10000005737

d-1885661 Page 1 of 3
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.

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
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
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
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
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
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
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
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
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.
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:
340 Royal Poinciana Way
Suite 306
Attention: Marc Beilinson
Facsimile: (561) 835-0457
E-mail address: mbeilinson@ beilinsonpartners.com
And
340 Royal Poinciana Way
Suite 306
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
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
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.
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.
MARRIOTT INTERNATIONAL, INC.
INNKEEPERS USA 'TRUST
By: ________________________ _
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.
MARRIOTT INTERNATIONAL, INC.
By: ________________________ __
Name: Karl J. Grover
Title: Vice President, Franchising
Date: June 25, 2010
By: .dlcue ~ ..
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").
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
-------------------------------------------------------------------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
Telephone: (713) 546-5000
Facsimile: (713) 224-9511
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)
Telephone: (713) 546-5000
Facsimile: (713) 224-9511
Alfredo R. Perez
------------------------------------------------------------------X
In re
Debtors.
------------------------------------------------------------------X
Chapter 11
Case No. 08-13555 (JMP)
MOTION OF LEHMAN COMMERCIAL PAPER INC.
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
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.
Houston, Texas
US ACTIVE\43446016\20\58399.0008
Alfredo R. Perez
W eil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, TX 77002
Telephone: (713) 546-5040
Facsimile: (713) 224-9511
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, 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
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
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
(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.
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:
340 Royal Poinciana Way, Suite 306
Attn: Marc Beilinson
Telephone: (561) 835-1800
Facsimile: (561) 835-0457
email: MBeilinson@BeilinsonPartners.com
with a copy to
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
300 North LaSalle
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.
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
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.
*****
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.
LEHMAN ALI, INC.
APP-00112

Date: July 1.], 2010
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
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
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
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
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:
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:
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:
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:
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:
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:
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:
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
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
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
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:
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:
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
"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
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
--------------------------------------------------------------------X
In re
Debtors.
--------------------------------------------------------------------X
Chapter 11 Case No.
08-13555 ( JMP)
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_
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
Telephone: (713) 546-5000
Facsimile: (713) 224-9511
Alfredo R. Perez
-------------------------------------------------------------------X
In re
Debtors.
-------------------------------------------------------------------X
Chapter 11 Case No.
08-13555 (JMP)
NOTICE OF FILING OF SUPPLEMENTAL EXHIBIT
TO MOTION OF LEHMAN COMMERCIAL PAPER INC.
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.
Houston, Texas
Alfredo R. Perez
Telephone: (713) 546-5000
Facsimile: (713) 224-9511
APP-00160
EXHIBITDl
(the Letter Agreement)
US ACTIVE\43461925\02\58399.0008
APP-00161
Lehman ALI Inc.
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:
38th Floor
New York, NY 10020
Facsimile: (646) 285-9336
Attention: Joelle Halperin
with a copy to:
Dechert LLP
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
Facsimile: (212) 515-3443
Attention: Joseph D. Glatt
with a copy to
Paul, Weiss, Rifkind, Wharton & Garrison LLP
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
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
Telephone: (312) 862-2000
Facsimile: (312) 862-2200
Proposed Counsel to the Debtors and Debtors in Possession
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.
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
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
-----------------------------*
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.
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
BY PAUL GALANTE, ESQ.
pgalante@rnofo.com
WILLKIE FARR & GALLAGHER, LLP
Attorneys for Appaloosa Investment LP. I
787 Seventh Avenue
BY BRIANR FAERSTEIN, ESQ.
bfaerstein@willkie.com
KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP
Attorneys for Five Mile Capital Partners
1633 Broadway
BY DANIEL A FLIMAN, ESQ.
dfliman@kasowitz.com
DEWEY & LeBOEUF LLP
Attorneys for Ad Hoc Committee of
Preferred Shareholders
130 I Avenue ofthe Americas
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
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
BY LAWRENCE P GOTTESMAN, ESQ.
lawrence.gottesrnan@bryancave.corn
PAUL, WEISS, RIFKIND,
WHARTON & GARRISON, LLP
Attorneys for Apollo Investment
Corporation
BY ANDREW J EHRLICH ESQ.
aehrlich@paulweiss.com
-and-
BY AMY P DIETERICH, ESQ.
adieterich@paulweiss.corn
DECHERT, LLP
Attorneys for Lehman ALI Inc.
BY KEVIN J O'BRIEN, ESQ.
kevin.obrien@dechert.com
-and-
BY NICOLE B. HERTHER-SPIRO, ESQ.
nicole.hertherspiro@dechert.com
3 5
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I?O
1?1
1?2
1?3
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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.
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)
APP-00209
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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)
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
/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)
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

tn
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P1
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P4

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)
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)
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)
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
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
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)
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)
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
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.)
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)
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.
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)
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)
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
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)
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)
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)
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?
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.
You can answer.
A. I can't possibly know that.
Q. Did you discuss this document with
anyone at any time?
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)
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.
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)
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)
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)
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)
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)
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
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?
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
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?
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)
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)
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?
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
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)
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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)
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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)
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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.
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)
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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?
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?
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)
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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
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
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?
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)
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
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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.
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.
32 (Pages 122 to 125)
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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)
APP-00238
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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
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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)
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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. 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)
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
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.
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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 Are there any final approvals left,
yes, there are final approvals that are
not--
Q. Which ones?
36 (Pages 138 to 141)
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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
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)
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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.
