Document:

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                                                                   EXHIBIT 10.4

                                OPTION AGREEMENT

         This OPTION AGREEMENT (this "Agreement") dated as of November 9, 2001
is by and among CGNN Holding Company, Inc., a Delaware corporation (the
"Grantor"), MCTJ Holding Co. LLC, a Delaware limited liability company (the
"Company"), Enron Corp., an Oregon corporation ("Enron"), Dynegy Holdings Inc.,
a Delaware corporation (the "Grantee") and, solely for the provisions of Section
5.1 hereof, Dynegy Inc., an Illinois corporation ("Dynegy").

                                    RECITALS

         A. Merger Agreement. Concurrently with the execution of this Agreement,
Dynegy, Stanford, Inc., a Delaware corporation, Badin, Inc., an Illinois
corporation, Sorin, Inc., an Oregon corporation, and Enron entered into an
Agreement and Plan of Merger (the "Merger Agreement").

         B. Membership Interest. Grantor is the sole member of, and owns all of
the membership interests in, the Company.

         NOW THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:

         1. Capitalized Terms. Those capitalized terms used in this Agreement
that are not defined in this Agreement are defined in Annex A hereto and are
used herein with the meanings ascribed to them therein.

         2. Option.

                  2.1. Grant of Option. Subject to the terms and conditions set
forth herein, the Grantor hereby grants to the Grantee an irrevocable option
(the "Option") to purchase all, but not less than all, of the outstanding
membership interests in the Company (the "Option Interests") after the
occurrence of an Exercise Event (as defined in Section 2.5) at the Exercise
Price.

                  2.2. Purchase Price of Option. In consideration of the grant
of the Option, immediately after the filing under the HSR Act required in
connection with this Agreement, Grantee will pay $1 million to Grantor by wire
transfer of immediately available funds.

                  2.3. Exercise Price. The exercise price (the "Exercise Price")
of the Option shall be the total sum of (a) $23 million plus (b) $950 million
less (c) the aggregate amount of outstanding principal indebtedness under the
Bank Credit Facility and the Senior Notes and any Permitted Refinancing Debt
related thereto on the Closing Date plus (d) if the amount of Estimated Working
Capital exceeds $-0-, the amount of such excess, minus (d) if the amount of
Estimated Working Capital is less than $-0-, the amount of such shortfall.

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                  2.4. Option Term; Expiration of Option. The Option shall be
exercisable at any time after the occurrence of an Exercise Event set forth in
Section 2.5 and shall remain in full force and effect until the earliest of (a)
the Effective Time as defined in Section 1.3 of the Merger Agreement, (b) the
redemption of all outstanding shares of Series A Preferred Stock in accordance
with its terms or (c) the exchange of Series A Preferred Stock for Enron Common
Stock pursuant to the Exchange Agreement (the "Option Term"). If the Option has
not been exercised prior to the expiration of the Option Term, the rights and
obligations set forth in this Agreement shall expire and terminate.

                  2.5. Exercise Events. The Option will become exercisable upon
the occurrence of the following events ("Exercise Events"):

                           2.5.1.   Exercise at any time. The Option may be
                                    exercised at any time after:

                                    2.5.1.1. the Merger Agreement has been
                                             terminated pursuant to Section
                                             9.2(b);

                                    2.5.1.2. the Merger Agreement has been
                                             terminated pursuant to Section
                                             9.3(c);

                                    2.5.1.3. the Merger Agreement has been
                                             terminated pursuant to Section
                                             9.4(b);

                                    2.5.1.4. Dynegy notifies Enron that it is
                                             terminating the Merger Agreement
                                             pursuant to Section 9.4(a) of the
                                             Merger Agreement (such notice
                                             constituting a representation by
                                             Dynegy to Enron that Dynegy is
                                             validly entitled to terminate the
                                             Merger Agreement under such Section
                                             9.4(a)).

                           2.5.2.   Exercise at any time beginning six months
                                    plus one day after termination of the Merger
                                    Agreement. The Option may be exercised at
                                    any time beginning six months plus one day
                                    after:

                                    2.5.2.1. the Merger Agreement has been
                                             terminated pursuant to Section 9.1;

                                    2.5.2.2. the Merger Agreement has been
                                             terminated pursuant to Section
                                             9.2(a)); or

                                    2.5.2.3. the Merger Agreement has been
                                             terminated pursuant to Section
                                             9.2(d).

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                           2.5.3.   Exercise at any time beginning one year plus
                                    one day after termination of the Merger
                                    Agreement. The Option may be exercised at
                                    any time beginning one year plus one day
                                    after:

                                    2.5.3.1. the Merger Agreement has been
                                             terminated pursuant to Section
                                             9.2(c);

                                    2.5.3.2. Enron notifies Dynegy that it is
                                             terminating the Merger Agreement
                                             pursuant to Section 9.3(a) of the
                                             Merger Agreement (such notice
                                             constituting a representation by
                                             Enron to Dynegy that Enron is
                                             validly entitled to terminate the
                                             Merger Agreement under such Section
                                             9.3(a);

                                    2.5.3.3. the Merger Agreement has been
                                             terminated pursuant to Section
                                             9.3(b); or

                                    2.5.3.4. the Merger Agreement has been
                                             terminated pursuant to Section
                                             9.4(c);

                  2.6. Working Capital Adjustment.

                           2.6.1.   Calculation of Final Working Capital. Within
                                    30 days of Closing, Grantee shall prepare
                                    and deliver to Grantor a statement the
                                    ("Final Working Capital Statement") setting
                                    forth the amount of Final Working Capital.
                                    Grantor shall have 30 days to review the
                                    Final Working Capital Statement and
                                    supporting documentation and shall have
                                    reasonable access to the books, records and
                                    personnel of Grantee and NNGC for purposes
                                    of verifying the accuracy of the calculation
                                    of Final Working Capital. Grantee's
                                    calculation of Final Working Capital shall
                                    be deemed final and biding unless Grantor
                                    raises an objection in writing within 30
                                    days of its receipt thereof, specifying in
                                    reasonable detail the nature and extent of
                                    such objection. If Grantor raises an
                                    objection to the calculation of Final
                                    Working Capital within such 30-day period,
                                    and if Grantor and Grantee are unable to
                                    resolve such objection within 30 days of the
                                    date Grantee receives such objection, then
                                    the disputed matter shall be submitted for
                                    determination to an accounting firm of
                                    national reputation mutually agreeable to
                                    Grantor and Grantee. The determination of
                                    such accounting firm shall be final and
                                    binding for all purposes. The fees and
                                    expenses of such accounting firm shall be
                                    borne equally by Grantor and Grantee.

                           2.6.2.   Settlement of Working Capital Adjustment. If
                                    Final Working Capital exceeds Estimated
                                    Working Capital, then Grantee will pay
                                    Grantor the amount of such excess. If Final
                                    Working Capital

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                                    is less than Estimated Working Capital, then
                                    Grantor will pay Grantee the amount of such
                                    shortfall. Any such payments will be made
                                    within five (5) Business Days of the
                                    determination of the adjustment by wire
                                    transfer of immediately available funds.

         3. Exercise of Option; Conditions; Closing.

                  3.1. Notice; Closing Location. If the Grantee wishes to
exercise the Option, it shall send a written notice (an "Exercise Notice") (the
date of which being herein referred to as the "Notice Date") to the Grantor
specifying a date (as it may be extended from time to time, the "Closing Date")
not earlier than three (3) Business Days nor later than ten (10) Business Days
from the Notice Date for the closing of the purchase and sale pursuant to the
Option (the "Closing"). The Closing will take place at the offices of Baker
Botts L.L.P., 910 Louisiana, Houston, Texas 77002.

                  3.2. Extension. If the Closing cannot be effected by reason of
the application of any Law, Regulation or Order, the Closing Date shall be
extended to the tenth Business Day following the expiration or termination of
the restriction imposed by such Law, Regulation or Order. Without limiting the
foregoing, if prior notification to, or Authorization of, any Governmental
Agency is required in connection with the purchase of such Option Interests by
virtue of the application of such Law, Regulation or Order, the Grantee and, if
applicable, the Grantor and the Company shall promptly file the required notice
or application for Authorization and the Grantee, with the cooperation of the
Grantor and the Company, shall expeditiously process the same.

                  3.3. Conditions to Closing. It shall be a condition to Closing
that:

                           3.3.1.   HSR Clearance. The parties hereto shall have
                                    obtained clearance under the HSR Act to
                                    proceed with the transactions contemplated
                                    hereby.

                           3.3.2.   Release of Guaranties. Unless waived by
                                    Enron, it shall be a condition to Closing
                                    that (a) either any guaranty by Enron or any
                                    Subsidiary of Enron (other than the Company
                                    and NNGC Holdings) of NNGC's indebtedness
                                    under the Bank Credit Facility be released
                                    or all indebtedness under the Bank Credit
                                    Facility be repaid effective as of the
                                    Closing and (b) any guaranty by Enron or any
                                    Subsidiary of Enron (other than NNGC
                                    Holdings) of the Company's indebtedness to
                                    NNGC be released effective as of the
                                    Closing.

                           3.3.3.   Issuance of Series A Preferred Stock. The
                                    Series A Preferred Stock shall have been
                                    issued in accordance with the Subscription
                                    Agreement.

                           3.3.4.   Affiliated Group. Unless waived by Grantee,
                                    it shall be a condition to Closing that at
                                    the Closing Date, each of NNGC Holdings and
                                    NNGC has at all times during its existence
                                    been

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                                    treated by Enron as a member of the
                                    affiliated group of corporations of which
                                    Enron is the common parent filing
                                    consolidated returns for federal income tax
                                    purposes.

                           3.3.5.   Accuracy of Grantor, Representations and
                                    Warranties. Unless waived by Grantee, the
                                    representations and warranties set forth in
                                    Section 5.2 are true and correct as of the
                                    Closing Date.

                           3.3.6.   Accuracy of Grantee Representations and
                                    Warranties. Unless waived by Grantor, the
                                    representations and warranties set forth in
                                    Section 5.1 are true and correct as of the
                                    Closing Date.

                           3.3.7.   No Violation of Law [Grantee]. Unless waived
                                    by Grantee, the Closing shall not violate
                                    any Law, Regulation or Order applicable to
                                    Grantee or any of its Affiliates.

                           3.3.8.   No Violation of Law [Grantor]. Unless waived
                                    by Grantor, the Closing shall not violate
                                    any Law, Regulation or Order applicable to
                                    Grantor or any of its Affiliates.

                  3.4. Payment and Delivery of Certificates.

                           3.4.1.   Payment. At the Closing, the Grantee shall
                                    pay the Exercise Price to the Grantor in
                                    immediately available funds by wire transfer
                                    to a bank account designated by the Grantor.

                           3.4.2.   Delivery. At the Closing, simultaneously
                                    with the delivery of immediately available
                                    funds as provided above, the Grantor shall
                                    deliver to the Grantee a certificate or
                                    certificates representing the Option
                                    Interests, which Option Interests shall be
                                    duly authorized, validly issued, fully paid
                                    and nonassessable and free and clear of all
                                    Liens, and the Grantee shall deliver to the
                                    Company its written agreement that the
                                    Grantee will not offer to sell or otherwise
                                    dispose of such Option Interests in
                                    violation of applicable Law.

                  3.5. Certificates. Certificates for the Option Interests
delivered at the Closing shall be endorsed with a restrictive legend that shall
read substantially as follows:

                  THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
         IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED, AND APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO THE TERMS
         OF AN OPTION AGREEMENT DATED AS OF NOVEMBER 9, 2001. A COPY OF SUCH
         AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
         RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR.

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                  3.6. Unlegended Certificates. A new certificate or
certificates evidencing the same membership interests in the Company will be
issued to the Grantee in lieu of the certificate bearing the above legend, and
such new certificate shall not bear such legend, insofar as it applies to the
Securities Act, if the Grantee shall have delivered to the Company a copy of a
letter from the staff of the SEC, or an opinion of counsel in form and substance
reasonably satisfactory to the Company and its counsel, to the effect that such
legend is not required for purposes of the Securities Act.

