10-Q

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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

/x/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

OR

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

For the transition period from                to               

Commission file number: 1-16315

AQUILA, INC.
(Exact name of registrant as specified in its charter)

Delaware	47-0683480
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
1100 Walnut Street, Suite 3300, Kansas City, Missouri (Address of principal executive offices)	64106 (Zip Code)

Registrant's telephone number, including area code 816-527-1000

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

    Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Class	Outstanding at November 13, 2001
Class A Common Stock, $0.01 par value	19,975,000
Class B Common Stock, $0.01 par value	80,025,000

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

    Information regarding the combined financial statements can be found on pages 3 through 11.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    Management's discussion and analysis of financial condition and results of operations can be found on pages 12 through 19.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are subject to market risk as described on pages 45 and 46 of the prospectus included in our Registration Statement on Form S-1 (File No. 333-51718). There have not been any material changes in our market risk since December 31, 2000.

PART II—OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

    None.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

    None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

    None.

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

    None.

ITEM 5.  OTHER INFORMATION

    Other information can be found on page 20.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    Exhibits and reports on Form 8-K can be found on page 20.

2

Part I.  Financial Information

Item 1.  Financial Statements

Aquila, Inc.
Combined Statements of Income—Unaudited

		Three Months Ended September 30,
Dollars in millions, except per share amounts
		2001			2000
Sales
	Natural Gas	$	3,504.7		$	4,394.5
	Electricity		5,067.3			3,475.9
	Other		220.2			126.1
Total Sales			8,792.2			7,996.5
Cost of sales
	Natural Gas		3,499.6			4,374.3
	Electricity		5,003.0			3,429.3
	Other		176.0			106.6
Total Cost of sales			8,678.6			7,910.2
Equity in earnings of investments and partnerships			11.8			4.7
Gross profit			125.4			91.0
Administrative expenses			68.9			60.0
Depreciation and amortization expense			18.0			10.6
Other income			(13.2	)		(20.4	)
Earnings before interest and taxes			51.7			40.8
Interest expense			.1			6.2
Earnings before income taxes			51.6			34.6
Provision in lieu of income taxes			14.4			11.6
Net Income		$	37.2		$	23.0
Earnings per common share:
Basic Earnings Per Common Share		$	.37		$	.27
Diluted Earnings Per Common Share		$	.37		$	.27

See accompanying notes to combined financial statements.

3

Aquila, Inc.
Combined Statements of Income—Unaudited

		Nine Months Ended September 30,
Dollars in millions, except per share amounts
		2001			2000
Sales
	Natural Gas	$	15,895.5		$	10,488.6
	Electricity		13,048.6			6,403.5
	Other		733.1			440.1
Total Sales			29,677.2			17,332.2
Cost of sales
	Natural Gas		15,520.5			10,342.9
	Electricity		12,903.5			6,319.2
	Other		553.0			372.8
Total Cost of sales			28,977.0			17,034.9
Equity in earnings of investments and partnerships			23.5			13.2
Gross profit			723.7			310.5
Administrative expenses			382.5			201.7
Depreciation and amortization expense			44.4			34.6
Other income			(34.0	)		(31.0	)
Earnings before interest and taxes			330.8			105.2
Interest expense			2.9			17.2
Earnings before income taxes			327.9			88.0
Provision in lieu of income taxes			140.1			32.5
Net Income		$	187.8		$	55.5
Earnings per common share:
Basic Earnings Per Common Share		$	2.00		$	.65
Diluted Earnings Per Common Share		$	1.99		$	.65

See accompanying notes to combined financial statements.

4

Aquila, Inc.
Combined Balance Sheets

Dollars in millions		September 30, 2001			December 31, 2000
		(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents	$	160.0		$	9.0
	Funds on deposit		221.1			149.5
	Accounts receivable, net		2,536.4			3,959.9
	Accounts and notes receivable from UtiliCorp		—			11.8
	Inventories		189.6			63.6
	Price risk management assets		872.8			1,452.6
	Other		98.4			39.7
Total current assets			4,078.3			5,686.1
Property, plant and equipment, net			625.5			559.0
Investments in subsidiaries and partnerships			466.2			408.0
Price risk management assets			562.0			744.5
Notes receivable			300.9			313.2
Other			103.5			176.4
Total Assets		$	6,136.4		$	7,887.2
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Current maturities of long-term debt	$	12.5		$	12.5
	Short-term debt		—			25.7
	Accounts payable		3,004.8			4,144.0
	Accrued liabilities		285.6			316.0
	Accounts and line of credit payable to UtiliCorp		136.2			6.0
	Price risk management liabilities		617.1			1,290.5
	Customer deposits		76.1			362.4
Total current liabilities			4,132.3			6,157.1
Long-term Liabilities:
	Long-term debt, net		—			12.5
	Notes payable to UtiliCorp		—			47.6
	Price risk management liabilities		1,051.9			1,252.4
	Deferred income taxes and credits		76.7			105.2
	Other deferred credits		95.8			57.2
Total long-term liabilities			1,224.4			1,474.9
Shareholders' Equity:
Preference stock, $.68 par value; 200,000,000 shares authorized, 28,380,000 and 8,000,000 issued and outstanding, respectively			19.3			5.4
Class A common stock, $.01 par value; 550,000,000 shares authorized, 19,975,000 and none issued and outstanding, respectively			.2			—
Class B common stock, $.01 par value; 250,000,000 shares authorized, 80,025,000 and 85,775,000 shares issued and outstanding, respectively			.8			.9
Additional paid-in capital			566.8			241.0
Accumulated other comprehensive losses			(4.8	)		(1.7	)
Retained earnings			197.4			9.6
Total shareholders' equity			779.7			255.2
Total Liabilities and Shareholders' Equity		$	6,136.4		$	7,887.2

See accompanying notes to combined financial statements.

5

Aquila, Inc.
Combined Statements of Comprehensive Income—Unaudited

		Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in millions
		2001			2000			2001			2000
Net Income		$	37.2		$	23.0		$	187.8		$	55.5
Other comprehensive income (loss):
	Unrealized translation adjustments		2.9			(4.0	)		(3.3	)		(4.5	)
	Unrealized cash flow hedge		(1.0	)		—			.2			—
Comprehensive Income		$	39.1		$	19.0		$	184.7		$	51.0

See accompanying notes to combined financial statements.

6

Aquila, Inc.
Combined Statements of Cash Flows—Unaudited

					Nine Months Ended September 30,
Dollars in millions
					2001			2000
Cash Flows From Operating Activities:
	Net income				$	187.8		$	55.5
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation and amortization expense				44.4			34.6
		Net change in price risk management assets and liabilities				(116.3	)		216.8
		Deferred income taxes and credits				(29.5	)		36.0
		Equity in earnings of investments and partnerships				(23.5	)		(13.2	)
		Dividends from investments and partnerships				16.0			10.3
		Changes in operating assets and liabilities:
			Accounts receivable			1,424.7			(1,279.2	)
			Accounts payable and receivable to/from UtiliCorp, net			(19.9	)		12.9
			Inventories			(125.0	)		68.1
			Accounts payable and accrued liabilities			(1,170.5	)		1,375.9
			Other			40.6			17.4
				Sub-total		228.8			535.1
			Funds on deposit, net			(357.9	)		(123.5	)
Net cash (used in) provided by operating activities						(129.1	)		411.6
Cash Flows From Investing Activities:
		Capital expenditures				(112.3	)		(43.4	)
		Investments in subsidiaries and partnerships				(13.0	)		(22.4	)
		Repayments of (additions to) notes receivable, net				12.3			(146.4	)
		Cash received on sale of related party investments				26.1			—
		Other				12.2			—
Net cash used in investing activities						(74.7	)		(212.2	)
Cash Flows From Financing Activities:
		Repayment of short-term debt				(25.7	)		—
		Line of Credit with UtiliCorp				125.0			—
		Repayment of notes payable to UtiliCorp, net				(47.6	)		(187.5	)
		Retirement of long-term debt				(12.5	)		(12.5	)
		Issuance of common stock, net				315.6			5.5
		Cash dividends paid				—			(10.9	)
Net cash provided by (used in) financing activities						354.8			(205.4	)
Net increase (decrease) in cash and cash equivalents						151.0			(6.0	)
Cash and cash equivalents at beginning of period						9.0			6.0
Cash and cash equivalents at end of period					$	160.0		$	—

See accompanying notes to combined financial statements.

7

AQUILA, INC.
NOTES TO COMBINED
FINANCIAL STATEMENTS
(Unaudited)

1.  Summary of Significant Accounting Policies

    The accompanying unaudited combined financial statements have been prepared in accordance with the accounting policies described in the combined financial statements and related notes included in our Registration Statements on Form S-1, as amended. We believe it is best to read this report in conjunction with our S-1 Registration Statements. The accompanying Balance Sheet as of December 31, 2000 was derived from our audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In our opinion, the accompanying combined financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair representation of our financial position and the results of our operations. Certain estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods shown have been made in preparing the combined financial statements. Actual results could differ from these estimates.

    Certain prior year amounts in the combined financial statements have been reclassified to conform to the 2001 presentation.

New Accounting Pronouncements

Business Combinations

    In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141). SFAS 141 requires that all business combinations initiated after June 30, 2001, be accounted for using the purchase method of accounting. SFAS 141 also requires certain additional disclosures regarding material business combinations. The adoption of this standard is not expected to have a material effect on our financial position or results of operations.

Goodwill and Other Intangible Assets

    In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 142 requires that, beginning on January 1, 2002, goodwill will no longer be systematically amortized against earnings over an estimated useful life. This statement will require that, no less than annually, goodwill be tested for impairment and if impaired, be written off against earnings at that time. We expect that the adoption of this standard in 2002 will result in discontinuing annual goodwill amortization of approximately $4.4 million. As of September 30, 2001, we had total goodwill of $99.8 million. We are currently assessing the potential impact, if any, that a goodwill impairment test could have on our financial position or results of operations.

Asset Retirement Obligations

    In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity will capitalize a cost by increasing the carrying amount of the related asset. The liability will be accreted to its present value each subsequent period and the capitalized cost will be depreciated over the useful life of the related asset. Upon settlement of the liability, the company will record a gain or loss for the difference between the settled liability and the recorded amount. This standard will not be in effect until

8

January 1, 2003, although earlier application is encouraged. We have not yet completed our estimate of the effect of the adoption of this standard on our financial position or results of operations.

Impairment or Disposal of Long Lived Assets

    In August 2001, the FASB approved SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 121 did not address the accounting for a segment of a business accounted for as a discontinued operation, which resulted in two accounting models for long-lived assets to be disposed of. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We have not yet completed our estimate of the effect of the adoption of this standard on our financial position or results of operations.

2.  Earnings per Common Share

    The following table shows the amounts used in computing basic and diluted earnings per common share for the three and nine-month periods ended September 30, 2001 and 2000.

		Three Months Ended September 30,				Nine Months Ended September 30,
In millions, except per share amounts
		2001		2000		2001		2000
Earnings available for common shares		$	37.2	$	23.0	$	187.8	$	55.5
Earnings per share:
	Basic	$	.37	$	.27	$	2.00	$	.65
	Diluted	$	.37	$	.27	$	1.99	$	.65
Weighted average number of common shares used in basic earnings per share			100.0		85.8		94.1		85.8
Per share effect of dilutive securities:
	Stock options		.1		—		.3		—
Weighted number of common shares and dilutive common shares used in diluted earnings per share			100.1		85.8		94.4		85.8

3.  Initial Public Offering

    In April 2001, we issued 14,225,000 shares of Class A common stock to the public in an initial public offering at $24.00 a share. We received net proceeds of approximately $315.6 million after deducting underwriting discounts, commissions and other offering expenses. We have used a portion of the proceeds to repay debt owed to UtiliCorp and have used the remaining proceeds for working capital, fixed assets and general corporate purposes.

    In connection with the offering, UtiliCorp sold 5,750,000 shares of our Class A common stock at $24.00 a share. We did not receive any of the proceeds from the shares of stock sold by UtiliCorp.

    As a result of our initial public offering, UtiliCorp owns Class B common stock representing approximately 80% of our outstanding shares, but approximately 98% of the combined voting power.

4.  Western Hub Properties

    On August 23, 2001, we formed a partnership with ArcLight Energy Partners Fund I, L.P. to buy Western Hub Properties, a Houston-based developer of underground natural gas storage. Western Hub owns a gas storage facility under construction approximately 35 miles South of Sacramento, near Lodi, California. The cost to acquire Western Hub and to complete the facility is approximately $220 million. The majority of the acquisition will be funded at the project level, however we are expected to contribute approximately $25 million of equity. The California Public Utilities Commission must still approve the acquisition.

9

5.  Related Party Transactions

Investments

    During the second quarter of 2001, we completed three transactions with UtiliCorp in relation to our Canadian operations. Those transactions were as follows:

1.

We purchased the workforce of Aquila Canada Corp. (ACC) (a wholly owned subsidiary of UtiliCorp) for $4.3 million. As ACC is included in the combined financial statements, this transaction has been eliminated.

2.

We received $12.9 million from UtiliCorp for our preferred stock investment in a Canadian UtiliCorp subsidiary. The preferred stock was repurchased at the original issuance price.

3.

We sold back to UtiliCorp our 5% ownership of their Canadian investments. We received $13.2 million which approximates the gain connected with the sale.

    As the above transactions were all transactions with a related party, the related net gain of $10.3 million was recorded as a capital transaction and credited to additional paid in capital.

UtiliCorp Revolving Credit Agreement

    We entered into a $250 million revolving credit agreement with UtiliCorp United Inc. on August 13, 2001. The revolver is a one-year agreement with borrowing rates based on one month LIBOR plus 0.4% to 2.725%. The specific rate depends upon our credit rating and the outstanding balance under the revolver. Our effective rate at September 30, 2001 was 3.64%. At September 30, 2001, $125 million was outstanding under the facility and is included within accounts and line of credit payable to UtiliCorp on the combined balance sheet. UtiliCorp may demand repayment of all outstanding amounts under the revolver if any of the following events were to occur:

1.

The sale, transfer, assignment, disposition or securitization or monetization of all or substantially all of UtiliCorp's assets;

2.

The occurrence of any default by UtiliCorp on any of its outstanding debt obligations;

3.

The occurrence of a spin-off by UtiliCorp to its shareholders of UtiliCorp's outstanding voting shares of Aquila; or

4.

Aquila obtains a third-party committed credit facility in an amount greater than or equal to the aggregate principal amounts of the commitment to UtiliCorp at such time.

    The credit agreement also contains customary restrictions as well as covenants relating to the use of proceeds and ratios for debt to total capital, as defined in the agreement.

10

6.  Reportable Segment Reconciliation

	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in Millions
	2001		2000		2001		2000
Sales:
Wholesale Services	$	8,463.0	$	7,746.3	$	28,731.8	$	16,829.7
Capacity Services		329.2		250.2		945.4		502.5
Total	$	8,792.2	$	7,996.5	$	29,677.2	$	17,332.2
EBIT:
Wholesale Services	$	30.7	$	29.5	$	241.6	$	70.1
Capacity Services		21.0		11.3		89.2		35.1
Total	$	51.7	$	40.8	$	330.8	$	105.2

7.  Subsequent Events

    On November 7, 2001, UtiliCorp announced that it will make an exchange offer by which UtiliCorp would acquire all of our outstanding publicly held shares. According to UtiliCorp, all of our public shareholders will be offered .6896 shares of UtiliCorp common stock in a tax-free exchange for each outstanding share of our Class A common stock. UtiliCorp has stated that it will require that at least a majority of our publicly held Class A shares are tendered and this condition will not be waived. UtiliCorp has committed that, if the exchange offer is successfully completed, UtiliCorp will effect a "short-form" merger of us with a UtiliCorp subsidiary. In that merger, each remaining share of our Class A stock would be converted (subject to the exercise of appraisal rights) into the same number of shares of UtiliCorp common stock as paid in the exchange offer.

    We are currently aware of ten class action complaints with allegations regarding the proposed exchange offer that have been filed against Aquila, UtiliCorp, and certain officers and directors of Aquila. Generally, the actions challenge the announced plan for the exchange offer, seek to enjoin the exchange offer or, should the exchange offer be consummated, and award of an unspecified amount of damages, and other relief. The plaintiffs in these actions allege breaches of fiduciary and other common law duties owned to them. We are in the process of reviewing the claims and have not yet answered the allegations or made an assessment of the likely outcome of the litigation.

11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

AQUILA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Except where noted, the following discussion refers to the combined entity, Aquila, Inc. We conduct our business through two principal segments—Wholesale Services and Capacity Services. Wholesale Services consists of Client Services; our structured capital, custom risk products and consultative services business and Commodity Services; where we manage risk. Capacity Services consists of our power generation assets, natural gas assets and coal assets. We service clients throughout North America, the United Kingdom and parts of continental Europe.

FORWARD-LOOKING STATEMENTS

    This report contains forward-looking statements. These statements involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations, intentions, assumptions, and other statements that are not historical facts. We generally intend the words "may," "will," "should," "expect," "intend," "plan," "believe," "seek," "estimate," "continue," "announced," or the negative of these terms or similar expressions to identify forward-looking statements. Our actual results could differ materially from the forward-looking statements as a result of various factors. Some of these factors include:

•

political conditions in our regional, national and international markets, including legislative and regulatory initiatives regarding deregulation and restructuring of the energy industry;



•

changes in commodity prices and interest rates that could impact the value of our commodity portfolio;



•

unusual changes in weather and other natural phenomena, such as hurricanes, floods and unexpected changes in temperature, could dramatically affect commodity prices and thus the value of our commodity portfolio;



•

competition in the markets in which our businesses operate could decrease our profitability;



•

the success of our growth strategy, including our acquisition, control and disposition of assets;



•

economic and financial market conditions and the results of our financing efforts could affect our growth efforts and thus our profitability;



•

our successful development of new structured products and services which will provide new sources of revenue;



•

the pace of well connections to our gas gathering system that could affect the sales generated by our Capacity Services segment;



•

the value of the U.S. dollar relative to the British pound and Canadian dollar could affect financial results from foreign operations; and



•

additional state, federal and other regulations in the United States and in foreign countries in which we operate, including environmental regulations, that could cause us to incur additional expenses to comply with such regulation.

    Forward-looking statements are only predictions and involve risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements. We, however, cannot guarantee future results, events, performance or achievements.

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    All forward-looking statements in this filing reflect our current views about future events and are based on assumptions we believe are reasonable. Except as required by law, including the securities law of the United States, we do not intend to update or revise any forward-looking statements.

RESULTS OF OPERATIONS

		Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in Millions
		2001		2000		2001		2000
Earnings Before Interest and Taxes:
	Wholesale Services	$	30.7	$	29.5	$	241.6	$	70.1
	Capacity Services		21.0		11.3		89.2		35.1
Total EBIT			51.7		40.8		330.8		105.2
Interest expense			.1		6.2		2.9		17.2
Provision in lieu of income taxes			14.4		11.6		140.1		32.5
Net Income		$	37.2	$	23.0	$	187.8	$	55.5
Diluted Earnings per share		$	.37	$	.27	$	1.99	$	.65

    Net income increased $14.2 million, or 62%, in the 2001 third quarter and $132.3 million, or 238%, for the nine months ended September 30, 2001 when compared to the same periods in the prior year. The growth for the quarter comes from stronger earnings in Client Services and Capacity Services, with earnings before interest and taxes up 60% and 86%, respectively, over the prior year. On a year-to-date basis, earnings growth is strong, as all business units have posted marked increases. These strong results were driven by the following:

•

Strong client demand for structured products and physical delivery capabilities increased the number of client transactions by 48% and 32% for the quarter and year to date, respectively.



•

The average number of monthly commodity transactions during the quarter and on a year-to-date basis has increased 25% and 27%, respectively, over prior year.



•

Strong results from our interest in six power plants acquired in December 2000 from GPU International.



•

Successful optimization of new generation assets by securing prices at above current market rates, reflecting on our ability to capture market opportunities.



•

A robust pricing environment that provided increased pricing opportunities to execute our strategy.

    These strong achievements resulted in a trailing twelve-month return on equity of 45%.

13

WHOLESALE SERVICES

    The table below summarizes the operations of our Wholesale Services business segment for the three and nine month periods ended September 30, 2001 and 2000.

		Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in millions
		2001			2000			2001			2000
Sales		$	8,463.0		$	7,746.3		$	28,731.8		$	16,829.7
Cost of sales			8,388.6			7,690.7			28,198.5			16,624.8
Equity in earnings of investments and partnerships			.2			—			.2			—
Gross profit			74.6			55.6			533.5			204.9
Operating expenses:
	Administrative expenses		47.0			43.5			309.0			153.3
	Depreciation and amortization expense		8.5			2.9			15.1			10.8
	Other income		(11.6	)		(20.3	)		(32.2	)		(29.3	)
Earnings before interest and taxes (EBIT)		$	30.7		$	29.5		$	241.6		$	70.1
Sub-unit breakdown:
	Commodity Services EBIT	$	7.4		$	14.9		$	169.2		$	31.4
	Client Services EBIT		23.3			14.6			72.4			38.7
	Total EBIT for Wholesale Services	$	30.7		$	29.5		$	241.6		$	70.1
Operating Statistics:
	Physical gas volumes marketed per day (Bcf/d)		13.4			12.1			12.7			11.7
	Electricity marketing volumes (MMWhs)		87.2			44.1			219.7			128.8
	Volumes delivered (Tbtue/d)		24.4			18.0			22.1			17.4
	Average transactions per month (000's)		49.3			39.4			44.2			34.9
	Electricity prices MWh (average)	$	58.09		$	78.78		$	59.38		$	49.72
	Natural gas price per Mcf (average)	$	2.84		$	3.95		$	4.60		$	3.30

Quarter Ended September 30, 2001 versus Quarter Ended September 30, 2000

Sales and Cost of Sales

    Both our sales and cost of sales for our Wholesale Services business segment increased 9% in the third quarter of 2001 compared to the third quarter of 2000, resulting in a gross profit increase of $18.8 million. This increase was primarily due to the following factors:

•

Improved margins resulted from a decline in power prices and our ability to take advantage of those pricing opportunities within the market. Partially offsetting improved margins for the quarter was lower volatility in gas prices and approximately a $10 million loss associated with the errant American Gas Association report that listed inventory levels at lower levels than the market expected. The report caused gas prices to increase causing our fixed price sales to decrease in value on a mark-to-market basis. The report was subsequently restated, however, our positions were already closed.



•

An increase of 98% and 11% in electricity and gas volumes marketed, respectively, a combined 36% increase on an equivalent Tbtue/d basis and a 25% increase in the average number of commodity transactions per month also contributed to an increase in gross profit, sales and cost of sales for the quarter over prior years.

14

•

A 48% increase in the number of client transactions contributed to a 26% increase in gross profit from our origination deals and our more highly structured products we refer to as our Client Services business. These include our GuaranteedWeather® and GuaranteedGeneration^SM products as well as our longer duration gas and electric transactions.

Administrative Expenses

    Administrative expenses increased $3.5 million, or 8%, in the third quarter of 2001 compared to 2000 due to our continued expansion and payroll associated with additional employees.

Depreciation and Amortization Expense

    Depreciation and amortization expense increased $5.6 million in 2001 over the comparable 2000 quarter. The majority of the increase relates to the write-off of certain interactive web-based assets whose future net realizable value was considered to be minimal.

Other Income

    Other income decreased by $8.7 million, or 43%, in the third quarter of 2001, primarily as a result of a non-recurring $9 million gain related to the sale of an equity security connected to our Capital Services business in 2000.

Nine Months Ended September 30, 2001 versus Nine Months Ended September 30, 2000

Sales and Cost of Sales

    Sales and cost of sales for our Wholesale Services business segment increased 71% and 70%, respectively, in the nine-months ended September 30, 2001 compared to the same period in 2000, resulting in a gross profit increase of $328.4 million. These increases were primarily due to the following:

•

A robust pricing environment that provided increased opportunities to execute our strategy and deliver products and services to our clients.



•

An increase of 71% and 9% in electricity and gas volumes marketed, respectively, a combined 27% increase on an equivalent Tbtue/d basis and a 27% increase in the average number of commodity transactions per month also contributed to an increase in gross profit, sales and cost of sales.



•

A 32% increase in the number of client transactions contributed to a 57% increase in gross profit from our origination deals and our more highly structured products we call our Client Services business. These include our GuaranteedWeather® and GuaranteedGeneration^SM products as well as our longer duration gas and electric transactions.



•

Higher natural gas and electricity prices significantly increased both sales and cost of sales in 2001 compared to 2000.

Administrative Expenses

    Administrative expenses increased $155.7 million, or 102%, in 2001 over the comparable nine month period in 2000 due to our continued expansion, payroll associated with approximately 170 additional employees and higher incentive expenses directly linked to our improved financial performance in 2001.

15

Depreciation and Amortization Expense

    Depreciation and amortization expense increased $4.3 million in 2001 over the comparable 2000 nine month period. The majority of the increase relates to the write-off of certain interactive web-based assets whose future net realizable value was considered to be minimal.

CAPACITY SERVICES

    The table below summarizes the operations of our Capacity Services business segment for the three and nine month periods ended September 30, 2001 and 2000.

		Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in millions
		2001			2000			2001			2000
Sales		$	329.2		$	250.2		$	945.4		$	502.5
Cost of sales			290.0			219.5			778.5			410.1
Equity in earnings of investments and partnerships			11.6			4.7			23.3			13.2
Gross profit			50.8			35.4			190.2			105.6
Operating expenses:
Administrative expenses			21.9			16.5			73.5			48.4
	Depreciation and amortization expense		9.5			7.7			29.3			23.8
	Other income		(1.6	)		(.1	)		(1.8	)		(1.7	)
Earnings before interest and taxes (EBIT)		$	21.0		$	11.3		$	89.2		$	35.1
Operating Statistics:
	Gas throughput volumes (Mcf/d)		363.0			423.0			386.0			460.0
	Natural gas liquids produced (MBbls/d)		22.1			22.5			19.6			22.4
	Natural gas liquids price per gallon	$	.40		$	.48		$	.46		$	.46
	MW owned or controlled		4,357			1,398			4,357			1,398

Quarter Ended September 30, 2001 versus Quarter Ended September 30, 2000

Sales and Cost of Sales

    Sales and cost of sales for our Capacity Services business segment increased $79.0 million and $70.5 million, respectively, in the third quarter of 2001 compared to the third quarter of 2000, representing $8.5 million of the gross profit increase. The strong results were primarily due to the following factors:

•

The GPU International acquisition in December 2000 added approximately $9.2 million to gross profit in the 2001 quarter while adding $17.9 million to sales and $8.7 million to costs of sales.



•

The additional sales and cost of sales represents additional capacity and related trading where over-all margins were slightly down when compared to the prior year.

Equity in Earnings of Investments and Partnerships

    Improved earnings of $6.9 million in the third quarter of 2001 over the same period in 2000 relates to our equity investments that were part of the GPU International acquisition that was made in December 2000. Earnings from these investments are mainly realized over the summer period where the related power plants create the majority of their earnings.

16

Administrative Expenses

    Administrative expenses increased $5.4 million, or 33%, in the 2001 quarter compared to the 2000 quarter. The majority of this increase is directly related to the effects of our GPU International acquisition in December 2000.

Nine Months Ended September 30, 2001 versus Nine Months Ended September 30, 2000

Sales and Cost of Sales

    For the nine months ended September 30, 2001, sales and cost of sales for our Capacity Services business segment increased $442.9 million and $368.4 million, respectively, over prior year, representing a $74.5 million increase in gross profit. The stronger results were primarily due to the following factors:

•

The GPU International acquisition in December 2000 added approximately $44.6 million to gross profit in 2001 while adding $65.1 million and $20.5 million to sales and costs of sales, respectively.



•

We successfully optimized new generation assets by securing prices at above current market rates that significantly improved our margins in the 2001 year-to-date results. We attempt to optimize asset positions with forward positions that can create earnings volatility from time to time. Generally, when we optimize asset positions with derivative instruments, they are recorded at fair market value while the underlying asset position is reflected at historical cost. This tends to produce some earnings volatility.



•

Partially offsetting the above increases were lower margins from our pipeline business as volumes were significantly down compared to the prior year period.



•

The additional sales and cost of sales represents additional capacity, higher prices and related trading where over-all margins were slightly down when compared to the prior year.

Equity in Earnings of Investments and Partnerships

    Improved earnings in 2001 over 2000 were related to our 50% equity interest in the Oasis Pipeline and our GPU International acquisition that was made in December 2000. The additional earnings from the Oasis Pipeline mainly stem from a 15% increase in ownership that occurred in the fourth quarter of 2000 and transportation opportunities that existed due to high demand in the West.

Administrative Expenses

    Administrative expenses increased $25.1 million, or 52%, in 2001 compared to 2000. The majority of this increase is related to the effects of our GPU International acquisition in December 2000.

SIGNIFICANT BALANCE SHEET MOVEMENTS

    Total assets at September 30, 2001 decreased by $1,750.8 million compared to December 31, 2000. This decrease is primarily attributable to the following:

•

Accounts receivable decreased $1,423.5 million primarily due to the seasonality and price fluctuations of our gas and power trading business.



•

Inventories increased by $126.0 million as our storage facilities were replenished at higher prices and additional volumes in anticipation of the winter season.



•

Price risk management assets decreased by $762.3 million due to a change in market prices of gas and power which can fluctuate significantly.

17

    Total liabilities at September 30, 2001 decreased by $2,275.3 million compared to December 31, 2000. This decrease is primarily attributable to the following:

•

Accounts payable decreased by $1,139.2 million primarily due to the seasonality and price fluctuations of our gas and power trading business.



•

Accounts and line of credit payable to UtiliCorp increased by $130.2 million, primarily as a result of a $125 million draw down on our line of credit that was established with UtiliCorp in the third quarter of 2001.



•

Price risk management liabilities decreased by $873.9 million due to a change in market prices of gas and power which can fluctuate significantly.



•

Customer deposits decreased by $286.3 million due to price fluctuations and our customers' over-all positions in our gas and power trading business.

LIQUIDITY AND CAPITAL RESOURCES

    We are subject to various demands on cash resulting from cash flows generated and used by operations, margin deposits and continued investments in power plants, gas storage facilities, and our investment portfolio. We have managed our liquidity and capital needs through a variety of methods that include accessing public equity markets, cash generated from operations, borrowings from UtiliCorp, selling accounts receivable, and posting letters of credit. At September 30, 2001, our total cash and cash equivalents were $160.0 million, an increase of $151.0 million from December 31, 2000. The increase in cash is primarily due to financing activities related to our initial public offering that was completed in April 2001 that raised a net $315.6 million and $125 million of borrowings under a line of credit with UtiliCorp. Cash flows from operations were negative by $129.1 million as strong operating results before margin deposits were offset by $357.9 million of negative cash flow from net margin deposit activity. Cash flows from investing activities used net cash of $74.7 million as capital expenditures for plant development and expansion were partially offset by cash received on notes receivable repayments and on the sale of certain investments to UtiliCorp. We also reduced our notes payable to UtiliCorp by $47.6 million during the year.

    Under a series of master agreements with our customers, we are required to post, and require our customers to post, either cash or a letter of credit when certain agreed-upon credit limits are exceeded. We have a $125 million letter of credit facility with a group of banks that is used to support our operating and margining activities. At September 30, 2001, approximately $89.3 million of letters of credit were issued under this facility. This facility expires in December 2001, though we expect to extend this facility.

    On August 13, 2001, we entered into a $250 million revolving credit agreement with UtiliCorp United Inc. The revolver is a one year agreement with borrowing rates based on one month LIBOR plus 0.4% to 2.725%. The specific rate depends upon our credit rating and the outstanding balance under the revolver. Our effective rate at September 30, 2001 was 3.64%. At September 30, 2001, $125 million was outstanding under the facility and is included within accounts and line of credit payable to UtiliCorp on the combined balance sheet. UtiliCorp may demand repayment if any of the following events were to occur:

1.

The sale, transfer, assignment, disposition or securitization or monetization of all or substantially all of UtiliCorp's assets;



2.

The occurrence of any default by UtiliCorp on any of its outstanding debt obligations;



3.

The occurrence of a spin-off by UtiliCorp to its shareholders of UtiliCorp's outstanding voting shares of Aquila; or

18

4.

Aquila obtains a third-party committed credit facility in an amount greater than or equal to the aggregate principal amounts of the commitment to UtiliCorp at such time.

    The credit agreement also contains customary restrictions as well as covenants relating to the use of proceeds and ratios for debt to total capital, as defined in the agreement.

    In addition, we have sold $275 million of accounts receivable under a Receivables Sale Agreement and have used the proceeds to help fund our short-term cash needs. As this program was in place prior to 2001, additional net proceeds have not been received in the current year. We intend to increase the potential sales amount under a revised Receivables Sale Agreement to $400 million in the fourth quarter of 2001 and reserve the additional capacity as a source of liquidity.

    In November 2000, we closed on a $145 million lease to finance a 340-megawatt power plant, currently under construction. The lease has a term of seven years with a variable interest component of the lease tied to changes in UtiliCorp's credit rating and LIBOR. We expect the plant to be completed by May 2002. If UtiliCorp's interest in Aquila falls below 75%, certain provisions in the lease will need to be renegotiated.

    In addition, we are constructing a 340-megawatt power plant in Mississippi. This project will be financed with cash flow from operations and various financing activities. The project is estimated to cost $145 million with $63 million being spent as of September 30, 2001.

    In May of 2001, we entered into an operating lease for ten GE turbines plus related equipment associated with future development. Up to $265 million in turbines and equipment can be leased under this agreement. Under the terms of the turbine and equipment lease, we must collateralize cumulative expenditures by the lessor above $43 million with cash. As of September 30, 2001, our outstanding collateral balance was $31 million.

    In August, Aquila and a partner agreed to purchase a gas storage facility under development in Lodi, California for $220 million. The facility will be partially financed with non-recourse project level debt. Our equity investment in this project is estimated be around $25 million.

    Our financing strategy with respect to these investment activities will include a combination of financings through leasing or partnership structures as well as on balance sheet financing with funds provided by accessing public debt and equity markets.

19

Part II—Other Information

Item 5. Other Information

Subsequent Events

    On November 7, 2001, UtiliCorp announced that it will make an exchange offer by which UtiliCorp would acquire all of our outstanding publicly held shares. According to UtiliCorp, all of our public shareholders will be offered .6896 shares of UtiliCorp common stock in a tax-free exchange for each outstanding share of our Class A common stock. UtiliCorp has stated that it will require that at least a majority of our publicly held Class A shares are tendered and this condition will not be waived. UtiliCorp has committed that, if the exchange offer is successfully completed, UtiliCorp will effect a "short-term" merger of us with a UtiliCorp subsidiary. In that merger, each remaining share of our Class A stock would be converted (subject to the exercise of appraisal rights) into the same number of shares of UtiliCorp common stock as paid in the exchange offer.

    As of the time of this filing, we are aware of ten stockholder class action complaints with allegations regarding UtiliCorp's proposed exchange offer that have been filed against us, UtiliCorp, Messrs. Richard C. Green, Jr., Robert K. Green, and Keith G. Stamm. Nine of the actions were filed in the Delaware Court of Chancery and were captioned, respectively, Francine Pluck v. Aquila Inc., UtiliCorp United, Inc., Richard C. Green, Jr., Robert K. Green, and Keith G. Stamm, Civil Action No. 19236 (filed November 7, 2001), Joyce Sarsik v. Robert K. Green; Richard C. Green, Jr.; Keith G. Stamm; UtiliCorp United Inc., and Aquila, Inc., Civil Action No. 19237 (filed November 7, 2001), Charles Zimmer v. Richard C. Green, Jr., Robert K. Green, Keith G. Stamm, Aquila Inc., and UtiliCorp United Inc., Civil Action No. 19238NC (filed November 7, 2001), Darren Pinnock v. UtiliCorp Utd., Aquila, Inc., Robert K. Green, Richard C. Green Jr., and Keith Stamm, Civil Action No. 19243 (filed November 8, 2001), Roseanne Caruso v. Aquila Inc., UtiliCorp United, Inc., Richard C. Green Jr., Robert K. Green, and Keith G. Stamm, Civil Action No. 19244NC (filed November 8, 2001), George Siemers v. UtiliCorp Utd., Aquila, Inc., Robert K. Green, Richard C. Green, Jr. and Keith Stamm, Civil Action No. 19246 (filed November 8, 2001), James Hanson v. UtiliCorp Utd., Aquila, Inc., Robert K. Green, Richard C. Green, Jr. and Keith Stamm, Civil Action No. 19247 (filed November 8, 2001), Jason Greene v. Robert K. Green; Richard C. Green, Jr.; Keith G. Stamm; UtiliCorp United Inc., and Aquila, Inc., Civil Action No. 19250NC (filed November 9, 2001), and Nicholas Ruhland v. Robert K. Green; Richard C. Green, Jr.; Keith G. Stamm; UtiliCorp United Inc., and Aquila, Inc.; Civil Action No. 19251NC (filed November 9, 2001). One of the actions was filed in the Circuit Court of Jackson County, Missouri, and was captioned Edward Shlomovich v. Robert K. Green, Richard C. Green, Jr., Keith G. Stamm, Aquila, Inc., and UtiliCorp United, Inc. (filed November 8, 2001). The actions challenge UtiliCorp's announced plan for the exchange offer, seek to enjoin the exchange offer or, should the exchange offer be consummated, an award of an unspecified amount of damages, and other relief. The plaintiffs in these actions allege breaches of fiduciary and other common law duties owed to them by the defendants.

Item 6. Exhibits

(a)

List of Exhibits:

3.1

Corrected Restated Certificate of Incorporation.



10.1

Revolving Credit Agreement with UtiliCorp United Inc.



10.2

Amended & Restated Revolving Credit Agreement with UtiliCorp United Inc.

(b)

Reports on Form 8-K

No reports on Form 8-K were filed during the third quarter of 2001.

20

Signatures

    Pursuant to the requirements 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.

AQUILA, INC.
By:	/s/ DAN STREEK Dan Streek Chief Financial Officer
Signing on behalf of the registrant and as principal financial and accounting officer.

    Date: November 13, 2001

21

QuickLinks

Part I. Financial Information
Item 1. Financial Statements

Aquila, Inc. Combined Statements of Comprehensive Income—Unaudited
Aquila, Inc. Combined Statements of Cash Flows—Unaudited
AQUILA, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Part II—Other Information
Item 5. Other Information
Item 6. Exhibits

Signatures

EX-3.1

                 CORRECTED RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                                  AQUILA, INC.

         Aquila, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),

         DOES HEREBY CERTIFY:

         1. The Corporation's Restated Certificate of Incorporation was filed by
the Secretary of State of Delaware on April 23, 2001 (the "Restated
Certificate"), and the Restated Certificate requires correction as permitted by
Section 103 of the General Corporation Law of the State of Delaware.

         2. The inaccuracy or defect of the Restated Certificate to be corrected
is as follows:

         The number of shares of Class B common stock, into which each share of
common stock converts upon the effective date of the Restated Certificate, as
reflected in paragraph B of Article V, should read "85,775" rather than
"81,025."

         3. The Restated Certificate of the Corporation is hereby corrected to
read in its entirety as follows:

                                    ARTICLE I
                               NAME OF CORPORATION

         The name of the corporation is Aquila, Inc.

                                   ARTICLE II
                                REGISTERED OFFICE

         The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.

                                   ARTICLE III
                                     PURPOSE

         The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.



                                   ARTICLE IV
                                   AFFILIATES

         A. For purposes of this Restated Certificate of Incorporation, the term
"AFFILIATE" shall mean (a) in respect of UtiliCorp United Inc., a Delaware
corporation, or any successor thereof by way of merger or consolidation
("UTILICORP"), any entity that is controlled by UtiliCorp, controls UtiliCorp or
is under common control with UtiliCorp, exclusive of the Corporation and any
entity that is controlled by the Corporation, and (b) in respect of the
Corporation, any entity that is controlled by the Corporation, controls the
Corporation or is under common control with the Corporation, exclusive of
UtiliCorp and its Affiliates. For purposes of the foregoing, "control" of an
entity shall mean, exclusively, the direct or indirect beneficial ownership of
50% or more of the outstanding equity in, or voting stock, voting power, or
other voting interests of, such entity. For all purposes of this Certificate of
Incorporation, beneficial ownership shall have the meaning provided in Rule
13d-3 under the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

         B. AMENDMENT OF ARTICLE. In addition to any other affirmative vote or
written consent required by applicable law, until such time as UtiliCorp and its
Affiliates first cease to beneficially own, in the aggregate, stock representing
20% or more of the combined voting power of the then issued and outstanding
capital stock of the Corporation entitled to vote generally in the election of
directors, this Article IV may not be amended, modified or repealed except by
the affirmative vote of the holders of not less than 80% of the combined voting
power of the then issued and outstanding capital stock of the Corporation
entitled to vote generally in the election of directors, considered for purposes
hereof as a single class.


