respect to which the Borrower is then-engaged in Marriott PIP Work and/or Other Franchise PIP Work or have completed Marriott PIP Work and/or Other Franchise PIP Work and which have been designated by the Borrower and reasonably approved by the DIP Lender as a "PIP Property Group". "Variance" means costs and expenses for completing specific Marriott PIP Work or Other Franchise PIP Work, as applicable at any hotel property as of any date of determination, which costs and expenses exceed the line item for such Marriott PIP Work or Other Franchise PIP Work, as applicable set forth in the PIP Budget for such hotel property as of such date (either on an actual spend or on a projected basis). Any breach of any covenant of the DIP Facility beyond any applicable grace periods. 14 APP-00143 Governing Law: Chapter 11 Cases: Miscellaneous: Indemnification: 15742757.15.BUSINESS In the event any of the DIP Facility Documentation giving rise to any effective lien or security interest in any collateral for the DIP Loan (including, without limitation, the account control agreement relating to the Controlled Disbursement Account) shall cease to create a valid and perfected lien on and security interest in the collateral purported to be covered thereby. Any representation or warranty in the DIP Facility was incorrect or misleading in any material respect when made. Any sale of the Lehman Properties without the DIP Lender's consent. Any default under any other debtor-in-possession financings. Any other events of default as are usual and customary for financings of this kind, and consistent with the events of default contained in the Existing Loan Agreement (as modified to take account of the current financial condition of the Borrower). New York Venue for the chapter 11 Cases shall be in the Southern District ofNew York. Release and Waiver by any Borrower of any claims against the DIP Lender under the DIP Facility under Section 510 of the Bankruptcy Code. Waiver by any Borrower of any rights to assert claims arising under applicable law against the DIP Lender (or related to the DIP Facility). DIP Lender shall at all times act pursuant to the DIP Loan Agreement. The Borrower shall indemnify and hold the DIP Lender and its respective officers, directors, employees and agents (including all of their professionals) (each an "Indemnified Party") harmless from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, all reasonable fees and disbursements of attorneys and other professionals) to which any 15 APP-00144 Other Definitions: 15742757.15.BUSINESS Indemnified Party may become liable or which may be incurred by or asserted against any Indemnified Party, in each case in connection with the DIP Facility, the DIP Facility Documentation, any "Obligation" under the DIP Loan Agreement or any act, event or transaction related or attendant thereto or any use or intended use of the proceeds of the DIP Facility, except to the extent the same is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. "Adequate Assurance Agreement" means that certain agreement (or, if more than one, those certain agreements, collectively) between the Borrower and Marriott providing for the forbearance of the exercise of remedies by the applicable franchisor under its franchise agreement in respect of the Marriott PIP Work, including a timeline and performance milestones for completion of the Marriott PIP Work and certain other matters as more fully set forth therein. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. 101 et seq.), as amended. "Bankruptcy Court" means the United States Bankruptcy Court for the Southern District ofNew York. "Chapter 11 Case" means, collectively, the cases filed by the Borrower under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court. "Committee" means any official committee of the unsecured creditors appointed pursuant Section 11 02 of the Bankruptcy Code in Borrower's bankruptcy case. "Cycle Renovations" means the construction, labor and materials necessary to renovate the Lehman Properties owned by Grand Prix Bulfinch LLC and KP A/GP Louisville (HI) LLC, which renovation plans are in scope, form and substance reasonably acceptable to the DIP Lender. "Cycle Renovations Budget" means the budget setting forth the projected expenditures for funding the Cycle Renovations, in form and substance reasonably acceptable to the DIP Lender (after consultant with its advisors). 16 APP-00145 15742757.15.BUSINESS "Final Order" means a final order of the Bankruptcy Court, that, without limitation, approves the DIP Facility and grants the liens and security interests contained therein, provides (in addition to the rights and benefits afforded to the lenders under the so-called "comfort letters" obtained in connection with the origination of the Existing Loan) that the applicable franchisors shall recognize the performance by the DIP Lender of the obligations of the Borrower under the applicable PIPs (including the completion of the Marriott PIP Work, the Other Franchise PIP Work and Cycle Renovations and that such franchisors will otherwise accept the cure by the DIP Lender of defaults of the Borrower thereunder), is in recordable form, provides that it cannot be vacated, dismissed or converted unless the DIP Facility and all amounts due and owing thereunder have been fully paid, which order is not stayed. "Marriott PIP Work" means the construction, labor and materials necessary to satisfy Marriott that each of the requirements of each of the PIPs has been satisfied, as identified and reasonably approved by the DIP Lender. "Other Franchise PIP Work" means the construction, labor and materials necessary to satisfy each applicable franchisor (other than Marriott) that each of the requirements of each of the PIPs has been satisfied, as identified and reasonably approved by the DIP Lender. "Petition Date" means the date of filing of the Chapter 11 Case. "PIP' means the Property Improvement Plans included within and a made a part of the Franchise Agreements covering certain of the hotel properties owned by the Borrower, which Property Improvement Plans shall have been approved by Marriott or any other applicable franchisor, and shall have been received and reasonably approved by the DIP Lender, unless such Property Improvement Plans have been previously approved by the DIP Lender in accordance with the terms and conditions of the Existing Loan Agreement. "PIP Budget' means, collectively, (i) the existing PIP budget prepared by Borrower and approved by the DIP Lender, which PIP budget is attached and made a part of the Existing Loan Agreement, as adjusted to account for funds previously disbursed to Borrower for the Marriott 17 APP-00146 15742757.15.BUSINESS PIP Work and the Other Franchise PIP Work in accordance with the terms and conditions of the Existing Loan Agreement and (ii) the budget setting forth the projected expenditures for funding the Mod 14 work at the Lehman Properties owned by Grand Prix Ontario LLC, Grand Prix Troy (SE) LLC, Grand Prix Troy (Central) LLC and Grand Prix Harrisburg LLC, in form and substance reasonably acceptable to the DIP Lender (after consultation with its advisors). 18 APP-00147 US ACTIVE\43446016\20\58399.0008 Exhibit D (AIC Term Sheet) APP-00148 TERM SHEET (Lehman/ AIC) July 19, 2010 Confidential This term sheet ("Term Sheet'') is proffered in the nature of a settlement proposal in furtherance of settlement discussions, and is intended to be entitled to the protection of Rule 408 for the Federal Rules of Evidence and any other applicable statutes or doctrines protecting the use or disclosure of confidential information and information exchanged in the context of settlement discussions, and shall not be treated as an admission regarding the truth, accuracy or completeness of any fact or the applicability or strength of any legal theory. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY SECURITIES OF INNKEEPERS USA TRUST OR A SOLICITATION OF ACCEPTANCES OF A CHAPTER 11 PLAN. ANY SUCH OFFER OR SOLICITATION SHALL COMPLY WITH ALL APPLICABLE SECURITIES LAWS, IF ANY, AND/OR PROVISIONS OF THE BANKRUPTCY CODE. Seller: Acquirer: Description of Transaction: 15816974.6 Lehman ALI Inc. ("Lehman"). Apollo Investment Corporation ("AIC"). AIC may not assign any or all of its rights or delegate any or all of its obligations under this Term Sheet without the express written consent of Lehman (which consent may be withheld in Lehman's sole discretion). Following the confirmation by the Bankruptcy Court for the Southern District ofNew York (the "Bankruptcy Court") of the prearranged plan (the "Plan") of reorganization of Innkeepers USA Trust ("Innkeepers" or the "Company") as described in the term sheet, dated as of July 17, 2010, by and between Lehman and the Company, and attached hereto as Annex A (the "Lehman-Innkeepers Term Sheet") and prior to the effective date of the Plan (the "Effective Date"), Lehman and AIC will enter into an agreement (the "Stock Purchase Agreement") whereby Lehman will agree to sell to AIC and AIC will agree to purchase from Lehman the right to receive 50% of the equity in the Company, subject to dilution as set forth in the Lehman-Innkeepers Term Sheet, that Lehman receives in connection with consummation of the Plan (such 50%, the "Transferred Equity") in exchange for cash in an amount equal to $107.5 million (the "Sale Proceeds") payable upon the closing of the transactions contemplated by the Stock Purchase Agreement. In the event the transfer tax exception under 1146(a) of the Bankruptcy Code is determined by the Bankruptcy Court to be inapplicable, AIC and Lehman will APP-00149 Distribution of Innkeepers Equity: Conditions to Execution of Stock Purchase Agreement: cooperate to structure the sale of the Transferred Equity in a manner that will not incur transfer taxes; provided, however, that in the event such taxes are incurred as a result of the sale, AIC shall be responsible for payment of such taxes in addition to the Sale Proceeds. After giving effect to the sale of Transferred Equity described above, the equity in the reorganized Company (the "New Equity") will be held as follows: 50% by Lehman; and 50% by AIC; Subject to pro rata dilution of 3%, which shall be available for distribution to the Company's management under the Plan pursuant to a Management Equity Incentive Program on the terms provided in the Lehman-Innkeepers Term Sheet. The execution of the Stock Purchase Agreement and the consummation of a transaction on the terms described herein will be subject to the satisfaction or waiver by Lehman or AIC, as applicable, (in each case in such party's sole discretion) of the following conditions: approval of the Bankruptcy Court of a plan support agreement executed by Lehman and the Company as contemplated by the Lehman- Innkeepers Term Sheet; receipt by AIC and Lehman of all necessary final internal approvals to consummate the transaction (which may be withheld (for any reason or no reason) in their sole discretion) by September 2, 2010, including, without limitation, final approval by AIC's Investment Committee and final approval of the UCC and the United States Bankruptcy Court administering the Chapter 11 case of LBHI by such date; and the negotiation, execution and delivery of definitive documents reflecting the terms set forth in this Term Sheet and containing other terms and conditions mutually acceptable to 2 APP-00150 Conditions to Closing: AIC and Lehman, including, but not limited to, terms customary for transactions of this type. The consummation of a transaction on the terms described herein will be subject to the satisfaction or waiver by Lehman or AIC, as applicable, (in each case in such party's sole discretion) of customary closing conditions including, without limitation, the following: the consummation of the proposed restructuring transaction between Lehman and Innkeepers on the terms and as contemplated by the Lehman- Innkeepers Term Sheet; the reorganized Company will have the pro forma capitalization structure contemplated by the Lehman-Innkeepers Term Sheet; and completion of third party and regulatory notices and receipt of all necessary and material consents and waivers. So long as the Letter Agreement has not been terminated, during the pendency of Innkeepers' chapter 11 cases, Lehman shall not object, directly or indirectly, to (a) Innkeepers' performance of the primary obligations underlying the Required Capital Improvements Guaranty, dated as of June 29, 2007 (the "Guaranty") so long as such obligations are exclusively limited to the non-immediate property improvement plan ("PIP") obligations in the properties which constitute the Fixed Rate Collateral (as such term is defined in the Lehman-Innkeepers Term Sheet) (the "Fixed Rate Pool") and such obligations are paid solely with funds available under the Fixed Rate DIP Facility (as such term is defined in the Lehman-Innkeepers Term Sheet) or cash collateral generated from the Fixed Rate Pool, and (b) the settlement or termination of the Guaranty so long as such settlement or termination occurs at least 45 days after the date Innkeepers commences its chapter 11 cases (the "Petition Date"). So long as the Letter Agreement has not been terminated and AIC is at least a 25% owner of reorganized Innkeepers, subject to dilution as provided in the Lehman-Innkeepers Term Sheet, Lehman and AIC shall authorize reorganized Innkeepers to agree that any (a) non-immediate PIP obligations in the Fixed Rate Pool described in Schedule XI to the related loan agreement that were not satisfied before or during the chapter 3 APP-00151 Termination Events: 11 cases and (b) discretionary capital expenditures as set forth in Annex B attached hereto will be funded from the proceeds of the Exit Funding (as such term is defined in the Lehman- Innkeepers Term Sheet) or excess cash flow after payment of all property level expenses, FF&E reserves, debt obligations, corporate G&A, and working capital holdbacks as reasonably determined by reorganized Innkeepers. Upon the occurrence of any of the following events (each, a "Termination Event"), the Letter Agreement, dated as of July 17,2010, by and between Lehman and AIC (the "Letter Agreement") and any Stock Purchase Agreement shall be terminable by either Lehman or AIC, and shall terminate upon five (5) business days' written notice of such Termination Event by the terminating party to the other party: upon the occurrence of any Termination Event described in the Lehman-Innkeepers Term Sheet; upon the waiver, modification or amendment of any material term, condition or provision of the Lehman-Innkeepers Term Sheet, or the definitive documents (including the Plan) implementing the same, in a manner not acceptable to Lehman or AIC; any material extension of the period of time to achieve the Plan Milestones set forth in the Lehman-Innkeepers Terms Sheet; if AIC seeks but does not obtain the approval of its Investment Committee within 45 days after the Petition Date; if Lehman seeks but does not obtain the approval of the UCC or the United States Bankruptcy Court administering the Chapter 11 case ofLBHI within 45 days after the Petition Date; or upon the occurrence of any event that would make the fulfillment of any conditions set forth under "Conditions to Closing" or "Conditions to Execution of the Stock Purchase Agreement" of this Term Sheet impossible by April 15, 2011. 4 APP-00152 Governance: Shareholders Agreement: REIT Status: Property Manager: Professional Fees: Governing Law: Notwithstanding the foregoing, the Letter Agreement and any Stock Purchase Agreement shall be terminable by either Lehman or AIC (for any reason or no reason in such party's sole discretion) at any time prior to September 2, 2010. The board of directors of the Company will initially consist of 7 members: 2 members nominated by Lehman, 2 members nominated by AIC and 3 members to be mutually agreed. A super-majority vote of 66 2/3% will be required for material transactions, including, among others, a merger or consolidation, equity issuances, debt issuances in excess of $10 million in the aggregate, sale or disposal of a property and such other events as determined by Lehman, AIC and the Company. Lehman and AIC shall agree on a future date by which the Company shall engage an investment banker to market and sell the Company; provided, that such date shall not be later than three years after the Effective Date unless otherwise agreed by Lehman and AIC. Other usual and customary terms, subject to mutual agreement between Lehman and AIC. The Plan shall provide that, on the Effective Date, Lehman, AIC and all other holders of New Equity to be issued pursuant to the Plan shall enter into a shareholders agreement that provides, among other things, for restrictions on the transfer of the New Equity and customary protections, including, but not limited to, tag-along/drag-along rights, all on terms to be mutually agreed between Lehman and AIC. Lehman and AIC shall, prior to the Effective Date, determine whether to maintain Innkeepers' status as a real estate investment trust. Prior to the Effective Date, Lehman and AIC shall designate a manager for the Company's properties. The Company shall reimburse AIC for fees and expenses of one counsel; provided that the transactions contemplated by the Stock Purchase Agreement are consummated. This Term Sheet and all agreements entered into pursuant thereto shall be governed by New York law with jurisdiction in the courts in New York. 5 APP-00153 US ACTIVE\43446016\20\58399.0008 AnnexA (Proposed Order) APP-00154 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------------X In re LEHMAN BROTHERS HOLDINGS INC., et al., Debtors. --------------------------------------------------------------------X Chapter 11 Case No. 08-13555 ( JMP) (Jointly Administered) ORDER PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE GRANTING AUTHORITY TO LCPI TO (I) CONSENT TO ITS NON-DEBTOR AFFILIATE LEHMAN ALI, INC.'S (A) ENTRY INTO PLAN SUPPORT AGREEMENT RELATED TO RESTUCTURING OF INNKEEPERS USA TRUST AND (B) CONSUMMATION OF THE TRANSACTIONS SET FORTH IN THE PLAN TERM SHEET AND (II) PROVIDE FUNDS TO SOLAR FINANCE INC., A NON-DEBTOR_ AFFILIATE, TO PROVIDE DEBTOR-IN-POSSESSION FINANCING Upon the motion, dated July 27, 2010 (the "Motion"), of Lehman Commercial Paper Inc. ("LCPI"), as debtor in possession (together with its affiliated debtors in the above-referenced chapter 11 cases, the "Debtors"), for an order pursuant to section 363 of title 11 of the United States Code (the "Bankruptcy Code") authorizing LCPI to (I) consent to Lehman ALI, Inc.'s ("ALI"), a non-Debtor affiliate ofLCPI, (A) entry into a plan support agreement related to the proposed restructuring of Innkeepers USA Trust (together with its affiliates, "Innkeepers") and (B) consummation of the transactions set forth in the plan term sheet attached thereto and (II) provide funds to Solar Finance Inc., its non-Debtor affiliate for the purposes of extending debtor in possession financing to Innkeepers (the "DIP Facility"), all as more fully described in the Motion (the "Transaction"); and the Court having jurisdiction to consider the Motion and the relief requested therein in accordance with 28 U.S.C. 157 and 1334 and the US ACTIVE\43446016\20\58399.0008 APP-00155 Standing Order M-61 Referring to Bankruptcy Judges for the Southern District of New York Any and All Proceedings Under Title 11, dated July 10, 1984 (Ward, Acting C.J.); and consideration of the Motion and the relief requested therein being a core proceeding pursuant to 28 U. S.C. 157(b ); and venue being proper before this Court pursuant to 28 U.S.C. 1408 and 1409; and due and proper notice of the Motion having been provided in accordance with the procedures set forth in the second amended order entered June 17, 2010 governing case management and administrative procedures [Docket No. 9635]; and the Court having found and determined that the relief sought in the Motion is in the best interests ofLCPI, its estate and creditors, and all parties in interest and that the legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and after due deliberation and sufficient cause appearing therefor, it is ORDERED that the Motion is granted; and it is further ORDERED that LCPI is authorized and empowered to consent to ALI's entry into the Plan Support Agreement and consummation of the transactions contemplated thereby; and it is further ORDERED that ALI is authorized and empowered to execute, deliver, implement, and perform any and all obligations, instruments, documents and papers, and to take any and all corporate and other actions that may be necessary or appropriate to enter into the Plan Support Agreement, the Plan Term Sheet, and all other related documents; and it is further ORDERED that ALI is authorized and empowered to execute, deliver, implement, and perform any and all obligations, instruments, documents and papers, and to take any and all corporate and other actions that may be necessary or appropriate to US ACTIVE\43446016\20\58399.0008 31 APP-00156 consummate the transactions set forth in the Plan Support Agreement, Plan Term Sheet and all other related agreements, which include the conversion of debt to equity (the "New Equity") and the sale of 50% of the New Equity for a price not less than $107.5 million; and it is further ORDERED that LCPI is authorized and empowered to loan up to approximately $17.5 million to LCPI's non-Debtor affiliate Solar Finance Inc. for the purposes of Solar extending the DIP Facility; and it is further ORDERED that no further Court approval shall be required in connection with any modification of the terms and conditions of the Transaction so long as (a) the Transaction includes a conversion of debt to New Equity and the sale of 50% of the New Equity for a price not less than $107.5 million, (b) the amount advanced by LCPI for the purposes of Solar extending the DIP Facility not exceeding $17.5 million, and (c) the Debtors have obtained the approval of the Official Committee ofUnsecured Creditors to such modifications; and it is further ORDERED that the automatic stay in LCPI's chapter 11 case is modified to the extent necessary to permit Innkeepers, ALI, and LCPI to take any or all of the actions permitted by the terms and conditions of the Plan Support Agreement, Plan Term Sheet, DIP Facility and all related agreements; and it is further ORDERED that this Order shall not be deemed to modify or amend any terms and conditions of the Plan Support Agreement, Plan Term Sheet, DIP Facility and all related documents; and it is further ORDERED that notice of the Motion as provided therein shall be deemed good and sufficient notice of such Motion; and it is further US ACTIVE\43446016\20\58399.0008 32 APP-00157 ORDERED that nothing contained in the Motion or this Order shall be deemed to be a waiver or the relinquishment of any rights, claims, interests, obligations, benefits, or remedies ofLCPI, or any of the Debtors or their non-debtor affiliates, that any of the Debtors or non-debtor affiliates may have or choose to assert on behalf of their respective estates under any provision of the Bankruptcy Code or any applicable non- bankruptcy law, including against each other or third parties. It is further ordered that the parties are authorized to execute such further documentation necessary to reflect this reservation of rights; and it is further ORDERED that Debtors are authorized to comply with each provision of the Plan Support Agreement; and it further ORDERED that this Court shall retain jurisdiction over this order, but that the Bankruptcy Court presiding over the chapter 11 cases of Innkeepers and not this Court shall have exclusive jurisdiction with respect to any matter under or arising out of or in connection with the Plan Support Agreement or the Transaction (as defined in the Plan Support Agreement) contemplated therein. Dated: August_, 2010 New York, New York HONORABLE JAMES M. PECK UNITED STATES BANKRUPTCY JUDGE US ACTIVE\43446016\20\58399.0008 33 APP-00158 WElL, GOTSHAL & MANGES LLP 700 Louisiana Street, Suite 1600 Houston, Texas 77027 Telephone: (713) 546-5000 Facsimile: (713) 224-9511 Alfredo R. Perez Attorneys for Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -------------------------------------------------------------------X In re LEHMAN BROTHERS HOLDINGS INC., et al., Debtors. -------------------------------------------------------------------X Chapter 11 Case No. 08-13555 (JMP) (Jointly Administered) NOTICE OF FILING OF SUPPLEMENTAL EXHIBIT TO MOTION OF LEHMAN COMMERCIAL PAPER INC. PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE FOR AUTHORITY TO (I) CONSENT TO ITS NON-DEBTOR AFFILIATE LEHMAN ALI INC. (A) ENTRY INTO PLAN SUPPORT AGREEMENT RELATED TO THE RESTRUCTURING OF INNKEEPERS USA TRUST; AND (B) CONSUMMATION OF THE TRANSACTIONS SET FORTH IN THE PLAN TERM SHEET; AND (II) PROVIDE FUNDS TO SOLAR FINANCE INC., A NON-DEBTOR AFFILIATE, TO PROVIDE DEBTOR-IN-POSSESSION FINANCING PLEASE TAKE NOTICE that, on July 27, 2010, Lehman Commercial Paper Inc. ("LCPI") and its affiliated debtors in the above-referenced chapter 11 cases, as debtors and debtors in possession (together, the "Debtors") filed a motion for authorization to (i) consent to its non-Debtor affiliate Lehman ALI Inc.'s (a) entrance into a plan support agreement related to the restructuring of Innkeepers USA Trust, and (b) consummation of the transactions set forth in APP-00159 EXHIBIT 3 a plan term sheet, and (ii) to provide funds to Solar Finance Inc., a non-Debtor affiliates, to provide debtor in possession financing (the "Motion") [Docket No. 10465]. PLEASE TAKE FURTHER NOTICE that to supplement Exhibit D to the Motion (the AIC Term Sheet), the Debtors hereby file the Letter Agreement (as defined in the Motion) between Apollo Investment Corporation and Lehman ALI Inc. as Exhibit D 1 to the Motion. A copy of the Letter Agreement is attached hereto. Dated: July 30, 2010 Houston, Texas /s/ Alfredo R. Perez Alfredo R. Perez WElL, GOTSHAL & MANGES LLP 700 Louisiana Street, Suite 1600 Houston, Texas 77027 Telephone: (713) 546-5000 Facsimile: (713) 224-9511 Attorneys for Debtors and Debtors in Possession APP-00160 EXHIBITDl (the Letter Agreement) US ACTIVE\43461925\02\58399.0008 APP-00161 Lehman ALI Inc. 1271 Avenue of the Americas 38th Floor New York, NY 10020 Attention: Michael Lascher Ladies and Gentlemen: EXECUTION COPY July 19, 2010 This letter agreement (this "Letter Agreement") and the term sheet attached hereto as Exhibit I (the "Term Sheet" and, together with the Letter Agreement, the "Agreement") pertain to certain agreements among Apollo Investment Corporation, a Maryland corporation ("AIC"), and Lehman ALI Inc., a Delaware corporation ("Lehman", and together with AIC, the "Parties"), regarding certain matters relating to a restructuring of Innkeepers USA Trust, a Maryland real estate investment trust. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Term Sheet. 1. Binding Nature; Definitive Agreements. (a) The Term Sheet sets forth the terms of the transactions contemplated hereby and thereby. The Parties intend that the Term Sheet will be superseded by definitive agreements which will contain provisions incorporating the terms set forth in the Term Sheet, together with provisions mutually acceptable to the Parties, including, without limitation, provisions customary in the case of transactions of the type described herein and therein. Notwithstanding the foregoing, the Parties expressly acknowledge and agree that this Agreement constitutes a binding agreement among them, subject to the terms and conditions set forth in this Agreement, until definitive documentation is executed and delivered by such Parties; provided, that this Agreement shall not be effective and binding on any Party until (a) the official committee of unsecured creditors in the chapter 11 cases of Lehman Brothers Holdings, Inc. (the "Lehman Bankruptcy Cases") has approved this Agreement (which approval Lehman will seek to obtain as soon as practicable); and (b) the bankruptcy court presiding over the Lehman Bankruptcy Cases enters an order approving this Agreement and authorizing Lehman's performance thereunder, which approval (i) Lehman shall seek as soon as practicable after the date hereof, (ii) shall be a final order in form and substance materially consistent in all respects with this Agreement and (iii) shall include provisions that provide, among other things, that (x) this Agreement is approved without condition or delay, including approval for Lehman to comply with each provision of this 15815954. ?.BUSINESS APP-00162 2 Agreement and (y) the automatic stay in the Lehman Bankruptcy Cases is modified to the extent necessary to permit any of the Parties to take any or all of the actions permitted by this Agreement; provided, further, that if such unsecured creditor committee approval is not obtained and such order approving this Agreement is not entered in the Lehman Bankruptcy Cases before September 2, 2010, each ofLehman and AIC has the right to terminate this Agreement upon one day notice to the other party. (b) The Parties intend to execute such definitive documentation no later than September 2, 2010 (the "Effective Date"), such definitive documentation to supersede any and all other prior agreements and undertakings (including this Agreement), both written and oral, among the Parties, or any of them, with respect to the subject matter hereof and thereof If such definitive documentation is not executed and delivered with respect to any matter contained in the Term Sheet by the Effective Date, then this Agreement shall be deemed to be such definitive documentation with respect to such matter, commencing on the date hereof, unless this Agreement shall have terminated in accordance with the terms set forth hereunder or the Term Sheet. 2. Efforts. Each Party hereto agrees that time is of the essence with respect to this matter and further agrees to act in good faith and to use all commercially reasonable efforts to complete in a timely manner the related definitive agreements, instruments and filings in a manner that appropriately gives effect to the terms set forth in the Term Sheet, subject to the terms and conditions set forth herein and the Term Sheet, including, without limitation, rights of termination. 3. Miscellaneous. (a) Representations and Warranties. Subject to the provisos in Section 1(a), each Party represents to the other Party that (i) this Agreement has been duly authorized, executed and delivered by such Party and constitutes the legal, valid and binding obligation of such Party enforceable against such Party in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally and by general principles of equity and (ii) such Party has the power and authority to enter into this Agreement and to carry out its obligations hereunder and thereunder. (b) Expenses. Except as otherwise provided herein or in the Term Sheet, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such costs and expenses. (c) Entire Agreement; No Third-Party Beneficiaries. This Agreement, constitutes the entire agreement and, except as expressly set forth herein, supersedes any and all other prior agreements and undertakings, both written and oral, among the Parties, or any of them, with respect to the subject matter hereof This APP-00163 Agreement shall be only for the benefit of the Parties and is not intended for the benefit of any other party. (d) Assignment; Successors. Neither this Agreement nor any 3 of the rights, interests or obligations hereunder or thereunder shall be assigned by AIC, in whole or in part (whether by operation of law or otherwise), without the prior written consent of Lehman (which consent may be withheld in the sole discretion of Lehman). (e) Amendment; Waiver. This Agreement may be amended at any time pursuant to a writing executed by each Party hereto. Any Party hereto may (i) extend the time for the performance of any of the obligations or other acts of the other Party or (ii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a Party to any such extension or waiver shall be valid only as against such Party and only if set forth in an instrument in writing signed by such Party. (f) Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State ofNew York applicable to contracts executed in and to be performed entirely within that State, without giving effect to the conflicts of laws principles thereof (g) Consent to Forum. Each of the Parties hereby irrevocably and unconditionally (i) submits, for itself and its property, to the exclusive jurisdiction of (a) the Supreme Court of the State ofNew York, New York County, located in the Borough of Manhattan, (b) the United States Bankruptcy Court for the Southern District ofNew York, and (c) the United States District Court for the Southern District ofNew York and any appellate court from any such court, in any action, suit, proceeding or claim arising out of or relating to this Letter Agreement or the transactions contemplated hereby, or for recognition or enforcement of any judgment, and agrees that all claims in respect of any such action, suit, proceeding or claim may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal courts, (ii) waives, to the fullest extent that it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any action, suit, proceeding or claim arising out of or relating to this Letter Agreement or the transactions contemplated hereby in any such New York State or Federal courts and (iii) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of any such action, suit, proceeding or claim in any such court. (h) Counterparts. This Letter Agreement may be executed in counterparts, each ofwhich shall be deemed an original and all ofwhich shall constitute one and the same instrument. Delivery of an executed counterpart of this Letter Agreement by facsimile or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof APP-00164 (i) Effectiveness. Subject to Section 1(a), this Agreement shall not be effective as to or binding upon any Party until executed and delivered by all of the Parties. G) Notices. Except as otherwise provided in this Agreement, 4 all notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, when delivered personally or by courier, when received by facsimile transmission if promptly confirmed by telephone, or three days after being deposited in the U.S. mail (registered or certified mail, postage prepaid, return receipt requested), as follows: If to Lehman: 1271 Avenue of the Americas 38th Floor New York, NY 10020 Facsimile: (646) 285-9336 Attention: Joelle Halperin with a copy to: Dechert LLP 1095 Avenue of the Americas New York, NY 10036-6797 Facsimile: (212) 698-0439 Attention: Michael J. Sage Brian E. Greer and: If to AIC: Apollo Investment Corporation 9 West 57th Street New York, New York 10019 Facsimile: (212) 515-3443 Attention: Joseph D. Glatt with a copy to Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY, 10019 Facsimile: (212) 757-3990 Attention: Alan W. Kornberg Jeffrey D. Marell or to such other address, facsimile number or telephone number as either party may, from time to time, designate in a written notice given in a like manner. APP-00165 If the foregoing is in accordance with your understanding please indicate your agreement by signing below. Very truly yours, 5 APOLLO INVESTMENT CORPORATION Accepted and agreed as of the date first above written: LEHMAN ALI INC. By: ---------------------- Name: Title: Doc#: USI :6490204v4 APP-00166 If the foregoing is in accordance v.rith your understanding please indicate your agreement by signing below. Very truly yours, APOLLO INVESJMENT CORPORATION By: - - - - - - - - - - - - - - - - - - - - ~ Name: Title: Accepted and agreed as of the date first above written: By: 4 Name: Title: [SIGNATURE PAGE TO LEITER AGREEMENT] APP-00167 James H.M. Sprayregen, P.C. Paul M. Basta Jennifer L. Marines KIRKLAND & ELLIS LLP 60 1 Lexington A venue New York, NY 10022-4611 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 and Anup Sathy, P.C. (pro hac vice pending) Marc J. Carmel (pro hac vice pending) KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, IL 60654-3406 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 Proposed Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al., 1 Debtors. ) ) Chapter 11 ) ) Case No. 10-13800 (SCC) ) ) Joint Administration Requested _________________________________ ) AMENDED DECLARATION OF DENNIS CRAVEN, CHIEF FINANCIAL OFFICER OF INNKEEPERS USA TRUST, IN SUPPORT OF FIRST-DAY PLEADINGS 1 The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtor's 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 Comers) 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 I 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 I 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 (continued on next page) K&E 16632089 APP-00168 EXHIBIT 4 I, Dennis Craven, declare as follows: 1. I am the Chief Financial Officer, Treasurer, and Vice President of Innkeepers USA Trust ("Innkeepers"), a self-administered real estate investment trust organized under the laws of Maryland and the direct subsidiary of debtor Grand Prix Holdings LLC and the direct or indirect parent of each of the other debtors and debtors in possession (collectively, the "Debtors") in the above-captioned chapter 11 cases (the "Chapter 11 Cases"). As of August 1, 2010, my role at Innkeepers will change to consultant to the Debtors. I joined Innkeepers in 2006 as the Chief Financial Officer. Prior to joining Innkeepers, I was a principal of Addison Capital Advisors in Memphis, Tennessee, an investment firm specializing in strategic planning, investment analysis, and equity and debt financing for start-up and early stage companies. Prior to that, I was senior vice president and chief accounting officer of Independent Bank in Memphis, where I specialized in corporate financial planning and analysis. 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 RIMY 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 RIMY, LLC (6804); KPA San Antonio, LLC (1251); KPA Tysons Comer 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 K&E 16632089 APP-00169 2. I am generally familiar with the Debtors' day-to-day operations, business affairs, and books and records, as well as the Debtors' restructuring efforts. I submit this declaration (this "Declaration") in accordance with Rule 1007-2 of the Local Bankruptcy Rules for the Southern District of New York (the "Local Bankruptcy Rules") to assist this Court and parties in interest in understanding the circumstances that compelled the commencement of these Chapter 11 Cases and in support of: (a) the Debtors' petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") filed on the date hereof (the "Petition Date"); (b) the emergency relief that the Debtors have requested from the Court pursuant to the motions and applications described herein (collectively, the "First Day Pleadings"); and (c) the DIP Financings (as defined below) that the Debtors are seeking to have approved in the near future. 3. The First Day Pleadings seek relief necessary to avoid immediate and irreparable harm to the Debtors by allowing them to continue their operations and minimize disruptions to their business that could otherwise result from the commencement of the Chapter 11 Cases. Specifically, the First Day Pleadings seek relief allowing the Debtors to: (a) stabilize and maintain their business operations through, among other things, the use of cash collateral; (b) preserve relationships with franchisors, hotel managers, customers, employees, and other key constituencies; (c) limit disruption to the Debtors' business by continuing the use of their prepetition cash management system; and (d) establish certain administrative procedures to facilitate an orderly transition into, and uninterrupted operations throughout, the chapter 11 process. 4. Except as otherwise indicated, all facts set forth in this Declaration are based upon my personal knowledge, my discussions with other members of the Debtors' management team 3 K&E 16632089 APP-00170 and the Debtors' advisors, my review of relevant documents and information concerning the Debtors' operations, financial affairs, and restructuring initiatives, or my opinions based upon my experience and knowledge. If called as a witness, I would testify to the facts set forth in this Declaration. I am authorized to submit this Declaration on behalf of the Debtors. 5. To assist the Court in becoming familiar with the Debtors and the initial relief sought by the Debtors to stabilize operations and facilitate their restructuring, this Declaration is organized into four sections. Section I provides background information with respect to the Debtors' corporate history and their business operations, as well as a summary of the Debtors' prepetition capital structure and describes the plan support agreement entered into with one of the Debtors' key constituents. Section II describes the circumstances leading to the commencement of these Chapter 11 Cases, including the restructuring agreements that the Debtors negotiated with their key constituents. Section III summarizes the relief requested in, and the facts supporting, each of the First Day Pleadings and the DIP Financings. Section IV provides an overview of the exhibits attached hereto that set forth certain additional information about the Debtors, as required by Local Bankruptcy Rule 1007-2. INTRODUCTION 6. Innkeepers, through its indirect subsidiaries, owns and operates an expansive portfolio of 72 upscale and mid-priced extended-stay and select-service hotels, consisting of approximately 10,000 rooms, located in 20 states across the United States. The Debtors operate their hotels under premium, well-recognized brands, such as Marriott, Hyatt, Hilton, and others (collectively, the "Franchisors"). The Debtors are able to generate significant value and stable revenues from the broad geographic location of their properties, the diverse mix of brands in their hotel portfolio, and the substantial tenure and comprehensive knowledge of the core management team who oversees the Debtors' hotel enterprise on a consolidated basis. 4 K&E 16632089 APP-00171 Specifically, the consolidated ownership and management of their 72 properties allows the Debtors to benefit from economies of scale, eliminating many of the duplicative processes and costs that would otherwise apply to properties owned and managed on an individual basis. For example, centralized corporate management and data systems allow the Debtors to significantly reduce corporate overhead costs. The Debtors are also able to negotiate favorable contracts for goods and services by using the leverage gained from their size and ability to enter into comprehensive, national vendor contracts. In addition, the Debtors have been able to negotiate favorable contracts with their Franchisors, who generally prefer to conduct business with owners of multiple hotels. With 72 hotels across the United States and long-term contracts in place with key Franchisors, the Debtors are well positioned to continue to capitalize on their substantial hotel portfolio and to generate positive earnings after their restructuring initiatives are implemented. 7. While the global economic crisis has certainly affected the hospitality industry, and thus the Debtors' business and overall revenue, the Debtors' operations remain strong and significant opportunities remain for the business in the future. Unfortunately, however, the Debtors have an unmanageable debt load, which has impeded their ability to service funded debt obligations as they come due. As of the Petition Date, the Debtors were in payment default on all 11 of their loan agreements. The Debtors' substantial debt burden has hindered their ability to appropriately maintain hotel properties in compliance with Franchise Agreements (as defined below) and perform other upgrades necessary to increase revenue, meet competitive conditions, and preserve asset value. 8. As of the Petition Date, the Debtors have incurred approximately $1.29 billion of secured debt. The Debtors' largest secured loan is a securitized mortgage loan with Lehman ALI 5 K&E 16632089 APP-00172 Inc. ("Lehman") as the original lender in the face amount of $825 million, collateralized by 45 of the Debtors' hotel properties and serviced by Midland Loan Services, Inc. ("Midland"). The Debtors' second largest secured loan, to which Lehman is the current lender, is comprised of a floating rate senior mortgage loan in the face amount of $250 million, collateralized by 20 of the Debtors' hotel properties, and a junior mezzanine loan in the face amount of $118 million. Each of the Debtors' seven remaining secured mortgage loans-ranging in amounts from approximately $24 million to $48 million-is secured by individual properties? Apollo Investment Corporation ("AIC") owns the membership interests of Debtor Grand Prix Holdings LLC, the direct or indirect parent of all the other Debtors. 9. Over the last several months, the Debtors have engaged in extensive negotiations with certain of their key constituents regarding the parameters of a comprehensive restructuring. These negotiations culminated in the Debtors' and certain of their key constituents' entry into a series of interrelated agreements that, once implemented, will (a) facilitate a successful reorganization of the Debtors' business, (b) allow the Debtors to maintain the existing portfolio of hotel properties with all of the attendant benefits of a comprehensive hotel enterprise, and (c) maximize the value of the Debtors' enterprise for the benefit of the Debtors' estates. 10. The Debtors have successfully negotiated a consensual, integrated restructuring transaction, which includes three separate, yet wholly interrelated, agreements. On June 25, 2010, the Debtors and Marriott International, Inc. ("Marriott"), the Franchisor with whom 44 of the Debtors' 72 hotels have entered into Franchise Agreements, entered into an agreement (the "Marriott Agreement"), pursuant to which the Debtors agreed to provide adequate 2 One of the seven loans includes a mezzanine loan that is secured by the equity in a Debtor-entity that owns a hotel. 6 K&E 16632089 APP-00173 assurance of the future completion of certain property improvement programs (as described in Section II.C hereof, the "PIPs") on 23 of the Debtors' Marriott-branded hotels in compliance with certain Franchise Agreements. As part of the adequate assurance, the Debtors have committed to procure necessary financing arrangements to complete the PIPs within an aggressive, but reasonable, timeframe. In exchange for the Debtors' commitment, Marriott has agreed to support the Debtors' restructuring and forebear from seeking to exercise potentially significant rights leading up to and during the Debtors' Chapter 11 Cases. 11. Marriott's agreement to forebear from seeking to exercise its rights with respect to the Debtors' Marriott-branded hotel properties-including its right to remove the Marriott brand from the Debtors' Marriott hotel, the exercise of which would have severely deteriorated the value of the underlying hotel properties-paved the way for the Debtors to negotiate two debtor-in-possession financing facilities (collectively, the "DIP Financings"), consisting of the (a) $50.75 million Five Mile DIP Facility, the proceeds of which will be used to perform PIPs on certain hotels securing the Debtors' obligations under the Fixed Rate Mortgage Loan Agreement, 3 the Capmark Mission Valley Loan Agreement, and the Merrill Tysons Corner Loan Agreement (each as defined below); and (b) $17 million Lehman DIP Facility, the proceeds of which will be used to perform PIPs and certain other investments on certain hotels securing the Debtors' obligations under the Floating Rate Mortgage Loan Agreement. 12. Obtaining Marriott's forbearance with respect to the Debtors' critical hotel properties was also a precursor to the Debtors' successful negotiations with Lehman to reach the terms of a consensual restructuring transaction and prearranged plan. The Debtors and Lehman have entered into a plan support agreement (the "PSA"), which incorporates the terms of a 3 Five Mile Capital Partners LLC is a lender under the Fixed Rate Mortgage Loan Agreement. 7 K&E 16632089 APP-00174 prearranged restructuring and contemplates the Debtors' entry into the DIP Financings. 