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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Case No. 10-13800-scc

- - - - - - - - - - - - - - - - - - - - -x In the Matter of:

INNKEEPERS USA TRUST, et al., Debtors.

- - - - - - - - - - - - - - - - - - - - -x

United States Bankruptcy Court One Bowling Green New York, New York

December 15, 2010 4:02 PM

B E F O R E: HON. SHELLEY C. CHAPMAN U.S. BANKRUPTCY JUDGE

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Page 2 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 Transcribed by: Sara Bernstein Notice of Hearing/Notice of Status Conference to Discuss the Debtors Plan Process Case Status Conference

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Page 3 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 VERITEXT REPORTING COMPANY www.veritext.com BY: PAUL BASTA, ESQ. KIRKLAND & ELLIS LLP Attorneys for Debtor 601 Lexington Avenue New York, NY 10022 BY: ANUP SATHY, P.C., ESQ. MARC J. CARMEL, ESQ. JAMES H.M. SPRAYREGEN, P.C., ESQ. (TELEPHONICALLY) A P P E A R A N C E S : KIRKLAND & ELLIS LLP Attorneys for Debtor 300 North LaSalle Chicago, IL 60654

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Page 4 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 BY: LAWRENCE P. GOTTESMAN, ESQ. MICHELLE MCMAHON, ESQ. BRYAN CAVE LLP Attorneys for Trusts Serviced by LNR Partners, LLC 1290 Avenue of the Americas New York, NY 10104 BY: JORDAN WISHNEW, ESQ. LORENZO MARINUZZI, ESQ. (TELEPHONICALLY) MORRISON & FOERSTER LLP Attorneys for Official Committee of Unsecured Creditors 1290 Avenue of the Americas New York, NY 10104

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DEWEY & LEBOEUF LLP Attorneys for the Ad Hoc Committee of Preferred Shareholders 1301 Avenue of the Americas New York, NY 10019

BY:

MARTIN J. BIENENSTOCK, ESQ.

KASOWITZ, BENSON, TORRES & FRIEDMAN LLP Attorneys for Five Mile Capital 1633 Broadway New York, NY 10019

BY:

ADAM L. SHIFF, ESQ.

SIDLEY AUSTIN LLP Attorneys for Appaloosa Investment LP, et. al. 787 Seventh Avenue New York, NY 10019

BY:

LEE S. ATTANASIO, ESQ.

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Page 6 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 VERITEXT REPORTING COMPANY www.veritext.com BY: BRAD ERIC SCHELER, ESQ. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP Attorneys for the Independent Committee of the Board Directors One New York Plaza New York, NY 10004 BY: TODD C. MEYERS, ESQ. MARK A. FINK, ESQ. (TELEPHONICALLY) KILPATRICK STOCKTON LLP Attorneys for TriMont Real Estate Advisors, Inc. 1100 Peachtree Street, NE Suite 2800 Atlanta, GA 30309

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DECHERT LLP Attorneys for Lehman Brothers 1095 Avenue of the Americas New York, NY 10036

BY:

MICHAEL J. SAGE, ESQ. BRIAN GREER, ESQ. (TELEPHONICALLY)

HAYNES AND BOONE, LLP Attorneys for Midland Loan Services, Inc. 201 Main Street Suite 2200 Fort Worth, TX 76102

BY:

LENARD M. PARKINS, ESQ. JOHN D. PENN, ESQ.

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PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Attorneys for Apollo Investment Corporation 1285 Avenue of the Americas New York, NY 10019

BY:

ALAN W. KORNBERG, ESQ.

PERKINS COIE LLP Attorneys for C-III and CW Capital 1201 Third Avenue Suite 4800 Seattle, WA 98101

BY:

BRYAN A. JENNINGS, ESQ. (TELEPHONICALLY)

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SHEPPARD MULLIN RICHTER & HAMPTON LLP Attorneys for Marriott International, Inc. 30 Rockefeller Plaza 24th Floor New York, NY 10112

BY:

JANE QIN, ESQ. (TELEPHONICALLY)

MILBANK, TWEED, HADLEY & MCCLOY LLP Attorneys for Lehman Brothers One Chase Manhattan Plaza New York, NY 10005

BY:

CHARLES M. RUBIO, ESQ. (TELEPHONICALLY)

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Page 10 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 are. THE COURT: MR. SATHY: P R O C E E D I N G S Mr. Sathy? Yes. Mr. Basta?

I'll start.

Good afternoon, Your Honor. THE COURT: MR. SATHY: THE COURT: MR. SATHY: status conference. THE COURT: MR. SATHY: THE COURT: No problem. I can't say I've had that before. I wasn't sure what you wanted but here we How are you? Fine. Good. First, we appreciate the extensions on the How are you?

We do have some folks on the phone but since it's just a

status, I'm not going to take appearances so -MR. SATHY: Okay, very good. Your Honor, the debtors

have been working along the lines of the plan process and the plan protocol that have been outlined previously to the Court and particularly, in the status report and our exclusivity papers. We thought -THE COURT: MR. SATHY: THE COURT: MR. SATHY: THE COURT: MR. SATHY: You didn't file a status report, did you? The first -The first -The status report -Okay. -- we filed earlier.

