Northern Offshore Considers Liquidation

Northern Offshore Ltd. is preparing for liquidation in light of an impasse between the Company and its creditors. The Company indicated that although an unofficial committee of unsecured creditors had formed to consider the Company's restructuring proposal, the committee had sent a letter and term sheet to the Company stating that it would not engage in negotiations with the Company without the Company's immediate payment of US$7.2 million of interest due on May 15, 2004 in connection with the 10.0% senior notes due 2005 and further on July 6, 2004 pay interest which is due on that date on the outstanding NOK bonds. However, at this stage and in light of the Company's current financial position, the Board of Directors does not believe it is appropriate to pay funds to any stakeholder without agreement on a comprehensive restructuring.

"The preference of the Board of Directors is to engage with the bondholders in a consensual restructuring," said Tor Olav Troim, the Company's chief executive officer. "To that end, the Company has taken the necessary steps to prepare for restructuring negotiations, including agreeing to pay for creditor advisors, preparing a detailed due diligence package for the committee, and providing the committee with a detailed term sheet. Despite these initiatives, the committee does not want to engage in further discussions without the interest payment being made."

Joseph Swanson, a director at Houlihan Lokey Howard & Zukin, which was retained by the Company to assist in implementing the restructuring, added further, "In these circumstances, where a company is endeavouring to restructure its financial obligations as the only alternative to an insolvent liquidation, it is standard practice for the company to preserve its cash and other assets for the benefit of the general body of creditors until there is certainty as to the company's future. Ultimately, such cash and other assets would be distributed either in accordance with the definitive restructuring or, if no agreement can be reached and the restructuring consequently fails, in the company's liquidation."

As previously announced on June 15, 2004, the Company did not pay the interest due on its 10% senior notes, which constituted an event of default under the indenture governing the senior notes. On June 1, 2004, the Company proposed a transaction whereby the Company's senior notes together with its Norwegian krone-denominated floating rate notes due 2004 would be exchanged for newly issued shares of common stock representing 85% of the Company's fully diluted share capital, with the remaining 15% to be retained by current shareholders. If approved, the transaction would be consummated under Bermuda law through a scheme of arrangement and an increase in share capital approved by Northern Offshore's shareholders. The Company considers that the implementation of a restructuring represents the only means by which the Company can avoid insolvent liquidation.

The Company believes it is in the best interests of all stakeholders to implement a restructuring as quickly as possible. It is the Company's opinion that the implementation is critical to the continued operation of the Company. Unless the committee engages the Company in negotiations, the Board of Directors of Northern Offshore considers that it will have no alternative but to take steps in relation to the appointment of a Bermuda-based liquidator responsible for the liquidation of the Company's assets for the benefit of its creditors.

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