4 The PSA represents a significant achievement for the Debtors because, among other things, it provides for the significant deleveraging of the Debtors' balance sheet and permits the Debtors to maintain their Franchise Agreements and existing portfolio of hotel properties. The Debtors' prearranged restructuring includes the following: Lehman will receive, in full and final satisfaction of its approximately $238 million secured claim with respect to the Floating Rate Mortgage Loan Agreement, 100% of the issued and outstanding new shares of common stock issued by Innkeepers (the "New Equity"), subject to dilution by a management equity incentive program; The remaining secured lenders under the Debtors' prepetition credit facilities will receive new secured notes with a value that is no less than the value of the collateral securing their prepetition debt, unless the lenders of such facilities otherwise agree; Unsecured creditors (other than holders of deficiency claims) not paid pursuant to a "first day" order will receive a share of a cash allocation; and Holders of interests in the Debtors, including common and preferred stock, will be cancelled, and no distributions will be made on account of such interests. 13. The Debtors understand that Lehman's willingness to enter into the PSA is conditioned on its ability to sell a portion of its distribution of equity in the reorganized enterprise to a third party on or after the effective date of the Debtors' confirmed chapter 11 plan of reorganization, allowing Lehman, which is also in bankruptcy, to liquidate a portion of its plan distributions of New Equity to mitigate the risk of its entire recovery coming in the form of equity. It is the Debtors' understanding that, subject to certain terms and conditions, AIC may become the purchaser. The Debtors realize that Lehman's ability to consummate the transactions contemplated by the PSA is conditioned on Bankruptcy Court approval of such transactions in 4 A copy of the PSA, which includes and is predicated upon a chapter 11 plan term sheet of the entire enterprise of the Debtors, is attached hereto as Exhibit A. 8 K&E 16632089 APP-00175 Lehman's bankruptcy proceedings. The Debtors expect Lehman to file a motion to approve the transactions on or immediately after the Petition Date of these Chapter 11 Cases and to seek to obtain Court approval within 45 days of such filing. 14. The Debtors' proposed restructuring is supported by its significant stakeholders, including Marriott and Lehman, and constitutes an integrated, global resolution among the Debtors and these parties. For example, Lehman's willingness to support the proposed restructuring and to convert its debt into equity (which is necessary to deleverage the Debtors' balance sheet and provide comfort to the Franchisors that the reorganized Debtors will have a sustainable capital structure) is conditioned on the Debtors' retention of critical Franchise Agreements accomplished through Marriott's forbearance with respect to critical hotel properties. Marriott's willingness to forego any potential rights to seek to terminate its Franchise Agreements (which forbearance is necessary to maintain the Debtors' existing, integrated portfolio of hotels with franchise arrangements with a premium brand and avoid substantial rebranding costs) is conditioned on the Debtors' procurement of DIP Financings, the proceeds of which will be used to fund critical Marriott-branded hotels. In turn, the DIP Financings (which are necessary to address Franchise Agreement default issues, as well as to fund necessary capital expenditures on critical properties) are conditioned on Marriott's willingness to support the proposed transaction and to forebear from de-flagging the Debtors' properties, as well as Lehman's commitment to support an expeditious restructuring process. 15. Accordingly, the negotiation of these various components to the proposed restructuring transaction did not occur in a vacuum. Rather, each party's agreement to participate was carefully negotiated and, crucially, dependent upon the Debtors' obtaining agreements from the other key parties m interest that would promote a comprehensive 9 K&E 16632089 APP-00176 restructuring of the Debtors' estates through an expeditious stay in bankruptcy. To that end, with the support of their significant constituents, the Debtors anticipate moving expeditiously through this chapter 11 process. As provided for in the PSA, the Debtors intend to file their plan of reorganization and related disclosure statement within 45 days of the Petition Date. In addition, concurrently with the filing of this Declaration, the Debtors have filed two motions seeking the Court's approval of the DIP Financings, which will be set for hearing within 45 days of the Petition Date. 16. The Debtors believe that the terms of the proposed, integrated restructuring, including the DIP Financings, are in the best interest of Debtors' estates and all parties in interest. The proposed restructuring will not only result in the elimination of a substantial portion of the Debtors' funded indebtedness, but will also provide the Debtors with the necessary financing to fund critical hotel maintenance and repair projects, allowing the Debtors to preserve valuable Franchise Agreements, meet competitive conditions, and preserve asset value for the Debtors and their estates. I. GENERAL BACKGROUND (a) Company Business and Overview 17. Innkeepers is a self-administered Maryland real estate investment trust ("REIT") with a primary business focus on acquiring premium-branded upscale extended-stay, mid-priced limited service, and select-service hotels. Innkeepers' indirect, wholly-owned limited liability company subsidiaries, which are Debtors in these Chapter 11 Cases (the "Property Owners"), 5 5 Innkeepers, through its indirect subsidiary, KPA Raleigh, LLC, owns a 49% ownership interest in Genwood Raleigh LLC, a joint venture fee owner of the Sheraton in Raleigh, North Carolina. Neither KP A Raleigh, LLC nor Genwood Raleigh LLC are Debtors in these Chapter 11 Cases. 10 K&E 16632089 APP-00177 hold title to, or ground leases 6 in, the Debtors' 72 hotel properties. Each of the 72 Property Owners leases its hotel property to one of nine of Innkeepers' indirect, wholly-owned taxable REIT subsidiaries, each of which is a Debtor in these Chapter 11 Cases (the "Operating Lessees")? The Operating Lessees are responsible for paying hotel operating expenses for the respective Property Owners, including personnel costs, franchise royalties and related fees, utility costs, and general repair and maintenance expenses. The Property Owners remam responsible for ownership costs such as property taxes and msurance, ground rent (where applicable), and capital expenditures. 18. The Debtors' primary customer base consists of business travelers, employees on temporary work assignments or enrolled in training programs, and individuals engaged in corporate relocations. Consistent with this customer base, the majority of Innkeepers' hotel portfolio consists of extended-stay hotels, which are a hybrid between a hotel and an apartment, offering longer-term accommodations with kitchens at more affordable rates than traditional full service hotels and with more efficiency than apartments. Extended-stay hotels currently comprise more than 68 percent of Innkeepers' hotel portfolio. In general, extended-stay hotels are typically able to generate a more consistent revenue stream than traditional hotels due to historically higher than average occupancy rates, longer average stays, less staff, and lower fixed costs. 6 The Debtors have ground leases for the following properties: Courtyard by Marriott in Ft. Lauderdale, Florida; Best Western in Palm Beach, Florida; and Hampton Inn in Woburn, Massachusetts. The minimum annual rent payable under these leases is approximately $600,000 in the aggregate. 7 Innkeepers, through its indirect subsidiary, KPA Raleigh Leaseco LLC, owns a 49% ownership interest in Genwood Raleigh Lessee LLC, the property lessee of the Sheraton in Raleigh, North Carolina. Neither KP A Raleigh Leaseco LLC nor Genwood Raleigh Lessee LLC are Debtors in these Chapter 11 Cases. 11 K&E 16632089 APP-00178 19. The Operating Lessees have entered into various hotel management agreements (the "Hotel Management Agreements") with Island Hospitality Management, Inc. ("Island") and with Dimension Development Company, Inc. ("Dimension," and together with Island, the "Hotel Managers") to manage the hotel properties. The Debtors' management is responsible for overseeing the Hotel Managers. Island manages all of the Debtors' hotels except for the Sheraton Four Points in Ft. Walton Beach, Florida, which is managed by Dimension. Pursuant to the Hotel Management Agreements, the Hotel Managers generally are required to perform or provide for all operational and management functions necessary to operate the hotels. Among other things, the Hotel Managers, on behalf of the Debtors, pay all property level expenses of the hotels (including payroll), 8 contract with service providers, and purchase all goods and materials utilized in the operation of the business. Generally, the Hotel Managers fund the hotel operating expenses out of the Property Lessees' centralized cash account, over which the Hotel Managers have signing authority. When the Hotel Managers have to fund expenses, the Operating Lessees reimburse the Hotel Managers periodically through hotel expense reimbursement reconciliations. In addition, the Hotel Managers receive management fees prescribed by the Hotel Management Agreements. 20. The Debtors seek to affiliate their hotels with premier franchise companies and brands that offer robust marketing support and services and that have demonstrated their ability to command revenue premiums over other brands. The table below sets forth information regarding the Debtors' hotels by brand (ordered based on the number of rooms by brand): Brand #of Hotels #of Rooms %of Total Residence Inn by Marriott 40 5,194 53% 8 The Debtors, through the Hotel Managers, employ approximately 2,550 employees in connection with the operation of the hotels. 12 K&E 16632089 APP-00179 Brand #of Hotels #of Rooms %of Total Hampton Inn 11 1,404 14% Summerfield Suites by Hyatt 5 650 7% Courtyard by Marriott 3 526 5% Hilton 1 309 3% Hilton Suites 1 230 2% Westin 1 224 2% Four Points by Sheraton 1 216 2% Embassy Suites 1 156 2% Sheraton 1 154 2% Homewood Suites by Hyatt 1 146 1% Gatehouse Inn 2 144 1% Best Western 1 135 1% Doubletree 1 105 1% TownePlace Suites by Marriott 1 95 1% Bulfinch Hotel 1 79 1% TOTAL 72 9,767 100% 21. The franchise licenses for the hotels are held by the Operating Lessees and are governed by franchise agreements (collectively, the "Franchise Agreements") between the Operating Lessees and the franchise owners. All hotels in the table above except for the Gatehouse Inns and the Bulfinch Hotel operate under Franchise Agreements. Under the Franchise Agreements, the Debtors are required to pay franchise fees based on a percentage of hotel room revenue, and must allow Franchisors to inspect their licensed hotels periodically to confirm adherence to stated brand operating standards. These inspections can result in additional capital expenditure requirements or additional operational, marketing, or repairs and maintenance expenses. Grand Prix Holdings LLC, Innkeepers' direct parent and a Debtor in these Chapter 11 Cases, has guaranteed certain of the Property Lessees' obligations under certain of the Franchise Agreements. 22. The Debtors generate a majority of their revenue from guests who stay at the hotel properties. As such, the Debtors' stream of revenue is dependent on maintaining and improving 13 K&E 16632089 APP-00180 key operating metrics, including occupancy, average daily rate ("ADR"), and revenue per available room ("RevPAR"), 9 of their hotels. In 2009, the Debtors' consolidated revenues were approximately $292 million (down from $348 million in 2008, a 16 percent drop) and their adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") were approximately $85 million (down from $123 million in 2008, a 31 percent drop). The Debtors' consolidated assets for 2009 totaled approximately $1.5 billion and consolidated liabilities totaled approximately $1.5 billion. (b) The Debtors' Corporate History and Organizational Structure 23. In June 2007, AIC, through certain subsidiaries, acquired Innkeepers (the "Acquisition"), which was a publicly traded company whose shares were listed on the New York Stock Exchange. The Acquisition was funded with equity invested by AIC (through certain subsidiaries), the assumption of certain secured debt outstanding prior to the Acquisition, and certain secured debt incurred at the time of the Acquisition. All of Innkeepers' common shares outstanding at the time of the Acquisition were acquired for cash and then extinguished. Innkeepers' $145 million 8% Series C Cumulative Preferred Shares (defined below) outstanding prior to the Acquisition remained outstanding after the Acquisition. In consideration for AIC's $250 million equity investment, AIC's subsidiary Grand Prix Holdings LLC, a Debtor in these Chapter 11 Cases, was issued all (except for relatively small amounts currently held by management) of Innkeepers' newly issued (a) common shares and (b) 12% Series A Cumulative Preferred Shares (defined below). 9 RevP AR is the product of the average daily rate and occupancy percentage. RevP AR does not include non- room revenues, such as food and beverage, parking, telephone, and other guest service revenues. 14 K&E 16632089 APP-00181 24. The chart below generally depicts the Debtors' prepetition organizational structure: 15 K&E 16632089 APP-00182 Lessees of Properties from Fee owners/Ground Lessees Q Mezzanine Loan 6orrcrwer D Mortgage Loan Borrower- Fee Owner/Ground Lessee General Notes All ent1t1es are Delaware ent1t1es unless otherwise noted All ent1t1esat=!Debtorsunlessotherw1se noted 2 Operating Tenant for hotels secunng Fixed Rate Mortgage Loan Agreement 3 Operating Tenant for hotels secunng Floating Rate Sen1or Mortgage Loan Agreement 4 Operating Tenant for hotel secunng the fac1l1ty for kPA HS Anaheim, LLC 5 Operating Tenant for hotel secunng the fac111ty for KPA HI Ontano LLC 6 Operating Tenant for hotel secunng the facility for KPA RIGG, LLC 7 Oper:at1ng Tenant for hotel secunng the facility for KPA RIMV, LLC 8 Operating Tenant for hotels secunng the fac111t1es for KPA Washington DC LLC, KPA Tysons Comer Rl, LLC, and KPA San AntoniO, LLC 9 Operating Tenant for hotel secunng the fac111ty for Gerrwood Raleigh LLC K&E 16632089 Innkeepers USA Corporate Structure Chart DRAFT at 711912010 6:44PM Legally Privileged and Confidential Attorney-Client Communication Subject to F.R.E. 408 Do Not Distribute The info.-mation contained he.-ein and on the following pages shall neithe.- constitute an admission of liability by, no.- is it binding on, the Debto.-s.
I_A::Io_:_v:_m: B:n:_ _!- 100% G.-and P.-ix Holdings LLC lnnkeepe.-s USA T.-ust (Maryland REIT) lnnkeepe.-s Financial Co.-poration (Virginia Corporation) lnnkeepe.-s USA Limited Partne.-ship (Virginia Limited Partnership) KPA HI Onta.-io LLC assets KPA RIMV, LLC KPA RIGG, LLC ThiS assets 16 KPA Lease co, Inc. G.-and P.-ix IHM, Inc. -Non-DebtorAffil1ates I I I I I I I _L Genwood Raleigh LLC (.Joint Ventu.-e Fee Own e.-) APP-00183 (c) Prepetition Capital Structure 1 25. As of March 31, 2010, the Debtors had incurred aggregate funded secured indebtedness of approximately $1.42 billion, including approximately $1.29 billion of property-level secured debt, approximately $1.05 billion of which was securitized and sold in the commercial mortgage-backed security ("CMBS") market. The Debtors incurred the vast majority of their funded debt in connection with the Acquisition. The debt is secured by mortgages on the hotels or pledges of the equity of the Property Owners. The Debtors' funded secured debt is separated into nine general groups, the mortgages of each of which is secured by distinct hotel properties and the mezzanine loans of each of which is secured by related equity interests in the Property Owners. Each of these groups is discussed below. Additionally, the Debtors have four issuances of equity, which is also discussed below. 1. The $825 Million Fixed Rate CMBS Pool 26. Forty-five of the Property Owners, collectively as borrowers, and Lehman, as original lender, are parties to that certain Loan Agreement (as amended, the "Fixed Rate Mortgage Loan Agreement"), dated as of June 29, 2007. The Fixed Rate Loan Agreement provides for mortgage loans to the 45 Property Owners in the original aggregate principal amount of $825 million (the "Fixed Rate Mortgage Loan Obligations"), which amount is The descriptions of the Debtors' prepetition debt facilities and the collateral securing those facilities provided herein does not constitute, and should not be construed as, an admission by the Debtors regarding the validity, priority, enforceability, perfection, or amount of any obligation, claim, guarantee, lien, mortgage, pledge, or other security interest, or any other fact with respect thereto, and the Debtors reserve all rights to challenge or dispute any of the foregoing on any basis whatsoever except to the extent as set forth in the Debtors' Motion for the Entry of Interim and Final Orders (A) Authorizing the Debtors to (I) Use the Adequate Protection Parties' Cash Collateral and (11) Provide Adequate Protection to the Adequate Protection Parties Pursuant to 11 U.S. C. 361, 362, and 363, (B) to the Extent Approved in the Final Order, Granting Senior Secured, Priming Liens on Certain Postpetition Intercompany Claims, (C) to the Extent Approved in the Final Order, Granting Administrative Priority Status to Certain Postpetition Intercompany Claims, and (D) Scheduling a Final Hearing Pursuant to Bankruptcy rule 4001 (b) and in the proposed order attached thereto as Exhibit A, which were filed contemporaneously herewith. 17 K&E 16632089 APP-00184 collateralized by the 45 hotel properties owned by the Property Owners that are borrowers under the Fixed Rate Mortgage Loan Agreement. The Fixed Rate Mortgage Loan Obligations have a maturity date of July 9, 2017. The Fixed Rate Mortgage Loan Agreement mortgage loans have been securitized and sold into the CMBS market. Half of the Fixed Rate Mortgage Loan Obligations are part of a mortgage loan pool knows as LB-UBS Commercial Mortgage Trust 2007-C6, for which LaSalle Bank, N.A. ("LaSalle") is trustee and Midland serves as special servicer. The other half of the Fixed Rate Mortgage Loan Obligations are part of a mortgage loan pool known as LB-UBS Commercial Mortgage Trust 2007-C7, for which LaSalle is trustee and LNR Property Corp. serves as special servicer. 2. The $250 Million Floating Rate Mortgage Loan and $118 Million Floating Rate Mezzanine Loan 27. Twenty of the Property Owners, collectively as borrower, and Lehman, as lender, are parties to that certain Loan Agreement (as amended, the "Floating Rate Mortgage Loan Agreement"), dated as of June 29, 2007. The Floating Rate Mortgage Loan Agreement provides for mortgage loans to the 20 Property Owners in the original principal amount of $250 million (the "Floating Rate Mortgage Loan Obligations"), which amount is collateralized by the 20 hotels owned by the Property Owners that are borrowers under the Floating Rate Mortgage Loan Agreement. The Floating Rate Mortgage Loan Obligations matured on July 9, 2010, which maturity date is subject to three conditional one-year extensions. The Floating Rate Mortgage Loan Agreement originally was intended to be securitized and sold into the CMBS market, however, that did not end up occurring. 28. Grand Prix Mezz Borrower Floating 2, LLC, the 100 percent owner of the 20 borrowers under the Floating Rate Mortgage Loan Agreement, as borrower, and Lehman, as original lender, are parties to that certain Mezzanine Loan Agreement (as amended, the 18 K&E 16632089 APP-00185 "Floating Rate Mezzanine Loan Agreement"), dated as of June 29, 2007. The Floating Rate Mezzanine Loan Agreement provides for a junior mezzanine loan in the original principal amount of $118 million (the "Floating Rate Mezzanine Loan Obligations"), which amount is collateralized by Grand Prix Mezz Borrower Floating 2, LLC's equity interests in the 20 Property Owners that are borrowers under the Floating Rate Mortgage Loan Agreement. The Floating Rate Mezzanine Loan Agreement Obligations mature on July 9, 2010, which maturity date is subject to three conditional one-year extensions. 3. The $13.7 Million Anaheim Mortgage Loan and $21.3 Million Anaheim Mezzanine Loan 29. RLJ Anaheim Suites Hotel L.P. ("RLJ Anaheim"), as borrower and GMAC Commercial Mortgage Bank, as lender, are parties to that certain Deed of Trust Note (as amended, the "Anaheim Mortgage Loan Agreement"), dated as of June 14, 2005. Pursuant to that certain Loan Assumption, Affirmation, and Modification Agreements, dated as of October 4, 2006 and June 29, 2007, KPA HS Anaheim LLC ("KPA HS Anaheim") assumed all ofRLJ Anaheim's obligations under the Anaheim Mortgage Loan Agreement. As a result, the Anaheim Mortgage Loan Agreement provides that KP A HS Anaheim is obligated under a mortgage loan in the original principal amount of $13.7 million (the "Anaheim Mortgage Loan Obligation"), which amount is collateralized by the Hilton Suites in Anaheim, California. The Anaheim Mortgage Loan Obligation matured on July 1, 2010. 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 Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2005-C5, for which Wells Fargo Bank, N.A. ("Wells Fargo") is trustee, Capmark Finance Inc. ("Capmark Finance"), as successor to GMAC Commercial Mortgage Corporation, serves as master servicer, and CWCapital Asset Management, LLC serves as special servicer. 19 K&E 16632089 APP-00186 30. Grand Prix Mezz Borrower Term, LLC, the 100 percent owner of KPA HS Anaheim, as borrower, and Lehman, as lender, are parties to that certain Mezzanine Loan Agreement (as amended, the "Anaheim Mezzanine Loan Agreement"), dated as of June 29, 2007. The Anaheim Mezzanine Loan Agreement provides for a junior mezzanine loan in the original principal amount of $21.3 million (the "Anaheim Mezzanine Loan Obligations"), which amount is collateralized by Grand Prix Mezz Borrower Term, LLC's equity interest in KPA HS Anaheim. The Anaheim Mezzanine Loan Agreement Obligation matured on July 1, 2010. 31. Pursuant to that certain Intercreditor Agreement by and between Wells Fargo, as trustee for the registered holders of the Credit Suisse First Mortgage Corp., Commercial Mortgage Pass-Through Certificates, Series 2005-CS, as senior lender, and Lehman, as mezzanine lender, dated as of June 29, 2007, the rights, liens, and security interests created under the Anaheim Mezzanine Loan Agreement, including the right to payment of the Anaheim Mezzanine Loan Obligations and all remedies, terms, and covenants contained in the Anaheim Mezzanine Loan Agreement, are subordinate to the rights, liens, and security interests created under the Anaheim Mortgage Loan Agreement, including the right to payment of the Floating Rate Mortgage Loan Obligations and all remedies, terms, and covenants contained in the Floating Rate Mortgage Loan Agreement. 4. The $47.4 Million Capmark Mission Valley CMBS Mortgage Loan 32. KPA RIMY, LLC, as borrower, and Capmark Bank, as lender, are parties to that certain Deed of Trust Note (the "Capmark Mission Valley Loan Agreement"), dated as of October 4, 2006. Pursuant to that certain Loan Assumption, Affirmation, and Modification Agreement, dated June 29, 2007, Grand Prix RIMY Lessee, LLC ("Grand Prix RIMV") assumed all of KPA RIMY, LLC's obligations under the Capmark Mission Valley Loan 20 K&E 16632089 APP-00187 Agreement. As a result, the Capmark Mission Valley Loan Agreement provides that Grand Prix RIMY is obligated under a mortgage loan in the original principal amount of $47.4 million (the "Capmark Mission Valley Loan Obligation"), which amount is collateralized by the Residence Inn in San Diego, California. The Capmark Mission Valley Loan Obligation has a maturity date of November 11, 2016. 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, Inc. ("LNR Parnters") serves as special servicer. 5. The $3 7. 6 Million Cap mark Garden Grove CMBS Mortgage Loan 33. KPA RIGG, LLC, as borrower, and Capmark Bank, as lender, are parties to that certain Deed of Trust Note (the "Capmark Garden Grove Loan Agreement"), dated as of October 4, 2006. Pursuant to that certain Loan Assumption, Affirmation, and Modification Agreement, dated June 29, 2007, Grand Prix RIGG Lessee LLC ("Grand Prix RIGG") assumed all ofKPA RIGG LLC's obligations under the Capmark Garden Grove Loan Agreement. As a result, the Capmark Garden Grove Loan Agreement provides that Grand Prix RIGG is obligated under a mortgage loan in the original principal amount of $37.6 million (the "Capmark Garden Grove Loan Obligation"), which amount is collateralized by the Residence Inn in Garden Grove, California. The Capmark Garden Grove Loan Obligation has a maturity date of November 11, 2016. The Capmark Garden Grove Loan Agreement was sold into the CMBS market and is part of a mortgage pool known as Credit Suisse First Boston Mortgage 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. 21 K&E 16632089 APP-00188 6. The $35.0 Million Capmark Ontario CMBS Mortgage Loan 34. KPA HI Ontario, LLC, as borrower, and Deutsche Bane Mortgage Capital, LLC, as successor in interest to Capmark Bank, as lender, are parties to that certain Deed of Trust Note (the "Capmark Ontario Loan Agreement"), dated as of October 4, 2006. Pursuant to that certain Loan Assumption, Affirmation, and Modification agreement, dated June 29, 2007, Grand Prix Ontario Lessee LLC ("Grand Prix Ontario") assumed all of KPA HI Ontario, LLC's obligations under the Capmark Ontario Loan Agreement. As a result, the Capmark Ontario Loan Agreement provides that Grand Prix Ontario is obligated under a mortgage loan in the original principal amount of $35.0 million (the "Capmark Ontario Loan Obligation"), which amount is collateralized by the Hilton in Ontario, California. The Capmark Ontario Loan Obligation has a maturity date of November 11, 2016. The Capmark Ontario Loan Obligation 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 Midland serves as special servicer. As of April 2010, the lender under the Capmark Ontario Loan Agreement installed a receiver that is acting as hotel manager for the Hilton in Ontario, California. 7. The $25.6 Million Merrill Lynch Washington D. C. CMBS Mortgage Loan 35. KPA Washington DC, LLC, as borrower, and Merrill Lynch Mortgage Lending, Inc. ("Merrill Lynch") as lender, are parties to that certain Loan Agreement (the "Merrill Lynch Washington D.C. Loan Agreement"), dated as of September 21, 2006. The Merrill Lynch Washington D.C. Loan Agreement provides for a mortgage loan in the original principal amount of $25.6 million (the "Merrill Lynch Washington D.C. Loan Obligations"), which amount is collateralized by the Doubletree Guest Suites in Washington, D.C. The Merrill Lynch 22 K&E 16632089 APP-00189 Washington D.C. Loan Obligation has a maturity date of October 1, 2016. The Merrill Lynch 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 ("ML-CFC 2006-4"), for which U.S. Bank, N.A. ("U.S. Bank") is trustee, Wells Fargo serves as master servicer, and LNR Partners serves as special servicer. 8. The $25.2 Million Merrill Lynch Tysons Corner CMBS Mortgage Loan 36. KPA Tysons Corner RI, LLC, as borrower, and Merrill Lynch as lender, are parties to that certain Loan Agreement (the "Merrill Lynch Tysons Corner Loan Agreement"), dated as of September 19, 2006. The Merrill Lynch Tysons Corner Loan Agreement provides for a mortgage loan in the original principal amount of $25.2 million (the "Merrill Lynch Tysons Corner Loan Obligations"), which amount is collateralized by the Residence Inn in Vienna, Virginia. The Merrill Lynch Tysons Corner Loan Obligation has a maturity date of October 1, 2016. The Merrill Lynch 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 serv1cer. 9. The $24.2 Million Merrill Lynch San Antonio CMBS Mortgage Loan 37. KPA San Antonio, LLC, as borrower, and Merrill Lynch as lender, are parties to that certain Loan Agreement (the "Merrill Lynch San Antonio Loan Agreement"), dated as of September 19, 2006. The Merrill Lynch San Antonio Loan Agreement provides for a mortgage loan in the original principal amount of $24.2 million (the "Merrill Lynch San Antonio Loan Obligations"), which amount is collateralized by the Homewood Suites in San Antonio, Texas. The Merrill Lynch San Antonio Loan Obligation matures on October 1, 2016. The Merrill Lynch San Antonio Loan Agreement was securitized and sold into the CMBS market and is part 23 K&E 16632089 APP-00190 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. 10. 12% Series A Cumulative Preferred Stock 38. As discussed above, AIC's subsidiary Grand Prix Holdings, LLC, whose officers and directors, appointed by AIC, conduct all significant decision-making and board meetings in New York, was issued substantially all of Innkeepers' shares of 12% Series A cumulative preferred stock (the "12% Series A Cumulative Preferred Shares") in exchange for AIC's equity contribution in connection with the Acquisition. Since the Acquisition, no distributions have been made on account of the 12% Series A Cumulative Preferred Shares. 11. 8% Series C Cumulative Preferred Stock 39. In January 2004, Innkeepers completed an offering of 5.8 million shares of 8% Series C cumulative perpetual preferred stock (the "8% Series C Cumulative Preferred Shares"). The net proceeds from the offering were approximately $145 million, a portion of which was used by Innkeepers to redeem a previously issued series of preferred stock. The 8% Series C Cumulative Preferred Shares were publicly offered and survived the Acquisition, and the Debtors believe these shares are widely held. Since December 2008, no distributions have been made on account of the 8% Series C Cumulative Preferred Shares. 12. Class D Preferred Units 40. Prior to the Acquisition, Innkeepers USA Limited Partnership, a Debtor in these Chapter 11 Cases, issued preferred units of limited partnership interests to certain parties who contributed hotel properties to the Debtors. The holders of approximately 81,000 preferred units elected to continue to hold their investment after the Acquisition, in the form of Class D preferred units of limited partnership interest (the "Class D Preferred Units"). The cumulative redemption value of the Class D Preferred Units is $1.4 million, and, pursuant to the relevant 24 K&E 16632089 APP-00191 documents, each Class D Preferred Unit is entitled to distributions equal to $0.8875 per share annually. Additionally, holders of the Class D Preferred Units guaranteed approximately $8.1 million of the Debtors' non-recourse debt. Since December 2008, no distributions have been made on account of the Class D Preferred Units. 13. Common Stock 41. As noted above, at the time of the Acquisition, the then-outstanding shares of Innkeepers' common stock were extinguished and new shares of common stock were issued. As of the Petition Date, Grand Prix Holdings LLC held substantially all of Innkeepers' current outstanding common stock. II. EVENTS LEADING TO THE CHAPTER 11 FILING 42. A number of factors have contributed to the Debtors' decision to commence these Chapter 11 Cases. Although the Debtors' business model is sound, their operating losses from decreased room revenue, significant liquidity constraints, and considerable funded debt burden, resulting from unprecedented adverse changes in the economy and hospitality industry generally, have impaired the Debtors' ability to meet their current debt obligations and certain current obligations under their Franchise Agreements. (a) Recent Economic Crisis and Its Impact on the Hotel Industry and the Debtors 43. Over the last two years, the global travel and tourism industry has faced one of the most difficult operating environments in a number of decades due to the unparalleled turmoil that beset the global and United States economies. A weak economy and plummeting demand for hotel accommodations, which can be traced to reduced consumer spending, higher fuel prices, increased unemployment, and a severe decline in business travel, have caused one of the deepest and longest recessions in the history of the hospitality and lodging industries. During this time, 25 K&E 16632089 APP-00192 supply also increased within the hospitality industry, exacerbating the negative impact of decreased demand within the industry? Unlike previous historic events that hurt the hotel industry, such as September 11 and the SARS outbreak, the fallout from the 2008-2009 recession has lasted significantly longer and has had a far more adverse impact on the hospitality sector. 44. In the hotel industry, performance is generally measured by RevP AR (revenue per available room). RevP AR identifies trends with respect to room revenues from comparable hotel properties and can be used to evaluate hotel performance on a regional and segment basis. Comparing recent RevP AR against prior years, the magnitude of the rapid and unprecedented deterioration is readily apparent. In 2009, RevP AR in the hotel industry experienced the largest annual decline since the Great Depression, falling by 16.7 percent. 45. Other operating statistics similarly demonstrate the depth of the industry's decline. Contributing to the RevPAR decline in 2009, the industry's average daily rate, or ADR, fell by 8.8 percent, compared to a 20-year industry annual average increase of 2.8 percent. In 2009, the average daily occupancy rate decreased by 8.6 percent, compared to a 20-year industry annual average decline of 0.7 percent. The hotel industry has also suffered a severe decline in food and beverage sales, meeting, conference, and banquette hall rentals, and other guest services that generate additional revenue. Against this background, several of the Debtors' competitors filed for bankruptcy within the last two years, including, among others, Extended Stay Hotels, RM Hotels, Inc., Celebrity Resorts, Inc., Paradise Palms, LLC, River Road Hotel Partners, LLC, and Consolidated Resorts, Inc. 2 Based on reports prepared by Smith Travel Research, in 2009, supply increased by 3.2 percent and demand decreased by 5.8 percent, compared to a 20-year average increase in supply and demand of 2 percent and 1.4 percent, respectively. 26 K&E 16632089 APP-00193 46. The Debtors have not been insulated from these multi-year, record-breaking declines plaguing the hotel industry. In 2009, the Debtors' RevPAR, ADR, and occupancy rate metrics decreased by 16.3 percent, 10.8 percent, and 6.1 percent, respectively. Due to the Debtors' focus on the business consumer, their hotel portfolio has been especially impacted by an overall tightening on corporate travel, training, and relocation expenditures. Certainly, the worst recession in 60 years has left corporations intent on saving rather than spending, and, in 2009, domestic and international business travel spending in the United States declined sharply. (b) The Debtors' Substantial Funded Debt Burden and Limited Access to Capital 47. In addition to reducing overall demand and significantly impairing the Debtors' overall revenue, the rapid softening of the economy and tightening of the financial markets have limited the Debtors' financial flexibility. As a result, the Debtors have no real ability to recapitalize or reduce their debt burdens. Strategies that the Debtors might have previously employed to extend maturities and maintain liquidity are no longer available. These adverse changes have severely limited the Debtors' ability to satisfy their obligations as they come due. 48. Limited access to capital is particularly significant in light of the Debtors' large debt service obligations. Specifically, the Debtors have failed to satisfy their debt service obligations as they came due under the following loan agreements: (a) the payment for the Capmark Ontario Loan Agreement on October 1, 2009; (b) the payment for the Fixed Rate Mortgage Loan Agreement on April 9, 2010; (c) the payments for the Anaheim Mezzanine Loan Agreement, Capmark Mission Valley Loan Agreement, Capmark Garden Grove Loan Agreement, Merrill Lynch Washington D.C. Loan Agreement, Merrill Lynch Tysons Comer Loan Agreement, and Merrill Lynch San Antonio Loan Agreement, each on May 1, 2010; and 27 K&E 16632089 APP-00194 (d) the payment for the Anaheim Mortgage Loan Agreement, Floating Rate Mortgage Loan Agreement, and Floating Rate Mezzanine Loan Agreement, each on June 10, 2010. 49. Given their limited access to capital, the Debtors were forced to depend only on funds generated from operations. On March 23, 2010, Wachovia, the master servicer of the LB-UBS Commercial Mortgage Trust 2007-C6 mortgage loan pool of the Fixed Rate Mortgage Loan Agreement informed the Debtors that an alleged "Triggering Event" under the June 29, 2007 Cash Management Agreement had occurred and indicated that as a result, Wachovia would need to "spring" certain unidentified lockbox accounts? A lockbox over the Debtors' accounts would have had disastrous results for Innkeepers. Approximately 80 percent of the Debtors' revenues come from credit card receipts. If the Debtors were unable to access funds generated from credit card receivables it would have been unable to pay hotel employees, vendors, or continue to operate the hotels. 4 A lockbox over the Debtors' credit card receivables alone would have required the Debtors to cease operations for a significant number of hotels, which would have severely impacted the Debtors' enterprise value as well as the value of each affected property. In light of these concerns, the Debtors directed credit card proceeds to their Cash Management Account until such time as an arrangement could be reached with the loan servicer (or special servicer) that would allow the Debtors to continue to operate the hotels. 5 3 The Cash Management Agreement between various Borrowers, Grand Prix Fixed Lessee LLC as Operating Lessee, Wachovia Bank National Association as Agent, Lehman ALI, Inc. as Lender, and Island Hospitality Management, Inc. as Manager was entered into on June 29, 2007. The Cash Management Agreement contains various provisions governing the establishment of various Cash Management Accounts and, among other things, the deposit of Gross Income from Operations into certain Lockbox Accounts under certain circumstances defined in the Cash Management Agreement. Triggering Events are defined in the Cash Management Agreement. 4 Under the relevant loan agreements, the Debtors were permitted, absent an Event of Default, to comingle cash for the benefit of overall the Debtors' enterprise. 5 On April 19, 2010, Wachovia did provide formal notice that it was initiating a lockbox over the Debtors' accounts, including the Debtors' master account over which Wachovia had no security interest. (continued on next page) 28 K&E 16632089 APP-00195 50. These actions were taken to meet the Debtors' day-to-day business obligations, to preserve the value of their hotel properties for the benefit of their enterprise and constituents, and to keep the Debtors' hotel businesses in operation. The Debtors subsequently negotiated with Wachovia and then the Special Servicer, Midland, to keep the affected hotels open and operating. During these negotiations, the Debtors offered to fully reconcile all amounts directed to the Debtors' Cash Management Account and, in fact, did so. By early May 2010, the Debtors and Midland reached an agreement under which all credit card receivables were paid by the Debtors to Midland, fully reconciling the amounts previously directed to the Cash Management Account, and Midland would pay on a going forward basis the operating expenses of the hotels to permit the Debtors to continue to operate the hotels. Midland and the Debtors, as of the Petition Date, continue to operate under this arrangement. 51. The Debtors' level of indebtedness is of significant import in this case because, with essentially all cash flow from operations being directed to debt service, the Debtors' cash is not available for other purposes, such as maintaining the hotel properties in a condition that complies with the Franchise Agreements and performing other upgrades to capitalize on opportunities to increase revenue and to meet competitive conditions and preserve asset value. (c) The Debtors' Inability to Fund PIP Obligations 52. In addition to placing a burden on the Debtors' ability to meet debt service obligations and fund day-to-day business operations, the lack of available cash makes it impossible for the Debtors to sufficiently fund capital expenditures on hotel properties necessary to comply with their obligations under the Franchise Agreements. 6 Certain of the Franchise 6 As of the Petition Date, the Debtors have approximately $15.8 million earmarked to perform certain PIP obligations and intends to commence such obligations throughout the bankruptcy process. But, this amount is (continued on next page) 29 K&E 16632089 APP-00196 Agreements include provisions that require the Debtors to comply with property improvement programs ("PIPs"), under which they are obligated to perform certain renovations and other capital improvements to their hotel properties, such as replacing furniture, fixtures, and equipment. While necessary, the required PIP improvements are costly, subject to delays, and disrupt operations and displace revenue at the hotels while rooms under renovation are out of service. 53. Franchisors periodically inspect the hotels to ensure the Debtors' compliance with their operating standards and the PIPs, the breach of which could result in the termination of a Franchise Agreement. The loss of a Franchise Agreement for a hotel would have an immediate and material adverse effect on the underlying value of the hotel due to the loss of associated name recognition, marketing support, brand loyalty, and centralized reservation systems provided by the Franchisors. Pursuant to prior agreement, in September of 2009, a Residence Inn Franchise Agreement with respect to a hotel property in Columbus, Ohio terminated. Subsequent to termination, revenue precipitously dropped by 50 percent and the property was sold for a fraction of its appraised value from only two years prior. 54. As of the Petition Date, the Debtors received numerous notices of potential default from Franchisors, including 22 notices of default from Marriott. The Debtors own 44 hotels under Marriott brands, more than half of which are "Generation 1" Residence Inn by Marriott extended-stay hotels. Generation 1 Residence Inn hotels resemble garden style apartments with multiple 2 to 3 story buildings, each comprised of 8 rooms with exterior access to each room. In contrast, subsequent generations of Residence Inn hotels typically feature more significantly less than the amount required to satisfy all the Debtors' PIP obligations under the Franchise Agreements. 30 K&E 16632089 APP-00197 rooms in a single multi-story building with interior corridors. Upkeep costs associated with older Generation 1 Residence Inn hotels are typically higher than other types of hotel properties because of their age (generally 20 to 30 years), layout (8 or more buildings located on large parcels of land), and inefficient utilization of heating and other utilities. 55. As a result, many Generation 1 franchise agreements are not being renewed as they mature or are exiting the Residence Inn system before the maturity of their franchise agreements. As the Residence Inn by Marriott brand grows (with over 600 in the brand system currently), the importance of Generation 1 hotels to the Residence Inn brand will continue to decrease. Maintaining the Franchise Agreements on the Debtors' Generation 1 hotels is critically important for their cash flow and enterprise value. The loss of revenue (and cash flow) associated with an immediate withdrawal of the Debtors' Generation 1 hotels from the Residence Inn system would have a severely detrimental effect on the Debtors' entire enterprise as Generation 1 Residence Inn hotels comprise approximately 31 percent of Innkeepers annual revenue. Recognizing this, the Debtors reached agreement with Marriott in 2007 for the Debtors to (a) complete extensive PIPs on most of its Generation 1 hotels in exchange for Franchise Agreement extensions until at least 2021 and (b) permit the early expiration of the franchise agreements on six smaller Generation 1 Residence Inns located in non-core mid-Western markets. 56. The dramatic reduction in Innkeepers' RevP AR, coupled with its significant debt burden and an inability to access new capital, have rendered the Debtors unable to comply with their PIP obligations under the Marriott (and other) Franchise Agreements. On March 16, 2010, Marriott sent to the Debtors the default notices referenced above. The Marriott default notices state that if the Debtors failed to perform the required PIP obligations by June 14, 2010, the 22 31 K&E 16632089 APP-00198 Marriott Franchise Agreements would immediately terminate as of that date. The PIP deadline has subsequently been extended from time to time by Marriott and is currently July 18, 2010. 57. The Debtors' inability to invest in their hotel properties, along with the collapse of the real estate market, have caused the value of the Debtors' hotels to severely decline, resulting in the overall erosion of the Debtors' enterprise value. As a result, it is clear that a comprehensive restructuring of the entire capital structure is necessary to preserve and maximize value. (d) Restructuring Efforts 1. Cost Savings 58. To address the liquidity constraints caused by the tightening credit markets, decreased consumer demand, and high debt service carrying costs, since the first quarter of 2008, the Debtors' management has taken several proactive steps to reduce costs, restructure their business operations, and address operational cash shortfalls. These initiatives have included: a company-wide labor reduction to the minimal staffing levels possible without harming guest satisfaction (including for both the Debtors' and the Hotel Managers' employees); a 5 percent salary reduction for all personnel; the renegotiation of benefit programs in an effort to lower costs (with employees' share of obligations increased); the suspension of the Debtors' discretionary 401(k) plan matching; the termination of distributions to Innkeepers' 8% Series C stockholders beginning in December 2008; the reduction of certain fixed costs, including the renegotiation of maintenance, grounds cleaning, and vendor contracts; and 32 K&E 16632089 APP-00199 the immediate cessation of all non-emergency capital expenditures on the hotel properties beginning in late 2008 and the related settlement for approximately $8.5 million of approximately $13.1 million outstanding capital expenditure obligations for work performed and goods ordered. 59. The result of the Debtors' efforts has been positive. From 2008 to 2010, the Debtors were able to reduce their annual costs by approximately $24 million. However, despite this reduction, due to the current economic climate and ongoing credit crisis, the Debtors have concluded that their liquidity would continue to erode and potentially could be exacerbated by further declines in the hospitality market. In addition, the Debtors have determined that any new debt or equity investments would be unlikely unless they could restructure their existing debt given the current amount of outstanding debt owed to their lenders. The Debtors also have concluded that they would need additional liquidity to meets their near term obligations under the Franchise Agreements. 2. Restructuring Negotiations 60. Against this backdrop, the Debtors began to weigh their options with respect to a broad financial restructuring that would provide the Debtors with the flexibility necessary to continue their business on a going forward basis. To that end, in November 2008, the Debtors hired Marc Beilinson, an independent director of Innkeepers since 2007, as Chief Restructuring Officer to explore alternative restructuring opportunities? In addition, in early 2010, the Debtors retained Kirkland & Ellis LLP ("Kirkland") and Moelis & Co. LLC ("Moelis") to initiate discussions with the Debtors' constituents regarding a possible comprehensive restructuring and financial alternatives for improving the Debtors' balance sheet. 7 Marc Beilinson is a former restructuring attorney with over 25 years of experience. In November 2009, Mr. Beilinson was elected to serve as an independent director on the board of directors of Apollo Commercial Real Estate Finance Inc., a publicly traded REIT. Mr. Beilinson continues to serve on this board as an independent director, as defined under the NYSE per se rules on director independence. 