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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
 
      [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                                       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)
 
<TABLE>
<S>                                            <C>
                  DELAWARE                                      02-0488443
       (State or other jurisdiction of                       (I.R.S. Employer
       incorporation or organization)                       Identification No.)
</TABLE>
 
<TABLE>
<S>                                            <C>
      20 INTERNATIONAL DRIVE, SUITE 301
          PORTSMOUTH, NEW HAMPSHIRE                             03801-6809
  (Address of principal executive offices)                      (Zip Code)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 431-6600
                            ------------------------
 
          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  F      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 17, 1999, the approximate aggregate market value of the voting
stock held by non-affiliates of the registrant was $14,368,200 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 17, 1999. There were 8,192,000
shares of Common Stock outstanding as of March 17, 1999.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
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<CAPTION>
                                                             PART OF FORM 10-K
                  DOCUMENT                                INTO WHICH INCORPORATED
                  --------                                -----------------------
<S>                                            <C>
Portions of the Registrant's Proxy Statement               Items 10, 11, 12 & 13
for the 1999 Annual Meeting of Shareholders                     of Part III
</TABLE>
 
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<PAGE>   2
 
                                     PART I
 
ITEM 1.  BUSINESS.
 
INTRODUCTION
 
     BayCorp Holdings, Ltd. ("BayCorp" or the "Company") serves as a holding
company for Great Bay Power Corporation ("Great Bay"). Great Bay is an electric
generating company whose principal asset is a 12.1% joint ownership interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay is an exempt wholesale generator ("EWG") under the Public
Utility Holding Company Act of 1935 ("PUHCA"). Unlike regulated public
utilities, Great Bay has no franchise area or captive customers. Great Bay sells
its power in the competitive wholesale power markets. In addition, BayCorp owns
Little Bay Power Corporation ("Little Bay"). Little Bay was formed in connection
with a pending acquisition of an additional 3% interest in the Seabrook Nuclear
Power Project. This acquisition is subject to regulatory approvals, including
approval by the Nuclear Regulatory Commission ("NRC"). See "-- Recent
Developments."
 
     Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly-formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. Currently,
Great Bay and Little Bay are the only subsidiaries of BayCorp. BayCorp's
principal asset is its 100% equity interest in Great Bay. The new corporate
structure enables BayCorp, either directly or through subsidiaries other than
Great Bay and Little Bay, to engage in businesses that these subsidiaries would
be prohibited from pursuing due to their status as EWG's under the PUHCA.
BayCorp may in the future enter into new businesses or acquire existing
businesses, both in energy related fields and possibly in unrelated fields.
 
     BayCorp was incorporated in Delaware in 1996. Great Bay was incorporated in
New Hampshire in 1986 and was formerly known as EUA Power Corporation. Great Bay
sells its share of the electricity output of the Seabrook Project in the
wholesale electricity market, primarily in the Northeast United States. Neither
BayCorp nor its subsidiaries has operational responsibilities for the Seabrook
Project. Great Bay's share of the Seabrook Project capacity is approximately 140
megawatts ("MW"). Great Bay currently sells all but approximately 20 MW of its
share of the Seabrook Project capacity in the wholesale short-term market.
Little Bay was incorporated in New Hampshire in 1998 and currently conducts no
business activity.
 
     Great Bay's predecessor, EUA Power Corporation, filed a voluntary petition
for reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Hampshire on February 28,
1991. It conducted its business as a Debtor in Possession until November 23,
1994, at which time it emerged from Chapter 11.
 
THE SEABROOK PROJECT
 
     The Seabrook Project is located on an 896-acre site in Seabrook, New
Hampshire. It is owned by Great Bay and ten 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, Montaup Electric Company, New England Power Company, New
Hampshire Electric Cooperative, Inc., Taunton Municipal Lighting Plant and
Hudson Light & Power Department (together with Great 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 service
life of 27 years. Seabrook Unit 1 transmits its generated power to the New
England 345
<PAGE>   3
 
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 from the NRC a full power
operating license which 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 also owns a 12.1% joint ownership interest in
Seabrook Unit 2. Great Bay assigns 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. Certain assets
of Seabrook Unit 2 have been and are being sold from time to time to third
parties. However, there have been no material sales of Unit 2 assets since July
1996.
 
     The Participants are considering additional plans regarding disposition of
Seabrook Unit 2, but such plans have not yet been finalized and approved. Great
Bay is unable to estimate the costs for which it will be responsible in
connection with the disposition of Seabrook Unit 2. Because Seabrook Unit 2 was
never completed or operated, costs associated with its disposition will not
include any amounts for decommissioning. Great Bay currently pays its share of
monthly expenses required to preserve and protect the value of the Seabrook Unit
2 components.
 
JOINT OWNERSHIP OF SEABROOK
 
     Great 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's
joint ownership interest of 12.1% is the third largest interest among the
Participants, exceeded only by the approximately 40% interest held by Northeast
Utilities 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 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.
 
     The failure to make monthly payments under the JOA by owners of the
Seabrook Project other than Great Bay may have a material effect on Great Bay if
Great Bay 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 have not made their full respective payments. At the
current time, the electric utility industry is undergoing significant changes as
competition and deregulation are introduced into the marketplace. Some
utilities, including certain Participants, have indicated in state regulatory
proceedings that they may be forced to seek bankruptcy protection if regulators,
as part of the industry restructuring, do not allow for full recovery of
stranded costs. If a Participant other than Great Bay filed for bankruptcy, and
that Participant was unable to pay its share of Seabrook Project expenses, Great
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.
 
     On February 28, 1997, the New Hampshire Public Utilities Commission
("NHPUC") issued an order requiring stranded cost recovery to be based on the
average market price of electricity in New England, rather than cost-based rate
making methods. On March 10, 1997, one of the Participants, Northeast Utilities
(along
 
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with three of its subsidiaries), received a temporary restraining order from the
U.S. District Court for the District of Rhode Island. This temporary restraining
order stayed the NHPUC's February 28, 1997 order to the extent that the order
established a rate methodology that is not designed to recover the cost of
providing service and would require Northeast Utilities and certain of its
affiliates to write-off any regulatory assets. Court-ordered mediation between
the NHPUC and Northeast Utilities during 1997 and the first half of 1998 did not
result in a settlement.
 
     On June 12, 1998, the U.S. District Court issued a modified preliminary
injunction, prohibiting the NHPUC from implementing involuntary restructuring
plans. On December 3, 1998, the U.S. Court of Appeals for the First Circuit
upheld the District Court preliminary injunction. If the preliminary injunction
or a similar court action does not remain in effect, the NHPUC's methodology
could require Northeast Utilities and certain of its affiliates to remove
certain regulatory assets from their respective balance sheets. According to
Northeast Utilities, the amount of that potential write-off is currently
estimated at over $400 million, after taxes.
 
     In a related matter, the New Hampshire Supreme Court ruled on December 23,
1998 that Public Service of New Hampshire ("PSNH"), a subsidiary of Northeast
Utilities, does not have a statutory right to fully recover stranded costs.
However, the Court also concluded that a complete record had not been produced
regarding whether PSNH has a contractual right to full recovery under a 1989
Rate Agreement between Northeast Utilities and the State of New Hampshire.
Consequently, the NHPUC set a procedural hearing to begin the process of
completing the necessary record. However, on January 18, 1999, PSNH filed with
the NHPUC a motion arguing that the federal injunction prevented the NHPUC from
deciding the contract issue. PSNH filed a similar motion in U.S. District Court
on February 10, 1999. If the NHPUC and the District Court deny PSNH's motions,
Northeast Utilities and certain of its affiliates could be required to remove
certain regulatory assets from their respective balance sheets. As a joint owner
of the Seabrook Project with Northeast Utilities and other Participants, Great
Bay could be adversely affected if Northeast Utilities or its subsidiaries are
adversely affected by the outcome of a court decision or regulatory actions in
New Hampshire.
 
     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
Northeast Utilities. Northeast Utilities, 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
vote of 51% of the ownership interests. Great Bay does not have a representative
on the Executive Committee, but does have a representative on the Budget
Committee and Non-Operating Participants Committee related to the Seabrook
Project. Frank W. Getman Jr., the Company's President, Chief Executive Officer,
is currently Chairman of the Audit Committee and Vice Chairman of the Budget
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.
 
RECENT DEVELOPMENTS
 
     For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement request
for tax years 1994, 1995 and 1996 were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). On December 7, 1998, Great Bay announced that it had reached an
agreement with the town of Seabrook to settle its outstanding property tax
litigation. As a result of the settlement, Great Bay received approximately $1.3
million from the town of Seabrook. In addition, the parties agreed that the
assessed value of the Seabrook Project will be reduced over the five year period
of the settlement agreement from $2.3 billion in 1998 to $1.2 billion in 2002.
The joint
 
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<PAGE>   5
 
owners of the Seabrook Project are currently engaged in negotiations with the
towns of Hampton and Hampton Falls.
 
     In January 1997 and July 1997, the NRC staff ruled that Great Bay did not
satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. Great Bay's petition also sought, in the
alternative, an NRC permanent exemption from the obligation of Great Bay to
comply with the NRC regulations applicable to non "electric utility" owners of
interests in nuclear power plants. On July 23, 1998, the staff of the NRC
notified Great Bay of the staff's determination that Great Bay complies with the
decommissioning funding assurance requirements under NRC regulations. See "--
Decommissioning."
 
     In June 1998, Great Bay signed a definitive purchase agreement with Montaup
Electric Company ("Montaup"), a subsidiary of Eastern Utilities Associates
("EUA"), to purchase Montaup's approximately 3% ownership interest in the
Seabrook Project. Montaup's 3% interest in Seabrook represents approximately 34
megawatts of capacity. Under the terms of the agreement, Great Bay will pay
Montaup approximately $3.2 million and Montaup has agreed to prefund the
decommissioning liability associated with its interest in Seabrook. The
transaction is subject to state and federal regulatory approvals.
 
     On September 29, 1998, NAESCO filed with the NRC an application on behalf
of Montaup and Little Bay seeking NRC approval of a license transfer from
Montaup to Little Bay. On December 31, 1998, New England Power Company, a joint
owner holding a 9.95% interest in the Seabrook plant, filed with the NRC an
intervention petition and request for a hearing relating to decommissioning
obligations and operational funding. On March 5, 1999, the NRC denied New
England Power's request relating to decommissioning obligations and granted the
request with respect to whether the license transfer application contains
sufficient assurance of adequate funding for Seabrook operations. In its ruling
on March 5, 1999, the NRC noted that it expects to issue a final order on the
matter in August 1999. New England Power also intervened in approval proceedings
pending before the NHPUC and Massachusetts Department of Telecommunications and
Energy.
 
     As of March 1, 1998, Great Bay assumed all marketing responsibilities for
its power. In June 1998, Great Bay and PECO Energy Company ("PECO") terminated a
power marketing agreement between the companies, pursuant to which PECO formerly
served as Great Bay's marketing agent, and Great Bay paid PECO approximately
$2.5 million. During the quarter ended June 30, 1998, Great Bay made an
approximate $2.5 million charge to income for this expense. This expense is
reflected in Administrative and General expenses in the accompanying
Consolidated Statement of Income.
 
     On May 6, 1998, the Company's Board of Directors named Frank W. Getman Jr.
to serve as BayCorp's President and Chief Executive Officer. Mr. Getman's
predecessor, John A. Tillinghast, remains as Chairman of the Board and
participates on a part time basis in the continued development of the Company.
 
     In September 1998, the Company moved its corporate offices from Dover, New
Hampshire to Portsmouth, New Hampshire. The offices are currently located at 20
International Drive, Suite 301, Portsmouth, New Hampshire, 03801-6809.
 
     The Seabrook Project began a scheduled refueling outage on March 27, 1999.
The refueling outage is estimated to last approximately 45 days. The last
refueling outage at the Seabrook Project began on May 10, 1997 and lasted
approximately 50 days.
 
BANKRUPTCY PROCEEDINGS AND REORGANIZATION
 
     Great Bay filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of New Hampshire (the "Bankruptcy Court") on
February 28, 1991. Great Bay conducted its business as a Debtor in Possession
until November 23, 1994, at which time Great Bay's Amended Bankruptcy Plan
became effective and Great Bay emerged from Chapter 11. Financing for the
Amended Bankruptcy Plan was provided by affiliates of Omega Advisors, Inc. and
by Elliot Associates, L.P. (collectively, the "Investors"). At the time Great
Bay emerged from Chapter 11, the Investors purchased 4,800,000 shares of Great
Bay's Common Stock for $35,000,000.
 