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)
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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)
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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)
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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)
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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
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
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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)
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166
Hewes
conversations with counsel on that
point.
A. Can you repeat the question?
MR. SOLOMON: Please read it back.
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
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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)
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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
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
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)
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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)
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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
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)
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.
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)
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
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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)
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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)
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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)
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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)
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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)
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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 --
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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)
APP-00258
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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
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the answer, please, the question and 2
answer. 3
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)
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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)
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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)
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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?
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)
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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.
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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)
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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)
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MR. EHRLICH: Well, why don't you 3
ask him about that then as opposed to 4
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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
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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
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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)
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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)
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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)
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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?
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)
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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)
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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)
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
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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)
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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.
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)
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
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?
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0
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PO
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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. 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?
Q. Generally?
68 (Pages 266 to 269)
APP-00273
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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
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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
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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)
APP-00274
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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
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(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
Proposed Restructuring. June 22. 201 0.
Bates Nos. LEH-ALI 00014lthrough
LEH-ALI 000151 ............................ 116
ExhibitHewes-14. Term
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
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173 4
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APP-00275
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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
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
APP-00277
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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
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
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
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
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
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 dfliman@kaso ...
CSFB 189:20 165:12 174:3 250:8 272:14,15 4:16
curious 133:2 244:7 2 71 : 15 Dechert 3 :20 274:11,12 Diego 189:22
current 42:25 274:19 5:22 103:25 275:16 192:10,19
147:22 225:5 days 50:6 54:4 109:2 110:19 describe 10:4 201:7,20
currently 7:22 74:5,25 79:3 119:18 120:4 24:7 28:19 257:13,19
18:15 147:23 146:17 177:21 120:23 126:9 43:5 230:12 261:10
147:25 180:7 185:23 127:4 described 12:17 DIETERICH