33 K&E 16632089 APP-00200 61. With the assistance of these advisors, the Debtors reviewed and analyzed their business operations and determined the cash necessary to maintain their operations and work towards a successful restructuring. In undertaking this analysis, the Debtors and their advisors considered the impact of the current economic outlook on the Debtors' near-term projected financial performance, including the demand for hotel accommodations and projected cost to complete the PIPs and other capital improvements necessary to maintain the value of the properties. Because of high levels of current debt, the immediate crisis caused by the impending Marriot defaults, and the Debtors' inability to satisfy their debt service obligations as they came due, it became clear that a comprehensive balance sheet restructuring through a chapter 11 proceeding was the best available restructuring alternative for the Debtors and their estates. 62. Thus, the Debtors engaged several parties, including Marriot, Lehman, and certain prepetition lenders who have agreed to extend the DIP Financings, in extensive negotiations leading up to the filing of these Chapter 11 Cases. Ultimately, these negotiations, which were conducted in good faith and at arm's length, culminated in a series of interrelated agreements that will, among other things: (a) deleverage the Debtors' balance sheet, minimizing interest payments and releasing previously encumbered cash for other purposes; (b) fund PIP and other capital expenditures necessary to retain premium brand affiliations, maintain customer loyalty, and improve the Debtors' industry market share; and (c) avoid any alleged potential change of control defaults that would jeopardize the Debtors' Franchise Agreements. III. RELIEF SOUGHT IN THE DEBTORS' FIRST DAY PLEADINGS 63. It is critically important for the Debtors to maintain the loyalty and goodwill of, among other constituencies, their Franchisors, employees, customers, and Property Managers. Achieving this goal is likely to be particularly challenging while operating in chapter 11. To that end, the Debtors have filed the First Day Pleadings seeking relief intended to allow the Debtors 34 K&E 16632089 APP-00201 to effectively transition into chapter 11 and m1mm1ze disruption to the Debtors' business operations, thereby preserving and maximizing the value of the Debtors' estates. Unless this "first day" relief is granted, I believe the Debtors' business operations will suffer significant adverse immediate and irreparable consequences. 64. Several of the First Day Pleadings request authority to pay certain prepetition claims. I am told by my advisors that Rule 6003 of the Federal Rules of Bankruptcy Procedures provides, in relevant part, that the Court shall not consider motions to pay prepetition claims during the first 21 days following the filing of a chapter 11 petition, "except to the extent relief is necessary to avoid immediate and irreparable harm." In light of this requirement, and as set forth below, the Debtors have narrowly tailored their requests for immediate authority to pay certain prepetition claims to those circumstances where the failure to pay such claims would cause immediate and irreparable harm to the Debtors and their estates. As part of this, certain relief will be deferred for consideration at a later hearing. 65. I have reviewed each of the First Day Pleadings. The facts stated therein and attached hereto as Exhibit B are true and correct to the best of my information and belief, and I believe that the relief sought in each of the First Day Pleadings is necessary to enable the Debtors to operate in chapter 11 with minimal disruption to their business operations and constitutes a critical element in successfully restructuring the Debtors' business. IV. INFORMATION REQUIRED BY LOCAL BANKRUPTCY RULE 1007-2 66. Local Bankruptcy Rule 1007-2 requires certain information related to the Debtors, which I have provided in the exhibits attached hereto as Exhibits C, D, E, F, G, H, I, J, K, L, 35 K&E 16632089 APP-00202 and M. Specifically, these exhibits contain the following information with respect to the Debtors (on a consolidated basis), unless otherwise noted: 8 Pursuant to Local Bankruptcy Rule 1007-2(a)(4), Exhibit C hereto provides the following information with respect to each of the holders of the Debtors' 50 largest unsecured claims, excluding claims of insiders: the creditor's name; the address (including the number, street, apartment, or suite number, and zip code, if not included in the post office address); the telephone number; the name(s) ofperson(s) familiar with the Debtors' account; the nature and approximate amount of the claim; and an indication of whether the claim is contingent, unliquidated, disputed, or partially secured. Pursuant to Local Bankruptcy Rule 1007-2(a)(5), Exhibit D hereto provides the following information with respect to each of the holders of the five largest secured claims against the Debtors: the creditor's name; address (including the number, street, apartment, or suite number, and zip code, if not included in the post office address); the amount of the claim; a brief description of the claim; an estimate of the value of the collateral securing the claim; and an indication of whether the claim or lien is disputed at this time. Pursuant to Local Bankruptcy Rule 1007-2(a)(6), Exhibit E hereto provides a summary of the Debtors' assets and liabilities. Pursuant to Local Bankruptcy Rule 1007-2(a)(8), Exhibit F hereto provides the following information with respect to any property in possession or custody of any custodian, public officer, mortgagee, pledge, assignee of rents, or secured creditors, or agent for such entity: the name; address; and telephone number of such entity and the court in which any proceeding relating thereto is pending. Pursuant to Local Bankruptcy Rule 1007-2(a)(9), Exhibit G hereto provides a list of the premises owned, leased, or held under other arrangement from which the Debtors operate their business. The Debtors' corporate headquarters are located at 340 Royal Poinciana Way, Suite 306, Palm Beach, FL 33480. Pursuant to Local Bankruptcy Rule 1007-2(a)(IO), Exhibit H hereto sets forth the location of the Debtors' substantial assets, the location of their books and records, and the nature, location, and value of any assets held by the Debtors outside the territorial limits of the United States. 8 The information contained in the Exhibits attached to this Declaration shall not constitute an admission of liability by, nor is it binding on, the Debtors. The Debtors reserve all rights to assert that any debt or claim listed herein is a disputed claim or debt, and to challenge the priority, nature, amount, or status of any such claim or debt. The descriptions of the collateral securing the underlying obligations are intended only as brief summaries. In the event of any inconsistencies between the summaries set forth and the respective corporate and legal documents relating to such obligations, the descriptions in the corporate and legal documents shall control. 36 K&E 16632089 APP-00203 Pursuant to Local Bankruptcy Rule 1007-2(a)(7), Exhibit I attached hereto provides information on the Debtors' outstanding publicly held securities. Pursuant to Local Bankruptcy Rule 1007-2(a)(11), Exhibit J hereto provides a list of the nature and present status of each action or proceeding, pending or threatened, against the Debtors or their property where a judgment or seizure of their property may be imminent. Pursuant to Local Bankruptcy Rule 1007-2(a)(12), Exhibit K hereto sets forth a list of the names of the individuals who comprise the Debtors' existing senior management, their tenure with the Debtors, and a brief summary of their relevant responsibilities and expenence. Pursuant to Local Bankruptcy Rule 1007-2(b)(1)-(2)(A), Exhibit L hereto provides the estimated amount of payroll to the Debtors' employees (not including officers, directors, and equityholders) and the estimated amounts to be paid to officers, equityholders, directors, and financial and business consultants retained by the Debtors, for the 30-day period following the Petition Date. Pursuant to Local Bankruptcy Rule 1007-2(b)(3), Exhibit M hereto provides a schedule, for the 30-day period following the Petition Date, of estimated cash receipts and disbursements, net cash gain or loss, obligations and receivables expected to accrue but remain unpaid, other than professional fees, for the 30-day period following the filing of these Chapter 11 Cases, and any other information relevant to an understanding of the foregoing. 37 K&E 16632089 APP-00204 Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that the foregoing is true and correct. Dated: July 19 , 2010 Respectfully submitted, APP-00205 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -----------------------------* In re: INNKEEPERS USA TRUST, et al., Debtors. -----------------------------* Chapter 11 CASE NO. 10-13800 (SCC) Deposition of SCHUYLER HEWES, called as a witness for examination, held at the offices of Paul Weiss Rifkind Wharton & Garrison, LLP, 1285 Avenue of the Americas, New York, New York, on Wednesday, the 18th day of August 2010, commencing at 9:06 a.m., before Jennifer Ocampo-Guzman, a Certified Livenote Reporter and Notary Public of the State of New York. JOB NO. 19802 1 APP-00206 EXHIBIT 5 1 2 3 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 APPEARANCES: KIRKLAND & ELLIS, LLP Attorneys for Debtors and Debtors-in-Possession 655 Fifteenth Street, N.W. Washington, DC 20005-5763 BY: JEFFREY M. GOULD, ESQ. jeffrey.gould@kirkland.com -and- KIRKLAND & ELLIS, LLP Attorneys for Debtors and Debtors-in-Possession 300 North LaSalle Street Chicago, Illinois 60654 BY: JEFFREY D. PA WLITZ, ESQ. jeffrey.pawlitz@kirkland.com HAYNES and BOONE, LLP Attorneys for Midland Loan Services, Inc. 1221 Avenue of the Americas, 26th Floor New York, New York 10020-1007 BY: LOUIS SOLOMON, ESQ. louis.solomon@haynesboone.com -and- HAYNES and BOONE, LLP Attorneys for Midland Loan Services, Inc. 2323 Victory Avenue, Suite 700 Dallas, Texas 75219 BY: MARK ELMORE, ESQ. mark.elmore@haynesboone.com 2 1 2 3 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 APPEARANCES (cont'd) MORRISON & FOERSTER, LLP Attorneys for Unsecured Creditors Committee 1290 Avenue ofthe Americas New York, New York 10104-0050 BY PAUL GALANTE, ESQ. pgalante@rnofo.com WILLKIE FARR & GALLAGHER, LLP Attorneys for Appaloosa Investment LP. I 787 Seventh Avenue New York, New York 10019-6099 BY BRIANR FAERSTEIN, ESQ. bfaerstein@willkie.com KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP Attorneys for Five Mile Capital Partners 1633 Broadway New York, New York 10019-6799 BY DANIEL A FLIMAN, ESQ. dfliman@kasowitz.com DEWEY & LeBOEUF LLP Attorneys for Ad Hoc Committee of Preferred Shareholders 130 I Avenue ofthe Americas New York, New York 10019-6092 BY TIMOTHY Q. KARCHER, ESQ. Tkarcher@dl.com ALSO PRESENT JOSEPH GLATT TRAVIS SHELHORSE, Trimont Real Estate Advisors 4 25 25 1 2 APPEARANCES (cont'd) KILPATRICK STOCKTON, LLP 4 Attorneys for Trimont Real Estate Advisors 5 31 West 52nd Street, 14th Floor New York, New York 10019 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MICHAEL D. CRISP, ESQ. mcrisp@kilparickstockton.com BRYAN CAVE, LLP Attorneys for LNR Partners, LLC 1290 Avenue of the Americas New York, New York 10104-3300 BY LAWRENCE P GOTTESMAN, ESQ. lawrence.gottesrnan@bryancave.corn PAUL, WEISS, RIFKIND, WHARTON & GARRISON, LLP Attorneys for Apollo Investment Corporation 1285 Avenue of the Americas New York, New York 10019-6064 BY ANDREW J EHRLICH ESQ. aehrlich@paulweiss.com -and- BY AMY P DIETERICH, ESQ. adieterich@paulweiss.corn DECHERT, LLP Attorneys for Lehman ALI Inc. 1095 Avenue of the Americas New York, New York 10036-6797 BY KEVIN J O'BRIEN, ESQ. kevin.obrien@dechert.com -and- BY NICOLE B. HERTHER-SPIRO, ESQ. nicole.hertherspiro@dechert.com 3 5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 I?O 1?1 1?2 1?3 1?4 1?5 MR. SOLOMON: Louis M. Solomon from Haynes and Boone. MR. ELMORE: Mark Elmore, Haynes and Boone. MR. GOTTESMAN: Lawrence Gottesman, Bryan Cave. MR. CRISP: Mike Crisp, Kilpatrick Stockton. MR. F AERSTEIN: Brian F aerstein, Willkie Farr & Gallagher. MR. GALANTE: Paul Galante, Morrison & Foerster. MR. FLIMAN: Dan Fliman, Kasowitz, Benson, Torres & Friedman. MR. GOULD: Jeff Gould, Kirkland & Ellis on behalf of the debtors. MR. PAWLITZ: JeffPawlitz, Kirkland & Ellis on behalf of the debtors. MS. HERTHER-SPIRO: Nicole Herther-Spiro, Dechert, for Lehman ALL MS. DIETRICH: Amy Dietrich, Paul Weiss. MR. EHRLICH: Andrew Ehrlich, Paul 2 (Pages 2 to 5) DAVID FELDMAN WORLDWIDE, INC, 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00207 6 8 1 1 Hewes 2 Weiss on behalf of AIC and the witness. 2 Management. I work for a business unit 3 SCHUYLER H E W E S, having been 3 called Apollo Investment Management. 4 duly sworn, was examined and testified as 4 Q. Do you have any role at A11ollo 5 follows: 5 Investment Corporation? 6 EXAMINATION BY 6 A. Apollo Investment Management is the 7 MR. SOLOMON: 7 investment manager by contractor for Apollo 8 Q. Good morning, sir. 8 Investment Corporation. 9 A. Good morning to you. 9 Q. So are you or do you have any 10 Q. My name is Louis Solomon. I'm with 0 direct role with the Apollo Investment 11 Haynes and Boone. I'm going to be asking you 1 Corporation? 12 a series of questions today. 2 A. My job is to, is to make and manage 13 A. Okay. 3 investments on behalf of Apollo Investment 14 Q. If at any time you don't understand 4 Corporation through my role at AIM. 15 a question, please tell me, I will attempt to 5 Q. Through your AIM Apollo Investment 16 rephrase it or explain it. I don't want you 6 Management? 17 answering any questions that you don't 7 A. Correct. 18 understand. Is that acceptable, sir? 8 Q. Are you part of Apollo Investment 19 A. That's fair. 9 Corporation's investment team? 12o Q. If at any point today you need a ?0 MR. EHRLICH: Objection to form. 121 break, please tell me and we will try and ?1 You can answer. 122 accommodate you as soon as possible. When ?2 A. Again, I'm not sure if it's clear 123 I'm asking you a question, you may know what ?3 but -- from the outside but Apollo Investment 124 I'm going to ask but please allow me to ?4 Management is, is an entity with a group of 125 finish. It's difficult for the court ?5 employees. I'm on the investment team at 7 9 1 Hewes 1 Hewes 2 reporter to take down two people speaking at 2 that entity. That entity manages the 3 the same time. In addition if you are in the 3 portfolio of Apollo Investment Corporation. 4 middle an answer and I interrupt you, please 4 Q. Sir, I'm not trying to trick you 5 tell me and I will generally attempt to let 5 here. Let me show you a document that we've 6 you finish your answer. 6 printed from one of Apollo entities' 7 Is that acceptable? 7 websites. That's all. If we could mark as 8 A. Uh-huh. 8 Exhibit 1. 9 Q. As you see, we have a court 9 (Exhibit Hewes-1, Website printout 0 reporter here. She is taking down everything 0 of Apollo Investment Corporation 1 that is said in the room while we are on the 1 entitled "Our Business," marked for 2 record. If in response to my questions you 2 identification, this date.) 3 could give verbal answers, that would be 3 Q. Sir, I will represent to you that 4 helpful to the court reporter. She cannot 4 this was printed from Apollo Investment 5 take down a shake of the head or shrug of the 5 Corporation's website yesterday. 6 shoulders or any other physical gesture. 6 A. Okay. 7 A. Okay. 7 Q. Do you see on the bottom right 8 Q. Are you on any medications that 8 8/17/2010? 9 would affect your ability to testify here 9 A. Uh-huh. PO today? ?0 Q. Description of "Our Business," I P1 A. No. ?1 assume -- withdrawn. P2 Q. Are you currently employed, sir? ?2 Do you know if that's referring to P3 A. Yes. ?3 Apollo Investment Corporation when it says P4 Q. By whom? ?4 "Our Business" right in the middle of the P5 A. I'm an employee of Apollo Global ?5 page? 3 (Pages 6 to 9) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00208 10 12 1 Hewes 1 Hewes 2 A. I assume so, yes. I mean perhaps 2 A. In certain cases, yes. 3 I'm drawing a technical distinction that's 3 Q. Do these investments also include 4 not meaningful. So when I describe my 4 purchasing notes that may be outstanding by a 5 employer and my role, those are accurate 5 company? 6 statements. This is a website. I'm not sure 6 A. Yes. 7 what this, the distinction is, is meaningful. 7 Q. Do these activities or investments 8 Q. If you see on the right-hand side 8 also include making direct loans to the 9 it lists the investment team? 9 companies? 10 A. Uh-huh. 0 A. Yes, they do. 11 Q. And your name is on that list? 1 Q. Are you familiar with any selection 12 A. That's correct. 2 process that's used by either AIC or AIM with 13 Q. To the extent you perform any 3 respect to these investments? 14 functions as part of an investment team for 4 A. Selection process? 15 either Apollo Investment Corporation or 5 Q. Yes. 16 Apollo Investment Management, what do those 6 A. Yeah, I believe that's what I just 17 responsibilities entail? 7 described. 18 A. It entails a large number of 8 MR. SOLOMON: I am going to ask the 19 things. Can you be more specific? 9 court reporter to mark this as Hewes 12o Q. Does Apollo Investment Corporation 20 Exhibit 2, please. 121 make investments? 21 (Exhibit Hewes-2, Website printout 122 A. It does. 22 of Apollo Investment Corporation 123 Q. How does it go about making 23 entitled "Selection Process," marked for 124 investments? 24 identification, this date.) 125 A. We -- we review a significant 25 Q. Sir, the court reporter has put in 11 13 1 Hewes 1 Hewes 2 number of investment opportunities. We being 2 front of you what's been marked as Exhibit 2. 3 companies and securities within companies or 3 It's a document, again I'll represent to you, 4 portions of a capital structure, we review 4 is printed from Apollo Investment 5 the business first, determine whether it's an 5 Corporation's website yesterday. 6 industry or a company that we feel is 6 A. Uh-huh. 7 interesting, attractive. Then we review the 7 Q. It describes "Selection Process." 8 investment opportunity itself. Not every 8 A. Uh-huh, uh-huh. 9 attractive company makes for a good 9 Q. And there are six bullet points? 0 investment. And we proceed from there to 0 A. Yep. 1 discussions about whether or not we proceed 1 Q. Are those the -- some of the -- 2 to work on something, meaning perform due 2 A. Yes, these are -- these are some of 3 diligence, ask questions, meet with 3 the criteria that we evaluate, as I mentioned 4 management teams, in some cases legal due 4 earlier. This list is obviously short. It's 5 diligence, et cetera. And then we structure 5 not everything that we evaluate. There's a 6 investments, make proposals. Some of those 6 lot of questions that we ask in every case. 7 proposals are accepted, some of them are not. 7 Q. How long have you been affiliated 8 And to the extent that they are, we complete 8 with the Apollo Investment Management or 9 our due diligence, complete our structuring 9 Apollo Investment Corporation? PO work and complete investments and funding. 20 A. I began working there in March of P1 Q. And are you involved in all aspects 21 2007. P2 of that process? 22 Q. And since that time, how many P3 A. Generally speaking, yes. ?3 transactions have you worked on, or P4 Q. For these investments, do they ?4 investment opportunities have you worked on? 125 include equity investments in certain cases? ?5 MR. EHRLICH: Objection to form. 4 (Pages 10 to 13) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00209 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ~ 0 h ~ 2 t/3 P4 P5 14 Hewes 1 You can answer. 2 MR. SOLOMON: I'll rephrase it. 3 Q. How many -- you testified earlier 4 about potential investments. Do you recall 5 that? 6 A Uh-huh, uh-huh. 7 Q. How many potential investments have 8 you worked on since March of 2007 on behalf 9 of either AIM or AIC? 0 A Including the universe of potential 1 investments not completed? 2 Q. Correct. 3 A I've never counted, to be honest, 4 but I would say it's more than 100, less than 5 250. 6 Q. And how many have you worked on 7 during that same time period that were 8 completed? 9 A Between ten and 20. ? 0 Q. Were any of these ten to 20 that ? 1 were completed, did any of them involve an ? 2 equity investment? ? 3 A First, those numbers in both cases ? 4 were approximate estimations. ? 5 15 1 Hewes 1 2 Did any of them include an equity 2 3 investment? 3 4 Q. Yes. 4 5 A Yes. 5 6 Q. In connection with the equity 6 7 investment, did you or anyone at your 7 8 direction undertake to determine the value of 8 9 the entity itself prior to making the 9 0 investment? 0 1 MR. EHRLICH: Objection to form. 1 2 A Generally, no. The -- in the cases 2 3 where we made equity investments, they were 3 4 limited to, again, generally to 4 5 co-investments where our primary role in the 5 6 transaction was to provide debt financing or 6 7 invest in debt securities and in connection 7 8 with that role an opportunity to invest in 8 9 the equity of that business was presented to 9 P 0 us. And in those cases where it's a ? 0 P 1 co-investment, the purchase price or ? 1 P 2 valuation of the entity had already been ? 2 P 3 determined in the course of the transaction. ? 3 P 4 Q. In those instances -- ? 4 P 5 (Discussion off the record.) ? 5 16 Hewes Q. In those situations in which the valuation was determined in the course of the transaction, did a third party provide the valuation to AIC or AIM? MR. EHRLICH: Objection to form. I don't see the relevance to the debt business judgment PSA, but you can answer. A Do you mean -- what do you mean by third party? Q. Sure. You said the valuation was determined in the course of the transaction. I just want to understand who did the valuation. A In many cases our investments are made in connection with the acquisition of a company. Typically by a sponsor or firms we refer to as financial sponsors and they may have reached an agreement to acquire a business at a price privately in the negotiated process that we were not part of or privy to, or they may have reached an agreement to acquire a business in an auction. Again, part of a valuation process Hewes that we were not part of or privy to. 17 Q. Prior to commencing work at AIM in 2007, were you employed? A. I was employed for -- by UBS Investment Banker, which is the marketing name for UBS Securities, LLC. Q. And how long did you work for UBS? A. I believe since 2002, early 2002. Sorry, 2001. Q. I understand the time frames are approximate. Prior to working at UBS were you employed? A. Yes, I was. Q. Bywhom? A. Immediately prior to that I worked for approximately 1 year for a technology startup in Los Angeles, California. A company called NAMESAFE and then prior to that I was employed for, by DLF Securities or Donaldson Lufkin & Jemette, which was at the time an investment bank. Q. What was your role at UBS during the time period, just generally? 5 (Pages 14 to 17) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00210 18 20 1 Hewes 1 Hewes 2 A. Generally for, I believe I was 2 Corporate Representative of Apollo Investment 3 there for around 6 years in total. For most 3 Corporation and subpoena duces tecum dated 4 of that time I was employed working to 4 August 7, 2010. 5 finance financial sponsor acquisitions, so 5 Have you seen this document before 6 providing debt financing in a different 6 today? 7 capacity. But it's a business area that is 7 A. I believe so, although I'm -- I 8 commonly referred to as leveraged finance. 8 believe so, yes. 9 Q. And at DLJ what were your 9 Q. When did you see it? 0 responsibilities? 0 A. I don't recall. I mean in recent 1 A. At DLJ I -- it was my first job -- 1 weeks. 2 I was an analyst and I was what was called a 2 Q. Who showed it to you? 3 generalist, which means I did whatever they 3 A. I don't recall. 4 told me to do. 4 Q. Where were you when you reviewed 5 Q. Do you currently serve on any 5 this document -- withdrawn. 6 boards? 6 Where were you when you saw this 7 A. I do. 7 document? 8 Q. Which boards are those? 8 A. Likely in my office. 9 A. Innkeepers USA Trust. 9 Q. Did you review -- I'm sorry. PO Q. Do you serve on any other boards? 20 A. I mean at my work place but I don't Pl A. I do not, no. 21 recall. P2 Q. How did you come to serve on the 22 Q. When you received this document, P3 Innkeepers's trust board? 23 did you review it? P4 A. There was a vacancy on the board 24 A. I believe I reviewed it briefly. P5 earlier this year and I believe I was 25 Q. If you look on the second page, 19 21 1 Hewes 1 Hewes 2 nominated given my involvement over the 2 there is a heading, Rule 30(b)(6) Topics. Do 3 recent period of time in the business and the 3 you see that? 4 nomination was accepted by the board. 4 A. Uh-huh. 5 Q. Do you serve on the board of 5 Q. Did you review that section? 6 Innkeepers's trust-- excuse me-- Innkeepers 6 A. Yes, I've reviewed this section. 7 USA Trust as a result of or in connection 7 Q. And are you appearing here today 8 with your position at AIM or AIC? 8 pursuant to this notice? 9 MR. EHRLICH: Objection to form. 9 A. Yes. 0 You can answer. 0 MR. EHRLICH: Please note that he's 1 A. I believe that's a fair statement, 1 appearing subject to the objections that 2 yes. 2 AIC served in response to this notice. 3 Q. Are you an independent director on 3 Q. Sir, did you do anything to prepare 4 the Innkeepers USA Trust board? 4 for today's deposition? 5 A. No. 5 A. Yes. I met with my counsel at Paul 6 MR. SOLOMON: I am going to ask the 6 Weiss on, earlier this week. I also, or I 7 court reporter to mark as Exhibit 3. 7 should say included in those meetings were 8 (Exhibit Hewes-3, Amended Notice of 8 other representatives from Apollo and we, you 9 Deposition of Corporate Representative 9 know, reviewed the topic matters to be-- ro of Apollo Investment Corporation and ?0 that you have requested that we discuss r1 subpoena duces tecum, marked for ?1 today. r2 identification, this date.) ?2 Q. Which counsel is that? Was it r3 Q. Sir, the court reporter has put in /3 attorneys from Paul Weiss? r4 front of you what's been marked as Exhibit 3. 74 A. It was attorneys from Paul Weiss, r5 It's the Amended Notice of Deposition of 75 yes. 6 (Pages 18 to 21) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00211 22 24 1 IIevves 1 IIevves 2 Q. Were there any other attorneys 2 Q. I don't expect anything. If there 3 present? 3 are any others that you recall, please tell 4 A. The internal counsel for Apollo 4 me. If you don't recall any others, that's 5 Investment Corporation, Joe Glatt attended 5 fine also. 6 portions of those meetings. 6 A. Specific documents, again, no. 7 Q. Who else from Apollo, if anyone, 7 Just trying to describe the nature of the 8 attended? 8 materials. 9 A. Justin Korval, vvho vvorks for me, 9 Q. I'm going to be shovving you several 0 attended portions of those meetings and Jim 0 documents today. If at any point that I shovv 1 Zeiter, vvho is the CEO of Apollo Investment 1 a document that is one of the documents you 2 Corporation and my boss, attended portions of 2 revievved during your preparation that 3 those meetings. 3 refreshed your recollection, I vvould 4 Q. Anyone else? 4 appreciate it if you vvould identify that for 5 A. No. 5 me. 6 7 8 9
Q. During these meetings, sir -- this 6 is a yes or no question. During these 7 meetings, did you revievv any documents? 8 A. Yes, vve did. 9 Q. Did any of the documents that you ? 0 revievved refresh your recollection about any ? 1 of the topics identified in the 30(b )( 6) ? 2 section of the notice? ? 3 MR. EIIRLICII: Again, that's a yes ? 4 or no question. ? 5 23 IIevves 1 A. I'm sorry, can you repeat the 2 question. 3 MR. SOLOMON: Sure. Could you read 4 5 (A portion of the record vvas read.) 6 A. I think that's a fair statement. 7 Q. Sorry, could you explain your 8 ansvver. It vvas a yes or no question. 9 A. I'm sorry, yes. 0 Q. Which documents did you revievv that 1 refreshed your recollection about any of the 2 topics identified in the 30(b)(6) notice? 3 A. I revievved a binder containing 4 documents, including -- including some 5 financial presentations, drafts, multiple 6 drafts of term sheets, some of the filings, I 7 believe, in connection vvith -- I mean there 8 vvas several hundred pages of stuff. I don't 9 recall every document. ? 0 Q. I understand. I can only ask for ? 1 your recollection as you sit here. ? 2 A. There vvere general materials that ? 3 you vvould expect that I vvould revievv in ? 4 connection vvith these matters. ? 5 MR. EIIRLICII: Why don't you ask him in connection vvith the document. I don't think it's fair to have a standing that lasts for the course of the day. MR. SOLOMON: I have my request there and you've made your objection. MR. EIIRLICII: Note my objection. Q. Sir, do you knovv vvho Dennis Craven is? A. Yes. IIevves Q. Who is he? A. lie up until -- he vvas the chief financial officer of Innkeepers up until he decided to resign, I believe, in June or July. Q. Of this year? A. Uh-huh. (Discussion off the record.) 25 Q. Do you knovv vvhy Mr. Craven decided to resign? A. I do not. I did not speak to him about his resignation. Q. Did you speak to anyone about his resignation? A. It vvas discussed among members of our team generally vvhen it occurred, not in any great detail. We vvere informed that he resigned, I believe, by Marc Beilinson. Q. During these discussions, did anyone say in form or substance or explain in form or substance as to vvhy they believed Mr. Craven resigned? A. No. Q. Are you avvare that Mr. Craven 7 (Pages 22 to 25) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, Nevv York, NY 10123 (212)705-8585 APP-00212 26 28 1 Hewes 1 Hewes 2 submitted a declaration dated July 19,2010, 2 sentence in paragraph 10, quote, The debtors 3 in this proceeding? 3 have successfully negotiated a consensual 4 A. I'm aware, yes. 4 integrated restructuring transaction which 5 Q. Is that one of the documents you 5 includes three separate yet wholly 6 reviewed in preparation for today? 6 interrelated agreements. 7 A. No. 7 Do you see that? 8 MR. SOLOMON: I am going to ask the 8 A. Yes. 9 court reporter to mark as next in order. 9 Q. As you sit here today, do you have 0 (Exhibit Hewes-4, Amended 0 any understanding as to what transaction 1 Declaration of Dennis Craven, Chief 1 Mr. Craven is referring to in paragraph 10 in 2 Financial Officer of Innkeepers USA 2 that first sentence? 3 Trust, In Support of First-Day 3 MR. EHRLICH: Objection to form. 4 Pleadings, marked for identification, 4 You can answer. 5 this date.) 5 Are you asking him based on his 6 Q. Sir, take a moment to review the 6 reading of the document? 7 document, to the extent you need to. But my 7 MR. SOLOMON: Yes. 8 first question is, have you seen this 8 A. Yeah, I mean, I believe it's 9 document before today? 9 relatively clear. He proceeds to describe ~ 0 A. Yes, I have seen it several times. ?0 the various agreements that he's referring to tn Q. When did you see it? ?1 in the transaction. P2 A. I believe the first time I saw it ?2 Q. I understand it appears to be P3 was when I downloaded it from the Omni ?3 clear. I need to ask certain questions so P4 Management website after it had been posted. ?4 that I can ask later questions, so if you P5 Q. Is that a website that has the ?5 bear with us, I would appreciate that. 27 29 1 Hewes 1 Hewes 2 pleadings in this proceeding? 2 A. Okay. Can you repeat your 3 A. Yes. I don't know the exact nature 3 question. 4 of the word "pleadings" in the context of the 4 Q. Do you have an understanding, as 5 papers. 5 you sit here today, as to the transaction 6 Q. I'll rephrase my question. 6 Mr. Craven is referring to in the first -- or 7 A. It has a lot of documents 7 transactions Mr. Craven is referring to in 8 related-- 8 the first sentence of paragraph 10? 9 Q. I'll rephrase my question. 9 MR. EHRLICH: Objection to form. 0 Is the first time you saw this 0 You can answer. 1 document after it was executed? 1 A. Did I have an understanding -- I'm 2 A. Yes, I believe so. 2 sorry, can up repeat the question again. 3 Q. Feel free to look at whatever 3 Q. Cut straight to it. Do you know 4 section of the document or the entirety of 4 what transactions Mr. Craven is referring to 5 the document that you'd like, but I would 5 in that sentence? 6 like to direct your attention to paragraphs 6 A. Yes. 7 10 through 13 for the moment. 7 Q. What transactions are those? 8 MR. EHRLICH: Why don't you read 8 A. He, I believe, because these are 9 those paragraphs. 9 his words, he is referring to the Marriott PO Q. Just let me know when you are ?0 agreement, the DIP financings, and the P1 ready. ?1 agreement with Lehman Brothers. P2 A. Sure. ?2 Q. Based upon your experience-- P3 Okay. ?3 withdrawn. P4 Q. Let me direct your attention to ?4 Are you familiar with the P5 paragraph 10 for a moment. You see the first ?5 transactions separate and apart --withdrawn. 8 (Pages 26 to 29) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00213 30 32 1 Hewes 1 Hewes 2 Are you familiar with the 2 agreements are integrated restructuring -- 3 transactions that you've just mentioned 3 withdrawn. 4 separate and apart from reviewing 4 Do you believe the three 5 Mr. Craven's declaration? 5 agreements: the Marriott agreement, the DIP 6 MR. EHRLICH: Objection to form. 6 financing agreement, and the PSA are part of 7 You can answer. 7 an integrated restructuring transaction? 8 A. Am I familiar -- 8 MR. EHRLICH: Objection to form. 9 Q. Prior to reading this -- 9 Calls for opinion testimony. 0 A. Can you be more specific? 0 You can answer. 1 Q. Certainly. 1 A. In that they appear to rely on each 2 Prior to reading this declaration 2 other in certain respects, I would call that 3 were you wear of the Marriott agreement 3 integrated. 4 that's referred to herein? 4 Q. Do you believe they are 5 A. I was aware that the company was 5 interrelated agreements? 6 working to secure an agreement with Marriott. 6 MR. EHRLICH: Objection to form. 7 I had not seen it and reviewed it. 7 You can answer. 8 Q. Did there come a time that you 8 A. Is there a distinction between 9 learned that they did, in fact, secure an 9 integrated and interrelated? ~ 0 agreement with Marriott? 20 Q. Do you believe there's one? tn A. Yes. 21 A. Not a material one, no. P2 Q. Prior to reviewing this declaration 22 Q. Okay. Turn your attention to P3 were you aware of the agreement for the DIP 23 paragraph 13. P4 financing that's referred to herein? /4 A. Sure. P5 A. Prior to reviewing this document? /5 Q. In the first sentence, Mr. Craven 31 33 1 Hewes 1 Hewes 2 Q. Yes. 2 is referring to the debtors' understanding 3 A. Yes. 3 about the Lehman's willingness, do you see 4 Q. Prior to reviewing this document 4 that, in the very beginning? 5 were you familiar with the PSA, Plan Support 5 A. Yes, I see that's what it says. 6 Agreement? 6 Q. As you sit here today, do you have 7 MR. EHRLICH: Objection to form. 7 any knowledge as to how Mr. Craven may have 8 You can answer. 8 come to that understanding? 9 A. Prior to reviewing this document, I 9 MR. EHRLICH: Objection to form. 10 believe so, yes. 10 First of all, read the complete 11 Q. Prior to reviewing this document, 11 sentence before you answer, and I would 12 did you know whether the debtors had entered 12 object. 13 into the PSA? 13 A. Can you repeat the question? 14 MR. EHRLICH: You mean prior to his 14 Q. Sure. 15 first review of it whenever it is he 15 MR. SOLOMON: Could you read it 16 downloaded it off of the Omni website? 16 back. 17 MR. SOLOMON: Correct. Correct. 17 (A portion of the record was read.) 18 A. I believe I learned that the 18 MR. EHRLICH: Please note my 19 debtors had entered into the PSA sometime 19 objection to a question better suited to 120 during the weekend prior to the company 20 the debtors or Lehman. 121 filing for bankruptcy. I don't recall 21 A. I think you would have to ask ~ 2 exactly when. 22 Mr. Craven how he came to know that. I don't ~ 3 Q. The three agreements, the Marriott 23 --I mean do I know specifically, no. ~ 4 agreement, the DIP financing agreement, and ?4 Q. You're on the Innkeepers board, ~ 5 the PSA, do you believe those three ?5 correct? 9 (Pages 30 to 33) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00214 34 1 H ~ ~ 1 2 A. Correct. 2 3 Q. As part of your role on the board, 3 4 you are responsible for certain activities of 4 5 the company, correct? 5 6 MR. EHRLICH: Objection to form. 6 7 You can answer. 7 8 A. Responsible for certain activities 8 9 of the company, I don't think that's an 9 10 accurate description of my role on the board. 0 11 Q. As part of your role on the board 1 12 you are presented with information from time 2 13 to time concerning the company, correct? 3 14 A. Correct. 4 15 MR. EHRLICH: Objection to form. 5 16 You can answer. 6 17 A. Correct. 7 18 Q. At any time prior to today were you 8 19 in your role as a board member of Innkeepers 9 t2 0 provided with information that led to you ? 0 t21 believe that Lehman's willingness to enter ? 1 t22 into the PSA was conditioned upon its ability ?2 t2 3 to sell a portion of its distribution equity ? 3 t? 4 in the reorganized enterprise to a third ? 4 t? 5 party? ? 5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 r5 35 Hewes 1 MR. EHRLICH: Objection to form. 2 You can answer. 3 A. That was a long question. Can you 4 ~ ~ ~ 5 (A portion of the record was read.) 6 MR. SOLOMON: That was good. You 7 got that all. 8 A. ~ s . 9 Q. And how did you come to that 0 understanding? 1 A. The -- I don't specifically recall. 2 There were -- subsequent to initial 3 discussions between the company and Lehman 4 about -- I guess the interest payment default 5 would have triggered the first series of 6 conversations. Subsequent to an initial, an 7 initial meeting between the company and 8 Lehman where a discussion occurred about 9 Lehman having a role in the company's ? 0 restructuring as a, you know, in a potential ? 1 conversion of its note to equity, sometime ? 2 after that conversation I believe discussions ? 3 were had where the topic was raised that ? 4 Lehman may want to, you know, I guess as it's ? 5 Hewes described here, sell a portion of its distribution of equity, if such a transaction were to occur. 36 Q. Do you recall when the first conversations or discussions where the topic was raised concerning Lehman potentially wanting to sell a portion of its distribution equity? MR. EHRLICH: Conversations between whom and whom? MR. SOLOMON: Conversations he identified or discussions or topics he identified in his last answer. A. The specific date and time, no. Generally I would say it was relatively soon after the initial meeting I described, which would have been in late April, if my memory serves correct. Q. April 22, 2010? A. That sounds like the initial meeting I was referring to, yes. Q. Approximately how soon after is relatively soon? A. I don't recall. Hewes Q. Within a week? A. That sounds reasonable. Q. Was the subject of Lehman's potentially or possibly wanting to sell a portion of its distribution equity ever discussed by the Innkeepers board? A. Was discussed -- THE WITNESS: Can you repeat the question. (A portion of the record was read.) A. I believe at the final board meeting immediately prior to -- immediately prior to the bankruptcy filing, the transactions that ultimately are reflected in this document were discussed. Prior to that, I don't recall. 37 Q. And among those transactions you're referring to in your last answer was the potential for Lehman to sell a portion of its debt equity; is that correct? A. Yes. Q. What was said on that subject? A. The -- the bulk of that conversation, in fact, that conversation in 10 (Pages 34 to 37) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00215 38 40 1 Hewes 1 Hewes 2 its entirety was, to my understanding, was 2 Q. Yes. 3 discussed at an independent session, which I 3 A. Other than Apollo Investment 4 did not attend, so I -- I can't tell you. 4 Corporation, no, I was not aware of any 5 Q. Did anyone report to you what was 5 potential purchasers. 6 discussed at the independent session? 6 Q. Is it your testimony that Apollo 7 A. The -- subsequent to the conclusion 7 Investment Corporation was one of the 8 of the independent session, the topics that 8 potential purchasers? 9 were discussed were disclosed to the full 9 A. I believe that's the implication in 0 board in summary format which was an outline 0 my statement, yes. 1 of the transactions expected to be entered 1 Q. When for the first time did you 2 into in connection with the bankruptcy, which 2 learn that Apollo Investment Corporation was 3 at the time I don't believe any of them were 3 a potential purchaser for any portion of the 4 final or complete. 4 distribution of equity to be received by 5 Q. And was one of the transactions 5 Lehman? 6 that was expected to be entered into Lehman 6 A. Can you repeat the question. 7 selling a portion of its debt equity -- 7 MR. SOLOMON: Sure. 8 excuse me -- withdrawn. 8 (A portion of the record was read.) 9 Was one of the transactions that 9 A. When did I learn that -- I'm having ~ 0 was discussed, either in summary form or ?0 a hard time with the nature of that question. tn otherwise, the transaction by which Lehman 21 The -- the concept or the interest in P2 may or might sell a portion of its 22 becoming a potential purchaser I think arose P3 distribution equity? 23 -- arose in the late April time frame but P4 A. I believe that that fact -- that 24 the, you know, at the time it was a concept. P5 concept was certainly disclosed during the ?5 Q. And did you learn about it in the 39 41 1 Hewes 1 Hewes 2 independent discussion, but I don't know at 2 late April time frame? 3 what length it was discussed. I wasn't 3 A. I believe that's accurate, yeah. 4 there. 4 Q. Between the late April time frame 5 Q. At or prior to this time that 5 and July 19th were you aware of-- withdrawn. 6 you've been describing, are you aware of any 6 Prior to the late April time frame 7 discussions about who the potential 7 that you've been describing, did Apollo 8 purchasers were for Lehman's distribution, or 8 Investment Corporation have any interest in 9 a portion of Lehman's distribution equity? 9 Innkeepers? 10 MR. EHRLICH: Objection to form. 0 MR. EHRLICH: Any economic 11 A. At any time -- I'm sorry, can you 1 interest? 12 repeat the question. 2 Q. Any economic interest? 13 MR. SOLOMON: Sure. I'll rephrase. 3 A. You need to be specific. I mean 14 Q. You've identified a board meeting 4 there is a lot of time prior to late April 2, 15 at which certain topics were discussed. 5 2010. 16 A. Uh-huh. 6 Q. Between January 1 and 2007-- 17 Q. You also mentioned, if I recall 7 withdrawn. 18 correctly, there was a summary provided about 8 Between January 1, 2007, and late 19 what happened at an independent session. 9 April2010 did Apollo Investment Corp. have 20 A. Uh-huh. 20 any economic interest in Innkeepers? 21 Q. At that time were you aware of any 21 A. Between January 1 and late 22 potential purchasers for any portion of 22 April2010 we were obviously the sole 23 Lehman's distribution equity? ?3 shareholder of the company. The events that 24 MR. EHRLICH: Objection to form. ?4 ultimately unfolded and were largely 25 A. At that time of that meeting? ?5 precipitated by what we refer to as the 11 (Pages 38 to 41) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00216 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 42 Hewes 1 Marriott termination letter were certainly 2 not clear to us on the 1st of January and so 3 I think the question of, as to whether we had 4 an economic interest was -- was uncertain. 5 At the beginning of that time frame and 6 towards the end of the time frame I think it 7 became certainly more certain that we did not 8 have an economic interest. 9 Q. Why did it become more certain that o you did not have an economic interest? 1 A. Well, as I just described, the 2 business had been struggling for some time 3 to, you know, given the industry performance 4 and the economy, the Marriott termination 5 letter created certain, what I would 6 characterize as emergency or immediate 7 liquidity issues. They required the company 8 to invest significant amounts of dollars in 9 certain properties in a limited period of ? 0 time and given the analysis of the amount ? 1 money and the duration in which Marriott ? 2 requested it be spent, it became clear that ? 3 the company did not have those funds and ? 4 could not raise those funds given its current ? 5 43 1 Hewes 1 2 capital structure which, therefore, required 2 3 either a restructuring of the capital 3 4 structure or a bankruptcy. I guess those two 4 5 could describe the same thing. 5 6 Q. Was it your view that the shares in 6 7 the company held by AIC were virtually 7 8 worthless at that time? 8 9 MR. EHRLICH: Objection to form. 9 0 You can answer. 0 1 A. At which time? 1 2 Q. After receiving the Marriott 2 3 termination letter that you described. 3 4 A. I think it's fair to say that the, 4 5 you know, subsequent to the Marriott 5 6 termination letter, which took us some time 6 7 to review and digest the implications, it 7 8 became clear that there was a, it was highly 8 9 unlikely that our interests in the company 9 P 0 would have any value, after due consideration 7 0 P 1 of the implications of that letter. 7 1 P 2 Q. What was the date of the Marriott 7 2 P 3 termination letter, if you recall? 7 3 P 4 A. I believe it was late March. I 7 4 P 5 don't recall the exact date. 7 5 Hewes Q. 2010? A. Yes. Q. You mentioned that the AIC was the sole shareholder of the company, do you recall that? A. Yes, and I would, I would qualify that by saying I believe management owned a small percentage of the shares, it's relatively material. Q. When did AIC become a shareholder of the company? A. In, I believe, the acquisition of the company closed in June of 2007. Q. Did you have any role in the transaction? A. I did not. MR. SOLOMON: I am going to ask the court reporter to mark as Exhibit 5 the following binder. (Exhibit Hewes-5, Plan Support Agreement, marked for identification, this date.) Q. Sir, the court reporter has put in 44 front of you what's been marked as Exhibit 5. Hewes It's entitled Plan Support Agreement. A. Uh-huh. Q. Take whatever time you need to review it but my first question is, have you seen this document before today? A. Yes, I have. Q. When did you see it? MR. EHRLICH: First? Q. First time. 45 And when I ask "this document," I'm referring to the actual executed version of this document. A. Oh, the actual executed version, I think the first time I saw it was around the time of the bankruptcy and I can't really -- don't recall ifl saw the actual executed version immediately prior to or immediately after the bankruptcy. Q. Some point in and around July of this year? A. Yeah. Q. Mid July? A. Correct. Q. Is AIC a signatory to the Plan 12 (Pages 42 to 45) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00217 46 1 Hewes 1 2 Support Agreement? And I'm going to refer to 2 3 it as PSA for shorthand if that's okay. 3 4 A. Sure. 4 5 Q. Is AIC a signatory to the PSA? 5 6 A. I don't see an AIC signatory on 6 7 these pages. 7 8 Q. Do you know if AIC ever 8 9 contemplated being a signatory to the PSA? 9 10 A. I don't believe so, no. 0 11 Q. If I could ask you to flip in 1 12 approximately about 25 pages or so, there's a 2 13 document entitled "Term Sheet." It is 3 14 Exhibit A, "Plan Term Sheet." 4 15 A. 25 pages from the beginning of the 5 16 book? 6 17 Q. Approximately, yes. 7 18 MR. SOLOMON: Counsel, could you 8 19 just point it out to him? 9 2 0 THE WITNESS: Are we looking at the D 0 21 same thing? P 1 2 2 MR. SOLOMON: I think so. P 2 2 3 MR. EHRLICH: "Illustrative Terms P 3 2 4 of Restructuring, July 17" 7 P 4 2 5 MR. SOLOMON: Yes, it is. P 5 47 1 Hewes 1 2 MR. EHRLICH: At the top? 2 3 MR. SOLOMON: Sure. 3 4 MR. EHRLICH: Okay. 4 5 Q. Have you seen this document before 5 6 today? And by "this document" I'm referring 6 7 to the term sheet that's attached as 7 8 Exhibit A to the PSA. 8 9 A. Can you confirm that this is the 9 1 0 execution version? 0 11 Q. I can confirm that this is what was 1 12 filed with the court, yes? 2 13 A. Okay. Then I've seen it, yes. 3 14 Q. When did you see it? 4 15 MR. EHRLICH: And again, you're 5 1 6 referring to the final as the final 6 17 version? 