BAYCORP HOLDINGS LTD, 10-K, 1999-03-31

BAYCORP HOLDINGS LTD
10-K, 1999-03-31
ELECTRIC SERVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-12527

BAYCORP HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 02-0488443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

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

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 431-6600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)

AMERICAN STOCK EXCHANGE
(Name of each exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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

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

As of March 17, 1999, the approximate aggregate market value of the voting
stock held by non-affiliates of the registrant was $14,368,200 based on the last
reported sale price of the registrant's Common Stock on the American Stock
Exchange as of the close of business on March 17, 1999. There were 8,192,000
shares of Common Stock outstanding as of March 17, 1999.

DOCUMENTS INCORPORATED BY REFERENCE

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PART OF FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
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<S> <C>
Portions of the Registrant's Proxy Statement Items 10, 11, 12 & 13
for the 1999 Annual Meeting of Shareholders of Part III
</TABLE>

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PART I

ITEM 1. BUSINESS.

INTRODUCTION

BayCorp Holdings, Ltd. ("BayCorp" or the "Company") serves as a holding
company for Great Bay Power Corporation ("Great Bay"). Great Bay is an electric
generating company whose principal asset is a 12.1% joint ownership interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay is an exempt wholesale generator ("EWG") under the Public
Utility Holding Company Act of 1935 ("PUHCA"). Unlike regulated public
utilities, Great Bay has no franchise area or captive customers. Great Bay sells
its power in the competitive wholesale power markets. In addition, BayCorp owns
Little Bay Power Corporation ("Little Bay"). Little Bay was formed in connection
with a pending acquisition of an additional 3% interest in the Seabrook Nuclear
Power Project. This acquisition is subject to regulatory approvals, including
approval by the Nuclear Regulatory Commission ("NRC"). See "-- Recent
Developments."

Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly-formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. Currently,
Great Bay and Little Bay are the only subsidiaries of BayCorp. BayCorp's
principal asset is its 100% equity interest in Great Bay. The new corporate
structure enables BayCorp, either directly or through subsidiaries other than
Great Bay and Little Bay, to engage in businesses that these subsidiaries would
be prohibited from pursuing due to their status as EWG's under the PUHCA.
BayCorp may in the future enter into new businesses or acquire existing
businesses, both in energy related fields and possibly in unrelated fields.

BayCorp was incorporated in Delaware in 1996. Great Bay was incorporated in
New Hampshire in 1986 and was formerly known as EUA Power Corporation. Great Bay
sells its share of the electricity output of the Seabrook Project in the
wholesale electricity market, primarily in the Northeast United States. Neither
BayCorp nor its subsidiaries has operational responsibilities for the Seabrook
Project. Great Bay's share of the Seabrook Project capacity is approximately 140
megawatts ("MW"). Great Bay currently sells all but approximately 20 MW of its
share of the Seabrook Project capacity in the wholesale short-term market.
Little Bay was incorporated in New Hampshire in 1998 and currently conducts no
business activity.

Great Bay's predecessor, EUA Power Corporation, filed a voluntary petition
for reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Hampshire on February 28,
1991. It conducted its business as a Debtor in Possession until November 23,
1994, at which time it emerged from Chapter 11.

THE SEABROOK PROJECT

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

Seabrook Unit 1 is a 1,150-MW nuclear-fueled steam electricity generating
station. It employs a four loop, pressurized water reactor and support auxiliary
systems designed by the Westinghouse Electric Company. The reactor is housed in
a steel-lined reinforced concrete containment structure and a concrete
containment enclosure structure. Reactor cooling water is obtained from the
Atlantic Ocean through a 17,000-foot-long intake tunnel and returned through a
16,500-foot-long discharge tunnel. The station has a remaining expected service
life of 27 years. Seabrook Unit 1 transmits its generated power to the New
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kilovolt transmission grid, a major network of interconnecting lines covering
New England, through three separate transmission lines emanating from the
station. On March 15, 1990, the Participants received from the NRC a full power
operating license which authorizes operation of Seabrook Unit 1 until October
2026. Commercial operation of Seabrook Unit 1 commenced on August 19, 1990.
Management believes that Seabrook Unit 1 is in good condition.

The Participants are considering additional plans regarding disposition of
Seabrook Unit 2, but such plans have not yet been finalized and approved. Great
Bay is unable to estimate the costs for which it will be responsible in
connection with the disposition of Seabrook Unit 2. Because Seabrook Unit 2 was
never completed or operated, costs associated with its disposition will not
include any amounts for decommissioning. Great Bay currently pays its share of
monthly expenses required to preserve and protect the value of the Seabrook Unit
2 components.

JOINT OWNERSHIP OF SEABROOK

Great Bay and the other Participants are parties to the Agreement for Joint
Ownership, Construction and Operation of New Hampshire Nuclear Units (the
"JOA"), which establishes the respective ownership interests of the Participants
in the Seabrook Project and defines their responsibilities with respect to the
ongoing operation, maintenance and decommissioning of the Seabrook Project. In
general, all ongoing costs of the Seabrook Project are divided proportionately
among the Participants in accordance with their ownership interests in the
Seabrook Project. Ownership interests in the Seabrook Project are several and
not joint, and each Participant is only liable for its share of the Seabrook
Project's costs and not liable for any other Participant's share. Great Bay's
joint ownership interest of 12.1% is the third largest interest among the
Participants, exceeded only by the approximately 40% interest held by Northeast
Utilities and its affiliates and the 17.5% interest held by The United
Illuminating Company.

A Participant may sell any portion of its ownership interest to any entity
that is engaged in the electric utility business in New England. Before such
sale, however, such selling Participant must give certain other Participants the
right of first refusal to purchase the interest on the same terms. Any
Participant may transfer, free from the foregoing right of first refusal, any
portion of its interest (a) to a wholly-owned subsidiary, (b) to another company
in the same holding company system or a construction trust for the benefit of
the transferor or another company in the same holding company system, or (c) in
connection with a merger, consolidation or acquisition of substantially all of
the properties or all of the generating facilities of a Participant.

The failure to make monthly payments under the JOA by owners of the
Seabrook Project other than Great Bay may have a material effect on Great Bay if
Great Bay should choose to pay a greater proportion of the Seabrook Unit 1 and
Seabrook Unit 2 expenses in order to preserve the value of its share of the
Seabrook Project. In the past, certain of the owners of the Seabrook Project
other than Great Bay have not made their full respective payments. At the
current time, the electric utility industry is undergoing significant changes as
competition and deregulation are introduced into the marketplace. Some
utilities, including certain Participants, have indicated in state regulatory
proceedings that they may be forced to seek bankruptcy protection if regulators,
as part of the industry restructuring, do not allow for full recovery of
stranded costs. If a Participant other than Great Bay filed for bankruptcy, and
that Participant was unable to pay its share of Seabrook Project expenses, Great
Bay might choose to pay a greater portion of Seabrook Project expenses. In the
past, the filing of bankruptcy by a Participant has not resulted in a failure to
pay Seabrook Project expenses or an increase in the percentage of expenses paid
by other Participants.

On February 28, 1997, the New Hampshire Public Utilities Commission
("NHPUC") issued an order requiring stranded cost recovery to be based on the
average market price of electricity in New England, rather than cost-based rate
making methods. On March 10, 1997, one of the Participants, Northeast Utilities
(along

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with three of its subsidiaries), received a temporary restraining order from the
U.S. District Court for the District of Rhode Island. This temporary restraining
order stayed the NHPUC's February 28, 1997 order to the extent that the order
established a rate methodology that is not designed to recover the cost of
providing service and would require Northeast Utilities and certain of its
affiliates to write-off any regulatory assets. Court-ordered mediation between
the NHPUC and Northeast Utilities during 1997 and the first half of 1998 did not
result in a settlement.

On June 12, 1998, the U.S. District Court issued a modified preliminary
injunction, prohibiting the NHPUC from implementing involuntary restructuring
plans. On December 3, 1998, the U.S. Court of Appeals for the First Circuit
upheld the District Court preliminary injunction. If the preliminary injunction
or a similar court action does not remain in effect, the NHPUC's methodology
could require Northeast Utilities and certain of its affiliates to remove
certain regulatory assets from their respective balance sheets. According to
Northeast Utilities, the amount of that potential write-off is currently
estimated at over $400 million, after taxes.

In a related matter, the New Hampshire Supreme Court ruled on December 23,
1998 that Public Service of New Hampshire ("PSNH"), a subsidiary of Northeast
Utilities, does not have a statutory right to fully recover stranded costs.
However, the Court also concluded that a complete record had not been produced
regarding whether PSNH has a contractual right to full recovery under a 1989
Rate Agreement between Northeast Utilities and the State of New Hampshire.
Consequently, the NHPUC set a procedural hearing to begin the process of
completing the necessary record. However, on January 18, 1999, PSNH filed with
the NHPUC a motion arguing that the federal injunction prevented the NHPUC from
deciding the contract issue. PSNH filed a similar motion in U.S. District Court
on February 10, 1999. If the NHPUC and the District Court deny PSNH's motions,
Northeast Utilities and certain of its affiliates could be required to remove
certain regulatory assets from their respective balance sheets. As a joint owner
of the Seabrook Project with Northeast Utilities and other Participants, Great
Bay could be adversely affected if Northeast Utilities or its subsidiaries are
adversely affected by the outcome of a court decision or regulatory actions in
New Hampshire.

The JOA provides for a Managing Agent to carry out the daily operational
and management responsibilities of the Seabrook Project. The current Managing
Agent, appointed by certain of the Participants on June 29, 1992, is North
Atlantic Energy Service Corporation ("NAESCO"), a wholly-owned subsidiary of
Northeast Utilities. Northeast Utilities, in conjunction with certain of its
affiliates, holds the largest joint ownership interest in the Seabrook Project,
as described above. Certain material decisions regarding the Seabrook Project
are made by an Executive Committee consisting of the chief executive officers of
certain of the Participants or their designees. There are currently five members
of the Executive Committee. The Executive Committee acts by a majority vote of
its members, although any action of the Executive Committee may be modified by
vote of 51% of the ownership interests. Great Bay does not have a representative
on the Executive Committee, but does have a representative on the Budget
Committee and Non-Operating Participants Committee related to the Seabrook
Project. Frank W. Getman Jr., the Company's President, Chief Executive Officer,
is currently Chairman of the Audit Committee and Vice Chairman of the Budget
Committee. Under the JOA, the managing agent of the Seabrook Project may be
removed and a new managing agent appointed by a 51% interest of the
Participants.

RECENT DEVELOPMENTS

For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement request
for tax years 1994, 1995 and 1996 were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). On December 7, 1998, Great Bay announced that it had reached an
agreement with the town of Seabrook to settle its outstanding property tax
litigation. As a result of the settlement, Great Bay received approximately $1.3
million from the town of Seabrook. In addition, the parties agreed that the
assessed value of the Seabrook Project will be reduced over the five year period
of the settlement agreement from $2.3 billion in 1998 to $1.2 billion in 2002.
The joint

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owners of the Seabrook Project are currently engaged in negotiations with the
towns of Hampton and Hampton Falls.

In June 1998, Great Bay signed a definitive purchase agreement with Montaup
Electric Company ("Montaup"), a subsidiary of Eastern Utilities Associates
("EUA"), to purchase Montaup's approximately 3% ownership interest in the
Seabrook Project. Montaup's 3% interest in Seabrook represents approximately 34
megawatts of capacity. Under the terms of the agreement, Great Bay will pay
Montaup approximately $3.2 million and Montaup has agreed to prefund the
decommissioning liability associated with its interest in Seabrook. The
transaction is subject to state and federal regulatory approvals.

On September 29, 1998, NAESCO filed with the NRC an application on behalf
of Montaup and Little Bay seeking NRC approval of a license transfer from
Montaup to Little Bay. On December 31, 1998, New England Power Company, a joint
owner holding a 9.95% interest in the Seabrook plant, filed with the NRC an
intervention petition and request for a hearing relating to decommissioning
obligations and operational funding. On March 5, 1999, the NRC denied New
England Power's request relating to decommissioning obligations and granted the
request with respect to whether the license transfer application contains
sufficient assurance of adequate funding for Seabrook operations. In its ruling
on March 5, 1999, the NRC noted that it expects to issue a final order on the
matter in August 1999. New England Power also intervened in approval proceedings
pending before the NHPUC and Massachusetts Department of Telecommunications and
Energy.

As of March 1, 1998, Great Bay assumed all marketing responsibilities for
its power. In June 1998, Great Bay and PECO Energy Company ("PECO") terminated a
power marketing agreement between the companies, pursuant to which PECO formerly
served as Great Bay's marketing agent, and Great Bay paid PECO approximately
$2.5 million. During the quarter ended June 30, 1998, Great Bay made an
approximate $2.5 million charge to income for this expense. This expense is
reflected in Administrative and General expenses in the accompanying
Consolidated Statement of Income.

On May 6, 1998, the Company's Board of Directors named Frank W. Getman Jr.
to serve as BayCorp's President and Chief Executive Officer. Mr. Getman's
predecessor, John A. Tillinghast, remains as Chairman of the Board and
participates on a part time basis in the continued development of the Company.

In September 1998, the Company moved its corporate offices from Dover, New
Hampshire to Portsmouth, New Hampshire. The offices are currently located at 20
International Drive, Suite 301, Portsmouth, New Hampshire, 03801-6809.

The Seabrook Project began a scheduled refueling outage on March 27, 1999.
The refueling outage is estimated to last approximately 45 days. The last
refueling outage at the Seabrook Project began on May 10, 1997 and lasted
approximately 50 days.

BANKRUPTCY PROCEEDINGS AND REORGANIZATION

Great Bay filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of New Hampshire (the "Bankruptcy Court") on
February 28, 1991. Great Bay conducted its business as a Debtor in Possession
until November 23, 1994, at which time Great Bay's Amended Bankruptcy Plan
became effective and Great Bay emerged from Chapter 11. Financing for the
Amended Bankruptcy Plan was provided by affiliates of Omega Advisors, Inc. and
by Elliot Associates, L.P. (collectively, the "Investors"). At the time Great
Bay emerged from Chapter 11, the Investors purchased 4,800,000 shares of Great
Bay's Common Stock for $35,000,000.

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CURRENT BUSINESS

BayCorp's principal asset is its 100% equity interest in Great Bay. The
business of Great Bay consists of the management of its joint ownership interest
in the Seabrook Project and the sale in the wholesale power market of its share
of electricity produced by the Seabrook Project. Great Bay does not have
operational responsibility for the Seabrook Project. To date, Great Bay has
entered into two long-term power contracts, each for approximately 10 MW of
Great Bay's share of the Seabrook Project capacity. See "--Purchased Power
Agreements." Great Bay's business strategy is to utilize unit contingent and
firm forward sales contracts to maximize the value of its 140 MW power supply
from the Seabrook Project.

Traditionally, Great Bay sold most of its share of the Seabrook Project
electricity output under unit contingent contracts. Under unit contingent
contracts, Great Bay is obligated to provide the buyer with power only when the
Seabrook Project is operating. In late 1998, Great Bay began to sell some of its
electricity as firm power, which entitles the buyer to electricity whether or
not the Seabrook Project is operating. Buyers pay a premium for firm power over
unit contingent power because they can rely on uninterrupted electricity. In
order to supply firm power during Seabrook unscheduled outages, Great Bay
purchases power from the spot market during these outages and resells that power
to its firm power customers. Spot market sales are subject to price fluctuations
based on the relative supply and demand of electricity. As a result of spot
market power price fluctuations, Great Bay may have to purchase power at prices
exceeding prices paid by Great Bay's firm power customers during outages.
Although Great Bay bears the primary risk of these price fluctuations, Great Bay
maintains insurance to protect Great Bay during periods of extreme price
volatility. This insurance, provided by CIGNA, provides up to $30 million of
coverage through May 2002.

As a result of Great Bay's reorganization into a holding company structure
on January 24, 1997, BayCorp may engage in business activities, either directly
or through subsidiaries other than Great Bay or Little Bay, that these
subsidiaries would be prohibited from pursuing due to their status as EWG's
under PUHCA. BayCorp may in the future enter into new businesses or acquire
existing businesses, both in energy related fields and possibly in unrelated
fields.

In June 1998, Great Bay signed a definitive purchase with Montaup Electric
Company, a subsidiary of EUA, to purchase Montaup's approximately 3% ownership
interest in the Seabrook Project. Montaup's 3% interest in Seabrook represents
approximately 34 megawatts of capacity. The parties are working to obtain
required regulatory approvals.

MARKETING AND CUSTOMERS

Great Bay currently sells most of its power in the Northeast United States
in the short-term wholesale power market. Great Bay is currently not dependent
on any single customer because many utilities and marketers are willing to buy
Great Bay's share of electricity from the Seabrook Project at substantially the
same price. Prices in the short-term market are typically higher during the
summer and winter because the demand for electrical power is higher during these
periods in the Northeast United States.

During 1998, sales by Great Bay to Northeast Utilities Services Company, NP
Energy Inc. and Enron Power Marketing Inc. accounted for 28%, 17% and 12%,
respectively, of total operating revenues. See Note 1J of Notes to the Financial
Statements.

PURCHASED POWER AGREEMENTS

Great Bay is party to a purchased power agreement, dated as of April 1,
1993 (the "UNITIL Purchased Power Agreement"), with UNITIL Power Corporation
that provides for Great Bay to sell to UNITIL Power approximately 10 MW of
power. The UNITIL Purchased Power Agreement commenced on May 1, 1993 and runs
through October 31, 2010. The current price of power under the UNITIL Purchased
Power Agreement is

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5.24 cents per kilowatt-hour ("kWh"). In May 1999 and annually thereafter, the
price is subject to increase in accordance with a formula that provides for
adjustments at less than the actual rate of inflation. UNITIL Power has an
option to extend the UNITIL Purchased Power Agreement for an additional 12 years
until 2022.

