AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
                   KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.
                               September 27, 1989


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                                TABLE OF CONTENTS


<S>                                                                                                            <C>
ARTICLE 1      DEFINITIONS................................................................................     Page

         Adjusted Capital Account.........................................................................       1
         ------------------------
         Adjusted Property................................................................................       1
         -----------------
         Affiliate........................................................................................       1
         ---------
         Agreed Allocation................................................................................       1
         -----------------
         Agreed Value.....................................................................................       1
         ------------
         Agreement........................................................................................       2
         ---------
         Assignment of Leases.............................................................................       2
         --------------------
         Available Cash...................................................................................       2
         --------------
         Book-Tax Disparity...............................................................................       2
         ------------------
         Business Day.....................................................................................       2
         ------------
         Capital Account..................................................................................       2
         ---------------
         Capital Asset....................................................................................       2
         -------------
         Capital Contribution.............................................................................       2
         --------------------
         Carrying Value...................................................................................       2
         --------------
         Certificate of Limited Partnership...............................................................       2
         ----------------------------------
         Closing Date.....................................................................................       2
         ------------
         Code.............................................................................................       2
         ----
         Combined Interest................................................................................       3
         -----------------
         Contributed Property.............................................................................       3
         --------------------
         Contributing Partner.............................................................................       3
         --------------------
         Contribution Agreement...........................................................................       3
         ----------------------
         Curative Allocation..............................................................................       3
         -------------------
         Delaware Act.....................................................................................       3
         ------------
         Departing Partner................................................................................       3
         -----------------
         Economic Risk of Loss............................................................................       3
         ---------------------
         General Partner..................................................................................       3
         ---------------
         Indemnitee.......................................................................................       3
         ----------
         Independent Committee............................................................................       3
         ---------------------
         Initial Offering.................................................................................       3
         ----------------
         Initial Offering Price...........................................................................       3
         ----------------------
         Interim Capital Transactions.....................................................................       3
         ----------------------------
         Investor Partnership.............................................................................       3
         --------------------
         Investor Partnership Agreement...................................................................       3
         ------------------------------
         Kaneb............................................................................................       3
         -----
         KPL..............................................................................................       3
         ---
         Limited Partner..................................................................................       4
         ---------------
         Liquidating Trustee..............................................................................       4
         -------------------
         LP Unit..........................................................................................       4
         -------
         Minimum Gain Attributable to Partner Nonrecourse Debt............................................       4
         -----------------------------------------------------
         Net Agreed Value.................................................................................       4
         ----------------
         Net Loss.........................................................................................       4
         --------
         Net Termination Sales Gain.......................................................................       4
         --------------------------
         Net Termination Sales Loss.......................................................................       4
         --------------------------
         Nonrecourse Built-in Gain........................................................................       4
         -------------------------
         Nonrecourse Deductions...........................................................................       5
         ----------------------
         Nonrecourse Liability............................................................................       5
         ---------------------
         Opinion of Counsel...............................................................................       5
         ------------------
         Organizational Limited Partner...................................................................       5
         ------------------------------
         Partner..........................................................................................       5
         -------
         Partner Nonrecourse Debt.........................................................................       5
         ------------------------
         Partner Nonrecourse Deductions...................................................................       5
         ------------------------------
         Partnership......................................................................................       5
         -----------
         Partnership Assets...............................................................................       5
         ------------------
         Partnership Interest.............................................................................       5
         --------------------
         Partnership Minimum Gain.........................................................................       5
         ------------------------
         Partnership Year.................................................................................       5
         ----------------
         Partnership's Accountants........................................................................       5
         -------------------------
         Percentage Interest..............................................................................       5
         -------------------
         Person...........................................................................................       5
         ------
         Pipeline System..................................................................................       5
         ---------------
         Recapture Income.................................................................................       5
         ----------------
         Recaptured Credits...............................................................................       6
         ------------------
         Reconstituted Partnership........................................................................       6
         -------------------------
         Registration Statement...........................................................................       6
         ----------------------
         Required Allocation..............................................................................       6
         -------------------
         Residual Gain....................................................................................       6
         -------------
         Residual Loss....................................................................................       6
         -------------
         Section 754 Election.............................................................................       6
         --------------------
         Securities Act...................................................................................       6
         --------------
         Special Approval.................................................................................       6
         ----------------
         Substituted Limited Partner......................................................................       6
         ---------------------------
         Terminating Capital Transactions.................................................................       6
         --------------------------------
         Unrealized Gain..................................................................................       6
         ---------------
         Unrealized Loss..................................................................................       6
         ---------------

ARTICLE 2      FORMATION OF PARTNERSHIP...................................................................       6

         2.1      Formation and Continuation..............................................................       6
                  --------------------------
         2.2      Name....................................................................................       6
                  ----
         2.3      Names and Addresses of Partners.........................................................       7
                  -------------------------------
         2.4      Principal Office of the Partnership: Registered Office and Agent........................       7
                  ----------------------------------------------------------------
         2.5      Term....................................................................................       7
                  ----

ARTICLE 3      PURPOSE....................................................................................       7

ARTICLE 4      CAPITAL ACCOUNTS; CAPITAL CONTRIBUTIONS....................................................       7

         4.1      Initial Contributions...................................................................       7
                  ---------------------
         4.2      Contributions on the Closing Date.......................................................       8
                  ---------------------------------
         4.3      Capital Accounts........................................................................       8
                  ----------------
         4.4      Interest................................................................................      10
                  --------
         4.5      No Withdrawal...........................................................................      10
                  -------------
         4.6      Loans from Partners.....................................................................      10
                  -------------------
         4.7      Record of Contributions.................................................................      10
                  -----------------------

ARTICLE 5      ALLOCATIONS AND DISTRIBUTIONS..............................................................      10

         5.1      Allocations for Capital Account Purposes................................................      10
                  ----------------------------------------
         5.2      Allocations for Tax Purposes............................................................      13
                  ----------------------------
         5.3      Requirement and Characterization of Distributions.......................................      15
                  -------------------------------------------------
         5.4      Reimbursement sand Payments.............................................................      15
                  ---------------------------

ARTICLE 6      MANAGEMENT AND OPERATION OF BUSINESS.......................................................      15

         6.1      Management..............................................................................      15
                  ----------
         6.2      Reliance By Third Parties...............................................................      16
                  -------------------------
         6.3      Compensation and Reimbursement of the General Partner...................................      17
                  -----------------------------------------------------
         6.4      Partnership Funds.......................................................................      17
                  -----------------
         6.5      Loans from the General Partner: Contracts with Affiliates...............................      17
                  ---------------------------------------------------------
         6.6      Liability of Indemnitees................................................................      18
                  ------------------------
         6.7      Indemnification.........................................................................      18
                  ---------------
         6.8      Other Matters Concerning the General Partner............................................      19
                  --------------------------------------------
         6.9      Title to Partnership Assets.............................................................      20
                  ---------------------------
         6.10     Resolution of Conflicts of Interest.....................................................      20
                  -----------------------------------
         6.11     Restrictions on General Partner's Authority.............................................      21
                  -------------------------------------------
         6.12     Outside Activities......................................................................      21
                  ------------------

ARTICLE 7      RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................................................      22

         7.1      Limitation of Liability.................................................................      22
                  -----------------------
         7.2      Management of Business..................................................................      22
                  ----------------------
         7.3      Return of Capital.......................................................................      22
                  -----------------
         7.4      Access to Information...................................................................      22
                  ---------------------

ARTICLE 8      BOOKS, RECORDS, ACCOUNTING AND REPORTS.....................................................      22

         8.1      Records and Accounting..................................................................      22
                  ----------------------
         8.2      Fiscal Year.............................................................................      23
                  -----------

ARTICLE 9      TAX MATTERS................................................................................      23

         9.1      Section 754 Allocations.................................................................      23
                  -----------------------
         9.2      Preparation of Tax Returns..............................................................      23
                  --------------------------
         9.3      Tax Elections...........................................................................      23
                  -------------
         9.4      Tax Controversies.......................................................................      23
                  -----------------
         9.5      Tax Basis and Value Determinations......................................................      23
                  ----------------------------------
         9.6      General Partner Net Worth...............................................................      23
                  -------------------------

ARTICLE 10     TRANSFER OF PARTNERSHIP INTERESTS..........................................................      24

         10.1     Transfer................................................................................      24
                  --------
         10.2     Transfer of Interests of the General Partner............................................      24
                  --------------------------------------------
         10.3     Transfer of Partnership Interests of Limited Partners...................................      24
                  -----------------------------------------------------

ARTICLE 11     ADMISSION OF PARTNERS......................................................................      24

         11.1     Admission of Substituted Limited Partners...............................................      24
                  -----------------------------------------
         11.2     Admission of Successor or Additional General Partner....................................      24
                  ----------------------------------------------------

ARTICLE 12     WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER...............................................      25

         12.1     Withdrawal or Removal of the General Partner............................................      25
                  --------------------------------------------
         12.2     Withdrawal..............................................................................      25
                  ----------
         12.3     Removal.................................................................................      26
                  -------
         12.4     Opinion of Counsel......................................................................      26
                  ------------------
         12.5     Amendment of Certificate of Limited Partnership.........................................      26
                  -----------------------------------------------
         12.6     Interest of Departing Partner and Successor.............................................      26
                  -------------------------------------------

ARTICLE 13     DISSOLUTION AND LIQUIDATION................................................................      27

         13.1     Dissolution.............................................................................      27
                  -----------
         13.2     Continuation of the Business of the Partnership.........................................      27
                  -----------------------------------------------
         13.3     Liquidation.............................................................................      28
                  -----------
         13.4     Distribution in Kind....................................................................      28
                  --------------------
         13.5     Cancellation of Certificate of Limited Partnership......................................      29
                  --------------------------------------------------
         13.6     Reasonable Time for Winding Up..........................................................      29
                  ------------------------------
         13.7     Return of Contributions.................................................................      29
                  -----------------------
         13.8     No capital Account Restoration..........................................................      29
                  ------------------------------
         13.9     Waiver of Partition.....................................................................      29
                  -------------------

ARTICLE 14     AMENDMENT OF PARTNERSHIP AGREEMENT.........................................................      29

         14.1     Amendments to be Adopted Solely by the General Partner..................................      29
                  ------------------------------------------------------
         14.2     Amendment Procedures....................................................................      30
                  --------------------

ARTICLE 15     MERGER.....................................................................................      30

         15.1     Authority...............................................................................      30
                  ---------
         15.2     Procedure for Merger or Consolidation...................................................      30
                  -------------------------------------
         15.3     Approval by Limited Partners of Merger or Consolidation.................................      31
                  -------------------------------------------------------
         15.4     Certificate of Merger...................................................................      31
                  ---------------------
         15.5     Effect of Merger........................................................................      31
                  ----------------

ARTICLE 16     GENERAL PROVISIONS.........................................................................      31

         16.1     Addresses and Notices...................................................................      31
                  ---------------------
         16.2     Titles and Captions.....................................................................      31
                  -------------------
         16.3     Pronouns and Plurals....................................................................      31
                  --------------------
         16.4     Further Action..........................................................................      31
                  --------------
         16.5     Binding Effect..........................................................................      32
                  --------------
         16.6     Integration.............................................................................      32
                  -----------
         16.7     Creditors...............................................................................      32
                  ---------
         16.8     Waiver..................................................................................      32
                  ------
         16.9     Counterparts............................................................................      32
                  ------------
         16.10    Applicable Law..........................................................................      32
                  --------------
         16.11    Invalidity of Provisions................................................................      32
                  ------------------------

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<PAGE>
            AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF

                   KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.

     This Amended and Restated  Agreement of Limited  Partnership  of Kaneb Pipe
Line Operating  Partnership,  L.P.  (herein called this  "Agreement") is entered
into by and among Kaneb Pipe Line Company,  a Delaware  corporation,  as general
partner of the Partnership, Kaneb Services, Inc., a Delaware corporation, as the
organizational  limited partner, and those other persons who become the Partners
in the Partnership as hereinafter provided.

     In consideration of the mutual covenants,  conditions and agreements herein
contained, the parties hereto hereby agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

     Unless clearly indicated to the contrary, the terms defined in this Article
1 shall, for the purposes of this Agreement, have the meanings herein specified.

     Adjusted Capital Account:  The Capital Account  maintained for each Partner
as of the end of  each  fiscal  year of the  Partnership  (a)  increased  by any
amounts  which such Partner is obligated to restore  under the  standards set by
Treasury  Regulation  Section  1.704-1(b)(2)(II)(c)  (or is deemed  obligated to
restore   under   Treasury   Regulation   Sections   1.704-1T(b)(4)(iv)(f)   and
1.704-1T(b)(4)(iv)(h)(5)  and (b)  decreased by (i) the amount of all losses and
deductions  that, as of the end of such fiscal year, are reasonably  expected to
be allocated to such Partner in subsequent  years under  Sections  704(e)(2) and
706(d) of the Code and Treasury Regulation Section  1.751-1(b)(2)(ii),  and (ii)
the amount of all  distributions  that,  as of the end of such fiscal year,  are
reasonably expected to be made to such Partner in subsequent years in accordance
with the  terms  of this  Agreement  or  otherwise  to the  extent  they  exceed
offsetting  increases to such  Partner's  Capital  Account  that are  reasonably
expected to occur during (or prior to) the year in which such  distributions are
reasonably  expected to be made (other than increases pursuant to a minimum gain
charge  back  pursuant  to  Section  5.1.4.(a)  and  5.1.4.(b).   The  foregoing
definition of Adjusted Capital Account is intended to comply with the provisions
of Treasury  Regulations Section  1.704-1(b)(2)(ii)(d)  and shall be interpreted
consistently therewith.

     Adjusted  Property:  Any  property  the  Carrying  Value of which  has been
adjusted pursuant to Section  4.3.4.(a) or 4.3.4.(b).  Once an Adjusted Property
is deemed  distributed  by, and  recontributed  to, the  Partnership for federal
income tax purposes  pursuant to Section 708 of the Code,  such  property  shall
thereafter  constitute a Contributed  Property  until the Carrying Value of such
property is further adjusted pursuant to Section 4.3.4.(a) or 4.3.4.(b).

     Affiliate: Any Person directly or indirectly controlling,  controlled by or
under  common  control with Person in question.  As used in this  definition  of
"Affiliate",  the term "control" means the possession directly,  for indirectly,
of the power to direct or cause the direction of the  management and policies of
a Person,  whether  through the ownership of voting  securities,  by contract or
otherwise.

     Agreed Allocation:  Any allocation,  other than a Required Allocation, of a
item of income,  gain,  deduction or loss pursuant to the  provisions of Section
5.1, including a Curative Allocation (if appropriate to the context in which the
term "Agreed Allocation" is used).

     Agreed Value:  Of any  Contributed  Property means the fair market value of
such property or other  consideration  at the time of contribution as determined
by the General  Partner  using such  reasonable  method of  valuation  as it may
adopt;  provided,  however,  that  the  Agreed  Value  of  any  property  deemed
contributed to the Partnership for federal income tax purposes upon  termination
and  reconstitution  thereof  pursuant  to  Section  708 of the  Code  shall  be
determined in  accordance  with Section  4.3.3.  Subject to Section  4.3.3,  the
General  Partner  shall,  in its sole  discretion,  use such  method as it deems
reasonable and appropriate to allocate the aggregate Agreed Value of Contributed
Properties  contributed to the Partnership in a single or integrated transaction
among each  separate  property  on a basis  proportional  to their  fair  market
values.

     Agreement:  This Amended and Restated Agreement of Limited Partnership,  as
it may be amended supplemented or restated from time to time.

     Assignment of Leases:  Collectively,  those two certain Assignment of Lease
Agreements dated __________________, 1989, among KPL, Kaneb and the Partnership.

     Available Cash: With respect to any calendar quarter,  means (i) the sum of
(a) all cash  receipts of the  Partnership  during such quarter from all sources
and (b) any reduction in reserves  established in prior quarters,  less (ii) the
sum of (aa) all cash  disbursements  of the  Partnership  during  such  quarter,
including,  without  limitation,  disbursements  for  operating  expenses,  debt
service  (including  the payment of principal,  premium and  interest),  capital
expenditures  and  contributions,   if  any,  to  a  subsidiary  corporation  or
partnership  (but  excluding  all  cash  distributions  to  Partners),  (bb) any
reserves  established  in such  quarter in such  amounts as the General  Partner
determines  in its  reasonable  discretion  to be  necessary or  appropriate  to
provide for the proper  conduct of the  business of the  Partnership  (including
reserves  for  future  capital   expenditures)   and  (cc)  any  other  reserves
established in such quarter in such amounts as the General Partner determines in
its  reasonable  discretion  to be necessary  because the  distribution  of such
amounts would be prohibited by applicable law or by any loan agreement, security
agreement,  mortgage,  debt instrument or other agreement or obligation to which
the  Partnership  is a party or by which it is bound or its assets are  subject.
Notwithstanding  the  foregoing,  "Available  Cash"  shall not  include any cash
receipts or reductions in reserves or take into account any  disbursements  made
or reserves established after commencement of the dissolution and liquidation of
the Partnership.

     Book-Tax  Disparity:  With respect to any item of  Contributed  Property or
Adjusted Property,  as of the date of any determination,  the difference between
the Carrying  Value of such  Contributed  Property or Adjusted  Property and the
adjusted  basis  thereof for  federal  income tax  purposes  as of such date.  A
Partner's  share  of  the  Partnership's  Book-Tax  Disparities  in  all  of its
Contributed  Property and Adjusted  Property will be reflected by the difference
between such Partner's Capital Account balance as maintained pursuant to Section
4.3 and the hypothetical  balance of such Partner's  Capital Account computed as
if it had been  maintained  strictly  in  accordance  with  federal  income  tax
accounting principles.

     Business  Day:  Monday  through  Friday of each week,  except  that a legal
holiday  recognized as such by the  Government of the United States or the State
of New York shall not be regarded as a Business Day.

     Capital Account:  The Capital account  maintained for a Partner pursuant to
Section 4.3.

     Capital Asset:  Any asset on the  Partnership's  balance sheet,  other than
inventory, accounts receivable or any other current asset and assets disposed of
in connection with normal retirements or replacements.

