<PAGE>   1

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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, 2000

                                       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.)

   222 INTERNATIONAL DRIVE, SUITE 125
        PORTSMOUTH, NEW HAMPSHIRE                         03801-6819
(Address of principal executive offices)                  (Zip Code)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 431-6600
                            ------------------------

<TABLE>
<S>                                        <C>
    20 INTERNATIONAL DRIVE, SUITE 301
        PORTSMOUTH, NEW HAMPSHIRE                         03801-6809
 (Former address of principal executive                (Former Zip Code)
                 offices)
</TABLE>

                            ------------------------

          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. X     No ____

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

    As of March 21, 2001, the approximate aggregate market value of the voting
stock held by non-affiliates of the registrant was $27,872,179 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 21, 2001. There were 8,519,316
shares of Common Stock outstanding as of March 21, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<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 2001 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") is a holding company
incorporated in Delaware in 1996. BayCorp has two wholly-owned subsidiaries that
generate and trade wholesale electricity, Great Bay Power Corporation ("Great
Bay") and Little Bay Power Corporation ("Little Bay"). In addition, BayCorp owns
a 45.9% equity interest in HoustonStreet Exchange, Inc. ("HoustonStreet"), an
Internet-based energy trading and information business.

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

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

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

     HoustonStreet was incorporated in Delaware in 1999. HoustonStreet developed
and operates HoustonStreet.com, an Internet-based trading platform and
information portal for wholesale energy-related commodities. Currently,
HoustonStreet offers online trading exchanges for electricity, crude oil and
refined products in the United States and exchanges for electricity in Europe.
HoustonStreet plans to develop and launch trading platforms for natural gas and
other energy-related commodities and is also exploring additional opportunities
in the European and Asian markets.

     HoustonStreet initially launched its Internet-based wholesale electricity
trading exchange in the Northeast in July 1999 and nationwide in September 1999.
In May 2000, HoustonStreet launched exchanges for crude oil, refined products,
and a new electricity platform (SpeedWay) dedicated to standard products
trading. In September 2000, HoustonStreet launched an exchange for electricity
in Europe with trading floors for the United Kingdom, Germany, Belgium,
Switzerland, Austria and the Netherlands.

     As of February 2001, over 200 trading companies and over 1,200 individual
traders have registered on HoustonStreet. Nine of the top ten U.S. electricity
trading companies and all of the top ten international oil trading companies
have registered on the Web site. As of February 7, 2001, over $2.0 billion had
been transacted on HoustonStreet's oil platforms since their launch in May 2000.

     HoustonStreet is also pursuing opportunities that extend beyond the trading
platform, including the integration of trading data with customer mid-and
back-office applications and facilitating how companies perform the wide range
of activities that precede and follow wholesale energy transactions.
HoustonStreet is currently developing applications to integrate customers'
trading data and has two pilot programs underway for
<PAGE>   3

implementation in the second quarter of 2001. HoustonStreet is currently
piloting its integration system with Williams Energy.

     HoustonStreet maintains strategic relationships with Equiva Trading
Company, Williams Energy, Conoco, Inc., Vivendi S.A., Bowstreet, Enron Net
Works, LLC, RWE Trading GmbH, Vattenfall AB, Electrabel, N.V. and others in
order to facilitate the development of various energy-related commodity trading
platforms. HoustonStreet expects to continue to enter into similar strategic
relationships to facilitate expansion into other energy-related trading markets.

RECENT DEVELOPMENTS

  Wholesale Electricity Generation and Trading Business

     On October 10, 2000, the Company reached an agreement with Northeast
Utilities ("NU") under which the Company's generating subsidiaries, Great Bay
and Little Bay, will include their aggregate 15% ownership share of the Seabrook
Project in the upcoming auction of NU's subsidiaries' shares of the Seabrook
Project. Under the terms of the agreement, BayCorp will receive the sales price
established by the auction process. In the event that the sale yields proceeds
for BayCorp of more than $87.2 million, BayCorp and NU will share the excess
proceeds. Should BayCorp's sales proceeds be less than $87.2 million, NU will
make up the difference below that amount on a dollar for dollar basis up to a
maximum of $17.4 million. Under the agreement, BayCorp will be paid separately
for nuclear fuel and inventory. The agreement also limits any top-off amount
required to be funded by BayCorp for decommissioning as part of the sale process
at the amount required by the Nuclear Regulatory Commission ("NRC") regulations.
The auction is expected to begin in the second quarter of 2001 with a closing
expected in the first half of 2002.

     On February 6, 2001, Great Bay executed a Purchased Power Agreement with
Select Energy ("Select") whereby Great Bay will sell 50 MWs of energy associated
with Seabrook to Select in exchange for 25 MWs of energy associated with
Millstone Unit 2 and 25 MWs of energy associated with Millstone Unit 3. The term
of this agreement is April 1, 2001 through December 31, 2001. Delivery of power
from either company is contingent on the Seabrook and Millstone units operating
at certain capacity. See "-- Wholesale Electricity and Trading Business --
Purchased Power Agreements."

     Seabrook Unit 1 transmits its generated power to the New England 345
kilovolt transmission grid, a major network of interconnecting lines covering
New England, through three separate transmission lines emanating from the
station. On March 5, 2001, the Seabrook Project began experiencing interruptions
of the connections to the transmission system due to icing from a severe winter
storm that resulted in the plant automatically tripping offline. During this
shutdown, a problem was identified with the steam-driven emergency feedwater
pump and plant chemistry personnel detected the presence of chlorides in the
condenser hotwells, indicating leakage of seawater into the condenser. Repair of
the emergency feedwater pump was completed allowing the plant to return on-line
on March 15, 2001. Power was limited to approximately 70% while plant personnel
continued to repair the condenser leakage. On March 19, 2001, plant operators
identified a problem with the main turbine valve control system requiring that
the plant be taken off-line. After repairs were completed, the plant was placed
on-line on March 22, 2001 and power was increased to approximately 70%. The
plant reached full power on March 25, 2001.

  Internet-based Energy Trading and Information Business

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

     On March 22, 2001, HoustonStreet received commitments to receive up to
approximately $3.9 million in additional funding, including $900,000 from
BayCorp. Although HoustonStreet has received some of the funding, until the
closing of the financing, there can be no assurance that HoustonStreet will
receive the balance of the committed funds. This financing involves the sale by
HoustonStreet of senior secured notes,

                                        2
<PAGE>   4

warrants to purchase HoustonStreet preferred stock and warrants to purchase
HoustonStreet common stock. Collectively, these securities are referred to as
the "HoustonStreet Series C Units."

     In March 2001, BayCorp entered into discussion with HoustonStreet involving
the conversion of BayCorp's $7.0 million loan made in September 2000, together
with approximately $1.0 million in accrued interest and penalties on the note
and past due management fees, into approximately $8.0 million of HoustonStreet
Series C Units. There can be no assurance that this proposed refinancing will be
successfully completed. The loan, accrued interest and receivables from
HoustonStreet had been written down to zero at December 31, 2000, and as such,
the conversion of these amounts will have no accounting impact.

WHOLESALE ELECTRICITY GENERATION AND TRADING BUSINESS

     BayCorp's principal wholesale electricity generation and trading assets are
its 100% equity interests in Great Bay and Little Bay. The business of Great Bay
and Little Bay consists of managing their joint ownership interests in the
Seabrook Project and the sale in the wholesale power market of their share of
electricity produced by the Seabrook Project. Neither Great Bay nor Little Bay
has operational responsibility for the Seabrook Project. Great Bay is a party to
one long-term power contract for approximately 10 MW of Great Bay's share of the
Seabrook Project capacity. Great Bay has also entered into a one-year contract,
as of November 19, 1999, with Little Bay to purchase all of the output from the
portion of Seabrook owned by Little Bay. This contract was renewed on November
20, 2000. 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 174 MW power supply from the Seabrook Project.

     Traditionally, Great Bay sold most of its share of the Seabrook Project
electricity output under unit contingent contracts. Under unit contingent
contracts, Great Bay is obligated to provide the buyer with power only when the
Seabrook Project is operating. In late 1998, Great Bay began to sell some of its
electricity as firm power, which entitles the buyer to electricity whether or
not the Seabrook Project is operating. Buyers pay a premium for firm power over
unit contingent power because they can rely on uninterrupted electricity. In
order to supply firm power during 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, subject to certain deductibles and coverage limits. This insurance,
provided by ACE USA (formerly CIGNA), currently provides Great Bay up to $18.6
million of coverage through May 2002.

  The Seabrook Project

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

     Seabrook Unit 1 is a 1,150-MW nuclear-fueled steam electricity generating
station. It employs a four loop, pressurized water reactor and support auxiliary
systems designed by the Westinghouse Electric Company. The reactor is housed in
a steel-lined reinforced concrete containment structure and a concrete
containment enclosure structure. Reactor cooling water is obtained from the
Atlantic Ocean through a 17,000-foot-long intake tunnel and returned through a
16,500-foot-long discharge tunnel. The station has a remaining expected license
life of 25 years. As noted above, Seabrook Unit 1 transmits its generated power
to the New England 345 kilovolt transmission grid, a major network of
interconnecting lines covering New England, through three separate transmission
lines emanating from the station. On March 15, 1990, the Participants received
from the NRC a full power operating license that authorizes operation of
Seabrook

                                        3
<PAGE>   5

Unit 1 until October 2026. Commercial operation of Seabrook Unit 1 commenced on
August 19, 1990. Management believes that Seabrook Unit 1 is in good condition.

     Since the Seabrook Project was originally designed to consist of two
generating units, Great Bay and Little Bay also own a combined 15% joint
ownership interest in Seabrook Unit 2. Great Bay and Little Bay assigned no
value to Seabrook Unit 2 because on November 6, 1986, the joint owners of the
Seabrook Project voted to dispose of Unit 2. Thereafter, Great Bay wrote off its
investment in Unit 2. Little Bay has no investment in Unit 2. Certain assets of
Seabrook Unit 2 have been 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 and Little Bay are unable to estimate the costs for which they 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 are not included in the amounts collected for the decommissioning of
Unit 1 and the common facilities. Great Bay and Little Bay currently pay their
share of monthly expenses required to preserve and protect the value of the
Seabrook Unit 2 components.

  Joint Ownership of Seabrook

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

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

     The JOA provides for a Managing Agent to carry out the daily operational
and management responsibilities of the Seabrook Project. The current Managing
Agent, appointed by certain of the Participants on June 29, 1992, is North
Atlantic Energy Service Corporation ("NAESCO"), a wholly-owned subsidiary of NU.
NU, in conjunction with certain of its affiliates, holds the largest joint
ownership interest in the Seabrook

                                        4
<PAGE>   6

Project, as described above. Certain material decisions regarding the Seabrook
Project are made by an Executive Committee consisting of the chief executive
officers of certain of the Participants or their designees. There are currently
five members of the Executive Committee. The Executive Committee acts by a
majority vote of its members, although any action of the Executive Committee may
be modified by a vote of 51% of the ownership interests. Frank W. Getman Jr.,
the Company's President and Chief Executive Officer, is currently a member of
the Executive Committee. Anthony Callendrello, the Company's Chief Operating
Officer, is a member of the Audit Committee and is Vice Chairperson of the
Budget Subcommittee and Non-Operating Participants Committee. Under the JOA, the
managing agent of the Seabrook Project may be removed and a new managing agent
appointed by a 51% interest of the Participants.

  Marketing and Customers

     Great Bay currently sells most of its power in the Northeast United States
in the short-term wholesale power market. Great Bay does not currently depend on
any single customer because 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. The Company utilizes unit contingent and
firm forward sale contracts to maximize the value of the uncommitted portion of
its 174 megawatt power supply from the Seabrook Project.

     During 2000, sales by Great Bay to Enron Power Marketing Inc., Aquila Power
Corporation, Select Energy Inc. and Central Vermont Public Service accounted for
17%, 15%, 14% and 13% respectively, of total operating revenues. Sales by Little
Bay to Great Bay represent 100% of its operating revenues.

  Purchased Power Agreements

     Great Bay is party to a purchased power agreement, dated as of April 1,
1993 (the "UNITIL Purchased Power Agreement"), with UNITIL Power Corporation
("UNITIL") that provides for Great Bay to sell to UNITIL 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 5.38 cents per kilowatt-hour ("kWh"). The price is subject to
increase in accordance with a formula that provides for adjustments at less than
the actual rate of inflation. UNITIL has an option to extend the UNITIL
Purchased Power Agreement for an additional 12 years until 2022.

     The UNITIL Purchased Power Agreement was front-end loaded whereby UNITIL
paid higher prices, on an inflation-adjusted basis, in the early years of the
Agreement and lower prices in later years. The amount of the excess paid by
UNITIL in the early years of the UNITIL Purchased Power Agreement 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.

     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
Purchased Power 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.

     Great Bay originally entered into a power sales agreement, dated as of
November 19, 1999, with Little Bay. Great Bay and Little Bay renewed this
agreement on November 20, 2000 for a one-year term ending November 19, 2001.
Under the terms of the agreement, Little Bay sells at cost, and Great Bay
purchases, all

                                        5
<PAGE>   7

of the output of the portion of Seabrook owned by Little Bay. This agreement is
a unit power sale agreement. Accordingly, when all or part of Little Bay's
interest in Seabrook is not producing, the obligation of Little Bay to sell (and
of Great Bay to purchase) is proportionately eliminated. The agreement can be
terminated at any time by mutual consent of the parties, after any notice
required by law.

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

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

  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 competition. A
source of competition comes from traditional utilities, some 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.

  NEPOOL

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

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

  NERTO

     On January 16, 2001, in response to Federal Energy Regulatory Commission
("FERC") Order No. 2000, ISO-NE and six companies owning transmission facilities
in New England filed a joint petition for a declaratory order to form the New
England Regional Transmission Organization ("NERTO"). Under the plan submitted
to FERC, ISO-NE, Bangor Hydro-Electric Company, Central Maine Power Company,

                                        6
<PAGE>   8

National Grid USA, Northeast Utilities Service Company, The United Illuminating
Company and Vermont Electric Power Company, Inc. proposed a Regional
Transmission Organization ("RTO") consisting of two entities working in concert:
(1) a new independent transmission company, Northeast Independent Transmission
Company, LLC ("NE ITC") and (2) an independent system operator. Like ISO-NE, the
NE ITC will be subject to FERC regulations.

     FERC Order No. 2000, issued in December 1999, anticipated that transmission
owners and operators would develop and join RTOs on a voluntary basis. Order No.
2000 is premised on obtaining public benefits through competition and the
effective and reliable operation of a region's transmission system including the
upgrading of existing facilities and the development of new transmission
facilities.

  Nuclear Power, Energy and Utility Regulation

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

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

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

     The New Hampshire Public Utilities Commission ("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 restructured to create and
maintain open, non-discriminatory, competitive, unbundled markets for energy,
capacity, and ancillary services. These markets commenced operation in May 1999.
All of the deregulation initiatives open electricity markets to competition in
the affected states. While Great Bay and Little Bay believe they are low-cost
producers 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 the companies.

  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.

                                        7
<PAGE>   9

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

     Great Bay and Little Bay also independently purchase business interruption
insurance from Nuclear Electric Insurance Limited ("NEIL"). The current policy
is in effect from April 1, 2000 until April 1, 2001 and a renewal policy has
been signed which will be in effect from April 1, 2001 until April 1, 2002. The
policy provides for the payment of a fixed weekly loss amount of $670,000 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 and Little Bay is a total of $90.6 million. Under the terms of the policy,
Great Bay and Little Bay are subject to a potential retrospective premium
adjustment of up to approximately $469,335 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 Bay and Little Bay believe
that the Seabrook Project has available, or under supply contracts, sufficient
nuclear fuel for operations through approximately 2003. 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."

