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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K/A

Amendment No. 1


| |  |                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
| |  | [   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-12527          

BAYCORP HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)


|                                                                             |  |                                               
|---------------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other jurisdiction of
incorporation or organization)       |  | 02-0488443(I.R.S. Employer
Identification No.)
|                                                                             |  |                                               
|51 Dow Highway, Suite 7
Eliot, Maine(Address of principal executive offices) |  | 03903(Zip Code)                               

Registrants telephone number, including area code: (207) 451-9573

|                                                                                                            |  |                            
|----------------------------------------------------------------------------------------------------------- |  | ---------------------------
|222 International Drive, Suite 125
Portsmouth, New Hampshire(Former address of principal executive offices) |  | 03801-6809(Former Zip Code)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value(Title of Class)

American Stock Exchange(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X        No

Indicate by check mark if disclosure of delinquent filers to Item 405 of
Regulations S-K is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [   ]

As of March 14, 2002, the approximate aggregate market value of the voting
stock held by non-affiliates of the registrant was $33,444,833 based on the
last reported sale price of the registrants Common Stock on the American Stock
Exchange as of the close of business on March 14, 2002. There were 8,525,448
shares of Common Stock outstanding as of March 14, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

|                                                                                         |  |                                  
|---------------------------------------------------------------------------------------- |  | ---------------------------------
|                                                                                         |  | Part of Form 10-K                
|Document                                                                                 |  | into which incorporated          
|                                                                                         |  |                                  
|Portions of the Registrants
Proxy Statement
for the 2002 Annual Meeting of Shareholders |  | Items 10, 11, 12 & 13
of Part III



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TABLE OF CONTENTS



|                                                                               |                                                                                                |  |  |  |  |  |  | 
|------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                        
|                                                                               | Item 1. Business.                                                                             
|                                                                               | Item 2. Properties.                                                                           
|                                                                               | Item 3. Legal Proceedings.                                                                    
|                                                                               | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|PART II                                                                       
|Item 5. Market for Registrants Common Equity and Related Stockholder Matters.
|                                                                               | Item 6. Selected Financial Data.                                                              
|                                                                               | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                                               | Item 7A. Quantitative and Qualitative Disclosure About Market Risk.                           
|                                                                               | Item 8. Financial Statements and Supplementary Data.                                          
|                                                                               | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
|PART III                                                                      
|                                                                               | Item 10. Directors and Executive Officers of the Registrant.                                  
|                                                                               | Item 11. Executive Compensation.                                                              
|                                                                               | Item 12. Security Ownership of Certain Beneficial Owners and Management.                      
|                                                                               | Item 13. Certain Relationships and Related Transactions.                                      
|PART IV                                                                       
|                                                                               | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                     
|INDEX TO FINANCIAL STATEMENTS                                                 
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                      
|CONSOLIDATED BALANCE SHEETS                                                   
|CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME                    
|CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY                    
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                         
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                    
|CONSOLIDATED BALANCE SHEETS                                                   
|CONSOLIDATED STATEMENTS OF INCOME                                             
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS DEFICIT                              
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                         
|NOTES TO FINANCIAL STATEMENTS                                                 
|CONSOLIDATED BALANCE SHEET                                                    
|CONSOLIDATED STATEMENTS OF INCOME                                             
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS DEFICIT                              
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                         
|NOTES TO FINANCIAL STATEMENTS  UNAUDITED                                     
|SIGNATURES                                                                    
|EXHIBIT INDEX                                                                 
|Consent of Vitale, Caturano & Co.                                             
|CERTIFICATION (GETMAN)                                                        
|CERTIFICATION (BARNARD)                                                       



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PART I

Explanatory Note

This Form 10-K/A of BayCorp Holdings, Ltd. amends the annual report on
Form 10-K for the year ended December 31, 2001 filed on March 25, 2002.
The 2001 Form 10-K is amended to (i) restate the Companys 1999 financial
statements to present HoustonStreet Exchange, Inc. (HoustonStreet) on a
consolidated basis for 1999 and to include HoustonStreet financial
statements and footnotes for 1999, 2000 and 2001, (ii) record an increase
in 2000 in the value of the Companys ownership in HoustonStreet and an
offsetting increase to additional paid in capital of approximately $6.7
million, as a result of HoustonStreets sale of additional equity; this
increase in the Companys investment in HoustonStreet increased the
Companys 2000 loss by $6.7 million, (iii) record a decrease of
approximately $448,000 in 2000 and an increase of approximately $659,000
in 2001 in general and administrative expenses for compensation costs
related to repriced and accelerated options and costs associated with
moving the Companys headquarters, (iv) record an increase in 2001 tax
expenses of $225,000 based on actual taxes incurred, and (v) reclassify
decommissioning accretion and decommissioning interest on the
Consolidated Statements of Income from Other Income/Deductions to
Operating Expenses for all periods presented. These restatements are all
non-cash adjustments to the Companys financial statements. The Selected
Financial Data table has been changed to reflect these restatements.
Managements Discussion and Analysis of Financial Condition and Results
of Operation and Footnote disclosure have been modified to reflect these
restatements. The amendments also include minor financial statement
reclassifications and other modifications to the Footnotes.




Item 1.Business.

Introduction

BayCorp Holdings, Ltd. (BayCorp or the Company) is a holding company
incorporated in Delaware in 1996. BayCorp owns two subsidiaries that generate
and trade wholesale electricity, Great Bay Power Corporation (Great Bay) and
Little Bay Power Corporation (Little Bay), each of which is wholly-owned as
of December 31, 2001. In addition, BayCorp owns 45.9% of HoustonStreet
Exchange, Inc. (HoustonStreet), an Internet-based independent crude oil and
refined products trading exchange.

Great Bay and Little Bay are electric generating and trading companies.
Their principal asset is a combined 15% joint ownership interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire (the Seabrook
Project or Seabrook). This ownership interest entitles the companies to
approximately 174 megawatts (MWs) of the Seabrook Projects power output.
Great Bay and Little Bay are exempt wholesale generators (EWGs) under the
Public Utility Holding Company Act of 1935 (PUHCA). Unlike regulated public
utilities, Great Bay and Little Bay have no franchise area or captive
customers. The companies sell their power in the competitive wholesale power
markets.

Great Bay was incorporated in New Hampshire in 1986 and was formerly known
as EUA Power Corporation. Little Bay was incorporated in New Hampshire in 1998.
Great Bay sells its power, including its 12.1% share and Little Bays 2.9%
share of the electricity output of the Seabrook Project, in the wholesale
electricity market, primarily in the Northeast United States. Little Bay sells
its power solely to Great Bay under an intercompany agreement. Neither BayCorp
nor its subsidiaries have operational responsibilities for the Seabrook
Project. Great Bay currently sells all but approximately 10 MWs of its share of
the Seabrook Project capacity in the wholesale short-term market. In addition
to selling its power generated by Seabrook, Great Bay purchases power on the
open market for resale to third parties.

Little Bay purchased a 2.9% interest in the Seabrook Project in November
1999 from Montaup Electric Company (Montaup), a subsidiary of Eastern
Utilities Associates (EUA), for a purchase price of $3.2 million, plus
approximately $1.7 million for certain prepaid items, primarily nuclear fuel
and capital expenditures. In addition, Montaup prefunded the decommissioning
liability associated with Little Bays 2.9% share of Seabrook by transferring
approximately $12.4 million into Little Bays decommissioning account, an
irrevocable trust earmarked for Little Bays share of Seabrook Project
decommissioning expenses.

HoustonStreet was incorporated in Delaware in 1999. HoustonStreet is an
equity investment of BayCorp. HoustonStreet developed and operates
HoustonStreet.com, an Internet-based independent crude oil and refined products
trading exchange in the United States.

Recent Developments

In October 2000, the Company announced that it reached an agreement with
Northeast Utilities (NU) under which the Companys generating subsidiaries,
Great Bay and Little Bay, will include their aggregate 15% ownership share of
the Seabrook Project in the current auction of NUs subsidiaries shares of the
Seabrook Project. Under the terms of the agreement, BayCorp will

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receive the sales price established by the auction process. In the event
that the sale yields proceeds for BayCorp of more than $87.2 million, BayCorp
and NU will share the excess proceeds. Should BayCorps sales proceeds be less
than $87.2 million, NU will make up the difference below that amount on a
dollar for dollar basis up to a maximum of $17.4 million. Under the agreement,
BayCorp will be paid separately for nuclear fuel and inventory. The agreement
also limits any top-off amount required to be funded by BayCorp for
decommissioning as part of the sale process at the amount required by the
Nuclear Regulatory Commission (NRC) regulations.

In October 2001, the Company announced that the New Hampshire Public
Utilities Commission (NHPUC) and the Connecticut Department of Public Utility
Control (CDPUC) selected J.P. Morgan as their financial advisor for the sale
of ownership interests in the Seabrook Project. J.P. Morgan will manage the
sale under the oversight of the NHPUC and the CDPUC. J.P. Morgan managed the
recent sales of the Millstone Connecticut and Vermont Yankee nuclear plants. In
December 2001, the NHPUC, in coordination with the CDPUC, announced the start
of the auction of 88.2% of the ownership shares of the Seabrook Project. The
Company anticipates the closing of the sale in the fourth quarter of 2002.

With continued uncertainty about the possibility of additional terrorist
activities in the United States, the Nations nuclear power plants, including
the Seabrook Project, remain at a high level of security. Immediately after the
attacks in New York and Washington D.C. on September 11, 2001, management of
the Seabrook Project activated enhanced security measures. On February 25,
2002, the NRC issued an order to all nuclear plant licensees, requiring them to
take certain additional interim compensatory measures to address the
generalized high-level threat environment. These additional compensatory
requirements will provide the NRC with reasonable assurance that public health
and safety and the common defense and security continue to be adequately
protected in the current generalized high-level threat environment. These
requirements will remain in effect pending notification from the NRC that a
significant change in the threat environment occurs, or until the NRC
determines that other changes are needed following a more comprehensive
reevaluation of current safeguards and security programs. Seabrook remains at a
high level of security and the management of Seabrook has assured the joint
owners of Seabrook that they will take actions necessary to comply with the NRC
order setting out the requirements for interim compensatory measures.
Compliance with these requirements will result in additional incremental
operating and capital costs, a prorated portion of which will be paid by Great
Bay and Little Bay. Should additional security measures be required by the NRC,
additional operating or capital costs could be incurred at the Seabrook
Project.

On January 4, 2002, BayCorp reported that Great Bay received notice on
December 21, 2001 from Enron Power Marketing, Inc. (Enron) that Enron was
terminating its contracts with Great Bay. Enron owes Great Bay $1,075,200 for
power delivered prior to Enrons Chapter 11 bankruptcy filing on December 2,
2001. Great Bay also had an administrative claim against Enron of $684,100 for
power delivered between December 2, 2001 and December 21, 2001 and an
unliquidated claim for damages resulting from the termination of the contracts.
Enron paid $684,100 to Great Bay on February 21, 2002. During the fourth
quarter of 2001, BayCorp recorded an expense of $1,100,000 to establish a
reserve for doubtful accounts due to the uncertainty of collecting remaining
amounts owed by Enron to Great Bay for power delivered prior to Enrons Chapter
11 bankruptcy filing.

The Company owned 100% of HoustonStreet as of December 31, 1999.
HoustonStreet sold capital stock in 2000 to outside investors and as a result,
as of December 4, 2000, the Companys ownership fell below 50%, to 45.9%.
Subsequently, the Company deconsolidated HoustonStreet as of December 4, 2000
and started accounting for this investment on the equity method.

On March 30, 2001, HoustonStreet raised approximately $2.9 million in
additional funding, including $450,000 from BayCorp, by selling senior secured
notes, warrants to purchase HoustonStreet preferred stock and warrants to
purchase HoustonStreet common stock. Collectively, these securities are
referred to as the HoustonStreet Series C Units. In April 2001, BayCorp
authorized HoustonStreet to convert BayCorps $7,000,000 loan made in 2000,
along with approximately $1,000,000 in accrued interest and penalties on the
note and past due management fees, into $8,000,000 of Series C Units. The loan,
accrued interest and receivables from HoustonStreet had been written down to
zero as of December 31, 2000 and as such, the conversion of these amounts had
no accounting impact on BayCorp.

In 2001, HoustonStreet downsized its organization and is focusing its
efforts on its crude oil and refined products trading platforms. HoustonStreet
shut down its electricity-trading platform in the second half of 2001.

Current Business

BayCorps principal wholesale electricity generation and trading assets
are its 100% equity interests in Great Bay and Little Bay. The business of
Great Bay and Little Bay consists of managing their joint ownership interests
in the Seabrook Project and the sale in the wholesale power market of their
share of electricity produced by the Seabrook Project. Neither Great Bay nor
Little Bay has operational responsibility for the Seabrook Project. Great Bay
is a party to one long-term power contract for approximately 10 MW of Great
Bays share of the Seabrook Project capacity. Great Bay is also a party to a
contract with Little Bay to purchase all of the output from the portion of
Seabrook owned by Little Bay. This contract is renewed annually, most recently
in November 2001. See Purchased Power Agreements. Great Bays business
strategy is to utilize unit contingent and historically, firm forward sales
contracts,

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to maximize the value of its 174 MW power supply from the Seabrook
Project.

Traditionally, Great Bay sold most of its share of the Seabrook Project
electricity output under unit contingent contracts. Under unit contingent
contracts, Great Bay is obligated to provide the buyer with power only when the
Seabrook Project is operating. In late 1998, Great Bay began to sell some of
its electricity as firm power, which entitles the buyer to electricity whether
or not the Seabrook Project is operating. Buyers pay a premium for firm power
over unit contingent power because they can rely on uninterrupted electricity.
In order to supply firm power during unscheduled outages at the Seabrook
Project, Great Bay purchases power from the spot market during these outages
and resells that power to its firm power customers. Spot market sales are
subject to price fluctuations based on the relative supply and demand of
electricity. As a result of spot market power price fluctuations, Great Bay has
had to purchase power at prices exceeding prices paid by Great Bays firm power
customers during outages. Although Great Bay bore the primary risk of these
price fluctuations, Great Bay maintained insurance in 2000 and 2001 to protect
Great Bay during periods of extreme price volatility, subject to certain
deductibles and coverage limits. In December 2001, Great Bay cancelled this
insurance. Great Bay has not entered into any firm power contracts for 2002
given the expected sale of the Seabrook Project in 2002.

The Seabrook Project

The Seabrook Project is located on an 896-acre site in Seabrook, New
Hampshire. It is owned by Great Bay, Little Bay and nine other utility
companies, consisting of North Atlantic Energy Company, Connecticut Light and
Power, The United Illuminating Company, Canal Electric Company, Massachusetts
Municipal Wholesale Electric Company, New England Power Company, New Hampshire
Electric Cooperative, Inc., Taunton Municipal Lighting Plant and Hudson Light &
Power Department (together with Great Bay and Little Bay, the Participants).

Seabrook Unit 1 is a 1,150-MW nuclear-fueled steam electricity generating
station. It employs a four loop, pressurized water reactor and support
auxiliary systems designed by the Westinghouse Electric Company. The reactor is
housed in a steel-lined reinforced concrete containment structure and a
concrete containment enclosure structure. Reactor cooling water is obtained
from the Atlantic Ocean through a 17,000-foot-long intake tunnel and returned
through a 16,500-foot-long discharge tunnel. The station has a remaining
expected license life of 24 years. Seabrook Unit 1 transmits its generated
power to the New England 345 kilovolt transmission grid, a major network of
interconnecting lines covering New England, through three separate transmission
lines emanating from the station. On March 15, 1990, the Participants received
a full power operating license from the NRC that authorizes operation of
Seabrook Unit 1 until October 2026. Commercial operation of Seabrook Unit 1
commenced on August 19, 1990. Management believes that Seabrook Unit 1 is in
good condition.

Since the Seabrook Project was originally designed to consist of two
generating units, Great Bay and Little Bay also own a combined 15% joint
ownership interest in Seabrook Unit 2. Great Bay and Little Bay assigned no
value to Seabrook Unit 2 because on November 6, 1986, the joint owners of the
Seabrook Project voted to dispose of Unit 2. Thereafter, Great Bay wrote off
its investment in Unit 2. Little Bay has no investment in Unit 2. Certain
assets of Seabrook Unit 2 have been sold from time to time to third parties.
However, there have been no material sales of Unit 2 assets since July 1996.

Because Seabrook Unit 2 was never completed or operated, costs associated
with its disposition are not included in the amounts collected for the
decommissioning of Unit 1 and the common facilities. Great Bay and Little Bay
currently pay their share of monthly expenses required to preserve and protect
the value of the Seabrook Unit 2 components. The Company anticipates that
Seabrook Unit 2 will be sold as part of the expected sale of the Seabrook
Project in 2002. The Participants in Seabrook Unit 1 and Unit 2 have agreed to
contribute their pro-rata share of $2 million to an escrow account for the
development and performance of a plan to mitigate the visual impact of Unit 2.
The contribution to the escrow account is scheduled to occur within 60 days of
the closing of the sale of Seabrook.

Joint Ownership of Seabrook

Great Bay, Little Bay and the other Participants are parties to the
Agreement for Joint Ownership, Construction and Operation of New Hampshire
Nuclear Units (the JOA), which establishes the respective ownership interests
of the Participants in the Seabrook Project and defines their responsibilities
with respect to the ongoing operation, maintenance and decommissioning of the
Seabrook Project. In general, all ongoing costs of the Seabrook Project are
divided proportionately among the Participants in accordance with their
ownership interests in the Seabrook Project. Ownership interests in the
Seabrook Project are several and not joint, and each Participant is only liable
for its share of the Seabrook Projects costs and not liable for any other
Participants share. Great Bay and Little Bays combined joint ownership
interest of 15% is the third largest interest among the Participants, exceeded
only by the approximately 40% interest held by Northeast Utilities (NU) and
its affiliates and the 17.5% interest held by The United Illuminating Company.

A Participant may sell any portion of its ownership interest to any entity
that is engaged in the electric utility business in New

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England. Before such sale, however, such selling Participant must give
certain other Participants the right of first refusal to purchase the interest
on the same terms. Any Participant may transfer, free from the foregoing right
of first refusal, any portion of its interest (a) to a wholly-owned subsidiary,
(b) to another company in the same holding company system or a construction
trust for the benefit of the transferor or another company in the same holding
company system, or (c) in connection with a merger, consolidation or
acquisition of substantially all of the properties or all of the generating
facilities of a Participant. Eight Participants have announced that they are
selling their ownership interest in the Seabrook Project as part of the current
sale process underway.

The failure to make monthly payments under the JOA by owners of the
Seabrook Project other than Great Bay and Little Bay may have a material effect
on Great Bay and Little Bay if either should choose to pay a greater proportion
of the Seabrook Unit 1 and Seabrook Unit 2 expenses in order to preserve the
value of its share of the Seabrook Project. In the past, certain of the owners
of the Seabrook Project other than Great Bay and Little Bay have not made their
full respective payments. At the current time, the electric utility industry is
undergoing significant changes as competition and deregulation have been
introduced into the marketplace. If a Participant other than Great Bay or
Little Bay filed for bankruptcy, and that Participant was unable to pay its
share of Seabrook Project expenses, Great Bay and/or Little Bay might choose to
pay a greater portion of Seabrook Project expenses. In the past, the filing of
bankruptcy by a Participant has not resulted in a failure to pay Seabrook
Project expenses or an increase in the percentage of expenses paid by other
Participants.

The JOA provides for a Managing Agent to carry out the daily operational
and management responsibilities of the Seabrook Project. The current Managing
Agent, appointed by certain of the Participants on June 29, 1992, is North
Atlantic Energy Service Corporation (NAESCO), a wholly-owned subsidiary of
NU. NU, in conjunction with certain of its affiliates, holds the largest joint
ownership interest in the Seabrook Project, as described above. Certain
material decisions regarding the Seabrook Project are made by an Executive
Committee consisting of the chief executive officers of certain of the
Participants or their designees. There are currently five members of the
Executive Committee. The Executive Committee acts by a majority vote of its
members, although any action of the Executive Committee may be modified by a
vote of 51% of the ownership interests. Frank W. Getman Jr., the Companys
President and Chief Executive Officer, is currently a member of the Executive
Committee. Anthony M. Callendrello, the Companys Chief Operating Officer, is a
member of the Audit Committee and is Chairperson of the Budget Subcommittee and
Vice Chairperson of the Non-Operating Participants Committee. Under the JOA,
the managing agent of the Seabrook Project may be removed and a new managing
agent appointed by a 51% interest of the Participants.

Marketing and Customers

Great Bay currently sells most of its power in the Northeast United States
in the short-term wholesale power market. Great Bay does not currently depend
on any single customer because a number of utilities and marketers are willing
to buy Great Bays share of electricity from the Seabrook Project at
substantially the same price. The Company received approximately 63% of its
2001operating revenue from three customers: Aquila Power Corporation, Enron
Power Marketing and Select Energy, sales to each of which represented more than
ten percent of the Companys revenues. The Company believes that the loss of
any or all of these customers would not have a material adverse effect on the
Companys results of operations because the electricity sold under the
contracts with these customers could have been sold on the open market at
prices that approximated the pricing under such contracts, and the Company does
not rely on repeat sales of electricity to these particular customers in any
subsequent year. Prices in the short-term market are typically higher during
the summer and winter because the demand for electrical power is higher during
these periods in the Northeast United States. The Company utilized unit
contingent and firm forward energy trading contracts to maximize the value of
the uncommitted portion of its 174-megawatt power supply from the Seabrook
Project in 2001. The Company was not a party to any firm forward energy trading
contracts as of December 31, 2001. Similarly, the Company does not expect to
enter into firm forward energy trading contracts in 2002, in light of its
expected sale of its ownership interest in the Seabrook Project in late 2002.

Purchased Power Agreements

Great Bay is party to a purchased power agreement, dated as of April 1,
1993 (the UNITIL Purchased Power Agreement), with UNITIL Power Corporation
(UNITIL) that provides for Great Bay to sell to UNITIL 0.8696% of the energy
and capacity of Seabrook, approximately 10 MW. The UNITIL Purchased Power
Agreement commenced on May 1, 1993 and runs through October 31, 2010. The
current price of power under the UNITIL Purchased Power Agreement is 5.38 cents
per kilowatt-hour (kWh). The price is subject to increase in accordance with
a formula that provides for adjustments at less than the actual rate of
inflation. UNITIL has an option to extend the UNITIL Purchased Power Agreement
for an additional 12 years until 2022.

The UNITIL Purchased Power Agreement was front-end loaded whereby UNITIL
paid higher prices, on an inflation-adjusted basis, in the early years of the
Agreement and lower prices in later years. The amount of the excess paid by
UNITIL in the early years of the UNITIL Purchased Power Agreement was
quantified in a Balance Account which increased annually to a total of $4.1
million in July 1998, and then decreased annually, reaching zero in July 2001.
If the UNITIL Purchased Power Agreement had terminated prior to its scheduled
termination, and if at that time there was a positive amount in the Balance
Account, Great Bay would have been

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obligated to refund that amount to UNITIL Power. To secure the obligation
of Great Bay to repay UNITIL the amount in the Balance Account, the UNITIL
Purchased Power Agreement granted UNITIL a Second Mortgage on Great Bays
interest in the Seabrook Project. As the result of the Balance Account reaching
zero in July 2001, the Second Mortgage was discharged by UNITIL in August 2001.

To secure the obligation of Great Bay under the UNITIL Purchased Power
Agreement to pay damages in the event of a default by Great Bay, the UNITIL
Purchased Power Agreement grants UNITIL a Third Mortgage on Great Bays
interest in the Seabrook Project. The Third Mortgage is subject and subordinate
to (i) senior mortgages and security agreements securing Great Bays
indebtedness to lenders in an aggregate amount not to exceed $80,000,000 and
(ii) other mortgages that may be granted by Great Bay to other purchasers of
power from Great Bay to secure a Balance Account or similar obligation. The
UNITIL Purchased Power Agreement further provides that UNITILs Third Mortgage
will rank pari passu with other mortgages that may be granted by Great Bay to
other purchasers of power from Great Bay to secure potential payment of damages
or similar obligations. The Company is currently evaluating various options
regarding the UNITIL Purchased Power Agreement in order to maximize its value
to the Company.

Great Bay and Little Bay are parties to a power sales agreement dated as
of November 19, 2001 under which Little Bay sells at cost, and Great Bay
purchases, all of the output of the portion of Seabrook owned by Little Bay.
This agreement is a unit power sale agreement. Accordingly, when all or part of
Little Bays interest in Seabrook is not producing electricity, the obligation
of Little Bay to sell (and of Great Bay to purchase) is proportionately
eliminated. The agreement can be terminated at any time by mutual consent of
the parties, after any notice required by law.

In February 2001, Great Bay executed a Purchase Power Agreement with
Select Energy (Select) whereby Great Bay sold 50 MWs of energy associated
with the Seabrook Project to Select in exchange for 25 MWs of energy associated
with Millstone Unit 2 and 25 MWs of energy associated with Millstone Unit 3.
Millstone is a nuclear power plant located in Connecticut. The term of this
agreement was April 1, 2001 through December 31, 2001. Delivery of power from
either company was contingent on each of the units operating at a certain
capacity.

As part of the agreement, Select made a prepayment of $3.7 million to
Great Bay in February 2001 and a second prepayment of $3.3 million in March
2001. Great Bay compensated Select for the prepayments by (i) paying 12% annual
interest for the period from February 6, 2001 through March 31, 2001 and (ii)
giving Select a price differential for the power being exchanged until such
time as the Select prepayment had been repaid. In order to collateralize the
transaction, Great Bay and Little Bay each provided Select with a mortgage lien
and security interest in their respective interests in the Seabrook Project.
Great Bay repaid Select in 2001 and the mortgage liens and security interests
were released as of July 2001. There was no price differential in exchanging
power throughout the remaining term of the agreement.

Competition

Great Bay sells its share of Seabrook Project electricity into the
wholesale electricity market in the Northeast United States. There are a large
number of suppliers to this market and a surplus of capacity, resulting in
intense competition. In addition, non-utility wholesale generators of
electricity, such as independent power producers (IPPs), Qualifying
Facilities (QFs) and EWGs, as well as power marketers and brokers, actively
sell electricity in this market.

Great Bay may face increased competition, primarily based on price, from
all the foregoing sources in the future. Great Bay believes that it will be
able to compete effectively in the wholesale electricity market because of the
current low cost of electricity generated by the Seabrook Project in comparison
with existing alternative sources.

NEPOOL

Great Bay is a member of the New England Power Pool (NEPOOL) and is a
party to the Restated NEPOOL Agreement (the NEPOOL Agreement). NEPOOL is a
voluntary association of companies engaged in the electricity business in New
England and its membership is open to all investor-owned, municipal and
cooperative electric utilities in New England and other companies that transact
business in the regions bulk power market. Certain end users of electricity
may also become NEPOOL members. The NEPOOL Agreement imposes certain
obligations on its participants concerning generating capacity reserves and the
right to use major transmission lines.

New Englands independent system operator, ISO New England, Inc.
(ISO-NE), was established in July 1997 and is responsible for maintaining the
safety and reliability of the transmission grid and bulk power market within
the NEPOOL region. ISO-NE performs these functions under a services contract
with NEPOOL. ISO-NE administers a bid-based wholesale market system in New
England that is designed to provide a competitive and efficient generation
market through an hourly clearing price mechanism. During

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2001, ISO-NE has been developing a revised market system, known as
Standard Market Design (SMD), which will incorporate location-based pricing
and congestion management. The SMD is currently scheduled to be implemented in
December 2002.

Northeast RTO

In January 2001, in response to Federal Energy Regulatory Commission
(FERC) Order No. 2000, ISO-NE and six companies owning transmission
facilities in New England filed a joint petition for a declaratory order to
form a Regional Transmission Organization (RTO) for the NEPOOL control area.
The NEPOOL RTO filing proposed the establishment of two entities working in
concert: (1) a new independent transmission company, Northeast Independent
Transmission Company, LLC (NE ITC), and (2) an independent system operator.
In July 2001, FERC issued a series of orders that rejected stand-alone RTO
proposals filed by ISO-NE, the New York ISO (NYISO), and the PJM
Interconnection (PJM) and directed these three northeastern power pools to
participate in a mandatory mediation process with the goal of forming a single
Northeast RTO (NE RTO). The 45-day NE RTO mediation commenced in July 2001
and ran through early September 2001, and resulted in a business plan for
developing and implementing the NE RTO. However, in early January 2002, PJM
signaled its intent to move away from the NE RTO and instead work to create an
RTO with the Midwest ISO. In late January 2002, ISO-NE and NYISO announced
their intent to continue evaluating the potential of a NE RTO, which may
eventually include Canadian power systems.

Nuclear Power, Energy and Utility Regulation

The Seabrook Project and Great Bay and Little Bay, as part owners of a
licensed nuclear facility, are subject to the broad jurisdiction of the NRC,
which is empowered to authorize the siting, construction and operation of
nuclear reactors after consideration of public health and safety, environmental
and antitrust matters. Great Bay and Little Bay have been, and will be,
affected to the extent of their proportionate share by the cost of any such
requirements made applicable to the Seabrook Project.

Great Bay and Little Bay are also subject to the jurisdiction of the FERC
under Parts II and III of the Federal Power Act and, as a result, are required
to file with FERC all contracts for the sale of electricity. FERC has the
authority to suspend the rates at which Great Bay and Little Bay propose to
sell power, to allow such rates to go into effect subject to refund and to
modify a proposed or existing rate if FERC determines that such rate is not
just and reasonable. FERCs jurisdiction also includes, among other things,
the sale, lease, merger, consolidation or other disposition of facilities,
interconnection of certain facilities, account and services and property
records.

Because they both are EWGs, Great Bay and Little Bay are not subject to
the jurisdiction of the Securities and Exchange Commission (SEC) under PUHCA.
In order to maintain their EWG status, Great Bay and Little Bay must continue
to engage exclusively in the business of owning and/or operating all or part of
one or more eligible facilities and to sell electricity only at wholesale
(i.e. not to end users) and activities incidental thereto. An eligible
facility is a facility used for the generation of electric energy exclusively
at wholesale or used for the generation of electric energy and leased to one or
more public utility companies. The term facility may include a portion of a
facility. In the case of Great Bay and Little Bay, their combined 15% joint
ownership interest in the Seabrook Project comprises an eligible facility.

Over the past several years, New Hampshire and a number of other New
England states have implemented deregulation of the electric retail utility
industry. In addition, NEPOOL restructured to create and maintain open,
non-discriminatory, competitive, unbundled wholesale markets for energy,
capacity, and ancillary services. The NEPOOL wholesale market commenced
operation in May 1999. All of the deregulation initiatives open retail and
wholesale electricity markets to competition in the affected states. Great Bay
and Little Bay believe they benefit from the deregulation of the electricity
industry, however it is not possible to quantify the impact of deregulation on
the companies. Further, Great Bay and Little Bay remain wholesale sellers of
electricity and have not entered the competitive retail electricity market.

Nuclear Power Issues

Nuclear units in the United States have been subject to widespread
criticism and opposition, which has led to construction delays, cost overruns,
licensing delays and other difficulties. Various groups have sought to prohibit
the completion and operation of nuclear units and the disposal of nuclear waste
by litigation, legislation and participation in administrative proceedings. The
Seabrook Project was the subject of significant public controversy during its
construction and licensing and remains controversial. An increase in public
concerns regarding the Seabrook Project or nuclear power in general could
adversely affect the operating license of Seabrook Unit 1. While the Company
cannot predict the ultimate effect of such controversy, it is possible that it
could result in a premature shutdown of the unit.

In the event of a permanent shutdown of any unit, NRC regulations require
that the unit be completely decontaminated of any residual radioactivity. While
the current owners of the Seabrook Project are accumulating monies in a trust
fund to pay

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decommissioning costs, if these costs exceed the amount of the trust fund,
the current owners at such time will be liable for the excess.

Nuclear Related Insurance

In accordance with the Price Anderson Act, the limit of liability for a
nuclear-related accident is approximately $9.5 billion, effective November 18,
1994. The primary layer of insurance for this liability is $200 million of
coverage provided by the commercial insurance market. The secondary coverage is
approximately $9.3 billion, based on the 106 nuclear units (103 operating units
and three units that still handle used fuel) in the United States. The
secondary layer is based on a retrospective premium assessment of $88.1 million
per nuclear accident per licensed reactor, payable at a rate not exceeding $10
million per year per reactor. In addition, the retrospective premium is subject
to inflation based indexing at five year intervals and, if the sum of all
public liability claims and legal costs arising from any nuclear accident
exceeds the maximum amount of financial protection available, then each
licensee can be assessed an additional 5% ($4.2 million) of the maximum
retrospective assessment. With respect to the Seabrook Project, Great Bay and
Little Bay would be obligated to pay their ownership share of any assessment
resulting from a nuclear incident at any United States nuclear generating
facility. Great Bay and Little Bay estimate their maximum liability per
incident currently would be an aggregate amount of approximately $13.2 million
per accident, with a maximum annual assessment of about $1.5 million per
incident, per year.

The Seabrook Participants are subject to retroactive assessments if losses
under those policies exceed the accumulated funds available to the insurer. The
maximum potential assessments against the Participants with respect to losses
arising during the current policy year for the primary property insurance
program and the excess property damage policies are approximately $8.2 million
and $10.2 million, respectively. The Companys combined 15% share is $1.2
million and $1.5 million, respectively.

Great Bay and Little Bay also independently purchase business interruption
insurance from Nuclear Electric Insurance Limited (NEIL). The current policy
is in effect from April 1, 2001 until April 1, 2002 and a renewal policy has
been signed which will be in effect from April 1, 2002 until April 1, 2003. The
policy provides for the payment of a fixed weekly loss amount of $600,000 in
the event of an outage at the Seabrook Project of more than 23 weeks resulting
from property damage occurring from a sudden fortuitous event, which happens
by chance, is unexpected and unforeseeable. The maximum amount payable to
Great Bay and Little Bay is a total of $81.1 million. Under the terms of the
policy, Great Bay and Little Bay are subject to a potential retrospective
premium adjustment of up to approximately $789,000 should NEILs board of
directors deem that additional funds are necessary to preserve the financial
integrity of NEIL. Since NEIL was founded in 1980, there has been no
retrospective premium adjustment; however, there can be no assurance that NEIL
will not make retrospective adjustments in the future. The liability for this
retrospective premium adjustment ceases six years after the end of the policy
unless prior demand has been made.

The board and management of NEIL has announced, that in light of the
events of September 11, 2001, the current coverage for terrorism will remain
available under all the NEIL policies, but with the addition of a provision
regarding the maximum recoveries available for multiple terrorism occurrences.
The NEIL board approved the following changes to the NEIL policy forms to
respond to the increased potential of multiple terrorism losses at insured
sites: (1) increase the multiple for the maximum retrospective premium
adjustments from five to ten; and (2) provide specifically for the use of NEIL
resources for multiple losses resulting from terrorism within one year. Under
this provision, all losses occurring within 12 months from the date of the
first loss would share a single recovery of $3.24 billion plus any amounts NEIL
recovers from reinsurers or the government, with priority for the property
claims over accidental outage claims.

Nuclear Fuel

NAESCO, the Seabrook Projects managing agent, has made, or expects to
make, various arrangements for the acquisition of uranium concentrate, the
conversion, enrichment, fabrication and utilization of nuclear fuel and the
disposition of that fuel after use. Many of these arrangements are pursuant to
multi-year contracts with concentrate and service providers. Based on the
Seabrook Projects existing contractual arrangements, Great Bay and Little Bay
believe that the Seabrook Project has available, or under supply contracts,
sufficient nuclear fuel for operations through approximately 2004. Uranium
concentrate and conversion, enrichment and fabrication services currently are
available from a variety of sources. The cost of such concentrate and such
services varies based upon market forces.

Nuclear Waste Disposal

Costs associated with nuclear plant operations include amounts for nuclear
waste disposal, including spent fuel, as well as for the ultimate
decommissioning of the plants. The Nuclear Waste Policy Act of 1982 (the
NWPA) requires the United States Department of Energy (the DOE), subject to
various contingencies, to design, license, construct and operate a permanent
repository for high level radioactive waste and spent nuclear fuel, which are
collectively referred to as high-level waste.

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The joint owners of the Seabrook Project, through their managing agent
NAESCO, entered into contracts with the DOE for high-level waste disposal in
accordance with the NWPA. Under these contracts and the NWPA, the DOE was
required to take title to and dispose of the Seabrook Projects high-level
waste beginning no later than January 31, 1998. The DOE has not met its
contractual and statutory requirements under the NWPA calling for the DOE to
begin accepting spent fuel from the industry by January 1998. The DOE announced
that its first high-level waste repository will not be in operation until 2010
at the earliest.

As a result of this delay, many states and nuclear plant operators,
including NAESCO, sued the DOE for injunctive relief and monetary damages. Two
U.S. Courts of Appeals ordered the DOE to proceed with its high-level waste
disposal obligations and ruled that plant operators are entitled to monetary
damages from DOE. However, there can be no assurance that the Seabrook Project
will collect damages from the DOE because, among other things, NAESCOs case
against the DOE is still pending. Until the DOE begins receiving nuclear waste
materials in accordance with the NWPA and its contracts, nuclear plants such as
Seabrook must retain high-level waste on-site or make other storage provisions.
In addition, NAESCO has advised the Company that the Seabrook Project has
adequate on-site storage capacity for high-level waste until approximately
2008.

In May 2001, the DOE issued a supplement to the 1999 draft Environmental
Impact Statement of Yucca Mountain in Nevada, and public hearings on this
document were held in mid-2001. On February 14, 2002, the DOE recommended to
President Bush that Yucca Mountain in Nevada be developed as the nations first
long-term geologic repository for the disposal of spent nuclear fuel high-level
nuclear waste. On February 15, 2002 the President notified Congress that he
considers Yucca Mountain qualified for a construction permit application,
taking the next in a series of steps required for approving the site as a
nuclear materials repository.

The Low-Level Radioactive Waste Policy Act of 1980 requires each state to
provide disposal facilities for low-level waste (LLW) generated within the
state, either by constructing and operating facilities or by joining regional
compacts with other states to jointly fulfill their responsibilities. However,
the Low-Level Radioactive Waste Policy Amendments Act of 1985 permits each
state in which a currently operating disposal facility is located (South
Carolina, Nevada and Washington) to impose volume limits and a surcharge on
shipments of LLW from states that are not members of their regional compact.

The Seabrook Project ships certain LLW to privately owned facilities in
South Carolina and Utah. Since 1999, the Project has been shipping LLW to a
processing facility in Tennessee where the material is subjected to separation
and volume reduction methods to minimize the final volume to be disposed at a
burial site. All LLW generated by the Seabrook Project that exceeds the maximum
radioactivity level of LLW accepted by these facilities is currently stored
on-site at the Seabrook facility. LLW from normal Seabrook Project operations
will continue to be generated at a slow rate as a result of aggressive efforts
at the Seabrook Project to minimize this material. NAESCO has advised the
Company that the Seabrook Projects capacity for on-site storage of LLW is
expected to be sufficient to meet the projects storage requirements through
2006.

Decommissioning

NRC licensing requirements and restrictions are also applicable to the
decommissioning of nuclear generating units at the end of their service lives,
and the NRC has adopted comprehensive regulations concerning decommissioning
planning, timing, funding and environmental review. Changes in NRC requirements
or technology can increase estimated decommissioning costs.

Great Bay and Little Bay are responsible for their pro rata share of the
decommissioning and cancellation costs for Seabrook. Great Bay pays its share
of decommissioning funding on a monthly basis. Little Bays share of
decommissioning costs was prefunded by Montaup, the owner of the 2.9% interest
in the Seabrook Project that Little Bay acquired in November 1999. As part of
that acquisition, Montaup transferred approximately $12.4 million into Little
Bays decommissioning account, an irrevocable trust earmarked for Little Bays
share of Seabrook Plant decommissioning expenses.