The UNITIL Purchased Power Agreement is front-end loaded whereby UNITIL
Power pays higher prices, on an inflation adjusted basis, in the early years of
the Agreement and lower prices in later years. The amount of the excess paid by
UNITIL Power in the early years of the UNITIL Purchased Power Agreement is
quantified in a "Balance Account" which increased annually to a total of $4.1
million in July 1998, and now decreases annually, reaching zero in July 2001. If
the UNITIL Purchased Power Agreement terminates prior to its scheduled
termination, and if at that time there is a positive amount in the Balance
Account, Great Bay is obligated to refund that amount to UNITIL Power.

To secure the obligations of Great Bay under the UNITIL Purchased Power
Agreement, including the obligation to repay UNITIL Power the amount in the
Balance Account, the UNITIL Purchased Power Agreement grants UNITIL Power a
mortgage on Great Bay's interest in the Seabrook Project. This mortgage may be
subordinated to first mortgage financing of up to a maximum amount of
$80,000,000. The UNITIL Purchased Power Agreement further provides that UNITIL
Power's mortgage will rank pari passu with other mortgages that may hereafter be
granted by Great Bay to other purchasers of power from Great Bay to secure
similar obligations, provided that (i) the maximum amount of indebtedness
secured by the first mortgage on the Seabrook Interest may not exceed
$80,000,000, and (ii) the combined total of all second mortgages on the Seabrook
Interest may not exceed the sum of (a) $80,000,000 less the total amount of
Great Bay's debt then outstanding which is secured by a first mortgage plus (b)
$57,000,000.

Great Bay is also party to a Purchased Power Agreement, dated November 9,
1995 (the "Bangor Purchased Power Agreement"), with Bangor Hydro-Electric
Company ("Bangor Hydro"). Under the Bangor Purchased Power Agreement, and a
related option, Bangor Hydro agreed to purchase from Great Bay up to 10 MW of
electricity for the months of November 1998 through March 1999 and November 1999
through March 2000.

COMPETITION

Great Bay sells its share of Seabrook electricity into the wholesale
electricity market in the Northeast United States. There are a large number of
suppliers to this market and a surplus of capacity, resulting in intense
competition. A primary source of competition comes from traditional utilities,
many of which presently have excess capacity. In addition, non-utility wholesale
generators of electricity, such as independent power producers ("IPPs"),
Qualifying Facilities ("QFs") and EWGs, as well as power marketers and brokers,
actively sell electricity in this market.

Great Bay may face increased competition, primarily based on price, from
all the foregoing sources in the future. Great Bay believes that it will be able
to compete effectively in the wholesale electricity market because of the
current low cost of electricity generated by the Seabrook Project in comparison
with existing alternative sources and the reduction of Great Bay's capital costs
resulting from the implementation of the Chapter 11 reorganization plan.

NEPOOL

Great Bay is a party to the New England Power Pool ("NEPOOL") Agreement
(the "NEPOOL Agreement") and is a member of NEPOOL. NEPOOL is open to all
investor-owned, municipal and cooperative electric utilities in New England and
other companies that transact business in the bulk power market in New England.
The NEPOOL Agreement imposes on its participants obligations concerning
generating capacity reserves and the right to use major transmission lines. On
occasions when one or more transmission lines are out of service, the quantity
of power being produced by then operating generation plants may exceed the
quantity of power that can be carried safely by the transmission system. In such
instances, one or more generation plants may be taken off-line by NEPOOL. To
date, the Seabrook Project has not been taken off-line in these instances.
However, there can be no assurances that the Seabrook Project would not be

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taken off-line in such instances even though it is scheduled to run at all times
when the plant is physically capable of operating.

The NEPOOL Agreement currently provides for central dispatch of the
generating capacity of NEPOOL members with the objective of achieving economical
use of the region's facilities. On December 31, 1996, NEPOOL filed a
restructuring plan with the Federal Energy Regulatory Commission ("FERC"),
including proposed amendments to the NEPOOL Agreement and an open access
transmission tariff. The filing was intended not only to comply with the FERC's
open access for tight pools as set forth in FERC Order No. 888, but also to (1)
transfer the region's transmission grid and generation operation to an
independent system operator, (2) provide for a competitive generation market
through a combination of bilateral trading and the formation of a regional power
exchange and (3) qualify NEPOOL as a regional transmission group. Among other
things, NEPOOL's restructuring is designed to function efficiently in a changing
electric power industry and to permit regional transmission at rates that do not
vary with distance. These changes are being implemented in stages that began in
mid-1997.

The new independent system operator, ISO New England, Inc. (the "ISO-NE"),
has been established and is responsible for maintaining the safety and
reliability of the transmission grid and bulk power market within the NEPOOL
region. The ISO-NE will oversee a regional power exchange, which is scheduled to
be implemented in May 1999. This regional power exchange is designed to provide
for a competitive generation market through a combination of bilateral trading
and an hourly market-clearing price.

NUCLEAR POWER, ENERGY AND UTILITY REGULATION

The Seabrook Project and Great Bay, as part owner of a licensed nuclear
facility, are subject to the broad jurisdiction of the NRC, which is empowered
to authorize the siting, construction and operation of nuclear reactors after
consideration of public health and safety, environmental and antitrust matters.
Great Bay has been, and will be, affected to the extent of its proportionate
share by the cost of any such requirements made applicable to Seabrook Unit 1.

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

Because it is an EWG, Great Bay is not subject to the jurisdiction of the
Securities and Exchange Commission ("SEC") under PUHCA. In order to maintain its
EWG status, Great Bay must continue to engage exclusively in the business of
owning and/or operating all or part of one or more "eligible facilities" and to
sell electricity only at wholesale (i.e. not to end users) and activities
incidental thereto. An "eligible facility" is a facility used for the generation
of electric energy exclusively at wholesale or used for the generation of
electric energy and leased to one or more public utility companies. The term
"facility" may include a portion of a facility. In the case of Great Bay, its
12.1% joint ownership interest in the Seabrook Project comprises an "eligible
facility."

The NHPUC and the regulatory authorities with jurisdiction over utilities
in New Hampshire and state legislatures of several other states in which Great
Bay sells electricity are considering or are implementing initiatives relating
to the deregulation of the electric utility industry. Simultaneously with the
deregulation initiatives occurring in each of the New England states, NEPOOL is
restructuring to create and maintain open, non-discriminatory, competitive,
unbundled markets for energy, capacity, and ancillary services. These markets
are scheduled to commence operation in May 1999. All of the deregulation
initiatives open electricity markets to competition in the affected states.
While Great Bay believes it is a low-cost producer of electricity and will
benefit from the deregulation of the electric industry, it is not possible to
predict the impact of these various initiatives on Great Bay.

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NUCLEAR POWER ISSUES

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

In the event of a permanent shutdown of any unit, NRC regulations require
that the unit be completely decontaminated of any residual radioactivity. While
the owners of the Seabrook Project are accumulating monies in a trust fund to
pay decommissioning costs, if these costs exceed the amount of the trust fund,
the owners, including Great Bay, will be liable for the excess.

NUCLEAR RELATED INSURANCE

In accordance with the Price Anderson Act, the limit of liability for a
nuclear-related accident is approximately $9 billion, effective November 18,
1994. The primary layer of insurance for this liability is $200 million of
coverage provided by the commercial insurance market. The secondary coverage is
approximately $9 billion, based on the approximately 107 currently licensed
reactors in the United States. The secondary layer is based on a retrospective
premium assessment of $83.9 million per nuclear accident per licensed reactor,
payable at a rate not exceeding $10 million per year per reactor. In addition,
the retrospective premium is subject to inflation based indexing at five-year
intervals and, if the sum of all public liability claims and legal costs arising
from any nuclear accident exceeds the maximum amount of financial protection
available, then each licensee can be assessed an additional 5% ($4.2 million) of
the maximum retrospective assessment. With respect to the Seabrook Project,
Great Bay would be obligated to pay its ownership share of any assessment
resulting from a nuclear incident at any United States nuclear generating
facility. Great Bay estimates its maximum liability per nuclear accident
currently would be an aggregate amount of approximately $10.18 million per
accident, with a maximum annual assessment of about $1.21 million per incident,
per year.

In addition to the insurance required by the Price Anderson Act, the NRC
regulations require licensees, including the Seabrook Project, to carry all risk
nuclear property damage insurance in the amount of at least $1.06 billion, which
amount must be dedicated, in the event of an accident at the reactor, to the
stabilization and decontamination of the reactor to prevent significant risk to
the public health and safety.

Great Bay also independently purchases business interruption insurance from
Nuclear Electric Insurance Limited ("NEIL"). The current policy is in effect
from September 15, 1998 until April 1, 1999 and provides for the payment of a
fixed weekly loss amount of $550,000 in the event of an outage at the Seabrook
Project of more than 23 weeks resulting from the property damage occurring from
a "sudden fortuitous event, which happens by chance, is unexpected and
unforeseeable." The maximum amount payable to Great Bay is $74.4 million. Under
the terms of the policy, Great Bay is subject to a potential retrospective
premium adjustment of up to approximately $555,000 should NEIL's board of
directors deem that additional funds are necessary to preserve the financial
integrity of NEIL. Since NEIL was founded in 1980, there has been no
retrospective premium adjustment; however, there can be no assurance that NEIL
will not make retrospective adjustments in the future. The liability for this
retrospective premium adjustment ceases six years after the end of the policy
unless prior demand has been made.

NUCLEAR FUEL

The Seabrook Project's managing agent has made, or expects to make, various
arrangements for the acquisition of uranium concentrate, the conversion,
enrichment, fabrication and utilization of nuclear fuel and the disposition of
that fuel after use. Many of these arrangements are pursuant to multi-year
contracts with concentrate and service providers. Based on the Seabrook
Project's existing contractual arrangements, Great

8
<PAGE> 10

Bay believes that the Seabrook Project has available, or under supply contracts,
sufficient nuclear fuel for operations through approximately 2002. Uranium
concentrate and conversion, enrichment and fabrication services currently are
available from a variety of sources. The cost of such concentrate and such
services varies based upon market forces.

NUCLEAR WASTE DISPOSAL

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

The joint owners of the Seabrook Project, through their managing agent
NAESCO, entered into contracts with the DOE for high level waste disposal in
accordance with the NWPA. Under these contracts and the NWPA, the DOE was
required to take title to and dispose of the Seabrook Project's high level waste
beginning no later than January 31, 1998. However, the DOE has announced that
its first high level waste repository will not be in operation until 2010 at the
earliest.

As a result of this delay, many states and nuclear plant operators,
including NAESCO, sued the DOE for injunctive relief and monetary damages. Two
U.S. Courts of Appeals ordered the DOE to proceed with its high level waste
disposal obligations and ruled that plant operators are entitled to money
damages from DOE. However, there can be no assurance that the Seabrook Project
will collect damages from the DOE because, among other things, NAESCO's case
against the DOE is still pending.

In February 1999, the DOE proposed to Congress an alternative interim plan
for high level waste management. The DOE proposed to take legal title and
responsibility for the waste (on-site at nuclear plants such as Seabrook) until
a permanent repository becomes available. Regardless of whether this proposal is
adopted by Congress, nuclear plants such as Seabrook must retain high level
waste on-site or make other storage provisions until the DOE begins receiving
nuclear waste materials in accordance with the NWPA and its contracts.

The Low-Level Radioactive Waste Policy Act of 1980 requires each state to
provide disposal facilities for LLW generated within the state, either by
constructing and operating facilities or by joining regional compacts with other
states to jointly fulfill their responsibilities. However, the Low-Level
Radioactive Waste Policy Amendments Act of 1985 permits each state in which a
currently operating disposal facility is located (South Carolina, Nevada and
Washington) to impose volume limits and a surcharge on shipments of LLW from
states that are not members of their regional compact. Nevertheless, South
Carolina's recently elected governor announced his unwillingness to accept any
LLW from states outside the southeastern United States.

In April 1995, a privately owned facility in Utah was approved as a
disposal facility for certain types of LLW. The Seabrook Project began shipping
certain LLW to the Utah facility in December 1995. All LLW generated by the
Seabrook Project that exceeds the maximum radioactivity level of LLW accepted by
the Utah facility is currently stored on-site at the Seabrook facility.

DECOMMISSIONING

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

9
<PAGE> 11

Great Bay is responsible for its pro rata share of the decommissioning and
cancellation costs for Seabrook. Great Bay pays its share of decommissioning
funding on a monthly basis. The decommissioning funding schedule is determined
by the New Hampshire Nuclear Decommissioning Financing Committee (the "NDFC").
The NDFC reviews the decommissioning funding schedule for the Seabrook Project
at least annually and, for good cause, may increase or decrease the amount of
the funds or alter the funding schedule. The review of the current estimate and
funding schedule by the NDFC is scheduled to commence in the Spring of 1999.
Although the owners of the Seabrook Project, including Great Bay, are
accumulating funds in an external trust to defray decommissioning costs, these
costs could substantially exceed the value of the trust fund, and the owners,
including Great Bay, would remain liable for the excess.

In response to the New Hampshire legislation, Great Bay has agreed to make
accelerated payments to the Seabrook decommissioning fund such that Great Bay
will have contributed sufficient funds by the year 2015 to allow sufficient
monies to accumulate, with no further payments by Great Bay to the fund, to the
full estimated amount of Great Bay's decommissioning obligation by the time the
current Seabrook operating license expires in 2026. Based on the currently
approved funding schedule and Great Bay's accelerated funding schedule, Great
Bay's decommissioning payments will be approximately $1.6 million in 1999 and
escalate at 4% each year thereafter through 2015.

The current estimated cost to decommission the Seabrook Project, based on a
study performed in 1996 for the lead owner of the Seabrook Project, is
approximately $497 million in 1998 dollars and $2.2 billion in 2026 dollars,
assuming a remaining 27 year life for the facility and a future cost escalation
rate of 5.0%. Based on this estimate, the present value of Great Bay's share of
this liability as of December 31, 1998 was approximately $60.3 million.

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

ENVIRONMENTAL REGULATION

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

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

10
<PAGE> 12

year NPDES permit will remain effective during the renewal process. The EPA has
stated that it plans to complete the application review by September 1999.

On August 31, 1994, the New Hampshire Department of Environmental Services
issued to NAESCO permits to operate two auxiliary boilers and two emergency
diesel generators in accordance with New Hampshire Revised Statutes Annotated
Chapter 125-C. These permits, which were effective until August 31, 1997,
prescribe limits for the emission of air pollutants into the ambient air as well
as record keeping and other reporting criteria. NAESCO filed an application on
July 16, 1996 for permits under Title V of the Clean Air Act. Upon the
expiration of the State of New Hampshire permits, the conditions authorized by
those permits remain in effect until the Title V permits are granted. NAESCO can
not estimate when the Title V permits will be granted. Because the liabilities
of the Participants under the JOA are several and not joint, in the event that
NAESCO violates the emissions limits contained in its permits, if at all, Great
Bay is liable for its pro rata share of any costs and liabilities assessed for
the emissions violations.

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

EMPLOYEES AND MANAGEMENT

BayCorp has five employees, including its President and Chief Executive
Officer, Frank W. Getman Jr. See "Executive Officers." BayCorp's wholly-owned
subsidiary, Great Bay, has two employees.

In January 1997, BayCorp and Great Bay entered into a Management and
Administrative Services Agreement (the "Services Agreement"), pursuant to which
BayCorp provides Great Bay a full range of management services, including
general management and administration, accounting and bookkeeping, budgeting and
regulatory compliance. Under the Services Agreement, Great Bay paid BayCorp a
monthly fee of $162,000 for such services in 1998. The Services Agreement has a
one-year term and provides for automatic one-year renewals.

ITEM 2. PROPERTIES.

BayCorp's principal asset is its 100% equity interest in Great Bay. In
turn, Great Bay's principal asset is its 12.1% joint ownership interest in the
Seabrook Project. The Seabrook Project is a nuclear-fueled, steam electricity,
generating plant located in Seabrook, New Hampshire, which was planned to have
two Westinghouse pressurized water reactors, Seabrook Unit 1 and Seabrook Unit 2
(each with a rated capacity of 1,150 megawatts), utilizing ocean water for
condenser coiling purposes. Seabrook Unit 1 entered commercial service on August
19, 1990. Seabrook Unit 2 has been canceled. See "Business--The Seabrook
Project."

ITEM 3. LEGAL PROCEEDINGS.

For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement request
for tax years 1994, 1995 and 1996 were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). On December 7, 1998, Great Bay announced that it had reached an
agreement with the town of Seabrook to settle its outstanding property tax
litigation. As a result of the settlement agreement, Great Bay received
approximately $1.3 million from the town of Seabrook. In addition, the parties
agreed that the assessed value of the Seabrook Project will be

11
<PAGE> 13

reduced over the five year period of the settlement agreement from $2.3 billion
in 1998 to $1.2 billion in 2002. The joint owners of the Seabrook Project are
currently engaged in negotiations with the towns of Hampton and Hampton Falls.

In June 1998, Great Bay and PECO terminated the power marketing agreement
between the companies and Great Bay paid PECO approximately $2.5 million. During
the quarter ended June 30, 1998, Great Bay made an approximate $2.5 million
charge to income for this expense. This expense is reflected in Administrative
and General expenses in the accompanying Consolidated Statement of Income.

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

Not Applicable.

Executive Officers of the Registrant

The executive officers of BayCorp are:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frank W. Getman Jr..................... 35 Chief Executive Officer, President, and Secretary
John A. Tillinghast.................... 71 Chief Engineer, Chairman of the Board of Directors
</TABLE>

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

John A. Tillinghast has served as the Company's Chief Engineer since May
1998 and the Chairman of the Board of Directors of the Company and its
predecessor since November 1994. From April 1995 until May 1998, Mr. Tillinghast
was the Company's Chief Executive Officer. Since 1987, Mr. Tillinghast has
served as President and the sole stockholder of Tillinghast Technology
Interests, Inc., a private consulting firm. From 1986 to 1993, Mr. Tillinghast
served as Chairman of the Energy Engineering Board of the National Academy of
Sciences. He holds an M.S. in Mechanical Engineering from Columbia University.