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CURRENT BUSINESS
 
     BayCorp's principal asset is its 100% equity interest in Great Bay. The
business of Great Bay consists of the management of its joint ownership interest
in the Seabrook Project and the sale in the wholesale power market of its share
of electricity produced by the Seabrook Project. Great Bay does not have
operational responsibility for the Seabrook Project. To date, Great Bay has
entered into two long-term power contracts, each for approximately 10 MW of
Great Bay's share of the Seabrook Project capacity. See "--Purchased Power
Agreements." Great Bay's business strategy is to utilize unit contingent and
firm forward sales contracts to maximize the value of its 140 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 Seabrook unscheduled outages, 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
maintains insurance to protect Great Bay during periods of extreme price
volatility. This insurance, provided by CIGNA, provides up to $30 million of
coverage through May 2002.
 
     As a result of Great Bay's reorganization into a holding company structure
on January 24, 1997, BayCorp may engage in business activities, either directly
or through subsidiaries other than Great Bay or Little Bay, that these
subsidiaries would be prohibited from pursuing due to their status as EWG's
under PUHCA. BayCorp may in the future enter into new businesses or acquire
existing businesses, both in energy related fields and possibly in unrelated
fields.
 
     In June 1998, Great Bay signed a definitive purchase with Montaup Electric
Company, a subsidiary of EUA, to purchase Montaup's approximately 3% ownership
interest in the Seabrook Project. Montaup's 3% interest in Seabrook represents
approximately 34 megawatts of capacity. The parties are working to obtain
required regulatory approvals.
 
MARKETING AND CUSTOMERS
 
     On March 1, 1998, Great Bay terminated PECO as Great Bay's exclusive
marketing agent and began to market and sell its uncommitted portion of
electricity generated by the Seabrook Project. The Company utilizes unit
contingent and firm forward sale contracts to maximize the value of its
uncommitted portion of its 140 megawatt power supply from the Seabrook Project.
 
     Great Bay currently sells most of its power in the Northeast United States
in the short-term wholesale power market. Great Bay is currently not dependent
on any single customer because many utilities and marketers are willing to buy
Great Bay's share of electricity from the Seabrook Project at substantially the
same price. 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.
 
     During 1998, sales by Great Bay to Northeast Utilities Services Company, NP
Energy Inc. and Enron Power Marketing Inc. accounted for 28%, 17% and 12%,
respectively, of total operating revenues. See Note 1J of Notes to the Financial
Statements.
 
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
that provides for Great Bay to sell to UNITIL Power approximately 10 MW of
power. 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
 
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5.24 cents per kilowatt-hour ("kWh"). In May 1999 and annually thereafter, the
price is subject to increase in accordance with a formula that provides for
adjustments at less than the actual rate of inflation. UNITIL Power has an
option to extend the UNITIL Purchased Power Agreement for an additional 12 years
until 2022.
 
     The UNITIL Purchased Power Agreement is front-end loaded whereby UNITIL
Power pays 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 Power in the early years of the UNITIL Purchased Power Agreement is
quantified in a "Balance Account" which increased annually to a total of $4.1
million in July 1998, and now decreases annually, reaching zero in July 2001. If
the UNITIL Purchased Power Agreement terminates prior to its scheduled
termination, and if at that time there is a positive amount in the Balance
Account, Great Bay is obligated to refund that amount to UNITIL Power.
 
     To secure the obligations of Great Bay under the UNITIL Purchased Power
Agreement, including the obligation to repay UNITIL Power the amount in the
Balance Account, the UNITIL Purchased Power Agreement grants UNITIL Power a
mortgage on Great Bay's interest in the Seabrook Project. This mortgage may be
subordinated to first mortgage financing of up to a maximum amount of
$80,000,000. The UNITIL Purchased Power Agreement further provides that UNITIL
Power's mortgage will rank pari passu with other mortgages that may hereafter be
granted by Great Bay to other purchasers of power from Great Bay to secure
similar obligations, provided that (i) the maximum amount of indebtedness
secured by the first mortgage on the Seabrook Interest may not exceed
$80,000,000, and (ii) the combined total of all second mortgages on the Seabrook
Interest may not exceed the sum of (a) $80,000,000 less the total amount of
Great Bay's debt then outstanding which is secured by a first mortgage plus (b)
$57,000,000.
 
     Great Bay is also party to a Purchased Power Agreement, dated November 9,
1995 (the "Bangor Purchased Power Agreement"), with Bangor Hydro-Electric
Company ("Bangor Hydro"). Under the Bangor Purchased Power Agreement, and a
related option, Bangor Hydro agreed to purchase from Great Bay up to 10 MW of
electricity for the months of November 1998 through March 1999 and November 1999
through March 2000.
 
COMPETITION
 
     Great Bay sells its share of Seabrook 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. A primary source of competition comes from traditional utilities,
many of which presently have excess capacity. 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 and the reduction of Great Bay's capital costs
resulting from the implementation of the Chapter 11 reorganization plan.
 
NEPOOL
 
     Great Bay is a party to the New England Power Pool ("NEPOOL") Agreement
(the "NEPOOL Agreement") and is a member of NEPOOL. NEPOOL is open to all
investor-owned, municipal and cooperative electric utilities in New England and
other companies that transact business in the bulk power market in New England.
The NEPOOL Agreement imposes on its participants obligations concerning
generating capacity reserves and the right to use major transmission lines. On
occasions when one or more transmission lines are out of service, the quantity
of power being produced by then operating generation plants may exceed the
quantity of power that can be carried safely by the transmission system. In such
instances, one or more generation plants may be taken off-line by NEPOOL. To
date, the Seabrook Project has not been taken off-line in these instances.
However, there can be no assurances that the Seabrook Project would not be
 
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taken off-line in such instances even though it is scheduled to run at all times
when the plant is physically capable of operating.
 
     The NEPOOL Agreement currently provides for central dispatch of the
generating capacity of NEPOOL members with the objective of achieving economical
use of the region's facilities. On December 31, 1996, NEPOOL filed a
restructuring plan with the Federal Energy Regulatory Commission ("FERC"),
including proposed amendments to the NEPOOL Agreement and an open access
transmission tariff. The filing was intended not only to comply with the FERC's
open access for tight pools as set forth in FERC Order No. 888, but also to (1)
transfer the region's transmission grid and generation operation to an
independent system operator, (2) provide for a competitive generation market
through a combination of bilateral trading and the formation of a regional power
exchange and (3) qualify NEPOOL as a regional transmission group. Among other
things, NEPOOL's restructuring is designed to function efficiently in a changing
electric power industry and to permit regional transmission at rates that do not
vary with distance. These changes are being implemented in stages that began in
mid-1997.
 
     The new independent system operator, ISO New England, Inc. (the "ISO-NE"),
has been established and is responsible for maintaining the safety and
reliability of the transmission grid and bulk power market within the NEPOOL
region. The ISO-NE will oversee a regional power exchange, which is scheduled to
be implemented in May 1999. This regional power exchange is designed to provide
for a competitive generation market through a combination of bilateral trading
and an hourly market-clearing price.
 
NUCLEAR POWER, ENERGY AND UTILITY REGULATION
 
     The Seabrook Project and Great Bay, as part owner 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 has been, and will be, affected to the extent of its proportionate
share by the cost of any such requirements made applicable to Seabrook Unit 1.
 
     Great Bay is also subject to the jurisdiction of the FERC under Parts II
and III of the Federal Power Act and, as a result, is required to file with FERC
all contracts for the sale of electricity. FERC has the authority to suspend the
rates at which Great Bay proposes 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, accounts,
service and property records.
 
     Because it is an EWG, Great Bay is not subject to the jurisdiction of the
Securities and Exchange Commission ("SEC") under PUHCA. In order to maintain its
EWG status, Great 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, its
12.1% joint ownership interest in the Seabrook Project comprises an "eligible
facility."
 
     The NHPUC and the regulatory authorities with jurisdiction over utilities
in New Hampshire and state legislatures of several other states in which Great
Bay sells electricity are considering or are implementing initiatives relating
to the deregulation of the electric utility industry. Simultaneously with the
deregulation initiatives occurring in each of the New England states, NEPOOL is
restructuring to create and maintain open, non-discriminatory, competitive,
unbundled markets for energy, capacity, and ancillary services. These markets
are scheduled to commence operation in May 1999. All of the deregulation
initiatives open electricity markets to competition in the affected states.
While Great Bay believes it is a low-cost producer of electricity and will
benefit from the deregulation of the electric industry, it is not possible to
predict the impact of these various initiatives on Great Bay.
 
                                        7
<PAGE>   9
 
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 owners of the Seabrook Project are accumulating monies in a trust fund to
pay decommissioning costs, if these costs exceed the amount of the trust fund,
the owners, including Great Bay, 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 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 billion, based on the approximately 107 currently licensed
reactors in the United States. The secondary layer is based on a retrospective
premium assessment of $83.9 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 would be obligated to pay its ownership share of any assessment
resulting from a nuclear incident at any United States nuclear generating
facility. Great Bay estimates its maximum liability per nuclear accident
currently would be an aggregate amount of approximately $10.18 million per
accident, with a maximum annual assessment of about $1.21 million per incident,
per year.
 
     In addition to the insurance required by the Price Anderson Act, the NRC
regulations require licensees, including the Seabrook Project, to carry all risk
nuclear property damage insurance in the amount of at least $1.06 billion, which
amount must be dedicated, in the event of an accident at the reactor, to the
stabilization and decontamination of the reactor to prevent significant risk to
the public health and safety.
 
     Great Bay also independently purchases business interruption insurance from
Nuclear Electric Insurance Limited ("NEIL"). The current policy is in effect
from September 15, 1998 until April 1, 1999 and provides for the payment of a
fixed weekly loss amount of $550,000 in the event of an outage at the Seabrook
Project of more than 23 weeks resulting from the property damage occurring from
a "sudden fortuitous event, which happens by chance, is unexpected and
unforeseeable." The maximum amount payable to Great Bay is $74.4 million. Under
the terms of the policy, Great Bay is subject to a potential retrospective
premium adjustment of up to approximately $555,000 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.
 
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
 
                                        8
<PAGE>   10
 
Bay believes that the Seabrook Project has available, or under supply contracts,
sufficient nuclear fuel for operations through approximately 2002. 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."
 
     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. However, the DOE has 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 money
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.
 
     In February 1999, the DOE proposed to Congress an alternative interim plan
for high level waste management. The DOE proposed to take legal title and
responsibility for the waste (on-site at nuclear plants such as Seabrook) until
a permanent repository becomes available. Regardless of whether this proposal is
adopted by Congress, nuclear plants such as Seabrook must retain high level
waste on-site or make other storage provisions until the DOE begins receiving
nuclear waste materials in accordance with the NWPA and its contracts.
 
     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 Great Bay that the Seabrook Project has
adequate on-site storage capacity for high level waste until approximately 2010.
 
     The Low-Level Radioactive Waste Policy Act of 1980 requires each state to
provide disposal facilities for 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. Nevertheless, South
Carolina's recently elected governor announced his unwillingness to accept any
LLW from states outside the southeastern United States.
 
     In April 1995, a privately owned facility in Utah was approved as a
disposal facility for certain types of LLW. The Seabrook Project began shipping
certain LLW to the Utah facility in December 1995. All LLW generated by the
Seabrook Project that exceeds the maximum radioactivity level of LLW accepted by
the Utah facility is currently stored on-site at the Seabrook facility.
 
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. Any changes in NRC
requirements or technology can increase estimated decommissioning costs.
 
                                        9
<PAGE>   11
 
     Great Bay is responsible for its pro rata share of the decommissioning and
cancellation costs for Seabrook. Great Bay pays its share of decommissioning
funding on a monthly basis. The 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. The review of the current estimate and
funding schedule by the NDFC is scheduled to commence in the Spring of 1999.
Although the owners of the Seabrook Project, including Great Bay, 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, would remain liable for the excess.
 
     In January 1997 and July 1997, the NRC staff ruled that Great Bay did not
satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. Great Bay's petition also sought, in the
alternative, an NRC permanent exemption from the obligation of Great Bay to
comply with the NRC regulations applicable to non "electric utility" owners of
interests in nuclear power plants. 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
complies 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 complies with the decommissioning funding assurance requirements under NRC
regulations.
 