The Seabrook decommissioning funding schedule is determined by the New
Hampshire Nuclear Decommissioning Financing Committee (the NDFC). The NDFC
reviews the decommissioning funding schedule for the Seabrook Project at least
annually and, for good cause, may increase or decrease the amount of the funds
or alter the funding schedule.

On November 5, 2001, the NDFC issued a Final Report and Order in
proceeding NDFC Docket 2001-1, which established a decommissioning funding
schedule in anticipation of the sale of a majority of the ownership interests
in Seabrook. The NDFC set an accelerated funding schedule for the years 2002
through 2006. For the years 2007 and beyond, the funding schedule assumes
contributions will be made until 2026. The order also established the
requirement for a lump sum top-off payment at closing. The current estimated
cost to decommission the Seabrook Project (based on NDFC Docket 2001-1), is
approximately $555.6 million in 2001 dollars, assuming for decommissioning
funding purposes, a remaining 24-year life for the facility and a future cost
escalation of 5.25%.

Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The

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earnings on the external trusts also accumulate in the fund balance. The
trust funds are restricted for use in paying for the decommissioning of Unit 1.
The investments in the trust are available for sale. Great Bay and Little Bay
have therefore reported their investment in trust fund assets at market value
and any unrealized gains and losses are reflected in equity. There was an
unrealized holding gain of approximately $221,700 as of December 31, 2001.

Although the owners of the Seabrook Project are accumulating funds in an
external trust to defray decommissioning costs, these costs could substantially
exceed the value of the trust fund, and the owners, including Great Bay and
Little Bay, would remain liable for the excess.

In June 1998, the New Hampshire State legislature enacted legislation that
provides that in the event of a default by Great Bay on its payments to the
decommissioning fund, the other Seabrook joint owners would be obligated to pay
their proportional share of such default. As a result of the enactment of this
legislation, the NRC staff found that Great Bay complied with the
decommissioning funding assurance requirements. In July 1998, the staff of the
NRC notified Great Bay of the staffs determination that Great Bay complied
with the decommissioning funding assurance requirements under NRC regulations.

In response to the New Hampshire legislation, Great Bay agreed to make
accelerated payments to the Seabrook decommissioning fund such that Great Bay
will have contributed sufficient funds by the year 2015 to allow sufficient
monies to accumulate, with no further payments by Great Bay to the fund, to the
full estimated amount of Great Bays decommissioning obligation by the time the
current Seabrook operating license expires in 2026. Based on the currently
approved funding schedule and Great Bays accelerated funding schedule, Great
Bays decommissioning payments will be approximately $1.4 million in 2002 and
escalate at 4% each year thereafter through 2015.

On November 15, 1992, Great Bays former parent, EUA, and certain other
parties entered into a settlement agreement. Under the settlement agreement,
EUA guaranteed an amount not to exceed $10 million of Great Bays future
decommissioning costs of Seabrook Unit 1 in the event that Great Bay is unable
to pay its share of such decommissioning costs.

Environmental Regulation

The Seabrook Project, like other electric generating stations, is subject
to standards administered by federal, state and local authorities with respect
to the siting of facilities and associated environmental factors. The United
States Environmental Protection Agency (the EPA), and certain state and local
authorities, have jurisdiction over releases of pollutants, contaminants and
hazardous substances into the environment and have broad authority in
connection therewith, including the ability to require installation of
pollution control devices and remedial actions. The NRC has promulgated a
variety of standards to protect the public from radiological pollution caused
by the normal operation of nuclear generating facilities.

The EPA issued a National Pollutant Discharge Elimination System (NPDES)
permit, valid for a period of five years, to NAESCO on October 30, 1993
authorizing discharges from Seabrook Station into the Atlantic Ocean and the
Browns River in accordance with limitations, monitoring requirements and
conditions specified in the permit. A renewal application was filed in April
1998 and supplemented in August and September of 1998 and in September 1999.
The EPA issued a draft NPDES permit in December 2001. The final permit was
issued in February 2002. The permit indicates that the Seabrook Project water
cooling system represents the best technology available.

On July 26, 1999, the New Hampshire Department of Environmental Services
issued a renewal of NAESCO permits to operate two auxiliary boilers, two
emergency diesel generators and other smaller units in accordance with New
Hampshire Revised Statutes Annotated Chapter 125-C. These permits prescribe
limits of the emission of air pollutants into the ambient air as well as record
keeping and other reporting criteria. Because the liabilities of the
Participants under the JOA are several and not joint, in the event that NAESCO
violates the emissions limits contained in its permits, if at all, Great Bay
and Little Bay will be liable for their pro rata share of any costs and
liabilities assessed for the emissions violations.

In some environmental areas, the NRC and the EPA have overlapping
jurisdiction. Thus, in addition to being subject to NRC regulations, the
Seabrook Project is subject to all conditions imposed by the EPA and a variety
of federal environmental statutes, including obtaining permits for the
discharge of pollutants (including heat, which is discharged by the Seabrook
Project) into the nations navigable waters. In addition, the EPA has
established standards, and is in the process of reviewing existing standards,
for certain toxic air pollutants, including radionuclides, under the United
States Clean Air Act which apply to NRC-licensed facilities. The effective date
for the new EPA radionuclide standard has been stayed as applied to nuclear
generating units. Environmental regulation of the Seabrook Project may result
in material increases in capital and operating costs, delays or cancellation of
construction of planned improvements, or modification or termination of
operation of existing facilities. Management believes that Great Bay and Little
Bay are in compliance in all material respects with applicable EPA, NRC and
other regulations relating to pollution caused by nuclear generating
facilities.

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Equity Investment in HoustonStreet

BayCorp owns a 45.9% equity interest in HoustonStreet. HoustonStreet
developed and operates HoustonStreet.com, an Internet-based, independent crude
oil and refined products trading exchange in the United States.

HoustonStreets crude oil platform includes several trading floors,
organized by grade and location. The platform allows for a user-customized view
where the user can specify which markets should appear together on a floor,
regardless of grade, location or type. HoustonStreets refined products
platform includes several trading floors, organized by commodity, pipeline and
geographic location. Bids and offers are segmented by trading period (month and
cycle) and by grade. Commodities traded include numerous grades of gasoline and
distillates, specifically jet fuel, number 2 heating oil, low sulfur diesel,
regular gas, regular reformulated gas, premium gas and premium reformulated
gas.

On March 30, 2001, HoustonStreet raised approximately $2.9 million in
additional funding, including $450,000 from BayCorp, by selling senior secured
notes, warrants to purchase HoustonStreet preferred stock and warrants to
purchase HoustonStreet common stock. Collectively, these securities are
referred to as the HoustonStreet Series C Units. In April 2001, BayCorp
authorized HoustonStreet to convert BayCorps $7 million loan made in 2000,
along with approximately $1 million in accrued interest and penalties on the
note and past due management fees, into $8 million of Series C Units.

In 2001, HoustonStreet downsized its organization and shut down its
electricity trading platforms, shifting its business focus to its crude oil and
refined products trading platforms. In addition, HoustonStreet intends to
leverage its open architecture in order to integrate trade information with its
customers mid- and back-office applications.

Employees and Management

As of March 15, 2002, BayCorp had 11 employees. Its subsidiaries, Great
Bay and Little Bay, had no employees. As of March 15, 2002, HoustonStreet had
six employees.

BayCorp entered into Management and Administrative Services Agreements
(the Services Agreements) with Great Bay and HoustonStreet. Under the
Services Agreement with Great Bay, BayCorp provides Great Bay with a full range
of management services, including general management and administration,
accounting and bookkeeping, budgeting and regulatory compliance. Great Bay paid
$1,203,600 to BayCorp for these services in 2001. Under the Services Agreement
with HoustonStreet, BayCorp provides HoustonStreet with administrative,
accounting and bookkeeping, budgeting and human resource services.
HoustonStreet paid $165,000 to BayCorp in 2001 for these services. Each
Services Agreement has a one-year term and provides for automatic one-year
renewals.




Item 2.Properties.

BayCorps principal assets include its 100% equity interests in Great Bay
and Little Bay. In turn, Great Bay and Little Bays principal asset is a
combined 15% joint ownership interest in the Seabrook Project. The Seabrook
Project is a nuclear-fueled, steam electricity, generating plant located in
Seabrook, New Hampshire, which was planned to have two Westinghouse pressurized
water reactors, Seabrook Unit 1 and Seabrook Unit 2 (each with a rated capacity
of 1,150 megawatts), utilizing ocean water for condenser coiling purposes.
Seabrook Unit 1 entered commercial service on August 19, 1990. Seabrook Unit 2
has been canceled. See Business  The Seabrook Project. BayCorp has a 45.9%
equity interest in HoustonStreet.

BayCorps corporate headquarters is located in Eliot, Maine where it
occupies approximately 5,000 square feet of office space. BayCorps management
believes that the corporate headquarters in Eliot, Maine meets its current
requirements and that additional space can be obtained to meet requirements for
the foreseeable future.




Item 3.Legal Proceedings.

Not Applicable.




Item 4.Submission of Matters to a Vote of Security Holders.

Not Applicable.

Executive Officers of the Registrant


The executive officers of BayCorp are:

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|                        |  |     |    |          |  |                                                              |  | 
|----------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------ |  | 
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|
|Frank W. Getman Jr.     |  |     | 38 |          |  | Chairman of the Board, Chief Executive Officer and President
|Anthony M. Callendrello |  |     | 50 |          |  | Chief Operating Officer and Secretary                       
|
|Patrycia T. Barnard     |  |     | 46 |          |  | Vice President of Finance and Treasurer                     

Frank W. Getman Jr.has served as Chief Executive Officer and President of
the Company since May 1998. Mr. Getman has served as Chairman of the Board
since May 2000 and has served as Chief Operating Officer of the Company from
September 1996 to March 2000 and Vice President, Secretary and General Counsel
of Great Bay from August 1995 to September 1996. From September 1991 to August
1995, Mr. Getman was an attorney with the law firm of Hale and Dorr LLP,
Boston, Massachusetts. Mr. Getman holds J.D. and M.B.A. degrees from Boston
College and a B.A. in Political Science from Tufts University.

Anthony M. Callendrello hasserved as the Companys Chief Operating
Officer since April 2000 and as the Secretary of the Company since May 2000.
Mr. Callendrello has over 20 years experience in the nuclear industry. With
over 16 years at the Seabrook Project, Mr. Callendrello most recently served as
the plants Manager of Environmental, Government and Owner Relations. From 1980
to 1983, Mr. Callendrello was employed with Stone & Webster Engineering
Corporation, which provided engineer and architect services to utility and
other industries. Mr. Callendrello holds a Master of Engineering  Mechanical
degree and a Bachelor of Engineering degree from Stevens Institute of
Technology.

Patrycia T. Barnardhas served as Vice President of Finance and Treasurer
of the Company since January 2001. Ms. Barnard served as Director of Accounting
since May 1996 and has served as Treasurer since 1998. Ms. Barnard has over 20
years experience in multi-national, corporate accounting and finance. From 1978
until 1993, Ms. Barnard was employed by BTR, Plc., a conglomerate of highly
diversified manufacturing companies, most recently as Assistant Controller for
Clarostat Mfg. Co. Inc., a vertically intergrated electronic manufacturing
company located in Plano, TX and Juarez, Mexico. Ms. Barnard holds an M.B.A and
a Masters in Accounting from New Hampshire College. She also holds a B.S. in
Business Administration from the University of New Hampshire.




PART II




Item 5.Market for Registrants Common Equity and Related Stockholder Matters.

Following are the reported high and low sales prices of BayCorp Common
Stock (MWH) on the American Stock Exchange as reported in the Wall Street
Journal daily as traded, for each quarter of 2000 and 2001:

|     |                |  |      |       |     |  |   |      | 
|---- | -------------- |  | ---- | ----- | --- |  | - | ---- | 
|     |                |  | High |       | Low
|     |                |  |      |       |    
|2000 |                |  |      |       |     |  |   |     
|     | First Quarter  |  | $    | 32.25 |     |  | $ | 9.81 | 
|     | Second Quarter |  |      | 23.75 |     |  |   | 7.13 | 
|     | Third Quarter  |  |      | 12.00 |     |  |   | 7.00 | 
|     | Fourth Quarter |  |      | 11.50 |     |  |   | 5.50 | 

|     |                |  |      |       |     |  |   |      | 
|---- | -------------- |  | ---- | ----- | --- |  | - | ---- | 
|     |                |  | High |       | Low
|     |                |  |      |       |    
|2001 |                |  |      |       |     |  |   |     
|     | First Quarter  |  | $    | 10.00 |     |  | $ | 6.25 | 
|     | Second Quarter |  |      | 11.85 |     |  |   | 7.80 | 
|     | Third Quarter  |  |      | 9.70  |     |  |   | 8.25 | 
|     | Fourth Quarter |  |      | 10.15 |     |  |   | 8.35 | 

As of March 14, 2002, the Company had 28 holders of record of its Common
Stock. The Company believes that as of March 14, 2002, the Company had
approximately 979 beneficial holders of its Common Stock. The number of
beneficial owners substantially exceeds the number of record holders because
many of the Companys stockholders hold their shares in street name. BayCorp
has never paid cash dividends on its common stock. Any future dividends depend
on future earnings, BayCorps financial condition and other factors.




Item 6.Selected Financial Data.

Selected Financial Data



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table presents selected financial data of the Company as
of and for the years ended December 31, 2001, 2000, 1999, 1998 and 1997.
The information below should be read in conjunction with the Managements
Discussion and Analysis of Financial Condition and Results of Operations
and the Companys financial statements, including the notes thereto,
contained elsewhere in this Report.

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SELECTED FINANCIAL DATA
(Dollars in Thousands)

|                                    |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |        |           |           |       |  
|----------------------------------- | ------------- | ------------------- | --------------------- | --------- | --------- | -------------------------------- | ------- | ------ | --------- | --------- | ------- | ------ | --------- | --------- | ------- | ------ | --------- | --------- | ------- | ------ | --------- | --------- | ----- | -
|                                    |               |                     |                       |           |           | For the Years Ended December 31,
|                                    |               |                     |                       |           |           |                                 
|                                    |               |                     |                       |           |           | 2001                             |         | 2000   |           | 1999      |         | 1998   |           | 1997     
|                                    |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |          
|Income Statement Data:              |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |       
|Operating Revenues                  |               | $                   | 79,480                |           |           | $                                | 56,347  |        |           | $         | 45,761  |        |           | $         | 32,034  |        |           | $         | 26,642  |       
|Operating Expenses                  |               |                     | 58,342                |           |           |                                  | 68,518  |        |           |           | 51,085  |        |           |           | 39,570  |        |           |           | 39,073  |       
|Net Income (Loss)                   |               |                     | 20,804                |           |           |                                  | (21,945 | )      |           |           | (4,740  | )      |           |           | (6,769  | )      |           |           | (11,215 | )     
|Weighted Average Shares             |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |       
|                                    |               | Outstanding  Basic |                       |           | 8,341,637 |                                  |         |        | 8,293,475 |           |         |        | 8,207,866 |           |         |        | 8,242,858 |           |         |        | 8,292,534 |          
|Weighted Average Shares             |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |       
|                                    |               |                     | Outstanding  Diluted |           |           | 8,556,994                        |         |        |           | 8,293,475 |         |        |           | 8,207,866 |         |        |           | 8,242,858 |         |        |           | 8,292,534 |      
|Basic Net Income (Loss)             |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |       
|                                    |               |                     |                       | per share |           | $                                | 2.49    |        |           | $         | (2.65   | )      |           | $         | (0.58   | )      |           | $         | (0.82   | )      |           | $         | (1.35 | )
|Diluted Net Income (Loss)           |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |       
|                                    |               |                     |                       | per share |           | $                                | 2.43    |        |           | $         | (2.65   | )      |           | $         | (0.58   | )      |           | $         | (0.82   | )      |           | $         | (1.35 | )
|Balance Sheet Data:                 |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |       
|Cash, Cash Equivalents & Short Term |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |       
|                                    | Investments   |                     |                       | 17,181    |           |                                  |         | 14,109 |           |           |         | 6,064  |           |           |         | 12,055 |           |           |         | 19,092 |          
|Working Capital                     |               |                     | 22,411                |           |           |                                  | 283     |        |           |           | 11,678  |        |           |           | 17,761  |        |           |           | 23,079  |       
|Total Assets                        |               |                     | 173,971               |           |           |                                  | 155,355 |        |           |           | 159,184 |        |           |           | 140,358 |        |           |           | 140,158 |       
|Decommissioning Liability           |               |                     | 85,523                |           |           |                                  | 73,379  |        |           |           | 79,443  |        |           |           | 60,274  |        |           |           | 55,846  |       
|Capitalization:                     |               |                     |                       |           |           |                                  |         |        |           |           |         |        |           |           |         |        |           |           |         |       
|                                    | Common Equity |                     |                       | 73,421    |           |                                  |         | 51,931 |           |           |         | 66,246 |           |           |         | 71,359 |           |           |         | 78,139 |          
|Total Capitalization                |               |                     | 73,421                |           |           |                                  | 51,931  |        |           |           | 66,246  |        |           |           | 71,359  |        |           |           | 78,139  |       




Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.

Overview

BayCorp derives all of its revenue through its energy trading activities
and its 100% equity interest in Great Bay and Little Bay. Great Bay and Little
Bay are electricity generating companies whose principal asset is a combined
15% joint ownership interest in the Seabrook Nuclear Power Project in Seabrook,
New Hampshire. As of December 31, 1999, the Company owned 100% of
HoustonStreet. HoustonStreet raised additional equity in 2000 from outside
investors and as a result, as of December 4, 2000, the Companys ownership fell
below 50%, to 45.9%. Subsequently, the Company deconsolidated HoustonStreet as
of December 4, 2000, started accounting for this investment on the equity
method and suspended recognition of additional HoustonStreet losses as of that
date. Prior to the deconsolidation, the Company recognized HoustonStreet
operations in consolidated financial statements.

BayCorp reported net income for the year ended December 31, 2001 and
reported net losses for the years ended December 31, 2000, 1999, 1998 and 1997.
The net income in 2001 was primarily attributable to increased revenues and the
realized gain in 2001 on firm forward energy trading contracts. The 2000 net
loss was primarily attributable to the non-cash charge to earnings for
unrealized losses on firm forward trading contracts and the costs associated
with a Seabrook refueling outage during the final ten weeks of 2000 as well as
the loss associated with the Companys equity investment in HoustonStreet. The
1999 net loss was primarily due to costs associated with the refueling outage
during the fall of 1999 and to HoustonStreet losses. The 1998 net loss was
primarily due to the costs associated with the unscheduled outages at the
Seabrook Project that occurred during the year and to the charge related to the
termination of a power marketing agreement between Great Bay and PECO Energy
Company. The 1997 net loss was primarily due to costs associated with the
scheduled and unscheduled outages at the Seabrook Project that occurred during
that year.

The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. BayCorp incurs losses during outage periods due to the
loss of all revenues from the sale of generation and additional costs
associated with the outages as well as continuing operating and maintenance
expenses and depreciation. Unscheduled outages or operation of the unit at
reduced capacity can occur due to the automatic operation of safety systems
following the detection of a malfunction. In addition, it is possible for the
unit to be shut down or operated at reduced capacity based on the results of
scheduled and unscheduled inspections and routine surveillance by Seabrook
Project personnel. It is not possible for BayCorp to predict the frequency or
duration of any future unscheduled outages; however, it is likely that such
unscheduled outages will occur. Refueling outages are generally scheduled every
18 months depending upon the Seabrook Project capacity factor and the rate at
which the nuclear fuel is consumed. There was no refueling outage in 2001. The
Seabrook Project conducted a refueling outage in 2000, which began on October
21, 2000. This refueling outage was scheduled for approximately 30 days,
however due to unexpected mechanical problems, the Seabrook Project did not
return to full power until February 1, 2001. The next refueling outage is
scheduled to begin in May 2002.

The following discussion focuses solely on operating revenues and
operating expenses that are presented in a substantially consistent manner for
all of the periods presented.

Results of Operations

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Operating Revenues

BayCorps operating revenues for 2001 increased by approximately
$23,100,000, or 41.1%, to $79,480,000 as compared to $56,347,000 for 2000. The
increase was attributable to several factors. The capacity factor at the
Seabrook Project was 85.8% of the rated capacity for the twelve months ended
December 31, 2001 as compared to a capacity factor of 78% for the twelve months
ended December 31, 2000. Operating revenues and capacity factor were adversely
impacted in 2000 and 2001 by the scheduled refueling outage at the Seabrook
Project that began on October 21, 2000. A return to full power was expected on
November 21, 2000. The outage was extended when damage to one of the plants
emergency diesel generators occurred, requiring an extensive repair effort. The
Seabrook Project returned to full power on February 1, 2001. The Company
purchased a significant amount of power to cover firm contracts, primarily due
to this refueling outage, and also purchased power for resale in 2001, thus
increasing revenues. Purchased power expenses for the twelve months ended
December 31, 2001 were approximately $27,008,000 as compared to approximately
$13,270,000 for the twelve months ended December 31, 2000 primarily due to
increased power purchases. Increases in capacity factor and purchased power
increased sales of electricity by approximately 27.6% to 1,854,967,500 kWhs in
2001 as compared to 1,453,263,900 kWhs in 2000.

The Company also realized a higher average selling price in 2001. During
the twelve months ended December 31, 2001, the average selling price increased
10.9% to 4.29 cents per kWh as compared to an average selling price of 3.87
cents per kWh for the twelve months ended December 31, 2000.

Great Bays cost of power (determined by dividing total operating expenses
by kWhs sold during the applicable period) decreased 33% to 3.14 cents per kWh
in 2001 as compared to 4.71 cents per kWh in 2000. This decrease was primarily
the result of increased kWhs sold in 2001 and lower operating expenses due to
realized gains on firm forward contracts of approximately $12,879,000 in 2001
as compared to higher operating expenses in 2000 due to unrealized losses on
firm forward contracts of approximately $12,232,000 in 2000.

BayCorps operating revenues for 2000 increased by approximately
$10,586,000, or 23.1%, to $56,347,000 as compared to $45,761,000 for 1999. This
increase was primarily attributable to increases in selling prices in 2000 as
compared to 1999. During 2000, the sales price per kWh increased 23% to 3.87
cents per kWh as compared with 3.13 cents per kWh in 1999. Sales of electricity
decreased slightly by approximately 0.2% to 1,453,263,900 kWhs in 2000 as
compared to 1,457,110,270 kWhs in 1999. The 2000 capacity factor at the
Seabrook Project was 78% of the rated capacity as compared to a capacity factor
of 85.6% for 1999. Operating revenues and capacity factor were adversely
impacted in 2000 by the scheduled refueling outage at the Seabrook Project that
began on October 21, 2000 as mentioned above. Operating revenues and capacity
factor were adversely impacted in 1999 by the scheduled refueling outage that
began on March 27, 1999. Great Bay purchased approximately 262,409,300 kWhs for
resale in 2000 primarily to cover firm contracts during the extended outage in
the fourth quarter.

Great Bays cost of power increased 34.2% to 4.71 cents per kWh in 2000 as
compared to 3.51 cents per kWh in 1999. This increase was primarily the result
of the expense associated with the unrealized losses on firm forward contracts
of approximately $12.2 million in 2000 as compared to $806,000 in 1999.

Expenses

BayCorps total operating expenses for 2001 decreased approximately
$10,176,000, or 14.9%, in comparison with 2000. This decrease was primarily the
result of the non-cash charge to earnings for unrealized gains/losses on firm
energy trading contracts. In 2001, the Company realized gains on firm forward
energy trading contracts of $12,879,000 and total operating expenses were
reduced by this amount. In 2000, total operating expenses were higher because
the Company recorded unrealized losses on firm forward energy trading contracts
of $12,232,000. As of December 31, 2000, the company held numerous firm forward
energy trading contracts to deliver power in 2001. The Company had no firm
forward energy trading contracts as of December 31, 2001, nor does it expect to
in 2002, in light of its expected sale of its ownership interest in the
Seabrook Project in late 2002.

Production and transmission costs decreased approximately $654,000, or
2.5%, from $26,089,000 in 2000 to $25,435,000 in 2001. Purchased power expenses
increased approximately $13,738,000, or 103%, from $13,270,000 in 2000 to
$27,008,000 in 2001. This increase was primarily attributable to the extended
duration of the 2000 refueling outage that began on October 21, 2000. A return
to full power was expected on November 21, 2000. The outage was extended when
damage to one of the plants emergency diesel generators occurred, requiring an
extensive repair effort. The Seabrook Project returned to full power on
February 1, 2001. In order to cover some of its firm energy contracts and to
secure cash to cover some of its operating costs in the first half of 2001,
Great Bay executed a Purchase Power Agreement with Select in February 2001
whereby Great Bay sold 50 MWs of energy associated with Seabrook to Select in
exchange for 25 MWs of energy associated with Millstone Unit 2 and 25 MWs of
energy associated with Millstone Unit 3. The term of this agreement was April
1, 2001 through December 31, 2001. See Business  Purchased Power Agreements.

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Administrative and general expenses increased approximately $2,947,000, or
42.5%, from $6,923,000 in 2000 to $9,870,000 in 2001. This increase was
primarily attributable to costs associated with employee turnover and
retirements at the Seabrook Project in 2001 and a bad debt expense of
$1,100,000 to establish a reserve for bad debts specific to Enron. See Recent
Developments. There was no similar charge in 2000.

Depreciation and amortization charges decreased approximately $429,000, or
10.3%, from $4,159,000 in 2000 to $3,730,000 in 2001. This decrease was
primarily due to a reduction in fixed asset values. Taxes other than income
decreased $422,000, or 10.7%, from $3,938,000 in 2000 to $3,516,000 in 2001.
This decrease was due to the continued reduction in Seabrook property taxes
resulting from prior year negotiations between the management of the Seabrook
Project and the towns of Seabrook, Hampton and Hampton Falls, New Hampshire to
reduce the assessed value of the Seabrook Project.

Decommissioning cost accretion decreased $372,000, or 10.2%, to $3,261,000
in 2001 as compared to $3,633,000 in 2000. This accretion is a non-cash charge
that reflects Great Bays liability related to the closure and decommissioning
of the Seabrook Project in current year dollars over the licensing period
during which the Seabrook Project is licensed to operate. Decommissioning trust
fund income decreased $127,000, or 7.4%, to $1,599,000 in 2001 as compared to
$1,726,000 in 2000. The decrease in interest earned on the decommissioning
trust fund reflected the lower rates of returns on investments.

Interest and dividend income decreased approximately $642,000, or 55.2%,
from $1,162,000 in 2000 to $520,000 in 2001, primarily due to lower average
monthly cash balances and lower interest rates in 2001 as compared 2000.
Although the Companys cash balance at December 31, 2001 of $17,181,000 was
approximately 55% greater than its cash balance at December 31, 2000, the
Companys cash balance during the first half of 2001 was adversely affected by
the late 2000 and early 2001 outage and was favorably affected by strong
operations at Seabrook during the second half of 2001.

Equity loss in BayCorps HoustonStreet investment was $11,077,000 in 2000
as compared to $450,000 in 2001. As of December 31, 1999, the Company owned
100% of HoustonStreet. The Company recognized its ownership share of
HoustonStreets losses of $3,396,000 in 1999. As a result of its capital
raising activities in 2000, on December 4, 2000 HoustonStreet sold an amount of
its own stock such that BayCorp no longer had majority ownership in or control
over HoustonStreet. The Company deconsolidated HoustonStreet, and started
accounting for this investment on the equity method effective for the full year
ended December 31, 2000. The Companys equity method investment upon
deconsolidation was negative (HoustonStreets losses exceeded the Companys
investment in HoustonStreet) and the Company wrote its investment to zero. As
a result, an equity loss in investment of $11,077,000 was reflected in the
Companys financial statements for 2000.

Other income (deductions) decreased approximately $932,000, to a net
deduction in 2001 of $179,000 as compared to other income in 2000 of $753,000.
This decrease in other income is primarily due to lower administrative fees
charged to HoustonStreet in 2001 as compared to 2000 and fewer sales of
miscellaneous Unit 2 equipment at Seabrook in 2001 as compared to 2000.

BayCorps total operating expenses for 2000 increased approximately
$17,433,000, or 34.1%, in comparison with 1999. This increase was primarily the
result of the non-cash charge to earnings for unrealized losses on firm energy
trading contracts. Unrealized losses for firm energy trading contracts were
$12,232,000 for 2000 as compared to $806,000 for 1999. Production costs
increased approximately $6,800,000, or 37.3%, from $18,220,000 in 1999 to
$25,016,000 in 2000. This increase was primarily the result of the Companys
increased ownership in the Seabrook Project, from approximately 12.1% for the
first eleven months of 1999 to approximately 15% for December 1999 and all of
2000. In addition, the increase in operating expenses in 2000 as compared to
1999 was attributable to the costs associated with the extended refueling
outage in the fourth quarter of 2000. Purchased power expenses increased
approximately $1,000,000, or 8.5%, from $12,232,000 in 1999 to $13,270,000 in
2000. This increase was primarily attributable to an increase in the purchase
price of power in 2000 as compared to 1999.

Administrative and general expenses decreased approximately $2,368,000, or
25.5%, from $9,291,000 in 1999 to $6,923,000 in 2000. This decrease was
primarily due to the deconsolidation of HoustonStreet in 2000. In 1999,
approximately $2,585,000 of HoustonStreet administrative and general expenses
were included in the consolidated financial statement. In 2000, the Company
accounted for HoustonStreet on the equity method. Depreciation and
amortization increased approximately $49,000, or from $4,110,000 in 1999 to
$4,159,000 in 2000. Taxes other than income increased approximately $949,000,
or 31.7%, from $2,989,000 in 1999 to $3,938,000 in 2000. In addition to
expenses increasing as a result of the Companys increased ownership in the
Seabrook Project, Great Bay also received a property tax refund in 1999 as
settlement for changes in assessed property values.

Decommissioning cost accretion increased $313,000, or 9.4%, to $3,633,000
in 2000 as compared to $3,320,000 in 1999. Decommissioning trust fund income
increased $971,000, or 128%, to $1,726,000 in 2000 as compared to $755,000 in
1999. The increase in interest earned on the decommissioning trust fund
reflected the higher 2000 fund balances as Great Bay continued to make
contributions to the Great Bay decommissioning trust fund and the addition of
the Little Bay decommissioning trust funds in 2000.

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Interest and dividend income increased approximately $611,000, or 111%,
from $551,000 in 1999 to $1,162,000 in 2000, primarily due to higher average
cash balances during 2000 as compared to 1999. Other Income increased
approximately $879,000, to $753,000 in 2000 as compared to ($126,000) in 1999,
primarily due to miscellaneous sales of Unit 2 equipment at Seabrook.

Net Operating Losses

For federal income tax purposes, as of December 31, 2001, the Company had
net operating loss carry forwards (NOLs) of approximately $208 million, which
are scheduled to expire between 2004 and 2019. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $115 million of these carryforwards. The
Companys best estimate at this time is that the annual limitation on the use
of $115 million of the Companys NOLs is approximately $5.5 million per year.
Any unused portion of the $5.5 million annual limitation applicable to the
Companys restricted NOLs is available for use in future years until such
NOLs are scheduled to expire. The Companys other $93 million of NOLs are not
currently subject to such limitations.

Liquidity and Capital Resources

BayCorps subsidiary, Great Bay, currently sells most of its power in the
Northeast United States short-term wholesale power market. The cash generated
from electricity sales by Great Bay was sufficient to meet the Companys
ongoing cash requirements in 2001. If the Seabrook Project operates at a
capacity factor below historical levels, or if expenses associated with the
ownership or operation of the Seabrook Project, including without limitation
decommissioning costs, are materially higher than anticipated, or if the prices
at which Great Bay is able to sell its share of the Seabrook Project
electricity decrease from current price levels, BayCorp or Great Bay would be
required to raise additional capital, either through a debt financing or an
equity financing, to meet ongoing cash requirements. Nonetheless, there can be
no assurance that BayCorp or Great Bay will be able to raise additional capital
on acceptable terms or at all.

On January 4, 2002, BayCorp reported that Great Bay received notice on
December 21, 2001 from Enron that Enron was terminating it contracts with Great
Bay. Enron owes Great Bay $1,075,200 for power delivered prior to Enrons
Chapter 11 bankruptcy filing on December 2, 2001. Great Bay also had an
administrative claim against Enron of $684,100 for power delivered between
December 2, 2001 and December 21, 2001 and an unliquidated claim for damages
resulting from the termination of the contracts. Enron paid $684,100 to Great
Bay on February 21, 2002. During the fourth quarter of 2001, BayCorp recorded
an expense of $1,100,000 to establish a reserve for doubtful accounts due to
the uncertainty of collecting remaining amounts owed by Enron to Great Bay for
power delivered prior to Enrons Chapter 11 bankruptcy filing.

On February 6, 2001, Great Bay executed a Purchase Power Agreement with
Select whereby Great Bay sold 50 MWs of energy associated with Seabrook to
Select in exchange for 25 MWs of energy associated with Millstone Unit 2 and 25
MWs of energy associated with Millstone Unit 3. The term of this agreement was
April 1, 2001 through December 31, 2001. Delivery of power from either company
was contingent on each of the units operating at certain capacity.

As part of the agreement, Select made a prepayment of $3.7 million to
Great Bay in February 2001 and a second prepayment of $3.3 million in March
2001. Great Bay compensated Select for the prepayments by (i) paying 12% annual
interest for the period from February 6, 2001 through March 31, 2001 and (ii)
giving Select a price differential for the power being exchanged until such
time as the Select prepayment has been repaid. In order to collateralize the
transaction, Great Bay and Little Bay each provided Select with a mortgage lien
and security interest in their respective interests in the Seabrook Project.
Great Bay repaid Select in 2001 and the mortgage liens and security interests
were released as of July 2001. There was no price differential in exchanging
power throughout the remaining term of the agreement.

The Companys principal asset available to serve as collateral for
borrowings is Great Bays and Little Bays combined 15% interest in the
Seabrook Project. Pursuant to a purchased power agreement, dated as of April 1,
1993, between Great Bay and UNITIL, Great Bays interest in the Seabrook
Project is encumbered by a mortgage. This mortgage is subject and subordinate
to up to $80 million of senior secured financing and certain other mortgages.

BayCorps total cash and short-term investments increased approximately
$3,100,000 during 2001. The principal factor affecting liquidity during 2001
was the Companys net income of $20,804,000 reduced by the non-cash credit to
income, realized gain on forward firm energy trading contracts, of
approximately $12,879,000. Other non-cash charges to income included $3,272,000
for depreciation and amortization, $4,140,000 for nuclear fuel amortization,
$3,261,000 for decommissioning cost accretion and compensation expense of
approximately $358,000 for the variable accounting of certain employee stock
options that were repriced in December 1998. In addition, there was an
increase in miscellaneous liabilities of approximately $4,441,000 primarily due
to the monthly accrual for outage costs estimated for the May 2002 refueling
outage. Offsetting these non-cash charges to income were cash

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charges including approximately $1,284,000 for decommissioning interest.
There was an approximate $3,160,000 increase in accounts receivable. This
increase was primarily due to higher sales in December 2001 as compared to
December 2000 when there was a refueling outage at the Seabrook Project. In
addition, there was an approximate $6,580,000 decrease in accounts payable
primarily due to higher accounts payable for purchased power in December 2000
as compared to December 2001. Other cash charges included approximately
$1,789,000 for capital expenditures and $5,017,000 for nuclear fuel.

Great Bays 2001 decommissioning payments totaled approximately
$2,617,000. The decommissioning funding schedule is determined by the NDFC,
which reviews the schedule for the Seabrook Project at least annually. Great
Bay expects to use revenues from the sale of power to make decommissioning
payments. See Business  Decommissioning.

BayCorp received approximately $423,000 in 2001 from the exercise of
options to purchase 67,000 shares of BayCorp common stock by former employees
of the Company. Also in 2001, BayCorp invested $450,000 in cash in
HoustonStreet. This amount was recorded as an equity loss in HoustonStreet for
2001 and net income for 2001 was reduced by $450,000.

Great Bay anticipates that its share of the Seabrook Projects capital
expenditures for the 2002 fiscal year will total approximately $5.3 million for
nuclear fuel and various capital projects. In addition, Great Bay is required
under the JOA to pay its share of Seabrook Unit 1 and Seabrook Unit 2 expenses,
including, without limitation, operation and maintenance expenses, construction
and nuclear fuel expenditures and decommissioning costs, regardless of the
level of Seabrook Unit 1s operations.

In October 2000, the Company announced that it reached an agreement with
Northeast Utilities (NU) under which the Companys generating subsidiaries,
Great Bay and Little Bay, will include their aggregate 15% ownership share of
the Seabrook Project in the current auction of NUs subsidiaries shares of the
Seabrook Project. Under the terms of the agreement, BayCorp will receive the
sales price established by the auction process. In the event that the sale
yields proceeds for BayCorp of more than $87.2 million, BayCorp and NU will
share the excess proceeds. Should BayCorps sales proceeds be less than $87.2
million, NU will make up the difference below that amount on a dollar for
dollar basis up to a maximum of $17.4 million. Under the agreement, BayCorp
will be paid separately for nuclear fuel and inventory. The agreement also
limits any top-off amount required to be funded by BayCorp for decommissioning
as part of the sale process at the amount required by the Nuclear Regulatory
Commission (NRC) regulations. The auction began in the last quarter of 2001
with a closing expected in the last quarter of 2002.

Certain Factors That May Affect Future Results

This Annual Report contains forward-looking statements. For this purpose,
any statements contained in this report that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words believes, anticipates, plans, expects, intends
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the results of BayCorp
and/or its subsidiaries to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those
set forth below and elsewhere in this report.

History of Losses.BayCorp reported operating income for 2001. Prior to
2001, BayCorp had never reported an operating profit for any year since its
incorporation. Until 2001, electricity sales at short-term rates have not
resulted in sufficient revenue to enable BayCorp to meet its cash requirements
for operations, maintenance and capital related costs. In addition, and despite
recently increasing prices for electricity in the northeast United States,
there can be no assurance that Great Bay or Little Bay will be able to sell
power at prices that will enable them to meet their cash requirements.

Liquidity Need.As of December 31, 2001, BayCorp had approximately
$17,100,000 in cash and cash equivalents, restricted cash and short-term
investments. The Company believes that such cash, together with the anticipated
proceeds from the sale of electricity by Great Bay and Little Bay, will be
sufficient to enable the Company and its wholly owned subsidiaries to meet
their cash requirements in 2002. However, if in 2002, the Seabrook Project
operates at a capacity factor below historical levels, or if expenses
associated with the ownership or operation of the Seabrook Project, including
without limitation decommissioning costs, costs associated with the May 2002
scheduled refueling outage and costs associated with the sale of the Seabrook
Project, are materially higher than anticipated, or if the prices at which
Great Bay and Little Bay are able to sell their share of the Seabrook Project
electricity decrease from current price levels, the Company or its wholly-owned
subsidiaries would be required to raise additional capital, either through a
debt financing or an equity financing, to meet ongoing cash requirements. In
that event, the Company and its wholly owned subsidiaries would likely need to
raise additional capital from outside sources. There is no assurance that the
Company or its subsidiaries would be able to raise such capital or that the
terms on which any additional capital is available would be acceptable. If
additional funds are raised by issuing equity securities, dilution to then
existing stockholders will result.

Primary Reliance on a Single Asset.BayCorps principal source of revenue
is its wholesale electricity generation and trading business, which depends in
large part on Great Bay and Little Bays 15% combined joint interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire. Accordingly,
BayCorps results of operations significantly depend on the successful and

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continued operation of the Seabrook Project. In particular, if the
Seabrook Project experiences unscheduled outages of significant duration,
BayCorps results of operations will be materially adversely affected.