12
<PAGE> 14

PART II

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

Following are the reported high and low sales prices of BayCorp Common
Stock ("MWH") on the American Stock Exchange ("ASE") as reported in the Wall
Street Journal daily as traded, for each quarter during 1998 and 1997 that
BayCorp Common Stock traded on the ASE and for Great Bay Common Stock ("GBPW")
on the Nasdaq National Market ("NNM") as reported in the Wall Street Journal
daily as traded, for the initial portion of the first quarter of 1997, during
which Great Bay Common Stock traded on the NNM:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter............................................ 8 7/8 7 7/8
Second Quarter........................................... 8 7
Third Quarter............................................ 8 3/8 7 3/8
Fourth Quarter........................................... 7 7/8 6 1/2
</TABLE>

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter............................................ 6 9/16 6 3/8
Second Quarter........................................... 7 1/4 7
Third Quarter............................................ 6 11/16 5 1/4
Fourth Quarter........................................... 4 3/4 3 1/2
</TABLE>

As of March 1, 1999, the Company had 30 holders of record of its Common
Stock. The Company believes that as of March 1, 1999, the Company had
approximately 403 beneficial holders of its Common Stock. The number of
beneficial owners substantially exceeds the number of record holders because
many of the Company's stockholders hold their shares in street name.

Neither the Company nor Great Bay has ever paid cash dividends on its
common stock. BayCorp currently expects that it will retain all of its future
earnings and does not anticipate paying a dividend in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA

The following table sets forth selected financial data and other operating
information of BayCorp, as successor to Great Bay. The selected financial data
presented below for periods subsequent to November 23, 1994 give effect to the
consummation of Great Bay's Fifth Amended Plan of Reorganization dated February
11, 1994, as amended by a First Amendment dated September 9, 1994 (the "Amended
Bankruptcy Plan") of the predecessor of Great Bay and to the adoption of fresh
start reporting by Great Bay as of that date in accordance with the American
Institute of Certified Public Accountants' Statement of Position 90-7 Financial
Reporting by Entities in Reorganization under the Bankruptcy Code. Accordingly,
periods prior to November 23, 1994 have been designated "Predecessor Company" or
the "Predecessor" and periods subsequent to November 23, 1994 have been
designated "Reorganized Company" or the "Company." Selected balance sheet and
statement of income (loss) data of the Predecessor Company periods are not
comparable to those of the Reorganized Company periods and a line has been drawn
in the tables to separate the Predecessor financial data from the Company
financial data.

13
<PAGE> 15

The following data presents (i) selected financial data of the Reorganized
Company as of and for the years ended December 31, 1998, December 31, 1997,
December 31, 1996, December 31, 1995, as of December 31, 1994, and for the
period from November 24, 1994 to December 31, 1994 and (ii) selected financial
data of the Predecessor company for the period from January 1, 1994 to November
23, 1994. The information below should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements, including the notes thereto,
contained elsewhere in this Report.

SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR
REORGANIZED COMPANY COMPANY
------------------------------------------------------ ------------
FOR THE YEAR ENDED NOVEMBER 24 TO JANUARY 1 TO
DECEMBER 31, DECEMBER 31, NOVEMBER 23,
------------------------------------- -------------- ------------
1998 1997 1996 1995 1994 1994
------- ------- ------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenues............. $32,034 $26,642 $30,324 $24,524 $3,129 $13,989
Fuel, Operation &
Maintenance................. 28,152 29,187 24,885 24,899 2,409 21,762
Net Income (Loss).............. (6,769) (11,215) 4,100 (6,059) 182 131,385
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, Cash Equivalents & Short
Term Investments........... 12,055 19,092 28,775 16,469 22,217
Working Capital............... 17,761 23,079 30,552 20,516 27,169
Total Assets.................. 140,358 140,158 152,418 138,771 145,666
Decommissioning Liability..... 60,274 55,846 53,215 50,899 48,530
Capitalization:
Common Equity................. 71,359 78,139 89,625 82,233 88,292
Total Capitalization.......... 71,359 78,139 89,625 82,233 88,292
</TABLE>

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

OVERVIEW

BayCorp's principal asset is its 100% equity interest in Great Bay. Great
Bay is an electric generating company whose principal asset is a 12.1% joint
ownership interest in the Seabrook Nuclear Power Project in Seabrook, New
Hampshire. Unless the context requires otherwise, references to BayCorp for
events and time periods before January 1997 reflect treatment of BayCorp as
successor to Great Bay.

BayCorp reported net losses for the years ended December 31, 1998 and
December 31, 1997 and reported net income for the year ended December 31, 1996.
The 1998 net loss was primarily due to unscheduled outages at the Seabrook
Project that occurred during the year and to the charge related to the
termination of a power marketing agreement between Great Bay and PECO. See
"Business -- Recent Developments." The 1997 net loss was primarily due to
scheduled and unscheduled outages at the Seabrook Project that occurred during
that year. The 1996 net income was primarily due to a gain of $7,036,800 from
the sale of unused steam generators from Seabrook Unit 2.

The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. Great Bay incurs losses during outage periods due to the
loss of all operating revenues and additional costs associated with the outages
as well as continuing operating and maintenance expenses and depreciation.
Unscheduled outages or operation of the unit at reduced capacity can occur due
to the automatic operation of safety systems following the detection of a
malfunction. In addition, it is possible for the unit to be shut down or
operated at reduced capacity based on the results of scheduled and unscheduled
inspections and routine surveillance by Seabrook Project personnel. It is not
possible for Great Bay to predict the frequency or duration of any future

14
<PAGE> 16

unscheduled outages, however, it is likely that such unscheduled outages will
occur. The Seabrook Project began a scheduled refueling outage on March 27,
1999. Refueling outages are generally scheduled every 18 months depending upon
the Seabrook Project capacity factor and the rate at which the nuclear fuel is
consumed.

On February 28, 1991, Great Bay filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. On November 23, 1994
(the "Confirmation Date"), a formal confirmation order by the Bankruptcy Court
with respect to Great Bay's Amended Bankruptcy Plan became effective. At that
time, Great Bay emerged from bankruptcy. As a result of the Chapter 11
proceeding and in accordance with the provisions of the Amended Bankruptcy Plan,
the capital structure of Great Bay was completely changed. In particular, as
part of its Chapter 11 proceeding, Great Bay discharged all of its pre-petition
debt, which consisted primarily of the approximately $280 million principal
amount of outstanding Notes and unpaid accrued interest on the Notes of
approximately $14 million, and raised gross proceeds of $35 million in the
Amended Bankruptcy Plan. See "Business--Bankruptcy Proceeding and
Reorganization." Thus, as a result, Great Bay's net worth increased
significantly and Great Bay was relieved of the obligation to make principal and
interest payments on the Notes.

The following discussion focuses solely on operating revenues and operating
expenses which are presented in a substantially consistent manner for all of the
periods presented. As a result of the Chapter 11 proceeding and subsequent
effectiveness of the amended Bankruptcy Plan on November 23, 1994, the 1994
Statement of Income represents separately the results of operations of Great
Bay's predecessor company prior to November 23, 1994 from the results of
operations of Great Bay after that date.

On the Confirmation Date, Great Bay adopted "Fresh Start" accounting, which
resulted in adjustments to the assets and liabilities of Great Bay to their
estimated fair values as of the Confirmation Date and includes the net proceeds
of the equity financing for the Amended Bankruptcy Plan, and eliminated
liabilities discharged under the Amended Bankruptcy Plan.

RESULTS OF OPERATIONS

Operating Revenues

BayCorp's operating revenues for 1998 increased by approximately $5.4
million, or 20.1%, to $32,034,000 as compared with $26,642,000 for 1997. This
increase was primarily due to less scheduled and unscheduled outage time at the
Seabrook Project during 1998. During 1998, the capacity factor at the Seabrook
Project was 83.3% of the rated capacity as compared to a capacity factor of
78.3% for 1997. Operating revenues and capacity factor were adversely impacted
in 1997 by the scheduled refueling outage at the Seabrook Project that began on
May 10, 1997, lasting 50 days, and by the unscheduled outage that began on
December 5, 1997, lasting 41 days. In contrast, there was no refueling outage in
1998; however, the Seabrook Project had approximately 64 unscheduled outage days
in 1998.

Sales of electricity increased by approximately 9.4% to 1,054,203,800
kilowatt-hours in 1998 as compared to 964,038,400 kilowatt-hours in 1997.
Operating revenues were favorably affected in 1998 by an increase in the sales
price per kWh. During 1998, the sales price per kWh (determined by dividing
total sales revenue by the total number of kWhs sold in the applicable period)
increased 10.1% to 3.04 cents per kWh as compared with 2.76 cents per kWh in
1997. Great Bay's cost of power (determined by dividing total operating expenses
by Great Bay's 12.1% share of the power produced by the Seabrook Project during
the applicable period) decreased 7.6% to 3.54 cents per kWh in 1998 as compared
to 3.83 cents per kWh in 1997. This decrease was primarily the result of the
higher capacity factor at the Seabrook Project during 1998 as compared to 1997.
Scheduled and unscheduled outage time increases Great Bay's cost of power
because Seabrook costs are spread over fewer kWhs. In addition, prices obtained
for the Company's approximately 120 MW of power not committed under long term
contracts increased 12.8% to 2.90 cents per kWh from 2.57 cents per kWh in 1997.

BayCorp's operating revenues for 1997 decreased by approximately $3.7
million, or 12.1%, to $26,642,000 as compared with $30,324,000 for 1996. This
decrease was primarily due to the scheduled and unscheduled

15
<PAGE> 17

outages at the Seabrook Project during 1997. During 1997, the capacity factor at
the Seabrook Project was 78.3% of the rated capacity as compared to a capacity
factor of 96.5% for 1996. Operating revenues and capacity factor were adversely
impacted in 1997 by the scheduled refueling outage referred to above. In
contrast, there was only a brief unscheduled outage in January and February of
1996.

Sales of electricity decreased by approximately 19.3% to 964,038,400
kilowatt-hours in 1997 as compared to 1,194,391,000 kilowatt-hours in 1996.
Operating revenues were favorably affected in 1997 by an increase in the sales
price per kWh. During 1997 the sales price per kWh increased 9.1% to 2.76 cents
per kWh as compared with 2.53 cents per kWh in 1996. Great Bay's cost of power
increased 40.8% to 3.83 cents per kWh in 1997 as compared to 2.72 cents per kWh
in 1996. This increase was primarily the result of the lower capacity factor at
the Seabrook Project due to the scheduled and unscheduled outages in 1997 and
the associated costs of these outages.

Expenses

BayCorp's total operating expenses (excluding depreciation and taxes) for
1998 increased $1.4 million, or 5.1%, in comparison with 1997. This increase was
primarily the result of the costs associated with the unscheduled outages in
1998, including Great Bay's purchased power expenses of approximately $1.0
million that covered firm sales of approximately $1.2 million during unscheduled
outages in 1998. As Great Bay enters into more sales transaction agreements to
supply firm power, Great Bay's expenses to purchase power to cover firm power
obligations during unscheduled outages may increase. Purchased power expenses
may also increase as Great Bay may purchase power in the open market to resell
to a third party.

Operating expenses were also adversely impacted by payments to PECO of
approximately $3.1 million in 1998, which included the charge related to the
termination of the power marketing agreement with PECO for approximately $2.5
million in June 1998. See "--Recent Developments." Charges for PECO's marketing
service in 1997 were approximately $1.8 million. In addition, depreciation and
amortization increased $148,000, or 4.2%. Taxes other than income decreased $1.2
million, or 29.2%, in 1998 as compared to 1997 due to the Seabrook Project
property tax settlement that resulted in a property tax refund to Great Bay in
December 1998 of approximately $1.3 million. See " --Recent Developments."

Other Income decreased $516,000, or 52.8%, in 1998 as compared to 1997.
This decrease was primarily attributable to interest income, which decreased
$314,000, or 25.1%, in 1998 as compared to 1997. This decrease was attributable
to the lower cash balances in 1998 as compared to 1997. Decommissioning cost
accretion increased $210,000, or 7.9%, to $2.9 million in 1998 as compared to
$2.7 million in 1997. This accretion is a non-cash charge that reflects Great
Bay's liability related to the closure and decommissioning of the Seabrook
Project in current year dollars over the licensing period during which the
Seabrook Project is licensed to operate. Decommissioning trust fund income
increased $143,000, or 30.4%, to $613,000 in 1998 as compared to $470,000 in
1997. The increase in interest earned on the decommissioning trust fund
reflected the higher 1998 fund balance as Great Bay continues to make
contributions to the decommissioning trust fund.

BayCorp's total operating expenses (excluding depreciation and taxes) for
1997 increased $4.3 million, or 17.3%, in comparison with 1996. This increase
was primarily the result of the costs associated with the scheduled refueling
outage in 1997 that lasted 50 days and the unscheduled outage that began on
December 5, 1997 and lasted 41 days. There was a slight increase in depreciation
and amortization (1.7%) and a slight decrease in taxes other than income (1%),
from 1996 to 1997.

Other Income decreased $7.3 million, or 115 %, in 1997 as compared to 1996.
This decrease was primarily attributable to a $7.0 million gain on the sale in
July 1996 of four unused steam generators from Seabrook Unit 2. Great Bay had
previously written off its investment in Seabrook Unit 2. There were no material
sales of Unit 2 assets in 1997. Decommissioning cost accretion increased
$402,000, to $2,663,000 in 1997 as compared to $2,261,000 in 1996, primarily due
to the revised decommissioning funding schedule for the Seabrook Project
approved by the New Hampshire Nuclear Decommissioning Financing Committee on
October 30, 1996. The new study increased the present value of total
decommissioning costs as of January 1, 1997 and increased the cost escalation
rate from 4.25% to 5%. Decommissioning trust fund income increased

16
<PAGE> 18

$142,000, or 43.3%, to $470,000 in 1997 as compared to $328,000 in 1996,
reflecting the higher 1997 fund balance as compared to the 1996 balance.

Net Operating Losses

For federal income tax purposes, as of December 31, 1998, the Company had
net operating loss carry forwards ("NOLs") of approximately $210 million, which
are scheduled to expire between 2005 and 2013. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 million of the Company's NOLs is approximately $5.5 million per year. Any
unused portion of the $5.5 million annual limitation applicable to the Company's
restricted NOL's is available for use in future years until such NOL's are
scheduled to expire. The Company's other $74 million of NOLs are not currently
subject to such limitations.

LIQUIDITY AND CAPITAL RESOURCES

Great Bay currently sells most of its power in the Northeast United States
short-term wholesale power market. The cash generated from electricity sales by
Great Bay has been less than the Company's ongoing cash requirements. The
Company may continue to incur cash deficits. Great Bay intends to cover such
deficits with its cash and short-term investments which totaled approximately
$12.1 million at December 31, 1998. If the Seabrook Project operates at a
capacity factor below historical levels, or if expenses associated with the
ownership or operation of the Seabrook Project, including without limitation
decommissioning costs, are materially higher than anticipated, or if the prices
at which Great Bay is able to sell its share of the Seabrook Project electricity
do not increase at the rates and within the time expected by Great Bay, Great
Bay would be required to raise additional capital, either through a debt
financing or an equity financing, to meet its ongoing cash requirements.
Nonetheless, there can be no assurance that BayCorp will be able to raise
additional capital on acceptable terms or at all.

BayCorp's principal asset available to serve as collateral for borrowings
is Great Bay's 12.1% interest in the Seabrook Project. Pursuant to a purchased
power agreement, dated as of April 1, 1993, between Great Bay and UNITIL Power
Corp., Great Bay's interest in the Seabrook Project is encumbered by a mortgage.
This mortgage may be subordinated to up to $80 million of senior secured
financing. See "Business--Purchased Power Agreements."

BayCorp's cash and short-term investments decreased approximately $7
million during 1998. The principal factor affecting liquidity during 1998 was
the reduced operating income discussed above. Non-cash charges to income
included $3.7 million for depreciation, $4.1 million for nuclear fuel
amortization, $2.9 million for decommissioning trust fund accretion and an
increase in miscellaneous current liabilities of $2.2 million due to the 1998
accrual for expenses associated with the scheduled March 1999 refueling outage
at the Seabrook Project. Offsetting these non-cash charges to income were cash
charges including a $2.6 million increase in December 1998 accounts receivable
as compared to December 1997 accounts receivables. 1998 year end receivables
reflected December's capacity factor of 91.2% as compared to 1997 year end
receivables that reflected December 1997's capacity factor of 14.8%. Other cash
charges included an increase in prepaids of $1.6 million primarily due to the
timing of Seabrook funding and charges of $7 million for Great Bay's portion of
capital expenditures for plant and nuclear fuel. Also in 1998, BayCorp purchased
80,800 shares of the Company's Common Stock for an aggregate of $460,689 or an
average of $5.70 per share.

Little Bay and Montaup are working to obtain required regulatory approvals
in connection with Little Bay's agreement with Montaup to purchase Montaup's 3%
interest in the Seabrook Project. If the parties obtain all required regulatory
approvals, the parties intend to complete the transaction and Little Bay would
pay approximately $3.2 million to Montaup.

Great Bay's 1998 decommissioning payments totaled approximately $1.3
million. The decommissioning funding schedule is determined by the NDFC, which
reviews the schedule for the Seabrook Project at least annually. Great Bay
expects to use revenues from the sale of power to make these decommissioning
payments.

17
<PAGE> 19

In June 1998, the New Hampshire State legislature enacted legislation that
provides that in the event of a default by Great Bay on its payments to the
decommissioning fund, the other Seabrook joint owners would be obligated to pay
their proportional share of such default. In response to the New Hampshire
legislation, Great Bay has agreed to make accelerated payments to the Seabrook
decommissioning fund such that Great Bay will have contributed sufficient funds
by the year 2015 to allow sufficient monies to accumulate, with no further
payments by Great Bay to the fund, to the full estimated amount of Great Bay's
decommissioning obligation by the time the current Seabrook operating license
expires in 2026. As a result of these developments, the NRC staff found that
Great Bay complies with the decommissioning funding assurance requirements. See
"Business--Decommissioning."