     In response to the New Hampshire legislation, Great Bay has 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 $1.6 million in 1999 and
escalate at 4% each year thereafter through 2015.
 
     The current estimated cost to decommission the Seabrook Project, based on a
study performed in 1996 for the lead owner of the Seabrook Project, is
approximately $497 million in 1998 dollars and $2.2 billion in 2026 dollars,
assuming a remaining 27 year life for the facility and a future cost escalation
rate of 5.0%. Based on this estimate, the present value of Great Bay's share of
this liability as of December 31, 1998 was approximately $60.3 million.
 
     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 an initial 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 1998 and September 1998. NAESCO has advised
Great Bay that the Seabrook Station's initial five-
 
                                       10
<PAGE>   12
 
year NPDES permit will remain effective during the renewal process. The EPA has
stated that it plans to complete the application review by September 1999.
 
     On August 31, 1994, the New Hampshire Department of Environmental Services
issued to NAESCO permits to operate two auxiliary boilers and two emergency
diesel generators in accordance with New Hampshire Revised Statutes Annotated
Chapter 125-C. These permits, which were effective until August 31, 1997,
prescribe limits for the emission of air pollutants into the ambient air as well
as record keeping and other reporting criteria. NAESCO filed an application on
July 16, 1996 for permits under Title V of the Clean Air Act. Upon the
expiration of the State of New Hampshire permits, the conditions authorized by
those permits remain in effect until the Title V permits are granted. NAESCO can
not estimate when the Title V permits will be granted. 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 is liable for its 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, NRC regulations are 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 is in
compliance in all material respects with applicable EPA, NRC and other
regulations relating to pollution caused by nuclear generating facilities.
 
EMPLOYEES AND MANAGEMENT
 
     BayCorp has five employees, including its President and Chief Executive
Officer, Frank W. Getman Jr. See "Executive Officers." BayCorp's wholly-owned
subsidiary, Great Bay, has two employees.
 
     In January 1997, BayCorp and Great Bay entered into a Management and
Administrative Services Agreement (the "Services Agreement"), pursuant to which
BayCorp provides Great Bay a full range of management services, including
general management and administration, accounting and bookkeeping, budgeting and
regulatory compliance. Under the Services Agreement, Great Bay paid BayCorp a
monthly fee of $162,000 for such services in 1998. The Services Agreement has a
one-year term and provides for automatic one-year renewals.
 
ITEM 2.  PROPERTIES.
 
     BayCorp's principal asset is its 100% equity interest in Great Bay. In
turn, Great Bay's principal asset is its 12.1% 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."
 
ITEM 3.  LEGAL PROCEEDINGS.
 
     For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement request
for tax years 1994, 1995 and 1996 were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). On December 7, 1998, Great Bay announced that it had reached an
agreement with the town of Seabrook to settle its outstanding property tax
litigation. As a result of the settlement agreement, Great Bay received
approximately $1.3 million from the town of Seabrook. In addition, the parties
agreed that the assessed value of the Seabrook Project will be
 
                                       11
<PAGE>   13
 
reduced over the five year period of the settlement agreement from $2.3 billion
in 1998 to $1.2 billion in 2002. The joint owners of the Seabrook Project are
currently engaged in negotiations with the towns of Hampton and Hampton Falls.
 
     In June 1998, Great Bay and PECO terminated the power marketing agreement
between the companies and Great Bay paid PECO approximately $2.5 million. During
the quarter ended June 30, 1998, Great Bay made an approximate $2.5 million
charge to income for this expense. This expense is reflected in Administrative
and General expenses in the accompanying Consolidated Statement of Income.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     Not Applicable.
 
  Executive Officers of the Registrant
 
     The executive officers of BayCorp are:
 
<TABLE>
<CAPTION>
                 NAME                    AGE                          POSITION
                 ----                    ---                          --------
<S>                                      <C>   <C>
Frank W. Getman Jr.....................  35    Chief Executive Officer, President, and Secretary
John A. Tillinghast....................  71    Chief Engineer, Chairman of the Board of Directors
</TABLE>
 
     Frank W. Getman Jr. has served as Chief Executive Officer, President, and
Secretary of the Company since May 1998. Mr. Getman served as Chief Operating
Officer of the Company since September 1996 and Vice President, Secretary and
General Counsel of Great Bay since August 1995. 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.
 
     John A. Tillinghast has served as the Company's Chief Engineer since May
1998 and the Chairman of the Board of Directors of the Company and its
predecessor since November 1994. From April 1995 until May 1998, Mr. Tillinghast
was the Company's Chief Executive Officer. Since 1987, Mr. Tillinghast has
served as President and the sole stockholder of Tillinghast Technology
Interests, Inc., a private consulting firm. From 1986 to 1993, Mr. Tillinghast
served as Chairman of the Energy Engineering Board of the National Academy of
Sciences. He holds an M.S. in Mechanical Engineering from Columbia University.
 
                                       12
<PAGE>   14
 
                                    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 ("ASE") as reported in the Wall
Street Journal daily as traded, for each quarter during 1998 and 1997 that
BayCorp Common Stock traded on the ASE and for Great Bay Common Stock ("GBPW")
on the Nasdaq National Market ("NNM") as reported in the Wall Street Journal
daily as traded, for the initial portion of the first quarter of 1997, during
which Great Bay Common Stock traded on the NNM:
 
<TABLE>
<CAPTION>
                                                               HIGH        LOW
                                                               ----        ---
<S>                                                            <C>         <C>
1997
  First Quarter............................................    8 7/8       7 7/8
  Second Quarter...........................................      8          7
  Third Quarter............................................    8 3/8       7 3/8
  Fourth Quarter...........................................    7 7/8       6 1/2
</TABLE>
 
<TABLE>
<CAPTION>
                                                               HIGH        LOW
                                                               ----        ---
<S>                                                            <C>         <C>
1998
  First Quarter............................................    6 9/16      6 3/8
  Second Quarter...........................................    7 1/4        7
  Third Quarter............................................    6 11/16     5 1/4
  Fourth Quarter...........................................    4 3/4       3 1/2
</TABLE>
 
     As of March 1, 1999, the Company had 30 holders of record of its Common
Stock. The Company believes that as of March 1, 1999, the Company had
approximately 403 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.
 
     Neither the Company nor Great Bay has ever paid cash dividends on its
common stock. BayCorp currently expects that it will retain all of its future
earnings and does not anticipate paying a dividend in the foreseeable future.
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
SELECTED FINANCIAL DATA
 
     The following table sets forth selected financial data and other operating
information of BayCorp, as successor to Great Bay. The selected financial data
presented below for periods subsequent to November 23, 1994 give effect to the
consummation of Great Bay's Fifth Amended Plan of Reorganization dated February
11, 1994, as amended by a First Amendment dated September 9, 1994 (the "Amended
Bankruptcy Plan") of the predecessor of Great Bay and to the adoption of fresh
start reporting by Great Bay as of that date in accordance with the American
Institute of Certified Public Accountants' Statement of Position 90-7 Financial
Reporting by Entities in Reorganization under the Bankruptcy Code. Accordingly,
periods prior to November 23, 1994 have been designated "Predecessor Company" or
the "Predecessor" and periods subsequent to November 23, 1994 have been
designated "Reorganized Company" or the "Company." Selected balance sheet and
statement of income (loss) data of the Predecessor Company periods are not
comparable to those of the Reorganized Company periods and a line has been drawn
in the tables to separate the Predecessor financial data from the Company
financial data.
 
                                       13
<PAGE>   15
 
     The following data presents (i) selected financial data of the Reorganized
Company as of and for the years ended December 31, 1998, December 31, 1997,
December 31, 1996, December 31, 1995, as of December 31, 1994, and for the
period from November 24, 1994 to December 31, 1994 and (ii) selected financial
data of the Predecessor company for the period from January 1, 1994 to November
23, 1994. 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.
 
                            SELECTED FINANCIAL DATA
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                            PREDECESSOR
                                                    REORGANIZED COMPANY                       COMPANY
                                   ------------------------------------------------------   ------------
                                            FOR THE YEAR ENDED             NOVEMBER 24 TO   JANUARY 1 TO
                                               DECEMBER 31,                 DECEMBER 31,    NOVEMBER 23,
                                   -------------------------------------   --------------   ------------
                                    1998      1997      1996      1995          1994            1994
                                   -------   -------   -------   -------   --------------   ------------
<S>                                <C>       <C>       <C>       <C>       <C>              <C>
INCOME STATEMENT DATA:
  Operating Revenues.............  $32,034   $26,642   $30,324   $24,524       $3,129         $13,989
  Fuel, Operation &
     Maintenance.................   28,152    29,187    24,885    24,899        2,409          21,762
  Net Income (Loss)..............   (6,769)  (11,215)    4,100    (6,059)         182         131,385
</TABLE>
 
<TABLE>
<CAPTION>
                                         FOR THE YEARS ENDED DECEMBER 31,
                                  -----------------------------------------------
                                   1998      1997      1996      1995      1994
                                  -------   -------   -------   -------   -------
<S>                               <C>       <C>       <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
  Cash, Cash Equivalents & Short
     Term Investments...........   12,055    19,092    28,775    16,469    22,217
  Working Capital...............   17,761    23,079    30,552    20,516    27,169
  Total Assets..................  140,358   140,158   152,418   138,771   145,666
  Decommissioning Liability.....   60,274    55,846    53,215    50,899    48,530
  Capitalization:
  Common Equity.................   71,359    78,139    89,625    82,233    88,292
  Total Capitalization..........   71,359    78,139    89,625    82,233    88,292
</TABLE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.
 
OVERVIEW
 
     BayCorp's principal asset is its 100% equity interest in Great Bay. Great
Bay is an electric generating company whose principal asset is a 12.1% joint
ownership interest in the Seabrook Nuclear Power Project in Seabrook, New
Hampshire. Unless the context requires otherwise, references to BayCorp for
events and time periods before January 1997 reflect treatment of BayCorp as
successor to Great Bay.
 
     BayCorp reported net losses for the years ended December 31, 1998 and
December 31, 1997 and reported net income for the year ended December 31, 1996.
The 1998 net loss was primarily due to 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. See
"Business -- Recent Developments." The 1997 net loss was primarily due to
scheduled and unscheduled outages at the Seabrook Project that occurred during
that year. The 1996 net income was primarily due to a gain of $7,036,800 from
the sale of unused steam generators from Seabrook Unit 2.
 
     The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. Great Bay incurs losses during outage periods due to the
loss of all operating revenues 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 Great Bay to predict the frequency or duration of any future
 
                                       14
<PAGE>   16
 
unscheduled outages, however, it is likely that such unscheduled outages will
occur. The Seabrook Project began a scheduled refueling outage on March 27,
1999. 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.
 
     On February 28, 1991, Great Bay filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. On November 23, 1994
(the "Confirmation Date"), a formal confirmation order by the Bankruptcy Court
with respect to Great Bay's Amended Bankruptcy Plan became effective. At that
time, Great Bay emerged from bankruptcy. As a result of the Chapter 11
proceeding and in accordance with the provisions of the Amended Bankruptcy Plan,
the capital structure of Great Bay was completely changed. In particular, as
part of its Chapter 11 proceeding, Great Bay discharged all of its pre-petition
debt, which consisted primarily of the approximately $280 million principal
amount of outstanding Notes and unpaid accrued interest on the Notes of
approximately $14 million, and raised gross proceeds of $35 million in the
Amended Bankruptcy Plan. See "Business--Bankruptcy Proceeding and
Reorganization." Thus, as a result, Great Bay's net worth increased
significantly and Great Bay was relieved of the obligation to make principal and
interest payments on the Notes.
 
     The following discussion focuses solely on operating revenues and operating
expenses which are presented in a substantially consistent manner for all of the
periods presented. As a result of the Chapter 11 proceeding and subsequent
effectiveness of the amended Bankruptcy Plan on November 23, 1994, the 1994
Statement of Income represents separately the results of operations of Great
Bay's predecessor company prior to November 23, 1994 from the results of
operations of Great Bay after that date.
 
     On the Confirmation Date, Great Bay adopted "Fresh Start" accounting, which
resulted in adjustments to the assets and liabilities of Great Bay to their
estimated fair values as of the Confirmation Date and includes the net proceeds
of the equity financing for the Amended Bankruptcy Plan, and eliminated
liabilities discharged under the Amended Bankruptcy Plan.
 