7 18 MR. SOLOMON: Yes, the version 8 19 that's filed that's attached to the PSA. 9 b 0 A. Right. Yeah, I would say I saw it P 0 b 1 at the same time I saw the PSA, I believe. P 1 b 2 Q. Is this one of the documents you P 2 b 3 reviewed with counsel? P 3 b4 A. Yes. P4 ~ 5 Q. Did this document refresh your P 5 Hewes recollection about any of the events referenced in the document or any of the potential transactions or occurrences referenced in the document? A. Yes. MR. EHRLICH: Objection to form. You can answer. Q. What was your answer, sir? A. It was yes. Q. What did you discuss about this document? MR. EHRLICH: With counsel? That's -- I direct the witness not to answer that question. MR. SOLOMON: My question stands. The witness indicated that this document refreshed his recollection. 48 MR. EHRLICH: You can ask him about what recollection was refreshed but you cannot ask him about conversations with counsel. MR. SOLOMON: I disagree. You've made your direction. My question stands. Hewes Q. What recollections were refreshed by the review of this document? 49 MR. SOLOMON: But my question still stands. MR. EHRLICH: And I would direct you to answer only if reviewing this document in the course of our preparation refreshed your recollection, you can tell counsel what, if any, recollection is refreshed. A. I'm familiar with this document. I don't -- and I'm familiar with the various components of it. I don't, you know -- I'm not sure how to answer your question. Q. You've testified -- A. Did it refresh my memory that I already had read it, yeah. I had read it and reviewed it in and around the time of the bankruptcy, you know, once an execution version was presented but. Q. Did it refresh your recollection about any of the events, occurrences, or transactions identified in the document? A. Did it -- when you say refresh, it 13 (Pages 46 to 49) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00218 50 52 1 Hewes 1 Hewes 2 implies that it somehow brought back memories 2 this deposition, and it was in a binder 3 that I didn't have before. Again, I stated, 3 prepared by Paul Weiss. 4 I was -- had reviewed this document 4 Q. Did the review of this document 5 previously. I'm familiar with it. The fact 5 refresh your recollection about any of the 6 that I reviewed it with counsel 2 days ago, 6 events, transactions, or occurrences 7 reminded me only that I had read it before 7 referenced in the document? 8 and was familiar with it. 8 A. I'm not sure what you mean. I 9 Q. Prior to mid July of this year, had 9 hadn't seen the document prior to 48 hours 0 you seen earlier drafts of the term sheet? 0 ago. 1 A. I don't recall -- the first time 1 Q. I understand, sir. But if you look 2 that we saw the Plan Support Agreement, as I 2 at the document, let me give you an example, 3 mentioned earlier, I believe was immediately 3 the second paragraph refers to a transaction 4 prior to the bankruptcy filing. Prior to 4 structure outlined herein assumes an 5 that, we had not reviewed drafts of the Plan 5 enterprise value for the reorganized company 6 Support Agreement. 6 of, paren, 975, close paren, million with a 7 Q. My question was a little different. 7 footnote there, and a value of a floating 8 My question concerned the term sheet as 8 rate collateral of, paren, 200, close paren, 9 attached to the Plan Support Agreement? 9 million. ~ 0 A. I'm sorry. ?0 Do you see that? h Q. Have you seen earlier drafts of ?1 A. Yeah, I see the paragraph. ~ 2 that? ?2 Q. In reviewing this document with t/3 A. Of this term sheet? I don't-- you ?3 counsel, did any of the provisions in this P4 know, I believe my prior statement remains ?4 refresh your recollection about the structure P5 accurate. I don't think we saw the term ?5 of any potential transaction or anything else 51 53 1 Hewes 1 Hewes 2 sheet that was attached to the CSA --the PSA 2 having to do with the transaction that was 3 until immediately prior to the filing. 3 ultimately entered into by Innkeepers? 4 Q. My question also included drafts of 4 A. The terms of this document, which I 5 it though. 5 didn't review in detail earlier this week, 6 A. I don't recall. 6 but I, as I said, I had saw it for the first 7 MR. SOLOMON: I'm going to ask the 7 time, I believe, on Monday, are generally 8 court reporter to mark as Exhibit 6 a 8 unfamiliar to me. The numbers herein and the 9 document with Bates numbers LEH-ALI 1 9 structure of the transaction contemplated by 0 through 4. 10 this term sheet were something I'm not 1 (Exhibit Hewes-6, Illustrative 11 familiar with. 2 Terms of Proposed Restructuring, May 12 Q. My question was a little different. 3 [25] 2010, Bates Nos. LEH-ALI 000001 13 MR. SOLOMON: Would you read my 4 through LEH-ALI 000004, marked for 14 question back. 5 identification, this date.) 15 A. Sure. 6 Q. Sir, the court reporter has put in 16 Q. It had to do with refreshing your 7 front of you what's been marked as Exhibit 6. 17 recollection, sir. Please listen. 8 Take whatever time you need to review it but 18 (A portion of the record was read.) 9 my first question is, have you ever seen this 19 A. I don't understand the meaning of PO document before today? 20 your question. Pl A. The first time I saw this document 21 Q. After reviewing this document with P2 was or I should say a document that appears 22 counsel, did you remember things about the P3 to be the same -- without comparison I can't 23 transaction or any transaction that was P4 confirm it's identical --would have been ?4 entered into by Innkeepers that had not P5 earlier this week in reviewing materials for ?5 remembered prior to reviewing this document? 14 (Pages 50 to 53) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00219 54 56 1 Hewes 1 Hewes 2 A. I don't believe so, no. 2 Q. Did you --please read what's 3 Q. Sir, I understand you had not seen 3 described as the "Backstop" there. 4 the document until a few days ago, but do you 4 A. You want me to read the paragraph? 5 know who prepared this document? 5 Q. Yes. Not into the record, just to 6 MR. EHRLICH: Objection, form, 6 yourself for a moment. 7 foundation. 7 A. Okay. 8 You can answer. 8 Q. You had a chance to review that 9 A. I don't know. I mean other than 9 paragraph? 10 looking at it and seeing that it says 0 A. Sure. 11 prepared with counsel, it doesn't identify 1 Q. Separate and apart from this 12 the author. 2 particular document, were you aware of any 13 Q. Sir, I'm not asking you to read the 3 discussions involving AIC providing a 14 document and make an assumption -- 4 "backstop" in form or substance as identified 15 A. Oh, sorry. 5 here? 16 Q. -- as to who might have prepared 6 A. I'm sorry, can you repeat the 17 it. My question is a little bit more direct. 7 question. 18 Do you know or do you have any knowledge as 8 (A portion of the record was read.) 19 to who prepared this document? 9 A. No. 12o A. I believe that upon seeing it ?0 MR. SOLOMON: I am going to ask the 121 earlier this week it was mentioned -- ?1 court reporter to mark as Exhibit 7 a 122 MR. EHRLICH: I don't want you to ?2 document bearing Bates numbers LEH-ALI 123 reveal anything you were told by ?3 14 through 22. 124 counsel. If you know based on ?4 (Exhibit Hewes-7, Illustrative 125 independent knowledge -- ?5 Terms of Proposed Restructuring, June 55 57 1 Hewes 1 Hewes 2 THE WITNESS: I don't know. 2 [2], 2010, Bates Nos. LEH-ALI 000014 3 MR. EHRLICH: --from events that 3 through LEH-ALI 000022, marked for 4 happened during the case -- 4 identification, this date.) 5 A. No, I don't know. 5 THE WITNESS: Can we take a break 6 Q. Do you know to whom this document 6 whenever it's convenient? 7 was circulated, if anyone? 7 MR. SOLOMON: It's a fine time. 8 A. Having not seen it, I would have no 8 THE WITNESS: Now? 9 knowledge who it was circulated to. 9 MR. SOLOMON: Sure. I will 0 Q. Well, I disagree. Let me explain a 0 accommodate you when there is no 1 potential situation. 1 question pending. 2 You may have or someone may have 2 (A brief recess was taken.) 3 discussed this document in your presence. 3 MR. SOLOMON: Are we back on the 4 Did that ever occur? 4 record. 5 A. This document? 5 I will remind the witness that he 6 Q. Or the terms contained therein. 6 is still under oath. 7 A. I don't recall. 7 THE WITNESS: Thank you. 8 MR. SOLOMON: I'm going to ask the 8 Q. Sir, I want to go back and clarify 9 court reporter to mark as Exhibit 7 -- 9 one or two things. PO actually, let's go back to this document 0 A. Sure. 171 for one moment if we can. 1 Q. Earlier I asked you about what, if 172 Q. If you turn to the second page of 2 anything, you did to prepare. 173 this document, under the heading on the left 3 Other than meet with counsel and 1/4 side "Backstop." Do you see that? ?4 review documents with counsel, did you do 1/5 A. Yes, I see that heading. ?5 anything else? 15 (Pages 54 to 57) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00220 58 60 1 Hewes 1 Hewes 2 A Well, as I mentioned earlier, I met 2 today. 3 with other members of AIC. 3 Q. With respect to the areas 4 Q. That was while counsel was present, 4 identified in the 30(b)(6) notice, correct? 5 correct? 5 A. Yes. 6 A Correct. 6 MR. EHRLICH: Subject to our 7 Q. Did you meet with other members of 7 objections. 8 AIC without counsel? 8 Q. I would like to take you back for a 9 A No, not to prepare specifically. 9 moment to Exhibit 6. That's the Lehman -- 0 Q. Sorry? What was the last part of 0 excuse me-- that's the LEH-ALI 0001 1 your answer? 1 document. Do you that have? 2 A Not to prepare specifically, no. 2 A. Yes. 3 Q. What about generally? 3 Q. I believe you testified you had not 4 A I -- 4 seen this before today, correct? 5 MR. EHRLICH: Objection to form, 5 A. Correct. No, that's not what I 6 asked and answered. 6 testified. 7 Q. You can still answer. 7 Q. I'm sorry. Withdrawn. 8 A I have an office on a floor full of 8 A. I testified that I had not seen it 9 colleagues, so, you know, it was generally 9 prior to-- ~ 0 known that I would provide this deposition as /Q Q. Review with counsel. h a representative but in, you know, no, there /1 A. Correct. ~ 2 was no preparation. /2 Q. Understood. t/3 Q. Did you attempt to ascertain /3 And I would like you to put to one P4 whatever information your colleagues at AIC /4 side for a moment review with counsel. P5 had with respect to the topics identified in /5 A. Okay. 59 61 1 Hewes 1 Hewes 2 the notice? 2 Q. Did you do anything to inquire as 3 MR. EHRLICH: Subject to our 3 to whether anyone at AIC saw this document 4 objections you can answer. 4 prior to today? 5 A. Are you asking did we confirm with 5 A Did I inquire as to whether-- 6 our colleagues that we had sufficient 6 Q. Yes. 7 information to answer your questions or did I 7 A -- others had seen this document? 8 gather information from my colleagues? Is 8 Q. Yes. 9 that your question? 9 A No, I did not. 0 Q. You can answer that. 0 Q. So as you sit here today, you can't 1 A. I prefer if you pose it as a 1 tell me whether one, two or no one at AIC had 2 question. 2 seen this document, correct? 3 MR. SOLOMON: You want to read that 3 A I don't believe anyone had seen 4 back as a question, please. 4 this document. 5 (A portion of the record was read.) 5 Q. And what do you base that belief 6 Q. Sir, did you confirm with your 6 on? 7 colleagues whether you had sufficient 7 A The terms of it are wholly 8 information to answer the questions or 8 unfamiliar to me and -- 9 address the topics identified in the 30(b)(6) 9 Q. Is it-- sorry. PO notice? /0 MR. EHRLICH: Let -- P1 A. We-- as I said earlier, we-- we /1 A -- and as the individual who has P2 -- we met, relevant individuals were included /2 been significantly involved in the events P3 and I gathered information or discussed /3 leading up to the bankruptcy and at later P4 information with those individuals so that I /4 stages -- strike that part. ~ 5 could act as a representative of AIC here /5 But I believe I would have been 16 (Pages 58 to 61) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00221 62 64 1 Hewes 1 Hewes 2 aware had someone seen this document. 2 are millions of documents at the company 3 Q. So I understand, it's your 3 and I just want to make sure I 4 testimony that you would be aware if someone 4 understand what he has reviewed and what 5 at AIC had seen this document prior to this 5 he has not reviewed. 6 week? 6 MR. EHRLICH: Okay. 7 A. Yes, I believe I would be aware if 7 You can answer. 8 someone at AIC had seen this document. 8 A. What is your specific question? 9 Q. In preparation for your deposition, 9 Can you repeat it. 10 did you review a-- did you review AIC's 0 MR. SOLOMON: Please read back. 11 files? 1 THE WITNESS: After all that... 12 MR. EHRLICH: Objection to form. 2 (A portion of the record was read.) 13 A. Did I review our files? 3 A. Not exactly. 14 Q. Yes. 4 Q. Why is that not correct? 15 A. I'm not sure what you mean. 5 A. Well, I've reviewed prior versions 16 Q. Withdrawn. 6 of these documents as well as some of the 17 In preparation for your deposition, 7 other docket filings in the case over the 18 in your designation as AIC's 30(b)(6) 8 past several weeks since the company filed 19 witness, did you review AIC's documentary 9 for bankruptcy. And I would include those bo files? DO not as preparation specifically for this b1 MR. EHRLICH: Objection to form, Dl meeting, but as -- as my being diligent and b2 foundation. D2 aware of the proceedings of the case. b3 A. That question is too broad. t:>3 Q. Other than filings -- and I assume b4 Q. In preparation for-- t:>4 you are referring to public filings in the b5 A. The reason it's too broad is we t:>5 bankruptcy proceeding; is that correct? 63 65 1 Hewes 1 Hewes 2 have millions of pages of electronic 2 A. Correct. 3 documents. There is no possible way I could 3 Q. --what other documents did you 4 have reviewed all of AIC's files. 4 review? 5 Q. That wasn't my question. I didn't 5 MR. EHRLICH: In the course of his 6 ask if you reviewed all of them. I just 6 doing his work at AIC? 7 asked ifyou reviewed any of them in 7 MR. SOLOMON: Yes. 8 preparation for your deposition. 8 MR. EHRLICH: You can answer. 9 A. I reviewed -- 9 A. I review documents every day in the 10 Q. And I'm referring to other than 0 course of doing my work at AIC. 11 documents you may have been shown by counsel. 1 Q. But with respect to this 12 A. No. In preparation for this 2 transaction or situation. 13 meeting, no. 3 A. In preparation for this meeting? 14 Q. So the only documents you reviewed 4 Q. Yes. 15 in preparation for this deposition here today 5 A. I didn't-- No. 16 are those selected and presented to you by 6 Q. The court reporter has marked as 17 counsel; is that correct? 7 Exhibit 7, Bates number LEH-ALI 14 through 18 MR. EHRLICH I object to the form 8 22. Do you see that, sir? 19 of that question and the implication 9 A. Uh-huh. Yes. 20 that there is something improper in 20 Q. "Illustrative Terms of Proposed 21 that. tn Restructuring June (2) 2010" across the top. 22 But you can answer. b2 Do you see that? 23 MR. SOLOMON: No implication at b3 A. I do. 24 all, I'm just trying to understand the b4 Q. Prior to your meeting with counsel, 25 witness' testimony. He's told me there b5 had you seen this document? 17 (Pages 62 to 65) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00222 66 1 H ~ ~ 1 2 A. Prior to my review with counsel, I 2 3 don't believe I've seen this document 3 4 previously. 4 5 Q. Do you know if anyone at AIC had 5 6 seen this document prior to your meeting with 6 7 counsel? 7 8 A. I cannot confirm specifically but I 8 9 don't believe anyone at AIC would have seen 9 1 0 or has seen this document, because the terms 0 11 of it, again, look unfamiliar. 1 12 Q. And is your testimony based on the 2 13 fact that since you were involved in this 3 14 situation that if someone at AIC had seen 4 15 this document, you would be aware of that? 5 16 A. Yes, in addition to, as I 6 17 mentioned, the terms of this document look 7 18 wholly unfamiliar and had certain of these 8 19 terms been in a document that someone at AIC 9 t2 0 reviewed, I would have believed that I would ? 0 t2 1 have heard about it. ? 1 t22 Q. What terms are those that you're ?2 t2 3 referring to in your last answer, sir? ? 3 t? 4 A. Well, specifically I remember some ? 4 t? 5 things by numbers, so for example, the ? 5 67 1 Hewes 1 2 percentages outlined herein around equity 2 3 offering and some of these other percentages, 3 4 these dollar amounts 171 million, breakup 4 5 fee, 4.275 million, I don't-- I'm not 5 6 familiar with, nor had I seen previously, nor 6 7 do I recall discussions of these figures at 7 8 all. 8 9 Q. And those are the provisions 9 0 referring to on the page Bates stamped 0 1 LEH-ALI 18? 1 2 A. A subset of them, yes. There's a 2 3 lot of provisions on that page. 3 4 Q. You're referring to equity offering 4 5 and then you referred to the numbers on the 5 6 page? 6 7 A. Correct. 7 8 Q. I just want to make sure the record 8 9 is clear which page you're referring to. 9 P 0 A. I'm not testifying to the entire ? 0 P 1 page. I'm just calling out certain things. ? 1 P2 Q. Anything else? ?2 P3 A. No. ?3 r 4 Q. Were you or anyone at AIC aware of ? 4 r 5 any discussions about AIC purchasing ? 5 68 Hewes approximately 62 percent of the new equity? MR. EHRLICH: Objection to form. You can answer. Q. New equity as referred to in this document? A. Yeah, I mean that's -- that's precisely one of the reasons I know I didn't see this document and I'm also confident that no one else at AIC did because I don't remember any iteration of this transaction that contemplated 62 percent of the equity being purchased by AIC ever. Q. Do you know if this document, Exhibit 7, was circulated to anyone? MR. EHRLICH: Anyone in the world? MR. SOLOMON: Anyone in the world, correct. MR. EHRLICH: Objection to form. You can answer. A. I can't possibly know that. Q. Did you discuss this document with anyone at any time? MR. EHRLICH: Objection to form. He's testified he hasn't seen it. Hewes But you can answer. Excluding our preparation. A. I believe I answered that question. Q. You indicated you hadn't seen the 69 document and I understand that. I'm asking if you had discussed it prior? A. Prior to -- Q. Prior to you're meeting with counsel, did you discuss this document with anyone? MR. EHRLICH: Objection to form, foundation. How can he discuss a document he hasn't seen and that he testified he does not have any familiarity with the concepts contained therein. But you can answer. A. No. Q. Were you aware of any discussions between May 25th and June 2nd of 2010 with respect to a proposed restructuring for Innkeepers? A. I'm sorry, can you repeat the question. 18 (Pages 66 to 69) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00223 70 72 1 Hewes 1 Hewes 2 (A portion of the record was read.) 2 return to that question when appropriate? 3 A Yes. 3 MR. SOLOMON: As your counsel will 4 Q. What discussions were those? 4 tell you, you will have an opportunity 5 A I was aware only that the company 5 to review the transcript and if there is 6 was discussing a potential restructuring in 6 anything you think needs to be changed, 7 some format with Lehman Brothers. 7 corrected, modified in any way, you will 8 Q. Were you aware of any of the terms 8 have that opportunity. 9 of the potential restructuring? 9 THE WITNESS: Okay. 0 MR. EHRLICH: Objection to form. 0 Q. Is there an answer you wish -- as 1 Same time frame? 1 you sit here right now, is there an answer 2 MR. SOLOMON: Same time frame, yes, 2 you recall that you wish to change, modify, 3 between May 25th and June 2nd. 3 correct or amend in any way? 4 A Other than the concept that Lehman 4 A I don't recall the answer. I just 5 may convert some or all of its debt into 5 remember the topic of April 22nd so I wanted 6 equity. Other terms, no. 6 to ensure that you had the correct answer. 7 Q. How did you become aware of that? 7 Q. I appreciate that. 8 A Which? 8 Are you familiar with Moelis & 9 Q. That Lehman may convert some of its 9 Company? bo debt into equity? DO A Yes. b1 A Like I said earlier, there was a D1 Q. Who or what is Moelis & Company? b2 meeting in late April in which that concept D2 A It is a, what's commonly described b3 was originally discussed and I believe that 1/3 as a boutique investment bank. They provide b4 would be when I became aware of it. 1/4 advisory services. Among them restructuring b5 Q. Are you aware of any specific 1/5 and other advisory services. 71 73 1 Hewes 1 Hewes 2 conversations on that subject that occurred 2 Q. To your knowledge, did they provide 3 between May 25th and June 2nd of 2010? 3 any services to Innkeepers? 4 A Am I aware of any -- no, I don't 4 A Prior to-- 5 believe so. 5 Q. Between January 1, 2010, and the 6 MR. SOLOMON: I am going to ask the 6 present time, to your knowledge has Moelis 7 court reporter to mark as Exhibit 8 a 7 provided any services to Innkeepers? 8 document Bates stamped INN_MID 3533 8 A Yes, they've been engaged by the 9 through 3548. 9 company as an advisor. I don't know the date 10 (Exhibit Hewes-8, Document 0 of that engagement but yes, they have 11 entitled, "Project Tavern, Lehman 1 provided services. 12 Discussion Materials," Bates Nos. 2 Q. Do see what's been marked as 13 INN_ MID00003533 through INN_ MID00003548, 3 Exhibit 8, it's been in front of you. Was 14 marked for identification, this date.) 4 this document provided to you in or during a 15 Q. Sir, have you seen this document 5 meeting -- withdrawn. 16 before today? 6 How did you receive a copy of this 17 A I believe so, yes. 7 document on or about April 22, 201 0? 18 Q. Did you see it before your meeting 8 A I believe it was circulated at a 19 with counsel? 9 meeting. 20 A I believe so, yes. 1/o Q. What meeting was this? 21 Q. Did you see it on or about 1/1 A This was a follow-up meeting. It 22 April 22, 2010? 172 was the second meeting, if memory serves me 23 A I believe so, yes. 173 correct, with, or I should say between the 24 You asked me a question earlier 1/4 company Lehman Brothers and certain of their 25 about April 22nd, maybe an hour ago. Can you 1/5 respective advisors to discuss a potential 19 (Pages 70 to 73) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00224 74 76 1 Hewes 1 Hewes 2 restructuring of the company. 2 therefore, not make interest payments, the 3 Q. When was the first meeting? 3 Marriott termination letter and the potential 4 A. The first meeting was, I believe, 4 implications of that letter and the company's 5 about a week prior, a week to 10 days prior. 5 need to begin discussions with creditors 6 I don't recall the exact date. 6 immediately regarding any potential 7 Q. Who attended the first meeting? 7 restructuring, consensual or otherwise. 8 A. There were a large number of people 8 Q. What did Mr. Beilinson say 9 in the first meeting. I don't know many of 9 precipitated the need to preserve liquidity? 0 the participants. But among them were Marc 0 A. What did he say precipitated the 1 Beilinson, Mark Murphy from the company. 1 need? 2 Dennis Craven may have been there, I don't 2 Q. Yes. 3 recall. Representatives from Moelis & 3 A. I don't know that he said anything 4 Company, representatives from K&E, I believe, 4 specifically that precipitated the need to 5 on behalf of the company, a significant 5 preserve liquidity. They were short on cash. 6 number of people from Lehman Brothers, and 6 That was relatively obvious. 7 myself and Justin Korval. 7 MR. SOLOMON: Could I have two 8 That was the first meeting, 8 answers ago read back, please. 9 correct. 9 (A portion of the record was read.) tzo Q. That's what I'm asking about. You ?0 MR. SOLOMON: Stop. t21 said approximately a week before April 22nd, ?1 Q. And your answer continues on. I've t22 correct? ?2 asked the court reporter to stop. I just tn A. Yeah. 23 want to understand what you were referring to r4 Q. Approximately? 24 -- r5 A. Yeah, you know, a week, 10 days, I 25 A. I'm sorry, can you repeat your last 75 77 1 Hewes 1 Hewes 2 don't recall. 2 question, then? 3 Q. Did you take notes at that meeting, 3 Q. What did Mr. Beilinson say 4 first meeting? 4 precipitated the need to preserve liquidity? 5 A. No. 5 A. Well, he had been delivered a 6 Q. Do you know if Mr. Korval took 6 termination letter from Marriott that 7 notes at that meeting? 7 required significant amounts of capital to 8 A. I don't believe he did, no. 8 complete that he didn't have, that the 9 Q. Do you recall what was discussed at 9 company didn't have. The --you know, the 0 that meeting? 0 company's ability to service its debt was 1 A. The -- if memory serves me correct, 1 certainly in question. Meaning, you know, 2 the meeting was requested by Lehman Brothers. 2 making monthly interest payments and having 3 The company had, on or about the first week 3 any amount of liquidity left over what you 4 of April had defaulted on interest payments 4 might define as an appropriate amount was 5 to, I believe, substantially all of its 5 challenging, if not impossible. Things of 6 lending agreements and, as you might expect, 6 that nature. 7 a lender who didn't receive an interest 7 Q. Do you have an understanding why -- 8 payment requested a meeting with the company 8 withdrawn. 9 to inquire as to what was going on generally. 9 Was AIC invited to attend this ro Q. What did the company say in ?0 meeting? r1 response to that inquiry? ?1 A. Yes. r2 A. I believe Marc Beilinson in ?2 MR. EHRLICH: Objection to form. r3 response to that general inquiry gave a ?3 You can answer. r4 history of recent events, what precipitated ?4 A. Yes. r5 his need to preserve liquidity and, ?5 Q. By whom? 20 (Pages 74 to 77) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00225 78 1 Hewes 1 2 A I don't recall specifically. I 2 3 mean it would have been the company. 3 4 Q. Generally. 4 5 Did you ever obtain an 5 6 understanding as to why the company invited 6 7 AIC to attend this meeting? 7 8 A Did I ever -- no. I mean we were 8 9 -- no, we were just invited. 9 0 Q. To your knowledge, was a copy of 0 1 Exhibit 8 distributed to everyone who 1 2 attended the meeting? 2 3 MR. EHRLICH: The April22nd 3 4 meeting or the preceding meeting? 4 5 MR. SOLOMON: The preceding 5 6 meeting. That's still the meeting we're 6 7 on. We have not left the meeting that 7 8 occurred -- 8 9 MR. EHRLICH: I just wanted the 9 ~ 0 record to be clear that you're referring ? 0 ~ 1 to the distribution of Exhibit 8. ? 1 ~ 2 MR. SOLOMON: Correct. ?2 tn MR. EHRLICH: At the preceding ? 3 P 4 meeting. ? 4 P5 MR. SOLOMON: Correct. ?5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 79 Hewes 1 Q. The attendees at the meeting that 2 occurred approximately a week to 10 days 3 before April 22nd -- 4 A. Uh-huh, uh-huh. 5 Q. --were those attendees given a 6 copy at any time after that, obviously, of 7 what we've marked as Exhibit 8? 8 A. Were they given a copy at any time 9 after the meeting -- 0 Q. Yes. 1 A. -- or were they given a copy during 2 the meeting? That was your first question. 3 Q. At any time. 4 A. To my recollection, there were no 5 documents that exchanged hands at the first 6 meeting. Attendees -- and then your second 7 question. 8 Q. There was no second question. 9 There was just one and you've answered it. ? 0 A. There were no documents distributed ? 1 at that meeting. Q. Thank you. A. There was no agenda for the meeting. 80 Hewes Q. The second meeting now, the one that occurred on or about April 22nd, who attended that meeting? A. Again, there was -- well, let me start by saying I attended a portion of that meeting. There was a significant portion which I was not present at and I can't testify as to the attendees during that portion of the meeting. From Lehman Brothers I recall Michael Lascher and Susanne Frey, only because they're the only names I know there. There may have been someone else there from Lehman, I don't recall. I believe they brought advisors. Q. They being Lehman in that answer? A. Yeah, and again, my memory is fuzzy, I don't recall specifically but they may have had someone there from, from their outside counsel and representatives from the company. Q. The company being Innkeepers? A. Uh-huh. Q. Is that a yes, sir? A. Yes. 81 Hewes THE WITNESS: Sorry. I'm trying to think. A. (Continuing) And one or two representatives from Moelis & Company. Q. You indicated that you attended a portion of the meeting? A. Correct. Q. Was anyone else from AIC there? A. I believe Justin Korval attended the same portion of the meeting that I did. Q. And what portion was that? What was discussed during that portion? A. It was the beginning portion of the meeting. The-- if you go back to the first meeting, as you recall, I indicated that Lehman had requested a meeting with the company to discuss the interest payment default and other issues. The company indicated it was in such a severe situation that some sort of restructuring would be required. Given that there had been no real agenda for that initial meeting, there was no preparation or there were -- and as I indicated, there were no materials 21 (Pages 78 to 81) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00226 82 84 1 Hewes 1 Hewes 2 distributed, the request by Lehman to have 2 continued to discuss information in these 3 the second meeting was to better understand 3 materials but specifically I don't recall 4 through the preparation of some information 4 receiving an update as to what they 5 what the company's situation was, what 5 discussed, no. 6 financial performance had been and might look 6 Q. Do you know if anyone at AIC ever 7 like in the company's estimation in the near 7 received an update as to what they discussed? 8 term, and based on -- I'm sorry, what was the 8 A. I don't know. 9 question? 9 Q. In preparation for your testimony 0 Q. You were telling us what was 0 here today, did you ask if anyone at AIC was 1 discussed -- 1 aware of what was discussed after you and Mr. 2 A. What was discussed, okay. 2 Korvalleft? 3 Q. -- during the portion that you 3 A. No. I don't recall it being that 4 attended. 4 significant of an event so, no. 5 A. And, you know, I believe Moelis & 5 Q. Was Project Tavern the code name 6 Company as the company's advisor generally 6 that was given to the potential 7 walked representatives from Lehman and their 7 restructuring? 8 advisors through these materials in response 8 MR. EHRLICH: Objection to form. 9 to that request. 9 You can answer. ~ 0 Q. During the portion that you ?0 A. It appears to be. tn attended, was there any discussion about a ?1 Q. Do you know one way or the other? P2 potential restructuring transaction? ?2 A. It's on this document. P3 A. Other than the fact that one needed 23 Q. Other than it appearing on the P4 to occur, I don't recall any specific 24 document, do you have any knowledge? P5 discussion about a restructuring transaction 25 A. It's on this document. It's on a 83 85 1 Hewes 1 Hewes 2 or what it might look like, no. 2 document prepared by Moelis & Company. I 3 Q. Am I correct, you and Mr. Korval 3 believe it's Project Tavern, yes. 4 left the meeting at the same time? 4 MR. SOLOMON: I am going to ask the 5 A. I believe so, yeah. I mean we -- I 5 court reporter to mark as Exhibit 9 a 6 recall we didn't leave together because I 6 document Bates -- a document. 7 think we were going different places, but as 7 (Exhibit Hewes-9, Document entitled 8 far as I'm aware, he left at the same time. 8 "Project Tavern, Midland Discussion 9 Q. And you both left before the 9 Materials," [not Bates stamped], marked 10 meeting had concluded; is that correct? 0 for identification, this date.) 11 A. Correct. 1 Q. Sir, the court reporter has put in 12 Q. Why did you both leave before the 2 front of you what has been marked as 13 meeting was concluded? 3 Exhibit 9. 14 A. We were -- we were asked to leave. 4 A. Uh-huh. 15 I couldn't -- we were asked to leave because 5 Q. Have you seen that document before 16 the company wanted to have conversations with 6 today? 17 Lehman Brothers without us there. 7 A. Other than in preparation for this 18 Q. Did you ever come to learn what 8 meeting, and I should say I believe, because 19 those conversations were -- withdrawn. 9 I didn't spend a lot of time looking at it, 20 Did anyone ever report to you in ?0 but I believe this document was included in 21 form or substance what conversations occurred ?1 the materials that Paul Weiss presented me on 22 after you and Mr. Korvalleft the meeting? ?2 Monday and Tuesday. But prior to that, no, I 23 A. Specifically? /3 have not seen it. 24 Q. Or in general. 74 Q. Prior to your meeting with your 25 A. I mean I only infer that they 75 counsel, were you aware of a meeting 22 (Pages 82 to 85) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00227 86 88 1 Hewes 1 Hewes 2 involving Midland and the-- and the company, 2 asking --they were asking for AIC to sign it 3 Innkeepers, on or about April22, 2010? 3 or agree to it or something and that's how I 4 MR. EHRLICH: You mean 287 4 came to know about it. 5 MR. SOLOMON: What did I say? 5 Q. Was AIC present in Midland's 6 MR. EHRLICH: 22nd. 6 offices at that time, that you were just 7 MR. SOLOMON: I'm sorry. I'll 7 describing where someone allegedly waited six 8 withdraw the question. Thank you. 8 hours? 9 Q. Prior to your preparation with 9 A. No, no representatives from AIC 10 counsel, were you aware of any meeting 0 were there. 11 between Midland and Innkeepers on or about 1 Q. So how did you come to understand 12 Apri128, 2010? 2 that someone was waiting approximately six 13 A. Yes, I am aware and I'm not sure 3 hours for a meeting? 14 how I would characterize it, as a meeting or 4 A. Well, as I said, there was a 15 an attempt to have a meeting. The event 5 request that AIC sign something and it took 16 sticks out in my mind only because I had 6 us a period of time to get to it and our 17 heard that a number of people went to 7 understanding, because -- 18 Midland's offices, presumably to discuss -- 8 Q. Let me see if I could --who told 19 MR. SOLOMON: Bless you. 9 you this? 12o A. -- the situation much as they had ?0 A. If I recall correctly, internal 121 with other creditors and upon arriving at 21 counsel Joe Glatt was reviewing whatever this 122 Midland's offices, they waited for what I 22 agreement was. 123 heard was most of the day, because Midland 23 MR. EHRLICH: I think the -- 124 wanted them to sign something that they 24 counsel's question is, who told you they 125 couldn't sign, or didn't sign, or hadn't ?5 were waiting for the meeting. 87 89 1 Hewes 1 Hewes 2 discussed prior to showing up or whatever, I 2 MR. SOLOMON: We will start with 3 don't know. But they went. They sat there 3 that. That's fine. 4 for six hours. What they did after that, I 4 A. Well, I mean it would have either 5 don't know what happened. 5 been, and I don't recall specifically, it 6 Q. So you don't know if that document 6 would have either been Joe Glatt or Marc 7 that you just referenced was discussed before 7 Beilinson, likely. 8 the representatives from the company showed 8 Q. And that they were waiting for the 9 up at Midland? 9 meeting with representatives from Innkeepers 0 A. Well, no, I-- there was a, some 0 and Moelis, correct? 1 sort of agreement that the Midland asked the 1 A. I don't know who specifically went 2 company to sign before having a meeting. My 2 but I believe it would have been the same, it 3 understanding is, they didn't ask the company 3 would have been the company and presumably 4 to sign that agreement until they showed up 4 both of its advisors, Moelis & Company and 5 and the representatives from Midland refused 5 K&E, but I don't know specifically. I wasn't 6 to meet until this agreement was entered 6 there. 7 into. And, therefore, they sat there for six 7 Q. I would like you to open Exhibit 8 8 hours. 8 to the last page, please. 9 Q. How did you obtain that 9 A. You said the last page? ro understanding? ?0 Q. The last page of Exhibit 8. r1 A. I believe that, and forgive me, I ?1 A. Sure. r2 don't know -- understand the exact nature of ?2 Q. Entitled "Proposed Governance r3 this agreement. It was some sort of ?3 Structure." Do you see that? r4 agreement to negotiate or have a conversation ?4 A. Sure. r5 or whatever and I believe they were also ?5 Q. Now, look at Exhibit 9, the last 23 (Pages 86 to 89) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00228 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 D2 !::>3 b4 D5 90 Hewes 1 page or anywhere in that, do you see any 2 information about a proposed governance 3 structure in Exhibit 9? 4 MR. EHRLICH: Objection to form. 5 I'm not sure what the benefit of having 6 this witness compare documents is but if 7 that's how you want to use your time, go 8 for it. 9 A. You want me to review all of o Exhibit 9 to look for -- 1 Q. I want you to review whatever you 2 need to answer my question. 3 Let me see if I can shorten it. I 4 will withdraw my last question. 5 If you go to the last page of 6 Exhibit 9, does the last page of Exhibit 9 7 discuss any proposed any governance 8 structure? 9 A. No. The last page I have is marked b o page number 15 and it appears to be a set of b 1 financial metrics. I don't see anything b 2 about that governance structure on this page. b 3 Q. Looking at the last page of b 4 Exhibit 8, leaving that open, please, it b 5 91 Hewes 1 refers to "Lehman and investor to share 2 control of the trust." 3 Do you see that? 4 A. I do. 5 Q. At the meeting held on or about 6 April 22nd, was there any discussion as to 7 who that investor would be? 8 A. I don't recall. I mean I think 9 that Lehman had indicated a desire, should it 0 exchange its debt for equity, not to be the 1 sole individual shareholder. Presumably 2 that's what this is referring to. 3 Q. Was there any discussion as to who 4 would be or could be the other or other 5 shareholders? 6 MR. EHRLICH: At the April 22nd 7 meeting? 8 Q. At the April 22nd meeting. 9 A. I believe that -- I believe that we b 0 had, we being AIC, had expressed only an b 1 interest in investing new money into a b 2 situation under the right terms, scenario, b 3 whatever you want to call it. b 4 Q. And when for the first time was b 5 92 Hewes that expressed by AIC? A. I don't recall specifically, but it would have been -- it would have been around this time frame. Q. When for the first time did AIC contemplate the potential for purchasing a portion of the equity. Do you understand the difference between my questions? My first question was when it was expressed, and you've answer that. I want to know if AIC had contemplated that scenario before expressing it and if so, when? MR. EHRLICH: Objection to form. You can answer. A. I think prior to the first meeting that we discussed earlier, candidly it wasn't clear to us in any way what the outcome of the company's issues might be. And so I would say I don't recall any contemplation prior to that first meeting of investing in new money into any sort of restructuring transaction. I mean candidly we thought, we didn't see that scenario as a possibility. 93 Hewes MR. SOLOMON: I am going to ask the court reporter to mark as Exhibit 10 a document LEH-ALI 41 through 50. (Exhibit Hewes-1 0, Illustrative Terms of Proposed Restructuring, June 4, 2010, Bates Nos. LEH-ALI 000041 through LEH-ALI 000050, marked for identification, this date.) Q. Have you seen this document before today? A. Other than in preparation for this meeting, I don't believe so, no. Q. Prior to your meeting with counsel, had anyone at AIC seen this document? MR. EHRLICH: Objection to form. You can answer. A. I don't believe so, no. And again, the reason that I say that is the figures, the numbers in this document are wholly unfamiliar to me. You know, the --there appears to be this concept of a backstop in here again, a percentage of 61.82 percent. Numbers like that have never been discussed among our team, the concept of a breakup fee. 24 (Pages 90 to 93) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00229 94 96 1 Hewes 1 Hewes 2 I don't -- I hadn't seen this document prior 2 Q. Did you review this document after 3 to preparation and I don't think anyone else 3 receiving it? 4 had on our team. 4 A. Yes, I believe so. 5 MR. SOLOMON: I am going to ask the 5 Q. Do you have an understanding as to 6 court reporter to mark as Exhibit 11 a 6 the reference in the very first page of the 7 document AIC 233 through 245. 7 document itself, not the e-mail cover, to 8 (Exhibit Hewes-11, E-mail dated 8 term sheet alternative A? 9 6/17/10 with attachment, Bates Nos. 9 Do you understand or have any 0 AIC 00000233 through AIC 00000245, 0 reason to understand why -- withdrawn. 1 marked for identification, this date.) 1 Why is it alternative A? Was there 2 Q. Sir, take a moment to review this, 2 a B, C, or D? 3 but I'll point out the cover e-mail indicates 3 MR. EHRLICH: Objection to form. 4 that Mr. Beilinson sent it to you and Mr. 4 You can answer. 5 Korval on or about June 17 at 8:44p.m. 5 A. My understanding was or is that at 6 Do you see that? 6 the time Lehman and the company were also 7 A. I do. 7 discussing a transaction that did not involve 8 Q. My question is, have you seen this 8 AIC. 9 document before preparation with counsel? 9 Q. How did you reach that PO A. This looks familiar, yes. /Q understanding? P1 Q. And do you believe you saw it on or 71 A. I believe Marc Beilinson indicated P2 about June 17th? 72 that to members of AIC. 173 A. It appears I received it on 73 Q. When? 174 June 17th. I don't recall candidly when I 4 A. I don't recall. 175 first reviewed it. 5 Q. Was it in writing? 95 97 1 Hewes 1 Hewes 2 Q. Was it short-- at or shortly after 2 A. I don't -- I don't recall. I don't 3 June 17th? 3 think SO. 4 A. JTes, presumably. 4 Q. Who at AIC did Mr. Beilinson advise 5 Q. Do you have understanding as to why 5 of that fact? 6 Mr. Beilinson sent this document to you? 6 A. I recall being told that the 7 MR. EHRLICH: Objection to form. 7 company and Lehman Brothers were 8 JT ou can answer. 8 contemplating an alternative scenario that 9 A. Do I know why he sent it to me, is 9 did not involve AIC. I can't testify as to 10 that the question? 0 whether other people also heard the same 11 Q. Do you have any understanding as to 1 thing but it wouldn't surprise me if they 12 why he sent it to you? 2 had. 13 MR. EHRLICH: Objection to form, 3 Q. I'm asking you, though, in your 14 calls for speculation. 4 role now as a representative of AIC, do you 15 A. I mean it contemplates a 5 know whether other people -- I understand 16 transaction with AIC, I assume that's why he 6 personally you may not be able to testify as 17 sent it to me. 7 to what other people said, heard and the 18 Q. We've seen other documents that 8 like, but as a representative of AIC, do you 19 contemplates a transaction with AIC earlier 9 know whether anyone else at AIC had a tzo today, do you recall those? 20 conversation with Mr. Beilinson during which tn A. Uh-huh. 21 he indicated in form or substance that the 172 Q. You didn't receive those -- neither 22 company was contemplating a transaction with 173 you nor anyone at AIC received those, though, ?3 Lehman that did not involve AIC? 174 correct? ?4 A. I honestly don't recall. It's ~ 5 A. That is my belief, correct. ?5 possible, but it's possible also that they 25 (Pages 94 to 97) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New JTork, NJT 10123 (212)705-8585 APP-00230 98 1 Hewes 1 2 heard it, you know, it became generally known 2 3 from me passing it on to them or vice versa, 3 4 I don't recall. 4 5 Q. At that time did you have an 5 6 understanding as to any of the basic terms of 6 7 what was being discussed between Lehman and 7 8 the company? 8 9 MR. EHRLICH: Not involving AIC? 9 1 0 Q. With respect to the transaction 0 11 that did not involve AIC? 1 12 A. No, no. 2 13 Q. Did Mr. Beilinson give you any 3 14 information other than -- withdrawn. 4 15 At that time did Mr. Beilinson give 5 16 you any information other than we are 6 1 7 contemplating a transaction with Lehman that 7 18 does not involve AIC? 8 19 A. Did he -- can you repeat the 9 2 0 question? ? 0 21 Q. Sure. 21 2 2 MR. SOLOMON: I'll rephrase it. 2 2 2 3 Q. At the time Mr. Beilinson advised 2 3 2 4 you that the company was discussing a 2 4 2 5 potential transaction with Lehman that did ? 5 99 Hewes MR. EHRLICH: Of the term sheet? MR. SOLOMON: Exhibit 11. Ofthe attachment not the -- page marked number 5 at the bottom. MR. EHRLICH: Bates numbers 238. THE WITNESS: Sure. 100 Q. You see at the bottom there is a heading AIC Purchase of New Equity. Do you see that? A. I do see the heading. Q. When you read that provision, I would ask you does that appear to you to be the structure or form that AIC discussed with the company about -- with the company or Lehman -- about its potential purchase of new equity? MR. EHRLICH: Objection to form, foundation. You can answer. A. I'm sorry, can you repeat the question. MR. SOLOMON: I'll rephrase it. Q. You've had an opportunity to review that provision? 101 1 llewes 1 llewes 2 not involve AIC, did Mr. Beilinson give you 2 A. Yes. 3 any other information about that potential 3 Q. You remember earlier today you 4 transaction? 4 indicated that based upon the existence of 5 A. About the alternative transaction 5 the 82.18 percent and some of the other 6 with Lehman Brothers? 6 numbers contained in the documents that we 7 Q. Correct. 7 saw, you believed AIC had not seen those 8 A. No, I don't-- I don't believe so. 8 documents. Do you recall that? 9 Q. Do you know if he provided that 9 A. Yes. 10 information to anyone else at AIC? 10 Q. Now, I'm asking you based on the 11 A. I don't believe so. 11 117.5 million number contained in here and 12 Q. So as you sit here today, you do 12 the 50 percent of the initial Lehman shares? 13 not know any of the terms or provisions that 13 A. Uh-huh. 14 15 16 17 18 19 20 21 22 23 24 25 were under discussion between the company and 14 Q. Is -- are those numbers and those percentages the terms that AIC was discussing with either Lehman or the company with respect to the purchase of new equity? Lehman with respect to the transaction that 15 did not involve AIC; is that correct? 16 MR. EHRLICH: Objection, asked and 17 answered. 18 A. We weren't involved in those 19 conversations. We didn't-- so, no, I'm not 2 0 familiar with what alternative transaction 21 the company and Lehman Brothers may have ? 2 discussed. ? 3 Q. Please turn to page 5. ? 4 MR. EHRLICH: Objection to form. You can answer. A. I believe there -- these are early iterations of the terms or perhaps the first iteration, I'm not sure, of the terms under which we would purchase post reorganization equity from Lehman Brothers. However, as you A. Sure. ? 5 can see, the terms of this agreement are -- 26 (Pages 98 to 101) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00231 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ~ 0 h ~ 2 t/3 P4 P5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 102 104 Hewes 1 Hewes are different than, there are certain aspects 2 and the upper right of Exhibit 12 is PW of this agreement that were not acceptable to 3 comment 6/22/10. us. 4 Do you see that? Q. The purchase price of 117.5 million 5 A. I do see that. that's identified there, do you see that? 6 Q. I wanted to point out to you that A. Uh-huh, uh-huh. 7 although they're dated the same, it's not Q. To your knowledge, did anyone at 8 necessarily the same document. AIC have any role in coming up with that 9 A. Thank you, I appreciate that. number? 0 Q. Have you ever seen Exhibit 12 MR. EHRLICH: Objection to form. I 1 before today --withdrawn. just note for the record this is not an 2 Have you ever seen Exhibit 12 AIC generated document. 3 before your preparation session with counsel? A. Yeah, I don't know. Did we have 4 A. There were -- it's my any role in coming up with 117.5, no. 5 understanding, and consistent with the fact Q. Prior to June 17,2010, do you know 6 that this is marked with a document that was or, to your knowledge, did anyone at AIC 7 commented on by Paul Weiss, there were discuss with anyone, either at the company or 8 versions of this term sheet that went back at Lehman, what the value of 50 percent of 9 and forth. It's difficult for me to confirm the initial Lehman shares might be? 20 that I reviewed this specific version. I MR. EHRLICH: Objection to form. 21 don't recall. A. I don't recall a discussion of that 22 Q. In preparation for your deposition, nature. 23 did you review your files to determine MR. SOLOMON: I'm asking the court /4 whether you received this document? reporter to mark as Exhibit 12 document /5 A. Not specifically, no. 103 105 Hewes 1 Hewes Bates number LEH-ALI 230 through 241. 