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Page 11 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 THE COURT: MR. SATHY: Okay. We did not. Your Honor, the update from We've been

our perspective, is that that process continues.

very pleased with the progress that we've made and that to date, the full board and the independent board and Fried Frank have all been actively updated and actively participating in that process. And we think that it has, to date, created some

very good results and has created some additional -THE COURT: Before you continue, there was some

discussion with my chambers about making sure that we didn't get into anything, on the record, that would in any way impair the process. So -That's right. If you're going to do that, then let's

MR. SATHY: THE COURT:

make sure the courtroom is sealed or -MR. SATHY: THE COURT: MR. SATHY: very general -THE COURT: MR. SATHY: Okay, fine. -- at this point. That process resulted Okay. -- we do whatever we need to do. Your Honor, my intention is to be very,

in the debtors receiving a number of proposals for stalking horse candidates for our plan sponsorship. There was a very

detailed analysis that was done by the debtors advisors, financial and legal, along with discussions with the

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Page 12 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 independent directors, Fried Frank and others that were involved. The results of that process, Your Honor, there's an

extraordinarily high number of details that, at some point, we will want to put forth when we have an actual pleading and seeking specific relief. But that process, Your Honor,

resulted in, again, the debtor receiving several bids and ultimately focusing on two particular proposals that came in. And this was all done pursuant to a formal process that Moelis had been conducting. that people were responding to. There was a specific deadline It was right before

Thanksgiving and either right at the deadline or shortly around the deadline, we received these proposals and we spent time with the board and the advisors with the independent directors and the full board working through them. Ultimately, we

concluded that there was one proposal that we thought created the best value for the estate. It was actually a bid from an And in

outsider; it was not someone -- a capital structure. the context of discussing the proposals with our

constituents -- and I believe everyone in the courtroom will know this bidder as Bidder D, who has submitted a proposal. Bidder D has asked that and has required that their identity remain confidential, given of course, the process that we all live in. Shortly after making a decision that Bidder D was the correct proposal for us to move forward on, we received a A

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Page 13 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 revised proposal from the Five Mile Capital Group and they were one of the groups that obviously had been around the case and involved from the beginning. And after receiving that

proposal, the board and the independent committee met again and determined that that bid was superior. And that decision was

made yesterday after analysis of the revised bid. So at this point, the decision of the company and the board is to move forward with the Five Mile transaction. endorsed by Midland. It is

It is also -- has a joint sponsor, Lehman

Brothers, in their capacity as their floating right secured debt. And Your Honor, our expectation is that we would be Probably,

filing our stalking horse papers sometime next week.

we would anticipate Wednesday or Thursday, certainly before people leave for the holidays and expect that there will be a hearing -- and I know we've been working with chambers to try to schedule a hearing, probably sometime around the 11th, 12th, 13th. I know we had originally thought the 7th but we want to

give people -THE COURT: MR. SATHY: Right, okay. -- enough time. So sometime around that We'll work, of Your Honor, this We've been trying

date, depending on when we actually file. course, with chambers to secure that date. is, obviously, a very fluid moving process.

to keep constituents up to speed, including a number of conversations that have happened today. This is not to say

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Page 14 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 that everyone is on board. There's going to be some concerns

that are expressed and we fully understand that. THE COURT: But you said the key words that I was

waiting to hear, "planned sponsorship", not a 363 sale. MR. SATHY: That is correct. This is a plan

sponsorship and it's a reorganization of the company and again, it is supported by Midland and Lehman with Five Mile being, effectively, the plan sponsor and Lehman participating in that plan sponsorship. Your Honor, we -- again, we've been trying to keep the constituents up to speed. What we wanted to do frankly, for

purposes of this conversation, is to make sure that everyone has the same level of information, including the Court. We

know that a number of constituents have expressed a concern to us in terms of the kinds of bid protections and all those issues that we expect will be negotiated and put into the papers next week. THE COURT: MR. SATHY: We're not viewing today as any forum -Right. -- for people to express concerns but

recognizer that there are some concerns out there and we will be working with parties between now and the filing and obviously, from the filing to the hearing. And obviously when

we have a hearing, that's when all those issues we believe -THE COURT: MR. SATHY: Okay. -- will be germane.

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Page 15 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 THE COURT: All right. Well, in terms of the

scheduling, the dates that you mentioned, of course, coincide with my Chapter 13 calendar because that's apparently a rule I have is that every large contested hearing has to coincide with a large Chapter 13 calendar. MR. SATHY: THE COURT: we'll work around it. Okay. And if those are the dates that you want, I would also note that that is the time So it is what it is.

period prior to the Martin Luther King holiday -MR. SATHY: THE COURT: Right. -- when the Court will be closed but I've

been known to have court on Sunday so -MR. SATHY: THE COURT: MR. SATHY: THE COURT: Okay. You know, we'll do whatever we need to do. Of course. If the timing works out such that it

doesn't have to straddle a Chapter 13 calendar -MR. SATHY: THE COURT: MR. SATHY: Okay. -- I wouldn't be averse to that. Very good. And we'll work - -we're going

to work with the parties on the dates and obviously, the documents and schedules. THE COURT: MR. SATHY: THE COURT: Okay, all right. And --

So nothing is set as it maybe has been. And it will be driven, of course, by how

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Page 16 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 to go on. MR. GOTTESMAN: That's correct, Your Honor. Lawrence much opposition there is and -MR. SATHY: THE COURT: MR. SATHY: THE COURT: This is Innkeepers. This is Innkeepers. So -Right. So, is there -- I mean, while

everybody's here today -- and I'll just -- I mean, there is a hearing in this case tomorrow afternoon. MR. SATHY: THE COURT: That's right. And I take it that that hearing is going

Gottesman, Bryan Cave, on behalf of LNR partners.