                                    ARTICLE V
                            AUTHORIZED CAPITAL STOCK

         A. AUTHORIZED STOCK. The maximum number of shares of capital stock that
the Corporation shall have authority to issue is 1,000,000,000 shares consisting
of 550,000,000 shares of class A common stock, par value $0.01 per share (the
"CLASS A COMMON STOCK"), 250,000,000 shares of class B common stock, par value
$0.01 per share (the "CLASS B COMMON STOCK"), and 200,000,000 shares of
preferred stock, par value $0.01 per share (the "PREFERRED STOCK"). As used in
this Restated Certificate of Incorporation, the term "COMMON STOCK" refers
collectively to each class and series of common stock then outstanding.

         Subject to applicable law, this Restated Certificate of Incorporation,
and the rights, powers and preferences of any series of Preferred Stock, the
authorized number of shares of any class or series of stock may be increased or
decreased by the affirmative vote of a majority of the total votes entitled to
be cast by the holders of the Common Stock, voting as a single class, without a
separate vote of the holders of the class or series of stock affected; provided,
however, that the authorized number of shares of such class or series shall not
be decreased below the aggregate of the number of shares of such class or series
then outstanding and the number of shares of such class or series reserved for
issuance upon exercise of stock options or conversion of any other class or
series of stock or other securities of the Corporation.



         B. RECLASSIFICATION OF OLD COMMON STOCK. Upon the filing and
effectiveness (the "EFFECTIVE TIME") of this Restated Certificate of
Incorporation pursuant to the General Corporation Law of the State of Delaware,
each share of the Corporation's common stock, $1.00 par value per share, issued
and outstanding or held in treasury immediately prior to the Effective Time (the
"OLD COMMON STOCK") shall be reclassified as and changed and converted into
85,775 validly issued, fully paid, and non-assessable shares of Class B Common
Stock, without any action by the holder thereof. Each certificate that prior to
the Effective Time represented a share or shares of Old Common Stock shall
thereafter represent that number of shares of Class B Common Stock into which
the share or shares of Old Common Stock represented by such certificate shall
have been reclassified; provided, however, that each record holder of a
certificate or certificates that prior to the Effective Time represented a share
or shares of Old Common Stock shall receive, upon surrender of such certificate
or certificates, a new certificate or certificates evidencing and representing
the number of shares of Class B Common Stock to which such record holder is
entitled pursuant to the foregoing reclassification.

         C. COMMON STOCK. The powers, preferences and rights of the holders of
each class and series of Common Stock, and the qualifications, limitations or
restrictions thereof, shall be in all respects identical on the basis of the
number of shares held, whether as to dividends or upon liquidation, dissolution
or winding up of the affairs of the Corporation, or otherwise, except as
otherwise required by law or expressly provided in this Restated Certificate of
Incorporation.

            1. VOTING. Except as may be otherwise required by law or this
Restated Certificate of Incorporation, on each matter upon which holders of
Common Stock have the right to vote, whether at an annual or special meeting of
the stockholders or by written consent:

               (a) each holder of Class A Common Stock shall be entitled to
one (1) vote in person or by proxy for each share of Class A Common Stock
standing in such stockholder's name on the stock transfer records of the
Corporation;

               (b) each holder of Class B Common Stock shall be entitled to
ten (10) votes in person or by proxy for each share of Class B Common Stock
standing in such stockholder's name on the stock transfer records of the
Corporation; and

               (c) the holders of Class A Common Stock and Class B Common
Stock shall vote together as a single class.

            2. DIVIDENDS.

               (a) Subject to applicable law and to the rights, powers and
preferences of any series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive dividends and other distributions in cash,
property, or other securities of the Corporation out of any funds legally
available therefor at such times and in such amounts as may be determined and
declared by the Board of Directors.

               (b) Dividends shall not be declared or paid in respect of the
Class A Common Stock or the Class B Common Stock unless such dividends are
declared and paid in respect of all Common Stock equally on a per share basis
without preference or priority of any



kind as between Class A Common Stock and Class B Common Stock; provided,
however, that if dividends are declared that are payable in shares of Common
Stock, such dividends shall be payable at the same rate on both Class A
Common Stock and Class B Common Stock but shall be payable in shares of Class
A Common Stock and Class B Common Stock, respectively.

            3. DISTRIBUTIONS ON LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of
the debts and other liabilities of the Corporation and the preferential
amounts to which the holders of any stock ranking prior to the Common Stock
in the distribution of assets shall be entitled upon liquidation, the holders
of the Common Stock and the holders of any other stock ranking on a parity
with the Common Stock in the distribution of assets upon liquidation shall be
entitled to share pro rata in the remaining assets of the Corporation
according to their respective number of shares.

            4. SPLITS, SUBDIVISIONS, ETC. If the Corporation shall in any
manner split, reclassify, subdivide or combine the outstanding Class A Common
Stock or Class B Common Stock, the outstanding shares of the other such class
of Common Stock shall be proportionately split, reclassified, subdivided or
combined in the same manner and on the same basis.

            5. MERGER OR CONSOLIDATION. In the event of a merger or
consolidation of the Corporation with or into another entity (whether or not
the Corporation is the surviving entity), the holders of each share of Class
A Common Stock and Class B Common Stock shall be entitled to receive the same
per share consideration as the per share consideration, if any, received by
the holders of each share of the other class of Common Stock; provided that,
if such consideration shall consist in any part of voting securities (or of
options, rights or warrants to purchase, or of securities convertible into or
exchangeable for, voting securities), then the Corporation may provide in the
applicable merger or such other agreement for the holders of shares of Class
B Common Stock to receive, on a per share basis, voting securities having ten
(10) times the number of votes per share as those voting securities to be
received by the holders of shares of Class A Common Stock (or options, rights
or warrants to purchase, or securities convertible into or exchangeable for,
voting securities with ten (10) times the number of votes per share as those
voting securities issuable upon exercise of the options, rights or warrants
to be received by the holders of the shares of Class A Common Stock, or into
which the convertible or exchangeable securities to be received by the
holders of the shares of Class A Common Stock may be converted or exchanged).

            6. NO PREEMPTIVE RIGHTS. No holder of Common Stock shall, by
reason of such holding, have any preemptive right to subscribe to any
additional issue of stock of any class or series of the Corporation or to any
security of the Corporation convertible into such stock.

            7. ISSUANCE AND CONVERSION OF CLASS B COMMON STOCK. After giving
effect to the reclassification specified in Section B of this Article V, and
except as required by paragraph 2 or 4 of this Section C, the Corporation
shall not issue additional shares of Class B Common Stock, or issue options,
warrants or other rights to subscribe for or purchase additional shares of
Class B Common Stock. Each share of Class B Common Stock shall be subject to
conversion into Class A Common Stock pursuant to and in accordance with the
provisions of Section D of this Article V.



            8. PRIORITY OF PREFERRED STOCK. The Common Stock is subject to
all powers, rights, privileges, preferences and priorities of the Preferred
Stock as may be stated herein or in any resolution or resolutions adopted by
the Board of Directors pursuant to authority expressly granted to and vested
in it by Section E of this Article V.

         D. CONVERSION OF CLASS B COMMON STOCK.

            1. VOLUNTARY CONVERSION OF SHARES. Each share of Class B Common
Stock may, at the option of the record holder thereof at any time prior to a
transfer of Class B Common Stock to UtiliCorp stockholders in a Tax-Free
Spin-Off (as defined in Section D, Paragraph 3 of this Article V), be
converted into one (1) fully paid and non-assessable share of Class A Common
Stock.

            2. VOLUNTARY CONVERSION PROCEDURES. The right of a record holder
of Class B Common Stock to convert such shares into Class A Common Stock
shall be exercised by delivering to the principal executive offices of the
Corporation or to the office of any agent for the registration of transfer of
shares of Common Stock (the "TRANSFER AGENT") (i) the certificate
representing such shares of Class B Common Stock, (ii) a written notice of
the election by the holder thereof to convert, stating the name or names and
denominations in which the certificate or certificates representing the
shares of Class A Common Stock issuable upon conversion are to be issued, and
including instructions for the delivery thereof, and (iii) if the holder
thereof directs that any of the shares of Class A Common Stock to be issued
upon conversion are to be issued in the name of any person other than such
holder, then such instruments of transfer in such form as may be required by
the Corporation or the Transfer Agent, duly executed by such holder or his
duly authorized attorney, together with the amount of any tax which may be
payable in respect of such transfer or evidence satisfactory to the
Corporation that such tax has been paid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of
delivery of the foregoing, or, if the stock transfer books of the Corporation
are closed on such date, then immediately prior to the close of business on
the next succeeding day on which such stock transfer books are open. As
promptly as practicable following such conversion, the Corporation will
deliver or will cause the Transfer Agent to deliver, in accordance with the
instructions set forth in the notice of conversion, a certificate or
certificates representing the number of shares of Class A Common Stock
issuable upon such conversion, issued in such name or names as directed in
the notice of conversion.

            3. AUTOMATIC CONVERSION OF SHARES. Each share of Class B Common
Stock shall be automatically converted on a share-for-share basis into Class
A Common Stock upon any Transfer of such share of Class B Common Stock
occurring prior to a Tax-Free Spin-Off. For purposes of the immediately
preceding sentence, "TRANSFER" means any sale, gift, exchange, assignment,
pledge, encumbrance, alienation or other direct or indirect transfer of any
legal or beneficial ownership or voting interest in any share of Class B
Common Stock, whether voluntary, involuntary or by operation of law, but
shall not include:

               (a) any pledge of such Class B Common Stock to a financial
institution as collateral security for the repayment of indebtedness or
performance of any other obligation; provided, however, that if at any time
thereafter and prior to a Tax-Free Spin-Off such shares are voted by or
registered in the name of any pledgee or nominee thereof, or any



foreclosure, realization or other similar action is taken against such shares
by any person pursuant to such pledge, a Transfer of such shares of Class B
Common Stock shall be deemed to have occurred at such time;

               (b) any transfer or other disposition of any shares of Class B
Common Stock to any person or entity that is an Affiliate of UtiliCorp;
provided, however, that if at any time thereafter and prior to a Tax-Free
Spin-Off such Affiliate ceases to be an Affiliate of UtiliCorp, a Transfer of
such shares of Class B Common Stock held by such Affiliate at such time shall
be deemed to have occurred at such time;

               (c) a grant of a revocable proxy, written consent or other
authorization with respect to any share of Class B Common stock to a person
designated by the Board of Directors or management of the Corporation for
such purpose; or

               (d) any transfer of any shares of Class B Common Stock by
operation of law to any successor of UtiliCorp by way of merger or
consolidation, or any change in the ownership of capital stock or other
securities of UtiliCorp.

In addition to the foregoing, each share of Class B Common Stock shall be
automatically converted on a share-for-share basis into Class A Common Stock
immediately prior to a distribution by UtiliCorp of capital stock of the
Corporation to stockholders or security holders of UtiliCorp in a transaction
(including any distribution in exchange for shares of capital stock or
securities of UtiliCorp) intended to qualify as a tax-free distribution under
Section 355 of the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any successor statute (a "TAX-FREE SPIN-OFF") if, and
only if, immediately following such conversion the shares of Class A Common
Stock to be so distributed represent (i) at least 80% of the total combined
voting power of all classes of the then issued and outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors, and (ii) at least 80% of the total number of shares of all other
classes of the then issued and outstanding capital stock of the Corporation;
provided, however, that the Class B Common Stock shall not be so converted if,
prior to such transaction, UtiliCorp delivers to the Corporation an opinion of
counsel to the effect that such conversion would more likely than not preclude
UtiliCorp from obtaining a favorable ruling from the Internal Revenue Service
that such transaction would qualify as a Tax-Free Spin-Off.

            4. AUTOMATIC CONVERSION PROCEDURES. Any conversion of Class B
Common Stock pursuant to Paragraph 3 of this Section D shall be deemed to
have been effected at the time of the event giving rise to such conversion.
At such time, the certificate or certificates that represented the shares of
Class B Common Stock so converted shall, automatically and without further
action, represent the same number of shares of Class A Common Stock. Without
limiting the foregoing, as promptly as practicable following such conversion,
the holder of any such certificates shall deliver all such certificates to
the principal executive offices of the Corporation or to the office of the
Transfer Agent, together with such further documents as the Corporation or
Transfer Agent may reasonably request. As promptly as practicable following
satisfaction of the foregoing, the Corporation will deliver or will cause the
Transfer Agent to deliver to such holder



a certificate or certificates representing the number of shares of Class A
Common Stock into which the shares of Class B Common Stock have been
converted.

            5. DETERMINATION OF AUTOMATIC CONVERSION. The Board of Directors
of the Corporation shall have the power to determine, in good faith after
reasonably inquiry, whether an event has occurred causing the automatic
conversion of any shares of Class B Common Stock into Class A Common Stock
pursuant to Paragraph 3 of this Section D. Upon the request of any holder of
Class B Common Stock, the Board shall determine in good faith whether a
specified event would cause an automatic conversion, which determination
shall be binding on the Board with respect to such specified event. As a
condition to counting any votes cast by any holder of shares of Class B
Common Stock, as a condition to registration of any transfer of shares of
Class B Common Stock by any holder thereof, or for any other purpose, the
Board of Directors may, in its reasonable good faith discretion, require that
such holder furnish such affidavits or other proof as the Board of Directors
reasonably and in good faith deems necessary or advisable to determine
whether any such event causing a conversion has occurred.

            6. UNCONVERTED SHARES. In the event of the conversion of less
than all of the shares of Class B Common Stock evidenced by a certificate
surrendered to the Corporation in accordance with the procedures of this
Section D, the Corporation will deliver or will cause the Transfer Agent to
deliver, in accordance with the instructions set forth in the notice
described in Paragraph 2 or 4 of this Section D, as applicable, a new
certificate or certificates representing the number of shares of Class B
Common Stock not so converted, issued in the name of the holder of such
certificate or, except to the extent constituting a Transfer, in such other
name or names as directed in such notice, provided in such case that the
holder has delivered such instruments of transfer in such form as may be
required by the Corporation or the Transfer Agent, duly executed by such
holder or his duly authorized attorney, together with the amount of any tax
which may be payable in respect of such transfer or evidence satisfactory to
the Corporation that such tax has been paid.

            7. DIVIDENDS DECLARED PRIOR TO CONVERSION. In the event that any
share of Class B Common Stock is converted subsequent to the record date for
the payment of a dividend or other distribution on shares of Class B Common
Stock but prior to such payment, the registered holder of such share at the
close of business on such record date shall be entitled to receive the
dividend or other distribution payable on such share on such payment date
notwithstanding the conversion thereof.

            8. RESERVATION OF SHARES. The Corporation will, at all times
prior to a Tax-Free Spin-Off, reserve and keep available, solely for the
purpose of issuance upon conversion of the outstanding shares of Class B
Common Stock, such number of shares of Class A Common Stock as shall be
issuable upon the conversion of all Class B Common Stock then outstanding,
provided, that nothing contained herein shall be construed to preclude the
Corporation from satisfying its obligations in respect of the conversion of
the outstanding shares of Class B Common Stock by delivery of previously
issued shares of Class A Common Stock that are held in the treasury of the
Corporation. If any shares of Class A Common Stock that are required to be
reserved for purposes of conversion hereunder require registration with or
approval of any governmental authority under any federal or state law before
such shares of Class A Common



Stock may be issued upon conversion, the Corporation will cause such shares
to be duly registered or approved, as the case may be. The Corporation
covenants that all shares of Class A Common Stock that are issued upon
conversion of the shares of Class B Common Stock, will, upon such issuance,
be fully paid and non-assessable and not subject to any preemptive rights.

         E. PREFERRED STOCK. Shares of Preferred Stock may be issued in one or
more series from time to time by the Board of Directors, and the Board of
Directors is expressly authorized to fix by resolution or resolutions the
designations and the powers, preferences and rights, and the qualifications,
limitations and restrictions thereof, of the shares of each series of Preferred
Stock, which may include but shall not be limited to any of the following:

            1. the distinctive serial designation of such series which shall
distinguish it from other series;

            2. the number of shares included in such series;

            3. the dividend rate (or method of determining such rate) payable
to the holders of the shares of such series, any conditions upon which such
dividends shall be paid, the means and types of property that may be used in
making any such payment and the date or dates upon which such dividends shall
be payable;

            4. whether dividends on the shares of such series shall be
cumulative and, in the case of shares of any series having cumulative
dividend rights, the date or dates or method of determining the date or dates
from which dividends on the shares of such series shall be cumulative;

            5. the amount or amounts which shall be payable out of the assets
of the Corporation to the holders of the shares of such series upon voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of the shares of such
series;

            6. the price or prices at which, the period or periods within
which and the terms and conditions upon which the shares of such series may
be redeemed, in whole or in part, at the option of the Corporation or at the
option of the holder or holders thereof or upon the happening of a specified
event or events;

            7. the obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or otherwise and the
price or prices at which, the period or periods within which and the terms
and conditions upon which the shares of such series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;

            8. whether shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or holders
thereof or at the option of the Corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
Corporation, and the price or prices or rate or rates of exchange or
conversion and any adjustments applicable thereto; and



            9. whether the holders of the shares of such series shall have
voting rights, in addition to the voting rights provided by law, and if so
the terms of such voting rights.


                                   ARTICLE VI
                               BOARD OF DIRECTORS

         A. NUMBER OF DIRECTORS. The number of directors of the Corporation
shall be not less than three (3) nor more than twenty-one (21), as may be fixed
from time to time by resolution duly adopted by the Board of Directors.

         B. UTILICORP NOMINEES. For so long as UtiliCorp and its Affiliates
beneficially own, in the aggregate, a majority of the combined voting power of
the then issued and outstanding capital stock of the Corporation entitled
generally to vote in the election of directors, UtiliCorp shall be entitled to
designate a majority of the nominees of the Board of Directors for election to
the Board of Directors at each annual meeting of the Corporation's stockholders.
If and for so long as UtiliCorp and its Affiliates beneficially own, in the
aggregate, more than 20% but less than a majority of the combined voting power
of the then issued and outstanding capital stock of the Corporation entitled to
vote generally in the election of directors (such percentage from time to time,
the "UtiliCorp Voting Percentage"), UtiliCorp shall be entitled to designate,
for election to the Board of Directors at each annual meeting of the
Corporation's stockholders, a number of nominees of the Board of Directors equal
to the UtiliCorp Representation Number less the number of UtiliCorp Nominated
Directors whose terms expire subsequent to such annual meeting. "UtiliCorp
Nominated Directors" shall be all directors then in office previously nominated
by UtiliCorp in accordance with this Section. The "UtiliCorp Representation
Number" shall be the number obtained by multiplying the total number of
directorships then constituting the Board of Directors by the UtiliCorp Voting
Percentage, with such product rounded to the nearest whole number (with any
number ending exactly in .5 rounded upwards to the next whole number). Upon the
classification of the Board of Directors pursuant to Section C of this Article
VI, the UtiliCorp Nominated Directors then in office shall be distributed among
the classes in as nearly equal a number as possible. All rights of UtiliCorp to
nominate directors pursuant to this Section B or any other provision of this
Certificate of Incorporation shall be subject to, and shall be exercised by
UtiliCorp in a manner to ensure compliance by the Corporation with, all
applicable laws, rules, regulations, and requirements of any securities exchange
to which the Corporation is then subject, including, without limitation, any
requirement that any directors of the Corporation be "independent"; provided,
however, that to the extent that any such law, rule, regulation or requirement
imposes limitations on less than all of the nominees of the Board, the Board and
any nominating committee thereof shall exercise its authority to designate
nominees in a manner than minimizes any restrictions on UtiliCorp's designation
discretion.

         C. TERM OF OFFICE; CLASSIFICATION OF BOARD.

            1. INITIAL STRUCTURE. For so long as UtiliCorp and its Affiliates
beneficially own, in the aggregate, at least a majority of the combined
voting power of the then issued and outstanding capital stock of the
Corporation entitled generally to vote in the election of directors, at each
annual meeting of the stockholders each director of the Corporation shall be
elected to



hold office for a term expiring upon the first annual meeting of stockholders
thereafter, subject to extension pursuant to the provisions of this Section C.