Great Bay anticipates that its share of the Seabrook Project's capital
expenditures for the 1999 fiscal year will total approximately $3.4 million for
nuclear fuel and various capital projects. In addition, Great Bay is required
under the JOA to pay its share of Seabrook Unit 1 and Seabrook Unit 2 expenses,
including, without limitation, operation and maintenance expenses, construction
and nuclear fuel expenditures and decommissioning costs, regardless of the level
of Seabrook Unit 1's operations. Seabrook Project expenses to preserve and
protect Unit 2 assets are approximately $435,000 per year, of which Great Bay's
share is approximately $52,600 per year.

For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the three New Hampshire towns in which
the Seabrook Project is located. In December 1998, Great Bay announced that it
had reached an agreement with the town of Seabrook to settle its outstanding
property tax litigation. As a result of the settlement agreement, Great Bay
received approximately $1.3 million from the town of Seabrook. In addition, the
parties agreed that the assessed value of the Seabrook Project will be reduced
over the five year period of the settlement agreement from $2.3 billion in 1998
to $1.2 billion in 2002. Great Bay and the other joint owners are currently
engaged in settlement negotiations with the towns of Hampton and Hampton Falls.
See "--Legal Proceedings."

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of BayCorp and/or Great Bay to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth below and elsewhere in this Annual Report.

Ownership of a Single Asset. BayCorp's principal asset is its 100% equity
interest in Great Bay. Great Bay owns a single principal asset, a 12.1% joint
interest in the Seabrook Nuclear Power Project in Seabrook, New Hampshire.
Accordingly, BayCorp's results of operations are completely dependent upon the
successful and continued operation of the Seabrook Project. In particular, if
the Seabrook Project experiences unscheduled outages of significant duration,
Great Bay's results of operations will be materially adversely affected.

History of Losses. BayCorp has never reported an operating profit for any
year since its incorporation. Historically, sales at short-term rates have not
resulted in sufficient revenue to enable BayCorp to meet its cash requirements
for operations, maintenance and capital related costs. There can be no assurance
that Great Bay will be able to sell power at prices that will enable it to meet
its cash requirements.

Liquidity Needs. As of December 31, 1998, BayCorp had approximately $12.1
million in cash and cash equivalents and short-term investments. The Company
believes that such cash, together with the anticipated proceeds from the sale of
electricity by Great Bay, will be sufficient to enable the Company to meet its
cash requirements until the prices at which Great Bay can sell its electricity
increase sufficiently to enable the Company to cover its annual cash
requirements. However, if the Seabrook Project operated at a capacity factor
below historical levels, or if expenses associated with the ownership or
operation of the Seabrook Project, including without limitation decommissioning
costs, are materially higher than anticipated, or if the

18
<PAGE> 20

prices at which Great Bay is able to sell its share of the Seabrook Project
electricity do not increase at the rates and within the time expected by Great
Bay, Great Bay or the Company would be required to raise additional capital,
either through a debt financing or an equity financing, to meet ongoing cash
requirements. There is no assurance that Great Bay or the Company would be able
to raise such capital or that the terms on which any additional capital is
available would be acceptable. If additional funds are raised by issuing equity
securities, dilution to then existing stockholders will result.

Changes in the New England Wholesale Power Market. During recent years in
New England, the combination of (1) increased competition in the wholesale power
market, (2) small increases in the demand for electricity and (3) electric
industry deregulation has resulted in increased uncertainty regarding the price
of electricity in the wholesale power market. Although Great Bay's average
selling price per kWh (determined by dividing total sales revenue by the total
number of kWhs sold in the applicable period) increased from 2.58 cents in 1996
to 2.76 cents in 1997 and 3.04 cents in 1998, there can be no assurance that
Great Bay will be able to sell its power at these prices or higher prices in the
future.

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

In addition, the failure to make monthly payments under the JOA by owners
of the Seabrook Project other than Great Bay may have a material adverse effect
on Great Bay. For example, Great Bay could opt to pay a greater proportion of
the Seabrook Project expenses in order to preserve the value of its share of the
Seabrook Project. In the past, certain of the owners of the Seabrook Project
other than Great Bay have not made their full respective payments. The electric
utility industry is undergoing significant changes as competition and
deregulation are introduced into the marketplace. Some utilities, including
certain Participants, have indicated in state regulatory proceedings that they
may be forced to seek bankruptcy protection if regulators, as part of the
industry restructuring, do not allow for full recovery of stranded costs. If a
Participant other than Great Bay filed for bankruptcy and that Participant was
unable to pay its share of Seabrook Project expenses, Great Bay might opt to pay
a greater portion of Seabrook Project expenses in order to preserve the value of
its share of the Seabrook Project. In the past, the filing of bankruptcy by a
Participant has not resulted in a failure to pay Seabrook Project expenses or an
increase in the percentage of expenses paid by other Participants.

The Seabrook Project is owned by Great Bay and the other owners thereof as
tenants in common, with the various owners holding varying ownership shares.
This means that Great Bay, which owns only a 12.1% interest, does not have
control of the management of the Seabrook Project. As a result, decisions may be
made affecting the Seabrook Project notwithstanding Great Bay's opposition.

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

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

19
<PAGE> 21

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

Risk of Nuclear Accident. Nuclear reactors have been used to generate
electric power for more than 35 years and there are currently more than 100
nuclear reactors used for electric power generation in the United States.
Although the safety record of these nuclear reactors in the United States
generally has been very good, accidents and other unforeseen problems have
occurred both in the United States and elsewhere, including the well-publicized
incidents at Three Mile Island in Pennsylvania and Chernobyl in the former
Soviet Union. The consequences of such an accident can be severe, including loss
of life and property damage, and the available insurance coverage may not be
sufficient to pay all the damages incurred.

Public Controversy Concerning Nuclear Power Plants. Substantial controversy
has existed for some time concerning nuclear generating plants and over the
years such opposition has led to construction delays, cost overruns, licensing
delays, demonstrations and other difficulties. The Seabrook Project was the
subject of significant public controversy during its construction and licensing
and remains controversial. An increase in public concerns regarding the Seabrook
Project or nuclear power in general could adversely affect the operating license
of Seabrook Unit 1. While Great Bay cannot predict the ultimate effect of such
controversy, it is possible that it could result in a premature shutdown of the
unit.

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

The Seabrook Project increased its on-site storage capacity for low level
waste ("LLW") in 1996 and that capacity is expected to be sufficient to meet the
Project's storage requirements through 2006. In addition, the managing agent of
the Seabrook Project has advised Great Bay that the Seabrook Project has
adequate on-site storage capacity for high level waste until approximately 2010.
If the Seabrook Project were unable to store nuclear waste on site or make other
disposal provisions, the Company's business, results of operations and financial
condition would be materially and adversely affected. See "Business--Nuclear
Waste Disposal."

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

Intense Competition. Great Bay sells its share of Seabrook Project
electricity primarily into the Northeast United States wholesale electricity
market. There are a large number of suppliers to this market and competition is
intense. A primary source of competition comes from traditional utilities, many
of which

20
<PAGE> 22

presently have excess capacity. In addition, non-utility wholesale generators of
electricity, such as IPPs, QFs and EWGs, as well as power marketers and brokers,
actively sell electricity in this market. Great Bay may face increased
competition, primarily based on price, from all sources in the future.

Year 2000. The "Year 2000" issue relates to computer systems and software
that cannot determine whether "00" means the year 1900 or 2000. Systems or
software that cannot properly process year 2000 dates could give rise to
failures or create erroneous results that in turn could have a material adverse
effect on the Company's business, operations, financial results and liquidity.

The Company relies on the operation of the Seabrook Project for nearly all
of its revenue. Accordingly, the Company's major exposure for year 2000 problems
is the effect of a plant shutdown partially or completely caused by a year 2000
problem. In addition, year 2000 issues could adversely affect electricity
metering, transmission, billing or other business processes.

The Company does not operate the Seabrook Project. Rather, the joint
owners of the plant, including Great Bay, have contracted with NAESCO, a
subsidiary of Northeast Utilities, to operate the plant. Northeast Utilities, in
conjunction with certain of its affiliates, holds the largest joint ownership
interest in the Seabrook Project.

According to January 1999 estimates provided by NAESCO, Great Bay's share
of costs to address year 2000 issues at the Seabrook Project will be
approximately $410,000. As of December 31, 1998, Great Bay's share of costs to
address year 2000 issues at the Seabrook Project was approximately $229,000.
Great Bay has funded these expenses from its operating revenues.

In assessing year 2000 issues associated with the Seabrook Project, NAESCO,
as of December 31, 1998:

- developed and implemented a detailed millennium project plan;

- completed its inventory, analysis and planning for millennium items,
identifying approximately 1,325 separate items and determining that 71%
can be accepted as modified to date or without modification and 29%
require further testing, modification or replacement; and

- worked with the NRC in connection with the NRC's year 2000 audit of the
Seabrook plant, which occurred from September 29, 1998 through October
1, 1998.

NAESCO has defined a schedule to implement all year 2000 corrective
actions. A number of critical remediation tasks still must be accomplished, most
of which are scheduled for completion by June 1999 and some of which are
scheduled for completion by September 1999. Some of the more important remaining
tasks include NAESCO's plans to:

- upgrade IBM mainframe software, and IDMS and INQUIRE database management
systems, to year 2000-compliant releases;

- develop contingency plans; and

- complete critical supplier and embedded systems remediation projects.

NAESCO commenced year 2000 efforts relating to the Seabrook Project in
October 1996. NAESCO's Seabrook millennium project plan acknowledges that if,
for example, a technical requirement or regulatory commitment is missed or if,
for example, a critical supplier does not provide a service, NAESCO, as operator
of the Seabrook Project, will need to take collective action, which could
include an unscheduled shutdown of the plant.

In April 1998 the NRC requested that all licensed nuclear power plant
operators provide to the NRC, by July 1, 1999, written certification that their
facilities are year 2000-ready and in compliance with the terms and conditions
of their licenses, NRC regulations and the principles outlined in an August 1997
NRC nuclear utility year 2000 readiness document. If the plant is not ready,
plans and schedules to become ready must be submitted to the NRC. The Company
believes that NAESCO's year 2000 efforts at the Seabrook Project are designed to
meet or exceed NRC requirements.

The dates on which NAESCO believes its year 2000 compliance efforts will be
completed are based on NAESCO management's best estimates, which were derived
utilizing numerous assumptions of future events,

21
<PAGE> 23

including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved or that there will not be a delay in, or
increased costs associated with, the implementation of the year 2000 compliance
efforts. Specific factors that might cause differences between the estimates and
actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability to locate and correct all relevant
computer code, timely responses to and corrections by third parties and
suppliers, the ability to implement interfaces between the new systems and the
systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third-parties and the interconnection
of global businesses, the Company cannot ensure that efforts to timely and
cost-effectively resolve year 2000 issues will be successful. If year 2000
compliance efforts are unsuccessful or incomplete, or if costs exceed NAESCO's
estimates, the Company's business, operations, financial results and liquidity
could be materially and adversely affected.

The majority of the necessary modifications to the Company's centralized
financial, customer and operational information systems (as opposed to those at
the Seabrook Project) were completed by the end of 1998. The Company believes it
will incur minimal year 2000 remediation costs associated with its centralized
systems.

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

The Company does not believe that there is any material market risk
exposure with respect to derivative or financial instruments that would require
disclosure under this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

(a) Directors. The information with respect to directors required under
this item is incorporated herein by reference to the section captioned "Election
of Directors" in the Company's Proxy Statement with respect to the Annual
Meeting of Stockholders to be held on April 28, 1999.

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

ITEM 11. EXECUTIVE COMPENSATION.

The information required under this item is incorporated herein by
reference to the sections entitled "Election of Directors -- Compensation for
Directors," "-- Executive Compensation," "-- Option Repricing," "-- Compensation
Committee Report on Option Repricing," "-- Employment Agreements," "--Report of
the Compensation Committee" and "-- Stock Performance Graph" in the Company's
Proxy Statement with respect to the Annual Meeting of Stockholders to be held on
April 28, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required under this item is incorporated herein by
reference to the section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement with respect to the
Annual Meeting of Stockholders to be held on April 28, 1999.

22
<PAGE> 24

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required under this item is incorporated herein by
reference to the section entitled "Election of Directors--Employment Agreements"
in the Company's Proxy Statement with respect to the Annual Meeting of
Stockholders to be held on April 28, 1999.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Documents filed as a part of this Form 10-K:

1. Financial Statements. The Consolidated Financial Statements listed in
the Index to Consolidated Financial Statements and Financial Statement Schedules
are filed as part of this Annual Report on Form 10-K.

2. Financial Statement Schedules. The Financial Statement Schedules
listed in the Index to Consolidated Financial Statements and Financial Statement
Schedules are filed as part of this Annual Report on Form 10-K.

3. Exhibits. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual Report on Form 10-K.

(b) Reports on Form 8-K:

None.

23
<PAGE> 25

INDEX TO FINANCIAL STATEMENTS

BAYCORP HOLDINGS, LTD.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-2
Consolidated Statements of Income and Comprehensive Income
--
Years Ended December 31, 1998, December 31, 1997 and
December 31, 1996......................................... F-3
Consolidated Statements of Changes in Stockholders' Equity
--
Years Ended December 31, 1998, December 31, 1997 and
December 31, 1996......................................... F-4
Consolidated Statements of Cash Flows --
Years Ended December 31, 1998, December 31, 1997 and
December 31, 1996......................................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
<PAGE> 26

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
BayCorp Holdings, Ltd.

We have audited the accompanying consolidated balance sheets of BayCorp
Holdings, Ltd. (a Delaware corporation) and its wholly-owned subsidiaries, as of
December 31, 1998 and 1997, and the related consolidated statements of income
and comprehensive income, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BayCorp
Holdings, Ltd. and its wholly owned subsidiaries as of December 31, 1998 and
1997, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 2, 1999

F-1
<PAGE> 27

BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash & Cash equivalents................................... $ 2,559 $ 3,270
Short-term Investments, at market......................... 9,496 15,822
Accounts Receivable....................................... 3,051 465
Materials & Supplies, net................................. 3,633 3,816
Prepayments & Other Assets................................ 3,177 1,570
-------- --------
Total Current Assets.............................. 21,916 24,943
-------- --------
Property, Plant, & Equipment:
Utility Plant............................................. 112,325 108,584
Less: Accumulated Depreciation............................ (12,785) (9,758)
-------- --------
Net Utility Plant......................................... 99,540 98,826
Nuclear Fuel.............................................. 19,390 15,076
Less: Accumulated Amortization............................ (10,821) (6,717)
-------- --------
Net Nuclear Fuel.......................................... 8,569 8,359
Net Property, Plant & Equipment...................... 108,109 107,185
Other Assets:
Decommissioning Trust Fund................................ 10,329 8,025
Deferred Debits & Other................................... 4 5
-------- --------
Total Other Assets................................... 10,333 8,030
-------- --------
TOTAL ASSETS...................................... $140,358 $140,158
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses..................... $ 394 $ 270
Miscellaneous Current Liabilities......................... 3,761 1,594
-------- --------
Total Current Liabilities.............................. 4,155 1,864
Operating Reserves:
Decommissioning Liability................................. 60,274 55,846
Miscellaneous Other....................................... 502 564
-------- --------
Total Operating Reserves............................... 60,776 56,410
Other Liabilities & Deferred Credits........................ 4,068 3,745
Commitments & Contingencies Stockholders' Equity:
Common stock, $.01 par value
Authorized -- 20,000,000 shares; issued and outstanding
--
8,417,800 at December 31, 1998 and December 31, 1997... 84 84
Less: Treasury Stock -- 225,800 and 145,000 shares,
respectively, at cost.................................. (1,629) (1,168)
Additional paid-in capital................................ 92,100 92,100
Accumulated Other Comprehensive Income.................... 565 115
Accumulated Deficit....................................... (19,761) (12,992)
-------- --------
Total Stockholders' Equity........................... 71,359 78,139
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $140,358 $140,158
======== ========
</TABLE>

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

F-2
<PAGE> 28

BAYCORP HOLDINGS, LTD.