2 Q. Turn to page 5, please. (Exhibit Hewes-12, Term Sheet 3 A. Sure. Alternative A, Illustrative Terms of 4 Q. If you look under the section, if Proposed Restructuring, June 17, 2010, 5 you look at the same heading that we looked Bates Nos. LEH-ALI 000230 through 6 at earlier, AIC Purchase of New Equity. Do LEH-ALI 000241, marked for 7 you see that? identification, this date.) 8 A. Yes. A. Sorry. Was there a question? 9 Q. Now there's the purchase price of Q. Not at the moment. I wanted to 0 85 million recited in there. Do you see give you an opportunity to look at the 1 that? document. But I will point out to you, sir, 2 A. Yes. if you open Exhibit 11 to the second page -- 3 Q. That is 50 percent of the initial A. Exhibit 11. 4 Lehman shares? Q. Not the fax cover page but the 5 A. Yes. first page of the term sheet. 6 Q. Does the existence of the A. Uh-huh. Oh, sorry. 7 $85 million number in this draft ofthe Q. I want to clarify something for 8 document refresh your recollection as to you. 9 whether you received it or not? A. Sure. ?0 A. Again, I -- and I'm not trying to Q. I'm not trying to trick you here, ?1 be cute, the -- the number sounds familiar. sir. Although both Exhibit 11 and Exhibit 12 ?2 I don't recall whether I reviewed this say Illustrative Terms of Proposed ?3 specific draft of the document personally. Restructuring June 17,2010, in the upper ?4 Q. Do you know if anyone at AIC right of Exhibit A is Dechert draft 6/17/10 ?5 reviewed this draft of the document? 27 (Pages 102 to 105) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00232 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 106 108 Hewes 1 Hewes A. I believe that at a minimum Joe 2 A. Uh-huh. Glatt would have reviewed this document? 3 Q. Please take a moment just to look Q. What do you base your belief on? 4 at that provision. A. That, simply that Joe corresponded 5 A. Okay. with our counsel at Paul Weiss regarding 6 Q. Do you see that there's in the comments to and drafts of this term sheet. 7 second paragraph an indication that the Q. Did you discuss this specific 8 present value of the new fixed rate debt note version of the term sheet with Mr. Glatt? 9 reflecting such election shall not exceed A. I don't recall. 0 $550 million? Q. So as you sit here today, you don't 1 Do you see that? know for certain whether Mr. Glatt commented 2 A. Yes, I do. upon this, do you? 3 Q. Other than conversations with A. I don't -- I don't believe Paul 4 counsel, do you have an understanding how Weiss would have sent out drafts for 5 that number was arrived at in this document? responses to this document without input from 6 A. No, I don't. our internal counsel. 7 Q. Take as much time as you need. Q. I understand that, sir. My 8 A. What was the first draft that we question was a little different. 9 received? This-- sorry. The June 17 draft. MR. SOLOMON: Can I have it read 20 This is also June 17. back, please. 21 It appears to be, that same figure (A portion of the record was read.) 22 appears to be in the initial draft we MR. EHRLICH: Objection to form. 23 received that you gave me as Exhibit 11. You can answer. /4 Q. And that came from counsel for A. I don't think I would make that /5 Lehman, correct, initially? 107 109 Hewes 1 Hewes statement. The statement I would make is, 2 A. Yes, it's marked Dechert draft. again to repeat, Joe corresponded with Paul 3 Q. And it was forwarded to Weiss regarding comments to this term sheet, 4 Mr. Beilinson and then on to you, correct? and the figure of 85 million by example, I 5 A. Correct. believe was a counterproposal by AIC that 6 Q. So that 550 number was in there could have only made its way into this 7 before, $550 million number was in there document if Joe had commented on it, or 8 before? someone else at AIC. But again, I don't -- I 9 MR. EHRLICH: Objection to form. couldn't tell you specifically that I 10 A. It appears to be in the first reviewed this document. 11 draft, yes. Q. So I understand, you can't tell me 12 Q. Now, in the version you sent back specifically whether you reviewed this 13 --withdrawn. document, correct? 14 In the version that your attorneys A. This draft of it. 15 sent back -- withdrawn. Q. This draft of this document? 16 In the version that was commented A This specific draft. 17 upon by your attorneys on or about June 22nd Q. But you believe Mr. Glatt did 18 -- review this draft of this document? 19 A. Uh-huh. A I believe that's correct, yes. 20 Q. -- you said, if I remember Q. Turn to page 2 of the document, 21 correctly, there was a counterproposal of the Exhibit 12? 22 $85 million number in the AIC purchase of new A Uh-huh. 23 equity; is that correct? Q. Under the heading "Fixed Rate Debt" /4 A. Yes. on the left side? /5 MR. EHRLICH: I would just note for 28 (Pages 106 to 109) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00233 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 t:>5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ro r1 r2 r3 r4 r5 110 Hewes 1 the record that this document does as PW 2 comments on the first page although not 3 subsequent pages, it appears from 4 Lehman's files without a transmittal 5 document. You know, we can assume it 6 reflects comments but I don't think 7 we've established a foundation for that 8 and I just want the record to reflect 9 that. o THE WITNESS: I'm sorry. I wasn't 1 aware of that previously. 2 MR. EHRLICH: Right. I mean there 3 is no black line here. And the PW 4 comments only appears on the first page 5 so, you know, we can assume for the 6 purposes of this discussion that they 7 reflect comments but there may have 8 changes made subsequent by Dechert to 9 this document that aren't reflected ? 0 here, and given that it comes from the ? 1 Lehman, you know, I don't think it's ?2 fair to assume necessarily that this ? 3 reflects comments on behalf of AI C. ? 4 MR. SOLOMON: Are you done with ?5 111 Hewes 1 your objection? 2 MR. EHRLICH: Yes. I just wantthe 3 record to be clear. I would assume you 4 do too. 5 THE WITNESS: Was there a question 6 pending? 7 MR. SOLOMON: There will be in a 8 moment. 9 Q. Do you know whether Innkeepers or 0 anyone acting on Innkeepers' behalf ever 1 negotiated with the holders of the mortgage 2 debt secured by the properties in the fixed 3 rate pool to come to that $550 million number 4 that's reflected in this exhibit? 5 MR. EHRLICH: Objection to form, 6 foundation. 7 You can answer. 8 A. I'm sorry. Can you repeat the 9 parties? ? 0 (A portion of the record was read.) ? 1 MR. EHRLICH: Note my objection. ?2 A. Do I know if they negotiated with ? 3 the fixed rate lender? I don't -- I'm not ? 4 aware of such a negotiation. ? 5 112 Hewes Q. Do you know if anyone acting on behalf of AIC negotiated with the holders of the mortgage debt secured by the properties in the fixed rate pool with respect to that $550 million number? MR. EHRLICH: Objection to form and foundation. You can answer. A. I don't believe AIC negotiated that figure, no. Q. Do you know if there were any negotiations between anyone and the holders of the mortgage debt secured by the properties in the fixed rate pool to arrive at that $550 million? A. I couldn't possibly answer that question. You'll have to be more specific. Q. As you sit here today are you aware A. You said anyone negotiated anything regarding that figure. It's too broad of a question. Q. I'm asking if you are aware of any such negotiations? Hewes A. I'm aware that the company has had or attempted to have conversations, negotiations, discussions, what have you, 113 with Midland. I don't know the nature of those conversations. I haven't been involved in any conversation with Midland nor, to my knowledge, has anyone from AIC at any point in time during the past several months, but I couldn't possibly testifY whether anyone had any negotiation with Midland as to this figure because I was never nor were other members of AIC ever involved in those conversations. That's why I said your statement was too broad. Q. I'm not asking if those negotiations occurred, if at all. I'm asking if you know of any negotiations, and that you can respond to. MR. EHRLICH: Objection to form. A. Again, I can't. I couldn't possibly. Q. You can't testify as to what you know and what you don't know? A. I don't know whether or not any of 29 (Pages 110 to 113) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00234 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 12o 121 122 123 124 125 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO 171 172 173 1/4 175 114 Hewes 1 those parties other than AIC negotiated, 2 attempted to negotiate or discussed this 3 number with the holders of the fixed rate 4 mortgage. I couldn't possibly know. It 5 doesn't mean it didn't happen. They're two 6 different issues. 7 Q. I understand, sir, and you may be 8 misunderstanding my question. I'm not asking 9 you if it ever happened. I'm asking if you 0 know. 1 A. Well, that was -- that was my 2 interpretation of your earlier question. It 3 was very broad, anyone ever discussed 4 anything about, there were a lot of broad 5 words. 6 Q. The record will reflect what my 7 question was. But let me see if I can 8 clarify for purposes of moving forward. 9 A. m ~ . 20 Q. As you sit here today, are you, 21 either personally or in your role as a 2 2 30(b )(6) designee of AIC, aware of any 2 3 discussions with the holders of the mortgage 2 4 debt secured by the properties in the fixed 2 5 115 H ~ ~ 1 rate pool with respect to the $550 million 2 number that we saw in, on page 2 of 3 Exhibit 12? 4 A. As I testified earlier, I'm aware 5 that the company has had discussions with 6 Midland on, as the representative of the 7 fixed rate lenders. I don't know the content 8 of those discussions. I'm not aware of the 9 content. 0 MR. EHRLICH: We've been going for 1 quite a while. When it's convenient, 2 can we take a short break? 3 MR. SOLOMON: I would like to move 4 through as quickly as possible. But if 5 you are asking for a break this is a 6 fine time. 7 MR. EHRLICH: Would you rather-- 8 let's go off the record for a second. 9 (Discussion off the record.) :::> 0 (A brief recess was taken.) ?1 MR. SOLOMON: I remind the witness :::>2 that he is still under oath. :::> 3 THE WITNESS: Thank you. :::>4 MR. SOLOMON: I would ask the court :::> 5 Hewes reporter to mark as Exhibit 13, a document Bates stamped LEH-ALI 141 through 151. (Exhibit Hewes-13, Term Sheet Alternative A, Illustrative Terms of Proposed Restructuring, June 22, 2010, Bates Nos. LEH-ALI 000141 through LEH-ALI 000151, marked for identification, this date.) Q. Sir, have you had an opportunity to review Exhibit 13? A. Briefly, yes. Q. Did you see this document before your preparation session with counsel? A. I'm trying to jog my memory. It's possible, although I don't recall specifically whether I have seen this draft prior to review with counsel. Q. Do you know if anyone at ALI -- 116 excuse me -- do you know if anyone at AIC saw this version of the document prior to your review with counsel? MR. EHRLICH: Objection to form. You can answer. Hewes A. I would give the same answer. Certainly I suppose it's possible but I don't know specifically whether others at AIC reviewed this specific draft. Q. Do you know if they received it? A. Same answer. 117 Q. Did you do anything to inquire in preparation for your deposition here today as to whether anyone at AIC received this particular draft? A. Not specifically, no. Q. Turn to page, the bottom of page 5, carrying over to the top of page 6, there's a reference to AIC purchase of new equity. Do you see that? A. Yes, I do. Q. Do you see that the purchase price there for 50 percent of initial Lehman shares is now 110 million in this document? A. I see that, yes. Q. Does that refresh your recollection as to whether or not you saw this document prior to your review with counsel? A. As to whether I saw it? 30 (Pages 114 to 117) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00235 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ~ 0 h ~ 2 t/3 P4 P5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 118 Hewes 1 Q. Yes. 2 A Again, it's possible that I've seen 3 this specific draft. I don't recall 4 specifically whether I have or not. 5 Q. Does the $110 million number 6 contained in that provision refresh your 7 recollection as to whether anyone at AIC saw 8 the document before your meeting with 9 counsel? 0 A I recall that number being 1 discussed. I don't know whether that was 2 specifically as a result of someone reviewing 3 this specific draft or whether it was 4 communicated in some other format. 5 Q. If you see, there's a footnote 6 after the $110 million number at the top of 7 page 6. Do you see that? 8 A I ~ . 9 Q. And it's footnote number 3 and at ::> 0 the bottom it says, "Discuss characterization ::> 1 of payments, including in respect of AIC's ::> 2 guarantee of Fixed Rate Pool PIPs." ::> 3 Do you see that? ::> 4 A Yes. 75 119 Hewes 1 Q. As you sit here today, do you have 2 any understanding as to what that refers to? 3 MR. EHRLICH: Objection to form. 4 You can answer. 5 A I'm sorry, can you repeat the 6 question. 7 MR. SOLOMON: Would you read it 8 back, please. 9 (A portion of the record was read.) 0 MR. EHRLICH: Please note my 1 objection to foundation, to substantive 2 examination of the witness on this 3 document as opposed to whether or not it 4 refreshes his recollection when it has 5 not been established that AIC ever 6 received this or even believed that it 7 was transmitted outside of Dechert but 8 you know you can answer. 9 A I'm sorry. I think the reporter /0 repeated a shorter portion of the question. / 1 Can you repeat the entire question. / 2 (A portion of the record was read.) ::> 3 MR. EHRLICH: Please note my ::> 4 objection as to the use of this ::> 5 Hewes document. A This footnote was obviously included in the draft prepared by Dechert. I believe that the footnote simply refers to 120 the concept that as part of the transaction, should one occur, that AIC was interested in ensuring that the company completed the PIP work that it was obligated to complete previously and had not. Or may not have. Q. Was AIC involved in negotiating the terms contained in this term sheet? MR. EHRLICH: Objection to form, foundation. A There are a number of terms in this document. I think you will need to be specific as to which terms you're referring to. Q. I was asking generally in any of them. MR. EHRLICH: And what does involved in mean? This could be an internal Dechert draft for all we know. A The -- the -- many of the terms appear as they did in the initial draft, Hewes 121 which neither we nor our counsel, is my understanding, created. At certain points we responded or commented but you would have to ask me a specific question about a specific term for me to help you better. Q. I appreciate that. In an answer a few moments ago, you started by saying as part of the transaction, should one occur, that AIC was interested in ensuring that the company completed the PIP work that it was obligated to complete previously and may not have. Do you recall that? A Yes. Q. What transaction were you referring to there? A The-- the transaction broadly contemplated by this term sheet and drafts of this term sheet. Q. And who, if anyone, on behalf of AIC was responsible for negotiating the transaction that you just referred to? A Negotiating the transaction or negotiating the -- 31 (Pages 118 to 121) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00236 122 1 Hewes 1 2 Q. Negotiating the transaction that 2 3 you just referred to. I'm asking on behalf 3 4 of AIC. 4 5 MR. EHRLICH: Objection. 5 6 Q. Who at AIC was responsible for 6 7 negotiating the transaction you referred to? 7 8 A. Can you be more specific as to 8 9 which components of the transaction you're 9 0 referring to? 0 1 Q. Well, let's ask right now for any 1 2 components of the transaction. You used the 2 3 term "transaction" in your answer. 3 4 A. Uh-huh. 4 5 Q. The transaction you're referring 5 6 to-- 6 7 A. The transaction -- so in the 7 8 context of the transaction being an 8 9 acquisition of equity from Lehman, should 9 ~ 0 Lehman come in the possession of post ::> 0 P 1 reorganization equity, there were several ::> 1 P 2 members of our team that were responsible in ::> 2 P 3 considering an investment in the post ::> 3 P 4 reorganization equity. That group included ::> 4 P 5 myself, it included Joseph Glatt. It ::> 5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 123 Hewes 1 included Jim Zeiter. It included Patrick 2 Dalton. The last two individuals in their 3 capacity as senior executives and -- 4 Q. Senior executives AIC? 5 A. Correct. 6 And it included Justin Korval, and 7 Joseph Glatt if I didn't mention him. 8 Q. Anyone else? 9 A. Not that-- not specifically, no. 0 Q. Were there any other individuals at 1 AIC that had any role in the negotiations for 2 any other part of the transaction that you 3 were referring to in your earlier answer? 4 A. I don't believe so, no. 5 Q. Did you have internal discussions 6 at AIC as to the valuation ofthe new equity 7 that Lehman was to receive if there were 8 going to be a transaction? 9 MR. EHRLICH: Objection to form. 2 o You're getting awfully far afield from / 1 the topics in the notice and what the / 2 court said. I think the court said / 3 valuation was not on the table for the / 4 PSA hearing but at least at this point / 5 Hewes you can answer. 124 MR. SOLOMON: I was just to go ask the negotiation of the term sheets that we've seen back and forth and the witness does not recall which ones he's specifically seen. And if we can establish that there were discussions at certain periods of time, the witness himself has said the valuation may trigger his memory as to which of the term sheets he has seen and which he may not have. MR. EHRLICH: I wasn't instructing him not to answer. MR. SOLOMON: My question stands. A. Can you repeat the question? MR. SOLOMON: Would you read it back, please. (A portion of the record was read.) MR. EHRLICH: I don't think that goes to refreshing his recollection. But you can answer this question. A. We had discussions about the requested purchase price of the new equity. Hewes Q. Did these discussions occur-- withdrawn. In terms of these, or with respect to these discussions, do you recall any discussions concerning a valuation of approximately 50 percent of the new equity being worth $110 million? MR. EHRLICH: Objection, beyond the scope. You can answer. A. Did we have any discussions about whether the equity was worth $110 million. Q. Approximately $110 million? A. I believe so, yes. Q. Did those discussions occur as a result of receiving a proposal or a term 125 sheet or any indication from either Lehman or the company as to a valuation of approximately $110 million for approximately 50 percent of the new equity? A. I'm sorry. Can you repeat the question? MR. SOLOMON: Read it back, please. (A portion of the record was read.) 32 (Pages 122 to 125) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00237 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO 171 172 173 1/4 175 126 128 Hewes 1 Hewes A I believe so, yes. 2 sir? Q. Does that refresh your recollection 3 A Well, I said that's what it appears as to whether or not you received and 4 to be. I don't think we reviewed this in reviewed Exhibit 13? 5 draft format, no. A No, the words you used were a term 6 Q. Who is the "we" in your last sheet, an indication or any other 7 answer? communication, which to me suggests that the 8 A AIC. communication may have been made from Dechert 9 Q. So as you sit here today, do you to Paul Weiss, Paul Weiss to Joe Glatt and 0 know whether anyone at AIC received a copy of Joe Glatt to me regarding a number and we may 1 this document? have discussed it. 2 A I don't believe anyone at AIC Q. I understand. I'm just asking if 3 received a copy of this document, no. that refreshed your recollection or not. 4 Q. I will represent to you that in A No. 5 this version of the document, there is no MR. SOLOMON: I am going to ask the 6 subheading on the left column, AIC purchase court reporter to mark as Exhibit 14 a 7 of new equity. document Bates stamped as LEH-ALI 254 8 A I understand that, yes. through 264. 9 Q. I'm not trying to ask you if (Exhibit Hewes-14, Term Sheet, ?0 something is not in there, I'm telling you, Alternative A, Illustrative Terms of 21 sir, it's not in there. Proposed Restructuring June 29, 2010, 22 A Okay. Thank you. Bates Nos. LEH-ALI 000254 through 23 Q. So for purposes of my questions LEH-ALI 000264, marked for 24 assume that it's not in there. identification, this date.) 25 A Okay. 127 129 Hewes 1 Hewes Q. I show you what has been marked by 2 Q. Did there come a time during the the court reporter as Exhibit 14, "Term 3 negotiations that the concept of having AIC Sheet, Alternative A," Dechert Draft, 4 purchase the new equity and having that 6/29/10. 5 recited in the document changed? Did you see this document before 6 MR. EHRLICH: Objection to form. your review with counsel? 7 You can answer. A. Can I make a point that the date 8 Q. Do you understand the question? stamps on these pages are different? 9 A. Yeah, I'm thinking and I'm a little Q. You can and-- 0 bit confused. Give me a moment. A. Is this a one complete document 1 I'm sorry, can you go back to the Ill -- 2 question. Q. I am representing-- 3 (A portion of the record was read.) A. --in complete draft form? 4 A. In having that recited in the Q. I am representing to you this is 5 document, meaning the term sheet for the plan exactly how it was it produced to us by 6 support agreement? Lehman in consecutive Bates number order. 7 Q. Yes. A. Okay. And your question was, have 8 A. I believe at some point that, that I seen it prior to? 9 the concept that AIC would be a party to plan Q. Review with counsel. /Q support agreement in any format was A. This appears to be a draft of the 71 determined that that didn't make sense and -- term sheet that was ultimately attached to 72 I'm sorry, did that answer your question? Lehman's plan support agreement; is that 73 Q. If that's your answer. Have you correct? 74 completed it? Q. Do you recognize it to be that, 75 A. Again, I'm having trouble 33 (Pages 126 to 129) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00238 130 132 1 Hewes 1 Hewes 2 remembering the question. 2 Q. And did you discuss this with 3 MR. SOLOMON: Why don't you read 3 Mr. Glatt -- withdrawn. 4 back the question and answer again. 4 In preparation for your deposition 5 THE WITNESS: Can you read back 5 and in connection with your designation as a 6 question again. 6 30(b )(6) witness, did you discuss the 7 (A portion of the record was read.) 7 documents attached to this e-mail with anyone 8 A. I think that's complete. 8 atAIC? 9 10 11 12 13 14 15 16 17 18 19 tzo t21 t22 t23 t?4 t?5 Q. That's your answer, you've 9 completed it? 0 A. Yes. 1 MR. SOLOMON: I'm going to ask the 2 court reporter to mark as Exhibit 15 -- 3 (Exhibit Hewes-15, E-mail dated 4 717/10 with attachment, Bates Nos. AIC 5 00000127 through AIC 00000144, marked 6 for identification, this date.) 7 Q. Sir, the court reporter has put in 8 front of you what's been marked as 9 Exhibit 15, Bates stamp AIC 127 through AIC 2 0 1 4 ~ 21 A. Okay. 22 Q. This fax -- excuse me --the e-mail 2 3 -- showing my age. The e-mail cover is dated 2 4 Wednesday, July 7th to Mr. Beilinson from 25 131 1 Hewes 1 2 Mr. Glatt, that's at the top. 2 3 Do you see that? And that's 3 4 forwarding on an e-mail from Mr. Kornberg? 4 5 A. Uh-huh. 5 6 Q. And the e-mail indicates it's 6 7 attaching two term sheets? 7 8 A. Uh-huh. 8 9 Q. One relating to the proposed 9 10 agreements between Lehman and Innkeepers and 0 11 the other relating to those between Lehman 1 12 and AIC. Do you see that? 2 13 A. Yeah, I see that language. 3 14 Q. Did you see a copy of this e-mail 4 15 in or about, or on or about July 7, 2010? 5 16 A. Did I see a copy of the e-mail from 6 17 Joseph Glatt to Marc Beilinson? The answer 7 18 would be no. 8 19 Q. Did you see a copy of the e-mail 9 2 0 from Mr. Kornberg? ? 0 21 A. No. ?1 2 2 Q. Did you ever discuss the contents ? 2 2 3 of this e-mail with anyone at AIC? ? 3 2 4 A. If I did, it would have been with ? 4 2 5 Joe Glatt. ? 5 A. Not specifically. I mean these appear to be, again, drafts of documents that evolved into agreements eventually, but not these specific drafts we didn't. Q. Do you see the Bates stamp at the bottomAIC? A. Yes. Q. I'm going to represent to you that this document in this form was produced to us by AIC? A. I'm not disputing that. Q. Sorry. What I'm trying to understand, sir, you've been put forward as a designee for the company and someone who can speak on behalf of the company with respect to the matters designated in the 30(b)(6) notice subject to your counsel's objection, 133 Hewes and I'm curious as to whether you have any knowledge or information with respect to the reason behind the use of two term sheets as of July 7, 2010? MR. EHRLICH: As opposed to one. MR. SOLOMON: As opposed to one, or seven. A. You know, the --my understanding is, is our counsel internally and externally went back and forth on drafts of these documents for some period of time. I was not involved heavily in the drafting or commenting or responses to drafts. Although it was my understanding simply that to the extent AIC entered into an agreement with Lehman to purchase post reorganization equity or new equity in Innkeepers, that that concept should simply be reflected in an agreement to purchase post reorganization equity from Lehman should restructuring occur. Q. And to your knowledge, again, sir, I'm only asking to your knowledge, is that why there was a second term sheet used that 34 (Pages 130 to 133) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00239 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 12o 121 122 123 124 125 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 134 Hewes 1 had the agreement between AIC and Lehman? 2 MR. EHRLICH: I'm not sure it's 3 possible to answer that question without 4 revealing privileged information, but on 5 a no waiver basis I'll -- 6 MR. SOLOMON: If you want to take a 7 moment and find out if he has 8 nonprivileged information, or just let 9 him answer it yes or no. It's up to 0 you. 1 MR. EHRLICH: Can we go off the 2 record and confer for 30 seconds? If we 3 can just step outside. 4 (Discussion off the record.) 5 MR. EHRLICH: Back on the record. 6 MR. SOLOMON: There was a question 7 pending and there was a conference with 8 respect to a privilege issue. I would 9 like the question read back, please. ? 0 (A portion of the record was read.) ? 1 A. Is that why, and that's referring ? 2 to the prior question. 2 3 MR. EHRLICH: I think why the two 2 4 term sheets were separated. 2 5 135 Hewes 1 Q. So earlier we had seen one term 2 sheet? 3 A. Right. 4 Q. Now, there are two. 5 A. So -- so I'll repeat my prior 6 answer and maybe try to make it more clear 7 for you, which was, as I stated, Joseph Glatt 8 and Paul Weiss together handled much of the 9 documentation phase, if you will, so that 0 that review of drafts of term sheets and 1 comment thereon, and it's my understanding, 2 as I stated earlier, simply that if AIC were 3 to enter into an agreement to acquire post 4 reorganization equity from Lehman, if-- if 5 the general transaction contemplated by the 6 plan support agreement were to come to 7 fruition, that from a business perspective 8 that, our agreement to acquire equity from 9 them post reorganization should simply be ? 0 reflected in an agreement to acquire equity ? 1 from them, post reorganization. And so the ? 2 documents came to reflect simply a ? 3 transaction wherein AIC would purchase from ? 4 Lehman for a price equity that it may receive ? 5 136 Hewes in connection with restructuring. Q. Did you have an under- -- did you or anyone at AIC, to your knowledge, have an understanding that Lehman was conditioning its performance under its agreement with Innkeepers on entering into an agreement with AIC? A. Was conditioning its performance -- I think I stated earlier that it was our understanding that Lehman was contemplating a transaction and may have been negotiating a transaction with the company that didn't include AIC, so I'm not clear whether or not that means their performance under the PSA is conditioned upon the agreement with AIC, because I wasn't part of those discussions. Q. Turn back for a moment to Exhibit 11. A. Sure. Q. This was the term sheet you had received, correct? A. Correct. Q. Turn to page 6. The left-hand column conditions precedent to Lehman's Hewes obligations under PSA. Do you see that? A. Uh-huh. Q. Third bullet point, agreement reached with AIC in form and substance satisfactory to Lehman; and. Do you see that? A. Yes. 137 Q. Does that refresh your recollection that at some point in time during the discussions one of the conditions precedent to Lehman's obligations under the PSA was that it reached a satisfactory agreement with AIC? A. Yes, although the alternative transaction-- I guess where I'm a little fuzzy in my memory is that I'm not clear what overlap the concept that Lehman may have been having with the company about an alternative transaction had with the negotiation of these documents. Q. Do you know -- A. So, yes, I understand that as part of the plan support agreement that was ultimately executed and the agreement between 35 (Pages 134 to 137) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00240 138 1 Hewes 1 2 AIC and Lehman that was ultimately executed 2 3 that it certainly became a requirement, but 3 4 as I stated, there were points in time where 4 5 potentially they were contemplating something 5 6 e ~ e . 6 7 Q. Do you know, I'm asking if you 7 8 know, either in your own capacity or as 8 9 representative of AIC, whether by June 17th 9 0 Lehman was still having discussions, if any, 0 1 with the company, Innkeepers, about a 1 2 transaction that did not involve AIC? 2 3 A. I don't recall. 3 4 MR. SOLOMON: The witness when we 4 5 were off the record had asked for a 5 6 lunch break when we reached a convenient 6 7 point. I think this is such a time. 7 8 THE WITNESS: Great. Thanks. 8 9 MR. EHRLICH: Off the record. 9 ~ 0 (Discussion off the record.) ? 0 tn (Lunch recess taken at 12:41 p.m.) ? 1 P2 ?2 P3 ?3 P4 ?4 P5 ?5 1 2 Hewes AFTERNOON SESSION 139 1 2 140 Hewes MR. SOLOMON: I'm going to ask the court reporter to mark as Exhibit 16 a document entitled Term Sheet Lehman/AIC. (Exhibit Hewes-16, Term Sheet Lehman/AIC, July 19, 2010, [not Bates stamped], marked for identification, this date.) Q. And, sir, is that the final term sheet you were referring to in your last answer -- Excuse me -- in your earlier answers? A It appears to be, yes. MR. EHRLICH: And you represent that this is the final as was -- MR. SOLOMON: I will represent that this was the document that was attached to the Lehman motion filed as Exhibit D in Lehman's proceeding. They've made certain representations that I'm not going to necessarily back, but I will tell you that's where it came from. MR. EHRLICH: If this is Exhibit D to that motion, then we will accept it as the final. Hewes (Discussion off the record.) 141 3 (Time noted: 1:29 p.m.) 3 Q. Sir, on page 2 there are conditions 4 S C H U Y L E R H E WE S, resumed. 4 to execution of stock purchase agreement. Do 5 EXAMINATION (Cont'd.) 5 you see that? 6 BY MR. SOLOMON: 6 A Yes. 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 Q. I will remind the witness that he 7 is still under oath. 8 A. Thank you. 9 Q. Did there come a time that Lehman o and AIC finalized a term sheet with respect 1 to the potential new equity? 2 A. Yes. 3 Q. When was that? 4 A. The agreement with Lehman I believe 5 was finalized and executed on the weekend 6 prior to July 19th. 7 Q. When you say executed, are you 8 referring to any potential-- letter 9 agreement that may have accompanied the ? o actual term sheet or did you believe that the ? 1 term sheet itself was executed? ? 2 A. The letter agreement that was, to ? 3 which the term sheet would have been ? 4 attached. ?5 Q. Second bullet point refers to AIC and Lehman debt -- excuse me -- receipt by AIC and Lehman of all necessary and final approvals to consummate the transaction. Do you see that? A I do. Q. Are there any pending internal approvals that are still necessary to be received from AIC -- withdrawn. Are there any final approvals left for AIC? A Are there -- yes, I'm sorry, could you repeat the question. Q. Sure. (A portion of the record was read.) A Are there any final approvals left, yes, there are final approvals that are not-- Q. Which ones? 36 (Pages 138 to 141) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00241 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 bo b1 b2 b3 b4 ~ 5 142 144 Hewes 1 Hewes A It's not so much as a list as it is 2 MR. SOLOMON: That's what I want to the concept that there are still aspects of 3 know. I'm entitled to inquire. This the transaction to be memorialized in 4 was circulated the day before the first documentation which are not yet complete and 5 draft that we saw of one of the final approval would require review of, 6 agreements or that was produced. And review and discussion of the documentation 7 then it was also circulated on the I'm describing. 8 Saturday before the actual term sheet MR. SOLOMON: I am going to ask the 9 was executed. So I do have some court reporter to mark as Exhibit 17 a 0 latitude to inquire if there is any document Bates stamped INN_ MID 3311 and 1 relevance. And if you have an 3312. 2 objection, you can make an objection. (Exhibit Hewes-17, E-mail dated 3 If you are going to direct the witness, 7117110, Bates Nos. INN_ MID00003311 and 4 you can direct him, but otherwise I INN_ MID00003312, marked for 5 intend to proceed. identification, this date.) 6 MR. EHRLICH: You can answer his Q. Sir, this is an e-mail chain 7 question. attaching a one-page document, it appears, 8 THE WITNESS: Can you repeat the and you are listed as a recipient of the 9 question? documents sent by Marc Beilinson on May 24th, DO MR. SOLOMON: Please read it back. do you see that, in the portion about a third D1 (A portion of the record was read.) of the way down the page? D2 THE WITNESS: Can I ask you a A Uh-huh, I do. 1/3 question? Q. Did you receive this document on or 1/4 MR. EHRLICH: Absolutely. Is-- about May 24th? 1/5 MR. SOLOMON: There is a pending 143 145 Hewes 1 Hewes A It appears that I did, yes. 2 question. Does it have to do with Q. Did you review it at that time? 3 privilege? Do you have question as to A Yes. 4 whether this is information that you Q. Did you understand what was being 5 obtained from an attorney? I mean I'm referred to in this document? 6 asking you, you told me you received A I understood that the document 7 this document from Mr. Beilinson, you referred to company work product, yes. 8 told me you reviewed it, you told me you Q. What do you mean by company work 9 understood it -- product? 0 THE WITNESS: Yeah. Correct. A It was prepared by the company. 1 MR. SOLOMON: -- and generally what Q. You see in the first line, directed 2 it was referring to. to you, from Mr. Beilinson, "As you know, we 3 And I have pending question that I are meeting with Paul Weiss and Kirkland 4 actually would like an answer to unless tomorrow to walk through the entire guaranty 5 you tell me whether you have an issue as analysis." 6 to whether something is privileged. If Do you see that? 7 you can make that representation, that's A Yes. 8 one thing, but other than that, I want Q. What was the guaranty analysis you 9 an answer to my question, please. understood Mr. Beilin son to be referring to PO THE WITNESS: I want to-- I want in that sentence? 171 to confirm a conversation that was MR. EHRLICH: Wait, hold on. Let 172 privileged, yes. me object. On what possible basis does 173 MR. SOLOMON: With whom was this this relate to the development of PSA or 1/4 conversation that you are referring? the plan documents? 175 MR. EHRLICH: The witness has a 37 (Pages 142 to 145) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00242 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 1/3 174 175 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 17o 171 172 173 ~ 4 ~ 5 146 148 Hewes 1 Hewes concern about privilege. We're going to 2 practicing attorney. go off the record and I'm going -- 3 Q. Did Mr. Beilinson ever-- MR. SOLOMON: I would like -- 4 withdrawn. before you go off the record with a 5 In your answer you referred to the pending question I have a right to know 6 guaranty concept from 2007. What did you what counsel he's referring to here if 7 mean by guaranty concept? there's a question of privilege. That 8 A. Well, you will see that Mr. does not invade the privilege and I have 9 Beilinson references documents. There are a right to that if he's asking for a 0 agreements that were part of the original break. When I ask a simple question as 1 loan documents that discuss a guarantee of to what that Mr. Beilinson, who is not 2 certain capital obligations and, as I said, an attorney, was referring to when this 3 the analysis he was referring to was a legal witness said he received and understood 4 analysis of those documents, which he this. 5 proceeds to say in the next sentence. MR. EHRLICH: This document was 6 Q. Right. He refers to, quote, since created 3 days after your client sued 7 the documents are ambiguous, is that what Apollo Investment Corporation and it is 8 you're referring to when you say the next interlaced issues of privilege and I 9 sentence? know why the witness wants to confer. /Q A. Correct. MR. SOLOMON: Note my objection to /1 Q. Nowhere does he say it's a legal the conference. /2 analysis, does he? MR. EHRLICH: Your objection is /3 A. This was a -- you asked me what my noted. We're going off the record. /4 understanding of this sentence that he wrote MR. SOLOMON: Please note that the /5 was. 147 149 Hewes 1 Hewes conference was held over my objection. 2 Q. That was an earlier question, sir. (Discussion off the record.) 3 In your last answer you said Mr. Beilinson THE WITNESS: Thank you. 4 refers to it as a legal analysis in the next MR. SOLOMON: Would you please read 5 sentence. the pending question. 6 A. No, I didn't say Mr. Beilinson (A portion of the record was read.) 7 refers to it as a legal analysis. I said my MR. EHRLICH: You can answer that 8 understanding of the analysis in the first as long as it doesn't reveal privileged 9 sentence was that there was a meeting to information. 0 discuss a legal analysis of the contracts as A. The analysis that I understand 1 you can see with my counsel and the company's Mr. Beilinson to be referring to in this 2 counsel. sentence was a legal analysis of the 3 And I merely pointed out in the contracts which evidenced the guaranty 4 second sentence that he's referring to the concept from 2007. 5 documents, which is consistent with my MR. SOLOMON: Could you read that 6 statement, that the analysis was a legal back, please. 7 analysis ofthe documents. (A portion of the record was read.) 8 Q. In an answer a moment ago you Q. Is Mr. Beilinson an attorney, to 9 referenced a guarantee of certain capital your knowledge? ?0 obligations. A. I understand he was an attorney. ?1 What were you referring to by that I'm not familiar with his current status. ?2 guarantee specifically, to your knowledge, Q. You don't know if he's currently an ?3 who guaranteed what to whom? attorney? ?4 A. There is an agreement contained in A. I don't know if he's currently a ?5 the original loan documents that contemplate 38 (Pages 146 to 149) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00243 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 1/4 1/5 150 Hewes 1 a guarantee by AIC of a limited universe of 2 property improvements to be completed within 3 the company's portfolio of hotels. 4 Q. Was that guarantee that you're just 5 referring to ever the subject of any 6 discussions, to your knowledge, with respect 7 to the transaction between the company and 8 Lehman or between Lehman and AIC? 9 A I have no knowledge of whether it 0 was a topic of discussion between Lehman and 1 the company. It was a topic of discussion 2 between AIC and Lehman. 3 Q. In connection with the transaction 4 that ultimately resulted in the term sheet 5 that we saw a few moments ago? 6 MR. EHRLICH: Exhibit 16. 7 Q. Exhibit 16? 8 A Yes, in connection with this 9 agreement. 70 Q. What was discussed with respect to / 1 the guarantee in that context? / 2 MR. EHRLICH: Objection to form. 7 3 A The discussion was simply that AIC / 4 had a desire to ensure that the company / 5 151 1 Hewes 1 2 complete the capital project, which, as you 2 3 know, has -- is important for the company's 3 4 business of operating and maintaining its 4 5 hotels. 5 6 Q. Was there anything else discussed 6 7 with respect to the guarantee in connection 7 8 with the transaction? Between AIC and 8 9 Lehman. 9 0 MR. EHRLICH: Objection to the 0 1 furm. 1 2 A Can you be more specific? 2 3 Q. I'm asking generally, any other 3 4 discussions that concerned or related to the 4 5 guarantee in connection with the transaction 5 6 that we've been talking about. 6 7 A I think what I just stated was that 7 8 AIC -- AIC wanted to make sure in connection 8 9 with the transaction evidenced by this term 9 1/0 sheet and the potential for AIC to invest /0 1/ 1 dollars to acquire new equity or post / 1 1/ 2 reorganization equity from Lehman Brothers / 2 1/ 3 that that work was completed, which or I / 3 1/ 4 should say any work that would not have been / 4 1/ 5 completed would be completed. And that was / 5 Hewes the general nature of all discussions on this topic. Q. You indicated in your last answer that AIC wanted to ensure that work not completed would be completed. A I said may not have been completed. Q. In form or substance, I accept that. What, if anything, did AIC do in connection with the negotiation of this transaction to ensure that outcome? A To ensure which outcome? 152 Q. That work which may not have been completed would be completed. A We -- we discussed and negotiated language in our agreement with Lehman that, that says in essence that the company will complete any work that may have not been completed. Q. When you reference the agreement with Lehman, are you referring to the term sheet that we've seen that's been marked as Exhibit 16? A Yes, as a component of the agreement. Hewes Q. And is that a provision in this document, to your recollection, sir? A Yes, it is. 153 Q. Could you show me which provision you're referring to in your answer? A On the bottom of page 3, the carry over paragraph, that starts with the language, "So long as ... " Q. Yes. Is there any other provision in the agreement? A I don't believe so. Are you asking are there other provisions of the agreement outside of this one or -- Q. No, that you were referring to it in your last answer. I wanted to make sure that you had a chance to complete your answer. A No, I believe that is the -- I believe that's the only language that discusses this topic in the agreement. Q. Is it your testimony that this provision was negotiated between AIC and Lehman? The provision that you just identified starting at the bottom of page 3. 39 (Pages 150 to 153) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00244 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 1/4 1/5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 154 156 Hewes 1 Hewes A Yes. 2 A. Uh-huh. Q. Who on behalf of AIC was 3 Q. --were those earlier provisions in responsible for those negotiations? 4 the one term sheet or was it in the separate A Joseph Glatt and myself. 5 term sheets that you're referring to? Q. Did you negotiate directly with 6 A. I believe I was referring to term representatives of Lehman on that subject? 7 sheets between AIC and Lehman. A At a point in time, yes, although, 8 Q. Are you aware, either in your own I believe some, some negotiations may have 9 capacity or as a representative of the also been conducted by Mr. Glatt on this 0 company as a 30(b )(6) designee as to whether topic as well. 1 any of the earlier provisions with respect to Q. With whom at Lehman did you 2 ensuring that the work that may not have been negotiate? 3 completed would be completed appeared when A Michael Lascher. 4 there was only the one term sheet? Q. Do you recall what the first 5 MR. EHRLICH: Objection as to form. proposal was with respect to the desire to 6 You can answer. ensure that work that may not have been 7 A. That was a long question. Can you completed would be completed? 8 repeat it back. MR. EHRLICH: Objection to form. 9 MR. SOLOMON: Sure. I'll rephrase A I don't recall specifically what ?0 it. the initial proposal was, no. But it was ?1 Q. Are you aware, either in your own different than this. ?2 capacity or as the 30(b )(6) designee of AIC Q. Do you recall whether it was Lehman 23 whether earlier versions of the provision or AIC that made the initial proposal? 24 that we've been discussing-- A I don't recall who made the initial 25 A. Uh-huh. 155 157 Hewes 1 Hewes proposal. 2 Q. -- appeared in the term sheets that Q. Was the proposal made in writing? 3 referenced Lehman, AIC and the company A. I believe that some form of this 4 Innkeepers? concept had been in drafts of a term sheet 5 MR. EHRLICH: Objection. for some time -- I'm sorry, what was the 6 You can answer. original question? 7 A. The -- the -- I think as we covered MR. SOLOMON: Please read it back. 8 earlier this morning, the term sheets that (A portion of the record was read.) 9 circulated between Lehman and the company for A. As I stated, I believe some form of 0 some period of time I had not seen and I this concept had been in term sheets for some 1 don't believe representatives of AIC had seen period of time, so, yes, it would have been 2 until preparation for this process. So I was in writing. 3 not aware of-- of the contents or specific Q. When you refer to term sheets in 4 provisions in those agreements, or draft your last answer, do you recall earlier, sir, 5 agreements, term sheets, whatever the right that we saw that there was one term sheet 6 terminology is. that had references to the company Lehman and 7 Q. Did you review the term sheet AIC but at some point in time there was a 8 between Lehman and AIC before it was split to two separate term sheets; do you 9 finalized on July 19, 2010, Exhibit 16 that recall that? ?0 we have in front of you? A. Yes. ?1 A. Did I review this final version on Q. When you referenced term sheets in ?2 July 19th? that answer a moment ago as containing ?3 Q. Final version on or before earlier provisions with respect to what we've ?4 July 19th. been discussing at the bottom of page 3 -- ?5 A. I can't say with certainty that I 40 (Pages 154 to 157) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00245 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 tzo t21 t22 t23 t?4 t?5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 158 160 Hewes 1 Hewes reviewed the final version. It's possible 2 disagreed with the way words were written and that I did. It's also possible that the 3 we disagreed with the way words were written final revision-- version would have only 4 and we ultimately reached an agreement on the been reviewed by counsel. 5 order of words. Q. How many -- withdrawn. 6 Q. Other than a discussion about the Am I correct, sir, you indicated 7 actual words appearing in the document, were earlier, you had, you were involved in 8 there any discussions during this phone negotiations with representatives -- at least 9 conversation about the concepts that were to one or more representatives of Lehman with 0 it be incorporated into the provision? respect to the provision that we've been 1 A. When you say concepts, can you more talking about beginning on the bottom of page 2 specific? 3, correct? 3 Q. Well, just by way of example, I A. Yes, that's correct. 4 mean the provision carries on to the next Q. Were these negotiations conducted 5 page but, for example, A, not immediate PIP by telephone? 6 obligations in the fixed rate pool described A. The negotiation of this provision? 7 in Schedule 11, and it goes on. Q. Yes. 8 A. Uh-huh. A. A certain amount of it was 9 Q. You know, that's a concept that conducted by exchange of e-mails. There may ?0 appears in there, a reference to not have been -- I believe there was at least one 21 immediate PIP obligation? phone call between AIC and Lehman regarding 22 A. Did we discuss the concept? this provision. 23 Q. Did you discuss concepts as opposed Q. Any other communications that you 24 to just a drafting session is my question? recall? ?5 A. Well, yes as in so much as we 159 161 Hewes 1 Hewes A Other than telephone or e-mail? 2 drafted this language, yes, we discussed No. 3 these concepts. Q. No in-person meetings? 