     Capital Contribution: Any cash, cash equivalents or the Net Agreed Value of
Contributed  Property which a Partner contributes to the Partnership pursuant to
Section 4.1, 4.2, 4.3 or 12.6.2(b).

     Carrying  Value:  (a) With respect to a  Contributed  Property,  the Agreed
Value of such  property  reduced  (but  not  below  zero)  by all  depreciation,
amortization  and cost  recovery  deductions  charged to the  Partner's  Capital
Accounts,  and (b) with respect to any other Partnership property,  the adjusted
basis of such property for federal  income tax  purposes,  all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Section 4.3.4.(a) and 4.3.4.(b), and to reflect changes,
additions  or other  adjustments  to the  Carrying  Value for  dispositions  and
acquisitions  of  Partnership  Assets,  as  deemed  appropriate  by the  General
Partner.

     Certificate of Limited Partnership: The Certificate of Limited Partnership,
and any and all amendments thereto and restatements thereof,  filed on behalf of
the Partnership as required under the Delaware Act.

     Closing  Date:  Has the  meaning  set  forth  in the  Investor  Partnership
Agreement.

     Code: The Internal Revenue Code of 1986, as amended and hereafter  amended,
and  applicable  regulations  thereunder.  Any  reference  herein to a  specific
section or sections  of the Code or  applicable  regulations  shall be deemed to
include a reference to any corresponding provision of future law or regulation.

     Combined  Interest:  Has the meaning set forth in the Investor  Partnership
Agreement.

     Contributed Property:  Each property or other asset, in such form as may be
permitted  by the  Delaware  Act,  but  excluding  cash  and  cash  equivalents,
contributed to the  Partnership  (or deemed  contributed  to the  Partnership on
termination and  reconstitution  thereof  pursuant to Section 708 of the Code or
otherwise).  Once the  Carrying  Value of a  Contributed  Property  is  adjusted
pursuant  to Section  4.3.4.(a),  such  property  shall no longer  constitute  a
Contributed Property but shall be deemed an Adjusted Property for such purposes.

     Contributing   Partner:   Any  Partner  contributing  (or  deemed  to  have
contributed on the termination and reconstitution of the Partnership pursuant to
Section 708 of the Code or otherwise) Contributed Property to the Partnership.

     Contribution   Agreement:   That  certain   Contribution   Agreement  dated
____________,  1989 among KPL, the  Partnership,  the Investor  Partnership  and
Kaneb wherein KPL agrees (i) to contribute to the Partnership certain designated
assets and the Partnership agrees to assume certain  designated  liabilities and
(ii) to  contribute  its  limited  partner  interest in the  Partnership  to the
Investor Partnership in exchange for LP Units.

     Curative Allocation:  Any allocation of an item of income, gain, deduction,
loss or credit pursuant to the provisions of Section 5.1.4.(i).

     Delaware Act: The Delaware Revised Uniform Limited  Partnership Act (6 Del.
C.ss.17-101, et seq.), as it may be amended from time to time, and any successor
to such statute.

     Departing  Partner:  A former General Partner,  as of the effective date of
any withdrawal or removal of such General Partner pursuant to Section 12.1.

     Economic  Risk of Loss:  Has the meaning  set forth in Treasury  Regulation
Section 1.704-1T(b)(4)(iv)(k)(1).

     General  Partner:  KPL or  any  successor  or  additional  General  Partner
admitted pursuant to Section 11.2

     Indemnitee:  The General Partner,  any Departing Partner, any Person who is
or was an Affiliate of the General Partner or any Departing Partner,  any person
who is or was an officer, director,  employee,  partner, agent or trustee of the
General Partner or any Departing Partner or any Affiliate of the General Partner
or Departing Partner,  or any Person who is or was serving at the request of the
General Partner or any Departing Partner or any Affiliate of the General Partner
or the Departing Partner as a director,  officer,  employee,  partner,  agent or
trustee of another Person.

     Independent Committee: A committee of the Board of Directors of the General
Partner composed entirely of directors who are neither officers nor employees of
Kaneb, the General Partner or any of their Affiliates.

     Initial  Offering:  Has the meaning set forth in the  Investor  Partnership
Agreement.

     Initial  Offering  Price:  Has  the  meaning  set  forth  in  the  Investor
Partnership Agreement.

     Interim  Capital  Transactions:  Has the meaning set forth in the  Investor
Partnership Agreement.

     Investor  Partnership:  Kaneb Pipe Line Partners,  L.P., a Delaware limited
partnership established pursuant to the Investor Partnership Agreement.

     Investor  Partnership  Agreement:  The Amended and  Restated  Agreement  of
Limited  Partnership  of  the  Investor   Partnership  as  it  may  be  amended,
supplemented or restated from time to time.

     Kaneb: Kaneb Services, Inc., a Delaware corporation.


     KPL: Kaneb Pipe Line Company, a Delaware corporation.

     Limited Partner:  The  Organizational  Limited Partner and each Substituted
Limited Partner.

     Liquidating Trustee: The General Partner,  unless dissolution was caused by
an event  described  in  Section  13.1.2,  then the  liquidator  or  liquidating
committee chosen pursuant to Section 13.3.

     LP Unit: Has the meaning set forth in the Investor Partnership Agreement.

     Minimum  Gain  Attributable  to  Partner   Nonrecourse  Debt:  That  amount
determined in accordance  with the  principles  of Treasury  Regulation  Section
1.704-1T(b)(4)(iv)(h)(6).

     Net Agreed Value: Means, (a) in the case of any Contributed  Property,  the
Agreed Value of such property  reduced by any liabilities  either assumed by the
Partnership  upon such  contribution  or to which such  property is subject when
contributed  and (b) in the case of any  property  distributed  to a Partner  or
Assignee by the Partnership,  the Partnership's  Carrying Value of such property
at the time such property is  distributed,  reduced by any  indebtedness  either
assumed by such  Partner or  Assignee  upon such  distribution  or to which such
property is subject at the time of  distribution,  in either case, as determined
under Section 752 of the Code.

     Net  Income:   For  any  taxable  period,   the  excess,  if  any,  of  the
Partnership's  items of income and gain (other than those items  attributable to
dispositions  constituting  Terminating  Capital  Transactions) for such taxable
period  over the  Partnership's  items of loss and  deduction  (other than those
items   attributable   to   dispositions    constituting   Terminating   Capital
Transactions) for such taxable period.  The items included in the calculation of
Net Income shall be determined  in  accordance  with Section 4.3.2 and shall not
include any items  specially  allocated  under  Section  5.1.4.  Once an item of
income,  gain,  loss  or  deduction  that  has  been  included  in  the  initial
computation  of Net Income is subjected to a Required  Allocation  or a Curative
Allocation,  Net Income or the  resulting  Net Loss,  whichever the case may be,
shall be recomputed without regard to such item.

     Net Loss: For any taxable period,  the excess, if any, of the Partnership's
items of loss and deduction (other than those items attributable to dispositions
constituting  Terminating Capital Transactions) for such taxable period over the
Partnership's  items of income and gain (other than those items  attributable to
dispositions  constituting  Terminating  Capital  Transactions) for such taxable
period. The items included in the calculation of Net Loss shall be determined in
accordance  with  Section  4.3.2  and  shall not  include  any  items  specially
allocated under Section 5.1.4.  Once an item of income,  gain, loss or deduction
that has been included in the initial  computation of Net Loss is subjected to a
Required  Allocation  or a Curative  Allocation,  Net Loss or the  resulting Net
Income,  whichever the case may be, shall be recomputed  without  regard to such
item.

     Net Termination  Sales Gain:  Means,  for each  Partnership Year or shorter
period,  the sum, if positive,  of all items of gain or loss  recognized  by the
Partnership from Terminating Capital Transactions  occurring in such Partnership
Year  or  shorter  period.  The  items  included  in  the  determination  of Net
Termination  Sales Gain shall be determined in accordance with Section 4.3.2 and
shall not include any items of income,  gain or loss specially  allocated  under
Section  5.1.4.  Once an item of income,  gain or loss that has been included in
the initial computation of Net Termination Sales Gain is subjected to a Required
Allocation or a Curative Allocation, Net Termination Sales Gain or the resulting
Net  Termination  Sales Loss,  whichever  the case may be,  shall be  recomputed
without regard to such item.

     Net Termination  Sales Loss:  Means,  for each  Partnership Year or shorter
period,  the sum, if negative,  of all items of gain or loss  recognized  by the
Partnership from Terminating Capital Transactions  occurring in such Partnership
Year  or  shorter  period.  The  items  included  in  the  determination  of Net
Termination  Sales Loss shall be determined in accordance with Section 4.3.2 and
shall not include any items of income,  gain or loss specially  allocated  under
Section  5.1.4.  Once an item of gain or loss  that  has  been  included  in the
initial  computation  of Net  Termination  Sales Loss is subjected to a Required
Allocation or a Curative Allocation, Net Termination Sales Loss or the resulting
Net  Termination  Sales Gain,  whichever  the case may be,  shall be  recomputed
without regard to such item.

     Nonrecourse  Built-in Gain: With respect to any  Contributed  Properties or
Adjusted Properties that are subject to a mortgage or negative pledge securing a
Nonrecourse Liability, the amount of any taxable gain that would be allocated to
the Partners  pursuant to Sections  5.2.2.(a)(A),  5.2.2.(b)(A)  or 5.2.2.(d) if
such properties were disposed of in a taxable  transaction in full  satisfaction
of such liabilities and or no other consideration.

     Nonrecourse Deductions: Any and all items of loss, deduction or expenditure
(described in Section  705(a)(2)(B)  of the Code) that,  in accordance  with the
principles   of   Treasury   Regulation   Section   1.704-1T(b)(4)(iv)(b),   are
attributable to a Nonrecourse Liability.

     Nonrecourse  Liability:  Has the meaning  set forth in Treasury  Regulation
Section 1.704-1T(b)(4)(iv)(k)(3).

     Opinion  of  Counsel:  A written  opinion  of  counsel  (who may be regular
counsel to the  Partnership  or the General  Partner)  acceptable to the General
Partner.

     Organizational Limited Partner: The investor Partnership.

     Partner: A General Partner or a Limited Partner.

     Partner  Nonrecourse Debt: Has the meaning set forth in Treasury Regulation
Section 1.704-1T(b)(4)(iv)(k)(4).

     Partner  Nonrecourse  Deductions:  Any and all items of loss,  deduction or
expenditure  (described in Section  705(a)(2)(B) of the Code) that in accordance
with the principles of Treasury Regulation Section 1.704-1T(b)(4)(iv)(h)(3), are
attributable to a Partner Nonrecourse Debt.

     Partnership:  The  Limited  partnership  heretofore  formed  and  continued
pursuant to this Agreement, and any successor thereto.

     Partnership Assets: All assets,  whether tangible or intangible and whether
real, personal or mixed, at any time owned by the Partnership.

     Partnership  Interest:  As to any  Partner,  all of the  interests  of that
Partner  in the  Partnership  including,  without  limitation,  his (i) right to
distributive  share of the profits and losses of the  Partnership  (ii) right to
distributive  share of  Partnership  Assets  and (iii)  rights,  of the  General
Partner, to participate in the management of the affairs of the Partnership.

     Partnership  Minimum Gain:  That amount  determined in accordance  with the
principles   of   Treasury   Regulation   Sections   1.704-1T(b)(4)(iv)(a)   and
1.704-1T(b)(4)(iv)(c).

     Partnership Year: Means the fiscal year of the Partnership,  which shall be
the calendar year.

     Partnership's  Accountants:  Such nationally recognized firm of independent
public accountants as is selected, from time to time, by the General Partner.

     Percentage Interest: Means, as of the date of determination,  (a) as to the
General Partner in its capacity as such, 1% and (b) as to the Limited  Partners,
an aggregate of 99%.

     Person:  Any  individual,  corporation,   association,  partnership,  joint
venture, trust, estate or other entity or organization.

     Pipeline System:  Shall mean the refined petroleum products pipeline assets
and related  terminal  facilities that will be transferred to the Partnership by
KPL on the Closing Date, as such  facilities  may be maintained or improved from
time to time.

     Recapture Income: Any gain recognized by the Partnership  (computed without
regard to any  adjustment  required by Sections 734 or 743 of the Code) upon the
disposition  of  any  property  or  asset  of the  Partnership,  which  gain  is
characterized  as  ordinary  income  because  it  represents  the  recapture  of
deductions previously taken with respect to such property or asset.

     Recaptured  Credits:  Credits  previously  taken against federal income tax
liability  which are  required  to be  recaptured  upon the  disposition  of any
property by the Partnership  prior to the end of such property's  useful life in
determining the amount of the credit relating thereto.

     Reconstituted Partnership: The new limited partnership formed in the manner
described in Section 13.2.

     Registration  Statement:   Has  the  meaning  set  forth  in  the  Investor
Partnership Agreement.

     Required   Allocation:   Any  allocation  (or  limitation  imposed  on  any
allocation)  of an item of income,  gain,  deduction or loss pursuant to (a) the
proviso-clause   of  Section  5.1.2.(b)  and  Sections   5.1.4.(a),   5.1.4.(b),
5.1.4.(c),  5.1.4.(d), 5.1.4.(e), 5.1.4.(f), and 5.1.4.(h), such allocations (or
limitations  thereon)  being  directly or  indirectly  required by the  Treasury
Regulations promulgated under Section 704(b) of the Code.

     Residual Gain or Residual  Loss:  Any item of gain or loss, as the case may
be, of the Partnership recognized for federal income tax purposes resulting from
a sale,  exchange or other  disposition  of a  Contributed  Property or Adjusted
Property,  to the extent such item of gain or loss is not allocated  pursuant to
Sections 5.2.2.(a)(A) or 5.2.2.(b)(A) to eliminate Book-Tax Disparities.

     Section 754 Election: An election under Section 754 of the Code relating to
the  adjustment  of the  adjusted  basis of  Partnership  Assets as  provided in
Sections 734 and 743 of the Code.

     Securities  Act: The Securities Act of 1933, as amended,  and any successor
to such statute.

     Special  Approval:  Approval  by a majority  of the members of the Board of
Directors  of the General  Partner that  includes  approval by a majority of the
members of the Independent Committee.

     Substituted  Limited Partner: A Person who is admitted as a Limited Partner
in the Partnership pursuant to Section 11.1 and will all the rights of a Limited
Partner  and who is shown as a Limited  Partner on the books and  records of the
Partnership.

     Terminating Capital Transactions: Has the meaning set forth in the Investor
Partnership Agreement.

     Unrealized  Gain:  Attributable to a Partnership  property means, as of any
date of  determination,  the excess,  if any,  of the fair market  value of such
property  as of such  date of  determination  over  the  Carrying  Value of such
property as of such date of  determination  (prior to any  adjustment to be made
pursuant to Section 4.3.4 as of such date).

     Unrealized  Loss:  Attributable to a Partnership  property means, as of any
date of  determination,  the  excess,  if any,  of the  Carrying  Value  of such
property as of such date of  determination  (prior to any  adjustment to be made
pursuant to Section  4.3.4 as of such date) over the fair  market  value of such
property as of such date of determination.

                                    ARTICLE 2

                            FORMATION OF PARTNERSHIP

     2.1 Formation and Continuation.  The General Partner and the Organizational
Limited Partner have previously formed the Partnership as a limited  partnership
pursuant to the  provisions of the Delaware Act and hereby amend and restate the
original  Agreement  of  Limited  Partnership  in its  entirety.  Subject to the
provisions of this Agreement, the General Partner and the Organizational Limited
Partner hereby continue the Partnership as a limited partnership pursuant to the
provisions  of the  Delaware  Act.  Except as expressly  provided  herein to the
contrary,  the rights and  obligations  of the Partners and the  administration,
dissolution and termination of the Partnership shall be governed by the Delaware
Act. The Partnership interest of each Partner shall be personal property for all
purposes.

     2.2 Name. The name of the  Partnership  shall be "Kaneb Pipe Line Operating
Partnership,  L.P." The business of the Partnership shall be conducted under the
name of "Kaneb  Pipe  Line  Operating  Partnership,  L.P." or such  other  name,
including  the name of the  General  Partner or any  Affiliate,  as the  General
Partner  may  from  time  to  time  determine.  The  words  "L.P."  or  "Limited
Partnership" or similar words or letters shall be included in the  Partnership's
name  where  necessary  for  the  purpose  of  complying  with  the  laws of any
jurisdiction  that so requires.  The General  Partner in its sole discretion may
change the name of the  Partnership  at any time and from time to time and shall
notify the Limited Partners of such change in the next regular  communication to
Limited Partners.  Notwithstanding the foregoing,  unless otherwise permitted by
Kaneb,  in the event that neither KPL nor any  Affiliate of Kaneb is the general
partner of the Partnership,  the Partnership shall change its name to a name not
including  "Kaneb"  and shall  cease  using the name  "Kaneb" or other  names or
symbols associated therewith.

     2.3.  Names  and  Addresses  of  Partners.   The  General  Partner  of  the
Partnership is KPL. The business address of the General Partner is 2400 Lakeside
Boulevard,  Richardson,  Texas 75082. The General Partner may change its address
at any time and from time to time.  The date  upon  which  the  General  Partner
became a Partner in the  Partnership is as set forth in the books and records of
the Partnership.  The names and business,  residence or mailing addresses of the
Limited Partners and the date on which each such Person became a Limited Partner
are as set forth from time to time in the books and records of the Partnership.

     2.4. Principal Office of the Partnership;  Registered Office and Agent. The
principal office of the Partnership shall be located at 2400 Lakeside Boulevard,
Richardson,  Texas 75082.  The General Partner may, at any time and from time to
time,  change  the  location  of the  Partnership's  principal  office  and  may
establish such additional  offices of the Partnership as the General Partner may
from time to time  determine.  The  General  Partner  shall  provide the Limited
Partners with written notice of any change in the Partnership's principal office
within 90 days after such change.  The name of the registered  agent for service
of process on the Partnership in Delaware is The Corporation Trust Company.  The
address of the registered agent and the address of the registered  office of the
Partnership  in Delaware  is  Corporation  Trust  Center,  1209  Orange  Street,
Wilmington, New Castle County, Delaware 19801.