custodians 216:22 269:19 decided25:5,10 36:2,17 42:12 3:18
162:10 272:14 deciding 199:6 43:13 56:3 Dietrich 5:23,23
cut 29:13 208:3 DC2:5 declaration 26:2 72:22 160:16 difference 92:9
222:18 deal220:2,4 26:11 30:5,12 164:24 192:5 different 18:6
cute 105:21 231:11 232:3 30:22 251:6 197:4 210:2 50:17 53:12
cycle 261:23 233:22 234:12 275:18 describes 13:7 83:7 102:2
235:11 236:19 decline 244:12 164:18 106:19 114:7
D
237:11 declining 244:6 describing 39:6 127:9 154:22
D2:12 3:6 96:12
deals 246:12,17 deemed 272:16 41:7 88:7 164:17 207:6
140:18,23
debt15:16,17 default 35:15 142:8 243:18,19
259:16,20
16:7 18:6 81:19 218:16 description 9:20 247:16 248:15
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 :20 194:10 202:23 172:22 93:15,20 94:2
DIP 29:20 30:23 48:11 68:22 217:5,19 distress 254:3 94:7,19 95:6
31:24 32:5 69:10,13 73:25 238:24 240:16 distressed 96:2,7 102:13
174:18 252:23 81:18 84:2 253:16 246:25 102:25 103:12
258:12,14,20 86:18 90:18 discussion 15:25 distributed 104:8,16,24
259:3,14,18 102:18 106:8 25:9 35:19 78:11 79:21 105:18,23,25
260:22,24 118:21 131:22 39:2 71:12 82:2 207:21,24 106:3,16 107:8
261:5,8 262:12 132:2,6 148:11 82:21,25 85:8 distribution 107:11,14,16
262:13,18 149:10 160:22 91:7,14 99:14 34:23 36:3,8 107:19,21
263:5,19,22 160:23 161:4,5 102:22 110:17 37:6 38:23 108:15 110:2,6
265:4,13,20,24 178:8,24,25 115:20 134:15 39:8,9,23 110:20 116:3
direct 8:10 12:8 186:8 188:4 138:20 141:2 40:14 78:21 116:14,22
27:16,24 48:14 218:23 238:19 142:7 147:3 DISTRICT 1 :2 117:20,23
49:6 54:17 238:25 240:24 150:11,12,24 DLF 17:21 118:9 119:14
144:13,14 discussed 25: 16 160:6 161:10 DLJ 18:9,11 120:2,16
167:21 183:12 37:7,8,16 38:3 183:8 196:11 docket 64: 17 126:18 127:6
183:14 184:3 38:6,9,20 39:3 196:13 197:20 document 9:5 127:11 128:11
248:12 39:15 55:13 198:11,14 13:3 20:5,15 128:13,15
directed 143:12 59:23 69:7 215:11,14,17 20:17,22 23:20 129:5,15
directing 166:22 70:23 75:9 219:11 240:16 24: 11' 17 26: 17 132:17 140:4
167:12 81:13 82:11,12 267:19 276:7 26:19 27:11,14 140:17 142:11
direction 15:8 84:5,7,11 87:2 276:10 27:15 28:16 142:18,24
48:24 188:17 87:7 92:18 discussions 30:25 31:4,9 143:6,7 145:7
directly 154:6 93:24 98:7 11:11 25:20 31:11 37:16 146:16 153:3
180:22 183:19 99:23 100:14 35:14,23 36:6 45:6,11,13 160:7 162:24
206:7 243:24 114:3,14 36:13 39:7 46:13 47:5,6 163:8 164:12
director 19: 13 118:12 126:12 56:13 67:7,25 47:25 48:3,5 171:16 175:5
243:10,14 150:21 151:6 69:20 70:4 48:12,17 49:3 175:12 196:15
244:19 152:15 159:15 76:5 113:4 49:8,12,24 248:11 259:14
directors 172:10 161:2 163:25 114:24 115:6,9 50:4 51:9,20 259:14 263:9
202:19 204:4,9 174:12,21 123:16 124:8 51:21,22 52:4 264:5,17
204:21 205:2 176:17,23 124:24 125:2,5 52:7,9,12,22 267:10 276:7,9
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
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 84:18 221:16,22
95:18 101:6,8 133:14 135:11 200:21 211:13 86:4,6 88:23 222:4,15 223:3
132:7,10 155:5 161:14 212:16 215:22 90:5 91:17 223:12 224:21
133:12 135:23 161:22 227:13 234:24 235:14 92:15 93:16 228:2 229:9,19
137:21 142:20 drawing 10:3 236:23 237:24 95:7,13 96:13 230:15,20
143:25 148:9 duces 19:21 20:3 240:12 242:16 98:9 99:17 231:2,5,13,23
148:11,14,17 275:17 243:3,9 248:21 100:2,6,18 232:5,11,18,23
149:15,17,25 due 11:12,14,19 249:19 253:14 101:18 102:11 233:3,9,14
168:14 173:4 43:20 205:18 257:18 261:9 102:21 106:23 234:3,8 235:22
189:8 194:24 205:22 230:5 early 17:9 109:9,25 239:5,18
220:3 227:25 duly 6:4 274:12 101:20 186:10 110:13111:3 241:21 242:10
265:12 duration 42:22 easier 169:19 Ill: 16,22 242:14,25
doing 65:6,10 duties 220:16 247:24 112:7 113:20 244:20,22
194:19 209:17 224:9,15,18 economic 41: 10 115:11,18 245:9,17 246:3
228:7 272:7 D.C 190:2 41:12,20 42:5 116:24 119:4 248:5 249:14
dollar 67:4 192:20 201:22 42:9,11 201:3 119:11,24 250:18 251:16
dollars 42:19 248:18 244:8 120:13,21 252: 16 253:4
151:21 economy 42:15 122:5 123:20 254:11 255:3
Donaldson
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effect 167:9,16 124:14,21 255:13,16
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4:2,22,22 6:3,3
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190:2 192:19
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efforts 184:9 134:16,24 260:5,9 261:4
201:21
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downloaded
273:1 274:2,2
186:8 218:23 140:23 143:22 262:14 264:2
26:23 31:16
275:2,10 276:2
Ehrlich 3: 16 144:16,24 265:6,22 266:9
draft 103 :25
277:2
5:25,25 8:20 145:25 146:16 266:19,22
105:17,23,25
earlier 13:14
13:25 15:11 146:23 147:8 267:17 268:9
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30:6 31:7,14 162:19 165:25 89:4,6 101:16
117:11 118:4
59:21 70:21
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135:2,13
46:23 47:2,4 181:6,10 212:16 222:15
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 ERLICH275:9 189:14 196:10 90:4,11,17,17
234:13 257:16 errata 272:5,7 211:2 242:21 90:25 93:3,5
emergency entitled 9:11 272:10,13 266:21 94:6,8 100:3
42:17 12:23 45:2 ESQ2:6,12,17 examined 6:4 102:25 103:3
employed 7:22 46:13 71:11 2:22 3:6,11,16 example 52:12 103:13,14,22
17:4,5,14,21 85:7 89:22 3:18,23,24 4:6 66:25 107:5 103:22,25
18:4 243:4 140:4 144:3 4:11,16,20 160:13,15 104:2,10,12
employee 7:25 188:12 275:12 essence 152:17 200:3 225:14 107:22 108:23
249:22 275:14 276:7,9 165:10 184:11 exceed 108:9 111:15 115:4
employees 8:25 entity 8:24 9:2,2 essentially exchange 91: 11 116:2,5,12
212:7 15:9,22 184: 1 7 258:23 158:20 126:5,17,20
employer 10:5 184:20 198:12 establish 124:8 exchanged 79:16 127:3 130:13
engaged 73:8 198:18 200:6 established exchanging 130:14,20
162:8 223:20 254:2,2 110:8 119:16 227:12 136:19 140:3,5
engagement 254:6,17 estate 3:4 4:24 Exclude 188:8 140:18,23
73:10 255:24 225:9,15 excludes 165:25 142:10,13
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154:17 236:24 14:23 15:2,6 estimations 38:18 60:10 163:8,21
ensuring 120:8 15:13,19 34:23 14:25 116:21 130:23 164:13,25
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161:11 37:6,21 38:17 evaluate 13:13 172:12 183:17 166:11 167:2
entail 10:17 38:23 39:9,23 13:15 258:24 265:13 167:14 175:4,7
entails 10:18 40:14 67:2,14 evening 175:25 excused 215:2 190:20 191:10
enter 34:21 68:2,5,12 event84:14 executed 27:11 195:4 228:23
135:14 70:16,20 91:11 86:15 222:16 45:12,14,17 228:25 230:10
entered 31:12,19 92:8 100:9,17 266:7 137:25 138:2 240:8 247:25
38:11,16 53:3 101:17,24 events 41 :23 139:16,18,22 248:2,3 259:16
53:2487:16 105:6 109:23 48:2 49:23 144:9 162:15 259:20 260:4,4
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entering 136:7 122:21,24 61:22 75:24 49:20 141:4 263:9 264:18
196:20 221:19 123:17 124:25 eventually executives 123:4 264:18 275:12
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
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 69:16 140:15,25 109:10 110:3
24:2 75:16 241:8,10,13,14 familiarize 141:9,16,22,23 110:15 143:12
expectation 241 : 1 7 2 7 6: 14 244:24 142:6 157:21 144:4 149:8