RESULTS OF OPERATIONS
 
  Operating Revenues
 
     BayCorp's operating revenues for 1998 increased by approximately $5.4
million, or 20.1%, to $32,034,000 as compared with $26,642,000 for 1997. This
increase was primarily due to less scheduled and unscheduled outage time at the
Seabrook Project during 1998. During 1998, the capacity factor at the Seabrook
Project was 83.3% of the rated capacity as compared to a capacity factor of
78.3% for 1997. Operating revenues and capacity factor were adversely impacted
in 1997 by the scheduled refueling outage at the Seabrook Project that began on
May 10, 1997, lasting 50 days, and by the unscheduled outage that began on
December 5, 1997, lasting 41 days. In contrast, there was no refueling outage in
1998; however, the Seabrook Project had approximately 64 unscheduled outage days
in 1998.
 
     Sales of electricity increased by approximately 9.4% to 1,054,203,800
kilowatt-hours in 1998 as compared to 964,038,400 kilowatt-hours in 1997.
Operating revenues were favorably affected in 1998 by an increase in the sales
price per kWh. During 1998, the sales price per kWh (determined by dividing
total sales revenue by the total number of kWhs sold in the applicable period)
increased 10.1% to 3.04 cents per kWh as compared with 2.76 cents per kWh in
1997. Great Bay's cost of power (determined by dividing total operating expenses
by Great Bay's 12.1% share of the power produced by the Seabrook Project during
the applicable period) decreased 7.6% to 3.54 cents per kWh in 1998 as compared
to 3.83 cents per kWh in 1997. This decrease was primarily the result of the
higher capacity factor at the Seabrook Project during 1998 as compared to 1997.
Scheduled and unscheduled outage time increases Great Bay's cost of power
because Seabrook costs are spread over fewer kWhs. In addition, prices obtained
for the Company's approximately 120 MW of power not committed under long term
contracts increased 12.8% to 2.90 cents per kWh from 2.57 cents per kWh in 1997.
 
     BayCorp's operating revenues for 1997 decreased by approximately $3.7
million, or 12.1%, to $26,642,000 as compared with $30,324,000 for 1996. This
decrease was primarily due to the scheduled and unscheduled
 
                                       15
<PAGE>   17
 
outages at the Seabrook Project during 1997. During 1997, the capacity factor at
the Seabrook Project was 78.3% of the rated capacity as compared to a capacity
factor of 96.5% for 1996. Operating revenues and capacity factor were adversely
impacted in 1997 by the scheduled refueling outage referred to above. In
contrast, there was only a brief unscheduled outage in January and February of
1996.
 
     Sales of electricity decreased by approximately 19.3% to 964,038,400
kilowatt-hours in 1997 as compared to 1,194,391,000 kilowatt-hours in 1996.
Operating revenues were favorably affected in 1997 by an increase in the sales
price per kWh. During 1997 the sales price per kWh increased 9.1% to 2.76 cents
per kWh as compared with 2.53 cents per kWh in 1996. Great Bay's cost of power
increased 40.8% to 3.83 cents per kWh in 1997 as compared to 2.72 cents per kWh
in 1996. This increase was primarily the result of the lower capacity factor at
the Seabrook Project due to the scheduled and unscheduled outages in 1997 and
the associated costs of these outages.
 
  Expenses
 
     BayCorp's total operating expenses (excluding depreciation and taxes) for
1998 increased $1.4 million, or 5.1%, in comparison with 1997. This increase was
primarily the result of the costs associated with the unscheduled outages in
1998, including Great Bay's purchased power expenses of approximately $1.0
million that covered firm sales of approximately $1.2 million during unscheduled
outages in 1998. As Great Bay enters into more sales transaction agreements to
supply firm power, Great Bay's expenses to purchase power to cover firm power
obligations during unscheduled outages may increase. Purchased power expenses
may also increase as Great Bay may purchase power in the open market to resell
to a third party.
 
     Operating expenses were also adversely impacted by payments to PECO of
approximately $3.1 million in 1998, which included the charge related to the
termination of the power marketing agreement with PECO for approximately $2.5
million in June 1998. See "--Recent Developments." Charges for PECO's marketing
service in 1997 were approximately $1.8 million. In addition, depreciation and
amortization increased $148,000, or 4.2%. Taxes other than income decreased $1.2
million, or 29.2%, in 1998 as compared to 1997 due to the Seabrook Project
property tax settlement that resulted in a property tax refund to Great Bay in
December 1998 of approximately $1.3 million. See " --Recent Developments."
 
     Other Income decreased $516,000, or 52.8%, in 1998 as compared to 1997.
This decrease was primarily attributable to interest income, which decreased
$314,000, or 25.1%, in 1998 as compared to 1997. This decrease was attributable
to the lower cash balances in 1998 as compared to 1997. Decommissioning cost
accretion increased $210,000, or 7.9%, to $2.9 million in 1998 as compared to
$2.7 million in 1997. 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
increased $143,000, or 30.4%, to $613,000 in 1998 as compared to $470,000 in
1997. The increase in interest earned on the decommissioning trust fund
reflected the higher 1998 fund balance as Great Bay continues to make
contributions to the decommissioning trust fund.
 
     BayCorp's total operating expenses (excluding depreciation and taxes) for
1997 increased $4.3 million, or 17.3%, in comparison with 1996. This increase
was primarily the result of the costs associated with the scheduled refueling
outage in 1997 that lasted 50 days and the unscheduled outage that began on
December 5, 1997 and lasted 41 days. There was a slight increase in depreciation
and amortization (1.7%) and a slight decrease in taxes other than income (1%),
from 1996 to 1997.
 
     Other Income decreased $7.3 million, or 115 %, in 1997 as compared to 1996.
This decrease was primarily attributable to a $7.0 million gain on the sale in
July 1996 of four unused steam generators from Seabrook Unit 2. Great Bay had
previously written off its investment in Seabrook Unit 2. There were no material
sales of Unit 2 assets in 1997. Decommissioning cost accretion increased
$402,000, to $2,663,000 in 1997 as compared to $2,261,000 in 1996, primarily due
to the revised decommissioning funding schedule for the Seabrook Project
approved by the New Hampshire Nuclear Decommissioning Financing Committee on
October 30, 1996. The new study increased the present value of total
decommissioning costs as of January 1, 1997 and increased the cost escalation
rate from 4.25% to 5%. Decommissioning trust fund income increased
 
                                       16
<PAGE>   18
 
$142,000, or 43.3%, to $470,000 in 1997 as compared to $328,000 in 1996,
reflecting the higher 1997 fund balance as compared to the 1996 balance.
 
  Net Operating Losses
 
     For federal income tax purposes, as of December 31, 1998, the Company had
net operating loss carry forwards ("NOLs") of approximately $210 million, which
are scheduled to expire between 2005 and 2013. 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 $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 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 $74 million of NOLs are not currently
subject to such limitations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     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 has been less than the Company's ongoing cash requirements. The
Company may continue to incur cash deficits. Great Bay intends to cover such
deficits with its cash and short-term investments which totaled approximately
$12.1 million at December 31, 1998. 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
do not increase at the rates and within the time expected by Great Bay, Great
Bay would be required to raise additional capital, either through a debt
financing or an equity financing, to meet its ongoing cash requirements.
Nonetheless, there can be no assurance that BayCorp will be able to raise
additional capital on acceptable terms or at all.
 
     BayCorp's principal asset available to serve as collateral for borrowings
is Great Bay's 12.1% interest in the Seabrook Project. Pursuant to a purchased
power agreement, dated as of April 1, 1993, between Great Bay and UNITIL Power
Corp., Great Bay's interest in the Seabrook Project is encumbered by a mortgage.
This mortgage may be subordinated to up to $80 million of senior secured
financing. See "Business--Purchased Power Agreements."
 
     BayCorp's cash and short-term investments decreased approximately $7
million during 1998. The principal factor affecting liquidity during 1998 was
the reduced operating income discussed above. Non-cash charges to income
included $3.7 million for depreciation, $4.1 million for nuclear fuel
amortization, $2.9 million for decommissioning trust fund accretion and an
increase in miscellaneous current liabilities of $2.2 million due to the 1998
accrual for expenses associated with the scheduled March 1999 refueling outage
at the Seabrook Project. Offsetting these non-cash charges to income were cash
charges including a $2.6 million increase in December 1998 accounts receivable
as compared to December 1997 accounts receivables. 1998 year end receivables
reflected December's capacity factor of 91.2% as compared to 1997 year end
receivables that reflected December 1997's capacity factor of 14.8%. Other cash
charges included an increase in prepaids of $1.6 million primarily due to the
timing of Seabrook funding and charges of $7 million for Great Bay's portion of
capital expenditures for plant and nuclear fuel. Also in 1998, BayCorp purchased
80,800 shares of the Company's Common Stock for an aggregate of $460,689 or an
average of $5.70 per share.
 
     Little Bay and Montaup are working to obtain required regulatory approvals
in connection with Little Bay's agreement with Montaup to purchase Montaup's 3%
interest in the Seabrook Project. If the parties obtain all required regulatory
approvals, the parties intend to complete the transaction and Little Bay would
pay approximately $3.2 million to Montaup.
 
     Great Bay's 1998 decommissioning payments totaled approximately $1.3
million. 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 these decommissioning
payments.
 
                                       17
<PAGE>   19
 
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. In response to the New Hampshire
legislation, Great Bay has 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. As a result of these developments, the NRC staff found that
Great Bay complies with the decommissioning funding assurance requirements. See
"Business--Decommissioning."
 
     Great Bay anticipates that its share of the Seabrook Project's capital
expenditures for the 1999 fiscal year will total approximately $3.4 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. Seabrook Project expenses to preserve and
protect Unit 2 assets are approximately $435,000 per year, of which Great Bay's
share is approximately $52,600 per year.
 
     For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the three New Hampshire towns in which
the Seabrook Project is located. In December 1998, Great Bay announced that it
had reached an agreement with the town of Seabrook to settle its outstanding
property tax litigation. As a result of the settlement agreement, Great Bay
received approximately $1.3 million from the town of Seabrook. In addition, the
parties agreed that the assessed value of the Seabrook Project will be reduced
over the five year period of the settlement agreement from $2.3 billion in 1998
to $1.2 billion in 2002. Great Bay and the other joint owners are currently
engaged in settlement negotiations with the towns of Hampton and Hampton Falls.
See "--Legal Proceedings."
 
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
 
     This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein 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 Great Bay to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth below and elsewhere in this Annual Report.
 
     Ownership of a Single Asset. BayCorp's principal asset is its 100% equity
interest in Great Bay. Great Bay owns a single principal asset, a 12.1% joint
interest in the Seabrook Nuclear Power Project in Seabrook, New Hampshire.
Accordingly, BayCorp's results of operations are completely dependent upon the
successful and continued operation of the Seabrook Project. In particular, if
the Seabrook Project experiences unscheduled outages of significant duration,
Great Bay's results of operations will be materially adversely affected.
 
     History of Losses. BayCorp has never reported an operating profit for any
year since its incorporation. Historically, 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. There can be no assurance
that Great Bay will be able to sell power at prices that will enable it to meet
its cash requirements.
 
     Liquidity Needs. As of December 31, 1998, BayCorp had approximately $12.1
million in cash and cash equivalents and short-term investments. The Company
believes that such cash, together with the anticipated proceeds from the sale of
electricity by Great Bay, will be sufficient to enable the Company to meet its
cash requirements until the prices at which Great Bay can sell its electricity
increase sufficiently to enable the Company to cover its annual cash
requirements. However, if the Seabrook Project operated 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
 
                                       18
<PAGE>   20
 
prices at which Great Bay is able to sell its share of the Seabrook Project
electricity do not increase at the rates and within the time expected by Great
Bay, Great Bay or the Company would be required to raise additional capital,
either through a debt financing or an equity financing, to meet ongoing cash
requirements. There is no assurance that Great Bay or the Company 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.
 
     Changes in the New England Wholesale Power Market. During recent years in
New England, the combination of (1) increased competition in the wholesale power
market, (2) small increases in the demand for electricity and (3) 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 2.58 cents in 1996
to 2.76 cents in 1997 and 3.04 cents in 1998, there can be no assurance that
Great Bay will be able to sell its power at these prices or higher prices in the
future.
 