                                        8
<PAGE>   10

     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 March 2000, Congress passed amendments to the NWPA that would require
the DOE to begin accepting nuclear waste shipments at a Nevada site in 2007.
However, former President Clinton vetoed this legislation and Congress did not
override Mr. Clinton's veto. Until the DOE begins receiving nuclear waste
materials in accordance with the NWPA and its contracts, nuclear plants such as
Seabrook must retain high-level waste on-site or make other storage provisions.

     NAESCO, the managing agent of the Seabrook Project, has advised the Company
that the Seabrook Project's on-site storage capacity for low-level waste ("LLW")
is expected to be sufficient to meet the project's storage requirements through
2006. In addition, NAESCO advises 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.

     The Seabrook Project ships certain LLW to privately owned facilities in
Tennessee and Utah. All LLW generated by the Seabrook Project that exceeds the
maximum radioactivity level of LLW accepted by these facilities is currently
stored on-site at the Seabrook facility.

  Decommissioning

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

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

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

     In January 2001, the NDFC issued an Order relating to proceeding NDFC
Docket 2000-1, the comprehensive update of Seabrook Unit #1 Decommissioning
Fund. For funding purposes, this Order reflects decommissioning beginning in
2015, shortening the funding period, which commenced in 1990, from 36 to 25
years. Great Bay began funding at an accelerated rate in 1998 in response to New
Hampshire legislation,

                                        9
<PAGE>   11

and as such, the accelerated funding required by this Order is not expected to
have a material impact on Great Bay. Great Bay's 2000 decommissioning payments
totaled approximately $1.8 million.

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

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

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

     In response to the obligations imposed on the other Joint Owners under the
New Hampshire legislation, Great Bay agreed to make accelerated payments to the
Seabrook decommissioning fund such that Great Bay will have contributed
sufficient funds by the year 2015 to allow sufficient monies to accumulate, with
no further payments by Great Bay to the fund, to the full estimated amount of
Great Bay's decommissioning obligation by the time the current Seabrook
operating license expires in 2026. Based on the currently approved funding
schedule and Great Bay's accelerated funding schedule, Great Bay's
decommissioning payments will be approximately $2.6 million in 2001 and escalate
at 4% each year thereafter through 2015.

     The current estimated cost to decommission the Seabrook Project (based on
the NDFC Docket 2000-1, as updated by NDFC Order No. 5 in January 2001) is
approximately $609.4 million in 2001 dollars, assuming (for decommissioning
funding purposes) a remaining 14-year life for the facility and a future cost
escalation rate of 4.0%. Based on this estimate, the value of Great Bay and
Little Bay's 15% share of this liability is approximately $91.6 million in 2001
dollars.

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

  Environmental Regulation

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

     The EPA issued a National Pollutant Discharge Elimination System ("NPDES")
permit, valid for a period of five years, to NAESCO on October 30, 1993
authorizing discharges from Seabrook Station into the Atlantic Ocean and the
Browns River in accordance with limitations, monitoring requirements and
conditions specified in the permit. A renewal application was filed in April
1998 and supplemented in August and September of 1998 and in September 1999.
NAESCO has advised Great Bay that the Seabrook Station's initial five-year NPDES
permit will remain effective during the renewal process.

                                        10
<PAGE>   12

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

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

INTERNET-BASED ENERGY TRADING AND INFORMATION BUSINESS

  Introduction

     BayCorp owns a 45.9% equity interest in HoustonStreet, which developed and
operates HoustonStreet.com, an Internet-based trading platform and information
portal for wholesale energy-related commodity traders. Currently, HoustonStreet
offers online energy-related commodity trading exchanges that allow traders to
trade electricity, crude oil and refined products for the United States markets
over the Internet. HoustonStreet plans to develop and launch trading platforms
for natural gas and other energy-related commodities for the United States
markets.

     HoustonStreet also is exploring opportunities to develop similar
energy-related commodity exchanges in both European and Asian markets. In
September 2000, HoustonStreet launched an electricity trading platform in the
United Kingdom, Germany, Belgium, Switzerland, Austria and the Netherlands
through its newly-formed and wholly-owned subsidiary, HoustonStreet B.V. On
September 15, 2000, HoustonStreet B.V. entered into an agreement with RWE
Trading GmbH, a German private limited liability company, Vattenfall AB, a
Swedish public company, and Electrabel, N.V., a Belgian public limited liability
company, pursuant to which RWE Trading, Vattenfall and Electrabel use
HoustonStreet B.V.'s platform for energy trading activities. There can be no
assurance that these relationships will be successful. HoustonStreet plans to
enter other European markets in electricity and other energy-related
commodities.

     HoustonStreet initially launched its Internet-based wholesale electricity
trading exchange in the Northeast on July 8, 1999 and achieved first mover
position in the online market for electricity trading. On September 13, 1999,
HoustonStreet launched electricity trading throughout the United States, four
months ahead of schedule. HoustonStreet launched its crude oil and refined
products trading platforms on May 18, 2000 and its new electricity trading
platform, SpeedWay, on May 22, 2000.

     As of February 2001, over 200 companies and over 1,200 individual traders
have registered on HoustonStreet. Nine of the top ten U.S. electricity trading
companies and all of the top ten international oil trading companies have
registered on the Web site. As of February 7, 2001, over $2.0 billion had been
transacted on HoustonStreet's oil platform since its launch in May 2000.

     HoustonStreet is also pursuing opportunities that extend beyond the
wholesale trading platform in its efforts to become "how energy companies do
business." HoustonStreet intends to leverage its open architecture in order to
integrate trade information with its customers' mid- and back-office
applications.

                                        11
<PAGE>   13

Through its energy portal, HoustonStreet plans to offer a suite of value-added
offerings that help energy companies become more efficient and trade on
real-time information.

  Industry Background

     Today, almost all electricity, crude oil, refined products and
approximately half of all natural gas trading is conducted by telephone. As
online exchanges develop and provide more accurate and comprehensive real-time
information and faster execution of trades, HoustonStreet's management believes
that energy traders will increasingly adopt the online trading method. In
addition, HoustonStreet's management believes that trading companies facing
increased competition and lower profit margins will utilize online trading
technology to realize cost savings and efficiencies. Moreover, HoustonStreet's
management believes that virtually all wholesale energy traders use the Internet
for certain aspects of their business, including scheduling, interfacing with
various regulatory bodies and accessing information from power pools, such as
ISO New England and PJM ISO. Since traders already use the Internet for other
business activities, HoustonStreet's management believes that traders will also
use the Internet for trading.

     State of Wholesale Electricity Market.  The electricity market in the
United States can be divided into two categories based on the electricity
producing entity. The first type of producer, the vertically integrated utility,
generates power and sells it directly to its end users. The second type of
producer, the independent power producer, generates electricity and sells it on
a wholesale basis. Utilities and independent power producers trade wholesale
electricity. Wholesale electricity can be traded multiple times, as traders
routinely buy and sell power to accommodate varying delivery point and delivery
time requirements.

     In addition to utilities and independent power producers, electricity is
traded by power marketers. Power marketers are non-regulated companies that buy
and sell wholesale electricity at market prices. Although power marketers
traditionally do not own electrical generation, transmission or distribution
assets, they are in some instances affiliated with enterprises that own such
assets.

     Wholesale trading of electricity in the United States totaled approximately
$85 billion in 1999, representing over 3.5 billion-megawatt hours. According to
Power Markets Week, power marketer sales alone reached 2.7 billion megawatt
hours in 1999.

     Electricity Trading and Deregulation.  With the onset of electric utility
deregulation in the United States, the wholesale power trading market has grown
and changed significantly. Historically, electric utilities traded power among
themselves primarily on a "real time" (electric power for the next hour) and
"day ahead" (today for tomorrow) basis. Forward transactions (beyond the next
day) were less common. With vertically integrated utilities, the need for
wholesale trading is mainly driven by plant outages and maintenance. Traditional
regulated utilities priced transactions based on cost and rate of return rather
than market dynamics.

     There are two primary factors driving the change and growth of the
wholesale power trading market in the United States - the breakup of the
vertically integrated model and the introduction of non-rate of return regulated
participants. The break up of vertically integrated organizations has increased
the need for the resulting organizations to engage in wholesale transactions.
When utilities were vertically integrated, captive generation was used to serve
captive load and transactions were used to fill in mismatches between the two.
Unaffiliated load-serving and generation entities must purchase and sell power
to conduct their ongoing businesses.

     Twelve states have completed electric utility deregulation as of October
2000. These states represent approximately 29% of the United States' electricity
consumption. In addition, 12 other states have enacted restructuring legislation
to date. These states represent an additional approximately 25% of the United
States' electricity consumption. HoustonStreet's management believes that the
ongoing deregulation process will continue and thereby generate a substantially
larger market for trading on HoustonStreet.com.

     Trading Versus Consumption Volume.  Commodity energy products typically
trade multiple times prior to consumption. For example, a given cubic foot of
natural gas trades approximately eight times before consumption, based on data
available from the United States DOE and the New York Mercantile Exchange.

                                        12
<PAGE>   14

Electricity trading is in its early stages of development, with a trading to
consumption multiple of less than one. Based on United States Department of
Energy statistics, the production of electricity in 1998 constituted an
approximate $80 billion market with a corresponding trading market of $70
billion. HoustonStreet's management believes that this multiple will increase as
electricity trading matures, offering HoustonStreet a significant opportunity
for growth. Principally as a result of deregulation of the electric utility
industry and divestiture of electricity generating assets, management believes
that electricity promises to be one of the largest traded commodities in the
United States.

  Technology

     HoustonStreet's modular and scalable architecture is designed to
accommodate enhancements, additional capacity and future expansion into other
markets. HoustonStreet has developed an e-commerce solution designed to
integrate energy trading with companies' mid- and back-office systems,
streamlining internal trading processes and providing cost savings and
efficiencies. An example of this scalability is an application developed by
HoustonStreet, which enables traders to capture details of all of their trades,
even those conducted off the HoustonStreet platforms. The integration capability
provides the potential for trading information to be passed directly into the
company's mid- and back-office systems thereby eliminating manual effort,
reducing errors and facilitating real-time risk management.

  Sources of Revenue

     HoustonStreet receives a fee for every trade completed on its Web site. The
transaction fees charged by HoustonStreet are generally at or below the
commissions charged by telephone brokers. Commissions on energy trades typically
range from 0.01% to 0.05% of the volume of the energy traded online.

  Services

     HoustonStreet currently offers three trading platforms -- electricity,
crude oil and refined products. In May 2000, HoustonStreet launched SpeedWay, a
platform for trading standard blocks of power at standard delivery points.
HoustonStreet's crude oil platform includes several trading floors, organized by
grade and location. The platform allows for a user-customized view where the
user can specify which markets it wants to appear together on a floor,
regardless of grade, location or type. HoustonStreet's refined products platform
also includes several trading floors, organized by commodity, pipeline and
geographic location. Bids and offers are segmented by trading period (month and
cycle) and by grade. Commodities traded include numerous grades of gasoline and
distillates, including jet fuel, number 2 heating oil, low sulfur diesel,
regular gas, regular RFG gas, premium gas and premium RFG gas. HoustonStreet is
currently developing its natural gas trading platform, which it expects to
launch in the second quarter of 2001. HoustonStreet's natural gas platform is
designed to cover major geographic points and trading types, including cash,
index, swing swap, fixed for float and basis.

  Competition

     HoustonStreet's trading exchanges compete with brokers who arrange for
trades by telephone and, to a lesser extent, electronic brokerage services.
Moving traders from the telephone to the Internet is perhaps the largest
competitive challenge facing HoustonStreet. Currently, most transactions are
conducted on the telephone either directly between two traders or through a
telephone broker. The broker does not act as a principal in the transaction. The
purchasing and selling entities are disclosed to each other upon completion of
every transaction. This process can be inefficient and time consuming. In
addition, the human element in the telephone broker market introduces a risk of
error or omission in the dissemination of market information. The level of price
transparency is low. HoustonStreet is aware of several electronic brokerages
currently in operation that, to a varying extent, compete with HoustonStreet. In
addition, HoustonStreet is aware of several energy companies that have announced
Internet-based systems designed to give users the ability to trade
energy-related commodities with only that company. These Web sites are not
independent exchanges, but rather Internet-based distribution systems for
company-specific products and services.

                                        13
<PAGE>   15

EMPLOYEES AND MANAGEMENT

     As of March 21, 2001, BayCorp had 10 employees. Its subsidiaries, Great Bay
and Little Bay, had no employees. HoustonStreet (US) had 31 employees and
HoustonStreet (UK) had 14 employees.

     BayCorp has entered into Management and Administrative Services Agreements
(the "Services Agreements"), with Great Bay and HoustonStreet pursuant to which
BayCorp provides Great Bay and HoustonStreet a full range of management
services, including general management and administration, accounting and
bookkeeping, budgeting and regulatory compliance. Under the Services Agreements,
BayCorp charged Great Bay $1,114,100 in 2000 and charged HoustonStreet $641,400
in 2000. Each Services Agreement has a one-year term and provides for automatic
one-year renewals.

ITEM 2.  PROPERTIES.

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

     BayCorp's corporate headquarters is located in Portsmouth, New Hampshire
where it occupies approximately 2,600 square feet of office space. BayCorp's
management believes that the corporate headquarters in Portsmouth, New Hampshire
meets its current requirements and that additional space can be obtained to meet
requirements for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS.

     Not Applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not Applicable.

  Executive Officers of the Registrant

     The executive officers of BayCorp are:

<TABLE>
<CAPTION>
                 NAME                    AGE                          POSITION
                 ----                    ---                          --------
<S>                                      <C>   <C>
Frank W. Getman Jr. ...................  37    Chief Executive Officer and President
Anthony M. Callendrello................  49    Chief Operating Officer and Secretary
Patrycia T. Barnard....................  45    Vice President of Finance and Treasurer
</TABLE>

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

     Anthony M. Callendrello has served as the Company's Chief Operating Officer
since April 2000 and as the Secretary of the Company since May 2000. Mr.
Callendrello has over 20 years experience in the nuclear industry. With over 16
years at the Seabrook Nuclear Power Plant, Mr. Callendrello most recently served
as the plant's Manager of Environmental, Government and Owner Relations. From
1980 to 1983, Mr. Callendrello was employed with Stone & Webster Engineering
Corporation in New York.

                                        14
<PAGE>   16

Mr. Callendrello has a Master of Engineering -- Mechanical degree and a Bachelor
of Engineering degree from Stevens Institute of Technology in Hoboken, New
Jersey.

     Patrycia T. Barnard has served as Vice President of Finance and Treasurer
of the Company since January 2001. Ms. Barnard served as Director of Accounting
since May 1996 and has served as Treasurer since 1998. Ms. Barnard has over 15
years experience in multi-national, corporate accounting and finance. From 1978
until 1993, Ms. Barnard was employed by BTR, Plc., most recently as Assistant
Controller for Clarostat Mfg. Co. Inc., currently located in Plano, Texas and
Juarez, Mexico. Ms. Barnard holds an M.B.A. and a Masters in Accounting from New
Hampshire College. She also holds a B.S. in Business Administration from the
University of New Hampshire.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Following are the reported high and low sales prices of BayCorp common
stock ("MWH") on the American Stock Exchange ("ASE") as reported in the Wall
Street Journal daily as traded, for each quarter of 1999 and 2000:

<TABLE>
<CAPTION>
                                                            HIGH          LOW
                                                            ----          ---
<S>                                                         <C>          <C>
1999
  First Quarter.........................................    $4.44        $3.50
  Second Quarter........................................     6.00         3.38
  Third Quarter.........................................     7.31         6.00
  Fourth Quarter........................................     9.69         6.25
</TABLE>

<TABLE>
<CAPTION>
                                                            HIGH          LOW
                                                            ----          ---
<S>                                                        <C>           <C>
2000
  First Quarter........................................    $32.25        $9.81
  Second Quarter.......................................     23.75         7.13
  Third Quarter........................................     12.00         7.00
  Fourth Quarter.......................................     11.50         5.50
</TABLE>

     As of March 21, 2001, the Company had 26 holders of record of its common
stock. The Company believes that as of March 21, 2001, the Company had
approximately 1,037 beneficial holders of its common stock. The number of
beneficial owners substantially exceeds the number of record holders because
many of the Company's stockholders hold their shares in street name.