         4. Covenants.

                  4.1. Section 338(h)(10) Election. Enron and Dynegy shall make
timely and effective elections under Section 338(h)(10) of the Code, and any
similar elections under any applicable state, local, foreign or other income tax
law (collectively, the "Section 338(h)(10) Elections") with respect to Grantee's
purchase for tax purposes of the common stock of NNGC Holdings and the deemed
purchase(s) for tax purposes of the common stock of NNGC and any relevant
subsidiaries of NNGC (collectively, the "Qualified Stock Purchases"). To
facilitate such elections, at the Closing, Grantee shall deliver to Grantor an
Internal Revenue Service Form 8023 and any similar forms under applicable state,
local, foreign or other income tax law (the "Forms") with respect to the
Qualified Stock Purchases, which Forms shall be properly executed by Dynegy and
Enron at the Closing. Grantor and Grantee shall, at or prior to the Closing,
agree to a schedule showing an allocation of the deemed purchase price for the
assets of NNGC among the assets of NNGC and any relevant subsidiaries of NNGC,
consistent with the principles of Section 338(h)(10) of the Code and the
regulations thereunder (the "Allocation"). Grantee shall complete the Forms in a
manner consistent with the Allocation, Dynegy shall cause such Forms to be
timely filed with the appropriate taxing authorities and Grantee shall deliver a
copy of such Forms to Enron as promptly as practicable after filing. If, after
filing such Forms, any changes or supplements are required to the Forms, Grantee
and Grantor shall promptly agree on such changes. Thereafter, Grantee and
Grantor shall complete any required amendments or supplements to the Forms,
Dynegy and Enron shall properly execute such amended Forms, Dynegy shall timely
file the Forms, and any required supplements thereto, and Grantee shall deliver
a copy of such Forms and supplements to Enron as soon as practicable after
filing. Enron and Grantor shall provide such information as Grantee may
reasonably request from Grantor in order to prepare the Forms and any required
amendments or supplements thereto.

                  4.2. Maintenance of 100% ownership of Company membership
interests, NNGC Holdings capital stock and NNGC common stock; no Liens. Enron
and Grantor hereby covenant that through the Option Term Grantor will maintain
ownership of 100% of the membership interests in the Company, and the Company
will maintain ownership of 100% of the capital stock of NNGC Holdings and NNGC
Holdings will maintain ownership of 100% of the common stock of NNGC, from the
date hereof through the Closing Date. The Company, NNGC Holdings and NNGC hereby
covenant not to issue any equity interests or any options to purchase, or any
rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell, any equity
interest in the Company, NNGC Holdings or NNGC to any entity other than Grantor
from the date hereof through the Closing Date. Grantor, the Company, Enron, NNGC
Holdings and NNGC will not, directly or indirectly, offer for sale, contract to
sell, sell, distribute, grant any option, right or warrant to purchase, suffer
any Liens upon, pledge, hypothecate or otherwise dispose of any equity interest

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in the Company, NNGC Holdings or NNGC (other than Liens, pledges or
hypothecation of the NNGC Common Stock to secure Debt under the Bank Credit
Facilities), any securities convertible into, or exercisable or exchangeable
for, any equity interests in the Company, NNGC Holdings or NNGC, or any other
rights to acquire any equity interest in the Company, NNGC Holdings or NNGC.

                  4.3. Continuing Services after the Closing. For a period
beginning on the Closing Date and ending on the earlier to occur of (a) the date
that is six months from the Closing Date, and (b) the Closing Date as defined in
the Purchase Option Agreement, if requested by NNGC, Enron shall cause Enron
Transportation Services Company to provide services (other than cash management
services provided in the Cash Management Program) to NNGC on substantially the
same terms as provided on the date hereof, and Grantee shall cause Grantor to
compensate Enron and its Affiliates for such service at a rate not to exceed the
cost incurred by the entity providing the service. The services will be provided
pursuant to a mutually agreeable customary transition services agreement, which
will contain customary indemnity provisions.

                  4.4. Termination of waiting period under HSR Act. Enron will,
and will cause Grantor to, use their commercially reasonable best efforts to
obtain early termination of the waiting period under the HSR Act for the
exercise of the Option.

                  4.5. Forgiveness of debt owed by Enron. After the Exercise and
prior to the Closing, the Company will cause NNGC to cancel and forgive all
indebtedness owed to the Company or any of its Subsidiaries by Enron or its
Affiliates (other than the Company and NNGC Holdings), other than a net amount
of such debt equal to $240 million plus any dividends (whether or not declared)
accrued and unpaid on the shares of Series A Preferred Stock at such time. The
remaining outstanding indebtedness will be evidenced by a note of Enron to NNGC
in substantially the form of Exhibit A.

                  4.6. No Assets or Operations. Neither the Company nor NNGC
Holdings will acquire any assets, conduct any operations, or incur any
liabilities from the date hereof through the Closing Date except for liabilities
of the Company to NNGC in an amount up to $1,950 million.

                  4.7. Affirmative Covenants Related to the Company, NNGC
Holdings and NNGC. Enron, Grantee and the Company covenant that for the period
between the execution of this Agreement and the Closing Date, the Company, NNGC
Holdings and NNGC shall, and shall cause each of its Subsidiaries to:

                           4.7.1.   cause all properties owned by it or used or
                                    held for use in the conduct of its business
                                    to be maintained and kept in good condition,
                                    repair and working order (reasonable wear
                                    and tear excepted) and supplied with all
                                    necessary equipment and will cause to be
                                    made all necessary repairs, renewals,
                                    replacements, betterments and improvements
                                    thereof, all as in the judgment of the Board
                                    of Directors may be necessary so that the
                                    business carried on in connection therewith
                                    may be properly and

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                                    advantageously conducted at all times;
                                    provided, that the foregoing shall not
                                    prevent it from discontinuing the
                                    maintenance of any of such properties if
                                    such discontinuance is, in the judgment of
                                    its management, desirable in the conduct of
                                    its business;

                           4.7.2.   preserve and keep in full force and effect
                                    its corporate existence, rights (charter and
                                    statutory), licenses and franchises;
                                    provided, that it shall not be required to
                                    preserve any such right, license or
                                    franchise if the Board of Directors shall
                                    determine that the preservation thereof is
                                    no longer desirable in the conduct of its
                                    business as a whole;

                           4.7.3.   maintain its books, accounts and records in
                                    accordance with GAAP;

                           4.7.4.   comply with all material legal requirements
                                    and material contractual obligations
                                    applicable to its operations and business
                                    and pay all applicable taxes as they become
                                    due and payable; and

                           4.7.5.   permit representatives of the Grantee and
                                    its agents (including their counsel,
                                    accountants and consultants) to have
                                    reasonable access during business hours to
                                    its books, records, facilities, key
                                    personnel, officers, directors, customers,
                                    independent accountants and legal counsel to
                                    the extent that such access is not
                                    prohibited by FERC marketing affiliate
                                    rules.

                  4.8. Negative Covenants Related to the Company, NNGC Holdings
and NNGC. For the period between the execution of this Agreement and the Closing
Date, Enron, Grantor and the Company covenant that, without the approval of the
Grantee, none of the Company, NNGC Holdings or NNGC will:

                           4.8.1.   Dividends. Directly or indirectly declare or
                                    pay, or permit any Subsidiary to declare or
                                    pay, any dividends, or make or permit any
                                    Subsidiary to make, any distributions upon
                                    any of its equity securities, other than (i)
                                    any dividend or other distribution resulting
                                    from the cancellation by NNGC of Debt owed
                                    by Enron and its Affiliates to NNGC (the
                                    "Intercompany Note Receivable") under the
                                    Cash Management Program; provided that such
                                    cancellation of Debt does not reduce the net
                                    amount of the Intercompany Note Receivable
                                    to less than $240 million plus accrued and
                                    unpaid dividends on the Series A Preferred
                                    Stock and (ii) dividends on the Series A
                                    Preferred Stock;

                           4.8.2.   Redemptions. Except as provided pursuant to
                                    the terms of the Series A Preferred Stock,
                                    directly or indirectly redeem, purchase or
                                    otherwise acquire, any of its equity
                                    securities;

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                           4.8.3.   Issuances. Authorize, issue, or enter into
                                    any agreement providing for the issuance
                                    (contingent or otherwise) of (x) any notes
                                    or debt securities containing equity
                                    features (including, without limitation, any
                                    notes or debt securities issued in
                                    connection with the issuance of equity
                                    securities or containing profit
                                    participation features) or (y) any equity
                                    securities (or any securities convertible
                                    into or exchangeable for any equity
                                    securities, including any warrants or stock
                                    options);

                           4.8.4.   Mergers. Merge or consolidate, or enter into
                                    an agreement providing for any merger or
                                    consolidation, with any Person if the
                                    holders of its capital stock prior to the
                                    transaction will own less than 100% of
                                    NNGC's capital stock after the transaction;

                           4.8.5.   Sale of Assets. Except as provided in
                                    Schedule 4.8.5, sell, lease or otherwise
                                    dispose of any of its assets, other than
                                    obsolete equipment or inventory and asset
                                    sales in the Ordinary Course of Business
                                    consistent with past practice not to exceed
                                    an aggregate of $20 million within any
                                    12-month period;

                           4.8.6.   Bankruptcy. Pursuant to or within the
                                    meaning of Title 11 of the United States
                                    Code or any similar federal, state or
                                    foreign law for the relief of debtors,
                                    commence a voluntary case, consent to the
                                    entry of an order for relief against it in
                                    an involuntary case, consent to the
                                    appointment of a receiver, trustee,
                                    assignee, liquidator or similar official of
                                    it or for all or substantially all of its
                                    property, or make a general assignment for
                                    the benefit of its creditors;

                           4.8.7.   Charter Amendments. Make any amendment to or
                                    waive any provision of its certificate of
                                    incorporation or bylaws, limited liability
                                    company agreement or other organizational
                                    documents, or file any resolution of the
                                    Board of Directors with the Secretary of
                                    State of Delaware, in either case which
                                    materially and adversely affects the holders
                                    of the Series A Preferred Stock;

                           4.8.8.   Investments and Loans. Make any investment
                                    in any Person or any loans or advances to,
                                    or guarantees for the benefit of, any
                                    Affiliate, other than (i) loans to any
                                    wholly owned Subsidiary, (ii) loans of a
                                    maximum amount of $1,950 million from NNGC
                                    to the Company and (iii) loans pursuant to
                                    the Cash Management Program;

                           4.8.9.   Indebtedness. Create, incur, assume or
                                    suffer to exist, or permit any of its
                                    Subsidiaries to create, incur, assume or
                                    suffer to exist, Debt, other than (i) the
                                    Debt outstanding as of the date hereof, (ii)
                                    Debt incurred after the date hereof not
                                    exceeding $450 million in

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                                    the aggregate on the terms contained in or
                                    with interest rate and prepayment provisions
                                    not substantially different from, the terms
                                    contained in that Commitment Letter dated
                                    October 31, 2001 between NNGC and certain
                                    banks and (iii) Permitted Refinancing Debt;

                           4.8.10.  Capital Expenditures. Make, or permit the
                                    NNGC and its Subsidiaries, taken as a whole,
                                    to make capital expenditures (including,
                                    without limitation, payments with respect to
                                    capitalized leases), (i) during the period
                                    from the date hereof through December 31,
                                    2001, totaling in excess of $40 million,
                                    (ii) during the year ending December 31,
                                    2002, totaling in excess of $115 million and
                                    (iii) thereafter, in excess of annual
                                    budgeted amounts, except in each case for
                                    additional expenditures not ordinarily
                                    classified as capital expenditures that are
                                    required to be classified as capital
                                    expenditures by applicable regulatory
                                    requirements; and

                           4.8.11.  Note Receivable. Allow the Intercompany Note
                                    Receivable to be less than a net amount of
                                    $240 million plus accrued and unpaid
                                    dividends on the Series A Preferred Stock.

         5. Representations and Warranties.

                  5.1. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Enron, Grantor and the Company as follows:

                           5.1.1.   Existence; Qualification; Subsidiaries.
                                    Grantee is a corporation duly organized,
                                    validly existing and in good standing under
                                    the laws of its jurisdiction of formation
                                    and has full power and authority to conduct
                                    its business and own and operate its
                                    properties as now conducted, owned and
                                    operated.

                           5.1.2.   Authorization and Enforceability. Grantee
                                    has the full power and authority and has
                                    taken all action necessary to permit Grantee
                                    to execute and deliver this Agreement and to
                                    carry out the terms hereof, and none of such
                                    actions will violate any provision of the
                                    Grantee's Certificate of Incorporation or
                                    any applicable law, regulation, order,
                                    judgment or decree or rule, or result in the
                                    breach of, or constitute a default (or an
                                    event which, with notice or lapse of time or
                                    both would constitute a default) under, any
                                    agreement, instrument or understanding to
                                    which Grantee is a party or by which it is
                                    bound. This Agreement constitutes a legal,
                                    valid and binding obligation of Grantee,
                                    enforceable against Grantee in accordance
                                    with its terms, except to the extent limited
                                    by (i) applicable bankruptcy, insolvency,
                                    reorganization, moratorium and similar laws
                                    of general application related to the

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                                    enforcement of creditor's rights generally
                                    and (ii) general principles of equity.

                           5.1.3.   Investment Intent of Grantee. Grantee is
                                    acquiring the Option and, if it exercises
                                    the Option, will acquire the Option
                                    Interests for its own account for investment
                                    and not with a view to distribution.