     Risks in Connection with Joint Ownership of Seabrook Project. Great Bay is
required under the JOA to pay its 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 to make its monthly payments under the JOA entitles certain other joint
owners of the Seabrook Project to purchase Great 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 may have a material adverse effect
on Great Bay. For example, Great Bay could opt to pay a greater proportion of
the Seabrook Project 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 have not made their full respective payments. The electric
utility industry is undergoing significant changes as competition and
deregulation are introduced into the marketplace. Some utilities, including
certain Participants, have indicated in state regulatory proceedings that they
may be forced to seek bankruptcy protection if regulators, as part of the
industry restructuring, do not allow for full recovery of stranded costs. If a
Participant other than Great Bay filed for bankruptcy and that Participant was
unable to pay its share of Seabrook Project expenses, Great Bay might opt to pay
a greater portion of Seabrook Project expenses in order to preserve the value of
its 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 and the other owners thereof as
tenants in common, with the various owners holding varying ownership shares.
This means that Great Bay, which owns only a 12.1% interest, does not have
control of the management of the Seabrook Project. As a result, decisions may be
made affecting the Seabrook Project notwithstanding Great 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 Great Bay. 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 and Great 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 as part owner 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 is also
subject to the jurisdiction of the FERC and, as a result, is 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.
 
                                       19
<PAGE>   21
 
     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 problems developed with respect to other
nuclear generating plants of a design and construction similar to Unit 1, or
(iii) if accidents at other nuclear facilities suggested that nuclear generating
plants generally were less safe than previously believed.
 
     Risk of Nuclear Accident. Nuclear reactors have been used to generate
electric power for more than 35 years and there are currently more than 100
nuclear reactors used 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.
 
     Public Controversy Concerning Nuclear Power Plants. Substantial controversy
has existed for some time concerning nuclear generating plants and over the
years such opposition has led to construction delays, cost overruns, licensing
delays, demonstrations and other difficulties. 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 Great Bay cannot predict the ultimate effect of such
controversy, it is possible that it could result in a premature shutdown of the
unit.
 
     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. However, the DOE has announced that
its first high level waste repository will 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 Great Bay that the Seabrook Project has
adequate on-site storage capacity for high level waste until approximately 2010.
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) 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.
 
     Intense Competition. Great Bay sells its share of Seabrook Project
electricity primarily into the Northeast United States wholesale electricity
market. There are a large number of suppliers to this market and competition is
intense. A primary source of competition comes from traditional utilities, many
of which
 
                                       20
<PAGE>   22
 
presently have excess capacity. In addition, non-utility wholesale generators of
electricity, such as IPPs, 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 sources in the future.
 
     Year 2000. The "Year 2000" issue relates to computer systems and software
that cannot determine whether "00" means the year 1900 or 2000. Systems or
software that cannot properly process year 2000 dates could give rise to
failures or create erroneous results that in turn could have a material adverse
effect on the Company's business, operations, financial results and liquidity.
 
     The Company relies on the operation of the Seabrook Project for nearly all
of its revenue. Accordingly, the Company's major exposure for year 2000 problems
is the effect of a plant shutdown partially or completely caused by a year 2000
problem. In addition, year 2000 issues could adversely affect electricity
metering, transmission, billing or other business processes.
 
     The Company does not operate the Seabrook Project.  Rather, the joint
owners of the plant, including Great Bay, have contracted with NAESCO, a
subsidiary of Northeast Utilities, to operate the plant. Northeast Utilities, in
conjunction with certain of its affiliates, holds the largest joint ownership
interest in the Seabrook Project.
 
     According to January 1999 estimates provided by NAESCO, Great Bay's share
of costs to address year 2000 issues at the Seabrook Project will be
approximately $410,000. As of December 31, 1998, Great Bay's share of costs to
address year 2000 issues at the Seabrook Project was approximately $229,000.
Great Bay has funded these expenses from its operating revenues.
 
     In assessing year 2000 issues associated with the Seabrook Project, NAESCO,
as of December 31, 1998:
 
     -  developed and implemented a detailed millennium project plan;
 
     -  completed its inventory, analysis and planning for millennium items,
        identifying approximately 1,325 separate items and determining that 71%
        can be accepted as modified to date or without modification and 29%
        require further testing, modification or replacement; and
 
     -  worked with the NRC in connection with the NRC's year 2000 audit of the
        Seabrook plant, which occurred from September 29, 1998 through October
        1, 1998.
 
     NAESCO has defined a schedule to implement all year 2000 corrective
actions. A number of critical remediation tasks still must be accomplished, most
of which are scheduled for completion by June 1999 and some of which are
scheduled for completion by September 1999. Some of the more important remaining
tasks include NAESCO's plans to:
 
     -  upgrade IBM mainframe software, and IDMS and INQUIRE database management
        systems, to year 2000-compliant releases;
 
     -  develop contingency plans; and
 
     -  complete critical supplier and embedded systems remediation projects.
 
     NAESCO commenced year 2000 efforts relating to the Seabrook Project in
October 1996. NAESCO's Seabrook millennium project plan acknowledges that if,
for example, a technical requirement or regulatory commitment is missed or if,
for example, a critical supplier does not provide a service, NAESCO, as operator
of the Seabrook Project, will need to take collective action, which could
include an unscheduled shutdown of the plant.
 
     In April 1998 the NRC requested that all licensed nuclear power plant
operators provide to the NRC, by July 1, 1999, written certification that their
facilities are year 2000-ready and in compliance with the terms and conditions
of their licenses, NRC regulations and the principles outlined in an August 1997
NRC nuclear utility year 2000 readiness document. If the plant is not ready,
plans and schedules to become ready must be submitted to the NRC. The Company
believes that NAESCO's year 2000 efforts at the Seabrook Project are designed to
meet or exceed NRC requirements.
 
     The dates on which NAESCO believes its year 2000 compliance efforts will be
completed are based on NAESCO management's best estimates, which were derived
utilizing numerous assumptions of future events,
 
                                       21
<PAGE>   23
 
including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved or that there will not be a delay in, or
increased costs associated with, the implementation of the year 2000 compliance
efforts. Specific factors that might cause differences between the estimates and
actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability to locate and correct all relevant
computer code, timely responses to and corrections by third parties and
suppliers, the ability to implement interfaces between the new systems and the
systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third-parties and the interconnection
of global businesses, the Company cannot ensure that efforts to timely and
cost-effectively resolve year 2000 issues will be successful. If year 2000
compliance efforts are unsuccessful or incomplete, or if costs exceed NAESCO's
estimates, the Company's business, operations, financial results and liquidity
could be materially and adversely affected.
 
     The majority of the necessary modifications to the Company's centralized
financial, customer and operational information systems (as opposed to those at
the Seabrook Project) were completed by the end of 1998. The Company believes it
will incur minimal year 2000 remediation costs associated with its centralized
systems.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
 
     The Company does not believe that there is any material market risk
exposure with respect to derivative or financial instruments that would require
disclosure under this item.
 
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 28, 1999.
 
     (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.
 
     The information required under this item is incorporated herein by
reference to the sections entitled "Election of Directors -- Compensation for
Directors," "-- Executive Compensation," "-- Option Repricing," "-- Compensation
Committee Report on Option Repricing," "-- 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 28, 1999.
 
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 28, 1999.
 
                                       22
<PAGE>   24
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     The information required under this item is incorporated herein by
reference to the section entitled "Election of Directors--Employment Agreements"
in the Company's Proxy Statement with respect to the Annual Meeting of
Stockholders to be held on April 28, 1999.
 
                                    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.  Financial Statement Schedules.  The Financial Statement Schedules
listed in the Index to Consolidated Financial Statements and Financial Statement
Schedules are filed as part of this Annual Report on Form 10-K.
 
     3.  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.
 
                                       23
<PAGE>   25
 
                         INDEX TO FINANCIAL STATEMENTS
 
                             BAYCORP HOLDINGS, LTD.
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Public Accountants....................  F-1
Consolidated Balance Sheets as of December 31, 1998 and
  1997......................................................  F-2
Consolidated Statements of Income and Comprehensive Income
  --
  Years Ended December 31, 1998, December 31, 1997 and
  December 31, 1996.........................................  F-3
Consolidated Statements of Changes in Stockholders' Equity
  --
  Years Ended December 31, 1998, December 31, 1997 and
  December 31, 1996.........................................  F-4
Consolidated Statements of Cash Flows --
  Years Ended December 31, 1998, December 31, 1997 and
  December 31, 1996.........................................  F-5
Notes to Consolidated Financial Statements..................  F-6
</TABLE>
<PAGE>   26
 
                    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, 1998 and 1997, 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, 1998. 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 generally accepted auditing
standards. 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, 1998 and
1997, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
 
                                          ARTHUR ANDERSEN LLP
 
Boston, Massachusetts
February 2, 1999
 
                                       F-1
<PAGE>   27
 
                             BAYCORP HOLDINGS, LTD.
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1998            1997
                                                              ------------    ------------
<S>                                                           <C>             <C>
                                         ASSETS:
Current Assets:
  Cash & Cash equivalents...................................    $  2,559        $  3,270
  Short-term Investments, at market.........................       9,496          15,822
  Accounts Receivable.......................................       3,051             465
  Materials & Supplies, net.................................       3,633           3,816
  Prepayments & Other Assets................................       3,177           1,570
                                                                --------        --------
          Total Current Assets..............................      21,916          24,943
                                                                --------        --------
Property, Plant, & Equipment:
  Utility Plant.............................................     112,325         108,584
  Less: Accumulated Depreciation............................     (12,785)         (9,758)
                                                                --------        --------
  Net Utility Plant.........................................      99,540          98,826
  Nuclear Fuel..............................................      19,390          15,076
  Less: Accumulated Amortization............................     (10,821)         (6,717)
                                                                --------        --------
  Net Nuclear Fuel..........................................       8,569           8,359
       Net Property, Plant & Equipment......................     108,109         107,185
Other Assets:
  Decommissioning Trust Fund................................      10,329           8,025
  Deferred Debits & Other...................................           4               5
                                                                --------        --------
       Total Other Assets...................................      10,333           8,030
                                                                --------        --------
          TOTAL ASSETS......................................    $140,358        $140,158
                                                                ========        ========
 
                          LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
  Accounts Payable and Accrued Expenses.....................    $    394        $    270
  Miscellaneous Current Liabilities.........................       3,761           1,594
                                                                --------        --------
     Total Current Liabilities..............................       4,155           1,864
Operating Reserves:
  Decommissioning Liability.................................      60,274          55,846
  Miscellaneous Other.......................................         502             564
                                                                --------        --------
     Total Operating Reserves...............................      60,776          56,410
Other Liabilities & Deferred Credits........................       4,068           3,745
Commitments & Contingencies Stockholders' Equity:
  Common stock, $.01 par value
     Authorized -- 20,000,000 shares; issued and outstanding
     --
     8,417,800 at December 31, 1998 and December 31, 1997...          84              84
  Less: Treasury Stock -- 225,800 and 145,000 shares,
     respectively, at cost..................................      (1,629)         (1,168)
  Additional paid-in capital................................      92,100          92,100
  Accumulated Other Comprehensive Income....................         565             115
  Accumulated Deficit.......................................     (19,761)        (12,992)
                                                                --------        --------
       Total Stockholders' Equity...........................      71,359          78,139
                                                                --------        --------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........    $140,358        $140,158
                                                                ========        ========
</TABLE>
 
     (The accompanying notes are an integral part of these consolidated
statements.)
 
                                       F-2
<PAGE>   28
 
                             BAYCORP HOLDINGS, LTD.
 