First of

all, we originally understood this might be taking place as a chambers conference today. We though, quite frankly, that

might be advisable in terms of perhaps more detail, perhaps some more constructive forum for, you know, preview and perhaps highlighting some of the issues because as Mr. Sathy has indicated, there are concerns that a number of the parties, including my clients, have with respect to how this is played out and the process of how Bidder D was in and was out and how, perhaps, information may have moved to allow a revised proposal, you know, that, you know, currently we're not sure is productive for the process and that, you know, gives us concerns. But yes, the hearing definitely will be going forward

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Page 17 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 view? MR. SATHY: premature. Yeah. Your Honor, our view is it's tomorrow, Your Honor, subject to Your Honor's calendar of course. But, you know, we still think, quite frankly, that

perhaps some of these issues are better addressed in chambers. THE COURT: Well -That's obviously up to the Court.

MR. GOTTESMAN: THE COURT:

I'm going to -- Mr. Sathy, what's your

There's no moving paper, there's no request today.

The concerns Mr. Gottesman has expressed have been expressed to me personally over the last few days. They'll have to be addressed. THE COURT: MR. SATHY: THE COURT: I mean --- case to you at the time of the motion. You know, as I think you know from the We understand them.

We'll make our full --

first round, I'm very open to talking to this group in chambers but I think we're at a point at which the debtors, with the help of the special committee and the independent counsel, have settled on a path. I'm hearing Mr. Sathy say that they've been

in communication with you. MR. GOTTESMAN: And that's correct, Your Honor and I You know, part of, I think --

don't mean to imply differently.

you know, Mr. Sathy made the remark well, Innkeepers is Innkeepers. And perhaps, what we have in mind is, perhaps, you

know, maybe we can, in fact, make this a warmer, friendlier

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Page 18 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 Innkeepers, if at all possible rather than simply having the path that we sometimes have gone down before in this case. THE COURT: Well, I have talked to Mr. Carmel because

he's got a Best Western you can stay at in West Palm Beach. (Laughter) MR. GOTTESMAN: THE COURT: That's not quite what I had in mind.

Well, look -- I mean, I guess I am of a

mind to let this just continue on the record and have the process continue, rather than get parties kind of fixed in their positions about what might be wrong with this plan. trusting that the lessons from the first round have been internalized to a certain extent. And you will remember that I am

in that -- at that juncture, I said, you know, the debtors can't be paralyzed by having to make everybody happy. So, I'm hoping that what's being described represents a broader consensus but I, frankly, would have been surprised if the debtors were able to come up with something that reflects complete consensus. So, unless there's something of

the nature of a showstopper that you believe that I ought to hear, I'm just inclined to let them file their papers and then we go from there. MR. GOTTESMAN: We have concerns, Your Honor. I'm not

sure that I necessarily feel comfortable in debt -- in those. You know, the last thing we want to be seen as doing is obstructing or impairing the process. We recognize that

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Page 19 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 there's a debtor in possession and we've been supportive of that, Your Honor. THE COURT: Right. But that said, there are things that

MR. GOTTESMAN:

in the nature of the process that has led us up to where we are today and presumably, where we will be when the debtor files the actual pleadings on this. That does give rise to concerns

and we understand that in a case this large, to have complete, a hundred percent support would be, you know, a remarkable achievement and may not always happen. But we have concerns

that we may have gotten here in a way that, you know, quite frankly, may go -- in a way may be indicative not all the lessons of the last go-round were completely absorbed. those are some of the concerns that we have. THE COURT: Let me hear from Mr. Bienenstock. Thank you, Your Honor. Good And

MR. BIENENSTOCK: afternoon.

Martin Bienenstock for the ad hoc preferred

shareholders committee -- Dewey LeBoeuf. THE COURT: How are you? Okay. Thank you, Judge. The last

MR. BIENENSTOCK:

information we have from the debtors was from a meeting we were invited to where they provided certain information -- not all information, but certain information -- about four bids that were collected, including the illustrious Bidder D. We learned

from that that, in our view, the lessons have not been learned

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Page 20 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 for a very simple reason. The entity taking in the bids,

sponsoring this procedure, et cetera, the special committee Your Honor referred to, is the special committee of trustees of the entity that issued our preferred shares. As Your Honor knows, there are approximately eight assets, seven hotels and a joint venture that are not subject to these blanket mortgages. The preferred shareholders I

represent -- and I believe as a group, other than perhaps Apollo which has a different series of preferred - -would be very pleased taking four or five of those properties. The --

we didn't want to preclude the fact that they might give us the value that we attribute to those four five properties but if they didn't want to do that, we are happy with those -- with taking what we want form those eight properties. Instead, what we were confronted with, were four proposals that acted as if this case were substantively consolidated on the same management group were acting for the gestalt behold (ph.) and were bringing to the Court, a proposal that gave us zero. It didn't give us the right to take out our There was a chance -- the same

eight properties, gave us zero.