Risks Associated with Agreement to Sell Seabrook Ownership Interests.On
October 10, 2000, the Company, Great Bay and Little Bay entered into an
agreement with Northeast Utilities (NU) under which Great Bay and Little Bay
will join with NU in the sale of NUs ownership interests in the Seabrook
Project. Under the terms of the agreement, BayCorp will receive the sales price
established by an auction process led by NU. Although the auction process began
in the last quarter of 2001 with a closing expected in the last quarter of
2002, the Company cannot control the procedure or timing of the joint sale of
the Seabrook Project, and the sale may be delayed, abandoned or otherwise
affected by factors beyond the Companys control. Significantly, the price
obtained by Great Bay and Little Bay in the sale of their Seabrook interests
cannot be predicted. Further, the value of the fuel and inventory owned by
Great Bay and Little Bay, currently estimated at between $10 million to $14
million, may be materially different than estimated.

Changes in the New England Wholesale Power Market.During recent years in
New England, the combination of (1) small increases in the demand for
electricity and (2) electric industry deregulation has resulted in increased
uncertainty regarding the price of electricity in the wholesale power market.
Although Great Bays average selling price per kWh (determined by dividing
total sales revenue by the total number of kWhs sold in the applicable period)
increased from 3.13 cents in 1999 to 3.87 cents in 2000 and to 4.29 cents in
2001, there can be no assurance that Great Bay or Little Bay will be able to
sell their power at these prices or higher prices in the future.

Risks in Connection with Joint Ownership of Seabrook Project.Great Bay
and Little Bay are required under the JOA to pay their share of Seabrook Unit 1
and Seabrook Unit 2 expenses, including without limitation operations and
maintenance expenses, construction and nuclear fuel expenditures and
decommissioning costs, regardless of Seabrook Unit 1s operations. Under
certain circumstances, a failure by Great Bay or Little Bay to make their
monthly payments under the JOA entitles certain other joint owners of the
Seabrook Project to purchase Great Bay or Little Bays interest in the Seabrook
Project for 75% of the then fair market value thereof.

In addition, the failure to make monthly payments under the JOA by owners
of the Seabrook Project other than Great Bay and Little Bay may have a material
adverse effect on the Company. For example, Great Bay or Little Bay could opt
to pay a greater proportion of the Seabrook Project expenses in order to
preserve the value of their share of the Seabrook Project. In the past, certain
of the owners of the Seabrook Project other than Great Bay and Little Bay have
not made their full respective payments. The electric utility industry is
undergoing significant changes as competition and deregulation are introduced
into the marketplace. If a Participant other than Great Bay or Little Bay filed
for bankruptcy and that Participant was unable to pay its share of Seabrook
Project expenses, Great Bay or Little Bay might opt to pay a greater portion of
Seabrook Project expenses in order to preserve the value of their share of the
Seabrook Project. In the past, the filing of bankruptcy by a Participant has
not resulted in a failure to pay Seabrook Project expenses or an increase in
the percentage of expenses paid by other Participants.

The Seabrook Project is owned by Great Bay, Little Bay and the other
owners thereof as tenants in common, with the various owners holding varying
ownership shares. This means that Great Bay and Little Bay, which together own
only a 15% interest, do not have control of the management of the Seabrook
Project. As a result, decisions may be made affecting the Seabrook Project
notwithstanding Great Bay and/or Little Bays opposition.

Certain costs and expenses of operating the Seabrook Project or owning an
interest therein, such as certain insurance and decommissioning costs, are
subject to increase or retroactive adjustment based on factors beyond the
control of BayCorp or its subsidiaries. The cost of disposing of Unit 2 of the
Seabrook Project is not known at this time. These various costs and expenses
may adversely affect BayCorp, Great Bay and Little Bay, possibly materially.

Extensive Government Regulation.The Seabrook Project is subject to
extensive regulation by federal and state agencies. In particular, the Seabrook
Project, and Great Bay and Little Bay as part owners of a licensed nuclear
facility, are subject to the broad jurisdiction of the NRC, which is empowered
to authorize the siting, construction and operation of nuclear reactors after
consideration of public health and safety, environmental and antitrust matters.
Great Bay and Little Bay are also subject to the jurisdiction of the FERC and,
as a result, are required to file with FERC all contracts for the sale of
electricity. FERCs jurisdiction also includes, among other things, the sale,
lease, merger, consolidation or other disposition of facilities,
interconnection of certain facilities, accounts, service and property records.
Noncompliance with NRC requirements may result, among other things, in a
shutdown of the Seabrook Project.

The NRC has promulgated a broad range of regulations affecting all aspects
of the design, construction and operation of a nuclear facility, such as the
Seabrook Project, including performance of nuclear safety systems, fire
protection, emergency response planning and notification systems, insurance and
quality assurance. The NRC retains authority to modify, suspend or withdraw
operating licenses, such as the license pursuant to which the Seabrook project
operates, at any time that conditions warrant. For example, the NRC might order
Seabrook Unit 1 shut down (i) if flaws were discovered in the construction or
operation of Seabrook Unit 1, (ii) if

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problems developed with respect to other nuclear generating plants of a
design and construction similar to Unit 1, (iii) if accidents at other nuclear
facilities suggested that nuclear generating plants generally were less safe
than previously believed or (iv) if security measures activated immediately
after the attacks of September 11, 2001, or as a result of the NRCs safety
order on February 25, 2002, were deemed insufficient or inadequate.

Risk of Nuclear Accident.Nuclear reactors have been used to generate
electric power for more than 35 years and there are currently 103 nuclear
reactors operating for electric power generation in the United States. Although
the safety record of these nuclear reactors in the United States generally has
been very good, accidents and other unforeseen problems have occurred both in
the United States and elsewhere, including the well-publicized incidents at
Three Mile Island in Pennsylvania and Chernobyl in the former Soviet Union. The
consequences of such an accident can be severe, including loss of life and
property damage, and the available insurance coverage may not be sufficient to
pay all the damages incurred.

Risk of Terrorist Attack.With continued uncertainty about the
possibility of additional terrorist activities in the United States, the
Nations nuclear power plants, including the Seabrook Project, remain at a high
level of security. On February 25, 2002, the NRC issued an order to all nuclear
plant licensees, requiring them to take certain additional interim compensatory
measures to address the generalized high-level threat environment. These
additional compensatory requirements will provide the NRC with reasonable
assurance that public health and safety and the common defense and security
continue to be adequately protected in the current generalized high-level
threat environment. These requirements will remain in effect pending
notification from the NRC that a significant change in the threat environment
occurs, or until the NRC determines that other changes are needed following a
more comprehensive reevaluation of current safeguards and security programs.
Compliance with these requirements will result in additional incremental
operating and capital costs. Should additional security measures be required by
the NRC, additional operating or capital costs could be incurred at the
Seabrook Project. These costs could be substantial. The consequences of a
terrorist attack could be severe, including loss of life and property damage,
and the available insurance coverage may not be sufficient to pay all the
damages incurred.

Waste Disposal; Decommissioning Cost.There has been considerable public
concern and regulatory attention focused upon the disposal of low- and
high-level nuclear wastes produced at nuclear facilities and the ultimate
decommissioning of such facilities. As to waste disposal concerns, both the
federal government and the State of New Hampshire are currently delinquent in
the performance of their statutory obligations.

The joint owners of the Seabrook Project, through their managing agent
NAESCO, entered into contracts with the DOE for high-level waste disposal in
accordance with the NWPA. Under these contracts and the NWPA, the DOE was
required to take title to and dispose of the Seabrook Projects high-level
waste beginning no later than January 31, 1998. The DOE has not met its
contractual and statutory requirements under the NWPA calling for the DOE to
begin accepting spent fuel from the industry by January 1998. The DOE announced
that its first high-level waste repository would not be in operation until 2010
at the earliest.

The Seabrook Project increased its on-site storage capacity for low-level
waste (LLW) in 1996 and that capacity is expected to be sufficient to meet
the Projects storage requirements through 2006. In addition, the managing
agent of the Seabrook Project has advised the Joint Owners that the Seabrook
Project has adequate on-site storage capacity for high-level waste until
approximately 2008. If the Seabrook Project were unable to store nuclear waste
on site or make other disposal provisions, the Companys business, results of
operations and financial condition would be materially and adversely affected.
See Business  Nuclear Waste Disposal.

As to decommissioning, NRC regulations require that upon permanent
shutdown of a nuclear facility, appropriate arrangements for full
decontamination and decommissioning of the facility be made. These regulations
require that during the operation of a facility, the owners of the facility
must set aside sufficient funds to defray decommissioning costs. While the
owners of the Seabrook Project are accumulating monies in a trust fund to
defray decommissioning costs, these costs could substantially exceed the value
of the trust fund, and the owners (including Great Bay and Little Bay) would
remain liable for the excess. Moreover, the amount that is required to be
deposited in the trust fund is subject to periodic review and adjustment by an
independent commission of the State of New Hampshire, which could result in
material increases in such amounts.

Risks Related to HoustonStreet.HoustonStreets revenues depend on
continued and expanded use of Internet-based wholesale energy trading
platforms. Electronic trading of wholesale energy is new and evolving, and thus
may not achieve widespread market acceptance or emerge as a sustainable
business. In addition, HoustonStreet will need to enhance trading liquidity in
order to increase and sustain revenues. As a technology dependent business,
HoustonStreets business could suffer due to computer or communications systems
interruptions or failures, technological change or adverse competitive
developments. Further, as electronic commerce evolves, federal, state and
foreign agencies could adopt regulations covering issues such as user privacy,
content and taxation of products and services. If enacted, government
regulations could materially adversely affect HoustonStreets business.
Although HoustonStreet currently is not aware that it infringes any other
patents, it is possible that HoustonStreets technology infringes patents held
by third parties. If HoustonStreet were to be found infringing, the owner of
the patent could sue HoustonStreet for damages, prevent

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HoustonStreet from making, selling or using the owners patented
technology or could impose substantial royalty fees for those privileges. If
any of the foregoing risks materialize, or other risks develop that adversely
affect HoustonStreet, or if HoustonStreet fails to grow its revenues and net
income, BayCorp could lose all of the value of its investment in HoustonStreet.

Critical Accounting Policies

Preparation of the Companys financial statements in accordance with
generally accepted accounting principles requires Management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities and revenues and expenses.
Note 1 to the Consolidated Financial Statements is a summary of the significant
accounting policies used in the preparation of the Companys financial
statements. The following is a discussion of the most critical accounting
policies used by the Company.

Decommissioning

Based on the Financial Accounting Standards Boards (FASB) tentative
conclusions, reflected on the February 7, 1996, Exposure Draft titled
Accounting for Certain Liabilities Related to Closure and Removal of
Long-Lived Assets Great Bay and Little Bay have recognized as a liability
their proportionate share of the present value of the estimated cost of
Seabrook Project decommissioning. For Great Bay, the initial recognition of
this liability was capitalized as part of the Fair Value of the Utility Plant
at November 23, 1994. For Little Bay, the amount was provided for in the
purchase price allocation.

New Hampshire enacted a law in 1981 requiring the creation of a
state-managed fund to finance decommissioning of any nuclear units in the
state. The Seabrook Projects decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning
Financing Committee (NDFC). This estimate is based on a number of
assumptions. Changes in assumptions for such things as labor and material
costs, technology, inflation and timing of decommissioning could cause these
estimates to change, possibly materially, in the near term. During November
2001, the NDFC issued an order which established a decommissioning funding
schedule in anticipation of the sale of a majority of the ownership interests
in Seabrook. The NDFC set an accelerated funding schedule for the years 2002
through 2006. For the years 2007 and beyond, the funding schedule assumes
contributions will be made until 2026. The order also established the
requirement for a lump sum top-off payment at closing. The current estimated
cost to decommission the Seabrook Project (based on NDFC Docket 2001-1) is
approximately $555.6 million in 2001 dollars, assuming for decommissioning
funding purposes, a remaining 24-year life for the facility and a future cost
escalation of 5.25%.

Great Bay and Little Bay, based on the initial exposure draft, have been
recognizing a liability based on the present value of the estimated future cash
outflows required to satisfy their obligations using a risk free rate. As of
December 31, 2001, the estimated undiscounted cash outflows for Great Bay and
Little Bay, for decommissioning, based on the November 2001 NDFC study, with
decommissioning expenditures starting in 2024 and being completed in 2046, was
$418.3 million, which discounted at an average rate of 5.25%, over the funding
period, to December 31, 2001, represented a liability of $85.5 million
reflected in the accompanying balance sheet. As of December 31, 2000, and based
on the prior NDFC study, the estimated undiscounted cash outflows for Great Bay
and Little Bay, for decommissioning expenditures, starting in 2013 and being
completed in 2042 was $217.2 million, which discounted at an average rate of
5.0%, over the funding schedule to December 31, 2000 represented a liability of
$73.4 million reflected in the accompanying consolidated balance sheet. In
accordance with the original exposure draft, the companys wholly-owned
subsidiaries record any adjustments to the decommissioning liability due to
changes in estimates in the utility plant account.

Great Bay and Little Bay accrete their share of the Seabrook Projects
decommissioning liability. This accretion is a non-cash charge and recognizes
their liability related to the closure and decommissioning of their nuclear
plant in current year dollars over the licensing period of the plant. The
non-cash accretion charge recorded in the accompanied consolidated statements
of income was $3,261,000, $3,633,000 and $3,320,000 for the years ended
December 31, 2001, 2000 and 1999. The change in the accretion between years
reflects adjustments to the estimated decommissioning by the NDFC.

Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The earnings on the
external trusts also accumulate in the fund balance. The trust funds are
restricted for use in paying the decommissioning of Unit 1. The investments in
the trust are available for sale. Great Bay and Little Bay have therefore
reported their investment in trust fund assets at market value and any
unrealized gains and losses are reflected in equity. There was an unrealized
holding gain of $221,700 and $338,100 as of December 31, 2001 and 2000.

Although the owners of Seabrook are accumulating funds in an external
trust to defray decommissioning costs, these costs could substantially exceed
the value of the trust fund, and the owners, including Great Bay and Little
Bay, would remain liable for the excess.

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On November 15, 1992, Great Bay, the Bondholders Committee and the
Predecessors former parent, Eastern Utilities (EUA) entered into a
settlement agreement that resolved certain proceedings against EUA brought by
the Bondholders Committee. Under the settlement agreement EUA reaffirmed its
guarantee of up to $10 million of Great Bays future decommissioning costs of
Seabrook Unit 1.

Seabrook Outage Costs

The Companys operating results and the comparability of these results on
an interim and annual basis are directly impacted by the operations of the
Seabrook Project, including the cyclical refueling outages (generally 18 months
apart) as well as unscheduled outages. During outage periods at the Seabrook
Project, Great Bay and Little Bay have no electricity for resale from the
Seabrook Project and consequently no related revenues. Therefore the impact of
outages on the Companys and Great Bays and Little Bays results of operations
and financial position are materially adverse.

Great Bay and Little Bay accrue for the incremental costs of the Seabrook
Projects scheduled outages over the periods between those outages. However,
Great Bay and Little Bay continue to expense the normal Seabrook operating and
maintenance expenses as incurred. Therefore, the Company will incur losses
during scheduled outage periods as a result of the combination of the lack of
revenue and the recognition of normal recurring operation and maintenance costs
as well as the continuing depreciation of the utility plant. At the Seabrook
Project, a scheduled refueling outage began on October 21, 2000. Seabrook
resumed full operating capacity on February 1, 2001. Seabrook Project
management have scheduled the next outage to begin in May 2002. The 2002 outage
has an estimated incremental operations and maintenance cost of $32 million.
The Companys share is approximately $4.8 million. The estimate is based on a
number of assumptions. Changes in assumptions for such things as labor and
contractor costs, required repairs and days to perform the outage and plant
operations in the interim, could cause this estimate to change.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company
and all its subsidiaries. The Company has a 15% joint ownership interest in
Seabrook, a 1,150 megawatt nuclear generating unit. The Company records in its
financial statements its proportional share of Seabrooks assets, liabilities
and expenses. The Company consolidates all majority-owned and controlled
subsidiaries and applies the equity method of accounting for investments
between 20% and 50%. All significant intercompany transactions have been
eliminated. All sales of subsidiary stock are accounted for as capital
transactions in the consolidated financial statements. At December 31, 1999,
BayCorp owned 100% of HoustonStreet. As of December 31, 2000 and as of
December 31, 2001, the Company owned 45.9% of HoustonStreet. Of the 54.1% of
HoustonStreet that is not owned by the Company, approximately 3.1% is owned by
Elliott Associates L.P. and approximately 1.9% is owned by Omega Advisors Inc.,
both of whom are 5% or more shareholders of the Company. The remaining 49.1%
is owned by unrelated parties. The Company deconsolidated HoustonStreet during
2000. At December 31, 2000 and December 31, 2001, the Company accounts for
this investment on the equity method. The 1999 financial statements are
presented on a consolidated basis. (See Note 12.) The Company has an agreement
with HoustonStreet under which it is providing certain accounting and
administrative services to HoustonStreet for the periods April 1999 to December
2001 and for the calendar year 2002. Income related to such services was
$165,000 for the period ending December 31, 2001.

Energy Marketing

The Company utilized unit contingent and firm forward sales contracts to
maximize the value of its 174 MW power supply from the Seabrook Project. The
Company had not entered into any forward firm energy trading contracts as of
December 31, 2001, nor does it expect to in 2002, in light of its expected sale
of its ownership interest in the Seabrook Project in 2002. As a result, as of
December 31, 2001, the Company had no unrealized loss or gain on the
mark-to-market of forward firm energy trading contracts recorded in accrued
expenses. The net change in unrealized gain on trading activities for the year
ended December 31, 2001 was $12,879,000 and is included in the accompanying
consolidated statement of income for 2001. As of December 31, 2000, the Company
had a net unrealized loss of approximately $12,879,427 recorded in accrued
expenses. The net change in unrealized loss on trading activities for the year
ended December 31, 2000 was $12,232,000 and is included in the accompanying
consolidated statement of income for 2000.

Recent Accounting Pronouncements

Asset Retirement Obligations:The Staff of the Securities and Exchange
Commission (SEC) has questioned certain of the current accounting practices
of the electric utility industry regarding the recognition, measurement and
classification of decommissioning costs for nuclear generating stations and
joint owners in the financial statements of these entities. In response to
these questions, the FASB agreed to review the accounting for nuclear
decommissioning costs. On February 17, 2000 the FASB issued a Revision of
Exposure Draft issued February 7, 1996, Proposed Statement of Financial
Accounting Standards: Accounting for Obligations Associated with the Retirement
of Long-Lived Assets. On June 30, 2000, the respective proposed statement was
issued by the FASB. In August 2001, the FASB approved the issuance of Statement
of Financial Accounting Standards (SFAS) No. 143,

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Accounting for Retirement Obligations. SFAS No. 143 provides accounting
requirements for the recognition and measurement of liabilities associated with
the retirement of long-lived assets and requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. Great Bays and Little Bays accounting for decommissioning is
based on the FASBs original tentative conclusions. The new statement requires
that an obligation associated with the retirement of a tangible long-lived
asset be recognized as a liability when incurred, and that the amount of the
liability resulting from (a) the passage of time and (b) revisions to either
the timing or amount of estimated cash flows should also be recognized. The new
statement also requires that, upon initial recognition of a liability for an
asset retirement obligation, an entity capitalize that cost by recognizing an
increase in the carrying amount of the related long-lived asset.

The new statement requires the initial measurement of the liability to be
based on fair value, where the fair value is the amount that an entity would be
required to pay in an active market to settle the asset retirement obligation
in a current transaction in circumstances other than a forced liquidation or
settlement. Because in most circumstances, a market for settling asset
retirement obligations does not exist, the FASB described an expected present
value technique for estimating fair value. If the new statement is adopted,
Great Bays and Little Bays decommissioning liability and annual provision for
decommissioning accretion could change relative to 2001. The new statement is
effective for fiscal years beginning after June 15, 2002, with earlier adoption
encouraged. Great Bay and Little Bay have not quantified the impact, if any,
that the new statement will have on the consolidated financial statements.

Impairment or Disposal of Long-Lived Assets:In October 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144) which replaces SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. Although SFAS No. 144 supercedes SFAS No.
121, it retains the fundamental provisions of SFAS No. 121 regarding
recognition/measurement of impairment of long-lived assets to be held and used
and measurement of long-lived assets to be disposed of by sale. Under SFAS No.
144, asset write-downs from discontinuing a business segment will be treated
the same as other assets held for sale. The new standard also broadens the
financial statement presentation of discontinued operations to include the
disposal of an asset group (rather than a segment of a business). SFAS No. 144
is effective beginning January 1, 2002 and, generally, is to be applied
prospectively. The Company does not expect that SFAS No. 144 will have a
significant impact on its financial position or results of operations.




Item 7A.Quantitative and Qualitative Disclosure About Market Risk.

Commodity Price Risk

The prices of electricity are subject to fluctuations resulting from
changes in supply and demand. Great Bay sold a portion of its electricity
through forward, fixed-price energy trading contracts in prior years, including
in 2001. Until December 31, 2001, Great Bay tracked its market exposure for
these forward energy trading contracts in a mark-to-market model that was
updated daily with current market prices and is reflected in the companys
balance sheet. See Note 5  Energy Marketing. The positive, or negative,
value of Great Bays portfolio of firm power commitments represented an
estimation of the gain, or loss, that Great Bay would have experienced if open
firm commitments were covered at then-current market prices. As of December 31,
2001, Great Bay had no firm forward, fixed energy trading contracts.




Item 8.Financial Statements and Supplementary Data.

The response to this item is submitted in the response found under Item
14(a)(1) in this report.




Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.

Not Applicable.




PART III




Item 10.Directors and Executive Officers of the Registrant.

(a)  Directors.The information with respect to directors required under
this item is incorporated herein by reference to the section captioned
Election of Directors in the Companys Proxy Statement with respect to the
Annual Meeting of Stockholders to be held on April 24, 2002.

(b)  Executive Officers.The information with respect to executive
officers required under this item is incorporated by reference to Part I of the
Report.




Item 11.Executive Compensation.

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The information required under this item is incorporated herein by
reference to the sections entitled Election of Directors  Compensation for
Directors,  Executive Compensation,  Employment Agreements,  Report of
the Compensation Committee and  Stock Performance Graph in the Companys
Proxy Statement with respect to the Annual Meeting of Stockholders to be held
on April 24, 2002.




Item 12.Security Ownership of Certain Beneficial Owners and Management.

The information required under this item is incorporated herein by
reference to the section entitled Security Ownership of Certain Beneficial
Owners and Management in the Companys Proxy Statement with respect to the
Annual Meeting of Stockholders to be held on April 24, 2002.




Item 13.Certain Relationships and Related Transactions.

The information required under this item is incorporated herein by
reference to the section entitled Certain Relationships and Related
Transactions in the Companys Proxy Statement with respect to the Annual
Meeting of Stockholders to be held on April 24, 2002.




PART IV




Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K.



| | (a) |  | Documents filed as a part of this Form 10-K:                                                                                                                                                               
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 1.  |  | Financial Statements.The Consolidated Financial Statements listed
in the Index to Consolidated Financial Statements and Financial
Statement Schedules are filed as part of this Annual Report on Form
10-K.
|
| | 2.  |  | Exhibits.The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual Report on Form
10-K.                                                                
|
| | (b) |  | Reports on Form 8-K:                                                                                                                                                                                       

None

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INDEX TO FINANCIAL STATEMENTS

BAYCORP HOLDINGS, LTD.

|                                                                                                                                    |  |      |          | 
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | 
|                                                                                                                                    |  | Page
|                                                                                                                                    |  |     
|Reports of Independent Public Accountants                                                                                           |  |      | F-1, F-2 | 
|Consolidated Balance Sheets as of December 31, 2001 and 2000                                                                        |  |      | F-3      | 
|Consolidated Statements of Income and Comprehensive Income
 Years Ended December 31, 2001, December 31, 2000 and
December 31, 1999 |  |      | F-4      | 
|Consolidated Statements of Changes in Stockholders Equity
 Years Ended December 31, 2001, December 31, 2000 and
December 31, 1999 |  |      | F-5      | 
|Consolidated Statements of Cash Flows 
Years Ended December 31, 2001, December 31, 2000 and
December 31, 1999                      |  |      | F-6      | 
|Notes to Consolidated Financial Statements                                                                                          |  |      | F-7      | 





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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
BayCorp Holdings, Ltd.

We have audited the accompanying consolidated balance sheets of BayCorp
Holdings, Ltd. (a Delaware corporation) and its wholly-owned subsidiaries, as
of December 31, 2001 and 2000, and the related consolidated statements of
income and comprehensive income, changes in stockholders equity and cash flows
for each of the two years then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. The accompanying
consolidated financial statements of BayCorp Holdings, Ltd. for the year ended
December 31, 1999 were audited by other auditors whose report dated February 4,
2000 (except for the matters discussed in Note 13 to those financial
statements, as to which the date was March 27, 2000) expressed an unqualified
opinion on these statements.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BayCorp
Holdings, Ltd. and its wholly-owned subsidiaries as of December 31, 2001 and
2000, and the results of their operations and cash flows for the years then
ended, in conformity with accounting principles generally accepted in the
United States.

| |  |                                
| |  | -------------------------------
| |  | VITALE, CATURANO & COMPANY P.C.

Boston, Massachusetts
January 21, 2003

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The following Report of Independent Public Accountants is a copy of the
previously issued Arthur Andersen LLP report. Arthur Andersen has not reissued
this report.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
BayCorp Holdings, Ltd.

We have audited the accompanying consolidated balance sheets of BayCorp
Holdings, Ltd. (a Delaware corporation) and its wholly-owned subsidiaries, as
of December 31, 1999 and 1998, and the related consolidated statements of
income and comprehensive income, changes in stockholders equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BayCorp
Holdings, Ltd. and its wholly-owned subsidiaries as of December 31, 1999 and
1998, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

| |  |                    
| |  | -------------------
| |  | ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 4, 2000
(except for the matters
discussed in Note 13,
as to which the date is
March 27, 2000)

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##### Table of Contents



BAYCORP HOLDINGS, LTD.




CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)


|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |              |        |         |         | 
|-------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ---------------------------------------- | ------------------------------------------ | ------ | ------------ | ------- | ------------ | ------ | ------- | ------- | 
|                                       |                                                                                                                                                          |                           |                                          |                                            |        | December 31, |         | December 31,
|                                       |                                                                                                                                                          |                           |                                          |                                            |        | 2001         |         | 2000        
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|ASSETS:                                |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|Current Assets:                        |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       | Cash & Cash Equivalents                                                                                                                                  |                           | $                                        | 15,278                                     |        |              | $       | 9,071        |       
|                                       | Restricted Cash  Escrow                                                                                                                                 |                           |                                          | 1,903                                      |        |              |         | 2,016        |       
|                                       | Short-term Investments, at market                                                                                                                        |                           |                                          |                                           |        |              |         | 3,022        |       
|                                       | Accounts Receivable, net                                                                                                                                 |                           |                                          | 6,291                                      |        |              |         | 3,131        |       
|                                       | Materials & Supplies, net                                                                                                                                |                           |                                          | 4,708                                      |        |              |         | 4,760        |       
|                                       | Prepayments & Other Assets                                                                                                                               |                           |                                          | 1,372                                      |        |              |         | 1,135        |       
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       |                                                                                                                                                          |                           |                                          | Total Current Assets                       |        |              | 29,552  |              |        |         | 23,135  | 
|Property, Plant, & Equipment and Fuel: |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       | Utility Plant Assets                                                                                                                                     |                           |                                          | 123,923                                    |        |              |         | 113,252      |       
|                                       | Non-utility Plant Assets                                                                                                                                 |                           |                                          |                                           |        |              |         | 104          |       
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       |                                                                                                                                                          |                           |                                          | Total Property, Plant & Equipment          |        |              | 123,923 |              |        |         | 113,356 | 
|                                       | Less: Accumulated Depreciation                                                                                                                           |                           |                                          | (22,944                                    | )      |              |         | (19,776      | )     
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       |                                                                                                                                                          |                           | Net Property, Plant & Equipment          |                                            |        | 100,979      |         |              |        | 93,580  |        
|                                       | Nuclear Fuel                                                                                                                                             |                           |                                          | 23,365                                     |        |              |         | 18,348       |       
|                                       | Less: Accumulated Amortization                                                                                                                           |                           |                                          | (12,096                                    | )      |              |         | (7,956       | )     
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       | Net Nuclear Fuel                                                                                                                                         |                           |                                          | 11,269                                     |        |              |         | 10,392       |       
|                                       |                                                                                                                                                          |                           | Net Property, Plant & Equipment and Fuel |                                            |        | 112,248      |         |              |        | 103,972 |        
|Other Assets:                          |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       | Decommissioning Trust Fund                                                                                                                               |                           |                                          | 32,048                                     |        |              |         | 28,146       |       
|                                       | Deferred Debits & Other                                                                                                                                  |                           |                                          | 123                                        |        |              |         | 102          |       
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       |                                                                                                                                                          |                           | Total Other Assets                       |                                            |        | 32,171       |         |              |        | 28,248  |        
|                                       |                                                                                                                                                          |                           |                                          | Total Assets                               |        | $            | 173,971 |              |        | $       | 155,355 | 
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|LIABILITIES AND STOCKHOLDERS EQUITY:  |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|Current Liabilities:                   |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       | Accounts Payable                                                                                                                                         |                           | $                                        | 1,607                                      |        |              | $       | 8,187        |       
|                                       | Miscellaneous Current Liabilities                                                                                                                        |                           |                                          | 5,534                                      |        |              |         | 14,665       |       
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       |                                                                                                                                                          | Total Current Liabilities |                                          |                                            | 7,141  |              |         |              | 22,852 |        
|Operating Reserves:                    |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       | Decommissioning Liability                                                                                                                                |                           |                                          | 85,523                                     |        |              |         | 73,379       |       
|                                       | Miscellaneous Other                                                                                                                                      |                           |                                          | 386                                        |        |              |         | 470          |       
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       |                                                                                                                                                          | Total Operating Reserves  |                                          |                                            | 85,909 |              |         |              | 73,849 |        
|Other Liabilities & Deferred Credits   |                                                                                                                                                          |                           | 7,500                                    |                                            |        |              | 6,723   |             
|Commitments & Contingencies            |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|Stockholders Equity:                  |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       | Common stock, $0.01 par value
Authorized  20,000,000 shares; issued and
outstanding  8,586,316 at December 31, 2001 and
8,519,316 at December 31, 2000 |                           |                                          | 86                                         |        |              |         | 86           |       
|                                       | Less: Treasury Stock  185,052 shares, at cost                                                                                                           |                           |                                          | (1,396                                     | )      |              |         | (1,396       | )     
|                                       | Additional Paid-in Capital                                                                                                                               |                           |                                          | 100,383                                    |        |              |         | 99,602       |       
|                                       | Accumulated Other Comprehensive Income                                                                                                                   |                           |                                          | 223                                        |        |              |         | 318          |       
|                                       | Accumulated Deficit                                                                                                                                      |                           |                                          | (25,875                                    | )      |              |         | (46,679      | )     
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             
|                                       |                                                                                                                                                          |                           | Total Stockholders Equity               |                                            |        | 73,421       |         |              |        | 51,931  |        
|                                       |                                                                                                                                                          |                           |                                          | Total Liabilities and Stockholders Equity |        | $            | 173,971 |              |        | $       | 155,355 | 
|                                       |                                                                                                                                                          |                           |                                          |                                            |        |              |         |             

(The accompanying notes are an integral part of these consolidated statements.)

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##### Table of Contents



BAYCORP HOLDINGS, LTD.




CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years Ended December 31,
(Dollars in Thousands, except per share data)


|                                                        |                                                        |                                 |           |         |        |      |           |        |        |   |           |        |        |  
|------------------------------------------------------- | ------------------------------------------------------ | ------------------------------- | --------- | ------- | ------ | ---- | --------- | ------ | ------ | - | --------- | ------ | ------ | -
|                                                        |                                                        |                                 |           | 2001    |        | 2000 |           | 1999  
|                                                        |                                                        |                                 |           |         |        |      |           |       
|Operating Revenues                                      |                                                        | $                               | 79,480    |         |        | $    | 56,347    |        |        | $ | 45,761    |       
|Operating Expenses:                                     |                                                        |                                 |           |         |        |      |           |        |        |   |           |       
|                                                        | Production                                             |                                 |           | 24,438  |        |      |           | 25,016 |        |   |           | 18,220 |       
|                                                        | Transmission                                           |                                 |           | 997     |        |      |           | 1,073  |        |   |           | 872    |       
|                                                        | Purchased Power                                        |                                 |           | 27,008  |        |      |           | 13,270 |        |   |           | 12,232 |       
|                                                        | Unrealized (Gain)Loss on Firm Energy Trading
Contracts |                                 |           | (12,879 | )      |      |           | 12,232 |        |   |           | 806    |       
|                                                        | Administrative & General                               |                                 |           | 9,870   |        |      |           | 6,923  |        |   |           | 9,291  |       
|                                                        | Depreciation & Amortization                            |                                 |           | 3,730   |        |      |           | 4,159  |        |   |           | 4,110  |       
|                                                        | Decommissioning Cost Accretion                         |                                 |           | 3,261   |        |      |           | 3,633  |        |   |           | 3,320  |       
|                                                        | Decommissioning Trust Fund Income                      |                                 |           | (1,599  | )      |      |           | (1,726 | )      |   |           | (755   | )     
|                                                        | Taxes Other than Income                                |                                 |           | 3,516   |        |      |           | 3,938  |        |   |           | 2,989  |       
|                                                        |                                                        |                                 |           |         |        |      |           |        |        |   |           |       
|                                                        |                                                        | Total Operating Expenses        |           |         | 58,342 |      |           |        | 68,518 |   |           |        | 51,085 |  
|Operating Income (Loss)                                 |                                                        |                                 | 21,138    |         |        |      | (12,171   | )      |        |   | (5,324    | )     
|Other Income:                                           |                                                        |                                 |           |         |        |      |           |        |        |   |           |       
|                                                        | Interest and Dividend Income                           |                                 |           | (520    | )      |      |           | (1,162 | )      |   |           | (551   | )     
|                                                        | Equity Loss in HoustonStreet Investment                |                                 |           | 450     |        |      |           | 11,077 |        |   |           | 0      |       
|                                                        | Other Deductions (Income)                              |                                 |           | 179     |        |      |           | (753   | )      |   |           | 126    |       
|                                                        |                                                        |                                 |           |         |        |      |           |        |        |   |           |       
|                                                        |                                                        | Total Other Deductions (Income) |           |         | 109    |      |           |        | 9,162  |   |           |        | (425   | )
|Income (Loss) Before Income Taxes and Accounting
Change |                                                        |                                 | 21,029    |         |        |      | (21,333   | )      |        |   | (4,899    | )     
|Provision for Income Taxes                              |                                                        |                                 | (225      | )       |        |      | (612      | )      |        |   |          |       
|                                                        |                                                        |                                 |           |         |        |      |           |        |        |   |           |       
|Income (Loss) Before Change in Accounting Principle     |                                                        |                                 | 20,804    |         |        |      | (21,945   | )      |        |   | (4,899    | )     
|Cumulative Effect of Change in Accounting Principle     |                                                        |                                 |          |         |        |      |          |        |        |   | 159       |       
|                                                        |                                                        |                                 |           |         |        |      |           |        |        |   |           |       
|Net Income (Loss)                                       |                                                        |                                 | 20,804    |         |        |      | (21,945   | )      |        |   | (4,740    | )     
|Other Comprehensive Income (Expense), net of tax        |                                                        |                                 | (95       | )       |        |      | 321       |        |        |   | (568      | )     
|                                                        |                                                        |                                 |           |         |        |      |           |        |        |   |           |       
|Comprehensive Income (Loss)                             |                                                        | $                               | 20,709    |         |        | $    | (21,624   | )      |        | $ | (5,308    | )     
|                                                        |                                                        |                                 |           |         |        |      |           |        |        |   |           |       
|Weighted Average Shares Outstanding  Basic             |                                                        |                                 | 8,341,637 |         |        |      | 8,293,475 |        |        |   | 8,207,866 |       
|Weighted Average Shares Outstanding  Diluted           |                                                        |                                 | 8,556,994 |         |        |      | 8,293,475 |        |        |   | 8,207,866 |       
|Basic Net Income (Loss) per Share                       |                                                        | $                               | 2.49      |         |        | $    | (2.65     | )      |        | $ | (0.58     | )     
|Diluted Net Income (Loss) per Share                     |                                                        | $                               | 2.43      |         |        | $    | (2.65     | )      |        | $ | (0.58     | )     

(The accompanying notes are an integral part of these consolidated statements.)

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##### Table of Contents



BAYCORP HOLDINGS, LTD.




CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(Dollars in Thousands)


|                             |                                                          |  |                  |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |         |         |   |   |        |         |  
|---------------------------- | -------------------------------------------------------- |  | ---------------- | ------- | ----------- | - | ------ | - | ---------- |  | ------------- | - | ----------- | - | ------------- | - | ----------- | - | ------- | ----- |  | - | --- | ---- | - | - | ------- | ------- | - | - | ------ | ------- | -
|                             |                                                          |  | Common           |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |        
|                             |                                                          |  | Stock, $0.01 Par |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |        
|                             |                                                          |  | Value            |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |        
|                             |                                                          |  |                  |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |        
|                             |                                                          |  |                  |         |             |   |        |   |            |  | Less:         |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |        
|                             |                                                          |  |                  |         |             |   |        |   |            |  | Treasury      |   |             |   |               |   | Accumulated |   |         |       |  |   |     |      |  
|                             |                                                          |  | Issued and       |         | Issued and  |   | Stock  |   | Additional |  | Other         |   |             |   |               |   | Total      
|                             |                                                          |  | outstanding      |         | outstanding |   |        |   | Paid-In    |  | Comprehensive |   | Accumulated |   | Stockholders'
|                             |                                                          |  | Shares           |         | Amount      |   | Shares |   | Amount     |  | Capital       |   | Income      |   | Deficit       |   | Equity     
|                             |                                                          |  |                  |         |             |   |        |   |            |  |               |   |             |   |               |   |            
|Balance at December 31,
1998 |                                                          |  | 8,377,000        |         |             | $ | 84     |   |            |  | 185,052       |   |             | $ | (1,396        | ) |             | $ | 92,100  |       |  | $ | 565 |      |   | $ | (19,994 | )       |   | $ | 71,359 |        
|                             | Stock Options Exercised                                  |  |                  | 40,000  |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         | 195   |  |   |     |     |   |   |         |        |   |   |        | 195     |  
|                             | Net Change in Unrealized
Holding Loss                    |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         |      |  |   |     | (568 | ) |   |         |        |   |   |        | (568    | )
|                             | Financial Results, January 1
to December 31, 1999        |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         |      |  |   |     |     |   |   |         | (4,740  | ) |   |        | (4,740  | )
|                             |                                                          |  |                  |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |         |         |   |   |        |        
|Balance at December 31,
1999 |                                                          |  | 8,417,000        |         |             | $ | 84     |   |            |  | 185,052       |   |             | $ | (1,396        | ) |             | $ | 92,295  |       |  | $ | (3  | )    |   | $ | (24,734 | )       |   | $ | 66,246 |        
|                             | Stock Options Exercised                                  |  |                  | 102,316 |             |   |        | 2 |            |  |               |  |             |   |               |  |             |   |         | 472   |  |   |     |     |   |   |         |        |   |   |        | 474     |  
|                             | Other Incentive Stock
Option Transactions                |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         | 110   |  |   |     |     |   |   |         |        |   |   |        | 110     |  
|                             | Net Change in Unrealized
Holding Gain                    |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         |      |  |   |     | 321  |   |   |         |        |   |   |        | 321     |  
|                             | Unrealized Gain on Sale of
Stock By Subsidiary
(Note 12) |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         | 6,725 |  |   |     |     |   |   |         |        |   |   |        | 6,725   |  
|                             | Financial Results, January
1 to December 31,
2000        |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         |      |  |   |     |     |   |   |         | (21,945 | ) |   |        | (21,945 | )
|                             |                                                          |  |                  |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |         |         |   |   |        |        
|Balance at December 31,
2000 |                                                          |  | 8,519,316        |         |             | $ | 86     |   |            |  | 185,052       |   |             | $ | (1,396        | ) |             | $ | 99,602  |       |  | $ | 318 |      |   | $ | (46,679 | )       |   | $ | 51,931 |        
|                             | Stock Options Exercised                                  |  |                  | 67,000  |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         | 423   |  |   |     |     |   |   |         |        |   |   |        | 423     |  
|                             | Other Incentive Stock
Option Transactions                |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         | 358   |  |   |     |     |   |   |         |        |   |   |        | 358     |  
|                             | Net Change in Unrealized
Holding Gain                    |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         |      |  |   |     | (95  | ) |   |         |        |   |   |        | (95     | )
|                             | Financial Results, January 1
to December 31, 2001        |  |                  |        |             |   |        |  |            |  |               |  |             |   |               |  |             |   |         |      |  |   |     |     |   |   |         | 20,804  |   |   |        | 20,804  |  
|                             |                                                          |  |                  |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |         |         |   |   |        |        
|Balance at December 31,
2001 |                                                          |  | 8,586,316        |         |             | $ | 86     |   |            |  | 185,052       |   |             | $ | (1,396        | ) |             | $ | 100,383 |       |  | $ | 223 |      |   | $ | (25,875 | )       |   | $ | 73,421 |        
|                             |                                                          |  |                  |         |             |   |        |   |            |  |               |   |             |   |               |   |             |   |         |       |  |   |     |      |   |   |         |         |   |   |        |        

(The accompanying notes are an integral part of these consolidated statements.)