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                            YEARS ENDED DECEMBER 31,
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                             1998          1997          1996
                                                          ----------    ----------    ----------
<S>                                                       <C>           <C>           <C>
Operating Revenues......................................  $   32,034    $   26,642    $   30,324
Operating Expenses:
  Production............................................      20,775        20,805        17,141
  Transmission..........................................         880           857           880
  Purchased Power.......................................       1,046            --            --
  Administrative & General..............................       7,988         7,525         6,864
  Depreciation & Amortization...........................       3,656         3,508         3,451
  Taxes other than Income...............................       2,965         4,185         4,227
                                                          ----------    ----------    ----------
     Total Operating Expenses...........................      37,310        36,880        32,563
                                                          ----------    ----------    ----------
Operating Income (Loss).................................      (5,276)      (10,238)       (2,239)
                                                          ----------    ----------    ----------
Other (Income) Deductions:
  Interest and Dividend Income..........................        (938)       (1,252)       (1,267)
  Decommissioning Cost Accretion........................       2,873         2,663         2,261
  Decommissioning Trust Fund Income.....................        (613)         (470)         (328)
  Unit 2 Sales and Other Deductions (Income)............         171            36        (7,005)
                                                          ----------    ----------    ----------
     Total Other (Income) Deductions....................       1,493           977        (6,339)
                                                          ----------    ----------    ----------
Earnings (Loss) Before Income Taxes.....................      (6,769)      (11,215)        4,100
                                                          ----------    ----------    ----------
Provision for Income Taxes..............................           0             0             0
                                                          ----------    ----------    ----------
Net Income (Loss).......................................  ($   6,769)   ($  11,215)   $    4,100
Other Comprehensive Income (Expense), net of tax........         449           264          (148)
                                                          ----------    ----------    ----------
Comprehensive Income (Loss).............................  ($   6,320)   ($  10,951)   $    3,952
                                                          ==========    ==========    ==========
Weighted Average Shares Outstanding.....................   8,242,858     8,292,534     8,083,576
Basic and Diluted Earnings / (Loss) Per Share...........  $    (0.82)   $    (1.35)   $     0.51
</TABLE>
 
(The accompanying notes are an integral part of these consolidated statements.)
                                       F-3
<PAGE>   29
 
                             BAYCORP HOLDINGS, LTD.
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                     COMMON
                                 STOCK, $.01 PAR
                                      VALUE
                            -------------------------         LESS:
                                                            TREASURY                      ACCUMULATED
                            ISSUED AND    ISSUED AND          STOCK         ADDITIONAL       OTHER                      TOTAL
                            OUTSTANDING   OUTSTANDING   -----------------    PAID-IN     COMPREHENSIVE   RETAINED   STOCKHOLDERS'
                              SHARES        AMOUNT      SHARES    AMOUNT     CAPITAL        INCOME       EARNINGS      EQUITY
                            -----------   -----------   -------   -------   ----------   -------------   --------   -------------
<S>                         <C>           <C>           <C>       <C>       <C>          <C>             <C>        <C>
Balance at December 31,
  1995....................   8,000,000        $80            --        --    $88,030            --       $ (5,877)     $82,233
  Treasury Stock, at
    cost..................          --         --        78,045   $  (633)        --            --             --         (633)
  Sale of Common Stock....     417,800          4            --        --      4,070            --             --        4,074
  Net Change in Unrealized
    Holding Loss..........          --         --            --        --         --        ($ 148)            --         (148)
  Financial Results,
    January 1 to to
    December 31, 1996.....          --         --            --        --         --            --          4,100        4,100
                             ---------        ---       -------   -------    -------        ------       --------      -------
Balance at December 31,
  1996....................   8,417,800         84        78,045      (633)    92,100          (148)        (1,777)      89,626
  Treasury Stock -- 66,955
    shares, at cost.......          --         --        66,955      (535)        --            --             --         (535)
  Net Change in Unrealized
    Holding Gain..........          --         --            --        --         --           264             --          264
  Financial Results,
    January 1 to to
    December 31, 1997.....          --         --            --        --         --            --        (11,215)     (11,215)
                             ---------        ---       -------   -------    -------        ------       --------      -------
Balance at December 31,
  1997....................   8,417,800         84       145,000    (1,168)    92,100           116        (12,992)      78,140
  Treasury Stock -- 80,800
    shares, at cost.......          --         --        80,800      (461)        --            --             --         (461)
  Net Change in Unrealized
    Holding Gain..........          --         --            --        --         --           449             --          449
  Financial Results,
    January 1 to to
    December 31, 1998.....          --         --            --        --         --            --         (6,769)      (6,769)
                             ---------        ---       -------   -------    -------        ------       --------      -------
Balance at December 31,
  1998....................   8,417,800        $84       225,800   $(1,629)   $92,100        $  565       $(19,761)     $71,359
                             =========        ===       =======   =======    =======        ======       ========      =======
</TABLE>
 
(The accompanying notes are an integral part of these consolidated statements.)
                                       F-4
<PAGE>   30
 
                             BAYCORP HOLDINGS, LTD.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            YEARS ENDED DECEMBER 31,
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                1998        1997        1996
                                                              --------    ---------    -------
<S>                                                           <C>         <C>          <C>
Net cash flow from operating activities:
  Net Income (Loss).........................................  ($ 6,769)   ($ 11,215)   $ 4,100
  Adjustments to reconcile net earnings to net cash provided
     by (used in) operating activities:
     Depreciation...........................................     3,656        3,508      3,451
     Amortization of nuclear fuel...........................     4,104        4,010      4,366
     Decommissioning trust accretion........................     2,873        2,663      2,261
     Decommissioning trust interest.........................      (617)        (470)      (357)
     Gain on sale of assets.................................         0            0     (7,061)
     (Increase) decrease in accounts receivable.............    (2,586)       2,463     (1,393)
     (Increase) decrease in materials & supplies............         4          124        (70)
     (Increase) decrease in prepaids and other assets.......    (1,607)      (1,117)       818
     Increase (decrease) in accounts payable................       124          140       (107)
     Increase (decrease) in taxes accrued...................         0       (1,504)       211
     Increase (decrease) in misc. current liabilities.......     2,167       (2,477)     2,635
     Other..................................................       374          435        530
                                                              --------    ---------    -------
Net cash provided by (used in) operating activities.........     1,723       (3,440)     9,384
                                                              --------    ---------    -------
Net cash flows (used in) investing activities:
  Utility plant additions...................................    (2,700)      (2,555)    (1,486)
  Nuclear fuel additions....................................    (4,314)      (1,970)    (5,144)
  Payments to decommissioning fund..........................    (1,343)      (1,106)      (994)
  Proceeds from sale of Unit 2 assets.......................         0            0      7,061
  Short term investments, net...............................     6,384       (3,535)    (4,724)
                                                              --------    ---------    -------
Net cash used in investing activities.......................    (1,973)      (9,166)    (5,287)
Net cash provided by financing activities:
  Sale of common stock......................................         0            0      4,074
  Reacquired capital stock..................................      (461)        (535)      (633)
                                                              --------    ---------    -------
Net cash (used in) provided by financing activities.........      (461)        (535)     3,441
                                                              --------    ---------    -------
Net increase (decrease) in cash and cash equivalents........      (711)     (13,141)     7,538
Cash and cash equivalents, beginning of period..............     3,270       16,411      8,873
                                                              --------    ---------    -------
Cash and cash equivalents, end of period....................  $  2,559    $   3,270    $16,411
                                                              ========    =========    =======
</TABLE>
 
(The accompanying notes are an integral part of these consolidated statements.)
                                       F-5
<PAGE>   31
 
                             BAYCORP HOLDINGS, LTD.
 
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1998
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
A.  THE COMPANY
 
     BayCorp Holdings, Ltd. ("BayCorp" or the "Company") serves as a holding
company for Great Bay Power Corporation ("Great Bay"). Great Bay is an electric
generating company whose principal asset is a 12.1% joint ownership interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay is an exempt wholesale generator under the Public Utility
Holding Company Act of 1935 ("PUHCA"). Unlike regulated public utilities, Great
Bay has no franchise area or captive customers. Great Bay sells its power in the
competitive wholesale power markets. In addition, BayCorp owns Little Bay Power
Corporation ("Little Bay"). Little Bay was formed in connection with a pending
acquisition of an additional 3% interest in the Seabrook Nuclear Power Project.
Little Bay has no assets or liabilities and had no operations in 1998.
 
     Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly-formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. Currently,
Great Bay and Little Bay are the only subsidiaries of BayCorp. BayCorp's
principal asset is its 100% equity interest in Great Bay. The new corporate
structure enables BayCorp, either directly or through subsidiaries other than
Great Bay or Little Bay, to engage in businesses that these subsidiaries would
be prohibited from pursuing due to their status as exempt wholesale generators
under the PUHCA.
 
     BayCorp was incorporated in Delaware in 1996. Great Bay was incorporated in
New Hampshire in 1986 and was formerly known as EUA Power Corporation (the
"Predecessor"). Great Bay sells its share of the electricity output of the
Seabrook Project in the wholesale electricity market, primarily in the Northeast
United States. Neither BayCorp nor Great Bay has operational responsibilities
for the Seabrook Project. Great Bay's share of the Seabrook Project capacity is
approximately 140 megawatts ("MW"). Great Bay currently sells all but
approximately 10 MW of its share of the Seabrook Project capacity in the
wholesale short-term market. Little Bay was incorporated in New Hampshire in
1998.
 
     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 Exempt Wholesale Generator ("EWG")
under the Energy Policy Act of 1992.
 
     The Seabrook Project is owned by Great Bay and ten 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, Montaup Electric Company, New England Power Company,
New Hampshire Electric Cooperative, Inc., Taunton Municipal Lighting Plant and
Hudson Light & Power Department (together with Great Bay, the "Participants").
Great 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
 
                                       F-6
<PAGE>   32
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
Bay's joint ownership interest of 12.1% is the third largest interest among the
Participants, exceeded only by the approximately 40% interest held by Northeast
Utilities and its affiliates and the 17.5% interest held by The United
Illuminating Company.
 
     Great Bay's business strategy is to utilize unit contingent and firm
forward sales contracts to maximize the value of its 140 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 Seabrook
unscheduled outages, 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 maintains insurance to protect Great Bay during
periods of extreme price volatility. This insurance, provided by CIGNA, provides
up to $30 million of coverage through May 2002.
 
     As of March 1, 1999, BayCorp had five employees, including its President
and Chief Executive Officer, Frank W. Getman Jr. and its Chairman of the Board
and past President, John A. Tillinghast. BayCorp's wholly-owned subsidiary,
Great Bay, has two employees. Little Bay has no employees.
 
B.  BANKRUPTCY PROCEEDING AND REORGANIZATION
 
     Great Bay's predecessor, EUA Power Corporation, filed a voluntary petition
for reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Hampshire on February 28,
1991. Great Bay conducted its business as a Debtor in Possession until November
23, 1994, at which time Great Bay's Amended Bankruptcy Plan became effective and
Great Bay emerged from Chapter 11.
 
C.  REGULATION
 
     Great Bay is subject to the regulatory authority of the Federal Energy
Regulatory Commission ("FERC"), the Nuclear Regulatory Commission ("NRC"), the
New Hampshire Public Utilities Commission ("NHPUC") and other federal and state
agencies as to rates, operations and other matters. Great Bay's cost of service,
however, is not regulated. As such, Great 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."
 
D.  USE OF MANAGEMENT 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.
 
E.  UTILITY PLANT
 
     The costs of additions to utility plant are recorded at original cost.
 
                                       F-7
<PAGE>   33
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
F.  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.
 
G.  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 also
provides for the cost of disposing of spent nuclear fuel at rates specified by
the United States Department of Energy ("DOE") under a contract for disposal
between Great Bay, through its managing agent 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.
 
H.  AMORTIZATION OF MATERIALS AND SUPPLIES
 
     Great Bay amortizes 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.
 
I.  DECOMMISSIONING
 
     Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, Great Bay has recognized as a liability its proportionate share of
the present value of the estimated cost of Seabrook Project decommissioning. The
initial recognition of this liability was capitalized as part of the Fair Value
of the Utility Plant at November 23, 1994. The current estimated cost to
decommission the Seabrook Project, based on a study performed for the lead owner
of the Plant, is approximately $497 million in 1998 dollars and $2.2 billion in
2026 dollars, assuming a remaining 27 year life for the facility and a future
cost escalation rate of 5%. Based on this estimate, the present value of Great
Bay's share of this liability as of December 31, 1998 is approximately $60.3
million.
 
     The Company accretes its share of the Seabrook Project's decommissioning
liability. This accretion is a non-cash charge and recognizes the Company's
liability related to the closure and decommissioning of its nuclear plant in
current year dollars over the licensing period of the plant. As a result of this
accretion, Great Bay's share of the estimated decommissioning cost increased
from $53.2 million as of December 31, 1996 to $55.8 million as of December 31,
1997 to $60.3 million as of December 31, 1998.
 
     The Seabrook Project's decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning Finance
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.
 