            2. CLASSIFICATION. Effective upon and commencing as of the day
UtiliCorp and its Affiliates shall first cease to beneficially own, in the
aggregate, at least a majority of the combined voting power of the then
issued and outstanding capital stock of the Corporation entitled generally to
vote in the election of directors, the directors of the Corporation shall by
resolution divide the Board of Directors into three (3) classes. The number
of directors in each such class shall be as nearly equal in number as
possible, with any necessary numerical inequality being distributed among the
classes as the Board of Directors shall determine by such resolution. The
Board of Directors, by such resolution, shall determine into which class each
director then in office shall be placed. The initial term of office of the
first class of such directors following such classification shall expire at
the first annual meeting of stockholders thereafter, the initial term of
office of the second class of such directors following such classification
shall expire at the second annual meeting of stockholders thereafter, and the
initial term of office of the third class of such directors following such
classification shall expire at the third annual meeting of stockholders
thereafter. At each annual meeting of stockholders following such initial
classification, each director elected to succeed a director whose term
expires at such annual meeting shall be elected to hold office for a term
expiring upon the annual meeting of stockholders in the third year following
the year of such director's election. Each director shall hold office,
whether before or after the classification of the Board of Directors, until
the expiration of such director's term and the election and qualification of
such director's successor, or until such director's earlier resignation or
removal.

         D. WRITTEN BALLOTS NOT REQUIRED. Elections of directors need not be by
written ballot except to the extent provided in the bylaws of the Corporation.

         E. REMOVAL OF DIRECTORS. Effective upon and commencing as of the day
following the day on which UtiliCorp and its Affiliates shall first cease to
beneficially own, in the aggregate, at least a majority of the combined voting
power of the then issued and outstanding capital stock of the Corporation
entitled to vote generally in the election of directors, no director may be
removed except for cause. After such time, a director may be removed for cause
by the affirmative vote of the holders of a majority of the combined voting
power of the then issued and outstanding capital stock of the Corporation
entitled to vote generally in the election of directors.

         F. VACANCIES.

            1. GENERAL. Any vacancy occurring on the Board of Directors and
any newly created directorship may be filled only by a majority of the
remaining directors or by the sole remaining director in office. In the event
of the death, resignation, retirement, removal or disqualification of a
director during his or her elected term of office, his or her successor shall
serve until the next stockholders' meeting at which directors of such class
are elected, and until his or her successor is elected and qualified or until
his or her earlier resignation or removal.

            2. UTILICORP NOMINATED DIRECTORS. Notwithstanding any other
provision of this Restated Certificate of Incorporation, if (i) any vacancy
occurring on the Board of Directors results from the death, resignation,
retirement, removal or disqualification of a UtiliCorp



Nominated Director, (ii) at such time UtiliCorp and its Affiliates
beneficially own, in the aggregate, at least 20% of the combined voting power
of the then issued and outstanding capital stock of the Corporation entitled
to vote generally in the election of directors, and (iii) at such time one or
more other UtiliCorp Nominated Directors are then in office, such vacancy
shall be filled by such remaining UtiliCorp Nominated Director or Directors
(any successor so appointed to be deemed a UtiliCorp Nominated Director for
all purposes under this Restated Certificate of Incorporation).

         G. OBSERVER RIGHTS. If, at any time during such time that UtiliCorp and
its Affiliates beneficially own, in the aggregate, at least 20% of the combined
voting power of the then issued and outstanding capital stock of the Corporation
entitled to vote generally in the election of directors, there are no UtiliCorp
Nominated Directors then in office, UtiliCorp shall have the right to designate
an individual who shall be entitled to notice of, and who shall have the right
to attend, all meetings of the Board of Directors of the Corporation, such
rights of notice and attendance to continue until such time as a UtiliCorp
Nominated Director is appointed or elected or UtiliCorp and its Affiliates cease
to beneficially own, in the aggregate, at least 20% of the combined voting power
of the then issued and outstanding capital stock of the Corporation entitled to
vote generally in the election of directors.

         H. AMENDMENTS TO ARTICLE. So long as UtiliCorp, together with its
Affiliates, beneficially owns at least 20% of the combined voting power of the
then issued and outstanding capital stock of the Corporation entitled generally
to vote in the election of directors, the rights of UtiliCorp specified in this
Article VI cannot be amended, modifed or repealed without the prior written
consent of UtiliCorp.


                                   ARTICLE VII
                             LIABILITY OF DIRECTORS

         A director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as currently in effect or as the same may hereafter be amended. No
amendment, modification or repeal of this Article VII shall adversely affect any
right or protection of a director with respect to events occurring prior to such
amendment, modification or repeal.


                                  ARTICLE VIII
                               STOCKHOLDER ACTION

         A. RIGHT TO CALL STOCKHOLDER MEETINGS. Subject to the rights of the
holders of any series of Preferred Stock, effective upon the day on which
UtiliCorp and its Affiliates cease to beneficially own, in the aggregate, at
least a majority of the combined voting power of the then issued and outstanding
capital stock of the Corporation entitled to vote generally in the election of
directors, special meetings of stockholders of all or any class or series of
capital stock of the Corporation for any purpose or purposes may be called at
any time only by the chairman of the



Board of Directors or a majority of the Board of Directors, and effective as
of such day, any power of stockholders to call a special meeting is
specifically denied. Business transacted at any special meeting of
stockholders shall be confined to the purpose or purposes of the meeting as
stated in the notice of the meeting.

         B. STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to the rights of the
holders of any series of Preferred Stock, effective upon the day on which
UtiliCorp and its Affiliates cease to hold, in the aggregate, at least a
majority of the combined voting power of the then issued and outstanding capital
stock of the Corporation entitled to vote generally in the election of
directors, any action required or permitted to be taken by any stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such
stockholders.


                                   ARTICLE IX
                       CERTAIN TRANSACTIONS WITH UTILICORP

         A. APPLICABILITY. Subject to Section F of this Article IX, the
provisions of this Article IX shall regulate and define the conduct of certain
of the businesses and affairs of the Corporation and its Affiliates in relation
to UtiliCorp and its Affiliates. Notwithstanding the foregoing or any other
provision contained herein, no contract or business relation between the
Corporation and its Affiliates on the one hand, and UtiliCorp and its Affiliates
on the other, that does not comply with the procedures set forth in this Article
IX shall by reason thereof be deemed void or voidable or unfair or result in any
breach of fiduciary duty or duty of loyalty or failure to act in good faith or
in the best interests of the Corporation or constitute derivation of any
improper personal benefit, but shall be governed by the provisions of this
Amended and Restated Certificate of Incorporation, the bylaws of the
Corporation, the General Corporation Law of the State of Delaware and other
applicable law.

         B. STOCKHOLDER CONSENT. Any person purchasing or otherwise acquiring
any shares of capital stock of the Corporation, or any interest therein, shall
be deemed to have notice of and to have consented to the provisions of this
Article IX, and to have acknowledged and agreed that (i) UtiliCorp (and its
Affiliates) is or may be a stockholder of the Corporation and will or may have
continued contractual, corporate, and business relations with the Corporation
and its Affiliates; (ii) the Corporation and UtiliCorp and their respective
Affiliates may enter into contracts and otherwise transact business with each
other; (iii) directors, officers and employees of UtiliCorp and of its
Affiliates may serve as directors and officers of the Corporation and of its
Affiliates, (iv) UtiliCorp and its Affiliates engage and are expected to
continue to engage in the same, similar or related lines of business as those in
which the Corporation and its Affiliates may engage and other business
activities in each case that may overlap with or compete with those in which the
Corporation and its Affiliates may engage, (v) UtiliCorp and its Affiliates may
compete with the Corporation and its Affiliates in any of such business lines
and business activities and with respect to business opportunities relating to
any such business lines and business activities.

         C. AFFILIATE TRANSACTIONS. The following provisions of this Section C
shall apply to any contract, agreement, arrangement or transaction (or any
amendment, modification or



termination thereof) between (i) the Corporation or any of its Affiliates, on
the one hand, and (ii) UtiliCorp, any Affiliate thereof, or one or more of
the directors or officers of the Corporation, UtiliCorp, or any of its
Affiliates, on the other (any of the foregoing, an "AFFILIATE TRANSACTION").

            1. TRANSACTIONS PERMITTED. No Affiliate Transaction shall, solely
because it is an Affiliate Transaction, or because any directors or officers
of UtiliCorp or its Affiliates are present at or participate in any meeting
of the Board of Directors or committee thereof which authorizes the Affiliate
Transaction, or because his, her or their votes are counted for such purpose,
be (a) void or voidable, (b) considered to be unfair to the Corporation or
its Affiliates, (c) considered to be contrary to any fiduciary duty that
UtiliCorp or any Affiliate thereof may owe to the Corporation or any
Affiliate thereof or to any stockholder or other owner of an equity interest
in the Corporation or any Affiliate thereof, or (d) considered contrary to
any fiduciary duty of any director or officer of the Corporation or of any
Affiliate thereof who is also a director, officer or employee of UtiliCorp or
any Affiliate thereof to the Corporation or such Affiliate, or to any
stockholder thereof.

            2. SATISFACTION OF FIDUCIARY DUTIES. UtiliCorp, any Affiliate
thereof, and the directors and officers of the Corporation shall be deemed to
have acted in good faith and in a manner such persons reasonably believe to
be in and not opposed to the best interests of the Corporation and shall be
deemed not to have breached their duties of loyalty to the Corporation and
its stockholders and not to have derived an improper personal benefit
therefrom, if any of the following conditions shall have been satisfied:

               (a) such Affiliate Transaction shall have been entered into
before the Corporation ceased to be a wholly owned subsidiary of UtiliCorp; or

               (b) the material facts as to the Affiliate Transaction are
disclosed or are known to the Board of Directors and the Board of Directors
authorizes, approves or ratifies the Affiliate Transaction by the affirmative
vote of a majority of the members (even though less than a quorum) who are
not Interested Persons (as hereinafter defined) in respect of such Affiliate
Transaction; or

               (c) the material facts as to the Affiliate Transaction are
disclosed or are known to, and the Affiliate Transaction is authorized,
approved or ratified by, a committee of the Board of Directors constituted
solely of members who are not Interested Persons in respect of such Affiliate
Transaction; or

               (d) the material facts as to the Affiliate Transaction are
disclosed or are known to, and the Affiliate Transaction is authorized,
approved or ratified by, an officer or employee of the Corporation who is not
an Interested Person in respect of such Affiliate Transaction; or

               (e) the material facts as to the Affiliate Transaction are
disclosed or are known to the holders of voting stock entitled to vote
thereon, and the Affiliate Transaction is authorized, approved or ratified by
vote of the holders of a majority of the then outstanding voting stock not
owned by UtiliCorp or an Affiliate of UtiliCorp who vote thereon; or



               (f) such Affiliate Transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, an officer or employee of the Corporation, or
the stockholders of the Corporation; or

               (g) such Affiliate Transaction is fair to the Corporation as
of the time it was entered into by the Corporation.

So long as any of the foregoing shall have been satisfied with respect to an
Affiliate Transaction, neither UtiliCorp nor any Affiliate thereof, as a
stockholder of the Corporation or participant in control of the Corporation,
shall have or be under any fiduciary duty to refrain from entering into or
participating in such Affiliate Transaction, and no director, officer or
employee of the Corporation who is also a director, officer or employee of
UtiliCorp or any Affiliate thereof shall have or be under any fiduciary duty to
the Corporation to refrain from acting on behalf of the Corporation or any
Affiliate thereof in respect of such Affiliate Transaction.

            3. QUORUM. Directors of the Corporation who are also directors,
officers or employees of UtiliCorp or any Affiliate thereof may be counted in
determining the presence of a quorum at a meeting of the Board of Directors
or of a committee which authorizes, approves or ratifies any Affiliate
Transaction. Voting stock beneficially owned by UtiliCorp and any Affiliates
thereof may be counted in determining the presence of a quorum at a meeting
of stockholders which authorizes, approves or ratifies any Affiliated
Transaction.

         D. CORPORATE OPPORTUNITIES.

            1. NO DUTY OF UTILICORP. UtiliCorp and its Affiliates shall have
no duty to refrain from engaging in the same or similar activities or lines
of business as the Corporation, and except as provided below, neither
UtiliCorp nor any of its Affiliates, nor any officer, director or employee
thereof shall be liable to the Corporation or its stockholders for breach of
any fiduciary duty by reason of any such activities of UtiliCorp or its
Affiliates or of such person. In the event that UtiliCorp or any of its
Affiliates acquires knowledge of a potential transaction or matter which may
be a corporate opportunity for both UtiliCorp (and/or its Affiliates) and the
Corporation (and/or its Affiliates), neither UtiliCorp nor any of its
Affiliates shall have any duty to communicate or offer such corporate
opportunity to the Corporation or any of its Affiliates and shall not be
liable to the Corporation or its Affiliates or stockholders for breach of any
fiduciary duty as a stockholder of the Corporation by reason of the fact that
UtiliCorp or any of its Affiliates pursues or acquires such corporate
opportunity, directs such corporate opportunity to another person, or does
not communicate information regarding such corporate opportunity to the
Corporation.

            2. CONDUCT OF DIRECTORS AND OFFICERS. In the event that a
director or officer of the Corporation or of any of its Affiliates, who is
also a director or officer of UtiliCorp or any of its Affiliates, acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for both the Corporation (or any of its Affiliates) and UtiliCorp
(or any of its Affiliates), such director or officer shall have fully
satisfied and fulfilled his or her fiduciary duty to the Corporation and its
stockholders with respect to such corporate opportunity, and shall not be
liable to the Corporation or its stockholders for breach of any fiduciary
duty by reason of the fact that UtiliCorp or any of its Affiliates pursues or
acquires such corporate opportunity or



directs such corporate opportunity to another person or does not communicate
information regarding such corporate opportunity to the Corporation, if such
director or officer acts consistent with the following: a corporate
opportunity offered to any person who is a director or officer of the
Corporation or any of its Affiliates, and who is also a director or officer
of UtiliCorp or any of its Affiliates, shall belong to the Corporation or one
or more of its Affiliates if such opportunity is expressly offered to such
person solely in his or her capacity as a director or officer of the
Corporation or of one or more of its Affiliates. If such opportunity is not
expressly offered to such person solely in such capacity, the opportunity
shall belong solely to UtiliCorp and its Affiliates.

         E. INTERESTED PERSONS. For purposes of this Article IX, "INTERESTED
PERSON" in respect of an agreement or transaction referred to in this Article IX
shall mean any director, officer or employee of UtiliCorp or of an Affiliate
thereof and any person who has a financial interest that is material to such
person in UtiliCorp or such Affiliate or otherwise has a personal financial
interest that is material to such person in such agreement or transaction;
provided, however, that no such financial interest shall be considered material
by reason of a person's ownership of securities of UtiliCorp or of an Affiliate
thereof, if such ownership of securities has been determined in good faith not
to be reasonably likely to influence such individual's decision on behalf of the
Corporation or an Affiliate thereof in respect of the contract, agreement,
arrangement or transaction (or the amendment, modification or termination
thereof) either in the specific instance by, or pursuant to a policy adopted by,
the Board of Directors by the affirmative vote of a majority of the members
(even though less than a quorum) who are not directors, officers or employees of
UtiliCorp or any Affiliate thereof or a committee of the Board of Directors
constituted solely of members who are not directors, officers or employees of
UtiliCorp or any Affiliate thereof by the affirmative vote of a majority of such
committee.

         F. TERMINATION OF EFFECT. The provisions of this Article IX shall have
no further force or effect at such time as UtiliCorp and its Affiliates shall
first cease to beneficially own, in the aggregate, stock representing 20% or
more of the combined voting power of the then issued and outstanding capital
stock of the Corporation entitled to vote generally in the election of
directors; provided, however, that such termination shall not terminate the
effect of such provisions with respect to (i) any contract, agreement,
arrangement or transaction (or the amendment, modification or termination
thereof) between the Corporation or an Affiliate thereof and UtiliCorp or an
Affiliate thereof that was entered into before such time or any transaction
entered into in the performance of any such contract, agreement, arrangement or
transaction (or the amendment, modification or termination thereof), whether
entered into before or after such time, or (ii) any transaction entered into
between the Corporation or an Affiliate thereof and UtiliCorp or an Affiliate
thereof or the allocation of any opportunity between them before such time.

         G. AMENDMENT OF ARTICLE. In addition to any other affirmative vote or
written consent required by applicable law, this Article IX may not be amended,
modified or repealed except by the affirmative vote of the holders of not less
than 80% of the combined voting power of the then issued and outstanding capital
stock of the Corporation entitled to vote generally in the election of
directors, considered for purposes hereof as a single class.



                                    ARTICLE X
                       AMENDMENT OF CERTIFICATE AND BYLAWS

         A. AMENDMENT OF CERTIFICATE OF INCORPORATION. Except as otherwise
expressly provided in this Restated Certificate of Incorporation, or as
otherwise expressly required by applicable law, no provision of this Restated
Certificate of Incorporation shall be altered, amended or repealed, or any
provision inconsistent therewith adopted, except by the affirmative vote of the
holders of a majority of the combined voting power of all of the then issued and
outstanding capital stock of the Corporation entitled to vote generally in the
election of directors, considered for purposes hereof as a single class;
provided, however, that any amendment to this Restated Certificate of
Incorporation that would alter or change the powers, preferences, or special
rights of any class of capital stock of the Corporation then outstanding in a
manner that adversely affects the holders of the outstanding shares thereof must
also be approved by the affirmative vote of the holders of not less than a
majority of the then outstanding shares of such class.

         B. AMENDMENT OF BYLAWS. The Board of Directors of the Corporation is
expressly authorized to adopt, amend or repeal bylaws of the Corporation, but
the stockholders entitled to vote thereon may adopt additional bylaws and may
amend or repeal any bylaw, whether or not adopted by them, at a meeting duly
called for that purpose.



            IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be duly executed this 28th day of September,
2001.

                                  AQUILA, INC.


                                  By:  /s/  Jeffrey D. Ayers
                                     ---------------------------------------
                                  Name:  Jeffrey D. Ayers
                                  Title: General Counsel and Corporate Secretary

EX-10.1

                           REVOLVING CREDIT AGREEMENT

         This Agreement is made and entered into on the 28th day of August,
2001, but effective as of the 13th of August, 2001, by and between Aquila, Inc.,
a Delaware corporation (the BORROWER), and UtiliCorp United Inc., a Delaware
corporation (the LENDER).

                                   WITNESSESS:

         WHEREAS, the Borrower is a direct, 80%-owned subsidiary of the Lender;

         WHEREAS, the Borrower desires to enter into a revolving loan agreement
with the Lender and the Lender is willing to extend and make credit available to
the Borrower upon the terms and conditions set forth herein; and

         WHEREAS, the parties agree and acknowledge that the terms and
conditions in this Agreement are commercially reasonable, having been negotiated
at "arm's length";

         NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:

                                    ARTICLE I

         SECTION 1.01.   DEFINED TERMS.

         Unless otherwise defined herein, capitalized terms used herein have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):

                  ADVANCE means an advance by the Lender to the Borrower under
         this Agreement, as such Advance bears interest pursuant to Section
         2.06.

                  AFFILIATE means, as to any Person, any other Person that,
         directly or indirectly, controls, is controlled by or is under common
         control with such Person or is a director or officer of such Person.

                  APPLICABLE MARGIN means, at all times during which any
         Applicable Rating Level set forth below is in effect, the interest rate
         PER ANNUM set forth below:



                 -------------------------------------------------------
                          Applicable         Applicable Margin
                         Rating Level
                 -------------------------------------------------------
                                          
                              1                     0.40%
                 -------------------------------------------------------
                              2                     0.50%
                 -------------------------------------------------------
                              3                     0.85%
                 -------------------------------------------------------
                              4                     0.925%
                 -------------------------------------------------------
                              5                     1.15%
                 -------------------------------------------------------
                              6                     1.60%
                 -------------------------------------------------------



                  PROVIDED, that the Applicable Margins shall be increased (for
         each Applicable Rating Level) by (a) if on any day the principal amount
         of the Advances then outstanding equals or exceeds $100,000,000 in the
         aggregate, 0.125% PER ANNUM and (b) 2% PER ANNUM upon the occurrence
         and during the continuance of any Event of Default.