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##### Table of Contents



BAYCORP HOLDINGS, LTD.




CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended
December 31,(Dollars in Thousands)


|                                               |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |        |        |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------- | ------ | ------- | ------ | ----- | ------- | ------ | ------- | ----- | ------ | ------ | ------ | -
|                                               |                                                                                         |                                                              |                                           |        | 2001    |        | 2000  |         | 1999  
|                                               |                                                                                         |                                                              |                                           |        |         |        |       |         |       
|Net cash flows from operating activities:      |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |       
|                                               | Net Income (Loss)                                                                       |                                                              | $                                         | 20,804 |         |        | $     | (21,945 | )      |         | $     | (4,740 | )     
|                                               | Adjustments to reconcile net income(loss) to net cash
provided by operating activities: |                                                              |                                           |        |         |        |       |         |        |         |       |        |       
|                                               |                                                                                         | Equity loss in HoustonStreet investment                      |                                           |        | 450     |        |       |         | 11,077 |         |       |        | 0      |       
|                                               |                                                                                         | Depreciation and Amortization                                |                                           |        | 3,272   |        |       |         | 4,159  |         |       |        | 4,110  |       
|                                               |                                                                                         | Amortization of nuclear fuel                                 |                                           |        | 4,140   |        |       |         | 4,791  |         |       |        | 4,032  |       
|                                               |                                                                                         | Unrealized (gain) loss on firm energy trading
contracts      |                                           |        | (12,879 | )      |       |         | 12,232 |         |       |        | 647    |       
|                                               |                                                                                         | Stock compensation expense                                   |                                           |        | 358     |        |       |         | 110    |         |       |        |       |       
|                                               |                                                                                         | Decommissioning cost accretion                               |                                           |        | 3,261   |        |       |         | 3,633  |         |       |        | 3,320  |       
|                                               |                                                                                         | Decommissioning trust income                                 |                                           |        | (1,284  | )      |       |         | (1,604 | )       |       |        | (755   | )     
|                                               |                                                                                         | (Increase) decrease in accounts receivable                   |                                           |        | (3,160  | )      |       |         | 5,550  |         |       |        | (1,512 | )     
|                                               |                                                                                         | (Increase) decrease in materials & supplies                  |                                           |        | 52      |        |       |         | (373   | )       |       |        | (160   | )     
|                                               |                                                                                         | (Increase) decrease in prepaids and other assets             |                                           |        | (258    | )      |       |         | 1,900  |         |       |        | 31     |       
|                                               |                                                                                         | Increase (decrease) in accounts payable and accrued
expenses |                                           |        | (6,580  | )      |       |         | 7,202  |         |       |        | 2,123  |       
|                                               |                                                                                         | Increase (decrease) in misc. and other liabilities           |                                           |        | 4,441   |        |       |         | (917   | )       |       |        | 274    |       
|                                               |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |       
|                                               |                                                                                         |                                                              | Net cash provided by operating activities |        |         | 12,617 |       |         |        | 25,815  |       |        |        | 7,370  |  
|Net cash flows from investing activities:      |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |       
|                                               | Capital additions                                                                       |                                                              |                                           | (1,789 | )       |        |       | (2,108  | )      |         |       | (4,896 | )     
|                                               | Nuclear fuel additions                                                                  |                                                              |                                           | (5,017 | )       |        |       | (6,803  | )      |         |       | (1,999 | )     
|                                               | Acquisition of additional Seabrook Project interest                                     |                                                              |                                           |       |         |        |       |        |        |         |       | (4,913 | )     
|                                               | Payments to decommissioning fund                                                        |                                                              |                                           | (2,617 | )       |        |       | (1,763  | )      |         |       | (1,696 | )     
|                                               | (Increase) decrease in restricted cash                                                  |                                                              |                                           | 113    |         |        |       | 487     |        |         |       | (2,503 | )     
|                                               | Investment in HoustonStreet                                                             |                                                              |                                           | (450   | )       |        |       | (7,570  | )      |         |       | 0      |       
|                                               | Purchases of short-term investments                                                     |                                                              |                                           | 0      |         |        |       | (4,025  | )      |         |       | (1,579 | )     
|                                               | Sales of short-term investments                                                         |                                                              |                                           | 2,927  |         |        |       | 1,384   |        |         |       | 10,642 |       
|                                               |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |       
|                                               |                                                                                         |                                                              | Net cash used in investing activities     |        |         | (6,833 | )     |         |        | (20,398 | )     |        |        | (6,944 | )
|Net cash flows from financing activities:      |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |       
|                                               | Stock option exercise                                                                   |                                                              |                                           | 423    |         |        |       | 474     |        |         |       | 195    |       
|                                               |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |       
|                                               |                                                                                         |                                                              | Net cash provided by financing activities |        |         | 423    |       |         |        | 474     |       |        |        | 195    |  
|Net increase in cash and cash equivalents      |                                                                                         |                                                              | 6,207                                     |        |         |        | 5,891 |         |        |         | 621   |       
|Cash and cash equivalents, beginning of period |                                                                                         |                                                              | 9,071                                     |        |         |        | 3,180 |         |        |         | 2,559 |       
|                                               |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |       
|Cash and cash equivalents, end of period       |                                                                                         | $                                                            | 15,278                                    |        |         | $      | 9,071 |         |        | $       | 3,180 |       
|                                               |                                                                                         |                                                              |                                           |        |         |        |       |         |        |         |       |       

(The accompanying notes are an integral part of these consolidated statements).

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BAYCORP HOLDINGS, LTD.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2001


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. The Company

BayCorp Holdings, Ltd. (BayCorp or the Company) is a holding company
incorporated in Delaware in 1996. BayCorp owns two subsidiaries that generate
and trade wholesale electricity, Great Bay Power Corporation (Great Bay) and
Little Bay Power Corporation (Little Bay), each of which was wholly- owned as
of December 31, 2001. In addition, BayCorp owns 45.9% of HoustonStreet
Exchange, Inc. (HoustonStreet), an Internet-based independent crude oil and
refined products trading exchange.

Great Bay and Little Bay are electric generating and trading companies.
Their principal asset is a combined 15% joint ownership interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire (the Seabrook
Project or Seabrook). This ownership interest entitles the companies to
approximately 174 megawatts (MWs) of the Seabrook Projects power output.
Great Bay and Little Bay are exempt wholesale generators (EWGs) under the
Public Utility Holding Company Act of 1935 (PUHCA). Unlike regulated public
utilities, Great Bay and Little Bay have no franchise area or captive
customers. The companies sell their power in the competitive wholesale power
markets.

Great Bay was incorporated in New Hampshire in 1986 and was formerly known
as EUA Power Corporation. Little Bay was incorporated in New Hampshire in 1998.
Great Bay sells its power, including its share of the electricity output of the
Seabrook Project, in the wholesale electricity market, primarily in the
Northeast United States. Little Bay sells its power solely to Great Bay under
an intercompany agreement. Neither BayCorp nor its subsidiaries have
operational responsibilities for the Seabrook Project. Great Bay currently
sells all but approximately 10 MWs of its share of the Seabrook Project
capacity in the wholesale short-term market. In addition to selling the power
it owns generated by Seabrook, Great Bay purchases power on the open market for
resale to third parties.

In November 1999, Little Bay purchased an additional 2.9% interest in the
Seabrook Project from Montaup Electric Company (Montaup), a subsidiary of
Eastern Utilities Associates (EUA), for a purchase price of $3.2 million,
plus approximately $1.7 million for certain prepaid items, primarily nuclear
fuel and capital expenditures. In addition, Montaup prefunded the
decommissioning liability associated with Little Bays 2.9% share of Seabrook
by transferring approximately $12.4 million into Little Bays decommissioning
account, an irrevocable trust earmarked for Little Bays share of Seabrook
Project decommissioning expenses.

The Seabrook Project is a nuclear-fueled, steam electricity, generating
plant located in Seabrook, New Hampshire, which was originally planned to have
two Westinghouse pressurized water reactors, Seabrook Unit 1 and Seabrook Unit
2 (each with a rated capacity of 1,150 megawatts), utilizing ocean water for
condenser cooling purposes. Seabrook Unit 1 entered commercial service on
August 19, 1990. Seabrook Unit 2 has been canceled. Great Bay became a
wholesale generating company when Seabrook Unit 1 commenced commercial
operation on August 19, 1990. In 1993, the Company became an EWG under the
Energy Policy Act of 1992.

The Seabrook Project is owned by Great Bay, Little Bay and nine other
utility companies, consisting of North Atlantic Energy Company, Connecticut
Light and Power, The United Illuminating Company, Canal Electric Company,
Massachusetts Municipal Wholesale Electric Company, New England Power Company,
New Hampshire Electric Cooperative, Inc., Taunton Municipal Lighting Plant and
Hudson Light & Power Department (together with Great Bay and Little Bay, the
Participants). Great Bay, Little Bay and the other Participants are parties
to the Agreement for Joint Ownership, Construction and Operation of New
Hampshire Nuclear Units (the JOA), which establishes the respective ownership
interests of the Participants in the Seabrook Project and defines their
responsibilities with respect to the ongoing operation, maintenance and
decommissioning of the Seabrook Project. In general, all ongoing costs of the
Seabrook Project are divided proportionately among the Participants in
accordance with their ownership interests in the Seabrook Project. Each
Participant is only liable for its share of the Seabrook Projects costs and
not liable for any other Participants share as ownership interests in the
Seabrook Project are several and not joint. Great Bays and Little Bays
combined joint ownership interest of 15% is the third largest interest among
the Participants, exceeded only by the approximately 40% interest held by
Northeast Utilities (NU) and its affiliates and the 17.5% interest held by
The United Illuminating Company.

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In October 2000, the Company announced that it had reached an agreement
with NU under which the Companys generating subsidiaries, Great Bay and Little
Bay, will include their aggregate 15% ownership share of the Seabrook Project
in the upcoming auction of NUs subsidiaries shares of the Seabrook Project.
Under the terms of the agreement, BayCorp will receive the sales price
established by the auction process. In the event that the sale yields proceeds
for BayCorp of more than $87.2 million, BayCorp and NU will share the excess
proceeds. Should BayCorps sales proceeds be less than $87.2 million, NU will
make up the difference below that amount on a dollar for dollar basis up to a
maximum of $17.4 million. Under the agreement, BayCorp will be paid separately
for nuclear fuel and inventory. The agreement also limits any top-off amount
required to be funded by BayCorp for decommissioning as part of the sale
process at the amount required by the Nuclear Regulatory Commission (NRC)
regulations.

In October 2001, the Company announced that the New Hampshire Public
Utilities Commission (NHPUC) and the Connecticut Department of Public Utility
Control (CDPUC) selected J.P. Morgan as their financial advisor for the sale
of ownership interests in the Seabrook Project. J.P. Morgan will manage the
sale under the oversight of the NHPUC and the CDPUC. J.P. Morgan managed the
recent sales of the Millstone and Vermont Yankee nuclear plants. In December
2001, the NHPUC in coordination with the CDPUC, announced the start of the
auction of 88.2% of the ownership shares of the Seabrook Project. BayCorp
anticipates the closing of the sale in the fourth quarter of 2002.

On November 1, 2002, Great Bay and Little Bay, wholly-owned subsidiaries
of BayCorp, and other selling owners consummated the sale (the Asset Sale) of
their interests, which amount to approximately 88% of the ownership, in the
Seabrook Nuclear Power Plant to FPL Energy Seabrook, LLC, a subsidiary of FPL
Group, Inc. The Asset Sale was effected pursuant to a Purchase and Sale
Agreement dated as of April 13, 2002 (the Purchase and Sale Agreement).

The Purchase and Sale Agreement provides for the transfer by the sellers
of their respective ownership shares of substantially all assets comprising
Seabrook Station Unit 1 and Unit 2 and including applicable contracts, leases
and permits relating to the operations of Seabrook Station.

Under the terms of the Purchase and Sale Agreement and BayCorps October
2002 agreement with Northeast Utilities, BayCorp received approximately $113
million in cash proceeds from the transaction, after adjustments, for Great
Bays and Little Bays aggregate 15% ownership share in the Seabrook plant,
nuclear fuel and inventory. The purchase price paid to all owners was
approximately $798 million after certain adjustments were made at closing.

With continued uncertainty about the possibility of additional terrorist
activities in the United States, the Nations nuclear power plants, including
the Seabrook Project, remain at a high level of security. On February 25, 2002,
the NRC issued an order to all nuclear plant licensees, requiring them to take
certain additional interim compensatory measures to address the generalized
high-level threat environment. These additional compensatory requirements will
provide the NRC with reasonable assurance that public health and safety and the
common defense and security continue to be adequately protected in the current
generalized high-level threat environment. These requirements will remain in
effect pending notification from the NRC that a significant change in the
threat environment occurs, or until the NRC determines that other changes are
needed following a more comprehensive reevaluation of current safeguards and
security programs. Seabrook remains at a high level of security and the
management of Seabrook has assured the joint owners of Seabrook that it will
take actions necessary to comply with the NRC order setting out the
requirements for interim compensatory measures. Compliance with these
requirements will result in additional incremental operating and capital costs.
Should additional security measures be required by the NRC, additional
operating or capital costs could be incurred at the Seabrook Project.

Traditionally, Great Bay sold most of its share of the Seabrook Project
electricity output under unit contingent contracts. Under unit contingent
contracts, Great Bay is obligated to provide the buyer with power only when the
Seabrook Project is operating. In late 1998, Great Bay began to sell some of
its electricity as firm power, which entitles the buyer to electricity whether
or not the Seabrook Project is operating. Buyers pay a premium for firm power
over unit contingent power because they can rely on uninterrupted electricity.
In order to supply firm power during unscheduled outages at the Seabrook
Project, Great Bay purchases power from the spot market during these outages
and resells that power to its firm power customers. Spot market sales are
subject to price fluctuations based on the relative supply and demand of
electricity. As a result of spot market power price fluctuations, Great Bay may
have to purchase power at prices exceeding prices paid by Great Bays firm
power customers during outages. Although Great Bay bears the primary risk of
these price fluctuations, Great Bay maintained insurance in 2001 and 2000 to
protect Great Bay during periods of extreme price volatility, subject to
certain deductibles and coverage limits. Great Bay has not entered into any
firm power contracts for 2002 given the expected sale of the Seabrook Project
in 2002. In December 2001, Great Bay negotiated a buyout of the remaining
insurance policy it held due to the absence of any firm sales during 2002.
Without firm contracts, the insurance was not needed as protection against
replacement power costs.

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HoustonStreet was incorporated in Delaware in 1999. HoustonStreet is an
equity investment of BayCorp. HoustonStreet developed and operates
HoustonStreet.com, an Internet-based independent crude oil and refined products
trading exchange. HoustonStreet offers this online trading platform for
over-the-counter crude oil and refined products in the United States.

As of December 31, 1999, the Company owned 100% of HoustonStreet.
HoustonStreet raised additional equity in 2000 from outside investors and as a
result, as of December 4, 2000, the Companys ownership fell below 50%, to
45.9%. Subsequently, the Company deconsolidated HoustonStreet as of December 4,
2000 and started accounting for this investment on the equity method.

On March 21, 2001, HoustonStreet raised approximately $2.9 million in
additional funding, including $450,000 from BayCorp, by selling senior secured
notes, warrants to purchase HoustonStreet preferred stock and warrants to
purchase HoustonStreet common stock. Collectively, these securities are
referred to as the HoustonStreet Series C Units. In April 2001, BayCorp
authorized HoustonStreet to convert BayCorps $7,000,000 loan made in 2000,
along with approximately $1,000,000 in accrued interest and penalties on the
note and past due management fees, into $8,000,000 of Series C Units. The loan,
accrued interest and receivables from HoustonStreet had been written down to
zero as of December 31, 2000 and as such, the conversion of these amounts had
no accounting impact on BayCorp.

In 2001, HoustonStreet made the decision to downsize its organization and
to focus its efforts on its crude oil and refined products trading platforms.
HoustonStreet shut down its electricity-trading platform in the second half of
2001. As of March 15, 2002, HoustonStreet had six employees.

The Seabrook outage and HoustonStreet loan impacted the Companys
unrestricted cash, which was approximately $3,500,000 as of February 8, 2001.
To deal with the adverse effects of these events the Company entered into an
agreement with Select Energy (Select), (see Note 6) whereby Select prepaid
approximately $7,000,000 to the Company for power purchases.

B. Regulation

Great Bay and Little Bay are subject to the regulatory authority of the
Federal Energy Regulatory Commission (FERC), the NRC, the NHPUC and other
federal and state agencies as to rates, operations and other matters. Great
Bays and Little Bays cost of service, however, is not regulated. As such,
Great Bays and Little Bays accounting policies are not subject to the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation.

C. Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

D. Utility Plant

The costs of additions to utility plant and non-utility plant are recorded
at original cost.

E. Depreciation

Utility plant is depreciated on the straight-line method at rates designed
to fully depreciate all depreciable properties over the lesser of estimated
useful lives or the Seabrook Projects remaining NRC license life, which
expires in 2026.

Capital projects constituting retirement units are charged to electric
plant. Minor repairs are charged to maintenance expense. When properties are
retired, the original costs, plus costs of removal, less salvage, are charged
to the accumulated provision for depreciation.

F. Amortization of Nuclear Fuel

The cost of nuclear fuel is amortized to expense based on the rate of
burn-up of the individual assemblies comprising the total core. Great Bay and
Little Bay also provide for the cost of disposing of spent nuclear fuel at
rates specified by the United States

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Department of Energy (DOE) under a contract for disposal between Great
Bay and Little Bay, through their managing agent North Atlantic Energy Service
Corporation (NAESCO), and the DOE.

Great Bay recorded the estimated cost of the final unspent nuclear fuel
core, which is expected to be in place at the expiration of the Seabrook
Projects NRC operating license, as part of Great Bays original Fresh Start
balance sheet.

G. Amortization of Materials and Supplies

Great Bay and Little Bay amortize to expense an amount designed to fully
amortize the cost of the material and supplies inventory that is expected to be
on hand at the expiration of the Plants NRC operating license.

H. Decommissioning

Based on the Financial Accounting Standards Boards (FASB) tentative
conclusions, reflected on the February 7, 1996, Exposure Draft titled
Accounting for Certain Liabilities Related to Closure and Removal of
Long-Lived Assets Great Bay and Little Bay have recognized as a liability
their proportionate share of the present value of the estimated cost of
Seabrook Project decommissioning. For Great Bay, the initial recognition of
this liability was capitalized as part of the Fair Value of the Utility Plant
at November 23, 1994. For Little Bay, the amount was provided for in the
purchase price allocation.

New Hampshire enacted a law in 1981 requiring the creation of a
state-managed fund to finance decommissioning of any nuclear units in the
state. The Seabrook Projects decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning
Financing Committee (NDFC). This estimate is based on a number of
assumptions. Changes in assumptions for such things as labor and material
costs, technology, inflation and timing of decommissioning could cause these
estimates to change, possibly materially, in the near term. During November
2001, the NDFC issued an order which established a decommissioning funding
schedule in anticipation of the sale of a majority of the ownership interests
in Seabrook. The NDFC set an accelerated funding schedule for the years 2002
through 2006. For the years 2007 and beyond, the funding schedule assumes
contributions will be made until 2026. The order also established the
requirement for a lump sum top-off payment at closing. The current estimated
cost to decommission the Seabrook Project (based on NDFC Docket 2001-1) is
approximately $555.6 million in 2001 dollars, assuming for decommissioning
funding purposes, a remaining 24-year life for the facility and a future cost
escalation of 5.25%.

The Staff of the Securities and Exchange Commission (SEC) has questioned
certain of the current accounting practices of the electric utility industry
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations and joint owners in the financial
statements of these entities. In response to these questions, the FASB agreed
to review the accounting for nuclear decommissioning costs. On February 17,
2000 the FASB issued a Revision of Exposure Draft issued February 7, 1996,
Proposed Statement of Financial Accounting Standards: Accounting for
Obligations Associated with the Retirement of Long-Lived Assets. On June 30,
2000, the respective proposed statement was issued by the FASB. In August 2001,
the FASB approved the issuance of Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Retirement Obligations. SFAS No. 143 provides
accounting requirements for the recognition and measurement of liabilities
associated with the retirement of long-lived assets and requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred. Great Bays and Little Bays accounting for
decommissioning is based on the FASBs original tentative conclusions. The new
statement requires that an obligation associated with the retirement of a
tangible long-lived asset be recognized as a liability when incurred, and that
the amount of the liability resulting from (a) the passage of time and (b)
revisions to either the timing or amount of estimated cash flows should also be
recognized. The new statement also requires that, upon initial recognition of a
liability for an asset retirement obligation, an entity capitalize that cost by
recognizing an increase in the carrying amount of the related long-lived asset.

The new statement requires the initial measurement of the liability to be
based on fair value, where the fair value is the amount that an entity would be
required to pay in an active market to settle the asset retirement obligation
in a current transaction in circumstances other than a forced liquidation or
settlement. Because in most circumstances, a market for settling asset
retirement obligations does not exist, the FASB described an expected present
value technique for estimating fair value. If the new statement is adopted,
Great Bays and Little Bays decommissioning liability and annual provision for
decommissioning accretion could change relative to 2001. The new statement is
effective for fiscal years beginning after June 15, 2002, with earlier adoption
encouraged. Great Bay and Little Bay have not quantified the impact, if any,
that the new statement will have on the consolidated financial statements.

Great Bay and Little Bay, based on the initial exposure draft, have been
recognizing a liability based on the present value of the estimated future cash
outflows required to satisfy their obligations using a risk free rate. As of
December 31, 2001, the estimated

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undiscounted cash outflows for Great Bay and Little Bay, for
decommissioning, based on the November 2001 NDFC study, with decommissioning
expenditures starting in 2024 and being completed in 2046, was $418.3 million,
which discounted at an average rate of 5.25%, over the funding period, to
December 31, 2001, represented a liability of $85.5 million reflected in the
accompanying balance sheet. As of December 31, 2000, and based on the prior
NDFC study, the estimated undiscounted cash outflows for Great Bay and Little
Bay, for decommissioning expenditures, starting in 2013 and being completed in
2042 was $217.2 million, which discounted at an average rate of 5.0%, over the
funding schedule to December 31, 2000 represented a liability of $73.4 million
reflected in the accompanying consolidated balance sheet. In accordance with
the original exposure draft, the companys wholly-owned subsidiaries record any
adjustments to the decommissioning liability due to changes in estimates in the
utility plant account.

Great Bay and Little Bay accrete their share of the Seabrook Projects
decommissioning liability. This accretion is a non-cash charge and recognizes
their liability related to the closure and decommissioning of their nuclear
plant in current year dollars over the licensing period of the plant. The
non-cash accretion charge recorded in the accompanied consolidated statements
of income was $3,261,000, $3,633,000 and $3,320,000 for the years ended
December 31, 2001, 2000 and 1999.

Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The earnings on the
external trusts also accumulate in the fund balance. The trust funds are
restricted for use in paying the decommissioning of Unit 1. The investments in
the trust are available for sale. Great Bay and Little Bay have therefore
reported their investment in trust fund assets at market value and any
unrealized gains and losses are reflected in equity. There was an unrealized
holding gain of $222,700 and $338,100 as of December 31, 2001 and 2000.

Although the owners of Seabrook are accumulating funds in an external
trust to defray decommissioning costs, these costs could substantially exceed
the value of the trust fund, and the owners, including Great Bay and Little
Bay, would remain liable for the excess.

In June 1998, the New Hampshire State legislature enacted legislation that
provides that in the event of a default by Great Bay on its payments to the
decommissioning fund, the other Seabrook joint owners would be obligated to pay
their proportional share of such default. As a result of the enactment of this
legislation, the staff of the NRC notified Great Bay in July 1998 of the
staffs determination that Great Bay complies with the decommissioning funding
assurance requirements under NRC regulations.

In response to the obligations imposed on the other Joint Owners under the
New Hampshire legislation, Great Bay agreed to make accelerated payments to the
Seabrook decommissioning fund such that Great Bay will have contributed
sufficient funds by the year 2015 to allow sufficient monies to accumulate,
with no further payments by Great Bay to the fund, to the full estimated amount
of Great Bays decommissioning obligation by the time the current Seabrook
operating license expires in 2026. Based on the currently approved funding
schedule and Great Bays accelerated funding schedule, Great Bays
decommissioning payments will be approximately $1.4 million in 2002 and
escalate at 4% each year thereafter through 2015. Little Bays share of
decommissioning costs was prefunded by Montaup, the owner of the 2.9% interest
in the Seabrook Project that Little Bay acquired in November 1999. As part of
that acquisition, Montaup transferred approximately $12.4 million into Little
Bays decommissioning account, an irrevocable trust earmarked for Little Bays
share of Seabrook Plant decommissioning expenses. As of December 31, 2001 the
fair market value of the Little Bay decommissioning account was $13.6 million.

On November 15, 1992, Great Bay, the Bondholders Committee and the
Predecessors former parent, Eastern Utilities (EUA) entered into a
settlement agreement that resolved certain proceedings against EUA brought by
the Bondholders Committee. Under the settlement agreement EUA reaffirmed its
guarantee of up to $10 million of Great Bays future decommissioning costs of
Seabrook Unit 1.

I. Operating Revenues

Revenues are recorded on an accrual basis based on billing rates provided
for in contracts and approved by FERC. During the year ended December 31, 2001,
three customers accounted for 32%, 16% and 15% of total operating revenues. For
the year ended December 31, 2000, four customers accounted for 17%, 15%, 14%
and 13% of total operating revenues. For the year ended December 31, 1999, two
customers accounted for 29% and 24% of total operating revenues.

J. Taxes On Income

The Company accounts for taxes on income under the liability method
required by SFAS No. 109, Accounting for Income Taxes.

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K. Cash Equivalents and Short Term Investments

For purposes of the Statements of Cash Flows, the Company considers all
highly liquid short-term investments with an original maturity of three months
or less to be cash equivalents. The carrying amounts approximate fair value
because of the short-term maturity of the investments.

All other short-term investments with a maturity of greater than three
months are classified as available-for-sale and reflected as a current asset at
market value. Changes in the market value of such securities are reflected in
equity. There were no short-term investments, and accordingly no unrealized
gains or losses on short term investments, as of December 31, 2001. The
unrealized holding gain of $20,100 as of December 31, 2000 resulted from gross
unrealized gains of $62,600 and gross unrealized losses of $42,500. The cost
of short-term investments that were sold was based on specific identification
in determining realized gains and losses recorded in the accompanying statement
of operations. The net realized gain is recorded as a component of interest
and dividend income. The net realized gain on the sale of available-for-sale
investments of $12,400 in 2001 resulted from gross realized gains of $19,400
and gross realized losses of $7,000. The net realized loss on the sale of
available-for-sale investments of $38,600 in 2000 resulted from gross realized
gains of $12,500 and gross realized losses of $51,100

L. Seabrook Unit 2

Since the Seabrook Project was originally designed to consist of two
generating units, Great Bay and Little Bay also own a combined 15% joint
ownership interest in Seabrook Unit 2. Great Bay and Little Bay assigned no
value to Seabrook Unit 2 because on November 6, 1986, the joint owners of the
Seabrook Project voted to dispose of Unit 2. Thereafter, Great Bay wrote off
its investment in Unit 2. Little Bay has no investment in Unit 2. Certain
assets of Seabrook Unit 2 have been sold from time to time to third parties.
However, there have been no material sales of Unit 2 assets since July 1996.

Because Seabrook Unit 2 was never completed or operated, costs associated
with its disposition are not included in the amounts collected for the
decommissioning of Unit 1 and the common facilities. Great Bay and Little Bay
currently pay their share of monthly expenses required to preserve and protect
the value of the Seabrook Unit 2 components. Any sales of Unit 2 property or
inventory are reflected in other income as gains on the sale or transfer of
assets. Transfers of Unit 2 items to Unit 1 were done at the historical basis
of Unit 2 property or components. Seabrook Unit 2 will be sold as part of the
expected sale of the Seabrook Project in 2002. The Participants in Seabrook
Unit 1 and Unit 2 have agreed to contribute their pro-rata share of $2 million
to an escrow account for the development and performance of a plan to mitigate
the visual impact of Unit 2. The contribution to the escrow account is
scheduled to occur within 60 days of the closing of the sale of Seabrook.

M. Seabrook Outage Costs

The Companys operating results and the comparability of these results on
an interim and annual basis are directly impacted by the operations of the
Seabrook Project, including the cyclical refueling outages (generally 18 months
apart) as well as unscheduled outages. During outage periods at the Seabrook
Project, Great Bay and Little Bay have no electricity for resale from the
Seabrook Project and consequently no related revenues. Therefore the impact of
outages on the Companys and Great Bays and Little Bays results of operations
and financial position are materially adverse.

Great Bay and Little Bay accrue for the incremental costs of the Seabrook
Projects scheduled outages over the periods between those outages. However,
Great Bay and Little Bay continue to expense the normal Seabrook operating and
maintenance expenses as incurred. Therefore, the Company will incur losses
during scheduled outage periods as a result of the combination of the lack of
revenue and the recognition of normal recurring operation and maintenance costs
as well as the continuing depreciation of the utility plant. At the Seabrook
Project, a scheduled refueling outage began on October 21, 2000. Seabrook
resumed full operating capacity on February 1, 2001. Seabrook Project
management have scheduled the next outage to begin in May 2002. The 2002 outage
has an estimated incremental operations and maintenance cost of $32 million.
The Companys share is approximately $4.8 million. The estimate is based on a
number of assumptions. Changes in assumptions for such things as labor and
contractor costs, required repairs and days to perform the outage and plant
operations in the interim, could cause this estimate to change.

N. Acquisitions

On November 19, 1999, BayCorps wholly-owned subsidiary, Little Bay,
purchased an additional 2.9% interest in the Seabrook Nuclear Power Project
from Montaup, a subsidiary of EUA. The purchase price was $3.2 million plus
approximately $1.9 million for

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certain prepaid items, primarily nuclear fuel and capital expenditures.
The purchase price was funded with existing cash. Little Bay allocated the
purchase price based on the estimated fair value of the assets acquired and
liabilities assumed. A summary of the components of the purchase price and the
purchase price allocation is as follows:

|                              |  |                        |        |  
|----------------------------- |  | ---------------------- | ------ | -
|                              |  | (Dollars in Thousands)
|                              |  |                       
|Allocation of Purchase Price: |  |                        |        |  
|Current assets                |  | $                      | 1,005  |  
|Utility plant                 |  |                        | 3,890  |  
|Nuclear fuel                  |  |                        | 1,845  |  
|Liabilities assumed and other |  |                        | (1,827 | )
|                              |  |                        |        |  
|                              |  | $                      | 4,913  |  
|                              |  |                        |        |  

In addition, Montaup prefunded the decommissioning liability associated
with Little Bays 2.9% share of Seabrook by transferring approximately $12.4
million into Little Bays decommissioning account, an irrevocable trust
earmarked for Little Bays share of the Seabrook Project decommissioning
expenses. Little Bay recorded an asset, Decommissioning Trust Fund, for $12.4
million and a corresponding liability for the same amount. The purchase
agreement required that a restricted cash-escrow account be established to
cover Little Bays share of budgeted cash requirements for a six-month period.
This fund is used to pay Little Bays share of Seabrook costs of operations and
capital expenditures during periods of Seabrook shutdowns.

Little Bay sells its power solely to Great Bay under an intercompany
agreement at cost. Great Bay then sells the power purchased from Little Bay in
the wholesale electricity market. The accompanying consolidated financial
statements include the results of the acquisition since November 19, 1999.
Intercompany amounts between Little Bay and Great Bay have been eliminated in
consolidation.

O. Segment Information

The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
reporting of information about operating segments in annual and interim
financial statements and requires restatement of prior year information.
Operating segments are defined as components of an enterprise for which
separate financial information is available that is evaluated regularly by the
chief operating decision maker(s) in deciding how to allocate resources and in
assessing performance. SFAS No. 131 also requires disclosures about products
and services, geographic areas and major customers. The Company currently
operates only in the electric generating segment in the Northeast United
States.

P. Earnings Per Share

Basic earnings (loss) per share is computed by dividing net earnings by
the weighted number of common shares outstanding for all periods presented.
Diluted earnings (loss) per share reflects the dilutive effect of shares under
option plans. Potentially dilutive shares outstanding during 2000 and 1999 have
been excluded from dilutive earnings (loss) per share because their effect
would be antidilutive.

Based on an average market price of common stock of $9.11 per share for
the year ended December 31, 2001 and $11.35 per share for the year ended
December 31, 2000, the following table reconciles the weighted average common
shares outstanding to the shares used in the computation of the basic and
diluted earnings per share outstanding.

|                                                                                              |  |              |           |              |  |              |           |  |  |  |           | 
|--------------------------------------------------------------------------------------------- |  | ------------ | --------- | ------------ |  | ------------ | --------- |  |  |  | --------- | 
|                                                                                              |  | December 31, |           | December 31, |  | December 31,
|                                                                                              |  | 2001         |           | 2000         |  | 1999        
|                                                                                              |  |              |           |              |  |             
|Weighted average number of common shares outstanding
and used in basic EPS calculation        |  |              | 8,341,637 |              |  |              | 8,293,475 |  |  |  | 8,207,866 | 
|Weighted average number of common shares outstanding
and used in diluted EPS calculation      |  |              | 8,556,994 |              |  |              | 8,293,475 |  |  |  | 8,207,866 | 
|Shares under option plans, excluded in computation of
diluted EPS due to antidilutive effects |  |              |          |              |  |              | 276,296   |  |  |  | 3,341     | 

Q. Accumulated Other Comprehensive Income

Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income which requires the Company

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to report the changes in shareholders equity from all sources during the
period other than those resulting from investments by shareholders (i.e.,
issuance or repurchase of common shares and dividends.) Although adoption of
this standard has not resulted in any change to the historic basis of
determination of earnings or shareholders equity, the other comprehensive
income components recorded under generally accepted accounting principles and
previously included under the category retained earnings are displayed as
accumulated other comprehensive income within the balance sheet. The
composition of other comprehensive income is as follows:

|                                       |                   |   |                |          |                   |   |         |          |  
|-------------------------------------- | ----------------- | - | -------------- | -------- | ----------------- | - | ------- | -------- | -
|                                       |                   |   | Unrealized     |          | Accumulated Other
|                                       |                   |   | Gains (Losses) |          | Comprehensive    
|                                       |                   |   | on Securities  |          | Income           
|                                       |                   |   |                |          |                  
|Twelve Months Ending December 31, 1999 |                   |   |                |          |                   |   |         |         
|                                       | Beginning Balance |   | $              | 565,000  |                   |   | $       | 565,000  |  
|                                       | 1999 Change       |   |                | (568,000 | )                 |   |         | (568,000 | )
|                                       |                   |   |                |          |                   |   |         |         
|December 31, 1999                      |                   |   | (3,000         | )        |                   |   | (3,000  | )       
|                                       | 2000 Change       |   |                | 321,032  |                   |   |         | 321,032  |  
|                                       |                   |   |                |          |                   |   |         |         
|December 31, 2000                      |                   |   | 318,032        |          |                   |   | 318,032 |         
|                                       | 2001 Change       |   |                | (95,340  | )                 |   |         | (95,340  | )
|                                       |                   |   |                |          |                   |   |         |         
|December 31, 2001                      |                   | $ | 222,692        |          |                   | $ | 222,692 |         
|                                       |                   |   |                |          |                   |   |         |         

R. Reclassifications

Certain reclassifications have been made in prior years financial
statements to conform to classifications and presentation used in the current
year.

S. Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company
and all its majority-owned and controlled subsidiaries. The Company has a 15%
joint ownership interest in Seabrook, a 1,150 megawatt nuclear generating unit.
The Company records in its financial statements its proportional share of
Seabrooks assets, liabilities and expenses. The Company applies the equity
method of accounting for investments between 20% and 50%. All significant
intercompany transactions have been eliminated. All sale of subsidiary stock
are accounted for as capital transactions. At December 31, 1999, BayCorp owned
100% of HoustonStreet. As of December 31, 2000 and as of December 31, 2001, the
Company owned 45.9% of HoustonStreet. Of the 54.1% of HoustonStreet that is
not owned by the Company, approximately 3.1% is owned by Elliott Associates
L.P. and approximately 1.9% is owned by Omega Advisors Inc., both of whom are
5% or more shareholders of the Company. The remaining 49.1% is owned by
unrelated parties. As a result of the above decrease in ownership, during
2000, the Company deconsolidated HoustonStreet. At December 31, 2000 and
December 31, 2001, the Company accounts for this investment on the equity
method. The 1999 financial statements present HoustonStreet on a consolidated
basis. (See Note 12.) The Company has an agreement with HoustonStreet under
which it is providing certain accounting and administrative services to
HoustonStreet for the periods April 1999 to December 2001 and for the calendar
year 2002. Income related to such services was $165,000 for the period ending
December 31, 2001 and $641,400 for the period ended December 31, 2000.

T. Long-Lived Assets and Long-Lived Assets to be Disposed Of.

SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, requires that long-lived assets held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review of the recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. This statement requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The sales agreement with NU established
a minimum expected value for the Companys investment in the Seabrook plant.
The Company estimates that the current carrying amount for the respective
investment is the lower of the carrying amount or fair value less cost to sell
in accordance with SFAS No. 121. In October 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived Assets, which
replaces SFAS No. 121. This new statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Although SFAS
No. 144 supersedes SFAS No. 121, it retains the fundamental provisions of SFAS
No. 121 regarding recognition/measurement of impairment of long-lived assets to
be held and used and measurement of long-lived assets to be disposed of by
sale. Under SFAS No. 144, asset write-downs from discontinuing a business
segment will be treated the same as other assets held for sale. The new
statement also broadens the financial statement presentation of discontinued
operations to include the disposal

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of an asset group (rather than a segment of a business segment). SFAS No.
144 is effective beginning January 1, 2002 and, generally is to be applied
prospectively. Although the Company is studying the potential impacts of
adopting this new statement, the Company does not expect it will have a
significant impact on its financial position or results of operations.

U. Financial Instrument Disclosure.

The estimated fair value of the Companys financial instruments as of
December 31, 2001 and 2000 are as follows:

|                           |  |                 |        |            |  |                 |        |            |  |   |         |   |  |   |         |  
|-------------------------- |  | --------------- | ------ | ---------- |  | --------------- | ------ | ---------- |  | - | ------- | - |  | - | ------- | -
|                           |  | 2001            |        | 2000      
|                           |  |                 |        |           
|                           |  | Carrying Amount |        | Fair Value |  | Carrying Amount |        | Fair Value
|                           |  |                 |        |            |  |                 |        |           
|Cash & Cash Equivalents    |  | $               | 15,278 |            |  | $               | 15,278 |            |  | $ | 9,071   |   |  | $ | 9,071   |  
|Restricted Cash  Escrow   |  |                 | 1,903  |            |  |                 | 1,903  |            |  |   | 2,016   |   |  |   | 2,016   |  
|Short Term Investments     |  |                 |       |            |  |                 |       |            |  |   | 3,022   |   |  |   | 3,022   |  
|Decommissioning Trust Fund |  |                 | 32,048 |            |  |                 | 32,048 |            |  |   | 28,146  |   |  |   | 28,146  |  
|Firm Forward Contracts     |  |                 |       |            |  |                 |       |            |  |   | (12,879 | ) |  |   | (12,879 | )

The carrying amounts approximate fair value because of the short maturity of
these instruments.