4 Q. But did you discuss the concepts in A No, definitely not. 5 a negotiation context or did you just discuss Q. Who was on the phone call between 6 the concepts in order to attempt to have the AIC and Lehman during which that provision as 7 words accurately reflect what was previously negotiated? 8 agreed to? A I believe that for Lehman it was 9 A. I would characterize it as the Michael Lascher and for AIC it would have 0 latter, which was our discussion revolved been myself and I'm --I'm -- I believe Joe 1 around ensuring that the words accurately Glatt may have also been on the phone but I'm 2 reflected what we had agreed to. not certain. 3 Q. You referenced e-mails, that there Q. Do you recall specifically what was 4 may have been e-mails containing drafts or discussed during this phone call? 5 negotiations, proposals, correct? A Well, our-- AIC's concern was 6 A. There may have been a limited simply to make sure that this language 7 number, yes. reflected what we had agreed to with Lehman, 8 MR. SOLOMON: We've received some. which was this concept that you see here. 9 To the extent they haven't been Q. Do you recall what response, if ?0 previously produced, we would just ask any, Lehman had to that? ?1 for the production of any e-mails A We spent some time perfecting the ?2 containing drafts of the provision. language in the provision. ?3 MR. EHRLICH: They should have been Q. Did the concept -- ?4 called for and produced to you. A There were concepts of they ?5 MR. SOLOMON: Counsel, I'm not 41 (Pages 158 to 161) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00246 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 162 Hewes 1 indicating that anything was not. I'm 2 just-- 3 MR. EHRLICH: I understand. 4 MR. SOLOMON: I just want to have 5 the request on the record. 6 MR. EHRLICH: The collection that 7 we engaged in, if they exist, they 8 should be included within it, based on 9 time frame and custodians and scope. 0 Q. Let's go back to Exhibit 17 for a 1 moment now, please. 2 A. Sure. 3 Q. Do you recall when had the plan 4 support agreement was executed? 5 A. I believe it was -- 6 Q. You can look at Exhibit 5. 7 A. That would be helpful. 8 MR. EHRLICH: Can you repeat the 9 question, please. I'm sorry. ? 0 (A portion of the record was read.) ? 1 Q. Very first page. ?2 A. July 17th, appears to be the date ? 3 of this document. I don't -- ? 4 Q. And then the signature pages follow ? 5 163 Hewes prior to the morning of Saturday, the 17th, and they served up a schedule that they proposed attaching to this agreement, this term sheet. 164 Q. Who is the "they" in that answer at your end? A. Lehman provided us with a schedule that Lehman proposed attaching to this term sheet. Q. Why did you circulate or recirculate the document marked as Exhibit 17? A. The schedule that Lehman proposed did not embody the spirit of the language in the provision that begins on page 3. It contemplated a different set of capital expenditures than the language describes and so it was not the schedule that they proposed, that Lehman proposed was not in the spirit of our agreement. Q. I understand why you thought the Lehman proposed schedule was not in the spirit as you described it, but why did you circulate or recirculate Exhibit 17 on 165 1 Hewes 1 Hewes 2 page 18. 2 July 17th? 3 A. Yeah. 3 A. I recirculated Exhibit 17 on 4 Q. All of the signatures are dated 4 July 17th because at the time, given the 5 July 17th, I think, you see that? 5 pending filing of the bankruptcy and the 6 A. Correct. Yep, correct. 6 requests by Lehman at the very last minute to 7 Q. Why did you recirculate this 7 include a schedule as an attachment to the 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 document that's been marked as Exhibit 17, 8 the bottom portion of it -- 9 A. Uh-huh. 0 Q. -- on the same day that the plan 1 support agreement was signed? 2 A. We had agreed to the language that 3 you see, beginning on page 3, with Lehman 4 Brothers, if I recall correctly on Friday, 5 the 16th and in the morning of the 17th, 6 Lehman Brothers asked that an appendix or a 7 schedule be attached to our agreement with 8 Lehman Brothers. 9 Q. Are you referring to the term sheet 2 0 we've marked as Exhibit 16, when you say your ? 1 agreement with Lehman Brothers? ?2 A. Yes, inclusive of this term sheet. ? 3 The concept that a schedule would ? 4 be included hadn't been previously discussed ? 5 term sheet, this was the only information I had at that time, and time was of the essence, that was consistent with the language that we had agreed to with Lehman on the prior day. Q. Was the schedule that you circulated or recirculated on July 17th attached to the term sheet? A. No, I don't believe so. Q. Do you know why it was not? A. Do I know why it was not? No, I don't know why it was not. Q. Did you ever have any discussions with anyone about whether the schedule that's attached to and part of Exhibit 17 should have been attached to the term sheet between AIC and Lehman? MR. EHRLICH: That excludes 42 (Pages 162 to 165) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00247 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ~ 0 tn P2 P3 P4 P5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 166 Hewes conversations with counsel on that point. A. Can you repeat the question? MR. SOLOMON: Please read it back. (A portion of the record was read.) A. No. Q. In negotiating the provision that starts on the bottom, or the portion that you've identified, starting on the bottom of page 3 of the term sheet, Exhibit 16, did you have an understanding as to whether that provision affected Apollo's obligations under a guarantee, if any existed? MR. EHRLICH: You can answer that question if you are capable of answering it without revealing privileged information. THE WITNESS: Can you repeat the question. MR. SOLOMON: I'll rephrase it. Q. I'm directing you now to the provision that we have been discussing a little earlier at the bottom of page 3 -- A. Yes, yes. 167 Hewes Q. -- in Exhibit 16 the term between Lehman and AI C. Did you have an understanding as to whether or not that provision would affect any guarantee obligations Apollo or AIC might have with respect to or owed to Innkeepers? Or any-- withdrawn. Let me rephrase it. A. By effect, you mean? Q. Let me-- I'm going to rephrase the question. Again, directing your attention to the provision on the bottom of page 3, term sheet Exhibit 16, did you have any understanding as to whether or not that provision would have any effect on any guarantee obligations Apollo had, if any existed, with respect to Innkeepers or any properties held by Innkeepers? MR. EHRLICH: Objection to form and I would direct you to answer that only to the extent that it doesn't implicate analysis you leamed from counsel. A. I'm -- I don't understand what you mean by does this language affect, and the 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ?0 ?1 ?2 ?3 ?4 ?5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 ?4 ?5 168 Hewes word "affect" is giving me some trouble. Can you rephrase? Q. Does it change, alter or modify any obligations that I was referring to in my last question? MR. EHRLICH: Same instruction. Q. Do you understand it, if we changed the word "affect" to change alter or modify? A. Yeah, that is more clear. I'm not a lawyer but as a businessperson, I don't see how a provision in one term sheet could change, alter or modifY another set of documents. So I guess the answer would be no. Q. Let's talk for a moment, if we can, about Innkeepers' filing on or about July 19, 2010. Are you familiar with that? A. Filing? Q. For bankruptcy protection. A. Yes, I am. Q. Prior to that time did the AIC -- withdrawn. Prior to that time did the Hewes Innkeepers' board authorize the filing? 169 A. Yes. Q. Was there a board meeting held at which the board members were physically present in the same room? A. Yes. Q. When did that occur? A. The exact date I don't recall. I believe it was the week prior to July 19th. Q. And did you attend that meeting in person? A. If memory serves. Yes, I did. Q. Who else attended the meeting? Let me go through and you'll tell me if these people are board members and if they attended the meeting, how's that? I'm not -- A. That's easier. Q. It's not a memory contest. Mr. Beilinson, did he attend the meeting? A. Yes. Q. Is he a board member of Innkeepers? A. Yes. Q. Mr. Ruisi, R-u-i-s-i, Larry Ruisi? 43 (Pages 166 to 169) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00248 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ~ 0 tn P2 P3 P4 P5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 170 172 Hewes 1 Hewes A. Yes. 2 particular vote was taken by the full board Q. Is he a board member of Innkeepers? 3 or the independent board. It certainly would A. Yes. 4 have been taken by the independent board. I Q. Did he attend the meeting? 5 believe it was taken by the full board as A. Yes. 6 well. Q. Mr. Zuroff, Bernie Zuroff, 7 Q. You've anticipated my next series Z-u-r-o-f-f, did he attend the meeting? 8 of questions. A. Yes. 9 So you do recall that it was taken Q. And is he a board member? 0 by the independent directors, correct? A. Yes. 1 A. Certainly. Q. Mr. Kleisner, is he a board member? 2 Q. Or trustees, excuse me? K-1-e-i-s-n-e-r. 3 A. Certainly at a minimum, yes. A. Yes. 4 Q. Do you recall one way or the other Q. And did he attend the meeting? 5 as to whether the entire board voted on A. I believe so, yes. 6 authorizing the bankruptcy filing? Q. Mr. Zeiter? 7 A. I believe that the entire board A. Yes. 8 voted to authorize the filing, but I -- there Q. He is a board member? 9 were a certain number of things that were A. Yes. ?0 only voted on by the full board and I'm Q. And he attended the meeting? ?1 having trouble remembering exactly the A. Yes. ?2 distinctions. Q. Mr. Dalton, is he a board member? ?3 MR. EHRLICH: Please don't A. Yes. ?4 speculate. Q. Did he attend the meeting? ?5 Q. Were there board minutes that would 171 173 Hewes 1 Hewes A. Yes. 2 reflect those votes? Q. Mr. Korval, board member? 3 A. I believe so, yeah. A. Yes. 4 MR. SOLOMON: I realize documents Q. Did he attend the meeting? 5 have been produced. If they haven't A. Yes. 6 been produced up to this point, we would Q. Mr. Hewes, board member? 7 just ask for a copy of those minutes so A. Yes. 8 that we can clarify which entities or Q. Did he attend the meeting? 9 which individuals were involved in which A. Yes. 0 votes. Q. Mr. Ricache, if I'm pronouncing 1 MR. EHRLICH: I would suggest you that correctly, R-i-c-a-c-h-e, Ken is the 2 ask the company for those. first name? 3 MR. SOLOMON: Well, it may in this A. Oh, you have a bad spelling there. 4 witness' possession, however, since he It's with a P. 5 is a board member. Q. Typo on my document. I apologize. 6 MR. EHRLICH: It's possible. Taken Mr. Picache. 7 under advisement. A. I thought I didn't know a board 8 Q. During this meeting and prior to member. It's Picache, yes. 9 the vote, was any disclosure made as to the Q. Board member and attended the ?0 existence of the draft agreement between AIC meeting? ?1 and Lehman with respect to the purchase of A. Yes. ?2 new equity? Q. Was a vote taken to authorize the ?3 MR. EHRLICH: Objection to form. bankruptcy filing? ?4 You can answer. A. I'm trying to remember whether that ?5 A. There was -- I think we, this was 44 (Pages 170 to 173) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00249 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 tzo t21 t22 t23 t?4 t?5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 r5 174 Hewes 1 mentioned this morning, there was a lengthy 2 session at the board meeting that day that 3 included only the independent members of the 4 board and I believe certain members of 5 management were in that session, although I 6 wasn't there, so I'm not certain. 7 As I mentioned earlier, when the 8 board meeting opened up to nonindependent 9 members of the board, the remaining 0 representatives joined the meeting, a brief 1 summary of what had been discussed with the 2 independent members was provided and it's my 3 recollection that when summarized it was 4 indicated that substantially all of the 5 transactions around the company's pending 6 filing for bankruptcy, the agreements with 7 Lehman Brothers, Marriott, DIP financing 8 sources, and the agreement between Lehman and 9 AIC were all disclosed to the independent ? 0 members of the board and discussed at 21 considerable length. 22 Q. From your answer a moment ago, you 2 3 said substantially all of the transactions. 2 4 A. Sorry, I should correct, I should 2 5 175 Hewes 1 say all. 2 MR. SOLOMON: I am going to ask the 3 court reporter to mark as Exhibit 18, a 4 one-page document, Bates stamped AIC 5 219. 6 (Exhibit Hewes-18, E-mail dated 7 6/13/10, Bates No. AIC 00000219, marked 8 for identification, this date.) 9 Q. Sir, do you see that you are a 0 recipient or indicated as a recipient of this 1 document? 2 A. Yes. 3 Q. Did you actually receive it on or 4 about June 13th? 5 A. According to this e-mail, yes. 6 Q. Did you know who -- or do you know 7 who JZ is that's referenced to in this? 8 A. JZ would be Jim Zeiter. 9 Q. MB, who is that? ? 0 A. Marc Beilinson. ? 1 Q. And JG? ?2 A. Joseph Glatt. ? 3 Q. Did that call, in fact, occur that ? 4 evening? The call that's referenced in the ? 5 Hewes e-mail. A. Yeah, I don't recall -- so I see here that I was invited. I don't recall participating and if I didn't participate, I don't -- I wouldn't be able to confirm whether it occurred. Q. Well, that's not necessarily true. Did anyone ever report to you that this call occurred? A. I don't recall anyone reporting to me that this call occurred. I simply don't remember. Q. So as you sit here today, you don't know if the call occurred and if it did 176 occur, you don't know anything about what was discussed on that call, correct? A. Correct. Q. Other than conversations with counsel, did you do anything in preparation for your deposition here today to determine whether this call occurred or what was discussed on this call? A. No, I did not. Q. During your testimony earlier Hewes 177 today, do you recall mentioning a notice that Innkeepers had received from Marriott in or about March of 2010? A. Do I recall that the company received-- Q. Yes. A. -- the termination notice from -- yes. Q. How did you come to learn that the company received the termination notice? A. I believe Marc Beilinson informed AIC that he had received a notice from Marriott, you know, saying that they would terminate within a certain period of time the company's franchise agreements on a list of hotels unless the company completed a certain amount, a significant amount of work on those hotels prior to the time period in the notice, which I believe was originally 90 days. Q. To whom at AIC did Mr. Beilinson provide this information? A. I'm not certain who he provided it to first, but my recollection, it's likely he 45 (Pages 174 to 177) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00250 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 1/3 1/4 1/5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 t::>o 1/1 P2 P3 P4 P5 178 180 Hewes 1 Hewes would have notified, you know, multiple 2 Marriott's requests, the company's inability people within AIC, certainly myself, 3 to generate sufficient cash on its own during potentially Jim, potentially Patrick, 4 the time period to complete the work independently I don't recall. 5 underlying Marriott's requests, the inability Q. Do you have an understanding -- 6 candidly even if the company did have the withdrawn. 7 funds to do the work in 90 days, the Did you ever discuss with Mr. 8 potential consequences of such a termination, Beilinson why he notified AIC about the 9 i.e., the termination of franchise agreements Marriott termination letter? 0 with certain hotels, what that means, what it MR. EHRLICH: Objection to form. 1 does to the business in that hotel, and the You can answer. 2 implication that all of those things when MR. SOLOMON: My question was did 3 taken together suggested that the company you ever have a conversation with Mr. -- 4 would need to restructure its balance sheet can you read back my question. 5 in some format relatively soon. (A portion of the record was read.) 6 Q. Did anyone at AIC, to your MR. SOLOMON: Are you maintaining 7 knowledge, instruct Mr. Beilinson on how to your objection? 8 respond to Marriott? MR. EHRLICH: I'll withdraw the 9 A No. objection. 70 Q. Did anyone at AIC, to your A Did I ask him why he notified me? 71 knowledge, respond to Marriott? MR. SOLOMON: Would you read the 72 A Directly? question back. 73 Q. Yes. A Did I discuss with him why, I 74 A No. I don't believe so. don't -- no, I didn't discuss with him why he 75 Q. Did anyone at AIC respond 179 181 Hewes 1 Hewes notified us. It seemed like something that 2 indirectly to Marriott? he should notify us about. 3 A I don't believe so. Q. Did Mr. Beilinson have a-- 4 MR. SOLOMON: If we could take a withdrawn. 5 two-minute break. Did Mr. Beilinson from time to time 6 MR. EHRLICH: That's fine. Let's notify AIC about material developments at 7 go off the record. Innkeepers? 8 (A brief recess was taken.) A From time to time, yes. 9 MR. SOLOMON: Can we begin? Q. In your estimation was it a regular 0 MR. EHRLICH: Please. part of his practice to do so? 1 Q. I will remind the witness he is A To the extent they were material 2 still under oath. developments, sure. 3 A Thank you. Q. What, if anything, did AIC do in 4 Q. Sir, the board meeting that we were connection with the Marriott termination 5 discussing shortly before the break at which letter after receiving -- 6 time Innkeepers was authorized to file for MR. EHRLICH: Objection. 7 bankruptcy protection, do you recall that? Q. --after receiving notification 8 A Yes. from Mr. Beilinson? 9 Q. I gave you a list of names and you MR. EHRLICH: Objection to form. 70 told me that those people that I had You can answer. 71 identified had attended the meeting. Do you A I believe we discussed the 72 recall that? potential implications of the Marriott 73 A Yes. termination letter, including the significant 74 Q. Was there anyone else who attended amount of capital required to satisfY 75 the meeting that I did not name, whether 46 (Pages 178 to 181) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00251 182 1 Hewes 1 2 board member or otherwise? 2 3 A. Yes, certain members of the 3 4 management team, Tim Walker, general counsel 4 5 Mark Murphy, the -- I believe the interim 5 6 CFO, whose name I don't recall at the moment, 6 7 the company's external legal advisors from 7 8 Kirkland, and I believe one or two members 8 9 from the company's financial advisors. 9 1 0 Q. Who were the financial advisors, 0 11 was that Moelis? 1 12 A. Correct. 2 13 Q. Anyone else? 3 14 A. I don't believe so. 4 15 Q. Shortly before the break, I had 5 16 asked you as to whether AIC has responded, to 6 17 your knowledge, to the Marriott termination 7 18 letter. Do you recall that? 8 19 A. Ido. 9 12 0 Q. And I believe you indicated you are ? 0 121 not aware of any such response, correct? ? 1 12 2 A. I did. ? 2 12 3 Q. You hesitated, is that still ? 3 12 4 accurate? ? 4 12 5 A. No, there -- I need to talk to him ? 5 183 1 Hewes 1 2 for a second. 2 3 Q. Does it have to do with a matter of 3 4 privilege, sir? 4 5 A. It has to do with a conversation we 5 6 just had, so, yes. 6 7 MR. SOLOMON: Let's take a moment. 7 8 (Discussion off the record.) 8 9 A. Sorry. Can you ask the question 9 0 ~ ~ ~ 0 1 (A portion of the record was read.) 1 2 A. You were referring to a direct 2 3 response to Marriott; is that correct? 3 4 Q. I had actually asked direct or 4 5 indirect before the break. 5 6 A. But to Marriott? 6 7 Q. Excuse me? 7 8 A. Your question was, responded 8 9 directly or indirectly to Marriott; is that 9 P 0 correct? ? 0 P1 Q. Yes. ?1 P 2 A. I'm aware of a communication at ? 2 P 3 some time later and so when I indicated -- ? 3 P 4 when you questioned earlier in response to ? 4 P 5 the Marriott termination letter, the ? 5 184 Hewes communication I have in my mind was not necessarily in direct response to the Marriott termination letter. To clarify, but I'm aware of a communication at some point later from an individual at Apollo to Marriott and, again, not specifically related to the termination letter but expressing a, that Marriott support the company's efforts to negotiate with its creditors. That was, I believe, the essence ofthe communication. Q. Who at Apollo sent that letter? A. I believe Rick Press. Q. And who is Mr. Press? A. Mr. Press is a partner at Apollo, he works in the private equity group. Q. Which Apollo entity? A. Internally it would be what we refer to as the private equity group. I couldn't tell you which specific entity he works for. I don't know. Q. And when did Mr. Press respond? A. I don't recall the date of that communication. I believe, as I indicated earlier, it was considerably after, as in Hewes months after the original Marriott termination letter. Q. And the original Marriott termination letter was March of 2010, correct? A Correct. 185 MR. SOLOMON: Could you read back his response where I asked where the substantive letter was, please. (A portion of the record was read.) Q. When you said expressing that Marriott support the company's efforts to negotiate with its creditors, was the company there Innkeepers that you're referring to? A Yes. Q. And what efforts to negotiate with its creditors were you referring to in that answer? A Well, the -- the issue was the Marriott termination letter as delivered in March of 2010 required action by the company within 90 days that with capital or without capital it could not complete, it did not have the capital and, therefore, without any 47 (Pages 182 to 185) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00252 186 1 Hewes 1 2 amendment of the 90-day period of time, would 2 3 result ahnost certainly in the company filing 3 4 for bankruptcy on or before the 90-day 4 5 expiration in the Marriott termination 5 6 letter. 6 7 As a result, the company began 7 8 efforts to meet with its creditors, discuss 8 9 its liquidity and capital issues, the company 9 0 defaulted on interest payments in early 0 1 April, hired financial advisors, hired legal 1 2 advisors in an attempt to -- to either 2 3 restructure itself out of bankruptcy or, if 3 4 necessary, in bankruptcy, and Marriott was an 4 5 important, if not critical, constituent in 5 6 the entire process, and, therefore, their 6 7 support was required. 7 8 Q. Did the letter that you've been 8 9 referring to mention or refer to the 9 ~ 0 potential bankruptcy filing? 7 0 ~ 1 A I don't recall specifically. 7 1 ~ 2 Q. Did it refer to any restructuring 7 2 P 3 or reorganization of the company? ::> 3 P 4 A I don't recall but it's likely. ? 4 P 5 Q. And did you see the letter at or ::> 5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 187 Hewes 1 about the time it was sent to Marriott? 2 A You're referring to the 3 communication that I made you aware of? 4 Q. The communication that you've been 5 referring to, is that a letter? 6 A I believe it was an e-mail. 7 Q. Did you see the e-mail at or about 8 the time it was sent? 9 A I don't recall exactly when I saw 0 it, it was forwarded to me, I believe, 1 sometime after it was sent. I don't recall 2 the proximity. 3 Q. Who forwarded it to you? 4 A That I also don't recall. It would 5 have been Rick or someone else on the team. 6 Q. Is that the team you identified 7 earlier as involved in the Innkeepers -- 8 A Yes. 9 Q. --transactions? 2 o A Correct. 2 1 MR. SOLOMON: Ifithasn'tbeen 22 produced, we would ask for the ? 3 production of a copy of that e-mail. ? 4 MR. EHRLICH: We will take that ?5 Hewes under advisement. I said we will take that under advisement. Q. Did you discuss the contents of the e-mail? 188 MR. EHRLICH: At any point in time? MR. SOLOMON: At any point in time. MR. EHRLICH: Exclude from that-- your answer any conversations with counsel. MR. SOLOMON: My question is a yes or no. I believe I'm entitled to know if he discussed it. MR. EHRLICH: That's fair. That's fair. MR. SOLOMON: So are you withdrawing your objection or direction? MR. EHRLICH: Correct. Q. You can answer my question, sir. A I don't recall discussing it, no. Q. Did you comment upon the e-mail in any way before it was sent? A. No, I wasn't even aware it was sent. Q. Until after it was -- Hewes A Until after it was sent. Q. --sent. MR. SOLOMON: I think I'm going to pass the witness. Who is next? Subject to the requests that we've made on the record for additional documents and rights we may have, with respect to the witness' preparation and knowledge with respect to the 30(b)(6) notice, subject to your objections to that notice. MR. EHRLICH: So noted. EXAMINATION BY MR. GOTTESMAN: Q. Good afternoon. My name is 189 Lawrence Gottesman, I'm a partner at Bryan Cave. We represent LNR Partners, LLC, special servicer to two securitization trusts. Just for the record, one is CSFB 2007-Cl, which holds loans secured by the Residence Inn Mission Valley in San Diego and Residence Inn in Garden Grove, and also the securitization trust known as ML-CFC 2006-4. That one holds loans secured by the 48 (Pages 186 to 189) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00253 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 tzo t21 t22 tn r4 r5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ro r1 r2 r3 r4 r5 190 192 Hewes 1 Hewes Doubletree Guest Suites in Washington, D.C.; 2 collateral? the Residence Inn Tysons Corner, Homewood 3 A Yes. Suites in San Antonio. 4 Q. Which would be the various hotels Are you familiar with any of those 5 that I described earlier? loans? 6 A Correct. A Generally. 7 Q. Are you familiar with any ofthose Q. Can you tell me what your knowledge 8 hotels? is with respect to each of them? 9 A I believe one of those loans is A I'm -- I'm aware of the company's 10 against the San Diego Residence Inn; is that capital structure, the -- the loan that we 11 correct? commonly refer to as the fix rate loan, the 12 Q. Yes, it is. loans made to the company by Lehman Brothers 13 A And I believe one of those loans is and then each of the individual loans that 14 against the Anaheim Hilton; is that correct? are securitized by individual properties of 15 Q. It's -- the companies. I apologize. I don't 16 A And one against the Ontario Hilton? remember all of them by their -- by their 17 Q. I can refresh your memory that it's specific names. 18 the Residence Inn Mission Valley and San Q. Sure. It might be helpful if you 19 Diego, Residence Inn Garden Grove, Doubletree have Exhibit 5 that was marked earlier today. 20 in Washington, D.C., Residence Inn Tysons A. Sure. That certainly would be 21 Corner, Vienna, Virginia, and Homewood Suites helpful. 22 in San Antonio? Q. Once again, it's not a memory test. 23 A I'm familiar with some of those, A. Yeah, no, I --they all sound like 24 primarily the ones in southern California or code words. 25 I should say only the ones in southern 191 193 Hewes 1 Hewes Q. I had to read from my notes as to 2 California. which trust. I can't memorize those either. 3 Q. Okay. Do you know if at any point A. Which-- is there a page in here? 4 during the process there was -- extensively Q. What I'm looking at is the second 5 covered by counsel for Midland, there were page of the plan term sheet. 6 discussions within Apollo regarding these MR. EHRLICH: That's the one with 7 particular hotels? the flag. Second page, is it? 8 A. I'm sorry, can you repeat that. Q. So annexed to the support plan 9 Q. As opposed to Innkeepers more agreement is Exhibit A the plan term sheet? 0 generally? A. Yes. 1 A. Yeah, I want to be sure I answer Q. And then page 2 of that, there's a 2 your question. box at the lower left-hand corner called 3 THE WITNESS: Can you repeat it other secured debt? 4 back. A. Yes. 5 (A portion of the record was read.) Q. Is it your understanding that these 6 A. The process meaning the loans, among others, are in that bucket under 7 negotiation? the plan term sheet? 8 Q. Yes, that's correct, sir. A. Yeah. We think of it as the other 9 A. There -- there were some bucket, yes. 70 discussions, although they were limited. Q. What's defined in the term sheet as 71 Q. Can you tell me what you recall other secured debt? 72 with regard to those discussions? A. Yes. 73 A. The term sheet as we originally Q. And which is collateralized by 74 received it contemplated, I believe in the what's called the other secured debt 75 original draft contemplated this number, the 49 (Pages 190 to 193) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00254 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 194 196 Hewes 1 Hewes 15 0 million of potential new notes against 2 with respect to the company Innkeepers as those seven original mortgage notes in what 3 well? we refer to as the other secured debt. We 4 A. Yes, correct. looked in summary fashion at the relative 5 Q. You are a member of the board of level of impairment or potential impairment 6 Innkeepers, as well? of those mortgages as compared to the other 7 A. Yes. portions of the transaction and beyond that, 8 Q. I want to go back to the board candidly we didn't spend a whole lot of time 9 meeting that you testified to during your discussing it. 0 examination by Midland's counsel. Q. And when you say the other portions 1 Was there discussion of a plan term of the transaction, to what were you 2 sheet at that board meeting? referring? 3 A. Was there a discussion of the plan A. Primarily the fixed rate pool. 4 term sheet? Q. The Midland pool? 5 Q. Yes, the document that you are A. Correct. 6 looking at now, or any earlier iteration of Q. And did you look at it in 7 it? comparison with the Lehman debt as well? 8 A. As I indicated earlier, I believe A. I don't recall doing so. 9 that the agreement the company contemplated Q. And did that 150 number go up or ?0 entering into in connection with the down at all during this process? I mean is ?1 bankruptcy were discussed at length. I know that where it started? ?2 that because there way a scheduled start time A. It's my recollection and I believe ?3 for the board meeting and the meeting began it's consistent with the documents we ?4 with the independent members of the board and discussed earlier that the first draft we ?5 the AIC affiliated members of the board did 195 197 Hewes 1 Hewes received had 150 million in it and it stayed 2 not join until sometime thereafter. And it's there since. 3 my understanding based on the summary that Q. And Exhibit 5, which you have in 4 was described earlier about what was front you, has the $150 million number? 5 discussed during that, that session of the A. Correct, so to answer your 6 board meeting, that all of these agreements question, I don't think it ever went up or 7 were discussed. ever went down at any point in between. 8 Q. By the way, do you recall Q. Was that number negotiated between 9 approximately what time that meeting started? AIC and anyone else? 0 A. I don't. It started in the MR. EHRLICH: Objection, form. 1 mommg. You can answer. 2 Q. Do you recall roughly how long it A. As I indicated, that number was in 3 lasted from beginning to end? the original term sheet draft we received 4 A. A few hours. from Lehman. AIC, to my knowledge, did not 5 Q. Two to three approximately? negotiate that number with anyone. I 6 A. Maybe longer. But rough ballpark. couldn't speak as to whether Lehman or the 7 Q. If that seems about right? company or other parties negotiated. 8 A. Approximately. Q. You have no knowledge one way or 9 Q. Okay. At the board meeting, do you the other as to whether, let's take them one 20 know if there was any discussion as to -- at a time, Lehman negotiated that number with 21 strike that. any of the servicers with respect to that 22 We've referred generally during other secured debt? ?3 this process to the Innkeepers Chapter 11 A. Correct. ?4 filing, correct? Q. And the same answer would be true ?5 A. Uh-huh. 50 (Pages 194 to 197) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00255 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 12o 121 122 123 124 125 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 t:>5 198 200 Hewes 1 Hewes Q. But that, in fact, involves 2 within the pooled loans, they're all -- so in multiple entities that filed for protection 3 the fixed rate pool, for example, each of the under the Chapter 11 for the bankruptcy code; 4 entities is -- is -- that loan is secured by is that correct? 5 each of the hotels and each of the hotels has A. That is my understanding. I'm not 6 an individual corporate entity, and they're an expert. 7 all cross-collateralized. Q. Understood that you are not a 8 So I'm not, if it's true that in lawyer. 9 aggregate, in the fixed rate pool that Do you know if at the board meeting 0 statement is true, then it doesn't matter there was any discussion as to which 1 whether or not it's true for an individual particular entity should file or should not 2 property. I'm not sure that that concept file for Chapter 11? 3 applies. That's my understanding. A. I do recall a discussion of that 4 Q. Do you know if that is -- if that nature and it was, if I remember correctly, 5 concept applies with respect to the borrowers the company's and its counsel's 6 in the hotels that are in the other secured recommendation that it file basically every 7 debt bucket in the plan term sheet? entity within the company's organizational 8 MR. EHRLICH: Objection to the structure, which is 90-some odd. 9 extent this calls for a legal analysis. Q. So if you look at the global ?0 But you can answer. Innkeepers organizational chart, there is no ?1 A. As I mentioned earlier, I'm more one left out of the Chapter 11 filing? ?2 familiar with a handful of those properties A. I don't think so, no. I think, and ?3 than others and so I can give you a limited again, I'm not an expert and I didn't take ?4 answer. entirely the 90 names, but I think it's ?5 The Ontario Hilton property is in a 199 201 Hewes 1 Hewes everything. 2 market that has been severely impacted by the Q. That's just your understanding? 3 recession and specific economic activity in A. Yeah. 4 Ontario. That hotel's performance does not Q. And do you know what criteria, if 5 cover its debt service. I know that any, was used in deciding to file all of 6 specifically. these entities? 7 With respect to the San Diego A. I mean generally speaking? Or 8 property, I don't know specifically, although specifically? Generally speaking, and again, 9 I do know that property has a significance it's -- I'll testifY the businessman's 10 amount of debt on it and I also know that knowledge is that, or the businessman's 11 that property is in need of a significant understanding is that many of these entities 12 capital refresh. I couldn't tell you were at some level insolvent or had cash flow 13 specifically whether or not it's able to issues or trouble servicing their debt 14 service those two, those two obligations at obligations, or I should say trouble 15 the same time. servicing their debt obligations in addition 16 And -- sorry, was the Anaheim to trouble servicing their obligations to 17 Hilton also one of those properties, the franchisors, which include certain 18 senior loan? obligations to maintain properties and 19 Q. You've got the Residence Inn operate them at certain standards that the 20 Mission Valley San Diego, you got Residence branch require. 21 Inn Garden Grove, Doubletree Guest Suites, Q. Do you know if that was true with 22 Washington, D.C., Residence Inn Tysons respect to all the entities which ultimately 23 Corner, Vienna, Virginia, Homewood Suites San filed for Chapter 11? 24 Antonio. A. Well, it's my understanding that 25 A. I would make similar statements 51 (Pages 198 to 201) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00256 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 202 204 Hewes 1 Hewes about the Garden Grove property, which is 2 Q. Do you know if any of those right next to Disneyland. I've, I think, 3 borrowers had what is commonly referred as visited that property once. It's in a market 4 independent managers or directors? where there must be I 00 hotels stacked right 5 A I believe -- I believe that each of on top of each other and it also gets a 6 the borrowers for what you would call the significant amount of wear and tear and 7 special purpose entities and, I don't know at requires a significant amount of refreshing. 8 what level, but I believe they all have The other properties I don't know 9 independent directors. specifically. 0 Q. And that would be true for what Q. Okay. Was the analysis that you 1 we're calling the other secured debt bucket just ran through discussed at the board 2 as well as the fixed rate debt bucket, to meeting? 3 your knowledge? A With respect to those individual 4 A Yeah, and again, this part is not properties? 5 something I was terribly involved in or Q. Yes, sir. 6 familiar with, but that's my understanding. A No. 7 I couldn't be certain as to whether each Q. Do you know if that information was 8 individual of the other debt bucket that's provided to the directors prior to or 9 true, but I believe so. independent of that board needing? ?0 Q. Okay. Do you know who these A I don't know. ?1 independent directors or managers were? Q. The loans that we've been ?2 A I forget the name of the discussing, do you know ifthey're ?3 organization that does that. But it was cross-collateralized? ?4 discussed, it was discussed at the board A It's my understanding that they are ?5 meeting that the company had been working 203 205 Hewes 1 Hewes not. I believe they're individual. 2 with the independent directors of each of the Q. Each of those hotels -- strike 3 borrowing entities and in parallel with the that. 4 company's bringing the Innkeepers board up to Do you know how each of these 5 speed, they had also been bringing those hotels is owned? 6 parties up to speed with a similar set of A Legally or-- 7 information about the performance of the Q. Yes, sir. 8 business, the obligations to franchisors and A I'm not terribly familiar, no. 9 debt service and liquidity and all of the Q. Do you know if they're owned by 0 issues that the company was having. separate limited liability companies or a 1 Q. Do you know how these independent single company? 2 directors were brought up to speed? A I don't know. 3 A. By the company. I don't -- I Q. Do you know if those loans were 4 wasn't -- I didn't participate so I don't sold into the securitization market? 5 know what materials they saw or exactly when A I believe that's what those code 6 those meetings occurred but it was discussed words represent, yes. I wasn't around at the 7 at our board meeting that the company had met time AIC acquired the company so I'm less 8 with, briefed, prepared, they had done due familiar with the structuring of the original 9 diligence, they had -- I think the company debt agreement and how they came to exist, ?0 indicated they had hired counsel to -- to so. ?1 review the situation as well and that they Q. Given your business background and ?2 had performed some level of due diligence on history, do you have a general understanding ?3 the situation and the company had complied as to what the CMBS markets are or were? ?4 with their requests and done everything they A Oh, yes. Yes. ?5 could to get them up to speed. 52 (Pages 202 to 205) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00257 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 tzo t21 t22 tn r4 r5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 206 Hewes Q. When you say they, you're referring to the independent managers? A. And independent directors you're referring to, yes, and again, I don't, it's something we never had involvement with directly, so I don't know the specifics. Q. Do you know what that counsel that was that the independent directors retained? A. No idea. Q. That wasn't discussed at the board meeting? A. I don't recall. Q. Was counsel for the independent directors present either in person or telephonically at the board meeting? A. No. Q. And you don't know whether this information was provided telephonically or in writing to these independent directors? A. Again, I didn't -- I didn't participate so I don't recall. Q. But was it discussed at the board meeting? A. No, it was not discussed how they 207 Hewes were communicated. Q. And none of these independent directors attended the board meeting I take it? A. No. They're different -- my understanding is, no, they didn't. Q. And attended, to be very clear, either in person or telephonically? A. No. Q. I think -- my recollection is that your testimony is that, in fact, minutes were prepared for the board meeting; is that correct? A. I assume that they were. Because minutes were generally prepared for board meetings but I don't know that I reviewed them. Q. And when minutes were generally prepared for board meetings were they at some point in time distributed to the members of the board? A. Minutes from the prior board meeting were typically distributed shortly before the next board meeting and then -- 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ?0 ?1 ?2 ?3 ?4 ?5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ?0 ?1 ?2 ?3 ?4 ?5 Hewes Q. Who-- I'm sorry. I didn't mean to cut you off. A. -- reviewed and approved at the beginning of a board meeting. Q. Who prepared the minutes on a normal basis? A. I believe Mark Murphy, the general counsel, prepares them. 208 Q. And would he have prepared minutes from the board meeting in question, the one right before the Chapter 11 filings? A. Again, I assume so but I don't recall whether I've seen them or reviewed them or even asked him if he prepared them. Q. Has there been a board meeting subsequent to the Chapter 11 filing? A. I'm trying to think. It's my understanding that Marc Beilinson conducts updates with the independent members of the board. That was a process that he began sometime before the bankruptcy filing. I don't know when the last update he may have, may or may not have had since the bankruptcy filing was. I don't believe there's been a Hewes full board meeting since the one you're asking about. Q. Since the one shortly before the petition? A. Correct. 209 Q. Has one been scheduled or noticed? A. There was-- if you will allow me to confirm, I believe there was an update call scheduled for today with the -- with the board, but I need to confirm that, which I could do right now if you'd like me to. Q. We can take a break and you can do that. MR. EHRLICH: Not confirming facts. If you know it, you can answer. We're not going to start doing research. THE WITNESS: Okay. Q. But you haven't seen minutes of the board meeting that occurred prior to the Chapter 11 filing? A. I don't recall seeing the minutes, no. Q. And would it be your expectation as a board member that if such minutes existed 53 (Pages 206 to 209) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00258 210 212 1 Hewes 1 Hewes 2 it would recite what you described regarding 2 A. That's correct. 3 the independent directors of the property 3 Q. And Mr. Korval also was asked to 4 being briefed and having retained counsel? 4 leave; is that right? 5 A. I can't testify as to what's in the 5 A. Correct. 6 minutes. I would assume they're complete. 6 Q. And the two of you were the only 7 Q. By the way, have you ever served on 7 AIC employees or designees at the meeting, 8 other boards of directors of other companies? 8 right? 9 A. I have not served on another board, 9 A. That is the reason we were asked to 0 1 2 3 4 5 6 7 8 9 tzo t21 t22 tn r4 r5 no. 0 MR. GOTTESMAN: Can you read back 1 the answer, please, the question and 2 answer. 3 (A portion of the record was read.) 4 MR. GOTTESMAN: I pass the witness. 5 Thank you very much. 6 THE WITNESS: Thank you. 7 MR. EHRLICH: Anyone else? 8 MR. FLIMAN: I have very few 9 questions, but if we could just take a ? 0 two-minute break, I would like to move ? 1 over there. ? 2 MR. EHRLICH: Sure. Go offthe ?3 record. ?4 (A brief recess was taken.) ? 5 211 1 Hewes 1 2 EXAMINATION BY 2 3 MR. FLIMAN: 3 4 Q. Good afternoon. My name is Dan 4 5 Fliman. I'm with the firm Kasowitz, Benson, 5 6 Torres & Friedman and we represent the Five 6 7 Mile Capital Partners in this case. I'm 7 8 going to ask you a few questions and I may go 8 9 over some of the questions that have already 9 10 been asked and I apologize. I'm asking those 0 11 questions in order to lay the foundation for 1 12 the questions that I want to introduce. 2 13 We discussed earlier an April22nd 3 14 meeting between Innkeepers, Lehman, a part of 4 15 which AIC designees attended. Do you recall 5 16 that? 6 17 A. I do. 7 18 Q. And it was yourself and Mr. Koral 8 19 (phonetic), I believe, that attended a 9 2 0 portion of that meeting, right? ? 0 21 A. Korval. ? 1 2 2 Q. Korval, sorry. ? 2 2 3 And I believe your testimony was ? 3 2 4 that you had been asked to leave the meeting ? 4 2 5 at some point; is that right? ? 5 leave, yes, correct. Q. I didn't ask you the reason, but-- A. Correct. Q. Okay. Who asked you to leave the meeting? A. I don't recall specifically. I think I said earlier it was either the company -- I believe it was the company but I don't recall specifically. Q. Was company counsel at the meeting? A. I believe -- I believe someone from Kirkland was at that meeting. Q. Was AIC's counsel at the meeting? A. No. Q. Do you know why you were asked to leave the meeting? Hewes A. No. Q. Did you ask why you were being asked to leave the meeting? A. Not -- I don't recall if I asked. I believe -- I believe perhaps it was indicated that the company and Lehman Brothers wanted to continue discussions privately and we were asked to leave. Q. Is that your recollection or you're guessing? A. That's my recollection. Q. Do you know why it is that Lehman Brothers and the company wanted to have private discussions? A. No. Q. Did you ask why? A. I don't recall asking why. 213 Q. Roughly how many meetings have you attended that involved Innkeepers? MR. EHRLICH: Any kind on any topic since he's been at Apollo, or AIC rather? MR. FLIMAN: Yes. A. I couldn't speculate as to a 54 (Pages 210 to 213) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00259 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ~ 0 h ~ 2 t/3 P4 P5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 214 216 Hewes 1 Hewes number. 2 A Uh-huh. Q. Well, would it be more than 20? 3 Q. And as I recall, your answer was A It depends on what you consider a 4 you weren't sure but it wasn't before any of meeting. Is a conversation in the hallway a 5 the April 2010 meetings; is that right? meeting? It could be construed as such. We 6 A I believe that's correct, yes. have conversations in the hallway about all 7 Q. Do you know when since the of our investments all the time. 8 AprillO --the April 2010 meetings-- let me Q. Okay. So how many meetings did you 9 strike that. have in which members of Innkeepers' 0 Other than pinning down the fact management team were participants? 1 that it wasn't before April2010, can you A Members of the management team? 2 give us a more definitive time frame of when Q. Yes. 3 it was that AIC first contemplated making a A Again, it would be difficult to 4 new money investment in Innkeepers? speculate as to a number. 5 A I would say sometime during Q. Okay. Have you ever been asked to 6 April2010. leave a meeting before? 7 Q. Before or-- MR. EHRLICH: In his life? 8 A But not subsequent, not before the MR. FLIMAN: Yes. 9 initial meeting with Lehman Brothers. A I'm sure that I have. 70 Q. And you're referring to the meeting Q. Okay. Were the reasons cited 71 that occurred, I think you had testified, a because they wanted to have private 72 week to 10 days before the April 22nd conversations? 73 meeting; is that right? A About any potential meeting 74 A That's correct. throughout my life from which I may have been 75 Q. Okay. So to the best your 215 217 Hewes 1 Hewes excused? 2 knowledge, is the first time that AIC Q. Yes. 3 contemplated making a new money investment in A I don't recall. 4 Innkeepers before or after the April22nd Q. Did you fmd it strange that you 5 meeting that we were just discussing? were asked to leave the meeting on 6 MR. EHRLICH: Objection to form. April22nd? 7 A The concept that Lehman Brothers MR. EHRLICH: Objection to form. 8 might support a restructuring of Innkeepers' A Not-- not really, no. 9 balance sheet in a manner that required a Q. Why? 10 conversion of their debt to equity, I believe A The company was having a discussion 11 is what generated the idea that if they were with a creditor. It's not surprising to me 12 to do that, if they were to convert their that they wanted to have a private 13 debt to equity, we might have an interesting discussion. 