                                                                             2


                  Any change in the Applicable Margins will be effective as of
         the interest period immediately following the interest period during
         which S&P or Moody's announces any change in the S&P Rating or the
         Moody's Rating, as the case may be, that results in a change in the
         Applicable Rating Level. The Borrower agrees to notify the Lender
         promptly upon any change in the S&P Rating or the Moody's Rating.

                  APPLICABLE RATING LEVEL at any time shall be determined in
         accordance with the then-applicable S&P Rating and the then-applicable
         Moody's Rating as follows:



              ----------------------------------------------------------------------------------------
                 S&P Rating/Moody's Rating                                   Applicable Rating Level
              ----------------------------------------------------------------------------------------
                                                                          
                 S&P Rating A-/Moody's Rating A3                                          1
              ----------------------------------------------------------------------------------------
                 S&P Rating BBB+/Moody's Rating Baa1                                      2
              ----------------------------------------------------------------------------------------
                 S&P Rating BBB/Moody's Rating Baa2                                       3
              ----------------------------------------------------------------------------------------
                 S&P Rating BBB-/Moody's Rating Baa3                                      4
              ----------------------------------------------------------------------------------------
                 S&P Rating BB+/Moody's Rating Ba1                                        5
              ----------------------------------------------------------------------------------------
                 S&P Rating below BB+/Moody's Rating below Ba1, or no                     6
                 S&P Rating or Moody's Rating
              ----------------------------------------------------------------------------------------


         For purposes of the foregoing, if the S&P Rating and the Moody's Rating
         are not comparable (I.E., a "split rating"), the higher of such two
         ratings shall control, unless either rating is below BBB- (in the case
         of the S&P Rating) or Baa3 (in the case of the Moody's Rating), in
         which case the lower of the two ratings shall apply.

                  BASE RATE means, for any date in question, the interest rate
         PER ANNUM appearing on the display shown as LIBOR 1M on the Bloomberg
         Screen Page BTMM at approximately 11 a.m. and, if such rate is not
         published on such page at such time, then the one-month LIBOR rate
         quoted by a reputable lending institution in the Kansas City bank
         market (as determined in the sole discretion of the Lender).

                  BUSINESS DAY means a day of the year on which banks are not
         required or authorized to close in Kansas City, Missouri.

                  COMMITMENT means $150,000,000, as such amount may be reduced
         pursuant to Section 2.4.

                  DEBT means (without duplication) all liabilities, obligations
         and indebtedness (whether contingent or otherwise) of the Borrower and
         its consolidated subsidiaries (i) for borrowed money or evidenced by
         bonds, indentures, notes, or other similar instruments, (ii) to pay the
         deferred purchase price of property or services, (iii) as lessee under
         leases which shall have been or should be, in accordance with generally
         accepted accounting principles, recorded as capital leases, (iv) as
         lessee under operating leases for electrical generating units,
         aircraft, fleet vehicles or real property or any other operating lease
         having aggregate lease payment obligations of more than $5,000,000, (v)
         under reimbursement agreements or similar agreements with respect to
         the issuance of letters of credit (other than obligations in respect of
         letters of credit opened to provide for the payment of goods or
         services purchased in the ordinary course of business), (vi) to pay
         rent or other amounts under leveraged leases entered into in connection
         with sale and leaseback transactions, (vii) under direct or indirect
         guaranties in respect of, and to purchase or otherwise acquire, or
         otherwise to assure a creditor against loss in respect of, liabilities,
         obligations or indebtedness of others of the kinds referred to in
         clauses (i) through (vi) above, and (viii) liabilities in respect of
         unfunded vested benefits under plans covered by Title IV of the
         Employee Retirement Income Security Act of 1974, as amended from time
         to time; PROVIDED, that in determining aggregate lease payment
         obligations for purposes of clause (iv) above and in determining the
         aggregate amount of Debt outstanding at any time for purposes of
         Section 5.01(b) (including, without limitation, the aggregate amount of
         Debt included in the calculation of "Total Capitalization"), such lease
         payment obligations and the liabilities, obligations and indebtedness



                                                                             3


         described in clauses (iv) and (vi) above shall be calculated in
         accordance with Financial Accounting Standards Board Statement No. 13,
         as amended and interpreted from time to time, as though such lease
         payment obligations and such liabilities, obligations and indebtedness
         were recorded as arising under capital leases.

                  DEMAND OPTION has the meaning specified in Section 7.01.

                  EVENTS OF DEFAULT has the meaning specified in Section 6.01.

                  EXCHANGE ACT means the Securities Exchange Act of 1934, and
         the regulations promulgated thereunder, in each case as amended and in
         effect from time to time.

                  INDEMNIFIED PERSON has the meaning specified in Section
         9.04(b).

                  INTEREST PERIOD means the period commencing on the date of an
         Advance and ending on the maturity date of such Advance (as set forth
         in the applicable Note), PROVIDED that (a) no Interest Period shall end
         after the Termination Date and (b) whenever the last day of any
         Interest Period would otherwise occur on a day other than a Business
         Day, the last day of such Interest Period shall be extended to occur on
         the next succeeding Business Day.

                  MATERIAL ADVERSE CHANGE means any material adverse change (i)
         in the business or condition (financial or otherwise) of the Borrower
         and its subsidiaries, taken as a whole, or (ii) that is reasonably
         likely to affect the legality, validity or enforceability of this
         Agreement against the Borrower or the ability of the Borrower to
         perform its obligations under this Agreement.

                  MATERIAL ADVERSE EFFECT means a material adverse effect (i) on
         the business or condition (financial or otherwise) of the Borrower and
         its subsidiaries, taken as a whole, or (ii) that is reasonably likely
         to affect the legality, validity or enforceability of this Agreement
         against the Borrower or the ability of the Borrower to perform its
         obligations under this Agreement.

                  MOODY'S means Moody's Investors Service, Inc. or any successor
         thereto.

                  MOODY'S RATING means, on any date of determination, the rating
         of the Borrower's long-term senior unsecured indebtedness most recently
         announced by Moody's.

                  NOTE has the meaning specified in Section 2.02(b).

                  PERSON means an individual, partnership, corporation
         (including a business trust), joint stock company, trust,
         unincorporated association, joint venture or other entity, or a
         government or any political subdivision or agency thereof.

                  S&P means Standard & Poor's Ratings Group or any successor
         thereto.

                  S&P RATING means, on any date of determination, the rating of
         the Borrower's long-term senior unsecured indebtedness most recently
         announced by S&P.

                  SIGNIFICANT SUBSIDIARY means any direct or indirect subsidiary
         of the Borrower having, on any date of determination or on any date
         during the 12-month period prior to such date of determination, total
         assets in excess of $100,000,000 (with such determination to be made in
         accordance with generally accepted accounting principles consistent
         with those applied in the preparation of the financial statements
         referred to in Section 4.01(e) hereof) or in excess of 10% of Total
         Capitalization.



                                                                             4


                  SUBSIDIARY means, with respect to any Person, any corporation
         or unincorporated entity of which more than 50% of the outstanding
         capital stock (or comparable interest) having ordinary voting power
         (irrespective of whether at the time capital stock (or comparable
         interest) of any other class or classes of such corporation or entity
         shall or might have voting power upon the occurrence of any
         contingency) is at the time directly or indirectly owned by said Person
         (whether directly or through one or more other subsidiaries). In the
         case of an unincorporated entity, a Person shall be deemed to have more
         than 50% of interests having ordinary voting power only if such
         Person's vote in respect of such interests comprises more than 50% of
         the total voting power of all such interests in the unincorporated
         entity.

                  TERMINATION DATE means the 364th day following the date of
         this Agreement or if the Commitment is extended pursuant to Section
         2.9, such later date that may be established pursuant to Section 2.9,
         or, in either case, the earlier date of termination in whole of the
         Commitment pursuant to Section 2.04, Section 6.01 or Section 7.01
         hereof.

                  TOTAL CAPITALIZATION means the sum of (i) Debt of the Borrower
         and its consolidated subsidiaries, PLUS (ii) the sum of the capital
         stock (excluding treasury stock and capital stock subscribed for and
         unissued) and surplus (including earned surplus, capital surplus,
         translation adjustment and the balance of the current profit and loss
         account not transferred to surplus) accounts of the Borrower and its
         subsidiaries appearing on a consolidated balance sheet of the Borrower
         and its subsidiaries, in each case prepared as of the date of
         determination in accordance with generally accepted accounting
         principles consistent with those applied in the preparation of the
         financial statements referred to in Section 4.01(e), after eliminating
         all intercompany transactions and all amounts properly attributable to
         minority interests, if any, in the stock and surplus of subsidiaries.

                  VOTING STOCK means capital stock issued by a corporation, or
         equivalent interests in any other Person, the holders of which are
         ordinarily, in the absence of contingencies, entitled to vote for the
         election of directors (or persons performing similar functions) of such
         Person, even if the right so to vote has been suspended by the
         happening of such a contingency.

         SECTION 1.02.   COMPUTATION OF TIME PERIODS.

         In this Agreement in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding". All
times referred to herein reference Central Standard Time.

         SECTION 1.03.   ACCOUNTING TERMS.

         All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles consistent with
those applied in the preparation of the financial statements referred to in
Section 4.01(e) hereof.

                                   ARTICLE II

         SECTION 2.01.   THE ADVANCES.

         Subject to the terms and conditions set forth herein, the Lender agrees
to make Advances to the Borrower from time to time on any Business Day during
the period from the date hereof until the 30th day immediately preceding the
Termination Date in an aggregate amount not to exceed at any time the
Commitment. Each Advance shall be in an amount not less than $10,000,000 or an
integral multiple of $1,000,000 in excess thereof. Within the limits of the
Commitment, the Borrower may from time to time borrow, repay pursuant to Section
2.05 and reborrow under this Section 2.01.



                                                                             5


         SECTION 2.02.    MAKING ADVANCES.

         (a) Each Advance shall be made on notice, given not later than 10 a.m.
on the day of the proposed borrowing, by the Borrower to the Lender. Each notice
of a borrowing shall specify the requested date and aggregate amount of such
Advance. Subject to the fulfillment of all applicable conditions set forth in
Article III, the Lender shall, by noon on the date of such Advance, make
available said funds to the Borrower.

         (b) Any Advances made by the Lender shall be evidenced by one or more
promissory notes payable to the order of the Lender (or, if requested by the
Lender, its assignees) in substantially the form of Exhibit A hereto (each, a
NOTE).

         SECTION 2.03.   FEES.

         The Borrower agrees to pay to the Lender an arrangement fee equal to
$56,250, an upfront fee equal to $150,000, a commitment fee equal to $225,000,
and an administrative fee equal to $5,625. The commitment and administrative
fees are annual fees payable quarterly on the last day of each March, June,
September and December.

         SECTION 2.04.   REDUCTION OF THE COMMITMENT.

         (a) The Borrower shall have the right, upon at least three Business
Days' notice to the Lender, to terminate in whole or reduce in part the unused
portions of the Commitment, PROVIDED that the aggregate amount of the Commitment
shall not be reduced to an amount that is less than the aggregate principal
amount of the Advances then outstanding and PROVIDED, FURTHER, that each partial
reduction of the Commitment shall be in the aggregate amount of $10,000,000 or
any whole multiple of $1,000,000 in excess thereof.

         (b)      The Commitment shall automatically be terminated on the
                  Termination Date.

         (c)      Once terminated or reduced, the Commitment may not be
                  reinstated.

         SECTION 2.05.   REPAYMENT OF ADVANCES.

         The Borrower shall repay to the Lender the principal amount of each
Advance on the maturity date of such Advance (as set forth in the relevant
Note). Notwithstanding anything to the contrary herein, each Advance shall be
due and payable no sooner than the 7th day following the date of the Advance and
no later than the 30th day following the date of the Advance.

         SECTION 2.06.   INTEREST ON ADVANCES.

         The Borrower shall pay interest on the unpaid principal amount of each
Advance made by the Lender from the date of such Advance until such principal
amount shall be paid in full, at a rate PER ANNUM equal at all times to the sum
of the Base Rate in effect from time to time PLUS the Applicable Margin for such
Base Rate in effect from time to time, payable on the last day of the applicable
Interest Period.

         SECTION 2.07.   PAYMENTS AND COMPUTATIONS.

         (a) The Borrower shall make each payment hereunder without condition or
deduction for any counterclaim, defense, recoupment or setoff, not later than 2
p.m. on the day when due in U.S. dollars to the Lender in same day funds.



                                                                             6


         (b) The Borrower hereby authorizes the Lender, if and to the extent
payment owed to the Lender is not made when due hereunder, to charge from time
to time against any or all of the Borrower's accounts with the Lender any amount
so due.

         (c) All computations of interest hereunder shall be made on the basis
of a 365-day or 366-day calendar year, as the case may be, and all computations
of the fees referred to in Section 2.03 shall be made by the Lender on the basis
of a 360-day calendar year. Each determination by the Lender shall be conclusive
and binding for all purposes, absent manifest error.

         SECTION 2.08.   TAXES.

         (a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.07, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, EXCLUDING, in the case
of the Lender, taxes imposed on its income, and franchise taxes imposed on it,
by the jurisdiction under the laws of which the Lender is organized or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "TAXES"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to the Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.08) the Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.

         (b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies, if any, which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "OTHER TAXES").

         (c) The Borrower will indemnify the Lender for the full amount of Taxes
or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 2.09) paid by the
Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within 30 days
from the date the Lender makes written demand therefor.

         (d) If the Borrower makes any additional payment to any Lender pursuant
to this Section 2.08 in respect of any Taxes or Other Taxes, and the Lender
determines that it has received (i) a refund of such Taxes or Other Taxes or
(ii) a credit against or relief or remission for, or a reduction in the amount
of, any tax or other governmental charge solely as a result of any deduction or
credit for any Taxes or Other Taxes with respect to which it has received
payments under this Section 2.08, the Lender shall, to the extent that it can do
so without prejudice to the retention of such refund, credit, relief, remission
or reduction, pay to the Borrower such amount as the Lender shall have
determined to be attributable to the deduction or withholding of such Taxes of
Other Taxes. If the Lender later determines that it was not entitled to such
refund, credit, relief, remission or reduction to the full extent of any payment
made pursuant to the first sentence of this Section 2.08(d), the Borrower shall
upon demand of the Lender promptly repay the amount of such overpayment. Any
determination made by the Lender pursuant to this Section 2.08(d) shall in the
absence of bad faith or manifest error be conclusive, and nothing in this
Section 2.08(d) shall be construed as requiring the Lender to conduct its
business or to arrange or alter in any respect its tax or financial affairs so
that it is entitled to receive such a refund, credit or reduction or as allowing
any Person to inspect any records, including tax returns, of the Lender.



                                                                             7


         (e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.08 shall survive the payment in full of principal and interest
hereunder.

         SECTION 2.09.   EXTENSION OF TERMINATION DATE.

         (a) So long as no Event of Default has occurred and is continuing, the
Borrower may, at least 60 days but not more than 90 days before the Termination
Date then in effect, request, by delivering a written request to the Lender
(such request being irrevocable), that the Lender extend for 364 days such
Termination Date with respect to the Commitment.

         (b) Upon receipt of such request from the Borrower, the Lender may (but
is not obligated to), in its sole and absolute discretion, agree to extend the
Termination Date with respect to the Commitment and any of its outstanding
Advances for a 364-day period, and shall (should it determine to do so), no
earlier than 30 days (but in any event no later than 15 days prior to such
then-scheduled Termination Date) following its receipt of such request, notify
the Borrower of its consent to the extension request.

         (c) If the Lender agrees to the Borrower's extension request, the
Commitment shall be extended for a period of 364 days, commencing on the
then-scheduled Termination Date; PROVIDED, HOWEVER, that any such extension is
subject to the condition precedent that, on or prior to the date of such
extension, the Lender shall have received the following, each dated such date in
form and substance satisfactory to the Lender: (i) a certificate of a duly
authorized officer of the Borrower to the effect that as of the date of
extension (A) no event has occurred and is continuing, or would result from such
extension of the Termination Date, that constitutes an Event of Default or
would, with the giving of notice or the lapse of time, or both, constitute an
Event of Default and (B) the representations and warranties contained in Section
4.01 are correct in all material respects on and as of the date of the extension
of the Termination Date, before and after giving effect to the extension; and
(ii) such other information as the Lender may reasonably request.

                                   ARTICLE III

         SECTION 3.01.   CONDITIONS PRECEDENT TO INITIAL ADVANCE.

         The obligation of the Lender to make its initial Advance is subject to
the satisfaction, prior to or concurrently with the making of the initial
Advance, of each of the following conditions precedent:

         (a) DOCUMENTS AND OTHER AGREEMENTS. The Lender shall have received on
or before the day of the initial Advance the following, in form and substance
satisfactory to the Lender:

                  (i)   A Note or Notes payable to the order of the Lender
         requesting same;

                  (ii)  Certified copies of the resolutions of the Board of
         Directors of the Borrower approving this Agreement, and of all
         documents evidencing other necessary corporate action with respect to
         this Agreement; and

                  (iii) A certificate of the Secretary or an Assistant Secretary
         of the Borrower certifying (A) the names and true signatures of the
         officers of the Borrower authorized to sign this Agreement and the
         other documents to be delivered hereunder; (B) that attached thereto
         are true and correct copies of the Certificate of Incorporation and the
         By-laws of the Borrower, in each case in effect on such date; and (C)
         that attached thereto are true and correct copies of all governmental
         and regulatory authorizations and approvals, if any, required for the
         due execution, delivery and performance of this Agreement.



                                                                             8


         (b) PAYMENT OF FEES. The Borrower shall have paid all fees payable
under or referenced in Section 2.03 and any arrangement fees payable to the
Lender, to the extent then due and payable.

         SECTION 3.02.   CONDITIONS PRECEDENT TO EACH ADVANCE.

         The obligation of the Lender to make advance funds on the occasion of
each Advance (including the initial Advance) shall be subject to the further
conditions precedent that on the date of such Advance:

         (i) the following statements shall be true (and each of notice of
borrowing and the acceptance by the Borrower of the proceeds of such Advance
shall constitute a representation and warranty by the Borrower that on the date
of such Advance such statements are true):

                           (A) The representations and warranties contained in
                  Section 4.01 are correct in all material respects on and as of
                  the date of such Advance, before and after giving effect to
                  such borrowing and to the application of the proceeds
                  therefrom, as though made on and as of such date; and

                           (B) No event has occurred and is continuing, or would
                  result from such borrowing or from the application of the
                  proceeds therefrom, that constitutes an Event of Default or
                  that would constitute an Event of Default but for the
                  requirement that notice be given or time elapse or both; and

         (ii) the Lender shall have received such other approvals, opinions or
documents as it may reasonably request.

                                   ARTICLE IV

         SECTION 4.01.   REPRESENTATIONS AND WARRANTIES OF THE BORROWER.

         The Borrower represents and warrants as follows:

         (a) Each of the Borrower and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to do business as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or the property owned, operated or leased by it requires such
qualification, except where failure to so qualify would not have a Material
Adverse Effect.

         (b) The execution, delivery and performance by the Borrower of this
Agreement are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene (i) the Borrower's
charter or by-laws, (ii) law or (iii) any contractual or legal restriction
binding on or affecting the Borrower or its properties.

         (c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Borrower of this Agreement.

         (d) This Agreement is the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms.



                                                                             9


         (e) The unaudited balance sheet of the Borrower and its subsidiaries as
at June 30, 2001 and the related unaudited statements of income, retained
earnings and cash flows for the six-month period then ended, copies of which
have been furnished to the Lender, fairly present (subject, in the case of such
balance sheet and statements of income for the six-month period ended June 30,
2001, to year-end adjustments) the financial condition of the Borrower and its
subsidiaries as at such dates and the results of the operations of the Borrower
and its subsidiaries for the periods ended on such dates, all in accordance with
generally accepted accounting principles consistently applied, and since June
30, 2001, there has been no Material Adverse Change.

         (f) No written statement, information, report, financial statement,
exhibit or schedule furnished by or on behalf of the Borrower to the Agent or
any Lender in connection with the negotiation of this Agreement or included
herein or delivered pursuant hereto contained, contains, or will contain any
material misstatement of fact or intentionally omitted, omits, or will omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were, are, or will be made, not
misleading.

         (g) The Borrower and each Significant Subsidiary is in material
compliance with all laws, rules, regulations and orders of any governmental
authority applicable to it.

         (h) There is no pending or threatened action, suit, investigation,
litigation or proceeding affecting the Borrower or any of its Significant
Subsidiaries before any court, governmental agency or arbitrator that could
reasonably be expected to have a Material Adverse Effect.