V. Detail of Accruals and Other Current Liabilities

Miscellaneous current liabilities consisted of the following as of
December 31, 2001 and 2000:

|                                          |  |      |       |      |  |   |        | 
|----------------------------------------- |  | ---- | ----- | ---- |  | - | ------ | 
|                                          |  | 2001 |       | 2000
|                                          |  |      |       |     
|Unrealized Loss on Firm Forward Contracts |  | $    |      |      |  | $ | 12,879 | 
|Accrued Seabrook Costs                    |  |      | 900   |      |  |   | 103    | 
|Accrued Outage Costs                      |  |      | 3,336 |      |  |   | 624    | 
|Accrued Taxes                             |  |      | 617   |      |  |   | 612    | 
|Accrued Other                             |  |      | 681   |      |  |   | 447    | 
|                                          |  |      |       |      |  |   |        | 
|                                          |  | $    | 5,534 |      |  | $ | 14,665 | 
|                                          |  |      |       |      |  |   |        | 

2. NUCLEAR ISSUES

Like other nuclear generating facilities, the Seabrook Project is subject
to extensive regulation by the NRC. The NRC is empowered to authorize the
siting, construction and operation of nuclear reactors after consideration of
public health, safety, environmental and antitrust matters.

The NRC has promulgated numerous requirements affecting safety systems,
fire protection, emergency response planning and notification systems and other
aspects of nuclear plant construction, equipment and operation. Great Bay and
Little Bay have been, and may be, affected to the extent of their proportionate
shares by the cost of any such modifications to Seabrook Unit 1.

Nuclear units in the United States have been subject to widespread
criticism and opposition. Some nuclear projects have been canceled following
substantial construction delays and cost overruns as the result of licensing
problems, unanticipated construction defects and other difficulties. Various
groups have by litigation, legislation and participation in administrative
proceedings sought to prohibit the completion and operation of nuclear units
and the disposal of nuclear waste. In the event of a shutdown of any unit, NRC
regulations require that it be completely decontaminated of any residual
radioactivity. The cost of such decommissioning, depending on the
circumstances, could substantially exceed the owners investment at the time of
cancellation.

Public controversy concerning nuclear power could adversely affect the
operating license of Seabrook Unit 1. While the Company cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.

With continued uncertainty about the possibility of additional terrorist
activities in the United States, the Nations nuclear power plants, including
the Seabrook Project, remain at a high level of security. On February 25, 2002,
the NRC issued an order to all nuclear plant licensees, requiring them to take
certain additional interim compensatory measures to address the generalized
high-level threat environment. These additional compensatory requirements will
provide the NRC with reasonable assurance that public health and safety and the
common defense and security continue to be adequately protected in the current
generalized high-level threat environment. These requirements will remain in
effect pending notification from the NRC that a significant change in the
threat

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environment occurs, or until the NRC determines that other changes are
needed following a more comprehensive reevaluation of current safeguards and
security programs. Seabrook remains at a high level of security and will take
actions necessary to comply with the NRC order setting out the requirements for
interim compensatory measures. Compliance with these requirements will result
in additional incremental operating and capital costs. Should additional
security measures be required by the NRC, additional operating or capital costs
could be incurred at the Seabrook Project.

A. Nuclear Fuel

The Seabrook Projects managing agent has made, or expects to make,
various arrangements for the acquisition of uranium concentrate, the
conversion, enrichment, fabrication and utilization of nuclear fuel and the
disposition of that fuel after use. Many of these arrangements are pursuant to
multi-year contracts with concentrate and service providers. Based on the
Seabrook Projects existing contractual arrangements, Great Bay and Little Bay
believe that the Seabrook Project has available, or under supply contracts,
sufficient nuclear fuel for operations through approximately 2004. Uranium
concentrate and conversion, enrichment and fabrication services currently are
available from a variety of sources. The cost of such concentrate and such
services varies based upon market forces.

Costs associated with nuclear plant operations include amounts for nuclear
waste disposal, including spent fuel, as well as for the ultimate
decommissioning of the plants. The Nuclear Waste Policy Act of 1982 (the
NWPA) requires the DOE, subject to various contingencies, to design, license,
construct and operate a permanent repository for high-level radioactive waste
and spent nuclear fuel, which are collectively referred to as high-level
waste.

The joint owners of the Seabrook Project, through their managing agent
NAESCO, entered into contracts with the DOE for high-level waste disposal in
accordance with the NWPA. Under these contracts and the NWPA, the DOE was
required to take title to and dispose of the Seabrook Projects high-level
waste beginning no later than January 31, 1998. The DOE has not met its
contractual and statutory requirements under the NWPA calling for the DOE to
begin accepting spent fuel from the industry by January 1998. The DOE announced
that its first high-level waste repository will not be in operation until 2010
at the earliest.

As a result of this delay, many states and nuclear plant operators,
including NAESCO, sued the DOE for injunctive relief and monetary damages. Two
U.S. Courts of Appeals ordered the DOE to proceed with its high-level waste
disposal obligations and ruled that plant operators are entitled to monetary
damages from DOE. However, there can be no assurance that the Seabrook Project
will collect damages from the DOE because, among other things, NAESCOs case
against the DOE is still pending. Until the DOE begins receiving nuclear waste
materials in accordance with the NWPA and its contracts, nuclear plants such as
Seabrook must retain high-level waste on-site or make other storage provisions.
NAESCO has advised the Company that the Seabrook Project has adequate on-site
storage capacity for high-level waste until approximately 2008

In May 2001, the DOE issued a supplement to the 1999 draft Environmental
Impact Statement of Yucca Mountain in Nevada, and public hearings on this
document were held in the May-June 2001 period. On February 14, 2002, the DOE
recommended to President Bush that Yucca Mountain in Nevada be developed as the
nations first long-term geologic repository for the disposal of spent nuclear
fuel and high-level nuclear waste. On February 15, 2002 the President notified
Congress that he considers Yucca Mountain qualified for a construction permit
application, taking the next step in a series of steps required for approving
the site as a nuclear materials repository.

The Low-Level Radioactive Waste Policy Act of 1980 requires each state to
provide disposal facilities for low-level waste (LLW) generated within the
state, either by constructing and operating facilities or by joining regional
compacts with other states to jointly fulfill their responsibilities. However,
the Low-Level Radioactive Waste Policy Amendments Act of 1985 permits each
state in which a currently operating disposal facility is located (South
Carolina, Nevada and Washington) to impose volume limits and a surcharge on
shipments of LLW from states that are not members of their regional compact.

The Seabrook Project ships certain LLW to privately owned facilities in
South Carolina and Utah. Since 1999, the Project has been shipping LLW to a
processing facility in Tennessee where the material is subjected to separation
and volume reduction methods to minimize the final volume to be disposed at a
burial site. All LLW generated by the Seabrook Project that exceeds the maximum
radioactivity level of LLW accepted by these facilities is currently stored
on-site at the Seabrook facility. LLW from normal Seabrook Project operations
will continue to be generated at a slow rate as a result of aggressive efforts
at the Seabrook Project to minimize this material. NAESCO has advised the
Company that the Seabrook Projects capacity for on-site storage of LLW is
expected to be sufficient to meet the projects storage requirements through
2006.

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B. Federal Department of Energy Decontamination and Decommissioning Assessment

Title XI of the Energy Policy Act of 1992 (the Policy Act) provides for
decontaminating and decommissioning of the Federal DOEs enrichment facilities
to be partially funded by a special assessment against domestic utilities. Each
utilitys share of the assessment is to be based on its cumulative consumption
of DOE enrichment services. As of December 31, 2001, the Company had accrued
its pro rata estimated obligation of $482,000 related to the projects prior
years usage to be paid over the 15-year period beginning October 1, 1992.

C. Price Anderson Act

In accordance with the Price Anderson Act, the limit of liability for a
nuclear-related accident is approximately $9.5 billion, effective November 18,
1994. The primary layer of insurance for this liability is $200 million of
coverage provided by the commercial insurance market. The secondary coverage is
approximately $9.3 billion, based on the 106 nuclear units (103 operating units
and three units that still handle used fuel) in the United States. The
secondary layer is based on a retrospective premium assessment of $88.1 million
per nuclear accident per licensed reactor, payable at a rate not exceeding $10
million per year per reactor. In addition, the retrospective premium is subject
to inflation based indexing at five year intervals and, if the sum of all
public liability claims and legal costs arising from any nuclear accident
exceeds the maximum amount of financial protection available, then each
licensee can be assessed an additional 5% ($4.4 million) of the maximum
retrospective assessment. With respect to the Seabrook Project, Great Bay and
Little Bay would be obligated to pay their ownership share of any assessment
resulting from a nuclear incident at any United States nuclear generating
facility. Great Bay and Little Bay estimate their maximum liability per
incident currently would be an aggregate amount of approximately $13.2 million
per accident, with a maximum annual assessment of about $1.5 million per
incident, per year.

The Seabrook Joint Owners are subject to retroactive assessments if losses
under those policies exceed the accumulated funds available to the insurer. The
maximum potential assessments against the Joint Owners with respect to losses
arising during the current policy year for the primary property insurance
program and the excess property damage policies are approximately $8.2 million
and $10.2 million, respectively. The Companys combined 15% share is $1.2
million and $1.5 million, respectively.

D. Nuclear Insurance

Insurance has been purchased by the Seabrook Project from Nuclear Electric
Insurance Limited (NEIL) to cover the costs of property damage,
decontamination or premature decommissioning resulting from a nuclear incident
and American Nuclear Insurance/Mutual Atomic Energy Liability Underwriters
(ANI) to cover workers claims. All companies insured with NEIL and ANI are
subject to retroactive assessments, if losses exceed the accumulated funds
available to NEIL and ANI, respectively. The maximum potential assessment
against the Seabrook Project with respect to losses arising during the current
policy years are $10.9 million. The Companys liability for the retrospective
premium adjustment for any policy year ceases six years after the end of that
policy year unless prior demand has been made.

Great Bay and Little Bay also independently purchase business interruption
insurance from Nuclear Electric Insurance Limited (NEIL). The current policy
is in effect from April 1, 2001 until April 1, 2002 and a renewal policy has
been signed which will be in effect from April 1, 2002 until April 1, 2003. The
policy provides for the payment of a fixed weekly loss amount of $600,000 in
the event of an outage at the Seabrook Project of more than 23 weeks resulting
from property damage occurring from a sudden fortuitous event, which happens
by chance, is unexpected and unforeseeable. The maximum amount payable to
Great Bay and Little Bay is a total of $81.1 million. Under the terms of the
policy, Great Bay and Little Bay are subject to a potential retrospective
premium adjustment of up to approximately $789,000 should NEILs board of
directors deem that additional funds are necessary to preserve the financial
integrity of NEIL. Since NEIL was founded in 1980, there has been no
retrospective premium adjustment; however, there can be no assurance that NEIL
will not make retrospective adjustments in the future. The liability for this
retrospective premium adjustment ceases six years after the end of the policy
unless prior demand has been made.

The board and management of NEIL has announced, that in light of the
events of September 11, 2001, the current coverage for terrorism will remain
available under all the NEIL policies, but with the addition of a provision
regarding the maximum recoveries available for multiple terrorism occurrences.
The NEIL board approved the following changes to the NEIL policy forms to
respond to the increased potential of multiple terrorism losses at insured
sites: (1) increase the multiple for the maximum retrospective premium
adjustments from five to ten; and (2) provide specifically for the use of NEIL
resources for multiple losses resulting from terrorism within one year. Under
this provision, all losses occurring within 12 months from the date of the
first loss would share a single recovery of $3.24 billion plus any amounts NEIL
recovers from reinsurers or the government, with priority for the property
claims

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over accidental outage claims.

3. TAXES ON INCOME

The following is a summary of the provision (benefit) for income taxes for
the years ended December 31, 2001, 2000 and 1999:

|        |          |   |                        |     |              |   |              |     |  |   |   |        |  
|------- | -------- | - | ---------------------- | --- | ------------ | - | ------------ | --- |  | - | - | ------ | -
|        |          |   | December 31,           |     | December 31, |   | December 31,
|        |          |   | 2001                   |     | 2000         |   | 1999        
|        |          |   |                        |     |              |   |             
|        |          |   | (Dollars in Thousands)
|Federal |          |   |                        |     |              |   |              |     |  |   |   |       
|        | Current  |   | $                      |    |              |   | $            | 50  |  |   | $ | (3,426 | )
|        | Deferred |   |                        |    |              |   |              |    |  |   |   | 3,426  |  
|        |          |   |                        |     |              |   |              |     |  |   |   |        |  
|        |          | $ |                       |     |              | $ | 50           |     |  | $ |  |       
|        |          |   |                        |     |              |   |              |     |  |   |   |        |  
|State   |          |   |                        |     |              |   |              |     |  |   |   |       
|        | Current  |   | $                      | 225 |              |   | $            | 562 |  |   | $ | (817   | )
|        | Deferred |   |                        |    |              |   |              |    |  |   |   | 817    |  
|        |          |   |                        |     |              |   |              |     |  |   |   |        |  
|        |          | $ | 225                    |     |              | $ | 612          |     |  | $ |  |       
|        |          |   |                        |     |              |   |              |     |  |   |   |        |  

Accumulated deferred income taxes consisted of the following at December
31, 2001 and 2000:

|                                           |                                  |   |                        |         |      |   |         |         |  
|------------------------------------------ | -------------------------------- | - | ---------------------- | ------- | ---- | - | ------- | ------- | -
|                                           |                                  |   | 2001                   |         | 2000
|                                           |                                  |   |                        |         |     
|                                           |                                  |   | (Dollars in Thousands)
|Assets                                     |                                  |   |                        |         |      |   |         |        
|                                           | Net operating loss carryforwards |   | $                      | 71,212  |      |   | $       | 75,003  |  
|                                           | Decommissioning expense          |   |                        | 7,968   |      |   |         | 6,696   |  
|                                           | Unfunded pension expense         |   |                        | 2,244   |      |   |         | 2,044   |  
|                                           | Accrued outage expense           |   |                        | (916    | )    |   |         | (1,974  | )
|                                           | Inventory                        |   |                        | 651     |      |   |         | 564     |  
|                                           | Other, net                       |   |                        | 2,028   |      |   |         | 9,177   |  
|Liabilities                                |                                  |   |                        |         |      |   |         |        
|                                           | Utility plant                    |   |                        | (29,013 | )    |   |         | (30,008 | )
|                                           |                                  |   |                        |         |      |   |         |        
|Accumulated deferred income tax asset      |                                  |   | 54,174                 |         |      |   | 61,502  |        
|Valuation allowance                        |                                  |   | (54,174                | )       |      |   | (61,502 | )      
|                                           |                                  |   |                        |         |      |   |         |        
|Accumulated deferred income tax asset, net |                                  | $ |                       |         |      | $ |        |        
|                                           |                                  |   |                        |         |      |   |         |        

The federal income tax provision set forth above represents 0% of pre-tax
loss in the years ended December 31, 2001, 2000 and 1999. The following table
reconciles the statutory federal income tax rate to those percentages:

|                                                                               |                         |   |                        |        |              |   |              |       |   |   |        |       | 
|------------------------------------------------------------------------------ | ----------------------- | - | ---------------------- | ------ | ------------ | - | ------------ | ----- | - | - | ------ | ----- | 
|                                                                               |                         |   | December 31,           |        | December 31, |   | December 31,
|                                                                               |                         |   | 2001                   |        | 2000         |   | 1999        
|                                                                               |                         |   |                        |        |              |   |             
|                                                                               |                         |   | (Dollars in Thousands)
|Income (Loss) before taxes                                                     |                         | $ | 21,029                 |        |              | $ | (21,333      | )     |   | $ | (4,899 | )    
|Federal statutory rate                                                         |                         |   | 34                     | %      |              |   | 34           | %     |   |   | 34     | %    
|Federal income tax liability (benefit) at statutory
Levels                     |                         |   | 7,150                  |        |              |   | (7,253       | )     |   |   | (1,666 | )    
|Decrease (increase) from statutory levels State tax net
of federal tax benefit |                         |   | 225                    |        |              |   | 562          |       |   |   | (817   | )    
|                                                                               | Valuation allowance     |   |                        | (7,328 | )            |   |              | 7,242 |   |   |        | 2,394 | 
|                                                                               | Alternative minimum tax |   |                        |       |              |   |              | 50    |   |   |        |      | 
|                                                                               | Other                   |   |                        | (47    | )            |   |              | (24   | ) |   |        | 89    | 
|                                                                               |                         |   |                        |        |              |   |              |       |   |   |        |      
|Total Provision                                                                |                         | $ |                       |        |              | $ | 50           |       |   | $ |       |      
|                                                                               |                         |   |                        |        |              |   |              |       |   |   |        |      

Valuation allowances have been provided against any deferred tax assets,
net due to the limitations on the use of carryforwards, discussed below, and
the uncertainty associated with future taxable income. The valuation allowance
of $56,086,000 as of December 31, 1994, if subsequently recognized, will be
allocated directly to paid in capital.

For federal income tax purposes, as of December 31, 2001, the Company had
net operating loss carry forwards (NOLs) of approximately $209 million, which
are scheduled to expire between 2004 and 2019. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $115 million of these carryforwards. The
Companys best estimate at this time is that the annual limitation on the use
of $115 million of the Companys NOLs is approximately $5.5 million per year.
Any unused portion of the $5.5 million annual limitation applicable to the
Companys restricted NOLs is available for use in future years until such NOLs
are scheduled to expire. The Companys other $94 million of NOLs are not
currently subject to such limitations.

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4. ENERGY MARKETING

The Company utilized unit contingent and firm forward sales contracts to
maximize the value of its 174 MW power supply from the Seabrook Project. The
Company had not entered into any forward firm energy trading contracts as of
December 31, 2001, nor does it expect to in 2002, in light of its expected sale
of its ownership interest in the Seabrook Project in 2002. As a result, as of
December 31, 2001, the Company had no unrealized loss or gain on the
mark-to-market of forward firm energy trading contracts recorded in accrued
expenses. The net change in unrealized gain on trading activities for the year
ended December 31, 2001 was $12,879,000 and is included in the accompanying
consolidated statement of income for 2001. As of December 31, 2000, the Company
had a net unrealized loss of approximately $12,879,000 recorded in accrued
expenses. The net change in unrealized loss on trading activities for the year
ended December 31, 2000 was $12,232,000 and is included in the accompanying
consolidated statement of income for 2000.

5. PURCHASED POWER AGREEMENTS

Great Bay is party to a purchased power agreement, dated as of April 1,
1993 (the UNITIL Purchased Power Agreement), with UNITIL Power Corporation
(UNITIL) that provides for Great Bay to sell to UNITIL 0.8696% of the energy
and capacity of Seabrook, approximately 10 MW. The UNITIL Purchased Power
Agreement commenced on May 1, 1993 and runs through October 31, 2010. The
current price of power under the UNITIL Purchased Power Agreement is 5.38 cents
per kilowatt-hour (kWh). The price is subject to increase in accordance with
a formula that provides for adjustments at less than the actual rate of
inflation. UNITIL has an option to extend the UNITIL Purchased Power Agreement
for an additional 12 years until 2022.

The UNITIL Purchased Power Agreement was front-end loaded whereby UNITIL
paid higher prices, on an inflation-adjusted basis, in the early years of the
Agreement and lower prices in later years. The amount of the excess paid by
UNITIL in the early years of the UNITIL Purchased Power Agreement was
quantified in a Balance Account which increased annually to a total of $4.1
million in July 1998, and then decreased annually, reaching zero in July 2001.
If the UNITIL Purchased Power Agreement had terminated prior to its scheduled
termination, and if at that time there was a positive amount in the Balance
Account, Great Bay would have been obligated to refund that amount to UNITIL
Power. To secure the obligation of Great Bay to repay UNITIL the amount in the
Balance Account, the UNITIL Purchased Power Agreement granted UNITIL a Second
Mortgage on Great Bays interest in the Seabrook Project. As a result of the
Balance Account reaching zero in July 2001, the Second Mortgage was discharged
by UNITIL in August 2001.

To secure the obligation of Great Bay under the UNITIL Purchased Power
Agreement to pay damages in the event of a default by Great Bay, the UNITIL
Purchased Power Agreement grants UNITIL a Third Mortgage on Great Bays
interest in the Seabrook Project. The Third Mortgage is subject and subordinate
to (i) senior mortgages and security agreements securing Great Bays
indebtedness to lenders in an aggregate amount not to exceed $80,000,000 and
(ii) other mortgages that may be granted by Great Bay to other purchasers of
power from Great Bay to secure a Balance Account or similar obligation. The
UNITIL Purchased Power Agreement further provides that UNITILs Third Mortgage
will rank pari passu with other mortgages that may be granted by Great Bay to
other purchasers of power from Great Bay to secure potential payment of damages
or similar obligations.

Great Bay originally entered into a power sales agreement, dated as of
November 19, 1999, with Little Bay. Great Bay and Little Bay renewed this
agreement on November 19, 2001 for a one-year term ending November 19, 2002.
Under the terms of the agreement, Little Bay sells at cost, and Great Bay
purchases, all of the output of the portion of Seabrook owned by Little Bay.
This agreement is a unit power sale agreement. Accordingly, when all or part of
Little Bays interest in Seabrook is not producing, the obligation of Little
Bay to sell (and of Great Bay to purchase) is proportionately eliminated. The
agreement can be terminated at any time by mutual consent of the parties, after
any notice required by law.

In February 2001, Great Bay executed a Purchase Power Agreement with
Select Energy (Select) whereby Great Bay sold 50 MWs of energy associated
with the Seabrook Project to Select in exchange for 25 MWs of energy associated
with Millstone Unit 2 and 25 MWs of energy associated with Millstone Unit 3.
Millstone is a nuclear power plant located in Connecticut. The term of this
agreement was April 1, 2001 through December 31, 2001. Delivery of power from
either company was contingent on each of the units operating at a certain
capacity.

As part of the agreement, Select made a prepayment of $3.7 million to
Great Bay in February 2001 and a second prepayment of $3.3 million in March
2001. Great Bay compensated Select for the prepayments by (i) paying 12% annual
interest for the period from February 6, 2001 through March 31, 2001 and (ii)
giving Select a price differential for the power being exchanged until such
time as the Select prepayment had been repaid. In order to collateralize the
transaction, Great Bay and Little Bay each provided Select with a

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##### Table of Contents



mortgage lien and security interest in their respective interests in the
Seabrook Project. Great Bay repaid Select in 2001 and the mortgage liens and
security interests were released as of July 2001 and there was no price
differential in exchanging power throughout the remaining term of the
agreement.

6. STOCK OPTION PLAN

On April 24, 1995, the Board of Directors of the Company established the
1995 Stock Option Plan (the 1996 Plan), which received shareholder approval
at the Companys annual meeting on April 16, 1996. On May 2, 2001 the Board of
Directors of the Company established the 2001 Non-Statutory Stock Option Plan
(the 2001 Plan). The 2001 Plan was presented for shareholder approval at the
Companys annual meeting on April 24, 2002. The purpose of these plans is to
secure for the Company and its shareholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company who are expected to contribute to the Companys future
growth and success. Options granted pursuant to the 1996 Plan may be either
incentive stock options meeting the requirements of Section 422 of the Internal
Revenue Code or nonstatutory options, which are not intended to meet the
requirements of Section 422. Options granted pursuant to the 2001 plan will be
non-statutory options that are not intended to meet the requirements of Section
422 of the Internal Revenue Code. The 1996 Plan and the 2001 Plan are
administered by the Board of Directors of the Company and may be modified or
amended by the Board in any respect, subject to shareholder approval in certain
instances.

The Company accounts for the plans under Accounting Principles Board
Opinion No. 25, and as such no compensation cost has been recognized as the
options are granted at fair market value.

On December 3, 1998, the Board of Directors of the Company voted to
reprice all of the outstanding options of the Company, at that date, as the
then outstanding options were out of the money. The Board of Directors
determined that the then outstanding options no longer had the desired
motivational effect or compensatory benefit for the employees. The repricing of
the options was based on the current market value of the stock as of December
18, 1998. Simultaneously with the repricing, 139,583 existing options were
forfeited.

FASB Interpretation No. 44, Accounting for Certain Transactions involving
Stock Compensation(FIN 44), effective July 1, 2000 and applied prospectively,
(except for direct or indirect option repricings and the definition of an
employee in which case the effective date is December 15, 1998), addresses
compensation issues regarding the definition of an employee, modifications to
plan awards, changes in grantee status, business combinations and share
repurchase features. For transactions subject to the December 15, 1998
effective date, no compensation expense is recognized for the period between
December 15, 1998 and July 1, 2000. FIN 44 requires variable accounting when
direct or indirect reductions of the exercise price occur. During 2000, the
Board of Directors of the Company accelerated the vesting period of the options
held by certain employees of the Company. In accordance with FIN 44, the
Company recorded compensation expense related to the repriced options and the
accelerated options of $110,000. Compensation expense for 2001 for these
options was $358,000.

In October 2001, the Company issued 240,000 options to management under
the 2001 plan. The options have an exercise price of $9.05 and vest only upon
completion of a sale of the Seabrook facility.

Had compensation cost for these Plans been determined consistent with SFAS
No. 123, Accounting for Stock Based Compensation, the Companys net income and
earnings per share would have been reduced to the following pro forma amounts.

|                                                |           |   |        |        |      |   |         |         |   |   |        |        |  
|----------------------------------------------- | --------- | - | ------ | ------ | ---- | - | ------- | ------- | - | - | ------ | ------ | -
|                                                |           |   | 2001   |        | 2000 |   | 1999   
|                                                |           |   |        |        |      |   |        
|Net Income (Loss): As Reported                  |           | $ | 20,804 |        |      | $ | (21,945 | )       |   | $ | (4,740 | )     
|                                                | Pro Forma |   |        | 18,517 |      |   |         | (23,056 | ) |   |        | (5,146 | )
|Earnings (Loss) Per Share (Basic): As Reported  |           | $ | 2.49   |        |      | $ | (2.65   | )       |   | $ | (0.58  | )     
|                                                | Pro Forma |   |        | 2.22   |      |   |         | (2.78   | ) |   |        | (0.63  | )
|Earnings (Loss)Per Share (Diluted): As Reported |           | $ | 2.43   |        |      | $ | (2.65   | )       |   | $ | (0.58  | )     
|                                                | Pro Forma |   |        | 2.16   |      |   |         | (2.78   | ) |   |        | (0.63  | )

A summary of the Companys stock option plan at December 31, 2001, 2000
and 1999, and changes during the years then ended, is presented in the table
and narrative below:

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|                                               |  |        |           |       |  |          |      |       |  |        |          |          |  |   |      |  |  |          |         |   |  |   |      | 
|---------------------------------------------- |  | ------ | --------- | ----- |  | -------- | ---- | ----- |  | ------ | -------- | -------- |  | - | ---- |  |  | -------- | ------- | - |  | - | ---- | 
|                                               |  | 2001   |           | 2000  |  | 1999    
|                                               |  |        |           |       |  |         
|                                               |  |        |           |       |  | Weighted |      |       |  |        |          | Weighted |  |   |      |  |  | Weighted
|                                               |  |        |           |       |  | Average  |      |       |  |        |          | Average  |  |   |      |  |  | Average 
|                                               |  |        |           |       |  | Exercise |      |       |  |        |          | Exercise |  |   |      |  |  | Exercise
|                                               |  | Shares |           | Price |  | Shares   |      | Price |  | Shares |          | Price   
|                                               |  |        |           |       |  |          |      |       |  |        |          |         
|Outstanding at beginning of year               |  |        | 711,001   |       |  | $        | 6.14 |       |  |        | 700,917  |          |  | $ | 5.36 |  |  |          | 417,417 |   |  | $ | 4.92 | 
|Granted                                        |  |        | 410,500   |       |  | $        | 9.30 |       |  |        | 132,400  |          |  | $ | 9.40 |  |  |          | 323,500 |   |  | $ | 2.88 | 
|Exercised                                      |  |        | (67,000   | )     |  | $        | 6.31 |       |  |        | (102,316 | )        |  | $ | 5.01 |  |  |          | (40,000 | ) |  | $ | 4.90 | 
|Forfeited                                      |  |        |          |       |  |          |      |       |  |        | (20,000  | )        |  | $ | 4.75 |  |  |          |        |   |  |   |      | 
|Expired                                        |  |        | (7,800    | )     |  |          |      |       |  |        |         |          |  |   |      |  |  |          |        |   |  |   |      | 
|Outstanding at end of year                     |  |        | 1,046,701 |       |  | $        | 7.39 |       |  |        | 711,001  |          |  | $ | 6.14 |  |  |          | 700,917 |   |  | $ | 5.36 | 
|Exercisable at end of year                     |  |        | 682,034   |       |  | $        | 7.24 |       |  |        | 571,668  |          |  | $ | 5.86 |  |  |          | 476,005 |   |  | $ | 4.92 | 
|Weighted average fair value of
options granted |  |        |           |       |  | $        | 7.06 |       |  |        |          |          |  | $ | 6.85 |  |  |          |         |   |  | $ | 3.66 | 

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2001, 2000 and 1999:

|                         |  |             |           |                  |  |                   |     |             |  |          |       |  |  |          |         |  |  |   |       | 
|------------------------ |  | ----------- | --------- | ---------------- |  | ----------------- | --- | ----------- |  | -------- | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|                         |  |             |           |                  |  | Weighted Exercise |     | Weighted    |  |          |       |  |  | Weighted
|                         |  | Number      |           | Remaining        |  | Average           |     | Number      |  | Average 
|                         |  | of Shares   |           | Contractual Life |  | Exercise          |     | of Shares   |  | Exercise
|Range of Exercise Prices |  | Outstanding |           | in Years         |  | Price             |     | Exercisable |  | Price   
|                         |  |             |           |                  |  |                   |     |             |  |         
|2001                     |  |             |           |                  |  |                   |     |             |  |          |       |  |  |          |         |  |  |   |       | 
|$2.88 - $4.32            |  |             | 40,000    |                  |  |                   | 4.3 |             |  | $        | 2.88  |  |  |          | 40,000  |  |  | $ | 2.88  | 
|$4.33 - $6.50            |  |             | 300,601   |                  |  |                   | 1.8 |             |  | $        | 4.84  |  |  |          | 300,601 |  |  | $ | 4.84  | 
|$6.51 - $9.74            |  |             | 545,600   |                  |  |                   | 5.8 |             |  | $        | 8.25  |  |  |          | 230,933 |  |  | $ | 7.69  | 
|$9.75 - $12.69           |  |             | 160,500   |                  |  |                   | 6.3 |             |  | $        | 10.40 |  |  |          | 110,500 |  |  | $ | 10.47 | 
|Total                    |  |             | 1,046,701 |                  |  |                   | 4.7 |             |  | $        | 7.39  |  |  |          | 682,034 |  |  | $ | 6.60  | 
|2000                     |  |             |           |                  |  |                   |     |             |  |          |       |  |  |          |         |  |  |   |       | 
|$2.88 - $4.32            |  |             | 40,000    |                  |  |                   | 5.3 |             |  | $        | 2.88  |  |  |          | 40,000  |  |  | $ | 2.88  | 
|$4.33 - $6.50            |  |             | 316,601   |                  |  |                   | 2.7 |             |  | $        | 4.82  |  |  |          | 316,601 |  |  | $ | 4.82  | 
|$6.51 - $9.74            |  |             | 337,600   |                  |  |                   | 5.1 |             |  | $        | 7.55  |  |  |          | 198,267 |  |  | $ | 7.72  | 
|$9.75 - $12.69           |  |             | 16,800    |                  |  |                   | 3.9 |             |  | $        | 12.69 |  |  |          | 16,800  |  |  | $ | 12.69 | 
|Total                    |  |             | 711,001   |                  |  |                   | 4.0 |             |  | $        | 6.19  |  |  |          | 571,668 |  |  | $ | 5.86  | 
|1999                     |  |             |           |                  |  |                   |     |             |  |          |       |  |  |          |         |  |  |   |       | 
|$2.88 - $4.32            |  |             | 60,000    |                  |  |                   | 6.3 |             |  | $        | 2.88  |  |  |          | 60,000  |  |  | $ | 2.88  | 
|$4.33 - $6.50            |  |             | 416,917   |                  |  |                   | 3.4 |             |  | $        | 4.82  |  |  |          | 416,005 |  |  | $ | 4.82  | 
|$6.51 - $9.74            |  |             | 224,000   |                  |  |                   | 5.5 |             |  | $        | 6.88  |  |  |          | 0       |  |  |   | 0     | 
|Total                    |  |             | 700,917   |                  |  |                   | 4.3 |             |  | $        | 5.31  |  |  |          | 476,005 |  |  | $ | 4.45  | 

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for grants in 2001, 2000 and 1999 respectively: weighted average risk-free
interest rates of 4.9, 6.4 and 5.5 percent, expected dividend yields of 0 % and
expected lives of seven years and expected volatility of 67%, 71% and 54%,
respectively.

7. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivatives fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivatives gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.

SFAS No. 133, as amended by SFAS No. 137, was effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired or substantively
modified after December 31, 1997 (and, at the companys election, before
January 1, 1998).

The Company completed its review and implementation of SFAS No. 133,
effective January 1, 2001. The Company has taken an

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##### Table of Contents



inventory of its contracts and identified the forward sale and purchase
contracts that were marked to market in accordance with EITF 98-10, as
derivatives under SFAS No. 133. The Company did not identify any other
contracts to be derivatives under SFAS No. 133. The Company will continue to
mark to market its forward sale and purchase contracts in accordance with EITF
98-10 and EITF 00-17 and thus the adoption of SFAS No.133 did not have an
impact on the Companys financial position or results of operations.

Additional new Statements of Financial Accounting Standards were approved
and issued by the FASB in 2001. These statements are described in Footnotes
1(H) and 1(T) of the financial statements.

8. PROPERTY TAXES

For each of the tax years 1994, 1995, 1996, 1997 and 1998, Great Bay filed
property tax abatement applications with the towns of Hampton and Hampton
Falls. The abatement requests were denied. Great Bay filed appeals for each of
those years with the New Hampshire Board of Tax and Land Appeals (the BTLA).
On November 11, 1999, Great Bay reached agreements settling the property tax
litigation. As a result of the settlement agreement, Great Bay received
$146,450 from the Town of Hampton and $21,967 from the Town of Hampton Falls.
With regard to Hampton Falls, the settlement established an assessed valuation
of $7,000,000 for 1999 and $2,500,000 for 2000. With regard to the Town of
Hampton, the settlement established an assessed valuation of $20,000,000 for
1999 and $15,000,000 for 2000. On November 19, 2001, Great Bay approved an
Addendum to the Settlement Agreement dated November 11, 1999. This addendum
extended the property tax settlement agreements through December 2002. With
regard to Hampton Falls, the addendum established an assessed valuation of
$3,000,000 for 2001 and $2,500,000 for 2002. With regard to the Town of
Hampton, the settlement established an assessed valuation of $17,000,000 for
2001 and $16,000,000 for 2002.

9. COMMITMENTS AND CONTINGENCIES

BayCorp and its wholly owned subsidiaries currently lease office space
under noncancelable operating leases. Rental expense under operating lease
agreements for the years ended December 31, 2001, 2000 and 1999 was $101,325,
$78,747 and $96,500, respectively.

Future minimum commitments for operating leases as of December 31, 2001
are as follows:

|                  |  |                  |         | 
|----------------- |  | ---------------- | ------- | 
|Year Ending       |  | Operating Leases
|                  |  |                 
|December 31, 2002 |  | $                | 60,000  | 
|December 31, 2003 |  |                  | 60,000  | 
|December 31, 2004 |  |                  | 60,000  | 
|December 31, 2005 |  |                  | 60,000  | 
|December 31, 2006 |  |                  | 60,000  | 
|                  |  |                  |         | 
|Total             |  | $                | 300,000 | 
|                  |  |                  |         | 

10. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

HoustonStreet developed and operates HoustonStreet.com. During 1999,
HoustonStreet developed and operated a platform for the trading of electricity
over the Internet. As of December 31, 1999, the Company owned 100% of
HoustonStreet.

During 2000, the Company loaned $7,000,000 to HoustonStreet at an annual
interest rate of 10%. As of December 31, 2000, the Company also had
approximately $570,000 in receivables due from HoustonStreet.

HoustonStreet raised additional capital in 2000 to fund its development
and operations. In February 2000, HoustonStreet raised $11,0000,000 in cash by
issuing 4,814,815 shares of common stock at $0.415 per share and 2,400,001
shares of Series A preferred stock at $3.75 per share. The Companys ownership
in HoustonStreet at the end of February 2000 was 58.1%. In March 2000,
HoustonStreet raised $5,600,005 in cash by issuing 266,667 shares of its common
stock at $3.75 per share and 1,226,668 shares of Series A preferred stock at
$3.75 per share. The Companys ownership in HoustonStreet at the end of March
2000 was 53.5%. In April 2000, HoustonStreet raised $13,500,000 by issuing
133,334 shares of Series A preferred stock at $3.75 per share and 1,083,334
shares of Series B preferred stock at $12.00 per share. The Companys
ownership in HoustonStreet at the end of April 2000 was 50.2%. In May 2000,
HoustonStreet received approximately $4,998 from the exercise of an employee
stock option. The Companys ownership in HoustonStreet at the end of May 2000
was 50.0%. On December 4, 2000, HoustonStreet signed an agreement with Enron
Net Works LLC to have electricity and natural gas prices that are posted on
EnronOnline automatically posted on HoustonStreet. HoustonStreet issued Enron
1,781,043 shares of common stock in exchange for this agreement. As a result,
as of December 4, 2000, the Companys ownership in HoustonStreet was 45.9%.
The Company reflected its proportionate share of

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##### Table of Contents



subsidiary equity resulting from the additional equity raised by
HoustonStreet as a capital transaction in accordance with SEC Staff Accounting
Bulletin Topic 5:H. These sell down gains resulted in an unrealized gain for
2000 of approximately $6.7 million recorded as additional paid in capital in
the accompanying statement of changes in shareholders equity.