as there's a chance if you go to Las Vegas and you put some money on a number -- there was a chance that someone would come in with a new offer or a higher offer that would bid up value, specifically attributable to our properties. There was a

chance that no one would be in a position to bid, especially in

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Page 21 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 the context of a plan where the two blanket mortgagees have a lot of leverage because of the way the corporate structure is and the Bankruptcy Code falls into that. So what has happened, Your Honor, is that this debtor in possession of Innkeepers USA Trust, together with its special committee, specially represented, have come up with a proposal that gives the people they owe their duties to, zero. At plus, a Las Vegas chance that maybe -- the way they structured things which was very difficult for people to get in and make different types of proposals -- maybe, someone would come in and bid more. But if not, we get zero. They have not

shared with us their current proposal. THE COURT: current proposal? MR. BIENENSTOCK: No.

It's doubtful --

They have not shared with you their

They said they have a new We don't have

proposal and they haven't shared that with us.

reason to believe that it's materially better, if at all better, for us. So, I really want to make two substantive points and then one procedural request. The substantive point is if they

want to eliminate problems with the preferred shareholders, giving them zero, our eight properties should be excluded from the sale. It's very ironic, Your Honor -- I'm sure you

appreciate this -- they attribute no value to it, yet everyone wants it. They won't give it to us. We're ready to take the

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Page 22 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 saying. properties we want, either reinstate or renegotiate the mortgages, put money in and take them away. valuable; other people in the marketplace do. that. We consider them We're happy with The

If they give us the option to do that, we're fine.

other -THE COURT: But it's going to be -- I hear what you're

But it's going to be their burden, in the plan, to

demonstrate why they're entitled to treat you in the way that they are electing to treat you. MR. BIENENSTOCK: Well, they're going -- it's no

secret they're going to say they had their process and they didn't get an offer that attributed value so they're wiping us out, unless someone happens to come in at the last second and bid more. We're saying we'll take the properties. To give Your Honor an idea of the value here, this famous Bidder D was willing to take those properties, subject to ninety-five percent of their existing debt in, I think, four or five cases. MR. SATHY: Judge -- Your Honor, this is the kind of

information we don't think needs to be -THE COURT: I agree. Okay.

MR. BIENENSTOCK: THE COURT:

Let's keep it at a lower level of detail. Okay. Well --

MR. BIENENSTOCK: THE COURT:

Because we're not having a hearing on

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Page 23 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 protections. We're not having a confirmation hearing, a

disclosure statement hearing. MR. BIENENSTOCK: Well, my point is that we could tell

from their offers that it corroborated our notion that our properties were valuable but they were presented in the context of a bid for two large pools of properties -THE COURT: I understand. -- in a way that gave us zero.

MR. BIENENSTOCK: THE COURT:

I mean, if I had to have made a guess as

to what -- you know, how this was going to shake out, that doesn't surprise me that -- frankly, that you're expressing these concerns. But I truly don't want to -- I don't want to

cut off discussion between the parties to the extent that you're telling me you haven't gotten the details of the new proposal. The debtors are going to give you the details of the And at the hearing on the stalking horse

new proposal.

protections, they're going to have to demonstrate their business judgment as to why they should proceed with this staking horse proposal. it. So that if in that context, you make a showing about infirmities in the process or that it's part of a plan that's patently unconfirmable -- and I don't have to tell you what all your arguments are -- it won't get approved. But I think at Otherwise, I'm not going to approve

this juncture, for me to pre-judge that issue when we've had

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Page 24 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 round one with the PSA, we have a special committee, they are advised by counsel and the headline that it's not perfect doesn't surprise me. are not happy. proposal. I know that Mr. Gottesman and Mr. Meyers

I've got Lehman -- it sounds like -- is in this

And we're just going to have to wait and see. MR. BIENENSTOCK: Judge, this is not about not being And that comment concerns me

happy or their business judgment. greatly that Your Honor made. preferred shares. to get us value.

Innkeepers USA Trust issued our They have a duty to try

They have trustees.

Instead of performing that duty, they have

looked to what they can do to satisfy blanket mortgagees at lower subsidiaries, in which we have no chance of obtaining equity value. THE COURT: But Mr. Bienenstock, should we have I mean,

separate counsel for each of the collateral pools? this is -MR. BIENENSTOCK: No, Your Honor.

I'm saying we

should -- the trustees of Innkeepers USA Trust and the officers of that entity have a duty to propose a plan that gives the constituents of that entity value, if they can. Instead of

doing that, they have decided let's do a plan that ropes in the eight properties -THE COURT: Well --- that could benefit the preferred

MR. BIENENSTOCK: shareholders --

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Page 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 THE COURT: I --- and benefit the mortgagees at

MR. BIENENSTOCK: different entities. THE COURT:

I hear you but -They're not trustees of the

MR. BIENENSTOCK: different entities. THE COURT:

I understand.

I understand but I'm

guessing that Mr. Sathy's going to tell me that in fact, they are of the view that the plan they're going to propose discharges that duty to those preferred shareholders. MR. BIENENSTOCK: THE COURT: MR. SATHY: THE COURT: MR. SATHY: Giving us zero.