         (i) No proceeds of any Advance have been or will be used directly or
indirectly in connection with (i) the acquisition of in excess of 5% of any
class of equity securities that is registered pursuant to Section 12 of the
Exchange Act, (ii) any transaction subject to the requirements of Section 13 of
the Exchange Act or (iii) any transaction subject to the requirements of Section
14 of the Exchange Act.

                                    ARTICLE V

         SECTION 5.01.   AFFIRMATIVE COVENANTS.

         So long as any amount payable by the Borrower hereunder shall remain
unpaid or the Commitment remains outstanding, the Borrower will, and, in the
case of Sections 5.01(a) and 5.01(c), will cause its subsidiaries to, unless the
Lender otherwise consents in writing:

         (a) KEEP BOOKS; CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES;
COMPLIANCE WITH LAWS; INSURANCE; TAXES; INSPECTION RIGHTS.

                  (i)   keep proper books of record and account, all in
         accordance with generally accepted accounting principles;

                  (ii)  preserve and keep in full force and effect its existence
         and preserve and keep in full force and effect its licenses, rights
         (charter and statutory) and franchises to the extent necessary to carry
         on its business;

                  (iii) maintain and keep, or cause to be maintained and kept,
         its properties in good repair, working order and condition, and from
         time to time make or cause to be made all needful and proper repairs,
         renewals, replacements and improvements, in each case to the extent
         such properties are not obsolete and are necessary to carry on its
         business;



                                                                            10


                  (iv) comply in all material respects with all applicable laws,
         rules, regulations and orders, such compliance to include, without
         limitation, paying before the same become delinquent all taxes,
         assessments and governmental charges imposed upon it or its property,
         except to the extent being contested in good faith by appropriate
         proceedings;

                  (v)  maintain insurance with responsible and reputable
         insurance companies or associations in such amounts and covering such
         risks as is usually carried by companies engaged in similar businesses
         and owning similar properties in the same general areas in which it
         operates; and

                  (vi) at any reasonable time and from time to time, permit the
         Lender or any agents or representatives thereof, to examine and make
         copies of and abstracts from the records and books of account of, and
         visit the properties of, the Borrower and its subsidiaries and to
         discuss the affairs, finances and accounts of the Borrower and its
         subsidiaries with any of its officers or directors and with their
         independent certified public accountants.

         (b) DEBT TO TOTAL CAPITALIZATION RATIO. Maintain at all times a ratio
of Debt to Total Capitalization of not more than .65 to 1.0.

         (c) USE OF PROCEEDS. Use the proceeds of any Borrowings hereunder (i)
exclusively for general corporate purposes (including to refinance short-term
Debt of the Borrower) and (ii) in strict compliance with all applicable laws and
governmental and regulatory approvals.

         (d)      REPORTING REQUIREMENTS.  Furnish to the Lender:

                  (i)   as soon as available and in any event within 45 days
         after the end of each of the first three quarters of each fiscal year
         of the Borrower, (A) consolidated balance sheet of the Borrower and its
         subsidiaries as of the end of such quarter and (B) consolidated
         statements of income, retained earnings and cash flows of the Borrower
         and its subsidiaries for the period commencing at the end of the
         previous fiscal year and ending with the end of such quarter, each
         certified by the chief financial officer of the Borrower;

                  (ii)  as soon as available and in any event within 120 days
         after the end of each fiscal year of the Borrower, a copy of the annual
         report for such year for the Borrower and its subsidiaries, containing
         unqualified consolidated financial statements for such year, certified
         by Arthur Andersen or another nationally recognized firm of independent
         public accountants;

                  (iii) as soon as possible and in any event within five days
         after the occurrence of each Event of Default and each event that, with
         the giving of notice or lapse of time or both, would constitute an
         Event of Default, continuing on the date of such statement, a statement
         of the chief financial officer of the Borrower setting forth details of
         such Event of Default or event and the actions that the Borrower has
         taken and proposes to take with respect thereto;

                  (iv)  as soon as possible and in any event within five days
         after the commencement of litigation against the Borrower or any of its
         subsidiaries, or the receipt of a notice of default by the Borrower or
         any of its subsidiaries, that could reasonably be expected to have a
         Material Adverse Effect on the Borrower or any of its subsidiaries,
         notice of such litigation or notice of default describing in reasonable
         detail the facts and circumstances concerning such litigation or
         default and the Borrower's or such subsidiary's proposed actions in
         connection therewith;

                  (v)   promptly after the sending or filing thereof, copies of
         all reports that the Borrower sends to any of its securities holders,
         and copies of all reports and registration statements which the
         Borrower or any subsidiary files with the Securities and Exchange
         Commission or any national securities exchange; and



                                                                            11


                  (vi)  such other information respecting the condition or
         operations, financial or otherwise, of the Borrower or any of its
         subsidiaries as the Lender may from time to time reasonably request.

         SECTION 5.02.   NEGATIVE COVENANTS.

         So long as any amount payable by the Borrower hereunder shall remain
unpaid or the Commitment remains outstanding, the Borrower will not, without the
written consent of the Lender:

         (a) MERGERS AND CONSOLIDATIONS. Merge or consolidate with or into any
Person, or permit any of its subsidiaries to do so, except (i) any subsidiary of
the Borrower may merge or consolidate with or into any other subsidiary of the
Borrower and (ii) any subsidiary of the Borrower may merge with the Borrower and
(iii) the Borrower or any subsidiary of the Borrower may merge with any other
Person, PROVIDED in each case that, immediately after giving effect to such
proposed transaction, (A) no Event of Default or event that, with the giving of
notice or lapse of time, or both, would constitute an Event of Default would
exist, (B) in the case of any such transaction to which the Borrower is a party,
the Borrower is the surviving corporation, (C) the ratings assigned by S&P or
Moody's to the Borrower's senior unsecured indebtedness shall not be lower than
the ratings assigned by S&P or Moody's to the Borrower's senior unsecured
indebtedness immediately prior to giving effect to such proposed transaction,
(D) in the case of any such transaction to which any subsidiary of the Borrower
is a party, the surviving corporation is a subsidiary of the Borrower, and (E)
no Person (other than the Borrower) and its Affiliates, collectively, shall have
the ability to elect a majority of the board of directors of the Borrower or any
such subsidiary or surviving corporation.

         (b) DISPOSITION OF ASSETS. In any 12-month period, (i) sell, lease,
transfer, convey or otherwise dispose of (whether in one transaction or in a
series of transactions) in excess of 7.5% of the total assets (whether now owned
or hereafter acquired, EXCLUDING, HOWEVER, accounts receivable) of the Borrower
and its subsidiaries (with such determination to be made in accordance with
generally accepted accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section 4.01(e)), or
permit any subsidiary to do so, or (ii) sell or otherwise dispose of (whether in
one transaction or in a series of transactions) in excess of 51% of the shares
of capital stock of any Significant Subsidiary, or permit any Significant
Subsidiary to issue, sell or otherwise dispose of in excess of 51% of its shares
of capital stock or the capital stock of any other Significant Subsidiary,
except to the Borrower or another subsidiary, unless in either case described in
clauses (i) and (ii) above, the consideration (as hereinafter defined) received
for such assets or capital stock, as the case may be, is at least equal to the
higher of the book value and the fair value (as determined in good faith by the
board of directors of the Borrower) thereof. As used in this Section 5.02(b),
the term "consideration" shall mean cash consideration or the fair value of
non-cash consideration (as determined in good faith by the board of directors of
the Borrower).

         (c) NATURE OF BUSINESS. Fail to continue it's primary business as
conducted on the date hereof without material reduction or change in nature.


                                   ARTICLE VI

         SECTION 6.01.   EVENTS OF DEFAULT.

         If any of the following events ("EVENTS OF DEFAULT") shall occur and be
continuing:

         (a) The Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable, or interest thereon or any other amount
payable under this Agreement within three Business Days after the same becomes
due and payable; or



                                                                            12


         (b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with this Agreement shall
prove to have been incorrect or misleading in any material respect when made; or

         (c) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5.01(b) or (c) or Section 5.02 or
(ii) any other term, covenant or agreement contained in this Agreement on its
part to be performed or observed if the failure to perform or observe such other
term, covenant or agreement shall remain unremedied for 30 days after written
notice thereof shall have been given to the Borrower by the Lender; or

         (d) The Borrower or any Significant Subsidiary shall fail to pay any
principal of or premium or interest on any Debt which is outstanding in a
principal amount in excess of $10,000,000 in the aggregate (but excluding Debt
evidenced by this Agreement) of the Borrower or such Significant Subsidiary (as
the case may be) when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Debt; or any other event shall
occur or condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or any such Debt shall be declared to be due and payable, or required
to be prepaid (other than by a regularly scheduled required prepayment), prior
to the stated maturity thereof; or

         (e) The Borrower or any Significant Subsidiary shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
any Significant Subsidiary seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 30 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property) shall occur; or the Borrower or any
Significant Subsidiary shall take any corporate action to authorize or to
consent to any of the actions set forth above in this subsection (e); or

         (f) Any judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Borrower or any of its Significant
Subsidiaries and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of 10
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or

         (g) (i) Any entity, person (within the meaning of Section 14(d) of the
Exchange Act) or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) that theretofore was beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of less than 50% of the Borrower's Voting Stock
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the SEC under the Exchange Act), directly or indirectly, of Voting Stock of the
Borrower (or other securities convertible into such Voting Stock) representing
50% or more of the combined voting power of all Voting Stock of the Borrower; or
(ii) during any period of up to 24 consecutive months, commencing after the date
hereof, individuals who at the beginning of such 24-month period were directors
of the Borrower shall cease for any reason to constitute a majority of the board
of directors of the Borrower, PROVIDED that any person becoming a director
subsequent to the date hereof, whose election, or nomination for election by the
Borrower's shareholders, was approved by a vote of at least a majority of the
directors of the board of directors of the Borrower as comprised as of the date
hereof (other than the election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the



                                                                            13


directors of the Borrower) shall be, for purposes of this provision,
considered as though such person were a member of the board as of the date
hereof;

then, and in any such event, the Lender may by notice to the Borrower (i)
declare the obligation of the Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) declare the Advances, all
interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Advances, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; PROVIDED, HOWEVER, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower or any of its
subsidiaries under the Federal Bankruptcy Code, (A) the obligation of the Lender
to make Advances shall automatically be terminated and (B) the Advances, all
such interest and all such amounts shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrower.

                                   ARTICLE VII

         SECTION 7.01.   DEMAND OPTION.

         Notwithstanding any other provision contrary herein, at any and all
times, the Lender may upon notice to the Borrower demand the repayment of all or
any Advances then outstanding (the DEMAND OPTION) upon the occurrence of any of
the following events: (a) the sale, conveyance, transfer, assignment, lease or
other disposition, or securitization or monetization of all or substantially all
of the Lender's assets; (b) the occurrence of any default by the Lender on any
of its outstanding debt obligations; (c) the occurrence of a spin-off by the
Lender to its shareholders of the Lender's outstanding voting shares of Aquila,
Inc; or (d) the Borrower obtains a committed credit facility in an aggregate
principal amount equal to or exceeding the aggregate principal amount of the
Commitment at such time. All obligations, amounts, indebtedness, and interest
owing to the Lender by the Borrower shall be immediately due and payable by the
Borrower upon the exercise of the Demand Option by the Lender, and thereafter
the Commitment shall be terminated.

                                  ARTICLE VIII

         SECTION 8.01.   SUBORDINATION.

         All payments by the Borrower under this Agreement are subordinate and
junior in right of payment to the prior payment in full of all senior debt of
the Borrower, whether outstanding at the date hereof or thereafter occurred.

                                   ARTICLE IX

         SECTION 9.01.   AMENDMENTS, ETC.

         No amendment or waiver of any provision of this Agreement, nor consent
to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.

         SECTION 9.02.   NOTICES, ETC.

         All notices and other communications provided for hereunder shall be in
writing (including telecopier, telegraphic, telex or cable communication) and
mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the
Borrower, at its address at 1100 Walnut Street, Suite 3300, Kansas City,
Missouri 64199; Attention: Senior Vice President, Finance; telecopy: (816)
527-1195; if to the Lender, at its address at 20 West Ninth Street, Kansas City,



                                                                            14


Missouri 64105, Attention: Chief Financial Officer, telecopy: (816) 467-3591;
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party. All such notices and communications
shall not be effective until received.

         SECTION 9.03.   NO WAIVER; REMEDIES.

         No failure on the part of the Lender to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

         SECTION 9.04.   COSTS AND EXPENSES; INDEMNIFICATION.

         (a) Except to the extent limited by written agreement between the
Borrower and the Lender on or prior to the date hereof, the Borrower agrees to
pay on demand all reasonable costs and expenses incurred by the Lender in
connection with the preparation, execution, delivery, administration,
modification and amendment of this Agreement and the other documents to be
delivered hereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Lender with respect thereto and with
respect to advising the Lender as to its rights and responsibilities under this
Agreement. The Borrower further agrees to pay on demand all costs and expenses,
if any (including, without limitation, counsel fees and expenses of outside
counsel and of internal counsel), incurred by the Lender in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement and the other documents to be delivered hereunder, including,
without limitation, counsel fees and expenses in connection with the enforcement
of rights under this Section 8.04(a).

         (b) The Borrower hereby agrees to indemnify and hold the Lender and its
respective officers, directors, employees and professional advisors (each, an
"INDEMNIFIED PERSON") harmless from and against any and all claims, damages,
losses, liabilities, costs or expenses (including, without limitation,
reasonable counsel fees and expenses of outside counsel and of internal counsel,
whether or not such Indemnified Person is named as a party to any proceeding or
is otherwise subjected to judicial or legal process arising from any such
proceeding) that any of them may incur or which may be claimed against any of
them by any Person by reason of or in connection with the execution, delivery or
performance of this Agreement or any transaction contemplated thereby, or the
use by the Borrower or any of its subsidiaries of the proceeds of any Advance.
The Borrower's obligations under this Section 9.04(b) shall survive the
repayment of all amounts owing to the Lender hereunder and the termination of
the Commitment. If and to the extent that the obligations of the Borrower under
this Section 9.04(b) are unenforceable for any reason, the Borrower agrees to
make the maximum contribution to the payment and satisfaction thereof which is
permissible under applicable law.

         SECTION 9.05.   RIGHT OF SET-OFF.

         Upon (i) the failure of the Borrower to make any payment when due
hereunder and (ii) the making of the request or the granting of the consent
specified by Section 6.01 to authorize the Lender to declare the Advances due
and payable pursuant to the provisions of Section 6.01, the Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Lender to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter existing
hereunder held by the Lender, whether or not the Lender shall have made any
demand under this Agreement and although such obligations may be unmatured. The
Lender agrees promptly to notify the Borrower after any such set-off and
application made by it, PROVIDED that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the Lender
under this Section 9.05 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) that it may have.



                                                                            15


         SECTION 9.06.   BINDING EFFECT; ASSIGNMENT.

         This Agreement shall become effective when it shall have been executed
by the Borrower and the Lender and shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein.

         SECTION 9.07.   SUBMISSION TO JURISDICTION.

         Each of the Borrower and the Lender (i) irrevocably submits to the
non-exclusive jurisdiction of any Missouri State court or Federal court sitting
in Kansas City in any action arising out of this Agreement, (ii) agrees that all
claims in such action may be decided in such court, (iii) waives, to the fullest
extent it may effectively do so, the defense of an inconvenient forum and (iv)
consents to the service of process by mail. A final judgment in any such action
shall be conclusive and may be enforced in other jurisdictions. Nothing herein
shall affect the right of any party to serve legal process in any manner
permitted by law or affect its right to bring any action in any other court.

         SECTION 9.08.   GOVERNING LAW.

         THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF MISSOURI.

         SECTION 9.09.   EXECUTION IN COUNTERPARTS.

         This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.

         SECTION 9.10.   EFFECTIVE DATE.

         This Agreement shall be effective from, on and after August 13, 2001.




                                                                            S-1




         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

                                          UTILICORP UNITED INC.



                                          By /s/ Dale Wolf
                                            ------------------------------------
                                             Name:  Dale Wolf
                                             Title: Vice President/Finance


                                          AQUILA, INC.


                                          By /s/ Dan Streek
                                            ------------------------------------
                                             Name:  Dan Streek
                                             Title: Chief Financial Officer










                                    EXHIBIT A

                                  FORM OF NOTE

$_____________________                                     _______________, 20__

         FOR VALUE RECEIVED, the undersigned, AQUILA, INC., a Delaware
corporation (the BORROWER), hereby promises to pay to the order of UTILICORP
UNITED INC. (the LENDER), on the ___ day following the date hereof, the
principal sum of _________________________ DOLLARS ($_____________), in lawful
money of the United States of America in immediately available funds, and to pay
interest on such principal amount from time to time outstanding, in like funds,
at a rate or rates per annum and payable with respect to such periods and on
such dates as determined pursuant to the Credit Agreement.

         The Borrower promises to pay interest, on demand, on any overdue
principal and overdue interest from their due dates at a rate or rates
determined as set forth in the Credit Agreement.

         The Borrower hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The non-exercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.

         All borrowings evidenced by this Note and all payments of the principal
hereof and interest hereon and the respective dates thereof shall be endorsed by
the holder hereof; PROVIDED, HOWEVER, that any failure of the holder hereof to
make such a notation or any error in such notation shall not in any manner
affect the obligation of the Borrower to make payments of principal and interest
in accordance with the terms of this Note and the Credit Agreement.

         This Note is one of the Notes referred to in the Credit Agreement,
dated as of August 28, 2001, among the Borrower and the Lender (as amended from
time to time in accordance with its terms, the CREDIT AGREEMENT; capitalized
terms used but not defined herein having the meanings set forth therein) and is
subject to the terms and conditions contained in the Credit Agreement and is
entitled to the benefits thereof. The Credit Agreement, among other things,
contains provisions for the acceleration of the maturity hereof upon the
happening of certain events, for prepayment of the principal hereof prior to the
maturity thereof and for the amendment or waiver of certain provisions of the
Credit Agreement, all upon the terms and conditions therein specified.

         This Note shall be construed in accordance with and governed by the
laws of the State of Missouri and any applicable laws of the United States of
America.

                                            AQUILA, INC.


                                            By:
                                                --------------------------------
                                                 Name:
                                                 Title:

EX-10.2

                  AMENDED & RESTATED REVOLVING CREDIT AGREEMENT

         This Amended & Restated Revolving Credit Agreement (this AGREEMENT)
is entered into the 1st day of October, 2001, but effective as of August 13,
2001, between Aquila, Inc., a Delaware corporation (the BORROWER), and
UtiliCorp United Inc., a Delaware corporation (the LENDER).

                                   WITNESSESS:

         WHEREAS, the Borrower is a direct, 80%-owned subsidiary of the
Lender;

         WHEREAS, the Borrower and the Lender entered into that certain
Revolving Credit Agreement dated August 28, 2001 (the ORIGINAL REVOLVER);

         WHEREAS, the parties wish for this Agreement to replace the Original
Revolver and for all Advances (as defined below) outstanding as of the date
hereof to be governed by the terms of this Agreement; and

         WHEREAS, the parties agree and acknowledge that the terms and
conditions in this Agreement are commercially reasonable, having been
negotiated at "arm's length";

         NOW, THEREFORE, for and in consideration of the promises and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:

                                    ARTICLE I

         SECTION 1.01.   DEFINED TERMS.

         Unless otherwise defined herein, capitalized terms used herein have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):

                  ADVANCE means an advance by the Lender to the Borrower under
         this Agreement, as such Advance bears interest pursuant to Section
         2.06.

                  AFFILIATE means, as to any Person, any other Person that,
         directly or indirectly, controls, is controlled by or is under common
         control with such Person or is a director or officer of such Person.

                  APPLICABLE MARGIN means, at all times during which any
         Applicable Rating Level set forth below is in effect, the interest rate
         PER ANNUM set forth below:



                  --------------------------------------------------------
                          Applicable            Applicable Margin
                         Rating Level
                  --------------------------------------------------------
                                             
                               1                     40 bps
                  --------------------------------------------------------
                               2                     50 bps
                  --------------------------------------------------------
                               3                     85 bps
                  --------------------------------------------------------
                               4                    92.5 bps
                  --------------------------------------------------------
                               5                    115 bps
                  --------------------------------------------------------
                               6                    160 bps
                  --------------------------------------------------------


                  PROVIDED, that the Applicable Margins shall be increased (for
         each Applicable Rating Level) by (a) if on any day the principal amount
         of the Advances then outstanding equals or exceeds $100,000,000 in the



                                                                          2

         aggregate, an additional 12.5 basis points PER ANNUM, (b) if on any day
         the principal amount of the Advances then outstanding equals or exceeds
         $150,000,000 in the aggregate, an additional 50 basis points PER ANNUM,
         (c) if on any day the principal amount of the Advances then outstanding
         equals or exceeds $200,000,000 in the aggregate, an additional 50 basis
         points PER ANNUM, and (d) an additional 200 basis points PER ANNUM upon
         the occurrence and during the continuance of any Event of Default.