14 purchasing post reorganization equity. Q. Has Innkeepers ever asked you to 15 Q. So my question to you was: To the leave a meeting when they were having a 16 best of your knowledge, is the first time AIC discussion with a creditor before? 17 contemplated making a new money investment in A I'm not sure that I, prior to -- 18 Innkeepers before or after the April22nd before that date you're asking? 19 meeting that we were just discussing? I Q. Yes. 20 don't believe you answered my question. A I don't think so, no. 21 MR. EHRLICH: Objection to form. Q. I believe you were asked earlier 22 You can answer as best you can. today when was the first time that AIC 23 A Sorry. I thought I was trying to contemplated making a new money investment in 24 be helpful. Innkeepers. Do you remember those questions? 25 I think it was before the 55 (Pages 214 to 217) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00260 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 tzo t21 t22 tn r4 r5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 218 220 Hewes 1 Hewes April 22nd meeting. 2 Q. Now, the AIC deal with Lehman, and Q. Between the first April meeting -- 3 we've seen some of the documents on that, but and do you know what I mean when I saw the 4 the AIC deal with Lehman contemplates AIC's first April meeting? Between the first April 5 purchase of 50 percent of the equity that meeting, and the April 22nd meeting, did AIC 6 Lehman will receive for $107.5 million; is have any discussions with Lehman about an 7 that right? Innkeepers restructuring? 8 A. That's correct. A. I don't believe so, no. 9 Q. Do you believe that that's a fair Q. Between the first April meeting and 0 price for AIC to pay for that equity? the April 22nd meeting, did AIC have any 1 MR. EHRLICH: Objection to form. discussions with Innkeepers about an 2 You can answer. Innkeepers restructuring? 3 A. I believe it's a-- it's a price. A. That period of time -- that period 4 I don't -- I don't know how to answer your of time was reasonably close in proximity to 5 question. the company's default in interest payments on 6 Q. Well, you owe fiduciary duties to its obligations. There were a number of 7 investors in Apollo funds, right? things that were happening at the time. It 8 A. That's correct. was also reasonably soon after the Marriott 9 Q. From that perspective, do you termination letter and during that period of ?0 believe that the purchase price that we just time we were having, I believe, somewhat ?1 discussed is a good price? regular conversations with the company about ?2 A. I believe it's a reasonable price. its efforts to discuss its situation with 23 Q. What leads you to the conclusion? lenders and other parties. 24 MR. EHRLICH: Objection to form, Q. So did the conversations between 25 beyond the scope of the 30(b )(6) notice, 219 221 Hewes 1 Hewes the first April meeting and the April 22nd 2 calls for improper opinion testimony. meeting between AIC and Innkeepers address a 3 You can answer, ifyou can. potential Lehman transaction? 4 A. You know, we looked at the --often A. I don't recall the specific nature 5 when we look at investments we look at of conversations during that period of time, 6 whether or not the prospects for a return or other than the concept of Lehman converting 7 a range of returns is reasonable given the its debt to equity was discussed. 8 risk in making an investment, and in the case Q. Do you know whether at the 9 of the purchase price you mentioned in April22nd meeting after you left there was a 0 connection with this transaction, it was our discussion among Innkeepers and Lehman of the 1 opinion that the prospects for a return on possibility of AIC buying a portion of 2 that investment were reasonable given the Lehman's new equity issuance? 3 risks. MR. EHRLICH Objection, form. 4 Q. What analysis did you do to get to You can answer. 5 that answer? A. I don't know the specifics of what 6 MR. EHRLICH: Objection, way beyond were discussed. 7 the scope. How does this relate to the Q. I'm not asking for specifics. I'm 8 debtors' reasonable business judgment asking do you know whether that topic was 9 entering the PSA? discussed? ?0 MR. FLIMAN: Are you instructing MR. EHRLICH Objection, asked and ?1 him not to answer? answered. ?2 MR. EHRLICH: I'm inquiring of You can answer again. ?3 counsel how is this relevant to the A. My prior answer intended to mean I ?4 topics noticed for this deposition or don't know whether that was discussed. ?5 the September 1st hearing. 56 (Pages 218 to 221) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00261 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 222 Hewes 1 MR. FLIMAN: I believe it's 2 relevant. 3 MR. EHRLICH: And I would like you 4 to explain why. 5 MR. FLIMAN: I don't want to get 6 into this. I mean I can give you a 7 million reasons why this is relevant to 8 whether the court the PSA. The PSA 9 transaction has with it a transaction 0 between Lehman and AIC for the purchase 1 of this stock. That purchase price is 2 one of the overall terms, one part of 3 the overall terms of the transaction. 4 MR. EHRLICH: From which either 5 part can walk. But in any event, you 6 can answer this question but I'm going 7 to cut this off if it goes on much 8 longer. This is not about valuation and 9 the judge was very clear that this ? 0 hearing is not going to be a valuation. ? 1 If you have valuation objections, ? 2 they're confirmation objections. ? 3 MR. FLIMAN: I said nothing about ?4 valuation, so I think it might make ? 5 223 1 Hewes 1 2 sense-- 2 3 MR. EHRLICH: The reasonableness of 3 4 purchase price inherently is a question 4 5 of valuation. 5 6 MR. FLIMAN: If your client wants 6 7 to testify to that, that's fine. So 7 8 ~ s ~ b ~ k . 8 9 Q. So my question to you was, what 9 0 analysis did you do to reach the conclusion 0 1 that you had testified to? 1 2 MR. EHRLICH: You can answer that 2 3 question, subject to my objections. 3 4 A. We-- we reviewed the company's -- 4 5 the company's projections. We looked at the 5 6 prospects for the company to have the ability 6 7 to service debt obligations and its capital 7 8 obligations should the restructuring occur on 8 9 the terms that were outlined, i.e., will it 9 P 0 be a solvent entity, and we looked at-- we 0 P 1 looked at independent projections about the 1 P 2 financial performance of the industry in the 2 P 3 future. And we reached the conclusion that 3 P 4 if the company could service its obligations ? 4 P 5 on a cash basis to its lenders and to its ? 5 Hewes franchise partners if the restructuring is completed contemplated and that if the business' performance improved consistent with what the market's expectation is for the industry that there was a reasonable risk return proposition for this investment. 224 Q. Now, as a member of the board of Innkeepers, you also have fiduciary duties to creditors of Innkeepers, correct? A. That's correct. Q. Now, in that capacity-- strike that. From the perspective of those fiduciary duties, do you believe that the $107.5 million-- actually, strike that. From the perspective of those fiduciary duties, do you believe that the plan support agreement provides the best outcome for Innkeepers' creditors? MR. EHRLICH: Objection to form. Calls for a legal conclusion. You can answer. A. The plan support agreement contemplates, as it's relevant to your Hewes 225 question, that the company's debt obligations, exclusive of Lehman's obligations, would be structured to lower amounts than their current principal amount and, therefore, a loss would be realized by those lenders should the restructuring occur under those terms. It's no secret that the real estate industry has been severely impacted by the recession, by a lack of pricing power, particularly in the hotel sector because you have no contractual rents of any kind, as opposed to, for example, the office space real estate sector where you do have contractual rents and long term. So the concept that there was a loss that was going to be realized by not only us, AIC, which in this case is a total loss, and the concept that lenders may realize a loss as well was a simple concept. As a -- as a board member the company and its advisors discussed the potential ranges of valuation depending upon a number of things that might be determined 57 (Pages 222 to 225) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00262 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 tzo t21 t22 t23 t?4 t?5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 t:>5 226 Hewes as fair value for each of these other obligations within the company's capital structure and based on -- based on that information and based on candidly outcomes that may result in significantly lower recoveries for the fixed rate lender and for the other secured debt, it was our -- or it was my opinion that this was a fair outcome if it occurred. If not, better than perhaps some of the alternatives. And part of the reason I reached that conclusion, to cover two topics specifically, are that applying a number of valuation concepts to these assets may result in values that are lower than 550, number one, and number two, that if Marriott were to terminate its franchise obligations on any of the company's hotels, it would result in substantially greater impairment than these numbers here. Q. You had referred in your answer to the fact that based on -- the information based on candidly outcomes that may result in significantly lower recoveries for the fixed rate lenders and for other secured debt. 227 Hewes What were you referring to? A. The other potential outcomes? I mean if Marriott pulls the flags from the hotels, they're worth a fraction of what they're worth today. Q. Originally AIC was contemplated to be a party to the PSA; is that right? A. I don't -- I don't believe -- I don't believe we contemplated being a party to the PSA. Q. The parties that were exchanging drafts at some point contemplated that AIC would be a party to the PSA, correct? A. Would you like to refer to a specific draft? Q. I can do so. Let me just tell you my subsequent question. A. Okay. Q. It was going to be, I seem to recall that you testified that you were told that it no longer made sense for AIC to be a signatory to the PSA and I was going to ask you why, but we can look at specific documents if it would be helpful. 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ?0 ?1 ?2 ?3 ?4 ?5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ?Q ?1 ?2 ?3 ?4 ?5 Hewes MR. EHRLICH: I don't think that quite states the testimony but why don't you try to answer the question. Q. Please correct me if-- A. Yeah. I think my testimony was the only thing that we contemplated doing was purchasing post reorganization equity, new equity from Lehman Brothers if the Lehman plan support agreement were to -- were to be completed. 228 In connection with the filing AIC recognized in all manner of speaking that its existing equity interest in the business were worthless and in no part of this process has AIC sought any recovery or consideration on any prepetition interest in the company. So the concept that we would contemplate signing the plan support agreement simply doesn't make any sense. We had nothing to support a restructuring with. Q. If I could turn your attention to Exhibit 17. A. Sure. Q. Before I ask you about the exhibit, Hewes let me just ask you this. Has AIC -- 229 THE WITNESS: I'm going to get some ice. You can wait, ifyou want. Okay. Q. Has AIC ever performed an analysis of what its exposure on the capital improvement guarantees could be? MR. EHRLICH: Answer that question yes or no. A. No. Q. Do you have a sense of what that amount could be? A. No. Q. Do you have a -- strike that. Do you have a general sense of whether we're talking about 50 million, 100 million, 10 million? MR. EHRLICH: Objection, calls for speculation. I don't want you to answer speculative questions. Q. Do you have a general sense? My question simply is whether you -- you're saying you don't have a specific 58 (Pages 226 to 229) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00263 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 230 Hewes 1 number or you just literally have no idea 2 what it could be? 3 A. I -- I haven't performed an 4 analysis of what it could be. I haven't due 5 diligenced in any way what it could be and so 6 I don't have the foundation to form an 7 opinion as to whether or not, as to what 8 amount it might be, if any. 9 Q. Okay. So if we look at Exhibit 17 0 and the second page of it has a 1 spreadsheet-- can you just describe for me 2 generally what I'm looking at, what this 3 chart is? 4 MR. EHRLICH: Can you explain the 5 relevance of that to any issue on to 6 September 1st. 7 MR. FLIMAN: Yes, we're talking 8 about the amount of the guarantees. 9 MR. EHRLICH: And why is that ? 0 relevant to the issues on September 1? ? 1 MR. FLIMAN: Because it's one of ?2 the terms that we're seeing here that ? 3 the capital improvement seems to be ? 4 covered. We just went through this. ? 5 231 1 llewes 1 2 MR. EIIRLICII: Well, capital 2 3 improvements seem to be covered. 3 4 MR. FLIMAN: And isn't-- 4 5 MR. EIIRLICII: It's a separate 5 6 ISSUe. 6 7 MR. FLIMAN: Maybe I need a 7 8 clarification. 8 9 Q. Is it the case that the capital 9 0 improvements that are covered under the 0 1 Lehman deal that we looked at is going to 1 2 diminish AIC's guarantee? 2 3 MR. EIIRLICII: I think that's 3 4 already been asked and answered by 4 5 counsel for Midland. 5 6 MR. FLIMAN: If the answer's yes, I 6 7 have no idea -- 7 8 MR. SOLOMON: I didn't ask that 8 9 question actually. 9 t:> 0 MR. FLIMAN: If the answer is yes, ? 0 t:> 1 I have no idea why you are objecting. ? 1 t:> 2 So let me repeat the question. ? 2 t:> 3 MR. EIIRLICII: Well, you go ahead ?3 t:> 4 and repeat the question. ? 4 t:> 5 Q. Is it the case that the capital ? 5 Hewes improvements that are covered under the Lehman deal is going to diminish AIC's guarantee? MR. EHRLICH: I believe that was asked and answered. A. I will refer you to my prior testimony. Q. You can't do that. What's the answer? 232 MR. EHRLICH: He can answer however he sees appropriate. If that's your answer, you can stand on it. A. That's my answer. Q. So I object to the answer which is not responsive. MR. EHRLICH: Okay. You can object. MR. FLIMAN: So I ask the question again and you can't object as asked and answered. MR. EHRLICH: I can object asked and answered. MR. FLIMAN: Because it hasn't been 233 llewes answered so -- MR. EIIRLICII: That's your opinion, Counsel. MR. FLIMAN: Okay. So it's not productive but we can take a break and go back and look at the record and find his answer. MR. EIIRLICII: Let's keep going. This is of no relevance to the issues on September 1st. It's the subject-- MR. FLIMAN: I disagree. I disagree. MR. EIIRLICII: Counsel, it is the subject of litigation brought by Midland who represents your client as one of the largest holders of the share and I'm not going to let this be a fishing expedition into matters that are the subject of a separate litigation. MR. FLIMAN: It's really not. What I'm getting at is the Lehman deal. I'm trying to figure out the term that's in there and what effect that it has on AIC's guarantee. That's what I'm going 59 (Pages 230 to 233) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00264 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 234 Hewes 1 ~ - 2 MR. EHRLICH: Well, why don't you 3 ask him about that then as opposed to 4 this schedule. 5 MR. FLIMAN: I did. You didn't let 6 him answer the question. 7 MR. EHRLICH: I thought he answered 8 already. Ask him again and you can try 9 to answer again. 0 Q. Okay. So one of the contemplations 1 in the Lehman deal is that certain capital 2 improvements will be paid post emergence, 3 correct? 4 A. If, in fact, they exist. 5 Q. Okay. Capital improvements, if 6 necessary, will be paid? 7 A. If necessary. 8 Q. And what effect will payment of 9 capital improvements have on AIC's guarantee, t7 0 to your understanding? t2 1 A. I believe I asked this gentleman t2 2 sitting to your left to clarify the concept t2 3 of a fact earlier and I would ask you to do t2 4 the same. I'm not sure I understand your t7 5 235 1 Hewes 1 2 question. 2 3 Q. You don't understand the word 3 4 "effect," is that what you need me to 4 5 explain? 5 6 A. I would like you to be more 6 7 specific. 7 8 Q. Well, let me ask you this way. 8 9 Will payment of capital improvements that are 9 1 0 contemplated as possibly being made under the 0 11 Lehman deal potentially reduce AIC's 1 12 guaranties? 2 13 A. The -- I believe what I stated 3 14 earlier was that as a businessperson, I don't 4 15 -- I don't believe the provision that you're 5 16 referring to in the AIC's Lehman term sheet 6 1 7 is capable of modifying a separate agreement 7 18 that Lehman is not a party to and so I don't 8 19 believe the provision affects the agreement. 9 2 0 Q. My question was whether it affects t:> 0 21 AIC's guarantee? t:> 1 22 MR. EHRLICH: And he answered it. P2 2 3 Q. Other than affecting the agreement, t:> 3 2 4 does it affect the obligations? t:> 4 2 5 A. I have no idea. I mean -- I don't t:> 5 Hewes have an estimate as to whether or not there are indeed obligations and I don't believe that provision modifies the separate agreement. 236 Q. What payments that are paid on capital improvements is contemplated in the Lehman AIC term sheet mitigate any of AIC's exposure on its guaranties? A. As-- you know, I don't know. It's difficult to have any conclusion without knowing if there are, in fact, any liabilities. Q. Why is that? A. Because you're asking if, if it changes anything out of a guarantee. I don't know. Q. Well, AIC wanted that provision in the Lehman/AIC deal, right? A. That's correct. Q. Why did it want that provision in there? A. We wanted to, as I stated earlier, ensure that the company completed all of the capital expenditure work, or PIP work as it's Hewes referred to in the industry that it was 237 required to complete so that it would going forward not have disagreements or complaints or termination letters or any other issues with any of its franchise partners. And so we wanted to make sure that if there was work to be done, that it got done. Q. And those were the only reasons why AIC wanted a provision in the AIC/Lehman deal? A. I think that's a fair statement. Q. We had-- there was testimony about the meeting right before the filing, and I believe your testimony was that there was a meeting that you dido 't attend of the independent directors; is that correct? A. Of the independent directors of Innkeepers? Q. Yes. A. Yes. Q. Are you aware of any of the discussions that occurred in that meeting? A. As I discussed earlier, there was a brief summary of the topics covered during 60 (Pages 234 to 237) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00265 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ~ 0 h ~ 2 t/3 P4 P5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 238 240 Hewes 1 Hewes the independent session and when the full 2 A. Am I confident that he -- sorry. board convened, I recall that summary 3 Repeat the question, please. included that the independent members of the 4 (A portion of the record was read.) board had been briefed on all of the 5 A. Yeah, I -- I feel confident that transactions and issues surrounding the 6 I'm aware of-- of Mr. Zeiter's discussions potential bankruptcy filing and -- I'm sorry, 7 with Innkeepers regarding this process. what was the question? I think I may have 8 Q. If we could turn to Exhibit 18, answered it. 9 please. Q. You did answer the question. 0 Did Mr. Zeiter have a conversation A Okay. Yeah, I think that's it. 1 with Mr. Sathy on June 13th? Q. Do you know whether there was any 2 A. As I indicated earlier, it appears criticism or opposition by any of the 3 that there was a request for a conversation. independent directors of any of the 4 I don't recall -- I don't recall whether I transactions that were presented to them at 5 participated and I don't recall what the that meeting? 6 nature of this discussion was or discussing A I'm not aware of any. 7 after the fact. Q. In preparing for this deposition, 8 Q. So my question was: Do you know did you meet or otherwise discuss Innkeepers 9 whether Mr. Zeiter had a conversation with with Mr. Zeiter? ?0 Mr. Sathy on June 13th? A Yes, Mr. Zeiter participated, I ?1 A. I do not know specifically, no. believe I indicated this morning, in meeting ?2 Q. Mr. Sathy's e-mail states we're with counsel to prepare for this deposition. ?3 having a call with JZ, MB and JG tonight to Q. And in discussing with Mr. Zeiter, ?4 discuss some CMBS questions/strategies. Do did you discuss all the various conversations ?5 you see that? 239 241 Hewes 1 Hewes he's had with either Innkeepers or Lehman 2 A. Yes. regarding the PSA or any related 3 Q. Do you understand what he means by transactions? 4 CMBS questions/strategies? MR. EHRLICH: Objection, form. 5 A. Not specifically, no. You can answer. 6 Q. Do you have a general understanding A We -- we did inquire of him as to 7 of what he meant? his recollection of conversations he may have 8 A. In connection with this e-mail, no. had that were relevant to the deposition 9 Q. Did you understand it when you request. 0 received the e-mail? Q. I'm sorry, who is we in that 1 A. I don't recall. sentence? 2 Q. You don't recall whether you A Myself, Joseph Glatt and Paul 3 understood the e-mail? Weiss. 4 A. This e-mail, it doesn't say a whole Q. Is it possible that Mr. Zeiter had 5 lot and it doesn't jog a lot of memories, to conversations with Innkeepers that you don't 6 be honest. I don't recall anything about know about? 7 this e-mail. MR. EHRLICH: Is it theoretically 8 Q. Do you know whether Mr. Zeiter had possible. Objection. I mean you can 9 any conversations with Mr. Sathy regarding answer that. ?0 CMBS questions or strategies? A Sure, it's possible. ?1 MR. EHRLICH: Objection to form. Q. But no, you feel confident that ?2 You can answer. Mr. Zeiter told you about all of the ?3 A. I don't know specifically. conversations he had regarding Innkeepers -- ?4 Q. Do you know generally? with anybody at Innkeepers? I'm sorry. ?5 A. Sorry. I meant -- my prior answer 61 (Pages 238 to 241) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00266 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 120 121 ~ 2 ~ 3 ~ 4 ~ 5 242 Hewes 1 meant to state I don't know whether Mr. 2 Zeiter had conversations with Mr. Sathy about 3 whatever you asked about. 4 Q. About CMBS questions and 5 strategies? 6 A. Correct. 7 MR. FLIMAN: Thank you. That's all 8 I have. 9 MR. EHRLICH: Are we done? 0 MR. KARCHER: I just have a couple 1 of follow-up questions. I think 2 everything was addressed but. 3 MR. EHRLICH: Could you introduce 4 yourself. I don't think you were here 5 when appearances were taken earlier. 6 Sure. My name is Timothy Karcher 7 from the law firm of Dewey & LeBoeuf. I 8 represent the ad hoc committee of 9 preferred shareholders. 7 0 EXAMINATION BY 71 MR. KARCHER: 7 2 Q. I just wanted to follow up on some 7 3 of the questions -- 7 4 MR. EHRLICH: Sure. 75 243 Hewes 1 Q. -- that were asked and some of the 2 answers you gave earlier. I understand that 3 you've been employed by Apollo Investment 4 Management since 2007 and that you recently 5 became a trustee of Innkeepers USA Trust, 6 correct? 7 A. Correct. 8 Q. You testified earlier that you 9 recently became a director because you had 0 been involved with the Innkeepers project 1 beforehand. Can you elaborate on what that 2 involvement was before your appointment as a 3 director? 4 A. Sure. The investment in Innkeepers 5 is the only sole shareholder private equity 6 investment in AIC's portfolio and, therefore, 7 it's different from in certain respects, it's 8 different from typical investments that we 9 make. 70 Typically our portfolio consists of 7 1 debt investments, fixed income securities, 7 2 investments where we have less influence or 7 3 control or candidly information directly from 7 4 the company. We don't sit on boards, we 7 5 Hewes don't control the equity. Things of that nature. 244 In the fourth quarter of 2008, subsequent to the bankruptcy filing of Lehman Brothers and the stock market declining 500 points every day and the general cessation of economic activity around the world at some level, the individuals who were involved or had primary responsibility for the Innkeepers investment began to see a precipitous decline in the company's financial performance, not inconsistent with issues being seen elsewhere in the world. And as a result of the attention that the situation may require, I was asked as a senior member of our team to get involved. Q. And by getting involved, you mean become a director? MR. EHRLICH: Objection. A. Not-- MR. EHRLICH: You can answer. A. Not at the time, no. I was asked to familiarize myself with the company, its operations and lend whatever assistance I Hewes could to the situation so -- 245 Q. And that assistance would take advantage of the fact that this being, as I think you testified, a unique situation where you could have more influence or control over the situation, you would, you would exercise that ability; is that correct? MR. EHRLICH: Objection, mischaracterizes his testimony. A. Yeah, I don't think that's the point. I think control is perhaps a loaded word. Q. It's your word. A. What I mean is -- well, I know and so I'm going to explain. MR. EHRLICH: Let the witness finish. A. What I mean is we owned 100 percent of the stock. We had, therefore, a significantly greater responsibility to manage the situation than we, than we do in other situations. Q. Aside from you, are there other -- who are the other -- are there other Apollo 62 (Pages 242 to 245) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00267 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 246 Hewes 1 directors? 2 MR. EHRLICH: Objection, asked and 3 answered. You can tell him again. 4 A. The other Apollo affiliated 5 directors, forgive me if I miss one on the 6 list-- 7 Q. Sure. 8 A. --are Jim Zeiter, Patrick Dalton, 9 Justin Korval, Ken Pic ache and myself. 1 o Q. Okay. You said that you've been 11 involved in more than 100 deals and that 10 12 to 20 of them have been completed. Do you 13 recall that testimony? 14 A. I would correct your statement. I 15 said I had reviewed a significant number of 16 potential investments, or potential deals, to 17 use your word, and that it was perhaps 18 greater than 100 and perhaps less than some 19 other number. I don't recall what I said but 20 it was a large number. 21 Q. Have you been involved in other 22 Chapter 11 cases? 23 A. There are other investments in our 2 4 portfolio that have been distressed during 2 5 247 Hewes sorry, that's not the exhibit. It's Exhibit 4. Have you seen this chart before? MR. EHRLICH: Let the witness get to the page. Q. I'm sorry, I will let you get it. A. What's the page number again? Q. 16. A. Yes, I've seen this before, I've reviewed this document. Q. I'm going to direct your attention to the six square shape boxes down sort of right in the center and each one of those boxes has a different name of an LLC, 248 starting with KPA HI Ontario LLC, KPA RIMV LLC, KPA RIGG LLC, KPA Tysons Corner RI LLC, KPA Washington D.C., LLC and KPA San Antonio LLC. Do you see those boxes? A. I do. Q. Earlier we talked about the six or seven properties that were held outside of the debt structure that I' II call the floating or the fixed debt structure of the independent properties. 249 1 Hewes 1 Hewes 2 the last 2 years. Some of those, and some of 2 A. Uh-huh. 3 those cases where we're always a creditor, we 3 Q. Are those independent properties 4 --there was a potential for bankruptcy. 4 represented by those boxes there? 5 With respect to the investments that I have 5 A. I didn't create this chart but I 6 been involved with, to the best of my 6 believe that's the, that's what these 7 recollection, only one has filed for 7 represent. 8 bankruptcy. 8 Q. Okay. And so-- 9 Q. In addition to Innkeepers? 9 A. I don't know-- yeah. Sorry, go 10 A. In addition to Innkeepers, although o ahead. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I'm not certain there aren't others. 1 Q. And what was the case that you were 2 recalling? 3 A. It's a company by the name of 4 American Safety Razor or it has a slightly 5 different corporate name but that's kind of 6 the name people know it by. 7 Q. Moving on to the hotel properties 8 themselves, it's my understanding that 9 they're held by the subsidiaries of the ? 0 Innkeepers USA, Innkeepers Trust USA; is that ? 1 correct? A. I believe so, yeah. Q. And it may be easier if we referred to Exhibit 5, and the chart on page 16. I'm ?2 ?3 ?4 ?5 Q. Now, Innkeepers USA Trust, which is up at the top, it's not liable for the debts of the subsidiaries in these boxes, is it? MR. EHRLICH: Objection to form. You can answer. Calls for a legal conclusion. A. Yeah, that's a little technical. I don't -- I didn't --just to reiterate some history that was covered earlier, I wasn't involved in this initial transaction in 2007. I didn't work on it in any way. I was only aware of it in my capacity as an employee who had started at the firm in March of 2007. Given the complexity, there are certain details of the capital structure and the debt 63 (Pages 246 to 249) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00268 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 ro t?1 t?2 t?3 ~ 4 ~ 5 250 252 Hewes 1 Hewes structure that while I'm generally familiar 2 public preferred, which I think is the line with, I'm not an expert. I don't believe, to 3 of questioning you're focused on, is pari the best of my recollection, that Innkeepers 4 passu with the preferred security that Apollo USA Trust guaranteed those debt obligations, 5 Investment Corporation owns. If we had any which I think is the translation of the 6 opinion that there were any value that would question you just asked, which is, is 7 accrue to the preferred securities in the Innkeepers liable for those debts? 8 capital structure, again my understanding is Q. That's part of the question, sure. 9 that as pari passu preferreds such value, if A. Okay. 10 any, would accrue equally to those two Q. The real question is, to the extent 11 instruments. It's not our conclusion or that those entities have equity value -- 12 belief that there's any value there. A. Uh-huh. 13 Q. Under what scenario would any of Q. --that value would inure to 14 that value go to Lehman based on your Innkeepers to the credit -- to the 15 understanding of the debt structure? shareholders of Innkeepers trust and 16 MR. EHRLICH: Objection, calls for Grandview Holdings; is that correct? 17 a legal conclusion. MR. EHRLICH: Objection, that calls 18 You can answer, to the extent you for a legal conclusion. 19 can. You can answer if you know, but 20 A I don't -- I'm not aware of any only in your personal capacity and 21 scenario where that would make sense. certainly not as a 3 O(b )( 6) witness. 22 Q. Okay. In connection with the PSA A. Yeah, I think that's a little bit 23 and the DIP and the determination to commence technical in nature. But I don't -- it's my 24 the Chapter 11 proceedings, did Apollo, as understanding that each of the -- each of 25 member of the board of trustees, look into 251 253 Hewes 1 Hewes these properties has secured debt on it. 2 the value of any of these six properties Q. Well, let's break that down. 3 represented by the boxes on page 16? If each of them have secured debt, 4 MR. EHRLICH: Objection on and I thinks as Craven says in his 5 foundation grounds. declaration, each of these properties is 6 You can answer. secured by a mortgage but are not part of the 7 A. If your question is, did we perform Lehman pools. Do you understand what I'm 8 an independent analysis of the value, the talking about when I say that? 9 answer would be no. We relied on the company A. Correct, I understand what you're 0 and its financial advisors' estimation that talking about. 1 all of its secured creditors were impaired Q. So to the extent that any of those 2 which implies that there is no equity value individual properties are worth more than the 3 in any of these entities. debt obligations that they have in that 4 Q. You testified earlier that many individual box, where does that value go to? 5 entities had problems when you were MR. EHRLICH: Objection. Again, 6 discussing whether or not the company should call or renew my objection, that calls 7 commence Chapter 11 proceedings. for a legal conclusion from a lay 8 Do you recall that testimony? witness. 9 A. Not the specific sentence but it If you know in your personal 20 sounds accurate. capacity and not as a corporate /1 Q. But you didn't say that all of the representative, you can testify. /2 entities have problems. A. Let me answer your question a /3 A. Well, I believe if you-- if you little bit differently. /4 review the testimony, I proceeded to explain It is my understanding that the /5 why it's not necessarily relevant that every 64 (Pages 250 to 253) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00269 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 254 256 Hewes 1 Hewes entity is, every entity or it's simpler to 2 Q. And that was not done for these six say every hotel is in financial distress 3 individual properties; is that correct? because in the case of the pools of hotels, 4 A. That was not my statement. My they're cross-collateralized and so whether 5 statement was that we relied on the every single entity is not generating cash or 6 conclusions of the company and its financial it doesn't generate sufficient cash is not 7 advisors that-- that all of the company's the right question. 8 secured lenders were impaired and the Q. Well, what about for properties 9 implications are of that statement that that are not cross-collateralized? 0 analysis was conducted, although we didn't MR. EHRLICH: Note my continuing 1 conduct it independently, that each of these objection. 2 entities had its own issues and candidly the A. What was the question? 3 conclusion that any or all of these loans Q. The question is whether or not it's 4 were impaired, given that they were all relevant to look at the values. You said you 5 originally structured to similar loan to didn't look at the values because for every 6 value type ratios, I assume, was not -- entity because they were 7 doesn't seem strange to me. cross-collateralized? 8 Q. So you could take properties in A. No, I said we didn't perform an 9 various geographic areas and make the same independent analysis of the values and we ?0 conclusion because of the LTD? relied on the company and its advisors' ?1 MR. EHRLICH: Objection, form. conclusions that all of the company's senior ?2 Mischaracterizes the testimony. members were impaired. ?3 You can answer. Q. And you said it was not relevant ?4 A. No, I don't think --that was not because the properties were ?5 my testimony. My statement was that we 255 257 Hewes 1 Hewes cross-collateralized? 2 relied on the company and its advisors' MR. EHRLICH: Is there a question? 3 analysis of all of its operations and -- in Q. Was that your testimony? 4 each of these entities and each of these A. You're mixing concepts. You're 5 secured loans and it is our understanding mixing concepts. 6 that their conclusion was that all of the Q. Let me him ask a question. 7 secured lenders are impaired and that A. Yeah. If you could ask me a 8 suggests that there's no equity value in any question, I'm happy to answer it. 9 of those entities. Q. Do you believe that it's relevant 0 Q. Okay. Let's focus for a second on to look at property values for properties 1 KP ARIMV LLC then. that are not cross-collateralized? 2 That's the Mission Valley property MR. EHRLICH: Relevant for what? 3 in San Diego, right? Q. In your determination to advise the 4 A. If you tell me it is, I'll accept company to commence Chapter 11 proceedings. 5 that statement, but I don't -- I'm not MR. EHRLICH: Objection, 6 familiar with every one of these entities' mischaracterizes the facts but you can 7 name and the hotel. answer. 8 Q. Well, you testified earlier that A. Yeah, I believe it's relevant to 9 San Diego property had a significant amount consider the financial performance of each ?0 of debt on it. It was one that you were loan and the cash flows generated by the ?1 familiar with because it was in California asset that loan is securitized by as well as ?2 and I know I'm -- any other obligations that hotel or that ?3 A. I've been to the property, that's entity may have to other parts of the ?4 -- yes, and I'm aware that it's one of these organization, or to a franchisor. ?5 boxes. 65 (Pages 254 to 257) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00270 258 260 1 Hewes 1 Hewes 2 Q. And it's one of these boxes that 2 A Is there a page number? 3 you've just said has no value; is that 3 Q. On a page without a page number. 4 correct? 4 Exhibit A to the -- Exhibit A. 5 MR. EHRLICH: Objection. 5 MR. EHRLICH: Exhibit A to Exhibit 6 A I believe my statement was -- it's 6 D. 7 my understanding that there is no equity 7 Q. To Exhibit D or you can look at the 8 value in these boxes. That doesn't mean 8 Schedule 2? 9 0 1 2 3 4 5 6 7 8 9 bo b1 b2 b3 b4 b5 there's no value. 9 Q. Understood. o You are familiar where the Five 1 Mile DIP, the debtors application for an 2 order authorizing their entry into the Five 3 Mile DIP? 4 A Did the court order, authorize 5 the-- 6 Q. No. They've made an application? 7 A Sorry, you said application, I 8 heard the second part. Yes. 9 Q. And part of the DIP commitment, and t::> o I'm sorry only I only have one copy of this, t::> 1 I can share it with you if you'd like t::> 2 but essentially -- r 3 THE WITNESS: Excuse me. Let me r 4 just turn this off. 259 1 Hewes 1 2 Q. -- it provides that as part of the 2 3 DIP commitment there is going to be a 3 4 facility allocated to the property securing 4 5 the Mission Valley loan and the Tysons Corner 5 6 loan. 6 7 Is the Mission Valley loan the same 7 8 Mission Valley property that we were talking 8 9 about as KP A RIMV LLC? 9 10 A Can you refer me to a page number? 0 11 MR. EHRLICH: Do we all have a term 1 12 sheet before us because I don't really 2 13 think it's appropriate to question on a 3 14 document without the document. The DIP 4 15 term sheet, it's an appendix to the PSA. 5 16 MR. KARCHER: Exhibit D? 6 17 MR. EHRLICH: Are you talking about 7 18 the Five Mile DIP? 8 19 MR. KARCHER: The Five Mile. 9 I? 0 MR. EHRLICH: Then it's Exhibit D. r 0 1?1 A. Okay. I'm sorry. Can you refer me r 1 I? 2 to a clause or a page? r 2 I? 3 Q. I'm trying to get there myself. P 3 I? 4 Well, it's about halfway through P 4 I? 5 the book. P 5 MR. EHRLICH: Are we looking-- we should all be looking at the same thing. You mean the term sheet that's Exhibit A following the -- A Schedule 2 tranche B borrower. Q. Yes. No, it's tranche B borrower. A Does it also say Schedule 2 in the upper right-hand comer? Q. Yes. A Okay. Sorry, what was your question? Q. Thank you. I don't mean to complicate it, it's just to point out that under the Five Mile DIP the Mission Valley property and the Tysons Corner 11roperty are pledged as collateral for that DIP as evidenced by the fact that they are listed as 261 Hewes borrowers under tranche B and tranche B borrowers; is that correct? MR. EHRLICH: You're asking him whether the DIP states that? A. That appears to be correct. Q. And do you know what the proceeds from that DIP will be used for? A. As I stated earlier, I'm aware just generally that the San Diego property is in need of a significant renovation. I'm not familiar with the specifics of what the proceeds of that loan will be used for, to be honest. Q. So some of the loan will be used for PIP obligations? MR. EHRLICH: If you know. I don't want you to speculate. A. I don't know and I don't want to speculate. There are different capital obligations that occur in these properties. Some you might call PIP, some you might call other things. The term "cycle renovation" is used quite often. I don't know the distinction, to be honest, at this specific 66 (Pages 258 to 261) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00271 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 ~ 0 h ~ 2 t/3 P4 P5 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 262 Hewes 1 property what the issues are. 2 Q. So your answer was, they're not 3 going to be used, you don't know whether 4 they're going to be used for PIP obligations? 5 MR. EHRLICH: Objection, 6 mischaracterizes the testimony. He can 7 answer agam. 8 A I'm sorry, what was your question? 9 Q. I'm -- I'll restate the question. 0 Do you know whether or not they're 1 going to use monies from the DIP, Five Mile 2 DIP to perform PIP obligations? 3 MR. EHRLICH: Innkeepers is going 4 to use money? 5 MR. KARCHER: Innkeepers. 6 A It's my understanding that they 7 will use monies from the DIP facility to 8 perform capital improvements of-- at the 9 Mission Valley property. Whether those ::> 0 capital improvements specifically are ::> 1 characterized as PIPs or other capital ::> 2 improvements, I don't know specifically. ::> 3 Q. Now, in addition to the Mission ::> 4 Valley property, the Tysons Corner property ::> 5 263 Hewes 1 is also a borrower under the -- 2 A Yes. 3 Q. -- and pledged under the Five Mile 4 DW? 5 A Yes, that would be the property 6 listed on Schedule 3. 7 Q. Now, on the term sheet, if you 8 continue in that document under Exhibit A, it 9 keeps going, I guess it's two more pages, and 0 if you go to page 5 of that agreement, 1 there's something that says use of proceeds. 2 Can you read that paragraph to yourself? 3 A Sure. 4 Q. And you can skip to the last 5 sentence there. 6 A Okay. 7 Q. Does reviewing that use of proceeds 8 provision in the Five Mile DIP facility 9 refresh your recollection about how the / 0 proceeds will be used for the-- from the /1 Five Mile DW? /2 A Well, I would say it confirms your / 3 question as to whether or not these proceeds /4 will be used to perform PIP work. / 5 264 Hewes MR. EHRLICH: Hold on. I want the record -- PIP work is a defined term which is defined elsewhere in the document and reference should be made to that defined term. Page 17 of the -- there is a definition of some of these tem1s that may be relevant. THE WITNESS: I don't have a page 17. Here we go. Q. Now, page-- there was an interim order authorizing the debtors to use the adequate protection parties cash collateral to provide adequate protection. If you continue further in the document under Exhibit B --Exhibit E, rather, the cash collateral order, and if you follow along in that page 17, there's a series of definitions. One of the definitions is PIP work. It says it means the construction labor and materials necessary to satisfy Marriott or any other applicable franchisor that each of the requirements of each of the 265 Hewes PWs has been satisfied. So I ask you again: Is the Five Mile, are the proceeds from the Five Mile DIP going to be used to satisfy PW obligations? MR. EHRLICH: Counsel, this record is a complete confusion. Are you representing defined terms in the interim cash collateral order are the same defined terms as in the term sheet? Because my best reading of these documents is that the defined terms in the term sheet, excuse me, in the DIP agreement are the same as in the term sheet. And they're not the same in all respects. Do you know? MR. KARCHER: I don't know. But maybe I can simplify it by asking whether or not it's your understanding that the 5-mile DIP proceeds will be used to satisfy the Marriott. MR. EHRLICH: Objection to form. A It's my understanding that the Five Mile DIP facility proceeds will be used to fund capital improvements regardless of what 67 (Pages 262 to 265) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00272 266 1 Hewes 1 2 you call them in those properties. Is that 2 3 helpful? 3 4 Q. It is. Are those property 4 5 improvements the same property improvements 5 6 that Apollo is --has a guarantee to perform 6 7 in the event that they are not satisfied by 7 8 Innkeepers? 8 9 MR. EHRLICH: Objection to form. 9 10 You can answer. 0 11 A. It is my understanding that -- 1 12 THE WITNESS: I'm sorry, can you 2 13 repeat the full question. 3 14 (A portion of the record was read.) 4 15 A. No, I don't believe so. 5 16 MR. KARCHER: I have no further 6 17 questions. 7 18 THE WITNESS: Thank you. 8 19 MR. EHRLICH: Anyone else? 9 2 0 I just have a couple of questions. ? 0 21 EXAMINATION BY ? 1 22 MR. EHRLICH: ?2 2 3 Q. Mr. Hewes, when did Apollo first ? 3 2 4 see a draft of the plan support agreement ? 4 2 5 that ultimately was submitted for approval to ? 5 267 1 Hewes 1 2 the court? 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 PO P1 P2 P3 P4 P5 A. It's my recollection that the first 3 time Apollo received the plan support 4 agreement or a draft of the plan support 5 agreement at the time was sometime the 6 weekend prior or the Friday or Saturday prior 7 to July 19th. 8 Q. Did Apollo participate in 9 negotiations concerning the document that o became the plan support agreement? 1 A. No. 2 Q. Did Apollo give instructions to the 3 company as to negotiations over specific 4 terms in the plan support agreement? 5 A. I'm not aware of any, no. 6 MR. EHRLICH: I have nothing 7 further. 8 (Discussion off the record.) 9 MR. SOLOMON: I actually have one ?0 or two questions. ? 1 BY MR. SOLOMON: ?2 Q. Sir, your counsel asked you, quote, ?3 did Apollo give instructions to the company ?4 as to negotiations over specific terms in the ? 5 268 Hewes plan support agreement. Do you recall that a moment ago? A. Uh-huh, yes. Q. Did Apollo give instructions to the company as to negotiations over specific terms in the term sheet between Apollo and Lehman? MR. EHRLICH: You mean between Innkeepers and Lehman? Q. No, between Apollo and Lehman? MR. EHRLICH: Did Apollo give specific instructions to the -- MR. SOLOMON: I'm sorry, you're correct. Q. Between Innkeepers and Lehman. I'll rephrase the question. Did Apollo give instructions to the company Innkeepers as to the negotiations over specific terms in the term sheet between Innkeepers and Lehman? A. Are you reasking the question? I'm sorry. MR. SOLOMON: Could you please repeat the question, read it back. Hewes 269 Q. It's a different question than what your counsel asked you. Your counsel asked you about the PSA, I'm asking about the term sheet. A. I took the term sheet to mean -- Q. Let her reread the question. (A portion of the record was read.) A. I don't believe so, no. Q. If anyone at Apollo had given any such instructions, would you be aware of them? A. I believe I would be aware of them, yes. Q. Did you do anything in preparation for your deposition to confirm whether or not any such instructions were given? A. I had conversations with -- with Joe Glatt about the final days of these agreements. I didn't ask -- I didn't address that issue specifically. Q. Did you address it with anyone else? A. Not specifically, no. Q. Generally? 68 (Pages 266 to 269) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00273 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 Hewes A. No. MR. SOLOMON: I have nothing further. MR. EHRLICH: Okay. Offthe record. (Time noted: 4:49p.m.) 270 272 1 INSTRUCTIONS TO WITNESS 2 3 Please read your deposition over carefully 4 and make any necessary corrections. You should state 5 the reason in the appropriate space on the errata 6 sheet for any corrections that are made. 7 After doing so, please sign the errata sheet 8 and date it. 9 You are signing same subject to the changes 10 you have noted on the errata sheet, which will be 11 attached to your deposition. 12 It is imperative that you return the original 13 errata sheet to the deposing attorney within thirty 14 (30) days of receipt of the deposition transcript by 15 you. In you fail to do so, the deposition transcript 16 may be deemed to be accurate and may be used in court. 