                           5.1.4.   Sophistication and Financial Condition;
                                    Information. Grantee considers itself to be
                                    an experienced and sophisticated investor
                                    and to have such knowledge and experience in
                                    financial and business matters as are
                                    necessary to evaluate the merits and risks
                                    of an investment in the Option Interests.
                                    Grantee is able to bear the economic risk of
                                    this investment regarding the Company, is
                                    able to hold the Option Interests
                                    indefinitely and has a sufficient net worth
                                    to sustain a loss of its entire investment
                                    in the Company in the event such loss should
                                    occur. Grantee (a) has been furnished with
                                    such information about Enron, Grantor, the
                                    Company and the Option and Option Interests
                                    as it has requested, (b) has made its own
                                    independent inquiry and investigation into,
                                    and based thereon, has formed an independent
                                    judgment concerning the Company and the
                                    Option Interests and (c) is an "accredited"
                                    investor within the meaning of Regulation D
                                    of the Securities Act, as currently in
                                    effect. The Grantee acknowledges that any
                                    certificate representing the Option
                                    Interests will bear a customary legend
                                    regarding restrictions on the
                                    transferability of such Option Interests.

                  5.2. Representations and Warranties of Enron, NNGC Holdings,
Grantor and the Company. Each of Enron, NNGC Holdings, Grantor and the Company
hereby represents and warrants to Grantee as follows:

                           5.2.1.   Existence; Qualification; Subsidiaries. Each
                                    of Enron, NNGC Holdings, Grantor and the
                                    Company is a corporation or limited
                                    liability company duly organized, validly
                                    existing and in good standing under the laws
                                    of their state of incorporation or
                                    organization and have full corporate or
                                    limited liability company power and
                                    authority to conduct their business and own
                                    and operate their properties as now
                                    conducted, owned and operated. NNGC is
                                    licensed or qualified as a foreign
                                    corporation and is in good standing in all
                                    jurisdictions where it is required to be so
                                    licensed or qualified, to the extent such
                                    concepts are recognized in such
                                    jurisdictions. NNGC is an indirect
                                    subsidiary of Enron.

                           5.2.2.   Authorization and Enforceability. Each of
                                    Enron, NNGC Holdings, Grantor and the
                                    Company have full power and authority and
                                    have taken all required corporate and other
                                    action

                                      -11-
<PAGE>

                                    necessary to permit each to execute and
                                    deliver this Agreement and to carry out the
                                    terms hereof, and none of such actions will
                                    violate any provision of each of their
                                    constituent documents or any applicable law,
                                    regulation, order, judgment or decree or
                                    rule of any stock exchange where the Enron
                                    Common Stock is listed, or result in the
                                    breach of, or constitute a default (or an
                                    event which, with notice or lapse of time or
                                    both would constitute a default) under, any
                                    agreement, instrument or understanding to
                                    which any of them is a party or by which it
                                    is bound. This Agreement constitutes a
                                    legal, valid and binding obligation of each
                                    of them, enforceable against each of them in
                                    accordance with its terms, except to the
                                    extent limited by (i) applicable bankruptcy,
                                    insolvency, reorganization, moratorium and
                                    similar laws of general application related
                                    to the enforcement of creditor's rights
                                    generally and (ii) general principles of
                                    equity.

                           5.2.3.   Ownership of Entire Equity Interest.

                                    5.2.3.1. Grantor owns 100% of the membership
                                             interests of the Company.

                                    5.2.3.2. The Company owns 100% of the
                                             capital stock of NNGC Holdings.

                                    5.2.3.3. NNGC Holdings owns 100% of the
                                             common stock of NNGC.

                           5.2.4.   Third-Party Approvals. Assuming the accuracy
                                    of the representations and warranties of the
                                    Grantee contained in this Agreement and
                                    except for filings under the HSR Act, none
                                    of Enron, NNGC Holdings, Grantor or the
                                    Company are required to obtain any order,
                                    consent, approval or authorization of, or to
                                    make any declaration or filing with, any
                                    Governmental Agency or other third party
                                    (including under any state securities or
                                    "blue sky" laws) in connection with the
                                    execution and delivery of this Agreement, or
                                    the consummation of the transactions
                                    contemplated hereby.

                           5.2.5.   Affiliated Group. Each of NNGC Holdings and
                                    NNGC has at all times during its existence
                                    been treated as a member of the affiliated
                                    group of corporations of which Enron is the
                                    common parent filing consolidated returns
                                    for federal income tax purposes.

                           5.2.6.   Disregarded Entity. The Company is and has
                                    at all times been a disregarded entity for
                                    federal income tax purposes.

                                      -12-
<PAGE>

                           5.2.7.   No Other Assets or Operations. The Company
                                    was formed on November 2, 2001. NNGC
                                    Holdings was formed on November 2, 2001. The
                                    Company's only assets are 1,000 shares of
                                    common stock of NNGC Holdings and $1,000 in
                                    cash. NNGC Holdings's only assets are 1,000
                                    shares of common stock of NNGC and $1,000 in
                                    cash. Neither the Company nor NNGC Holdings
                                    has incurred any liabilities (other than the
                                    contemplated liability to NNGC of $1,950
                                    million) or has conducted any operations
                                    since their respective dates of formation.

                           5.2.8.   Capitalization.

                                    5.2.8.1. Capitalization of the Company. As
                                             of the Closing Date after giving
                                             effect to the transactions
                                             contemplated hereby, there shall be
                                             1,000 authorized units representing
                                             membership interests of the
                                             Company. At the time of the
                                             Closing, all of the outstanding
                                             membership interests of the Company
                                             will be validly issued, fully paid
                                             and nonassessable and will have
                                             been issued in compliance with all
                                             applicable securities laws
                                             (including the provisions of the
                                             Securities Act and the rules and
                                             regulations promulgated
                                             thereunder). As of the Closing
                                             Date, the Company has not granted
                                             or issued any options, convertible
                                             securities, warrants, phantom
                                             stock, stock appreciation rights,
                                             calls, pledges, transfer
                                             restrictions (except restrictions
                                             imposed by federal and state
                                             securities laws), Liens, rights of
                                             first offer, rights of first
                                             refusal, antidilution provisions or
                                             commitments of any character
                                             relating to any issued or unissued
                                             membership interests of the
                                             Company.

                                    5.2.8.2. Capitalization of NNGC Holdings. As
                                             of the Closing Date after giving
                                             effect to the transactions
                                             contemplated hereby, the authorized
                                             capital stock of NNGC Holdings
                                             shall be 1,000 shares of common
                                             stock. At the time of the Closing,
                                             all of the outstanding capital
                                             stock of NNGC Holdings will be
                                             validly issued, fully paid and
                                             nonassessable and will have been
                                             issued in compliance with all
                                             applicable securities laws
                                             (including the provisions of the
                                             Securities Act and the rules and
                                             regulations promulgated
                                             thereunder). As of the Closing
                                             Date, NNGC Holdings has not granted
                                             or issued any options, convertible
                                             securities, warrants, phantom
                                             stock, stock appreciation rights,
                                             calls, pledges, transfer
                                             restrictions (except restrictions
                                             imposed by federal and state
                                             securities laws), Liens, rights of
                                             first offer, rights of first
                                             refusal, antidilution provisions or
                                             commitments of

                                      -13-
<PAGE>

                                             any character relating to any
                                             issued or unissued shares of
                                             capital stock of NNGC Holdings.

                                    5.2.8.3. Capitalization of NNGC. As of the
                                             Closing Date after giving effect to
                                             the transactions contemplated
                                             hereby, the authorized capital
                                             stock of NNGC shall be as set forth
                                             on Schedule 5.2.8.3 attached
                                             hereto. At the time of the Closing,
                                             (i) all of the outstanding capital
                                             stock of NNGC will be validly
                                             issued, fully paid and
                                             nonassessable and will have been
                                             issued in compliance with all
                                             applicable securities laws
                                             (including the provisions of the
                                             Securities Act and the rules and
                                             regulations promulgated thereunder)
                                             and (ii) no outstanding capital
                                             stock or other equity securities of
                                             NNGC will rank pari passu or senior
                                             in right of payment of dividends or
                                             redemption to the Series A
                                             Preferred Stock. Except as set
                                             forth on Schedule 5.2.8.3, as of
                                             the Closing Date, NNGC has not
                                             granted or issued any options,
                                             convertible securities, warrants,
                                             phantom stock, stock appreciation
                                             rights, calls, pledges, transfer
                                             restrictions (except restrictions
                                             imposed by federal and state
                                             securities laws), Liens (except
                                             Liens on the equity securities
                                             granted to secure Debt), rights of
                                             first offer, rights of first
                                             refusal, antidilution provisions or
                                             commitments of any character
                                             relating to any issued or unissued
                                             shares of capital stock of NNGC.

                           5.2.9.   Financial Statements; Disclosure. The
                                    Financial Statements (including the related
                                    notes and schedules) fairly present in all
                                    material respects the financial position of
                                    NNGC as of their dates, and each of the
                                    statements of operations, cash flows and
                                    changes in shareholders' equity included in
                                    the Financial Statements (including any
                                    related notes and schedules) fairly presents
                                    in all material respects the results of
                                    operations, cash flows or changes in
                                    shareholders' equity, as the case may be, of
                                    NNGC for the periods set forth therein
                                    (subject, in the case of unaudited
                                    statements, to (x) such exceptions as may be
                                    permitted by Form 10-Q of the SEC and (y)
                                    normal year-end audit adjustments which will
                                    not be material), in each case in accordance
                                    with generally accepted accounting
                                    principles consistently applied during the
                                    periods involved, except as may be noted
                                    therein. Except as and to the extent set
                                    forth on the Current Balance Sheet,
                                    including all notes thereto, as of the date
                                    of such balance sheet, NNGC does not have
                                    any Liabilities or obligations of any nature
                                    (whether accrued, absolute, contingent or
                                    otherwise) that would be required to be
                                    reflected on, or reserved against in, a
                                    balance sheet of NNGC or in the notes
                                    thereto prepared in accordance with
                                    generally accepted

                                      -14-
<PAGE>

                                    accounting principles consistently applied,
                                    other than Liabilities or obligations which
                                    do not and are not reasonably likely to
                                    have, individually or in the aggregate, a
                                    Material Adverse Effect. All reserves or
                                    adjustments required by generally accepted
                                    accounting principles to be reflected in the
                                    carrying value of the assets included in
                                    such balance sheet have been taken other
                                    than reserves or adjustments which do not
                                    and are not reasonably likely to have,
                                    individually or in the aggregate, a Material
                                    Adverse Effect.

                           5.2.10.  Litigation. As of the date hereof, no
                                    claims, suits, proceedings or investigations
                                    are pending or, to the Company, NNGC
                                    Holdings or NNGC's knowledge, threatened
                                    against NNGC or any officer or director
                                    thereof which, individually or in the
                                    aggregate, could reasonably be expected to
                                    have a Material Adverse Effect.

                           5.2.11.  No Undisclosed Liabilities. NNGC has no
                                    Liabilities except (i) as disclosed on
                                    Schedule 5.2.11 or in the Financial
                                    Statements, (ii) Liabilities incurred in the
                                    Ordinary Course of Business, and (iii) such
                                    other Liabilities that will not result,
                                    individually or in the aggregate, in a
                                    Material Adverse Effect.

                           5.2.12.  Agreements. No event has occurred which,
                                    with notice or lapse of time, would
                                    constitute a default with respect to NNGC,
                                    under any material agreement, arrangement or
                                    understanding to which NNGC is a party, and,
                                    to the knowledge of NNGC, no other Person is
                                    in default under any such agreement.

                           5.2.13.  Environmental Matters.

                                    5.2.13.1. NNGC has been and is in compliance
                                             with all applicable orders of any
                                             court, governmental authority or
                                             arbitration board or tribunal and
                                             any applicable law, ordinance,
                                             rule, regulation or other legal
                                             requirement (including common law)
                                             related to human health and the
                                             environment ("Environmental Laws")
                                             except for such matters as do not
                                             and are not reasonably likely to
                                             have, individually or in the
                                             aggregate, a Material Adverse
                                             Effect. There are no past or
                                             present facts, conditions or
                                             circumstances that interfere with
                                             the conduct of any of its
                                             businesses in the manner now
                                             conducted or which interfere with
                                             continued compliance with any
                                             Environmental Law, except for any
                                             non-compliance or interference that
                                             is not reasonably likely to have,
                                             individually or in the aggregate, a
                                             Material Adverse Effect.

                                      -15-
<PAGE>

                                   5.2.13.2. Except for such matters as do not
                                             and are not reasonably likely to
                                             have, individually or in the
                                             aggregate, a Material Adverse
                                             Effect, (i) no judicial or
                                             administrative proceedings or
                                             governmental investigations are
                                             pending or, to the knowledge of
                                             NNGC, threatened against NNGC that
                                             allege the violation of or seek to
                                             impose Liability pursuant to any
                                             Environmental Law, and (ii) there
                                             are no past or present facts,
                                             conditions or circumstances at, on
                                             or arising out of, or otherwise
                                             associated with, any current (or,
                                             to the knowledge of NNGC, former)
                                             businesses, assets or properties of
                                             NNGC, including but not limited to
                                             on-site or off-site disposal,
                                             release or spill of any material,
                                             substance or waste classified,
                                             characterized or otherwise
                                             regulated as hazardous, toxic or
                                             otherwise harmful to human health
                                             or the environment under
                                             Environmental Laws, including
                                             petroleum or petroleum products or
                                             byproducts ("Hazardous Materials")
                                             which facts, conditions or
                                             circumstances violate Environmental
                                             Law or are reasonably likely to
                                             give rise to (x) costs, expenses,
                                             Liabilities or obligations for any
                                             cleanup, remediation, disposal or
                                             corrective action under any
                                             Environmental Law, (y) claims
                                             arising for personal injury,
                                             property damage or damage to
                                             natural resources, or (z) fines,
                                             penalties or injunctive relief.

                                   5.2.13.3. NNGC has not (i) received any
                                             notice of noncompliance with,
                                             violation of, or Liability or
                                             potential Liability under any
                                             Environmental Law or (ii) entered
                                             into any consent decree or order or
                                             is subject to any order of any
                                             court or governmental authority or
                                             tribunal under any Environmental
                                             Law or relating to the cleanup of
                                             any Hazardous Materials, except for
                                             any such matters as do not and are
                                             not reasonably likely to have a
                                             Material Adverse Effect.

                           5.2.14.  Transactions With Affiliates. NNGC is not
                                    party to any agreement, arrangement or
                                    transaction with any officer, director or
                                    Affiliate of NNGC, other than (i) corporate
                                    services and similar arrangements or
                                    transactions pursuant to which NNGC obtains
                                    goods and services used in its Ordinary
                                    Course of Business for which NNGC is charged
                                    expense allocations by Enron consistent with
                                    past practices, (ii) transactions occurring
                                    pursuant to NNGC's participation in the
                                    existing cash management program of Enron
                                    (the "Cash Management Program"), (iii) the
                                    Tax Allocation Agreement, (iv) operational
                                    agreements between NNGC and one or more of
                                    the Affiliates of Enron, such as
                                    interconnect agreements, transportation

                                      -16-
<PAGE>

                                    agreements and other agreements, related to
                                    NNGC's facilities and services, and (vi)
                                    arrangements relating to the employment and
                                    compensation of employees in the Ordinary
                                    Course of Business, expense reimbursal and
                                    advances for business purposes in accordance
                                    with the customary policies and procedures
                                    of NNGC.

                           5.2.15.  Taxes.

                                   5.2.15.1. All tax returns, statements,
                                             reports, declarations, estimates
                                             and forms ("Returns") required to
                                             be filed by or with respect to the
                                             Company, NNGC Holdings and NNGC
                                             (including any Return required to
                                             be filed by an affiliated,
                                             consolidated, combined, unitary or
                                             similar group for a taxable year in
                                             which the Company, NNGC Holdings
                                             and NNGC were included in such
                                             group) on or prior to the date
                                             hereof have been properly filed on
                                             a timely basis with the appropriate
                                             governmental authorities, except to
                                             the extent that any failure to file
                                             does not and is not reasonably
                                             likely to have, individually or in
                                             the aggregate, a Material Adverse
                                             Effect, and all taxes due with such
                                             Returns have been duly paid, or
                                             deposited in full on a timely basis
                                             or adequately reserved for in
                                             accordance with GAAP, except to the
                                             extent that any failure to pay or
                                             deposit or make adequate provision
                                             for the payment of such taxes does
                                             not and is not reasonably likely to
                                             have, individually or in the
                                             aggregate, a Material Adverse
                                             Effect. Representations made in
                                             this Section 5.2.15 are made to the
                                             knowledge of the Company, NNGC
                                             Holdings and NNGC to the extent
                                             that the representations relate to
                                             a corporation which was, but is not
                                             currently, a part of the Company,
                                             NNGC Holdings and NNGC's
                                             affiliated, consolidated, combined,
                                             unitary or similar group.

                                   5.2.15.2. Except to the extent not
                                             reasonably likely to have,
                                             individually or in the aggregate, a
                                             Material Adverse Effect, (i) no
                                             audits or other administrative
                                             proceedings or court proceedings
                                             are presently pending with regard
                                             to any taxes or Returns of the
                                             Company, NNGC Holdings or NNGC as
                                             to which any taxing authority has
                                             asserted in writing any claim; (ii)
                                             no governmental authority is now
                                             asserting in writing any deficiency
                                             or claim for taxes or any
                                             adjustment to taxes with respect to
                                             which the Company, NNGC Holdings or
                                             NNGC may be liable with respect to
                                             income and other material taxes
                                             which have not been fully paid or
                                             finally settled; (iii) the Company,
                                             NNGC Holdings and NNGC have no
                                             Liability for taxes

                                      -17-
<PAGE>

                                             under Treas. Reg. Section 1.1502-6
                                             or any similar provision of state,
                                             local, or non-U.S. tax law, except
                                             for taxes of the affiliated group
                                             of which Enron is the common
                                             parent, within the meaning of
                                             Section 1504(a)(1) of the Code or
                                             any similar provision of state,
                                             local, or non-U.S. tax law; and
                                             (iv) the Company, NNGC Holdings and
                                             NNGC are not a party to, is bound
                                             by or has any obligation under any
                                             tax sharing, allocation or
                                             indemnity agreement or any similar
                                             agreement or arrangement other than
                                             the Tax Allocation Agreement (which
                                             Tax Allocation Agreement shall be
                                             terminated as of the Closing).

                                   5.2.15.3. For purposes of this Agreement,
                                             "tax" or "taxes" means all net
                                             income, gross income, gross
                                             receipts, sales, use, ad valorem,
                                             transfer, accumulated earnings,
                                             personal holding company, excess
                                             profits, franchise, profits,
                                             license, withholding, payroll,
                                             employment, excise, severance,
                                             stamp, occupation, premium,
                                             property, disability, capital
                                             stock, or windfall profits taxes,
                                             customs duties or other taxes,
                                             together with any interest and any
                                             penalties, additions to tax or
                                             additional amounts imposed by any
                                             taxing authority.

                           5.2.16.  Certain Fees. No fees or commissions will be
                                    payable by the Company, NNGC Holdings or
                                    NNGC to any broker, financial advisor,
                                    finder, investment banker, or bank with
                                    respect to the transactions contemplated by
                                    this Agreement, except that Enron has
                                    retained J. P. Morgan Securities Inc. and
                                    Salomon Smith Barney Inc. as its financial
                                    advisors. The Grantee shall have no
                                    obligation with respect to any fees or with
                                    respect to any claims made by or on behalf
                                    of any Persons for fees of a type
                                    contemplated in this section that may be due
                                    in connection with the transactions
                                    contemplated by this Agreement and which
                                    were incurred by Enron or any of its
                                    Subsidiaries. The Company, NNGC Holdings and
                                    NNGC shall indemnify and hold harmless the
                                    Grantee, its employees, officers, directors,
                                    agents and partners, and their respective
                                    affiliates (as such term is defined under
                                    Rule 405 promulgated under the Securities
                                    Act), from and against all claims, losses,
                                    damages, costs (including the costs of
                                    preparation and attorney's fees) and
                                    expenses suffered in respect to any such
                                    claimed or existing fees.

         6. Guarantee by Enron of Grantor's and the Company's Obligations
hereunder. Enron hereby unconditionally guarantees to Grantee the prompt,
faithful and full performance of all of the covenants and obligations of
Grantor, NNGC Holdings and the Company under the terms of this Agreement.

                                      -18-
<PAGE>

         7. Survival. The representations and warranties of the parties hereto
contained herein, or in any writing delivered pursuant hereto, shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, regardless of any investigation made by the
Grantee or on its behalf, and shall continue until the first anniversary of the
Closing Date, except for the representations and warranties set forth in
Sections 5.1 hereof which shall survive indefinitely, and except for the
representations and warranties set forth in Section 5.2.15 hereof which shall
survive until the date that is ninety (90) days following the expiration of one
applicable statute of limitation.

         8. Indemnification.

                  8.1. Indemnification by Enron and Grantor. In consideration of
Grantee's execution and delivery of this Agreement and the acquisition of the
Option hereunder and in addition to all of Enron's and Grantor's other
obligations under this Agreement, Enron and Grantor shall defend, protect,
indemnify and hold harmless Grantee and all of its Affiliates, officers,
directors, employees and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Dynegy Indemnitees") from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, expenses (including, without limitation, costs of suit and attorneys'
fees and expenses) in connection therewith (irrespective of whether any such
Dynegy Indemnitee is a party to the action for which indemnification hereunder
is sought (the "Indemnified Liabilities"), incurred by the Dynegy Indemnitees or
any of them as a result of, or arising out of, or relating to any breach of any
representation, warranty, covenant or agreement made by Enron or Grantor herein;
provided, that with respect to any such claim based upon a breach of a
representation or warranty, a bona fide claim relating thereto has been made
within the applicable survival period specified in Section 7. In addition, Enron
shall indemnify Dynegy and its Affiliates, including NNGC, against any liability
for taxes of the affiliated group of corporations filing a consolidated federal
income tax return of which Enron is the common parent under Treas. Reg. Section
1.1502-6 (or similar principles of state, local or foreign law). Enron and
Grantor shall reimburse the Dynegy Indemnitees for the Indemnified Liabilities
as such Indemnified Liabilities are incurred. To the extent that the foregoing
undertaking by Enron or Grantor may be unenforceable for any reason, Enron and
Grantor shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.

                  8.2. Indemnification by the Grantee. In consideration of Enron
and Grantor execution and delivery of this Agreement and issuance of the Option
hereunder and in addition to all of the Grantee's other obligations under this
Agreement, the Grantee shall defend, protect, indemnify and hold harmless Enron
and Grantor and all of their Affiliates, officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Enron
Indemnitees") from and against any and all Indemnified Liabilities incurred by
the Enron Indemnitees or any of them as a result of, or arising out of, or
relating to any breach of any representation, warranty, covenant or agreement
made by the Grantee herein; provided, that with respect to any such claim based
upon a breach of a representation or warranty, a bona fide claim relating
thereto has been made within the applicable survival period specified in Section
7.1. Grantee shall reimburse the Enron Indemnitees for the Indemnified
Liabilities as such Indemnified Liabilities are incurred. To the

                                      -19-
<PAGE>

extent that the foregoing undertaking by Grantee may be unenforceable for any
reason, the Grantee shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.

                  8.3. Indemnification Procedure.

                           8.3.1.   In the case of any claim asserted by a third
                                    party against a party entitled to
                                    indemnification under this Agreement (the
                                    "Indemnified Party"), (i) notice setting
                                    forth with reasonable specificity the facts
                                    and circumstances of which such Person has
                                    received notice shall be given by the
                                    Indemnified Party (such notice, an
                                    "Indemnification Claim Notice") to the party
                                    required to provide indemnification (the
                                    "Indemnifying Party") promptly after such
                                    Indemnified Party has actual knowledge of
                                    any claim as to which indemnity may be
                                    sought, and (ii) the Indemnified Party shall
                                    permit the Indemnifying Party (at the
                                    expense of such Indemnifying Party) to
                                    assume the defense of any claim or any
                                    litigation resulting therefrom; provided,
                                    that (i) counsel for the Indemnifying Party
                                    who shall conduct the defense of such claim
                                    or litigation shall be reasonably
                                    satisfactory to the Indemnified Party, and
                                    the Indemnified Party may participate in
                                    such defense at such Indemnified Party's
                                    expense, and (ii) the failure of any
                                    Indemnified Party to give notice as provided
                                    herein shall not relieve the Indemnifying
                                    Party of its indemnification obligation
                                    under this Agreement except to the extent
                                    that (x) such failure results in a lack of
                                    actual notice to the Indemnifying Party and
                                    (y) such Indemnifying Party is materially
                                    prejudiced as a result of such failure to
                                    give notice. Except with the prior written
                                    consent of the Indemnified Party, no
                                    Indemnifying Party, in the defense of any
                                    such claim or litigation, shall consent to
                                    entry of any judgment or enter into any
                                    settlement that (x) provides for injunctive
                                    or other nonmonetary relief affecting the
                                    Indemnified Party or (y) does not include as
                                    an unconditional term thereof the giving by
                                    each claimant or plaintiff to such
                                    Indemnified Party of a release from all
                                    liability with respect to such claim or
                                    litigation.

                           8.3.2.   In the event that the Indemnifying Party
                                    does not assume and conduct the defense of
                                    any claim subject to indemnification
                                    hereunder in accordance with the provisions
                                    of Section 8.3.1 above, the Indemnified
                                    Party may take over and assume control over
                                    the defense, settlement, negotiations or
                                    litigation relating to any such claim at the
                                    sole cost of the Indemnifying Party;
                                    provided, that if the Indemnified Party does
                                    so take over and assume control, (x) the
                                    Indemnified Party shall not settle such
                                    claim or litigation without the written
                                    consent of the Indemnifying Party, such
                                    consent not to be unreasonably withheld, (y)
                                    the Indemnified Party shall be reimbursed by
                                    the

                                      -20-
<PAGE>

                                    Indemnifying Party for reasonable attorneys'
                                    fees and other expenses of defending such
                                    claim upon the presentation of itemized
                                    bills for such expenses to the Indemnifying
                                    Party, and (z) the Indemnifying Party will
                                    remain responsible for any Indemnified
                                    Liabilities that the Indemnified Party may
                                    suffer resulting from, arising out of,
                                    relating to, in the nature of, or caused by
                                    such claim to the fullest extent provided in
                                    this Section 8.

         9. Miscellaneous.

                  9.1. Expenses. Except as otherwise provided in the Merger
Agreement or as otherwise expressly provided herein, each of the parties hereto
shall bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
legal counsel.

                  9.2. Waiver and Amendment. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.

                  9.3. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.

                  9.4. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Texas, regardless of the
Laws that might otherwise govern under applicable principles of conflicts of
law.

                  9.5. Descriptive Headings. The descriptive headings contained
herein are for convenience or reference only, are not comprehensive, and shall
not affect in any way the meaning or interpretation of this Agreement.

                  9.6. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses or sent by
electronic transmission to the telecopier number specified below:

                                      -21-
<PAGE>

                                    If to the Company to:

                                    MCTJ Holding Co. LLC
                                    1400 Smith Street
                                    Houston, Texas 77002
                                    Attention: General Counsel
                                    Facsimile (713) 853-3129

                                    with an information copy, which shall not
                                    constitute notice to:

                                    Vinson & Elkins L.L.P.
                                    1001 Fannin, Suite 2300
                                    Houston, Texas 77002-6760
                                    Attention: William E. Joor, III, Esq.
                                               Scott N. Wulfe, Esq.
                                    Facsimile: (713) 758-2346

                                    If to the Grantor to:

                                    CGNN Holding Company, Inc.
                                    1400 Smith Street
                                    Houston, Texas 77002
                                    Attention: General Counsel
                                    Facsimile (713) 853-3129

                                    with an information copy, which shall not
                                    constitute notice to:

                                    Vinson & Elkins L.L.P.
                                    1001 Fannin, Suite 2300
                                    Houston, Texas 77002-6760
                                    Attention: William E. Joor, III, Esq.
                                               Scott N. Wulfe, Esq.
                                    Facsimile: (713) 758-2346

                                    If to Grantee to:

                                    Dynegy Holdings Inc.
                                    1000 Louisiana, Suite 5800
                                    Houston, Texas 77002
                                    Attention: General Counsel
                                    Facsimile (713) 507-6808

                                      -22-
<PAGE>

                                    with an information copy, which shall not
                                    constitute notice to:

                                    Baker Botts L.L.P.
                                    One Shell Plaza
                                    910 Louisiana
                                    Houston, Texas 77002-4995
                                    Attention: R. Joel Swanson, Esq.
                                               J. David Kirkland, Jr., Esq.
                                    Facsimile: (713) 229-1522

                  9.7. Counterparts. This Agreement and any amendments hereto
may be executed in counterparts, each of which shall be deemed an original and
all of which taken together shall constitute but a single document.

                  9.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be sold, assigned
or otherwise disposed of or transferred by either of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
party, except that the Grantee may assign this Agreement to an Affiliate or
Subsidiary of the Grantee; provided, however, that no such assignment shall have
the effect of releasing the Grantee from its obligations hereunder and the
assignee shall be subject to all of the terms and conditions of this Agreement
as if it were the Grantee. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.

                  9.9. Further Assurances. In the event of any exercise of the
Option by the Grantee, the Company and the Grantee shall execute and deliver all
other documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such exercise.

                  9.10. Specific Performance. The parties hereto hereby
acknowledge and agree that the failure of any party to this Agreement to perform
its agreements and covenants hereunder will cause irreparable injury to the
other party to this Agreement for which damages, even if available, will not be
an adequate remedy. Accordingly, each of the parties hereto hereby consents to
the granting of equitable relief (including specific performance and injunctive
relief) by any court of competent jurisdiction to enforce any party's
obligations hereunder. The parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.

                  9.11. Complete Agreement; No Third Party Beneficiary. This
Agreement (including the Subscription Agreement, the Merger Agreement and the
other documents and instruments referred to herein and therein) (i) constitutes
the entire agreement and supersedes all prior agreements, conversations,
negotiations and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (ii) is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.

               [Remainder of this page intentionally left blank.]

                                      -23-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.

                                        ENRON CORP.,
                                        an Oregon corporation

                                        By: /s/ RAYMOND M. BOWEN, JR.
                                            ------------------------------------
                                        Name:   Raymond M. Bowen, Jr.
                                        Title:  Authorized Agent

                                        CGNN HOLDING COMPANY, INC.,
                                        a Delaware corporation

                                        By: /s/ DREW J. FOSSUM
                                            ------------------------------------
                                        Name:   Drew J. Fossum
                                        Title:  Authorized Agent

                                        MCTJ HOLDING CO. LLC,
                                        a Delaware limited liability company

                                        By: /s/ DREW J. FOSSUM
                                            ------------------------------------
                                        Name:   Drew J. Fossum
                                        Title:  Authorized Agent

                                        DYNEGY HOLDINGS INC.,
                                        a Delaware corporation

                                        By: /s/ HUGH A. TARPLEY
                                           -------------------------------------
                                        Name:   Hugh A. Tarpley
                                        Title:  Authorized Agent

                                        Solely for the provisions of Section 5.1
                                        hereof:

                                        DYNEGY INC.,
                                        an Illinois corporation

                                        By: /s/ HUGH A. TARPLEY
                                           -------------------------------------
                                        Name:   Hugh A. Tarpley
                                        Title:  Authorized Agent

                                      -24-
<PAGE>

                                                                         ANNEX A

                            SCHEDULE OF DEFINED TERMS

         The following terms when used in the Option Agreement shall have the
meanings set forth below unless the context shall otherwise require:

         "Affiliate" shall mean, with respect to any Person, any other Person
that directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question; provided,
that none of Dynegy and its Affiliates shall be deemed to be an Affiliate of
Enron. For purposes of this definition of Affiliate, "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting
securities or general partnership or member interests, by contract or otherwise.
Without limiting the generality of the foregoing, a Person shall be deemed to
control any other Person in which it or any of its Affiliates owns, directly or
indirectly, a majority of the ownership interests.

         "Agreement" shall mean this Option Agreement.

         "Authorization" shall mean any and all permits, licenses,
authorizations, orders certificates, registrations or other approvals granted by
any Governmental Agency.

         "Bank Credit Facility" shall mean one or more bank credit facilities
providing credit availability to NNGC in an aggregate principal amount not to
exceed $450 million on the terms contained in, or not substantially different
from the terms contained in, that Commitment Letter dated October 31, 2001
between NNGC and certain banks.

         "Business Day" shall mean a day other than Saturday, Sunday or a
federal holiday.

         "Cash Management Program" means Enron's existing zero balance cash
management program.

         "Closing" shall have the meaning ascribed to such term in Section 2
herein.

         "Closing Date" shall have the meaning ascribed to such term in Section
2 herein.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Contingent Obligations" shall mean, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend, letter of credit or other similar
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (other than for collection or
deposit in the ordinary course of business) co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, any such
obligation for which that Person is in effect liable through any agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain

                                      A-1
<PAGE>

the solvency or any balance sheet, income or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation, services or lease regardless of the
non-delivery or non-furnishing thereof, in any such case if the purpose or
intent of such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected (in whole or in
part) against loss in respect thereof. The amount of any Contingent Obligation
shall be equal to the amount of the obligation, or portion thereof, so
guaranteed or otherwise supported.

         "Court" shall mean any court or arbitration tribunal of the United
States, any foreign country or any domestic or foreign state, and any political
subdivision thereof, and shall include the European Court of Justice.

         "Current Balance Sheet" means the consolidated balance sheet of NNGC
dated as of September 30, 2001.

         "Debt" shall mean, with respect to any Person, the aggregate amount of,
without duplication, (i) all obligations for borrowed money; (ii) all
obligations evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations to pay the deferred purchase price of property or
services; (iv) all capitalized lease obligations; (v) all obligations or
liabilities of others secured by a Lien on any asset owned by such person
whether or not such obligation or Liability is assumed, to the extent of the
lesser of such obligation or Liability or the book value of such asset; (vi) all
Contingent Obligations of such person; and (vii) any other obligations or
Liabilities which are required by generally accepted accounting principles to be
shown as debt on a balance sheet, other than trade payables and Liabilities
pursuant to the Tax Allocation Agreement.

         "Enron Common Stock" means the common stock, no par value, of Enron.

         "Estimated Working Capital" means Grantor's good faith estimate made
within five Business Days of Closing of Working Capital on the Closing Date.

         "Exchange Agreement" means that certain Exchange Agreement by and among
Dynegy and Enron executed concurrently herewith.

         "Exercise" means exercise of the Option.

         "Exercise Price" shall have the meaning ascribed to such term in
Section 2 herein.

         "FERC" means the Federal Energy Regulatory Commission.

         "Final Working Capital" means the Working Capital on the close of
business on the Closing Date as determined pursuant to Section 2.6.

         "Final Working Capital Statement" has the meaning set forth in Section
2.6.

                                      A-2
<PAGE>

         "Financial Statements" means the audited consolidated financial
statements of NNGC for the two most recent fiscal years and the unaudited
consolidated balance sheet dated September 30, 2001, all of which are attached
as Exhibit B hereto.

         "GAAP" means United States generally accepted accounting principles as
in effect from time to time, consistently applied.

         "Governmental Agency" means any federal, state, local, foreign or other
governmental agency, instrumentality, commission, authority, board or body.

         "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

         "Law" shall mean all laws, statutes and ordinances of the United
States, any state of the United States, any foreign country, any foreign state
and any political subdivision thereof, including all decisions of Courts having
the effect of law in each such jurisdiction.

         "Liability" means any liability or obligation (whether absolute or
contingent, liquidated or unliquidated or due or to become due).

         "Lien" means any lien, mortgage, pledge, security interest,
restriction, charge or other encumbrance.

         "Material Adverse Effect" means a material adverse effect on (a) the
business condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries or (b) the transactions contemplated by this
Agreement.

         "Merger" shall have the meaning ascribed to such term in the Merger
Agreement.

         "NNGC" means Northern Natural Gas Company, a Delaware corporation and
its subsidiaries.

         "NNGC Holdings" means NNGC Holding Company, Inc., a Delaware
corporation and wholly owned Subsidiary of the Company.

         "Notice Date" shall have the meaning ascribed to such term in Section 2
herein.

         "Option Interests" has the meaning set forth in Section 2.1.

         "Order" shall mean any judgment, order or decree of any Court or
Governmental Agency, federal, foreign, state or local, of competent
jurisdiction.

         "Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity,
quality and frequency).

         "Permitted Refinancing Debt" shall mean any Debt of NNGC or any of its
Subsidiaries issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew,

                                      A-3
<PAGE>

replace, defease or refund other Debt of NNGC or any of its Subsidiaries (other
than intercompany Debt); provided that:

                  (1)      the principal amount of such Permitted Refinancing
                           Debt does not exceed the principal amount of, plus
                           accrued interest on, the Debt so extended,
                           refinanced, renewed, replaced, defeased or refunded
                           (plus the amount of necessary fees and expenses
                           incurred in connection therewith and any premiums
                           paid on the Debt so extended, refinanced, renewed,
                           replaced, defeased or refunded);

                  (2)      such Permitted Refinancing Debt has a final maturity
                           date no earlier than the final maturity date of, and
                           has a Weighted Average Life to Maturity equal to or
                           greater than the Weighted Average Life to Maturity
                           of, the Debt being extended, refinanced, renewed,
                           replaced, defeased or refunded;

         "Person" means any individual, partnership, joint venture, corporation,
limited liability company, trust, unincorporated organization or other entity.

         "Regulation" shall mean any rule or regulation of any Governmental
Agency having the effect of Law or of any rule or regulation of any
self-regulatory organization, such as the NYSE.

         "SEC" means the Securities and Exchange Commission.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Series A Preferred Stock" means the Series A Preferred Stock, par
value $.01 per share, of NNGC.

         "Subscription Agreement" means that certain Subscription Agreement
dated as of November 9, 2001, by and among Enron, NNGC and Dynegy.

         "Subsidiary," when used with respect to any Person, shall mean any
corporation, limited liability company, partnership, association or other
business entity of which (a) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
(b) if a partnership, limited liability company, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by such
Person. For purposes hereof, such Person shall be deemed to have a majority
ownership interest in a partnership, limited liability company, association or
other business entity if such Person, directly or indirectly, is allocated a
majority of partnership, limited liability company, association or other
business entity gains or losses, or is or controls the managing director or
general partner of such partnership, limited liability company, association or
other business entity.

         "Tax Allocation Agreement" means that certain undated existing tax
allocation agreement between Enron and NNGC.

                                      A-4
<PAGE>

         "Weighted Average Life to Maturity" shall mean, when applied to any
Debt at any date, the number of years obtained by dividing:

                  (1)      the sum of the products obtained by multiplying (a)
                           the amount of each then remaining installment,
                           sinking fund, serial maturity or other required
                           payments of principal, including payment at final
                           maturity, in respect thereof, by (b) the number of
                           years (calculated to the nearest one-twelfth) that
                           will elapse between such date and the making of such
                           payment; by

                  (2)      the then outstanding principal amount of such Debt.

         "Working Capital" is equal to cash, plus (a) accounts receivable, plus
(b) transportation and exchange gas receivable, less (c) accounts payable, less
(d) transportation and exchange gas payable, less (e) accrued taxes, less (f)
accrued interest. For purposes of clarity, Working Capital excludes the
Intercompany Note Receivable in calculating the Exercise Price.

                                      A-5<PAGE>
                                                                   EXHIBIT 10.5

                            PURCHASE OPTION AGREEMENT

         This PURCHASE OPTION AGREEMENT (this "Agreement") dated as of November
9, 2001 is by and among CGNN Holding Company, Inc., a Delaware corporation (the
"Grantee"), MCTJ Holding Co. LLC, a Delaware limited liability company (the
"Company"), Northern Natural Gas Company, a Delaware corporation ("NNGC"), Enron
Corp., an Oregon corporation ("Enron" and, together with Grantee, the "Enron
Parties"), Dynegy Holdings, Inc., a Delaware corporation ("Dynegy Holdings"),
and Dynegy Inc., an Illinois corporation ("Dynegy" and, together with Dynegy
Holdings, "Grantor" or the "Dynegy Parties").

                                    RECITALS

         A. Merger Agreement. Concurrently with the execution of this Agreement,
Dynegy, Stanford, Inc., a Delaware corporation, Badin, Inc., an Illinois
corporation, Sorin, Inc., an Oregon corporation, and Enron entered into an
Agreement and Plan of Merger (the "Merger Agreement").

         B. Equity Interest. The Company owns 100% of the capital stock of NNGC
Holding Company, Inc., a Delaware corporation ("NNGC Holding"). NNGC Holding
owns 100% of the common stock, par value $1.00 per share, of NNGC. Grantee is
the sole member of, and owns all of the membership interests in, the Company.

         NOW THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:

         1. Capitalized Terms. Those capitalized terms used in this Agreement
that are not defined in this Agreement are defined in Annex A hereto and are
used herein with the meanings ascribed to them therein.

         2. Purchase Option.

                  2.1. Grant of Purchase Option. Subject to the terms and
conditions set forth herein, (a) Dynegy Holdings hereby grants to the Grantee an
irrevocable option to purchase all, but not less than all, of the outstanding
membership interests in the Company (the "Option Interests") and (b) Dynegy
hereby grants to the Grantee an irrevocable option to purchase all, but not less
than all, of the outstanding shares of Series A Preferred Stock (the "Preferred
Shares"). The options of Dynegy and Dynegy Holdings are collectively referred to
herein as the "Purchase Option." The Purchase Option must be exercised for all
the Option Interests and all the Preferred Shares simultaneously.

                  2.2. Option Term. The Purchase Option shall be exercisable (a)
until the later of (i) 180 days after the date hereof and (ii) 90 days after a
Closing under the Option Agreement upon an exercise pursuant to Section 2.5.1.4
thereof or (b) until 90 days after a Closing under

                                      -1-
<PAGE>

the Option Agreement pursuant to Section 2.5.1.1, 2.5.1.2 or 2.5.1.3 thereof
(the "Option Term"). If the Purchase Option has not been exercised prior to the
expiration of the Option Term, then the rights and obligations set forth in this
Agreement shall expire and terminate.

                  2.3. Exercise Price of Purchase Option. (a) The exercise price
of the Purchase Option for the Option Interests (the "Option Interests Exercise
Price") shall be the total sum of (i) $24 million, plus (ii) $950 million, minus
(iii) the aggregate amount of outstanding principal indebtedness under the Bank
Credit Facility and the Senior Notes and any Permitted Refinancing Debt related
thereto on the Closing Date, plus (iv) the positive or negative change in
Working Capital calculated from the Closing Date of the Option Agreement to the
Estimated Working Capital based on the definition of Working Capital provided in
this Agreement, minus (v) any increase in long-term debt (other than Debt
referred to in (iii) above) between the closing under the Option Agreement and
the Closing under this Agreement, plus (vi) any decrease in long-term Debt
(other than Debt referred to in (iii) above) between the closing under the
Option Agreement and the Closing under this Agreement, plus (vii) any accrued
but unpaid dividends on the Series A Preferred Stock as of the Closing under the
Option Agreement.

                           (b) The exercise price of the Purchase Option for all
the shares of the Series A Preferred Stock (the "Series A Exercise Price") shall
be $1.5 billion.

                  2.4. Working Capital Adjustment.

                           2.4.1.   Calculation of Final Working Capital. Within
                                    30 days of Closing, Grantee shall prepare
                                    and deliver to Grantor a statement (the
                                    "Final Working Capital Statement") setting
                                    forth the amount of Final Working Capital.
                                    Grantor shall have 30 days to review the
                                    Final Working Capital Statement and
                                    supporting documentation and shall have
                                    reasonable access to the books, records and
                                    personnel of Grantee and NNGC for purposes
                                    of verifying the accuracy of the calculation
                                    of Final Working Capital. Grantee's
                                    calculation of Final Working Capital shall
                                    be deemed final and binding unless Grantor
                                    raises an objection in writing within 30
                                    days of its receipt thereof, specifying in
                                    reasonable detail the nature and extent of
                                    such objection. If Grantor raises an
                                    objection to the calculation of Final
                                    Working Capital within such 30-day period,
                                    and if Grantor and Grantee are unable to
                                    resolve such objection within 30 days of the
                                    date Grantee receives such objection, then
                                    the disputed matter shall be submitted for
                                    determination to an accounting firm of
                                    national reputation mutually agreeable to
                                    Grantor and Grantee. The determination of
                                    such accounting firm shall be final and
                                    binding for all purposes. The fees and
                                    expenses of such accounting firm shall be
                                    borne equally by Grantor and Grantee.

                           2.4.2.   Settlement of Working Capital Adjustment. If
                                    Final Working Capital exceeds Estimated
                                    Working Capital, then Grantee will pay
                                    Grantor the amount of such excess. If Final
                                    Working Capital

                                      -2-
<PAGE>

                                    is less than Estimated Working Capital, then
                                    Grantor will pay Grantee the amount of such
                                    shortfall. Any such payments will be made
                                    within five (5) Business Days of the
                                    determination of the adjustment by wire
                                    transfer of immediately available funds.

         3. Exercise of Purchase Option; Conditions; Closing.

                  3.1. Notice; Closing Location. If the Grantee wishes to
exercise the Purchase Option, it shall send a written notice (an "Exercise
Notice") (the date of which being herein referred to as the "Notice Date") to
the Grantor specifying a date (as it may be extended from time to time, the
"Closing Date") not earlier than three (3) Business Days nor later than ten (10)
Business Days from the Notice Date for the closing of the purchase and sale
pursuant to the Purchase Option (the "Closing"). The Closing will take place at
the offices of Baker Botts L.L.P., 910 Louisiana, Houston, Texas 77002.

                  3.2. Extension. If the Closing cannot be effected by reason of
the application of any Law, Regulation or Order, the Closing Date shall be
extended to the tenth Business Day following the expiration or termination of
the restriction imposed by such Law, Regulation or Order. Without limiting the
foregoing, if prior notification to, or Authorization of, any Governmental
Agency is required in connection with the purchase of the Option Interests or
the Preferred Shares by virtue of the application of such Law, Regulation or
Order, the Grantee and, if applicable, the Grantor and the Company shall
promptly file the required notice or application for Authorization and the
Grantee, with the cooperation of the Grantor and the Company, shall
expeditiously process the same.

                  3.3. Conditions to Closing. It shall be a condition to Closing
that:

                           3.3.1.   HSR Clearance. The parties shall have
                                    obtained clearance under the HSR Act, if
                                    required by Law, to proceed with the
                                    transactions contemplated hereby.

                           3.3.2.   Release of Guarantees. Unless waived by
                                    Dynegy, it shall be a condition to Closing
                                    that (a) either any guaranty by Dynegy or
                                    any Subsidiary of Dynegy (other than the
                                    Company and NNGC Holding) of NNGC's
                                    indebtedness under the Bank Credit Facility
                                    be released or all indebtedness under the
                                    Bank Credit Facility be repaid effective as
                                    of the Closing and (b) any guaranty by
                                    Dynegy or any Subsidiary of Dynegy (other
                                    than NNGC Holding) of the Company's
                                    indebtedness to NNGC be released effective
                                    as of the Closing.

                           3.3.3.   Officer's Certificate. At the Closing,
                                    Dynegy will deliver an Officer's Certificate
                                    to the effect that the Dynegy Parties have
                                    the power to convey the Option Interests and
                                    the Series A Stock and setting forth the
                                    capitalization of the Company, NNGC Holding
                                    and NNGC, and that from the Closing under
                                    the Option Agreement through the Closing
                                    hereunder, Grantors have

                                      -3-
<PAGE>

                                    operated NNGC in compliance with the
                                    affirmative covenants set forth in Section
                                    4.3 hereof.

                           3.3.4.   No Violation of Law [Grantee]. Unless waived
                                    by Grantee, the Closing shall not violate
                                    any Law, Regulation or Order applicable to
                                    Grantee or any of its Affiliates.

                           3.3.5.   No Violation of Law [Grantor]. Unless waived
                                    by Grantor, the Closing shall not violate
                                    any Law, Regulation or Order applicable to
                                    Grantor or any of its Affiliates.

                           3.3.6.   Accuracy of Enron and Grantee's
                                    Representations and Warranties. Unless
                                    waived by Grantor, the representations and
                                    warranties set forth in Section 5.1 are true
                                    and correct as of the Closing Date.

                           3.3.7.   Accuracy of Dynegy Parties' Representations
                                    and Warranties. Unless waived by Grantee,
                                    the representations and warranties set forth
                                    in Section 5.2 are true and correct as of
                                    the Closing Date.

                  3.4. Payment and Delivery of Certificates.

                           3.4.1.   Payment. At the Closing, the Grantee shall
                                    pay the Option Interests Exercise Price to
                                    Dynegy Holdings and the Series A Exercise
                                    Price to Dynegy in immediately available
                                    funds by wire transfer to a bank account
                                    designated by the applicable Grantor.

                           3.4.2.   Delivery. At the Closing, simultaneously
                                    with the delivery of immediately available
                                    funds as provided above, Dynegy Holdings
                                    shall deliver to the Grantee a certificate
                                    or certificates representing the Option
                                    Interests and Dynegy shall deliver to
                                    Grantee a certificate or certificates
                                    representing the Preferred Shares, which
                                    Option Interests and Preferred Shares shall
                                    be duly authorized, validly issued, fully
                                    paid and nonassessable and free and clear of
                                    all Liens, and the Grantee shall deliver to
                                    Dynegy Holdings its written agreement that
                                    the Grantee will not offer to sell or
                                    otherwise dispose of such Option Interests
                                    or Preferred Shares in violation of
                                    applicable Law.

                  3.5. Certificates. (a) Certificates for the Option Interests
delivered at the Closing shall be endorsed with a restrictive legend that shall
read substantially as follows:

                  THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
         IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED, AND APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO THE TERMS
         OF AN OPTION AGREEMENT DATED AS OF NOVEMBER 9, 2001 AND A PURCHASE
         OPTION AGREEMENT DATED AS OF NOVEMBER 9, 2001. A COPY OF SUCH

                                      -4-
<PAGE>

         AGREEMENTS WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
         RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR.

                           (b) Certificates for the Preferred Shares delivered
at the Closing shall be endorsed with a restrictive legend that shall read
substantially as follows:

                  THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
         IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED, AND APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO THE TERMS
         OF A PURCHASE OPTION AGREEMENT DATED AS OF NOVEMBER 9, 2001. A COPY OF
         SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE
         UPON RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR.

                  3.6. Unlegended Certificates. A new certificate or
certificates evidencing the Option Interests and the Preferred Shares will be
issued to the Grantee in lieu of the certificate bearing the above legend, and
such new certificate shall not bear such legend, insofar as it applies to the
Securities Act, if the Grantee shall have delivered to the Company a copy of a
letter from the staff of the SEC, or an opinion of counsel in form and substance
reasonably satisfactory to the Company and its counsel, to the effect that such
legend is not required for purposes of the Securities Act.