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expected 3 8: 11 e-mails 158:20 Farr4:9 5:11 269:19 171:13 177:25
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expenditures
262:18 263:19
239:22 240:5 25:4 26:12 First-Day 26:13
164:18
265:24
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experience
fact 30:19 37:25
224:9,15,18 182:9,10 fishing 233:18
29:22
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figure 1 07: 5 244:13 253:10 258:11,13
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112:22 113:12 256:6 275:19 260:22 262:12
explain6:16
207:12 216:10
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23:8 25:21
226:22 234:15
figures 67:7 18:6 30:24 265:3,4,23
55:10 222:5
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93:19 31:24 32:6 fix 190:12
230:15 235:5
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260:25
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exposure 229:7
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199:6 find 134:8 215:5 111:24 112:5
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255:17
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expressed 91 :21
Faerstein 4:11
64:18 140:18 fine 24:5 57:7 114:25 115:8
92:2,11
5:10,10
198:3 199:24 89:3 115:17 118:23 160:16
expressing 92:13
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247:7 181:6 223:7 194:14 200:3,9
184:8 185:12
fair 6: 19 19: 11
files 62:11,13,20 finish 6:25 7:6 204:12 226:7
extensively
23:7 24:18
63:4 104:23 245:18 226:24 243:22
193:4
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filing 31 :21 242:18 249:23 flag 191:8
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220:9 226:2,9
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133:16 161:19
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200:19 250:11
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251:12 252:18
31:5 49:12,13
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external182:7
50:5,8 53:11
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externally
67:6 72:18
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133:10
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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
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 generally 7:5 123:8 126:10
58:18 151:11 152:8 Frey 80:11 11:23 15:12,14 126:11 131:2
flow 199:13 154:19 155:4 Friday 163:15 17:25 18:2 131:17,25
flows 255:21 155:10 156:15 267:7 25:17 36:16 132:3 135:8
focus257:10 167:20 173:23 Friedman 4: 13 53:7 58:13,19 154:5,10
focused 252:3 178:11 179:20 5:15 211:6 75:19 78:4 159:12 175:23
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following 44:20 230:7 239:5 195:5 199:8,9 207:16 57:18 81:15
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follows 6:5 256:21 265:22 full38:9 58:18 241:24 250:2 124:3 129:11
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footnote 52:17 70:7 118:15 266:13 254:7 181:7 194:20
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120:3,5 180:15 fund265:25 102:13 217:11 211:8 223:8
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Garrison 1: 11
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92:15 93:16 41:2,4,6 42:6,7
3:13
79:9,12 81:22 146:24 167:10
95:7,13 96:13 70:11,12 92:5
gather 59:8
84:16 110:21 175:3 189:4
97:21 100:14 162:10 216:12
gathered 59:23
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100:18 101:18 frames 17:11
general 23 :23
221:7,12 222:17,21
102:11,21 franchise 177: 16
75:23 83:24
249:24 256:14 225:17 227:20
APP-00288
291
227:23 229:3 guaranty 143:15 162:18 190:19 114:1 115:1 210:1 211:1
231:11 232:3 143:19 147:14 190:22 217:24 116:1 117:1 212:1 213:1
233:9,18,25 148:6,7 227:25 266:3 118:1 119:1 214:1 215:1
237:3 245:16 guess 35:15,25 hereinbefore 120:1 121:1 216:1 217:1
248:12 259:3 43:4 137:16 274:11 122:1 123:1 218:1 219:1
262:4,5,12,14 168:14 263:10 hereunto 274:18 124:1 125:1 220:1 221:1
263:10 265:5 guessing 213: 11 Herther-Spiro 126:1 127:1 222:1 223:1
good 6:8,9 11:9 Guest 190:2 3:24 5:21,22 128:1 129:1 224:1 225:1
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277:2
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governance
hand274:19
25:1 26:127:1 146:1 147:1 242:1 243:1
89:22 90:3,18
handful200:22
28:1 29:1 30:1 148:1 149:1 244:1 245:1
90:23
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31:1 32:1 33:1 150:1 151:1 246:1 247:1
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hands 79:16
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55:23,25 100:9
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held 1:11 43:7
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guarantees
167:19 169:4
106:1 107:1 202:1 203:1 Hewes-15
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guaranties
help 121:6
110:1111:1 206:1 207:1 Hewes-16 140:5
235:12 236:9
helpful7: 14
112:1 113:1 208:1 209:1 277:6
APP-00289
292
Hewes-17 151:5 177:17 275:22 276:4 51:4 59:22 125:18 126:7
142:13 277:8 177:19 180:10 276:11,16,19 85:20 120:4 indirect 183: 15
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imperative independent 42:14 223:22
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Hewes-9 85:7
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implicate 167:22 39:2,19 54:25 237:2
276:9
231:17,21
implication 40:9 172:3,4,10 infer 83:25
HI248:16
235:25
63:19,23 174:4,13,20 influence 243:23
highly 43:18
identical 51 :24
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Hilton 192:14,16
identification
implications 204:4,9,21 information
200:25 201:17
9:12 12:24
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hired 186:11,11
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implies 50:2 207:3 208:20 59:24 82:4
history 75:24
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important 151:3 237:17,18 98:14,16 99:3
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hold 143:22
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improper 63:20 253:8 254:20 147:10 165:8
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Holdings 250:17
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holds 189:21,25
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improvements 81:20,25 91:10 informed 25:18
Homewood
59:19 60:4
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honestly 97:24
Illinois 2:11
inability 180:2,5 205:20 213:7 108:22 117:19
hotell80:11
Illustrative
include 11 :25 238:22 240:12 120:25 154:21
225:12 247:18
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hotels 150:4
116:6 126:21
included 21:17 indication 108:7 Inn 189:22,23
APP-00290
293
190:3 192:10 INN MIDOOO ... 120:23 123:16 247:5 January 41:16
192:18,19,20 71:13 276:8 141:13 investor 91:2,8 41:18,21 42:3
201:19,21,22 INN MIDOOO ... internally investors 220:17 73:5
Innkeepers 1 : 5 71:13 276:8 133:10 184:18 invited 77: 19 Jeff5:16,18
18:19 19:6,14 input 106:16 interpretation 78:6,9 176:4 JEFFREY2:6
25:4 26:12 inquire 61:2,5 114:13 involve 14:22 2:12
33:24 34:19 75:19 117:8 interrelated 96:17 97:9,23 jeffrey.gould ...