As a result of its capital raising activities in 2000, on December 4, 2000
HoustonStreet sold an amount of its own stock such that BayCorp no longer had
majority ownership in or control over HoustonStreet. In 2000, the Company
recorded its portion of the operating losses for the period during which the
Company owned more than 50% of HoustonStreet. The loss for this period was
$22,258,967. As of December 4, 2000, the Company deconsolidated HoustonStreet
and started accounting for this investment on the equity method effective for
the full year ended December 31, 2000. The Companys equity method investment
upon deconsolidation was negative (HoustonStreets losses exceeded the
Companys investment in HoustonStreet) and the Company wrote its investment to
zero. At the point of deconsolidation, the Companys investment balance was
approximately negative $11.2 million. As BayCorp had no obligation to fund
HoustonStreet, a gain was recognized when HoustonStreet was deconsolidated. As
a result of all of the above, an equity loss in investment of $11,077,000 was
reflected in the Companys 2000 financial statements.

|                                                              |  |                |             |  
|------------------------------------------------------------- |  | -------------- | ----------- | -
|                                                              |  | Balance Sheet 
|                                                              |  | Reconciliation
|                                                              |  |               
|Carrying Value at December 31, 1999                           |  | $              | (3,216,957  | )
|Companys Sell Down Gains                                     |  |                | 6,725,185   |  
|Companys Equity in HoustonStreet Loss as of December 4, 2000 |  |                | (22,258,967 | )
|Loan to HoustonStreet                                         |  |                | 7,000,000   |  
|Receivable due from HoustonStreet                             |  |                | 569,766     |  
|                                                              |  |                |             |  
|Carrying Value at December 4, 2000                            |  |                | (11,180,973 | )
|Gain on Deconsolidation at December 4, 2000                   |  |                | 11,180,973  |  
|                                                              |  |                |             |  
|Carrying Value at December 31, 2000                           |  | $              | 0           |  
|                                                              |  |                |             |  

|                                                               |  |                  |             |  
|-------------------------------------------------------------- |  | ---------------- | ----------- | -
|                                                               |  | Income Statement
|                                                               |  | Reconciliation  
|                                                               |  |                 
|Companys Equity in HoustonStreet Loss as of December 4, 2000  |  | $                | (22,258,967 | )
|Gain on Deconsolidation at December 4, 2000                    |  |                  | 11,180,973  |  
|                                                               |  |                  |             |  
|Companys Equity in HoustonStreet Loss as of December 31, 2000 |  | $                | (11,077,994 | )
|                                                               |  |                  |             |  

In June 2001, HoustonStreet issued 426,667 shares of its common stock to
settle amounts owed to a creditor of HoustonStreet. The Companys ownership in
HoustonStreet at the end of June 2001 was 45%. In December 2001, HoustonStreet
cancelled 850,521 shares of common stock previously issued to Enron in 2000.
Enron terminated the agreement between HoustonStreet and Enron based on
allegations that HoustonStreet had defaulted under the agreement. The
agreement provided for the cancellation of certain shares upon this termination
by Enron. HoustonStreet believes that Enron wrongfully terminated its
agreement with HoustonStreet and is pursuing its rights and remedies under the
contract. Also in December 2001, HoustonStreet repurchased 281,650 shares of
Series A preferred stock from certain investors for $3.00. The Companys
ownership in HoustonStreet at the end of December 2001 was 47.5%.

Under the equity method in 2001, the Company did not recognize
HoustonStreet operating losses as the Company was no longer a majority owner
and did not have voting control of HoustonStreet. In March 2001, the Company
loaned an additional $450,000 in cash to HoustonStreet as part of a senior
secured debt financing. The secured creditors, including BayCorp, have a first
priority secured interest in all of HoustonStreets assets. The Company
recorded this loan as an equity loss in HoustonStreet in 2001 because it was
uncertain if and when this amount would be recovered given the termination of
the agreement with Enron that followed in June 2001. The table below reflects
the pro rata portion of operating losses attributable to BayCorps interest in
HoustonStreet for 2000 and 2001.

|                             |  |      |             |      |  |   |             |  
|---------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | -
|HoustonStreet                |  | 2000 |             | 2001
|                             |  |      |             |     
|Total assets                 |  | $    | 11,958,624  |      |  | $ | 1,256,362   |  
|Total liabilities            |  |      | 15,395,770  |      |  |   | 14,784,077  |  
|Net sales                    |  |      | 523,393     |      |  |   | 1,899,498   |  
|Net loss                     |  |      | (40,046,837 | )    |  |   | (14,936,899 | )
|Companys equity in net loss |  |      | (22,258,967 | )    |  |   | (6,856,037  | )

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As of December 31, 2001, HoustonStreet had ceased operation of its
electricity trading platform and focused exclusively on its crude oil and
refined products trading platform. The Company had no investments or
receivables from HoustonStreet recognized on the accompanying balance sheet.

11. RESTATEMENT OF PRIOR PERIOD
FINANCIAL STATEMENTS

Historical financial statements of the Company have been amended to (i)  restate the Companys 1999 financial statements to present
HoustonStreet Exchange, Inc. (HoustonStreet) on a consolidated basis
for 1999 and to include HoustonStreet financial statements and footnotes
for 1999, 2000 and 2001, (ii) record an increase in 2000 in the value of
the Companys ownership in HoustonStreet and an offsetting increase to
additional paid in capital of approximately $6.7 million, as a result of
HoustonStreets sale of additional equity; this increase in the Companys
investment in HoustonStreet increased the Companys 2000 loss by $6.7
million, (iii) record a decrease of approximately $448,000 in 2000 and an
increase of approximately $659,000 in 2001 in general and administrative
expenses for compensation costs related to repriced and accelerated
options and costs associated with moving the Companys headquarters, (iv)
record an increase in 2001 tax expenses of $225,000 based on actual taxes
incurred, and (v) reclassify decommissioning accretion and
decommissioning interest on the Consolidated Statements of Income from
Other Income/Deductions to Operating Expenses for all periods presented.
These restatements are all non-cash adjustments to the Companys
financial statements. The Footnotes have been modified to reflect these
restatements. The amendments also include minor financial statement
reclassifications and other modifications to the Footnotes.

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##### Table of Contents



The following Report of Independent Public Accountants is a copy of the
previously issued Arthur Andersen LLP report on HoustonStreet Exchange, Inc.
Arthur Andersen LLP has not reissued this report.

HOUSTONSTREET EXCHANGE, INC.

Consolidated Financial Statements
as of December 31, 2000 and 1999
Together with Auditors Report

Report of Independent Public Accountants

To the Board of Directors of
HoustonStreet Exchange, Inc.:

We have audited the accompanying consolidated balance sheets of
HoustonStreet Exchange, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 2000 and 1999 and the related consolidated statements of
operations, shareholders deficit and cash flows for the year ended December
31, 2000 and for the period from inception (April 27, 1999) to December 31,
1999. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
HoustonStreet Exchange, Inc. as of December 31, 2000 and 1999 and the results
of its operations and its cash flows for the year ended December 31, 2000 and
for the period from inception to December 31, 1999 in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations, since inception, has a net capital deficiency and expects to incur
additional losses that, along with current conditions in the capital markets,
raise substantial doubt about the Companys ability to continue as a going
concern. Managements plans in regard to these matters are also described in
Note 1 and Note 12. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

| |  |                    
| |  | -------------------
| |  | ARTHUR ANDERSEN LLP

Boston, Massachusetts
March 30, 2001

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HOUSTONSTREET EXCHANGE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999

|                                                     |                                  |                                                                                                     |                                             |             |         |             |           |            |         |            |  
|---------------------------------------------------- | -------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------- | ----------- | ------- | ----------- | --------- | ---------- | ------- | ---------- | -
|                                                     |                                  |                                                                                                     |                                             |             | 2000    |             | 1999     
|                                                     |                                  |                                                                                                     |                                             |             |         |             |          
|ASSETS                                               |                                  |                                                                                                     |                                             |             |         |             |           |           
|Current Assets:                                      |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     | Cash and cash equivalents        |                                                                                                     | $                                           | 4,499,466   |         |             | $         | 133,471    |        
|                                                     | Restricted cash                  |                                                                                                     |                                             | 223,145     |         |             |           |           |        
|                                                     | Accounts receivable              |                                                                                                     |                                             | 183,877     |         |             |           | 9,424      |        
|                                                     | Other current assets             |                                                                                                     |                                             | 303,150     |         |             |           | 29,397     |        
|                                                     |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     |                                  |                                                                                                     | Total current assets                        |             |         | 5,209,638   |           |            |         | 172,292    |  
|Property and Equipment (Note 3)                      |                                  |                                                                                                     | 7,794,747                                   |             |         |             | 3,098,530 |           
|Accumulated Depreciation                             |                                  |                                                                                                     | (2,752,595                                  | )           |         |             | (286,407  | )         
|                                                     |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     |                                  |                                                                                                     | Total property and equipment, net           |             |         | 5,042,152   |           |            |         | 2,812,123  |  
|Intangible Assets, net of amortization (Note 2)      |                                  |                                                                                                     | 1,706,834                                   |             |         |             |          |           
|                                                     |                                  |                                                                                                     | Total assets                                |             | $       | 11,958,624  |           |            | $       | 2,984,415  |  
|                                                     |                                  |                                                                                                     |                                             |             |         |             |           |           
|LIABILITIES AND SHAREHOLDERS DEFICIT                |                                  |                                                                                                     |                                             |             |         |             |           |           
|Current Liabilities:                                 |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     | Accounts payable                 |                                                                                                     | $                                           | 6,246,730   |         |             | $         | 1,962,948  |        
|                                                     | Accounts payable to parent       |                                                                                                     |                                             | 569,766     |         |             |           |           |        
|                                                     | Accrued expenses                 |                                                                                                     |                                             | 1,579,269   |         |             |           | 111,383    |        
|                                                     | Notes payable to parent (Note 5) |                                                                                                     |                                             | 7,000,000   |         |             |           | 4,127,041  |        
|                                                     |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     |                                  |                                                                                                     | Total current liabilities                   |             |         | 15,395,765  |           |            |         | 6,201,372  |  
|Commitments and Contingencies (Note 8)               |                                  |                                                                                                     |                                             |             |         |             |           |           
|Series A preferred stock; $0.01 par value  (Note 6) |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     | Authorized3,760,003 shares      |                                                                                                     |                                             |             |         |             |           |            |        
|                                                     | Outstanding3,760,003 shares     |                                                                                                     |                                             | 14,100,011  |         |             |           |           |        
|Series B preferred stock; $0.01 par value  (Note 6) |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     | Authorized 2,333,334 shares      |                                                                                                     |                                             |             |         |             |           |            |        
|                                                     | Outstanding1,083,334 shares     |                                                                                                     |                                             | 13,000,008  |         |             |           |           |        
|Preferred Stock of Subsidiary (Note 6)               |                                  |                                                                                                     | 7,333,334                                   |             |         |             |          |           
|Shareholders Deficit: (Note 6)                      |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     | Common stock; $0.01 par value   |                                                                                                     |                                             |             |         |             |           |            |        
|                                                     |                                  | Authorized50,000,000 shares                                                                        |                                             |             |         |             |           |            |         |           
|                                                     |                                  | Issued and outstanding16,922,525 and 10,000,000
shares at December 31,
2000 and 1999, respectively |                                             |             | 169,225 |             |           |            | 100,000 |           
|                                                     | Additional paid-in capital       |                                                                                                     |                                             | 5,404,075   |         |             |           | 80,000     |        
|                                                     | Accumulated deficit              |                                                                                                     |                                             | (43,443,794 | )       |             |           | (3,396,957 | )      
|                                                     |                                  |                                                                                                     |                                             |             |         |             |           |           
|                                                     |                                  |                                                                                                     | Total shareholders deficit                 |             |         | (37,870,494 | )         |            |         | (3,216,957 | )
|                                                     |                                  |                                                                                                     | Total liabilities and shareholders deficit |             | $       | 11,958,624  |           |            | $       | 2,984,415  |  
|                                                     |                                  |                                                                                                     |                                             |             |         |             |           |           

The accompanying notes are an integral part of these consolidated financial statements.

F-26



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HOUSTONSTREET EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD
FROM INCEPTION TO DECEMBER 31,1999

|                                            |                  |                                 |                               |          |            |             |            |         |           |            |  
|------------------------------------------- | ---------------- | ------------------------------- | ----------------------------- | -------- | ---------- | ----------- | ---------- | ------- | --------- | ---------- | -
|                                            |                  |                                 |                               |          | 2000       |             | 1999      
|                                            |                  |                                 |                               |          |            |             |           
|Operating Revenues (Note 1)                 |                  | $                               | 523,393                       |          |            | $           | 59,186     |        
|Operating Expenses: (Note 1)                |                  |                                 |                               |          |            |             |            |        
|                                            |                  | Selling and marketing           |                               |          | 6,886,306  |             |            |         | 972,203   |           
|                                            |                  | Product development             |                               |          | 11,796,000 |             |            |         | 893,126   |           
|                                            |                  | General and administrative      |                               |          | 14,742,000 |             |            |         | 1,208,312 |           
|                                            |                  | Depreciation and amortization   |                               |          | 2,540,396  |             |            |         | 286,407   |           
|                                            |                  | Impairment write-down of assets |                               |          | 4,714,559  |             |            |         | 0         |           
|                                            |                  |                                 |                               |          |            |             |            |        
|                                            |                  |                                 | Total operating expenses      |          |            | 40,679,261  |            |         |           | 3,360,048  |  
|                                            |                  |                                 | Operating loss                |          |            | (40,155,868 | )          |         |           | (3,300,862 | )
|Other Income and Expense                    |                  |                                 |                               |          |            |             |            |        
|                                            | Interest Expense |                                 |                               | (195,627 | )          |             |            | (97,482 | )        
|                                            | Interest Income  |                                 |                               | 337,816  |            |             |            | 1,387   |          
|                                            | Other Expenses   |                                 |                               | (33,158  | )          |             |            |        |          
|                                            |                  |                                 |                               |          |            |             |            |        
|                                            |                  |                                 | Total Other Income (Expenses) |          |            | 109,031     |            |         |           | (96,095    | )
|                                            |                  |                                 | Net loss                      |          | $          | (40,046,837 | )          |         | $         | (3,396,957 | )
|                                            |                  |                                 |                               |          |            |             |            |        
|Basic and Diluted Net Loss per Common Share |                  | $                               | (2.71                         | )        |            | $           | (0.34      | )      
|                                            |                  |                                 |                               |          |            |             |            |        
|Weighted Average Shares Outstanding         |                  |                                 | 14,781,705                    |          |            |             | 10,000,000 |        
|                                            |                  |                                 |                               |          |            |             |            |        

The accompanying notes are an integral part of these consolidated financial statements.

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HOUSTONSTREET EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS DEFICIT
FOR THE YEAR ENDED DECEMBER
31, 2000 AND FOR THE PERIOD
FROM INCEPTION THRU
DECEMBER 31, 1999

|                           |                                                                                        |  |              |            |            |   |         |         |         |   |             |           |               |   |             |             |   |   |             |             |  
|-------------------------- | -------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---------- | - | ------- | ------- | ------- | - | ----------- | --------- | ------------- | - | ----------- | ----------- | - | - | ----------- | ----------- | -
|                           |                                                                                        |  | Common Stock |            | Additional |   |         |         |         |   | Total      
|                           |                                                                                        |  | Shares       |            |            |   |         |         | Paid-in |   | Accumulated |           | Shareholders'
|                           |                                                                                        |  | Issued       |            | Amount     |   | Capital |         | Deficit |   | Deficit    
|                           |                                                                                        |  |              |            |            |   |         |         |         |   |            
|Balance, Inception         |                                                                                        |  |             |            |            | $ |        |         |         | $ |            |           |               | $ |            |             |   | $ |            |            
|                           | Issuance of common stock, $0.01
par value                                              |  |              | 10,000,000 |            |   |         | 100,000 |         |   |             | 80,000    |               |   |             |            |   |   |             | 180,000     |  
|                           | Preferred stock, $0.01 par value                                                       |  |              |           |            |   |         |        |         |   |             |          |               |   |             |            |   |   |             |            |  
|                           | Net loss                                                                               |  |              |            |            |   |         |         |         |   |             |           |               |   |             | (3,396,957  | ) |   |             | (3,396,957  | )
|                           |                                                                                        |  |              |            |            |   |         |         |         |   |             |           |               |   |             |             |   |   |             |            
|Balance, December 31, 1999 |                                                                                        |  | 10,000,000   |            |            | $ | 100,000 |         |         | $ | 80,000      |           |               | $ | (3,396,957  | )           |   | $ | (3,216,957  | )          
|                           | Issuance of common stock, $0.01
par value                                              |  |              | 5,081,482  |            |   |         | 50,815  |         |   |             | 2,949,187 |               |   |             |            |   |   |             | 3,000,002   |  
|                           | Issuance of common stock in
exchange for an intangible
asset, $0.01 par value (Note 2) |  |              | 1,781,043  |            |   |         | 17,810  |         |   |             | 1,763,233 |               |   |             |            |   |   |             | 1,781,043   |  
|                           | Exercise of stock options                                                              |  |              | 60,000     |            |   |         | 600     |         |   |             | 4,398     |               |   |             |            |   |   |             | 4,998       |  
|                           | Issuance of warrants in                                                                |  |              |            |            |   |         |         |         |   |             |           |               |   |             |             |   |   |             |             |  
|                           | exchange for services (Note 6)                                                         |  |              |           |            |   |         |        |         |   |             | 607,257   |               |   |             |            |   |   |             | 607,257     |  
|                           | Net loss                                                                               |  |              |           |            |   |         |        |         |   |             |          |               |   |             | (40,046,837 | ) |   |             | (40,046,837 | )
|                           |                                                                                        |  |              |            |            |   |         |         |         |   |             |           |               |   |             |             |   |   |             |            
|Balance, December 31, 2000 |                                                                                        |  | 16,922,525   |            |            | $ | 169,225 |         |         | $ | 5,404,075   |           |               | $ | (43,443,794 | )           |   | $ | (37,870,494 | )          
|                           |                                                                                        |  |              |            |            |   |         |         |         |   |             |           |               |   |             |             |   |   |             |            

The accompanying notes are an integral part of these consolidated financial statements.

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HOUSTONSTREET EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD
FROM INCEPTION THRU DECEMBER 31, 1999

|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |            |            |           |            |  
|------------------------------------------------- | -------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------ | ----------------------------------------- | ----------- | --------- | ----------- | ---------- | ---------- | --------- | ---------- | -
|                                                  |                                                    |                                                                             |                                |                                           |             | 2000      |             | 1999      
|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |           
|Operating Activities:                             |                                                    |                                                                             |                                |                                           |             |           |             |           
|                                                  |                                                    | Net loss                                                                    |                                | $                                         | (40,046,837 | )         |             | $          | (3,396,957 | )        
|                                                  |                                                    | Adjustments to reconcile net loss to net cash used in operating activities |                                |                                           |             |           |             |            |            |          
|                                                  |                                                    |                                                                             | Depreciation and amortization  |                                           |             | 2,540,396 |             |            |            | 286,407   |           
|                                                  |                                                    |                                                                             | Impairment writedown of assets |                                           |             | 4,714,559 |             |            |            | 0         |           
|                                                  |                                                    | Changes in operating assets and liabilities                                |                                |                                           |             |           |             |            |            |          
|                                                  |                                                    |                                                                             | Accounts receivable            |                                           |             | (174,453  | )           |            |            | (9,424    | )         
|                                                  |                                                    |                                                                             | Other current assets           |                                           |             | (273,753  | )           |            |            | (29,397   | )         
|                                                  |                                                    |                                                                             | Accounts payable               |                                           |             | 4,283,782 |             |            |            | 1,962,948 |           
|                                                  |                                                    |                                                                             | Accounts payable to parent     |                                           |             | 569,766   |             |            |            |          |           
|                                                  |                                                    |                                                                             | Accrued expenses               |                                           |             | 1,467,886 |             |            |            | 111,383   |           
|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |            |            |          
|                                                  |                                                    |                                                                             |                                | Net cash used in operating activities     |             |           | (26,918,654 | )          |            |           | (1,075,040 | )
|Investing Activities:                             |                                                    |                                                                             |                                |                                           |             |           |             |           
|                                                  | Purchases of property and equipment                |                                                                             |                                | (8,803,518                                | )           |           |             | (3,098,530 | )         
|                                                  |                                                    | Change in restricted cash                                                   |                                |                                           | (223,145    | )         |             |            |           |          
|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |            |            |          
|                                                  |                                                    |                                                                             | (9,026,663                     | )                                         |             |           | (3,098,530  | )         
|Financing Activities:                             |                                                    |                                                                             |                                |                                           |             |           |             |           
|                                                  | Proceeds from issuance of common stock             |                                                                             |                                | 3,000,002                                 |             |           |             | 180,000    |           
|                                                  | Proceeds from exercise of stock options            |                                                                             |                                | 4,998                                     |             |           |             |           |           
|                                                  | Proceeds from issuance of Series A preferred stock |                                                                             |                                | 14,100,011                                |             |           |             |           |           
|                                                  | Proceeds from issuance of Series B preferred stock |                                                                             |                                | 13,000,008                                |             |           |             |           |           
|                                                  | Proceeds from preferred stock of subsidiary        |                                                                             |                                | 7,333,334                                 |             |           |             |           |           
|                                                  | Notes payable to parent                            |                                                                             |                                | 2,872,959                                 |             |           |             | 4,127,041  |           
|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |            |            |          
|                                                  |                                                    |                                                                             |                                | Net cash provided by financing activities |             |           | 40,311,312  |            |            |           | 4,307,041  |  
|                                                  |                                                    |                                                                             |                                | Net increase in cash and cash equivalents |             |           | 4,365,995   |            |            |           | 133,471    |  
|Cash and Cash Equivalents, beginning of period    |                                                    |                                                                             | 133,471                        |                                           |             |           |            |           
|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |            |            |          
|Cash and Cash Equivalents, end of year            |                                                    | $                                                                           | 4,499,466                      |                                           |             | $         | 133,471     |           
|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |            |            |          
|Supplemental Disclosure of Cash Flow Information: |                                                    |                                                                             |                                |                                           |             |           |             |           
|                                                  | Cash paid during the period for interest           |                                                                             | $                              |                                          |             |           | $           | 96,095     |           
|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |            |            |          
|                                                  | Cash paid during the period for taxes              |                                                                             | $                              |                                          |             |           | $           |           |           
|                                                  |                                                    |                                                                             |                                |                                           |             |           |             |            |            |          

The accompanying notes are an integral part of these consolidated financial statements.

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HOUSTONSTREET EXCHANGE, INC.




NOTES TO FINANCIAL STATEMENTS


DECEMBER 31, 2000


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

HoustonStreet Exchange, Inc. (HoustonStreet or the Company) developed and
operates HoustonStreet.com, an Internet-based trading platform and information
portal for wholesale energy-related commodities. HoustonStreet offers online
trading exchanges for electricity, crude oil and refined products in the United
States and exchanges for electricity in Europe. The Company was incorporated
in Delaware on April 27, 1999 (inception). HoustonStreet initially launched
its Internet-based wholesale electricity trading exchange in the Northeast in
July 1999 and nationwide in September 1999. In May 2000, HoustonStreet
launched exchanges for crude oil, refined products and a new electricity
platform dedicated to standard products trading. In September 2000,
HoustonStreet launched an exchange for electricity in Europe with trading
floors for the United Kingdom, Germany, Belgium, Switzerland, Austria and the
Netherlands.

During fiscal year 2000, the Company established a new subsidiary,
HoustonStreet B.V. (United Kingdom), for the purpose of providing related
services primarily to European companies (HoustonStreet Exchange Europe).

The Company is subject to certain risks common to rapidly growing
technology-based companies. Principal risks to the Company include the need to
obtain adequate financing to fund future expansion and operations, dependence
on key employees and suppliers, competition and market acceptance, the need to
manage growth and expansion and the need for successful marketing, development
and protection of its products and services to achieve profitable future
operations.

The Company has incurred losses of $43,443,794 from inception through
December 31, 2000 and expects to incur additional losses. These losses have
been funded through borrowings from BayCorp Holdings (an affiliated company)
and the sale of common and preferred stock of the Company and its subsidiary.
The future viability of the Company is dependent on its ability to obtain
necessary additional financing and to generate cash from operations. The
Company intends to continue to obtain additional equity and debt financing in
order to further develop its products and markets and to meet working capital
requirements. Nonetheless, there can be no assurance that the Company will be
able to raise additional capital.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its majority owned subsidiary, HoustonStreet B.V. All
significant intercompany balances and transactions have been eliminated.

Statement of Financial Accounting Standards (SFAS) No. 52, Foreign
Currency Translation, establishes standards of financial accounting and
reporting for foreign currency transactions in financial statements of a
reporting enterprise and for translating foreign currency financial statements
that are incorporated in the financial statements of an enterprise by
consolidation.

Transaction gains or losses realized upon settlement of a foreign currency
transaction are included in the income statement. The Company determined that
the functional and the reporting currency of its subsidiary is the U.S. dollar.
The effects of translation of their financial statements are immaterial to the
consolidated statements as a whole.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

Cash and Cash Equivalents

Cash equivalents are carried at cost plus accrued interest, which
approximates fair value. The Company considers all highly liquid investments
with an original maturity date of three months or less to be cash equivalents.

Restricted Cash

Restricted cash at December 31, 2000 represents cash that is required to
be held in escrow in accordance with a lease agreement for the Companys office
space in Portsmouth, New Hampshire.

Revenue Recognition

Operating revenue consists of commissions for megawatt hours and thousands
of barrels (BBLS) traded on HoustonStreet.com and is recognized once the terms
of the trade have been accepted by both parties to the trade.

Selling and Marketing Expenses

Selling and marketing expenses include advertising and promotional
expenditures, payroll and expenses related for personnel engaged in marketing,
customer service and related activities.

Product Development Expenses

Product development expenses include payroll and related expenses for Web
site development and information technology personnel and Web content and
design expenses.

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation, requires that stock
awards granted subsequent to January 1, 1995 be recognized as compensation
expense based on their fair value at the date of grant. Alternatively, a
company may use Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and disclose pro forma income amounts that would
have resulted from recognizing employee awards at their fair value. The
Company has elected to account for employee stock-based compensation expense
under APB Opinion No. 25 and make the required pro forma disclosures for
compensation (see Note 7).

Income Taxes

The Company records income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, the liability method is used
in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using enacted tax
rates. A valuation allowance is established against deferred tax assets unless
the Company believes it is more likely than not that the benefit will be
realized.

Long-Lived Assets and Long-Lived Assets to Be Disposed Of

SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company reviewed its
computer and software assets at December 31, 2000 and determined that there was
an impairment of $4,714,559 related to such assets. The related charge is
included in operating expenses in the accompanying consolidated statement of
operations for the year ended December 31, 2000.

Fair Value of Financial Instruments

The Companys financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable and notes payable. The
carrying amount of the Companys cash and cash equivalents, accounts receivable
and accounts payable approximates

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

fair value due to the short-term nature of
these instruments. At December 31, 2000, the notes payable to parent bears
interest at 10% and the carrying amount approximates fair value. The notes
payable at December 31, 1999 bear interest at a variable market rate and the
carrying amount approximates fair value.

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted
number of common shares outstanding for all periods presented. Diluted net
loss per share reflects the dilutive effect of shares under option plans,
warrants and convertible preferred stock. Potentially dilutive shares, if any,
outstanding during the period have been excluded from diluted net loss per
share because their effect would be anti-dilutive.

The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of the basic and diluted
earnings per share outstanding:

|                                                                                                                                        |  |                           |            |      |  |  |            | 
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ---- |  |  | ---------- | 
|                                                                                                                                        |  | Period Ended December 31,
|                                                                                                                                        |  |                          
|                                                                                                                                        |  | 2000                      |            | 1999
|                                                                                                                                        |  |                           |            |     
|Weighted average number of common
shares outstanding and used in basic
and diluted EPS calculation                                      |  |                           | 14,781,705 |      |  |  | 10,000,000 | 
|                                                                                                                                        |  |                           |            |      |  |  |            | 
|Shares under option plans, warrants
and convertible preferred stock,
excluded in computation of diluted
EPS due to antidilutive effects |  |                           | 4,971,186  |      |  |  | 215,804    | 

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, requiring computer
software costs associated with internal-use software to be expensed as incurred
until certain capitalization criteria are met. The Company adopted SOP 98-1
for the period ending December 31, 1999.

In April 1998, the AICPA issued SOP 98-5, Reporting on Costs of Start-up
Activities, requiring all costs associated with preopening, preoperating and
organization activities to be expensed as incurred. The Company has charged
all such costs to operations for the periods ending December 31, 2000 and 1999.

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities.In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging ActivitiesDeferral of the Effective Date of SFAS No. 133,and in June
2000, issued SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Activities,an amendment to SFAS No. 133. This Statement, SFAS No. 133
as amended, establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in
the derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivatives gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.

SFAS No. 133, as amended, is effective for fiscal years beginning after
June 15, 2000. The Company completed its review and implementation of SFAS No.
133, effective January 1, 2001. The Company did not identify any contracts
that qualify as derivatives under SFAS No. 133.

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

2. TRANSACTION WITH ENRONONLINE

On December 4, 2000, the Company issued 1,781,043 shares of common stock
to Enron Net Works LLC, an affiliate of Enron North America Corp (Enron).
Enron owns and operates EnronOnline, an electronic energy trading platform.
The common stock was issued along with the right for Enron to receive (earn) an
additional 763,305 shares of the Companys common stock based upon volumes
transacted over a linked trading platform and warrants to acquire an additional
2,544,347 shares of the common stock of the Company, at par, within 60 days
after the first anniversary date on which the two sites are electronically
connected (Technology Interface Date). In addition, Enron has the right, at
any time prior to the Companys initial public offering, to purchase common
stock offered by the Company, at the then offering price, in order to avoid
dilution of Enrons ownership in the Company. In exchange, the Company
received the right to establish a link from HoustonStreets online trading
floor to the online trading floor of Enron. The link allows all offers that
are posted by Enron on its online trading floor to be posted on the
HoustonStreet online trading floor as well. HoustonStreet registered traders
will then have access to offers that are posted by Enron without having to
leave the HoustonStreet Web site. The right is for a two-year period. Enron
may extend the initial term for an additional period of one year upon properly
notifying the Company.

The fair value of the common stock issued on December 4, 2000 has been
recorded by the Company in the accompanying consolidated statement of
shareholders deficit with a corresponding intangible asset of $1,781,043. The
Company is amortizing the asset over the initial two-year period beginning in
December 2000. The balance presented in the accompanying balance sheet is net
of December 2000 amortization of $74,209. This asset will be periodically
reviewed for impairment based on current circumstances and an assessment of
future cash flows.

The right to receive (earn) additional shares will be accounted for as the
trading volume thresholds are met, as defined in the agreement. The warrants,
if exercised, will be accounted for when the final value is fixed on the first
anniversary of the Technology Interface Date.

3. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Expenditures that significantly improve or extend the life of an asset are
capitalized. Computer equipment and software consists of computer hardware,
external software application development costs and costs for upgrades and
enhancements to the system that result in additional functionality.
Maintenance and repairs are charged to expense when incurred. Depreciation of
computer equipment, software, office equipment and furniture is calculated on
the straight-line basis over an estimated useful life of three years.

Property and equipment consist of the following:

|                                               |  |              |            |      |  |   |           |  
|---------------------------------------------- |  | ------------ | ---------- | ---- |  | - | --------- | -
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2000         |            | 1999
|                                               |  |              |            |     
|Computer equipment and software                |  | $            | 7,460,822  |      |  | $ | 2,965,942 |  
|Office equipment and furniture                 |  |              | 333,925    |      |  |   | 132,588   |  
|                                               |  |              |            |      |  |   |           |  
|                                               |  |              | 7,794,747  |      |  |   | 3,098,530 |  
|LessAccumulated depreciation and
amortization |  |              | (2,752,595 | )    |  |   | (286,407  | )
|                                               |  |              |            |      |  |   |           |  
|                                               |  | $            | 5,042,152  |      |  | $ | 2,812,123 |  
|                                               |  |              |            |      |  |   |           |  

Depreciation and amortization expense was $7,254,955 (including a
$4,714,559 impairment charge in 2000, see Note 1) and $286,407 for the periods
ended December 31, 2000 and 1999, respectively.

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

4. ACCRUED EXPENSES

Accrued expenses consist of the following:

|                                            |  |              |           |      |  |   |         | 
|------------------------------------------- |  | ------------ | --------- | ---- |  | - | ------- | 
|                                            |  | December 31,
|                                            |  |             
|                                            |  | 2000         |           | 1999
|                                            |  |              |           |     
|Accrued professional services               |  | $            | 989,351   |      |  | $ | 102,241 | 
|Taxes other than income taxes               |  |              | 17,000    |      |  |   | 9,142   | 
|Accrued employee payroll and
vacation costs |  |              | 265,454   |      |  |   |        | 
|Other accruals                              |  |              | 307,464   |      |  |   |        | 
|                                            |  |              |           |      |  |   |         | 
|                                            |  | $            | 1,579,269 |      |  | $ | 111,383 | 
|                                            |  |              |           |      |  |   |         | 

5. NOTES PAYABLE

On September 21, 2000, the Company entered into a Promissory Note and
Revolving Credit Agreement with BayCorp in the amount of $7,000,000 at a 10%
annual interest rate, due December 31, 2000. As of December 31, 2000,
$7,000,000 was outstanding under this agreement. As this amount has not been
repaid as anticipated, the Company is in default under this agreement as of
December 31, 2000. See footnote 12 for further discussion.

On May 25, 1999, the Company entered into a Promissory Note and Revolving
Credit Agreement with BayCorp in the amount of $1,000,000 and at an annual
interest rate equal to the prime rate (7.5% at December 31, 1999) minus 100
basis points. As of December 31, 1999, $1,000,000 was outstanding under this
agreement. The agreement terminated and the outstanding balance was paid in
full in fiscal year 2000.

On October 7, 1999, the Company entered into a Promissory Note and
Revolving Credit Agreement with BayCorp in the amount of $4,000,000, also at an
annual interest rate equal to the prime rate minus 100 basis points. As of
December 31, 1999, $3,127,041 was outstanding under this agreement. The
agreement terminated and the outstanding balance was paid in full in fiscal
year 2000.

6. STOCK TRANSACTIONS AND SHAREHOLDERS DEFICIT

Authorized Capital

At December 31, 2000, the authorized capital stock of the Company consists
of 50,000,000 shares of common stock, $0.01 par value per share, of which
16,922,525 shares were issued and outstanding; 3,760,003 Series A convertible
preferred shares, authorized, issued and outstanding, $0.01 par value per
share, and 2,333,334 Series B convertible preferred shares, $0.01 par value per
share, authorized, 1,083,334 issued and outstanding.

Preferred Stock

Preferred stock may be issued from time to time in one or more series by
the Board of Directors. Any shares of preferred stock that may be redeemed,
repurchased or acquired by the Company may be reissued, except as otherwise
provided by law. Different series of preferred stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided.

The Company has authorized for issuance 6,093,337 shares of preferred
stock as of December 31, 2000, of which 3,760,003 shares are designated as
Series A convertible preferred stock (Series A stock) and 2,333,334 shares are
designated as Series B convertible preferred stock (Series B stock).

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

Series A and B Convertible Preferred Stock

The rights, preferences and privileges of the Series A and B stock are as
follows:



| |  | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The holders of Series A and B stock will be entitled to receive cash
dividends, when and if declared by the Companys Board of Directors. No
cash dividends may be declared or paid on any other class or series of
HoustonStreet stock unless the dividends have been declared and paid on the
Series A and B stock. The Company does not foresee declaring or paying any
dividends in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Optional Conversion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Each share of Series A or B stock may be converted at any time, at the
option of the holder into one share of common stock. This conversion rate
is subject, with certain exceptions, to weighted average antidilutive
adjustment in the event of subsequent issuances of capital stock for less
than $3.75 per share for the Series A stock and $12.00 per share for the
Series B stock. The Company may issue shares of common stock in connection
with a merger or acquisition or to employees, directors and consultants at
any price without triggering an antidilutive adjustment. This conversion
rate is also subject to proportionate adjustment for stock splits, stock
dividends, combinations and similar recapitalizations.                                                                                                                                                         
|
| |  | Mandatory Conversion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Series A and B stock not converted sooner will be automatically converted
into common stock upon the closing of the Companys initial underwritten
qualified public offering of common stock pursuant to an effective
registration statement under the Securities Act of 1933. A qualified
initial underwritten public offering will be deemed to occur when the
Company sells common stock pursuant to an effective registration statement
under the Securities Act, resulting in gross proceeds to the Company of at
least $25.0 million, at a price to the public of at least $9.50 per share
(as adjusted for stock splits, stock dividends, recapitalizations and
similar events). Under automatic conversion, no adjustments will be made
for accrued and unpaid dividends and no accrued and unpaid dividends will
be paid on the Series A or B stock.                                    
|
| |  | Voting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Each share of Series A and B stock is entitled to a number of votes equal
to the number of shares of common stock into which each such share is then
convertible (initially one). Except as otherwise required by law or the
Companys Certificate of Incorporation, holders of Series A and B stock
vote together with the holders of common stock and all other shares of
capital stock as a single class. Holders of Series A and B stock do not
have cumulative voting rights. The terms of the Series A and B stock may
not be amended so as to affect adversely the Series A and B stock without
the approval of the holders of 75% of the then outstanding shares of Series
A and B stock.                                                                                                                                                                                                
|
| |  | Redemption                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Each holder of at least 5% of the then outstanding shares of Series A or B
stock may request that the Company redeem the holders outstanding shares
of Series A or B stock in three equal annual installments on each of the
fourth, fifth and sixth anniversaries of their initial issuance. The
redemption price is $3.75 per share of Series A stock and $12.00 per share
of Series B stock (subject to appropriate adjustment in the event of stock
dividends, stock splits, combinations or other similar recapitalizations).
This stocks redemption amount is currently equal to its carrying value.
In addition, each holder of at least 5% of the then outstanding shares of
Series A or B stock may request that the Company redeem the holders
outstanding shares of Series A or B stock at any time at a price per share
equal to the par value of the Series A or B stock ($0.01).
|
| |  | Registration Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The holders of shares of Series A and B stock have certain demand
registration rights that enable them to require the Company to register
their shares at any time after the earlier of (i) the third anniversary
date of their initial issuance or (ii) 180 days after                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued



| |  | the closing of the Companys first underwritten public offering. In
addition, holders of Series A and B stock have piggyback registration
rights with respect to offerings by the Company, subject to customary
underwriter cutbacks and other restrictions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Liquidation Preference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | In the event of the voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the holders of Series A stock then outstanding
are entitled to be paid out of the assets of the Company available for
distribution to its stockholders, on a pari passu basis with the holders of
Series B stock then outstanding, after and subject to the payment in full
of all amounts required to be distributed to the holders of capital stock
(if any) ranking on liquidation prior and in preference to the Series A
stock, an amount equal to $3.75 per share and $12.00 per share for the
Series A and B stock, respectively, plus any declared but unpaid on such
shares. After the payment of all liquidation preferences, the Companys
remaining assets available for distribution among stockholders would be
shared by the Companys stockholders holding stock that ranks junior to the
Series A and Series B stock, including common stockholders. A
consolidation or merger of the Company with or into one or more
corporations, or a sale of all or substantially all of the Companys
assets, will be deemed to be a liquidation of the Company. However, each
holder of Series A or B stock may elect otherwise as to that holders
shares of Series A or B stock.

Preferred Stock of Subsidiary

At December 31, 2000, the authorized capital stock of HoustonStreet B.V.
(HS B.V.) consists of 20,000,000 ordinary shares authorized, 10,000,000 of
which is issued, outstanding and owned by the Company, 9,999,997 preference A
shares authorized, 1,629,627 issued and outstanding and 1 preference B share, 1
preference C share and 1 preference D share, authorized, issued and
outstanding. Each share has a nominal value of one Euro cent (EUR 0,01).

During 2000, a total of 1,629,630 preference shares were sold, resulting
in proceeds of $7,333,334 to HS B.V.

Preference shares can be converted into ordinary shares as the request of
the holder thereof made by way of a conversion notice, on a one-to-one basis,
or automatically upon the occurrence of a mandatory conversion event. In the
event of an issue of shares each existing shareholder has a preemption right in
respect of the shares to be issued in proportion to the aggregate nominal
amount of his shares.

No holder of preference shares may transfer stock shares without first
giving notice to HS B.V., and the other preference shareholders and providing
them with the opportunity to purchase on a pro rata basis such shares on the
same terms and conditions as the prospective purchaser of such shares.

In the event of dividend being approved and declared by a resolution of
the general meeting based upon a proposal by the Board, the holders of
preference shares then outstanding are entitled to be paid out an amount equal
to $4.50 per share, and after that, the dividend remaining for distribution
shall be paid to all holders of ordinary shares equally per share, up to a
limit of $4.50 per share, after which the dividend then remaining for
distribution shall be distributed to all shareholders equally on a per share
basis.

In the event of the voluntary or involuntary liquidation, dissolution or
winding-up of HS B.V., the holders of preference shares then outstanding are
entitled to be paid out of the assets of HS B.V. available for distribution to
its shareholders, an amount equal to $4.50 per share, and after that, an amount
equal to any declared but unpaid dividend to which the holders of preference
shares are entitled. The HS B.V.s remaining assets available for distribution
among shareholders shall be paid to all holders of ordinary shares equally per
share, up to a limit of $4.50 per share, after which the assets remaining for
distribution shall be paid to all holders of ordinary shares which have paid
$6.00 for those ordinary shares, up to a limit of $1.50 per share, after which
the assets remaining for distribution shall be distributed to all shareholders
equally on a per share basis.