     BayCorp has never paid cash dividends on its common stock and 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 presents selected financial data of the Company as of
and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996. 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.

                                        15
<PAGE>   17

                            SELECTED FINANCIAL DATA
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                           FOR THE YEARS ENDED
                                                              DECEMBER 31,
                                           ---------------------------------------------------
                                            2000       1999       1998       1997       1996
                                           -------    -------    -------    -------    -------
<S>                                        <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Operating Revenues.......................  $56,347    $45,731    $32,034    $26,642    $30,324
Operating Expenses.......................   67,060     45,626     37,310     36,880     32,563
Net Income (Loss)........................  (15,669)    (4,740)    (6,769)   (11,215)     4,100
BALANCE SHEET DATA:
Cash, Cash Equivalents & Short Term
  Investments............................   14,109      5,930     12,055     19,092     28,775
Working Capital..........................      283     17,707     17,761     23,079     30,552
Total Assets.............................  153,594    157,110    140,358    140,158    152,418
Decommissioning Liability................   71,618     79,443     60,274     55,846     53,215
Capitalization:
Common Equity............................   51,539     66,246     71,359     78,139     89,625
Total Capitalization.....................   51,539     66,246     71,359     78,139     89,625
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

OVERVIEW

     BayCorp derives substantially all of its revenue through its energy trading
activities and its 100% equity interest in Great Bay and Little Bay. Great Bay
and Little Bay are electric generating companies whose principal asset is a
combined 15% joint ownership interest in the Seabrook Nuclear Power Project in
Seabrook, New Hampshire.

     BayCorp reported net losses for the years ended December 31, 2000, 1999,
1998, 1997 and reported net income for the year ended December 31, 1996. The
2000 net loss was primarily attributable to the non-cash charge to earnings for
unrealized losses on firm forward energy trading contracts and the 2000 Seabrook
refueling outage. The 1999 net loss was primarily due to costs associated with
the refueling outage that began on March 27, 1999, with the plant resuming full
operating capacity on May 21, 1999. 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 Energy Company. 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. BayCorp incurs losses during outage periods due to the loss
of all revenues from the sale of generation and additional costs associated with
the outages as well as continuing operating and maintenance expenses and
depreciation. Unscheduled outages or operation of the unit at reduced capacity
can occur due to the automatic operation of safety systems following the
detection of a malfunction. In addition, it is possible for the unit to be shut
down or operated at reduced capacity based on the results of scheduled and
unscheduled inspections and routine surveillance by Seabrook Project personnel.
It is not possible for BayCorp to predict the frequency or duration of any
future unscheduled outages; however, it is likely that such unscheduled outages
will occur. The Seabrook Project conducted a refueling outage in 2000, which
began on October 21, 2000. This refueling outage was scheduled for approximately
30 days, however due to unexpected mechanical problems, the Seabrook Project did
not return to full power until February 1, 2001. 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. The next refueling outage is
scheduled to begin in May 2002.

                                        16
<PAGE>   18

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

RESULTS OF OPERATIONS

  Operating Revenues

     BayCorp's operating revenues for 2000 increased by approximately $10.6
million, or 23.2%, to $56,347,000 as compared to $45,731,000 for 1999. This
increase was primarily attributable to increases in selling prices in 2000 as
compared to 1999. During 2000, the sales price per kilowatt-hour ("kWh")
(determined by dividing total sales revenue by the total number of kWhs sold in
the applicable period) increased 23% to 3.87 cents per kWh as compared with 3.13
cents per kWh in 1999. Sales of electricity decreased slightly by approximately
0.2% to 1,453,263,900 kWhs in 2000 as compared to 1,457,110,270 kWhs in 1999.
The 2000 capacity factor at the Seabrook Project was 85.2% of the rated capacity
as compared to a capacity factor of 85.6% for 1999. Operating revenues and
capacity factor were adversely impacted in 2000 by the scheduled refueling
outage at the Seabrook Project that began on October 21, 2000. A return to full
power was expected on November 21, 2000. The outage was extended when damage to
one of the plant's emergency diesel generators occurred, requiring an extensive
repair effort. The Plant returned to full power on February 1, 2001. Operating
revenues and capacity factor were adversely impacted in 1999 by the scheduled
refueling outage that began on March 27, 1999. The Plant resumed full operating
capacity on May 21, 1999. Great Bay purchased approximately 262,409,300 kWhs for
resale in 2000 primarily to cover firm contracts during the extended outage in
the fourth quarter. Great Bay purchased approximately 369,703,000 kWhs in 1999
to cover firm contracts and for resale. Average purchase prices for power were
approximately 5.06 cents per kWh in 2000 and 3.02 cents per kWh in 1999.

     Great Bay's cost of power (determined by dividing total operating expenses
by kWhs sold during the applicable period) increased 38% to 4.61 cents per kWh
in 2000 as compared to 3.33 cents per kWh in 1999. This increase was primarily
the result of the expense associated with the unrealized losses on firm forward
contracts of approximately $12.2 million in 2000 as compared to $806,000 in
1999.

     BayCorp's operating revenues for 1999 increased by approximately $13.7
million, or 42.8%, to $45,731,000 as compared with $32,034,000 for 1998. This
increase was primarily due to an increase in sales by Great Bay of power
purchased in the open market in 1999. The 1999 capacity factor at the Seabrook
Project was 85.6% of the rated capacity as compared to a capacity factor of
83.3% for 1998. Operating revenues and capacity factor were adversely impacted
in 1999 by the scheduled refueling outage at the Seabrook Project that began on
March 27. The Plant resumed full operating capacity on May 21 and operated at
full capacity thru December 31, 1999. In contrast, while there was no refueling
outage in 1998, the Seabrook Project had approximately 64 unscheduled outage
days in 1998.

     Sales of electricity increased by approximately 38.2% to 1,457,110,270 kWhs
in 1999 as compared to 1,054,203,800 kWhs in 1998. During 1999, the sales price
per kWh increased 3% to 3.13 cents per kWh as compared with 3.04 cents per kWh
in 1998. Great Bay's cost of power decreased 5.9% to 3.33 cents per kWh in 1999
as compared to 3.54 cents per kWh in 1998. This decrease was primarily the
result of the higher capacity factor at the Seabrook Project during 1999 as
compared to 1998. Scheduled and unscheduled outage time increases Great Bay's
cost of power because Seabrook costs are spread over fewer kWhs.

  Expenses

     BayCorp's total operating expenses for 2000 increased $21.4 million, or
47%, in comparison with 1999. This increase was primarily the result of the
non-cash charge to earnings for unrealized losses on firm energy trading
contracts. Unrealized losses for firm energy trading contracts was $12,232,000
for 2000 as compared to $806,000 for 1999. 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 98-10"). EITF
98-10 is effective for fiscal years beginning after December 15, 1998. EITF
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 were reported as a cumulative

                                        17
<PAGE>   19

effect of a change in accounting principle. Financial statements for periods
prior to initial adoption of EITF 98-10 were not restated. The cumulative effect
of this accounting change as of January 1, 1999 was an increase in net income of
approximately $159,000 to recognize gains on net open physical purchase and
sales commitments considered to be trading activity.

     Production costs increased approximately $6.8 million, or 37.3%, from
$18,220,000 in 1999 to $25,016,000 in 2000. This increase was primarily the
result of the Company's increased ownership in the Seabrook Project, from
approximately 12.1% for the first eleven months of 1999 to approximately 15% for
December 1999 and all of 2000. In addition, the increase in operating expenses
in 2000 as compared to 1999 was attributable to the costs associated with the
extended refueling outage in the fourth quarter of 2000. Purchased power
expenses increased approximately $1 million, or 8.5%, from $12,232,000 in 1999
to $13,270,000 in 2000. This increase was primarily attributable to an increase
in the purchase price of power in 2000 as compared to 1999. Purchased power
expenses have increased primarily because Great Bay purchased power in 2000 and
1999 in the open market to resell to third parties and to cover firm sales
during scheduled and unscheduled outages in 2000 and 1999. 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 scheduled and
unscheduled outages may increase.

     Administrative and general expenses increased approximately $666,000, or
9.9%, from $6,706,000 in 1999 to $7,372,000 in 2000. Depreciation and
amortization increased approximately $336,000, or 8.8%, from $3,823,000 in 1999
to $4,159,000 in 2000. These increases were primarily attributable to the
increased ownership in the Seabrook Project in 2000 as compared to 1999. Taxes
other than income increased approximately $972,000, or 32.8%, from $2,966,000 in
1999 to $3,938,000 in 2000. In addition to expenses increasing as a result of
the Company's increased ownership in the Seabrook Project, Great Bay also
received a property tax refund in 1999 as settlement for changes in assessed
property values.

     Interest income increased approximately $514,000, or 79.3%, from $648,000
in 1999 to $1,162,000 in 2000, primarily due to higher average cash balances
during 2000 as compared to 1999. Decommissioning cost accretion increased
$313,000, or 9.4%, to $3,633,000 in 2000 as compared to $3,320,000 in 1999. 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 $971,000, or 128%, to
$1,726,000 in 2000 as compared to $755,000 in 1999. The increase in interest
earned on the decommissioning trust fund reflected the higher 2000 fund balances
as Great Bay continued to make contributions to the Great Bay decommissioning
trust fund and the addition of the Little Bay decommissioning trust funds in
2000. Other Income increased approximately $443,000, or 143%, to $753,000 in
2000 as compared to $310,000 in 1999, primarily due to miscellaneous sales of
Unit 2 equipment at Seabrook.

     Equity loss in HoustonStreet investment was $4,352,000 in 2000 and
$3,396,000 in 1999. As of December 31, 1999, the Company owned 100% of
HoustonStreet. The Company recognized its ownership share of HoustonStreet's
losses, $3,396,000, for 1999. HoustonStreet raised additional equity in 2000
from outside investors and as a result, as of December 4, 2000, the Company's
ownership fell below 50%, to 45.9%. Subsequently, the Company deconsolidated
HoustonStreet as of December 4, 2000 and started accounting for this investment
on the equity method. The net financial impact of this deconsolidation was
$4,352,000, recorded in 2000 (see Note 12. Investment in Unconsolidated
Affiliates.)

     BayCorp's total operating expenses for 1999 increased $8.3 million, or
22.3%, in comparison with 1998. This increase was primarily the result of
purchased power costs in 1999. Purchased power increased approximately
$11,186,000, from $1,069,000 in 1998 to $12,232,000 in 1999. Purchased power
expenses have increased primarily because Great Bay purchased power in 1999 in
the open market to resell to third parties and to cover firm sales during
unscheduled outages in 1999. Production costs decreased approximately $2.6
million, or 12.3%, from $20.8 million in 1998 to $18.2 million in 1999. This
decrease was primarily the result of fewer unscheduled outage days in 1999
compared to 1998. Administrative and general expenses decreased approximately
$1.3 million, or 16%, from $7,988,000 in 1998 to $6,706,000 in 1999.
Depreciation and amortization decreased approximately $167,000, or 4.6%, from
$3,656,000 in 1998 to $3,823,000 in 1999.

                                        18
<PAGE>   20

     In 1999, the Company recognized $806,000 in unrealized losses on firm
energy trading contracts. There was no comparable charge in 1998. The effects of
initial application of EITF 98-10 were reported as a cumulative effect of a
change in accounting principle. Financial statements for periods prior to
initial adoption of EITF 98-10 were not restated.

     Other Deductions increased $3.5 million, or 235%, in 1999 as compared to
1998. This increase was primarily attributable to the equity loss in
HoustonStreet investment in 1999. There was no HoustonStreet investment in 1998.
Decommissioning cost accretion increased $447,000, or 15.6%, to $3.3 million in
1999 as compared to $2.9 million in 1998. Decommissioning trust fund income
increased $142,000, or 23.2%, to $755,000 in 1999 as compared to $613,000 in
1998. The increase in interest earned on the decommissioning trust fund
reflected the higher 1999 fund balance as Great Bay continued to make
contributions to the decommissioning trust fund.

  Net Operating Losses

     For federal income tax purposes, as of December 31, 2000, the Company had
net operating loss carry forwards ("NOLs") of approximately $225 million, which
are scheduled to expire between 2005 and 2019. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $131 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$131 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 $94 million of NOLs are not currently
subject to such limitations.

LIQUIDITY AND CAPITAL RESOURCES

     BayCorp's subsidiary, Great Bay, currently sells most of its power in the
Northeast United States short-term wholesale power market. The cash generated
from electricity sales by Great Bay was sufficient to meet the Company's ongoing
cash requirements in 2000. If the Seabrook Project operates at a capacity factor
below historical levels, or if expenses associated with the ownership or
operation of the Seabrook Project, including without limitation decommissioning
costs, are materially higher than anticipated, or if the prices at which Great
Bay is able to sell its share of the Seabrook Project electricity decrease from
current price levels, BayCorp or Great Bay would be required to raise additional
capital, either through a debt financing or an equity financing, to meet ongoing
cash requirements. Nonetheless, there can be no assurance that BayCorp or Great
Bay will be able to raise additional capital on acceptable terms or at all.

     During 2000, the Company loaned $7,000,000 to HoustonStreet. Due to the
continuous losses at HoustonStreet, the Company wrote down its equity investment
in HoustonStreet and subsequently its loan and receivable from HoustonStreet. As
of December 31, 2000, the Company had no investments or receivables from
HoustonStreet recognized on its balance sheet.

     BayCorp's total cash and short term investments increased approximately
$8.2 million during 2000. Liquidity improved principally because BayCorp's
operating revenues exceeded its cash operating expenses in 2000. Operating
expenses consist of both cash and non-cash charges. The Company had a net loss
for 2000 of approximately $15.7 million. This loss included a non-cash charge to
income in 2000 of approximately $12.2 million for unrealized losses on firm
energy trading contracts. Other non-cash charges to income included $4.3 million
for the equity loss in HoustonStreet, $4.2 million for depreciation and
amortization, $4.8 million for nuclear fuel amortization and $3.6 million for
decommissioning trust fund accretion. A decrease in prepaids and other assets of
approximately $1.9 million was primarily due to the timing of funding as
requested by Seabrook for operating expenses. There was an increase in accounts
payable of approximately $7.2 million primarily due to purchased power expenses
of $6.6 million for November and December 2000. Offsetting these non-cash
charges to income were cash charges to income including a $5.5 million increase
in December 2000 accounts receivable. Other cash charges included approximately
$2.1 million for capital expenditures and $6.8 million for nuclear fuel.

                                        19
<PAGE>   21

     Great Bay's 2000 decommissioning payments totaled approximately $1.8
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 decommissioning payments.
See "Business -- Decommissioning."

     Great Bay and Little Bay anticipate that their share of the Seabrook
Project's capital expenditures for the 2001 fiscal year will total approximately
$6.8 million for nuclear fuel and various capital projects. In addition, Great
Bay and Little Bay are required under the JOA to pay their share of Seabrook
Unit 1 and Seabrook Unit 2 expenses, including, without limitation, operation
and maintenance expenses, construction and nuclear fuel expenditures and
decommissioning costs, regardless of the level of Seabrook Unit 1's operations.

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

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

     The Company's principal asset available to serve as collateral for
borrowings is Great Bay's and Little Bay's combined 15% interest in the Seabrook
Project. Pursuant to a purchased power agreement, dated as of April 1, 1993,
between Great Bay and UNITIL, Great Bay's interest in the Seabrook Project is
encumbered by a mortgage. This mortgage may be subordinated to up to $80 million
of senior secured financing. Also, as noted above, in order to collateralize the
transaction with Select, Great Bay and Little Bay each provided Select with a
mortgage lien and security interest in their respective interests in the
Seabrook Project. See "Business -- Purchased Power Agreements."