     2.5. Term. The Partnership  commenced upon the filing of the Certificate of
Limited  Partnership  in  accordance  with the Delaware Act on September  _____,
1989,  and shall continue in existence  until December 31, 2039,  unless earlier
terminated in accordance with any provisions of this Agreement.

                                    ARTICLE 3

                                     PURPOSE

     The purpose and nature of the business to be  conducted by the  Partnership
shall be (i) to engage in the common carrier transportation of refined petroleum
products and related activities through ownership of the Pipeline System and, in
connection therewith, to operate, maintain and improve the Pipeline System, (ii)
to  conduct  any other  business  that may be  lawfully  conducted  by a limited
partnership  organized  pursuant  to the  Delaware  Act and (iii) to do anything
necessary or incidental to the foregoing.  The General Partner has no obligation
or duty to the Partnership or the Limited Partners to propose or approve, and in
its sole  discretion  may  decline  to propose or  approve,  the  conduct by the
Partnership  pursuant  to  clause  (ii)  above  of any  business  other  than as
contemplated by clause (i) above.  The Partnership  shall be empowered to do any
and all acts and things necessary, appropriate, proper, advisable, incidental to
or  convenient  for the  furtherance  and  accomplishment  of the  purposes  and
business described herein and for the protection and benefit of the Partnership.

                                    ARTICLE 4

                     CAPITAL ACCOUNTS; CAPITAL CONTRIBUTIONS

     4.1.  Initial  Contributions.  The  initial  Capital  Contributions  to the
Partnership   consisted  of  $1,000,  which  the  Partners  contributed  to  the
Partnership  upon  the  formation  of  the  Partnership.   The  General  Partner
contributed  $10 in cash and  received in exchange  therefor a 1.0%  Partnership
interest as General Partner and the Organizational  Limited Partner  contributed
$990 in cash and  received in exchange  therefor a 99%  Partnership  interest as
Limited Partner in the Partnership.

     4.2. Contributions on the Closing Date.

          4.2.1. On the Closing Date, KPL shall  contribute to the  Partnership,
     as  provided  in  the  Contribution  Agreement,   the  property  and  other
     considerations   described  in  the  Contribution  Agreement  as  being  so
     contributed  and shall  receive  an  exchange  therefor  (i) a  Partnership
     Interest  as  a  Limited  Partner  equal  to  the  percentage  obtained  by
     multiplying  .99 by the  quotient  of (A) the Net  Agreed  Value  of  KPL's
     Capital  Contribution  as a Limited  Partner (as provided below) divided by
     (B) such amount plus $990, and (ii) a Partnership  interest and a credit to
     its capital  account as General  Partner in the amount required to increase
     such  capital  account to an amount  equal to 1% of the  aggregate  capital
     accounts  of all the  Partners  after  giving  effect  to the  issuance  of
     Partnership Interests contemplated by clause (i) of this Section 4.2.1.

          4.2.2. The Net Agreed Value of KPL's Capital Contribution  pursuant to
     Section 4.2.1 shall be an amount equal to the Initial Offering Price of one
     Senior Preference Unit times 13,950,918.  Of such Net Agreed Value, (i) the
     amount deemed  contributed as General  Partner shall be the amount required
     to increase the General  Partner's Capital Account as General Partner to an
     amount equal to 1% of the  aggregate  Capital  Accounts of all the Partners
     after giving effect to the issuance of Partnership  interests  contemplated
     by clause  (i) of  Section  4.2.1 and (ii) the  balance  of such Net Agreed
     Value shall be deemed to be contributed as a Limited Partner.

     4.3. Capital Accounts.

          4.3.1.  The  Partnership  shall  maintain  for each Partner a separate
     Capital Account in accordance with the rules of Treasury Regulation Section
     1.704-1(b)(2)(iv).  Such Capital  Account shall be increased by the (i) the
     amount of all Capital Contributions made by such Partner to the Partnership
     pursuant to this  Agreement  and (ii) all items of  Partnership  income and
     gain  (including  income and gain exempt from tax)  computed in  accordance
     with Section 4.3.2 and allocated to such Partner pursuant to Article 5, and
     decreased  by (x) the amount of cash or Net Agreed  Value of all actual and
     deemed  distributions  of cash or property made to such Partner pursuant to
     this Agreement and (y) all items of Partnership deduction and loss computed
     in accordance with Section 4.3.2 and allocated to such Partner  pursuant to
     Section 5.1. In addition,  any payment by the General  Partner of rent with
     respect to the leases  subject to the Assignment of Leases shall be treated
     as a Capital Contribution by the General Partner.

          4.3.2.  For  purposes  of computing  the amount of any item of income,
     gain,  deduction or loss to be reflected in the Partners' Capital Accounts,
     the determination, recognition and classification of any such item shall be
     the same as its  determination,  recognition and classification for federal
     income tax purposes (including any method of depreciation, cost recovery or
     amortization used for that purpose, provided that:

               (a) All fees and other  expenses  incurred by the  Partnership to
          promote  the  sale of (or to  sell) a  Partnership  Interest  that can
          neither be deducted nor  amortized  under  Section 709 of the Code, if
          any, shall, for purposes of Capital Account maintenance, be treated as
          an item of  deduction  at the time such fees and  other  expenses  are
          incurred and shall be allocated among the Partners pursuant to Section
          5.1.

               (b) Except as otherwise  provided in Treasury  Regulation Section
          1.704-1  (b)(2)(iv)(m),  the computation of all items of income, gain,
          loss and deduction  shall be made without regard to any election under
          Section 754 of the Code which may be made by the  Partnership  and, as
          to those items  described in Section  705(a)(1)(B) or 705 (a)(2)(B) of
          the  Code,  without  regard  to the  fact  that  such  items  are  not
          includable  in gross income or are neither  currently  deductible  nor
          capitalized  for  federal  income  tax  purposes.  To  the  extent  an
          adjustment to the adjusted tax basis of any Partnership Asset pursuant
          to  Section  734(b)  or 743(b) of the Code is  required,  pursuant  to
          Treasury  Regulation  Section  1.704-1(b)(2)(iv)(m),  to be taken into
          account in determining Capital Accounts, the amount of such adjustment
          to the  Capital  Accounts  shall be treated as an item of gain (if the
          adjustment  increases  the  basis  of  the  asset)  or  loss  (if  the
          adjustment decreases the basis of the asset).

               (c)  Any  income,  gain  or  loss  attributable  to  the  taxable
          disposition of any Partnership  property shall be determined as if the
          adjusted  basis of such property as of such date of  disposition  were
          equal in amount to the  Partnership's  Carrying  Value with respect to
          such property as of such date.

               (d) In accordance with the  requirements of Section 704(b) of the
          Code, any deductions for  depreciation,  cost recovery or amortization
          attributable to any Contributed Property shall be determined as if the
          adjusted  basis of such  property,  on the date it was acquired by the
          Partnership  were equal to the Agreed Value of such property.  Upon an
          adjustment  pursuant  to Section  4.3.4 to the  Carrying  Value of any
          Partnership  property  subject  to  depreciation,   cost  recovery  or
          amortization,  any  further  deductions  for such  depreciation,  cost
          recovery  or  amortization  attributable  to such  property  shall  be
          determined (A) as if the adjusted basis of such property were equal to
          the  Carrying  Value  of  such  property  immediately  following  such
          adjustment  and (B) using a rate of  depreciation,  cost  recovery  or
          amortization  derived  from the same  method and useful  life (or,  if
          applicable,  the  remaining  useful  life) as is applied  for  federal
          income tax purposes;  provided, however, that, if the asset has a zero
          adjusted  basis for federal  income tax purposes,  depreciation,  cost
          recovery or  amortization  deductions  shall be  determined  using any
          reasonable method that the General Partner may adopt.

               (e) If the  Partnership's  adjusted  basis in depreciable or cost
          recovery  property is reduced for federal income tax purposes pursuant
          to  Section  48(q)(1)  or  48(q)(3)  of the Code,  the  amount of such
          reduction  shall,  solely  for  purposes  hereof,  be  deemed to be an
          additional  depreciation  or cost recovery  deduction in the year such
          property  is  placed  in  service  and  shall be  allocated  among the
          Partners  pursuant  to  Section  5.1.  Any  restoration  of such basis
          pursuant  to  Section  48(q)(2)  of the  Code  shall,  to  the  extent
          possible, be allocated in the same manner to the Partners to whom such
          deemed deduction was allocated.

          4.3.3. Generally, a transferee of a Partnership Interest shall succeed
     to that portion of the Capital  Account of the  Transferor  relating to the
     Partnership  Interest  so  transferred;  provided,  however,  that,  if the
     transfer causes a termination of the Partnership under Section 708(b)(1)(B)
     of the  Code,  the  Partnership's  properties  shall be deemed to have been
     distributed  in  liquidation  of  the   Partnership  to  the  Partners  and
     recontributed by such Partners in  reconstitution  of the  Partnership.  In
     such event,  the Carrying  Values of the  Partnership  properties  shall be
     adjusted immediately prior to such deemed distribution  pursuant to Section
     4.3.4.(b) and such Carrying  Values shall then constitute the Agreed Values
     of such properties.  The Capital Accounts of such reconstituted Partnership
     shall be maintained in accordance with the principles of this Section 4.3.

               4.3.4. (a) Consistent with the provisions of Treasury  Regulation
          Section 1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership
          Interests for cash or Contributed  Property,  the Capital  Accounts of
          all  Partners  and the  Carrying  Value of each  Partnership  property
          immediately  prior  to such  issuance  shall  be  adjusted  upward  or
          downward  to  reflect  any   Unrealized   Gain  or   Unrealized   Loss
          attributable to such Partnership  property, as if such Unrealized Gain
          or Unrealized  Loss had been recognized on an actual sale of each such
          Partnership  property  immediately prior to such issuance and had been
          allocated  to the  Partners at such time  pursuant to Section  5.1. In
          determining  Unrealized  Gain or Unrealized  Loss for purposes of this
          Section  4.3.4(a) the  aggregate  cash amount and fair market value of
          all  Partnership   assets   (including   cash  or  cash   equivalents)
          immediately  prior to the issuance of Partnership  Interests  shall be
          determined  by the General  Partner  using such  reasonable  method of
          valuation as it may adopt.  The General  Partner  shall  allocate such
          aggregate value among the assets of the Partnership (in such manner as
          it determines in its sole  discretion to be reasonable) to arrive at a
          fair market value for individual properties.

               (b)   In   accordance    with   Treasury    Regulation    Section
          1.704-1(b)(2)(iv)(f),  immediately  prior  to  any  actual  or  deemed
          distribution to a Partner of any Partnership property (other than cash
          or cash  equivalents),  the Capital  Accounts of all  Partners and the
          Carrying Value of each Partnership  property shall,  immediately prior
          to any such  distribution,  be adjusted  upward or downward to reflect
          any  Unrealized   Gain  or  Unrealized   Loss   attributable  to  such
          Partnership  property,  as if such  Unrealized Gain or Unrealized Loss
          had been  recognized in a sale of such property  immediately  prior to
          such  distribution  for an amount equal to its fair market value,  and
          had been allocated to the Partners,  at such time, pursuant to Section
          5.1. Any  Unrealized  Gain or  Unrealized  Loss  attributable  to such
          property  shall be  allocated  in the same  manner as Net  Termination
          Sales Gain or Net  Termination  Sales Loss pursuant to Section  5.1.3;
          provided, however, that in making any such allocation, Net Termination
          Sales Gain or Net  Termination  Sales Loss actually  realized shall be
          allocated first. In determining Unrealized Gain or Unrealized Loss for
          purposes of this Section 4.3.4.(b), the aggregate cash amount and fair
          market  values  of all  Partnership  assets  (including  cash  or cash
          equivalents)  immediately prior to a distribution  shall be determined
          and  allocated  by the  Liquidator  using such  reasonable  methods of
          valuation as it may adopt.

     4.4.  Interest.  No interest  shall be paid by the  Partnership  on Capital
Contributions or on balances in Partners' Capital Accounts.

     4.5. No  Withdrawal.  No Partner  shall be entitled to withdraw any part of
his Capital  Contribution or his Capital Account or to receive any  distribution
from the Partnership, except as provided in Articles 5, 12 and 13.

     4.6. Loans from Partners.  Loans by a Partner to the Partnership  shall not
constitute  Capital  Contributions.  If any Partner  shall  advance funds to the
Partnership in excess of the amounts required  hereunder to be contributed by it
to the capital of the Partnership,  the making of such excess advances shall not
result in any increase in the amount of the Capital Account of such Partner. The
amount of any such excess advances shall be a debt obligation of the Partnership
to such Partner and shall be payable or collectible  only out of the Partnership
Assets in accordance  with the terms and conditions upon which such advances are
made.

     4.7.  Record of  Contributions.  The books and  records of the  Partnership
shall  include true and full  information  regarding the amount of cash and cash
equivalents  and a  designation  and  statement  of the Net  Value of any  other
property contributed by each Partner to the Partnership.

                                    ARTICLE 5

                          ALLOCATIONS AND DISTRIBUTIONS

     5.1. Allocations for Capital Account Purposes.  For purposes of maintaining
the  Capital  Accounts  and in  determining  the  rights of the  Partners  among
themselves,  the  Partnership's  items  of  income,  gain,  loss  and  deduction
(computed  in  accordance  with  Section  4.3.2)  shall be  allocated  among the
Partners in each taxable year (or portion thereof) as provided herein below.

          5.1.1. Net Income.  After giving effect to the special allocations set
     forth in Section 5.1.4, all items of income, gain, loss and deduction taken
     into  account in  computing  Net Income for such  taxable  period  shall be
     allocated in the same manner as such Net Income is allocated hereunder.

               (a) First, 100% to the General Partner until aggregate Net Income
          allocated to the General  Partner  pursuant to this Section  5.1.1.(a)
          for the current  taxable year and all previous  taxable years is equal
          to the aggregate Net Loses allocated to the General  Partner  pursuant
          to Section 5.1.2.(c) for all previous taxable years;

               (b) Second, 100% to the Limited Partners and the General Partner,
          in accordance with their respective  Percentage  Interests,  until the
          aggregate Net Income allocated to the Limited Partners and the General
          Partner  pursuant to this Section  5.1.1.(b)  for the current  taxable
          year and all  previous  taxable  years is equal to the  aggregate  Net
          Losses  allocated  to the Limited  Partners  and the  General  Partner
          pursuant to Section 5.1.2.(b) for all previous taxable years; and

               (c)  Third,  the  balance,  if any shall be  allocated  among the
          Partners in accordance with their respective Percentage Interests.

          5.1.2.  Net Loss.  After giving effect to the special  allocations set
     forth in Section 5.1.4, all items of income, gain, loss and deduction taken
     into  account  in  computing  Net  Loss for such  taxable  period  shall be
     allocated in the same manner as such Net Loss is allocated hereunder:

               (a) First,  100% to the General Partner and the Limited Partners,
          until the  aggregate  Net Losses  allocated  pursuant to this  Section
          5.1.2(a) for the current  taxable year and all previous  taxable years
          is  equal to the  aggregate  Net  Income  allocated  to such  Partners
          pursuant to Section 5.1.1.(c) for all previous taxable years.

               (b) Second, 100% to the Limited Partners and the General Partner,
          in accordance with their respective  Percentage  Interests;  provided,
          that Net Loss shall not be allocated pursuant to this Section 5.1.2(b)
          to the extent that such allocation  would cause any Limited Partner to
          have a deficit  balance in its adjusted  Capital Account at the end of
          such taxable year (or  increase  any existing  deficit  balance in its
          Adjusted Capital Account);

               (c) Third, the balance, if any, 100% to the General Partner.

          5.1.3.  Net Termination  Gains and Losses.  After giving effect to the
     special  allocations set forth in Section 5.1.4, all items of gain and loss
     taken  into  account  in  computing  Net  Termination  Sales  Gain  or  Net
     Termination  Sales Loss for such  taxable  period shall be allocated in the
     same manner as such Net  Termination  Sales Gain or Net  Termination  Sales
     Loss is allocated hereunder. All allocations under this Section 5.1.3 shall
     be made after  Capital  Account  balances  have been  adjusted by all other
     allocations  provided under this Section 5.1 and after all distributions of
     Available  Cash have been made with respect to the taxable period ending on
     the liquidation date.

               (a) If a Net  Termination  Sales  Gain is  recognized  (or deemed
          recognized  pursuant to Section 4.3.4) such Net Termination Sales Gain
          shall  be  allocated  between  the  General  Partner  and the  Limited
          Partners in the following manner:

                    First,  to each  Partner  having a deficit  balance  in such
               Partner's  Capital  Account to the extend of and in proportion to
               such deficit balance; and

                    Second, 100% to the General Partner and the Limited Partners
               in accordance with their respective Percentage Interests.

               (b) If a Net  Termination  Sales  Loss is  recognized  (or deemed
          recognized pursuant to Section 4.3.4), such Net Termination Sales Loss
          shall be allocated to the Partners in the following manner:

                    (i)  First,  100% to the  General  Partner  and the  Limited
               Partners  in  proportion  to, and to the extent of, the  positive
               balances in their respective Capital Accounts; and

                    (ii)  Second,  the  balance,  if any,  100%  to the  General
               Partner.