HS B.V. has authorized and approved an Incentive Warrants Plan and a
Performance Warrants Plan. Under the Incentive Warrants Plan, preferred
shareholders may earn up to 125,000 shares each, based on being involved as a
party in certain trading volumes transacted through HS B.V. within a set period
of time. These warrants have an exercise price of $6.00 per share. No such
warrants were issued as of December 31, 2000.

Under the Performance Warrants Plan, preferred shareholders earn warrants
based on meeting certain requirements within a set period of time. Such
warrants have an exercise price of $4.50 per share. No such warrants were
issued as of December 31, 2000.

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

Common Stock

Except as otherwise required by law or provided in the Companys
Certificate of Incorporation, each share of common stock is entitled to one
vote on all matters to be voted on by stockholders. Holders of common stock do
not have cumulative voting rights. Holders of common stock are entitled to
receive such dividends (if any) as may be declared by the Board of Directors
out of funds legally available therefor. In the event of the voluntary or
involuntary liquidation or dissolution of the Company and after payment of all
creditors and liquidation preferences, including the liquidation preference of
any preferred stock, the holders of common stock are entitled to share the
remaining net assets of the Company.

Warrants

In December 2000, the Company issued 60,000 warrants to a consulting
company with an exercise price equal to $0.01 per share, in exchange for
consulting services provided by such company. The company accounted for the
issuance of such warrants in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation, which establishes the measurement principles for
transactions in which equity instruments are issued in exchange for the receipt
of goods or services. Such transactions are measured at the fair value of the
consideration received or the fair value of the equity instruments issued
according to whichever is more reliably measurable. The Company accounted for
such warrants based on the fair value of the services received. The Company
recorded the expense in the consolidated statements of operations and the
corresponding credit in additional paid-in capital.

7. COMMON STOCK OPTIONS

In June 1999, the Companys Board of Directors (the Board) approved the
Companys 1999 Stock Incentive Plan (the 1999 Plan), which provides for the
grant of incentive and nonqualified stock options for the purchase of up to an
aggregate of 2,000,000 shares of the Companys common stock by management,
employees, consultants, advisors and directors of the Company. On September 7,
2000, the number of shares authorized to be issued pursuant to the 1999 Plan
was increased from 2,000,000 to 3,000,000. As of December 31, 2000, options to
purchase an aggregate of 2,138,708 shares of common stock at a weighted average
option exercise price of $4.16 per share were outstanding under the 1999 Plan.

The 1999 Plan provides for the grant of incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code and nonstatutory
stock options. All of the Companys employees, officers, directors,
consultants and advisors (and any individuals who have accepted an offer for
employment) are eligible to be granted options, restricted stock awards or
other stock-based awards under the 1999 Plan. Under present law, however,
incentive stock options may only be granted to employees.

Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price subject to other terms and conditions,
as specified, in connection with the option grant. The Board establishes the
exercise price at the time each option is granted. Optionees may pay the
exercise price of their options by cash, check or in connection with a cashless
exercise through a broker, by surrender to the Company of shares of common
stock, by delivery to the Company of a promissory note or by any combination of
the permitted forms of payment.

The Companys Board administers the 1999 Plan. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the plan and to interpret its provisions. The Board may
delegate authority under the 1999 Plan to one or more executive officers or
committees of the Board. Subject to any applicable limitations contained in
the 1999 Plan, the Board or any committee to which the Board delegates
authority, as the case may be, selects the recipients of awards and determines
(i) the number of shares of common stock covered by options and the dates upon
which the options become exercisable; (ii) the exercise price of options and
(iii) the duration of the options.

No award may be granted under the 1999 Plan after June 2009, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. The Companys Board of Directors may at any time amend, suspend or
terminate the 1999 Plan.

The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25. However, for pro forma disclosure purposes, the
Company has computed the compensation expense in 2000 and 1999 for all options
granted using the Black-Scholes option pricing model prescribed by SFAS No.
123. The fair value of the options granted in 2000 and 1999 is estimated on the
date of grant using the following assumptions: a dividend yield of 0%, and
expected volatility of 0% and an expected life of seven years for each option
grant, as well as a risk-free interest rate of 6.22% for 2000 and 6.12% for
1999.

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

If the Company had accounted for the Plan in accordance with SFAS No. 123,
the Companys net loss and net loss per share would have been reduced to the
following pro forma amounts:

|                                                         |  |                           |             |      |  |   |            |  
|-------------------------------------------------------- |  | ------------------------- | ----------- | ---- |  | - | ---------- | -
|                                                         |  | Period Ended December 31,
|                                                         |  |                          
|                                                         |  | 2000                      |             | 1999
|                                                         |  |                           |             |     
|Net loss, as reported                                    |  | $                         | (40,046,837 | )    |  | $ | (3,396,957 | )
|Net loss, pro forma                                      |  |                           | (40,684,799 | )    |  |   | (3,452,996 | )
|Basic and diluted net loss per
common share, as reported |  |                           | (2.71       | )    |  |   | (0.34      | )
|Basic and diluted net loss per
common share, pro forma   |  |                           | (2.75       | )    |  |   | (0.35      | )

At December 31, 2000 and 1999, 801,292 and 1,160,000 shares of common
stock were available for future grant under the 1999 Plan.

The following table summarizes information about options outstanding and
exercisable at December 31, 2000 and 1999:

|                               |           |  |           |           |        |   |                |           |          |   |      |      | 
|------------------------------ | --------- |  | --------- | --------- | ------ | - | -------------- | --------- | -------- | - | ---- | ---- | 
|                               |           |  |           |           |        |   | Range of       |           | Weighted
|                               |           |  |           |           |        |   | Exercise       |           | Average 
|                               |           |  | Shares    |           | Prices |   | Exercise Price
|                               |           |  |           |           |        |   |               
|Outstanding, inception         |           |  |          |           |        | $ |               |           |          | $ |     |     
|                               | Granted   |  |           | 840,000   |        |   |                | 0.08-1.25 |          |   |      | 0.87 | 
|                               | Exercised |  |           |          |        |   |                |          |          |   |      |     | 
|                               | Canceled  |  |           |          |        |   |                |          |          |   |      |     | 
|                               |           |  |           |           |        |   |                |           |          |   |      |     
|Outstanding, December 31, 1999 |           |  | 840,000   |           |        |   | 0.08-1.25      |           |          |   | 0.87 |     
|                               | Granted   |  |           | 1,410,800 |        |   |                | 2.75-8.00 |          |   |      | 5.95 | 
|                               | Exercised |  |           | (60,000   | )      |   |                | 0.08      |          |   |      | 0.08 | 
|                               | Canceled  |  |           | (52,092   | )      |   |                | 2.75-8.00 |          |   |      | 4.39 | 
|                               |           |  |           |           |        |   |                |           |          |   |      |     
|Outstanding, December 31, 2000 |           |  | 2,138,708 |           |        | $ | 0.08-8.00      |           |          | $ | 4.16 |     
|                               |           |  |           |           |        |   |                |           |          |   |      |     
|Exercisable, December 31, 2000 |           |  | 615,032   |           |        | $ | 0.08-8.00      |           |          | $ | 2.73 |     
|                               |           |  |           |           |        |   |                |           |          |   |      |     
|Exercisable, December 31, 1999 |           |  |          |           |        |   |               |           |          |   |     |     
|                               |           |  |           |           |        |   |                |           |          |   |      |     

|               |      |          |  |                    |      |                   |  |                     |           |           |  |  |   |  |  |  |         | 
|-------------- | ---- | -------- |  | ------------------ | ---- | ----------------- |  | ------------------- | --------- | --------- |  |  | - |  |  |  | ------- | 
|               |      |          |  | Fair Value at Date |      | Number of Options |  | Remaining           |           | Number of
|Exercise Price |      | of Grant |  | Outstanding        |      | Life in Years     |  | Options Exercisable
|               |      |          |  |                    |      |                   |  |                    
|$              | 0.08 |          |  | $                  | 0.04 |                   |  |                     | 210,000   |           |  |  | 6 |  |  |  | 67,849  | 
|               | 1.25 |          |  |                    | 0.57 |                   |  |                     | 570,000   |           |  |  | 6 |  |  |  | 269,904 | 
|               | 2.75 |          |  |                    | 1.03 |                   |  |                     | 449,977   |           |  |  | 7 |  |  |  | 150,789 | 
|               | 3.75 |          |  |                    | 1.40 |                   |  |                     | 80,000    |           |  |  | 7 |  |  |  | 21,484  | 
|               | 8.00 |          |  |                    | 2.78 |                   |  |                     | 828,731   |           |  |  | 7 |  |  |  | 105,006 | 
|               |      |          |  |                    |      |                   |  |                     |           |           |  |  |   |  |  |  |         | 
|               |      |          |  |                    |      |                   |  |                     | 2,138,708 |           |  |  |   |  |  |  | 615,032 | 
|               |      |          |  |                    |      |                   |  |                     |           |           |  |  |   |  |  |  |         | 

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

HOUSTONSTREET B.V. 2000 STOCK OPTION PLAN

The Company, as the sole shareholder of HoustonStreet B.V. (HS B.V.),
approved and adopted the HS B.V. 2000 Stock Option Plan on October 23, 2000.
The HS B.V. plan authorized the issuance of up to 2,000,000 ordinary shares of
the capital of HS B.V. or the granting of rights to subscribe for such shares,
with a nominal value of EUR 0.01. As of December 31, 2000, 1,156,444 shares
had been granted under this plan with strike prices ranging from $1.25 to $4.00
vesting in the average over three years and having a term of eight years.

8. COMMITMENTS AND CONTINGENCIES

The Company currently leases office and fixed assets under noncancelable
operating leases. Rental expense under operating lease agreements for the year
ended December 31, 2000 and for the period from inception to December 31, 1999
was $128,046 and $26,395, respectively.

Future minimum commitments under these lease agreements as of December 31,
2000 are as follows:

|                         |       |                  |         |           | 
|------------------------ | ----- | ---------------- | ------- | --------- | 
|Year Ending December 31, |       | Operating Leases
|                         |       |                 
|2001                     |       | $                | 495,100 |          
|2002                     |       |                  | 566,924 |          
|2003                     |       |                  | 562,424 |          
|2004                     |       |                  | 562,424 |          
|2005                     |       |                  | 406,684 |          
|Thereafter               |       |                  | 94,324  |          
|                         |       |                  |         |          
|                         | Total |                  | $       | 2,687,880 | 
|                         |       |                  |         |          

9. INCOME TAXES

Due to losses incurred since Inception, there is no income tax benefit in
the periods presented. As of December 31, 2000, the Company had approximately
$32 million of federal net operating loss carryforwards, which begin to expire
in the year 2014. A full valuation allowance was established for the net
deferred tax asset, as realization of the tax benefit is not assured. In
addition, the Companys utilization of its net operating loss carryforwards may
be limited pursuant to the Tax Reform Act of 1986, due to cumulative changes in
ownership in excess of 50% that have or may occur.

Accumulated deferred income taxes consisted of the following at December
31, 2000 and 1999:

|                     |                                  |                       |   |              |            |      |   |            |           | 
|-------------------- | -------------------------------- | --------------------- | - | ------------ | ---------- | ---- | - | ---------- | --------- | 
|                     |                                  |                       |   | December 31,
|                     |                                  |                       |   |             
|                     |                                  |                       |   | 2000         |            | 1999
|                     |                                  |                       |   |              |            |     
|Deferred tax assets |                                  |                       |   |              |            |      |   |           
|                     | Property and equipment           |                       | $ | 3,643,167    |            |      | $ |           |          
|                     | Accruals                         |                       |   | 103,527      |            |      |   |           |          
|                     | Net operating loss carryforwards |                       |   | 12,291,358   |            |      |   | 1,405,313  |          
|                     |                                  |                       |   |              |            |      |   |           
|                     |                                  | Total deferred assets |   |              | 16,038,052 |      |   |            | 1,405,313 | 
|                     | Depreciation                     |                       |   |             |            |      |   | (82,418    | )        
|                     | Valuation allowance              |                       |   | (16,038,052  | )          |      |   | (1,322,895 | )        
|                     |                                  |                       |   |              |            |      |   |           
|                     |                                  | Net deferred taxes    |   | $            |           |      |   | $          |          | 
|                     |                                  |                       |   |              |            |      |   |           

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

The total income tax provision set forth above represents 0% in the
periods ended December 31, 2000 and 1999. The following table reconciles the
statutory federal income tax rate to the 0% provision:

|                                               |                                       |   |              |            |      |   |            |           |  
|---------------------------------------------- | ------------------------------------- | - | ------------ | ---------- | ---- | - | ---------- | --------- | -
|                                               |                                       |   | December 31,
|                                               |                                       |   |             
|                                               |                                       |   | 2000         |            | 1999
|                                               |                                       |   |              |            |     
|Loss before taxes                              |                                       | $ | (40,046,837  | )          |      | $ | (3,396,957 | )        
|Federal statutory rate                         |                                       |   | 34           | %          |      |   | 34         | %        
|Federal income tax benefit at statutory
levels |                                       | $ | (13,615,925  | )          |      | $ | (1,154,965 | )        
|(Decrease) increase from statutory
levels     |                                       |   |              |            |      |   |            |          
|                                               | State tax, net of federal tax benefit |   |              | (1,099,232 | )    |   |            | (155,411  | )
|                                               | Valuation allowance                   |   |              | 14,715,157 |      |   |            | 1,322,895 |  
|                                               | Other                                 |   |              |           |      |   |            | (12,519   | )
|                                               |                                       |   |              |            |      |   |            |          
|Effective federal income tax expense           |                                       | $ |             |            |      | $ |           |          
|                                               |                                       |   |              |            |      |   |            |          

10. RELATED PARTY TRANSACTIONS

On April 27, 1999, the Company entered into a Management and
Administrative Services Agreement with BayCorp. Under this agreement as of
December 31, 2000, approximately seven administrative employees of BayCorp
provide to the Company certain administrative services, including human
resources, accounting and finance management services. The Agreement
automatically renews on a yearly basis, subject to termination by either party
upon 30 days notice. Beginning in May 1999, the Company paid $53,451 per
month to BayCorp for these services. This amount was renegotiated in May 2000
for the period May through December 2000, and is subject to negotiation
annually thereafter. The management fee for 2001 has been negotiated at
$26,000 per month. During the periods ended December 31, 2000 and 1999, the
Company recorded interest charges to BayCorp of $175,000 and $96,095,
respectively, in relation to the outstanding notes payable to parent (see Note
5). As of December 31, 2000 and 1999, the Company owed BayCorp Holdings
$7,000,000 and $4,127,041 for notes payable, $195,600 and $97,000 in accrued
interest on the notes and $394,200 and $0 for management services,
respectively.

For the periods ending December 31, 2000 and 1999, $14,294, or 3%, and
$30,184, or 51%, of total revenue were derived from trades involving Great Bay
Power Corporation, a wholly owned subsidiary of BayCorp.

For the period ending December 31, 2000, approximately 31% of revenue was
from a customer who is also a preferred stock shareholder of the Company.

11. SEGMENT INFORMATION

The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 requires financial and
supplementary information to be disclosed on an annual and interim basis of
each reportable segment of an enterprise. SFAS No. 131 also establishes
standards for related disclosures about product and services, geographic areas
and major customers. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief decision maker, or decision making group, in making
decisions how to allocate resources and assess performance. The Companys
chief decision maker is the chief executive officer.

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HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued

The Company evaluates its operations in two segments: HoustonStreet
Exchange U.S.A. and HoustonStreet Exchange Europe.

|                |                               |   |                           |             |      |   |            |            |  
|--------------- | ----------------------------- | - | ------------------------- | ----------- | ---- | - | ---------- | ---------- | -
|                |                               |   | Period Ended December 31,
|                |                               |   |                          
|                |                               |   | 2000                      |             | 1999
|                |                               |   |                           |             |     
|Net Sales:      |                               |   |                           |             |      |   |            |           
|                | HoustonStreet Exchange Inc.   |   | $                         | 430,525     |      |   | $          | 59,186     |  
|                | HoustonStreet Exchange Europe |   |                           | 92,868      |      |   |            |           |  
|                |                               |   |                           |             |      |   |            |           
|                |                               | $ | 523,393                   |             |      | $ | 59,186     |           
|                |                               |   |                           |             |      |   |            |           
|Operating Loss: |                               |   |                           |             |      |   |            |           
|                | HoustonStreet Exchange Inc.   |   | $                         | (33,750,330 | )    |   | $          | (3,300,862 | )
|                | HoustonStreet Exchange Europe |   |                           | (6,155,538  | )    |   |            |           |  
|                |                               |   |                           |             |      |   |            |           
|                |                               | $ | (39,905,868               | )           |      | $ | (3,300,862 | )         
|                |                               |   |                           |             |      |   |            |           
|Total Assets:   |                               |   |                           |             |      |   |            |           
|                | HoustonStreet Exchange Inc.   |   | $                         | 8,982,493   |      |   | $          | 2,984,415  |  
|                | HoustonStreet Exchange Europe |   |                           | 2,976,131   |      |   |            |           |  
|                |                               |   |                           |             |      |   |            |           
|                |                               | $ | 11,958,624                |             |      | $ | 2,984,415  |           
|                |                               |   |                           |             |      |   |            |           

12. SUBSEQUENT EVENTS

On March 31, 2001, HoustonStreet closed on $3.9 million in additional
funding. Of this amount, $2.9 million was funded on March 30, 2001, including
$450,000 from BayCorp. A subsequent closing will be held at which time the
remaining $1.0 million will be funded. This subsequent closing will occur on
the third business day following the first period of any 30 consecutive
calendar days after beginning operations during which the Company has
maintained 90% platform availability with respect to its natural gas platform
and Enron Online link (except where such platform availability cannot be
maintained by the Company because of the acts or omissions, outside the control
of the Company, of third-party service providers, Web hosting providers,
software providers and other third parties). In addition, the Companys Board
of Directors authorized the Company to raise an additional $1.5 million on the
same terms, provided that such additional financing is closed by April 13,
2001.

This financing involves the sale by HoustonStreet of senior secured notes,
warrants to purchase Series C preferred stock at $0.15 per share and warrants
to purchase the Companys common stock at $2.50 per share. Collectively, these
securities are referred to as the HoustonStreet Series C Units.

In addition, as part of the initial closing, BayCorp agreed to tender its $7.0
million note, together with approximately $1.0 million in accrued interest and
penalties on the note and past due management fees as of March 2001 for
approximately $8.0 million of HoustonStreet Series C Units.

F-41



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HOUSTONSTREET EXCHANGE, INC.

CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001  UNAUDITED

|                                                     |                              |                                  |                                   |                                             |             |           |             |  
|---------------------------------------------------- | ---------------------------- | -------------------------------- | --------------------------------- | ------------------------------------------- | ----------- | --------- | ----------- | -
|                                                     |                              |                                  |                                   |                                             |             | UNAUDITED
|                                                     |                              |                                  |                                   |                                             |             | 2001     
|                                                     |                              |                                  |                                   |                                             |             |          
|ASSETS                                               |                              |                                  |                                   |                                            
|Current Assets:                                      |                              |                                  |                                   |                                            
|                                                     |                              | Cash and cash equivalents        |                                   | $                                           | 405,785     |          
|                                                     |                              | Accounts receivable              |                                   |                                             | 53,459      |          
|                                                     |                              | Other current assets             |                                   |                                             | 4,162       |          
|                                                     |                              |                                  |                                   |                                             |             |          
|                                                     |                              |                                  |                                   | Total current assets                        |             |           | 463,406     |  
|Property and Equipment                               |                              |                                  | 2,403,013                         |                                            
|Accumulated Depreciation                             |                              |                                  | (1,610,057                        | )                                          
|                                                     |                              |                                  |                                   |                                             |             |          
|                                                     |                              |                                  |                                   | Total property and equipment, net           |             |           | 792,956     |  
|                                                     |                              |                                  |                                   | Total assets                                |             | $         | 1,256,362   |  
|                                                     |                              |                                  |                                   |                                             |             |          
|LIABILITIES AND SHAREHOLDERS DEFICIT                |                              |                                  |                                   |                                            
|Current Liabilities:                                 |                              |                                  |                                   |                                            
|                                                     |                              | Accounts payable                 |                                   | $                                           | 181,780     |          
|                                                     |                              | Note Payable  Series C (Note 5) |                                   |                                             | 11,952,296  |          
|                                                     |                              | Accrued expenses                 |                                   |                                             | 2,650,001   |          
|                                                     |                              |                                  |                                   |                                             |             |          
|                                                     |                              |                                  |                                   | Total current liabilities                   |             |           | 14,784,077  |  
|Commitments and Contingencies (Note 8)               |                              |                                  |                                   |                                            
|Series A Preferred Stock; $0.01 par value  (Note 6) |                              |                                  |                                   |                                            
|                                                     | Authorized3,760,003 shares  |                                  |                                   |                                             |            
|                                                     | Outstanding3,478,353 shares |                                  |                                   | 14,100,000                                  |            
|Series B Preferred Stock; $0.01 par value  (Note 6) |                              |                                  |                                   |                                            
|                                                     | Authorized 2,333,334 shares  |                                  |                                   |                                             |            
|                                                     | Outstanding1,083,334 shares |                                  |                                   | 13,000,006                                  |            
|Series C  Preferred Warrants (Note 5)               |                              |                                  | 4,780,929                         |                                            
|Preferred Stock of Subsidiary (Note 6)               |                              |                                  | 7,333,334                         |                                            
|Shareholders Deficit: (Note 6)                      |                              |                                  |                                   |                                            
|                                                     |                              | Common stock; $0.01 par value   |                                   |                                             |             |          
|                                                     |                              |                                  | Authorized270,950,000 shares     |                                             |             |           |            
|                                                     |                              |                                  | Issued and outstanding16,473,393 |                                             |             | 173,639   |            
|                                                     |                              | Additional paid-in capital       |                                   |                                             | 5,465,069   |          
|                                                     |                              | Accumulated deficit              |                                   |                                             | (58,380,693 | )        
|                                                     |                              |                                  |                                   |                                             |             |          
|                                                     |                              |                                  |                                   | Total shareholders deficit                 |             |           | (52,741,985 | )
|                                                     |                              |                                  |                                   | Total liabilities and shareholders deficit |             | $         | 1,256,362   |  
|                                                     |                              |                                  |                                   |                                             |             |          

The accompanying notes are an integral part of these consolidated financial
statements.

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HOUSTONSTREET EXCHANGE, INC.CONSOLIDATED STATEMENTS OF INCOME
AS OF DECEMBER 31, 2001  UNAUDITED

|                                            |              |                                |                              |                          |            |            |             |  
|------------------------------------------- | ------------ | ------------------------------ | ---------------------------- | ------------------------ | ---------- | ---------- | ----------- | -
|                                            |              |                                |                              |                          |            | UNAUDITED 
|                                            |              |                                |                              |                          |            | 2001      
|                                            |              |                                |                              |                          |            |           
|Operating Revenues (Note 1)                 |              | $                              | 1,899,498                    |                         
|Operating Expenses: (Note 1)               
|                                            |              | Selling and marketing          |                              |                          | 1,353,182  |           
|                                            |              | Product development            |                              |                          | 2,327,212  |           
|                                            |              | General and administrative     |                              |                          | 2,306,717  |           
|                                            |              | Depreciation and amortization  |                              |                          | 2,924,705  |           
|                                            |              | Impairment writedown of assets |                              |                          | 3,010,333  |           
|                                            |              |                                |                              |                         
|                                            |              |                                |                              | Total operating expenses |            |            | 11,922,149  |  
|                                            |              |                                |                              | Operating loss           |            |            | (10,022,651 | )
|Other Income and Expense                   
|                                            |              | Interest Expense               |                              |                          | (5,974,779 | )         
|                                            | Other Income |                                |                              | (134,094                 | )         
|                                            |              |                                |                              |                         
|                                            |              |                                | Total Other Income (Expense) |                          |            | (6,108,873 | )          
|Net loss before Extraordinary Gain          |              |                                | (16,131,524                  | )                       
|Extraordinary Gain: Debt Restructuring      |              |                                | 1,194,625                    |                         
|Net Loss                                    |              | $                              | (14,936,899                  | )                       
|                                            |              |                                |                              |                         
|Basic and Diluted Net Loss per Common Share |              | $                              | (0.87                        | )                       
|                                            |              |                                |                              |                         
|Weighted Average Shares Outstanding         |              |                                | 17,076,249                   |                         
|                                            |              |                                |                              |                         

The accompanying notes are an integral part of these consolidated financial
statements.

F-43



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HOUSTONSTREET EXCHANGE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 2001  UNAUDITED

|                                                                                                                  |                                                                                        |  |              |            |        |   |         |         |            |   |             |           |               |   |             |             |   |   |             |             |  
|----------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- |  | ------------ | ---------- | ------ | - | ------- | ------- | ---------- | - | ----------- | --------- | ------------- | - | ----------- | ----------- | - | - | ----------- | ----------- | -
|                                                                                                                  |                                                                                        |  | Common Stock |            |        |   |         |         | Additional |   |             |           |               |   | Total      
|                                                                                                                  |                                                                                        |  | Shares       |            |        |   |         |         | Paid-in    |   | Accumulated |           | Shareholders'
|                                                                                                                  |                                                                                        |  | Issued       |            | Amount |   | Capital |         | Deficit    |   | Deficit    
|                                                                                                                  |                                                                                        |  |              |            |        |   |         |         |            |   |            
|Balance, Inception                                                                                                |                                                                                        |  |             |            |        | $ |        |         |            | $ |            |           |               | $ |            |             |   | $ |            |            
|                                                                                                                  | Issuance of common stock, $0.01 par value                                              |  |              | 10,000,000 |        |   |         | 100,000 |            |   |             | 80,000    |               |   |             |            |   |   |             | 180,000     |  
|                                                                                                                  | Preferred stock, $0.01 par value                                                       |  |              |           |        |   |         |        |            |   |             |          |               |   |             |            |   |   |             |            |  
|                                                                                                                  | Net loss                                                                               |  |              |            |        |   |         |         |            |   |             |           |               |   |             | (3,396,957  | ) |   |             | (3,396,957  | )
|
|                                                                                                                  |                                                                                        |  |              |            |        |   |         |         |            |   |             |           |               |   |             |             |   |   |             |            
|Balance, December 31, 1999                                                                                        |                                                                                        |  | 10,000,000   |            |        | $ | 100,000 |         |            | $ | 80,000      |           |               | $ | (3,396,957  | )           |   | $ | (3,216,957  | )          
|                                                                                                                  | Issuance of common stock, $0.01 par value                                              |  |              | 5,081,482  |        |   |         | 50,815  |            |   |             | 2,949,187 |               |   |             |            |   |   |             | 3,000,002   |  
|                                                                                                                  | Issuance of common stock in exchange for an
intangible asset, $0.01 par value (Note 2) |  |              | 1,781,043  |        |   |         | 17,810  |            |   |             | 1,763,233 |               |   |             |            |   |   |             | 1,781,043   |  
|                                                                                                                  | Exercise of stock options                                                              |  |              | 60,000     |        |   |         | 600     |            |   |             | 4,398     |               |   |             |            |   |   |             | 4,998       |  
|                                                                                                                  | Issuance of warrants in exchange for services
(Note 6)                                 |  |              |           |        |   |         |        |            |   |             | 607,257   |               |   |             |            |   |   |             | 607,257     |  
|                                                                                                                  | Net loss                                                                               |  |              |           |        |   |         |        |            |   |             |          |               |   |             | (40,046,837 | ) |   |             | (40,046,837 | )
|                                                                                                                  |                                                                                        |  |              |            |        |   |         |         |            |   |             |           |               |   |             |             |   |   |             |            
|Balance, December 31, 2000                                                                                        |                                                                                        |  | 16,922,525   |            |        | $ | 169,225 |         |            | $ | 5,404,075   |           |               | $ | (43,443,794 | )           |   | $ | (37,870,494 | )          
|Issuance of common stock in exchange for an
intangible asset, $0.01 par value   reversal
due to contract default |                                                                                        |  | (890,521     | )          |        |   |        |         |            |   |            |           |               |   |            |             |   |   |            |            
|Exercise of stock options                                                                                         |                                                                                        |  | 14,722       |            |        |   | 147     |         |            |   | 1,079       |           |               |   |            |             |   |   | 1,226       |            
|Issuance of common stock in exchange for
services, $0.01 par value                                                |                                                                                        |  | 426,667      |            |        |   | 4,267   |         |            |   | 59,915      |           |               |   |            |             |   |   | 64,182      |            
|Net loss                                                                                                          |                                                                                        |  |             |            |        |   |        |         |            |   |            |           |               |   | (14,936,899 | )           |   |   | (14,936,899 | )          
|                                                                                                                  |                                                                                        |  |              |            |        |   |         |         |            |   |             |           |               |   |             |             |   |   |             |            
|Balance, December 31, 2001                                                                                        |                                                                                        |  | 16,473,393   |            |        | $ | 173,639 |         |            |   | 5,465,069   |           |               | $ | (58,380,693 | )           |   | $ | (52,741,985 | )          
|                                                                                                                  |                                                                                        |  |              |            |        |   |         |         |            |   |             |           |               |   |             |             |   |   |             |            

The accompanying notes are an integral part of these consolidated financial
statements.
F-44Table of Contents
HOUSTONSTREET EXCHANGE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001  UNAUDITED

|                                                  |                                          |                                                                             |                                 |                                           |             |            |            |  
|------------------------------------------------- | ---------------------------------------- | --------------------------------------------------------------------------- | ------------------------------- | ----------------------------------------- | ----------- | ---------- | ---------- | -
|                                                  |                                          |                                                                             |                                 |                                           |             | UNAUDITED 
|                                                  |                                          |                                                                             |                                 |                                           |             | 2001      
|                                                  |                                          |                                                                             |                                 |                                           |             |           
|Operating Activities:                             |                                          |                                                                             |                                 |                                          
|                                                  |                                          | Net loss                                                                    |                                 | $                                         | (14,936,899 | )         
|                                                  |                                          | Adjustments to reconcile net loss to net cash used in operating activities |                                 |                                           |             |           
|                                                  |                                          |                                                                             | Depreciation and amortization   |                                           |             | 7,726,623  |           
|                                                  |                                          |                                                                             | Impairment write down of assets |                                           |             | 3,010,333  |           
|                                                  |                                          | Changes in operating assets and liabilities
Accounts receivable            |                                 |                                           | 1,048,167   |           
|                                                  |                                          |                                                                             | Other current assets            |                                           |             | 106,416    |           
|                                                  |                                          |                                                                             | Accounts payable                |                                           |             | (7,265,428 | )         
|                                                  |                                          |                                                                             | Accrued expenses                |                                           |             | 1,773,578  |           
|                                                  |                                          |                                                                             |                                 |                                           |             |           
|                                                  |                                          |                                                                             |                                 | Net cash used in operating activities     |             |            | (8,537,210 | )
|Investing Activities:                             |                                          |                                                                             |                                 |                                          
|                                                  | Change in Restricted Cash                |                                                                             |                                 | 223,146                                   |            
|Financing Activities:                             |                                          |                                                                             |                                 |                                          
|                                                  | Proceeds from issuance of common stock   |                                                                             |                                 | 64,180                                    |            
|                                                  | Proceeds from exercise of stock options  |                                                                             |                                 | 1,226                                     |            
|                                                  | Proceeds from the issuance of Notes      |                                                                             |                                 | 4,154,977                                 |            
|                                                  |                                          |                                                                             |                                 |                                           |             |           
|                                                  |                                          |                                                                             |                                 | Net cash provided by financing activities |             |            | 4,220,383  |  
|                                                  |                                          |                                                                             |                                 | Net decrease in cash and cash equivalents |             |            | (4,093,681 | )
|Cash and Cash Equivalents, beginning of period    |                                          |                                                                             | 4,499,466                       |                                          
|                                                  |                                          |                                                                             |                                 |                                           |             |           
|Cash and Cash Equivalents, end of year            |                                          | $                                                                           | 405,785                         |                                          
|                                                  |                                          |                                                                             |                                 |                                           |             |           
|Supplemental Disclosure of Cash Flow Information: |                                          |                                                                             |                                 |                                          
|                                                  | Cash paid during the period for interest |                                                                             | $                               |                                          |            
|                                                  |                                          |                                                                             |                                 |                                           |             |           
|                                                  | Cash paid during the period for taxes    |                                                                             | $                               |                                          |            
|                                                  |                                          |                                                                             |                                 |                                           |             |           

The accompanying notes are an integral part of these consolidated financial
statements.

F-45



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##### Table of Contents






HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED
DECEMBER 31, 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

HoustonStreet, Inc. (HoustonStreet or the Company) was incorporated in
Delaware on April 27, 1999. HoustonStreet developed and operates
HoustonStreet.com, an Internet-based, independent crude oil and refined
products trading exchange in the United States. In 2001, HoustonStreet
downsized its organization and shut down its electricity trading platforms in
the United States and in Europe, shifting it business focus to its crude oil
and refined products trading platforms. In addition, HoustonStreet intends to
leverage its open architecture in order to integrate trade information with its
customers mid- and back-office applications.

HoustonStreets crude oil platform includes several trading floors,
organized by grade and location. The platform allows for a user-customized
view where the user can specify which markets should appear together on a
floor, regardless of grade, location or type. HoustonStreets refined products
platform includes several trading floors, organized by commodity, pipeline and
geographic location. Bids and offers are segmented by trading period (month
and cycle) and by grade. Commodities traded include numerous grades of
gasoline and distillates, specifically jet fuel, number 2 heating oil, low
sulfur diesel, regular gas, regular reformulated gas, premium gas and premium
reformulated gas.

On March 30, 2001, HoustonStreet raised approximately $2.9 million in
additional funding by selling senior secured notes, warrants to purchase
HoustonStreet preferred stock and warrants to purchase HoustonStreet common
stock. Collectively, these securities are referred to as the HoustonStreet
Series C Units.

HoustonStreets revenues depend on continued and expanded use of
Internet-based wholesale energy trading platforms. Electronic trading of
wholesale energy is new and evolving, and thus may not achieve widespread
market acceptance or emerge as a sustainable business. In addition,
HoustonStreet will need to enhance trading liquidity in order to increase and
sustain revenues. As a technology dependent business, HoustonStreets business
could suffer due to computer or communications systems interruptions or
failures, technological change or adverse competitive developments. Further,
as electronic commerce evolves, federal, state and foreign agencies could adopt
regulations covering issues such as user privacy, content and taxation of
products and services. If enacted, government regulations could materially
adversely affect HoustonStreets business.

The Company has incurred losses of approximately $53.6 million from
inception through December 31, 2001. These losses have been funded through
borrowings from BayCorp Holdings (an affiliated company) and the sale of common
and preferred stock and series C units of the Company and its subsidiary.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its majority owned subsidiary, HoustonStreet B.V. The
financial statements also include the accounts of HoustonStreet N.V. The
Company determined that the functional and the reporting currency of its
European subsidiaries is the U.S. dollar. The effects of translation on its
financial statements are immaterial to the consolidated statements as a whole.
All significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash equivalents are carried at cost plus accrued interest, which approximates
fair value. The Company considers all highly liquid

F-46



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##### Table of Contents



HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued



investments with an original maturity date of three months or less to be
cash equivalents.

Revenue Recognition

Operating revenue for 2001 consists of commissions for megawatt hours and
thousands of barrels (BBLS) traded on HoustonStreet.com and is recognized once
the terms of the trade have been accepted by both parties.

Selling and Marketing Expenses

Selling and marketing expenses include advertising and promotional
expenditures, payroll and expenses related for personnel engaged in marketing,
customer service and related activities.

Product Development Expenses

Product development expenses include payroll and related expenses for Web
site development and information technology personnel and Web content and
design expenses.

Extraordinary Gain

Extraordinary gain of approximately $1.2 million reflects debt restructuring in
2001. Due to its continued operating losses in 2001 and negative cash flow,
HoustonStreet negotiated with its vendors and settled certain accounts payables
for less than the recorded amounts due. In accordance with SFAS 15, the gain
has been accounted for as an extraordinary gain.

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation, requires that stock
awards granted subsequent to January 1, 1995 be recognized as compensation
expense based on their fair value at the date of grant. Alternatively, a
company may use Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and disclose pro forma income amounts that would
have resulted from recognizing employee awards at their fair value. The
Company has elected to account for employee stock-based compensation expense
under APB Opinion No. 25 and make the required pro forma disclosures for
compensation (see Note 7).

Income Taxes

The Company records income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, the liability method is used
in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using enacted tax
rates. A valuation allowance is established against deferred tax assets unless
the Company believes it is more likely than not that the benefit will be
realized.

Long-Lived Assets and Long-Lived Assets to be Disposed Of

SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of,requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company reviewed its
software assets, including the Enron Link intangible asset, at December 31,
2001 and determined that there was an impairment of approximately $3.0 million
related to such assets. The related charge is included in operating expenses
in the accompanying consolidated statement of operations for the year ended
December 31, 2001.

Fair Value of Financial Instruments

The Companys financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable and notes payable. The
carrying amount of the Companys cash and cash equivalents, accounts receivable
and accounts payable approximates fair value due to the short-term nature of
these instruments. During 2001, the Series C notes payable bore interest at 3%
plus prime and the carrying amount approximates fair value.

F-47



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##### Table of Contents



HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued



Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities.In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging ActivitiesDeferral of the Effective Date of SFAS No. 133,and in June
2000, issued SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Activities,an amendment to SFAS No. 133. This Statement, SFAS No. 133
as amended, establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in
the derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivatives gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.

SFAS No. 133, as amended, is effective for fiscal years beginning after
June 15, 2000. The Company completed its review and implementation of SFAS No.
133, effective January 1, 2002. The Company did not identify any contracts
that qualify as derivatives under SFAS No. 133.

2. TRANSACTION WITH ENRON

On December 4, 2000, HoustonStreet entered into an agreement with Enron,
whereby North American electricity and natural gas prices posted on EnronOnline
would have been automatically posted on HoustonStreet. HoustonStreet believes
it satisfied its obligations under its agreement with Enron, but Enron elected
to terminate the agreement in May 2001. HoustonStreet invoked the arbitration
clause for settling disputes in its contract with Enron, but that claim has
been stayed by Enrons Chapter 11. Any recovery is highly uncertain. As a
result of the action taken by Enron, HoustonStreet wrote off its Intangible
Investment  Enron in 2001 and took a charge to earnings in 2001 of $965,000.
See Note 1 Long-Lived Assets and Long-Lived Assets to be Disposed Of.

3. PROPERTY

Property consisted of computer equipment and software of approximately
$2,403,000 as of December 31, 2001.

Depreciation and amortization expense was approximately $2,924,700 for the
year ended December 31, 2001.

In 2001, HoustonStreet recognized impairment to the value of its Property,
reduced the value of certain capitalized software development costs and
recorded an impairment charge of approximately $3.0 million. See Note 1
Long-Lived Assets and Long-Lived Assets to be Disposed Of.

4. ACCRUED EXPENSES

Accrued expenses as of December 31, 2001 consisted of Misc Accrued
Professional Fees of $150,000.

5. NOTES PAYABLE

Series C Promissory Notes (Notes) were issued on March 30, 2001 for
cash. These Notes bear interest on the outstanding principal from the date
issued until the Note is paid in full at three percent above the rate of
interest publicly announced from time to time by FleetBoston in Boston,
Massachusetts as its prime rate. Each Note was due and payable on December 31,
2001, subsequently amended to February 15, 2003 and the interest rate amended
to prime plus five percent. Accrued interest is payable, at the sole
option of the holder, in cash or in warrants to purchase shares of Series
C convertible preferred stock, only at the time payment of the principal is
made or due. These Notes have a first priority security interest among the
holders of the Notes in all the assets of HoustonStreet.