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

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating Revenues...................................... $ 32,034 $ 26,642 $ 30,324
Operating Expenses:
Production............................................ 20,775 20,805 17,141
Transmission.......................................... 880 857 880
Purchased Power....................................... 1,046 -- --
Administrative & General.............................. 7,988 7,525 6,864
Depreciation & Amortization........................... 3,656 3,508 3,451
Taxes other than Income............................... 2,965 4,185 4,227
---------- ---------- ----------
Total Operating Expenses........................... 37,310 36,880 32,563
---------- ---------- ----------
Operating Income (Loss)................................. (5,276) (10,238) (2,239)
---------- ---------- ----------
Other (Income) Deductions:
Interest and Dividend Income.......................... (938) (1,252) (1,267)
Decommissioning Cost Accretion........................ 2,873 2,663 2,261
Decommissioning Trust Fund Income..................... (613) (470) (328)
Unit 2 Sales and Other Deductions (Income)............ 171 36 (7,005)
---------- ---------- ----------
Total Other (Income) Deductions.................... 1,493 977 (6,339)
---------- ---------- ----------
Earnings (Loss) Before Income Taxes..................... (6,769) (11,215) 4,100
---------- ---------- ----------
Provision for Income Taxes.............................. 0 0 0
---------- ---------- ----------
Net Income (Loss)....................................... ($ 6,769) ($ 11,215) $ 4,100
Other Comprehensive Income (Expense), net of tax........ 449 264 (148)
---------- ---------- ----------
Comprehensive Income (Loss)............................. ($ 6,320) ($ 10,951) $ 3,952
========== ========== ==========
Weighted Average Shares Outstanding..................... 8,242,858 8,292,534 8,083,576
Basic and Diluted Earnings / (Loss) Per Share........... $ (0.82) $ (1.35) $ 0.51
</TABLE>

(The accompanying notes are an integral part of these consolidated statements.)
F-3
<PAGE> 29

BAYCORP HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON
STOCK, $.01 PAR
VALUE
------------------------- LESS:
TREASURY ACCUMULATED
ISSUED AND ISSUED AND STOCK ADDITIONAL OTHER TOTAL
OUTSTANDING OUTSTANDING ----------------- PAID-IN COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME EARNINGS EQUITY
----------- ----------- ------- ------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... 8,000,000 $80 -- -- $88,030 -- $ (5,877) $82,233
Treasury Stock, at
cost.................. -- -- 78,045 $ (633) -- -- -- (633)
Sale of Common Stock.... 417,800 4 -- -- 4,070 -- -- 4,074
Net Change in Unrealized
Holding Loss.......... -- -- -- -- -- ($ 148) -- (148)
Financial Results,
January 1 to to
December 31, 1996..... -- -- -- -- -- -- 4,100 4,100
--------- --- ------- ------- ------- ------ -------- -------
Balance at December 31,
1996.................... 8,417,800 84 78,045 (633) 92,100 (148) (1,777) 89,626
Treasury Stock -- 66,955
shares, at cost....... -- -- 66,955 (535) -- -- -- (535)
Net Change in Unrealized
Holding Gain.......... -- -- -- -- -- 264 -- 264
Financial Results,
January 1 to to
December 31, 1997..... -- -- -- -- -- -- (11,215) (11,215)
--------- --- ------- ------- ------- ------ -------- -------
Balance at December 31,
1997.................... 8,417,800 84 145,000 (1,168) 92,100 116 (12,992) 78,140
Treasury Stock -- 80,800
shares, at cost....... -- -- 80,800 (461) -- -- -- (461)
Net Change in Unrealized
Holding Gain.......... -- -- -- -- -- 449 -- 449
Financial Results,
January 1 to to
December 31, 1998..... -- -- -- -- -- -- (6,769) (6,769)
--------- --- ------- ------- ------- ------ -------- -------
Balance at December 31,
1998.................... 8,417,800 $84 225,800 $(1,629) $92,100 $ 565 $(19,761) $71,359
========= === ======= ======= ======= ====== ======== =======
</TABLE>

(The accompanying notes are an integral part of these consolidated statements.)
F-4
<PAGE> 30

BAYCORP HOLDINGS, LTD.

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

<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- -------
<S> <C> <C> <C>
Net cash flow from operating activities:
Net Income (Loss)......................................... ($ 6,769) ($ 11,215) $ 4,100
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation........................................... 3,656 3,508 3,451
Amortization of nuclear fuel........................... 4,104 4,010 4,366
Decommissioning trust accretion........................ 2,873 2,663 2,261
Decommissioning trust interest......................... (617) (470) (357)
Gain on sale of assets................................. 0 0 (7,061)
(Increase) decrease in accounts receivable............. (2,586) 2,463 (1,393)
(Increase) decrease in materials & supplies............ 4 124 (70)
(Increase) decrease in prepaids and other assets....... (1,607) (1,117) 818
Increase (decrease) in accounts payable................ 124 140 (107)
Increase (decrease) in taxes accrued................... 0 (1,504) 211
Increase (decrease) in misc. current liabilities....... 2,167 (2,477) 2,635
Other.................................................. 374 435 530
-------- --------- -------
Net cash provided by (used in) operating activities......... 1,723 (3,440) 9,384
-------- --------- -------
Net cash flows (used in) investing activities:
Utility plant additions................................... (2,700) (2,555) (1,486)
Nuclear fuel additions.................................... (4,314) (1,970) (5,144)
Payments to decommissioning fund.......................... (1,343) (1,106) (994)
Proceeds from sale of Unit 2 assets....................... 0 0 7,061
Short term investments, net............................... 6,384 (3,535) (4,724)
-------- --------- -------
Net cash used in investing activities....................... (1,973) (9,166) (5,287)
Net cash provided by financing activities:
Sale of common stock...................................... 0 0 4,074
Reacquired capital stock.................................. (461) (535) (633)
-------- --------- -------
Net cash (used in) provided by financing activities......... (461) (535) 3,441
-------- --------- -------
Net increase (decrease) in cash and cash equivalents........ (711) (13,141) 7,538
Cash and cash equivalents, beginning of period.............. 3,270 16,411 8,873
-------- --------- -------
Cash and cash equivalents, end of period.................... $ 2,559 $ 3,270 $16,411
======== ========= =======
</TABLE>

(The accompanying notes are an integral part of these consolidated statements.)
F-5
<PAGE> 31

BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. THE COMPANY

BayCorp Holdings, Ltd. ("BayCorp" or the "Company") serves as a holding
company for Great Bay Power Corporation ("Great Bay"). Great Bay is an electric
generating company whose principal asset is a 12.1% joint ownership interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay is an exempt wholesale generator under the Public Utility
Holding Company Act of 1935 ("PUHCA"). Unlike regulated public utilities, Great
Bay has no franchise area or captive customers. Great Bay sells its power in the
competitive wholesale power markets. In addition, BayCorp owns Little Bay Power
Corporation ("Little Bay"). Little Bay was formed in connection with a pending
acquisition of an additional 3% interest in the Seabrook Nuclear Power Project.
Little Bay has no assets or liabilities and had no operations in 1998.

Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly-formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. Currently,
Great Bay and Little Bay are the only subsidiaries of BayCorp. BayCorp's
principal asset is its 100% equity interest in Great Bay. The new corporate
structure enables BayCorp, either directly or through subsidiaries other than
Great Bay or Little Bay, to engage in businesses that these subsidiaries would
be prohibited from pursuing due to their status as exempt wholesale generators
under the PUHCA.

BayCorp was incorporated in Delaware in 1996. Great Bay was incorporated in
New Hampshire in 1986 and was formerly known as EUA Power Corporation (the
"Predecessor"). Great Bay sells its share of the electricity output of the
Seabrook Project in the wholesale electricity market, primarily in the Northeast
United States. Neither BayCorp nor Great Bay has operational responsibilities
for the Seabrook Project. Great Bay's share of the Seabrook Project capacity is
approximately 140 megawatts ("MW"). Great Bay currently sells all but
approximately 10 MW of its share of the Seabrook Project capacity in the
wholesale short-term market. Little Bay was incorporated in New Hampshire in
1998.

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

The Seabrook Project is owned by Great Bay and ten other utility companies,
consisting of North Atlantic Energy Company, Connecticut Light and Power, The
United Illuminating Company, Canal Electric Company, Massachusetts Municipal
Wholesale Electric Company, Montaup Electric Company, New England Power Company,
New Hampshire Electric Cooperative, Inc., Taunton Municipal Lighting Plant and
Hudson Light & Power Department (together with Great Bay, the "Participants").
Great Bay and the other Participants are parties to the Agreement for Joint
Ownership, Construction and Operation of New Hampshire Nuclear Units (the "JOA")
which establishes the respective ownership interests of the Participants in the
Seabrook Project and defines their responsibilities with respect to the ongoing
operation, maintenance and decommissioning of the Seabrook Project. In general,
all ongoing costs of the Seabrook Project are divided proportionately among the
Participants in accordance with their ownership interests in the Seabrook
Project. Each Participant is only liable for its share of the Seabrook Project's
costs and not liable for any other Participant's share as ownership interests in
the Seabrook Project are several and not joint. Great

F-6
<PAGE> 32
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

Bay's joint ownership interest of 12.1% is the third largest interest among the
Participants, exceeded only by the approximately 40% interest held by Northeast
Utilities and its affiliates and the 17.5% interest held by The United
Illuminating Company.

Great Bay's business strategy is to utilize unit contingent and firm
forward sales contracts to maximize the value of its 140 MW power supply from
the Seabrook Project. Traditionally, Great Bay sold most of its share of the
Seabrook Project electricity output under unit contingent contracts. Under unit
contingent contracts, Great Bay is obligated to provide the buyer with power
only when the Seabrook Project is operating. In late 1998, Great Bay began to
sell some of its electricity as firm power, which entitles the buyer to
electricity whether or not the Seabrook Project is operating. Buyers pay a
premium for firm power over unit contingent power because they can rely on
uninterrupted electricity. In order to supply firm power during Seabrook
unscheduled outages, Great Bay purchases power from the spot market during these
outages and resells that power to its firm power customers. Spot market sales
are subject to price fluctuations based on the relative supply and demand of
electricity. As a result of spot market power price fluctuations, Great Bay may
have to purchase power at prices exceeding prices paid by Great Bay's firm power
customers during outages. Although Great Bay bears the primary risk of these
price fluctuations, Great Bay maintains insurance to protect Great Bay during
periods of extreme price volatility. This insurance, provided by CIGNA, provides
up to $30 million of coverage through May 2002.

As of March 1, 1999, BayCorp had five employees, including its President
and Chief Executive Officer, Frank W. Getman Jr. and its Chairman of the Board
and past President, John A. Tillinghast. BayCorp's wholly-owned subsidiary,
Great Bay, has two employees. Little Bay has no employees.

B. BANKRUPTCY PROCEEDING AND REORGANIZATION

Great Bay's predecessor, EUA Power Corporation, filed a voluntary petition
for reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Hampshire on February 28,
1991. Great Bay conducted its business as a Debtor in Possession until November
23, 1994, at which time Great Bay's Amended Bankruptcy Plan became effective and
Great Bay emerged from Chapter 11.

C. REGULATION

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

D. USE OF MANAGEMENT ESTIMATES

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

E. UTILITY PLANT

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

F-7
<PAGE> 33
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

F. DEPRECIATION

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

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

G. AMORTIZATION OF NUCLEAR FUEL

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

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

H. AMORTIZATION OF MATERIALS AND SUPPLIES

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

I. DECOMMISSIONING

Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, Great Bay has recognized as a liability its proportionate share of
the present value of the estimated cost of Seabrook Project decommissioning. The
initial recognition of this liability was capitalized as part of the Fair Value
of the Utility Plant at November 23, 1994. The current estimated cost to
decommission the Seabrook Project, based on a study performed for the lead owner
of the Plant, is approximately $497 million in 1998 dollars and $2.2 billion in
2026 dollars, assuming a remaining 27 year life for the facility and a future
cost escalation rate of 5%. Based on this estimate, the present value of Great
Bay's share of this liability as of December 31, 1998 is approximately $60.3
million.

The Company accretes its share of the Seabrook Project's decommissioning
liability. This accretion is a non-cash charge and recognizes the Company's
liability related to the closure and decommissioning of its nuclear plant in
current year dollars over the licensing period of the plant. As a result of this
accretion, Great Bay's share of the estimated decommissioning cost increased
from $53.2 million as of December 31, 1996 to $55.8 million as of December 31,
1997 to $60.3 million as of December 31, 1998.

The Seabrook Project's decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning Finance
Committee ("NDFC"). This estimate is based on a number of assumptions. Changes
in assumptions for such things as labor and material costs, technology,
inflation and timing of decommissioning could cause these estimates to change,
possibly materially, in the near term.

The Staff of the Securities and Exchange Commission ("SEC") has questioned
certain of the current accounting practices of the electric utility industry
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations and joint owners in the financial
statements of these entities. In response to these questions, the FASB agreed to
review the accounting for nuclear decommissioning costs. In 1996, the FASB
issued an Exposure Draft entitled "Accounting for Certain Liabilities Related to
F-8
<PAGE> 34
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

Closure and Removal of Long-Lived Assets." The FASB continues to work on this
project and another exposure draft is expected to be issued in 1999. The
Company's accounting for decommissioning was based on the FASB's original
tentative conclusions. If a revised exposure draft is adopted or accounting
practices for nuclear power plant decommissioning are changed, Great Bay's
decommissioning liability and annual provision for decommissioning could change
relative to 1998. The Company is unable to predict the impact, if any, changes
from current accounting may have on the Company's financial statements.

Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The earnings on the
external trusts also accumulate in the fund balance. The trust funds are
restricted for use in paying the decommissioning of Unit 1. The investments in
the trust are available for sale. The Company has therefore reported its
investment in trust fund assets at market value and any unrealized gains and
losses are reflected in equity. There was an unrealized holding gain of $540,058
and $148,126 as of December 31, 1998 and 1997.

Although the owners of Seabrook are accumulating funds in an external trust
to defray decommissioning costs, these costs could substantially exceed the
value of the trust fund, and the owners, including Great Bay, would remain
liable for the excess. The amount required to be deposited in the trust fund is
subject to periodic review and adjustment by the NDFC, which could result in
material increases in such amounts.

In January 1997 and July 1997, the NRC staff ruled that Great Bay did not
satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. Great Bay's petition also sought, in the
alternative, an NRC permanent exemption from the obligation of Great Bay to
comply with the NRC regulations applicable to non "electric utility" owners of
interests in nuclear power plants. In June 1998, the New Hampshire State
legislature enacted legislation that provides that in the event of a default by
Great Bay on its payments to the decommissioning fund, the other Seabrook joint
owners would be obligated to pay their proportional share of such default. As a
result of the enactment of this legislation, the NRC staff found that Great Bay
complies with the decommissioning funding assurance requirements. In response to
the New Hampshire legislation, Great Bay has agreed to make accelerated payments
to the Seabrook decommissioning fund such that Great Bay will have contributed
sufficient funds by the year 2015 to allow sufficient monies to accumulate, with
no further payments by Great Bay to the fund, to the full estimated amount of
Great Bay's decommissioning obligation by the time the current Seabrook
operating license expires in 2026. Based on the currently approved funding
schedule and Great Bay's accelerated funding schedule, Great Bay's
decommissioning payments will be approximately $1.6 million in 1999 and escalate
at 4% each year thereafter through 2015. In July 1998, the staff of the NRC
notified Great Bay of the staff's determination that Great Bay complies with the
decommissioning funding assurance requirements under NRC regulations.

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

J. OPERATING REVENUES

Revenues are recorded on an accrual basis based on billing rates provided
for in contracts and approved by FERC. During the year ended December 31, 1998,
three customers accounted for 28%, 17% and 12% of total operating revenues. For
the year ended December 31, 1997, three customers accounted for 50%, 13% and 11%
of total operating revenues.

F-9
<PAGE> 35
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

K. TAXES ON INCOME

The Company accounts for taxes on income under the liability method
required by Statement of Financial Accounting Standards No. 109.

L. CASH EQUIVALENTS AND SHORT TERM INVESTMENTS

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

All other short-term investments with a maturity of greater than three
months are classified as available for sale and reflected as a current asset at
market value. Changes in the market value of such securities are reflected in
equity. The unrealized holding gain on short-term investments was $24,790 as of
December 31, 1998 and the unrealized holding loss on short-term investments was
$32,841 as of December 31, 1997.

M. SEABROOK UNIT 2

Since the Seabrook Project was originally designed to consist of two
generating units, Great Bay also owns a 12.1% joint ownership interest in
Seabrook Unit 2. Great Bay assigns no value to Seabrook Unit 2 because on
November 6, 1986, the joint owners of the Seabrook Project, recognizing that
Seabrook Unit 2 had been canceled in 1984, voted to dispose of Unit 2. Certain
assets of Seabrook Unit 2 have been and are being sold from time to time to
third parties. On July 22, 1996, the Participants completed the sale of four
unused steam generators from Seabrook Unit 2. Great Bay received $7,036,800 in
cash from the proceeds of this sale on July 19, 1996. Great Bay had previously
written off its investment in Unit 2 and recognized a gain from this sale in the
third quarter of 1996. There were no material sales of Unit 2 assets in 1997 or
1998.

The Participants are considering plans regarding disposition of Seabrook
Unit 2, but such plans have not yet been finalized and approved. Great Bay is
unable to estimate the costs for which it will be responsible in connection with
the disposition of Seabrook Unit 2. Because Seabrook Unit 2 was never completed
or operated, costs associated with its disposition will not include any amounts
for decommissioning. Great Bay currently pays its share of monthly expenses
required to preserve and protect the value of the Seabrook Unit 2 components.
Any sales of Unit 2 property or inventory are reflected in other income as gains
on the sale or transfer of assets. Transfers of Unit 2 items to Unit 1 were done
at the historical basis of Unit 2 property or components.

N. SEABROOK OUTAGE COSTS

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

Great Bay accrues for the incremental costs of the Seabrook Project's
scheduled outages over the periods between those outages. However, Great Bay
continues to expense the normal Seabrook operating and maintenance expenses as
incurred. Therefore, the Company will incur losses during scheduled outage
periods as a result of the combination of the lack of revenue and the
recognition of normal recurring operation and maintenance costs as well as the
continuing depreciation of the utility plant. The Seabrook plant management has
scheduled the next refueling outage for March 1999. The 1999 outage has an
estimated incremental operations and maintenance cost of $29 million. The
Company's share is approximately $3.5 million. The estimate is based on a number
of assumptions. Changes in assumptions for such things as labor and contractor
F-10
<PAGE> 36
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

costs, required repairs and days to perform the outage and plant operations in
the interim, could cause this estimate to change.

2. NUCLEAR ISSUES

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

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

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

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

A. NUCLEAR FUEL

The Seabrook Project's joint owners have made, or expect to make, various
arrangements for the acquisition of uranium concentrate, the conversion,
enrichment, fabrication and utilization of nuclear fuel and the disposition of
that fuel after use. The Nuclear Waste Policy Act of 1982 (the "NWPA") requires
the United States Department of Energy (the "DOE"), subject to various
contingencies, to design, license, construct and operate a permanent repository
for high level radioactive waste and spent nuclear fuel, which are collectively
referred to as "high level waste."