37:7 41:9,20 144:3,10 239:7 28:6 32:15,19 98:11,18 99:2 2:7
53:3,24 69:23 inquiring 221 :22 interrupt 7:4 99:16 138:12 jeffrey.pawlitz ...
73:3,7 80:22 inquiry 75:21,23 introduce involved 11:21 2:12
86:3,11 89:9 insolvent 199: 13 211:12 242:14 61:22 66:13 Jennifer 1:13
111:10,11 instances 15:24 inure250:14 99:19 113:6,13 274:6,22
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181:16 185:15 267:13,24 4:9 8:3,5,6,7,8 246:12,22 job 1:16 8:12
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198:21 205:4 272:1 9:10,14,23 19:2 206:6 89:6 106:2,5
211:14 213:20 instruments 10:9,14,15,16 243:13 107:3,8 126:10
214:10 215:15 252:11 10:20 11:2,8 involves 198:2 126:11 131:25
215:25 216:14 integrated 28:4 11:10 12:22 involving 56:13 159:11 269:19
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24 3 : 15 244: 11 75:17 76:2 146:18 215:24 issues42:18 154:5 175:23
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Innkeepers's 217:13 8:13 10:21,24 iteration 68: 11 130:25 131:15
18:23 19:6 interests 43:19 11:16,20,24,25 101:22 196:16 133:5 139:17
INN MID71:8 interim 182:5 12:3,7,13 14:5 iterations 140:6 157:19
142:11 264:13 265:9 14:8,12 15:13 101:21 157:22,24
INN MIDOOO ... interlaced 16:16 214:8 i.e 180:9 223:19 162:23 163:5
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INN MIDOOO ... internal22:4 243:22,23
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168:17 169:10
142:15 277:9 88:20 106:17 246:17,24
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267:8 277:7
APP-00291
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June 25:5 44:14 35:25 39:2 205:11,15 248:18 259:9 learned 30:19
56:25 65:21 40:24 42:14 206:7,8,18 KPARIMV 31:18 167:23
69:21 70:13 43:1546:8 207:17 208:23 257:11 leave 83:6,12,14
71:3 93:6 49:14,20 50:24 209:16 212:24 K&E 74:14 83:15 211:24
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labor 264:23
led 34:20
240:20 276:5 82:15 84:6,8 241:18,23,24
lack 225:11
left55:23 77:13
276:12,17,19 84:21 87:3,5,6 242:2 245:15
language 131:13
78:17 83:4,8,9
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Justin 22:9 89:11,15 92:12 250:20 251:20
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107:25 128:16
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large 10:18 74:8
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largely 41 :24
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largest 23 3 : 1 7
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Larry 169:25
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262:16 265:17
113:25 114:5 113:8 133:3,23
LaSalle 2:10
182:7 186:11
266:16 275:8
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Lascher 80:11
200:19 224:22
Kasowitz 4: 13
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249:15 250:19
5:14 211:5
117:4,6 118:12 150:7,10
lasted 197:13
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keep 233:9
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lasts24:19
Legally 203:7
keeps 263: 10
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late 36:18 40:23
Lehman3:21
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137:22 138:7,8 190:8 195:15
41:2,4,6,14,18
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33:20 35:14,19
KEVIN3:23
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kevin.obrien ...
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latitude 144: 10
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Kilpatrick 3:3
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kind 213:21
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lawrence.gotte ...
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225:13 247:16
176:16 177:14 131:20
3:11
80:10,14,16
Kirkland 2:3,9
178:2 184:21 Korval22:9
lawyer 168:11
81:17 82:2,17
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lay 211:11
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Kleisner 170:12
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know 6:23 9:22
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leading 61:23
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leads 220:23
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25:10 27:3,20
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learn 40:12,19
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40:25 83:18
102:19,20
33:22,23 35:21
204:2,7,20 248:17,17,18
177:10
105:14 108:25
APP-00292
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110:22 117:19 140:19 219:13 levell94:6 148:11 149:25 194:9 241:15
122:19,20 225:3 199:13 204:8 190:11,12 241:15
123:18 125:18 Lehman/AIC 205:22 244:9 200:4 201:18 Louis2:17 5:2
127:17 131:10 140:4,6 236:19 leveraged 18:8 255:21,22 6:10
131:11 133:17 277:6 liabilities 236:13 256:15 259:5,6 louis.solomon ...