         4. Covenants.

                  4.1. Maintenance of 100% ownership of Option Interests and
Preferred Shares; no Liens. The Grantors hereby covenant that, from the Closing
Date under the Option Agreement through the end of the Purchase Option Term,
Dynegy Holdings will maintain ownership of 100% of the membership interests of
the Company, the Company will maintain ownership of 100% of the capital stock of
NNGC Holding, and NNGC Holding will maintain ownership of 100% of the common
stock of NNGC. The Grantors hereby covenant not to issue any equity interest or
any options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, any equity interest in the Company, NNGC Holding or NNGC to any
entity other than Grantor from the date hereof through the earlier of Closing
Date or the expiration of the Option Term. Grantors, Enron, the Company, NNGC
Holding, and NNGC will not, directly or indirectly, offer for sale, contract to
sell, sell, distribute, grant any option, right or warrant to purchase, suffer
any Liens upon, pledge, hypothecate or otherwise dispose of any equity interest
in the Company, NNGC Holding or NNGC, any securities convertible into, or
exercisable or exchangeable for, an equity interest in the Company, NNGC Holding
or NNGC, or any other rights to acquire an equity interest in the Company, NNGC
Holding or NNGC, except for Liens, pledges and hypothecations in the equity
interest of NNGC to secure Debt.

                  4.2. Release of Guaranty. After receipt of the Purchase Option
Exercise Notice, and prior to the Closing Date, Grantee agrees to use its
reasonable commercial best efforts to cause the release of Dynegy's guarantee,
if any, under the Bank Credit Facility,

                                      -5-
<PAGE>

including, if required, the substitution of Enron or an Affiliate of Enron as
the guarantor thereunder.

                  4.3. Affirmative Covenants Related to NNGC. Dynegy and the
Company covenant that during the Purchase Option Term, or if the Options granted
hereunder are exercised, until the Closing Date, they will cause NNGC to:

                           4.3.1.   cause all properties owned by NNGC or used
                                    or held for use in the conduct of its
                                    business to be maintained and kept in good
                                    condition, repair and working order
                                    (reasonable wear and tear excepted) and
                                    supplied with all necessary equipment and
                                    will cause to be made all necessary repairs,
                                    renewals, replacements, betterments and
                                    improvements thereof, all as in the judgment
                                    of the Board of Directors may be necessary
                                    so that the business carried on in
                                    connection therewith may be properly and
                                    advantageously conducted at all times;
                                    provided, that the foregoing shall not
                                    prevent NNGC from discontinuing the
                                    maintenance of any of such properties if
                                    such discontinuance is, in the judgment of
                                    the management of NNGC, desirable in the
                                    conduct of its business;

                           4.3.2.   preserve and keep in full force and effect
                                    the corporate existence, rights (charter and
                                    statutory), licenses and franchises of NNGC;
                                    provided, that NNGC shall not be required to
                                    preserve any such right, license or
                                    franchise if the Board of Directors shall
                                    determine that the preservation thereof is
                                    no longer desirable in the conduct of the
                                    business of NNGC as a whole;

                           4.3.3.   maintain the books, accounts and records of
                                    NNGC in accordance with GAAP;

                           4.3.4.   comply with all material legal requirements
                                    and material contractual obligations
                                    applicable to the operations and business of
                                    NNGC and pay all applicable taxes as they
                                    become due and payable; and

                           4.3.5.   permit representatives of the Grantee and
                                    its agents (including their counsel,
                                    accountants and consultants) to have
                                    reasonable access during business hours to
                                    NNGC's books, records, facilities, key
                                    personnel, officers, directors, customers,
                                    independent accountants and legal counsel to
                                    the extent that such access is not
                                    prohibited by FERC marketing affiliate
                                    rules.

                  4.4. Negative Covenants Related to NNGC. For the period
between the closing under the Option Agreement and the Closing Date under this
Agreement, Dynegy, Grantors and the Company covenant that, without the approval
of the Grantee, NNGC will not:

                                      -6-
<PAGE>

                           4.4.1.   Dividends. Directly or indirectly declare or
                                    pay, or permit any Subsidiary to declare or
                                    pay, any dividends, or make or permit any
                                    Subsidiary to make, any distributions upon
                                    any of its equity securities, other than
                                    dividends equal to NNGC's net income plus
                                    accrued and unpaid dividends on the Series A
                                    Preferred Stock;

                           4.4.2.   Redemptions. Except as provided pursuant to
                                    the terms of the Series A Preferred Stock,
                                    directly or indirectly redeem, purchase or
                                    otherwise acquire, any of NNGC's equity
                                    securities;

                           4.4.3.   Issuances. Authorize, issue, or enter into
                                    any agreement providing for the issuance
                                    (contingent or otherwise) of (x) any notes
                                    or debt securities containing equity
                                    features (including, without limitation, any
                                    notes or debt securities issued in
                                    connection with the issuance of equity
                                    securities or containing profit
                                    participation features) or (y) any equity
                                    securities (or any securities convertible
                                    into or exchangeable for any equity
                                    securities, including any warrants or stock
                                    options);

                           4.4.4.   Mergers. Merge or consolidate, or enter into
                                    an agreement providing for any merger or
                                    consolidation, with any Person if the
                                    holders of NNGC's capital stock prior to the
                                    transaction will own less than 100% of the
                                    voting power of NNGC's capital stock after
                                    the transaction;

                           4.4.5.   Sale of Assets. Except as provided in
                                    Schedule 4.4.5, sell, lease or otherwise
                                    dispose of any assets of NNGC, other than
                                    obsolete equipment or inventory and asset
                                    sales in the Ordinary Course of Business
                                    consistent with past practice not to exceed
                                    an aggregate of $20 million within any
                                    12-month period;

                           4.4.6.   Bankruptcy. Pursuant to or within the
                                    meaning of Title 11 of the United States
                                    Code or any similar federal, state or
                                    foreign law for the relief of debtors,
                                    commence a voluntary case, consent to the
                                    entry of an order for relief against it in
                                    an involuntary case, consent to the
                                    appointment of a receiver, trustee,
                                    assignee, liquidator or similar official of
                                    it or for all or substantially all of its
                                    property, or make a general assignment for
                                    the benefit of its creditors;

                           4.4.7.   Charter Amendments. Make any amendment to or
                                    waive any provision of NNGC's certificate of
                                    incorporation or bylaws, or file any
                                    resolution of the Board of Directors with
                                    the Secretary of State of Delaware, in
                                    either case which materially and adversely
                                    affects the holders of the Series A Stock;

                                      -7-
<PAGE>

                           4.4.8.   Investments and Loans. Make any investment
                                    in any Person or any loans or advances to,
                                    or guarantees for the benefit of, any
                                    Affiliate, other than loans to any wholly
                                    owned Subsidiary;

                           4.4.9.   Indebtedness. Create, incur, assume or
                                    suffer to exist, or permit any of its
                                    Subsidiaries to create, incur, assume or
                                    suffer to exist, Debt, other than (i) the
                                    Debt outstanding as of the date hereof, (ii)
                                    Debt incurred after the date hereof not
                                    exceeding $450 million in the aggregate on
                                    the terms contained in or with interest rate
                                    and prepayment provisions not substantially
                                    different from, the terms contained in that
                                    Commitment Letter dated October 31, 2001
                                    between NNGC and certain banks and (iii)
                                    Permitted Refinancing Debt;

                           4.4.10.  Capital Expenditures. Make, or permit NNGC
                                    and its Subsidiaries, taken as a whole, to
                                    make capital expenditures (including,
                                    without limitation, payments with respect to
                                    capitalized leases), (i) during the period
                                    from the date hereof through December 31,
                                    2001, totaling in excess of $40 million,
                                    (ii) during the year ending December 31,
                                    2002, totaling in excess of $115 million and
                                    (iii) thereafter, in excess of annual
                                    budgeted amounts, except in each case for
                                    additional expenditures not ordinarily
                                    classified as capital expenditures that are
                                    required to be classified as capital
                                    expenditures by applicable regulatory
                                    requirements.

                  4.5. Tax Indemnity. Dynegy shall indemnify Enron and its
Affiliates, including NNGC, against any liability for taxes of the affiliated
group of corporations filing a consolidated federal income tax return of which
Dynegy is the common parent under Treas. Reg.ss. 1.1502-6 (or similar principles
of state, local or foreign law). Procedures similar to those set forth in
Sections 8.1 and 8.3 of the Option Agreement shall apply to claims pursuant to
this Section.

         5. Representations and Warranties.

                  5.1. Representations and Warranties of Grantee. Enron and
Grantee hereby represent and warrant to Grantors as follows:

                           5.1.1.   Existence; Qualification; Subsidiaries.
                                    Grantee is a corporation duly organized,
                                    validly existing and in good standing under
                                    the laws of its jurisdiction of formation
                                    and has full power and authority to conduct
                                    its business and own and operate its
                                    properties as now conducted, owned and
                                    operated.

                           5.1.2.   Authorization and Enforceability. Grantee
                                    has the full power and authority and has
                                    taken all action necessary to permit Grantee
                                    to execute and deliver this Agreement and to
                                    carry out the terms

                                      -8-
<PAGE>

                                    hereof, and none of such actions will
                                    violate any provision of the Grantee's
                                    Certificate of Incorporation or any
                                    applicable law, regulation, order, judgment
                                    or decree or rule, or result in the breach
                                    of, or constitute a default (or an event
                                    which, with notice or lapse of time or both
                                    would constitute a default) under, any
                                    agreement, instrument or understanding to
                                    which Grantee is a party or by which it is
                                    bound. This Agreement constitutes a legal,
                                    valid and binding obligation of Grantee,
                                    enforceable against Grantee in accordance
                                    with its terms, except to the extent limited
                                    by (i) applicable bankruptcy, insolvency,
                                    reorganization, moratorium and similar laws
                                    of general application related to the
                                    enforcement of creditor's rights generally
                                    and (ii) general principles of equity.

                           5.1.3.   Investment Intent of Grantee. Grantee is
                                    acquiring the Purchase Option and, if it
                                    exercises the Purchase Option, will acquire
                                    the Option Interests and the Series A
                                    Preferred Stock for its own account for
                                    investment and not with a view to
                                    distribution.

                           5.1.4.   Sophistication and Financial Condition;
                                    Information. Grantee considers itself to be
                                    an experienced and sophisticated investor
                                    and to have such knowledge and experience in
                                    financial and business matters as are
                                    necessary to evaluate the merits and risks
                                    of an investment in the Preferred Shares and
                                    the Option Interests. Grantee is able to
                                    bear the economic risk of this investment
                                    regarding the Company, is able to hold the
                                    Option Interests and the Preferred Shares
                                    indefinitely and has a sufficient net worth
                                    to sustain a loss of its entire investment
                                    in the Company and NNGC in the event such
                                    loss should occur. Grantee (a) has been
                                    furnished with such information about Dynegy
                                    and Grantors, the Company and the Purchase
                                    Option, the Preferred Shares and the Option
                                    Interests as it has requested, (b) has made
                                    its own independent inquiry and
                                    investigation into, and based thereon, has
                                    formed an independent judgment concerning
                                    these investments and (c) is an "accredited"
                                    investor within the meaning of Regulation D
                                    of the Securities Act, as currently in
                                    effect. The Grantee acknowledges that any
                                    certificate representing the Preferred
                                    Shares or the Option Interests will bear a
                                    customary legend regarding restrictions on
                                    the transferability of such Preferred Shares
                                    or the Option Interests.

                  5.2. Representations and Warranties of Dynegy and Dynegy
Holdings. Each of Dynegy and Dynegy Holdings hereby represents and warrants to
Grantee as follows:

                           5.2.1.   Existence; Qualification; Subsidiaries.
                                    Grantors are corporations duly organized,
                                    validly existing and in good standing under
                                    the laws of the state of Delaware. Dynegy
                                    and Dynegy Holdings

                                       -9-
<PAGE>

                                    have full corporate power and authority to
                                    conduct their business and own and operate
                                    their properties as now conducted, owned and
                                    operated.

                           5.2.2.   Authorization and Enforceability. Dynegy and
                                    Dynegy Holdings have full power and
                                    authority and have taken all required
                                    corporate and other action necessary to
                                    permit each to execute and deliver this
                                    Agreement and to carry out the terms hereof,
                                    and none of such actions will violate any
                                    provision of each of their constituent
                                    documents or any applicable law, regulation,
                                    order, judgment or decree, or result in the
                                    breach of, or constitute a default (or an
                                    event which, with notice or lapse of time or
                                    both would constitute a default) under, any
                                    agreement, instrument or understanding to
                                    which any of them is a party or by which it
                                    is bound. This Agreement constitutes a
                                    legal, valid and binding obligation of each
                                    of them, enforceable against each of them in
                                    accordance with its terms, except to the
                                    extent limited by (i) applicable bankruptcy,
                                    insolvency, reorganization, moratorium and
                                    similar laws of general application related
                                    to the enforcement of creditor's rights
                                    generally and (ii) general principles of
                                    equity.

                           5.2.3.   Third-Party Approvals. Assuming the accuracy
                                    of the representations and warranties of the
                                    Grantee contained in this Agreement and
                                    except for any required filings under the
                                    HSR Act, neither Dynegy nor Dynegy Holdings
                                    are required to obtain any order, consent,
                                    approval or authorization of, or to make any
                                    declaration or filing with, any Governmental
                                    Agency or other third party (including under
                                    any state securities or "blue sky" laws) in
                                    connection with the execution and delivery
                                    of this Agreement, or the consummation of
                                    the transactions contemplated hereby.