F-11
<PAGE> 37
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

B. FEDERAL DEPARTMENT OF ENERGY DECONTAMINATION AND DECOMMISSIONING
ASSESSMENT

Title XI of the Energy Policy Act of 1992 (the "Policy Act") provides for
decontaminating and decommissioning of the DOE's enrichment facilities to be
partially funded by a special assessment against domestic utilities. Each
utility's share of the assessment is to be based on its cumulative consumption
of DOE enrichment services. As of December 31, 1998, the Company had accrued its
pro rata estimated obligation of $690,300 related to the project's prior years'
usage to be paid over the 15-year period beginning October 1, 1992.

C. PRICE ANDERSON ACT

In accordance with the Price Anderson Act, the limit of liability for a
nuclear-related accident is approximately $9 billion, effective November 18,
1994. The primary layer of insurance for this liability is $200 million of
coverage provided by the commercial insurance market. The secondary coverage is
approximately $9 billion, based on the approximately 107 currently licensed
reactors in the United States. The secondary layer is based on a retrospective
premium assessment of $83.9 million per nuclear accident per licensed reactor,
payable at a rate not exceeding $10 million per year per reactor. In addition,
the retrospective premium is subject to inflation based indexing at five year
intervals and, if the sum of all public liability claims and legal costs arising
from any nuclear accident exceeds the maximum amount of financial protection
available, then each licensee can be assessed an additional 5% ($4.2 million) of
the maximum retrospective assessment. With respect to the Seabrook Project,
Great Bay would be obligated to pay its ownership share of any assessment
resulting from a nuclear incident at any United States nuclear generating
facility. Great Bay estimates its maximum liability per incident currently would
be an aggregate amount of approximately $10.18 million per accident, with a
maximum annual assessment of about $1.21 million per incident, per year.

F-12
<PAGE> 38
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

D. NUCLEAR INSURANCE

Insurance has been purchased by the Seabrook Project from Nuclear Electric
Insurance Limited ("NEIL") to cover the costs of property damage,
decontamination or premature decommissioning resulting from a nuclear incident
and American Nuclear Insurance/Mutual Atomic Energy Liability Underwriters
("ANI") to cover workers' claims. All companies insured with NEIL and ANI are
subject to retroactive assessments, if losses exceed the accumulated funds
available to NEIL and ANI, respectively. The maximum potential assessment
against the Seabrook Project with respect to losses arising during the current
policy years are $26.4 million. The Company's liability for the retrospective
premium adjustment for any policy year ceases six years after the end of that
policy year unless prior demand has been made.

E. STATUS AS AN "ELECTRIC UTILITY" UNDER NRC REGULATIONS

3. TAXES ON INCOME

The following is a summary of the (benefit) provision for income taxes for
the years ended December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(000'S)
<S> <C> <C> <C>
Federal
Current.............................................. $(6,192) $(8,081) $(3,111)
Deferred............................................. 6,192 8,081 3,111
------- ------- -------
0 0 0
------- ------- -------
State
Current.............................................. (1,476) (1,927) (742)
Deferred............................................. 1,476 1,927 742
------- ------- -------
0 0 0
------- ------- -------
Total (benefit) provision.............................. $ 0 $ 0 $ 0
======= ======= =======
</TABLE>

F-13
<PAGE> 39
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

Accumulated deferred income taxes consisted of the following at December
31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
------- --------
(000'S)
<S> <C> <C>
Assets
Net operating loss carryforwards.......................... $81,794 $ 76,622
Decommissioning expense................................... 3,985 2,852
Unfunded pension expense.................................. 685 542
Accrued outage expense.................................... 1,076 163
Inventory................................................. 407 337
Other, net................................................ 576 59
Liabilities
Utility plant............................................. (24,457) (19,230)
------- --------
Accumulated deferred income tax asset....................... 64,066 61,345
Valuation allowance......................................... (64,066) (61,345)
------- --------
Accumulated deferred income tax asset, net.................. $ 0 $ 0
======= ========
</TABLE>

The total income tax provision set forth above represents 0% in the years
ended December 31, 1998, 1997 and 1996. The following table reconciles the
statutory federal income tax rate to those percentages:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
(Loss) Income before taxes............................. $(6,769) $(11,215) $4,100
Federal statutory rate................................. 34% 34% 34%
Federal income tax (benefit) expense at statutory
levels............................................... (2,301) (3,813) 1,394
Increase (Decrease) from statutory levels State tax net
of federal tax benefit............................... (345) (513) 205
Valuation allowance.................................. 2,721 4,442 (1,887)
Other................................................ 75 (116) 288
------- -------- ------
Effective federal income tax expense................... $ 0 $ 0 $ 0
======= ======== ======
</TABLE>

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

For federal income tax purposes, as of December 31, 1998, the Company had
net operating loss carry forwards ("NOLs") of approximately $210 million, which
are scheduled to expire between 2005 and 2013. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 million of the Company's NOLs is approximately $5.5 million per year. Any
unused portion of the $5.5 million annual limitation applicable to the Company's
restricted NOL's is available for use in future years until such NOLs are
scheduled to expire. The Company's other $74 million of NOLs are not currently
subject to such limitations.

4. CAPITAL EXPENDITURES

The Company's cash construction expenditures, including nuclear fuel, are
estimated to be approximately $3.4 million in 1999 and to aggregate
approximately $21.6 million for the years 2000 through 2003.

F-14
<PAGE> 40
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

5. ENERGY MARKETING

On March 1, 1998, Great Bay terminated PECO as Great Bay's exclusive
marketing agent and began to market and sell its uncommitted portion of
electricity generated by the Seabrook Project. The Company utilizes unit
contingent and firm forward sales contracts to maximize the value of its 140 MW
power supply from the Seabrook Project. As of December 31, 1998, the Company had
forward sales commitments that extend to the end of 1999. As of December 31,
1998, the unrealized gain on these open positions was $158,000. The value of
open positions has been determined using exchange settlement prices or, if
applicable, over the counter prices. The unrealized gain at December 31, 1998
has been deferred. However, upon the adoption of SFAS No. 133 and EITF 98-10 on
January 1, 1999, this gain will be recognized in accordance with those
standards. See Footnote 10.

6. PURCHASED POWER AGREEMENTS

Great Bay is party to a purchased power agreement, dated as of April 1,
1993 (the "UNITIL Purchased Power Agreement"), with UNITIL Power ("UNITIL") that
provides for Great Bay to sell to UNITIL approximately 10 MW of power. The
UNITIL Purchased Power Agreement commenced on May 1, 1993 and runs through
October 31, 2010. The current price of power under the UNITIL Purchased Power
Agreement is 5.24 cents per kilowatt-hour ("kWh"). In May 1999 and annually
thereafter, the price is subject to increase in accordance with a formula that
provides for adjustments at less than the actual rate of inflation. UNITIL has
an option to extend the UNITIL Purchased Power Agreement for an additional 12
years until 2022.

The UNITIL Purchased Power Agreement is front-end loaded whereby UNITIL
pays higher prices, on an inflation adjusted basis, in the early years of the
Agreement and lower prices in later years. The average price per kWh and the
contract formula rate in the contract are fixed over the life of the contract,
so that any excess cash received in the beginning of the contract will be
returned by the end of the contract, provided the contract does not terminate
early. The difference between revenue billed under each rate is recorded in a
"Balance Account" which increased annually to $4.1 million in July 1998, and now
decreases annually, reaching zero in July 2001. Therefore, contract revenue is
recorded under Generally Accepted Accounting Principles and Emerging Issues Task
Force Ruling 91-6 based on the contract rates and no liability for the "Balance
Account" is recognized provided that it is not probable that the contract will
terminate early. If the UNITIL Purchased Power Agreement terminates prior to its
scheduled termination, and if at that time there is a positive amount in the
Balance Account, Great Bay is obligated to refund that amount to UNITIL.
Management believes it is not probable that either party will terminate this
contract prior to the end of its initial term.

To secure the obligations of Great Bay under the UNITIL Purchased Power
Agreement, including the obligation to repay UNITIL the amount in the Balance
Account, the UNITIL Purchased Power Agreement grants UNITIL a mortgage on Great
Bay's interest in the Seabrook Project. This mortgage may be subordinated to
first mortgage financing of up to a maximum amount of $80,000,000. The UNITIL
Power Purchase Agreement further provides that UNITIL's mortgage will rank pari
passu with other mortgages that may hereafter be granted by Great Bay to other
purchasers of power from Great Bay to secure similar obligations, provided that
(i) the maximum amount of indebtedness secured by the first mortgage on the
Seabrook Interest may not exceed $80,000,000, and (ii) the combined total of all
second mortgages on the Seabrook Interest may not exceed the sum of (a)
$80,000,000 less the total amount of Great Bay's debt then outstanding which is
secured by a first mortgage plus (b) $57,000,000.

7. PECO SERVICES AGREEMENT AND WARRANT AGREEMENT

Great Bay and PECO Energy Company ("PECO") entered into a Services
Agreement as of November 3, 1995 (the "PECO Services Agreement"), pursuant to
which PECO was appointed as Great Bay's exclusive agent to market and sell Great
Bay's uncommitted portion of electricity generated by the Seabrook
F-15
<PAGE> 41
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

Project. In June 1998, Great Bay and PECO terminated the power marketing
agreement between the companies and Great Bay paid PECO approximately $2.5
million. During the quarter ended June 30, 1998, Great Bay made an approximate
$2.5 million charge to income for this expense. This expense is reflected in
Administrative and General expenses in the accompanying Consolidated Statement
of Income.

8. TRANSACTIONS WITH RELATED PARTIES

In addition to the transactions with PECO discussed in Footnote 7, the
Company has the following related party transaction.

Under the PECO Services Agreement, PECO acted as the Company's exclusive
agent to market and sell the Company's approximately 130MW of uncommitted
capacity generated by the Company's 12% ownership in the Seabrook Nuclear Power
Plant. As of March 1, 1998, Great Bay assumed all marketing responsibilities
from PECO. In June 1998, Great Bay and PECO terminated the power marketing
agreement. For the year ended December 31, 1998, the Company expensed $598,258
for PECO's net marketing fees in addition to the $2.5 million payment made in
June discussed in Footnote 7. For the year ended December 31, 1997, the Company
expensed $1,813,062 for PECO's net marketing fees.

9. STOCK OPTION PLAN

On April 24, 1995, the Board of Directors of the Company established the
1995 Stock Option Plan (the "Plan"), which received shareholder approval at the
Company's annual meeting on April 16, 1996. The purpose of the Plan is to secure
for the Company and its shareholders the benefits arising from capital stock
ownership by employees, officers and directors of, and consultants or advisors
to, the Company who are expected to contribute to the Company's future growth
and success. Options granted pursuant to the Plan may be either incentive stock
options meeting the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet the requirements of Section
422. The maximum number of shares of Common Stock that may be issued and sold
under the Plan is 600,000 shares. The Plan will be administered by the Board of
Directors of the Company and may be modified or amended by the Board in any
respect, subject to shareholder approval in certain instances.

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

On December 3, 1998, the Board of Directors of the Company voted to reprice
all of the outstanding options of the Company as the current options were "out
of the money" and they no longer had the desired motivational effect or
compensatory benefit for the employees. The repricing of the options was based
on the current market value of the stock as of December 18, 1998. In accordance
with APB Opinion 25 (the "Opinion"), a renewal, a change in price, an extension
of the period of exercisability, or any other significant modification of a
stock right establishes a new measurement date as of the date of change in the
same fashion as if a new option were granted.

Under the current interpretations of APB Opinion 25, as the repricing was
done at fair market value on the new measurement date, no compensation expense
has been recognized.

The Financial Accounting Standards Board (the "Board") has concluded its
initial review of practice problems associated with the Opinion on accounting
for stock issued to employees. The Board will issue an Exposure Draft of a
proposal interpreting the Opinion in the first quarter of 1999. The proposed
effective date would be the issuance date of the final interpretation, which is
expected to be in September 1999.

If adopted, the interpretation would be applied prospectively but would
cover events that occur after December 15, 1998. There would be no effect on
financial statements for the period prior to the effective date of the final
interpretation.

F-16
<PAGE> 42
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

The proposal will focus on several practice issues that have been
identified by constituents as needing clarification by the Board. The most
significant of the issues to be addressed as they relate to the Company are the
accounting for repriced options and the definition of "employee" for purposes of
applying the Opinion.

On those issues, the Board has tentatively concluded that once an option is
repriced, that option must be accounted for as a variable plan, giving rise to
compensation expense for subsequent changes in the stock price, from the time it
is repriced to the time it is exercised. Also, for purposes of applying APB
Opinion 25 for the definition of "employee" would be the common law definition,
which is also the basis for the definition between employees and non-employees
in U.S. tax law.

As this relates to the Company, BayCorp would have to recognize
compensation associated with the repricing of the options, as the measurement
date was subsequent to December 15, 1998, when the final interpretation is
issued in 1999. In addition, the Company would have to recognize compensation
expense associated with the options issued to non-employee directors after
December 15, 1998. The estimated compensation expense that would have been
recorded in 1998 would have been approximately $229,000 for the repricing of
outstanding options.

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

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997 1996
------- -------- ------
<S> <C> <C> <C> <C>
Net Income: As Reported...................... $(6,769) $(11,215) $4,100
Pro Forma........................ (7,050) (11,414) 3,475
EPS: As Reported...................... $ (0.82) $ (1.35) $0.51
Pro Forma........................ (0.86) (1.38) 0.43
</TABLE>

Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. A summary
of the Company's stock option plan at December 31, 1998, 1997 and 1996, and
changes during the years then ended, is presented in the table and narrative
below:

<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 505,000 $8.05 445,000 $8.15 335,000 $8.17
Granted............................ 52,000 4.25 60,000 7.33 110,000 8.09
to 7.25
Exercised.......................... -- -- --
Forfeited.......................... -- -- --
Expired............................ (20,000) -- --
Outstanding at end of year......... 537,000 4.82 505,000 8.05 445,000 8.15
Exercisable at end of year......... 317,851 4.82 425,000 8.04 285,000 8.17
Weighted average fair value of
options granted.................. $1.02 $3.32 $4.51
</TABLE>

The 537,000 options outstanding at December 31, 1998 have exercise prices
between $4.45 and $4.90, with a weighted average price of $4.82, and a remaining
weighted average contractual life of 5.4 years.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in 1998, 1997 and 1996 respectively: weighted average risk-free interest
rates of 4.7, 6.7 and 6.7 percent; expected dividend yields of 0 percent;
weighted average expected lives of 6.5, 7 and 6 years; and expected volatility
of 31 percent.

F-17
<PAGE> 43
BAYCORP HOLDINGS, LTD.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

10. NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. Accumulated Other Comprehensive Income for 1998 and the current
twelve-month period charge is as follows:

<TABLE>
<CAPTION>
UNREALIZED GAINS ACCUMULATED OTHER
ON SECURITIES COMPREHENSIVE INCOME
---------------- --------------------
<S> <C> <C>
Twelve Month
Beginning Balance........................................ $116,000 $116,000
Period Charge............................................ 449,000 449,000
-------- --------
Ending Balance........................................... $565,000 $565,000
======== ========
</TABLE>

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

SFAS 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement SFAS 133 as of the beginning of any fiscal quarter
after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter.) SFAS 133 cannot be applied retroactively. SFAS 133 must be applied
to (a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998.)

The Company has not yet quantified the impact of adopting SFAS 133 on its
financial statements and has not determined the timing of or method of adoption
of SFAS 133. However, SFAS 133 could increase volatility in earnings and other
comprehensive income.

In December 1998, the Emerging Issues Task Force reached consensus on Issue
No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities ("EITF Issue 98-10"). EITF 98-10 is effective for fiscal
years beginning after December 15, 1998. EITF Issue 98-10 requires energy
trading contracts to be recorded at fair value on the balance sheet, with the
changes in fair value included in earnings. The effects of initial application
of EITF 98-10 will be reported as a cumulative effect of a change in accounting
principle. Financial statements for periods prior to initial adoption of EITF
98-10 may not be restated. The Company anticipates the cumulative effect of this
accounting change as of January 1, 1999 will be to increase net income by
approximately $158,800, or $0.02 per common share, to recognize gains on net
open physical purchase and sales commitments considered to be trading activity.

11. PROPERTY TAXES

For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement request
for tax years 1994, 1995 and 1996 were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). On December 7, 1998, Great Bay announced that it had reached an
agreement with the town of Seabrook to settle its outstanding property tax
litigation. As a result of the settlement, Great Bay received approximately $1.3
million from the town of Seabrook. In addition, the parties agreed that the
assessed value of the Seabrook Project will be reduced over the five-year period
of the settlement agreement from $2.3 billion in 1998 to $1.2 billion in 2002.
Great Bay and the other joint owners are currently engaged in settlement
negotiations with the towns of Hampton and Hampton Falls.

F-18
<PAGE> 44

SIGNATURES

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

BAYCORP HOLDINGS, LTD.

March 24, 1999
By: /s/ FRANK W. GETMAN JR.
--------------------------------------
Frank W. Getman Jr.
President

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ FRANK W. GETMAN JR. President and Chief Executive Officer March 24, 1999
- ------------------------------------------------ (principal executive officer,
Frank W. Getman Jr. principal financial officer and
principal accounting officer)

/s/ KENNETH A. BUCKFIRE Director March 24, 1999
- ------------------------------------------------
Kenneth A. Buckfire

/s/ STANLEY I. GARNETT Director March 24, 1999
- ------------------------------------------------
Stanley I. Garnett

/s/ MICHAEL R. LATINA Director March 24, 1999
- ------------------------------------------------
Michael R. Latina

/s/ LAWRENCE M. ROBBINS Director March 24, 1999
- ------------------------------------------------
Lawrence M. Robbins

/s/ JOHN A. TILLINGHAST Director March 24, 1999
- ------------------------------------------------
John A. Tillinghast
</TABLE>
<PAGE> 45

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
3.1 -- Certificate of Incorporation of BayCorp Holdings, Ltd.(1)
3.2 -- By-laws of BayCorp Holdings, Ltd.(1)
10.1 -- Agreement Between Bangor Hydro-Electric Company, Central
Maine Power Company, Central Vermont Public Service
Corporation, Fitchburg Gas and Electric Light Company, Maine
Public Service Company and EUA Power Corporation relating to
use of certain transmission facilities, dated October 20,
1986.(2)
10.2 -- Limited Guaranty by Eastern Utilities Associates of
Decommissioning Costs in favor of Joint Owners of the
Seabrook Project, dated May 5, 1990.(2)
10.3 -- Composite Agreement for Joint Ownership, Construction and
Operation of New Hampshire Nuclear Units, as amended, dated
November 1, 1990.(2)
10.4 -- Seventh Amendment to and Restated Agreement for Seabrook
Project Disbursing Agent as amended through and including
the Second Amendment, by and among North Atlantic Energy
Service Corporation, Great Bay Power Corporation and other
Seabrook Project owners, dated November 1, 1990.(2)
10.5 -- Seabrook Project Managing Agent Operating Agreement by and
among the North Atlantic Energy Service Corporation, Great
Bay Power Corporation and parties to the Joint Ownership
Agreement, dated June 29, 1992.(2)
10.6 -- Settlement Agreement by and among EUA Power Corporation,
Eastern Utilities Associates and the Official Bondholders'
Committee, dated November 18, 1992.(2)
10.7 -- Purchased Power Agreement between UNITIL Power Corporation
and Great Bay Power Corporation, dated April 26, 1993.(2)
10.8 -- Power Purchase Option Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated April 26,
1993.(2)
10.9 -- Second Mortgage and Security Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated December
22, 1993.(2)
10.10 -- Third Mortgage and Security Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated December
22, 1993.(2)
10.11 -- Registration Rights Agreement between Great Bay Power
Corporation and the Selling Stockholders, dated April 7,
1994 (the "Registration Rights Agreement").(2)
10.12 -- Amendment to Registration Rights Agreement between Great Bay
Power Corporation and the Selling Stockholders, dated
November 23, 1994.(2)
10.13 -- Stock and Subscription Agreement among Great Bay Power
Corporation and the Selling Stockholders, dated April 7,
1994.(2)
10.14 -- Acknowledgment and Amendment to Stock and Subscription
Agreement, dated November 23, 1994.(2)
10.15 -- Settlement Agreement by and among Great Bay Power
Corporation, the Official Bondholders' Committee and the
Selling Stockholders, dated September 9, 1994.(2)
10.16 -- Letter Agreement, dated December 20, 1994, between Great Bay
Power Corporation and the Selling Stockholders amending
Registration Rights Agreement, as previously amended on
November 23, 1994.(2)
10.17 -- Letter Agreement, dated March 29, 1995, between Great Bay
Power Corporation and the Selling Stockholders amending
Registration Rights Agreement, as previously amended on
November 23, 1994 and December 20, 1994.(2)
10.18 -- Asset Purchase Agreement by and between Montaup Electric
Company and Great Bay Power Corporation, dated as of June
24, 1998(3)
10.19 -- 1996 Stock Option Plan of BayCorp Holdings, Ltd.(1)(4)
10.20 -- Employment Agreement between Frank W. Getman Jr. and BayCorp
Holdings, Ltd., dated May 5, 1998.(4)(5)
</TABLE>

II-1
<PAGE> 46

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
10.21 -- Employment Agreement between John A. Tillinghast and BayCorp
Holdings, Ltd., dated May 5, 1998.(4)(5)
21.1 -- List of Subsidiaries of BayCorp Holdings, Ltd.(5)
23.1 -- Consent of Arthur Andersen LLP.(5)
</TABLE>

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

(1) Filed as an exhibit to the Registration Statement on Form S-4 of BayCorp
Holdings, Ltd. (Registration Statement 333-3362) filed on July 12, 1996 and
incorporated herein by reference.

(2) Filed as an exhibit to the Registration Statement on Form S-1 of Great Bay
Power Corporation (Registration No. 33-88232) declared effective on April
17, 1995 and incorporated herein by reference.

(3) Filed as an exhibit to the Quarterly Report on Form 10-Q of BayCorp
Holdings, Ltd. for the quarter ended June 30, 1998 (File No. 1-12527) on
August 13, 1998 and incorporated herein by reference.

(4) Management contract or compensation plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.

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

II-2

<PAGE> 1

Exhibit 10.20

EMPLOYMENT AGREEMENT

AGREEMENT made as of this 5th day of May, 1998, by and between BayCorp
Holdings, Ltd., a Delaware corporation with its principal place of business
located at 100 Main Street, Suite 201, Dover, New Hampshire 03820 (the
"Company"), and Frank W. Getman, Jr., residing at 410 Richards Avenue,
Portsmouth, New Hampshire 03801 ("Executive").

RECITAL

The Company and Executive are parties to an Employment Agreement dated as
of July 31, 1995, as amended (the "Prior Agreement"). The parties hereto wish to
enter into this Agreement in substitution for the Prior Agreement.

1. EMPLOYMENT.

The Company hereby employs Executive, and Executive hereby accepts
such employment, in accordance with the terms and subject to
the conditions set forth in this Agreement.

2. POSITION AND DUTIES.

a. Subject to the provisions of this Agreement, the Company shall
employ Executive, and Executive shall serve the Company, as President and Chief
Executive Officer and/or any other titles as may be designated from time to time
by the Board of Directors (the "Board") of the Company. Executive shall report
to the Board.

b. Executive shall have primary authority and responsibility for
operational, management and general business matters of the Company and shall
perform such executive duties and responsibilities on behalf of the Company and
its Affiliates (as defined below) as may be prescribed from time to time by the
Board. Executive shall devote his full-time best efforts to the business of the
Company so as to increase the profitability and shareholder value of the
Company; and Executive shall not during the term of this Agreement be engaged in
any other business activity, unless written approval is first secured from the
Board. The preceding sentence shall not be deemed to prohibit Executive's
activities relating to his ownership and management of a certain residential
apartment building located in Oneonta, New York and a certain condominium
located in Brighton, Massachusetts, provided that the ownership and management
of such building and condominium does not interfere with Executive's duties
hereunder. As used herein, "Affiliates" shall mean entities controlling,
controlled by or under common control with the Company. The Executive agrees
upon the

<PAGE> 2

Board's request, to serve on the Board (or any Affiliates's boards of directors)
for no additional consideration. The Executive acknowledges and agrees that,
incident to a material transaction involving the Company, his title and duties
may be shared with a "Co-Chief Executive Officer" (and the same, in and of
itself, shall not constitute a "Material Adverse Change," as defined below).

3. TERM OF EMPLOYMENT. Unless sooner terminated as provided in Section 6
below, the term of this Agreement shall be approximately two (2) years,
commencing on May 5, 1998 (the "Commencement Date") and ending on July 31, 2000
(the "Expiration Date"). As used herein, the word "Term" shall refer to the
period beginning on the Commencement Date and ending on the effective date of
the termination of Executive's employment with the Company as provided in this
Agreement.

4. COMPENSATION; BENEFITS. For all services rendered by Executive pursuant
to this Agreement, the Company shall compensate Executive, during the Term of
Executive's employment hereunder, as follows:

a. ANNUAL SALARY; DISCRETIONARY BONUS. From and after the Commencement
Date, Executive shall be paid an annual base salary of $150,000 per year, which
shall be payable in equal bi-weekly installments. After the first anniversary of
the Commencement Date, such base salary shall be increased to $160,000 per year.
The Executive shall also be eligible to receive, from time to time, one or more
discretionary bonuses to be determined by the Board. All salary and bonus
payments to Executive shall be subject to payroll tax and related deductions as
required by law.

b. LOAN. The Company shall lend to Executive the sum of $25,000 (the
"Loan Amount"), which sum shall be paid to Executive promptly after the
Commencement Date, and of which at least 80% of which shall be used to purchase
common stock of the Company on the open market. One-half (1/2) of the Loan
Amount (or $12,500) shall be forgiven, and Executive shall have no obligation to
repay the Company with respect to such forgiven amount (a "Forgiven Loan
Amount"), on each anniversary of the Commencement Date. Notwithstanding the
foregoing sentence, in the event that the employment of Executive is terminated
by the Company for "Cause" (as defined in Section 6.c. below) or by Executive in
violation of the terms of this Agreement prior to the Expiration Date, Executive
shall, within thirty (30) days following such termination, repay to the Company
the Loan Amount, less any Forgiven Loan Amount (the "Adjusted Loan Amount"),
together with interest accrued on the Adjusted Loan Amount, as calculated from
the Commencement Date through the date of such termination, at the rate of six
percent (6%) per annum.

c. INSURANCE. During the Term, the Company shall continue to pay life
insurance and disability insurance premiums with respect to the Executive,

<PAGE> 3

consistent with past practices and subject to the Executive's continued
eligibility for coverage at reasonable rates.

d. EXECUTIVE BENEFITS; VACATION. During the term of his employment
hereunder, Executive shall be entitled to participate in all employee pension
and welfare benefit plans and programs made available to executive employees of
the Company, as such plans or programs may be in effect from time to time and as
determined by the Board, including, without limitation, 401(K) plans and health
insurance and life insurance plans not covered above. Executive shall be
entitled to three (3) weeks of paid vacation per calendar year or a pro rata
number of vacation days for a period that is less than a complete calendar year
in accordance with the Company's vacation policy in effect from time to time.

e. REIMBURSEMENT OF EXPENSES. Executive shall be reimbursed for
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to authorization and documentation in
accordance with the Company's policies in effect from time to time.

5. CONFIDENTIAL INFORMATION; NON-COMPETITION; ANTI-RAIDING.

a. Executive agrees that all operating and/or financial data and
projections, plans, contracts, agreements, literature, manuals, brochures,
books, schedules, correspondence and other materials furnished, disclosed or
otherwise made available to Executive by the Company or its Affiliates, or
secured through the efforts of Executive, relating to the business conducted by
the Company and/or its Affiliates, are and shall remain the property of the
Company and/or its Affiliates, and Executive agrees to deliver all such
materials, including all copies or abstracts thereof, to the Company upon the
termination of Executive's employment hereunder, or at any other time at the
Company's request.

b. Executive agrees that, except in the good faith performance of his
duties and responsibilities under this Agreement or as required by order of a
court or governmental agency having jurisdiction, he will not at any time during
or after his employment with the Company use, reveal, divulge or make known to
any person or entity any confidential or proprietary knowledge or information
concerning the Company or its Affiliates, including without limitation any such
information concerning any equipment, facilities, contracts, leases, operating
and/or financial data and projections, processes, developments, schedules,
lists, plans or other matters relating to the business of the Company or its
Affiliates and will retain all knowledge and information Executive acquired
during his employment therewith relating to the business of the Company or its
Affiliates in trust in a fiduciary capacity for the sole benefit of the Company,
its Affiliates and their respective successors and assigns.

<PAGE> 4

Executive's obligations under this Section 5.b. shall not apply to any
information that (i) is or becomes known to the general public under
circumstances involving no breach by Executive of this Agreement, (ii) is
generally disclosed to third parties (excluding counsel, accountants, financial
advisors, employees, agents and material creditors of the Company) by the
Company without restriction on such third parties, or (iii) is approved for
release by written authorization of the Board.

c. During the Term and for a period of one (1) year thereafter,
Executive shall not (i) enter into the employment of, or act as a consultant,
director, officer, or employee of, or render any service or advice to, any other
business, partnership, association, corporation or other entity engaged in the
"public utility" industry within one or more of the six New England States,
other than the Company or any Affiliate (a "Competing Business"), or (ii) invest
or otherwise acquire any interest, whether as a shareholder, lender, partner,
proprietor, vendor or otherwise, in any Competing Business (excluding ownership
of less than 2% of a class of securities of a publicly-traded company). "Public
utility" shall mean for the purposes of this Section 5.c. any company which
directly or indirectly owns or operates facilities used for the generation,
transmission, or distribution of electric energy for sale.

d. During the Term and for a period of two (2) years thereafter,
Executive will not, directly or indirectly, entice, induce or in any manner
influence any person who is, or shall have been during such period, in the
service of the Company, to leave such service for the purpose of engaging in a
Competing Business, or being employed or engaged by or otherwise associated with
any person or entity which is a Competing Business.

e. The provisions of this Section 5 shall survive the termination of
this Agreement and the termination of Executive's employment with the Company
and shall run to and inure to the benefit of the Company and its successors and
assigns. Executive represents, warrants and acknowledges that he has carefully
read this Section 5, that he has had an opportunity to have the provisions
contained herein explained to him by his attorney, and that he understands the
provisions contained herein. Executive further acknowledges that, by reason of
his training, skills, experience and employment hereunder, the services to be
rendered by him under the provisions of this Agreement and their value to the
Company are of a special, unique and extraordinary character and that it would
be difficult or impossible to replace such services, and he further acknowledges
that a violation by him of any of the provisions of this Section 5 could cause
continuing material and irreparable injury to the Company and that in such event
money damages would not be readily calculable and the Company would not have an
adequate remedy at law. Executive acknowledges and agrees that (i) the
restrictions under this Section 5 are reasonable and will not interfere with
Executive's ability to earn a livelihood or impose upon him any undue hardship,
and (ii) any breach

<PAGE> 5

of the covenants, provisions and restrictions contained in this Section 5 shall
cause, and shall be deemed to be, a fundamental and material breach of
Executive's fiduciary and contractual obligations to Employer. Therefore,
Executive agrees that the Company shall be authorized and entitled to obtain
from any court of competent jurisdiction, interim and permanent equitable
relief, including without limitation, injunctive relief, in the event of any
such breach or threatened breach, together with payment of reasonable attorneys'
fees and disbursements and any other costs of enforcement incurred in connection
with such breach or threatened breach. These rights and remedies shall be
cumulative and shall be in addition to any other rights or remedies whatsoever
to which the Company shall otherwise be entitled hereunder, at law or otherwise,
including the right to seek damages (including any consequential damages) which
any court of competent jurisdiction may deem appropriate.

6. TERMINATION OF EMPLOYMENT. The term of employment may terminate upon the
occurrence of any of the following events:

a. TERMINATION DUE TO DEATH. Executive's employment hereunder shall
terminate upon his death. In such event his estate or his beneficiaries, as the
case may be, shall be entitled to:

(1) Salary accrued through the date of death; and

(2) The right to exercise his 125,000 stock options (the
"Options"), subject to the terms of the Stock Option
Agreements dated as of July 31, 1995 and September 17, 1996
(the "Option Agreements") and the applicable Stock Option
Plans.

b. TERMINATION DUE TO DISABILITY. The Company may terminate
Executive's employment at any time on written notice after his "Disability."
"Disability" shall mean Executive's inability by reason of illness or injury
substantially to perform his duties and responsibilities under this Agreement,
as reasonably determined by a majority of the Board based upon the report of a
reputable physician designated by the Board (whom Executive shall permit to
examine him), for a period of eighty-four (84) consecutive days or one hundred
(100) days in any twelve (12) month period. In the event Executive's employment
is terminated due to his Disability, he shall be entitled to receive the
following:

(1) The amount of any disability or retirement benefits provided
to Executive by the Company under the provisions of any
Company plan for its employees with respect to which
Executive is qualified; and

<PAGE> 6

(2) Any accrued and unpaid salary through the effective date of
termination.

c. INVOLUNTARY TERMINATION FOR CAUSE. The Company may terminate
Executive's employment at any time for "Cause" on written notice. "Cause" shall
mean (i) Executive is convicted of a felony, or a misdemeanor involving moral
turpitude; or (ii) the Board determines in good faith, after reasonable notice
to Executive and an opportunity for Executive to present his views of the
relevant facts and circumstances, that Executive has (A) materially failed or
refused to perform competently his duties and responsibilities (after notice and
opportunity to cure if such material failure or refusal can be cured) as
provided in this Agreement; (B) has breached his duty of loyalty to, or
committed any act of fraud, theft or dishonesty against, the Company or any of
its Affiliates; or (C) has violated any of his material obligations under this
Agreement after written notice and a reasonable opportunity (not to be less than
ten (10) days) to cure such default. In the event of such termination for Cause,
all rights and benefits of Executive under this Agreement (including without
limitation all unexercised Options) shall immediately terminate and in no event
shall the Company be obligated to pay Executive any compensation (other than
salary and accrued and vested benefits through the date of termination) with
respect to any period before or after the date of such termination.

d. VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement in a "Qualifying Termination" (as defined in Section 7.d. below).

e. OTHER TERMINATION. In the event of the termination of Executive's
employment (i) by the Company other than pursuant to the provisions of
Subsection 6.a., b. or c. above, or (ii) by Executive following a material
breach by the Company of its obligations under this Agreement which means
uncured after written notice to the Company and a reasonable opportunity (not to
be less than ten (10) days) to cure such breach:

(1) Executive shall be entitled to receive in cash an amount
equal to his annual salary (excluding loan forgiveness) from
the effective date of such termination through the
Expiration Date; PROVIDED, however, that such sum shall be
offset by the amount of any compensation earned by Executive
through our employment from the effective date of such
termination through the Expiration Date (it being understood
that Executive shall be under no obligation to mitigate his
damages in such event);

<PAGE> 7

(2) The Loan Amount (to the extent not then forgiven), together
with any interest thereon, shall be immediately forgiven,
and Executive shall have no obligation to repay the same;

(3) All Options previously issued to Executive (other than the
25,000 "contingent options" awarded to the Executive in 1996
(the "Contingent Options")) shall immediately become
exercisable (as provided in the Option Agreements); and

(4) The covenants contained in Subsections 5.c. and 5.d. shall
not apply.

If this Agreement expires by its terms on the Expiration Date, the
covenant contained in Subsection 5.c. shall only remain in force (i) for (6)
months instead of one year and then only if (ii) the Company elects, in its sole
discretion, to continue paying the Executive 50% of his then-currently bi-weekly
base salary during such restricted period.