He has to. Your Honor, may I respond? Please. First of all, with all due respect, sir, I

did speak to Mr. Carter (ph.) this afternoon and you may not have gotten that update. MR. BIENENSTOCK: MR. SATHY: I didn't.

But part of the update I gave him is that

part -- is that the proposal that we're making actually does get value to preferred shareholders. That was one of the

things that we've been negotiating on behalf of all of the debtors so that there is, at least, some value baseline for the preferred shareholders. Honor, you're right. And there is and ultimately, Your

We will have to make the case from a

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Page 26 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 bankruptcy perspective, a law perspective, absolute priority basis, valuation perspective, all of those. Those are all

going to be our burden but what we're wanting to do is at least start the process -THE COURT: MR. SATHY: Right. -- with a baseline bid, based on the

process that we outlined to the Court, which has been followed, which has been supported by the special committee and its counsel that we ran a process, we came up with what we think is the best bid. We want to start our plan process and start to Now, there is value that is allocated in that Is it going to be enough? I

move it forward.

term sheet to preferred holders.

suspect not but that's going to be part of the discussion. We're happy to have the discussion with the preferred shareholders. We know that they're part of this case and that

they're an important constituent. Ultimately, we haven't even -- in terms of a term sheet, we're still working on what that's going to look like. There is nothing signed. morning. We actually got a version of it this

It needs work and we're still working on it so this

isn't one of these things where it's been sitting around for weeks. We expect to get another version this afternoon and we

hope that that's closer to what we think the deal appears to be but it's certainly not -- it's not finalized yet. And part of

the reason why we kept moving the status conference is because

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Page 27 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 wanted. MR. SATHY: Absolutely. So what we want to do is try we wanted to at least have something more substantive. THE COURT: Well, the status conference -- you folks

called and asked for the status conference; I did not. MR. SATHY: THE COURT: Exactly. So, I was just happy to do whatever you

to finalize the deal, share it with the constituents, file our papers next week and then have the discussion and there will be a month of time for folks to -THE COURT: MR. SATHY: Does the --- have comments, discussions and try to I don't think they need to

deal with some of these concerns. be addressed today. THE COURT: MR. SATHY: All right.

And they certainly don't need to be

addressed before we file the papers. THE COURT: questions. Let me ask you a couple of other

Does the bidder and - -does the bidder have some

flexibility on timing or are am I going to have a gun to my head? MR. SATHY: THE COURT: MR. SATHY: No. Okay. That's one of the things that we're We have flexibility.

talking to them about.

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Page 28 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 THE COURT: MR. SATHY: flexibility. THE COURT: MR. SATHY: And can you -Recognizing any bidder, of course, doesn't All right and -So there's clearly going to be some

want to have their bid outstanding forever but that's one of the things we're talking about. THE COURT: Right, okay. And tell me, generally, how

the hotels are performing and I'd also like to hear, generally, about whether there have been any inter-tranche borrowings. you know? I don't mean to put you on the spot. MR. SATHY: I think I know the answer to this. I Do

think the answer is there have been none on the inter-tranche. The hotels have been performing fine -THE COURT: MR. SATHY: Fine, okay. -- well. Beat all expectations. We've had no I think

the projections for November were beaten.

questions, statements, requests for allocation issues under the cash collateral. We've been giving all the flash reports. We have not, to

We've been giving the thirteen-week updates.

date -- to my understanding, received any complaints, suggestions, concerns. THE COURT: MR. SATHY: Okay. And if there are, they've been addressed

in the ordinary course.

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Page 29 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 THE COURT: Okay, great. Your Honor, a -- I'll just rely on

MR. BIENENSTOCK:

what I said previously as to why we think the process has been deficient. And it can't lead to the optimum result for us

because they were carrying out duties to other subsidiaries and entities and constituencies, which they were entitled to if they could have done a better job for our constituents. we'll get back to that, I'm sure. THE COURT: All right. Second, when we were confronted with But

MR. BIENENSTOCK:

these four offers last week -- and I'll try to be very general -- suffice it to say, that the one they were favoring just happened, by coincidence, to take a certain insider party off the hook for their guaranty. Nothing was going to the

other preferred shareholders but one of the preferred shareholders was getting the special benefit. heard similar things before. changed. Your Honor has

That's why I said nothing's They're

They're acting like they've always acted.

the same people. Third, procedurally, if this is going to go forward anyway, the week after they suggested would be better for us schedule-wise, both so that we can take discovery if that's appropriate when we see their papers and for our own scheduling. If we can do it the next week -- if they have

flexibility, that would be better.