     Seabrook Unit 1 transmits its generated power to the New England 345
kilovolt transmission grid, a major network of interconnecting lines covering
New England, through three separate transmission lines emanating from the
station. On March 5, 2001, the Seabrook Project began experiencing interruptions
of the connections to the transmission system due to icing from a severe winter
storm that resulted in the plant automatically tripping offline. During this
shutdown, a problem was identified with the steam-driven emergency feedwater
pump and plant chemistry personnel detected the presence of chlorides in the
condenser hotwells, indicating leakage of seawater into the condenser. Repair of
the emergency feedwater pump were completed allowing the plant to return on-line
on March 15, 2001. Power was limited to approximately 70% while plant personnel
continued to repair the condenser leakage. On March 19, 2001, plant operators
identified a problem with the main turbine valve control system requiring that
the plant be taken off-line. After repairs were completed, the plant was placed
on-line on March 22, 2001 and power was increased to approximately 70%. The
plant reached full power on March 25, 2001.

     Management believes the plant will operate at historical levels and
believes that it will be able to fulfill its obligations with respect to the
agreement with Select. As mentioned previously, if this does not happen, the
company will be required to raise additional funding.

     The Company expects that HoustonStreet expenses and capital expenditures
will substantially exceed HoustonStreet's revenues until late in 2001.
HoustonStreet raised approximately $37.4 million from investors to date.

                                        20
<PAGE>   22

     On March 22, 2001, HoustonStreet received commitments to receive up to
approximately $3.9 million in additional funding, including $900,000 from
BayCorp. Although HoustonStreet has received some of the funding, until the
closing of the financing, there can be no assurance that HoustonStreet will
receive the balance of the committed funds. This financing involves the sale by
HoustonStreet of senior secured notes, warrants to purchase HoustonStreet
preferred stock and warrants to purchase HoustonStreet common stock.

     In March 2001, BayCorp entered into discussion with HoustonStreet involving
the conversion of BayCorp's $7.0 million loan made in September 2000, together
with approximately $1.0 million in accrued interest and penalties on the note
and past due management fees, into approximately $8.0 million of HoustonStreet
Series C Units. There can be no assurance that this proposed financing will be
successfully completed. The loan, accrued interest and receivables from
HoustonStreet had been written down to zero at December 31, 2000, and as such,
the conversion of these amounts will have no accounting impact.

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 its subsidiaries to differ materially from those indicated by
such forward-looking statements. These factors include, without limitation,
those set forth below and elsewhere in this Annual Report.

  History of Losses

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

  Liquidity Needs

     As of December 31, 2000, BayCorp had approximately $14.1 million in cash
and cash equivalents, restricted cash and short-term investments. The Company
believes that such cash, together with the anticipated proceeds from the sale of
electricity by Great Bay and Little Bay, will be sufficient to enable the
Company and its wholly-owned subsidiaries to meet their cash requirements in
2001. However, if in 2001 or thereafter, 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 prices
at which Great Bay and Little Bay are able to sell their share of the Seabrook
Project electricity decrease from current price levels, the Company or its
wholly-owned subsidiaries would be required to raise additional capital, either
through a debt financing or an equity financing, to meet ongoing cash
requirements. In any event, the Company and its wholly-owned subsidiaries will
likely need to raise additional capital from outside sources. There is no
assurance that the Company or its subsidiaries would be able to raise such
capital or that the terms on which any additional capital is available would be
acceptable. If additional funds are raised by issuing equity securities,
dilution to then existing stockholders will result.

  Factors Related to Great Bay and Little Bay

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

                                        21
<PAGE>   23

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

     Changes in the New England Wholesale Power Market.  During recent years in
New England, the combination of (1) small increases in the demand for
electricity and (2) electric industry deregulation has resulted in increased
uncertainty regarding the price of electricity in the wholesale power market.
Although Great Bay's average selling price per kWh (determined by dividing total
sales revenue by the total number of kWhs sold in the applicable period)
increased from 3.04 cents in 1998 to 3.13 cents in 1999 and to 3.87 cents in
2000, there can be no assurance that Great Bay or Little Bay will be able to
sell their power at these prices or higher prices in the future.

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

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

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

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

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

                                        22
<PAGE>   24

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

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

     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 the Joint Owners 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 -- Wholesale
Electricity Generation and Trading Business -- Nuclear Waste Disposal."

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

                                        23
<PAGE>   25

  Factors Related to HoustonStreet

     Need for Additional Financing.  Based on current levels of operations and
planned growth, HoustonStreet's management anticipates that the net proceeds
from sales of its stock and other securities, from commitments for further cash
investments based on HoustonStreet's meeting certain performance goals and from
cash generated from operations will be sufficient to meet HoustonStreet's needs
through December 2001. If HoustonStreet is unable to close the sale of its
Series C Units, requires additional funding or determines that it is appropriate
to raise additional funding, HoustonStreet may be unable to raise additional
funds. Further, any such funding may result in significant dilution to existing
HoustonStreet stockholders, including BayCorp. The inability to obtain
sufficient funds from operations and external sources when needed would have a
material adverse effect on HoustonStreet's business, results of operations and
financial condition.

     Limited Operating History.  HoustonStreet was incorporated in Delaware on
April 27, 1999. HoustonStreet initially launched its online electricity trading
platform in the Northeast on July 8, 1999 and nationwide on September 13, 1999.
HoustonStreet launched its online oil trading floor on May 18, 2000.
HoustonStreet has only a limited operating history upon which to evaluate its
performance.

     Significant Future Losses Expected.  HoustonStreet's business is subject to
the risks and uncertainties encountered by companies in early stages of
development, particularly enterprises in new and rapidly evolving markets, such
as electronic trading of energy products over the Internet. HoustonStreet's
substantial operating expenses and capital expenditures from formation to date
have greatly exceeded its revenues over the same period. HoustonStreet expects
to continue to incur substantial operating losses until later in 2001. However,
there is no assurance that HoustonStreet will be able to achieve or sustain
profitability in 2001 or thereafter.

     Internet-based Wholesale Energy Trading is a New and Evolving
Market.  Wholesale trading of energy products over the Internet is a new and
rapidly evolving market. HoustonStreet cannot be certain that a viable market
will emerge or be sustainable. If the market for Internet-based wholesale energy
trading fails to develop, if it develops more slowly than expected, if it
becomes saturated with competitors or if it does not achieve widespread market
acceptance, HoustonStreet would be materially adversely affected.

     Dependence on Internet-based Wholesale Energy Trading.  Substantially all
of HoustonStreet's revenues depend on the continued and expanded use of
Internet-based wholesale energy trading platforms. HoustonStreet currently
depends on its wholesale crude and refined oil trading platform for
substantially all of its current revenues. During 2000, approximately 45% of
HoustonStreet's revenue consisted of commission on wholesale electricity trading
and the other 55% of HoustonStreet's revenue consisted of commissions on
wholesale crude oil and refined products trading. From January 1, 2001 to March
15, 2001, nearly all of HoustonStreet's revenue was generated by commissions on
wholesale crude and refined products. HoustonStreet will likely depend on other
energy trading platforms, including platforms for natural gas trading, if
planned expansion is successful.

     Businesses have only recently begun significant use of the Internet for
electronic commerce. Although Internet usage has grown dramatically,
HoustonStreet cannot assure you that usage will continue to increase for
commerce or trading wholesale energy products. A decrease in the use of the
Internet or a reduction in the currently anticipated growth in the use of the
Internet would have a material adverse effect on HoustonStreet. Businesses may
reject the Internet as a viable commercial medium for a number of reasons,
including potentially inadequate network infrastructure, slow development of
enabling technologies, insufficient commercial support or privacy concerns. The
Internet's infrastructure may be unable to support the demands placed on it by
increased usage. In addition, delays in developing or adopting new standards and
protocols required to handle increased levels of Internet activity, or increased
government regulation, could cause the Internet to lose its viability as a
commercial medium.

     Dependence on Trading Liquidity.  HoustonStreet will need to achieve
trading liquidity on its Internet-based wholesale energy trading exchange in
order to increase and sustain revenues. If the volume and level of trades on the
exchange do not increase, HoustonStreet will not achieve profitability. If
HoustonStreet fails to register additional users or generate increased traffic
on its Web site, the number of trades completed on the

                                        24
<PAGE>   26

exchange may not increase. If the number, size and frequency of transactions do
not increase, HoustonStreet will be unable to increase its revenues and
HoustonStreet's business will not achieve profitability.

     Dependence on Increased Business from Unaffiliated Customers.  If
HoustonStreet fails to grow its customer base or generate repeat and expanded
business from customers that are not affiliated with HoustonStreet,
HoustonStreet will be unable to achieve or sustain profitability. During 2000,
Equiva Trading Company, the oil trading alliance of Shell Oil Company, Texaco
and Saudi Aramco, was a party to 56% of all crude and refined oil trades on
HoustonStreet. In addition, Sithe Energies, Inc. was a party to 47% of all
electricity trades on HoustonStreet. HoustonStreet earns standard commissions
from all trades on HoustonStreet, including trades by Equiva Trading Company and
Sithe Energies, Inc. and its counterparties. Equiva Trading Company and Sithe
Energies, Inc. have made private investments in HoustonStreet and are holders of
HoustonStreet capital stock. To date, a substantial majority of HoustonStreet's
revenue has been derived from commissions from trades involving affiliated
parties and their counterparties.

     HoustonStreet's management expects that commissions from trades involving
affiliated parties and their counterparties will be a less significant portion
of revenue in the future as the number of registered traders and the volume of
trades increases. If trading volume does not increase as anticipated,
HoustonStreet's revenue will not increase and HoustonStreet's business and
financial results will be materially adversely affected.

     Reliance on Strategic Relationships.  HoustonStreet may be unable to
implement its strategic growth plans without successfully identifying, forming,
maintaining and enhancing strategic relationships, such as its strategic
relationship with Equiva. HoustonStreet's ability to achieve significant future
revenue growth will depend in part on adding new strategic partners. If
HoustonStreet is unable to form or successfully develop additional strategic
relationships, HoustonStreet may be unable to grow its revenues and
HoustonStreet could be materially adversely affected.

     International Expansion.  HoustonStreet currently has foreign subsidiary
offices located in Amsterdam and London. HoustonStreet expects to continue
expanding its international presence. If HoustonStreet is unable to expand its
international presence further, HoustonStreet may be unable to take advantage of
the potential revenue associated with energy trading on a global level. While
HoustonStreet's management believes that HoustonStreet can become profitable if
its services are widely adopted by power traders in the United States, the
global energy market represents a much larger source of revenue.

     To be successful, HoustonStreet's management believes that HoustonStreet
must expand further its operations in international markets. International
operations subject HoustonStreet to a number of risks that may increase
HoustonStreet's costs and require significant management attention. These risks
include:

        - difficulties and increased expenses associated with staffing and
          managing foreign operations,

        - differing technology standards that may impede HoustonStreet's ability
          to integrate its trading platforms across international borders,

        - reluctance or inability of energy traders abroad to accept
          Internet-based wholesale energy trading as a method of conducting
          business,

        - changes in regulatory requirements,

        - currency exchange rate fluctuations, and

        - potentially adverse tax consequences, including restrictions on the
          repatriation of earnings.

     Regulatory Risks and Privacy Concerns.  As use of the Internet evolves,
federal, state and foreign agencies could adopt regulations covering issues such
as user privacy, content and taxation of products and services. If enacted,
government regulations could limit the market for HoustonStreet's services.

     In order to use HoustonStreet's trading exchange, traders must first
register with HoustonStreet. The registration process requires that users
provide certain information about themselves and the companies for which they
trade. Although HoustonStreet collects this data only with the consent of a
visitor, privacy concerns may cause visitors to resist registering to use the
exchange. In addition, legislative or regulatory

                                        25
<PAGE>   27

requirements may heighten privacy concerns. Other countries and political
entities, such as the European Economic Community, have adopted legislation or
regulatory requirements relating to privacy. The United States may adopt similar
legislation or regulatory requirements. If privacy legislation is enacted or
privacy concerns are not adequately addressed, HoustonStreet's business could be
materially adversely affected.

     Unpredictability of Future Revenues; Potential Fluctuation in Quarterly
Operating Results.  As a result of HoustonStreet's limited operating history and
the emerging nature of the market for Internet-based trading of wholesale energy
products, HoustonStreet is unable to forecast its revenues accurately.
HoustonStreet expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside HoustonStreet's control. These factors include the demand for
HoustonStreet's trading services, the introduction and market acceptance of new
services in the industry, reductions in trading commissions or changes in how
services are priced, and the amount and timing of operating costs and capital
expenditures related to expanding HoustonStreet's business, operations and
infrastructure. Quarterly results also can be affected by changes in the use of
the Internet and electronic commerce, changes in governmental regulations, and
changes in general economic conditions and economic conditions specifically
related to the Internet and energy trading markets.

     In addition, trading volumes can fluctuate due to the seasonal nature of
the wholesale electricity trading market. Typically, there are substantial
declines in the volume of wholesale electricity trading during the fourth
quarter of the calendar year. HoustonStreet's management believes that fourth
quarter trading can be adversely affected by seasonal trading patterns, the
inclination of some utilities, independent power producers and power marketers
to maintain existing trading positions near year-end and other factors.

     It is difficult to forecast the effect such factors, or the combination of
any of these factors, would have on HoustonStreet's results of operations for
any given fiscal quarter. HoustonStreet's management believes that
HoustonStreet's quarterly revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied on as indications of future performance.

     System Maintenance and Protection.  Unanticipated problems at the third
party facility that houses substantially all of HoustonStreet's computer and
communications hardware systems could cause interruptions or delays in
HoustonStreet's business, loss of data or render HoustonStreet unable to process
wholesale energy trades. Any such interruptions or delays at the facility would
harm HoustonStreet's revenue and results of operations. In addition, these
third-party systems and operations are vulnerable to damage or interruption from
intentional malicious acts, fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. HoustonStreet does not carry business
interruption insurance. In addition, the failure by the third-party facility to
provide the data communications capacity required by HoustonStreet, as a result
of human error, natural disaster or other operational disruptions, could result
in interruptions in HoustonStreet's service. The occurrence of any or all of
these events could harm HoustonStreet's reputation and brand and business.

     Traders on the HoustonStreet.com may also be harmed by any system or
equipment failures experienced by HoustonStreet. In that event, HoustonStreet's
relationship with these traders may be adversely affected, HoustonStreet may
lose traders, HoustonStreet's ability to attract new users may be adversely
affected and HoustonStreet could be exposed to liability.

     If users of HoustonStreet's trading platform suffer similar interruptions
in their operations, for any of the reasons discussed above or for other
reasons, HoustonStreet's business could also be adversely affected. In addition,
if traders' computer systems suffer interruptions, the link to HoustonStreet's
Web site could be severed and the traders' wholesale energy trades could be
delayed or stopped.

     Rapid Technological Change.  To remain competitive, HoustonStreet must
continue to enhance and improve its services. The Internet is characterized by
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new

                                        26
<PAGE>   28

technologies and the emergence of new industry standards and practices.
HoustonStreet's success will depend, in part, on its ability to:

        - develop leading Internet-based technologies useful for wholesale
          energy trading,

        - enhance its existing services,

        - develop new services and technology that address the increasingly
          sophisticated and varied needs of wholesale energy traders, and

        - respond to technological advances and emerging industry standards and
          practices on a cost-effective and timely basis.

     HoustonStreet would be materially adversely affected if it is unable, for
technical, legal, financial or other reasons, to adapt in a timely manner to
changing market conditions or customer requirements.

     Intense Competition.  Wholesale energy trading markets are dynamic and
intensely competitive. Competition is likely to increase in the future as new
companies enter the market and current competitors expand their products and
services. See "Business -- Internet-based Energy Trading and Information
Business -- Competition." Many of these potential competitors are likely to
enjoy substantial competitive advantages, including:

        - larger technical, production and marketing staffs,

        - a more established presence in the wholesale energy trading community,

        - greater brand recognition, and

        - substantially greater financial, marketing, technical and other
          resources.