                  Any change in the Applicable Margins will be effective as of
         the interest period immediately following the interest period during
         which S&P or Moody's announces any change in the S&P Rating or the
         Moody's Rating, as the case may be, that results in a change in the
         Applicable Rating Level. The Borrower agrees to notify the Lender
         promptly upon any change in the S&P Rating or the Moody's Rating.

                  APPLICABLE RATING LEVEL at any time shall be determined in
         accordance with the then-applicable S&P Rating and the then-applicable
         Moody's Rating as follows:



                 -----------------------------------------------------------------------------------
                 S&P Rating/Moody's Rating                                   Applicable Rating Level
                 -----------------------------------------------------------------------------------
                                                                          
                 S&P Rating A-/Moody's Rating A3                                          1
                 -----------------------------------------------------------------------------------
                 S&P Rating BBB+/Moody's Rating Baa1                                      2
                 -----------------------------------------------------------------------------------
                 S&P Rating BBB/Moody's Rating Baa2                                       3
                 -----------------------------------------------------------------------------------
                 S&P Rating BBB-/Moody's Rating Baa3                                      4
                 -----------------------------------------------------------------------------------
                 S&P Rating BB+/Moody's Rating Ba1                                        5
                 -----------------------------------------------------------------------------------
                 S&P Rating below BB+/Moody's Rating below Ba1, or no                     6
                 S&P Rating or Moody's Rating
                 -----------------------------------------------------------------------------------


         For purposes of the foregoing, if the S&P Rating and the Moody's Rating
         are not comparable (I.E., a "split rating"), the higher of such two
         ratings shall control, unless either rating is below BBB- (in the case
         of the S&P Rating) or Baa3 (in the case of the Moody's Rating), in
         which case the lower of the two ratings shall apply.

                  BASE RATE means, for any date in question, the interest rate
         PER ANNUM appearing on the display shown as LIBOR 1M on the Bloomberg
         Screen Page BTMM at approximately 11 a.m. and, if such rate is not
         published on such page at such time, then the one-month LIBOR rate
         quoted by a reputable lending institution in the Kansas City bank
         market (as determined in the sole discretion of the Lender).

                  BASIS POINT or BPS means one one-hundredth (1/100) of one
         percent.

                  BUSINESS DAY means a day of the year on which banks are not
         required or authorized to close in Kansas City, Missouri.

                  COMMITMENT means $250,000,000, as such amount may be reduced
         pursuant to Section 2.4.

                  DEBT means (without duplication) all liabilities, obligations
         and indebtedness (whether contingent or otherwise) of the Borrower and
         its consolidated subsidiaries (i) for borrowed money or evidenced by
         bonds, indentures, notes, or other similar instruments, (ii) to pay the
         deferred purchase price of property or services, (iii) as lessee under
         leases which shall have been or should be, in accordance with generally
         accepted accounting principles, recorded as capital leases, (iv) as
         lessee under operating leases for electrical generating units,
         aircraft, fleet vehicles or real property or any other operating lease
         having aggregate lease payment obligations of more than $5,000,000, (v)
         under reimbursement agreements or similar agreements with respect to
         the issuance of letters of credit (other than obligations in respect of
         letters of credit opened to provide for the payment of goods or
         services purchased in the ordinary course of business), (vi) to pay
         rent or other amounts under leveraged leases entered into in connection
         with sale and



                                                                          3

         leaseback transactions, (vii) under direct or indirect guaranties in
         respect of, and to purchase or otherwise acquire, or otherwise to
         assure a creditor against loss in respect of, liabilities, obligations
         or indebtedness of others of the kinds referred to in clauses (i)
         through (vi) above, and (viii) liabilities in respect of unfunded
         vested benefits under plans covered by Title IV of the Employee
         Retirement Income Security Act of 1974, as amended from time to time;
         PROVIDED, that in determining aggregate lease payment obligations for
         purposes of clause (iv) above and in determining the aggregate amount
         of Debt outstanding at any time for purposes of Section 5.01(b)
         (including, without limitation, the aggregate amount of Debt included
         in the calculation of "Total Capitalization"), such lease payment
         obligations and the liabilities, obligations and indebtedness
         described in clauses (iv) and (vi) above shall be calculated in
         accordance with Financial Accounting Standards Board Statement No. 13,
         as amended and interpreted from time to time, as though such lease
         payment obligations and such liabilities, obligations and indebtedness
         were recorded as arising under capital leases.

                  DEMAND OPTION has the meaning specified in Section 7.01.

                  EVENTS OF DEFAULT has the meaning specified in Section 6.01.

                  EXCHANGE ACT means the Securities Exchange Act of 1934, and
         the regulations promulgated thereunder, in each case as amended and in
         effect from time to time.

                  INDEMNIFIED PERSON has the meaning specified in Section
         9.04(b).

                  INTEREST PERIOD means the period commencing on the date of an
         Advance and ending on the maturity date of such Advance (as set forth
         in the applicable Note), PROVIDED that (a) no Interest Period shall end
         after the Termination Date and (b) whenever the last day of any
         Interest Period would otherwise occur on a day other than a Business
         Day, the last day of such Interest Period shall be extended to occur on
         the next succeeding Business Day.

                  MATERIAL ADVERSE CHANGE means any material adverse change (i)
         in the business or condition (financial or otherwise) of the Borrower
         and its subsidiaries, taken as a whole, or (ii) that is reasonably
         likely to affect the legality, validity or enforceability of this
         Agreement against the Borrower or the ability of the Borrower to
         perform its obligations under this Agreement.

                  MATERIAL ADVERSE EFFECT means a material adverse effect (i) on
         the business or condition (financial or otherwise) of the Borrower and
         its subsidiaries, taken as a whole, or (ii) that is reasonably likely
         to affect the legality, validity or enforceability of this Agreement
         against the Borrower or the ability of the Borrower to perform its
         obligations under this Agreement.

                  MOODY'S means Moody's Investors Service, Inc. or any successor
         thereto.

                  MOODY'S RATING means, on any date of determination, the rating
         of the Borrower's long-term senior unsecured indebtedness most recently
         announced by Moody's.

                  NOTE has the meaning specified in Section 2.02(b).

                  PERSON means an individual, partnership, corporation
         (including a business trust), joint stock company, trust,
         unincorporated association, joint venture or other entity, or a
         government or any political subdivision or agency thereof.

                  S&P means Standard & Poor's Ratings Group or any successor
         thereto.



                                                                          4

                  S&P RATING means, on any date of determination, the rating of
         the Borrower's long-term senior unsecured indebtedness most recently
         announced by S&P.

                  SIGNIFICANT SUBSIDIARY means any direct or indirect subsidiary
         of the Borrower having, on any date of determination or on any date
         during the 12-month period prior to such date of determination, total
         assets in excess of $100,000,000 (with such determination to be made in
         accordance with generally accepted accounting principles consistent
         with those applied in the preparation of the financial statements
         referred to in Section 4.01(e) hereof) or in excess of 10% of Total
         Capitalization.

                  SUBSIDIARY means, with respect to any Person, any corporation
         or unincorporated entity of which more than 50% of the outstanding
         capital stock (or comparable interest) having ordinary voting power
         (irrespective of whether at the time capital stock (or comparable
         interest) of any other class or classes of such corporation or entity
         shall or might have voting power upon the occurrence of any
         contingency) is at the time directly or indirectly owned by said Person
         (whether directly or through one or more other subsidiaries). In the
         case of an unincorporated entity, a Person shall be deemed to have more
         than 50% of interests having ordinary voting power only if such
         Person's vote in respect of such interests comprises more than 50% of
         the total voting power of all such interests in the unincorporated
         entity.

                  TERMINATION DATE means the 364th day following the effective
         date of this Agreement or if the Commitment is extended pursuant to
         Section 2.9, such later date that may be established pursuant to
         Section 2.9, or, in either case, the earlier date of termination in
         whole of the Commitment pursuant to Section 2.04, Section 6.01 or
         Section 7.01 hereof.

                  TOTAL CAPITALIZATION means the sum of (i) Debt of the Borrower
         and its consolidated subsidiaries, PLUS (ii) the sum of the capital
         stock (excluding treasury stock and capital stock subscribed for and
         unissued) and surplus (including earned surplus, capital surplus,
         translation adjustment and the balance of the current profit and loss
         account not transferred to surplus) accounts of the Borrower and its
         subsidiaries appearing on a consolidated balance sheet of the Borrower
         and its subsidiaries, in each case prepared as of the date of
         determination in accordance with generally accepted accounting
         principles consistent with those applied in the preparation of the
         financial statements referred to in Section 4.01(e), after eliminating
         all intercompany transactions and all amounts properly attributable to
         minority interests, if any, in the stock and surplus of subsidiaries.

                  VOTING STOCK means capital stock issued by a corporation, or
         equivalent interests in any other Person, the holders of which are
         ordinarily, in the absence of contingencies, entitled to vote for the
         election of directors (or persons performing similar functions) of such
         Person, even if the right so to vote has been suspended by the
         happening of such a contingency.

         SECTION 1.02.   COMPUTATION OF TIME PERIODS.

         In this Agreement in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding". All
times referred to herein reference Central Standard Time.

         SECTION 1.03.   ACCOUNTING TERMS.

         All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the financial statements
referred to in Section 4.01(e) hereof.



                                                                          5

                                   ARTICLE II

         SECTION 2.01.   THE ADVANCES.

         Subject to the terms and conditions set forth herein, the Lender
agrees to make Advances to the Borrower from time to time on any Business Day
during the period from the date hereof until the 30th day immediately
preceding the Termination Date in an aggregate amount not to exceed at any
time the Commitment. Each Advance shall be in an amount not less than
$10,000,000 or an integral multiple of $1,000,000 in excess thereof. Within
the limits of the Commitment, the Borrower may from time to time borrow,
repay pursuant to Section 2.05 and reborrow under this Section 2.01.

         SECTION 2.02.    MAKING ADVANCES.

         (a) Each Advance shall be made on notice, given not later than 10
a.m. on the day of the proposed borrowing, by the Borrower to the Lender.
Each notice of a borrowing shall specify the requested date and aggregate
amount of such Advance. Subject to the fulfillment of all applicable
conditions set forth in Article III, the Lender shall, by noon on the date of
such Advance, make available said funds to the Borrower.

         (b) Any Advances made by the Lender shall be evidenced by one or
more promissory notes payable to the order of the Lender (or, if requested by
the Lender, its assignees) in substantially the form of Exhibit A hereto
(each, a NOTE).

         SECTION 2.03.   FEES.

         The Borrower agrees to pay to the Lender an arrangement fee, an
upfront fee, a commitment fee, and an administrative fee as set forth in the
fee letter dated the date hereof between the Borrower and the Lender.

         SECTION 2.04.   REDUCTION OF THE COMMITMENT.

         (a) The Borrower shall have the right, upon at least three Business
Days' notice to the Lender, to terminate in whole or reduce in part the
unused portions of the Commitment, PROVIDED that the aggregate amount of the
Commitment shall not be reduced to an amount that is less than the aggregate
principal amount of the Advances then outstanding and PROVIDED, FURTHER, that
each partial reduction of the Commitment shall be in the aggregate amount of
$10,000,000 or any whole multiple of $1,000,000 in excess thereof.

         (b)      The Commitment shall automatically be terminated on the
Termination Date.

         (c)      Once terminated or reduced, the Commitment may not be
reinstated.

         SECTION 2.05.   REPAYMENT OF ADVANCES.

         The Borrower shall repay to the Lender the principal amount of each
Advance on the maturity date of such Advance (as set forth in the relevant
Note). Notwithstanding anything to the contrary herein, each Advance shall be
due and payable no sooner than the 7th day following the date of the Advance
and no later than the 30th day following the date of the Advance.

         SECTION 2.06.   INTEREST ON ADVANCES.

         The Borrower shall pay interest on the unpaid principal amount of each
Advance made by the Lender from the date of such Advance until such principal
amount shall be paid in full, at a rate PER ANNUM equal at all times to the



                                                                          6

sum of the Base Rate in effect from time to time PLUS the Applicable Margin
for such Base Rate in effect from time to time, payable on the last day of
the applicable Interest Period.

         SECTION 2.07.   PAYMENTS AND COMPUTATIONS.

         (a) The Borrower shall make each payment hereunder without condition
or deduction for any counterclaim, defense, recoupment or setoff, not later
than 2 p.m. on the day when due in U.S. dollars to the Lender in same day
funds.

         (b) The Borrower hereby authorizes the Lender, if and to the extent
payment owed to the Lender is not made when due hereunder, to charge from
time to time against any or all of the Borrower's accounts with the Lender
any amount so due.

         (c) All computations of interest hereunder shall be made on the
basis of a 365-day or 366-day calendar year, as the case may be, and all
computations of the fees referred to in Section 2.03 shall be made by the
Lender on the basis of a 360-day calendar year. Each determination by the
Lender shall be conclusive and binding for all purposes, absent manifest
error.

         SECTION 2.08.   TAXES.

         (a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.07, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, EXCLUDING, in the
case of the Lender, taxes imposed on its income, and franchise taxes imposed
on it, by the jurisdiction under the laws of which the Lender is organized or
any political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as TAXES). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the Lender, (i) the
sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 2.08) the Lender receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.

         (b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies, if any, which arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to,
this Agreement (hereinafter referred to as OTHER TAXES).

         (c) The Borrower will indemnify the Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.09) paid
by the Lender and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within 30 days from the date the Lender makes written demand therefor.

         (d) If the Borrower makes any additional payment to any Lender
pursuant to this Section 2.08 in respect of any Taxes or Other Taxes, and the
Lender determines that it has received (i) a refund of such Taxes or Other
Taxes or (ii) a credit against or relief or remission for, or a reduction in
the amount of, any tax or other governmental charge solely as a result of any
deduction or credit for any Taxes or Other Taxes with respect to which it has
received payments under this Section 2.08, the Lender shall, to the extent
that it can do so without prejudice to the retention of such refund, credit,
relief, remission or reduction, pay to the Borrower such amount as the Lender
shall have determined to be attributable to the deduction or withholding of
such Taxes of Other Taxes. If the Lender later determines that it was not
entitled to such refund, credit, relief, remission or reduction to the full
extent of any



                                                                          7

payment made pursuant to the first sentence of this Section 2.08(d), the
Borrower shall upon demand of the Lender promptly repay the amount of such
overpayment. Any determination made by the Lender pursuant to this Section
2.08(d) shall in the absence of bad faith or manifest error be conclusive,
and nothing in this Section 2.08(d) shall be construed as requiring the
Lender to conduct its business or to arrange or alter in any respect its tax
or financial affairs so that it is entitled to receive such a refund, credit
or reduction or as allowing any Person to inspect any records, including tax
returns, of the Lender.

         (e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained
in this Section 2.08 shall survive the payment in full of principal and
interest hereunder.

         SECTION 2.09.   EXTENSION OF TERMINATION DATE.

         (a) So long as no Event of Default has occurred and is continuing,
the Borrower may, at least 60 days but not more than 90 days before the
Termination Date then in effect, request, by delivering a written request to
the Lender (such request being irrevocable), that the Lender extend for 364
days such Termination Date with respect to the Commitment.

         (b) Upon receipt of such request from the Borrower, the Lender may
(but is not obligated to), in its sole and absolute discretion, agree to
extend the Termination Date with respect to the Commitment and any of its
outstanding Advances for a 364-day period, and shall (should it determine to
do so), no earlier than 30 days (but in any event no later than 15 days prior
to such then-scheduled Termination Date) following its receipt of such
request, notify the Borrower of its consent to the extension request.

         (c) If the Lender agrees to the Borrower's extension request, the
Commitment shall be extended for a period of 364 days, commencing on the
then-scheduled Termination Date; PROVIDED, HOWEVER, that any such extension
is subject to the condition precedent that, on or prior to the date of such
extension, the Lender shall have received the following, each dated such date
in form and substance satisfactory to the Lender: (i) a certificate of a duly
authorized officer of the Borrower to the effect that as of the date of
extension (A) no event has occurred and is continuing, or would result from
such extension of the Termination Date, that constitutes an Event of Default
or would, with the giving of notice or the lapse of time, or both, constitute
an Event of Default and (B) the representations and warranties contained in
Section 4.01 are correct in all material respects on and as of the date of
the extension of the Termination Date, before and after giving effect to the
extension; and (ii) such other information as the Lender may reasonably
request.

                                   ARTICLE III

         SECTION 3.01.   CONDITIONS PRECEDENT TO INITIAL ADVANCE.

         The obligation of the Lender to make its initial Advance is subject
to the satisfaction, prior to or concurrently with the making of the initial
Advance, of each of the following conditions precedent:

         (a) DOCUMENTS AND OTHER AGREEMENTS. The Lender shall have received
on or before the day of the initial Advance the following, in form and
substance satisfactory to the Lender:

                  (i) A Note or Notes payable to the order of the Lender
         requesting same;

                  (ii) Certified copies of the resolutions of the Board of
         Directors of the Borrower approving this Agreement, and of all
         documents evidencing other necessary corporate action with respect to
         this Agreement; and



                                                                          8

                  (iii) A certificate of the Secretary or an Assistant Secretary
         of the Borrower certifying (A) the names and true signatures of the
         officers of the Borrower authorized to sign this Agreement and the
         other documents to be delivered hereunder; (B) that attached thereto
         are true and correct copies of the Certificate of Incorporation and the
         By-laws of the Borrower, in each case in effect on such date; and (C)
         that attached thereto are true and correct copies of all governmental
         and regulatory authorizations and approvals, if any, required for the
         due execution, delivery and performance of this Agreement.

         (b) PAYMENT OF FEES. The Borrower shall have paid all fees payable
under or referenced in Section 2.03 and any arrangement fees payable to the
Lender, to the extent then due and payable.

         SECTION 3.02.   CONDITIONS PRECEDENT TO EACH ADVANCE.

         The obligation of the Lender to make advance funds on the occasion of
each Advance (including the initial Advance) shall be subject to the further
conditions precedent that on the date of such Advance:

         (i) the following statements shall be true (and each of notice of
borrowing and the acceptance by the Borrower of the proceeds of such Advance
shall constitute a representation and warranty by the Borrower that on the date
of such Advance such statements are true):

                           (A) The representations and warranties contained in
                  Section 4.01 are correct in all material respects on and as of
                  the date of such Advance, before and after giving effect to
                  such borrowing and to the application of the proceeds
                  therefrom, as though made on and as of such date; and

                           (B) No event has occurred and is continuing, or would
                  result from such borrowing or from the application of the
                  proceeds therefrom, that constitutes an Event of Default or
                  that would constitute an Event of Default but for the
                  requirement that notice be given or time elapse or both; and

         (ii) the Lender shall have received such other approvals, opinions or
documents as it may reasonably request.


                                   ARTICLE IV

         SECTION 4.01.   REPRESENTATIONS AND WARRANTIES OF THE BORROWER.

         The Borrower represents and warrants as follows:

         (a) Each of the Borrower and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to do business as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or the property owned, operated or leased by it requires such
qualification, except where failure to so qualify would not have a Material
Adverse Effect.



                                                                          9

         (b) The execution, delivery and performance by the Borrower of this
Agreement are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene (i) the Borrower's
charter or by-laws, (ii) law or (iii) any contractual or legal restriction
binding on or affecting the Borrower or its properties.

         (c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Borrower of this Agreement.

         (d) This Agreement is the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms.

         (e) The unaudited balance sheet of the Borrower and its subsidiaries as
at June 30, 2001 and the related unaudited statements of income, retained
earnings and cash flows for the six-month period then ended, copies of which
have been furnished to the Lender, fairly present (subject, in the case of such
balance sheet and statements of income for the six-month period ended June 30,
2001, to year-end adjustments) the financial condition of the Borrower and its
subsidiaries as at such dates and the results of the operations of the Borrower
and its subsidiaries for the periods ended on such dates, all in accordance with
generally accepted accounting principles consistently applied, and since June
30, 2001, there has been no Material Adverse Change.