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Page 30 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 THE COURT: All right. Well, I'm going to leave it to

you folks to talk to each other about the scheduling and do what you can to accommodate everybody's needs and concerns in that regard. I think Mr. Scheler wants to speak. MR. SCHELER: Your Honor, I rise for two reasons. One

to say it's an honor and a pleasure to be in your courtroom for the first time. Secondly, Your Honor, I want to talk a little

bit about the process. THE COURT: MR. SCHELER: He had to say that. The process, as conducted by the

independent committee with the assistance of the debtor's professionals, resulted in the receipt of four bids that have been referred to by letter. was from the Five Mile Group. Three came from third parties; one Nobody tailor-made those bids The independent committee

other than the bidders themselves.

considered those bids based on the advice of the company's professionals and then, in a full and complete review with us. As has been reported by the debtor, in the first instance, it was the independent committee's recommendation to proceed forward with the D bid. In the interim period -- and no one's precluded from doing this -- an improved bid came in. You always face the

anomaly that when you've made a choice, another bid comes in. Now interestingly, Your Honor, what we've been all about --

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Page 31 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 THE COURT: And a topping bid -- a better bid can come

in after the process starts -MR. SCHELER: THE COURT: MR. SCHELER: moment in time. THE COURT: MR. SCHELER: Right. Nothing precludes any party in this case That's exactly my point, Your Honor. -- right? Nothing is before the Court at this

from advancing their own proposal and their own bid. THE COURT: Well, Mr. Scheler, you weren't here at the

first round but one of the issues that we dealt with was the nature of the fiduciary out. And I'm assuming, this time, that

there's going to be a full fiduciary out. MR. SCHELER: Your Honor, I believe that between the

time -- the window between the motion being field and the hearing being set, with twenty-one days' notice, every party in interest in the case will have adequate opportunity. And it's

the hope and expectation of the independent committee and the full board that this be as competitive a process as possible to maximize recovery of the estate. THE COURT: I mean, we -- I have to say -- and Mr.

Beauschamel (ph.) is here -- we did this in another case. Not -- I mean, it wasn't involving properties but we had a similar process in another case that led to a great success with a substantial increase in value after the process was

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Page 32 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 launched. And notwithstanding the potential concerns or

infirmities that Mr. Bienenstock has identified and that Mr. Gottesman wants to identify and I think Mr. Meyers as well, it's certainly possible that given what I understand to be the renewed interest in hotel properties out there on the market, that you could have increased value and you have to start somewhere. And I think that in terms of the issue of

allocation of value, you know, let's get the value level as high as we can and maybe, the allocation will follow along with it. MR. SCHELER: It is the view of the independent

committee and the full board that any and everything that we can do to maximize the value of these assets for the benefit of all constituencies is a duty that we gladly embrace. THE COURT: Do you want to specifically address Mr.

Bienenstock's very narrow concerns about the duties owed to the preferred shareholders? MR. SCHELER: Your Honor, we -- as Your Honor knows

very well, our duty is to maximize the value of the estate. And to the extent that Mr. Bienenstock, as has already been suggested, is going to be, in part, a beneficiary of the effort that's already happened to date and keeps moving. So again,

Your Honor, we -- you know, consistent with discussion with the Court before, we've made ourselves available to Mr. Bienenstock. We will continue to do so. The debtor's

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Page 33 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 TriMont. professionals, as I've observed them, are sensitive to the issue that they have to be ready and available to all of their constituencies. At the same time, there's not a single bidder

who wants any other bidder to know the details, bona fides and circumstances of their offer so we're wending our way through that process. THE COURT: MR. SCHELER: THE COURT: Mr. Meyers? conference. MR. MEYERS: Thank you, Your Honor. Todd Meyers for Okay. Very well.

Thank you, Your Honor. Thank you, Mr. Scheler. So much for the five minute status

Your Honor, I understand there's no moving papers

before you so I have nothing to object to formally and you're not going to rule. THE COURT: (Laughter) MR. MEYERS: THE COURT: MR. MEYERS: However, Your Honor -It didn't stop Mr. Bienenstock. Your Honor, when do you get the moving Don't you just hate that?

papers for these bid procedures and approval of the stalking horse. I hope that you will remember three very important things. One, this has never been unmarketable, okay? They're

signing a stalking horse based on a process they've conducted for the last two months where they went out to a selected four

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Page 34 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 or five people to go out -- they didn't go out to the market, get lots of indications of interest, pick the best ones. picked a few people that they thought would play. And they picked -- as they told you, only people that were going to bid on the entire enterprise, okay? So that's all happening. A They

group of favorite, you know, people have been invited to submit an enterprise bid. So when you see the stalking horse, when

you see these bid protections, when you see this period of time that people have to -- from start to finish and I mean from start to finish because nobody else has been allowed to sign a CA, okay? That's going to take ten days to get done. You've

got from there to topping that bid, okay?

They're going to ask Basically,

you for some outrageously short deadline to do it.

without ever marketing this, they're going to present you with a fait accompli. marketed. Number two, remember that nobody, not one party in this case besides my client, has an incentive to maximize the value of the floating rate pool, okay? an incentive to do it for two reasons. by Apollo, who may be a bidder. irrevocably that they're out. The debtors don't have One, they're controlled So please remember this has never been

They've never declared They may be a bidder. Number

two, the debtors would love to tie a nice bow in this thing and deliver it to you as an enterprise bid, okay? don't have an incentive. So the debtors

Lehman doesn't have an incentive.

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Page 35 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 You would think they do. They're owed a lot of money and they Every bid Lehman Okay? And

would want to get as much money as possible.

has participated in has provided equity to them.

equity is something -- you know, we can all guess what the value is but you get the upside. business. this. All right? All right? Lehman's back in

Just like Apollo does this, Lehman does

And they see -- they have a lot of information on this.