133:21 134:2 LEH-ALI51:9 liability 203: 11 259:7 261:13 2:18
135:15,25 51:13,14 56:22 liable 249:12 261:15 lower 191:13
136:5,11 137:6 57:2,3 60:10 250:8 loans 12:8 225:4 226:6,15
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152:16,21 276:5,6,12,13 143:12 252:2 long 13: 17 17:8
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making 10:23
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manage 8:12
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management 8:2
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managers 204:4
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manner 217:9
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March 13:20
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14:9 43:24
110:5 127:23 233:9 251:3 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
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
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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
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marked 9:11 material32:21 136:15 180:10 207:4,13,24,25 75:1180:17
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44:22,25 51:14 24:8 51:25 242:2 211:14,20,24 169:20 190:23
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65:16 71:14 82:18 84:3 7:18 212:22,25 mention 123:8
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100:4 103:7 matter 183:3 238:19 216:19,20,23 44:4 50:13
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164: 12 1 7 5: 8 mcrisp@kilpa ... 73:15,19,20,21 meetings 21: 17 met21:15 58:2
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market 201:2 mean 10:2 16:10 74:9,18 75:3,4 22:18 159:4 metrics 90:22
202:4 203:15 16:10 20:10,20 75:7,10,12,18 205:16 207:17 Michael3:6
244:6 23:18 28:18 77:20 78:7,12 207:20 213:19 80:11154:14
marketing 17:6 31:14 33:23 78:14,14,16,16 214:9 216:5,8 159:10
markets 203:24 41:13 52:8 78:17,24 79:2 member 34:19 mid 45:23 50:9
market's 224:5 54:9 62:15 79:10,13,17,22 169:23 170:3 middle 7:4 9:24
mark.elmore ... 68:7 78:3,8 79:25 80:2,4,7 170:10,12,19 Midland 2:15,20
2:23 83:5,25 86:4 80:10 81:7,11 170:23 171:3,7 85:8 86:2,11
marriage 27 4:16 89:4 91:9 81:15,16,17,23 171:19,20 86:23 87:9,11
Marriott 29:19 92:24 95:15 82:3 83:4,10 173:15 182:2 87:15 113:5,7
30:13,16,20 110:13 114:6 83:13,22 85:18 196:5 209:25 113:11 115:7
31:23 32:5 120:22 132:9 85:24,25 86:10 224:8 225:22 193: 5 194: 15
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179:15,23 219:24 222:7 143:14 149:9 174:5,10,13,21 Mike5:8
APP-00294
297
Mile4:14 211:7 modify 72:12 move 115:14 120:16 180:14 101:17 105:6
258:12,14 168:4,9,13 210:21 182:25 201:11 108:8 109:22
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260:22 262:12 235:17 247:18 23 5:4 261 : 11 124:25 125:7
263:4,19,22 Moelis 72:18,21 multiple 23:16 needed 82:23 125:21 128:17
265:4,4,24 73:6 74:13 178:2 198:3 needing 202:20 129:4 133:18
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APP-00295
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APP-00296
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APP-00297
300
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APP-00298
301
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302
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194:14 200:3,9
225:20 154:15,20,23 195:14 241:10
260:19 262:9
204:12 226:7
realized 225:6 154:25 155:15 267:4
262:10 263:24
226:25
225:18 155:20 158:25 receiving 43:12
266:13 268:17
ratios256:16
really 45:16 159:14,20 84:4 96:3
268:22,25
Razor247:15
215:9 233:21 162:14 163:15 125:17 179:16
269:2,7
reach 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
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 16:19 185:18 186:19 239:3 274:15 217:14 228:8
177:25 194:23 41:25 46:2 187:3,6 194:13 relating 131 :9 reorganized
207:11 213:10 155:14 184:19 206:2,5 216:20 131:11 34:24 52:15
213:12 239:8 186:19,22 227:2 235:16 relative 194:5 repeat 23:2 29:2
247:7 250:4 190:12 194:4 refers 52:13 91:2 relatively 28: 19 29:12 33:13
263:20 267:3 227:15 232:7 119:3 120:5 36:16,24 44:10 37:9 39:12
recollections 259:10,21 141:7 148:16 76:16 180:15 40:16 56:16
49:2 reference 96:6 149:4,7 relevance 16:7 64:9 69:24