     If HoustonStreet does not compete effectively or if it experiences pricing
pressures, reduced margins or loss of market share resulting from increased
competition, HoustonStreet's business would be materially adversely affected.

     Dependence on Management and Key Employees.  HoustonStreet is, and for the
foreseeable future will be, dependent upon the services of its directors,
executive officers and key employees. HoustonStreet's future success depends on
its ability to identify, attract, hire, train, retain and motivate highly
skilled technical, managerial, marketing, sales and customer service personnel.
The loss of the services of current key personnel and the failure to hire new
personnel could have a material adverse effect upon HoustonStreet's results of
operations, product development efforts and ability to grow.

     In 2000, each of BayCorp and HoustonStreet entered into a new employment
agreement with Frank W. Getman Jr. Mr. Getman serves as the President and Chief
Executive Officer of each company and is separately compensated by each company.
Although HoustonStreet purchased key man term life insurance on the life of
Frank W. Getman Jr. in 2000, HoustonStreet does not plan to purchase life
insurance on the lives of any of its other key personnel.

     Management of Growth.  In 2000, HoustonStreet experienced significant
growth in its business operations. This growth placed a substantial strain on
HoustonStreet's resources. HoustonStreet's need to manage its growth
successfully will require it to implement appropriate operational, financial,
accounting and management information systems and controls. HoustonStreet's
failure to manage its growth effectively would have a material adverse effect on
HoustonStreet.

     Protection of Proprietary Rights.  HoustonStreet's ability to compete
depends significantly on the proprietary nature of its Web site technology as
well as its patent applications. HoustonStreet has filed three patent
applications to date. HoustonStreet seeks to protect its proprietary rights
through a combination of patent, copyright and trade secret law and
confidentiality agreements. However, there can be no assurance that a third
party will not misappropriate or otherwise obtain access to HoustonStreet's
proprietary technology or develop similar technology independently. Competitors
may also be able to circumvent any patents that HoustonStreet obtains.

                                        27
<PAGE>   29

     In recent years, there has been significant litigation involving patents
and other intellectual property rights. HoustonStreet could incur substantial
costs to prosecute or defend any intellectual property litigation. If
HoustonStreet litigated to enforce its rights, it would be expensive, would
divert management resources and may not be adequate to prevent the use of its
intellectual property by third parties.

     Potential Intellectual Property Infringement.  While HoustonStreet
currently is not aware that it infringes any other patents, it is possible that
HoustonStreet's technology infringes patents held by third parties. If
HoustonStreet were to be found infringing, the owner of the patent could sue
HoustonStreet for damages, prevent HoustonStreet from making, selling or using
the owner's patented technology or could impose substantial royalty fees for
those privileges.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

  COMMODITY PRICE RISK

     The prices of electricity are subject to fluctuations resulting from
changes in supply and demand. Great Bay sells a portion of its physical
electrical output through forward, fixed-price power contracts. Great Bay tracks
its market exposure for these forward contracts in a mark-to-market model that
is updated daily with current market prices and is reflected in the company's
balance sheet. See Note 5  -- Energy Marketing. The positive, or negative, value
of Great Bay's portfolio of firm power commitments represents an estimation of
the gain, or loss, that Great Bay would experience if open firm commitments were
covered at then-current market prices.

     The table below presents total megawatt-hour ("MWh") volumes and
mark-to-market values for replacing the contracts that Great Bay has entered
into as of year-end (December 31, 2000.)

<TABLE>
<CAPTION>
COMMODITY POSITION                     MWHS      CARRYING AMOUNT     FAIR VALUE
------------------                   --------    ---------------    ------------
<S>                                  <C>         <C>                <C>
Forward sales......................   877,040     ($14,076,994)     ($14,076,994)
Forward purchases..................  (157,360)       1,197,566         1,197,566
                                                  ------------      ------------
                                                  ($12,879,428)     ($12,879,428)
                                                  ============      ============
</TABLE>

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 May 2, 2001.

     (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," "-- 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
May 2, 2001.

                                        28
<PAGE>   30

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 May 2, 2001.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required under this item is incorporated herein by
reference to the section entitled "Certain Relationships and Related
Transactions" in the Company's Proxy Statement with respect to the Annual
Meeting of Stockholders to be held on May 2, 2001.

                                    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:

     On October 16, 2000, the Company filed a Current Report on Form 8-K dated
October 10, 2000 reporting that the Company, Great Bay and Little Bay agreed to
sell the interests in the Seabrook Nuclear Power Plant of Great Bay and Little
Bay by including their aggregate 15% ownership share in the upcoming sale of
Northeast Utilities' subsidiaries' shares of the Seabrook Plant.

                                        29
<PAGE>   31

                         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, 2000 and
  1999......................................................  F-2
Consolidated Statements of Income and Comprehensive Income
  --
  Years Ended December 31, 2000, December 31, 1999 and
     December 31, 1998......................................  F-3
Consolidated Statements of Changes in Stockholders' Equity
  --
  Years Ended December 31, 2000, December 31, 1999 and
     December 31, 1998......................................  F-4
Consolidated Statements of Cash Flows --
  Years Ended December 31, 2000, December 31, 1999 and
  December 31, 1998.........................................  F-5
Notes to Consolidated Financial Statements..................  F-6
</TABLE>
<PAGE>   32

                    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, 2000 and 1999, 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, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BayCorp
Holdings, Ltd. and its wholly-owned subsidiaries as of December 31, 2000 and
1999, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

                                          ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 8, 2001
(except for the matters
discussed in Note 13,
as to which the date is
March 25, 2001)

                                       F-1
<PAGE>   33

                             BAYCORP HOLDINGS, LTD.

                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  2000           1999
                                                              ------------   ------------
<S>                                                           <C>            <C>
                                         ASSETS:
Current Assets:
  Cash & Cash Equivalents...................................    $  9,071       $  3,046
  Restricted Cash -- Escrow.................................       2,016          2,503
  Short-term Investments, at market.........................       3,022            381
  Accounts Receivable.......................................       3,131          8,682
  Materials & Supplies, net.................................       4,760          4,611
  Prepayments & Other Assets................................       1,135          3,133
                                                                --------       --------
          Total Current Assets..............................      23,135         22,356
Property, Plant, & Equipment and Fuel:
  Utility Plant Assets......................................     111,491        121,043
  Non-utility Plant Assets..................................         104            104
                                                                --------       --------
          Total Property, Plant & Equipment.................     111,595        121,147
  Less: Accumulated Depreciation............................     (19,776)       (16,044)
                                                                --------       --------
       Net Property, Plant & Equipment......................      91,819        105,103
  Nuclear Fuel..............................................      18,348         20,243
  Less: Accumulated Amortization............................      (7,956)       (11,863)
                                                                --------       --------
  Net Nuclear Fuel..........................................      10,392          8,380
       Net Property, Plant & Equipment and Fuel.............     102,211        113,483
Other Assets:
  Decommissioning Trust Fund................................      28,146         24,483
  Deferred Debits & Other...................................         102              5
                                                                --------       --------
       Total Other Assets...................................      28,248         24,488
Equity Investment in HoustonStreet Exchange, Inc............          --         (3,217)
          TOTAL ASSETS......................................    $153,594       $157,110
                                                                ========       ========

                          LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
  Accounts Payable and Accrued Expenses.....................    $  8,187       $  1,098
  Miscellaneous Current Liabilities.........................      14,665          3,551
                                                                --------       --------
     Total Current Liabilities..............................      22,852          4,649
Operating Reserves:
  Decommissioning Liability.................................      71,618         79,443
  Miscellaneous Other.......................................         470            545
                                                                --------       --------
     Total Operating Reserves...............................      72,088         79,988
Other Liabilities & Deferred Credits........................       7,115          6,227
Commitments & Contingencies
Stockholders' Equity:
  Common stock, $0.01 par value
     Authorized -- 20,000,000 shares; issued and
     outstanding -- 8,519,316 at December 31, 2000 and
     8,417,800 at December 31, 1999.........................          86             84
  Less: Treasury Stock -- 185,052 shares, at cost...........      (1,396)        (1,396)
  Additional Paid-in Capital................................      92,934         92,295
  Accumulated Other Comprehensive Income....................         318             (3)
  Accumulated Deficit.......................................     (40,403)       (24,734)
                                                                --------       --------
       Total Stockholders' Equity...........................      51,539         66,246
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........    $153,594       $157,110
                                                                ========       ========
</TABLE>

(The accompanying notes are an integral part of these consolidated statements.)
                                       F-2
<PAGE>   34

                             BAYCORP HOLDINGS, LTD.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                            YEARS ENDED DECEMBER 31,
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                             2000          1999          1998
                                                          ----------    ----------    ----------
<S>                                                       <C>           <C>           <C>
Operating Revenues......................................  $   56,347    $   45,731    $   32,034
Operating Expenses:
  Production............................................      25,016        18,220        20,775
  Transmission..........................................       1,073           873           880
  Purchased Power.......................................      13,270        12,232         1,046
  Unrealized Loss on Firm Energy Trading Contracts......      12,232           806             0
  Administrative & General..............................       7,372         6,706         7,988
  Depreciation & Amortization...........................       4,159         3,823         3,656
  Taxes Other than Income...............................       3,938         2,966         2,965
                                                          ----------    ----------    ----------
     Total Operating Expenses...........................      67,060        45,626        37,310
Operating Loss..........................................     (10,713)          105        (5,276)
Other Income:
  Interest and Dividend Income..........................      (1,162)         (647)         (938)
  Decommissioning Cost Accretion........................       3,633         3,320         2,873
  Decommissioning Trust Fund Income.....................      (1,726)         (755)         (613)
  Equity Loss in HoustonStreet Investment...............       4,352         3,396            --
  Other (Income) Deductions.............................        (753)         (310)          171
                                                          ----------    ----------    ----------
     Total Other Deductions.............................       4,344         5,004         1,493
Loss Before Income Taxes and Accounting Change..........     (15,057)       (4,899)       (6,769)
Provision for Income Taxes..............................        (612)           --            --
                                                          ----------    ----------    ----------
Loss Before Change in Accounting Principle..............     (15,669)       (4,899)       (6,769)
Cumulative Effect of Change in Accounting Principle.....          --           159            --
                                                          ----------    ----------    ----------
Net Loss................................................     (15,669)       (4,740)       (6,769)
Other Comprehensive Income (Expense), net of tax........         321          (568)          449
                                                          ----------    ----------    ----------
Comprehensive Loss......................................  $  (15,348)   $   (5,308)   $   (6,320)
                                                          ==========    ==========    ==========
Weighted Average Shares Outstanding.....................   8,293,475     8,207,866     8,242,858
Basic and Diluted Net Loss per Share....................  $    (1.89)   $    (0.58)   $    (0.82)
</TABLE>

(The accompanying notes are an integral part of these consolidated statements.)
                                       F-3
<PAGE>   35

                             BAYCORP HOLDINGS, LTD.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                       COMMON
                                  STOCK, $0.01 PAR
                                        VALUE
                              -------------------------         LESS:
                                                              TREASURY                      ACCUMULATED
                              ISSUED AND    ISSUED AND          STOCK         ADDITIONAL       OTHER
                              OUTSTANDING   OUTSTANDING   -----------------    PAID-IN     COMPREHENSIVE    RETAINED
                                SHARES        AMOUNT      SHARES    AMOUNT     CAPITAL        INCOME        EARNINGS
                              -----------   -----------   -------   -------   ----------   -------------   -----------
<S>                           <C>           <C>           <C>       <C>       <C>          <C>             <C>
Balance at December 31,
  1997......................   8,417,800        $84       145,000   $(1,168)   $92,100         $ 116        $(12,992)
  Treasury Stock -- at
    cost....................          --         --        40,052      (228)        --            --              --
  Shares Retired............     (40,800)        --            --        --         --            --            (233)
  Net Change in Unrealized
    Holding Gain............          --         --            --        --         --           449              --
  Financial Results, January
    1 to December 31,
    1998....................          --         --            --        --         --            --          (6,769)
                               ---------        ---       -------   -------    -------         -----        --------
Balance at December 31,
  1998......................   8,377,000        $84       185,052   $(1,396)   $92,100         $ 565        $(19,994)
  Stock Options Exercised...      40,000         --            --        --        195            --              --
  Net Change in Unrealized
    Holding Loss............          --         --            --        --         --          (568)             --
  Financial Results, January
    1 to December 31,
    1999....................          --         --            --        --         --            --          (4,740)
                               ---------        ---       -------   -------    -------         -----        --------
Balance at December 31,
  1999......................   8,417,000        $84       185,052   $(1,396)   $92,295         $  (3)       $(24,734)
  Stock Options Exercised...     102,316          2            --        --        534            --              --
  Other Incentive Stock
    Option Transactions.....          --         --            --        --        105            --
  Net Change in Unrealized
    Holding Gain............          --         --            --        --         --           321              --
  Financial Results, January
    1 to December 31,
    2000....................          --         --            --        --         --            --         (15,669)
                               ---------        ---       -------   -------    -------         -----        --------
Balance at December 31,
  2000......................   8,519,316        $86       185,052   $(1,396)   $92,934         $ 318        $(40,403)
                               =========        ===       =======   =======    =======         =====        ========

<CAPTION>

                                  TOTAL
                              STOCKHOLDERS'
                                 EQUITY
                              -------------
<S>                           <C>
Balance at December 31,
  1997......................     $78,140
  Treasury Stock -- at
    cost....................        (228)
  Shares Retired............        (233)
  Net Change in Unrealized
    Holding Gain............         449
  Financial Results, January
    1 to December 31,
    1998....................      (6,769)
                                 -------
Balance at December 31,
  1998......................     $71,359
  Stock Options Exercised...         195
  Net Change in Unrealized
    Holding Loss............        (568)
  Financial Results, January
    1 to December 31,
    1999....................      (4,740)
                                 -------
Balance at December 31,
  1999......................     $66,246
  Stock Options Exercised...         536
  Other Incentive Stock
    Option Transactions.....         105
  Net Change in Unrealized
    Holding Gain............         321
  Financial Results, January
    1 to December 31,
    2000....................     (15,669)
                                 -------
Balance at December 31,
  2000......................     $51,539
                                 =======
</TABLE>

(The accompanying notes are an integral part of these consolidated statements.)
                                       F-4
<PAGE>   36

                             BAYCORP HOLDINGS, LTD.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            YEARS ENDED DECEMBER 31,
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999        1998
                                                              --------    -------    --------
<S>                                                           <C>         <C>        <C>
Net cash flow from operating activities:
  Net Loss..................................................  $(15,669)   $(4,740)   $ (6,769)
  Adjustments to reconcile net earnings to net cash
     provided by operating activities:
     Equity loss in HoustonStreet investment................     4,352      3,396          --
     Depreciation and Amortization..........................     4,159      3,787       3,656
     Stock compensation expense.............................       105         --          --
     Amortization of nuclear fuel...........................     4,791      4,032       4,104
     Unrealized loss on energy contracts....................    12,232        647          --
     Decommissioning trust accretion........................     3,633      3,320       2,873
     Decommissioning trust interest.........................    (1,604)      (670)       (617)
     (Increase) decrease in accounts receivable.............     5,550     (5,631)     (2,586)
     (Increase) decrease in materials & supplies............      (373)      (160)          4
     (Increase) decrease in prepaids and other assets.......     1,900         60      (1,607)
     Increase in accounts payable...........................     7,202        160         124
     Increase in taxes accrued..............................       612         --          --
     Increase (decrease) in misc. current liabilities.......    (1,003)       116       2,167
     Other..................................................        --         --         374
                                                              --------    -------    --------
Net cash provided by operating activities...................    25,887      4,317       1,723
Net cash flows from investing activities:
  Capital additions.........................................    (2,108)    (1,797)     (2,700)
  Nuclear fuel additions....................................    (6,803)    (1,999)     (4,314)
  Acquisition of additional Seabrook Project interest.......        --     (4,913)         --
  Payments to decommissioning fund..........................    (1,763)    (1,696)     (1,343)
  Short-term investments, net...............................    (2,641)     9,063       6,384
                                                              --------    -------    --------
Net cash used in investing activities.......................   (13,315)    (1,342)     (1,973)
Net cash from financing activities:
  Investment in HoustonStreet...............................    (7,570)      (180)         --
  Stock option exercise.....................................       536        195          --
  Reacquired capital stock..................................        --         --        (461)
                                                              --------    -------    --------
Net cash provided by (used in) financing activities.........    (7,034)        15        (461)
Net increase (decrease) in cash and cash equivalents........     5,538      2,990        (711)
Cash and cash equivalents, beginning of period..............     5,549      2,559       3,270
                                                              --------    -------    --------
Cash and cash equivalents, end of period....................  $ 11,087    $ 5,549    $  2,559
                                                              ========    =======    ========
</TABLE>

(The accompanying notes are an integral part of these consolidated statements).
                                       F-5
<PAGE>   37

                             BAYCORP HOLDINGS, LTD.