Why go out and do other deals when you're already involved in this deal and they're getting equity in this deal. So they

have every incentive to have as little value as possible placed on the floating rate pool as long as they're getting equity. Midland. Midland is tied in with the bidder.

Obviously, they want to put as much on one side -- we're on the equity but not on the floating rate pool. And similarly, from

LNR's perspective -- and they're either agnostic or incentivized to keep our value down because if there's an overall value to be paid, the more you put on the floating rate pool, the less you put on their hotel. So don't be shocked by the fact that there is lots of value in the floating rate pool but there is nobody involved in this case that's trying to get there besides my client. Okay?

And the third thing I would ask you to remember, Your Honor -- and I've said this before time and time again in this case. We don't have one debtor with a bunch of different We got a bunch of debtors. It may have been a slip

lenders.

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Page 36 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 of the tongue by counsel but he said we want to maximize value of the estate. That's not what we should be doing here. Okay? Every

debtor should be responsive to its constituents.

Whether that produces the highest bottom line dollar doesn't matter. THE COURT: Right. But we're -- you know, we have --

what's the expression? dealt. All right.

You have to play the cards you're

And we're dealt a bunch of collateral pools

that have -- that are flying different flags, that are diverse geographically. And this is not like a cable company, for

example, where you have neat geographic pockets, just to pick a random example. Okay? You've got -- and we went through this

before in chambers and on the record where there's no neat way to do this by collateral pool or by flag or by geography. is a difficult situation. And other than the take your This

collateral and go home scenario, this is a difficult situation. But, you know, the first thing that you said -- all of your points are well taken and extremely well made. and, frankly, nothing I haven't thought of. But --

But the first

point I think is the most important one that I'm sitting here hearing today, and that's about process. And before I'm going

to approve this to go out and to continue, they're going to have to demonstrate that they ran a good process and that people weren't shut out. And they're going to have to

demonstrate their business judgment in taking this to the next

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Page 37 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 level. So I hear you. I have to just wait and see what's And we'll go from

written on paper and what the witnesses say. there.

But so far, I'm not hearing anything that is leading me We're

to tell them don't file your papers, don't move forward. just going to have to wait and see. unduly optimistic.

And I -- maybe I'm being

But I'm hoping and expecting that the

lessons from the first round have been internalized and they're somewhere between -- they're just doing the same thing they did before which I've said, it happened, it's done, it's behind us. And we have everybody singing Kumbaya. I would have been

surprised if everybody were singing Kumbaya at this point. Maybe they'll get there. MR. MEYERS: But it's obviously not happening yet.

Well, they're not doing what they did

before because before, they decided to take on everybody and they realized they can't do that. people on their side. So they added a few more

But they're still running a process

that's not discharging the fiduciary duties of each particular debtor. And I won't go -- I'll save for the next hearing my Because

response to your -- you play the cards you're dealt.

we -- my client -- they're a servicer but the financing was made based on a particular structure. recognized -THE COURT: MR. MEYERS: Understood. -- the separateness of these borrowers. And that structure

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Page 38 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 brokers. THE COURT: MR. MEYERS: Right. And all I want from my borrowers is that And, you know, I look at this simply. I look at it as every I mean, we'd

debtor -- what if you put a trustee in there? spend a lot of money. Okay.

But I think of my borrowers as

they should be doing what your best panel trustee would be doing if they were looking at -THE COURT: Then you're going to have -- you know,

then you're going to have everybody's going to -- every debtor is going to have their own set of lawyers and -MR. MEYERS: You don't want to do it. And just like

in Adelphi, you don't want to do it. THE COURT: MR. MEYERS: be an honest broker -THE COURT: MR. MEYERS: Right. -- or the debtors were told to be honest Right. But you told -- but a debtor was told to

they be honest brokers and they do what's in -- I'm not saying put fifty trustees in and fifty law firms. But tell this law

firm and these people that when they do something they have to think about it from the perspective of are they doing what's in the best interest of each debtor. THE COURT: MR. MEYERS: I -And we know absolutely they're not. We

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Page 39 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 know by the fact that -THE COURT: Well, that's where we're going to have our

hear -- I mean, that's the very issue we're going to have our hearing on. And they're going to have to demonstrate they've

got two sets of lawyers who are charged with making sure that that's what they're doing. So presumably, they have a view as If they

to how they can convince me that that's the case. don't, we're going to do something else. MR. MEYERS: the nonmoving papers. There is one last thing, though. Fair enough.

And I'll stop objecting to

And I think this was

something that you could do today or at least consider today. And that is that no matter what we all agree to in January is the length of time to market this, why aren't they starting now? I mean, we argued in your chambers a month ago that they But very clearly, that's not what

should be starting then. happened.

They have not talked to anybody but their four or They've made it clear they're only talking to And when I asked Mr. Sathy today the

five bidders.

enterprise bidders.

question are we going to wait till the order in mid-January if the Court approves it before you start marketing. don't know. So why are we killing another month? There's lots of He said I

people out there that if they knew this was an even playing field and they could bid on the floating rate pool or just the

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Page 40 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 fixed rate pool or be another enterprise bidder, there are lots of people that want to do it. publicly there's five bidders. But they've been told very And we'll talk to all of you So why are we

once we see where we get with those bidders. going to go kill a month? THE COURT: All right.

Mr. Gottesman? You know,

MR. GOTTESMAN:

Your Honor, very briefly.

at the end of the day, it's not just a question of whether LNR or TriMont's happy or unhappy. very much about process. As Your Honor focused, it's

And where we got to today and before

we drive off yet another bridge that doesn't get us across the span, we have a process that we're very much concerned about is, as Mr. Meyers said, discouraging bidders from potential pools. We have -- Midland weighed in. We have a very close

relationship with Five Mile where it's putting its thumb on the scales. We have what appears to be the leakage of information

where Bidder D first is it and then miraculously a better offer by Five Mile appears in a way that may very well discourage Bidder D from participating further in this process. And that

goes to Your Honor's point about, yes, maybe, in fact, the Neff -- we did run -- a process with Mr. Bojmel was run that, in fact, did result in substantially increased value. But we now have gone down the road of, first, a very flawed process in the plan support agreement, something that we think was perhaps equally flawed and equally tainted, Your

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Page 41 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 saying. Honor, in terms of this that may get us, unfortunately, to yet more litigation which we would like to see avoid because we see it as destructive of value. Your Honor. And we're concerned -- we hear

Obviously, the debtor always has the right to file And parties always have the right to take

motion papers.

discovery and -- and as I've heard from one of your colleagues, the Court is always open. to do this. But I'm not sure that's the best way

And our concern is that we seem to be heading down And it's not that I would necessarily But there's enough

that path yet again.

expect that everyone would be on board. opposition.

There's enough concern about core process issues,

Your Honor, that I think concern not only Mr. Meyers' clients, Mr. Bienenstock's, mine, you know, that, quite frankly, trouble me greatly. And I think, quite frankly, don't speak well for So that's the

what may be coming down the pike, Your Honor. concern. THE COURT: Well, I hear it.

I hear what you're

Short of having some sort of a mini-trial on the

process before the papers are actually filed, we're just going to have to start somewhere and go from there. I will tell you,

though, that I am going to be looking for a very fulsome process that I know Moelis knows how to run and, I certainly know, Mr. Bojmel knows how to run. And to the extent that I'm

not satisfied that that's happened then additional time is going to be required post-petition. You can -- I just went

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Page 42 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 through this drill in a 363 context where there was a very long pre-petition marketing period, a very short post-petition marketing period. both. You need one or -- preferably, you need I'm going to be looking at that And

You need at least one.

issue very closely.

But you have to start somewhere.

hopefully, parties will not become so entrenched in their positions that they will be unable to continue to talk to each other. I am concerned -- and I put this back to all of you. I am concerned that you have to do what you have to do. But I

don't want these assets to become toxic, if you will, and for the process itself and the litigious nature of the process to discourage others from coming in. There's nothing you can do

about that but hopefully that won't happen. So I think we might be close to done. is going to take one more -MR. GOTTESMAN: THE COURT: Thank you, Your Honor. Mr. Bienenstock

-- one more shot at me. Thank you, Your Honor. No shot. We

MR. BIENENSTOCK:

just want the Court to come out at the right result. Hopefully -THE COURT: I always do. Hopefully we contribute to that.

MR. BIENENSTOCK:

What Your Honor was just saying is what I want to demonstrate is not happening but Your Honor could make it happen. We want

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Page 43 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 know. creative. the best result. It's an affirmative act when the debtors and

its financial advisors say we have two mortgage pools but we're soliciting bids for the two mortgage pools together plus another eight properties. That is an affirmative act, their

decision to take those eight properties, link them with two pools that they don't have to and not to solicit bids on those eight properties. That's the problem. And although Your Honor

was helpful in chambers saying if we have a guy, they should be entitled to access. THE COURT: Right. But the guy's question is that's not

MR. BIENENSTOCK: what the debtor wants. THE COURT:

We have zero chance --

But maybe you could continue to talk to

them about some sort of an option or a toggle that enables your properties to be taken out. MR. BIENENSTOCK: them a week ago. THE COURT: Okay. But you all are very smart and very I mean, you -That is precisely the letter I sent

So just keep talking about it. MR. BIENENSTOCK: THE COURT: Okay.

Whether it's workable or not, I don't

But you certainly -- there are people in this room who

definitely know how to build that kind of a function feature into a plan. MR. BIENENSTOCK: Thank you.

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Page 44 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 THE COURT: Happy new year. All right? I wish you all happy holidays. If not, just

We're around if you need us.

continue talking to Ms. Eisen about your dates and the timing for everything that you need. And I'll see some of you

tomorrow afternoon at 2 o'clock. IN UNISON: THE COURT: Thank you, Your Honor. Thank you. We're adjourned.

(Whereupon these proceedings were concluded at 4:46 p.m.)

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Page 45 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 Date: December 19, 2010 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Sara Bernstein, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N

Sara Bernstein ___________________________________


Digitally signed by Sara Bernstein DN: cn=Sara Bernstein, o, ou, email=digital1@veritext.com, c=US Date: 2010.12.20 12:12:39 -05'00'

SARA BERNSTEIN AAERT Certified Electronic Transcriber (CET**D-572)

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