7 17 8 18 9 19 0 20 1 21 2 22 P3 23 p 4 24 P5 25 271 273 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 DO D1 D2 D3 1/4 1/5 JURAT I, SCHUYLER HEWES, the witness herein, the foregoing testimony of the pages of this deposition, do hereby certifY it to be a true and correct transcript, subject to the corrections, if any, shown on the attached page. SCHUYLER HEWES Subscribed and sworn to before me this_ day of 2010. NOTARY PUBLIC 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ERRATA I wish to make the following changes, for the following reasons: PAGE LINE __ CHANGE: _________ _ REASON: _____________ _ __ CHANGE: _________ _ REASON: _____________ _ __ CHANGE: __________ _ REASON: _____________ _ __ CHANGE: _________ _ REASON: _____________ _ __ CHANGE: _________ _ REASON: _____________ _ __ CHANGE: _________ _ REASON: _____________ _ WITNESS' SIGNATURE DATE 69 (Pages 270 to 273) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00274 274 276 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CERTIFICATE STATE OF NEW YORK ) : SS. COUNTY OF NEW YORK ) I, JENNIFER OCAMPO-GUZMAN, a Shorthand Reporter and Notary Public within and for the State of New York, do hereby certify: That SCHUYLER HEWES, the witness whose deposition is hereinbefore set forth, was duly sworn and that such deposition is a true record of the testimony of such witness. I further certify that I am not related to any of the parties to this action by blood or marriage, and that I am in no way interested in the outcome of this matter. IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of August 2010. JENNIFER OCAMPO-GUZMAN 275 INDEX WITNESS PAGE SCHUYLER HEWES BY MR. SOLOMON 6,267 BY MR. GOTTESMAN 189 BY MR. FLIMAN 211 BY MR. KARCHER 242 BY MR. ERLICH 266 EXHIBITS DESCRIPTION PAGE Exhibit Hewes-1, Website printout of Apollo Investment Corporation entitled "Our Business" ............................. 9 Exhibit Hewes-2, Website printout of Apollo Investment Corporation entitled "Selection Process" ........................ l2 Exhibit Hewes-3, Amended Notice of Deposition of Corporate Representative of Apollo Investment Corporation and subpoena duces tecum ....................... l9 Exhibit Hewes-4, Amended Declaration of Dennis Craven, Chief Financial Officer of Innkeepers USA Trust, In Support of First-Day Pleadings ....................... .26 Exhibit Hewes-5, Plan Support Agreement. .. .44 Exhibit Hewes-6, Illustrative Terms of Proposed Restructuring, May [25]2010, Bates Nos. LEH-ALI 000001 through LEH-ALI 000004 ............................. 51 6 7 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Continued): EXHIBITS DESCRIPTION PAGE Exhibit Hewes-7, Illustrative Terms of Proposed Restructuring. June [2]. 2010. Bates Nos. LEH-ALI 000014through LEH-ALI 000022 ............................. 56 Exhibit Hewes-8, Docwnent entitled, "Project Tavern, Lehman Discussion Materials." Bates Nos. INN MID00003533 through INN_ MID0000354S ................. 71 Exhibit Hewes-9, Docwnent entitled "Project Tavern, Midland Discussion Materials," [not Bates stamped] .......... 85 ExhibitHewes-10, Illustrative Terms of Proposed Restructuring. June 4. 2010. Bates Nos. LEH-ALI 00004lthrough LEH-ALI 000050 ............................ 93 Exhibit Hewes-!!. E-mail dated 611 7110 with Bates Nos. AIC 00000233 through AIC 00000245 ...................... 94 ExhibitHewes-12, Term Sheet Alternative A, Illustrative Terms of Proposed Restructuring. June 17.2010. Bates Nos. LEH-ALI 000230 throughLEH-ALI 000241 .... 103 ExhibitHewes-13. Term Alternative A, Illustrative Terms of Proposed Restructuring. June 22. 201 0. Bates Nos. LEH-ALI 00014lthrough LEH-ALI 000151 ............................ 116 ExhibitHewes-14. Term Alternative A, Illustrative Terms of Proposed Restructuring June 29. 2010. Bates Nos. LEH-ALI 000254through LEH-ALI 000264 ............................ 126 (Continued): EXHIBITS DESCRIPTION PAGE ExhibitHewes-15, E-mail dated 7/7/10 with attachment, Bates Nos. AIC 00000127 through AIC 00000144 ...................... 130 Exhibit Hewes-16, Term Sheet Lehman/ AIC, July 19, 2010, [not Bates stamped]. ...... .l40 ExhibitHewes-17, E-mail dated 7/17/10, Bates Nos. INN MID00003311 and INN MID00003312 ........................... 142 Exhibit Hewes-18, E-mail dated 6/13/10, Bates No. AIC 00000219 ................... .175 DOCUMENT REQUESTS Page Line 161 18 173 4 187 22 277 70 (Pages 274 to 277) DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00275 278 A 66:16 199:16 149:18 150:16 157:15 174:17 133:16 134:2 ability 7:19 247:9,10 155:23 174:23 177:16 180:9 135:13,24 34:22 77:10 262:24 268:3 197:6 269:20 136:4,8,14,16 223:16 245:8 additionall89:7 agree 88:3 ahead 231 :23 137:5,14 138:2 able97:16176:6 address 59:19 agreed 159:18 249:10 138:9,12 201:13 219:3 269:20 161:8,12 AIC 6:2 12:12 139:11 141:7,9 Absolutely 269:22 163:13 165:11 14:10 16:5 141:15,17 144:24 addressed agreement 16:20 19:8 21:12 150:2,9,13,24 accept 140:24 242:13 16:24 29:20,21 43:7 44:4,11 151:8, 18, 18,20 152:8 257:14 adequate 264:15 30:13,16,20,23 45:25 46:5,6,8 152:5,9 153:23 acceptable 6: 18 264:16 31:6,24,24 56:13 58:3,8 154:3,24 7:7 102:3 adieterich@p ... 32:5,6 44:22 58:24 59:25 155:18 156:7 accepted 11 : 1 7 3:18 45:2 46:2 61:3,11 62:5,8 156:22 157:3 19:4 advantage 245:4 50:12,16,19 65:6,10 66:5,9 157:11,18 accommodate advise 97:4 87:11,14,16,23 66:14,19 67:24 158:22 159:7 6:22 57:10 255:14 87:24 88:22 67:25 68:10,13 159:10 165:24 accompanied advised 98:23 101:25 102:3 77:19 78:7 167:3,6 168:23 139:20 advisement 127:23 129:16 81:9 84:6,10 173:20 174:20 accrue 252:7,10 173:17 188:2,3 129:20 133:16 88:2,5,9,15 175:5,8 177:13 accurate 10:5 advisor 73:9 133:20 134:2 91:21 92:2,6 177:22 178:3,9 34:10 41:3 82:16 135:14,17,19 92:12 93:15 179:7,14 50:25 182:24 advisors 3 :4 135:21 136:6,7 94:7,10,10 180: 16,20,25 253:20 272:16 4:24 73:25 136:16 137:4 95:16,19,23 182:16 195:10 accurately 161 :7 80:15 82:18 137:13,24,25 96:18,22 97:4 195:15 196:25 161:11 89:14 182:7,9 139:15,20,23 97:9,14,18,19 203:18 211:15 acquire 16:20,24 182:10 186:11 141:4 149:24 97:23 98:9,11 212:7 213:22 135:14,19,21 186:12 225:23 150:20 152:16 98:18 99:2,10 215:23 216:13 151:21 253:10 254:21 152:20,25 99:16 100:9,14 217:2,16 218:6 acquired 203:18 256:7 257:2 153:11,13,21 101:7,15 102:9 218:11 219:3 acquisition advisory 72:24 160:4 162:15 102:13,17 219:12 220:2,4 16:17 44:13 72:25 163:12,18,22 105:6,24 107:6 220:10 222:11 122:19 aehrlich@pau ... 164:4,21 107:9 109:22 225:18 227:7 acquisitions 3:17 173:20 174:19 110:24 112:3 227:13,22 18:5 affect7:19 167:5 191:10 196:19 112:10 113:8 228:12,16 act 59:25 167:25 168:2,9 203:20 224:19 113:13 114:2 229:2,6 236:8 acting Ill : 11 235:24 224:24 228:10 114:23 116:21 236:18 237:10 112:2 affiliated 13: 17 228:20 235:17 117:4,10,15 276:14,15 action 185:22 196:25 246:5 235:19,23 118:8 119:16 277:5,5,10 274:15 afield 123:21 236:5 263:11 120:7,11 AIC's 62:10,18 activities 12:7 afternoon 265:14 266:24 121:10,22 62:19 63:4 34:4,8 189:16 211:4 267:5,6,11,15 122:4,6 123:5 118:22 159:16 activity 201:3 age 130:24 268:2 275:21 123:12,17 212:22 220:4 244:8 agenda 79:24 agreements 28:6 128:8,10,12,16 231:12 232:3 actual45: 12,14 81:23 28:20 31:23 129:3,19 233:25 234:20 45:17 139:21 aggregate 200:9 32:2,5,15 130:15,16,20 235:11,16,21 144:8 160:7 ago 50:6 52:10 75:16 131:10 130:20 131:12 236:8 243:17 ad4:18 242:19 54:4 71:25 13 2: 11 144:6 131:23 132:8 AIC/Lehman addition 7:3 76:18 121:8 148:10 157:14 132:14,18 237:10 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00276 279 AIM 8:14,15 147:11,13 145:14,19 answer's 231:16 94:23 108:21 12:12 14:10 148:13,14,22 147:8 148:5 anticipated 108:22 109:10 16:5 17:3 19:8 149:4,7,8,10 149:3,18 152:4 172:7 110:4,15 all :5 149:16,17 153:6,16,18 Antonio 190:4 127:21 128:3 ALI 3:21 5:22 167:23 200:19 155:15,23 192:22 201:24 140:13 142:18 116:20 202:11 221:14 156:16 157:6 248:18 143:2 160:20 allegedly 88:7 223:10 229:6 164:6 166:15 anybody 239:25 162:23 240:12 allocated 259:4 230:5 253:8 167:21 168:14 apart 29:25 30:4 261:6 allow 6:24 209:8 254:20 256:10 173:24 174:23 56:11 appendix 163: 17 alter 168:4,9,13 257:3 178:12 179:21 Apollo3:14 7:25 259:15 alternative 96:8 analyst 18:12 185:19 188:9 8:3,4,6,7, 10,13 applicable 96:11 97:8 Andrew3:16 188:19 193:11 8:15,18,23 9:3 264:24 99:5,21 103:4 5:25 195:6,12,25 9:6,10,14,23 application 116:6 126:21 Angeles 17:19 200:20,24 10:15,16,20 258:12,17,18 127:4 137:15 annexed 191:9 209:16 210:12 12:22 13:4,18 applies 200:13 137:19 276:16 answer 7:4,6 210:13 216:3 13:19 19:20 200:15 276:19,22 8:21 14:2 16:9 217:22 219:15 20:2 21:18 applying 226:13 alternatives 19:10 23:9 219:23,24 22:4,7,11 40:3 appointment 226:11 28:14 29:10 220:12,14 40:6,12 41:7 243:13 ambiguous 30:7 31:8 221:3,15,21 41:19 146:18 appreciate 24: 14 148:17 32:10,17 33:11 222: 1 7 223 : 12 167:6,17 184:6 28:25 72:17 amend 72:13 34:7,16 35:3 224:23 226:21 184: 12, 15' 17 104:9 121:7 Amended 19:18 36:14 37:19 228:4 229:9,21 193:6 213:22 appropriate 19:25 26:10 43:10 48:8,9 231:20 232:10 220:17 243:4 72:2 77:14 275:16,18 48:14 49:7,15 232:11,13,15 245:25 246:5 232:12 259:13 amendment 54:8 58:11,17 232:16 233:8 252:4,24 266:6 272:5 186:2 59:4,7,10,18 234:7,10 266:23 267:4,9 approvall42:6 American 63:22 64:7 238:10 239:6 267:13,24 266:25 247:15 65:8 66:23 239:20 241:22 268:5,7,11,12 approvals Americas 1:12 68:4,20 69:2 241:25 244:22 268:18 269:10 141:10,14,16 2:16 3:9,15,21 69:18 72:10,11 249:15 250:20 275:12,14,17 141:22,23 4:5,19 72:14,16 76:21 251:23 252:18 Apollo's 166:13 approved 208:4 amount42:21 77:23 80:16 253:6,9 255:9 apologize 171: 16 approximate 77:13,14 84:19 90:13 255:18 256:23 190:16 211:10 14:25 17:12 158:19 177:18 92: 11' 16 93 : 1 7 262:3,8 266:10 Appaloosa 4:9 approximately 177:18 179:25 95:8 96:14 answered 58:16 appear 32:11 17:18 36:23 201:10 202:7,8 100:20 101:19 69:4 79:20 100:13 120:25 46:12,17 68:2 225:5 229:13 106:24111:18 99:18 217:20 132:10 74:21,24 79:3 230:9,19 112:9,17 219:22 231:14 appearances 88:12 125:7,14 257:19 116:25 117:2,7 232:6,22,24 242:16 125:20,20 amounts 42:19 119:5,19 121:8 233:2 234:8 appeared 156:13 197:9,15,18 67:4 77:7 122:13 123:14 235:22 238:9 157:2 April3 6: 18,20 225:5 124:2,15,23 246:4 appearing 21:7 40:23 41:2,4,6 Amy3:18 5:23 125:11 128:7 answering 6:17 21:11 84:23 41:14,19,22 Anaheim 192: 14 129:7,22,23 166:16 160:7 70:22 71:22,25 201:16 130:4,9 131:17 answers 7: 13 appears 28:22 72:15 73:17 analysis 42:21 134:4,10 135:7 76:18 140:12 51:22 84:20 74:21 75:14 143:16,19 140:11 144:16 243:3 90:21 93:22 78:13 79:4 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00277 280 80:3 86:3,12 133:24 138:7 22:10,12 74:7 70:17,24,25 203:22 91:7,17,19 145:6 146:10 78:12 80:4,6 71:4 83:8 backstop 55:24 186:11 211:13 151:13 153:12 81:6,10 82:14 84:11 85:25 56:3,14 93:22 215:7 216:5,8 209:3 211:10 82:21 169:15 86:10,13 bad 171:14 216:8,11,16,22 213:18 215:19 169:17 170:21 110:12111:25 balance 180:14 217:4,18 218:2 219:18,19 171:20 181:21 112:19,24 217:9 218:3,5,5,6,10 236:15 261:4 181:24 207:4,8 113:2 114:23 ballpark 197: 16 218:11 219:2,2 265:18 269:4 211:15,19 115:5,9 156:8 bank 17:23 219:10 aspects 11 :21 213:20 156:21 157:13 72:23 area 18:7 102:2 142:3 attendees 79:2,6 182:21 183:22 Banker 17:6 areas 60:3 asset 255:22 79:17 80:9 184:5 187:4 bankruptcy 1:2 256:19 assets 226: 14 attention 27: 16 188:23 190:10 31:21 37:14 arose 40:22,23 assistance 27:24 32:22 237:22 238:17 38:1243:4 arrive 112:15 244:25 245:3 167:12 228:22 240:6 249:22 45:16,19 49:20 arrived 108: 15 assume 9:21 244:15 248:12 252:20 257:24 50:14 61:23 arriving 86:21 10:2 64:23 attorney 145:5 261:9 267:16 64:19,25 165:5 ascertain 58:23 95:16 110:6,16 146:13 147:19 269:11,13 168:21 171:24 Aside 245:24 110:23 111:4 147:21,24 awfully 123:21 172:16 174:17 asked 57:21 128:24 207:15 148:2 272:13 a.m 1:13 181:17 186:4 58:1663:7 208:13 210:6 attorneys 2:4,9 186:13,14,20 71:24 76:22 256:16 2:15,20 3:4,9 B 196:21 198:4 83:14,15 87:11 assumes 52:14 3:14,214:4,9 B3:2496:12 208:22,24 99:17 138:15 assumption 4:14,18 21:23 260:13,14 238:7 244:5 148:23 163:17 54:14 21:24 22:2 261:2,2 264:18 247:4,8 182:16 183:14 attached 47:7,19 109:14,17 275:10 276:2 base 61 : 15 1 06:4 185:9 208:15 50:19 51:2 attractive 11:7,9 277:2 based 28:15 211:10,24 127:22 132:7 auction 16:25 back 23 :5 3 3 : 16 29:22 54:24 212:3,9,13,24 139:25 140:17 August 1:13 50:253:14 66:12 82:8 213:4,5,9 163:18 165:15 20:4 274:19 55:20 57:13,18 101:4,10 162:9 214:16 215:6 165:22,23 author 54:12 59:14 60:8 197:3 226:4,4 215:15,22 271:10 272:11 authorize 169:2 64:10 76:18 226:5,22,23 219:21 231:14 attaching 131:7 171:23 172:18 81 : 15 1 04: 18 252:14 232:6,21,23 142:18 164:4,9 258:15 106:21 109:12 basic 98:6 234:22 242:4 attachment 94:9 authorized 109:15 119:9 basically 198: 17 243:2 244:16 100:4 130:15 181:16 124:5,19 basis 134:6 244:23 246:3 165:7 276:14 authorizing 125:24 129:11 143:23 208:7 250:7 267:23 277:5 172:16 258:13 130:4,5 133:11 223:25 269:3,3 attempt 6:15 7:5 264:14 134:16,20 Bates 51:9,13 asking 6:11,23 58:23 86:15 Avenue 1:12 136:18 140:21 56:22 57:2 28:15 54:13 161:6 186:12 2:16,21 3:9,15 144:20 147:17 65:17 67:10 59:5 69:6 attempted 113:3 3:21 4:5,10,19 155:8 156:18 71:8,12 85:6,9 74:20 88:2,2 114:3 aware25:25 162:11 166:5 93:7 94:9 97: 13 1 0 1 : 1 0 attend 38:4 26:4 30:15,23 178:15,23 100:6 103:2,6 102:24 112:24 77:19 78:7 39:6,21 40:4 185:8 193:14 116:3,8 126:18 113:16,17 169:11,21 41:5 56:12 196:8 210:11 126:23 127:17 114:9,10 170:5,8,15,25 62:2,4,7 64:22 223:8 233:7 130:15,20 115:16 120:19 171:5,9 237:16 66:15 67:24 268:25 132:13 140:6 122:3 126:13 attended 22:5,8 69:20 70:5,8 background 142:11,14 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00278 281 175:5,8 275:23 27:12 28:18 203:2,16 204:5 board 18:23,24 155:25 158:12 276:5,8,10,12 29:18 31:10,18 204:5,8,19 19:4,5,14 163:9 166:9,10 276:14,17,20 31:25 32:4,14 208:8,25 209:9 33:24 34:3,10 166:24 167:13 276:23 277:5,7 32:20 34:21 211:19,23 34:11,19 37:7 boutique 72:23 277:8,10 35:23 37:12 212:17,20,20 37:12 38:10 box 191:13 bear 28:25 38:13,24 40:9 213:6,6 215:22 39:14 169:2,4 251:15 bearing 56:22 41:3 43:24 216:6 217:10 169:5,17,23 boxes 248:13,15 becoming 40:22 44:8,13 46:10 217:20 218:9 170:3,10,12,19 248:19 249:4 began 13:20 47:21 50:13,24 218:21 220:9 170:23 171:3,7 249:13 253:3 186:7 196:23 53:7 54:2,20 220:13,20,22 171:18,20 257:25 258:2,8 208:21 244:11 60:13 61:13,25 222:2 224:15 172:2,3,4,5, 15 branch 199:21 beginning 33:4 62:7 66:3,9 224:18 227:9 172:17,20,25 break 6:21 57:5 42:6 46:15 69:4 70:23 227:10 232:5 173:15 174:3,5 115:13,16 81:14 158:12 71:5,17,20,23 234:22 235:13 174:9,10,21 138:16 146:11 163:14 197:13 73:18 74:4,14 235:15,19 181:14 182:2 181:5,15 208:5 75:8,15,22 236:3 237:15 196:5,8,12,23 182:15 183:15 begins 164: 16 80:14 81:10 238:22 247:23 196:24,25 209:13 210:21 behalf 5: 1 7, 19 82:1583:5 249:6 250:3 197:6,19 233:6 251:3 6:2 8:13 14:9 85:3,18,20 253:23 255:10 198:10 202:12 breakup 67:4 74:15 110:24 87:21,25 89:12 255:19 258:6 202:20 204:24 93:25 Ill: 11 112:3 91:20,20 93:13 266:15 269:9 205:4,17 Brian 4: 11 5: 1 0 121:21 122:3 93:18 94:21 269:13 206:11,16,23 brief 57:12 132:23 154:3 96:4,21 99:8 believed 25:22 207:4,13,16,20 115:21 174:11 Beilinson 25: 19 99:11 101:20 66:20 101:7 207:22,23,25 181:8 210:25 74:11 75:22 106:2,14 107:6 119:17 208:5,11,16,21 237:25 76:8 77:3 89:7 107:18,20 benefit 90:6 209:2,11,20,25 briefed 205:18 94:14 95:6 112:10 120:5 Benson4:13 210:9 224:8 210:4 238:5 96:21 97:4,20 123:15 125:15 5:15 211:5 225:22 238:3,5 briefly 20:24 98:13,15,23 126:2 128:12 Bernie 170:7 252:25 116:13 99:2 109:4 129:18 139:15 best 216:25 boards 18:16,18 bringing 205:4,5 130:25 131:17 139:21 153:12 217:16,22 18:20 210:8 broad 62:23,25 142:20 143:13 153:19,20 224:19 247:6 243:25 112:22 113:15 143:20 145:7 154:9 155:4,10 250:4 265:11 book46:16 114:14,15 146:12 147:12 156:6 157:11 better 33:19 259:25 broadly 121:18 147:19 148:3,9 158:21 159:9 82:3 121:6 Boone2:14,20 Broadway 4: 14 149:3,6 169:21 159:11 162:16 226:10 5:3,5 6:11 Brothers 29:21 175:21 177:12 165:16 169:10 beyond 125:9 borrower 70:7 73:24 177:22 178:9 170:16 172:5 194:8 220:25 260:13,14 74:16 75:12 179:4,6,19 172:17 173:3 221:16 263:2 80:10 83:17 180:17 208:19 174:5 177:12 bfaerstein@wi ... borrowers 97:7 99:6,22 belief 61 : 15 177:20 179:22 4:12 200:15 204:3,6 101:24 151:22 95:25 106:4 180:24 181:3 binder 23: 14 261:2,3 163:15,17,19 252:12 182:5,8,14,20 44:20 52:2 borrowing 205:3 163:22 174:18 believe 12:16 184:11,13,24 bit54:17129:10 boss 22:12 190:13 213:8 17:9 18:2,25 187:7,11 250:23 251:24 bottom 9:17 213:14 216:19 19:11 20:7,8 188:12 192:9 black 110:14 100:5,8 117:13 217:7 228:9 20:24 23:18 192:13 193:24 Bless 86:19 118:21 132:14 244:6 25:5,19 26:22 194:23 196:18 blood 274:16 153:7,25 brought 50:2 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00279 282 80:15 205:12 204:11 246:23 247:3 168:4,9,13 168:10 207:8 233:15 calls 32:9 95:14 cash 76:15 180:3 273:9,11,13,15 222:20 Bryan 3:8 5:7 200:19 221:2 199:13 223:25 273:17,19 client 146:17 189:17 224:22 229:19 254:6,7 255:21 changed 72:6 223:6 23 3 : 16 bucket 191:17 249:15 250:18 264:15,18 129:5 168:8 close 52:16,18 191:20 200:17 251:17 252:16 265:9 changes 110: 19 218:15 204:11,12,18 candidly 92: 18 Cave3:8 5:7 236:16 272:9 closed 44: 14 bulk37:24 92:24 94:24 189:18 273:5 CMBS203:24 bullet 13:9 137:4 180:6 194:9 center 248: 14 Chapter 1:4 240:24 241 :4 141:7 226:5,23 CE022:11 197:23 198:4 241:20 242:5 business 8:2 243:24 256:12 certain 11:25 198:13,22 code 84:15 9:11,20,24 capable 166: 16 12:2 28:23 199:24 208:12 190:25 198:4 11:5 15:19 235:17 32:12 34:4,8 208:17 209:21 203:16 16:8,21,24 capacity 18:7 39:15 42:8,10 246:23 252:24 collateral 52:18 18:7 19:3 123:4 138:8 42:16,20 66:18 253:17 255:15 192:2 260:24 42:13 135:18 156:9,22 67:21 73:24 characterization 264:15,19 151:4 180:11 224:12 249:22 102:2 106:12 118:21 265:9 203:22 205:8 250:21 251:21 121:3 124:9 characterize collateralized 221 : 18 224:4 capital4: 14 11 :4 140:20 148:12 42:17 86:14 191:24 228:14 275:13 43:2,3 77:7 149:19 158:19 161:9 colleagues 58:19 businessman's 148:12 149:19 159:13 172:19 characterized 58:24 59:6,8 199:10,11 151 :2 164: 17 174:5,7 177:15 262:22 59:17 businessperson 179:25 185:23 177:17,24 chart 198:21 collection 162:7 168:11 235:14 185:24,25 180:10 182:3 230:14 247:25 column 128:16 buying 219:12 186:9 190:11 199:18,20 248:4 249:5 136:25 201:12 211:7 204:17 234:12 Chicago 2: 11 come 18:22 c 223:17 226:3 24 3 : 18 24 7: 11 chief25:3 26:11 30:18 33:8 c 2:2 3:2 4:2 6:3 229:7 230:24 249:24 275:19 35:10 83:18 96:12 139:4 231:2,9,25 certainly 3 0: 11 circulate 164: 11 88:11111:14 274:2,2 234:12,16,20 38:25 42:2,8 164:25 122:20 129:2 California 17: 19 235:9 236:7,25 77:11 117:3 circulated 55:7,9 135:17 139:10 192:24 193:2 249:25 252:8 138:3 172:3,11 68:15 73:18 177:10 257:21 261:20 262:19 172:13 178:3 144:4,7 157:9 comes 110:21 call32: 12 91:24 262:21,22 186:3 190:21 165:14 coming 102:9,15 158:22 159:6 265:25 250:22 cited 214:21 commence 15 9: 15 1 7 5 : 24 carefully 272:3 certainty 157:25 clarification 252:23 253: 17 175:25 176:9 carries 160: 14 Certified 1: 14 231:8 255:15 176:12,15,17 carry 153:7 certify 271:8 clarify 57: 18 commencing 176:22,23 carrying 117: 14 274:9,14 103:18 114:19 1:13 17:3 204:6 209:10 case 1:5 13:16 cessation 244:8 173:8 184:4 comment 104:3 240:23 248:23 55:4 64:17,22 cetera 11 : 15 234:23 135:12 188:21 251:17 261:22 211:7 221:8 CFO 182:6 clause 259:22 commented 261:22 266:2 225:19 231:9 chain 142:17 clear 8:22 28:19 104:17 106:12 called 1:10 8:3 231:25 247:12 challenging 28:23 42:3,23 107:8 109:16 17:20 18:12 254:4 77:15 43:18 67:19 121:4 161:24 191:13 cases 11:14,25 chance 56:8 78:20 92:19 commenting 191:25 12:2 14:24 153:17 111:4135:7 133:14 calling 67:21 15:12,20 16:16 change 72:12 136:14 137:17 comments 106:7 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00280 283 107:4 110:3,7 136:13 137:19 complaints 159:25 160:9 confirmation 110:15,18,24 138:11 143:8,9 237:4 160:11,23 222:23 commitment 143:11 150:8 complete 11:18 161:3,4,6 confirming 258:20 259:3 150:12,25 11:19,20 33:10 226:14 255:5,6 209:15 committee 4:4 152:17 155:17 38:14 77:8 concern 146:2 confirms 263:23 4:18 242:19 156:10 157:3,9 120:9 121:12 159:16 confused 129:10 commonly 18:8 173:12 177:5 127:11,14 concerned 50:18 confusion 265:7 72:22 190:12 177:11,17 130:8 142:5 151:14 connection 15:6 204:3 180:6,13 151:2 152:18 concerning 15:17 16:17 communicated 185:14,22 153:17 180:4 34:13 36:7 19:7 23:18,25 118:15 207:2 186:3,7,9,23 185:24 210:6 125:6 267:10 24:17 38:12 communication 190:13 195:18 237:3 265:7 concluded 83: 10 132:5 136:2 126:8,9 183:22 196:2,19 completed 14:12 83:13 150:14,19 184:2,5,11,24 203:12,18 14:19,22 120:8 conclusion 38:7 151:7,15,18 187:4,5 204:25 205:10 121:11 129:24 220:23 223:10 152:10 179:15 communicatio ... 205:13,17,19 130:10 150:3 223:23 224:22 196:20 221:10 158:24 205:23 212:17 151:23,25,25 226:12 236:11 228:12 241:8 companies 11:3 212:17,19 152:6,6,7,14 249:16 250:19 252:22 11:3 12:9 213:7,14 152:14,19 251:18 252:11 consecutive 190:16 203:11 215:11 218:22 154:18,18 252:17 256:13 127:17 210:8 223:16,24 156:13,13 256:20 257:6 consensual28:3 company 11:6,9 225:23 228:17 177:17 224:3 conclusions 76:7 12:5 16:18 236:24 243:25 228:11 236:24 254:22 256:6 consequences 17:20 30:15 244:24 247:14 246:13 conditioned 180:8 31:20 34:5,9 253:9,16 complexity 34:22 136:16 consider 214:4 34:13 35:14,18 254:21 255:15 249:24 conditioning 255:20 41:23 42:18,24 256:6 257:2 complicate 136:5,9 considerable 43:7,19 44:5 267:14,24 260:21 conditions 174:22 44:12,14 52:15 268:6,19 complied 205:23 136:25 137:11 considerably 64:2,18 70:5 company's component 141:3 184:25 72:19,21 73:9 35:20 76:4 152:24 conduct 256:11 consideration 73:24 74:2,11 77:10 82:5,7 components conducted 43:20 228:16 74:14,15 75:13 82:16 92:20 49:14 122:9,12 154:10 158:15 considering 75:18,20 77:9 149:11 150:4 concept 38:25 158:20 256:10 122:23 78:3,6 80:21 151:3 174:16 40:21,24 70:14 conducts 208:19 consistent 80:22 81:5,18 177:16 180:2 70:22 93:22,25 confer 134:13 104:15 149:15 81:19 82:16 182:7,9 184:9 120:6 129:3,19 146:20 165:10 194:24 83:1685:2 185:13 190:10 133:19 137:18 conference 224:4 86:2 87:8,12 198:16,18 142:3 147:15 134:18 146:22 consists 243:21 87:13 89:13,14 205:4 218:16 148:6,7 155:5 147:2 constituent 96:16 97:7,22 223:14,15 155:11 159:19 confident 68:9 186:15 98:8,24 99:14 225:2 226:3,18 159:24 160:19 239:22 240:2,5 construction 99:22 100:15 244:12 254:22 160:22 163:24 confirm 47:9,11 264:22 100:15 101:16 256:7 200:12,15 51:24 59:5,16 construed 214:6 102:18 113:2 compare 90:7 217:7 219:7 66:8 104:19 consummate 115:6 120:8 compared 194:7 225:17,19,21 145:21 176:6 141:10 121:11 125:19 comparison 228:18 234:23 209:9,11 contained 55:16 132:22,23 51:23194:18 concepts 69:16 269:16 69:16 101:6,11 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00281 284 118:7 120:12 control91 :3 corporate 19:19 197:24 198:5 188:10 193:5 149:24 243:24 244:2 20:2 200:6 207:14 209:6 196:10 205:20 containing 23: 14 245:6,12 247:16 251:21 212:2,5,10,12 206:8,14 208:9 155:23 161:14 cont'd 3:2 4:2 275:16 216:6,24 220:8 210:4 212:19 161:22 139:5 Corporation 220:18 224:10 212:22 221:23 contemplate convened 238:3 3:14 8:5,8,11 224:11 227:14 23 1: 15 23 3 :4 92:7 149:25 convenient 57:6 8:14 9:3,10,23 228:5 234:14 233:14 238:23 228:19 115:12 138:16 10:15,20 12:22 236:20 237:17 265:6 267:23 contemplated conversation 13:19 19:20 242:7 243:7,8 269:3,3 46:9 53:9 35:23 37:25,25 20:3 22:5,12 245:8 246:15 counsel's 88:24 68:12 92:12 87:24 97:20 40:4,7,12 41:8 247:22 250:17 132:25 198:16 121:19 135:16 113:7 145:21 146:18 252:5 251:10 256:3 counted 14:14 164:17 193:24 145:24 160:9 275:12,14,17 258:4 261:3,6 counterpropos ... 193:25 196:19 178:14 183:5 Corporation's 268:15 271:8 107:6 109:21 215:24 216:13 214:5 240:10 8:19 9:15 13:5 corrected 72:7 COUNTY 274:4 217:3,17 224:3 240:13,19 correct 8: 17 corrections couple 242:11 227:7,10,13 conversations 10:12 14:13 271:9 272:4,6 266:20 228:7 235:10 35:17 36:6,10 31:17,17 33:25 correctly 3 9: 18 course 15:23 236:7 36:12 48:21 34:2,5,13,14 88:20 109:21 16:3' 13 24: 19 contemplates 71:2 83:16,19 34:17 36:19 163:15 171:12 49:8 65:5,10 95:15,19 220:4 83:21 99:20 37:21 45:24 198:15 court 1:2 6:25 224:25 108:13 113:3,6 58:5,6 60:4,14 corresponded 7:9,14 12:19 contemplating 113:14 166:2 60:15,21 61:12 106:5 107:3 12:25 19:17,23 97:8,22 98:17 176:19 188:9 63:17 64:14,25 counsel21: 15,22 26:9 44:19,24 136:11 138:5 214:7,23 65:2 67:17 22:446:18 47:12 51:8,16 contemplation 218:22,25 68:18 72:13,16 47:23 48:13,22 55:19 56:21 92:21 219:6 238:25 73:23 74:19,22 49:10 50:6 65:16 71:7 contemplations 239:8,16,24 75:11 78:22,25 52:23 53:22 76:22 85:5,11 234:11 241 : 19 24 2:3 81:8 83:3,10 54:11,24 57:23 93:3 94:6 content 115:8,10 269:18 83:11 89:10 57:24 58:4,8 102:24 115:25 contents 131 :22 conversion 95:24,25 99:7 60:20,24 63:11 123:23,23 157:13 188:4 35:22 217:10 99: 16 1 07: 14 63:17 65:24 126:17 127:3 contest 169:20 convert 70:15,19 107:20 108:25 66:2,7 69:10 130:13,18 context 27:4 217:12 109:4,5,23 71:19 72:3 140:3 142:10 122:18 150:22 converting 123:6 127:24 80:20 85:25 175:4 222:9 161:5 219:7 136:22,23 86:10 88:21 258:15 267:2 continue 213:8 copy 73:16 78:10 145:10 148:20 93:14 94:19 272:16 263:9 264:17 79:7,9,12 158:7,13,14 104:13 106:6 cover 94:13 96:7 continued 84:2 128:10,13 161:15 163:6,6 106:17 108:14 103:15 130:24 276:2 277:2 131:14,16,19 172:10 174:25 108:24 116:15 201:5 226:12 continues 76:21 173:7 187:24 176:17,18 116:19,23 covered 157:7 continuing 81 :4 258:21 182:12,21 117:24 118:10 193:5 230:25 254:11 corner 190:3 183:13,20 121:2 127:7,20 231:3,10 232:2 contractor 8:7 191:13 192:21 185:6,7 187:21 133:10 146:7 237:25 249:19 contracts 147:14 201:23 248:17 188:18 192:6 149:11,12 co-investment 149:10 259:5 260:16 192:11,14 158:5 161:25 15:21 contractual 260:23 262:25 193 : 18 194: 16 166:2 167:23 co-investments 225:13,16 Corp 41:19 195:6,24 196:4 176:20 182:4 15:15 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00282 285 Craven 24:23 260:6,7 275:2 37:21 38:17 defaulted 75:14 34:10 275:11 25:10,23,25 Dallas 2:21 70:15,20 77:10 186:10 276:3 277:3 26:11 28:11 Dalton 123:3 91:11 107:24 define 77: 14 designated 29:6,7,14 170:23 246:9 108:8111:13 defined 191:21 132:24 32:25 33:7,22 Dan 5:14 211:4 112:4,14 264:3,4,6 designation 74:12 251:5 DANIEL4:16 114:25 141:8 265:8,10,12 62:18 132:5 275:19 date 9:12 12:24 191:14,22,25 definitely 159:5 designee 114:23 Craven's 30:5 19:22 26:15 194:4,18 definition 264:8 132:22 156:10 create 249:5 36:15 43:22,25 195:23 199:14 definitions 156:22 created 42:16 44:23 51:15 199:16 200:17 264:21,21 designees 211:15 121:3 146:17 57:4 71:14 201:5,10 definitive 216:12 212:7 credit250:15 73:9 74:6 203:20 204:11 delivered 77:5 desire 91: 10 creditor 215:12 85:1093:9 204:12,18 185:21 150:25 154:16 215: 1 7 24 7:3 94:11 103:8 205:9 217:10 Dennis 24:23 detail25:18 53:5 creditors 4:4 116:10 126:25 217:13 219:8 26:11 74:12 details 249:25 76:5 86:21 127:8 130:17 223:17 225:2 275:19 determination 184:10 185:14 140:8 142:16 226:8,25 depending 252:23 255:14 185:18 186:8 162:23 169:9 243:22 248:23 225:24 determine 11:5 224:10,20 175:9 184:23 248:24 249:25 depends 214:4 15:8 104:23 253:11 215:19 272:8 250:5 251:2,4 deposing 272:13 176:21 Crisp 3:6 5:8,8 273:23 251:14 252:15 deposition 1: 10 determined criteria 13 : 13 dated 20:3 26:2 257:20 19:19,25 21:14 15:23 16:3,13 199:5 94:8 104:7 debtors 1:6 2:4,9 52:2 58:20 129:21 225:25 critical 186: 15 130:14,24 5:17,20 28:2 62:9,17 63:8 development criticism 23 8: 13 142:13 163:4 31:12,19 33:2 63:15 104:22 143:24 cross-collatera ... 175:7 276:14 33:20 221:18 117:9 132:4 developments 200:7 202:24 277:4,8,10 258:12 264:14 176:21221:24 179:7,13 254:5,10,18 day 1 : 12 24: 19 Debtors-in-Po ... 238:18,23 Dewey4:17 255:2,12 65:9 86:23 2:4,10 239:9 269:16 242:18 CSA51:2 144:4 163:11 debts 249:12 271:7 272:3,11 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16:7 18:6 81:19 218:16 description 9:20 247:16 248:15 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00283 286 261:20 269:2 237:17,18 204:24,24 151:14 152:2 55:23 56:12,22 differently 238:14 246:2,6 205:16 206:11 160:8 165:20 60:1161:3,7 251:24 disagree 48:23 206:23,25 193:6,20,22 61:12,14 62:2 difficult 6:25 55:10 233:12 211:13 219:8 213:8,15 218:7 62:5,8 65:25 1 04: 19 214: 14 233:13 219:17,20,25 218:12 237:23 66:3,6,10,15 236:11 disagreed 160:2 220:21 225:23 240:6 66:17,19 68:6 digest 43:17 160:3 237:24 Disneyland 68:9,14,22 diligence 11: 13 disagreements discusses 153:21 202:3 69:6,10,14 11:15,19 237:4 discussing 70:6 disputing 132:19 71:8,10,15 205:19,22 disclosed 38:9 96:17 98:24 distinction 10:3 73:14,17 84:22 diligenced 230:6 38:25 174:20 101:15 155:25 10:7 32:18 84:24,25 85:2 diligent 64:21 disclosure 156:24 166:23 261:25 85:6,6,7, 15,20 diminish 231:12 173:19 181:15 188:20 distinctions 87:6 93:4,10 232:3 discuss 21 :20 194:10 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276:7,9 205:12 206:4,9 179:22 188:13 125:6,12,16 53:4,21,25 277:12 206:15,20 194:25 196:21 136:17 137:11 54:4,5,14,19 documentary 207:4 210:3,8 197:5,7 202:12 138:10 150:7 55:6,13,15,20 62:19 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00284 287 documentation 193:25 194:25 136:10 140:11 47:15 48:7,13 187:25 188:6,8 135:10 142:5,7 195:14 227:16 149:2 155:15 48:19 49:6 188:14,18 documents 266:24 267:5 155:24 156:3 54:6,22 55:3 189:13 191:7 22:18,20 23:11 drafted 161 :2 156:11,23 58:15 59:3 195:11 200:18 23:15 24:6,10 drafting 133:13 157:8 158:8 60:6 61:20 209:15 210:18 24:11 26:5 160:24 166:24 174:8 62:12,21 63:18 210:23 213:21 27:7 47:22 drafts 23:16,17 176:25 183:24 64:6 65:5,8 214:18 215:8 57:24 63:3,11 50:10,15,21 184:25 187:18 68:3,16,19,24 217:6,21 63:14 64:2,16 51:4 106:7,15 190:20 192:5 69:12 70:10 219:14,21 65:3,9 79:16 121:19 132:10 194:25 196:16 77:22 78:13,19 220:11,24 79:21 90:7 132:12 133:11 196: 18 197:4 78:23 84:18 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118:14 120:4 71:24 92:18 33:18 34:6,15 168:7 172:23 125:18 138:8 120:23,25 95:19 101:3 35:2 36:10 173:11,16,23 156:8,21 127:4,14,21 105:6 114:13 39:10,24 41:10 178:11,19 186:12 191:3 128:5 144:5 115:5 123:14 43:9 45:9 179:17,20 206:15 207:9 157:14 173:20 135:2,13 46:23 47:2,4 181:6,10 212:16 222:15 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00285 288 239:2 entirely 198:25 173:22 184:16 74:6 87:22 44:25 46:14 elaborate 243:12 entirety 27:14 184: 19 21 7: 1 0 169:9 47:8 51:8,11 election 108:9 38:2 217:13,14 exactly 31:22 51:17 55:19 electronic 63:2 entities 9:6 219:8,13 220:5 64:13 127:16 56:21,24 60:9 Ellis 2:3,9 5:17 173:8 198:3 220:10 228:8,9 172:21 187:10 65:17 68:15 5:19 199:7,12,23 228:14 243:16 205:15 71:7,10 73:13 Elmore 2:22 5:4 200:4 204:7 244:2 250:12 examination 78:11,21 79:8 5:4 205:3 250:12 253:12 257:8 1:10 6:6 85:5,7,13 embody 164:15 253:13,15,22 258:7 119:13 139:5 89:17,20,25 emergence 256:12 257:4,9 ERLICH275:9 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264:18 275:12 enterprise 34:24 125:7,13,21 132:11 123:5 275:14,16,18 52:15 128:17 129:4 evidenced exercise 245:7 275:21,22 entire 67:20 133:17,18,21 147:14 151:19 exhibit 9:8,9 276:4, 7,9, 11 119:22 143:15 135:15,19,21 260:25 12:20,21 13:2 276:14,16,18 172:15,17 135:25 139:12 evolved 132:11 19:17,18,24 276:21 277:4,6 186:16 151:21,22 exact 27:3 43:25 26:10 44:19,21 277:8,10 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00286 289 exist 162:8 130:24 131:4,6 192:7,23 23 7: 14 23 8:7 74:3,4,7,9,18 203:20 234:15 131:14,16,19 200:22 203:9 244:5 75:4,13 79:13 existed 166: 14 131:23 132:7 203:19 204:16 filings 23 : 1 7 79:16 81:15 167:18 209:25 142:13,17 250:2 257:16 64:17,23,24 91:25 92:6,10 existence 101 :4 159:2 175:7,16 257:21 258:11 208:12 92:17,22 94:25 105:16 173:20 176:2 187:7,8 261:12 final 3 7: 12 3 8: 14 96:6 101:21 existing 228: 14 187:24 188:5 familiarity 47:16,16 140:9 103:16 108:18 expect 23:24 188:21 240:22 69:16 140:15,25 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168:17,20 18:11 26:18,22 5:14,14 210:19 200:19 250:11 29:24 30:2,8 169:2 171:24 27:10,25 28:12 211:3,5 213:24 251:12 252:18 31:5 49:12,13 172:16,18 29:6,8 31:15 214:19 221:20 external182:7 50:5,8 53:11 174:17 186:3 32:25 33:10 222:2,6,24 externally 67:6 72:18 186:20 197:24 35:16 36:5 223:6 230:18 133:10 94:20 99:21 198:22 208:17 40:11 45:5,9 230:22 231:4,7 e-mail94:8,13 105:21 147:22 208:22,25 45:10,15 50:11 231:16,20 96:7 130:14,23 168:19 190:5 209:21 228:12 51:19,21 53:6 232:20,25 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00287 290 233:5,12,21 106:23 109:9 180:9 224:2 135:16 152:2 269:10,17 234:6 242:8 111:16112:7 226:17 237:6 182:4 203:23 giving 168:2 275:7 113:20 116:24 franchisor 208:8 229:16 Glatt 4:23 22:5 flip 46:11 119:4 120:13 255:25 264:24 229:23 241:6 88:21 89:6 floating 52:17 123:20 127:14 franchisors 244:7 106:3,9,12 248:24 129:6 132:17 199:18 205:8 generalist 18: 13 107:18 122:25 floor2:16 3:5 137:5 150:23 free 27:13 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loaded 245:12 41:14 67:13 177:4 185:5,22 136:25 137:12 257:10 loan2:15,20 85:19 114:15 249:23 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00293 296 mark2:22 5:4 180:18,21 227:4 235:25 169:4' 11' 15' 18 182:3,8 196:24 9:7 12:19 181:2 182:17 23 9: 19 244: 18 169:21 170:5,8 196:25 207:21 19:17 26:9 183:13,16,19 245:15,19 170:15,21,25 208:20 214:10 44:19 51:8 183:25 184:4,7 258:8 260:11 171:5,9,21 214:12 238:4 55:19 56:21 184:9 185:2,4 260:20 268:9 173:18 174:3,9 254:23 71:7 74:11 185:13,21 269:6 174:11 181:14 memorialized 85:5 93:3 94:6 186:5,14 187:2 meaning 11:12 181:21,25 142:4 102:25 116:2 218: 19 226: 16 53:19 77:11 196:9,12,23,23 memories 50:2 126:17 130:13 227:4 264:24 129:15 193:16 197:6,9,19 241:15 140:3 142:10 265:21 meaningful lOA 198:10 202:13 memorize 191:3 175:4 182:5 Marriott's 180:2 10:7 204:25 205:17 memory36:18 208:8 180:5 means 18:13 206:12,16,24 49:17 73:22 marked 9:11 material32:21 136:15 180:10 207:4,13,24,25 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Ill: 12 112:4 264:23 272:4 2:16,16 3:5,5 noted 139:3 114:9 112:14 114:5 need 6:20 26:17 3:10,10,15,15 146:24 189:13 mitigate 236:8 114:24 194:3 28:23 41:13 3:22,22 4:5,5 270:7 272:10 mixing 255:5,6 251:7 45:4 51:18 4:10,10,15,15 notes 12:4 75:3,7 ML-CFC 189:24 mortgages 194:7 75:25 76:5,9 4:19,19 68:2,5 191:2 194:2,3 modified 72:7 motion 140:18 76:11,14 77:4 91:22 92:23 notice 19:18,25 modifies 236:4 140:24 90:13 108:17 100:9,16 21:8,12 22:23 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00295 298 23:13 59:2,20 181:12 244:20 245:9 35:19 71:2 190:23 202:4 60:4 123:22 object 33:12 246:3 249:14 78:18 79:3 ones 124:6 132:25 177:2,8 63:18 143:23 250:18 251:16 80:3 83:21 141:25 192:24 177:11,13,20 232:16,19,21 251:17 252:16 113:17 176:7 192:25 189:11,12 232:23 253:4 254:12 176:10,12,15 one-page 142:18 220:25 275:16 objecting 231:21 255:16 256:21 176:22 205:16 175:5 noticed 209:7 objection 8:20 258:5 262:6 209:20 216:21 Ontario 192: 16 221:24 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1:13 274:6,22 234:11,16 204:23 255:25 100:6 101:6,14 188:17 195:11 occur 36:4 55:14 238:11 246:11 organizational 226:20 200:18 215:8 82:24 120:7 249:8 250:10 198:18,21 N.W2:5 217:6,21 121:10 125:2 252:22 257:10 original 148: 10 219:14,21 125:16 133:22 259:21 260:18 149:25 155:7 0 220:11,24 169:8 175:24 263:17 270:5 185:2,4 193:25 0 4:22 139:2,2,2 221:16 224:21 176:16 223:18 Omni26:23 194:3 195:14 oath 57:16 229:19 239:5 225:7 261:21 31:16 203:19 272:12 115:23 139:8 239:19 241:21 occurred 25: 17 once49:20 originally 70:23 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00296 299 177:20 193:23 160:15 162:22 participants payment 35:15 157:10 177:15 227:7 256:15 163:2,14 74:10 214:11 75:18 81:18 177:19 180:4 outcome92:19 164:16 166:11 participate 234:19 235:9 186:2 218:14 152:11,12 166:24 167:13 176:5 205:14 payments 75:14 218:14,20 224:20 226:9 191:4,6,8,12 206:22 267:9 76:2 77:12 219:6 274:17 230:11 247:25 participated 118:22 186:10 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places 83:7 100:4 103:13 123:13 136:17 52:3 85:21 223:22 224:4 plan 31:5 44:21 103:15,16 137:23 148:10 104:17 106:6 244:13 255:20 45:2,25 46:14 105:2 107:21 165:22 179:11 106:14 107:3 performed 50:12,15,19 110:3,15 115:3 204:14 211:14 126:10,10 205:22 229:6 127:23 129:15 117:13,13,14 222:13,16 135:9 143:14 230:4 129:19 135:17 118:18 136:24 226:11 228:15 239:13 period 14:18 137:24 143:25 141:3 142:22 250:9 251:7 Pawlitz 2: 12 17:25 19:3 162:14 163:11 153:7,25 258:19,20 5:18,18 42:20 88:16 191:6,9,10,18 155:25 158:12 259:2 pay220:10 133:12 155:12 196:11,13 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00297 300 200:17 224:19 112:5,15 115:2 117:3 118:3 244:12 76:9,15 77:4 224:24 228:10 118:23 160:16 134:4 143:23 precisely 68:8 Press 184:13,14 228:19 266:24 194:14,15 158:2,3 173:16 prefer 59:11 184:15,22 267:4,5,11,15 200:3,9 239:15,19,21 preferred 4:18 presumably 268:2 275:21 pooled 200:2 possibly 37:5 242:20 252:2,4 86:18 89:13 pleadings 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166:3 22:6,10,12 practice 179:11 present 22:3 45:18 50:9,14 173:6 184:5 194:8,11 practicing 148:2 58:4 73:6 80:8 50:14,24 51:3 188:6,7 193:3 pose 59:11 precedent 88:5 108:8 52:9 53:25 195:8 207:21 position 19:8 136:25 137:11 169:6 206:15 60:19 61:4 211:25 227:13 possession preceding 78: 14 presentations 62:5 64:15 245:12 260:21 122:20 173:14 78:15,23 23:16 65:24 66:2,6 pointed 149: 13 possibility 92:25 precipitated presented 15:19 69:7,8,9 73:4 points 13:9 219:12 41:25 75:24 34:12 49:21 74:5,5 85:22 121:3 138:4 possible 6:22 76:9,10,14 63:16 85:21 85:24 86:9 244:7 63:3 97:25,25 77:4 238:15 87:2 92:17,22 pool111: 14 115:15 116:17 precipitous preserve 75:25 93:14 94:2 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00298 301 102:16 116:19 208:21 228:15 proposals 11: 16 236:18,21 114:19 128:23 116:22 117:24 240:7 275:15 11:17 161:15 237:10 263:19 pursuant 21:8 127:19 134:23 produced proposed 51:12 provisions 52:23 put 12:25 19:23 135:6 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100:12 220:20 221:9 90:13,15 92:10 253:17 255:15 200:12,25 100:25 108:4 222:11,12 94:18 95:10 proceeds 28: 19 201:8,9,11 118:7 153:2,5 223:4 98:20 100:22 148:15 261:7 202:2,4 210:3 153:10,23,24 purchased 68: 13 103:9 106:19 261:13 263:12 255:11257:12 156:23 158:11 purchaser 40:13 111:6 112:18 263:18,21,24 257:19,23 158:17,23 40:22 112:23 114:9 265:4,20,24 259:4,8 260:23 159:7,23 purchasers 39:8 114:13,18 process 11 :22 260:23 261:10 160:10,14 39:22 40:5,8 119:7,21,22 12:12,14,23 262:2,20,25,25 161:22 164:16 purchasing 12:4 121: 5 124: 16 13:7 16:22,25 263:6 266:4,5 166:8,13,23 67:25 92:7 124:17,23 157:12 186:16 proposal 125: 17 167:5,13,16 217:14 228:8 125:23 127:18 193:4,16 154:16,21,24 168:12 235:15 purpose 204:7 129:8,12,22 194:21 197:23 155:2,3 235:19 236:4 purposes 110: 17 130:2,4,6 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00299 302 134:4,17,20,23 242:12,24 76:18,19 218:15,19 213:18 215:4 141 : 19 144: 1 7 266:17,20 100:12 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96:19 259:12 169:9 172:9,14 179:18 questioned 223:10 reasking 268:22 176:3,4,11 recess 57:12 183:24 reached 16:20 reason 62:25 177:2,5 178:5 115:21 138:21 questioning 16:23 137:5,13 93:19 96:10 181:17,22 181:8 210:25 252:3 138:16 160:4 133:4 212:9,11 182:6,18 recession 201:3 questions 6:12 223:23 226:12 226:12 272:5 184:23 186:21 225:11 6:17 7:12 read 23:4,6 273:10,12,14 186:24 187:10 recipient 142:19 11:13 13:16 27:18 33:10,15 273:16,18,20 187:12,15 175:11,11 28:23,24 59:7 33:17 35:6 reasonable 37:3 188:20 193:21 recirculate 59:18 92:10 37:11 40:18 220:22 221:7 194: 19 197: 8 163:7 164:12 128:23 172:8 49:18,18 50:7 221:12,18 197:12 198:14 164:25 210:20 211:8,9 53:13,18 54:13 224:6 206:13,22 recirculated 211:11,12 56:2,4,18 reasonableness 208:14 209:22 165:3,14 215:25 229:22 59:13,15 64:10 223:3 211:15 212:15 recite 210:2 241:20 242:5 64:12 70:2 reasonably 212:18 213:5 recited 105:10 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00300 303 129:5,14 162:6,21 166:6 76:23 78:20 regarding 7 6:6 130:2 172:21 recognize 178:16 181:7 91:13 120:17 106:6 107:4 remind 57:15 127:25 183:8,11 121:16 122:10 112:22 126:11 115:22 139:7 recognized 185:11 189:7 122:15 123:14 158:22 193:6 181:11 228:13 189:20 193:15 134:22 139:19 210:2 239:3,24 reminded 50:7 recollection 210:14,24 140:10 143:20 240:7 241 : 19 renew 251: 17 22:21 23:12,22 233:7 240:4 145:12,24 regardless renovation 24:13 48:2,18 264:3 265:6 146:7,13 265:25 261:11,23 48:20 49:9,11 266:14 267:19 147:12 148:13 regular 179:10 rents 225:13,16 49:22 52:5,24 269:8 270:6 148:18 149:14 218:22 reorganization 53:17 79:15 274:13 149:21 150:6 reiterate 249: 18 101:23 122:21 105:18 117:22 recoveries 226:7 152:21 153:6 relate 143:24 122:24 133:17 118:8 119:15 226:24 153:15 156:5,6 221:17 133:20 135:15 124:22 126:3 recovery 228: 16 163:20 168:5 related 27:8 135:20,22 126:14 137:9 reduce 235:11 183:12 185:15 151:14 184:7 151:22 186:23 153:3 174:14 refer 16:19 185:18 186:19 239:3 274:15 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59:15 64:12 155:17 reflects 110:7,24 264:9 193:13 231:22 67:18 70:2 referred 18:8 refresh 22:21 relied 253:9 231:24 240:3 76:19 78:20 30:14,24 67:15 47:25 49:17,22 254:21 256:5 266:13 268:25 102:12 106:22 68:5 121:23 49:25 52:5,24 257:2 repeated 119:21 110:2,9111:4 122:3,7 143:6 105:18 117:22 rely 32:11 rephrase 6: 16 111:21114:17 143:8 148:5 118:7 126:3 remaining 14:3 27:6,9 115:19,20 197:22 204:3 137:9 192:17 174:10 39:13 98:22 119:10,23 226:21 237:2 201:12 263:20 remains 50:24 100:23 156:19 124:20 125:25 247:24 refreshed 23:12 remember 53:22 166:21 167:8 129:13 130:7 referring 9:22 24:13 48:18,20 66:24 68:11 167:10 168:3 134:13,15,16 28:11,20 29:6 49:2,9,11 72:15 101:3 268:17 134:21 138:15 29:7,14,19 126:14 109:20 171:25 report 38:5 138:19,20 33:2 36:22 refreshes 119:15 176:13 190:17 83:20 176:9 141:2,21 37:19 45:12 refreshing 53: 16 198:15 215:25 reporter 1: 14 144:21 146:3,5 47:6,16 63:10 124:22 202:8 remembered 7:2,10,14 146:24 147:3,7 64:24 66:23 refused 87:15 53:25 12:19,25 19:17 147:18 155:9 67:10,14,19 regard 193 :22 remembering 19:23 26:9 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00301 304 44:19,24 51:8 requested 21 :20 201:7 202:14 276:22 94:25 104:20 51:16 55:19 42:23 75:12,18 247:5 result 19:7 105:22,25 56:21 65:16 81:17 124:25 respective 73:25 118:13 125:17 106:3 107:11 71:7 76:22 requests 165:6 respects 32:12 186:3,7 226:6 107:13 117:5 85:5,11 93:3 180:2,5 189:6 243:18 265:16 226:15,19,23 126:5 128:4 94:6 102:25 205:24 277:12 respond 113:19 244:15 145:8 158:2,5 116:2 119:20 require 142:6 180:18,21,25 resulted 150:15 207:17 208:4 126:17 127:3 199:21 244:16 184:22 resumed 139:4 208:14 223:14 130:13,18 required 42:18 responded 121:4 retained 206:9 246:16 248:11 140:3 142:10 43:2 77:7 182:16 183:18 210:4 reviewing 30:4 175:4 274:7 81:22 179:25 response 7:12 return 72:2 30:22,25 31:4 reporting 185:22 186:17 21:12 75:21,23 221:6,11 224:7 31:9,11 49:7 176:11 217:9 237:3 82:18 159:20 272:12 51:25 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representatives resigned 25: 19 180:14 186:13 72:5 90:10,12 146:6,10 21:18 74:13,14 25:23 restructuring 94:12 96:2 148:16 157:15 80:20 81:5 respect 12:13 28:4 32:2,7 100:24 104:23 197:17 202:3,5 82:17 87:8,15 58:25 60:3 35:21 43:3 107:19 116:12 208:12 209:12 88:9 89:9 65:11 69:22 46:24 51:12 116:19,23 211:20,25 154:7 157:11 98:10 99:15 56:25 65:21 117:24 127:7 212:4,8 216:5 158:9,10 101:17 112:5 69:22 70:6,9 127:20 135:11 216:23 220:7 174:11 115:2 118:22 72:24 74:2 142:6,7 143:3 220:17 227:8 represented 125:4 132:23 76:7 81:21 157:17,21 236:19 237:14 249:4 253:3 133:3 134:19 82:22,25 84:17 205:21 253:24 248:14 254:8 representing 139:11 150:7 92:23 93:6 reviewed 20:14 257:13 127:13,15 150:21 151:7 103:5,24 116:7 20:24 21:6,19 rights 189:8 265:8 154:16 155:24 126:22 133:21 22:21 23:14 right-hand 10:8 represents 156:11 158:11 136:2 186:22 24:12 26:6 260:16 233:16 167:7,18 217:8 218:8,13 30:17 47:23 RIMV248:16 request 24:20 173:21 189:9 223:18 224:2 49:19 50:4,6 259:9 82:2,19 88:15 189:10 190:9 225:7 228:21 50:15 63:4,6,7 risk 221:8 224:6 162:6 239:10 195:22 196:2 275:22 276:5 63:9,14 64:4,5 risks 221 : 13 240:13 199:23 200:15 276:12,17,19 64:15 66:20 role 8:4,10,14 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00302 305 10:5 15:15,18 115:3 116:21 sector 225: 12, 15 143:12,17 252:21 17:24 34:3,10 117:23,25 secure 30:16,19 148:8 149:11 sent 94:14 95:6,9 34:11,19 35:20 118:8 144:5 secured Ill: 13 159:19 163:5 95:12,17 44:15 97:14 150:16 155:16 112:4,14 163:14 168:11 106:15 109:12 102:9,15 187:10 205:15 114:25 189:21 175:10 176:3 109:15 142:20 114:22 123:12 218:4 189:25 191:14 186:25 187:8 184:12 187:2,9 room 7:11 169:6 saying 44:8 80:6 191:22,25 240:25 244:11 187:12 188:22 rough 197:16 121:9 177:14 194:4 195:23 248:19 266:24 188:24 189:2,3 roughly 197:12 229:25 200:4,16 seeing 54: 10,20 sentence 28:2,12 213:19 says9:23 33:5 204:11 226:8 209:22 230:23 29:8,15 32:25 Ruisi 169:25,25 54:10 118:21 226:25 251:2,4 seen20:5 26:18 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257:13 SCHUYLER 45:8 46:6 127:19 135:2 series 6: 12 3 5: 16 257:19 261:10 1:10 271:5,12 47:14 52:20,21 152:22 157:10 172:7 264:20 sat 87:3,17 274:10 275:4 55:24,25 65:18 157:11 208:14 serve 18:15,20 Sathy 240:11,20 scope 125:10 65:22 68:9 209:19 220:3 18:22 19:5 241 : 19 24 2:3 162:10 220:25 71:18,21 73:12 244:14 248:4 served 21:12 Sathy's 240:22 221:17 88:18 89:23 248:10 164:3 210:7,9 satisfactory second 20:25 90:2,14,22 sees 232:12 serves 36:19 137:6,13 52:13 55:22 91:4 92:25 selected 63:16 73:22 75:11 satisfied 265 :2 73:22 79:17,19 94:16 100:8,10 selection 12:11 169:13 266:7 80:2 82:3 100:11 101:25 12:14,23 13:7 service 77: 10 satisfy 179:25 103:13 108:7 102:6 104:4,5 275:15 201:5,14 205:9 264:23 265:5 115:19 133:25 105:7,10 108:6 sell34:23 36:2,8 223:17,24 265:21 141:7 149:14 108:11 114:18 37:5,20 38:22 servicer 189:19 Saturday 144:8 183:2 191:5,8 116:14 117:16 selling 38:17 servicers 195:22 164:2 267:7 230:11257:10 117:18,21 senior 123:4,5 services 2: 15,20 saw20:16 26:22 258:19 118:16,18,24 201:18 244:17 72:24,25 73:3 27:10 45:15,17 seconds 134:13 127:6 131:3,12 254:22 73:7,11 47:20,21 50:12 secret225:9 131:13,14,16 sense 129:21 servicing 199: 14 50:25 51:21 section21:5,6 131:19 132:13 223:2 227:22 199:16,17 53:661:3 22:23 27:14 137:2,7 141:5 228:20 229:12 session 38:3,6,8 94:21 101:7 105:4 141:11 142:21 229:16,23 3 9: 19 1 04: 13 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00303 306 116:15 160:24 168:12 180:14 signatory 45:25 103:22 106:18 46: 18,22,25 174:3,6 197:5 191:6,10,18,21 46:5,6,9 114:8 116:11 47:3,18 48:16 238:2 193:23 195:14 227:23 128:2,21 48:23 49:4 set90:21164:17 196:12,14 signature 162:25 130:18 132:21 51:7 53:13 168:13 205:6 200:17 217:9 273:23 133:23 140:9 55:18 56:20 274:11,19 235:16 236:8 signatures 163 :4 141:3 142:17 57:7,9,13 seven 133:8 259:12,15 signed 163:12 149:2 153:3 59:13 63:23 194:3 248:22 260:11 263:8 significance 155:15 158:7 64:10 65:7 Seventh 4:10 265:10,13,15 201:9 175:10 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144:8 150:15 shown 63:11 26:16 44:24 5:2,2 6:7,10 270:3 275:5 151:20 152:22 271:10 48:9 51:16 12:18 14:3 solvent 223:20 155:5,16 156:4 shrug 7:15 52:11 53:17 19:16 23:4 somewhat 156:14 157:17 side 10:8 55:24 54:3,13 57:18 24:20 26:8 218:21 163:20,23 60:24 107:25 59:16 65:18 28:17 31:17 soon 6:22 36:16 164:5,10 165:8 sign 86:24,25,25 66:23 71:15 33:15 35:7 36:23,24 165:15,23 87:12,14 88:2 80:24 85:11 36:12 39:13 180:15 218:19 166:11 167:14 88:15 272:7 94:12 103:12 40:17 44:18 sorry 17:10 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00304 307 20:19 23:2,8 24:6 30:10 95:14 229:20 272:4 274:3,8 256:15 23:10 29:12 36:15 41:13 speculative stated 50:3 structuring 39:11 50:20 64:8 70:25 229:22 135:8,13 11:19 203:19 54:15 56:16 82:24 104:20 speed 205:5,6,12 136:10 138:4 struggling 42:13 58:10 60:17 105:23 106:8 205:25 151:17 155:10 stuff23: 19 61:19 69:24 107:17 112:18 spelling 171:14 235:13 236:23 subheading 76:25 81:2 117:5 118:4,14 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64:3 115:21 138:21 term 23:17 42:2,15 43:13 testifying 67:20 67:18 86:13 171:23 172:2,4 46:13,14 47:7 43:16,23 76:3 testimony 32:9 89:21,24 90:6 172:5,9 173:16 50:10,18,23,25 77:6 177:8,11 40:6 62:4 98:21 99:25 180:13 181:8 53:10 82:8 178:10 179:15 63:25 66:12 100:7 101:22 210:25 242:16 96:8 100:2 179:24 180:8,9 84:9 153:22 103:20 105:3 talk 168:16 103:3,16 182:17 183:25 176:25 207:12 134:3 136:20 182:25 104:18 106:7,9 184:4,8 185:3 211:23221:2 141:20 151:18 talked 248:21 107:4 116:5 185:5,21 186:5 228:3,6 232:8 153:16 156:19 talking 151 : 16 120:12 121:6 218:20 237:5 237:13,15 159:17 162:13 158:12 229:17 121:19,20 terminology 245:10 246:14 179:13 190:19 230:18 251:9 122:13 124:4 157:16 253:18,24 DAVID FELDMAN WORLDWIDE, INC. 450 Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00306 309 255:4 256:22 216:21 217:25 138:4,17 139:3 told 18:14 54:23 135:16,24 256:25 262:7 222:25 228:2,6 139:10 143:3 63:25 88:18,24 136:12,13 271:6 274:13 23 1 : 13 23 7: 12 154:8 155:6,12 97:6 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Seventh Avenue- Ste 2803, New York, NY 10123 (212)705-8585 APP-00311
/Debtors Motion for Entry of Interim and Final Orders Pursuant to 11 U.S.C. Sections 105, 361, 362, 363 and 507, Rules 2002, 4001, 9014 of the Federal Rules of Bankruptcy Procedure for an Order (1) Authorizing Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay, and (IV) Scheduling a Final Hearing filed by Albert Togut on behalf of Dewey & LeBoeuf LLP. (Attachments: # (1) Pleading Declaration of Jonathan A. Mitchell In Support of Debtors Motion# (2) Exhibit 1: Proposed Interim Order# (3) Exhibit A: Budget)