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 2000

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.  THE COMPANY

     BayCorp Holdings, Ltd. ("BayCorp" or the "Company") is a holding company
incorporated in Delaware in 1996. BayCorp has two wholly-owned subsidiaries that
generate and trade wholesale electricity, Great Bay Power Corporation ("Great
Bay") and Little Bay Power Corporation ("Little Bay"). In addition, BayCorp owns
a 45.9% equity interest in HoustonStreet Exchange, Inc. ("HoustonStreet"), an
Internet-based energy trading and information business. The Company accounts for
HoustonStreet under the equity method.

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

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

     On November 19, 1999, Little Bay purchased a 2.9% interest in the Seabrook
Project from Montaup Electric Company ("Montaup") for a purchase price of $3.2
million, plus approximately $1.7 million of certain prepaid items (see N.
Acquisitions.)

     On October 10, 2000, the Company entered into an agreement with Northeast
Utilities ("NU") under which the Company's generating subsidiaries, Great Bay
and Little Bay, will include their aggregate 15% ownership share of Seabrook in
the upcoming auction of NU's subsidiaries' shares of the Seabrook plant. Under
the terms of the agreement, BayCorp will receive the sales price established by
the auction process. In the event that the sale yields proceeds for BayCorp of
more than $87.2 million, BayCorp and NU will share the excess proceeds. Should
BayCorp's sales proceeds be less than $87.2 million, NU will make up the
difference below that amount on a dollar for dollar basis up to a maximum of
$17.4 million. Under the agreement, BayCorp will be paid separately for nuclear
fuel and inventory. The agreement also limits any top-off amount required to be
funded by BayCorp for decommissioning as part of the sale process at the amount
required by the Nuclear Regulatory Commission ("NRC") regulations. The auction
is expected to begin in the second quarter of 2001 with a closing expected in
the first half of 2002.

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

                                       F-6
<PAGE>   38
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

     The Seabrook Project is owned by Great Bay, Little Bay and nine other
utility companies, consisting of North Atlantic Energy Company, Connecticut
Light and Power, The United Illuminating Company, Canal Electric Company,
Massachusetts Municipal Wholesale Electric Company, New England Power Company,
New Hampshire Electric Cooperative, Inc., Taunton Municipal Lighting Plant and
Hudson Light & Power Department (together with Great Bay and Little Bay, the
"Participants"). Great Bay, Little Bay and the other Participants are parties to
the Agreement for Joint Ownership, Construction and Operation of New Hampshire
Nuclear Units (the "JOA"), which establishes the respective ownership interests
of the Participants in the Seabrook Project and defines their responsibilities
with respect to the ongoing operation, maintenance and decommissioning of the
Seabrook Project. In general, all ongoing costs of the Seabrook Project are
divided proportionately among the Participants in accordance with their
ownership interests in the Seabrook Project. Each Participant is only liable for
its share of the Seabrook Project's costs and not liable for any other
Participant's share as ownership interests in the Seabrook Project are several
and not joint. Great Bay's and Little Bay's combined joint ownership interest of
15% is the third largest interest among the Participants, exceeded only by the
approximately 40% interest held by NU 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 and Little Bay's 174 MW
power supply from the Seabrook Project. Traditionally, Great Bay sold most of
its share of the Seabrook Project electricity output under unit contingent
contracts. Under unit contingent contracts, Great Bay is obligated to provide
the buyer with power only when the Seabrook Project is operating. In late 1998,
Great Bay began to sell some of its electricity as firm power, which entitles
the buyer to electricity whether or not the Seabrook Project is operating.
Buyers pay a premium for firm power over unit contingent power because they can
rely on uninterrupted electricity. In order to supply firm power during 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 has,
and may in the future 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, subject to certain
deductibles and coverage limits. This insurance, provided by ACE USA (formerly
CIGNA), currently provides Great Bay up to $18.6 million of coverage through May
2002.

     As of February 8, 2001, BayCorp had ten employees. BayCorp's subsidiaries,
Great Bay and Little Bay, had no employees.

     HoustonStreet developed and operates HoustonStreet.com, an Internet-based
trading platform and information portal for energy traders. Currently,
HoustonStreet offers online trading exchanges for electricity and crude oil and
refined products. HoustonStreet is developing an interconnection with
EnronOnline, a global Internet-based transaction system for wholesale energy and
other commodities whereby North American electricity and natural gas prices
posted on EnronOnline will automatically be posted on HoustonStreet.
HoustonStreet has continued to develop its platform for trading natural gas and
anticipates that it will launch the natural gas platform at approximately the
same time as the anticipated interconnection with EnronOnline. HoustonStreet
expects the interconnection with EnronOnline will go live in the second quarter
of 2001. BayCorp remains the largest stockholder in HoustonStreet with an equity
interest of 45.9% as of December 31, 2000.

     In September 2000, the Company loaned $7,000,000 to HoustonStreet.
HoustonStreet is still in the early stages of development, operation and
expansion and has continued to incur substantial cash deficits. During 2000,
HoustonStreet covered such deficits with third-party invested capital. As a
result of changes in market conditions, HoustonStreet had been unable to raise
additional invested capital and thus amounts loaned to HoustonStreet have not
been repaid as anticipated.

                                       F-7
<PAGE>   39
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

     On October 2, 2000, the Seabrook Project began a refueling outage with a
return to full power operation planned for November 21, 2000. The outage was
extended when damage to one of the plant's emergency diesel generators occurred,
requiring an extensive repair effort. The Seabrook Project did not return to
full power until February 1, 2001. The replacement power costs, normal operating
costs and additional costs of the extended outage significantly impacted
earnings and cash flow.

     The Seabrook outage and HoustonStreet loan impacted the Company's
unrestricted cash, which was approximately $3,500,000 as of February 8, 2001. To
deal with the adverse effects of these events the Company entered into an
agreement with Select Energy ("Select") (see Note 6) whereby Select advanced
approximately $7,000,000 to the Company. Management believes this advance will
be sufficient to solve any liquidity issues until such time as revenues are
collected from customers in April. However, if subsequent to February 2001, the
Seabrook Project operates at below historical levels or expenses associated with
the Seabrook Project are materially higher than anticipated, the Company would
be required to raise additional funds to meet ongoing cash requirements.
Management believes that they will be able to raise additional funds if
necessary, due to the expected Seabrook auction price and the related agreements
with NU.

B.  REGULATION

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

C.  USE OF ESTIMATES

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

D.  UTILITY PLANT

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

E.  DEPRECIATION

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

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

F.  AMORTIZATION OF NUCLEAR FUEL

     The cost of nuclear fuel is amortized to expense based on the rate of
burn-up of the individual assemblies comprising the total core. Great Bay and
Little Bay also provide for the cost of disposing of spent nuclear fuel at rates
specified by the United States Department of Energy ("DOE") under a contract for
disposal between

                                       F-8
<PAGE>   40
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

Great Bay and Little Bay, through their managing agent North Atlantic Energy
Service Corporation ("NAESCO"), and the DOE.

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

G.  AMORTIZATION OF MATERIALS AND SUPPLIES

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

H.  DECOMMISSIONING

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

     New Hampshire enacted a law in 1981 requiring the creation of a
state-managed fund to finance decommissioning of any nuclear units in the state.
The Seabrook Project's decommissioning estimate and funding schedule is subject
to review each year by the New Hampshire Nuclear Decommissioning Financing
Committee ("NDFC"). This estimate is based on a number of assumptions. Changes
in assumptions for such things as labor and material costs, technology,
inflation and timing of decommissioning could cause these estimates to change,
possibly materially, in the near term. During March 2000, the NDFC issued an
order that adjusted the decommissioning collection period and funding levels as
if decommissioning would begin in 2015 and the decommissioning fund would be
fully funded by 2015. The current estimated cost to decommission the Seabrook
Project (based on the NDFC Docket 2000-1, as updated by NDFC Order No. 5 in
January 2001) is approximately $609.4 million in 2001 dollars, assuming for
decommissioning funding purposes, a remaining 14-year life for the facility and
a future cost escalation rate of 4.0%.

     The Staff of the Securities and Exchange Commission ("SEC") has questioned
certain of the current accounting practices of the electric utility industry
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations and joint owners in the financial
statements of these entities. In response to these questions, the FASB agreed to
review the accounting for nuclear decommissioning costs. On February 17, 2000,
the FASB issued a "Revision of Exposure Draft issued February 7, 1996, Proposed
Statement of Financial Accounting Standards: Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." On June 30, 2000, the
respective proposed statement was issued by the FASB. The final statement is
expected to be issued by the fourth quarter of 2001. Great Bay's and Little
Bay's accounting for decommissioning is based on the FASB's original tentative
conclusions. The proposed statement requires that an obligation associated with
the retirement of a tangible long-lived asset be recognized as a liability when
incurred, and that the amount of the liability resulting from (a) the passage of
time and (b) revisions to either the timing or amount of estimated cash flows
should also be recognized. The proposed statement also requires that, upon
initial recognition of a liability for an asset retirement obligation, an entity
capitalize that cost by recognizing an increase in the carrying amount of the
related long-lived asset. Upon adoption, the proposed statement would be
effective for financial statements issued for fiscal years beginning after
December 15, 2001.

                                       F-9
<PAGE>   41
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

     The proposed statement requires the initial measurement of the liability to
be based on fair value, where the fair value is the amount that an entity would
be required to pay in an active market to settle the asset retirement obligation
in a current transaction in circumstances other than a forced liquidation or
settlement. Because in most circumstances, a market for settling asset
retirement obligations does not exist, the FASB described an expected present
value technique for estimating fair value. If the proposed statement is adopted,
Great Bay's and Little Bay's decommissioning liability and annual provision for
decommissioning accretion could change relative to 2000. Great Bay and Little
Bay have not quantified the impact, if any, that the proposed statement will
have on the consolidated financial statements.

     Great Bay and Little Bay, based on the initial exposure draft, have been
recognizing a liability based on the present value of the estimated future cash
outflows required to satisfy their obligations using a risk free rate. As of
December 31, 2000, the estimated undiscounted cash outflows for Great Bay and
Little Bay, for decommissioning, based on the March 2000 NDFC study, with
decommissioning expenditures starting in 2013 and being completed in 2042, was
$217.2 million, which discounted at an average rate of 4.75%, to December 31,
2000 represented a liability of $71.6 million reflected in the accompanying
balance sheet. As of December 31, 1999, and based on the prior NDFC study, the
estimated undiscounted cash outflows for Great Bay and Little Bay, for
decommissioning, starting in 2013 and being completed in 2039 was $253.4
million, which discounted at an average rate of 4.75%, to December 31, 1999
represented a liability of $79.4 million reflected in the accompanying
consolidated balance sheet. In accordance with the original exposure draft the
companies record any adjustments to the decommissioning liability due to changes
in estimates in the utility plant account.

     Great Bay and Little Bay accrete their share of the Seabrook Project's
decommissioning liability. This accretion is a non cash charge and recognizes
their liability related to the closure and decommissioning of their nuclear
plant in current year dollars over the licensing period of the plant. The non
cash accretion charge recorded in the accompanied consolidated statements of
income was $3,633,000, $3,320,000 and $2,873,000 for the years ended December
31, 2000, 1999 and 1998. The change in the accretion between years reflects
adjustments to the estimated decommissioning by the NDFC.

     Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The earnings on the
external trusts also accumulate in the fund balance. The trust funds are
restricted for use in paying the decommissioning of Unit 1. The investments in
the trust are available for sale. Great Bay and Little Bay have therefore
reported their investment in trust fund assets at market value and any
unrealized gains and losses are reflected in equity. There was an unrealized
holding gain of $338,100 and $42,000 as of December 31, 2000 and 1999.

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

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

     In response to the obligations imposed on the other Joint Owners under the
New Hampshire legislation, Great Bay agreed to make accelerated payments to the
Seabrook decommissioning fund such that Great Bay would 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

                                       F-10
<PAGE>   42
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

funding schedule and Great Bay's accelerated funding schedule, Great Bay's
decommissioning payments will be approximately $2.6 million in 2001 and escalate
at 4% each year thereafter through 2015. Little Bay's share of decommissioning
costs was prefunded by Montaup, the owner of the 2.9% interest in the Seabrook
Project that Little Bay acquired in November 1999. As part of that acquisition,
Montaup transferred approximately $12.4 million into Little Bay's
decommissioning account, an irrevocable trust earmarked for Little Bay's share
of Seabrook Plant decommissioning expenses. As of December 31, 2000, the fair
market value of the Little Bay decommissioning account was $13.2 million.

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

I.  OPERATING REVENUES

     Revenues are recorded on an accrual basis based on billing rates provided
for in contracts and approved by FERC. During the year ended December 31, 2000,
four customers accounted for 17%, 15%, 14% and 13% of total operating revenues.
For the year ended December 31, 1999, two customers accounted for 29%, and 24%
of total operating revenues. For the year ended December 31, 1998, three
customers accounted for 28%, 17% and 12% of total operating revenues.

J.  TAXES ON INCOME

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

K.  CASH EQUIVALENTS AND SHORT TERM INVESTMENTS

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

     All other short-term investments with a maturity of greater than three
months are classified as available for sale and reflected as a current asset at
market value. Changes in the market value of such securities are reflected in
equity. The unrealized holding loss on short-term investments was $20,100 as of
December 31, 2000 and the unrealized holding gain on short-term investments was
$44,000 as of December 31, 1999.

L.  SEABROOK UNIT 2

     Since the Seabrook Project was originally designed to consist of two
generating units, Great Bay and Little Bay also own a 15% joint ownership
interest in Seabrook Unit 2. Great Bay and Little Bay assign 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. There were no material sales of Unit 2
assets in 2000 or 1999.

     The Participants are considering plans regarding disposition of Seabrook
Unit 2, but such plans have not yet been finalized and approved. Great Bay and
Little Bay are unable to estimate the costs for which they 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. The costs associated with the
disposition of Seabrook Unit 2 are not included in the decommissioning estimate.
Great Bay and Little Bay currently pay their share of monthly expenses required
to preserve and protect the value of the Seabrook Unit 2 components. Any sales
of Unit 2 property or inventory are reflected in
                                       F-11
<PAGE>   43
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

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.

M.  SEABROOK OUTAGE COSTS

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

     Great Bay and Little Bay accrue for the incremental costs of the Seabrook
Project's scheduled outages over the periods between those outages. However,
Great Bay and Little Bay continue to expense the normal Seabrook operating and
maintenance expenses as incurred. Therefore, the Company will incur losses
during scheduled outage periods as a result of the combination of the lack of
revenue and the recognition of normal recurring operation and maintenance costs
as well as the continuing depreciation of the utility plant. At the Seabrook
Project, a scheduled refueling outage began on October 21, 2000. Seabrook
resumed full operating capacity on February 1, 2001. Great Bay's share of the
incremental operations and maintenance costs was approximately $6.1 million for
the year ended December 31, 2000.

N.  ACQUISITIONS

     On November 19, 1999, BayCorp's wholly-owned subsidiary, Little Bay,
purchased an additional 2.9% interest in the Seabrook Nuclear Power Project from
Montaup, a subsidiary of EUA. The purchase price was $3.2 million plus
approximately $1.9 million for certain prepaid items, primarily nuclear fuel and
capital expenditures. The purchase price was funded with existing cash. Little
Bay allocated the purchase price based on the estimated fair value of the assets
acquired and liabilities assumed. A summary of the components of the purchase
price and the purchase price allocation is as follows:

<TABLE>
<CAPTION>
                                                           (DOLLARS IN THOUSANDS)
                                                           ----------------------
<S>                                                        <C>
ALLOCATION OF PURCHASE PRICE:
Current assets.........................................            $1,005
Utility plant..........................................             3,890
Nuclear fuel...........................................             1,845
Liabilities assumed and other..........................            (1,827)
                                                                   ------
                                                                   $4,913
                                                                   ======
</TABLE>

     In addition, Montaup prefunded the decommissioning liability associated
with Little Bay's 2.9% share of Seabrook by transferring approximately $12.4
million into Little Bay's decommissioning account, an irrevocable trust
earmarked for Little Bay's share of the Seabrook Plant decommissioning expenses.
Little Bay recorded an asset, Decommissioning Trust Fund, for $12.4 million and
a corresponding liability for the same amount. The purchase agreement required
that a restricted cash-escrow account be established for $2.5 million to cover
Little Bay's share of budgeted cash requirements for a six-month period. This
fund is to be used to pay Little Bay's share of Seabrook costs of operations and
capital expenditures during periods of Seabrook shutdowns.

     Little Bay sells its power solely to Great Bay under an intercompany
agreement at cost. Great Bay then sells the power purchased from Little Bay in
the wholesale electricity market. The accompanying consolidated

                                       F-12
<PAGE>   44
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

financial statements include the results of the acquisition since November 19,
1999. Intercompany amounts between Little Bay and Great Bay have been eliminated
in consolidation.

O.  SEGMENT INFORMATION

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

P.  EARNINGS PER SHARE

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

     Based on an average market price of common stock of $11.35 per share for
the year ended December 31, 2000 and $5.58 per share for the year ended December
31, 1999, the following table reconciles the weighted average common shares
outstanding to the shares used in the computation of the basic and diluted
earnings per share outstanding.

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  2000            1999
                                                              ------------    ------------
<S>                                                           <C>             <C>
Weighted average number of common shares outstanding and
  used in basic and diluted EPS calculation.................   8,293,475       8,207,866
Shares under option plans, excluded in computation of
  diluted EPS due to antidilutive effects...................     276,296           3,341
</TABLE>

     There were no potentially dilutive shares outstanding during 1998.

Q.  ACCUMULATED OTHER COMPREHENSIVE INCOME

     Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" which requires the Company to report the changes in
shareholders' equity from all sources during the period other than those
resulting from investments by shareholders (i.e., issuance or repurchase of
common shares and dividends.) Although adoption of this standard has not
resulted in any change to the historic basis of determination of earnings or
shareholders' equity, the other comprehensive income components recorded under
generally accepted accounting principles and previously included under the
category "retained earnings"

                                       F-13
<PAGE>   45
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

are displayed as "accumulated other comprehensive income" within the balance
sheet. The composition of other comprehensive income is as follows:

<TABLE>
<CAPTION>
                                                       UNREALIZED            ACCUMULATED OTHER
                                                     GAINS (LOSSES)            COMPREHENSIVE
                                                      ON SECURITIES                INCOME
                                                     --------------          -----------------
<S>                                             <C>                         <C>
Twelve Months Ending December 31, 1998
  Beginning Balance...........................          $116,000                  $116,000
  1998 Change.................................           449,000                   449,000
                                                        --------                  --------
December 31, 1998.............................           565,000                   565,000
  1999 Change.................................          (568,000)                 (568,000)
                                                        --------                  --------
December 31, 1999.............................            (3,000)                   (3,000)
  2000 Change.................................           321,032                   321,032
                                                        --------                  --------
December 31, 2000.............................          $318,032                  $318,032
                                                        ========                  ========
</TABLE>

R.  RECLASSIFICATIONS

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

S.  PRINCIPLES OF CONSOLIDATION

     The Consolidated Financial Statements include the accounts of the Company
and all its subsidiaries. The Company consolidates all majority-owned and
controlled subsidiaries and applies the equity method of accounting for
investments between 20% and 50%. All significant intercompany transactions have
been eliminated. At December 31, 1999, BayCorp owned 100% of HoustonStreet. As
of December 31, 2000, the Company owned 45.9% of HoustonStreet. Therefore,
during 2000, the Company deconsolidated HoustonStreet. At December 31, 2000, the
Company accounts for this investment on the equity method and is presenting the
prior-year financial statements on a comparative basis (see Note 12.) The
Company has an agreement with HoustonStreet under which it is providing certain
management and administrative services to HoustonStreet for the periods April
1999 to December 2000 and for the calendar year 2001. Income related to such
services was $641,400 for the period ending December 31, 2000 of which $569,800
remained outstanding at December 31, 2000. In addition, the company loaned
HoustonStreet $7,000,000 (see Note 12).

T.  LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF.

     SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", requires that long-lived assets held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review of the recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. This statement requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The sales agreement with NU established
an expected value for the Company's investment in the Seabrook plant. The
company estimates that the current carrying amount for the respective investment
is the lower of the carrying amount or fair value less cost to sell in
accordance with SFAS No. 121.

                                       F-14
<PAGE>   46
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

2.  NUCLEAR ISSUES

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

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

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

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

A.  NUCLEAR FUEL

     The Seabrook Project's managing agent has made, or expects to make, various
arrangements for the acquisition of uranium concentrate, the conversion,
enrichment, fabrication and utilization of nuclear fuel and the disposition of
that fuel after use. Many of these arrangements are pursuant to multi-year
contracts with concentrate and service providers. Based on the Seabrook
Project's existing contractual arrangements, Great Bay and Little Bay believe
that the Seabrook Project has available, or under supply contracts, sufficient
nuclear fuel for operations through approximately 2003. Uranium concentrate and
conversion, enrichment and fabrication services currently are available from a
variety of sources. The cost of such concentrate and such services varies based
upon market forces.

     Costs associated with nuclear plant operations include amounts for nuclear
waste disposal, including spent fuel, as well as for the ultimate
decommissioning of the plants. The Nuclear Waste Policy Act of 1982 (the "NWPA")
requires the United States 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 March 2000, Congress passed amendments to the NWPA that would require
the DOE to begin accepting nuclear waste shipments at a Nevada site in 2007.
However, former President Clinton vetoed this
                                       F-15
<PAGE>   47
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

legislation and Congress did not override Mr. Clinton's veto. Until the DOE
begins receiving nuclear waste materials in accordance with the NWPA and its
contracts, nuclear plants such as Seabrook must retain high-level waste on-site
or make other storage provisions.

     NAESCO, the managing agent of the Seabrook Project, has advised the Company
that the Seabrook Project's capacity for on-site storage capacity for low level
waste ("LLW") is expected to be sufficient to meet the project's storage
requirements through 2006. In addition, NAESCO advises 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.

     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. In 1999, the Seabrook Project
also began shipping some LLW to a privately owned facility in Tennessee. All LLW
generated by the Seabrook Project that exceeds the maximum radioactivity level
of LLW accepted by these facilities is currently stored on-site at the Seabrook
facility.

B.  FEDERAL DEPARTMENT OF ENERGY DECONTAMINATION AND DECOMMISSIONING ASSESSMENT

     Title XI of the Energy Policy Act of 1992 (the "Policy Act") provides for
decontaminating and decommissioning of the Federal DOE's enrichment facilities
to be partially funded by a special assessment against domestic utilities. Each
utility's share of the assessment is to be based on its cumulative consumption
of DOE enrichment services. As of December 31, 2000, the Company had accrued its
pro rata estimated obligation of $451,974 related to the project's prior years'
usage to be paid over the 15-year period beginning October 1, 1992.

C.  PRICE ANDERSEN ACT

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

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

                                       F-16
<PAGE>   48
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

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

     Great Bay and Little Bay also independently purchase business interruption
insurance from NEIL. The current policy is in effect from April 1, 2000 until
April 1, 2001 and a renewal policy has been signed that will be in effect from
April 1, 2001 until April 1, 2002. The policy provides for the payment of a
fixed weekly loss amount of $670,000 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 and Little Bay is $90.6
million. Under the terms of the policy, Great Bay and Little Bay are subject to
a potential retrospective premium adjustment of up to approximately $469,335
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.

3.  TAXES ON INCOME

     The following is a summary of the provision for income taxes for the years
ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                        DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                            2000            1999            1998
                                                        ------------    ------------    ------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                     <C>             <C>             <C>
Federal
  Current.............................................      $ 50          $(3,426)        $(6,192)
  Deferred............................................        --            3,426           6,192
                                                            ----          -------         -------
                                                              50                0               0
                                                            ----          -------         -------
State
  Current.............................................       562             (817)         (1,476)
  Deferred............................................        --              817           1,476
                                                            ----          -------         -------
                                                             562                0               0
                                                            ----          -------         -------
Total provision.......................................      $612          $     0         $     0
                                                            ====          =======         =======
</TABLE>

                                       F-17
<PAGE>   49
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

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

<TABLE>
<CAPTION>
                                                                2000         1999
                                                              ---------    ---------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                           <C>          <C>
Assets
  Net operating loss carryforwards..........................  $ 87,905     $ 87,875
  Decommissioning expense...................................     6,696        5,279
  Unfunded pension expense..................................     2,044        1,311
  Unrealized loss on firm commitments.......................    (5,023)         252
  Inventory.................................................       564          477
  Other, net................................................      (994)         680
Liabilities
  Utility plant.............................................   (30,008)     (30,298)
                                                              --------     --------
Accumulated deferred income tax asset.......................    71,230       65,576
Valuation allowance.........................................   (71,230)     (65,576)
                                                              --------     --------
Accumulated deferred income tax asset, net..................  $      0     $      0
                                                              ========     ========
</TABLE>

     The federal income tax provision set forth above represents 1%, 0% and 0%
of pre-tax loss in the years ended December 31, 2000, 1999 and 1998. The
following table reconciles the statutory federal income tax rate to those
percentages:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,    DECEMBER 31,   DECEMBER 31,
                                                               2000            1999           1998
                                                           ------------    ------------   ------------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                        <C>             <C>            <C>
Loss before taxes........................................    $(15,057)       $(4,739)       $(6,759)
Federal statutory rate...................................          34%            34%            34%
Federal income tax benefit at statutory levels...........      (5,119)        (1,611)        (2,301)
Decrease (increase) from statutory levels
  State tax net of federal tax benefit...................        (562)          (217)          (345)
  Valuation allowance....................................       5,705          1,917          2,721
  Alternative Minimum Tax................................          50              0              0
  Other..................................................         (24)            89             75
                                                             --------        -------        -------
Effective federal income tax expense.....................    $     50        $     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, 2000, the Company had
net operating loss carry forwards ("NOLs") of approximately $225 million, which
are scheduled to expire between 2005 and 2019. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $131 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$131 million of the Company's NOLs is approximately $5.5 million per year. Any
unused portion of the $5.5 million annual limitation applicable to the Company's
restricted NOLs is available for use in future years until such NOLs are
scheduled to expire. The Company's other $94 million of NOLs are not currently
subject to such limitations.

                                       F-18
<PAGE>   50
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

4.  CAPITAL EXPENDITURES

     The Company's cash capital expenditures, including nuclear fuel, are
estimated to be approximately $6.8 million in 2001 and to aggregate
approximately $10.4 million for the years 2002 through 2003.

5.  ENERGY MARKETING

     The Company utilizes unit contingent and firm forward sales contracts to
maximize the value of its 174 MW power supply from the Seabrook Project. As of
December 31, 2000, the Company had forward sales commitments that extend to the
end of 2001. As of December 31, 1998, the unrealized gain on these open
positions was $159,000. The value of open positions was determined using
exchange settlement prices or, if applicable, over the counter prices.

     Effective January 1, 1999, Great Bay adopted Emerging Issues Task Force
Issue ("EITF") No. 98-10, "Accounting for Contracts Involved in Energy Trading
and Risk Management Activities." EITF Issue No. 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 cumulative effect of the accounting change
as of January 1, 1999 was to decrease net loss by $159,000, or $0.02 per
weighted average common share, and to recognize gains on net open firm purchase
and sales commitments considered to be trading activity.

     EITF Issue No. 00-17, "Measuring the Fair Value of Energy-Related Contracts
in Applying Issue 98-10", ("EITF 00-17"), reached a consensus that energy
contracts within the scope of EITF Issue No. 98-10 should be reported at fair
value on a stand-alone, or individual contract, basis. The estimate of fair
value should be based on the best information available in the circumstances.
The price at which an energy contract is exchanged normally is its initial fair
value. The Company is marking the related contracts to market based on the
estimated, contract replacement value at each balance sheet date.

     As of December 31, 2000, the Company had a net unrealized loss of
approximately $12,879,427 recorded in accrued expenses. The net change in
unrealized loss on trading activities for the year ended December 31, 2000 was
$12,232,427 and is included in the accompanying consolidated statement of income
for 2000.

     As of December 31, 1999, the Company had a net unrealized loss of
approximately $647,000 recorded in accrued expenses. The net change in
unrealized loss on trading activities for the year ended December 31, 1999 was
$806,000 and is included in the accompanying consolidated statement of income
for 1999.

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 5.38 cents per kilowatt-hour ("kWh"). The price is subject to
increase in accordance with a formula that provides for adjustments at less than
the actual rate of inflation. UNITIL has an option to extend the UNITIL
Purchased Power Agreement for an additional 12 years until 2022.

     The UNITIL Purchased Power Agreement was front-end loaded whereby UNITIL
paid higher prices, on an inflation adjusted basis, in the early years of the
Agreement and lower prices in later years. The 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 EITF Ruling 91-6
based on the contract rates and no liability for the "Balance Account" is

                                       F-19
<PAGE>   51
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

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.

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

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

7.  PECO ENERGY COMPANY SERVICES AGREEMENT AND WARRANT AGREEMENT

     Great Bay and PECO Energy Company ("PECO") entered into a Services
Agreement as of November 3, 1995, 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 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 1998 Consolidated Statement of Income.

8.  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
nonstatutory options which are not intended to meet the requirements of Section
422. The Plan is 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. In July 1999, the Board of Directors increased
the
                                       F-20
<PAGE>   52
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

number of shares reserved for issuance under the Plan from 600,000 to 900,000
shares, subject to stockholder approval. The Company's stockholders approved
that increase in May 2000.

     The Company accounts for the plan under APB Opinion No. 25, and as such no
compensation cost has been recognized as the options are granted at Fair Market
Value.

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

     FASB Interpretation No. 44, "Accounting for Certain Transactions involving
Stock Compensation' (FIN 44), effective July 1, 2000 and applied prospectively
(except for direct or indirect option repricings and the definition of an
employee in which case the effective date is December 15, 1998), addresses
compensation issues regarding the definition of an employee, modifications to
plan awards, changes in grantee status, business combinations and share
repurchase features. For transactions subject to the December 15, 1998 effective
date, no compensation expense recognized for the period between December 15,
1998 and July 1, 2000. FIN 44 requires variable accounting when direct or
indirect reductions of the exercise price occur. During 2000 the Board of
Directors of the Company accelerated the vesting period of the options held by
certain employees of the Company. In accordance with FIN 44, the Company
recorded the expense related to the repriced and the accelerated options with
the total credit of $105,000 being recorded in equity.