     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. In 1996, the FASB
issued an Exposure Draft entitled "Accounting for Certain Liabilities Related to
                                       F-8
<PAGE>   34
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
Closure and Removal of Long-Lived Assets." The FASB continues to work on this
project and another exposure draft is expected to be issued in 1999. The
Company's accounting for decommissioning was based on the FASB's original
tentative conclusions. If a revised exposure draft is adopted or accounting
practices for nuclear power plant decommissioning are changed, Great Bay's
decommissioning liability and annual provision for decommissioning could change
relative to 1998. The Company is unable to predict the impact, if any, changes
from current accounting may have on the Company's financial statements.
 
     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. The Company has therefore reported its
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 $540,058
and $148,126 as of December 31, 1998 and 1997.
 
     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, would remain
liable for the excess. The amount required to be deposited in the trust fund is
subject to periodic review and adjustment by the NDFC, which could result in
material increases in such amounts.
 
     In January 1997 and July 1997, the NRC staff ruled that Great Bay did not
satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. Great Bay's petition also sought, in the
alternative, an NRC permanent exemption from the obligation of Great Bay to
comply with the NRC regulations applicable to non "electric utility" owners of
interests in nuclear power plants. 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
complies with the decommissioning funding assurance requirements. In response to
the New Hampshire legislation, Great Bay has 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 $1.6 million in 1999 and escalate
at 4% each year thereafter through 2015. In July 1998, the staff of the NRC
notified Great Bay of the staff's determination that Great Bay complies with the
decommissioning funding assurance requirements under NRC regulations.
 
     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.
 
J.  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, 1998,
three customers accounted for 28%, 17% and 12% of total operating revenues. For
the year ended December 31, 1997, three customers accounted for 50%, 13% and 11%
of total operating revenues.
 
                                       F-9
<PAGE>   35
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
K.  TAXES ON INCOME
 
     The Company accounts for taxes on income under the liability method
required by Statement of Financial Accounting Standards No. 109.
 
L.  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. The unrealized holding gain on short-term investments was $24,790 as of
December 31, 1998 and the unrealized holding loss on short-term investments was
$32,841 as of December 31, 1997.
 
M.  SEABROOK UNIT 2
 
     Since the Seabrook Project was originally designed to consist of two
generating units, Great Bay also owns a 12.1% joint ownership interest in
Seabrook Unit 2. Great Bay assigns no value to Seabrook Unit 2 because on
November 6, 1986, the joint owners of the Seabrook Project, recognizing that
Seabrook Unit 2 had been canceled in 1984, voted to dispose of Unit 2. Certain
assets of Seabrook Unit 2 have been and are being sold from time to time to
third parties. On July 22, 1996, the Participants completed the sale of four
unused steam generators from Seabrook Unit 2. Great Bay received $7,036,800 in
cash from the proceeds of this sale on July 19, 1996. Great Bay had previously
written off its investment in Unit 2 and recognized a gain from this sale in the
third quarter of 1996. There were no material sales of Unit 2 assets in 1997 or
1998.
 
     The Participants are considering plans regarding disposition of Seabrook
Unit 2, but such plans have not yet been finalized and approved. Great Bay is
unable to estimate the costs for which it will be responsible in connection with
the disposition of Seabrook Unit 2. Because Seabrook Unit 2 was never completed
or operated, costs associated with its disposition will not include any amounts
for decommissioning. Great Bay currently pays its 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.
 
N.  SEABROOK OUTAGE COSTS
 
     The Company's and Great Bay'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 has no electricity for resale from
the Seabrook Plant and consequently no related revenues. Therefore the impact of
outages on the Company's and Great Bay's results of operations and financial
position is materially adverse.
 
     Great Bay accrues for the incremental costs of the Seabrook Project's
scheduled outages over the periods between those outages. However, Great Bay
continues 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. The Seabrook plant management has
scheduled the next refueling outage for March 1999. The 1999 outage has an
estimated incremental operations and maintenance cost of $29 million. The
Company's share is approximately $3.5 million. The estimate is based on a number
of assumptions. Changes in assumptions for such things as labor and contractor
                                      F-10
<PAGE>   36
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
costs, required repairs and days to perform the outage and plant operations in
the interim, could cause this estimate to change.
 
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 anti-trust 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. The Company has
been, and may be, affected to the extent of its proportionate share 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.
 
A.  NUCLEAR FUEL
 
     The Seabrook Project's joint owners have made, or expect 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. 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."
 
     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. However, the DOE has 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 money
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.
 
     In February 1999, the DOE proposed to Congress an alternative interim plan
for high level waste management. The DOE proposed to take legal title and
responsibility for the waste (on-site at nuclear plants such as Seabrook) until
a permanent repository becomes available. Regardless of whether this proposal is
adopted by Congress, nuclear plants such as Seabrook must retain high level
waste on-site or make other storage provisions until the DOE begins receiving
nuclear waste materials in accordance with the NWPA and its contracts.
 
                                      F-11
<PAGE>   37
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
     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 Great Bay that the Seabrook Project has
adequate on-site storage capacity for high level waste until approximately 2010.
 
     The Low-Level Radioactive Waste Policy Act of 1980 requires each state to
provide disposal facilities for 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. Nevertheless, South
Carolina's recently elected governor announced his unwillingness to accept any
LLW from states outside the southeastern United States.
 
     In April 1995, a privately owned facility in Utah was approved as a
disposal facility for certain types of LLW. The Seabrook Project began shipping
certain LLW to the Utah facility in December 1995. All LLW generated by the
Seabrook Project that exceeds the maximum radioactivity level of LLW accepted by
the Utah facility is currently stored on-site at the Seabrook facility.
 
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 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, 1998, the Company had accrued its
pro rata estimated obligation of $690,300 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 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 billion, based on the approximately 107 currently licensed
reactors in the United States. The secondary layer is based on a retrospective
premium assessment of $83.9 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 would be obligated to pay its ownership share of any assessment
resulting from a nuclear incident at any United States nuclear generating
facility. Great Bay estimates its maximum liability per incident currently would
be an aggregate amount of approximately $10.18 million per accident, with a
maximum annual assessment of about $1.21 million per incident, per year.
 
     In addition to the insurance required by the Price Anderson Act, the NRC
regulations require licensees, including the Seabrook Project, to carry all risk
nuclear property damage insurance in the amount of at least $1.06 billion, which
amount must be dedicated, in the event of an accident at the reactor, to the
stabilization and decontamination of the reactor to prevent significant risk to
the public health and safety.
 
                                      F-12
<PAGE>   38
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
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 $26.4 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 also independently purchases business interruption insurance from
Nuclear Electric Insurance Limited ("NEIL"). The current policy is in effect
from September 15, 1998 until April 1, 1999 and provides for the payment of a
fixed weekly loss amount of $550,000 in the event of an outage at the Seabrook
Project of more than 23 weeks resulting from the property damage occurring from
a "sudden fortuitous event, which happens by chance, is unexpected and
unforeseeable." The maximum amount payable to Great Bay is $74.4 million. Under
the terms of the policy, Great Bay is subject to a potential retrospective
premium adjustment of up to approximately $555,000 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.
 
E.  STATUS AS AN "ELECTRIC UTILITY" UNDER NRC REGULATIONS
 
     In January 1997 and July 1997, the NRC staff ruled that Great Bay did not
satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. See "--Decommissioning." Great Bay's petition
also sought, in the alternative, an NRC permanent exemption from the obligation
of Great Bay to comply with the NRC regulations applicable to non "electric
utility" owners of interests in nuclear power plants. In July 1998, as a result
of the New Hampshire legislation, the staff of the NRC notified Great Bay of the
staff's determination that Great Bay complies with the decommissioning funding
assurance requirements under NRC regulations.
 
3.  TAXES ON INCOME
 
     The following is a summary of the (benefit) provision for income taxes for
the years ended December 31, 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                             1998            1997            1996
                                                         ------------    ------------    ------------
                                                                           (000'S)
<S>                                                      <C>             <C>             <C>
Federal
  Current..............................................    $(6,192)        $(8,081)        $(3,111)
  Deferred.............................................      6,192           8,081           3,111
                                                           -------         -------         -------
                                                                 0               0               0
                                                           -------         -------         -------
State
  Current..............................................     (1,476)         (1,927)           (742)
  Deferred.............................................      1,476           1,927             742
                                                           -------         -------         -------
                                                                 0               0               0
                                                           -------         -------         -------
Total (benefit) provision..............................    $     0         $     0         $     0
                                                           =======         =======         =======
</TABLE>
 
                                      F-13
<PAGE>   39
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
     Accumulated deferred income taxes consisted of the following at December
31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                                                 1998        1997
                                                                -------    --------
                                                                      (000'S)
<S>                                                             <C>        <C>
Assets
  Net operating loss carryforwards..........................    $81,794    $ 76,622
  Decommissioning expense...................................      3,985       2,852
  Unfunded pension expense..................................        685         542
  Accrued outage expense....................................      1,076         163
  Inventory.................................................        407         337
  Other, net................................................        576          59
Liabilities
  Utility plant.............................................    (24,457)    (19,230)
                                                                -------    --------
Accumulated deferred income tax asset.......................     64,066      61,345
Valuation allowance.........................................    (64,066)    (61,345)
                                                                -------    --------
Accumulated deferred income tax asset, net..................    $     0    $      0
                                                                =======    ========
</TABLE>
 
     The total income tax provision set forth above represents 0% in the years
ended December 31, 1998, 1997 and 1996. The following table reconciles the
statutory federal income tax rate to those percentages:
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                             1998            1997            1996
                                                         ------------    ------------    ------------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                                      <C>             <C>             <C>
(Loss) Income before taxes.............................    $(6,769)        $(11,215)        $4,100
Federal statutory rate.................................         34%              34%            34%
Federal income tax (benefit) expense at statutory
  levels...............................................     (2,301)          (3,813)         1,394
Increase (Decrease) from statutory levels State tax net
  of federal tax benefit...............................       (345)            (513)           205
  Valuation allowance..................................      2,721            4,442         (1,887)
  Other................................................         75             (116)           288
                                                           -------         --------         ------
Effective federal income tax expense...................    $     0         $      0         $    0
                                                           =======         ========         ======
</TABLE>
 
     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, 1998, the Company had
net operating loss carry forwards ("NOLs") of approximately $210 million, which
are scheduled to expire between 2005 and 2013. 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 $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 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 NOLs are
scheduled to expire. The Company's other $74 million of NOLs are not currently
subject to such limitations.
 
4.  CAPITAL EXPENDITURES
 
     The Company's cash construction expenditures, including nuclear fuel, are
estimated to be approximately $3.4 million in 1999 and to aggregate
approximately $21.6 million for the years 2000 through 2003.
 
                                      F-14
<PAGE>   40
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
5.  ENERGY MARKETING
 
     On March 1, 1998, Great Bay terminated PECO as Great Bay's exclusive
marketing agent and began to market and sell its uncommitted portion of
electricity generated by the Seabrook Project. The Company utilizes unit
contingent and firm forward sales contracts to maximize the value of its 140 MW
power supply from the Seabrook Project. As of December 31, 1998, the Company had
forward sales commitments that extend to the end of 1999. As of December 31,
1998, the unrealized gain on these open positions was $158,000. The value of
open positions has been determined using exchange settlement prices or, if
applicable, over the counter prices. The unrealized gain at December 31, 1998
has been deferred. However, upon the adoption of SFAS No. 133 and EITF 98-10 on
January 1, 1999, this gain will be recognized in accordance with those
standards. See Footnote 10.
 
6.  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 ("UNITIL") that
provides for Great Bay to sell to UNITIL approximately 10 MW of power. 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 5.24 cents per kilowatt-hour ("kWh"). In May 1999 and annually
thereafter, 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 is front-end loaded whereby UNITIL
pays higher prices, on an inflation adjusted basis, in the early years of the
Agreement and lower prices in later years. The average price per kWh and the
contract formula rate in the contract are fixed over the life of the contract,
so that any excess cash received in the beginning of the contract will be
returned by the end of the contract, provided the contract does not terminate
early. The difference between revenue billed under each rate is recorded in a
"Balance Account" which increased annually to $4.1 million in July 1998, and now
decreases annually, reaching zero in July 2001. Therefore, contract revenue is
recorded under Generally Accepted Accounting Principles and Emerging Issues Task
Force Ruling 91-6 based on the contract rates and no liability for the "Balance
Account" is recognized provided that it is not probable that the contract will
terminate early. If the UNITIL Purchased Power Agreement terminates prior to its
scheduled termination, and if at that time there is a positive amount in the
Balance Account, Great Bay is obligated to refund that amount to UNITIL.
Management believes it is not probable that either party will terminate this
contract prior to the end of its initial term.
 