         (f) No written statement, information, report, financial statement,
exhibit or schedule furnished by or on behalf of the Borrower to the Agent or
any Lender in connection with the negotiation of this Agreement or included
herein or delivered pursuant hereto contained, contains, or will contain any
material misstatement of fact or intentionally omitted, omits, or will omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were, are, or will be made, not
misleading.

         (g) The Borrower and each Significant Subsidiary is in material
compliance with all laws, rules, regulations and orders of any governmental
authority applicable to it.

         (h) There is no pending or threatened action, suit, investigation,
litigation or proceeding affecting the Borrower or any of its Significant
Subsidiaries before any court, governmental agency or arbitrator that could
reasonably be expected to have a Material Adverse Effect.

         (i) No proceeds of any Advance have been or will be used directly or
indirectly in connection with (i) the acquisition of in excess of 5% of any
class of equity securities that is registered pursuant to Section 12 of the
Exchange Act, (ii) any transaction subject to the requirements of Section 13 of
the Exchange Act or (iii) any transaction subject to the requirements of Section
14 of the Exchange Act.

                                    ARTICLE V

         SECTION 5.01.   AFFIRMATIVE COVENANTS.

         So long as any amount payable by the Borrower hereunder shall remain
unpaid or the Commitment remains outstanding, the Borrower will, and, in the
case of Sections 5.01(a) and 5.01(c), will cause its subsidiaries to, unless the
Lender otherwise consents in writing:



                                                                          10

         (a) KEEP BOOKS; CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES;
COMPLIANCE WITH LAWS; INSURANCE; TAXES; INSPECTION RIGHTS.

                  (i) keep proper books of record and account, all in accordance
         with generally accepted accounting principles;

                  (ii) preserve and keep in full force and effect its existence
         and preserve and keep in full force and effect its licenses, rights
         (charter and statutory) and franchises to the extent necessary to carry
         on its business;

                  (iii) maintain and keep, or cause to be maintained and kept,
         its properties in good repair, working order and condition, and from
         time to time make or cause to be made all needful and proper repairs,
         renewals, replacements and improvements, in each case to the extent
         such properties are not obsolete and are necessary to carry on its
         business;

                  (iv) comply in all material respects with all applicable laws,
         rules, regulations and orders, such compliance to include, without
         limitation, paying before the same become delinquent all taxes,
         assessments and governmental charges imposed upon it or its property,
         except to the extent being contested in good faith by appropriate
         proceedings;

                  (v) maintain insurance with responsible and reputable
         insurance companies or associations in such amounts and covering such
         risks as is usually carried by companies engaged in similar businesses
         and owning similar properties in the same general areas in which it
         operates; and

                  (vi) at any reasonable time and from time to time, permit the
         Lender or any agents or representatives thereof, to examine and make
         copies of and abstracts from the records and books of account of, and
         visit the properties of, the Borrower and its subsidiaries and to
         discuss the affairs, finances and accounts of the Borrower and its
         subsidiaries with any of its officers or directors and with their
         independent certified public accountants.

         (b) DEBT TO TOTAL CAPITALIZATION RATIO. Maintain at all times a ratio
of Debt to Total Capitalization of not more than .65 to 1.0.

         (c) USE OF PROCEEDS. Use the proceeds of any Borrowings hereunder (i)
exclusively for general corporate purposes (including to refinance short-term
Debt of the Borrower) and (ii) in strict compliance with all applicable laws and
governmental and regulatory approvals.

         (d) REPORTING REQUIREMENTS. Furnish to the Lender:

                  (i) as soon as available and in any event within 45 days after
         the end of each of the first three quarters of each fiscal year of the
         Borrower, (A) consolidated balance sheet of the Borrower and its
         subsidiaries as of the end of such quarter and (B) consolidated
         statements of income, retained earnings and cash flows of the Borrower
         and its subsidiaries for the period commencing at the end of the
         previous fiscal year and ending with the end of such quarter, each
         certified by the chief financial officer of the Borrower;

                  (ii) as soon as available and in any event within 120 days
         after the end of each fiscal year of the Borrower, a copy of the annual
         report for such year for the Borrower and its subsidiaries, containing
         unqualified consolidated financial statements for such year, certified
         by Arthur Andersen or another nationally recognized firm of independent
         public accountants;



                                                                          11

                  (iii) as soon as possible and in any event within five days
         after the occurrence of each Event of Default and each event that, with
         the giving of notice or lapse of time or both, would constitute an
         Event of Default, continuing on the date of such statement, a statement
         of the chief financial officer of the Borrower setting forth details of
         such Event of Default or event and the actions that the Borrower has
         taken and proposes to take with respect thereto;

                  (iv) as soon as possible and in any event within five days
         after the commencement of litigation against the Borrower or any of its
         subsidiaries, or the receipt of a notice of default by the Borrower or
         any of its subsidiaries, that could reasonably be expected to have a
         Material Adverse Effect on the Borrower or any of its subsidiaries,
         notice of such litigation or notice of default describing in reasonable
         detail the facts and circumstances concerning such litigation or
         default and the Borrower's or such subsidiary's proposed actions in
         connection therewith;

                  (v) promptly after the sending or filing thereof, copies of
         all reports that the Borrower sends to any of its securities holders,
         and copies of all reports and registration statements which the
         Borrower or any subsidiary files with the Securities and Exchange
         Commission or any national securities exchange; and

                  (vi) such other information respecting the condition or
         operations, financial or otherwise, of the Borrower or any of its
         subsidiaries as the Lender may from time to time reasonably request.

         SECTION 5.02.   NEGATIVE COVENANTS.

         So long as any amount payable by the Borrower hereunder shall remain
unpaid or the Commitment remains outstanding, the Borrower will not, without the
written consent of the Lender:

         (a) MERGERS AND CONSOLIDATIONS. Merge or consolidate with or into
any Person, or permit any of its subsidiaries to do so, except (i) any
subsidiary of the Borrower may merge or consolidate with or into any other
subsidiary of the Borrower and (ii) any subsidiary of the Borrower may merge
with the Borrower and (iii) the Borrower or any subsidiary of the Borrower
may merge with any other Person, PROVIDED in each case that, immediately
after giving effect to such proposed transaction, (A) no Event of Default or
event that, with the giving of notice or lapse of time, or both, would
constitute an Event of Default would exist, (B) in the case of any such
transaction to which the Borrower is a party, the Borrower is the surviving
corporation, (C) the ratings assigned by S&P or Moody's to the Borrower's
senior unsecured indebtedness shall not be lower than the ratings assigned by
S&P or Moody's to the Borrower's senior unsecured indebtedness immediately
prior to giving effect to such proposed transaction, (D) in the case of any
such transaction to which any subsidiary of the Borrower is a party, the
surviving corporation is a subsidiary of the Borrower, and (E) no Person
(other than the Borrower) and its Affiliates, collectively, shall have the
ability to elect a majority of the board of directors of the Borrower or any
such subsidiary or surviving corporation.

         (b) DISPOSITION OF ASSETS. In any 12-month period, (i) sell, lease,
transfer, convey or otherwise dispose of (whether in one transaction or in a
series of transactions) in excess of 7.5% of the total assets (whether now
owned or hereafter acquired, EXCLUDING, HOWEVER, accounts receivable) of the
Borrower and its subsidiaries (with such determination to be made in
accordance with generally accepted accounting principles consistent with
those applied in the preparation of the financial statements referred to in
Section 4.01(e)), or permit any subsidiary to do so, or (ii) sell or
otherwise dispose of (whether in one transaction or in a series of
transactions) in excess of 51% of the shares of capital stock of any
Significant Subsidiary, or permit any Significant Subsidiary to issue, sell
or otherwise dispose of in excess of 51% of its shares of capital stock or
the capital stock of any other Significant Subsidiary, except to the Borrower
or another subsidiary, unless in either case described in clauses (i) and
(ii) above, the consideration (as hereinafter defined) received for such
assets or capital stock, as the case may be, is at least equal to the higher
of the book value and the fair value (as determined in good faith by the
board of directors of the Borrower) thereof. As used in this Section 5.02(b),
the term "consideration" shall mean cash consideration or the fair value of
non-cash consideration (as determined in good faith by the board of directors
of the Borrower).



                                                                          12

         (c) NATURE OF BUSINESS. Fail to continue it's primary business as
conducted on the date hereof without material reduction or change in nature.

                                   ARTICLE VI

         SECTION 6.01.   EVENTS OF DEFAULT.

         If any of the following events (each, an EVENT OF DEFAULT) shall occur
and be continuing:

         (a) The Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable, or interest thereon or any other amount
payable under this Agreement within three Business Days after the same becomes
due and payable; or

         (b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with this Agreement shall
prove to have been incorrect or misleading in any material respect when made; or

         (c) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5.01(b) or (c) or Section 5.02 or
(ii) any other term, covenant or agreement contained in this Agreement on its
part to be performed or observed if the failure to perform or observe such other
term, covenant or agreement shall remain unremedied for 30 days after written
notice thereof shall have been given to the Borrower by the Lender; or

         (d) The Borrower or any Significant Subsidiary shall fail to pay any
principal of or premium or interest on any Debt which is outstanding in a
principal amount in excess of $10,000,000 in the aggregate (but excluding Debt
evidenced by this Agreement) of the Borrower or such Significant Subsidiary (as
the case may be) when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Debt; or any other event shall
occur or condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or any such Debt shall be declared to be due and payable, or required
to be prepaid (other than by a regularly scheduled required prepayment), prior
to the stated maturity thereof; or

         (e) The Borrower or any Significant Subsidiary shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
any Significant Subsidiary seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 30 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property) shall occur; or the Borrower or any
Significant Subsidiary shall take any corporate action to authorize or to
consent to any of the actions set forth above in this subsection (e); or

         (f) Any judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Borrower or any of its Significant
Subsidiaries and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of 10
consecutive days



                                                                          13

during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or

         (g) (i) Any entity, person (within the meaning of Section 14(d) of
the Exchange Act) or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) that theretofore was beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of less than 50% of the
Borrower's Voting Stock shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the SEC under the Exchange Act), directly or
indirectly, of Voting Stock of the Borrower (or other securities convertible
into such Voting Stock) representing 50% or more of the combined voting power
of all Voting Stock of the Borrower; or (ii) during any period of up to 24
consecutive months, commencing after the date hereof, individuals who at the
beginning of such 24-month period were directors of the Borrower shall cease
for any reason to constitute a majority of the board of directors of the
Borrower, PROVIDED that any person becoming a director subsequent to the date
hereof, whose election, or nomination for election by the Borrower's
shareholders, was approved by a vote of at least a majority of the directors
of the board of directors of the Borrower as comprised as of the date hereof
(other than the election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Borrower) shall be,
for purposes of this provision, considered as though such person were a
member of the board as of the date hereof;

then, and in any such event, the Lender may by notice to the Borrower (i)
declare the obligation of the Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) declare the Advances,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Advances, all such interest and all
such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that in the event
of an actual or deemed entry of an order for relief with respect to the
Borrower or any of its subsidiaries under the Federal Bankruptcy Code, (A)
the obligation of the Lender to make Advances shall automatically be
terminated and (B) the Advances, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived
by the Borrower.

                                   ARTICLE VII

         SECTION 7.01.   DEMAND OPTION.

         Notwithstanding any other provision contrary herein, at any and all
times, the Lender may upon notice to the Borrower demand the repayment of all
or any Advances then outstanding (the DEMAND OPTION) upon the occurrence of
any of the following events: (a) the sale, conveyance, transfer, assignment,
lease or other disposition, or securitization or monetization of all or
substantially all of the Lender's assets; (b) the occurrence of any default
by the Lender on any of its outstanding debt obligations; (c) the occurrence
of a spin-off by the Lender to its shareholders of the Lender's outstanding
voting shares of Aquila, Inc; or (d) the Borrower obtains a committed credit
facility in an aggregate principal amount equal to or exceeding the aggregate
principal amount of the Commitment at such time. All obligations, amounts,
indebtedness, and interest owing to the Lender by the Borrower shall be
immediately due and payable by the Borrower upon the exercise of the Demand
Option by the Lender, and thereafter the Commitment shall be terminated.

                                  ARTICLE VIII

         SECTION 8.01.   SUBORDINATION.

         All payments by the Borrower under this Agreement are subordinate
and junior in right of payment to the prior payment in full of all senior
debt of the Borrower, whether outstanding at the date hereof or thereafter
occurred.



                                                                          14

                                   ARTICLE IX

         SECTION 9.01.   AMENDMENTS, ETC.

         No amendment or waiver of any provision of this Agreement, nor
consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

         SECTION 9.02.   NOTICES, ETC.

         All notices and other communications provided for hereunder shall be
in writing (including telecopier, telegraphic, telex or cable communication)
and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the
Borrower, at its address at 1100 Walnut Street, Suite 3300, Kansas City,
Missouri 64199; Attention: Senior Vice President, Finance; telecopy: (816)
527-1195; if to the Lender, at its address at 20 West Ninth Street, Kansas
City, Missouri 64105, Attention: Chief Financial Officer, telecopy: (816)
467-3591; or, as to each party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and
communications shall not be effective until received.

         SECTION 9.03.   NO WAIVER; REMEDIES.

         No failure on the part of the Lender to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.

         SECTION 9.04.   COSTS AND EXPENSES; INDEMNIFICATION.

         (a) Except to the extent limited by written agreement between the
Borrower and the Lender on or prior to the date hereof, the Borrower agrees
to pay on demand all reasonable costs and expenses incurred by the Lender in
connection with the preparation, execution, delivery, administration,
modification and amendment of this Agreement and the other documents to be
delivered hereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Lender with respect thereto and
with respect to advising the Lender as to its rights and responsibilities
under this Agreement. The Borrower further agrees to pay on demand all costs
and expenses, if any (including, without limitation, counsel fees and
expenses of outside counsel and of internal counsel), incurred by the Lender
in connection with the enforcement (whether through negotiations, legal
proceedings or otherwise) of this Agreement and the other documents to be
delivered hereunder, including, without limitation, counsel fees and expenses
in connection with the enforcement of rights under this Section 8.04(a).

         (b) The Borrower hereby agrees to indemnify and hold the Lender and
its respective officers, directors, employees and professional advisors
(each, an INDEMNIFIED PERSON) harmless from and against any and all claims,
damages, losses, liabilities, costs or expenses (including, without
limitation, reasonable counsel fees and expenses of outside counsel and of
internal counsel, whether or not such Indemnified Person is named as a party
to any proceeding or is otherwise subjected to judicial or legal process
arising from any such proceeding) that any of them may incur or which may be
claimed against any of them by any Person by reason of or in connection with
the execution, delivery or performance of this Agreement or any transaction
contemplated thereby, or the use by the Borrower or any of its subsidiaries
of the proceeds of any Advance. The Borrower's obligations under this Section
9.04(b) shall survive the repayment of all amounts owing to the Lender
hereunder and the termination of the Commitment. If and to the extent that
the obligations of the Borrower under this Section 9.04(b) are unenforceable
for any reason, the Borrower agrees to make the maximum contribution to the
payment and satisfaction thereof which is permissible under applicable law.



                                                                          15

         SECTION 9.05.   RIGHT OF SET-OFF.

         Upon (i) the failure of the Borrower to make any payment when due
hereunder and (ii) the making of the request or the granting of the consent
specified by Section 6.01 to authorize the Lender to declare the Advances due
and payable pursuant to the provisions of Section 6.01, the Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted
by law, to set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other indebtedness at
any time owing by the Lender to or for the credit or the account of the
Borrower against any and all of the obligations of the Borrower now or
hereafter existing hereunder held by the Lender, whether or not the Lender
shall have made any demand under this Agreement and although such obligations
may be unmatured. The Lender agrees promptly to notify the Borrower after any
such set-off and application made by it, PROVIDED that the failure to give
such notice shall not affect the validity of such set-off and application.
The rights of the Lender under this Section 9.05 are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that it may have.

         SECTION 9.06.   BINDING EFFECT; ASSIGNMENT.

         This Agreement shall become effective (as of the effective date
hereof) when executed by the Borrower and the Lender and shall be binding
upon and inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein. This
Agreement supercedes and replaces the Original Revolver in all respects, and
any Notes outstanding under the Original Revolver on the date hereof shall be
in all respects governed by and in accordance with the terms of this
Agreement (including, without limitation, the Applicable Margins set forth in
Section 1.01 hereof).

         SECTION 9.07.   SUBMISSION TO JURISDICTION.

         Each of the Borrower and the Lender (i) irrevocably submits to the
non-exclusive jurisdiction of any Missouri State court or Federal court
sitting in Kansas City in any action arising out of this Agreement, (ii)
agrees that all claims in such action may be decided in such court, (iii)
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum and (iv) consents to the service of process by mail. A
final judgment in any such action shall be conclusive and may be enforced in
other jurisdictions. Nothing herein shall affect the right of any party to
serve legal process in any manner permitted by law or affect its right to
bring any action in any other court.

         SECTION 9.08.   GOVERNING LAW.

         THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF MISSOURI.

         SECTION 9.09.   EXECUTION IN COUNTERPARTS.

         This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.

         SECTION 9.10.   FURTHER ASSURANCES.

         The Borrower shall, at the request of the Lender, do all such
further acts and execute and deliver all such further documents as may be
reasonably requested for the purposes of performing and carrying out the
terms and provisions of this Agreement and all other agreements, if any,
contemplated hereby. Without limiting the foregoing, the Borrower shall, at
the request of the Lender, tender all Notes evidencing any Advances
outstanding as of the date



                                                                          16

hereof and sign new Notes in accordance with this Agreement (such new Notes
to be have the same term and maturity as the old Notes issued under the
Original Revolver).

         SECTION 9.11.   EFFECTIVE DATE.

         This Agreement shall be effective from, on and after August 13, 2001.



                                                                          S-1



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

                                              UTILICORP UNITED INC.



                                              By /s/ Randy Miller
                                                --------------------------------
                                                   Name:  Randy Miller
                                                   Title: Vice President Finance
                                                          and Treasurer

                                              AQUILA, INC.


                                              By /s/ Joseph Gocke
                                                --------------------------------
                                                   Name:  Joseph Gocke
                                                   Title: Treasurer




                                    EXHIBIT A

                                  FORM OF NOTE

$_____________________                                     _______________, 20__

         FOR VALUE RECEIVED, the undersigned, AQUILA, INC., a Delaware
corporation (the BORROWER), hereby promises to pay to the order of UTILICORP
UNITED INC. (the LENDER), on the ___ calendar day following the date hereof,
the principal sum of _________________________ DOLLARS ($_____________), in
lawful money of the United States of America in immediately available funds,
and to pay interest on such principal amount from time to time outstanding,
in like funds, at a rate or rates per annum and payable with respect to such
periods and on such dates as determined pursuant to the Credit Agreement.

         The Borrower promises to pay interest, on demand, on any overdue
principal and overdue interest from their due dates at a rate or rates
determined as set forth in the Credit Agreement.

         The Borrower hereby waives diligence, presentment, demand, protest
and notice of any kind whatsoever. The non-exercise by the holder of any of
its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.

         All borrowings evidenced by this Note and all payments of the
principal hereof and interest hereon and the respective dates thereof shall
be endorsed by the holder hereof; PROVIDED, HOWEVER, that any failure of the
holder hereof to make such a notation or any error in such notation shall not
in any manner affect the obligation of the Borrower to make payments of
principal and interest in accordance with the terms of this Note and the
Credit Agreement.

         This Note is one of the Notes referred to in the Amended & Restated
Revolving Credit Agreement dated October 1, 2001, but effective as of August
13, 2001, among the Borrower and the Lender (as amended from time to time in
accordance with its terms, the CREDIT AGREEMENT; capitalized terms used but
not defined herein having the meanings set forth therein) and is subject to
the terms and conditions contained in the Credit Agreement and is entitled to
the benefits thereof. The Credit Agreement, among other things, contains
provisions for the acceleration of the maturity hereof upon the happening of
certain events, for prepayment of the principal hereof prior to the maturity
thereof and for the amendment or waiver of certain provisions of the Credit
Agreement, all upon the terms and conditions therein specified.

         This Note shall be construed in accordance with and governed by the
laws of the State of Missouri and any applicable laws of the United States of
America.

                                           AQUILA, INC.


                                           By:
                                                --------------------------------
                                                   Name:
                                                   Title: