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

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

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

RESPONSE OF AD HOC COMMITTEE OF PREFERRED SHAREHOLDERS TO LIMITED MOTION OF MIDLAND LOAN SERVICES, INC. TO RECONISDER FINAL ORDER AUTHORIZING DEBTORS TO (I) USE THE ADEQUATE PROTECTION PARTIES CASH COLLATERAL AND (II) PROVIDE ADEQUATE PROTECTION TO THE ADEQUATE PROTECTION PARTIES PURSUANT TO 11 U.S.C. 361, 362, AND 363 TO THE HONORABLE SHELLEY C. CHAPMAN UNITED STATES BANKRUPTCY JUDGE: The Ad Hoc Committee of Preferred Shareholders (the Ad Hoc Committee)1 in the above-captioned chapter 11 cases of Innkeepers USA Trust (Innkeepers or the Company), its parent corporation Grand Prix Holdings, LLC (Grand Prix) and their direct and indirect title 11 debtor subsidiaries (collectively with Innkeepers and Grand Prix, the

The following holders of approximately 24.0% of Innkeepers 8.0% Series C Cumulative Preferred Shares comprise the Ad Hoc Committee: Brencourt Advisors, LLC; Esopus Creek Advisors, LLC; and Plainfield Special Situations Master Fund II Limited.

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Debtors),2 files this response to the motion (the Motion) of Midland Loan Services, Inc. (Midland) to reconsider the final order authorizing the Debtors to (i) use the adequate protection parties cash collateral and (ii) provide adequate protection to the adequate protection parties pursuant to 11 U.S.C. 361, 362, and 363, dated September 16, 2010 [Docket No. 441], and respectfully represents as follows:

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

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STATEMENT OF THE CASE 1. Interest of Ad Hoc Committee. Midlands Motion raises one issue critical

to all equity interest holders and unsecured claimholders in these chapter 11 cases, namely whether the statutory powers and duties under Bankruptcy Code sections 1103, 1106, and 1107 of any statutory committees, examiner, trustee, and debtor in possession can be carried out, or whether the cash flow of the estates cannot be used by these entities to carry out the Bankruptcy Code. As shown below, based on the facts of these cases, the cash flow can be used to pay for the operations and professionals of the foregoing entities based on (a) Midlands request to prosecute its own chapter 11 plan and (b) Bankruptcy Code section 552(b)(1)-(2). 2. Midland requests this Court reconsider its Final Order Authorizing the

Debtors to (I) Use the Adequate Protection Parties Cash Collateral and (II) Provide Adequate Protection to the Adequate Protection Parties pursuant to 11 U.S.C. 361, 362, and 363 (Cash Collateral Order), entered on September 2, 2010 [Docket No. 402]. Specifically, Midland seeks the elimination of two provisions of the Cash Collateral Order: (i) the Carve Out of $5.5 million for professional fees in paragraph 7 on page 34 and (ii) language related to the adequate protection of section 507(b) claims in paragraph 6(c) on page 28. 3. Midland asserts that the carve-out is improper because Midland did not

consent to it and has not received, and will not receive, any benefit from the expenses incurred, and to be incurred, in connection with the administration of the Debtors estates. Midland also objects to the provision of the Cash Collateral Order waiving Midlands claim under Bankruptcy Code section 507(b) on the grounds that Bankruptcy Code section 507(b) does not specifically allow the waiver of such a claim over the objection of the secured claimholder.

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RESPONSE 4. Cash Collateral Can Be Used in These Cases for All Administrative

Expenses because Midland and Lehman ALI, Inc. (Lehman) have already requested confirmation of chapter 11 plans. It is undisputable that Lehman supported confirmation of the chapter 11 plan embodied in the plan support agreement dated July 17, 2010. See Plan Support Agreement, dated June 17, 2010, attached as Exhibit B to Debtors Motion for an Order (A) Authorizing the Debtors to Assume the Plan Support Agreement and (B) Granting Related Relief, dated July 19, 2010 [Docket No. 15]. It is undisputable that by its motion dated August 30, 2010 Midland has requested termination of exclusivity to propose its own chapter 11 plan. See Midland Services, Inc.s Motion to Terminate Exclusivity, dated August 30, 2010 [Docket No. 348]. Finally, it is undisputable that for any chapter 11 plan to be confirmed, Bankruptcy Code section 1129(a)(9)(A) requires that all administrative expenses under Bankruptcy Code section 507(a)(2) (incorporating all administrative expenses under section 503(b)(1)) be paid in full in cash as of the effective date of the plan. 5. Accordingly, no secured claimholder can request confirmation of a plan

and also deprive the estate of moneys that must be paid under the plan as a matter of law. Additionally, because every plan must be proposed in good faith pursuant to Bankruptcy Code section 1129(a)(3), neither Midland nor any other secured claimholder can legally contend their cash collateral need only pay administrative expenses if the plan they want is confirmed, because that would mean they would be proposing a plan on the condition that the debtor in possessions and committees powers and duties can only be carried out if they result in a plan the secured claimholder supports, which is the opposite of good faith. The good-faith test means that the plan was proposed with honesty and good intentions and with a basis for expecting that a reorganization can be effected. Koelbl v. Glessing (In re Koelbl), 751 F.2d 137, 139 (2d Cir. 4
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1984) (quoting Manati Sugar Co. v. Mock, 75 F.2d 284, 285 (2d Cir. 1935)); see also Kane v. Johns-Manville Corp., 843 F.2d 636, 649 (2d Cir. 1988). No plan proponent can propose a plan with honesty and good intentions if it is premised on not having allowed the debtor in possession, statutory committees, and examiner to carry out their statutory duties throughout the chapter 11 case. 6. The Administration of the Estates Benefits Midland. Midland contends

the secured creditors collateral may only be charged for administrative expenses, including attorneys fees, to the extent these expenses directly benefited that secured creditor. See Motion at 14 (quoting In re Blackwood Assocs., L.P., 153 F.3d 61, 68 (2d Cir. 1998)); see also Motion at 15 ([T]he only way that Midlands cash collateral can be surcharged for those [professional] fees is if Midland benefits directly from the expenditure.) (quoting In re 680 Fifth Ave. Assocs., 154 B.R. 38, 43 (Bankr. S.D.N.Y. 1993)). 7. Midlands assertion that it is not benefited from the administration of the

estates under Chapter 11 is contradicted by Midland. Midland has requested termination of exclusivity to propose its own plan. That can only occur if the chapter 11 cases are prosecuted. There is no such thing as prosecuting chapter 11 cases if the debtor in possession, statutory committees, and examiner cannot do what chapter 11 requires them to do. In reality, the alternative to chapter 11 for Midland is its foreclosure of the assets securing its claim, a remedy Midland did not request. The stamp tax exemption in Bankruptcy Code section 1146(a) is only applicable if a plan is confirmed, not in state court foreclosures or federal receiverships. Whether foreclosure is done on a property by property basis, state court by state court basis, or through a receivership action, foreclosure will consume time, jeopardize each hotels flag, jeopardize each hotels revenue and bookings, and cost Midland money. Foreclosure is likely to

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lead to lower sale prices, negatively impact the franchise agreements, disrupt the properties management, and deprive Midland of the tax savings achievable by Bankruptcy Code section 1146(a). In recognition of the foregoing, Midland has not requested dismissal of these chapter 11 cases or stay relief, but rather has moved for authority to file its own chapter 11 plan. In other words, Midland seeks to use the chapter 11 process. There is no such thing as deploying chapter 11 while denying that the statutory duties and powers in the Bankruptcy Code can be carried out. 8. Bankruptcy Code section 552(b) Enables the Debtors Use of Cash

Collateral to Pay Estate Professional Fees. Sections 552(b)(1)-(2) both allow the court to deny the extension of security interests to postpetition hotel revenues based on the equities of the case. Here, given that Midland is requesting a chapter 11 plan process, the equities require that the expenses of carrying out the duties and powers of the debtor in possession, the statutory committees, and any examiner or trustee be paid for. Put differently, it is the reverse of equity for a secured claimholder to request permission to prosecute a chapter 11 plan in the chapter 11 case, but only if none of the Congressional checks and balances in chapter 11 can be carried out. 9. Midland contends that Bankruptcy Code section 507(b) does not allow the

Court to impose a waiver of Midlands claim under that Code section. Agreed. Section 507(b) is a statutory super priority claim available to any secured claimholders that requests adequate protection and does not receive sufficient adequate protection to protect its collateral value. There is nothing in the Bankruptcy Code empowering the Court to deprive prepetition secured claimholders of that protection, even though it has become common custom.

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CONCLUSION WHEREFORE the Ad Hoc Committee requests the Court deny the portion of Midlands Motion requesting that its cash collateral not be used to pay administrative expenses otherwise allowable. Dated: New York, New York September 23, 2010 DEWEY & LEBOEUF LLP

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

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