recommendati... 117:15 152:20 reflect 110:9,18 144:11 230:16 76:25 98:19
198:17 160:20 264:5 114:17 135:23 233:10 100:21 107:3
record 7:12 referenced 48:3 161:7 173:2 relevant 59:22 111:19119:6
15:25 23:6 48:5 52:7 87:7 reflected 3 7: 15 221:23 222:3,8 119:22 124:17
25:9 33:17 149:19 155:22 110:20111:15 224:25 230:21 125:22 135:6
35:6 37:11 157:3 161:13 133:19 135:21 239:9 253:25 141: 19 144: 18
40:18 53:18 175:18,25 159:18 161:12 254:15,24 156:18 162:19
56:5,18 57:14 references 148:9 reflecting 108:9 255:10,13,19 166:4,19 193:8
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
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 52:22
represent 9:13 requirement 182:21 183:13 returns 221 :7 53:21,25 88:21
13:3 128:14 138:3 183:24 184:3 reveal54:23 118:13 263:18
132:16 140:14 requirements 185:9 147:9 revision 158:4
140:16 189:18 264:25 responses revealing 134:5 revolved 161:10
203:17 211:6 requires 202:8 106:16 133:14 166:17 RI248:17
242:19 249:7 reread 35:5 responsibilities review 10:25 Ricache 171:11
representation 269:7 10:17 18:10 11:4,7 20:19 Rick 184:13
145:17 research 209:17 responsibility 20:23 21:5 187:16
representations Residence 244: 1 0 24 5:21 22:18 23:11,24 Rifkind 1:11
140:20 189:22,23 responsible 34:4 26:16 31:15 3:13
representative 190:3 192:10 34:8 121:22 43:17 45:5 RIGG248:17
19:19 20:2 192:18,19,20 122:6,22 154:4 49:3 51:18 right 9:17,24
58:21 59:25 201:19,20,22 responsive 52:4 53:5 56:8 47:20 72:11
97:14,18 115:7 resign 25:5, 11 232:17 57:24 60:20,24 91:23 103:25
138:9 156:9 resignation restate 262: 10 62:10,10,13,19 104:2 110:13
251:22 275:16 25:13,15 restructure 65:4,9 66:2 122:11 135:4
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
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 33:11143:21
Rule21:2 152:17 251:5 251:7 253:11 26:20 30:17 147:13 148:15
R-i-c-a-c-h-e 263:12 264:22 256:8 257:5,7 45:6 47:5,13 148:19,24
171:12 sec 1:6 securing 259:4 50:10,21 51:19 149:5,9,14
R-u-i-s-i 169:25 scenario 91 :23 securities 11 :3 52:9 54:3 55:8 239:12 253:19
92:13,25 97:8 15: 17 17:7,21 60:14,18 61:7 263:16
s
252:13,21 243:22 252:7 61:12,13 62:2 separate 28:5
S2:2 3:2 4:2,22
schedule 160:17 securitization 62:5,8 65:25 29:25 30:4
4:22 6:3,3
163:18,24 189:19,24 66:3,6,9, 10,14 56:11155:19
139:2,2,2,4,4
164:3,8,14,19 203:15 67:6 68:25 156:4 203:11
275:10 276:2
164:23 165:7 securitized 69:5,14 71:15 231:5 233:20
277:2
165:13,21 190:15 255:22 85:15,23 93:10 235:17 236:4
Safety 247:15
234:5 260:8,13 security 252:4 93:15 94:2,18 separated
San 189:22
260:15 263:7 see 7:9 9:17 10:8 95:18 101:7 134:25
190:4 192:10
scheduled 16:7 20:9 21:3 104:10,12 September
192:18,22
196:22 209:7 26:21 27:25 116:18 118:3 221:25 230:17
201:7,20,23
209:10 28:7 33:3,5 124:5,7,12 230:21 233:11
248:18 257:13
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
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 4:10 265:10,13,15 201:9 175:10 181:14 68:17 70:12
severe 81 :20 268:7,20 269:5 significant 10:25 183:4 188:19 71:6 72:3
severely 201 :2 269:6 272:6,7 42:19 74:15 193:18 202:16 76:17,20 78:15
225:10 272:10,13 77:7 80:7 203:8 267:23 78:22,25 85:4
shake 7:15 276:16,18,21 84:14 177:18 sit23:22 28:9 86:5,7,19 89:2
shape 248: 13 277:6 179:24 201:11 29:5 33:6 93:2 94:5
share 91:2 sheets 23: 17 202:7,8 246:16 61:10 72:11 98:22 100:3,23
233:17 258:22 124:4,12 131:7 257:19 261:11 99:12 106:11 102:24 106:20
shareholder 133:4 134:25 significantly 112:19 114:21 110:25 111:8
41:23 44:5,11 135:11 155:11 61:22 226:6,24 119:2 128:9 115:14,22,25
91:12 243:16 155:14,19,22 245:21 176:14 243:25 119:8 124:3,16
shareholders 156:5,7 157:2 signing 228: 19 sitting 234:23 124:18 125:24
4:18 91:16 157:8,15 272:9 situation 55: 11 126:16 130:3
242:20 250:16 SHELHORSE similar 201 :25 65:12 66:14 130:12 133:7
shares 43:6 44:9 4:24 205:6 256:15 81:2082:5 134:7,17
101:12 102:20 short 13:14 simple 146:11 86:20 91:23 138:14 139:6
105:14 117:19 76:15 95:2 225:21 205:21,23 140:2,16 142:9
sheet 46:13,14 115:13 simpler 254:2 218:23 244:16 144:2,20,25
47:7 50:10,18 shorten 90: 14 simplify 265: 18 245:2,5,7,22 145:11,23
50:23 51:2 shorter 119:21 simply 106:5 situations 16:2 146:4,21,25
53:1096:8 shorthand 46:3 120:5 133:15 245:23 147:5,16 155:8
100:2 103:3,16 274:7 133:19 135:13 six 13:9 87:4,17 156:19 161:18
104:18 106:7,9 shortly 95:2 135:20,23 88:7,12 248:13 161:25 162:5
107:4 116:5 181:15 182:15 150:24 159:17 248:21 253:2 166:5,21 173:4
120:12 121:19 207:24 209:4 176:12 228:20 256:2 173:13 175:3
121:20 125:18 shoulders 7: 16 229:24 skip 263:15 178:13,17,22
126:7,20 127:4 show9:5 24:10 single 203:12 slightly 24 7: 15 181:4,9 183:7
127:22 129:15 127:2 153:5 254:6 small44:9 185:8 187:22
133:25 135:3 showed 20:12 sir 6:8,18 7:22 sold 203:15 188:7,11,16
136:21 139:11 87:8,14 9:4,13 12:25 sole 41:22 44:5 189:4 231:18
139:21,22,24 showing 24:9 19:23 21:13 91:12 243:16 267:20,22
140:4,5,10 87:2 130:24 22:16 24:23 Solomon 2:17 268:14,24
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
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 spend85:19 261:9 128:16
82:8 86:7 120:17 121:5,5 194:9 statement 19:11 subject 21: 11
100:21 103:9 122:8 132:12 spent42:23 23:7 40:10 37:4,23 59:3
103:17 108:19 151:12 157:13 159:22 50:24 107:2,2 60:6 71:2
110:11111:19 160:12 184:20 spirit 164:15,21 113:15 149:16 132:25 150:6
119:6,20 190:18 201:3 164:24 200:10 237:12 154:7 189:6,11
125:22 129:11 219:5 227:16 split 155:19 246:15 256:4,5 223: 13 23 3 : 11
129:22 132:20 227:24 229:25 sponsor 16:18 256:9,25 233:15,20
141:18 155:6 235:7 253:19 18:5 257:15 258:6 271:9 272:9
162:20 174:25 261:25 267:14 sponsors 16:19 statements 10:6 submitted 26:2
183:9 193:8 267:25 268:6 spreadsheet 201:25 266:25
201:16 208:2 268:13,20 230:12 states 1:2 228:3 subpoena 19:21
211:22 217:23 specifically square248:13 240:22 261:5 20:3 275:17
238:7 239:11 33:23 35:12 ss 274:4 status 147:22 Subscribed
239:25 240:2 58:9,12 64:20 stacked 202:5 stayed 195:2 271:14
241:25 248:2,7 66:8,24 76:14 stages 61 :24 step 134:14 subsequent
249:9 258:18 78:2 80:18 stamp 130:20 sticks 86:16 35:13,17 38:7
258:21 259:21 83:23 84:3 132:13 stock 141:4 43:15 110:4,19
260:18 262:9 89:5,11,15 stamped 67:10 222:12 244:6 208:17 216:18
266:12 268:14 92:3 104:25 71:8 85:9 245:20 227:18 244:5
268:23 107:10,13 116:3 126:18 Stockton 3:3 5:9 subset 67:12
sort 81:21 87:11 116:18 117:4 140:7 142:11 stop 76:20,22 subsidiaries
87:23 92:23 117:12 118:5 175:5 276:10 straight 29: 13 247:20 249:13
248:13 118:13 123:10 277:7 strange 215:5 substance 25:21
sought 228: 16 124:7 132:9 stamps 127:9 256:17 25:22 56:14
sound 190:24 149:22 154:20 stand232:14 strategies 83:21 97:21
sounds 36:21 159:14 184:7 standards 241:20 242:6 137:5 152:8
37:3 105:21 186:21 199:9 199:20 Street2:5,10 3:5 substantially
253:20 201:6,8,13 standing 24: 18 strike 61:24 75:15 174:15
sources 174:19 202:10 212:15 stands 48: 16,25 197:21 203:3 174:24 226:19
southern 1 :2 212:18 226:13 49:5 124:16 216:9 224:12 substantive
192:24,25 240:21 241:5 start 80:6 89:2 224:16 229:15 119:12 185:10
space 225: 14 241:23 262:21 196:22 209:17 structure 11 :4 successfully 28:3
272:5 262:23 269:21 started 121:9 11:15 43:2,4 sued 146:17
speak 25:12,14 269:24 194:22 197:9 52:14,24 53:9 sufficient 59:6
132:23 195:17 specifics 206:7 197:10 249:23 89:23 90:4,19 59:17 180:3
speaking 7:2 219:16,18 starting 153:25 90:23 100:14 254:7
11:23 199:8,9 261:12 166:10 248:16 190:11 198:19 suggest 173: 11
228:13 speculate 172:24 starts 153:8 226:4 248:23 suggested
special 189:19 213:25 214:15 166:9 248:24 249:25 180:13
204:7 261:18,20 startup 17:19 250:2 252:8,15 suggests 126:8
specific 10:19 speculation state 1:14 242:2 structured 225 :4 257:8
APP-00305
308
Suite 2:21 190:21 193:11 251:11 259:8 124:12 125:17 terms 46:23
suited 33:19 200:12 210:23 259:17 126:6,20 127:3 51:12 53:4
Suites 190:2,4 214:20 215:18 Tavern 71:11 127:22 129:15 55:16 56:25
192:21 201:21 216:4 228:24 84:15 85:3,8 131:7 133:4,25 61:17 65:20
201:23 234:25 237:7 276:7,10 134:25 135:2 66:10,17,19,22
summarized 239:21242:17 team 8:19,25 135:11 136:21 70:8,16 91:23
174:14 242:25 243:15 10:9,14 25:17 139:11,21,22 93:6 98:6
summary 38:10 246:8 250:9 93:25 94:4 139:24 140:4,5 99:13 101:15
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117:13 162:17 78:11,21 79:8
190:20 195:4 89:17,20 90:25
247:25 263:11 8/17/2010 9:18
5-mile 265:20 8:44 94:15
50 93 :4 1 0 1 : 12 82.18101:5
102:19 105:13 85105:10 107:5
117:19 125:7 276:10
125:21 220:5
229:17
9
9 85:5,13 89:25
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