          5.1.4.  Special  Allocations.  Notwithstanding  any other provision of
     this Section 5.1, the following special  allocations shall be made for such
     taxable period:

               (a)  Partnership  Minimum Gain  Chargeback.  Notwithstanding  any
          other  provision  of this  Section  5.1, if there is a net decrease in
          Partnership  Minimum Gain during any Partnership  taxable period, each
          Partner shall be allocated  items of  Partnership  income and gain for
          such period (and, if necessary,  subsequent periods) in proportion to,
          and to the  extend  of,  an  amount  equal to the  greater  of (A) the
          portion of such  Partner's  share of the net  decrease in  Partnership
          Minimum  Gain  during  such  taxable  period  that  is  allocable  (in
          accordance  with  the  principles  set  forth in  Treasury  Regulation
          Section  1.704-1T(b)(4)(iv)(e)(2))  to the  disposition of Partnership
          property  subject  to  one  or  more  Nonrecourse  Liabilities  of the
          Partnership,  or (B) the deficit  balance in such  Partner's  Adjusted
          Capital  Account  at the  end of  such  taxable  period  (modified  as
          appropriate,  by Treasury Regulation Section  1.704T(b)(4)(iv)(e)(2)).
          The items to be so allocated  shall be determined  in accordance  with
          Treasury Regulation Section 1.704-1T(b)(4)(iv)(e) and, for purposes of
          this Section 5.1.4,  each Partner's  Adjusted  Capital Account balance
          shall be  determined,  and the  allocation  of income or gain required
          hereunder  shall be effected,  prior to the  application  of any other
          allocations  pursuant  to this  Section  5.1.4  with  respect  to such
          taxable period.  This Section 5.1.4.(a) is intended to comply with the
          Partnership Minimum Gain chargeback requirement in Treasury Regulation
          Section  1.704-1T(b)(4)(iv)(e)  and shall be interpreted  consistently
          therewith;

               (b)   Chargeback   of  Minimum  Gain   Attributable   to  Partner
          Nonrecourse Debt. Notwithstanding the other provisions of this Section
          5.1 (other  than  Section  5.1.4(a)),  if there is a net  decrease  in
          Minimum  Gain  Attributable  to Partner  Nonrecourse  Debt  during any
          Partnership  taxable period,  any Partner with a share of Minimum Gain
          Attributable  to Partner  Nonrecourse  Debt at the  beginning  of such
          taxable period shall be allocated items of Partnership income and gain
          for such period (and, if necessary,  subsequent periods) in proportion
          to,  and to the  extent of an amount  equal to the  greater of (A) the
          portion of such  Partner's  share of the net  decrease  in the Minimum
          Gain  Attributable to Partner  Nonrecourse  Debt that is allocable (in
          accordance  with  the  principles  set  forth in  Treasury  Regulation
          Section  1.704-1T(b)(4)(iv)(h)(4))  to the  disposition of Partnership
          property subject to such Partner  Nonrecourse Debt, or (B) the deficit
          balance in such Partner's  Adjusted Capital Account at the end of such
          taxable period  (Modified,  as  appropriate,  by Treasury  Regulations
          Section 1.704-1T(b)(4)(iv)(h)(4)).  The items to be so allocated shall
          be determined in a manner  consistent  with the principles of Treasury
          Regulation  Section  1.704-1T(b)(4)(iv)(e)  and,  for purposes of this
          Section 5.1.4,  each Partner's  Adjusted Capital Account balance shall
          be determined and the allocation of income or gain required  hereunder
          shall be effected,  prior to the application of any other  allocations
          pursuant to this Section  5.1.4,  other than Section  5.1.4.(a),  with
          respect to such taxable period.  This Section 5.1.4.(b) is intended to
          comply with the chargeback of items of income and gain  requirement in
          Treasury  Regulation  Section  1.704-1T(b)(4)(iv)(h)(4)  and  shall be
          interpreted consistently therewith;

               (c)  Qualified  Income  Offset.  Except as  provided  in  Section
          5.1.4.(a)  and  5.1.4.(b),  in  the  event  any  Partner  unexpectedly
          receives any adjustments,  allocations or  distributions  described in
          Treasury      Regulation       Sections       1.704-1(b)(2)(ii)(d)(4),
          1.704-1(b)(2)(ii)(d)(5)  or  1.704-1(b)(2)(ii)(d)(6),   (modified,  as
          appropriate, by Treasury Regulation Sections  1.704-1T(b)(4)(iv)(e)(3)
          and  1.704-1T(b)(4)(iv)(h)(4)),  items of Partnership  income and gain
          shall be  specially  allocated to such Partner in an amount and manner
          sufficient  to  eliminate,  to the  extent  required  by the  Treasury
          Regulations,  the deficit  balance,  if any, in its  Adjusted  Capital
          Account created by such  adjustments,  allocations or distributions as
          quickly as possible;  provided,  that an  allocation  pursuant to this
          Section  5.1.4.(c)  shall be made only if and to the extent  that such
          Partner would have a deficit  balance in its Adjusted  Capital Account
          after all other  allocations  provided  in this  Section 5.1 have been
          tentatively  made  as if  this  Section  5.1.4.(c)  was  not  in  this
          Agreement;

               (d) Gross  Income  Allocations.  In the event any  Partner  has a
          deficit  balance in its Capital  Account at the end of any Partnership
          taxable  period  that is in excess of the sum of (A) the  amount  such
          Partner is obligated  to restore  pursuant to any  provisions  of this
          Agreement and (B) the amount such Partner is deemed to be obligated to
          restore pursuant to the penultimate  sentences of Treasury  Regulation
          Sections  1.704-1T(b)(4)(iv)(f)  and  1.704-1T(b)(4)(iv)(h)(5),   such
          Partner shall be specially allocated items of Partnership gross income
          and gain in the  amount  of such  excesses  as  quickly  as  possible;
          provided,  that an allocation pursuant to this Section 5.1.4 (d) shall
          be made only if and to the  extent  that  such  Partner  would  have a
          deficit balance in its Capital Account in excess of such sum after all
          other  allocations   provided  for  in  this  Section  5.1  have  been
          tentatively  made as if Section  5.1.4.(c) and this Section  5.1.4.(d)
          were not in this Agreement;

               (e)  Nonrecourse  Deductions.   Nonrecourse  Deductions  for  any
          taxable  period  shall be allocated to the Partners in the same ratios
          that Net Income or Net Losses,  as the case may be, is  allocated  for
          the taxable year. If the General Partner  determines in its good faith
          discretion  that  the  Partnership's  Nonrecourse  Deductions  must be
          allocated in a different ratio to satisfy the safe harbor requirements
          of the Treasury  Regulations  promulgated  under Section 704(b) of the
          Code, the General  Partner is  authorized,  upon notice to the Limited
          Partners,  to revise the prescribed  ratio to the numerically  closest
          ratio which does satisfy such requirements;

               (f)   Partner   Nonrecourse   Deductions.   Partner   Nonrecourse
          Deductions  for any  taxable  period  shall be  allocated  100% to the
          Partner  that  bears the  Economic  Risk of Loss with  respect  to the
          Partner Nonrecourse Debt to which such Partner Nonrecourse  Deductions
          are  attributable  in  accordance  with Treasury  Regulations  Section
          1.704-1T(b)(4)(iv)(h).  If more than one  Partner  bears the  Economic
          Risk of Loss with respect to a Partner  Nonrecourse Debt, such Partner
          Nonrecourse Deductions attributable thereto shall be allocated between
          or amoung such  Partners in  accordance  with the ratios in which they
          share such Economic Risk of Loss;

               (g) Nonrecourse Liabilities.  For purposes of Treasury Regulation
          Section  1.752-1T(e)(ii)(C),   the  Partners  agree  that  Nonrecourse
          Liabilities of the  Partnership in excess of the sum of (A) the amount
          of  Partnership  Minimum Gain and (B) the total amount of  Nonrecourse
          Built-in Gain shall be allocated among the Partners in accordance with
          their respective Percentage Interests;

               (h) Code Section 754 Adjustments.  To the extent an adjustment to
          the adjusted tax basis of any  Partnership  asset  pursuant to Section
          734(b)  or  743(b)  of  the  Code  is  to be  taken  into  account  in
          determining  Capital  Accounts,  the amount of such  adjustment to the
          Capital Accounts treated as an item of gain or loss shall be specially
          allocated  to the Partners in a manner  consistent  with the manner in
          which their Capital  Accounts are required to be adjusted  pursuant to
          Treasury Regulation Section 1.704-1(b)(2)(iv)(m).

               (i) Curative Allocation.

                    (A) Notwithstanding any other provision of this Section 5.1,
               other than the Required  Allocations,  The  Required  Allocations
               shall be taken into account in making the Agreed  Allocations  so
               that, to the extent possible,  the net amount of items of income,
               gain,  loss and deduction  allocated to each Partner  pursuant to
               the Required  Allocations and the Agreed  Allocations,  together,
               shall be equal to the net  amount of such  items  that would have
               been allocated to each Partner under the Agreed  Allocations  had
               the  required   Allocations  and  this  Curative  Allocation  not
               otherwise been provided in this Section 5.1.  Notwithstanding the
               preceding  sentence,   Required   Allocations   relating  to  (1)
               Nonrecourse  Deductions shall not be taken into account except to
               the extent that there has been a decrease in Partnership  Minimum
               Gain and (2) Partner  Nonrecourse  Deductions  shall not be taken
               into account  except to the extent that there has been a decrease
               in  Minimum  Gain  Attributable  to  Partner  Nonrecourse  Debts.
               Allocations  pursuant to this Section  5.1.4.(i)(A) shall only be
               made with  respect  to  Required  Allocations  to the  extent the
               General Partner reasonably  determines that such allocations will
               otherwise be inconsistent  with the economic  agreement among the
               Partners.   Further,   allocations   pursuant  to  this   Section
               5.1.4.(i)(A)  shall  be  deferred  with  respect  to  allocations
               pursuant  to clauses (1) and (2) hereof to the extent the General
               Partner reasonably determines that such allocations are likely to
               be offset by subsequent Required Allocations;

                    (B) The General  Partner shall have  reasonable  discretion,
               with respect to each taxable period,  to (1) apply the provisions
               of  Section  5.1.4.(i)(A)  in  whatever  order is most  likely to
               minimize the economic  distortions  that might  otherwise  result
               from the  Required  Allocations,  and (2) divide all  allocations
               pursuant to Section  5.1.4(i)(A)  amoung the Partners in a manner
               that is likely to minimize such economic distortions.

               (j) Rental  Deductions.  In the event that the General  Partner's
          Capital Account is credited as a result of a payment  described in the
          last sentence of Section 4.3.1, the General Partner shall be allocated
          the rental deduction attributable to such payment.

     5.2 Allocations for Tax Purposes.

          5.2.1.  Except as otherwise  provided  herein,  for federal income tax
     purposes,  each item of income, gain, loss and deduction shall be allocated
     among the  Partners in the same manner as its  correlative  item of income,
     gain,  loss or deduction  (computed in  accordance  with Section  4.3.2) is
     allocated pursuant to Section 5.1.

          5.2.2. In an attempt to eliminate Book-Tax Disparities attributable to
     a Contributed  Property or Adjusted Property,  items of income, gain, loss,
     depreciation  and cost recovery  deductions  shall be allocated for federal
     income tax purposes among the Partners as follows:

               (a)  (A)  In the  case  of a  Contributed  Property,  such  items
          attributable  thereto  shall be  allocated  among the  Partners in the
          manner  provided  under  Section  704(c) of the Code that  takes  into
          account the  variation  between the Agreed Value of such  property and
          its  adjusted  basis at the time of  contribution;  and (B)  except as
          otherwise provided in Section 5.2.2.(d),  any item of Residual Gain or
          Residual  Loss  attributable  to  a  Contributed   Property  shall  be
          allocated  among the  Partners in the same  manner as its  correlative
          item of gain or loss is allocated pursuant to Section 5.1.

               (b) (A) In the case of an Adjusted Property, such items shall (1)
          first, be allocated among the Partners in a manner consistent with the
          principles  of  Section  704(c) of the Code to take into  account  the
          Unrealized Gain or Unrealized  Loss  attributable to such property and
          the allocations  thereof  pursuant to Section  4.3.4.(a) or 4.3.4.(b),
          and  (2)  second,   in  the  event  such  property  was  originally  a
          Contributed  Property,  be  allocated  among the  Partners in a manner
          consistent  with  Section  5.2.2.(a)(A);  and (B) except as  otherwise
          provided in Section  5.2.2.(d),  any item of Residual Gain or Residual
          Loss attributable to an Adjusted Property shall be allocated among the
          Partners in the same manner as its correlative item of gain or loss is
          allocated pursuant to Section 5.1.

               (c) Except as otherwise provided in Section 5.2.2.(d),  all other
          items of income, gain, loss and deduction shall be allocated among the
          Partners in the same manner as their  correlative item of gain or loss
          is allocated pursuant to Section 5.1.

               (d) Any  items  of  income,  gain,  loss or  deduction  otherwise
          allocable under Section 5.2.2.(a)(B),  5.2.2.(b)(B) or 5.2.2.(c) shall
          be subject to allocation by the General Partner in a manner designated
          to eliminate, to the maximum extent possible,  Book-Tax Disparities in
          a Contributed  Property or Adjusted Property otherwise  resulting from
          the applications of the "ceiling"  limitation (under Section 704(c) of
          the Code or Section  704(c)  principles) to the  allocations  provided
          under Section 5.2.2.(a)(A) or 5.2.2.(b)(A).

          5.2.3.  For  proper  administration  of the  Partnership  and  for the
     preservation of uniformity of the LP Units of the Investor  Partnership (or
     any  class or  classes  thereof),  the  General  Partner  shall  have  sole
     discretion  to (i)  adopt  such  conventions  as it  deems  appropriate  in
     determining  the amount of  depreciation,  amortization  and cost  recovery
     deductions;  (ii) make special  allocations for federal income tax purposes
     of income  (including  gross  income) or  deductions;  and (iii)  amend the
     provisions of this Agreement as appropriate  (x) to reflect the proposal or
     promulgation of Treasury Regulations under Section 704(b) or Section 704(c)
     of the Code or (y)  otherwise to preserve or achieve  uniformity  of the LP
     Units of the Investor  Partnership (or any class or classes  thereof).  The
     General Partner may adopt such conventions,  make such allocations and make
     such  amendments to this Agreement as provided in this Section 5.2.3,  only
     if such  conventions,  allocations or amendments  would not have a material
     adverse  effect on the Partners,  the holders of any class or classes of LP
     Units  of  the  Investor   Partnership   issued  and   outstanding  or  the
     Partnership,  and if such allocations are consistent with the Principles of
     Section 704 of the Code.

          5.2.4.  The General  Partner in its sole  discretion  may determine to
     depreciate  the portion of an adjustment  under Section  743(b) of the Code
     attributable to unrealized  appreciation  in any Adjusted  Property (to the
     extent of the unamortized  Book-Tax  Disparity) using a predetermined  rate
     derived  from the  depreciation  method  and  useful  life  applied  to the
     Partnership's  common basis of such property,  despite the inconsistency of
     such approach with proposed  Treasury  Regulation  Section  1.168-2(n)  and
     Treasury Regulation Section 1.167(c)-1(a)(6).  If the General Partner later
     determines  that such reporting  position cannot  reasonably be taken,  the
     General  Partner  may  adopt a  depreciation  convention  under  which  all
     purchasers acquiring LP Units of the Investor Partnership in the same month
     would receive depreciation,  based upon the same applicable rate as if they
     had  purchased a direct  interest  in the  Partnership's  property.  If the
     General Partner chooses not to utilize such aggregate  method,  the General
     Partner may use any other  reasonable  depreciation  convention to preserve
     the uniformity of the intrinsic tax  characteristics of any LP Units of the
     Investor  Partnership  that would not have a material adverse effect on the
     Limited  Partners or the Record Holders of any class or classes of LP Units
     of the Investor Partnership.

          5.2.5.  Any  gain  allocated  to the  Partners  upon the sale or other
     taxable disposition of any Partnership Asset shall, to the extent possible,
     after taking into account other  required  allocations  of gain pursuant to
     this  Section  5.2  be  characterized  as  Recapture  Income  in  the  same
     proportions and to the same extent as such Partners have been allocated any
     deductions  directly or  indirectly  giving rise to the  treatment  of such
     gains as Recapture Income.

          5.2.6.  All  items  of  income,   gain,  loss,  deduction  and  credit
     recognized by the Partnership for federal income tax purposes and allocated
     to  the  Partners  in  accordance  with  the  provisions  hereof  shall  be
     determined  without  regard to any election  under  Section 754 of the Code
     which  may be  made  by  the  Partnership;  provided,  however,  that  such
     allocations  once made,  shall be adjusted as necessary or  appropriate  to
     take into account those  adjustments  permitted or required by Sections 734
     or 743 of the Code.

          5.2.7.  Each item of  Partnership  income,  gain,  loss and  deduction
     attributable to a transferred  Partnership  Interest of the General Partner
     or the  Limited  Partners  shall,  for  federal  income  tax  purposes,  be
     determined  on an annual basis and prorated on a monthly basis and shall be
     allocated to the Partners as of the opening of the New York Stock  Exchange
     on the first Business Day of each month; provided, however, that (i) except
     as otherwise  provided in clause (ii), such items for the period  beginning
     on the  Closing  Date and  ending on the last day of the month in which the
     Closing Date occurs shall be allocated to Partners as of the opening of the
     New York Stock  Exchange on the first  Business Day of the next  succeeding
     month or (ii) if the Over-allotment Option is exercised, such items for the
     period  beginning  on the  Closing  Date and  ending on the last day of the
     month in which the Second Time of Delivery (as defined in the  Underwriting
     Agreement (as defined in the Investor Partnership  Agreement)) occurs shall
     be  allocated  to the  Partners  as of the  opening  of the New York  Stock
     Exchange  on the  first  Business  Day of the next  succeeding  month;  and
     provided,  further, that gain or loss on a sale or other disposition of any
     Partnership  Assets other than in the ordinary  course of business shall be
     allocated to the Partners as of the opening of the New York Stock  Exchange
     on the  first  business  Day of the  month  in which  such  gain or loss is
     recognized for federal income tax purposes. The General Partner may revise,
     alter or  otherwise  modify such  methods of  allocation  as it  determines
     necessary,  to the extent  permitted or required by Section 706 of the Code
     and the regulations or rulings promulgated thereunder.

          5.2.8. The General Partner shall amend or supplement this Article 5 to
     provide for the allocation of any item of income,  gain, loss, deduction or
     credit for federal,  state or local income tax purposes for which provision
     is not  otherwise  made  herein  in the  manner  that the  General  Partner
     determines to be reasonable,  taking into account the  requirements  of the
     Code.