7. CHANGE OF CONTROL.

a. In the event that Executive's employment by the Company terminates
in a Qualifying Termination (as defined in Subsection 7.d. below):

(1) Executive shall be entitled to receive in cash upon the
Qualifying Termination an amount equal to the greater of (a) the
sum of his annual salary (excluding loan forgiveness) from the
date of the Qualifying Termination through the Expiration Date or
(b) twice his annual salary (excluding loan forgiveness)
immediately prior to the date of the Change in Control;

(2) The Loan Amount (to the extent not then forgiven), together with
any interest thereon, shall be immediately forgiven, and
Executive shall have no obligation to repay the same;

(3) All Options (including the Contingent Options) previously issued
to Executive shall immediately become exercisable in accordance
with the Option Agreements; and

(4) The covenants contained in Subsections 5.c. and 5.d. shall not
apply;

<PAGE> 8

PROVIDED, HOWEVER, that if $500,000 exceeds the sum of (a) the amount payable to
Executive under Section 7.a(1), plus (b) the Net Value of the Options (as
defined below) exercisable under 7.a(3), the Company will also, subject to
subsection 7.b. below, make a cash payment to the Executive equal to the amount
of such excess. As used herein, the "Net Value of the Options" shall be equal to
the difference obtained by subtracting the aggregate exercise price payable by
Executive upon the exercise of the Options from the aggregate fair market value
(as of the date of Change of Control) of the Common Shares issuable upon such
exercise.

b. Payments under this Subsection 7.a. shall be made without regard to
whether the deductibility of such payments (or any other "parachute payments,"
as that term is defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), to or for the Executive's benefit) would be limited or
precluded by Section 280G and without regard to whether such payments (or any
other "parachute payments" as so defined) would subject the Executive to the
federal excise tax levied on certain "excess parachute payments" under Section
4999 of the Code; provided that if the total of all "parachute payments" to or
for the Executive's benefit, after reduction for all federal, state and local
taxes (including the tax described in Section 4999 of the Code, if applicable)
with respect to such payments (the "Total After-Tax Payments"), would be
increased by the limitation or elimination of any payment under this Subsection
7.a., amounts payable under this Subsection 7.a. shall be reduced to the extent,
and only to the extent, necessary to maximize the Total After-Tax Payments. The
determination as to whether and to what extent payments under this Subsection
7.a. are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by Arthur Andersen or by such other certified
public accounting or law firm as the Board may designate prior to a Change of
Control of the Company. In the event of any underpayment or overpayment under
this Subsection 7.a. as determined by Arthur Andersen (or such other firm as may
have been designated in accordance with the preceding sentence), the amount of
such underpayment or overpayment shall forthwith be paid to the Executive or
refunded to the Company, as the case may be, with interest at the applicable
federal rate provided for in Section 7872 of the Code.

c. For purposes of this Agreement, a "Change of Control" occurs upon
the occurrence prior to the Expiration Date of any event specified below:

(1) any corporation, person or other entity (other than the
Company, a majority-owned subsidiary of the Company, any
employee benefit plan maintained by the Company or any
subsidiary or one of the three largest shareholders as of
the Commencement Date (any such person, a "Permitted
Acquiror") acquires or becomes the holder of more than fifty
percent (50%) of the Company's voting equity securities, or

<PAGE> 9

(2) the stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into
another corporation (other than a subsidiary of the Company)
or to sell or otherwise dispose of all or substantially all
of its assets.

d. For purposes of this Agreement, a "Qualifying Termination" occurs
if, prior to the earlier of the Expiration Date or the second anniversary of a
Change of Control, (a) the employment of Executive is terminated other than for
Cause or (b) Executive resigns following any material impairment or material
adverse change in his working conditions, authority, autonomy, compensation or
benefits immediately prior to the Change of Control, as the same may from time
to time have been improved, or otherwise altered with the written consent of
Executive such that his position within the Company or its successor is no
longer reasonably comparable (a "Material Adverse Change"). An assignment by the
Company of all rights and obligations hereunder to an entity into or with which
the Company merges or consolidates or to which the Company transfers
substantially all of its assets shall not constitute a Material Adverse Change
in and of itself so long as such entity fully assumes the Company's obligations
under this Agreement. In the event that both Subsection 6.e. and this Subsection
7.d. are applicable, the provisions of this Section shall exclusively govern
Executive's rights and remedies.

8. MISCELLANEOUS.

a. This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of New Hampshire without reference to
principles of conflict of laws. Any dispute, action or proceeding arising
hereunder shall be maintained in the state or federal courts located in New
Hampshire and each party hereto consents to service of process in the manner
provided in Subsection b. of this Section 8 (which shall constitute "personal
service").

b. Any notice given to a party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the party
concerned at the address indicated below or to such other address as to which
such party may subsequently give such notice:

If to the Company:

BayCorp Holdings, Ltd.
200 Main Street
Dover, New Hampshire 03820

<PAGE> 10

Attention: John Tillinghast, Chairman

If to Executive: 410 Richards Avenue
Portsmouth, New Hampshire 03801

Copies of all notices to the Company shall be sent to Martin D. Sklar, Esq.,
Kleinberg, Kaplan, Wolff & Cohen, P.C., 551 Fifth Avenue, 18th Floor, New York,
New York 10176. Copies of all notices to Executive shall be sent to Andrew R.
Menard, Esq., Peabody & Arnold, 50 Rowes Wharf, Boston, Massachusetts 02110.

c. This Agreement is personal to Executive and shall not be assignable
by Executive, except that Executive's rights to compensation and benefits may be
transferred in the event of death or Disability by will or operation of law
(subject to the terms hereof and of the applicable plans). Subject to the
provisions of Section 7.d. above, the Company may assign (without Executive's
consent) all rights and obligations hereunder to an entity into or with which
the Company merges or consolidates or to which the Company transfers
substantially all of its assets. This Agreement shall be binding upon and inure
to the benefit of Executive's heirs and legal representatives and shall be
binding upon and inure to the benefit of the Company and its successors and
assigns.

d. Executive and the Company each represents and warrants to the other
that such party is fully authorized and empowered to enter into this Agreement
and that the entry into and performance of such party's obligations hereunder
will not violate any agreement between such party and any other person or
entity. Executive represents and warrants that he has made a thorough
investigation of and is knowledgeable about the facts and circumstances
affecting the business and prospects of the Company.

e. This Agreement contains the entire understanding and agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the parties with respect thereto. No provision
hereof may be amended unless such amendment is agreed to in writing and signed
by Executive and an authorized officer of the Company acting at the direction of
the Board. No waiver by either party of any breach by the other party of any
condition or provision contained herein to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time. Any waiver must be in writing and
signed by Executive or an authorized officer of the Company, as the case may be.

<PAGE> 11

f. Any provision of this Agreement that may be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions thereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by law, the parties hereby waive any
provision of law that renders any provision of this Agreement prohibited or
unenforceable in any respect. In addition, in the event of any such prohibition
or unenforceability, the parties agree that it is their intention and agreement
that any such provision, as written, in any jurisdiction shall nonetheless be in
force and binding to the fullest extent permitted by the law of such
jurisdiction as though such provision had been written in such a manner and to
such an extent as to be enforceable therein under the circumstances. Without
limitation of the foregoing, with respect to the restrictive covenant contained
herein, if it is determined that any such provision is excessive as to duration,
scope or area, it is intended that it nonetheless be enforced for such shorter
duration or with such narrower scope or area as will render it enforceable, and
the court making such determination shall have the power to modify such
duration, scope or area, or all of them, and/or to delete specific words or
phrases, and such provision shall then be applicable and enforceable in such
modified form.

g. The Prior Agreement (except with respect to Section 4.b. thereof)
is hereby terminated and of no further force or effect.

The parties hereto have signed this Employment Agreement as of the date
first written above.

BAYCORP HOLDINGS, LTD.

By: /s/ Charles A. Leeds
------------------------------
Charles Leeds, Director

/s/ Frank W. Getman Jr.
---------------------------------
Frank W. Getman Jr.

<PAGE> 1
Exhibit 10.21

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 5th day of May,
1998 is entered into by BayCorp Holdings, Ltd., a Delaware corporation with its
principal place of business at 100 Main Street, Suite 201, Dover, New Hampshire
03820 (the "Company"), and John A. Tillinghast, residing at 77 Exeter Road,
North Hampton, New Hampshire 03862 (the "Employee").

RECITALS

A. Great Bay Power Corporation, the Company's subsidiary, has
previously employed the Employee pursuant to an Employment Agreement dated
October 8, 1996 (the "Prior Agreement").

B. In lieu of the Prior Agreement, the Company desires to employ the
Employee, and the Employee desires to be employed by the Company. In
consideration of the mutual covenants and promises contained herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties agree as follows:

1. TERM OF EMPLOYMENT. The Company hereby agrees to employ the
Employee, and the Employee hereby accepts employment with the Company, upon the
terms set forth in this Agreement, for the period commencing on the date hereof
(the "Commencement Date") and ending on May 4, 1999 (such period, as it may be
extended, the "Employment Period"), unless sooner terminated in accordance with
the provisions of Section 4. The term of this Employment Agreement shall
automatically "roll over" for an additional period of one year commencing on May
5,

<PAGE> 2

1999 unless either party wishes to terminate this Agreement and then, in that
event, either party, at its sole discretion, shall give notice to the other
party no later than February 4, 1999 that this Agreement shall terminate on May
4, 1999.

2. TITLE; CAPACITY. The Employee shall serve as Chairman of the Board
of Directors of the Company (the "Board") and Chief Engineer. The Employee shall
be subject to the supervision of, and shall have such authority as is delegated
to him by, the full Board and the Company's President and Chief Executive
Officer (the "CEO"). The Employee hereby accepts such employment and agrees to
undertake the duties and responsibilities inherent in such positions. The
Employee agrees to devote his time, attention and energies to the business and
interests of the Company during the Employment Period, subject to the following
provisions. The Employee will perform such duties commensurate with his
positions and titles and shall perform said duties as may be assigned to him by
the Board or the CEO for approximately 400 hours per year. The Company may
require that such hours be divided in such a way that the Employee performs at
least 80 hours of services during each three-month period during the Employment
Period. Subject to the foregoing, the Employee will use his best judgment and
his knowledge of the Company's needs in determining the specific days upon which
the agreed upon hours will be performed. The Employee may be required to work in
excess of 400 hours per year only upon mutual consent. The Company acknowledges
and agrees that the Employee shall be permitted to serve as a director of other
corporations and businesses to the extent that such service (i) does not
conflict or interfere in any way with the Employee's

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<PAGE> 3

obligations and duties under this Agreement, and (ii) is not for or on behalf of
any person or entity engaged in a business which is directly competitive with
the business of the Company.

3. COMPENSATION.

3.1 COMPENSATION. The Company shall pay the Employee, in monthly
installments, compensation of $250 per hour for the Employment Period. The
Employee shall also receive the Company's standard compensation for serving as a
director.

3.2 BENEFITS. The Employee shall be entitled (subject to eligibility)
to any employee benefits that the Board has adopted or that may be adopted
during the Employment Period for the benefit of employees of the Company
generally. The Employee shall not be entitled to the benefit of any provisions
of the Company vacation policy.

3.3 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request; provided, however, that the
amount available for such travel, entertainment and other expenses may be fixed
in advance by the Board.

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<PAGE> 4

3.4 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. During the
Employment Period, the Company shall maintain in force and effect, a directors'
and officers' liability insurance policy in form and substance reasonably
satisfactory to the Employee and the Employee's personal legal counsel.

4. EMPLOYMENT TERMINATION. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:

4.1 Expiration of the Employment Period in accordance with Section 1;

4.2 At the election of the Company, for cause, immediately upon
written notice by the Company to the Employee. For the purposes of this Section
4.2, cause for termination shall be deemed to exist upon (a) a good faith
finding by the Board of failure of the Employee to perform his assigned duties
of the Company, dishonesty, gross negligence or misconduct, or (b) the
conviction of the Employee of, or the entry of a pleading of guilty or nolo
contendere by the Employee to, any crime involving moral turpitude or any
felony;

4.3 Thirty (30) days after the death or disability of the Employee. As
used in this Agreement, the term "disability" shall mean the inability of the
Employee, due to a physical or mental disability, for a period of 90 days,
whether or not consecutive, during any 360-day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Employee and the Company, PROVIDED THAT
if the

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<PAGE> 5
Employee and the Company do not agree on a physician, the Employee and the
Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties.

5. EFFECT OF TERMINATION; SURVIVAL.

5.1 EFFECT OF TERMINATION. In the event the Employee's employment is
terminated pursuant to Section 4 above, the Company shall pay to the Employee
the compensation and benefits otherwise payable to him under Section 3 through
the last day of his actual employment by the Company, except that the option
previously granted to the Employee shall be payable as set forth in the
Incentive Stock Option Agreement dated April 24, 1995.

5.2 SURVIVAL. The provisions of Sections 6 and 7 shall survive the
termination of this Agreement.

6. RESTRICTIONS.

(a) During the Employment Period and for a period of one (1) year
after the termination or expiration thereof, the Employee will not directly or
indirectly:

(i) recruit, solicit or induce, or attempt to induce, an employee
or employees of the Company to terminate their employment with, or otherwise
cease their relationship with, the Company; or

(ii) solicit, divert or take away, or attempt to divert or to
take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company which
were contacted,

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<PAGE> 6

solicited or served by the Employee while employed by the Company, or engage in
a business directly competitive with the Company's business, whether as a
partner, employee, consultant, or otherwise.

(b) If any restriction set forth in this Section 6 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.

(c) The restrictions contained in this Section 6 are necessary for the
protection of the business and goodwill of the Company and are considered by the
Employee to be reasonable for such purpose. The Employee agrees that any breach
of this Section 6 will cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.

7. PROPRIETARY INFORMATION AND DEVELOPMENTS.

7.1 PROPRIETARY INFORMATION.

(a) Employee agrees that all information and know-how, whether or
not in writing, of a private, secret or confidential nature concerning the
Company's business or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By way of
illustration, but not limitation, Proprietary Information may include projects,
developments, plans,

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<PAGE> 7

research data, financial data, personnel data, computer programs, and customer
and supplier lists. Employee will not disclose any Proprietary Information to
others outside the Company or use the same for any unauthorized purposes without
written approval by an officer of the Company, either during or after his
employment, unless and until such Proprietary Information has become public
knowledge without fault by the Employee.

(b) Employee agrees that all files, letters, memoranda, reports,
records, data, or other tangible material containing Proprietary Information,
whether created by the Employee or others, which shall come into his custody or
possession, shall be and are the exclusive property of the Company to be used by
the Employee only in the performance of his duties for the Company.

(c) Employee agrees that his obligation not to disclose or use
information, know-how and records of the types set forth in paragraphs (a) and
(b) above, also extends to such types of information, know-how, records and
tangible property of customers of the Company or suppliers to the Company or
other third parties who may have disclosed or entrusted the same to the Company
or to the Employee in the course of the Company's business.

7.2 OTHER AGREEMENT. The Prior Agreement is hereby terminated from and
after the date hereof. Employee hereby represents that he is not bound by the
terms of any agreement with any previous employer or other party to refrain from
using or disclosing any trade secret or confidential or proprietary information
in the course of his employment with the Company or to refrain from

-7-

<PAGE> 8

competing, directly or indirectly, with the business of such previous employer
or any other party. Employee further represents that his performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data required by him in confidence or in trust prior to his employment with the
Company.

8. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or upon deposit
in the United States Post Office, by registered or certified mail, postage
prepaid, addressed to the other party at the address shown above, or at such
other address or addresses as either party shall designate to the other in
accordance with this Section 8.

9. PRONOUNS. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.

10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.

11. AMENDMENT. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.

-8-

<PAGE> 9

12. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the internal laws of the State of New Hampshire.

13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be merged or
which may succeed to its assets or business, provided, however, that the
obligations of the Employee are personal and shall not be assigned by him.

14. MISCELLANEOUS.

14.1 No delay or omission by the Company in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.

14.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.

14.3 In case any provision of this Agreement shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.

-9-

<PAGE> 10

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.

BAYCORP HOLDINGS, LTD.

By: /s/ Frank W. Getman Jr.
-----------------------
Name: Frank W. Getman Jr.
Title: President & CEO

EMPLOYEE

/s/ John A. Tillinghast
-----------------------
John A. Tillinghast

ACCEPTED AND AGREED TO
WITH RESPECT TO SECTION 7.2

GREAT BAY POWER CORPORATION

By: /s/ Frank W. Getman Jr.
-----------------------
Name: Frank W. Getman Jr.
Title: President

<PAGE> 1
Exhibit 21.1

LIST OF SUBSIDIARIES OF THE REGISTRANT

At December 31, 1998, the Registrant owned all of the issued and outstanding
capital stock of (1) Great Bay Power Corporation, a New Hampshire corporation,
and (2) Little Bay Power Corporation, a New Hampshire corporation. Great Bay
Power Corporation conducts business only under the business name of Great Bay
Power Corporation. Little Bay Power Corporation conducts business only under the
business name of Little Bay Power Corporation.

<PAGE> 1
Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the inclusion of our
report dated February 2, 1999 in this Form 10-K and to the incorporation by
reference of such report in the company's previously filed Registration
Statement on Form S-3 (File No. 333-24281) and Registration Statement on Form
S-8 (File No. 333-24269.)

ARTHUR ANDERSEN LLP

Boston, Massachusetts
March 30, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BAYCORP HOLDINGS, LTD. FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2559
<SECURITIES> 9496
<RECEIVABLES> 3051
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21916
<PP&E> 108109
<DEPRECIATION> 12785
<TOTAL-ASSETS> 140358
<CURRENT-LIABILITIES> 4155
<BONDS> 0
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0
<COMMON> 0
<OTHER-SE> 71275
<TOTAL-LIABILITY-AND-EQUITY> 140358
<SALES> 32034
<TOTAL-REVENUES> 32034
<CGS> 37310
<TOTAL-COSTS> 37310
<OTHER-EXPENSES> 0
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