         6. Guarantee by Dynegy of Dynegy Holdings' Obligations Hereunder.
Dynegy hereby unconditionally guarantees to Grantee the prompt, faithful and
full performance of all of the covenants and obligations of Dynegy Holdings
under the terms of this Agreement.

         7. Miscellaneous.

                  7.1. Expenses. Except as otherwise provided in the Merger
Agreement or as otherwise expressly provided herein, each of the parties hereto
shall bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
legal counsel.

                  7.2. Waiver and Amendment. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not

                                      -10-
<PAGE>

be modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.

                  7.3. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.

                  7.4. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Texas, regardless of the
Laws that might otherwise govern under applicable principles of conflicts of
law.

                  7.5. Descriptive Headings. The descriptive headings contained
herein are for convenience or reference only, are not comprehensive, and shall
not affect in any way the meaning or interpretation of this Agreement.

                  7.6. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses or sent by
electronic transmission to the telecopier number specified below:

                             If to Enron or the Grantee, to:

                             Enron Corp.
                             1400 Smith Street
                             Houston, Texas 77002
                             Attention: General Counsel
                             Facsimile: (713) 853-3129

                             with an information copy, which shall not
                             constitute notice to:

                             Vinson & Elkins L.L.P.
                             1001 Fannin, Suite 2300
                             Houston, Texas 77002-6760
                             Attention: William E. Joor, III, Esq.
                                        Scott N. Wulfe, Esq.
                             Facsimile: (713) 758-2346

                                      -11-
<PAGE>

                             If to Dynegy or Dynegy Holdings to:

                             Dynegy Inc.
                             1000 Louisiana, Suite 5800
                             Houston, Texas 77002
                             Attention: General Counsel
                             Facsimile: (713) 507-6808

                             with an information copy, which shall not
                             constitute notice to:

                             Baker Botts L.L.P.
                             One Shell Plaza
                             910 Louisiana
                             Houston, Texas 77002-4995
                             Attention: R. Joel Swanson, Esq.
                                        J. David Kirkland, Jr., Esq.
                             Facsimile: (713) 229-1522

                  7.7. Counterparts. This Agreement and any amendments hereto
may be executed in counterparts, each of which shall be deemed an original and
all of which taken together shall constitute but a single document.

                  7.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be sold, assigned or otherwise disposed
of or transferred by either of the parties hereto (whether by operation of law
or otherwise) without the prior written consent of the other party, except that
the Grantee may assign this Agreement to an Affiliate or Subsidiary of the
Grantee; provided, however, that no such assignment shall have the effect of
releasing the Grantee from its obligations hereunder and the assignee shall be
subject to all of the terms and conditions of this Agreement as if it were the
Grantee. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.

                  7.9. Further Assurances. In the event of any exercise of the
Purchase Option by the Grantee, Enron and the Grantee shall execute and deliver
all other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for by
such exercise.

                  7.10. Specific Performance. The parties hereto hereby
acknowledge and agree that the failure of any party to this Agreement to perform
its agreements and covenants hereunder will cause irreparable injury to the
other party to this Agreement for which damages, even if available, will not be
an adequate remedy. Accordingly, each of the parties hereto hereby consents to
the granting of equitable relief (including specific performance and injunctive
relief) by any court of competent jurisdiction to enforce any party's
obligations hereunder. The parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.

                                      -12-
<PAGE>

                  7.11. Complete Agreement; No Third Party Beneficiary. This
Agreement and the other documents and instruments referred to herein and therein
(i) constitutes the entire agreement and supersedes all prior agreements,
conversations, negotiations and understandings, both written and oral, between
the parties with respect to the subject matter hereof and (ii) is not intended
to confer upon any Person other than the parties hereto any rights or remedies
hereunder.

               [Remainder of this page intentionally left blank.]

                                      -13-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Purchase Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.

                                        ENRON CORP.,
                                        an Oregon corporation

                                        By: /s/ RAYMOND M. BOWEN, JR.
                                            ------------------------------------
                                        Name:   Raymond M. Bowen, Jr.
                                        Title:  Authorized Agent

                                        CGNN HOLDING COMPANY, INC.,
                                        a Delaware corporation

                                         By: /s/ DREW J. FOSSUM
                                            ------------------------------------
                                         Name:   Drew J. Fossum
                                         Title:  Authorized Agent

                                         MCTJ HOLDING CO. LLC,
                                         a Delaware limited liability company

                                         By: /s/ DREW J. FOSSUM
                                            ------------------------------------
                                         Name:   Drew J. Fossum
                                         Title:  Authorized Agent

                                         NORTHERN NATURAL GAS COMPANY,
                                         a Delaware corporation

                                         By: /s/ DREW J. FOSSUM
                                            ------------------------------------
                                         Name:   Drew J. Fossum
                                         Title:  Authorized Agent

                                      -14-
<PAGE>

                                           DYNEGY HOLDINGS INC.,
                                           a Delaware corporation

                                           By:     /s/ HUGH A. TARPLEY
                                               ---------------------------------
                                               Name:   Hugh A. Tarpley
                                               Title:  Authorized Agent

                                           DYNEGY INC.,
                                           an Illinois corporation

                                           By:     /s/ HUGH A. TARPLEY
                                               ---------------------------------
                                               Name:   Hugh A. Tarpley
                                               Title:  Authorized Agent

                                      -15-
<PAGE>
                                                                         ANNEX A

                            SCHEDULE OF DEFINED TERMS

         The following terms when used in the Option Agreement shall have the
meanings set forth below unless the context shall otherwise require:

         "Affiliate" shall mean, with respect to any Person, any other Person
that directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question; provided,
that none of Dynegy and its Affiliates shall be deemed to be an Affiliate of
Enron. For purposes of this definition of Affiliate, "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting
securities or general partnership or member interests, by contract or otherwise.
Without limiting the generality of the foregoing, a Person shall be deemed to
control any other Person in which it or any of its Affiliates owns, directly or
indirectly, a majority of the ownership interests.

         "Agreement" shall mean this Option Agreement.

         "Authorization" shall mean any and all permits, licenses,
authorizations, orders certificates, registrations or other approvals granted by
any Governmental Agency.

         "Bank Credit Facility" shall mean one or more bank credit facilities
providing credit availability to NNGC in an aggregate principal amount not to
exceed $450 million on the terms contained in, or not substantially different
from the terms contained in, that Commitment Letter dated October 31, 2001
between NNGC and certain banks.

         "Business Day" shall mean a day other than Saturday, Sunday or a
federal holiday.

         "Closing" shall have the meaning ascribed to such term in Section 3
herein.

         "Closing Date" shall have the meaning ascribed to such term in Section
3 herein.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Contingent Obligation" shall mean, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend, letter of credit or other similar
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (other than for collection or
deposit in the ordinary course of business) co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, any such
obligation for which that Person is in effect liable through any agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet, income or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation, services or lease regardless of the non-delivery or
non-furnishing thereof, in any such case if the

                                      A-1

<PAGE>

purpose or intent of such agreement is to provide assurance that such obligation
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected (in
whole or in part) against loss in respect thereof. The amount of any Contingent
Obligation shall be equal to the amount of the obligation, or portion thereof,
so guaranteed or otherwise supported.

         "Court" shall mean any court or arbitration tribunal of the United
States, any foreign country or any domestic or foreign state, and any political
subdivision thereof, and shall include the European Court of Justice.

         "Debt" shall mean, with respect to any Person, the aggregate amount of,
without duplication, (i) all obligations for borrowed money; (ii) all
obligations evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations to pay the deferred purchase price of property or
services; (iv) all capitalized lease obligations; (v) all obligations or
liabilities of others secured by a Lien on any asset owned by such person
whether or not such obligation or Liability is assumed, to the extent of the
lesser of such obligation or Liability or the book value of such asset; (vi) all
Contingent Obligations of such person; and (vii) any other obligations or
liabilities which are required by generally accepted accounting principles to be
shown as debt on a balance sheet, other than trade payables.

         "Enron Common Stock" means the common stock, no par value, of Enron.

         "Estimated Working Capital" means Grantors' good faith estimate made
within five Business Days of Closing of Working Capital on the Closing Date.

         "FERC" means the Federal Energy Regulatory Commission.

         "Final Working Capital" means the Working Capital on the close of
business on the Closing Date as determined pursuant to Section 2.6.

         "Final Working Capital Statement" has the meaning set forth in Section
2.4.

         "GAAP" means United States generally accepted accounting principles as
in effect from time to time, consistently applied.

         "Governmental Agency" means any federal, state, local, foreign or other
governmental agency, instrumentality, commission, authority, board or body.

         "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

         "Intercompany Note Receivable" means any dividend or other distribution
resulting from the cancellation by NNGC of Debt owed by Enron and its Affiliates
to NNGC.

         "Investment" as applied to any Person means (a) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest of any other Person and (b)
any capital contribution by such Person to any other Person.

                                      A-2
<PAGE>

         "Law" shall mean all laws, statutes and ordinances of the United
States, any state of the United States, any foreign country, any foreign state
and any political subdivision thereof, including all decisions of Courts having
the effect of law in each such jurisdiction.

         "Liability" means any liability or obligation (whether absolute or
contingent, liquidated or unliquidated or due or to become due).

         "Lien" means any lien, mortgage, pledge, security interest,
restriction, charge or other encumbrance.

         "Material Adverse Effect" means a material adverse effect on (a) the
business condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries or (b) the transactions contemplated by this
Agreement.

         "Merger" shall have the meaning ascribed to such term in the Merger
Agreement.

         "NNGC Holding" means NNGC Holding Company, Inc., a Delaware corporation
and wholly owned Subsidiary of the Company.

         "NNGC" means Northern Natural Gas Company, a Delaware corporation, and
its subsidiaries.

         "Notice Date" shall have the meaning ascribed to such term in Section 2
herein.

         "Option Agreement" means the Option Agreement among the parties hereto
(other than NNGC) entered into concurrently herewith.

         "Order" shall mean any judgment, order or decree of any Court or
Governmental Agency, federal, foreign, state or local, of competent
jurisdiction.

         "Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity,
quality and frequency).

         "Permitted Refinancing Debt" shall mean any Debt of NNGC or any of its
Subsidiaries issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other Debt of NNGC or any
of its Subsidiaries (other than intercompany Debt); provided that:

                  (1)      the principal amount of such Permitted Refinancing
                           Debt does not exceed the principal amount of, plus
                           accrued interest on, the Debt so extended,
                           refinanced, renewed, replaced, defeased or refunded
                           (plus the amount of necessary fees and expenses
                           incurred in connection therewith and any premiums
                           paid on the Debt so extended, refinanced, renewed,
                           replaced, defeased or refunded);

                  (2)      such Permitted Refinancing Debt has a final maturity
                           date no earlier than the final maturity date of, and
                           has a Weighted Average Life to Maturity

                                      A-3
<PAGE>

                           equal to or greater than the Weighted Average Life to
                           Maturity of, the Debt being extended, refinanced,
                           renewed, replaced, defeased or refunded;

         "Person" means any individual, partnership, joint venture, corporation,
limited liability company, trust, unincorporated organization or other entity.

         "Regulation" shall mean any rule or regulation of any Governmental
Agency having the effect of Law or of any rule or regulation of any
self-regulatory organization, such as the NYSE.

         "SEC" means the Securities and Exchange Commission.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Series A Stock" means the Series A Preferred Stock, par value $0.01
per share, of NNGC.

         "Subscription Agreement" means that certain Subscription Agreement
dated as of November 9, 2001, by and among Enron, NNGC and Dynegy, Inc., an
Illinois corporation.

         "Subsidiary," when used with respect to any Person, shall mean any
corporation, limited liability company, partnership, association or other
business entity of which (a) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
(b) if a partnership, limited liability company, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by such
Person. For purposes hereof, such Person shall be deemed to have a majority
ownership interest in a partnership, limited liability company, association or
other business entity if such Person, directly or indirectly, is allocated a
majority of partnership, limited liability company, association or other
business entity gains or losses, or is or controls the managing director or
general partner of such partnership, limited liability company, association or
other business entity.

         "Weighted Average Life to Maturity" shall mean, when applied to any
Debt at any date, the number of years obtained by dividing:

                  (1)      the sum of the products obtained by multiplying (a)
                           the amount of each then remaining installment,
                           sinking fund, serial maturity or other required
                           payments of principal, including payment at final
                           maturity, in respect thereof, by (b) the number of
                           years (calculated to the nearest one-twelfth) that
                           will elapse between such date and the making of such
                           payment; by

                  (2)      the then outstanding principal amount of such Debt.

         "Working Capital" is equal to cash, plus (a) accounts receivable, plus
(b) transportation and exchange gas receivable, plus (c) intercompany accounts
receivable plus (d) the Intercompany Note Receivable less (e) accounts payable,
less (f) transportation and exchange gas payable, less (g) accrued taxes, less
(h) accrued interest, less (i) intercompany accounts payable.

                                      A-4

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