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    Queen Mary Operator QSDI Seeking Chapter 11 Bankruptcy Protection, Seeks Opportunity To Resolve Rent Dispute Without Threat of Lease Termination

    (March 15, 2005, updated w/ Prevratil statement) -- Facing a City Hall notice of default and demand for payment of roughly $3.4 million in rent, which Queen Mary operator QSDI, Inc. denies is due, QSDI -- which has for years operated the ship under a lease with City Hall -- today [March 15] filed an action in U.S. Bankruptcy Court seeking protection under Chapter 11 of the U.S. Bankruptcy Code...coupled with an offer to discuss the disputed Lease amounts with City Hall without the threat of a Lease termination.

    In a March 15 letter faxed to the LB City Attorney's office, the Century City law office of Jeffer, Mangels, Butler and Marmaro, LLP by attorney Joseph A. Eisenberg, P.C. writes in pertinent part:

    This office has been retained to serve as special counsel to QSDI in connection with the [cites case number] under chapter 11 of the United States Bankruptcy Code, which case was filed today [March 15]...

    You are aware that the City has issued a notice of default with respect to the Lease [granted QSDI by the City of LB]. QSDI disputes the City's contention of default with respect to the Lease and wishes to effect an amicable resolution of such putative defaults and the amounts required to cure any actual defaults under the Lease.

    You are aware that, as a consequence of the commencement of the chapter 11 automatic stay has become operative which precludes any action by the City to terminate the Lease or otherwise interfere with the use and enjoyment by QSDI of the leasehold estate granted [by the lease]...We assume that the City will comply with its obligations under applicable law and abate any effort or conduct which would be violative of the substantive provisions of the Bankruptcy Code.

    The chapter 11 case gives the City and QSDI an opportunity to explore fully their respective contentions with regard to the Lease and to do so without the overhanging threat of a termination of the Lease. As an alternative to the adjudication of these issues and contentions b the Bankruptcy Court, QSDI and its professionals are prepared to begin an immediate dialog with the City regarding the putative defaults under the Lease and the cure of any actual defaults thereunder.

    By this letter, I invite you to contact me and advise whether the City wishes to pursue an out-of-court dialog with regard to the issues and disputes in respect of the Lease...

    In an accompanying transmittal memo to the Mayor and City Council, City Attorney Robert Shannon writes, "Simply stated, the dispute between the City and QSDI will now be litigated in Bankruptcy Court." The memo adds, "We will be prepared to fully explain the ramifications of this action in closed session."

    [update] In a written release, QSDI President/CEO Joseph Prevratil states:

    Throughout the past many months, we have worked hard to resolve amicably with the City of Long Beach our many lease-related disputes. Procedurally, we have acceded to the City's scheduling limitations. Substantively, we have even expressed a willingness to let the City walk away from some of its written commitments to us. Unfortunately, the City has remained intractable and turned our negotiations into a disappointing charade. The precipitous notice of default sent to us by the City has given us no alternative but to protect our lease and our investments by filing, on March 15, 2005, a Chapter 11 reorganization proceeding under the Federal Bankruptcy Code.

    The fate of our employees and the icon that is the Queen Mary will now be worked out in the rational and non-hysterical environment of the bankruptcy court, where a federal judge will review the law and facts of our case and, we have every confidence, will come up with a fair and appropriate resolution. Despite our profound disappointment with the City's conduct, both giving rise to our disputes and in attempting to resolve them, we remain committed to the settlement process, and eager to talk with the City at their request.

    I deeply regret that the City chose this course of action versus mediation or arbitration, but they did. I am certain in the end, we will be vindicated and the City Council and the City Manager will have to justify their actions to the citizens.

    The release added that Mr. Prevratil praised the Queen Mary employees "whose loyalty and hard work have produced outstanding results in a recovering economy" from the effects of the 9/11/01 terrorist attacks "which devastated the Tourism industry"...and he thanked the UIW Union and Queen Mary's vendors and friends for their past and continued support.

    "It's a sad day for us, our public-private partnership with the City has been terminated for all the wrong reasons. It is a failure of leadership by the City," said Mr. Prevratil in the release.


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