     To secure the obligations of Great Bay under the UNITIL Purchased Power
Agreement, including the obligation to repay UNITIL the amount in the Balance
Account, the UNITIL Purchased Power Agreement grants UNITIL a mortgage on Great
Bay's interest in the Seabrook Project. This mortgage may be subordinated to
first mortgage financing of up to a maximum amount of $80,000,000. The UNITIL
Power Purchase Agreement further provides that UNITIL's mortgage will rank pari
passu with other mortgages that may hereafter be granted by Great Bay to other
purchasers of power from Great Bay to secure similar obligations, provided that
(i) the maximum amount of indebtedness secured by the first mortgage on the
Seabrook Interest may not exceed $80,000,000, and (ii) the combined total of all
second mortgages on the Seabrook Interest may not exceed the sum of (a)
$80,000,000 less the total amount of Great Bay's debt then outstanding which is
secured by a first mortgage plus (b) $57,000,000.
 
7.  PECO SERVICES AGREEMENT AND WARRANT AGREEMENT
 
     Great Bay and PECO Energy Company ("PECO") entered into a Services
Agreement as of November 3, 1995 (the "PECO Services Agreement"), pursuant to
which PECO was appointed as Great Bay's exclusive agent to market and sell Great
Bay's uncommitted portion of electricity generated by the Seabrook
                                      F-15
<PAGE>   41
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
Project. In June 1998, Great Bay and PECO terminated the power marketing
agreement between the companies and Great Bay paid PECO approximately $2.5
million. During the quarter ended June 30, 1998, Great Bay made an approximate
$2.5 million charge to income for this expense. This expense is reflected in
Administrative and General expenses in the accompanying Consolidated Statement
of Income.
 
8.  TRANSACTIONS WITH RELATED PARTIES
 
     In addition to the transactions with PECO discussed in Footnote 7, the
Company has the following related party transaction.
 
     Under the PECO Services Agreement, PECO acted as the Company's exclusive
agent to market and sell the Company's approximately 130MW of uncommitted
capacity generated by the Company's 12% ownership in the Seabrook Nuclear Power
Plant. As of March 1, 1998, Great Bay assumed all marketing responsibilities
from PECO. In June 1998, Great Bay and PECO terminated the power marketing
agreement. For the year ended December 31, 1998, the Company expensed $598,258
for PECO's net marketing fees in addition to the $2.5 million payment made in
June discussed in Footnote 7. For the year ended December 31, 1997, the Company
expensed $1,813,062 for PECO's net marketing fees.
 
9.  STOCK OPTION PLAN
 
     On April 24, 1995, the Board of Directors of the Company established the
1995 Stock Option Plan (the "Plan"), which received shareholder approval at the
Company's annual meeting on April 16, 1996. The purpose of the Plan 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 Plan may be either incentive stock
options meeting the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet the requirements of Section
422. The maximum number of shares of Common Stock that may be issued and sold
under the Plan is 600,000 shares. The Plan will be 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 plan under APB Opinion No. 25, under which 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 as the current options were "out
of the money" and they 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. In accordance
with APB Opinion 25 (the "Opinion"), a renewal, a change in price, an extension
of the period of exercisability, or any other significant modification of a
stock right establishes a new measurement date as of the date of change in the
same fashion as if a new option were granted.
 
     Under the current interpretations of APB Opinion 25, as the repricing was
done at fair market value on the new measurement date, no compensation expense
has been recognized.
 
     The Financial Accounting Standards Board (the "Board") has concluded its
initial review of practice problems associated with the Opinion on accounting
for stock issued to employees. The Board will issue an Exposure Draft of a
proposal interpreting the Opinion in the first quarter of 1999. The proposed
effective date would be the issuance date of the final interpretation, which is
expected to be in September 1999.
 
     If adopted, the interpretation would be applied prospectively but would
cover events that occur after December 15, 1998. There would be no effect on
financial statements for the period prior to the effective date of the final
interpretation.
 
                                      F-16
<PAGE>   42
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
     The proposal will focus on several practice issues that have been
identified by constituents as needing clarification by the Board. The most
significant of the issues to be addressed as they relate to the Company are the
accounting for repriced options and the definition of "employee" for purposes of
applying the Opinion.
 
     On those issues, the Board has tentatively concluded that once an option is
repriced, that option must be accounted for as a variable plan, giving rise to
compensation expense for subsequent changes in the stock price, from the time it
is repriced to the time it is exercised. Also, for purposes of applying APB
Opinion 25 for the definition of "employee" would be the common law definition,
which is also the basis for the definition between employees and non-employees
in U.S. tax law.
 
     As this relates to the Company, BayCorp would have to recognize
compensation associated with the repricing of the options, as the measurement
date was subsequent to December 15, 1998, when the final interpretation is
issued in 1999. In addition, the Company would have to recognize compensation
expense associated with the options issued to non-employee directors after
December 15, 1998. The estimated compensation expense that would have been
recorded in 1998 would have been approximately $229,000 for the repricing of
outstanding options.
 
     Had compensation cost for the plan been determined consistent with FASB
Statement 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.
 
<TABLE>
<CAPTION>
                                                        (DOLLARS IN THOUSANDS)
                                                    1998          1997         1996
                                                   -------      --------      ------
<S>          <C>                                   <C>          <C>           <C>
Net Income:  As Reported......................     $(6,769)     $(11,215)     $4,100
             Pro Forma........................      (7,050)      (11,414)      3,475
EPS:         As Reported......................     $ (0.82)     $  (1.35)      $0.51
             Pro Forma........................       (0.86)        (1.38)       0.43
</TABLE>
 
     Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. A summary
of the Company's stock option plan at December 31, 1998, 1997 and 1996, and
changes during the years then ended, is presented in the table and narrative
below:
 
<TABLE>
<CAPTION>
                                            1998                  1997                  1996
                                     ------------------    ------------------    ------------------
                                     WTD AVG               WTD AVG               WTD AVG
                                     SHARES    EX PRICE    SHARES    EX PRICE    SHARES    EX PRICE
                                     -------   --------    -------   --------    -------   --------
<S>                                  <C>       <C>         <C>       <C>         <C>       <C>
Outstanding at beginning of year...  505,000      $8.05    445,000    $8.15      335,000    $8.17
Granted............................   52,000       4.25     60,000     7.33      110,000     8.09
                                                to 7.25
Exercised..........................       --                    --                    --
Forfeited..........................       --                    --                    --
Expired............................  (20,000)                   --                    --
Outstanding at end of year.........  537,000       4.82    505,000     8.05      445,000     8.15
Exercisable at end of year.........  317,851       4.82    425,000     8.04      285,000     8.17
Weighted average fair value of
  options granted..................               $1.02               $3.32                 $4.51
</TABLE>
 
     The 537,000 options outstanding at December 31, 1998 have exercise prices
between $4.45 and $4.90, with a weighted average price of $4.82, and a remaining
weighted average contractual life of 5.4 years.
 
     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 1998, 1997 and 1996 respectively: weighted average risk-free interest
rates of 4.7, 6.7 and 6.7 percent; expected dividend yields of 0 percent;
weighted average expected lives of 6.5, 7 and 6 years; and expected volatility
of 31 percent.
 
                                      F-17
<PAGE>   43
                             BAYCORP HOLDINGS, LTD.
 
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
 
10.  NEW ACCOUNTING PRONOUNCEMENTS
 
     The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. Accumulated Other Comprehensive Income for 1998 and the current
twelve-month period charge is as follows:
 
<TABLE>
<CAPTION>
                                                             UNREALIZED GAINS     ACCUMULATED OTHER
                                                              ON SECURITIES      COMPREHENSIVE INCOME
                                                             ----------------    --------------------
<S>                                                          <C>                 <C>
Twelve Month
  Beginning Balance........................................      $116,000              $116,000
  Period Charge............................................       449,000               449,000
                                                                 --------              --------
  Ending Balance...........................................      $565,000              $565,000
                                                                 ========              ========
</TABLE>
 
     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 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
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 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement SFAS 133 as of the beginning of any fiscal quarter
after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter.) SFAS 133 cannot be applied retroactively. SFAS 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 has not yet quantified the impact of adopting SFAS 133 on its
financial statements and has not determined the timing of or method of adoption
of SFAS 133. However, SFAS 133 could increase volatility in earnings and other
comprehensive income.
 
     In December 1998, the Emerging Issues Task Force reached consensus on Issue
No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities ("EITF Issue 98-10"). EITF 98-10 is effective for fiscal
years beginning after December 15, 1998. EITF Issue 98-10 requires energy
trading contracts to be recorded at fair value on the balance sheet, with the
changes in fair value included in earnings. The effects of initial application
of EITF 98-10 will be reported as a cumulative effect of a change in accounting
principle. Financial statements for periods prior to initial adoption of EITF
98-10 may not be restated. The Company anticipates the cumulative effect of this
accounting change as of January 1, 1999 will be to increase net income by
approximately $158,800, or $0.02 per common share, to recognize gains on net
open physical purchase and sales commitments considered to be trading activity.
 
11.  PROPERTY TAXES
 
     For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement request
for tax years 1994, 1995 and 1996 were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). On December 7, 1998, Great Bay announced that it had reached an
agreement with the town of Seabrook to settle its outstanding property tax
litigation. As a result of the settlement, Great Bay received approximately $1.3
million from the town of Seabrook. In addition, the parties agreed that the
assessed value of the Seabrook Project will be reduced over the five-year period
of the settlement agreement from $2.3 billion in 1998 to $1.2 billion in 2002.
Great Bay and the other joint owners are currently engaged in settlement
negotiations with the towns of Hampton and Hampton Falls.
 
                                      F-18
<PAGE>   44
 
                                   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.
 
March 24, 1999
                                          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.
 
<TABLE>
<CAPTION>
                   SIGNATURE                                      TITLE                       DATE
                   ---------                                      -----                       ----
<C>                                               <S>                                    <C>
 
            /s/ FRANK W. GETMAN JR.               President and Chief Executive Officer  March 24, 1999
------------------------------------------------  (principal executive officer,
              Frank W. Getman Jr.                 principal financial officer and
                                                  principal accounting officer)
 
            /s/ KENNETH A. BUCKFIRE               Director                               March 24, 1999
------------------------------------------------
              Kenneth A. Buckfire
 
             /s/ STANLEY I. GARNETT               Director                               March 24, 1999
------------------------------------------------
               Stanley I. Garnett
 
             /s/ MICHAEL R. LATINA                Director                               March 24, 1999
------------------------------------------------
               Michael R. Latina
 
            /s/ LAWRENCE M. ROBBINS               Director                               March 24, 1999
------------------------------------------------
              Lawrence M. Robbins
 
            /s/ JOHN A. TILLINGHAST               Director                               March 24, 1999
------------------------------------------------
              John A. Tillinghast
</TABLE>
<PAGE>   45
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<S>       <C>  <C>
 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 April 26,
               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 (the "Registration Rights Agreement").(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     --   Acknowledgment 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     --   Asset Purchase Agreement by and between Montaup Electric
               Company and Great Bay Power Corporation, dated as of June
               24, 1998(3)
10.19     --   1996 Stock Option Plan of BayCorp Holdings, Ltd.(1)(4)
10.20     --   Employment Agreement between Frank W. Getman Jr. and BayCorp
               Holdings, Ltd., dated May 5, 1998.(4)(5)
</TABLE>
 
                                      II-1
<PAGE>   46
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<S>       <C>  <C>
10.21     --   Employment Agreement between John A. Tillinghast and BayCorp
               Holdings, Ltd., dated May 5, 1998.(4)(5)
21.1      --   List of Subsidiaries of BayCorp Holdings, Ltd.(5)
23.1      --   Consent of Arthur Andersen LLP.(5)
</TABLE>
 
---------------
 
(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 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.
 
(4) Management contract or compensation plan or arrangement required to be filed
    as an exhibit pursuant to Item 14(c) of Form 10-K.
 
(5) Filed as an exhibit to this Annual Report on Form 10-K.
 
                                      II-2