The Notes were issued in units with warrants to purchase 4,019,841 common
shares having an exercise price of $2.50 per share and 80,396,767 Series C
preferred shares having an exercise price $0.15 per share. Both Series C and
Common Stock warrants can be exercised for cash or by surrender of the Senior
Secured Notes that were sold in units with the warrants. Common Stock warrants
may also be exercised by cashless exercise. The warrants are transferable.
The exercise prices of and number of shares for which the

F-48



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##### Table of Contents



HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued



warrants are exercisable are adjusted in the event of stock dividends or
splits. Series C warrants are also subject to adjustment in the event of
diluting issues of common stock (or securities convertible to common stock) at
prices lower than the then existing warrant exercise price to such lower
issuance price. The warrants have no rights to receive dividends or voting
rights. The Common Stock warrants expire March 30, 2006 and Series C Preferred
Stock warrants expire 7 days following payment of the Series C Note. In
accordance with APB 14, we have allocated the proceeds from the Series C Notes
to the notes and warrants based upon their relative fair values, resulting in
an allocation of $6,378,586 to Series C Notes and $4,780,929 to Series C
Warrants. The fair value of the warrants was estimated using the Black Scholes
valuation model with the following assumptions used: expected lives of 3 years,
expected annualized volatility of 60%, annual rate of quarterly dividends of 0
and discount rate  bond equivalent yield of 4%.

In addition to normal debt covenant requirements, in connection with the
issuance of the Series C Units, HoustonStreet covenanted to:



| |  |  | use commercially reasonable efforts to maintain key man life
insurance in the amount of $5,000,000 on its President and CEO, Frank
W. Getman Jr.; and to                                                                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | cooperate and use its best efforts to facilitate the imposition of
the first priority lien on all the assets of HoustonStreet as
contemplated by the Senior Secured Note and Warrant Agreement and the
ancillary agreements.

The Series C debt has no financial covenants. HoustonStreet is in
compliance with these covenants. Using commercially reasonable efforts,
HoustonStreet was able to secure and currently carries $3,500,000 of insurance
on Mr. Getman.

The assets that secure the Series C Units include all of HoustonStreets
real and personal property, including, without limitation, all of the
following:



| |  |  | accounts now owned or hereafter acquired by the Company,
including accounts receivable, contract rights, notes, drafts and
other obligations or indebtedness owed to HoustonStreet;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | books and records of HoustonStreet;                                                                                                                                                
|
| |  |  | equipment owned by HoustonStreet;                                                                                                                                                  
|
| |  |  | general intangibles;                                                                                                                                                               
|
| |  |  | proceeds and all other profits, products, rents or receipts arising from the collection;                                                                                           
|
| |  |  | trademarks and trademark licenses.                                                                                                                                                 

The Company received cash of $2,928,154 and the Company converted existing
debt in the amount of $8,231,360 into notes upon issuance of the Series C
Notes. Commitments for the initial closing were approximately $2,928,200 and
as of April 13, 2001, HoustonStreet had received these committed funds.
Commitments for the second closing were approximately $1,107,500 and payment
was tied to the successful implementation of a posting agreement between
HoustonStreet and Enron. In 2000, HoustonStreet signed an agreement with Enron
to provide a link with EnronOnline (EOL) enabling electricity and natural gas
prices listed on EOL to be simultaneously posted on HoustonStreet. Although
HoustonStreet successfully completed the link, Enron provided HoustonStreet
with a notice of termination of the agreement after the link was completed but
prior to the link going live. Accordingly, the second closing has not occurred
and is not expected to occur.

On September 21, 2000, the company entered into a Promissory Note and
Revolving Credit Agreement with BayCorp in the amount of $7,000,000 at a 10%
annual interest rate, due December 31, 2000. In April 2001, BayCorp converted
the $7,000,000 loan made in 2000, along with approximately $1,000,000 in
accrued interest and penalties on the note and past due management fees, into
approximately $8,000,000 of HoustonStreet Series C Units.

6. STOCK TRANSACTIONS AND SHAREHOLDERS DEFICIT

Authorized Capital

At December 31, 2001 the authorized capital stock of the Company consisted
of 270,950,000 shares of common stock and 156,134,188 shares of preferred
stock, $0.01 par value per share, of which 21,035,080 shares were issued and
outstanding.

Preferred Stock

Preferred stock may be issued from time to time in one or more series by
the Board of Directors. Any shares of preferred stock that may be redeemed,
repurchased or acquired by the Company may be reissued, except as otherwise
provided by law. Different series of preferred stock shall not be construed to
constitute different shares for the purpose of voting by classes unless
expressly
F-49Table of Contents

HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued



provided. The Company has authorized for issuance 156,134,188 shares of
preferred stock as of December 31, 2001, of which there were 3,478,353 Series A
convertible preferred shares, authorized, issued and outstanding, $0.01 par
value per share, and 1,083,334 Series B convertible preferred shares, $0.01 par
value per share, authorized, issued and outstanding. There are no shares of
Series C preferred stock issued and outstanding.

Series A and B Convertible Preferred Stock

The rights, preferences and privileges of the Series A and B stock include
the following:



| |  | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The holders of Series A and B stock will be entitled to receive cash
dividends, when and if declared by the Companys Board of Directors. No
cash dividends may be declared or paid on any other class or series of
HoustonStreet stock unless the dividends have been declared and paid on the
Series A and B stock. The Company does not foresee declaring or paying any
dividends in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Optional Conversion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Each share of Series A or B stock may be converted at any time, at the
option of the holder into one share of common stock. This conversion rate
is subject, with certain exceptions, to weighted average antidilutive
adjustment in the event of subsequent issuances of capital stock for less
than $3.75 per share for the Series A stock and $12.00 per share for the
Series B stock. The Company may issue shares of common stock in connection
with a merger or acquisition or to employees, directors and consultants at
any price without triggering an antidilutive adjustment. This conversion
rate is also subject to proportionate adjustment for stock splits, stock
dividends, combinations and similar recapitalizations.                                                                                                                                                         
|
| |  | Mandatory Conversion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Series A and B stock not converted sooner will be automatically converted
into common stock upon the closing of the Companys initial underwritten
qualified public offering of common stock pursuant to an effective
registration statement under the Securities Act of 1933. A qualified
initial underwritten public offering will be deemed to occur when the
Company sells common stock pursuant to an effective registration statement
under the Securities Act, resulting in gross proceeds to the Company of at
least $25.0 million, at a price to the public of at least $9.50 per share
(as adjusted for stock splits, stock dividends, recapitalizations and
similar events). Under automatic conversion, no adjustments will be made
for accrued and unpaid dividends and no accrued and unpaid dividends will
be paid on the Series A or B stock.                                    
|
| |  | Voting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Each share of Series A and B stock is entitled to a number of votes equal
to the number of shares of common stock into which each such share is then
convertible (initially one). Except as otherwise required by law or the
Companys Certificate of Incorporation, holders of Series A and B stock
vote together with the holders of common stock and all other shares of
capital stock as a single class. Holders of Series A and B stock do not
have cumulative voting rights. The terms of the Series A and B stock may
not be amended so as to affect adversely the Series A and B stock without
the approval of the holders of 75% of the then outstanding shares of Series
A and B stock.                                                                                                                                                                                                
|
| |  | Redemption                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Each holder of at least 5% of the then outstanding shares of Series A or B
stock may request that the Company redeem the holders outstanding shares
of Series A or B stock in three equal annual installments on each of the
fourth, fifth and sixth anniversaries of their initial issuance. The
redemption price is $3.75 per share of Series A stock and $12.00 per share
of Series B stock (subject to appropriate adjustment in the event of stock
dividends, stock splits, combinations or other similar recapitalizations).
This stocks redemption amount is currently equal to its carrying value.
In addition, each holder of at least 5% of the then outstanding shares of
Series A or B stock may request that the Company redeem the holders
outstanding shares of Series A or B stock at any time at a price per share
equal to the par value of the Series A or B stock ($0.01).

F-50



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##### Table of Contents



HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued





| |  | Registration Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The holders of shares of Series A and B stock have certain demand
registration rights that enable them to require the Company to register
their shares at any time after the earlier of (i) the third anniversary
date of their initial issuance or (ii) 180 days after the closing of the
Companys first underwritten public offering. In addition, holders of
Series A and B stock have piggyback registration rights with respect to
offerings by the Company, subject to customary underwriter cutbacks and
other restrictions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Liquidation Preference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | In the event of the voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the holders of Series A stock then outstanding
are entitled to be paid out of the assets of the Company available for
distribution to its stockholders, on a pari passu basis with the holders of
Series B stock then outstanding, after and subject to the payment in full
of all amounts required to be distributed to the holders of capital stock
(if any) ranking on liquidation prior and in preference to the Series A
stock, an amount equal to $3.75 per share and $12.00 per share for the
Series A and B stock, respectively, plus any declared but unpaid on such
shares. After the payment of all liquidation preferences, the Companys
remaining assets available for distribution among stockholders would be
shared by the Companys stockholders holding stock that ranks junior to the
Series A and Series B stock, including common stockholders. A
consolidation or merger of the Company with or into one or more
corporations, or a sale of all or substantially all of the Companys
assets, will be deemed to be a liquidation of the Company. However, each
holder of Series A or B stock may elect otherwise as to that holders
shares of Series A or B stock.

Series C Convertible Preferred Stock

There are no shares of Series C preferred stock issued and outstanding.
The rights, preferences and privileges of the Series C stock include the
following:



| |  | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The holders of Series C Preferred Stock will be entitled to receive cash
dividends, before any cash dividends shall be declared and paid upon or set
aside for the Common Stock in any fiscal year and on a pari passu basis
with the Series A and B Preferred Stock, when and if declared by the
Companys Board of Directors.                                                                                                                                                                                                                                   
|
| |  | Optional Conversion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Each share of Series C stock may be converted, at the option of the holder
at any time into one share of common stock. This conversion rate is
subject, with certain exceptions, to a weighted average antidilutive
adjustment in the event of subsequent issuances of capital stock for less
than the applicable Series C conversion price in effect immediately prior
to the issuance or deemed issuance of such additional shares.                                                                                                                             
|
| |  | Mandatory Conversion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Series C stock not converted sooner will be automatically converted into
common stock upon the earlier of (i) the closing of the Companys initial
underwritten public offering of common stock with gross proceeds of at
least $25.0 million, at a price to the public of at least $9.50 per share
or (ii) at such time as less than 25% of the Series C shares initially
issued are outstanding.                                                                                                                                                                
|
| |  | Voting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Each share of Series C stock is entitled to a number of votes equal to the
number of shares of common stock into which each share is convertible.
Except as otherwise required by law or the Companys Certificate of
Incorporation, holders of Series C stock vote together with the holders of
common stock and all other shares of capital stock as a single class. The
terms of the Series C stock may not be amended so as to affect adversely
the Series C stock without the approval of not less than a majority of the
shares of Series C Preferred Stock.

F-51



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##### Table of Contents



HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued





| |  | Redemption                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Each holder of at least 2% of the Series C stock may request that the
Company redeem in three annual installments equal to 33%, 50% and 100%
(cumulatively) on each of March 31, 2004, 2005 and 2006. The redemption
price is $0.15 per share of Series C stock (subject to appropriate
adjustment in the event of stock dividends, stock splits, combinations or
other similar recapitalizations). In addition, each holder of at least 2%
of the Series C stock may request that the Company redeem the holders
shares of Series C stock from time to time at a price per share equal to
the par value of the Series C stock ($0.01).                                                                                                                                                                                                           
|
| |  | Registration Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The holders of shares of Series C stock have certain demand registration
rights that enable them to require the Company to register their shares at
any time after the earlier of (i) the third anniversary date of their
initial issuance or (ii) 180 days after the closing of the Companys first
underwritten public offering. In addition, holders of Series A and B stock
have piggyback registration rights with respect to offerings by the
Company, subject to customary underwriter cutbacks and other restrictions.                                                                                                                                                                                                                                                                                                                     
|
| |  | Liquidation Preference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | In the event of the voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the holders of shares of Series C Preferred
stock shall be entitled to be paid out of the assets of the Company
available for distribution to its stockholders, on a pari passu basis with
the holders of Series A and Series B Preferred Stock, before any payment
shall be made to the holders of Common Stock or any other class or series
of stock of the Company ranking on liquidation junior to the Series C
Preferred Stock. A consolidation or merger of the Company with or into one
or more corporations, or a sale of all or substantially all of the
Companys assets, will be deemed to be a liquidation of the Company.
However, each holder of Series C stock may elect otherwise as to that
holders shares of Series C stock.

Preferred Stock of Subsidiary

At December 31, 2001, the authorized capital stock of HoustonStreet B.V.
(HS B.V.) consists of 20,000,000 ordinary shares authorized, 10,000,000 of
which is issued, outstanding and owned by the Company, 9,999,997 preference A
shares authorized, 1,629,627 issued and outstanding and 1 preference B share, 1
preference C share and 1 preference D share, authorized, issued and
outstanding. Each share has a nominal value of one Euro cent (EUR 0,01).

Preference shares can be converted into ordinary shares as the request of
the holder thereof made by way of a conversion notice, on a one-to-one basis,
or automatically upon the occurrence of a mandatory conversion event. In the
event of an issue of shares each existing shareholder has a preemption right in
respect of the shares to be issued in proportion to the aggregate nominal
amount of his shares.

No holder of preference shares may transfer stock shares without first
giving notice to HS B.V., and the other preference shareholders and providing
them with the opportunity to purchase on a pro rata basis such shares on the
same terms and conditions as the prospective purchaser of such shares.

In the event of dividend being approved and declared by a resolution of
the general meeting based upon a proposal by the Board, the holders of
preference shares then outstanding are entitled to be paid out an amount equal
to $4.50 per share, and after that, the dividend remaining for distribution
shall be paid to all holders of ordinary shares equally per share, up to a
limit of $4.50 per share, after which the dividend then remaining for
distribution shall be distributed to all shareholders equally on a per share
basis.

In the event of the voluntary or involuntary liquidation, dissolution or
winding-up of HS B.V., the holders of preference shares then outstanding are
entitled to be paid out of the assets of HS B.V. available for distribution to
its shareholders, an amount equal to $4.50 per share, and after that, an amount
equal to any declared but unpaid dividend to which the holders of preference
shares are entitled. The HS B.V.s remaining assets available for distribution
among shareholders shall be paid to all holders of ordinary shares equally per
share, up to a limit of $4.50 per share, after which the assets remaining for
distribution shall be paid to all holders of
F-52Table of Contents

HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued



ordinary shares which have paid $6.00 for those ordinary shares, up to a
limit of $1.50 per share, after which the assets remaining for distribution
shall be distributed to all shareholders equally on a per share basis.

Common Stock

Except as otherwise required by law or provided in the Companys
Certificate of Incorporation, each share of common stock is entitled to one
vote on all matters to be voted on by stockholders. Holders of common stock do
not have cumulative voting rights. Holders of common stock are entitled to
receive such dividends (if any) as may be declared by the Board of Directors
out of funds legally available therefore. In the event of the voluntary or
involuntary liquidation or dissolution of the Company and after payment of all
creditors and liquidation preferences, including the liquidation preference of
any preferred stock, the holders of common stock are entitled to share the
remaining net assets of the Company. There were 16,473,393 shares of common
stock issued and outstanding as of December 31, 2001.

7. COMMON STOCK OPTIONS

In June 1999, the Companys Board of Directors (the Board) approved the
Companys 1999 Stock Incentive Plan (the 1999 Plan), which provides for the
grant of incentive and nonqualified stock options for the purchase of up to an
aggregate of 2,000,000 shares of the Companys common stock by management,
employees, consultants, advisors and directors of the Company. In 2000, the
number of shares authorized to be issued pursuant to the 1999 Plan was
increased from 2,000,000 to 4,000,000. On March 21, 2001, the number of shares
authorized to be issued pursuant to the 1999 Plan was increased to 40,000,000.
As of December 31, 2001, options to purchase an aggregate of 12,154,083 shares
of common stock at a weighted average option exercise price of $0.39 per share
were outstanding under the 1999 Plan.

The 1999 Plan provides for the grant of incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code and nonstatutory
stock options. All of the Companys employees, officers, directors,
consultants and advisors (and any individuals who have accepted an offer for
employment) are eligible to be granted options, restricted stock awards or
other stock-based awards under the 1999 Plan. Under present law, however,
incentive stock options may only be granted to employees.

Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price subject to other terms and conditions,
as specified, in connection with the option grant. The Board establishes the
exercise price at the time each option is granted. Optionees may pay the
exercise price of their options by cash, check or in connection with a cashless
exercise through a broker, by surrender to the Company of shares of common
stock, by delivery to the Company of a promissory note or by any combination of
the permitted forms of payment.

The Companys Board administers the 1999 Plan. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the plan and to interpret its provisions. The Board may
delegate authority under the 1999 Plan to one or more executive officers or
committees of the Board. Subject to any applicable limitations contained in
the 1999 Plan, the Board or any committee to which the Board delegates
authority, as the case may be, selects the recipients of awards and determines
(i) the number of shares of common stock covered by options and the dates upon
which the options become exercisable; (ii) the exercise price of options and
(iii) the duration of the options.

No award may be granted under the 1999 Plan after June 2009, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. The Companys Board of Directors may at any time amend, suspend or
terminate the 1999 Plan.

The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25. However, for pro forma disclosure purposes, the
Company has computed the compensation expense in 2000 and 1999 for all options
granted using the Black-Scholes option pricing model prescribed by SFAS No.
123. The fair value of the options granted in 2000 and 1999 is estimated on the
date of grant using the following assumptions: a dividend yield of 0%, and
expected volatility of 0% and an expected life of seven years for each option
grant, as well as a risk-free interest rate of 6.22% for 2000 and 6.12% for
1999.

F-53



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##### Table of Contents



HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued



8. COMMITMENTS AND CONTINGENCIES

The Company leased office space until August 1, 2001 at which time the
operating lease was cancelled. Rental expense under the operating lease for
the year ended December 31, 2001was $152,065. The Company was not a party to
any operating leases as of December 31, 2001.

9. INCOME TAXES

Due to losses incurred since Inception, there is no income tax benefit in
the periods presented. As of December 31, 2001, the Company had approximately
$40 million of federal net operating loss carryforwards, which begin to expire
in the year 2014. A full valuation allowance was established for the net
deferred tax asset, as realization of the tax benefit is not assured. In
addition, the Companys utilization of its net operating loss carryforwards may
be limited pursuant to the Tax Reform Act of 1986, due to cumulative changes in
ownership in excess of 50% that have or may occur.

The following table reconciles the statutory federal income tax rate to
the 0% provision:

|                                                                                 |                     |   |              |           | 
|-------------------------------------------------------------------------------- | ------------------- | - | ------------ | --------- | 
|                                                                                 |                     |   | December 31,
|                                                                                 |                     |   | 2001        
|                                                                                 |                     |   |             
|Loss before taxes                                                                |                     | $ | (14,936,899  | )        
|Federal statutory rate                                                           |                     |   | 34           | %        
|Federal income tax benefit at statutory levels                                   |                     | $ | (5,078,500   | )        
|(Decrease) increase from statutory levels
State tax, net of federal tax benefit |                     |   | (410,000     | )        
|                                                                                 | Valuation allowance |   |              | 4,668,500 | 
|                                                                                 | Other               |   |              |          | 
|                                                                                 |                     |   |              |          
|Effective federal income tax expense                                             |                     | $ |             |          
|                                                                                 |                     |   |              |          

10. RELATED PARTY TRANSACTIONS

On April 27, 1999, the Company entered into a Management and
Administrative Services Agreement with BayCorp. Under this agreement as of
December 31, 2001, approximately seven administrative employees of BayCorp
provide to the Company certain administrative services, including human
resources, accounting and finance management services. The Agreement
automatically renews on a yearly basis, subject to termination by either party
upon 30 days notice. Beginning in May 1999, the Company paid $53,451 per
month to BayCorp for these services. This amount was renegotiated in May 2000
for the period May through December 2000, and is subject to negotiation
annually thereafter. The management fee for 2001 was $165,000.

For the period ending December 31, 2001, approximately 21% of revenue was
from a customer who is also a preferred stock shareholder of the Company.

11. SEGMENT INFORMATION

Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by
the chief decision maker, or decision making group, in making decisions how to
allocate resources and assess performance. The Companys chief decision maker
is the chief executive officer. The Company evaluated its operations in two
segments in 2001: HoustonStreet U.S.A and HoustonStreet Europe.

F-54



---



##### Table of Contents



HOUSTONSTREET, INC.
NOTES TO FINANCIAL STATEMENTS  UNAUDITED  Continued



|                     |  |   |              |  
|-------------------- |  | - | ------------ | -
|Net Sales:           |  |   |              |  
|HoustonStreet Inc.   |  | $ | 1,627,606    |  
|HoustonStreet Europe |  |   | 271,892      |  
|Net Loss:            |  |   |              |  
|HoustonStreet Inc.   |  |   | ($12,996,212 | )
|HoustonStreet Europe |  |   | (1,940,687   | )
|Total Assets:        |  |   |              |  
|HoustonStreet Inc    |  | $ | 1,435,566    |  
|HoustonStreet Europe |  |   | 109,412      |  

F-55



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                 |  |                        |  |                                                        
|---------------- |  | ---------------------- |  | -------------------------------------------------------
|                 |  | BAYCORP HOLDINGS, LTD.
|                 |  |                        |  |                                                        
|January 30, 2003 |  | By:                    |  |                                                        
|                 |  |                        |  | /s / Frank W. Getman Jr.

Frank W. Getman Jr.
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                                 |  |                                                                                                                                             |  |                 
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|Signature                                        |  | Title                                                                                                                                       |  | Date            
|                                                 |  |                                                                                                                                             |  |                 
|                                                 |  |                                                                                                                                             |  |                 
|/s/ Frank W. Getman Jr.
Frank W. Getman Jr.      |  | President, Director and
Chief
Executive Officer
(principal
executive officer,
principal
financial officer and
principal
accounting officer) |  | January 30, 2003
|                                                 |  |                                                                                                                                             |  |                 
|/s/ Alexander Ellis III

Alexander Ellis III     |  | Director                                                                                                                                    |  | January 30, 2003
|                                                 |  |                                                                                                                                             |  |                 
|/s/ Stanley I. Garnett II

Stanley I. Garnett II |  | Director                                                                                                                                    |  | January 30, 2003
|                                                 |  |                                                                                                                                             |  |                 
|/s/ James S. Gordon

James S. Gordon             |  | Director                                                                                                                                    |  | January 30, 2003
|                                                 |  |                                                                                                                                             |  |                 
|/s/ Michael R. Latina

Michael R. Latina         |  | Director                                                                                                                                    |  | January 30, 2003
|                                                 |  |                                                                                                                                             |  |                 
|/s/Lawrence M. Robbins

Lawrence M. Robbins      |  | Director                                                                                                                                    |  | January 30, 2003
|                                                 |  |                                                                                                                                             |  |                 
|/s/ John A. Tillinghast

John A. Tillinghast     |  | Director                                                                                                                                    |  | January 30, 2003





---



##### Table of Contents



Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350)

I, Frank W. Getman Jr., President and CEO of BayCorp Holdings, Ltd., certify
that:

1.     I have reviewed this annual report on Form 10-K/A of BayCorp Holdings, Ltd.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                       |  |                                                           |  | 
|---------------------- |  | --------------------------------------------------------- |  | 
|Date: January 30, 2003 |  | /s/ Frank W. Getman Jr.                                   |  | 
|                       |  |                                                           |  | 
|                       |  | Frank W. Getman Jr.
President and Chief Executive Officer |  | 





---



##### Table of Contents



Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350)

I, Patrycia T. Barnard, Chief Accounting Officer and Treasurer of BayCorp
Holdings, Ltd., certify that:

1.     I have reviewed this annual report on Form 10-K/A of BayCorp Holdings, Ltd.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                       |  |                                                            |  | 
|---------------------- |  | ---------------------------------------------------------- |  | 
|Date: January 30, 2003 |  | /s/ Patrycia T. Barnard                                    |  | 
|                       |  |                                                            |  | 
|                       |  | Patrycia T. Barnard
Chief Accounting Officer and Treasurer |  | 





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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                          
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                          
|3.1     |  | Certificate of Incorporation of BayCorp Holdings, Ltd. (1)                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                          
|3.2     |  | By-laws of BayCorp Holdings, Ltd. (1)                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                          
|10.1    |  | Agreement Between Bangor Hydro-Electric Company, Central
Maine Power Company, Central Vermont Public Service
Corporation, Fitchburg Gas and Electric Light Company, Maine
Public Service Company and EUA Power Corporation relating to
use of certain transmission facilities, dated October 20,
1986.(2)
|        |  |                                                                                                                                                                                                                                                                                                          
|10.2    |  | Limited Guaranty by Eastern Utilities Associates of
Decommissioning Costs in favor of Joint Owners of the
Seabrook Project, dated May 5, 1990.(2)                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                          
|10.3    |  | Composite Agreement for Joint Ownership, Construction and
Operation of New Hampshire Nuclear Units, as amended, dated
November 1, 1990.(2)                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                          
|10.4    |  | Seventh Amendment to and Restated Agreement for Seabrook
Project Disbursing Agent as amended through and including
the Second Amendment, by and among North Atlantic Energy
Service Corporation, Great Bay Power Corporation and other
Seabrook Project owners, dated November 1, 1990.(2)               
|        |  |                                                                                                                                                                                                                                                                                                          
|10.5    |  | Seabrook Project Managing Agent Operating Agreement by and
among the North Atlantic Energy Service Corporation, Great
Bay Power Corporation and parties to the Joint Ownership
Agreement, dated June 29, 1992.(2)                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                          
|10.6    |  | Settlement Agreement by and among EUA Power Corporation,
Eastern Utilities Associates and the Official Bondholders
Committee, dated November 18, 1992.(2)                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                          
|10.7    |  | Purchased Power Agreement between UNITIL Power Corporation
and Great Bay Power Corporation, dated April 26, 1993.(2)                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                          
|10.8    |  | Power Purchase Option Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated December
22, 1993.(2)                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                          
|10.9    |  | Second Mortgage and Security Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated December
22, 1993.(2)                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                          
|10.10   |  | Third Mortgage and Security Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated December
22, 1993.(2)                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                          
|10.11   |  | Registration Rights Agreement between Great Bay Power
Corporation and the Selling Stockholders, dated April 7,
1994.(2)                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                          
|10.12   |  | Amendment to Registration Rights Agreement between Great Bay
Power Corporation and the Selling Stockholders, dated
November 23, 1994.(2)                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                          
|10.13   |  | Stock and Subscription Agreement among Great Bay Power
Corporation and the Selling Stockholders, dated April 7,
1994.(2)                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                          
|10.14   |  | Acknowledgement and Amendment to Stock and Subscription
Agreement, dated November 23, 1994.(2)                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                          
|10.15   |  | Settlement Agreement by and among Great Bay Power
Corporation, the Official Bondholders Committee and the
Selling Stockholders, dated September 9, 1994.(2)                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                          
|10.16   |  | Letter Agreement, dated December 20, 1994, between Great Bay
Power Corporation and the Selling Stockholders amending
Registration Rights Agreement, as previously amended on
November 23, 1994.(2)                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                          
|10.17   |  | Letter Agreement, dated March 29, 1995, between Great Bay
Power Corporation and the Selling Stockholders amending
Registration Rights Agreement, as previously amended on
November 23, 1994 and December 20, 1994.(2)                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                          
|10.18   |  | 1996 Stock Option Plan of BayCorp Holdings, Ltd., as amended
(1)                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                          
|10.19   |  | 2001 Non-Statutory Stock Option Plan of BayCorp Holdings,
Ltd.(3)                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                          
|10.20   |  | Employment Agreement between Frank W. Getman Jr. and BayCorp
Holdings, Ltd., dated May 25, 2000.(9)                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                          
|10.21   |  | Employment Agreement between Frank W. Getman Jr. and
HoustonStreet Exchange, Inc., dated September 1, 2000.(9)                                                                                                                                                                                           





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##### Table of Contents



|        |  |                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                  
|Number  |  | Description of Exhibit                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                  
|10.22   |  | Incentive Stock Option Agreement, dated as of August 1,
1995, by and between Frank W. Getman Jr. and Great Bay Power
Corporation.(4)                                                                             
|        |  |                                                                                                                                                                                                                  
|10.23   |  | Incentive Stock Option Agreement, dated as of September 17,
1996, by and between Frank W. Getman Jr. and Great Bay Power
Corporation.(5)                                                                         
|        |  |                                                                                                                                                                                                                  
|10.24   |  | Incentive Stock Option Agreement, dated July 30, 1999, by
and between Frank W. Getman Jr. and BayCorp Holdings,
Ltd.(8)                                                                                          
|        |  |                                                                                                                                                                                                                  
|10.25   |  | Non-Statutory Stock Option Agreement, dated May 2, 2001, by
and between Frank W. Getman Jr. and BayCorp Holdings,
Ltd.(10)                                                                                       
|        |  |                                                                                                                                                                                                                  
|10.26   |  | Stock Option Agreement, dated May 25, 2000, by and between
Anthony M. Callendrello and BayCorp Holdings, Ltd.(10)                                                                                                
|        |  |                                                                                                                                                                                                                  
|10.27   |  | Non-Statutory Stock Option Agreement and related Incentive
Stock Option Agreement, each dated May 2, 2001, by and
between Anthony M. Callendrello and BayCorp Holdings,
Ltd.(10)                                 
|        |  |                                                                                                                                                                                                                  
|10.28   |  | Non-Statutory Stock Option Agreement, dated October 22,
2001, by and between Frank W. Getman Jr. and BayCorp
Holdings, Ltd.(10)                                                                                  
|        |  |                                                                                                                                                                                                                  
|10.29   |  | Non-Statutory Stock Option Agreement, dated October 22,
2001, by and between Anthony M. Callendrello and BayCorp
Holdings, Ltd.(10)                                                                              
|        |  |                                                                                                                                                                                                                  
|10.30   |  | Non-Statutory Stock Option Agreement, dated October 22,
2001, by and between Patrycia T. Barnard and BayCorp
Holdings, Ltd.(10)                                                                                  
|        |  |                                                                                                                                                                                                                  
|10.31   |  | Retention and Incentive Agreement, dated November 21, 2001,
by and between Patrycia T. Barnard and BayCorp Holdings,
Ltd.(10)                                                                                    
|        |  |                                                                                                                                                                                                                  
|10.32   |  | Retention and Incentive Agreement, dated November 30, 2001,
by and between Anthony M. Callendrello and BayCorp Holdings,
Ltd.(10)                                                                               
|        |  |                                                                                                                                                                                                                  
|10.33   |  | Retention and Incentive Agreement, dated December 3, 2001,
by and between Frank W. Getman Jr. and BayCorp Holdings,
Ltd.(10)                                                                                    
|        |  |                                                                                                                                                                                                                  
|10.34   |  | Promissory Note, dated March 7, 2002, by John A. Tillinghast
in favor of BayCorp Holdings, Ltd.(10)                                                                                                              
|        |  |                                                                                                                                                                                                                  
|10.35   |  | Stock Pledge Agreement, dated March 7, 2002, by and between
John A. Tillinghast and BayCorp Holdings, Ltd.(10)                                                                                                   
|        |  |                                                                                                                                                                                                                  
|10.36   |  | 1999 Stock Incentive Plan of HoustonStreet Exchange,
Inc.(8)                                                                                                                                                     
|        |  |                                                                                                                                                                                                                  
|10.37   |  | Amended and Restated Incentive Stock Option Agreement, dated
as of July 30, 1999, by and between Frank W. Getman Jr. and
HoustonStreet Exchange, Inc. (first of two identically
titled and dated agreements).(8) 
|        |  |                                                                                                                                                                                                                  
|10.38   |  | Amended and Restated Incentive Stock Option Agreement, dated
as of July 30, 1999, by and between Frank W. Getman Jr. and
HoustonStreet Exchange, Inc. (second of two identically
titled and dated agreements).(8)
|        |  |                                                                                                                                                                                                                  
|10.39   |  | Asset Purchase Agreement by and between Montaup Electric
Company and Great Bay Power Corporation, dated as of June
24, 1998.(6)                                                                                  
|        |  |                                                                                                                                                                                                                  
|10.40   |  | Assignment by and between Great Bay Power Corporation and
Little Bay Power Corporation dated as of August 28, 1998.(7)                                                                                           
|        |  |                                                                                                                                                                                                                  
|10.41   |  | Escrow Agreement by and between Little Bay Power Corporation
and Citizens Bank New Hampshire dated November 10, 1999.(7)                                                                                         
|        |  |                                                                                                                                                                                                                  
|10.42   |  | Series A Convertible Preferred Stock Purchase Agreement,
dated as of February 2, 2000, as amended, by and among
HoustonStreet Exchange, Inc. and the Purchasers (as defined
therein).(8)                         
|        |  |                                                                                                                                                                                                                  
|10.43   |  | Form of Omnibus Signature Page dated as of March 6, 2000
relating to the preceding exhibit.(8)                                                                                                                   
|        |  |                                                                                                                                                                                                                  
|10.44   |  | Fourth Amended and Restated Stockholders Voting Agreement,
dated as of March 30, 2001, by and among BayCorp Holdings,
Ltd., HoustonStreet Exchange, Inc. and the Purchasers (as
defined therein).(10)           
|        |  |                                                                                                                                                                                                                  
|10.45   |  | Amended and Restated Investor Rights Agreement dated as of
March 30, 2001, by and among BayCorp Holdings, Ltd.,
HoustonStreet Exchange, Inc. and the other parties named
therein.(10)                            
|        |  |                                                                                                                                                                                                                  
|10.46   |  | Third Amended and Restated Rights of First Refusal and
Co-Sale Agreement dated as of March 30, 2001, by and among
BayCorp Holdings, Ltd., HoustonStreet Exchange, Inc. and the                                   





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##### Table of Contents



|        |  |                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                
|Number  |  | Description of Exhibit                                                                                                                                                                         
|        |  |                                                                                                                                                                                                
|        |  | other parties named therein. (10)                                                                                                                                                              
|        |  |                                                                                                                                                                                                
|10.47   |  | Senior Secured Note and Warrant Purchase Agreement, dated as
of March 30, 2001, by and among BayCorp Holdings, Ltd.,
HoustonStreet Exchange, Inc. and the Purchasers (as defined
therein). (10)
|        |  |                                                                                                                                                                                                
|10.48   |  | Series C Preferred Stock Warrant Agreement, dated as of
March 30, 2001, by and among BayCorp Holdings, Ltd.,
HoustonStreet Exchange, Inc. and the Holders (as defined
therein). (10)           
|        |  |                                                                                                                                                                                                
|10.49   |  | Common Stock Warrant Agreement, dated as of March 30, 2001,
by and among BayCorp Holdings, Ltd., HoustonStreet Exchange,
Inc. and the Holders (as defined therein). (10)                       
|        |  |                                                                                                                                                                                                
|10.50   |  | Senior Secured Promissory Note, dated March 30, 2001, by
HoustonStreet Exchange, Inc. in favor of BayCorp Holdings,
Ltd. (10)                                                                  
|        |  |                                                                                                                                                                                                
|10.51   |  | Series C Warrant No. W-C001, dated March 30, 2001, issued by
HoustonStreet Exchange, Inc. to BayCorp Holdings, Ltd. (10)                                                                       
|        |  |                                                                                                                                                                                                
|10.52   |  | Series C Warrant No. W-C006, dated March 30, 2001, issued by
HoustonStreet Exchange, Inc. to James S. Gordon. (10)                                                                             
|        |  |                                                                                                                                                                                                
|10.53   |  | Series C Warrant No. W-C010, dated March 30, 2001, issued by
HoustonStreet Exchange, Inc. to Omega Advisors, Inc. (10)                                                                         
|        |  |                                                                                                                                                                                                
|10.54   |  | Common Stock Warrant No. W-001, dated March 30, 2001, issued
by HoustonStreet Exchange, Inc. to BayCorp Holdings,
Ltd. (10)                                                                    
|        |  |                                                                                                                                                                                                
|10.55   |  | Common Stock Warrant No. W-006, dated March 30, 2001, issued
by HoustonStreet Exchange, Inc. to James S. Gordon. (10)                                                                          
|        |  |                                                                                                                                                                                                
|10.56   |  | Common Stock Warrant No. W-010, dated March 30, 2001, issued
by HoustonStreet Exchange, Inc. to Omega Advisors,
Inc. (10)                                                                      
|        |  |                                                                                                                                                                                                
|10.57   |  | Senior Secured Promissory Note, dated March 30, 2001, by
HoustonStreet Exchange, Inc. in favor of James S.
Gordon. (10)                                                                        
|        |  |                                                                                                                                                                                                
|10.58   |  | Senior Secured Promissory Note, dated March 30, 2001, by
HoustonStreet Exchange, Inc. in favor of Omega Advisors,
Inc. (10)                                                                    
|        |  |                                                                                                                                                                                                
|10.59   |  | Lease between Eliot Commons, LLC as Lessor and BayCorp
Holdings, Ltd. as Lessee, 51 Dow Highway, Suite 7, Eliot,
Maine 03903, dated as of January 3, 2002 (10)                                 
|        |  |                                                                                                                                                                                                
|21.1    |  | List of Subsidiaries of BayCorp Holdings, Ltd. (10)                                                                                                                                            
|        |  |                                                                                                                                                                                                
|23.1    |  | Consent of Arthur
Andersen LLP (10)                                                                                                                                                            
|        |  |                                                                                                                                                                                                
|23.2    |  | Consent of Vitale, Caturano & Company, P.C.                                                                                                                                                    
|        |  |                                                                                                                                                                                                
|99.1    |  | Letter to the Commission from BayCorp Holdings, Ltd. dated
March 19, 2002 relating to representations of Arthur
Andersen LLP. (10)                                                             
|        |  |                                                                                                                                                                                                
|99.2    |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                                                                                                        
|        |  |                                                                                                                                                                                                
|99.3    |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                                                                                                        



---

|(1) |  | Filed as an exhibit to the Registration Statement on Form S-4 of BayCorp
Holdings, Ltd. (Registration Statement 333-3362) filed on July 12, 1996
and incorporated herein by reference.              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Filed as an exhibit to the Registration Statement on Form S-1 of Great
Bay Power Corporation (Registration No. 33-88232) declared effective on
April 17, 1995 and incorporated herein by reference. 
|   
|(3) |  | Filed as an exhibit to the Registration Statement on Form S-8 of BayCorp
Holdings, Ltd. (Registration Statement 333-71976) filed on October 22,
2001 and incorporated herein by reference.          
|   
|(4) |  | Filed as an exhibit to the Quarterly Report on Form 10-Q of Great Bay
Power Corporation for the quarter ended March 31, 1995 (File No. 0-25748)
on May 9, 1995 and incorporated herein by reference.
|   
|(5) |  | Filed as an exhibit to the Companys Annual Report on Form 10-K (File No.
1-12527) on March 26, 1997 and incorporated herein by reference.                                                          





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##### Table of Contents



|     |  |                                                                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(6)  |  | Filed as an exhibit to the Quarterly Report on Form 10-Q of BayCorp
Holdings, Ltd. for the quarter ended June 30, 1998 (File No. 1-12527) on
August 13, 1998 and incorporated herein by reference.
|    
|(7)  |  | Filed as an exhibit to the Current Report on Form 8-K of BayCorp
Holdings, Ltd. (File No. 1-12527) dated November 19, 1999 and filed on
December 3, 1999 and incorporated herein by reference.    
|    
|(8)  |  | Filed as an exhibit to the Companys Annual Report on Form 10-K (File No.
1-12527) on March 30, 2000 and incorporated herein by reference.                                                        
|    
|(9)  |  | Filed as an exhibit to the Companys Annual Report on Form 10-K (File No.
1-12527) on March 30, 2001 and incorporated herein by reference.                                                        
|    
|(10) |  | Filed as an exhibit to the
Companys Annual
Report on Form 10-K (File No. 1-12527) on March 25,
2002 and incorporated herein by reference.                                                        
|    
|    |  | Confidential materials omitted and filed separately with the
Commission.