          5.2.9. Notwithstanding any other provision of this Section 5.2, if the
     Internal  Revenue  Service is  successful in asserting an adjustment to the
     taxable  income  of the  General  Partner  and,  as a  result  of any  such
     adjustment,  the  Partnership is entitled to a deduction for federal income
     tax purposes with respect to any portion of such adjustment, such deduction
     shall be allocated to the General Partner.

     5.3.  Requirement and  Characterization  of  Distributions.  Within 45 days
following  the end of each  calendar  quarter (or  following the period from the
Closing Date to December  31,  1989) and amount equal to 100% of Available  Cash
with respect to such quarter (or period) shall be distributed by the Partnership
to the Partners in accordance  with their  Percentage  Interests.  The foregoing
shall not be deemed to  require  any  distribution  of cash if and to the extent
such  distribution  would  be  prohibited  by  applicable  law  or by  any  loan
agreement, security agreement, mortgage, debt instruments or any other agreement
or obligation to which the  Partnership is a party or by which it is bound or to
which its assets are subject.

     5.4.  Reimbursements and Payments.  Amounts payable as reimbursement of the
General  Partner  pursuant to Section 6.3 or amounts payable to any Person other
than  in his  capacity  as a  Partner,  such  as for  services  rendered,  goods
purchased or money borrowed,  shall not be treated as distributions for purposes
of this Article 5.

                                    ARTICLE 6

                      MANAGEMENT AND OPERATION OF BUSINESS

     6.1. Management.

          6.1.1. Except as otherwise  expressly provided in this Agreement,  all
     decisions  respecting any matter set forth herein or otherwise affecting or
     arising out of the conduct of the business of the Partnership shall be made
     by the General  Partner,  and the General  Partner shall have the exclusive
     right and full  authority  to manage,  conduct,  control  and  operate  the
     Partnership's  business  and effect the  purposes  and  provisions  of this
     Agreement.  Except as otherwise  expressly provided in this Agreement,  the
     General Partner shall have full authority to do all things on behalf of the
     Partnership  deemed  necessary  or  desirable  by it in the  conduct of the
     business of the Partnership,  including without limitation,  (i) the making
     of  any   expenditures,   the  borrowing  of  money,  the  guaranteeing  of
     indebtedness   and  other   liabilities,   the  issuance  of  evidences  of
     indebtedness  and the incurring of any  obligations it deems  necessary for
     the conduct of the activities of the  Partnership;  (ii) the making of tax,
     regulatory and other filings,  or rendering of periodic or other reports to
     governmental  or other agencies  having  jurisdiction  over the business or
     assets of the Partnership;  (iii) the acquisition,  disposition,  mortgage,
     pledge,  encumbrance,  hypothecation  or  exchange  of  any  assets  of the
     Partnership or the merger or other  combination of the Partnership  with or
     into another  entity (all of the  foregoing  subject to any prior  approval
     which may be required by Section  6.1.l;  (iv) the use of the assets of the
     Partnership (including,  without limitation,  cash on hand) for any purpose
     consistent  with the terms of this  Agreement and on any terms it sees fit,
     including  without  limitation,   the  financing  of  the  conduct  of  the
     operations  of the  Partnership,  the lending of funds to other persons and
     the repayment of obligations of the  Partnership;  (v) the  negotiation and
     execution on any terms  deemed  desirable  in its sole  discretion  and the
     performance of any  contracts,  conveyances  or other  instruments  that it
     considers useful or necessary to the conduct of the Partnership  operations
     or  the  implementation  of its  powers  under  this  Agreement;  (vi)  the
     distribution  of  Partnership  cash;  (vii) the  selection and dismissal of
     employees (including,  without limitation,  employees having titles such as
     "president,"  "vice  president,"  "secretary" and  "treasurer") and agents,
     outside  attorneys,  accountants,   consultants  and  contractors  and  the
     determination  of their  compensation  and  other  terms of  employment  or
     hiring;  (viii) the  maintenance  of such  insurance for the benefit of the
     Partnership and the Partners as it deems necessary or appropriate; (ix) the
     formation of, or  acquisition  of an interest in, and the  contribution  of
     property to, any further limited or general partnerships, joint ventures or
     other relationships that it deems desirable; (x) the control of any matters
     affecting  the rights and  obligations  of the  Partnership,  including the
     conduct of litigation and the incurring of legal expense and the settlement
     of claims and litigation;  and (xi) the lending or borrowing of money,  the
     assumption  or guarantee of, or other  contracting  for,  indebtedness  and
     other  liabilities,  the  issuance of  evidences  of  indebtedness  and the
     securing of same by mortgage,  deed of trust or other lien or  encumbrance,
     the  bringing  and  defending  of  actions  at law  or in  equity  and  the
     indemnification of any Person against  liabilities and contingencies to the
     extent permitted by law.

          6.1.2.  Each of the  Partners  and each other Person who may acquire a
     Partnership Interest hereby approves,  ratifies and confirms the execution,
     delivery  and  performance  by the  parties  thereof  to  the  Underwriting
     Agreement, the Contribution Agreement,  the Conveyance and Assignment,  the
     Assignment of Leases and the other agreements described in the Registration
     Statement  and agrees that the General  Partner is  authorized  to execute,
     deliver and perform the  above-mentioned  agreements and  transactions  and
     such other agreements described in the Registration  Statement on behalf of
     the Partnership  without any further act,  approval or vote of the Partners
     or any other Person who may acquire a Partnership Interest  notwithstanding
     any other provision of this  Agreement,  the Delaware Act or any applicable
     law, rule or regulations. None of the execution, delivery or performance by
     the General Partner, the Partnership or any Affiliate of any of them of any
     agreement  authorized or permitted under this Agreement shall  constitute a
     breach by the General  Partner of any duty that the General Partner may own
     the  Partnership  or the Limited  Partners or any other  Persons under this
     Agreement or of any duty stated or implied by law or equity.

          6.1.3.  The General Partner shall cause to be filed the Certificate of
     Limited  Partnership  as required by the Delaware Act and shall cause to be
     filed such other  certificates  or  documents  as may be  required  for the
     formation,   continuation,   qualification   and  operation  of  a  limited
     partnership  (or a partnership  in which the limited  partners have limited
     liability)  in the  State of  Delaware  or any  other  state  in which  the
     Partnership  elects to do business  or own  property.  The General  Partner
     shall  file  any  necessary   amendments  to  the  Certificate  of  Limited
     Partnership,   including,  without  limitation,  amendments  to  reflect  a
     successor or additional  General Partner admitted pursuant to Section 11.2,
     and shall  otherwise use its best efforts to do all things  (including  the
     appointment  of registered  agents of the  Partnership  and  maintenance of
     registered offices of the Partnership)  requisite to the maintenance of the
     Partnership as a limited partnership (or a partnership in which the limited
     partners have limited liability) under the laws of the State of Delaware or
     any other  state in which the  Partnership  may elect to do business or own
     property.  Where  applicable law so permits,  the General  Partner may omit
     from certificates filed in the State of Delaware and in states in which the
     Partnership  elects to do  business or own  property  all  information  not
     required by law,  including the names and  addresses of Partners,  or state
     such  information  in the aggregate  rather than on an  individual  Partner
     basis.  Except as provided in Section 7.4.1,  the General Partner shall not
     be  required,  before or after  filing,  to  deliver  or mail a copy of the
     Certificate of Limited  Partnership or any amendment thereto to any Limited
     Partner or Record Holder.

     6.2. Reliance By Third Parties. Notwithstanding any other provision of this
Agreement to the contrary, no lender, purchaser or other Person dealing with the
Partnership  shall be required to look to the application of proceeds  hereunder
or to verify any  representation  by the General Partner as to the extent of the
interest in Partnership Assets that the General Partner is entitled to encumber,
sell or otherwise  use, and any such lender,  purchaser or other Person shall be
entitled to rely exclusively on the representations of the General Partner as to
its authority to enter into such arrangements and shall be entitled to deal with
the General Partner,  without the joinder of any other Person, as if the General
Partner were the sole party in interest therein,  both legally and beneficially.
Each Limited  Partner  hereby waives any and all defenses or other remedies that
may be  available  against  such  lender,  purchaser or other Person to contest,
negate or disaffirm  any action of the General  Partner in  connection  with any
such arrangement.  In no event shall any Person dealing with the General Partner
or the General Partner's representative with respect to any business or property
of the  Partnership  be obligated to ascertain  that the terms of this Agreement
have been  complied  with,  or be  obligated  to inquire  into the  necessity or
expediency of any act or action of the General Partner or the General  Partner's
representative;   and  every  contract,   agreement,  deed,  mortgage,  security
agreement,  promissory  note or other  instrument  or  document  executed by the
General  partner or the General  partner's  representative  with  respect to any
business or property of the Partnership shall be conclusive evidence in favor of
any and every Person relying thereon or claiming thereunder that (i) at the time
of the  execution  and delivery  thereof,  this  Agreement was in full force and
effect,  (ii) such  instrument or document was duly executed in accordance  with
the terms and provisions of this  Agreement and is binding upon the  Partnership
and (iii) the General Partner or the General Partner's  representative  was duly
authorized and empowered to execute and deliver any and every such instrument or
document for and on behalf of the Partnership.

     6.3. Compensation and Reimbursement of the General Partner.

          6.3.1.  Except as otherwise  provided in this Section 6.3, the General
     Partner shall not be compensated for its services as general partner of the
     Partnership.

          6.3.2.  The General  Partner  shall be  reimbursed  for all  expenses,
     disbursements,  and  advances  incurred  or made  in  connection  with  the
     organization of the Partnership  and the  qualification  of the Partnership
     and the General Partner to do business.

          6.3.3.  The General Partner shall be reimbursed on a monthly basis, or
     such  other  basis  as the  General  Partner  may  determine  in  its  sole
     discretion,  for (i) all direct and indirect expenses it incurs or makes on
     behalf of the Partnership  (including amounts paid to any Person to perform
     services for the Partnership) and (ii) the portion of the General Partner's
     or its Affiliate's legal,  accounting,  utilities,  investor communication,
     telephone, secretarial, travel, entertainment, bookkeeping, reporting, data
     processing,  office  rent and other  office  expenses  (including  overhead
     charges),  salaries,  fees and other  compensation  and benefit expenses of
     employees,   officers  and  directors,  other  administrative  or  overhead
     expenses and all other direct and indirect  administrative  and  incidental
     expenses,  in each case  necessary  or  appropriate  to the  conduct of the
     Partnership's business (including,  without limitation,  expenses allocated
     to the  General  Partner by its  Affiliates).  The  General  Partner  shall
     determine  such fees and expenses that are allocated to the  Partnership in
     any reasonable manner in its sole discretion.  Such reimbursements shall be
     in addition  to any  reimbursement  to the  General  Partner as a result of
     indemnification pursuant to Section 6.7.

     6.4.  Partnership Funds. The funds of the Partnership shall be deposited in
such account or accounts as are designated by the General  Partner.  The General
Partner  may, in its sole  discretion,  deposit  funds of the  Partnership  in a
central  account  maintained  by or in the name of the  General  Partner  or the
Partnership  in which  funds of the  Investor  Partnership  are also  deposited,
provided that at all times books of account are maintained which show the amount
of funds of the Partnership on deposit in such account.  All withdrawals from or
charges  against such  accounts  shall be made by the General  Partner or by its
officers or agents.  Funds of the  Partnership  may be invested as determined by
the General Partner, except in connection with acts otherwise prohibited by this
Agreement.

     6.5.  Loans  from  the  General   Partner:   Contracts   with   Affiliates.

          6.5.1.  The General  Partner or any Affiliate  thereof may lend to the
     Partnership funds needed by the Partnership for such periods of time as the
     General Partner may determine;  provided, however, that the General Partner
     or such Affiliate may not charge the Partnership interest at a rate greater
     than the lesser of (i) the actual interest cost (including  points or other
     financing  charges or fees) that the General  Partner or such  Affiliate is
     required to pay on funds borrowed by it from commercial  banks and (ii) the
     rate (including  points or other  financing  charges or fees) that would be
     charged  the  Partnership  (without  reference  to  the  General  Partner's
     financial  abilities  or  guaranties)  by unrelated  lenders on  comparable
     loans.  The  Partnership   shall  reimburse  the  General  Partner  or  any
     Affiliate,  as the case may be, for any costs  incurred by it in connection
     with the  borrowing  of  funds  obtained  by the  General  Partner  or such
     Affiliate and loaned to the Partnership.  The Investor Partnership may lend
     or contribute to the Partnership, and the Partnership may borrow funds from
     the Investor Partnership,  on terms and conditions  established at the sole
     discretion  of the  General  Partner.  The  foregoing  authority  shall  be
     exercised by the General Partner in its reasonable discretion and shall not
     create  any  right or  benefit  in favor of the  Partnership  or any  other
     Person. The Partnership may not lend funds to the General Partner or any of
     its  Affiliates.   For  purposes  of  this  Section  6.5.1,   the  Investor
     Partnership shall not bee deemed to be an Affiliate of the General Partner.

          6.5.2. The General Partner may itself,  or may enter into an agreement
     with an  Affiliate  of the  General  Partner  to,  render  services  to the
     Partnership. Any service rendered to the Partnership by the General partner
     or any such Affiliate shall be on terms that are fair and reasonable to the
     Partnership.

          6.5.3.  The General  Partner or any of its Affiliates may use or lease
     property  (including,  but not limited  to,  office  equipment,  computers,
     vehicles,  aircraft and office space) of the  Partnership,  and the General
     Partner or such  Affiliate  will  reimburse  the  Partnership  based on the
     incremental cost to the Partnership of such usage.

          6.5.4.  Neither the General  Partner nor any of its  Affiliates  shall
     sell,  transfer or convey any property  to, or purchase any property  from,
     the  Partnership,  directly or indirectly,  except pursuant to transactions
     that are fair and reasonable to the Partnership;  provided,  however,  that
     the  requirements  of this Section 6.5.4 shall be deemed to be satisfied as
     to the  transactions  effected  pursuant to Section 4.2,  the  Contribution
     Agreement, the Conveyance and Assignment and the Assignment of Leases.

     6.6. Liability of Indemnitees.

          6.6.1.  No  Indemnitee  shall be  liable to the  Partnership,  Limited
     Partners or any Persons who have  acquired any interests in LP Units of the
     Investor Partnership,  whether as Limited Partners or otherwise, for losses
     sustained  or  liabilities  incurred  as a result of any act or omission if
     such Indemnitee acted in good faith and in a manner it reasonably  believed
     to be in, or not opposed to, the best interests of the  Partnership  and if
     such  act or  omission  did not  constitute  gross  negligence  or  willful
     misconduct on the part of such Indemnitee.

          6.6.2.  The General  Partner may exercise any of the powers granted to
     it by  this  Agreement  and  perform  any of the  duties  imposed  upon  it
     hereunder  either  directly or through its agents,  and the General Partner
     shall not be  responsible  for any act or  omission on the part of any such
     agent  appointed by the General Partner in good faith if the agent acted in
     a manner it  reasonably  believed  to be in, or not  opposed  to,  the best
     interests of the Partnership and if such act or omission did not constitute
     gross negligence or willful misconduct on the part of such Person.

          6.6.3.  Any amendment,  modification  or repeal of this Section 6.6 or
     any  provision  hereof shall be  prospective  only and shall not in any way
     affect the  limitations or the liability to the Partnership and the Limited
     Partners of the General Partner,  their  directors,  officers and employees
     under this Section 6.6 as in effect  immediately  prior to such  amendment,
     modification  or repeal with respect to claims  arising from or relating to
     matters  occurring,   in  whole  or  in  part,  prior  to  such  amendment,
     modification  or  repeal,  regardless  of when such  claims may arise or be
     asserted.

         6.7.  Indemnification.

          6.7.1.  To the  fullest  extent  permitted  by law but  subject to the
     limitations expressly provided in this Agreement,  each Indemnitee shall be
     indemnified and held harmless by the  Partnership  from and against any and
     all  losses,  claims,  damages,  liabilities,  whether  joint  or  several,
     expenses (including legal fees and expenses), judgments, fines, settlements
     and other amounts arising from any and all claims, demands,  actions, suits
     or proceedings, civil, criminal,  administrative or investigative, in which
     the Indemnitee may be involved, or threatened to be involved, as a party or
     otherwise,  by reason of its status as (x) a General  Partner,  a Departing
     Partner or any of their Affiliates, (y) an officer,  director,  employee or
     agent  of a  General  Partner,  any  Departing  Partner  or  any  of  their
     Affiliates  or (z) a Person  serving at the request of the  Partnership  in
     another entity in a similar capacity,  regardless of whether the Indemnitee
     continues to be a General  Partner or an Affiliate of a General  Partner or
     an officer, director, employee, partner or agent of a General Partner or an
     Affiliate of a General Partner at the time any such liability or expense is
     paid or incurred,  provided that in each case the Indemnitee  acted in good
     faith and in a manner it  reasonably  believed to be in, or not opposed to,
     the best  interests of the  Partnership  and such action did not constitute
     gross negligence or willful misconduct on the part of the Indemnitee,  and,
     with respect to any criminal  proceeding,  the Indemnitee had no reasonable
     cause to believe its conduct was unlawful.  The  termination of any action,
     suit or proceeding by a judgment,  order, settlement,  conviction or upon a
     plea of nolo contendere, or its equivalent,  shall not, of itself, create a
     presumption  that  the  Indemnitee  acted  in a  manner  contrary  to  that
     specified above.

          6.7.2.  To the fullest extent  permitted by law,  expenses  (including
     legal fees and expenses)  incurred by an Indemnitee in defending any claim,
     demand,  action,  suit or  proceeding  subject to this  Section  6.7, or in
     establishing any right to  indemnification  hereunder,  shall, from time to
     time, be advanced by the Partnership prior to the final disposition of such
     claim,  demand,  action, suit or proceeding upon receipt by the Partnership
     of any  undertaking  (which  need not be  secured)  by or on  behalf of the
     Indemnitee to repay such amount if it shall be determined  that such Person
     is not entitled to be indemnified as authorized in this Section 6.7.