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

<TABLE>
<CAPTION>
                                                        2000       1999        1998
                                                      --------    -------    --------
                                                          (DOLLARS IN THOUSANDS)
<S>                                                   <C>         <C>        <C>
Net Loss: As Reported...............................  $(15,669)   $(4,740)   $ (6,769)
     Pro Forma......................................   (16,780)    (5,146)     (7,050)
Earnings Per Share (Basic and Diluted) As             $  (1.89)   $ (0.58)   $  (0.82)
  Reported..........................................
     Pro Forma......................................     (2.02)     (0.63)      (0.86)
</TABLE>

     A summary of the Company's stock option plan at December 31, 2000, 1999 and
1998, and changes during the years then ended, is presented in the table and
narrative below:

<TABLE>
<CAPTION>
                                   2000                      1999                      1998
                            -------------------    -------------------------    -------------------
                                       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     700,917                417,417                      505,000
  of year.................              $5.36                     $4.92                     $8.05
Granted...................   132,400    $9.40       323,500   $2.88 to $6.88      52,000    $4.25
Exercised.................  (102,316)   $5.01       (40,000)      $4.90               --
Forfeited.................   (20,000)   $4.75            --                     (139,583)   $8.65
Expired...................        --                     --                           --
Outstanding at end of        711,001                700,917                      417,417
  year....................              $6.14                     $5.36                     $4.92
Exercisable at end of        571,668                476,005                      322,849
  year....................              $5.86                     $4.92                     $4.97
Weighted average fair
  value of options
  granted.................              $6.85                     $3.66                     $1.29
</TABLE>

                                       F-21
<PAGE>   53
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

     The 711,001 options outstanding at December 31, 2000 have exercise prices
between $2.88 and $12.69, with a weighted average exercise price of $6.14, and a
remaining weighted average contractual life of 5.21 years.

     The 700,917 options outstanding at December 31, 1999 have exercise prices
between $2.88 and $6.88, with a weighted average exercise price of $5.36, and a
remaining weighted average contractual life of 5.8 years.

     The 417,417 options outstanding at December 31, 1998 had exercise prices
between $4.90 and $7.25, with a weighted average exercise price of $4.92 and a
remaining weighted contractual life of 5 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 2000, 1999 and 1998 respectively: weighted average risk-free interest
rates of 6.4%, 5.5% and 4.7%; expected dividend yields of 0 %; and expected live
of seven years and expected volatility of 71%, 54% and 31%, respectively.

9.  NEW ACCOUNTING PRONOUNCEMENTS

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

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

     The Company completed its review and implementation of SFAS No. 133,
effective January 1, 2001. The Company has taken an inventory of its contracts
and identified the forward sale and purchase contracts that are currently marked
to market in accordance with EITF 98-10, as derivatives under SFAS No. 133. The
Company did not identify any other contracts to be derivatives under SFAS No.
133. The Company will continue to mark to market its forward sale and purchase
contracts in accordance with EITF 98-10 and EITF 00-17 and thus the adoption of
SFAS No. 133 is not expected to have an impact on the Company's financial
position or results of operations.

10.  PROPERTY TAXES

     For each of the tax years 1994, 1995, 1996, 1997 and 1998, Great Bay filed
property tax abatement applications with the towns of Hampton and Hampton Falls.
The abatement requests were denied. Great Bay filed appeals for each of those
years with the New Hampshire Board of Tax and Land Appeals (the "BTLA"). On
November 11, 1999, Great Bay reached agreements settling the property tax
litigation. As a result of the settlement agreement, Great Bay received $146,450
from the Town of Hampton and $21,967 from the Town of Hampton Falls. With regard
to Hampton Falls, the settlement established an assessed valuation of $7,000,000
for 1999 and $2,500,000 for 2000. With regard to the Town of Hampton, the
settlement established an assessed valuation of $20,000,000 for 1999 and
$15,000,000 for 2000.

                                       F-22
<PAGE>   54
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

11.  COMMITMENTS AND CONTINGENCIES

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

     Future minimum commitments for operating leases as of December 31, 2000 are
as follows:

<TABLE>
<CAPTION>
YEAR ENDING                                                   OPERATING LEASES
-----------                                                   ----------------
<S>                                                           <C>
December 31, 2001...........................................      $151,375
December 31, 2002...........................................       151,375
December 31, 2003...........................................       113,065
December 31, 2004...........................................        74,755
December 31, 2005...........................................        43,607
                                                                  --------
Total.......................................................      $534,177
                                                                  ========
</TABLE>

12.  INVESTMENTS IN UNCONSOLIDATED AFFILIATES

     As of December 31, 1999, the Company owned 100% of HoustonStreet.
HoustonStreet raised additional equity in 2000 from outside investors and as a
result, as of December 4, 2000, the Company's ownership fell below 50%, to
45.9%. Subsequently, the Company deconsolidated HoustonStreet as of December 4,
2000, started accounting for this investment on the equity method and suspended
recognition of additional HoustonStreet losses as of that date. Prior-year
financial statements are presented in conformance with the equity method of
accounting. Prior to the deconsolidation, the Company recognized its share of
the losses of HoustonStreet in the consolidated financial statements. Summarized
financial information for the Company's investment in HoustonStreet, as
accounted by the equity method, is as follows:

HoustonStreet

<TABLE>
<CAPTION>
                                                                2000           1999
                                                             -----------    ----------
<S>                                                          <C>            <C>
Total assets...............................................  $11,958,624    $2,984,415
Total liabilities..........................................   15,395,770     6,201,372
Net sales..................................................      523,393        59,186
Net loss...................................................  (40,046,837)   (3,396,957)
Company's equity in net loss...............................  (22,258,967)   (3,396,957)
</TABLE>

     During 2000, the Company loaned $7,000,000 to HoustonStreet. Due to the
continuous losses at HoustonStreet, the Company wrote down its equity investment
in HoustonStreet and subsequently its loan and receivable from HoustonStreet. As
of December 31, 2000, the Company had no investments or receivables from
HoustonStreet recognized on the accompanying balance sheet. A reconciliation
from the beginning of the year carrying value to the carrying value as of
December 31, 2000 is as follows:

<TABLE>
<S>                                                           <C>
Carrying value at December 31, 1999.........................  $(3,216,957)
Company's equity in HoustonStreet net loss for the period
  ended
  December 4, 2000..........................................  (22,258,967)
Loan to HoustonStreet.......................................    7,000,000
Receivables due from HoustonStreet..........................      569,766
Gain on deconsolidation at December 4, 2000.................   17,906,158
                                                              -----------
     Carrying value of Investment at December 31, 2000......  $         0
                                                              ===========
</TABLE>

                                       F-23
<PAGE>   55
                             BAYCORP HOLDINGS, LTD.

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

13.  SUBSEQUENT EVENTS

     Seabrook Unit 1 transmits its generated power to the New England 345
kilovolt transmission grid, a major network of interconnecting lines covering
New England, through three separate transmission lines emanating from the
station. On March 5, 2001, the Seabrook Project began experiencing interruptions
of the connections to the 345 kV transmission system due to icing from a severe
winter storm that resulted in the plant automatically tripping offline. During
this shutdown, a problem was identified with the steam-driven emergency
feedwater pump and plant chemistry personnel detected the presence of chlorides
in the condenser hotwells, indicating leakage of seawater into the condenser.
Repair of the emergency feedwater pump was completed allowing the plant to
return on-line on March 15, 2001. Power was limited to approximately 70% while
plant personnel continued to repair the condenser leakage. On March 19, 2001,
plant operators identified a problem with the main turbine valve control system
requiring that the plant be taken off-line. After repairs were completed, the
plant was placed on-line on March 22, 2001 and power was increased to
approximately 70%. The plant reached full power on March 25, 2001.

     Management believes the plant will operate at historical levels and
believes that it will be able to fulfill its obligations with respect to the
agreement with Select. As mentioned previously, if this does not happen, the
Company will be required to raise additional funding.

     On March 22, 2001, HoustonStreet received commitments to receive up to
approximately $3.9 million in additional funding, including $900,000 from
BayCorp. Although HoustonStreet has received some of the funding, until the
closing of the financing, there can be no assurance that HoustonStreet will
receive the balance of the committed funds. This financing involves the sale by
HoustonStreet of senior secured notes, warrants to purchase HoustonStreet
preferred stock and warrants to purchase HoustonStreet common stock.
Collectively, these securities are referred to as the "HoustonStreet Series C
Units."

     In March 2001, BayCorp entered into discussion with HoustonStreet involving
the conversion of BayCorp's $7.0 million loan made in September 2000, together
with approximately $1.0 million in accrued interest and penalties on the note
and past due management fees, into approximately $8.0 million of HoustonStreet
Series C Units. There can be no assurance that this proposed refinancing will be
successfully completed. The loan, accrued interest and receivables from
HoustonStreet had been written down to zero at December 31, 2000, and as such,
the conversion of these amounts will have no accounting impact.

                                       F-24
<PAGE>   56

                                   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 30, 2001
                                          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, Director and Chief          March 30, 2001
------------------------------------------------  Executive Officer (principal
              Frank W. Getman Jr.                 executive officer, principal
                                                  financial officer and principal
                                                  accounting officer)

            /s/ ALEXANDER ELLIS III               Director                               March 30, 2001
------------------------------------------------
              Alexander Ellis III

           /s/ STANLEY I. GARNETT II              Director                               March 30, 2001
------------------------------------------------
             Stanley I. Garnett II

             /s/ MICHAEL R. LATINA                Director                               March 30, 2001
------------------------------------------------
               Michael R. Latina

            /s/ LAWRENCE M. ROBBINS               Director                               March 30, 2001
------------------------------------------------
              Lawrence M. Robbins

            /s/ JOHN A. TILLINGHAST               Director                               March 30, 2001
------------------------------------------------
              John A. Tillinghast
</TABLE>
<PAGE>   57

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER    DESCRIPTION OF EXHIBIT
-------   ----------------------
<S>       <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 December
          22, 1993.(2)
10.9      Second Mortgage and Security Agreement between UNITIL Power
          Corporation and Great Bay Power Corporation, dated December
          22, 1993.(2)
10.10     Third Mortgage and Security Agreement between UNITIL Power
          Corporation and Great Bay Power Corporation, dated December
          22, 1993.(2)
10.11     Registration Rights Agreement between Great Bay Power
          Corporation and the Selling Stockholders, dated April 7,
          1994.(2)
10.12     Amendment to Registration Rights Agreement between Great Bay
          Power Corporation and the Selling Stockholders, dated
          November 23, 1994.(2)
10.13     Stock and Subscription Agreement among Great Bay Power
          Corporation and the Selling Stockholders, dated April 7,
          1994.(2)
10.14     Acknowledgement and Amendment to Stock and Subscription
          Agreement, dated November 23, 1994.(2)
10.15     Settlement Agreement by and among Great Bay Power
          Corporation, the Official Bondholders' Committee and the
          Selling Stockholders, dated September 9, 1994.(2)
10.16     Letter Agreement, dated December 20, 1994, between Great Bay
          Power Corporation and the Selling Stockholders amending
          Registration Rights Agreement, as previously amended on
          November 23, 1994.(2)
10.17     Letter Agreement, dated March 29, 1995, between Great Bay
          Power Corporation and the Selling Stockholders amending
          Registration Rights Agreement, as previously amended on
          November 23, 1994 and December 20, 1994.(2)
10.18     1996 Stock Option Plan of BayCorp Holdings, Ltd.(1)(4)
10.19     Employment Agreement between Frank W. Getman Jr. and BayCorp
          Holdings, Ltd., dated May 25, 2000.(4)(11)
10.20     Employment Agreement between Frank W. Getman Jr. and
          HoustonStreet Exchange, Inc., dated September 1,
          2000.(4)(11)
10.21     Incentive Stock Option Agreement, dated as of August 1,
          1995, by and between Frank W. Getman Jr. and Great Bay Power
          Corporation.(4)(6)
</TABLE>
<PAGE>   58

<TABLE>
<CAPTION>
EXHIBIT
NUMBER    DESCRIPTION OF EXHIBIT
-------   ----------------------
<S>       <C>
10.22     Incentive Stock Option Agreement, dated as of September 17,
          1996, by and between Frank W. Getman Jr. and Great Bay Power
          Corporation.(4)(7)
10.23     Incentive Stock Option Agreement, dated July 30, 1999, by
          and between Frank W. Getman Jr. and BayCorp Holdings,
          Ltd.(4)(10)
10.24     1999 Stock Incentive Plan of HoustonStreet Exchange,
          Inc.(4)(10)
10.25     Amended and Restated Incentive Stock Option Agreement, dated
          as of July 30, 1999, by and between Frank W. Getman Jr. and
          HoustonStreet Exchange, Inc. (first of two identically
          titled and dated agreements).(4)(10)
10.26     Amended and Restated Incentive Stock Option Agreement, dated
          as of July 30, 1999, by and between Frank W. Getman Jr. and
          HoustonStreet Exchange, Inc. (second of two identically
          titled and dated agreements).(4)(10)
10.27     Asset Purchase Agreement by and between Montaup Electric
          Company and Great Bay Power Corporation, dated as of June
          24, 1998.(8)
10.28     Assignment by and between Great Bay Power Corporation and
          Little Bay Power Corporation dated as of August 28, 1998.(9)
10.29     Escrow Agreement by and between Little Bay Power Corporation
          and Citizens Bank New Hampshire dated November 10, 1999.(9)
10.30     Series A Convertible Preferred Stock Purchase Agreement
          dated as of February 2, 2000, as amended, by and among
          HoustonStreet Exchange, Inc. and the Purchasers (as defined
          therein).(10)
10.31     Amended and Restated Stockholders' Voting Agreement dated as
          of March 6, 2000 by and among BayCorp Holdings, Ltd. and the
          Purchasers (as defined therein).(10)
10.32     Investor Rights Agreement dated as of February 2, 2000, as
          amended, by and among HoustonStreet Exchange, Inc., BayCorp
          Holdings, Ltd. and the Purchasers (as defined therein).(10)
10.33     Rights of First Refusal and Co-Sale Agreement dated as of
          February 2, 2000, by and among HoustonStreet Exchange, Inc.
          and the Purchasers (as defined therein).(10)
10.34     Form of Omnibus Signature Page dated as of March 6, 2000
          relating to the four preceding exhibits.(10)
10.35     Purchase Power Agreement between Great Bay Power Corporation
          and Select Energy, Inc., dated February 6, 2001.(11)
10.36     Mortgage and Security Agreement between Great Bay Power
          Corporation and Select Energy, Inc., dated February 6,
          2001.(11)
10.37     Mortgage and Security Agreement between Little Bay Power
          Corporation and Select Energy, Inc., dated February 6,
          2001.(11)
21.1      List of Subsidiaries of BayCorp Holdings, Ltd.(11)
23.1      Consent of Arthur Andersen LLP.(11)
</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 July 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 the Company's Annual Report on Form 10-K (File No.
     1-12527) on March 31, 1999 and incorporated herein by reference.
<PAGE>   59

 (6) Filed as an exhibit to the Quarterly Report on Form 10-Q of Great Bay Power
     Corporation for the quarter ended March 31, 1995 (File No. 0-25748) on May
     9, 1995 and incorporated herein by reference.

 (7) Filed as an exhibit to the Company's Annual Report on Form 10-K (File No.
     1-12527) on March 26, 1997 and incorporated herein by reference.

 (8) 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.

 (9) Filed as an exhibit to the Current Report on Form 8-K of BayCorp Holdings,
     Ltd. (File No. 1-12527) dated November 19, 1999 and filed on December 3,
     1999 and incorporated herein by reference.

(10) Filed as an exhibit to the Company's Annual Report on Form 10-K (File No.
     1-12527) on March 30, 2000 and incorporated herein by reference.

(11) Filed as an exhibit to this Annual Report on Form 10-K.