          6.7.3.  This advancement of expenses and  indemnification  provided by
     this  Section  6.7 shall be in  addition  to any  other  rights to which an
     Indemnitee may be entitled under any agreement, pursuant to any vote of the
     Partners,  as a matter of law or  otherwise,  and shall  continue  as to an
     Indemnitee  who has ceased to serve in such capacity and shall inure to the
     benefit  of  the  heirs,  successors,  assigns  and  administrators  of the
     Indemnitee.

          6.7.4.  To the extent  deemed  commercially  reasonable by the General
     Partner,  the Partnership shall purchase and maintain at the expense of the
     Partnership insurance on behalf of the General Partner, its Affiliates, and
     their  respective  officers,  directors,  employees,  partners,  agents and
     trustees  and such other  Persons as the General  Partner  shall  determine
     against any liability  that may be asserted  against or expense that may be
     incurred  by  such  Person  in  connection   with  the  activities  of  the
     Partnership,  regardless of whether the Partnership would have the power to
     indemnify such Person  against such liability  under the provisions of this
     Agreement.

          6.7.5.  For purposes of this Section  6.7,  the  Partnership  shall be
     deemed to have requested an Indemnitee to serve as fiduciary of an employee
     benefit  plan  whenever  the  performance  by  it  of  its  duties  to  the
     Partnership also imposes duties on, or otherwise  involves  services by, it
     to the plan or  participants  or  beneficiaries  of the plan;  excise taxes
     assessed on an Indemnitee with respect to an employee benefit plan pursuant
     to  applicable  law shall be deemed  "fines"  within the meaning of Section
     6.7.1;  and  action  taken or omitted  by it with  respect  to an  employee
     benefit  plan in the  performance  of its duties  for a purpose  reasonably
     believed by it to be in the interest of the participants and  beneficiaries
     of the plan shall be deemed to be for a purpose which is in, or not opposed
     to, the best interests of the Partnership.

          6.7.6. Any indemnification  hereunder shall be satisfied solely out of
     the assets of the  Partnership.  In no event may an Indemnitee  subject the
     General Partner or the Limited Partners to personal  liability by reason of
     these indemnification provisions.

          6.7.7. An Indemnitee shall not be denied  indemnification  in whole or
     in part under this  Section 6.7 because the  Indemnitee  had an interest in
     the transaction  with respect to which the  indemnification  applied if the
     transaction was otherwise permitted by the terms of this Agreement.

          6.7.8.  The  indemnification  provided in this  Section 6.7 is for the
     benefit of the  Indemnitees  and shall not be deemed to create any right to
     indemnification for any other Persons.

          6.7.9. No amendment, modification or repeal of this Section 6.7 or any
     provision hereof shall in any manner terminate,  reduce or impair the right
     of  any  past,  present  or  future  Indemnitee  to be  indemnified  by the
     Partnership  nor the  obligations of the  Partnership to indemnify any such
     Indemnitee  under and in accordance with the provisions of this Section 6.7
     as in effect  immediately  prior to such amendment,  modification or repeal
     with respect to claims  arising from or relating to matters  occurring,  in
     whole  or in  part,  prior  to  such  amendment,  modification  or  repeal,
     regardless of when such claims may arise or be asserted.

     6.8. Other Matters Concerning the General Partner.

          6.8.1.  The General  partner may rely and shall be protected in acting
     or  refraining  from acting upon any  resolution,  certificate,  statement,
     instrument,   opinion,  report,  notice,  request,  consent,  order,  bond,
     debenture  or other paper or  document  believed by it to be genuine and to
     have been signed or presented by the proper party or parties.

          6.8.2.   the  General   Partner  may  consult   with  legal   counsel,
     accountants,  appraisers,  management  consultants,  investment bankers and
     other  consultants and advisers  selected by it and any opinion of any such
     Person as to matters  that the General  Partner  reasonably  believes to be
     within such Person's  professional or expert competencies shall be full and
     complete  authorization  and  protection  in respect of any action taken or
     suffered or omitted by the General  Partner  hereunder in good faith and in
     accordance with such opinion.

          6.8.3.  The General Partner shall have the right, in respect of any of
     its  powers  or  obligations  hereunder,  to act  through  any of its  duly
     authorized  officers and a duly  appointed  attorney or  attorneys-in-fact.
     Each such attorney  shall, to the extent provided by the General Partner in
     the power of attorney,  have full power and authority to do and perform all
     and every act and duty which is  permitted  or  required  to be done by the
     General Partner hereunder.

     6.9. Title to Partnership Assets. All Partnership  Assets,  whether real or
personal or mixed and  whether  tangible  or  intangible,  shall be deemed to be
owned  by  the  Partnership  as an  entity,  and  no  Partner,  individually  or
collectively,  shall have any ownership  interest in such Partnership  Assets or
any portion thereof.  Title to any or all of the Partnership  Assets may be held
in the name of the Partnership, the General Partner or one or m ore nominees, as
the General  Partner may  determine.  The General  Partner  hereby  declares and
warrants that any  Partnership  Assets for which legal title is held in the name
of the General Partner shall be held in trust by the General Partner for the use
and benefit of the  Partnership  in accordance  with the terms and provisions of
this Agreement;  provided,  however, that the General Partner shall use its best
efforts to cause  beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably  practicable.  All Partnership Assets shall be
recorded  as  the  property  of  the  Partnership  on  its  books  and  records,
irrespective  of the name in which  legal  title to such  Partnership  Assets is
held.

     6.10. Resolution of Conflicts of Interests.

          6.10.1.  Unless otherwise  expressly provided in this Agreement or the
     Investor Partnership  Agreement,  whenever a potential conflict of interest
     exists or arises between the General Partner or any of its  Affiliates,  on
     the one hand, and the Partnership, the Investor Partnership or any Partner,
     on the other hand,  any  resolution  or course of action in respect of such
     conflict  of  interest  shall  be  permitted  and  deemed  approved  by all
     Partners,  and shall not  constitute  a breach  of this  Agreement,  of the
     Investor  Partnership  Agreement,  of any agreement  contemplated herein or
     therein,  or of any  duty  stated  or  implied  by law  or  equity,  if the
     resolution  or course of action is or, by operation of this  Agreement,  is
     deemed to be fair and reasonable to the  Partnership.  The General  Partner
     shall be authorized  but not required in connection  with its resolution of
     such conflict of interest to seek Special  Approval of a resolution of such
     conflict or course of action.  Any conflict of interest and any  resolution
     of such  conflict of interest  shall be deemed fair and  reasonable  to the
     Partnership   upon  Special  Approval  of  such  conflict  of  interest  or
     resolution.  The General  Partner may also adopt a resolution  or course of
     action that has not  received  Special  Approval.  Any such  resolution  or
     course  of  action  in  respect  of any  conflict  of  interest  shall  not
     constitute  a  breach  of  this  Agreement,  of  the  Investor  Partnership
     Agreement,  of any other agreement contemplated herein or therein or of any
     duties stated or implied by law or equity,  if such resolution or course of
     action is fair and  reasonable  to the  Partnership.  The  General  Partner
     (including the Independent  Committee in connection with Special  Approval)
     shall be authorized in  connection  with its  resolution of any conflict of
     interest  to  consider  (i) the  relative  interests  of any  party to such
     conflict, agreement,  transaction or situation and the benefits and burdens
     relating  to  such  interest;  (ii)  any  customary  or  accepted  industry
     practices;   (iii)  any  applicable   generally   accepted   accounting  or
     engineering  practices or principles;  and (iv) such additional  factors as
     the General Partner  (including such Independent  Committee)  determines in
     its sole  discretion to be relevant,  reasonable or  appropriate  under the
     circumstances. Nothing contained in this Agreement, however, is intended to
     nor shall it be construed to require the General  Partner  (including  such
     Independent  Committee)  to consider  the interest of any Person other than
     the Partnership.  In the absence of bad faith by the General  Partner,  the
     resolutions,  action or terms so made,  taken or  provided  by the  General
     Partner with  respect to such matter shall not  constitute a breach of this
     Agreement  or any other  agreement  contemplated  herein or a breach of any
     standard of care or duty  imposed  herein or therein or under the  Delaware
     Act or any other law, rule or regulation.

          6.10.2.  Whenever this Agreement or any other  agreement  contemplated
     hereby  provides  that the  General  Partner  or any of its  Affiliates  is
     permitted or required to make a decision (i) in its "discretion" or under a
     grant of  similar  authority  or  latitude,  the  General  Partner  or such
     Affiliate  shall be entitled to consider only such interests and factors as
     it desires and shall have no duty or obligation  to give any  consideration
     to any interest of, or factors  affecting,  the  Partnership or any Limited
     Partner,  or (ii) in "good faith" or under another  express  standard,  the
     General partner or such Affiliate shall act under such express standard and
     shall not be subject to any other or  different  standards  imposed by this
     Agreement or any other  agreement  contemplated  hereby.  In addition,  any
     actions  taken by the General  Partner  consistent  with the  standards  of
     "reasonable  discretion"  set forth in the  definitions  of Available  Cash
     shall not  constitute  a breach of any duty of the  General  Partner to the
     Partnership  or the  Limited  Partners.  During the  Preference  Period (as
     defined in the Investor Partnership  Agreement),  the General Partner shall
     have no duty, express or implied, to sell or otherwise dispose of any asset
     of the  Partnership,  other than in the  ordinary  course of  business.  No
     borrowing by the Partnership or the approval thereof by the General Partner
     shall be deemed to  constitute a breach of any duty of the General  Partner
     to the  Partnership  or the Limited  Partners  solely by reason of the fact
     that the purpose or effect of such  borrowing is directly or  indirectly to
     avoid  subordination of the Preference Units or Common Units (as such terms
     are  defined  in the  Investor  Partnership  Agreement)  by  reason  of the
     provisions of Section 5.4 or 5.5 of the Investor Partnership Agreement.

          6.10.3. Whenever a particular  transaction,  arrangement or resolution
     of a conflict of interest is required  under this Agreement to be "fair and
     reasonable"  to  any  Person,  the  fair  and  reasonable  nature  of  such
     transaction,  arrangement or resolution  shall be considered in the context
     of all similar or related transactions.

     6.11. Restrictions on General Partner's Authority.

          6.11.1.  The General Partner may not,  without the written approval of
     the  specific  act by  all of the  Limited  Partners  or by  other  written
     instrument executed and delivered by all of the Limited Partners subsequent
     to the date of this Agreement, do any of the following: (i) take any action
     in contravention of this Agreement, (ii) take any action that would make it
     impossible to carry on the ordinary business of the Partnership,  except as
     otherwise provided in this Agreement,  (iii) possess Partnership  property,
     or assign any rights in  specific  Partnership  property,  for other than a
     Partnership purpose, (iv) admit a Person as a Partner,  except as otherwise
     provided in this Agreement,  (v) amend this Agreement in any manner, except
     as otherwise  provided in this  Agreement or (vi)  transfer its interest as
     general partner of the Partnership, except as otherwise provided in Section
     10.2 hereof.

          6.11.2.  Except as provided in Article 13, the General Partner may not
     sell,  exchange or  otherwise  dispose of all or  substantially  all of the
     Partnership's  assets  in a  single  transaction  or a  series  of  related
     transactions   (including  by  way  of  merger,   consolidation   or  other
     combination with any other Person), without the approval of all the Limited
     Partners;  provided,  however,  that this  provision  shall not preclude or
     limit the mortgage,  pledge,  hypothecation or grant of a security interest
     in all or substantially all of the Partnership's assets and shall not apply
     to any forced sale of any or all of the  Partnership's  assets  pursuant to
     the foreclosure of, or other realization upon, any such encumbrance.

          6.11.3.  Unless  approved  by all the  Limited  Partners,  the General
     Partner shall not take any action or refuse to take any  reasonable  action
     the effect of which, if taken or not taken, as the case may be, would be to
     cause the  Partnership  to become taxable as a corporation or to be treated
     for federal income tax purposes as an association taxable as a corporation.

          6.11.4.  At all times  while  serving  as the  general  partner of the
     Partnership,  the General Partner will not pay any dividend on,  repurchase
     any shares of its capital  stock or take any other  action if the effect of
     such dividend,  repurchase or other action would be to reduce its net worth
     below an amount  necessary  to  receive  an  Opinion  of  counsel  that the
     Partnership  will be  treated  as a  partnership  for  federal  income  tax
     purposes.

     6.12. Outside Activities.

          6.12.1.  Except  as  described  in the  Registration  Statement  or as
     provided in Section 6.12.2,  no Indemnitee shall be expressly or implicitly
     restricted  or  proscribed  pursuant to this  Agreement or the  partnership
     relationship  established  hereby  from  engaging in other  activities  for
     profit,   whether  in  the  business  engaged  in  by  the  Partnership  or
     anticipated to be engaged in by the  Partnership  or otherwise,  including,
     without  limitation,  those businesses  described in or contemplated by the
     Registration Statement.  Without limitation of and subject to the foregoing
     and Section 6.12.2,  each Indemnitee  shall have the right to engage in the
     transportation  of refined  petroleum  products  and any other  business of
     every type and  description  and to engage in and  possess an  interest  in
     other   business   ventures   of  any  and  every  type  and   description,
     independently or with others,  including  business interests and activities
     in direct  competition with the Partnership.  Neither the Partnership,  any
     Limited  Partner  nor any other  Person  shall have any rights by virtue of
     this Agreement or the partnership  relationship  established  hereby in any
     business  ventures  of any  Indemnitee,  and,  except  as set  forth in the
     Registration Statement,  such Indemnitees shall have no obligation to offer
     any interest in any such business ventures to the Partnership,  any Limited
     Partner or any such other Person.

          6.12.2.  Without  limitation  of this Section  6.12,  the  competitive
     activities of certain Indemnitees and the restrictions on the Partnership's
     activities  described  in the  Registration  Statement  under  the  caption
     "Conflicts of Interest and Fiduciary  Responsibilities" are hereby approved
     by all Partners; provided, however that this Section 6.12 shall not operate
     as a waiver by the  Partnership  or any  Limited  Partner  of any breach of
     fiduciary  duty  resulting  from  competition  by an  Indemnitee  with  the
     Partnership.

                                    ARTICLE 7

                   RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

     7.1 Limitation of Liability.  The Limited  Partners shall have no liability
under this  Agreement  except as provided in this  Agreement  or by the Delaware
Act.

     7.2  Management  of Business.  No Limited  Partner  (other than the General
Partner,  any of its  Affiliates  or any  director,  officer,  general  partner,
employee  or agent  of the  General  Partner  or any of its  Affiliates,  in his
capacity as such,  if such Person  shall also be a Limited  Partner)  shall take
part in the operation, management or control (within the meaning of the Delaware
Act) of the Partnership's  business,  transact any business in the Partnership's
name or have the power to sign documents for or otherwise bind the  Partnership.
The transaction of any such business by a director,  officer,  general  partner,
employee  or agent of the  General  Partner or any of its  Affiliates  shall not
affect,  impair or eliminate  the  limitation  son the  liability of any Limited
Partner under this Agreement.

     7.3  Return  of  Capital.  No  Limited  Partner  shall be  entitled  to the
withdrawal or return of its Capital Contribution,  except to the extent, if any,
that  distributions  made pursuant to this Agreement or upon  termination of the
Partnership  may be  considered  as such by law,  and  then  only to the  extent
provided for in this Agreement. Except to the extent provided by Article 5 or as
otherwise  expressly  provided in this Agreement,  no Limited Partner shall have
priority  over any other  Limited  Partner  either as to the  return of  Capital
Contribution or as to profits, losses or distributions.

     7.4. Access to Information.

          7.4.1.  In addition to other rights  provided by this  Agreement or by
     applicable  law,  each Limited  Partner,  and each Limited  Partner's  duly
     authorized  representatives  shall have the right at reasonable times, upon
     reasonable  notice which shall not be less than three Business Days, and at
     such  Person's  own  expense,  but only upon its written  request and for a
     purpose  reasonably related to such Person's interest as a Limited Partner,
     to (i) have true and full information  regarding the status of the business
     and financial condition of the Partnership, (ii) inspect and copy, promptly
     after they become  available,  the Partnership's  federal,  state and local
     income tax  returns for each year,  (iii) have on demand a current  list of
     the full name and last known business, residence or mailing address of each
     Partner, (iv) have true and full information regarding the Net Agreed Value
     of any Capital  Contributions  made by the General  Partner and the Limited
     Partners and the date on which each such Person became a General Partner or
     Limited  Partner,  (v) have a copy of this Agreement and the Certificate of
     Limited  Partnership  and all amendments  thereto,  together with copies of
     executed  powers of attorney  pursuant to which this  Agreement or any such
     Certificate has been executed and (vi) have any other information regarding
     the affairs of the Partnership as is just and reasonable.

          7.4.2. Anything in Section 7.4.1 to the contrary notwithstanding,  the
     General Partner may keep confidential  from the Limited Partners,  and each
     Limited Partner's duly authorized representatives,  for such period of time
     as the General Partner deems  reasonable,  any information that the General
     Partner  reasonably  believes to be in the nature of trade secrets or other
     information  the  disclosure  of which the  General  Partner  in good faith
     believes is not in the best  interests of the  Partnership  or could damage
     the business of the Partnership or which the Partnership is required by law
     or by agreements with third parties to keep confidential.

                                    ARTICLE 8

                     BOOKS, RECORDS, ACOCUNTING AND REPORTS

     8.1 Records and  Accounting.  The General Partner shall keep or cause to be
kept complete and accurate  books and records with respect to the  Partnership's
business,  which books and records  shall at all times be kept at the  principal
office of the  Partnership.  Any records  maintained by the  Partnership  in the
regular  course of its  business,  including  books of  account  and  records of
Partnership  proceedings,  may be kept  on or be in the  form  of  punch  cards,
magnetic media,  photographs,  micrographics  or any other  information  storage
device,  provided that the records so kept are convertible  into clearly legible
written form within a reasonable  period of time.  The books of the  Partnership
shall be maintained on the accrual basis in accordance  with generally  accepted
accounting principles, except to the extent otherwise required herein.

     8.2. Fiscal Year. The fiscal year of the Partnership  shall be the calendar
year.

                                    ARTICLE 9

                                   TAX MATTERS

     9.1 Section 754 Allocations. The adjustments to basis to Partnership Assets
that are  attributable  to the Section 754  Election  shall be  allocated to the
Partners  in the manner  that the  General  Partner  determines  is  reasonable,
however,  no such  adjustment  shall  be  credited  or  charged  to the  Capital
Accounts.

     9.2.  Preparation of Tax Returns. The General Partner shall arrange for the
preparation  and timely filing of all returns of the  Partnership  necessary for
federal  income tax  purposes  and state and local  income tax  purposes  in the
jurisdictions  in which  the  Partnership  conducts  business  and shall use its
reasonable  best efforts to furnish to the Record  Holders within 75 days of the
close of the taxable year the tax information  reasonably  required for federal,
state and local income tax reporting purposes.  The classification,  realization
and recognition of income,  gain, losses and deductions and other items shall be
on the accrual method of accounting for federal income tax purposes. The taxable
year of the Partnership shall be the calendar year.

     9.3. Tax Elections.

          9.3.1.  The  Partnership  shall  make  the  Section  754  Election  in
     accordance  with  applicable   regulations   thereunder,   subject  to  the
     reservation  of the  right to seek to  revoke  any such  election  upon the
     General  Partner's  determination  that  such  revocation  is in  the  best
     interest of the Limited Partners.

          9.3.2.  The  Partnership  shall elect to deduct  expenses  incurred in
     organizing the Partnership ratably over a sixty-month period as provided in
     Section 709 of the Code.

          9.3.3.  Except as otherwise provided herein, the General Partner shall
     determine  whether to make any other  available  elections  (including  the
     elections  provided  for in Sections  167 and 168 of the Code) on behalf of
     the Partnership under the Code.

     9.4.  Tax  Controversies.  Subject to the  provisions  hereof,  the General
Partner is designated as the Tax Matters  Partner (as defined in Section 6231 of
the Code) and is authorized  and required to represent the  Partnership  (at the
Partnership's  expense) in connection with all examinations of the Partnership's
affairs by tax  authorities,  including  resulting  administrative  and judicial
proceedings, and to expend Partnership funds for professional services and costs
associated therewith.  Each Partner agrees to cooperate with the General Partner
and to do or refrain  from doing any or all things  reasonably  required  by the
General Partner to conduct such proceedings.

     9.5.  Tax Basis and Value  Determinations.  To the extent  that the General
Partner  is  required  to  establish  fair  market  values or  allocate  amounts
realized,  tax basis,  Carrying Values or Net Agreed Values, the General Partner
shall  establish  such  values  and make such  allocations  in a manner  that is
reasonable and fair to the Limited Partners,  taking into account all applicable
laws, governmental regulations,  rulings and decisions. The General Partner may,
in its sole  discretion,  modify or revise such  allocations  in order to comply
with such laws, governmental regulations,  rulings or decisions or to the extent
it otherwise deems such modification or revision  appropriate or necessary.  The
General  Partner is authorized,  to the extent deemed by it to be appropriate or
necessary,  to utilize the service of an independent  appraiser in  establishing
such  values or  allocations  and the  General  Partner  shall in such  cases be
entitled to rely on the values or allocations  established  by such  independent
appraiser.

     9.6.  General  Partner Net Worth.  The General Partner shall not declare or
make  payment  of any  dividends  (except  dividends  payable  solely in capital
stock),  purchase,  redeem,  retire or  otherwise  acquire  for value any of its
capital  stock now or  hereafter  outstanding,  return  any  capital or make any
distribution  of assets on account of any shares of its  capital  stock,  if any
such action  would reduce its net worth  (computed  by  excluding  any net worth
attributable  to its interest in, and accounts  and notes  receivable  from,  or
payable to, the  Partnership  or any other limited  partnership in which it is a
general  partner)  below  $5,000,000  (or such  other  lesser  amount  as may be
required to obtain an Opinion of Counsel that the  Partnership is not taxable as
a  corporation  and  will  not  be  treated  as  an  association  taxable  as  a
corporation).

                                   ARTICLE 10

                        TRANSFER OF PARTNERSHIP INTERESTS

     10.1. Transfer.


          10.1.1. The term "transfer", when used in this Article 10 with respect
     to a Partnership  Interest,  shall be deemed to refer to a  transaction  by
     which a Partner  assigns  all or any part of its  Partnership  Interest  to
     another   Person  and   includes   a  sale,   assignment,   gift,   pledge,
     hypothecation, mortgage, exchange or any other disposition.

          10.1.2. No Partnership  Interest shall be transferred,  in whole or in
     part,  except in accordance with the terms and conditions set forth in this
     Article 10. Any transfer or purported transfer of any Partnership  Interest
     not made in accordance with this Article 10 shall be null and void.

     10.2. Transfer of Interests of the General Partner. The General Partner may
not transfer any portion of its  Partnership  Interest as the general partner of
the Partnership;  provided, however, that if the general partner of the Investor
Partnership  transfers  any  portion of its  partnership  interest  as a general
partner  therein to any Person in accordance with the provisions of the Investor
Partnership Agreement,  the General Partner shall also transfer the same portion
of its  Partnership  Interest as the general  partner of the Partnership to such
Person. The Limited Partners hereby approve of any such transfer.

     10.3. Transfer of Partnership Interests of Limited Partners.

          10.3.1.  No Limited  Partner  may  withdraw  from the  Partnership  or
     transfer  all or  any  part  of  its  Partnership  Interest  except  that a
     successor of a Limited Partner may become a Substituted  Limited Partner as
     provided in Article 11.

          10.3.2.  Notwithstanding the foregoing,  the Partnership Interest as a
     limited  partner to be  acquired  by KPL  pursuant  to  Section  4.2 may be
     transferred  to the  Investor  Partnership  pursuant  to  the  Contribution
     Agreement,  and the Investor Partnership shall become a Substituted Limited
     Partner with respect to such Partnership interest.

                                   ARTICLE 11

                              ADMISSION OF PARTNERS

     11.1.  Admission of  Substituted  Limited  Partners.  Any  successor to the
Partnership  Interest of a Limited  Partner shall be admitted to the Partnership
as a Limited  Partner  upon the (a)  furnishing  to the  General  Partner (i) an
acceptance in form  satisfactory  to the General Partner of all of the terms and
conditions of this  Agreement and (ii) such other  documents and  instruments as
may be required to effect the admission of such successor as a Limited  Partner;
and (b)  obtaining of the consent of the General  Partner,  which consent may be
withheld  or  granted  in the  sole  discretion  of  the  General  Partner.  The
transferee  shall be admitted to the Partnership as a Limited Partner  effective
immediately prior to the transfer.

     11.2.  Admission of Successor or Additional General Partner. A successor or
additional  General  Partner  selected  pursuant to Section  12.2 or 12.3 or the
transferee or successor to of all or any portion of the Partnership  Interest of
the  General  Partner  pursuant  to  Section  10.2  shall  be  admitted  to  the
Partnership as a General Partner (in the place of or in addition to, as the case
may be,  the  transferor  General  Partner),  effective  as of the date  that an
amendment to the Certificate of Limited  Partnership,  adding its name and other
required  information,  is filed pursuant to Section 6.1.3 (which,  in the event
the successor or transferee  General Partner is in the place of the withdrawing,
removed  or  transferor  General  Partner,  shall  be  contemporaneous  with the
withdrawal of such withdrawing, removed or transferor General Partner), and upon
receipt by the withdrawing,  removed or transferor General Partner of all of the
following:  (i) acceptance of all of the terms and provisions of this Agreement;
(ii)  written  agreement  of the  successor  or  transferee  General  Partner to
continue  the  business of the  Partnership;  and (iii) such other  documents or
instruments  as may be  required in order to effect its  admission  as a General
Partner under this  Agreement and  applicable  law. Each Limited  Partner hereby
approves of the admission of a successor or additional  General Partner selected
pursuant  to the terms of this  Agreement,  and no further  approval of Partners
shall be required to effect such admission.

                                   ARTICLE 12

                  WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER

     12.1.  Withdrawal or Removal of the General  Partner.  The General  Partner
shall be deemed to have  withdrawn from the  Partnership  upon the occurrence of
any one of the following events (each such event herein referred to as an "Event
of Withdrawal"):

          12.1.1. The General Partner voluntarily withdraws from the Partnership
     by giving written notice to the other Partners.

          12.1.2.  The General  Partner  transfers  all of its rights as General
     Partner pursuant to Section 10.2 hereof.

          12.1.3.  The  General  Partner is  removed  pursuant  to Section  12.3
     hereof.

          12.1.4. The General Partner

               (a) makes a general assignment for the benefit of creditors;

               (b) files a voluntary bankruptcy petition;

               (c)  files  a   petition   or  answer   seeking   for   itself  a
          reorganization,  arrangement, composition, readjustment,  liquidation,
          dissolution or similar relief under any law;

               (d) files an answer or other  pleading  admitting  or  failing to
          contest  the  material  allegations  of a petition  filed  against the
          General  Partner in a proceeding  of the type  described in paragraphs
          (a) through (c) of this subsection; or

               (e) seeks,  consents to or  acquiesces  in the  appointment  of a
          trustee,  receiver or liquidator  of the General  Partner or of all or
          any substantial part of its properties.

          12.1.5. A final and non-appealable judgment is entered by a court with
     appropriate  jurisdiction  ruling that the  General  Partner is bankrupt or
     insolvent,  or a final and non-appealable  order for relief is entered by a
     court with appropriate  jurisdiction  against the General Partner,  in each
     case under any federal or state  bankruptcy  or  insolvency  laws as now or
     hereafter in effect.

          12.1.6.  A certificate  of  dissolution or its equivalent is filed for
     the  General  Partner,  or 90 days  expire  after the date of notice to the
     General Partner of revocation of its charter without a reinstatement of its
     charter, under the laws of its state of incorporation.

          12.1.7.  The general  partner of the  Investor  Partnership  withdraws
     from, or is removed as the general partner of, the Investor Partnership.

     If an Event of Withdrawal  specified in Sections  12.1.4,  12.1.5 or 12.1.6
occurs, the withdrawing General Partner shall give written notice to the Limited
Partners  within 30 days after such  occurrence.  The Partners hereby agree that
only the Events of  Withdrawal  described  in this  Section 12.1 shall result in
withdrawal of the General Partner from the Partnership.

     12.2. Withdrawal. The General Partner covenants and agrees that it will not
voluntarily  withdraw as the general partner of the Partnership prior to January
1, 2000,  other than a  withdrawal  effective  upon the  transfer  of all of the
General  Partner's  Partnership  Interest  as the  General  Partner  pursuant to
Section  10.2,  unless such  withdrawal  is  approved  by all Limited  Partners;
provided  that the General  Partner may withdraw  without  such  approval by the
Limited Partners upon 90 days' advance written notice to the Limited Partners if
more  than  50% of  the  Outstanding  LP  Units  (as  defined  in  the  Investor
Partnership  Agreement)  are held or controlled by one Person and its Affiliates
other than the  withdrawing  General  Partner  and its  Affiliates.  The General
Partner may, at anytime subsequent to January 1, 2000, voluntarily withdraw from
the  Partnership  effective on at least 90 day's advance  written  notice to the
Limited  Partners,  such withdrawal to take effect on the date specified in such
notice.  The General  Partner shall have no liability on account of a withdrawal
permitted  hereunder.  If the General  Partner  gives  notice of  withdrawal  as
general partner of the Investor  Partnership,  and the limited  partners thereof
select a successor pursuant to the terms of the Investor Partnership  Agreement,
the Person so elected shall  automatically  become the successor General Partner
of the Partnership.  If the General Partner gives notice of withdrawal  pursuant
to Section 12.1.1, the Limited Partners may, prior to the effective date of such
withdrawal,  elect,  by unanimous  vote of the Limited  Partners,  the successor
General  Partner.  If,  prior to the  effective  date of the  General  Partner's
withdrawal,  no successor General Partner is elected,  the provisions of Section
13.1 shall apply.

     12.3.  Removal.  The affirmative  vote of all the Limited Partners shall be
required to remove the General  Partner.  Any such vote of the Limited  Partners
must also provide for the election of a successor General Partner.

     12.4. Opinion of Counsel. Notwithstanding the provisions of Section 12.2 or
12.3, the rights of the Limited Partners under Section 12.2 or 12.3 shall not be
exercised  until such time as the Partnership has received an Opinion of Counsel
that the  action  in  question  (i) may be taken  without  the  approval  of all
Partners  to such  specific  act,  (ii)  would  not  cause  the loss of  limited
liability of the Limited  Partners under this  Agreement,  (iii) would not cause
the  Partnership  to  be  taxable  as a  corporation  or  to  be  treated  as an
association  taxable as a corporation  for federal  income tax purposes and (iv)
any required  consents of any  regulatory  authorities  to such action have been
obtained.

     12.5. Amendment of Certificate of Limited  Partnership.  The Certificate of
Limited  Partnership  shall be  amended to reflect  the  withdrawal,  removal or
succession of the General Partner.

     12.6. Interest of Departing Partner and Successor.

               12.6.1  (a)  If  a  successor   General   Partner   acquires  the
          partnership interest as general partner in the Investor Partnership of
          the  Departing  Partner,  such  successor  General  Partner  must also
          acquire  at such  time  the  Partnership  Interest  of such  Departing
          Partner or its Affiliate as general  partner of the Partnership for an
          amount equal to the fair market value of such interest,  determined as
          of the effective date of departure.

               (b) For purposes of this Section  12.6,  the fair market value of
          the Departing  Partner's  Partnership  Interest as the General Partner
          herein shall be determined as provided in Section 14.6 of the Investor
          Partnership Agreement.

               12.6.2.  (a) If the Combined Interest (as defined in the Investor
          Partnership  Agreement)  is not  acquired  in the  manner set forth in
          Section  14.6 of the Investor  Partnership  Agreement,  the  Departing
          Partner shall become a limited partner of the Investor  Partnership as
          provided  therein and its Combined  Interest  shall be converted  into
          Common Units as provided therein.  Any successor General Partner shall
          indemnify the Departing Partner as to all debts and liabilities of the
          Partnership  arising  on or  after  the date on  which  the  Departing
          Partner becomes a Limited Partner.

               (b) If the option described in Section 12.6.1 is not exercised by
          the party entitled to do so, the successor  General  Partner shall, at
          the effective date of its admission to the Partnership,  contribute to
          the capital of the Partnership cash equal to the greater of (i) 1/99th
          of the aggregate  Capital Account  balances of the Limited Partners as
          of such date or (ii) the fair market  value of a 1% general  partner's
          interest in the  Partnership,  determined  by a  valuation  made by an
          investment  banking firm or other independent expert selected pursuant
          to  Section  14.6.1 of the  Investor  Partnership  Agreement.  In such
          event, the successor  General Partner shall,  subject to the following
          sentence,  be entitled to such Percentage  Interest of all Partnership
          allocations   and   distributions   and  any  other   allocations  and
          distributions  to which the Departing  Partner was entitled as general
          partner. In addition,  such successor General Partner shall cause this
          Partnership  Agreement to be amended to reflect  that,  from and after
          the date of such successor General Partner's admission,  the successor
          General  Partner's  interest  in  all  Partnership  distributions  and
          allocations shall be 1% and that of the Limited Partners shall be 99%.

          12.6.3.  The  Partnership  shall  reimburse the Departing  Partner for
     employee  related  liabilities  including  but not  limited  to,  severance
     liabilities  incurred  in  connection  with the  termination  of  employees
     employed by the Departing  Partner for the benefit of the Partnership;  and
     if the  Partnership is otherwise  indebted to the Departing  Partner at the
     effective  time of its departure  for funds  advanced,  properties  sold or
     services rendered to the Partnership by the Departing Partner or otherwise,
     the  Partnership  shall,  at the option of the successor  General  Partner,
     either (i) within 60 days after the effective time of such  departure,  pay
     to the Departing  Partner the full amount of such  indebtedness or (ii) pay
     such  indebtedness  or any  portion  thereof  in  accordance  with its then
     existing  terms.  The successor to the  Departing  Partner shall assume all
     obligations  theretofore  incurred by the Departing  Partner as the General
     Partner of the Partnership,  and the Partnership and such successor General
     Partner  shall take all such action as shall be necessary to terminate  any
     guarantees  of the  Departing  Partner  and  any of its  Affiliates  of any
     obligations of the Partnership. If for whatever reason the creditors of the
     Partnership  will  not  consent  to such  termination  of  guarantees,  the
     successor  to the  Departing  Partner  shall be required to  indemnify  the
     Departing  Partner  for  any  liabilities  and  expenses  incurred  by  the
     Departing Partner on account of such guarantees.

                                   ARTICLE 13

                           DISSOLUTION AND LIQUIDATION

     13.1.  Dissolution.  Except as provided in Section  13.2,  the  Partnership
shall be dissolved upon:

          13.1.1. the expiration of its term as provided in Section 2.5;

          13.1.2.  an Event of Withdrawal of the General  Partner as provided in
     Section  12.1 (other than by reason of a transfer  pursuant to Section 10.2
     or withdrawal  occurring upon or after, or removal effective upon or after,
     approval by the Limited Partners of a successor pursuant to Section 12.2 or
     12.3, as the case may be);

          13.1.3. a written  determination by the General Partner that projected
     future revenues of the  Partnership  will be insufficient to enable payment
     of projected Partnership costs and expenses or, if sufficient, will be such
     that continued operation of the Partnership is not in the best interests of
     the Partners;

          13.1.4. an election to dissolve the Partnership by the General Partner
     which is  approved  by all the  Limited  Partners;  provided,  that no such
     election  shall  be  effective  at  any  time  when  the   Partnership  has
     outstanding any indebtedness for borrowed money unless provision shall have
     been made in connection  with such  dissolution  for the payment in full of
     such indebtedness;

          13.1.5.  except as otherwise  provided  herein,  any other event that,
     under the Delaware Act, would cause its dissolution;

          13.1.6.  the  sale  of all or  substantially  all  of the  assets  and
     properties of the Partnership; or

          13.1.7. the dissolution of the Investor Partnership.

     The  Partnership  shall not be  dissolved  by the  admission of a successor
Limited Partner or by the admission of additional or successor  General Partners
in accordance with the terms of this Agreement.

     13.2. Continuation of the Business of the Partnership.

          13.2.1.  Within  180 days  following  an event  described  in  Section
     13.1.2,  in the event  action  pursuant to Section  13.3 is not taken,  the
     Limited Partners by unanimous vote may elect in writing to reconstitute and
     continue  the  business  of  the  Partnership  by  forming  a  new  limited
     partnership  (a   "Reconstituted   Partnership")  on  the  same  terms  and
     provisions as are set forth in this Agreement.  Any such election must also
     provide  for  the  election  of a  general  partner  of  the  Reconstituted
     Partnership.  If such an election is made,  all of the Limited  Partners of
     the  Partnership  shall continue as limited  partners of the  Reconstituted
     Partnership.  The  Partnership  Interest  as General  Partner of the former
     General  Partner shall be treated as though it were an  equivalent  general
     partner's interest in the Reconstituted  Partnership,  and shall be subject
     to  disposition at the option of the general  partner of the  Reconstituted
     Partnership in the manner  provided in Section 12.6.1 (which option must be
     exercised contemporaneously with the selection of the new general partner).

          13.2.2.  Upon an event  described in this Section 13.2,  all necessary
     steps  shall be taken to  cancel  this  Agreement  and the  Certificate  of
     Limited  Partnership of the Partnership and to enter into a new partnership
     agreement  and  certificate  of limited  partnership  of the  Reconstituted
     Partnership.

     13.3. Liquidation.


          13.3.1.  Upon  dissolution of the  Partnership,  unless an election to
     continue the business of the  Partnership is made pursuant to Section 13.2,
     the General  Partner or in the event the dissolution was caused by an event
     described  in  Section  13.1.2  or  13.1.3,  a  liquidator  or  liquidating
     committee elected by a majority in interest of the Limited Partners,  shall
     be the Liquidating  Trustee.  The  Liquidating  Trustee shall liquidate the
     Partnership   Assets  and  apply  and   distribute  the  proceeds  of  such
     liquidation in the following order of priority,  unless otherwise  required
     by applicable law.

               (a) the  payment  to  creditors  of the  Partnership,  other than
          Partners,  in  order  of  priority  provided  by  law,  including  the
          establishment of reserves for the payment thereof;

               (b) pro rata payment to Partners for loans or other  amounts owed
          to them by the Partnership;

               (c) to all Partners in accordance  with the positive  balances in
          their   respective   Capital   Accounts   after  taking  into  account
          adjustments to such Capital Accounts pursuant to Section 5.1.3;

               (d) to the Partners in proportion to their respective  Percentage
          Interests.

          13.3.2.  The Liquidating  Trustee (if other than the General  Partner)
     shall be entitled to receive such  compensation  for its services as may be
     approved by a majority in interest of the Limited Partners. The Liquidating
     Trustee  shall  agree  not to  resign at any time  without  60 days'  prior
     written  notice and (if other than the General  Partner)  may be removed at
     any time, with or without cause, by written notice of removal approved by a
     majority in interest of the Limited Partners. Upon dissolution,  removal or
     resignation  of  the  Liquidating   Trustee,  a  successor  and  substitute
     Liquidating  Trustee (who shall have and succeed to all rights,  powers and
     duties  of  the  original   Liquidating  Trustee)  shall,  within  90  days
     thereafter,  be selected by a majority in interest of the Limited Partners.
     The right to appoint a successor or substitute  Liquidating  Trustee in the
     manner provided herein shall be recurring and continuing for so long as the
     functions  and  services  of the  Liquidating  Trustee  are  authorized  to
     continue under the provisions  hereof,  and every  reference  herein to the
     Liquidating  Trustee will be deemed to refer also to any such  successor or
     substitute  Liquidating  Trustee  appointed in the manner herein  provided.
     Except as expressly  provided in this Article 13, the  Liquidating  Trustee
     appointed  in the  manner  provided  herein  shall  have and may  exercise,
     without further  authorization or consent of any of the parties hereto, all
     of the powers conferred upon the General  Partner,  under the terms of this
     Agreement  (but subject to all of the applicable  limitations,  contractual
     and otherwise, upon the exercise of such powers) to the extent necessary or
     desirable in the good faith  judgment of the  Liquidating  Trustee to carry
     out  the  duties  and  functions  of  the  Liquidating   Trustee  hereunder
     (including  the   establishment   of  reserves  for  liabilities  that  are
     contingent  or  uncertain  in amount) for and during such period of time as
     shall be reasonably  required in the good faith judgment of the Liquidating
     Trustee to complete the  winding-up and  liquidation of the  Partnership as
     provided  for  herein.  In the event a majority  in interest of the Limited
     Partners  fail to  approve  of a Person to be the  Liquidating  Trustee  as
     herein  provided within 120 days following the event of dissolution or fail
     to approve a of successor and  substitute  Liquidating  Trustee  within the
     time period set forth above, any Partner may make application to a Court of
     Chancery of the State of Delaware to wind up the affairs of the Partnership
     and, if deemed appropriate, to appoint a Liquidating Trustee.

     13.4 Distribution in Kind.  Notwithstanding  the provisions of Section 13.3
which require the  liquidation  of the  Partnership  Assets,  but subject to the
order of priorities set forth therein,  if on dissolution of the Partnership the
Liquidating  Trustee  determines  that an  immediate  sale of part or all of the
Partnership  Assets  would be  impractical  or  would  cause  undue  loss to the
Partners,  the Liquidating Trustee may, in its absolute discretion,  defer for a
reasonable time the liquidation of any Partnership Assets except those necessary
to satisfy  liabilities of the Partnership and may, in its absolute  discretion,
distribute  to the  Partners,  in lieu of cash,  as  tenants  in  common  and in
accordance with Section 13.3,  undivided interests in such Partnership Assets as
the Liquidating Trustee deems not suitable for liquidation. Any distributions in
kind  shall be  subject  to such  conditions  relating  to the  disposition  and
management thereof as the Liquidating Trustee deems reasonable and equitable and
to any  agreements  governing the operation of such  Partnership  Assets at such
time.  The  Liquidating  Trustee  shall  determine  the fair market value of any
Partnership Assets distributed in kind using such reasonable method of valuation
as it may adopt.

     13.5.  Cancellation  of  Certificate  of  Limited  Partnership.   Upon  the
completion of the  distribution  of  Partnership  Assets as provided in Sections
13.3 and 13.4, the Partnership shall be terminated,  and the Liquidating Trustee
(or the  General  Partner or Limited  Partners,  if  necessary)  shall cause the
cancellation of the Certificate of Limited Partnership and all qualifications of
the Partnership as a foreign limited partnership in jurisdictions other than the
State of  Delaware  and shall take such other  actions  as may be  necessary  to
terminate the Partnership.

     13.6.  Reasonable  Time for Winding Up. A reasonable  time shall be allowed
for the orderly  winding up of the business and affairs of the  Partnership  and
the  liquidation of its assets pursuant to Section 13.3 in order to minimize any
losses otherwise attendant upon such winding up.

     13.7. Return of Contributions.  The General Partner shall not be liable for
the return of the Capital  Contributions of the Limited Partners, or any portion
thereof, it being expressly understood that any such return shall be made solely
from the Partnership Assets.

     13.8. No Capital Account Restoration.  No Partner shall have any obligation
to restore any negative  balance in its Capital Account upon  liquidation of the
Partnership.

     13.9. Waiver of Partition. Each Partner hereby expressly waives any and all
rights that it may have to maintain an action for partition of the Partnership's
Assets.

                                   ARTICLE 14

                       AMENDMENT OF PARTNERSHIP AGREEMENT

     14.1.  Amendments to be Adopted Solely by the General Partner.  The General
Partner,  without the consent at the time of any Limited  Partner  (each Limited
Partner being deemed to approve of any such amendment),  may amend any provision
of this Agreement, and execute, swear to, acknowledge,  deliver, file and record
whatever documents may be required in connection therewith, to reflect:

          14.1.1. a change in the name of the Partnership or the location of the
     principal place of business of the Partnership;

          14.1.2. the admission, substitution, withdrawal or removal of Partners
     in accordance with this Agreement;

          14.1.3.  a change that is necessary or advisable in the opinion of the
     General Partner to qualify or continue the qualification of the Partnership
     as a limited  partnership  or a partnership  in which the Limited  Partners
     have  limited  liability  under the laws of any state or to ensure that the
     Partnership  will  not  be  taxable  as a  corporation  or  treated  as  an
     association taxable as a corporation for federal income tax purposes;

          14.1.4.  a  change  that  (i) in the sole  discretion  of the  General
     Partner  does not  adversely  affect the Limited  Partners in any  material
     respect,  (ii) is  necessary  or  desirable  to satisfy  any  requirements,
     conditions or guidelines contained in any opinion, directive, order, ruling
     or regulation of any federal or state agency or contained in any federal or
     state statute or (iii) is required or contemplated by this Agreement or the
     Registration Statement;

          14.1.5. an amendment that is necessary,  as reflected in an Opinion of
     Counsel, to prevent the Partnership or the General Partner or its directors
     or officers  from in any manner being  subjected to the  provisions  of the
     Investment Company Act of 1940, as amended,  the Investment Advisors Act of
     1940,  as amended,  the Public  Utility  Holding  Company  Act of 1935,  as
     amended,  or "plan asset" regulations adopted under the Employee Retirement
     Income  Security  Act of 1974,  as  amended,  whether or not  substantially
     similar to plan asset  regulations  currently  applied or  proposed  by the
     United States Department of Labor;

          14.1.6. a change in any provision of this Agreement which requires any
     action  to be  taken  by  or on  behalf  of  the  General  Partner  or  the
     Partnership  pursuant  to  the  requirements  of  the  Delaware  Act if the
     provisions of the Delaware Act are amended, modified or revoked so that the
     taking of such action is no longer  required;  provided  that this  Section
     14.1.6 shall be applicable only if such changes are not materially  adverse
     to the Limited Partners;

          14.1.7.  any amendment to this  Agreement that is necessary to confirm
     this  Agreement  to  any  amendments  made  to  the  Investor   Partnership
     Agreement; or

          14.1.8. any other amendments similar to the foregoing.

     14.2.  Amendment  Procedures.  Except as  provided  in  Section  14.1,  all
amendments to this Agreement  shall require the approval of the General  Partner
and all the Limited Partners.

                                   ARTICLE 15

                                     MERGER

     15.1. Authority.  The Partnership may merge or consolidate with one or more
corporations,  business trusts or associations,  real estate investment  trusts,
common law trusts or unincorporated businesses including,  without limitation, a
general partnership or limited  partnership,  formed under the laws of the State
of  Delaware or any other  state of the United  States of America  pursuant to a
written agreement of merger or consolidation  ("Merger Agreement") in accordance
with this Article.

     15.2. Procedure for Merger or Consolidation. Merger or consolidation of the
Partnership  pursuant to this Article requires the prior approval of the General
Partner.  If the General  Partner shall  determine,  in the exercise of its sole
discretion, to consent to the merger or consolidation, the General Partner shall
approve the Merger Agreement, which shall set forth:

          15.2.1.  The names and  jurisdictions  of formation or organization of
     each of the business entities proposing to merge or consolidate;

          15.2.2. The name and jurisdictions of formation or organization of the
     business  entity that is to survive the  proposed  merger or  consolidation
     (hereafter designated as the "Surviving Business Entity");

          15.2.3.   The  terms  and   conditions  of  the  proposed   merger  or
     consolidation;

          15.2.4.  The manner and basis of exchanging  or converting  the equity
     securities of each constituent  business entity for or into cash,  property
     or  general  or  limited  partnership  interests,   rights,  securities  or
     obligations  of the Surviving  Business  Entity;  and (a) if any general or
     limited  partnership  interests,  securities  or rights of any  constituent
     business  entity are not to be exchanged or converted  solely for, or into,
     cash,  property  or  general  or  limited  partnership  interests,  rights,
     securities or  obligations  of the  Surviving  Business  Entity,  the cash,
     property or general or limited partnership interests, rights, securities or
     obligations of any limited partnership,  corporation, trust or other entity
     (other  than the  Surviving  Business  Entity)  which the  holders  of such
     general or limited partnership interests are to receive in exchange for, or
     upon  conversion  of, their  securities  or rights,  and (b) in the case of
     securities  represented  by  certificates,   upon  the  surrender  of  such
     certificates,  which  cash,  property  or general  or  limited  partnership
     interests,  rights,  securities or  obligations  of the Surviving  Business
     Entity  or any  limited  partnership,  corporation,  trust or other  entity
     (other than the Surviving Business Entity), or evidences thereof, are to be
     delivered;

          15.2.5.  A statement of any changes in the constituent  documents (the
     articles or certificate of incorporation, articles of trust, declaration of
     trust,  certificate  or agreement of limited  partnership  or other similar
     charter or  governing  document)  of the  Surviving  business  Entity to be
     effected by such merger or consolidation;

          15.2.6. The effective time of the merger, which may be the date of the
     filing of the  certificate  of merger  pursuant to Section  15.4 or a later
     date specified in or determinable  in accordance with the Merger  Agreement
     (provided  that if the effective time of the merger is to be later than the
     date of the filing of the certificate of merger, it shall be fixed no later
     than the  time of the  filing  of the  certificate  of  merger  and  stated
     therein); and

          15.2.7.  Such other  provisions with respect to the proposed merger or
     consolidation as are deemed necessary or desirable.

     15.3. Approval by Limited Partners of Merger or Consolidation.  The General
Partner of the  Partnership,  upon its approval of the Merger  Agreement,  shall
direct  that the Merger  Agreement  be  submitted  for  approval  by the Limited
Partners.  The Merger Agreement shall be approved upon execution  thereof by all
the Limited Partners.

     15.4.  Certificate  of Merger.  Upon the  required  approval by the General
Partner and Limited  Partners of a Merger  Agreement,  a  certificate  of merger
shall be executed and filed with the Secretary of State of the State of Delaware
in conformity with the requirements of the Delaware Act.

     15.5. Effect of Merger.


          15.5.1. Upon the effective date of the certificate of merger:

               (a)  all of the  rights,  privileges  and  powers  of each of the
          business entities that have merged or consolidated,  and all property,
          real,  personal and mixed,  and all debts due to any of those business
          entities and all other  things and causes of action  belonging to each
          of those business  entities shall be vested in the Surviving  Business
          Entity and after the merger or consolidation  shall be the property of
          the  Surviving  Business  Entity  to the  extent  they  were  of  each
          constituent business entity;

               (b) the title to any real property vested by deed or otherwise in
          any of those constituent business entities shall not revert and is not
          in any way impaired because of the merger or consolidation;

               (c)  all  rights  of  creditors  and  all  liens  on or  security
          interests in property of any of those  constituent  business  entities
          shall be preserved unimpaired; and

               (d) all  debts,  liabilities  and  duties  of  those  constituent
          business entities shall attach to the Surviving  Business Entity,  and
          may  be  enforced  against  it to the  same  extent  as if the  debts,
          liabilities and duties had been incurred or contracted by it.

          15.5.2.  A merger or consolidation  effected  pursuant to this Article
     shall not be deemed to result  in a  transfer  or  assignment  of assets or
     liabilities from one entity to another having occurred.

                                   ARTICLE 16

                               GENERAL PROVISIONS

     16.1.  Addresses  and Notices.  The address of the General  Partner for all
purposes  shall  be the  address  set  forth on the  books  and  records  of the
Partnership  and for each Limited Partner the address set forth in the books and
records of the  Partnership  or such other address of which the General  Partner
has received written notice. Any notice,  demand,  request or report required or
permitted  to be given or made to a Partner  under  this  Agreement  shall be in
writing and shall be deemed given or made when  delivered in person or when sent
to the Partner at such  address by first class mail or by other means of written
communication.

     16.2.  Titles and  Captions.  All article or section  titles or captions in
this Agreement are for  convenience  only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof.

     16.3. Pronouns and Plurals.  Whenever the context may require,  any pronoun
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns,  pronouns and verbs shall include the plural and
vice versa.

     16.4.  Further Action. The parties shall execute and deliver all documents,
provide  all  information  and take or  refrain  from  taking  action  as may be
necessary or appropriate to achieve the purpose of this Agreement.

     16.5. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties and their heirs, executors,  administrators,  successors,
legal representatives and permitted assigns.

     16.6.  Integration.  This Agreement  constitutes the entire agreement among
the parties  pertaining to the subject  matter hereof and  supersedes  all prior
agreements and understandings pertaining thereto.

     16.7.  Creditors.  Except for the  provisions  of Section 6.2,  none of the
provisions of this  Agreement  shall be for the benefit of or enforceable by any
creditors of the Partnership.

     16.8. Waiver. No failure by any party to insist upon the strict performance
of any covenant,  duty,  agreement or condition of this Agreement or to exercise
any right or remedy  consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.

     16.9. Counterparts.  This Agreement may be executed in counterparts, all of
which  together  shall  constitute  one  agreement  binding  on all the  parties
notwithstanding  that all the parties are not signatories to the original or the
same  counterpart.  Each party shall become bound by this Agreement  immediately
upon affixing its signature hereto,  independently of the signature of any other
party.

     16.10.  Applicable Law.  Notwithstanding the place where this Agreement may
be executed by any of the parties hereto,  the parties  expressly agree that all
of the terms and provisions hereof shall be construed under the substantive laws
of the State of Delaware as now adopted or as may hereafter be amended, and such
laws shall govern this Agreement,  without regard to the principles of conflicts
of law.

     16.11.  Invalidity of Provisions.  If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and  enforceability  of the remaining  provisions  contained herein shall not be
affected thereby.

     IN WITNESS WHEREOF,  the parties hereto have hereunto set their hands as of
the 27th day of September, 1989.

                                        GENERAL PARTNER:

                                        KANEB PIPE LINE COMPANY

                                        By:  STEPHEN M. HOFFNER
                                        ---------------------------------------


                                        ORGANIZATIONAL LIMITED PARTNER:

                                        KANEB PIPE LINE PARTNERS, L.P.
                                        By Kaneb Pipe Line Company,
                                           its General Partner

                                        By:   STEPHEN M. HOFFNER
                                        ---------------------------------------